FORM 10-Q/A
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, 1999
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 of the latest practicable date:
<PAGE>
CLASS: COMMON STOCK OUTSTANDING SHARES AT SEPTEMBER 30, 1999: 35,780,938
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Exhibit 10.1 EMPLOYMENT AGREEMENT OF PETER GODFREY DATED AS OF January 1,
1999.
Exhibit 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Exhibit 27 FINANCIAL DATA SCHEDULE
(b) Reports on Form 8-K
None
2
<PAGE>
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: December 9, 1999
By /s/ Wayne P. Garten
--------------------------------------
WAYNE P. GARTEN
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer of the
Registrant, Principal Financial
Officer and Principal Accounting
Officer)
3
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------------------------------------------------------------------------
10.1 Employment Agreement of Peter Godfrey dated as of January 1, 1999
*11 Statement re: Computation of Per Share Earnings
*27 Financial Data Schedule
* previously filed
4
EMPLOYMENT AGREEMENT
This employment agreement ("Agreement") made as of the 1st day of January,
1999 between Micro Warehouse, Inc., a Delaware corporation (hereinafter referred
to as the "Company"), with its principal place of business at 535 Connecticut
Avenue, Norwalk, Connecticut 06854, and Peter Godfrey whose address is 128
Beachside Avenue, Westport, Connecticut 06880 (hereinafter referred to as
"Employee").
WHEREAS, this Agreement is effective January 1, 1999 (the "Effective
Date") and replaces the employment agreement previously entered into for good
and valuable consideration by Employee and Company on or about January 1, 1995,
which agreement expired on December 31, 1998; and
WHEREAS, this Agreement shall represent the entire employment agreement
between the parties with respect to the subject matter herein.
NOW, THEREFORE, in consideration of the premises, the Company and the
Employee agree as follows:
1. Employment. The Company shall hereby continue to employ Employee, and
Employee hereby accepts such continued employment, commencing on the Effective
Date, on the terms and conditions set forth below.
2. Duties. During the Period of Employment (as hereinafter defined), the
Company shall continue to employ Employee as President and Chief Executive
Officer reporting to the Board of Directors of the Company, to perform such
duties as shall be required by the Company's Board of Directors, provided the
same are consistent with those of a president and
5
<PAGE>
chief executive officer of a public company. The precise responsibilities of
Employee may be revised from time to time provided the same do not materially
affect Employee's 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.
3. Term. The term of Employee's continued employment by the Company shall
commence as of the Effective Date and end as of the close of business on
December 31, 2000 (the "Period of Employment").
4. Compensation.
(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 Fifty Thousand Six Hundred Ninety-six Dollars and Thirty-eight
Cents ($550,696.38) 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.
(B) Adjustments to Base Salary. The Base Salary to be paid to the Employee
during the year 2000 shall be increased by any increase in the cost of living
determined in accordance with the formula set forth in subparagraphs (i), (ii)
and (iii) herein below.
(i) For the purposes of this paragraph 4(B), the following
definition shall apply:
6
<PAGE>
(a) The term "Price Index" shall mean the "Consumer Price Index"
published by the Bureau of Labor Statistics of the U.S. Department of Labor, New
York, Northern New Jersey, Long Island, New York-New Jersey-Connecticut, for
urban wage earners and clerical workers, or a successor or substitute index
appropriately adjusted ("Price Index").
(ii) Effective for the year commencing January 1, 2000 there shall
be a cost of living adjustment to the Base Salary applicable for said twelve
month period. The adjustment shall be based on the percentage difference between
the Price Index on January 1, 1999 and the Price Index on January 1, 2000.
In the event that the Price Index on January 1, 2000 reflects an increase
over the Price Index on January 1, 1999, the Base Salary originally herein
provided to be paid shall be multiplied by the percentage difference between the
two Price Indices and the resulting sum shall be added to such original Base
Salary, effective on January 1, 2000.
