<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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: 0-20730
MICRO WAREHOUSE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1192793
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
535 CONNECTICUT AVENUE, NORWALK, CONNECTICUT 06854
(Address of principal executive offices)
(203) 899-4000
(Registrant's telephone number, including Area Code)
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 issuer's class of common
stock as the latest practicable date:
CLASS: COMMON STOCK OUTSTANDING SHARES AT SEPTEMBER 30, 1996: 34,336,592
<PAGE>
MICRO WAREHOUSE, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited)
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . .3
Consolidated Statements of Income. . . . . . . . . . . . . . . . . . . .4
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . 5
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . .6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . .8
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 12
Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6 - Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 13
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MICRO WAREHOUSE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
---------------------------------
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1996 1995(A)
---- ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $119,106 $81,614
Marketable securities at market value 14,073 20,580
Accounts receivable, net of allowance for doubtful accounts ($9,060 and
$7,498 at September 30, 1996 and December 31, 1995, respectively) 188,518 172,275
Inventories 121,607 143,941
Prepaid income taxes 21,439 16,957
Prepaid expenses and other current assets 19,061 28,156
Deferred taxes 4,849 5,266
-------- --------
TOTAL CURRENT ASSETS 488,653 468,789
-------- --------
Property, plant and equipment, net 29,544 32,175
Goodwill, net 44,893 44,644
Other assets 2,480 4,133
-------- --------
TOTAL ASSETS $565,570 $549,741
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $103,734 $109,906
Accrued expenses 51,247 34,318
Income taxes 1,483 5,939
Deferred revenue 4,435 4,602
Loans payable, bank 35,934 38,294
Equipment obligations 316 384
-------- --------
TOTAL CURRENT LIABILITIES 197,149 193,443
-------- --------
Equipment obligations 424 668
-------- --------
TOTAL LIABILITIES 197,573 194,111
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value: - -
Authorized - 100 shares; none issued
Common stock, $.01 par value:
Authorized - 100,000 shares; issued and outstanding; 34,337 and 33,968
shares at September 30, 1996 and December 31, 1995 respectively 343 339
Additional paid in capital 270,488 265,648
Retained earnings 102,184 92,734
Loan to officer (1,400) -
Cumulative translation adjustment (3,618) (1,033)
Valuation adjustment for marketable securities - (46)
Treasury stock - (2,012)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 367,997 355,630
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $565,570 $549,741
-------- --------
-------- --------
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
(A) Financial data included in the December 31, 1995 balance sheet reflect
correction of previously reported errors more specifically described in
Note 1 of this quarterly report.
3
<PAGE>
MICRO WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------------------
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996(B)
------------------ ---------------------
Net sales $437,981 $1,389,547
Cost of goods sold 359,289 1,127,329
---------- ----------
Gross profit 78,692 262,218
Selling, general and
administrative expense 61,510 203,334
Write-off of goodwill - 5,977
Restructuring costs - 21,226
Merger costs - 6,113
---------- ----------
Income from operations before
interest, income taxes and
extraordinary charge 17,182 25,568
Interest income 846 1,208
---------- ----------
Income from operations before
income taxes and extraordinary
charge 18,028 26,776
Provision for income taxes 7,303 15,742
---------- ----------
Income before extraordinary
charge 10,725 11,034
Extraordinary charge, net of
taxes - 1,584
---------- ----------
Net income $10,725 $9,450
---------- ----------
---------- ----------
Net income per share $0.31 $0.27
---------- ----------
---------- ----------
Weighted average number of
shares outstanding 34,630 34,667
---------- ----------
---------- ----------
See accompanying Notes to Unaudited Consolidated Financial Statements
(B) Certain historical financial information is not being presented. See
Note 1 which addresses the Company's intent to restate prior period
financial statements.
4
<PAGE>
MICRO WAREHOUSE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Representing Increases (Decreases) In Cash
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
--------------------------------------------------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 (B)
--------
Net income $ 9,450
---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,510
Write-off of goodwill 5,977
Deferred taxes 417
Restructuring charge - fixed assets 2,028
Extraordinary charge 1,900
Changes in assets and liabilities, net of effect of
purchase acquisitions:
Accounts receivable, net (15,576)
Inventories 23,826
Prepaid expenses and other assets 10,441
Prepaid income taxes (4,482)
Accounts payable-trade (6,883)
Income taxes payable (4,456)
Accrued expenses 16,902
Deferred revenue (167)
---------
Total adjustments 38,437
---------
Net cash provided by operating activities 47,887
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities, net 6,553
Purchases or adjustments to acquisitions
of businesses, represented by:
Goodwill (6,251)
Other net assets (2,120)
Acquisition of property, plant and equipment (6,876)
---------
Net cash (used) by investing activities (8,694)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 5,456
Bank borrowings, net 17,640
Redemption of Senior Notes (21,900)
Principal payments of obligations under capital leases (312)
---------
Net cash provided by financing activities 884
---------
Effect of exchange rate changes on cash (2,585)
---------
Net change in cash 37,492
CASH AND CASH EQUIVALENTS:
Beginning of period 81,614
---------
End of period $119,106
---------
---------
See accompanying Notes to Unaudited Consolidated Financial Statements
(B) Certain historical financial information is not being presented. See
Note 1 which addresses the Company's intent to restate prior period
financial statements.
5
<PAGE>
MICRO WAREHOUSE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Micro
Warehouse, Inc. and its subsidiaries (the "Company") and have been
prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Certain
comparative historical information required to be included has been omitted
for the reasons set forth in the following paragraph.
On September 30, 1996, the Company announced that it had uncovered errors
in its accounting procedures. On October 15, 1996 the Company announced
that, after further review of the previously reported errors, it
anticipated the aggregate charge to operating profits to be approximately
$28 million after tax. The Company has found that since 1992 it
incorrectly accounted for accrued inventory liabilities and trade payables.
Inaccuracies in these accounts total approximately $47.3 million.
