-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T11UYkGjUzEwy/nUMTLXp71vQy7sER80Kz7T1meUvv6x1fXifIbA3tfKdF2WhUtU PL84HslEQLsCMaWt1aCeqg== 0000898430-96-005403.txt : 19961120 0000898430-96-005403.hdr.sgml : 19961120 ACCESSION NUMBER: 0000898430-96-005403 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961118 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERISEL INC /DE/ CENTRAL INDEX KEY: 0000724941 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 954172359 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17156 FILM NUMBER: 96668150 BUSINESS ADDRESS: STREET 1: 200 CONTINENTAL BLVD CITY: EL SEGUNDO STATE: CA ZIP: 90245-0984 BUSINESS PHONE: 3106153080 MAIL ADDRESS: STREET 1: 200 CONTINENTAL BLVD CITY: EL SEGUNDO STATE: CA ZIP: 90245-0984 FORMER COMPANY: FORMER CONFORMED NAME: SOFTSEL COMPUTER PRODUCTS INC DATE OF NAME CHANGE: 19910509 10-Q 1 QUARTERLY REPORT FOR PERIOD ENDED 9/30/96 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q --------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ___________ Commission File Number 0-17156 -------- MERISEL, INC. (Exact name of registrant as specified in its charter) Delaware 95-4172359 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 200 Continental Boulevard El Segundo, CA 90245-0984 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (310) 615-3080 - ------------------------------------------------------------------------- Former name, former address, and former fiscal year, if changed since last report Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Number of Shares Outstanding Class November 1, 1996 ----- Common Stock, $.01 par value 30,078,495 Shares MERISEL, INC. INDEX -----
Page Reference PART I FINANCIAL INFORMATION Consolidated Balance Sheets as of 1-2 September 30, 1996 and December 31, 1995 Consolidated Statements of Operations for the 3 Three Months and Nine Months Ended September 30, 1996 and 1995 Consolidated Statements of Cash Flows for the 4 Nine Months Ended September 30, 1996 and 1995 Notes to Consolidated Financial Statements 5-11 Management's Discussion and Analysis of 12-25 Financial Condition and Results of Operations PART II OTHER INFORMATION PART II OTHER INFORMATION 26 SIGNATURES 28
ii PART 1. FINANCIAL INFORMATION MERISEL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands) (Unaudited) ASSETS
September 30, December 31, 1996 1995 ------------- ------------ CURRENT ASSETS: $ 26,923 $ 1,378 Cash and cash equivalents Accounts receivable (net of allowances of $18,913 and $24,786 for 1996 and 1995, respectively) 195,895 413,057 Receivable from sale of assets 123,261 Inventories 278,165 561,230 Prepaid expenses and other current 10,101 17,919 assets Income taxes receivable 9,452 35,116 Deferred income tax benefit 6,657 -------- ---------- Total current assets 643,797 1,035,357 PROPERTY AND EQUIPMENT, NET 63,649 90,381 COST IN EXCESS OF NET ASSETS ACQUIRED, NET 44,168 93,287 OTHER ASSETS 10,830 11,309 -------- ---------- TOTAL ASSETS $762,444 $1,230,334 ======== ==========
See accompanying notes to consolidated financial statements. 1 MERISEL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data) (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31, 1996 1995 ------------- ------------ CURRENT LIABILITIES: Accounts payable $ 320,767 $ 621,990 Accrued liabilities 58,088 71,483 Short-term debt 21,620 Long-term debt - current 80,000 35,000 Subordinated debt - current 4,400 4,400 --------- ---------- Total current liabilities 463,255 754,493 Long-term debt 272,705 299,271 Subordinated debt 13,200 17,600 Capitalized lease obligations 4,504 --------- ---------- TOTAL LIABILITIES 749,160 1,075,868 STOCKHOLDERS' EQUITY Preferred stock, $.01 par value, authorized 1,000,000 shares; none issued or outstanding Common stock, $.01 par value, authorized 50,000,000 shares; outstanding, 30,078,495 and 29,863,500 shares for 1996 and 1995, respectively 300 299 Additional paid-in capital 142,154 141,938 (Accumulated deficit)Retained earnings (122,839) 19,211 Cumulative translation adjustment (6,331) (6,982) --------- ---------- Total stockholders' equity 13,284 154,466 --------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 762,444 $1,230,334 ========= ==========
See accompanying notes to consolidated financial statements. 2 MERISEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 ---------- ---------- ---------- ---------- NET SALES $1,393,532 $1,544,018 $4,372,789 $4,378,776 COST OF SALES 1,336,339 1,454,765 4,148,786 4,110,825 ---------- ---------- ---------- ---------- GROSS PROFIT 57,193 89,253 224,003 267,951 SELLING, GENERAL & ADMINISTRATIVE EXPENSES 84,082 75,205 245,640 226,314 RESTRUCTURING CHARGE 9,333 IMPAIRMENT LOSS 40,000 40,000 ---------- ---------- ---------- ---------- OPERATING(LOSS) INCOME (66,889) 14,048 (61,637) 32,304 LOSS ON SALE OF EUROPEAN, MEXICAN AND LATIN AMERICAN OPERATIONS 33,455 33,455 INTEREST EXPENSE 9,613 11,229 29,085 30,962 OTHER EXPENSE 5,726 2,953 16,492 9,774 ---------- ---------- ---------- ---------- LOSS BEFORE INCOME TAXES (115,683) (134) (140,669) (8,432) INCOME TAX PROVISION (BENEFIT) 1,455 119 1,381 (1,777) ---------- ---------- ---------- ---------- NET LOSS $ (117,138) $ (253) $ (142,050) $ (6,655) ========== ========== ========== ========== NET LOSS PER SHARE $ (3.90) $ (0.01) $ (4.75) $ (0.22) ========== ========== ========== ========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 30,038 29,819 29,924 29,756 ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. 3 MERISEL, INC. AND SUBSIDIARIES ------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Nine Months Ended September 30, 1996 1995 --------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (142,050) $ (6,655) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 15,584 15,289 Provision for doubtful accounts 15,451 12,216 Deferred income taxes 1,086 (150) Impairment loss 40,000 Loss on sale of European, Mexican and Latin American businesses 33,455 Changes in assets and liabilities: Accounts receivable 103,639 (112,044) Inventories 205,450 (146,642) Prepaid expenses and other assets (15,274) (2,376) Income taxes receivable 30,913 (4,692) Accounts payable (242,084) 336,353 Accrued liabilities (3,064) 18,537 Income taxes payable 0 (4,422) ----------- --------- Net cash provided by operating activities 43,106 105,414 ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (9,052) (39,235) Proceeds from the sale of property and 5,976 equipment Payment of earn out obligation from ComputerLand acquisition (13,409) Cash proceeds from sale of Australian business 8,515 Sale of unconsolidated investment 800 Other investing activities 1,811 (753) ----------- --------- Net cash used for investing activities (6,159) (39,188) ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving line of credit 1,192,650 673,641 Repayments under revolving line of credit (1,166,650) (764,326) Net (repayments) borrowings under other bank facilities (15,170) 21,316 Repayment of senior notes (14,000) Repayment under subordinated debt agreement (4,400) Proceeds from issuance of common stock 215 327 ----------- --------- Net cash used in financing activities (7,355) (69,042) ----------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (4,047) 750 ----------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 25,545 (2,066) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,378 3,533 ----------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 26,923 $ 1,467 =========== =========
See accompanying notes to consolidated financial statements. 4 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. General Merisel, Inc. ("Merisel" or the "Company") is a leader in the distribution of computer hardware and software products. In addition, the Company, through its wholly owned subsidiary, Merisel FAB, Inc. ("Merisel FAB" or the "Franchise and Aggregation Business"), is an aggregator, or master reseller, of computer systems and related products from major computer manufacturers to ComputerLand franchisees and Datago resellers. The consolidated financial statements include the accounts of Merisel and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Results of operations for the three months and nine months ended September 30, 1996 may not be indicative of the results of operations expected for the fiscal year ended December 31, 1996. The information for the three months and nine months ended September 30, 1996 and 1995 has not been audited by independent accountants, but includes all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results for such periods. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the requirements of the Securities and Exchange Commission, although the Company believes that the disclosures included in these financial statements are adequate to make the information not misleading. The consolidated financial statements as presented herein should be read in conjunction with the consolidated financial statements and notes thereto included in Merisel's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. 2. New Accounting Standard In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which became effective for the Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosure of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply APB Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share. 3. Fiscal Periods The Company's fiscal year is the 52 or 53 week period ending on the Saturday nearest to December 31. The Company's three and nine month periods ended nearest September 30, 1996 and 1995 were 13 and 39 week periods, respectively. For simplicity of presentation, the Company has described the interim periods and year-end period as if the quarter ended on September 30, and the year ended on December 31, respectively. 5 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (UNAUDITED) 4. Impairment Loss In the quarter ended September 30, 1996, the Company determined that a portion of the carrying value for certain of its identifiable intangible assets will not be recovered from their use in future operations. Accordingly, these assets were written down to their fair values as of September 30, 1996. An impairment was recognized on the intangible assets of the Franchise and Aggregation Business, due to declining sales growth, margins and earnings, and the resulting negative trend in projected cash flows. The intangible assets of the Franchise and Aggregation Business were acquired in January 1994 (see Note 7) and had a net book value of $57,600,000 at September 30, 1996, prior to the write down. Fair value of the intangible assets was measured by discounting future expected cash flows, which resulted in a required write down of $40,000,000. An impairment loss of $30,000,000 associated with these assets was previously recorded in the fourth quarter of 1995. 5. Dispositions On October 4, 1996, Merisel completed the sale of substantially all of its European, Mexican and Latin American businesses (such businesses are referred to herein as "EML") to CHS Electronics, Inc. ("CHS"). The sale was effective as of September 27, 1996. A loss of $33,455,000, which includes approximately $7,400,000 of direct costs, was recorded on such sale. The sale price, computed based on the September 30, 1996 combined closing balance sheet of EML, was $149,500,000, consisting of (i) $123,200,000 in cash, of which $16,500,000 is being retained by CHS, subject to completion of the closing balance sheet audit of EML, and (ii) the assumption of Merisel's European asset securitization agreement against which $26,300,000 was outstanding at September 30, 1996. The purchase price is subject to adjustment, based on the results of the closing balance sheet audit. Following is summarized pro forma operating results assuming that the Company had sold EML as of January 1, 1995.
Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 --------- ---------- ------------ ----------- Net Sales $1,071,043 $1,210,053 $3,312,618 $3,367,845 (Loss) Income Before Taxes (76,332) 3,172 (101,534) 514 Net (Loss) Income (77,787) 3,053 (102,258) (229) Net (Loss) Income Per Share $ (2.59) $ .10 $ (3.42) $ (.01) Weighted Average Shares Outstanding 30,038 29,819 29,924 29,756 (In Thousands, Except Share Data)
6 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (UNAUDITED) EML is not an incorporated entity for which historical financial statements were prepared. The historical balances used in preparing the above proforma balances represent combined balances obtained from the separate unaudited financial statements for the individual entities comprising EML. The proforma results include adjustments for general and administrative expenses that would not have been eliminated due to the sale of EML. The proforma adjustments also include adjustments for amortization of intangible assets and for interest expense on debt repaid with a portion of the proceeds from the sale, net of the effect of an interest rate increase resulting from the renegotiation of certain debt agreements as a result of the sale. 6. Restructuring Charge During the first six months of 1995, the Company recorded charges of $9,333,000 associated with resizing and restructuring several of the Company's operations. The charge consisted of $4,578,000 of severance charges for the involuntary termination of approximately 240 employees, $2,830,000 for anticipated warehouse closures in North America and $1,925,000 for the anticipated consolidation of certain warehouses in Europe. As a result of the Company's sale of EML (see Note 5), the Company's intentions regarding its restructuring plan changed. In connection with such sale, approximately $1,900,000 of the unused restructuring charge related to EML was reversed and is offset against the loss on the sale of EML. The remaining unused restructuring charge of approximately $2,200,000 was used to offset severance costs associated with corporate downsizing as a result of the sale of EML and for fees related to the sale. As of September 30, 1996, approximately $1,057,000 of these charges remained in accrued liabilities. 7. Acquisitions On January 31, 1994, the Company, through its wholly owned subsidiary, Merisel FAB, acquired certain assets of the ComputerLand franchise and Datago aggregation businesses of Vanstar Corporation (formerly ComputerLand Corporation) (the "ComputerLand Acquisition"). The Company paid $80,200,000 in cash at closing for the acquired assets and $2,100,000 of direct acquisition costs. In addition, on February 2, 1996 the Company paid Vanstar $13,409,000, which consisted of a negotiated settlement of the Company's earn out obligation under the original purchase agreement related to the ComputerLand Acquisition of $14,594,000, net of rebates of $1,185,000. The acquisition has been accounted for as a purchase. Under the purchase method of accounting, an allocation of the purchase price to the Merisel FAB assets and liabilities is required to reflect fair values. Based on an independent valuation prepared for the Company, $82,300,000 of the purchase price and $14,000,000 of the additional payment were allocated to intangible assets with an estimated aggregate life of 25 years. In the fourth quarter of 1995, the Company wrote down a portion of these assets by $30,000,000 in recognition of an impairment loss. In the quarter ended September 30, 1996, an additional impairment loss of $40,000,000 was recognized related to these assets. 7 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (UNAUDITED) In connection with the ComputerLand Acquisition, Merisel FAB entered into a Distribution and Services Agreement (the "Services Agreement") with Vanstar whereby Vanstar provides significant distribution and other support services to the Franchise and Aggregation Business for a contractually agreed upon fee. Effective July 12, 1995, this agreement was extended until April 30, 1997. Under the terms of the Services Agreement extension, Merisel and Vanstar agreed that (i) the extended credit terms under the Services Agreement would be increased to $31,400,000; and, (ii) the terms of the distribution fee would be adjusted. The amount of the extended credit will be reduced by a scheduled amount of $844,000 monthly through October 31, 1996. A final balance of $23,500,000 will be payable in four scheduled payments between May 15, 1997 and July 31, 1997. If an inventory reduction plan is agreed upon between the two parties, then the $23,500,000 may decrease on an accelerated basis. 8. Sale of Accounts Receivable The Company's wholly owned subsidiary Merisel Americas, Inc. ("Merisel Americas") on an ongoing basis, sells trade receivables to its wholly owned subsidiary, Merisel Capital Funding, Inc. ("Merisel Capital Funding"). Pursuant to an agreement with a securitization company (the "Receivables Purchase and Servicing Agreement"), Merisel Capital Funding, in turn, sells such receivables to the securitization company on an ongoing basis, which yields proceeds of up to $300,000,000 at any point in time. Merisel Capital Funding's sole business is the purchase of trade receivables from Merisel Americas. Merisel Capital Funding is a separate corporate entity with its own separate creditors, which upon its liquidation will be entitled to be satisfied out of Merisel Capital Funding's assets prior to any value in Merisel Capital Funding becoming available to Merisel Capital Funding's equity holders. This facility expires in October 2000. As a result of the substantial losses incurred by the Company for the three months and nine months ended September 30, 1996, Merisel Americas and Merisel Capital Funding were required to, and did obtain, amendments and waivers with respect to certain covenants under this facility. Effective December 15, 1995, Merisel Canada, Inc. ("Merisel Canada") entered into a receivables purchase agreement with a securitization company to provide funding for Merisel's Canadian subsidiary. In accordance with this agreement, Merisel Canada sells receivables to the securitization company, which yields proceeds of up to $150,000,000 Canadian dollars. The facility expires December 12, 2000, but is extendible by notice from the securitization company, subject to the Company's approval. Effective October 16, 1995, Merisel U.K. Ltd. ("Merisel U.K.") entered into a receivables purchase agreement with a securitization company to provide funding for Merisel's U.K. subsidiary. This facility, including $26,300,000 outstanding thereunder, was assumed by CHS in connection with the purchase of EML. 8 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (UNAUDITED) Under these securitization facilities, the receivables are sold at face value with payment of a portion of the purchase price being deferred. As of September 30, 1996, the total amount outstanding under these facilities, excluding amounts assumed by CHS, was $240,995,000. Fees incurred in connection with the sale of accounts receivable under these three facilities for the three months and nine months ended September 30, 1996 were $3,746,000 and $12,272,000, respectively, compared to $2,652,000 and $7,747,000 incurred for the three months and nine months ended September 30, 1995 and are recorded as other expense. 9. Debt At September 30, 1996, the Company's subsidiaries, Merisel Americas and Merisel Europe, Inc. ("Merisel Europe") had unsecured senior borrowing commitments, which as amended, consisted of $86,000,000 of 9.58% senior notes (the "Senior Notes") by Merisel Americas, and a $129,000,000 revolving credit agreement (the Revolving Credit Agreement") by Merisel Americas and Merisel Europe, all of which was outstanding. Advances under the Revolving Credit Agreement bear interest at specific rates based upon market reference rates plus a specified percentage. The average interest rate for the Revolving Credit Agreement at September 30, 1996 was approximately 8.45%. In the three months and nine months ended September 30, 1996, the Company paid a total of $15,000,000 and $35,000,000, respectively, in aggregate scheduled amortization payments under the Senior Notes and Revolving Credit Agreement. On October 4, 1996, the Company amended the Senior Notes and the Revolving Credit Agreement and used a portion of the proceeds received from the sale of EML to permanently reduce the outstanding borrowings on the Senior Notes and the Revolving Credit Agreement by $29,000,000 and $43,500,000, respectively, resulting in a principal balance outstanding of $57,000,000 and $85,500,000, respectively. As amended these agreements require that the Company make an aggregate of five consecutive principal payments of $1,500,000 each, on the fifth calendar day of each month from February through June, 1997 plus an additional principal repayment of $7,500,000 on January 2, 1998. As amended, the Senior Notes and Revolving Credit Agreement provide that if the Company makes the June 30, 1997 interest payment on its 12.50% senior notes due December 31, 2004 (the "Notes") at any time before January 31, 1998, then the Company shall make an aggregate principal repayment of an additional $40,000,000 on the Senior Notes and the Revolving Credit Agreement. The Senior Notes and the Revolving Credit Agreement are due in full on January 31, 1998. In addition, the interest rate on the Senior Notes increased to 11.5% and the Revolving Credit Agreement interest rate increased by 2.35%. The amendments also provide that certain tax refunds and asset sale proceeds when received by the Company shall be used to permanently prepay the Senior Notes and Revolving Credit Agreement. The principal repayments will be shared ratably by the lenders under the Revolving Credit Agreement and the holders of the Senior Notes. 9 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (UNAUDITED) The Senior Notes and the Revolving Credit Agreement each contain various covenants, including those which prohibit the payment of cash dividends, require a minimum amount of tangible net worth, and place limitations on the acquisition of assets. These agreements also require the Company or certain of its subsidiaries to maintain certain specified financial ratios. Such financial ratios include: interest coverage; minimum adjusted tangible net worth; minimum earnings before interest, taxes, depreciation, amortization and securitization expense; total debt equivalents to adjusted tangible net worth; inventory turnover; minimum accounts payable; and minimum accounts payable to inventory. As a result of the substantial losses incurred by the Company for the three months and nine months ended September 30, 1996, the Company was required to obtain, and did obtain waivers of various covenants, including financial ratio covenants, contained in the Senior Notes and the Revolving Credit Agreement for the Company's third fiscal quarter of 1996, and amendments of such covenants for future periods. At September 30, 1996, the Company had outstanding $125,000,000 principal amount of the Notes due December 31, 2004. The Notes provide for an interest rate of 12.5% payable semiannually. By virtue of being an obligation of the Company, the Notes are effectively subordinated to all liabilities of the Company's subsidiaries, including trade payables. The Indenture relating to the Notes contains certain covenants that, among other things, limit the type and amount of additional indebtedness that may be incurred by the Company or any of its subsidiaries and impose limitations on investments, loans, advances, sales or transfers of