In the event that the Price Index ceases to use 1982-1984 = 100 as the
basis of calculation, or if a substantial change is made in the terms or number
of items contained in the Price Index, then the Price Index shall be adjusted to
the figure that would have been arrived at had the manner of computing the Price
Index in effect at the date of this Agreement not been altered. In the event
such Price Index (or a successor or substitute index) is not available, a
reliable governmental or other non-partisan publication evaluating the
information theretofore used in determining the Price Index shall be used.
(iii) In no event shall the Employee's Base Salary provided herein, as the
same may be increased pursuant to this paragraph 4(B), be reduced by virtue of
this paragraph 4(B).
(C) Annual Incentive Compensation. In addition to Base Salary, with
respect to the Period of Employment, the Employee shall be eligible to receive
annual incentive compensation
7
<PAGE>
("Incentive Compensation") as set forth below, which amount of Incentive
Compensation shall not exceed Two Hundred Percent (200%) of Base Salary in any
one year.
(i) Effective as of 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 and containing financial goals
(hereinafter "Targets"). The Incentive Plan established for 1999 is attached
hereto as Exhibit A. The Incentive Plan shall be determined in the sole
discretion of the Board of Directors and the Employee and may vary from year to
year. A copy of the Incentive Plan 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.
(ii) 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, which amount for calendar 1999 shall be Four Hundred
Thirteen Thousand Twenty-two Dollars ($413,022.00), and for the subsequent year
shall be Seventy-five Percent (75%) of Base Salary (hereinafter "Target Bonus
Amount"). The Board of Directors may modify upward the Target Bonus Amount as
part of the salary review process for the year 2000. 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 Two Hundred Percent (200%) of
Target Bonus Amount if One Hundred Twenty Percent (120%) of Targets are
achieved. No Incentive Compensation shall be paid if less than 80% of Targets
are achieved.
8
<PAGE>
By way of example, if Base Salary is Five Hundred Fifty Thousand Six
Hundred Ninety-six Dollars and Thirty-eight Cents ($550,696.38) One Hundred
Percent (100%) of Target Bonus Amount at accomplishment of One Hundred Percent
(100%) of Targets shall be Four Hundred Thirteen Thousand Twenty-two Dollars
($413,022.00). If the Company achieves Eighty Percent (80%) of Targets, Target
Bonus Amount shall be Two Hundred Six Thousand Five Hundred Eleven Dollars
($206,511.00) (i.e., .5 x $413,022.00), which shall be automatically due and
payable to the Employee.
By way of further example, if Base Salary is Five Hundred Fifty Thousand
Six Hundred Ninety-six Dollars and Thirty-eight Cents ($550,696.38), One Hundred
Percent (100%) of Target Bonus Amount at accomplishment of One Hundred Percent
(100%) of Targets shall be Four Hundred Thirteen Thousand Twenty-two Dollars
($413,022.00). If the Company achieves One Hundred Ten Percent (110%) of
Targets, Target Bonus Amount shall be Six Hundred Nineteen Thousand Five Hundred
Thirty-three Dollars ($619,533.00) (i.e., 1.50 x $413,022.00), which shall be
automatically due and payable to Employee.
(iii) Incentive Compensation shall be paid to Employee in a lump sum
cash payment as soon as practicable after the CPAs determine the amounts, if
any, which are due the Employee.
(D) Additional Compensation. During the Period of Employment, the Employee
shall be eligible to receive any other payments of bonus, compensation or other
amounts not specifically enumerated herein but which may be paid by the Company
("Additional Compensation").
5. Business Expenses. During the Period of Employment, the Company agrees
to reimburse Employee for reasonable and necessary expenses incurred by him in
connection with
9
<PAGE>
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.
6. Benefits. During the Period of Employment, the Company will provide or,
as necessary, reimburse Employee with or for the following benefits:
(A) Insurance. Medical, dental, hospitalization and short-term disability
coverage for himself and his dependents, to the extent provided generally to the
senior executives of the Company.
(B) 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.