Accordingly, the Company has increased its accounts payable by $47.3
million and also recorded an offsetting increase in the Company's prepaid
income taxes of $19.1 million as of September 30, 1996. Of the $47.3
million, approximately $3.2 million before tax (relating to the first
quarter of 1996) has been charged against the nine month period ending
September 30, 1996. In connection with the foregoing, the Company will
be recording in 1995 a $2.2 million credit before tax resulting from the
rescission of 1995 incentive bonuses paid to certain senior executives.
This $2.2 million credit will reduce the previously announced after-tax
charge of $28.0 million to $26.8 million. The Company plans to restate
the financial statements for the first quarter of 1996 reflecting
the charge of $3.2 million before tax and plans to restate the appropriate
prior years by adjusting the remaining $41.9 million over those years.
Until the Company has completed its investigation and determined the impact
of the restatement on the appropriate periods, previously issued financial
statements and the related auditors' reports should not be relied upon. As
a result, certain comparative information has been omitted.
The unaudited condensed consolidated financial statements for the three
months and nine months ended September 30, 1996 included herein reflect all
adjustments which are, in the opinion of management, necessary to state
fairly the results for the periods presented. As stated previously, the
restated financial statements for prior periods will be issued upon
completion by the Company of its investigation of these matters and the
audit of the annual financial statements by the Company's independent
auditors. The results for the current period are not necessarily
indicative of the results expected for the full fiscal year.
6
<PAGE>
2. NET INCOME PER SHARE
Following is an analysis of the components of the shares used to compute
net income per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
------------------ ------------------
(000) (000)
<S> <C> <C>
Shares outstanding at beginning of period 34,278 33,968
Incremental shares related to stock options 352 699
------ ------
34,630 34,667
------ ------
</TABLE>
3. BUSINESS COMBINATIONS
On January 25, 1996, the Company completed a merger with Inmac Corp. ("Inmac").
Under the terms of the merger, the Company exchanged 3,033,682 common shares for
all of Inmac's 10,816,836 common shares in a transaction accounted for as a
pooling of interests. Accordingly, all historical financial information
contained in these consolidated financial statements has been restated to
include Inmac. In connection with this transaction, the Company has recorded
restructuring charges of $21.2 million comprised of: personnel (severance) of
$10.0 million, facilities (leases and fixed asset write-offs) of $9.6 million
and other of $1.6 million. Payments through September 30, 1996 have reduced
this balance to $5.1 million. Management does not believe that the total
restructuring charge will be significantly different from the originally
recorded charge.
On September 10, 1996 the Company acquired all of the issued and outstanding
capital stock of Helsinki, Finland based Business Forum Oy Ltd. and Oy Mundi
International Inc. for an initial cash payment of $2.5 million. An additional
$1.25 million may be payable upon the achievement of certain performance
criteria. Subsequent to this acquisition, the business of the acquired
entities was consolidated with the Company's existing Finnish subsidiary.
On October 25, 1996, the Company acquired for cash substantially all of the
assets of USA Flex, Inc., a direct marketer of computer products in the United
States. The purchase price was approximately $26.3 million.
4. EXTRAORDINARY CHARGE
During the first quarter of 1996, the Company recorded an extraordinary charge
of $1.6 million related to early extinguishment of debt (net of a tax benefit of
$1.1 million) resulting from the mandatory prepayment of $20.0 million of Senior
Notes of Inmac, which action was caused by the merger. The extraordinary charge
consisted of a premium of $1.9 million paid on the redemption of the Senior
Notes and the write-off of deferred financing costs of $0.8 million.
7
<PAGE>
5. WRITE-OFF OF GOODWILL
Due to uncertainties in the Apple Macintosh marketplace, the Company
re-evaluated the carrying value of goodwill in its Macintosh-only subsidiaries
in Australia, Denmark, Mexico and Switzerland. As a result of that
re-evaluation, the Company recorded a charge of $6.0 million in the quarter
ended June 30, 1996, which amount represents substantially all of the goodwill
associated with these subsidiaries.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company sells computer products primarily through its two main catalogs,
MacWAREHOUSE and MicroWAREHOUSE. In late 1987, the Company introduced its
MacWAREHOUSE catalog for users of Macintosh computers. In 1989, the Company
began distributing its first MicroWAREHOUSE catalog for users of IBM-compatible
PCs and instituted its business-to-business outbound sales program. The Company
also publishes targeted catalogs namely, Data CommWAREHOUSE, directed to the
data communications and networking markets, Micro SystemsWAREHOUSE, offering
microcomputer systems and peripherals to the PC/Windows market, and Mac
SystemsWAREHOUSE, offering Mac computer systems and peripherals to the Mac
market. During 1995, the Company combined the CD-Rom and Home ComputerWAREHOUSE
catalogs with its core catalogs and discontinued its Paper design and Micro
SuppliesWAREHOUSE catalogs. Subsequent to the Inmac acquisition, the Company
commenced publication both domestically and internationally of various Inmac
catalogs.
Over the past few years, the Company has expanded its international operations.
The Company commenced full-scale operations in the United Kingdom in 1991 and in
France and Germany in 1992. In 1993, the Company established a licensing
arrangement in Australia and acquired, through newly-formed foreign
subsidiaries, businesses with operations in Denmark, Norway and Sweden. During
1994, the Company acquired eight additional businesses with operations in
Holland, Belgium, Finland, Norway, Sweden, France, Mexico and Canada. The
Company also began operations in Japan. In 1995, the Company acquired
complimentary businesses in the United Kingdom, Germany, Australia (including
its licensee) and Switzerland. Micro Warehouse international catalog
distribution includes the MacWAREHOUSE, MicroWAREHOUSE, LanWAREHOUSE (the
European counterpart to the U.S. Data CommWAREHOUSE) catalogs and various Inmac
catalogs.
RESULTS OF OPERATIONS
As discussed in Item 1 of this Quarterly Report, the Company has determined that
prior period financial statements must be restated as a consequence of
discovering errors in its accounting procedures. While the Company has
determined the cumulative effect of these items, it has not yet determined the
individual prior quarterly periods to which the adjustments relate. When this
determination is made, the Company will restate the affected periods. The
Company believes the amounts for the three and nine months ended September 30,
1995 described in the following discussion will not materially change as a
result of the restatement of prior periods.