assets, the making of dividends and other payments, the creation of liens, sale-leaseback transactions with affiliates and certain mergers. Without a restructuring or refinancing of the Company's debt, the Company may be unable to make its June 30, 1997 interest payment on the Notes and the additional $40,000,000 repayment on the Senior Notes and the Revolving Credit Agreement required before such interest payment can be made. In addition, the restriction on dividend payments contained in the Senior Notes Agreement and the Revolving Credit Agreement could limit the ability of the Company to repay principal and interest on the Notes if, and to the extent that, such limitations prevent cash or other dividends from being paid to the Company. Further, in the event of a default under the Senior Notes agreement and the Revolving Credit Agreement, payments of principal and interest on the Notes are prohibited. At September 30, 1996 Merisel Americas had outstanding an aggregate of $17,600,000 of privately placed subordinated notes (as amended, the "Subordinated Notes"). The Subordinated Notes, as amended, provide for interest at the rate of 11.78% per annum and are repayable in four remaining equal annual installments with the next installment due January 1997. Commencing on September 10, 1996, accrued interest on the Subordinated Notes is required to be paid quarterly, rather than semi-annually. The Subordinated Notes agreement contain certain restrictive covenants, including those that limit the Company's ability to incur debt, acquire the stock of or merge with other corporations, or sell certain assets and prohibit the payment of dividends. The Subordinated Notes also incorporate the financial covenants contained in the Senior Notes agreement and the Revolving Credit Agreement. In connection with the amendment of the Revolving Credit Agreement and the Senior Notes described above, the Company was required to obtain, and did obtain an amendment of the Subordinated Note Purchase Agreement. 10 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (UNAUDITED) At September 30, 1996, the Company had promissory notes outstanding with an aggregate balance of $10,528,000. Such notes provide for interest at the rate of approximately 7.7% per annum and are repayable in 48 and 60 monthly installments commencing February 1, 1996, with payments due at maturity. The notes are collateralized by certain of the Company's real property and equipment. In addition, the Company had a capitalized real property lease in the amount of approximately $2,200,000, which was repaid on October 17, 1996. At September 30, 1995, the Company and its subsidiaries had outstanding $59,186,936 under various unsecured lines of credit denominated in local currencies. 10. Net Loss Per Share Net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the related period, including common stock options when dilutive. 11. Supplemental Disclosure of Cash Flow Information Cash paid (received) for interest and income taxes for the nine month periods ended September 30, 1996 and 1995 was as follows:
1996 1995 ---- ---- (In Thousands) Interest $ 36,208 $29,498 Income taxes $(30,370) $ 7,034
11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL; LOSS ON SALE OF ASSETS - ------------------------------- Merisel, Inc. together with its subsidiaries ("Merisel" or the "Company") is a leader in the distribution of computer hardware and software products. Through its full line, channel-specialized distribution business, Merisel combines the comprehensive product selection and operational efficiency of a full-line distributor with the customer support of a specialty distributor offering a dedicated sales organization to each of its customer groups. In addition, through its wholly owned subsidiary, Merisel FAB, Inc. ("Merisel FAB" or the "Franchise and Aggregation Business"), the Company is an aggregator, or master reseller, of computer systems and related products from major computer manufacturers, including Apple, Compaq, Hewlett-Packard and IBM, to a network of approximately 730 independently owned computer product resellers in the United States. In April 1996, in order to comply with the requirements of its lenders, Merisel developed a business plan for the remainder of fiscal 1996 that sought to maximize cash flow by controlling costs, curtailing non-essential capital expenditures, eliminating investments and disposing of assets. On October 4, 1996, Merisel completed the sale of substantially all of its European, Mexican and Latin American businesses (such businesses are referred to herein as "EML") to CHS Electronics, Inc. ("CHS"). The sale was effective as of September 27, 1996. A loss of $33,455,000, which includes approximately $7,400,000 of direct costs, was recorded on such sale. The sale price, computed based on the September 30, 1996 combined closing balance sheet of EML, was $149,500,000, consisting of (i) $123,200,000 in cash, of which $16,500,000 is being retained by CHS, subject to completion of the closing balance sheet audit of EML, and (ii) the assumption of Merisel's European asset securitization agreement against which $26,300,000 was outstanding at September 30, 1996. The purchase price is subject to adjustment based on the results of the closing balance sheet. In addition, in March 1996 the Company sold its Australian operations. Merisel's only remaining investment outside of North America is a minority interest in a distribution business in Russia. As a result of these asset dispositions, Merisel is now a North American distributor of computer hardware and software products. In 1995, the North American Business (as defined below) produced $4.6 billion in revenue and the Former Operations (as defined below) produced $1.4 billion in revenue. As the North American Business represents the ongoing business of the Company, the following discussion and analysis will compare the results of operations for the three months and nine months ended September 30, 1996 for the North American Business only. As used in this discussion and analysis, the term "North American Business" refers to Merisel's United States, Canadian and FAB operations, the term "Distribution Business" refers to Merisel's United States and Canadian distribution businesses and the term "Former Operations" refers to those operations disposed of by Merisel in 1996, namely EML and the Australian operations. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (continued) RESULTS OF OPERATIONS Three Months Ended September 30, 1996 as Compared to the Three Months Ended - --------------------------------------------------------------------------- September 30, 1995. - ------------------- The following table sets forth the unaudited results of operations for the North American Business and for the Former Operations for the three months ended September 30, 1996 and September 30, 1995.
Three Months Ended Three Months Ended September 30, 1996 September 30, 1995 (In Thousands) (Unaudited) (In Thousands) (Unaudited) North North American Former Consolidated American Former Consolidated Business Operations Total Business Operations Total Net Sales $1,071,043 $322,489 $1,393,532 $1,210,052 $333,966 $1,544,018 Cost of Sales 1,035,252 301,087 1,336,339 1,144,350 310,415 1,454,765 ---------- -------- ---------- ---------- -------- ---------- Gross Profit 35,791 21,402 57,193 65,702 23,551 89,253 SG&A Expenses 61,508 22,574 84,082 51,278 23,927 75,205 Impairment Loss 40,000 40,000 ---------- -------- ---------- ---------- -------- ---------- Operating (Loss) Income $ (65,717) $ (1,172) $ (66,889) $ 14,424 $ (376) $ 14,048
For the quarter ended September 30, 1996, net sales for the North American Business decreased by 11.5% from $1,210,052,000 in the quarter ended September 30, 1995 to $1,071,043,000 in the quarter ended September 30, 1996. Net sales decreased by 14.5% in the United States, increased by 13.4% in Canada and decreased by 14.3% in the Franchise and Aggregation Business. In the third quarter of 1995, the North American Business sold approximately $156,000,000 of Microsoft Windows'95 following its launch in August 1995. Without this additional revenue, net sales would have decreased in the United States by 0.5%, increased in Canada by 25.1% and decreased for the Franchise and Aggregation Business by 14.3%. The Company also lost market share, in the North American Business due to competitive pressure, liquidity constraints and cost controls implemented by the Company, which curtailed sales growth. Canadian sales growth in 1996 was positively impacted by reduced sales in 1995 related to Canada's implementation of SAP software. In the North American Business, hardware and accessories accounted for 80% of net sales and software accounted for 20% of net sales in the third quarter of 1996, as compared to 71% and 29% for the same categories, respectively, in the third quarter of 1995. Software sales were a larger percentage of total sales in the prior year, primarily due to the Microsoft Windows'95 launch. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (continued) Gross profit for the North American Business decreased 45.5% from $65,702,000 in 1995 to $35,791,000 in 1996. Gross profit as a percentage of sales or gross margin, decreased from 5.4% in 1995 to 3.3% in 1996. In 1995, the gross profit as a percentage of sales for the Franchise and Aggregation Business and the Distribution Business was 3.5% and 6.7%, respectively, compared to 3.5% and 3.3%, respectively, in 1996. The decrease in gross profit is in part attributable to $13,400,000 related to customer dispute issues in the United States and $9,600,000 of vendor reconciliation adjustments and other issues. Without these items, gross profit as a percentage of sales would have been 5.5% for the Distribution Business. The Company's Distribution Business continued to experience competitive pricing pressures. The decrease in the Franchise and Aggregation Business' gross profit as a percentage of sales is the result of intense price competition. Selling, general and administrative expenses for the North American Business increased by 20.0% from $51,278,000 in the third quarter of 1995 to $61,508,000 in the third quarter of 1996. The $10,230,000 increase is due to severance costs associated with carrying out the Company's 1996 business plan and strategies, and to continuing professional fees and other costs to develop business plans and strategies and to improve certain business processes. Additionally, the Company incurred increased expenses associated with its new computer operating system. In the third quarter of 1996, Merisel recorded a $40,000,000 asset impairment adjustment related to the goodwill associated with Merisel FAB. This writedown of goodwill is in addition to the $30,000,000 writedown taken in the fourth quarter of 1995. This additional writedown was a result of declining sales growth, margins and earnings, and the resulting negative trend in projected cash flows for the Franchise and Aggregation Business. As a result of the above items, operating income for the North American Business of $14,424,000 in the third quarter of 1995 decreased to an operating loss of $65,717,000 in the third quarter of 1996. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (continued) Nine Months Ended September 30, 1996 as Compared to the Nine Months Ended - ------------------------------------------------------------------------- September 30, 1995 - ------------------ The following table sets forth the unaudited results of operations for the North American Business and for the Former Operations for the nine months ended September 30, 1996 and September 30, 1995.