(C) Employee Benefit Plans and Perquisites. During the Period of
Employment, the Employee shall be entitled (i) to participate in all employee
benefit plans, programs, policies and arrangements sponsored, maintained or
contributed to by the Company, subject to and in accordance with the terms and
conditions of such plans, programs, policies and arrangements as they relate to
similarly situated executive officers of the Company, and (ii) to receive all
other benefits and perquisites provided or made available by the Company to its
senior executive officers subject to and in accordance with the terms and
conditions of such benefits and perquisites as they relate to similarly situated
senior executive officers of the Company.
7. 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 (6)
consecutive months or nine (9) out of any consecutive twelve (12) 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
10
<PAGE>
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
and Additional Compensation which would have been due the Employee pursuant to
paragraph 4 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 and Additional 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 (12) 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.
8. 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
11
<PAGE>
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.
9. Covenant Not to Compete. The Employee hereby covenants and agrees that
from the date hereof until twelve (12) months after the termination of the
Period of Employment (the "Non-Compete Period") he shall not, directly or
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 (i) 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 (ii) 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 Competitive 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.
10. 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
12
<PAGE>
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 during the Period of Employment or
during the Non-Compete Period, whether or not he at any time had any direct or
indirect account responsibility for, or contact with, such customer account.
11. Termination. In addition to termination for death or Permanent
Disability pursuant to paragraph 7, 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) 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 by Employee 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
13
<PAGE>
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 the Period of 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 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 of Directors received written notice thereof.
(D) Termination following a Change in Control. For purposes of this
Agreement, Change in Control means the occurrence during the Period of
Employment of any of the following events, subject to the provisions of
paragraph (11)(D)(vii) hereof:
14
<PAGE>
(i) All or substantially all of the assets of the Company are sold
or transferred to another corporation or entity, or the Company is merged,
consolidated or reorganized into or with another corporation or entity, with the
result that upon conclusion of the transaction less than Fifty-One Percent (51%)
of the outstanding securities entitled to vote generally in the election of
directors or other capital interests of the acquiring corporation or entity are
owned directly or indirectly, by the shareholders of the Company generally prior
to the transaction; or
(ii) The Company is merged, consolidated or reorganized into or with
another corporation or entity, with the result that upon the conclusion of the
transaction the Company is not the surviving corporation or entity; or
(iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing
that any person (as the term "person" is used in Section 13(d)(3) or Section
14(d)(2) of the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act (a "Beneficial Owner")) of
securities representing Twenty Percent (20%) or more of the combined voting
power of the then-outstanding voting securities of the Company; or
(iv) The Company shall file a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act disclosing in
response to Item 1 of Form 8-K thereunder or Schedule 14A (or any successor
schedule, form or report or item therein) that a change in control of the
Company has or may have occurred or will or may occur in the future pursuant to
any then-existing contract or transaction; or
15
<PAGE>
(v) The individuals who, at the beginning of any period of two (2)
consecutive calendar years, constituted the Directors of the Company cease for
any reason to constitute at least a majority thereof unless the nomination for
election by the Company's stockholders of each new Director of the Company was
approved by a vote of at least two-thirds (2/3) of the Directors of the Company
still in office who were Directors of the Company at the beginning of any such
period; or
(vi) The Board of Directors determines that (I) any particular
actual or proposed merger, consolidation, reorganization, sale or transfer of
assets, accumulation of shares or tender offer for shares of the Company or
other transaction or event or series of transactions or events will, or is
likely to, if carried out, result in a Change in Control falling within
paragraph 11(D)(i), (ii), (iii), (iv) or (v), and (II) it is in the best
interests of the Company and its shareholders, and will serve the intended
purposes of this Agreement, if this Agreement shall thereupon become immediately
operative with respect to the provisions of this paragraph 11(D) regarding
Change in Control.