8
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1995
SALES
Net sales increased by $14.5 million or 3.4% to $438.0 million for the three
months ended September 30, 1996 from $423.5 million for the previously reported
three months ended September 30, 1995. This increase in net sales was primarily
attributable to continued growth in the domestic IBM PC-compatible ("Wintel")
business (excluding Inmac) which increased by 35% to $121.4 million due to
significant growth in catalog circulation which was up 26% and an increase in
the average order size of 29% to $569. Offsetting this growth was a decline in
the international business of 7% to $137.4 million.
The domestic Macintosh business declined 1% to $159.2 million, which decline was
attributable to a reduced response rate to the Company's MacWAREHOUSE and Mac
SYSTEMSWarehouse catalogs. Average order value increased slightly to $428, up
from $400 last year.
Net sales for the domestic Inmac business, which was acquired in January, 1996,
declined by 17% to $20.0 million attributable to a reduced response rate to
catalog mailings as well as reduced revenue due to the relocation of Inmac's
sales function from Dallas, Texas to Gibbsboro, New Jersey.
International sales decreased by 7% to $137.4 million which was comprised of
Micro Warehouse sales (exclusive of Inmac) down 13% and Inmac sales which were
up 1%. The international business was more heavily impacted by the decrease in
the sales of Macintosh products. The international Macintosh business decreased
by 18% from the same quarter last year. The international Wintel business
(including Inmac) was unchanged from the prior year. The Company decreased
overall international catalog circulation by 9% as it eliminated certain
unprofitable Inmac catalogs and reacted to the traditionally slower summer
months.
GROSS PROFIT FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
Consolidated gross profit, which consists of net sales less product and
transportation costs, was 18.0% of sales. In the U.S., gross profit was 17.8%
of sales; international gross profit was 18.4% of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1996
Selling, general and administrative expenses were 14.0% of sales.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1995
SALES
Net sales increased by $207.1 million or 17.5% to $1,389.5 million for the nine
months ended September 30, 1996 from $1,182.4 million for the previously
reported nine months ended September 30, 1995. The increase in net sales was
attributable to increases in the Company's domestic Macintosh business, up 17%,
the Wintel business, up 30% and the international business, up 9%. The
Company's domestic Wintel business, exclusive of Inmac, was up by 41% due to
increased catalog circulation of 34% and a
9
<PAGE>
higher average order size up 30% to $545. The domestic Inmac business was down
9% for the nine months.
International sales, which were up 9%, are comprised of Micro Warehouse sales
(exclusive of Inmac) which were up 17%, and Inmac sales which were up 1%. Inmac
sales are approximately 46% of total international sales. The Wintel business
was up 11% (inclusive of Inmac) with the Micro Warehouse business up 43% and
Inmac up 1%. The Macintosh business was up 7% internationally.
GROSS PROFIT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Consolidated gross profit was 18.9% of sales. In the U.S., gross profit was
18.3% of sales; international gross profit was 20.0% of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996
Selling, general and administrative expenses were 14.6% of sales.
LIQUIDITY AND CAPITAL RESOURCES
In October 1995, the Company completed a follow-on offering of its common stock
resulting in net proceeds to the Company of $50.8 million. As of September 30,
1996, the Company had cash and short-term investments totaling $133.2 million.
Inventories decreased to $121.6 million at September 30, 1996 from $143.9
million at December 31, 1995. Annualized inventory turns were 12.0 at September
30, 1996. Accounts receivable increased to $188.5 million at September 30, 1996
from $172.3 million at December 31, 1995. The days sales outstanding increased
to 44.8 days in 1996 from 44.3 days at September 30, 1995.
Capital expenditures for the first nine months of 1996 and 1995 were $6.9
million and $11.0 million, respectively, primarily for computer systems and
distribution equipment both in the United States and internationally. Although
the Company's primary capital needs will be to fund its working capital
requirements for expected sales growth, the Company expects that future growth
will also require continued expansion of its computer systems and distribution
capacity. The Company has a multi-currency borrowing facility for $75 million.
The purpose of this facility is to provide working capital financing for its
foreign subsidiaries in local currencies, thus limiting exposure to foreign
exchange fluctuation. Total borrowings as of September 30, 1996 under this
arrangement were $35.9 million. Additionally, at September 30, 1996 the Company
had an unused line of credit in the United States which provided for unsecured
borrowings of up to $15.0 million for working capital purposes.
On September 10, 1996 the Company acquired all of the issued and outstanding
capital stock of Business Forum Oy Ltd. and Oy Mundi International Inc. for an
initial cash payment of $2.5 million. An additional $1.25 million may be
payable upon the achievement of certain performance criteria. Subsequent to
this acquisition, the business of the acquired entities was consolidated with
the Company's existing Finnish subsidiary. On October 25, 1996, the Company
purchased substantially all of the assets
10
<PAGE>
of USA Flex, Inc. for an aggregate cash purchase price of $26.3 million. This
acquisition has reduced the Company's available cash balances subsequent to the
balance sheet date.
The Company believes that its existing cash reserves, cash flow from operations
and existing credit facilities will be sufficient to satisfy its operating cash
needs for at least the next 12 months. Thereafter, the Company may require
additional cash reserves.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS AND LIQUIDITY
The Company and certain of its directors and officers have been named as
defendants in putative class action lawsuits which allege violations of various
provisions of the federal securities laws and the common law; certain of the
same directors have been named as defendants in a derivative lawsuit charging
breach of fiduciary duties. In addition, the Company is the subject of an
informal inquiry by the Securities and Exchange Commission relating to
circumstances underlying the proposed restatement of the Company's financial
results. See Part II Item 1 captioned "Legal Proceedings". The Company expects
to incur significant legal and other costs associated with these matters which
will increase general and administrative expenses. Neither the Company nor the
other defendants have responded to any of the lawsuits. The Company is unable
to determine the amount or materiality of the resolution of these matters.