Nine Months Ended Nine Months Ended September 30, 1996 September 30, 1995 (In Thousands) (Unaudited) (In Thousands) (Unaudited) North North American Former Consolidated American Former Consolidated Business Operations Total Business Operations Total (in thousands) (in thousands) Net Sales $3,312,618 $1,060,171 $4,372,789 $3,367,845 $1,010,931 $4,378,776 Cost of Sales 3,161,837 986,949 4,148,786 3,171,371 939,454 4,110,825 ---------- ---------- ---------- ---------- ---------- ---------- Gross Profit 150,781 73,222 224,003 196,474 71,477 267,951 SG&A Expenses 174,320 71,320 245,640 155,304 71,010 226,314 Restructuring charges 5,228 4,105 9,333 Impairment Loss 40,000 40,000 ---------- ---------- ---------- ---------- ---------- ---------- Operating (Loss) Income $ (63,539) $ 1,902 $ (61,637) $ 35,942 $ (3,638) $ 32,304
For the nine months ended September 30, 1996, net sales for the North American Business decreased by 1.6% from 3,367,845,000 in the nine months ended September 30, 1995, to $3,312,618,000 in the nine months ended September 30, 1996. Net sales increased by 0.1% in the United States, increased by 7.3% in Canada and decreased by 10.2% in the Franchise and Aggregation Business. In the nine months ended September 30, 1995, the North American Business sold approximately $156,000,000 of Microsoft Windows'95 following its launch in August 1995. Without this additional revenue, net sales would have increased in the United States by 5.8%, increased in Canada by 10.4% and decreased for the Franchise and Aggregation Business by 10.2%. The Company also lost market share in the North American Business due to competitive pressures, liquidity constraints and cost controls implemented by the Company which curtailed sales growth. Canadian sales growth in 1996 was positively impacted by reduced sales in 1995 related to Canada's implementation of SAP software. In the North American Business, hardware and accessories accounted for 80% of net sales, and software accounted for 20% of net sales in the nine months ended September 30, 1996, as compared to 75% and 25% for the same categories, respectively, in the first nine months of 1995. Software sales were a larger percentage of total sales in the prior year primarily due to the Microsoft Windows'95 launch. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (continued) Gross profit for the North American Business decreased 23.3% from $196,474,000 in 1995 to $150,781,000 in 1996. Gross profit as a percentage of sales or gross margin, decreased from 5.8% in 1995 to 4.6% in 1996. In 1995, gross profit as a percentage of sales for the Franchise and Aggregation Business and the Distribution Business was 4.0% and 6.5%, respectively, compared to 3.6% and 4.8%, respectively, in 1996. The decrease in gross profit is in part attributable to a $13,400,000 charge related to customer dispute issues in the U.S. and $9,600,000 of vendor reconciliation adjustments and other issues in Canada. Without these items, gross profit as a percentage of sales would have been 5.3% for the Distribution Business. The Company's Distribution Business continued to experience competitive pricing pressures. The decrease in the Franchise and Aggregation Business' gross profit as a percentage of sales is the result of intense price competition and the effect of a revised pricing structure offered to new and existing franchisees to deal with this competition. The Company anticipates that it will continue to experience intense price competition. Selling, general and administrative expenses for the North American Business increased by 12.2% from $155,304,000 in the nine months ended September 30, 1995 to $174,320,000 in the nine months ended September 30, 1996. The $19,016,000 increase is due to severance costs associated with carrying out the Company's 1996 business plan and strategy, professional costs incurred to prepare the Company's business plans and strategies, and continuing professional fees and other costs to improve certain business processes including the supplier account reconciliation process. Additionally, the Company incurred increased expenses associated with its new computer operating system. In the third quarter of 1996, Merisel recorded a $40,000,000 asset impairment adjustment related to the goodwill associated with Merisel FAB. This writedown of goodwill is in addition to the $30,000,000 writedown taken in the fourth quarter of 1995. This additional writedown was a result of declining sales growth, margins and earnings, and the resulting negative trend in projected cash flows for the Franchise and Aggregation Business. As a result of the above items, operating income for the North American Business of $35,942,000 in the nine months ended September 30, 1995 decreased to an operating loss of $63,539,000 in the nine months ended September 30, 1996. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (continued) INTEREST EXPENSE; OTHER EXPENSE; AND INCOME TAX PROVISION Interest expense for the Company, including the Former Operations, decreased 14.4% from $11,229,000 in the quarter ended September 30, 1995 to $9,613,000 in the quarter ended September 30, 1996 and remained level at 0.7% of net sales. For the nine months ended September 30, 1996, interest expense decreased 6.0% from $30,962,000 in 1995 to $29,085,000 in 1996 and remained unchanged at 0.7% of net sales. The Company's average month-end borrowings increased 4% from $384,000,000 in 1995 to $397,600,000 in 1996. The increase in average borrowings in 1996 reflected primarily the need to finance higher levels of working capital to support increased sales and the higher cash balance maintained by the Company.borrowings in 1996 is primarily the result of the higher cash balances maintained by the Company. The decrease in interest expense is primarily due to lower interest expense related to customer flooring arrangements. Other expenses for the Company, including Former Operations, increased from $2,953,000 in the three months ended September 30, 1995 to $5,726,000 for the same period in 1996. Other expenses for the Company, including the Former Operations, increased from $9,774,000 in the nine months ended September 30, 1995, to $16,492,000 for the same period in 1996. The increase was primarily attributable to fees incurred in connection with an increase in the Company's trade receivable securitizations in 1996. The increase in securitization fees is primarily attributable to an increase in the amount of net receivables sold. The average month end proceeds from proceeds from accounts receivable sales under all of the Company's various facilities increased from $150,000,000 in 1995 to $266,214,000 in 1996. The income tax provision increased from a benefit of $1,777,000 for the nine months ended September 30, 1995 to an expense of $1,341,000 for the same period in 1996. The Company has not recognized a tax provision benefit with respect to its current losses, due to having exhausted its ability to carryback those losses and obtain refunds of taxes paid in prior years. Further, the Company has recognized tax provision expense that primarily represents the establishment of a valuation allowance against a previously recognized state deferred tax asset. CONSOLIDATED LOSS On a consolidated basis for the Company, including the Former Operations, net loss increased from $6,655,000 in 1995 to $142,050,000 in 1996. Net loss per share increased from $0.22 in 1995 to $4.75 in 1996. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (continued) 1996 BUSINESS PLAN - ------------------ In April 1996, in order to comply with the requirements of its lenders, Merisel developed a business plan for the remainder of fiscal 1996 that sought to maximize cash flow by controlling costs, curtailing non-essential capital expenditures, limiting investments and disposing of assets. On October 4, 1996, the Company completed the sale of substantially all of the Company's European, Mexican and Latin American businesses. Merisel applied $72,500,000 of the proceeds from the sale of EML subsequent to the end of the quarter to permanently reduce its outstanding senior bank debt and senior privately issued debt. In connection with the sale, the Company also made several amendments to its lending agreements. See "Liquidity and Capital Resources" below. Although the sale of EML caused Merisel's third quarter net loss to increase by $33,455,000, the Company has retained approximately $50,000,000 in cash from the transaction, which provides additional working capital to fund the remaining operations. See Notes 6 & 8 of Notes to Consolidated Financial Statements. Following the sale of EML, the Company refocused its efforts on profitable growth for its remaining North American distribution businesses. Merisel's 1996 business plan assumed that the Company would not return to profitability until the fourth quarter of 1996. As the Company's focus changes from conserving cash to managing for profitable growth, management continues to expect that Merisel will return to profitability, if not by year end, within the next six months. These expectations are based on the Company's ability to achieve expected sales and gross margin levels and maintain the support of its trade creditors and lenders. Further, in light of the significant principal payments required by its lenders in 1997, as well as other obligations described below, the Company may not be able to finance its operations or amortize its debt in 1997 without either refinancing or restructuring its borrowings or obtaining new sources of financing, or some combination thereof, and there can be no assurance that it will be able to accomplish such restructuring or refinancing. See "Liquidity and Capital Resources" below. The preceding preliminary financial information constitutes forward looking information and actual results could differ materially from current expectations. Among the factors that could impact actual results are the following: additional adjustments related to the Company's ongoing supplier account reconciliation process in Canada, to customer disputes or to the impairment of long term assets; significant changes in payment terms to or product availability from the Company's key vendors; any further unanticipated charges associated with the Company's computer and operating systems; any asset dispositions or potential restructurings; and any reduction in customer demand or deterioration of margins. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (continued) LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company has financed its growth and cash needs primarily through borrowings, securitizations of its trade receivables and sales of assets. Net cash provided by operating activities during the nine months ended September 30, 1996 was $43,106,000. The primary sources of cash from operating activities were decreases in inventories, accounts receivable and income taxes receivable of, $205,450,000, $103,639,000 and $30,913,000, respectively. The primary uses of cash during the period were a net loss of $142,050,000 and a decrease in accounts payable of $242,084,000. Decreased inventory and accounts receivable levels resulted primarily from improved management of inventories and collections. The decrease in inventories also contributed to the decrease in accounts payable. Net cash used for investing activities in 1996 was $6,159,000, consisting of payment of the Company's earn out obligation under the ComputerLand Acquisition of $13,409,000 and property and equipment expenditures of $9,052,000, partly offset by proceeds from the sale of property and equipment of $5,976,000 and by proceeds received of $8,515,000 from the sale of the Company's Australian operations. The expenditures for property and equipment were primarily for the upgrading of the Company's computer systems, expenditures for a new warehouse management system and the upgrading of existing facilities and leasehold improvements. The Company presently anticipates that its capital expenditures for 1996 will be approximately $12,885,000 consisting of costs of upgrading and modifying the new computer system and the new warehouse management systems in North America, purchase of warehouse and other equipment in North America, and costs incurred in prior months, related to the development of computer systems in the European operations that were sold at the end of the third quarter. In addition, the Company has deferred non-essential capital expenditures to maximize its cash flow in 1996. See "1996 Business Plan" above. The Company intends to finance its anticipated capital expenditures with funds from existing operations. Net cash used in financing activities was $7,355,000, comprised primarily of repayments of Senior Notes (as defined below) of $14,000,000, the payment of the first installment of $4,400,000 of the Subordinated Notes (as defined below), and repayment of $15,170,000 under other bank facilities, partially offset by net borrowings under the Revolving Credit Agreement (as defined below) of $26,000,000. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (continued) The Company's wholly owned subsidiary Merisel Americas, Inc. ("Merisel Americas") on an ongoing basis, sells trade receivables to its wholly owned subsidiary, Merisel Capital Funding, Inc. ("Merisel Capital Funding"). Pursuant to an agreement with a securitization company (the "Receivables Purchase and Servicing Agreement"), Merisel Capital Funding, in turn, sells such receivables to the securitization company on an ongoing basis, which yields proceeds of up to $300,000,000 at any point in time. Merisel Capital Funding's sole business is the purchase of trade receivables from Merisel Americas. Merisel Capital Funding is a separate corporate entity with its own separate creditors, which upon its liquidation will be entitled to be satisfied out of Merisel Capital Funding's assets prior to any value in Merisel Capital Funding becoming available to Merisel Capital Funding's equity holders. This facility expires in October 2000. As a result of the substantial losses incurred by the Company for the three months and nine months ended September 30, 1996, Merisel Americas and Merisel Capital Funding were required to obtain, and did obtain, amendments and waivers with respect to certain covenants under this facility. Effective December 15, 1995, Merisel Canada, Inc. ("Merisel Canada") entered into a receivables purchase agreement with a securitization company to provide funding for Merisel's Canadian subsidiary. In accordance with this agreement, Merisel Canada sells receivables to the securitization company, which yields proceeds of up to $150,000,000 Canadian dollars. The facility expires December 12, 2000, but is extendible by notice from the securitization company, subject to the Company's approval. Effective October 16, 1995, Merisel U.K. Ltd. ("Merisel U.K.") entered into a receivables purchase agreement with a securitization company to provide funding for Merisel's U.K. subsidiary. This facility, including $26,300,000 outstanding thereunder, was assumed by CHS in connection with the purchase of EML. Under these securitization facilities, the receivables are sold at face value with payment of a portion of the purchase price being deferred. As of September 30, 1996, the total amount outstanding under these facilities, excluding amounts assumed by CHS, was $240,995,450. Fees incurred in connection with the sale of accounts receivable under these three facilities for the three months and nine months ended September 30, 1996 were $3,746,000 and $12,273,000, respectively, compared to $2,652,000 and $7,747,000 incurred for the three months and nine months ended September 30, 1995 and are recorded as other expense. At September 30, 1996, the Company's subsidiaries, Merisel Americas and Merisel Europe, Inc. ("Merisel Europe") had unsecured senior borrowing commitments, which as amended, consisted of $86,000,000 of 9.58% senior notes (the "Senior Notes") by Merisel Americas, and a $129,000,000 revolving credit agreement (the "Revolving Credit Agreement") by Merisel Americas and Merisel Europe, all of which was outstanding. Advances under the Revolving Credit Agreement bear interest at specific rates based upon market reference rates plus a specified percentage. The average interest rate for the Revolving Credit Agreement at September 30, 1996 was approximately 8.45%. In the three months and nine months ended September 30, 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (continued) 1996, the Company paid a total of $15,000,000 and $35,000,000, respectively, in scheduled amortization payments under the Senior Notes and the Revolving Credit Agreement. On October 4, 1996, the Company amended the Senior Notes and the Revolving Credit Agreement and used a portion of the proceeds received from the sale of EML to permanently reduce the outstanding borrowings on the Senior Notes and the Revolving Credit Agreement by $29,000,000 and $43,500,000, respectively, resulting in a principal balance outstanding of $57,000,000 and $85,500,000, respectively. As amended these agreements require that the Company make an aggregate of five consecutive principal payments of $1,500,000 each, on the fifth calendar day of each month from February through June, 1997, plus an additional principal repayment of $7,500,000 on January 2, 1998. As amended, the Senior Notes and Revolving Credit Agreement provide that if the Company makes the June 30, 1997 interest payment on the 12.50% Senior Notes due December 31, 2004 (the "Notes") at any time before January 31, 1998, then the Company shall make an aggregate principal repayment of an additional $40,000,000 on the Senior Notes and the Revolving Credit Agreement. The Senior Notes and the Revolving Credit Agreement are due in full on January 31, 1998. In addition, the interest rate on the Senior Notes increased to 11.5%. The Revolving Credit Agreement interest rate increased by 2.35%. The amendments also provide that certain tax refunds and asset sale proceeds when received by the Company shall be used to permanently prepay the Senior Notes and Revolving Credit Agreement. The principal repayments will be shared ratably by the lenders under the Revolving Credit Agreement and the holders of the Senior Notes, although to the extent that the Company has not borrowed the full amount available under the Revolving Credit Agreement, the lenders' collective commitments under the Revolving Credit Agreement will be reduced by the ratable amounts without any payment by the Company. The Company is also required to pay a commitment fee on the unused available funds on the Revolving Credit Agreement. The Senior Notes and the Revolving Credit Agreement each contain various covenants, including those which prohibit the payment of cash dividends, require a minimum amount of tangible net worth, and place limitations on the acquisition of assets. These agreements also require the Company or certain of its subsidiaries to maintain certain specified financial ratios. Such financial ratios include: interest coverage; minimum adjusted tangible net worth; minimum earnings before interest, taxes, depreciation, amortization and securitization expense; total debt equivalents to adjusted tangible net worth; inventory turnover; minimum accounts payable; and minimum accounts payable to inventory. As a result of the substantial losses incurred by the Company for the three months and nine months ended September 30, 1996, the Company was required to obtain, and did obtain waivers of various covenants, including financial ratio covenants, contained in the Senior Notes and the Revolving Credit Agreement for the Company's third fiscal quarter of 1996, and amendments of such covenants for future periods. At September 30, 1996, the Company had outstanding $125,000,000 principal amount of the Notes due December 31, 2004. The Notes provide for an interest rate of 12.5% payable semiannually. By virtue of being an obligation of the Company, the Notes are effectively subordinated to all liabilities of the Company's subsidiaries, including trade payables. The Indenture relating to the Notes contains certain covenants that, among other things, limit the type and amount of additional indebtedness that may be incurred by the Company or any of its 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (continued) subsidiaries and impose limitations on investments, loans, advances, sales or transfers of assets, the making of dividends and other payments, the creation of liens, sale-leaseback transactions with affiliates and certain mergers. Without a restructuring or refinancing of the Company's debt, the Company may be unable to make its June 30, 1997 interest payment on the Notes and the additional $40,000,000 repayment on the Senior Notes and the Revolving Credit Agreement required before such interest payment can be made. In addition, the restriction on dividend payments contained in the Senior Notes Agreement and the Revolving Credit Agreement could limit the ability of the Company to repay principal and interest on the Notes if, and to the extent that, such limitations prevent cash or other dividends from being paid to the holding Company. Further, in the event of a default under the Senior Notes agreement and the Revolving Credit Agreement, payments of principal and interest on the Notes are prohibited. At September 30, 1996 Merisel Americas had outstanding an aggregate of $17,600,000 of privately placed subordinated notes (the "Subordinated Notes"). The Subordinated Notes, as amended, provide for interest at the rate of 11.78% per annum and are repayable in four remaining equal annual installments with the next installment due January 1997. Commencing on September 10, 1996, accrued interest on the Subordinated Notes is required to be paid quarterly, rather than semi-annually. The Subordinated Notes contain certain restrictive covenants, including those that limit the Company's ability to incur debt, acquire the stock of or merge with other corporations, or sell certain assets and prohibit the payment of dividends. The Subordinated Notes also incorporate the financial covenants contained in the Senior Notes and the Revolving Credit Agreement. In connection with the amendment of the Revolving Credit Agreement and the Senior Notes described above, the Company was required to obtain, and did obtain, an amendment of the Subordinated Note Purchase Agreement. At September 30, 1996, the Company had promissory notes outstanding with an aggregate balance of $10,528,000. Such notes provide for interest at the rate of approximately 7.7% per annum and are repayable in 48 and 60 monthly installments commencing February 1, 1996, with payments due at maturity. The notes are collateralized by certain of the Company's real property and equipment. In addition the Company had a capitalized real property lease in the amount of approximately $2,200,000, which was repaid on October 17,1996. At September 30, 1995 the Company and its subsidiaries had outstanding $59,186,936 under various unsecured lines of credit denominated in local currencies. 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (continued) In connection with the ComputerLand Acquisition, Merisel FAB and Vanstar entered into a Distribution and Services Agreement (the "Services Agreement") pursuant to which Vanstar provides significant distribution and other support services to the Franchise and Aggregation Business for a contractually agreed upon fee. Effective July 12, 1995, this agreement was extended until April 30, 1997. Under the terms of the Services Agreement extension, Merisel and Vanstar agreed that (i) the extended credit terms under the Services Agreement would be increased to $31,400,000; and (ii) the terms of the distribution fee would be adjusted. The amount of the extended credit will be reduced by a scheduled amount of $844,000 monthly through October 31, 1996. As of September 30, 1996, the Vanstar payable, including the extended amount, was $25,188,000. A final balance of $23,500,000 will be payable in four scheduled payments between May 15, 1997 and July 31, 1997. If an inventory reduction plan is agreed upon between the two parties, then the $23,500,000 may decrease on an accelerated basis. In addition, on February 2, 1996, the Company paid Vanstar $13,409,000 which consisted of a negotiated settlement of the Company's earn out obligation under the original purchase agreement related to the ComputerLand acquisition of $14,594,000, net of rebates of $1,185,000. See Note 5 to Consolidated Financial Statements. Further, in light of the significant principal payments required by its lenders in 1997, as well as other obligations described above, the Company may not be able to finance its operations or amortize its debt in 1997 without either refinancing or restructuring its borrowings or obtaining new sources of financing, or some combination thereof, and there can be no assurance that it will be able to accomplish such restructuring or refinancing. See "1996 Business Plan" above. SYSTEMS AND PROCESSES - --------------------- The Company began designing a new computer operating system in early 1993 and as the first step in converting its North American operation converted its Canadian operation to the new system in August 1995. In the early implementation stages the Canadian conversion produced results below the Company's expectations. In late February 1996, Merisel Canada's operating systems had begun to show results closer to the Company's original projection. However, this required substantial additional development efforts and costs in the post-implementation period. Accumulated expenditures incurred to develop these systems have been significantly in excess of the amounts originally expected. As the Company implements its North American strategy, it intends to implement SAP in the United States no sooner than 1998. The Company is also reviewing certain of its existing accounting systems, including shipping and billing processes, which may result in adjustments to accounts receivable and/or inventory balances. 