(vii) Notwithstanding the foregoing provisions of this paragraph
(11)(D):
(I) If any such merger, consolidation, reorganization, sale or
transfer of assets, or tender offer or other transaction or event or
series of transactions or events mentioned in paragraph (11)(D)(vi)
shall be abandoned, or any such accumulations of shares shall be
dispersed or otherwise resolved, the Board of Directors may, by
notice to the Employee, nullify the effect thereof and reinstate
this Agreement as previously in effect, but without prejudice to any
action that may have been taken prior to such nullification.
16
<PAGE>
(II) Unless otherwise determined in a specific case by the
Board of Directors, a "Change in Control" shall not be deemed to
have occurred for purposes of paragraph (11)(D)(iii) or (iv) solely
because (X) the Company, (Y) a subsidiary of the Company, or (Z) any
Company-sponsored employee stock ownership plan or any other
employee benefit plan of the Company or any subsidiary either files
or becomes obligated to file a report or a proxy statement under or
in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule
14A (or any successor schedule, form or report or item therein)
under the Exchange Act disclosing Beneficial Ownership by it of
shares of the then-outstanding voting securities of the Company,
whether in excess of Twenty Percent (20%) or otherwise, or because
the Company reports that a change in control of the Company has
occurred or will occur in the future by reason of such beneficial
ownership.
Notwithstanding anything contained in this Agreement to the contrary, in
the event of a Change in Control, (I) the Employee may terminate employment with
the Company for any reason, or without reason, at any time following the date
six months after the first occurrence of a Change in Control, and (II) the
Employee may terminate employment with the Company during the Period of
Employment if the Company relocates its principal executive offices, or requires
the Employee to have his principal location of work changed, to any location
that is in excess of 35 miles from the location thereof immediately prior to the
Change in Control, in each case with the right to receive the benefits described
in paragraph 11(E)(iii) below.
17
<PAGE>
(E) Effect of Termination.
(i) Termination by the Company for Cause or at the Election of the
Employee Without Cause. In the event that the Employee's employment is
terminated by the Company for cause pursuant to paragraph 11(B)(i) or (ii) or
the Employee elects to terminate his employment without cause, the Company shall
pay to the Employee the Base Salary, Incentive Compensation and Additional
Compensation due, if any, under paragraph 4, on a pro rata basis to the date of
termination at the time such Base Salary, Incentive Compensation or Additional
Compensation would regularly be paid and benefits otherwise payable to him
hereunder all through the last day of his actual employment by the Company. Upon
termination under this paragraph 11(E), the Employee will thereupon no longer be
entitled to any compensation or benefits provided herein, and nothing herein
shall limit the Company's right against the employee or the rights and
obligations of the parties under paragraphs 8, 9, and 10 hereof.
(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
11(A) prior to a Change in Control or with cause by the Employee pursuant to
paragraph 11(C), then, following the occurrence of such event, the Company shall
pay to the Employee (I) the Base Salary through the Period of Employment, and
(II) the Incentive Compensation and Additional Compensation due, if any, under
paragraph 4 hereof; provided, however, that any such Incentive Compensation or
Additional Compensation shall be paid on a pro rata basis to the date of
termination. In addition, Employee will continue to receive the benefits
provided under paragraph 6 hereof, including payment of accrued but unused
vacation benefits. During said period, the Employee shall continue to be bound
by the provisions of paragraphs 8, 9 and 10 hereof.
18
<PAGE>
(iii) Termination Following a Change in Control. In the event that a
Change in Control occurs during the Period of Employment and Employee's
employment is terminated in the manner described in paragraph 11(A) or paragraph
11(D), the Company shall pay to the Employee a lump sum cash payment in an
amount equal to two (2) times his then current Base Salary, plus two (2) times
the average of the sum of the Incentive Compensation and Additional Compensation
he received under paragraph 4 for the three (3) years immediately preceding such
Change in Control. In addition, Employee will continue to receive the benefits
provided under paragraph 6 hereof through the Period of Employment.