OUTLOOK
The Company expects that the installed base of personal computers will continue
to expand but at slower rates than experienced in the past. Although the Mac
business performed well for the Company in the 1996 first quarter with a growth
rate of 50%, the Macintosh business has suffered considerably with sales in the
third quarter down by approximately 6% year over year reflecting continued
uncertainties in the Apple marketplace. The growth in the installed base of
personal computers, coupled with the Company's prospecting activities for new
customers should increase the Company's sales in the future subject, however, to
continued uncertainties in the Mac business. The Company continues to expand
its Wintel business and will continue to seek out opportunities in this
connection in order to reduce its reliance on the Mac platform.
STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
With the exception of the historical information contained in this report, the
matters described herein contain forward-looking statements that involve risk
and uncertainties including but not limited to economic, competitive,
governmental, technological and litigation factors outside of the control of the
Company. These factors more specifically include: Uncertainties surrounding
the demand for and supply of products manufactured by and compatible with those
of Apple Computer, Inc.; success of the Company's diversification away from its
Apple products; growth of the personal computer industry; timely availability of
existing and new products; competition from other catalog and retail store
resellers and the ultimate outcome of the legal proceedings brought against the
Company described herein. These and other factors are described in this
quarterly report and more generally in the MD&A section of the Company's 1995
Annual Report to Stockholders and most specifically in the paragraphs in that
section
11
<PAGE>
captioned "Liquidity and Capital Resources", "Impact of Inflation and
Seasonality", "Subsequent Event", and "Outlook".
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During October 1996, the Company and certain of its directors and officers were
named as defendants in seven lawsuits brought in the United States District
Court for the District of Connecticut by parties which seek to represent classes
of stockholders who purchased shares of the Company's common stock during
different periods between January, 1994 and September, 1996, or exchanged shares
in a merger transaction completed in January, 1996. These lawsuits advance
claims under various provisions of the federal securities laws and the common
law and assert that various misleading disclosures were made concerning the
Company's financial performance and condition and other related circumstances
during the periods described and seek unspecified monetary damages and in
certain instances rescission. The lawsuits followed and are predicated upon the
Company's announcements in September and October, 1996 that it intends to
restate certain prior financial statements. The matters are all at an initial
stage. Neither the Company nor the other defendants have responded to any of
them.
In November, 1996, a shareholder derivative action was filed in the United
States District Court for the District of Connecticut, purportedly on behalf of,
and for recovery by, the Company, which is named as a nominal defendant. The
complaint charges certain directors and officers with violation of fiduciary
duties in selling Company stock based on non-public information and in causing
or permitting the exposure of the Company to damage, such as through the class
litigation described above, attributable to the same circumstances that are the
subject of the class litigation. The derivative action is at a preliminary
stage, and neither the Company nor any of the defendants have responded to it.
In addition, the staff of the Securities and Exchange Commission has notified
the Company that the staff is conducting an informal inquiry into the events
that underlie the Company's announced intention to restate certain prior period
financial statements. The Company is cooperating with the staff in its
investigation.
The Company is unable to determine the amount or materiality of the resolution
of the matters discussed in this Item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 - Employment Agreement of Linwood A. Lacy, Jr. dated as of
September 4, 1996.
Exhibit 10.2 - Amendment to Employment Agreement of Linwood A. Lacy, Jr.
dated as of September 4, 1996.
12
<PAGE>
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
1) The Company filed a Form 8-K pursuant to Item 5 on October 1, 1996 to
report that the Company may restate its 1994 and 1995 financial
results.
2) The Company filed a Form 8-K pursuant to Item 5 on October 3, 1996 to
report that Linwood A. Lacy, Jr. was appointed President and Chief
Executive Officer of the Company effective as of October 1, 1996.
3) The Company filed a Form 8-K pursuant to Item 5 on October 3, 1996 to
report that a class action complaint dated October 1, 1996 had been
filed against the Company in the U.S. District Court in Bridgeport,
Connecticut captioned Bruce Payne, et als. v. Micro Warehouse, Inc.,
et als bearing docket no. 396CV01920 claiming a possible violation of
Sections 10(b) and 20(a) of the Securities Exchange Act and Rule
10(b)-5.
4) The Company filed a Form 8-K pursuant to Item 5 on October 16, 1996 to
report that it continues to oversee a review of previously reported
errors in its accounting procedures and confirmed that it will restate
1994 and 1995 and first quarter 1996 financial results and it may
restate 1993 financial results.
13
<PAGE>
MICRO WAREHOUSE, INC.
FORM 10-Q
SEPTEMBER 30, 1996
-------------------------------------
SIGNATURE
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.
MICRO WAREHOUSE, INC.
The Registrant
Date: November 19, 1996
By_______________________________
STEVEN PURCELL
Vice President-Finance, Chief
Financial Officer and Treasurer
(Duly Authorized Officer of the
Registrant and Principal Financial Officer)
14
<PAGE>
EMPLOYMENT AGREEMENT
This agreement ("Agreement") made as of the 4th day of September, 1996
between Micro Warehouse, Inc., a Delaware corporation (hereinafter referred to
as the "Employer" or the "Company"), with its principal place of business at 535
Connecticut Avenue, Norwalk, Connecticut 06854, and Linwood A. Lacy, Jr. whose
address is 2304 Cranborne Road, Midlothian, Virginia 23113 (hereinafter referred
to as "Employee").
WHEREAS, the parties hereto entered into a consulting arrangement on or
about August 1, 1996 and, for good and valuable consideration, they are now
terminating the same and entering into this Employment Agreement which shall
represent the entire agreement between the parties with respect to the subject
matter herein.
1. EMPLOYMENT. The Company hereby employs Employee, and Employee agrees
to serve the Company, commencing as of October 14, 1996, on the terms and
conditions set forth below.
2. DUTIES. During the Period of Employment (as hereinafter defined), the
Company shall employ Employee as President and Chief Executive Officer. The
Employee shall be responsible for the general supervision, direction and control
of the business and affairs of the Company and shall work in cooperation with
the Chairman and Board of Directors to perform such duties as are consistent
with those of President and Chief Executive Officer. The precise
responsibilities of Employee may be revised from time to time provided the same
do not materially
1
<PAGE>
affect Employee's executive position. In furtherance of the foregoing, Employee
hereby agrees to perform his duties faithfully. During the Period of Employment
and except for vacations in accordance herewith and absences due to temporary
illness, Employee shall devote all of his available business time and energies
during normal business hours to the business of the Company. Subject to the
reasonable review and concurrence of the Board of Directors, the Employee shall
be permitted to participate as a board member of other publicly traded and
privately held companies provided said participation does not interfere with the
discharge of the Employee's duties or obligations hereunder.