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (continued) VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY - ------------------------------------------------ Historically, the Company has experienced variability in its net sales and operating margins on a quarterly basis and expects these patterns to continue in the future. Management believes that the factors influencing quarterly variability include: (i) the overall growth in the computer industry; (ii) shifts in short-term demand for the Company's products resulting, in part, from the introduction of new products or updates of existing products; and (iii) the fact that virtually all sales in a given quarter result from orders booked in that quarter. Due to the factors noted above, as well as the fact that the Company participates in a highly dynamic industry, the Company's revenues and earnings may be subject to material volatility, particularly on a quarterly basis. Additionally, the Company's net sales in the fourth quarter have been historically higher than in its other three quarters. Management believes that the pattern of higher fourth quarter sales is partially explained by customer buying patterns relating to calendar year-end business purchases and holiday purchases. As a result of this pattern the Company's cash requirements in the fourth quarter have typically been greater. See "Liquidity and Capital Resources" above. ASSET MANAGEMENT - ---------------- Merisel attempts to manage its inventory position to maintain levels sufficient to achieve high product availability and same day order fill rates. Inventory levels may vary from period to period, due in part to increases or decreases in sales levels and Merisel's practice of making large purchases when it deems the terms of such purchases to be attractive. Further contributing to inventory level changes is the addition of new manufacturers and products. The Company has negotiated agreements with many of its manufacturers which contain stock balancing and price protection provisions intended to reduce, in part, Merisel's risk of loss due to slow moving or obsolete inventory or manufacturer price reductions. The Company is not assured that these agreements will succeed in reducing this risk. In the event of a manufacturer price reduction, the Company generally receives a credit for products in inventory. In addition, the Company has the right to return a certain percentage of purchases, subject to certain limitations. Historically, price protection and stock return privileges as well as the Company's inventory management procedures have helped to reduce the risk of loss of carrying inventory. Historically, the Company has purchased foreign exchange contracts to minimize foreign exchange transaction gains and losses. Currently such contracts are not available to the Company. Accordingly, the Company may suffer a negative impact on its results of operations or financial condition as a result of its inability to hedge foreign exchange transactions. The Company offers credit terms to qualifying customers and also sells on a prepay, credit card and cash-on-delivery basis. The Company also offers financing for its sales to certain of its customers through various floor plan financing companies. With respect to credit sales, the Company attempts to control its bad debt exposure through monitoring of customers' creditworthiness and, where practicable, through participation in credit associations that provide credit rating information about its customers. In certain markets, the Company may elect to purchase credit insurance for certain accounts. 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (continued) COMPETITION - ----------- Competition in the computer products distribution industry is intense and is based primarily on price, brand selection, breadth and availability of product offering, financing options, speed of delivery, level of training and technical support, marketing services and programs, and ability to influence a buyer's decision. Certain of Merisel's competitors have substantially greater financial and liquidity resources than Merisel. Merisel's principal competitors include large United States-based international distributors such as Ingram Micro, MicroAge and Tech Data Corporation, national distributors such as Gates/Arrow and regional distributors and franchisers. Merisel also competes with manufacturers that sell directly to computer resellers, sometimes at prices below those charged by Merisel for similar products. The Franchise and Aggregation Business is subject to competition from other franchisors and aggregators in obtaining and retaining franchisees and third- party resellers, as well as competition from wholesale distributors with respect to sales of products to customers in the Franchise and Aggregation Business network. With respect to brand selection, the Company believes that an important factor in the Franchise and Aggregation Business' ability to attract customers is the fact that it is able to offer computer systems and other hardware products from Apple, Compaq, Hewlett-Packard and IBM. These manufacturers historically have sold their products directly to resellers and through a limited number of master resellers such as the Franchise and Aggregation Business. Recently, some of these manufacturers have moved to increase their channels of distribution. The loss of any of these manufacturers, or any change in the way any such manufacturer markets, prices or distributes its products, could have a material adverse effect on the Franchise and Aggregation Business' operations and financial results. The Franchise and Aggregation Business' principal competitors are Intelligent Electronics, MicroAge and Inacom, all of which maintain networks of franchisees and third-party dealers and which carry products of one or more of the Company's major manufacturers. Certain of the Franchise and Aggregation Business' competitors have greater financial resources than the Company. 25 PART II - OTHER INFORMATION ---------------------------- Item 1. Legal Proceedings ----------------- In June 1994, Merisel, Inc. and certain of its officers and/or directors were named in putative securities class actions filed in the United States District Court for the Central District of California, consolidated as In re Merisel, Inc. Securities Litigation. Plaintiffs, who are seeking damages in an unspecified amount, purport to represent a class of all persons who purchased Merisel common stock between November 8, 1993 and June 7, 1994 (the "Class Period"). The complaint, as amended and consolidated, alleges that the defendants inflated the market price of Merisel's common stock with material misrepresentations and omissions during the Class Period. Plaintiffs contend that such alleged misrepresentations are actionable under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Following the granting of defendant's first motion to dismiss on December 5, 1994, plaintiffs filed a second consolidated and amended complaint on December 22, 1994. On April 3, 1995, Federal District Judge Real dismissed the complaint with prejudice. The plaintiffs have appealed the dismissal. The parties' appellate briefing to the Ninth Circuit was completed on November 6, 1995. On June 4, 1996, the Ninth Circuit heard oral argument regarding the appeal. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 10.53 Employment Agreement, dated as of September 5, 1996, between Merisel, Inc. and James D. Wittry. 10.54 Letter Agreement dated June 1, 1995 between Merisel Americas, Inc. and Kristin M. Rogers. 10.55 Amendment to Letter Agreement dated April 9, 1996 between Merisel Americas, Inc. and Kristin M. Rogers. 10.56 Amendment to Letter Agreement dated August 30, 1996 between Merisel Americas, Inc. and Kristin M. Rogers. 10.57 Retention Agreement dated April 5, 1996 between Merisel, Inc. and Kelly M. Martin. 10.58 Letter Agreement dated June 1, 1995 between Merisel Americas, Inc. and Archie K. Miller. 26 10.59 Amendment to Letter Agreement dated August 28, 1996 between Merisel Americas, Inc. and Archie K. Miller. 10.60 Retention Agreement dated April 5, 1996 between Merisel, Inc. and Bruce A. Zeedik. 10.61 Letter Agreement dated November 29, 1995 between Merisel, Inc. and Timothy N. Jenson. 10.62 Amendment to Letter Agreement dated April 9, 1996 between Merisel, Inc. and Timothy N. Jenson. 10.63 Amendment to Letter Agreement dated August 22, 1996 between Merisel, Inc. and Timothy N. Jenson. 10.64 Amended and Restated Employment Agreement dated November 6, 1996, between Susan J. Miller-Smith and Merisel, Inc. 27 Financial Data Schedule (b) Reports on Form 8-K On October 18, 1996, the Company filed a Current Report on Form 8-K dated October 18, 1996 consisting of Item 2 and Item 7, which included pro forma financial information as of June 30, 1996 and for the six months ended June 30, 1996 and for the year ended December 31, 1995. 27 SIGNATURES ---------- Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 15, 1996 Merisel, Inc. By: /s/ James E. Illson --------------------------- James E. Illson Senior Vice President, Finance, and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 28 EXHIBIT INDEX Exhibits 10.53 Employment Agreement, dated as of September 5, 1996, between Merisel, Inc. and James D. Wittry. 10.54 Letter Agreement dated June 1, 1995 between Merisel Americas, Inc. and Kristin M. Rogers. 10.55 Amendment to Letter Agreement dated April 9, 1996 between Merisel Americas, Inc. and Kristin M. Rogers. 10.56 Amendment to Letter Agreement dated August 30, 1996 between Merisel Americas, Inc. and Kristin M. Rogers. 10.57 Retention Agreement dated April 5, 1996 between Merisel, Inc. and Kelly M. Martin. 10.58 Letter Agreement dated June 1, 1995 between Merisel Americas, Inc. and Archie K. Miller. 10.59 Amendment to Letter Agreement dated August 28, 1996 between Merisel Americas, Inc. and Archie K. Miller. 10.60 Retention Agreement dated April 5, 1996 between Merisel, Inc. and Bruce A. Zeedik. 10.61 Letter Agreement dated November 29, 1996 between Merisel, Inc. and Timothy N. Jenson. 10.62 Amendment to Letter Agreement dated April 9, 1996 between Merisel, Inc. and Timothy N. Jenson. 10.63 Amendment to Letter Agreement dated August 22, 1996 between Merisel, Inc. and Timothy N. Jenson. 10.64 Amended and Restated Employment Agreement dated November 6, 1996, between Susan J. Miller-Smith and Merisel, Inc. 27 Financial Data Schedule 29 EX-10.53 2 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement"), is dated as of September 5, 1996 and is between Merisel, Inc. (the "Company"), a Delaware corporation ("Merisel"), and James D. Wittry ("Executive"). As used herein, "Company" shall refer to either Merisel or Merisel Americas, Inc. or both. Merisel and Executive desire to set forth the terms and conditions governing Executive's employment by the Company. Accordingly, Executive and Merisel hereby agree as follows: 1. Term of Employment. Executive and Merisel agree that Executive shall be employed by the Company and shall serve in the capacity of Senior Vice President - Sales of Merisel Americas, Inc. ("Americas"), under the terms and conditions of this Agreement commencing as of August 29, 1996 and continuing for a three year period (such three year period is referred to herein as the "Employment Term") or until termination of Executive's employment pursuant to this Agreement, and subject to renewal for additional periods as may be mutually agreed by Merisel and Executive. The original term and any renewal terms of this Agreement may be sooner terminated as provided herein. 2. Scope of Duties. Executive shall undertake and assume the responsibility of performing for and on behalf of the Company those duties as shall be consistent with the positions of Senior Vice - Sales of Americas. Executive shall report to either the Chairman of the Board, the Chief Executive Officer or the President of the Company, as determined by the Company. Executive covenants and agrees that at all times during the term of this Agreement, he shall devote his substantially full-time and best efforts to the execution of his duties pursuant hereto. 3. Compensation. As compensation for services rendered pursuant to this Agreement, Merisel shall pay (or cause Americas to pay) to Executive, in installments customary with Merisel's (or Americas, as the case may be) standard payroll periods, base annual compensation of $225,000 during the Employment Term, provided that the Board of Directors (the "Board') may, in its sole discretion, increase such base annual compensation as merited by the performance of Executive. Merisel shall deduct from all payments paid to Executive under this Agreement any required amount for applicable income tax withholding or any other required taxes or contributions. 