12. No Mitigation Obligation.
(A) Employee shall be under no obligation to seek other employment
opportunities during any period between termination of his employment following
a Change in Control and the expiration of the Period of Employment (the "Interim
Period"), and Employee shall not be obligated to accept any other employment
opportunity which may be offered to Employee during the Interim Period; however,
subject to the provisions of paragraph 9, and except as provided in the
following sentence, nothing in this Agreement shall prohibit the Employee from
accepting other employment opportunities during the Interim Period, in which
event Employee shall receive the entire amount due and owing to him as described
in paragraph 11(E)(iii) without set-off for any amount paid to Employee arising
out of any new employment relationship. Benefits described in paragraph 6(A) and
(B) will be reduced to the extent comparable welfare benefits are actually
received by the Employee from another Company during the Interim Period and such
benefits actually received by the Employee shall be reported by the Employee to
the Company.
19
<PAGE>
(B) Employee's termination of his employment following a Change in
Control and the receipt by Employee of any amount pursuant to paragraph
11(E)(iii) shall not preclude Employee's continued employment with the Company
or the surviving entity in any Change in Control, on such terms as shall be
negotiated between the Company (or such surviving entity) and the Employee
following termination of this Agreement.
13. Certain Additional Payments by the Company.
(A) Anything in this Agreement to the contrary notwithstanding, in
the event that it shall be determined (as hereafter provided) that any payment
or distribution by the Company or any of its affiliates to or for the benefit of
the Employee, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, performance share, performance unit, stock
appreciation right or similar right, or the lapse or termination of any
restriction on, or the vesting or exercisability of, any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any successor
provision thereto) by reason of being considered "contingent on a change in
ownership or control" of the Company, within the meaning of Section 280G of the
Code (or any successor provision thereto) or to any similar tax imposed by state
or local law, or any interest or penalties with respect to such tax (such tax or
taxes, together with any such interest and penalties, being hereafter
collectively referred to as the "Excise Tax"), then the Employee shall be
entitled to receive an additional payment or payments (collectively, a "Gross-Up
Payment"); provided, however, that no Gross-up Payment shall be made with
respect to the Excise Tax, if any, attributable to (i) any incentive stock
option, as defined by Section 422 of the Code ("ISO") granted prior to the
20
<PAGE>
execution of this Agreement, or (ii) any stock appreciation or similar right,
whether or not limited, granted in tandem with any ISO described in clause (i).
The Gross-Up Payment shall be in an amount such that, after payment by the
Employee of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the
Employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payment.
(B) Subject to the provisions of paragraph 13(F), all determinations
required to be made under this paragraph 13, including whether an Excise Tax is
payable by the Employee and the amount of such Excise Tax and whether a Gross-Up
Payment is required to be paid by the Company to the Employee and the amount of
such Gross-Up Payment, if any, shall be made by a nationally recognized
accounting firm (the "Accounting Firm") selected by the Employee in his sole
discretion. The Employee shall direct the Accounting Firm to submit its
determination and detailed supporting calculations to both the Company and the
Employee within thirty (30) calendar days after the Termination Date, if
applicable, and any such other time or times as may be requested by the Company
or the Employee. If the Accounting Firm determines that any Excise Tax is
payable by the Employee, the Company shall pay the required Gross-Up Payment to
the Employee within five (5) business days after receipt of such determination
and calculations with respect to any Payment to the Employee. If the Accounting
Firm determines that no Excise Tax is payable by the Employee, it shall, at the
same time as it makes such determination, furnish the Company and the Employee
an opinion that the Employee has substantial authority not to report any Excise
Tax on his federal, state or local income or other tax return. As a result of
the uncertainty in the application of Section 4999 of the Code (or any successor
provision thereto) and the possibility of similar uncertainty regarding
applicable state or local tax law at the time of
21
<PAGE>
any determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made (an
"Underpayment"), consistent with the calculations required to be made hereunder.
In the event that the Company exhausts or fails to pursue its remedies pursuant
to paragraph 13(F) and the Employee thereafter is required to make a payment of
any Excise Tax, the Employee shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Employee as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Employee within five (5) business days
after receipt of such determination and calculations.