3. TERM. The Company shall retain Employee and Employee shall accept
employment by the Company for a term commencing October 14, 1996 and ending
December 31, 2000 (the "Period of Employment"). At least one (1) year prior to
the expiration of the Period of Employment, each party will inform the other of
its or his intentions with respect to extending the term beyond the Period of
Employment; it being understood, however, that neither party shall be obligated
beyond the Period of Employment unless by mutual agreement. If the parties
mutually agree to extend the Period of Employment after any initial mutually
agreed extended period it shall continue thereafter to be renewed automatically
for additional one-year terms unless one or the other chooses not to renew. In
such successive one-year terms, each party shall inform the other of its
intentions with respect to any possible further renewal at least 90 days prior
to the expiration of the same.
4. COMPENSATION.
2
<PAGE>
(A) BASE SALARY. For all services rendered by the Employee under this
Agreement, the Company shall pay to him a minimum "Base Salary" at the rate of
Five Hundred Thirteen Thousand Nine Hundred and 00/100 ($513,900.00) Dollars per
annum during the Period of Employment payable in at least equal monthly
installments. The term "Base Salary" shall mean regular cash compensation paid
on a periodic basis exclusive of benefits, bonuses or incentive payments. The
Base Salary for the year commencing January 1, 1997 shall be increased by any
cost of living increase reported by the U.S. Department of Labor for the year
January 1, 1996 through December 31, 1996. Effective December, 1997, the Base
Salary shall be subject to an annual review with the proviso that the Company
may not reduce the same but shall not be obligated to increase the same except
in its discretion.
(B) BONUS. On or about February 1, 1997, the Company shall pay the
Employee a bonus in the amount of Eighty Thousand Three Hundred Dollars
($80,300.00).
(C) ANNUAL INCENTIVE COMPENSATION. In addition to Base Salary, the
Employee shall be eligible to receive annual incentive compensation ("Incentive
Compensation") as set forth below, which amount of Incentive Compensation shall
not exceed One Hundred Fifty Percent (150%) of Base Salary in any one year.
(i) Prior to January 1 of each year that this Agreement remains in
effect, the Board of Directors and the Employee shall mutually agree upon and
establish a plan (the "Incentive Plan") describing anticipated results of
operations for the coming fiscal year which Incentive Plan shall contain
financial goals (hereinafter "Targets") and other goals (hereinafter
3
<PAGE>
"Other Goals"). The Incentive Plan shall be determined in the sole discretion
of the Board and the Employee and may vary from year to year. The Incentive
Plan shall be memorialized and a copy of the same shall be provided to the
Company's Certified Public Accountants (CPAs). Subsequent to the conclusion of
the year the CPAs shall compare the actual results of operations for said year
to the Incentive Plan.
The Incentive Plan shall set forth a target bonus amount, One Hundred
Percent (100%) of which shall be payable for accomplishing One Hundred Percent
(100%) of Targets and Other Goals which amount shall be Seventy-Five Percent
(75%) of Base Salary (hereinafter "Target Bonus Amount") for the year ending
December 31, 1997. The Board of Directors can modify upward the Target Bonus
Amount as part of the salary review process for years subsequent to 1997. The
actual amount, if any, of Incentive Compensation to which the Employee may be
entitled shall range on a linear basis from Fifty Percent (50%) of Target Bonus
Amount if Eighty Percent (80%) of Targets are achieved to a maximum of One
Hundred Fifty Percent (150%) of Target Bonus Amount if One Hundred Twenty
Percent (120%) of Targets are achieved. Sixty Percent (60%) of Incentive
Compensation as determined shall be automatically due and payable to the
Employee based on the level of accomplishment of Targets and the remaining Forty
Percent (40%) shall be payable as determined by the Board of Directors based
upon the accomplishment of Other Goals. No Incentive Compensation shall be paid
if less than Eighty Percent (80%) of Targets are achieved.
4
<PAGE>
By way of example, if Base Salary is Five Hundred Thirteen Thousand Nine
Hundred Dollars ($513,900.00), One Hundred Percent (100%) of Target Bonus Amount
at accomplishment of One Hundred Percent (100%) of Targets and Other Goals shall
be Three Hundred Eighty-Five Thousand Four Hundred Twenty-Five Dollars
($385,425.00). If the Company achieves Eighty Percent (80%) of Targets, Target
Bonus Amount shall be One Hundred Ninety-Two Thousand Seven Hundred Twelve and
50/100 Dollars ($192,712.50) (i.e., .5 x $385,425.00) and One Hundred Fifteen
Thousand Six Hundred Twenty-Seven and 50/100 Dollars ($115,627.50) (i.e., .6 x
$192,712.50) shall be automatically due and payable to the Employee with up to
the full balance of Seventy-Seven Thousand Eighty-Five Dollars ($77,085.00)
(i.e., .4 x $192,712.50) payable upon the achievement of Other Goals.
By way of further example: If Base Salary is Five Hundred Thirteen
Thousand Nine Hundred Dollars ($513,900.00), One Hundred Percent (100%) of
Target Bonus Amount at accomplishment of One Hundred Percent (100%) of Targets
and Other Goals shall be Three Hundred Eighty-Five Thousand Four Hundred Twenty-
Five Dollars ($385,425.00). Further, if the Company achieves One Hundred Ten
Percent (110%) of Targets, Target Bonus Amount shall be Four Hundred Eighty-One
Thousand Seven Hundred Eighty-One and 25/100 Dollars ($481,781.25) (i.e., 1.25 x
$385,425.00) and Two Hundred Eighty-Nine Thousand Sixty-Eight and 75/100 Dollars
($289,068.75) (i.e., .6 x $482,781.25) shall be automatically due and payable to
the Employee with up to the full balance of One Hundred Ninety-Two Thousand
Seven
5
<PAGE>
Hundred Twelve and 50/100 ($192,712.50) (i.e., .4 x $481,781.25) payable upon
the achievement of Other Goals.