(C) The Company and the Employee shall each provide the Accounting
Firm access to and copies of any books, records and documents in the possession
of the Company or the Employee, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determinations and calculations
contemplated by paragraph 13(B). Any determination by the Accounting Firm as to
the amount of the Gross-Up Payment shall be binding upon the Company and the
Employee.
(D) The federal, state and local income or other tax returns filed
by the Employee shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Employee. The Employee shall make proper payment of the amount of any Excise
Payment, and at the request of the Company, provide to the Company true and
correct copies (with any amendments) of his federal income tax return as filed
with the Internal Revenue Service and corresponding state and local tax returns,
if relevant, as filed with the applicable taxing authority, and such other
documents reasonably requested by the Company, evidencing such payment. If prior
to the filing of the Employee's federal income tax return, or corresponding
state or local tax return, if
22
<PAGE>
relevant, the Accounting Firm determines that the amount of the Gross-Up Payment
should be reduced, the Employee shall within five (5) business days pay to the
Company the amount of such reduction.
(E) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by paragraph
13(B) shall be borne by the Company. If such fees and expenses are initially
paid by the Employee, the Company shall reimburse the Employee the full amount
of such fees and expenses within five (5) business days after receipt from the
Employee of a statement therefor and reasonable evidence of his payment thereof.
(F) The Employee shall notify the Company in writing of any claim by
the Internal Revenue Service or any other taxing authority that, if successful,
would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as promptly as practicable but no later than ten
(10) business days after the Employee actually receives notice of such claim and
the Employee shall further apprise the Company of the nature of such claim and
the date on which such claim is requested to be paid (in each case, to the
extent known by the Employee). The Employee shall not pay such claim prior to
the earlier of (i) the expiration of the thirty (30) calendar-day period
following the date on which he gives such notice to the Company and (ii) the
date that any payment of amount with respect to such claim is due. If the
Company notifies the Employee in writing prior to the expiration of such period
that it desires to contest such claim, the Employee shall:
23
<PAGE>
(i) provide the Company with any written records or documents
in his possession relating to such claim reasonably requested by the
Company;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to
time, including without limitation accepting legal representation
with respect to such claim by an attorney competent in respect of
the subject matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Employee, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
paragraph 13(F), the Company shall control all proceedings taken in connection
with the contest of any claim contemplated by this paragraph 13(F) and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim (provided, however, that the Employee may participate therein at his
own cost and expense) and may, at its option, either direct the Employee to pay
the tax claimed and sue for a refund or contest the claim in any permissible
manner, and the Employee agrees to prosecute such contest to a determination
before any administrative tribunal, in a court
24
<PAGE>
of initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs the Employee to
pay the tax claimed and sue for a refund, the Company shall advance the amount
of such payment to the Employee on an interest-free basis and shall indemnify
and hold the Employee harmless, on an after-tax basis, from any Excise Tax or
income or other tax, including interest or penalties with respect thereto,
imposed with respect to such advance; and provided further, however, that any
extension of the statute of limitations relating to payment of taxes for the
taxable year of the Employee with respect to which the contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company's control of any such contested claim shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the Employee
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
(G) If, after the receipt by the Employee of an amount advanced by
the Company pursuant to paragraph 13(F), the Employee receives any refund with
respect to such claim, the Employee shall (subject to the Company's complying
with the requirements of paragraph 13(F)) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon after any
taxes applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Company pursuant to paragraph 13(F), a determination is made
that the Employee shall not be entitled to any refund with respect to such claim
and the Company does not notify the Employee in writing of its intent to contest
such denial or refund prior to the expiration of thirty (30) calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall
25
<PAGE>
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid by the Company to the Employee pursuant to this paragraph 13.
14. Successors and Binding Agreement.
(A) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation, reorganization or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance reasonably satisfactory to the Employee, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent the
Company would be required to perform if no such succession had taken place. This
Agreement will be binding upon and inure to the benefit of the Company and any
successor to the Company, including without limitation any persons acquiring
directly or indirectly all or substantially all of the business or assets of the
Company whether by purchase, merger, consolidation, reorganization or otherwise
(and such successor will thereafter be deemed the "Company" for the purposes of
this Agreement), but will not otherwise be assignable, transferable or delegable
by the Company.
(B) This Agreement will inure to the benefit of and be enforceable by the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
(C) This Agreement is personal in nature and neither of the parties hereto
will, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
paragraphs 14(A) and 14(B). Without limiting the generality or effect of the
foregoing, the Employee's right to receive payments hereunder will not be
assignable, transferable or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Employee's will or by the
laws of
26
<PAGE>
descent and distribution and, in the event of any attempted assignment or
transfer contrary to this paragraph 14(C), the Company will have no liability to
pay any amount so attempted to be assigned, transferred or delegated.
15. Severability. In the event that any provision or portion of this
Agreement is determined to be invalid or unenforceable for any reason, in whole
or in part, the remaining provisions of this Agreement will be unaffected
thereby and will remain in full force and effect to the fullest extent permitted
by law.
16. Representation. Each party represents and warrants that it is fully
authorized and empowered to enter into this Agreement and that performance of
its obligations under this Agreement will not violate any agreement between it
and any other person or entity.
17. 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: Micro Warehouse, Inc.
535 Connecticut Avenue
Norwalk, Connecticut 06854
Attn.: Bruce L. Lev, Esquire
To Employee: Mr. Peter Godfrey
128 Beachside Avenue
Westport, CT 06880
27
<PAGE>
18. 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 judgment upon the award
rendered shall be entered by consent in any court having jurisdiction thereof.
19. 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. This Agreement supersedes all prior agreements between the parties
hereto with respect to its subject matter and notwithstanding any provision
hereof, will become effective upon the execution of this Agreement by the
parties.
20. Binding Effect. This Agreement shall be binding upon and accrue to the
benefit of the parties hereto, their heirs, executors, administrators and
successors.
21. 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.
28
<PAGE>
22. Counsel Fees.
(A) 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) for legal fees and costs incurred in connection with
the review of this Agreement by his own counsel.
(B) Notwithstanding subparagraph (A), in the event of a Change in
Control, it is the intent of the Company that the Employee not be required to
incur fees and related expenses for the retention of attorneys, accountants,
actuaries, consultants, and/or other professionals ("professionals") in
connection with the interpretation, enforcement or defense of Employee's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Employee hereunder. Accordingly, if it should appear to the Employee that
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Employee the benefits provided or intended to be provided to
the Employee hereunder, the Company irrevocably authorizes the Employee from
time to time to retain one or more professionals of the Employee's choice, at
the expense of the Company as hereafter provided, to advise and represent the
Employee in connection with any such interpretation, enforcement or defense,
including without limitation the initiation or defense of any litigation or
other legal
29
<PAGE>
action, whether by or against the Company or any director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior relationship between the Company and such
professional, the Company irrevocably consents to the Employee's entering into a
relationship with any such professional, and in that connection the Company and
the Employee agree that a confidential relationship shall exist between the
Employee and any such professional. Without respect to whether the Employee
prevails, in whole or in part, in connection with any of the foregoing, the
Company will pay and be solely financially responsible for any and all
reasonable fees and related expenses incurred by the Employee in connection with
any of the foregoing.
23. Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which will be deemed to be an original but all of
which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures on
the day and year first above written.
COMPANY:
MICRO WAREHOUSE, INC.
By: /s/ Bruce L. Lev
-------------------------------------
Its Executive Vice President
EMPLOYEE:
By: /s/ Peter Godfrey
-------------------------------------
Peter Godfrey
30
<PAGE>
Exhibit A
31
<PAGE>
Exhibit A
Incentive Plan for the Year 1999
The Targets with respect to the 1999 Incentive Plan shall be based upon the
projected operating profit for the Company as described in the Company's 1999
Worldwide Plan approved by the Board of Directors (the "Plan").