(ii) Incentive Compensation shall be paid to Employee as soon as
practicable after the CPAs determine the amounts, if any, which are due the
Employee.
(D) SPECIAL INCENTIVE COMPENSATION. Prior to December 31, 1997 the
Company and Employee shall mutually establish and agree upon a Special Incentive
Compensation Program specifically defining performance targets and criteria for
the year commencing January 1, 1998. The Target Bonus Amount for this Special
Incentive Compensation program shall be Twenty-Five Percent (25%) of the Stock
Purchase Loan amount described in paragraph 5 hereinbelow. If the Company
achieves mutually established and agreed goals in calendar 1998, the payment of
Stock Incentive Compensation pursuant to this paragraph otherwise due the
Employee shall, to the extent of the same, be credited to forgive the principal
balance due on the fifth anniversary date of this Agreement.
(E) INCENTIVE STOCK OPTIONS.
(i) Upon execution of this Agreement the Company shall grant to the
Employee options to purchase Five Hundred Thousand (500,000) common shares at an
exercise price of Twenty-Five Dollars ($25.00) per share at least Four Thousand
(4,000) of which shall be "qualified" stock options. Said options shall vest at
the rate of Twenty-Five Percent (25%) per year commencing October 14, 1997.
6
<PAGE>
(ii) As an incentive and inducement to the Employee to remain in the
employ of the Company and devote his best efforts to the affairs of the Company,
the Employee shall receive at the end of each year an option to purchase a
minimum of 40,000 and a maximum of 50,000 shares of common stock of the Company,
the exact number, terms and option price of which shall be determined yearly by
the Stock Option Committee of the Board of Directors. The options set forth
herein shall be granted to the Employee pursuant to the Company's 1994 Stock
Option Plan and the Employee shall be subject to the terms and conditions set
forth therein.
5. STOCK PURCHASE LOAN. Upon execution of this Agreement the Company
shall cause to be loaned to the Employee that amount sufficient to permit the
Employee to acquire Fifty Thousand (50,000) of the Company's common shares from
the Company. The loan shall be secured by a pledge of said shares and shall be
repayable, if not sooner, five (5) years from the date hereof (subject to the
further conditions of this paragraph). Interest only at the annual rate of
6.73% shall be due semi-annually. Provided the Employee is in the employ of the
Company at the anniversary dates indicated, the Company shall forgive Twenty-
Five Percent (25%) of the principal balance due on each of the second, third,
fourth and fifth anniversary dates of this Agreement. In the event that the
Employee re-pays any portion of said loan (other than by loan forgiveness
pursuant to this Agreement) the Company shall pay to the Employee additional
compensation in the amount of any such re-payment on each anniversary date when
loan forgiveness would otherwise have occurred. If the employment relationship
has terminated the
7
<PAGE>
principal balance still due and any accrued interest thereon shall be payable
within ninety (90) days of the date of said termination.
6. BUSINESS EXPENSES. During the Period of Employment, the Company
agrees to reimburse Employee for reasonable and necessary expenses incurred by
him in connection with the performance of his duties hereunder. Employee shall
submit vouchers, invoices and such other documentation in accordance with the
Company's general policy with respect thereto.
7. BENEFITS. During the Period of Employment, the Company will provide
or, as necessary, reimburse Employee with or for the following benefits:
(A) ORDINARY INSURANCE. Medical, dental and hospitalization insurance and
short-term disability coverage for himself and his dependents, to the extent
provided generally to the senior employees of the Company.
(B) LIFE AND PERMANENT DISABILITY INSURANCE.
(i) Term life insurance in the principal face amount of One Million
Dollars ($1,000,000) insuring the life of the Employee. In this connection the
Employee is not aware of any circumstances which might require that the same be
obtained at other than standard rates.
(ii) Permanent disability insurance in the amount of One Million
Dollars ($1,000,000.00) insuring the Employee, the benefits of which shall be
payable to the Employee as and when received.
8
<PAGE>
(C) VACATIONS. Employee shall be entitled to four (4) weeks paid vacation
per year, the scheduling of which shall be in accordance with the general
policies and practices of the Company with respect thereto.
8. DEATH OR PERMANENT DISABILITY. In the event of the death or Permanent
Disability ("Permanent Disability" being defined as an illness which will
prevent the Employee from performing his duties for a period of six consecutive
months or nine out of any consecutive twelve months) prior to the expiration of
the Period of Employment, his employment shall be deemed to cease as of the end
of the month of the date of his death or Permanent Disability and this Agreement
shall terminate forthwith and all rights under it shall expire, except that
Employee or Employee's estate shall be entitled to receive Base Salary for a
period of six (6) months from the date of death or Permanent Disability plus the
pro rata amount of Incentive Compensation which would have been due the Employee
pursuant to paragraph 4(C) hereinabove for the period January 1 of said year
through the date of death or Permanent Disability. Said Base Salary shall be
paid at the time it would regularly be paid. Said Incentive Compensation shall
be paid as soon as practicable after a determination of the amount due is made
by the Company's CPAs.
Additionally, any options eligible to vest within twelve months of the date
of death or Permanent Disability shall be deemed accelerated and fully vested as
of the date of death or Permanent Disability subject to the further terms and
conditions of the Stock Option Plan pursuant to which the same were granted.
9
<PAGE>
9. CONFIDENTIAL INFORMATION. Employee acknowledges that the Company
would be damaged if Employee's knowledge with respect to the business of the
Company were disclosed to or utilized by parties other than the Company.
Accordingly, Employee covenants and agrees that he will not disclose any
presently known or hereafter acquired confidential or proprietary information of
the Company or its business to any person, firm, corporation or other entity.
For the purposes of this paragraph, the term "confidential or proprietary
information" shall mean all information which is currently known to or hereafter
acquired by Employee and relates to such matters as customer mailing lists,
pricing and credit techniques, marketing techniques, research and development
activities, sources of product, lists of magazines or other publications
containing advertising of the Company and other confidential or restricted
information which is not in the public domain. Confidential or proprietary
information shall not be deemed to include information released generally to the
public by the Company or others, information required by law to be disclosed or
information learned by the Employee from third parties without restrictions on
disclosure provided the same would not, if released, damage the Company. The
provisions of this paragraph shall survive the termination of this Agreement.
10. COVENANT NOT TO COMPETE.
(A) The Employee hereby covenants and agrees that from the date hereof
until eighteen (18) months after the termination of the Period of Employment or
the actual date of termination in the event of early termination in the event
this Agreement is renewed (the "Non-Compete Period") for the consideration set
forth in paragraph 10(B) hereinbelow, he shall not, directly or
10
<PAGE>
indirectly, own, operate, manage, join, control, participate in the ownership,
management, operation or control of, or be paid or employed by, or acquire any
securities of, or otherwise become associated with or provide assistance to, as
an employee, consultant, director, officer, shareholder, partner, agent,
associate, principal, representative or in any other capacity, any business
entity or activity which is directly or indirectly a "Competitive Business" (as
hereinafter defined); provided, however, that the foregoing shall not prevent
the Employee from (a) performing services for a Competitive Business if such
Competitive Business is also engaged in other lines of business and if the
Employee's services are restricted to employment in such other lines of
business; or (b) acquiring the securities of or an interest in any Competitive
Business, provided such ownership of securities or interests represents at the
time of such acquisition, but including any previously held ownership interests,
less than two percent (2%) of any class or type of securities of, or interest
in, such Business. The term "Competitive Business" shall mean and include any
business or activity that is substantially the same as any business or activity
then conducted by the Company, regardless of where such Competitive Business is
located.
(B) The Employee's Covenant Not to Compete shall be in consideration for
the Company's payment to the Employee of 1.375 times the Employee's Base Salary
in effect on the day prior to the commencement of the Non-Compete Period for
said 18 month period which shall be payable in at least equal monthly
installments at said rate.
(C) In the event that the Company commences any business and an effect of
the Company's engaging in such business would be that Employee would then be in
breach of
11
<PAGE>
covenant not to compete under the Agreement dated June 1, 1996 with Ingram
Industries and Ingram Micro, Inc., Employee shall have the right to terminate
this Agreement for cause pursuant to Paragraph 12(D)(ii) hereinbelow.
11. COVENANT NOT TO SOLICIT. Unless the Employee has obtained the prior
written consent of the Company, he hereby covenants and agrees that, from the
date hereof until the expiration of the Non-Compete Period, he shall not, for or
on behalf of a Competitive Business, directly or indirectly, as owner, officer,
director, stockholder, partner, associate, consultant, manager, advisor,
representative, employee, agent creditor or otherwise, attempt to solicit or in
any other way disturb or service any person, firm or corporation that has been a
customer account of the Company at any time or times prior to the termination of
the Period of Employment, whether or not he at any time had any direct or
indirect account responsibility for, or contact with, such customer account.
12. TERMINATION. In addition to termination for death or Permanent
Disability pursuant to paragraph 8, the employment of the Employee by the
Company pursuant to this Agreement shall terminate upon the occurrence of any of
the following:
(A) TERMINATION UPON PRIOR NOTICE. The Company may terminate this
Agreement by giving the Employee ninety (90) days prior written notice.
(B) EMPLOYEE TERMINATION FOR CAUSE. At the election of the Company, it
may immediately upon written notice by the Company to the Employee terminate the
Employee for cause. For the purposes of this paragraph, cause for termination
shall be deemed to exist upon (i)
12
<PAGE>
a good faith finding by the Company of a willful failure or refusal of the
Employee to perform assigned duties for the Company of which he has knowledge,
or the commission of any other willful or grossly negligent action with the
intent to injure the Company; (ii) any material breach of any material provision
of this Agreement by the Employee if the Employee fails to correct such breach
(or to take substantial steps to correct such breach) within ten (10) days after
receiving written notice thereof; or (iii) the conviction of the Employee of, or
the entry of a plea of guilty or nolo contendere by the Employee to, a crime
involving an act of fraud or embezzlement against the Company or the conviction
of the Employee of, or the entry of a plea of guilty or nolo contendere by the
Employee to, any felony involving moral turpitude. Notwithstanding the
foregoing, the Company shall not terminate the Employee for cause pursuant to
this paragraph unless and until there shall have been delivered to the Employee
a copy of a resolution, duly adopted by the affirmative vote of the Board of
Directors at a meeting called and held after reasonable notice to the Employee
and an opportunity for the Employee, together with his counsel, to be heard
before the Board of Directors, finding that in the good faith opinion of the
Board of Directors the Employee is guilty of conduct set forth in subparagraphs
(i) and (ii) of this paragraph and specifying the particulars thereof in
reasonable detail.
(C) EMPLOYEE'S ELECTION FOR CAUSE. At the election of the Employee, he
may terminate his employment for cause immediately upon written notice by
Employee to the Company. For purposes of this paragraph, cause for termination
shall be deemed to exist upon (i) a material failure by the Company to continue
the Employee's participation in any bonus, compensation or
13
<PAGE>
other benefit plan in which the Employee is entitled to participate pursuant
hereto or the taking by the Company of any action which would directly or
indirectly materially reduce his participation therein; or (ii) a material
breach of any provision of this Agreement by the Company, or any breach of any
provision of this Agreement by the Company, whether or not material, if such
breach is not corrected (or substantial steps have not been taken to correct
such breach) within thirty (30) days after the Board received written notice
thereof.
(D) EFFECT OF TERMINATION.
(i) TERMINATION BY THE COMPANY FOR CAUSE. In the event the
Employee's employment is terminated for cause pursuant to paragraph 12(B)(i) or
(ii), the Company shall pay to the Employee the Base Salary and Incentive
Compensation due, if any, under paragraph 4, on a pro rata basis to the date of
termination at the time such Base Salary and Incentive Compensation would
regularly be paid and benefits otherwise payable to him hereunder all through
the last day of his actual employment by the Company.
(ii) TERMINATION AT THE ELECTION OF THE COMPANY WITHOUT CAUSE OR AT
THE ELECTION OF THE EMPLOYEE FOR CAUSE. In the event that the Employee's
employment is terminated without cause by the Company pursuant to paragraph
12(A) or with cause by the Employee pursuant to paragraph 12(C), then, following
the occurrence of such event, the Company shall pay to the Employee the
Incentive Compensation due, if any, under paragraph 4 hereof, on a pro rata
basis to the date of termination and shall continue to pay to Employee 1.375
times his Base Salary in effect on the day prior to termination for the 18
months subsequent to said termination in at least
14
<PAGE>
equal monthly installments at said rate. During said period, the Employee shall
continue to be bound by his Covenant Not to Compete.
13. BUSINESS COMBINATION. For purposes of this paragraph, a "Business
Combination" shall mean the merger or consolidation of the Company with, the
sale of all or substantially all the assets of the Company to any person or
entity not affiliated with the Company as of the date of this Agreement. If,
during the term of this Agreement, there shall occur, with or without the
consent of the Company, a Business Combination Employee shall have the option to
terminate this Agreement pursuant to paragraph 12(D)(ii) hereinabove on thirty
(30) days notice provided that the surviving entity in a merger or consolidation
may require the Employee to continue discharging his responsibilities during a
transition period subsequent to the consummation of the merger or consolidation.
Additionally, all of the Employee's unvested stock options shall be immediately
accelerated and become fully vested.
14. NOTICES. All notices, elections, demands or other communications
required or permitted to be made or given pursuant to this Agreement shall be in
writing and shall be considered properly given or made if sent by Telecopier,
Telex, courier service or certified mail, return receipt requested and addressed
to the parties at the respective addresses specified below. Either party may
change its address by giving notice in writing pursuant to this paragraph to the
other of its new address.
To the Company: Mr. Peter Godfrey
Micro Warehouse, Inc.
535 Connecticut Avenue
Norwalk, Connecticut 06854
15
<PAGE>
To Employee: Mr. Linwood A. Lacy, Jr.
2304 Cranborne Road
Midlothian, Virginia 23113
15. ARBITRATION. Any controversy, claim or breach (except those relating
to monetary damages) arising out of or relating to this Agreement shall be
submitted for settlement to an arbitrator agreed upon by the parties. The
decision of such arbitrator shall be final and binding on the parties. If the
parties cannot agree upon an arbitrator, the controversy, claim or breach shall
be referred to the American Arbitration Association with a request that an
arbitrator be appointed pursuant to the rules of said Association. Such
arbitration shall be held in New Haven, Connecticut, in accordance with the
rules and practices of the American Arbitration Association pertaining to
single-party arbitration then in effect, and the judgement upon the award
rendered shall be entered by consent in any court having jurisdiction thereof.
16. ENTIRE AGREEMENT. This Agreement constitutes the full and complete
understanding and agreement of the parties. Neither party has relied upon any
representation of the other not set forth herein. This Agreement may not be
changed orally but only by an agreement in writing, signed by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought.
17. BINDING EFFECT. This Agreement shall be binding upon and accrue to
the benefit of the parties hereto, their heirs, executors, administrators and
successors.
16
<PAGE>
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut without regard to its
principles with respect to conflicts of law.
19. COUNSEL FEES. Except as set forth herein the parties hereto shall
bear their own fees, costs and expenses incurred in connection with this
Agreement. If either party is required to bring suit or otherwise seek
enforcement of its or his rights in connection with the same, the prevailing
party in such action or proceeding shall be entitled to recover counsel fees
incurred in such action or proceeding. The Employee shall be reimbursed in an
amount not to exceed Two Thousand Dollars ($2,000.00) for legal fees and costs
incurred in connection with the review of this Agreement by his own counsel.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures on the
day and year first above written.
EMPLOYER:
MICRO WAREHOUSE, INC.
By: /Peter Godfrey/
--------------------------------
Peter Godfrey
EMPLOYEE:
/Linwood A. Lacy, Jr./
-------------------------------------
Linwood A. Lacy, Jr.
17
<PAGE>
AMENDMENT TO
EMPLOYMENT AGREEMENT DATED AS OF SEPTEMBER 4, 1996
BETWEEN
MICRO WAREHOUSE, INC.
AND
LINWOOD A. LACY, JR.
This Amendment is made as of the 1st day of October, 1996 between Micro
Warehouse, Inc. and Linwood A. Lacy, Jr.
WHEREAS, the parties hereto entered into an Employment Agreement dated as
of September 4, 1996 (the "Agreement"); and
WHEREAS, the parties are now desirous of amending Article 3 thereof solely
with respect to the commencement date.
NOW, THEREFORE, the Agreement is amended as follows:
The first sentence of Article 3 of the Agreement is hereby amended so that
the same shall now read as follows: "The Company shall retain Employee and
Employee shall accept employment by the Company for a term commencing October 1,
1996 and ending December 31, 2000 (the "Period of Employment")."
Except as amended herein, the Agreement shall otherwise remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures on the
day and year first above written.
EMPLOYER:
MICRO WAREHOUSE, INC.
By:
-----------------------------
Peter Godfrey
EMPLOYEE:
---------------------------------
Linwood A. Lacy, Jr.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule
Pursuant fo Article 5 of Regulation S-X
(in thousands, except per share data)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 119,106
<SECURITIES> 14,073
<RECEIVABLES> 188,518
<ALLOWANCES> 9,060
<INVENTORY> 121,607
<CURRENT-ASSETS> 488,653
<PP&E> 29,544
<DEPRECIATION> 37,155
<TOTAL-ASSETS> 565,570
<CURRENT-LIABILITIES> 197,149
<BONDS> 424
0
0
<COMMON> 343
<OTHER-SE> 367,654
<TOTAL-LIABILITY-AND-EQUITY> 565,570
<SALES> 437,981
<TOTAL-REVENUES> 437,981
<CGS> 359,289
<TOTAL-COSTS> 420,799
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 846
<INCOME-PRETAX> 18,028
<INCOME-TAX> 7,303
<INCOME-CONTINUING> 10,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,725
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0
</TABLE>