4. Bonus and Additional Benefits. In addition to the compensation to be paid to Executive pursuant to Section 3, Merisel shall pay, reimburse or otherwise confer the following items of benefit to Executive: 4.1 During the Employment Term, Executive shall be eligible to receive an annual bonus of $112,500 based on the Company's financial performance (the "Bonus Amount"). One quarter of the Bonus Amount, that is $28,125 (the "Quarterly Bonus Amount"), shall be earned and paid following each fiscal quarter in which Executive achieves his financial/ performance objectives for that quarter, which financial/ performance objectives shall be determined from time to time by officer to whom Executive reports and Executive. Whether or not such objectives are achieved, Merisel shall guarantee to pay to Executive (a) 100% of his Quarterly Bonus Amount for the third and fourth fiscal quarters of 1996 and for the first fiscal quarter of 1997 (prorated in the case of the third fiscal quarter of 1996 for time Executive is actually employed at Merisel) and (b) 50% of his Quarterly Bonus Amount for the second, third and fourth fiscal quarters of 1997. 4.2 Effective August 21, 1996, Merisel granted Executive a nonqualified stock option (the "Option") to purchase 75,000 shares of Merisel's Common Stock under Merisel's 1991 Stock Option Plan. The Option is governed by the Option Agreement issued to Executive. 4.3 In addition, Executive shall be eligible to participate in all other benefit programs and plans that may be afforded to senior management of the Company. Merisel shall make contributions to such plans and arrangements on behalf of Executive as shall be required or consistent with the terms and conditions of such plans. Such plans and programs may included, by way of example, deferred compensation, group insurance benefits, long-term or permanent disability insurance and major medical coverage. Executive shall be entitled, during the Employment Term, to vacation time with compensation and time off with compensation on account of illness or injury, in accordance with the Company's written policies for employees in effect from time to time. 5. Termination of Employment. 5.1 Notice. Executive may resign or Merisel may terminate Executive's employment in either case prior to the expiration of the Employment Term, upon 30 days written notice by Executive or Merisel, as the case may be, to the other party. Upon any such resignation or termination, Merisel shall promptly pay Executive all salary and other compensation, including amounts payable, if any, under Section 3 and any unused vacation pay, earned by him through the effective date of such termination or resignation. 5.2 Termination by Company. (A) If there is a Covered Termination at any time prior to the sixth month anniversary of Executive's employment by the Company, then in addition to the amounts due under Section 5.1: (a) Company shall make a lump sum payment to Executive within two weeks of the effective date of the Covered Termination equal to (i) one third (1/3) of Executive's annual base salary as then in effect plus (ii) one third (1/3) of the average of the annual performance bonus received by the Executive over the three year period preceding the effective date of the Covered Termination (excluding from such calculation however, any performance bonus that was paid on a guaranteed basis for any quarter after the first fiscal quarter of 1997 and was not earned as a result of achievement of financial/ performance criteria); and (b) Company will reimburse Executive for the cost of Executive's COBRA payments under Company's health insurance plans for a period of three months following such Covered Termination. The amount of such reimbursement will be grossed up so that Executive will receive an amount equal to the COBRA payments, after taking into account all applicable taxes. (B) If there is a Covered Termination at any time on or after the sixth month anniversary of Executive's employment by the Company, then Executive shall not be entitled to any payments under Section 5.2 (A), and in addition to the amounts due under Section 5.1: (a) Company shall make a lump sum payment to Executive within two weeks of the effective date of the Covered Termination equal to (i) one half (1/2)of Executive's annual base salary as then in effect plus (ii) one half (1/2) of the average of the annual performance bonus received by the Executive over the three year period preceding the effective date of the Covered Termination (excluding from such calculation however, any performance bonus that was paid on a guaranteed basis for any quarter after the first fiscal quarter of 1997 and was not earned as a result of achievement of financial/ performance criteria); and (b) Company will reimburse Executive for the cost of Executive's COBRA payments under Company's health insurance plans for a period of six months following such Covered Termination. The amount of such reimbursement will be grossed up so that Executive will receive an amount equal to the COBRA payments, after taking into account all applicable taxes. 5.3 Termination Following a Sale. If there is a Covered Termination (as defined below) within one year following a Sale of the Company, then in addition to the amounts due under Sections 5.1 and 5.2: (a) Company shall make a lump sum payment to Executive within two weeks of the effective date of the Covered Termination equal to (i) one half (1/2) of Executive's annual base salary as then in effect plus (ii) one half (1/2) times the average of the annual performance bonus received by the Executive over the three year period preceding the effective date of the Covered Termination (excluding from such calculation however, any performance bonus that was paid on a guaranteed basis for any quarter after the first fiscal quarter of 1997 and was not earned as a result of achievement of financial/ performance criteria); (b) Company will reimburse Executive for the cost of Executive's COBRA payments under Company's health insurance plans for an additional three months following the period of such reimbursement as provided in either Section 5.2 (A)(b) or Section 5.2 (B)(b). The amount of such reimbursement will be grossed up so that Executive will receive an amount equal to the COBRA payments, after taking into account all applicable taxes; and (c) Any remaining unvested portion of the Option shall vest. 5.4 Voluntary Resignation by Executive. In the event that Executive resigns without Good Reason (as defined below) prior to the expiration of the Employment Term, then, at the time the resignation is effective, all benefits and payments provided for hereunder shall terminate, and, without limiting the foregoing, Executive shall not be entitled to any severance payment other than amounts due under Section 5.1. 5.5 Definitions. (a) A "Sale" of the Company shall have occurred if (i) any person, corporation, partnership, trust, association, enterprise or group (collectively, an "Entity") shall become the beneficial owner, directly or indirectly, of outstanding capital stock of Merisel possessing at least 50% of the voting power (for the election of directors) of the outstanding capital stock of Merisel, or (ii) there shall be a sale of all or substantially all of Merisel's assets or Merisel shall merge or consolidate with another corporation and the stockholders of Merisel immediately prior to such transaction do not own, immediately after such transaction, stock of the purchasing or surviving corporation in the transaction (or of the parent corporation of the purchasing or surviving corporation) possessing more than 50% of the voting power (for the election of directors) of the outstanding capital stock of that corporation, which ownership shall be measured without regard to any stock of the purchasing, surviving or parent corporation owned by the stock holders of Merisel before the transaction. (b) "Covered Termination" shall mean any termination of the Executive's employment by Merisel that occurs prior to completion of the Employment Term other than as a result of (i) Termination for Cause, (ii) Executive's death or permanent disability, or (iii) Executive's resignation without Good Reason. (c) A resignation by Executive shall be with "Good Reason" if after a Sale of the Company, (A) there has been a material reduction in Executive's job responsibilities from those that existed immediately prior to the Sale, (B) without Executive's prior written approval, the Company requires Executive to be based anywhere other than the Executive's then current location, or (C) a successor to all or substantially all of the business and assets of the Company fails to furnish Executive with the assumption agreement required by Section 8 hereof. (d) "Termination for Cause" shall mean if the Company terminates Executive's employment for any of the following reasons: Executive misconduct (misconduct shall mean physical assault, falsification or misrepresentation of facts on company records, fraud, dishonesty, creating or contributing to unsafe working conditions, willful destruction of company property or assets, or harassment of another Associate by Executive); or Executive conviction for or a plea of nolo contendere by Executive to a felony or to any crime involving moral turpitude. 6. Mitigation. Executive shall have no obligation to mitigate the amount of any payment provided for in this Agreement by seeking employment or otherwise. Executive shall not be entitled to payment hereunder if Executive's employment ceases as a result of Executive's death or permanent disability. 7. Executive's Obligations. 7.1 Executive agrees that during the Employment Term and for the Benefit Period (as defined below), Executive will not directly or indirectly (a) engage in; (b) own or control any debt equity, or other interest in (except as a passive investor of less that 5% of the capital stock or publicly traded notes or debentures of a publicly held company); or (c) (1) act as director, officer, manager, employee, participant or consultant to or (2) be obligated to or connected in any advisory business enterprise or ownership capacity with, any of Tech Data Corp., Ingram Micro, Inc., Computer 2000 AG (C2000), Arrow Electronics, Inc., Intelligent Electronics, Inc., MicroAge, Inc., Inacom Corp., Compucom, Entex Information Services, Inc. or Vanstar Corp. or with any subsidiary, division or successor of any of them or with any entity that acquires, whether by acquisition, merger or otherwise, any significant amount of the assets or substantial part of any of the business of any of them. As used herein, "Benefit Period" shall mean either the 180 day period following Executive's receipt of payment under Section 5.2 or the 365 day period following Executive's receipt of payment under Section 5.3. 7.2 During the term of this Agreement, or if longer, the Benefit Period, Executive will not, on behalf of any business enterprise other than the Company and its subsidiaries, solicit the employment of or hire any person that is or was employed by the Company or any of its subsidiaries at any time on or after September 1, 1996. 7.3 Within two weeks of the effective date of a Covered Termination, and prior to receiving any severance compensation from Company in respect of such Covered Termination, whether under this Agreement or otherwise, Executive will execute and deliver to Company a Release and a Confidentiality Agreement, each substantially in the form provided to Executive with this Agreement, with such changes as Company might request. 7.4 In the event of any breach by Executive of the restrictions contained in this Agreement, Company shall have no further obligation to compensate Executive hereunder and Executive acknowledges that the harm to Company cannot be reasonably or adequately compensated in damages in any action at law. Accordingly, Executive agrees that, upon any violation of such restrictions, Company shall be entitled to preliminary and permanent injunctive relief in addition to any other remedy, without the necessity of proving actual damages. 8. Assumption Agreement. In the event of a Sale of the Company, the Company will require any successor (whether direct or indirect, by purchase, merger consolidation or otherwise) to all or substantially all of the business and assets of the Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it whether or not such succession had taken place. 9. Miscellaneous. This Agreement shall be binding upon and inure to the benefit of Company, its successors and assigns and to Executive; provided that Executive shall not assign any of Executive's rights or duties under this Agreement without the express prior written consent of Company. This Agreement sets forth the parties' entire agreement with regard to the subject matter hereof. No other agreements, representations, or warranties have been made by either party to the other with respect to the subject matter of this Agreement. This agreement may be amended only by a written agreement signed by both parties. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Any waiver by either party of any breach of any provision of this Agreement shall not operate as or be construed as a waiver of any subsequent breach. If any legal action is necessary to enforce the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees in addition to any other relief to which that party may be entitled. WHEREOF, the parties hereto have executed this Agreement, as of the day and year first written above. MERISEL, INC. By:/s/ Dwight A. Steffensen Dwight A. Steffensen, Chief Executive Officer "EXECUTIVE" /s/ James D. Wittry James D. Wittry EX-10.54 3 EMPLOYMENT AGREEMENT June 1, 1995 Kris Rogers Vice President Merisel Americas, Inc. 200 Continental Blvd. El Segundo, CA 90245 PERSONAL AND CONFIDENTIAL Dear Kris: In light of the ongoing search for a new president for Merisel Americas, Inc. ("Americas"), I believe that it is a good idea to set forth in writing the agreement we have reached with respect to certain aspects of your employment by Americas. Your employment status as an "at-will" employee of Americas is not affected by this agreement. Merisel retains the right to terminate your employment at any time, with or without cause. A. Salary and Bonus. Effective as of May 1, 1995, your base salary will be increased to $166,000 per annum. When Americas resumes paying performance bonuses, your bonus target level will be set at $30,000 per annum. B. Housing Allowance. Provided that you purchase a new home in the Los Angeles area by January 1, 1996, Americas will pay certain closing costs, grossed up to a net tax amount, in connection with the purchase of your new home. Such costs will be paid in accordance with Americas' relocation policy. Under the relocation policy reimbursed closing costs are loan origination fees or points up to 1%, appraisal fees and credit reports, title search and insurance, property transfer tax, deed stamps and recording and transfer fees. In addition, Americas will loan you up to $50,000 to help you finance your home purchase. Such loan will be secured by a second deed of trust on your home and will bear interest at the rate of 10% per annum. The principal will be due upon certain events, including when you sell or refinance your home or when your employment with Americas terminates. Before the loan funds, you and your husband will need to execute a promissory note and the deed of trust. The form of promissory note is attached for your review. C. Severence Payments. We have agreed that if at any time during the Applicable Time Period (as defined below), Americas terminates your employment, without cause, then Americas shall do the following: (a) Americas will pay you as severance compensation (the "Severence Payment") an amount equal to (i) your annual base salary as in effect on the date of such termination (the "Determination Date") plus (ii) the amount of any performance bonus payment earned and paid to you during the fifty two weeks immediately prior to the Determination Date plus (iii) an amount equal to the sales commissions paid to you for the three fiscal quarters preceding the Determination Date. The Severence Payment shall be paid to you over a period of thirty eight weeks (the "Payment Period"), one nineteenth (1/19) of which shall be paid every two weeks in accordance with Americas' standard payroll practices. The Payment Period shall commence on the first Americas' payday following the Determination Date. In the event that you die or become disabled during the Payment Period, Americas agrees that it shall pay any Severence Payment remaining unpaid as a death or disability benefit to your estate on the same terms. Americas shall deduct from the Severence Payment paid to you any required amounts for social security, federal and state income tax withholding, federal or state unemployment insurance contributions, and state disability insurance; (b) Americas will reimburse you for the cost of your COBRA payments under Americas's health insurance plans during the Payment Period. The amount of such reimbursement will be grossed up so that you will receive an amount equal to the COBRA payments, after taking into account all applicable taxes; (c) Americas will pay you for all unused accrued vacation pay through the Determination Date; and (d) Americas will recommend to the Merisel, Inc.'s Option Committee for such Option Committee to cause all unexpired and unvested options to purchase the stock of Merisel, Inc. previously granted to you to vest as of the Determination Date. As used in this agreement, "Applicable Time Period" shall mean the time of my current tenure as President of Americas plus one year from the date that my successor, as President of Americas, is hired. For purposes of this agreement, your employment shall be considered to be terminated without cause, if (i) your employment is terminated for any reason, other than your misconduct (misconduct includes, but is not limited to, physical assault, insubordination, falsification or misrepresentation of facts on company records, fraud, dishonesty, willful destruction of company property or assets, or sexual harassment of another Associate by you), poor job performance, excessive absenteeism, abuse of sick time, creating or contributing to unsafe working conditions, violation of company policy or your conviction for or a plea of nolo contendere by you to a felony or any crime involving moral turpitude or (ii) there is a material reduction in your job responsibilities, other than as a result of the reasons listed in the preceding clause (i). D. Your Obligations. In exchange for Americas providing the above described benefits to you, you agree to the following: (A) You agree to continue to observe and comply with all company policies and all lawful and reasonable directions and instructions during your employment by Americas; (B) You agree that during the Payment Period, you will not directly or indirectly (a) engage in; (b) own or control any debt equity, or other interest in (except as a passive investor of less that 5% of the capital stock or publicly traded notes or debentures of a publicly held company); or (c) (1) act as director, officer, manager, employee, participant or consultant to or (2) be obligated to or connected in any advisory business enterprise or ownership capacity with, any of Tech Data Corp., Ingram Micro, Inc., Computer 2000 AG (C2000), Intelligent Electronics, Inc., MicroAge, Inc., Inacom Corp., Compucom, Entex Information Services, Inc. or Vanstar Corp. or with any subsidiary, division or successor of any of them or with any entity that acquires, whether by acquisition, merger or otherwise, any significant amount of the assets or substantial part of any of the business of any of them; (C) During the Payment Period, you will not solicit the employment of or hire any person that is or was employed by Merisel, Inc. or any of its subsidiaries at any time on or after January 1, 1995; (D) Within two weeks of the Determination Date and prior to receiving any severance compensation from Americas, you will execute and deliver to Americas a Release and a Confidentiality Agreement, each substantially in the form enclosed with this agreement, with such changes as Americas might request; and (E) In the event of any breach by you of the restrictions contained in this agreement, Americas shall have no further obligation to compensate you hereunder and you acknowledge that the harm to Americas cannot be reasonably or adequately compensated in damages in any action at law. Accordingly, you agree that, upon any violation of such restrictions, Americas shall be entitled to preliminary and permanent injunctive relief in addition to any other remedy, without the necessity of proving actual damages. This agreement shall be binding upon and inure to the benefit of Americas and you; provided that you shall not assign any of your rights or duties under this agreement without the express prior written consent of Americas. This agreement sets forth our entire agreement with regard to the subject matter hereof. No other agreements, representations, or warranties have been made by either party to the other with respect to the subject matter of this agreement. This agreement may be amended only by a written agreement signed by both of us. This agreement shall be governed by and construed in accordance with the laws of the State of California. Any waiver by either party of any breach of any provision of this agreement shall not operate as or be construed as a waiver of any subsequent breach. If any legal action is necessary to enforce the terms of this agreement, the prevailing party shall be entitled to reasonable attorneys' fees in addition to any other relief to which that party may be entitled. If you agree to the terms of this agreement and intend to be bound by it, please so indicate by signing the enclosed copy of this letter and returning it to me. Thank you. Sincerely, /s/ Michael D. Pickett Michael D. Pickett President, Merisel Americas, Inc. Accepted and agreed to: /s/Kris Rogers Kris Rogers EX-10.55 4 AMEND TO EMPLOYMENT AGREEMENT August 30, 1996 Kris Rogers Vice President Merisel Americas, Inc. 200 Continental Blvd. El Segundo, CA PERSONAL AND CONFIDENTIAL Dear Kris: This letter amends that certain letter agreement between you and Merisel Americas, Inc. ("Americas"), dated June 1, 1995, as amended by that certain letter agreement dated April 1, 1996 (as so amended, the "Letter Agreement"). Except as specifically amended hereby, the Letter Agreement remains in full force and effect. The definition of "Applicable Time Period" is hereby amended to be the period commencing on the date hereof and extending through March 31, 1998. If you agree to the terms of this amendment to the Letter Agreement and intend to be bound by the Letter Agreement, as amended hereby, please so indicate by signing the enclosed copy of this letter and returning it to me. Thank you. Sincerely, /s/Dwight Steffensen Dwight Steffensen Chief Executive Officer. Accepted and agreed to: /s/ Kris Rogers Kris Rogers EX-10.56 5 AMEND TO EMPLOYMENT AGREEMENT August 30, 1996 Kris Rogers Vice President Merisel Americas, Inc. 200 Continental Blvd. El Segundo, CA PERSONAL AND CONFIDENTIAL Dear Kris: This letter amends that certain letter agreement between you and Merisel Americas, Inc. ("Americas"), dated June 1, 1995, as amended by that certain letter agreement dated April 1, 1996 (as so amended, the "Letter Agreement"). Except as specifically amended hereby, the Letter Agreement remains in full force and effect. The definition of "Applicable Time Period" is hereby amended to be the period commencing on the date hereof and extending through March 31, 1998. If you agree to the terms of this amendment to the Letter Agreement and intend to be bound by the Letter Agreement, as amended hereby, please so indicate by signing the enclosed copy of this letter and returning it to me. Thank you. Sincerely, /s/Dwight Steffensen Dwight Steffensen Chief Executive Officer. Accepted and agreed to: /s/ Kris Rogers Kris Rogers EX-10.57 6 RETENTION AGREEMENT RETENTION AGREEMENT This Retention Agreement is dated as of April 5, 1996 and is between Merisel, Inc. (the "Company"), a Delaware corporation, and Kelly M. Martin ("Associate"). The Company desires to retain Associate as the Vice President and General Counsel of the Company. Accordingly, Associate and the Company desire to set forth certain (i) retention benefits to be paid to the Associate and (ii) the terms and conditions of certain benefits to be paid to Associate upon a termination of Associate's employment by the Company. Accordingly, Associate and the Company hereby agree as follows: 1. Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: (a) "Base Salary" shall mean Associate's annual base salary as in effect on the date hereof, being $175,000, or as the same may be increased (but not decreased) hereafter from time to time, exclusive of any bonus or incentive compensation, benefits (whether standard or special), automobile allowances, relocation or tax equalization payments, pension payments or reimbursements for professional services. (b) "Company" shall mean Merisel, Inc., a Delaware corporation, and each of its successor enterprises that result from any merger, consolidation, reorganization, sale of assets or otherwise. (c) A "Change of Control" shall have occurred if (i) any person, corporation, partnership, trust, association, enterprise or group shall become the beneficial owner, directly or indirectly, of outstanding capital stock of the Company possessing at least 50% of the voting power (for the election of directors) of the outstanding capital stock of the Company, or (ii) there shall be a sale of all or substantially all of the Company's assets or the Company shall merge or consolidate with another corporation and the stockholders of the Company immediately prior to such transaction do not own, immediately after such transaction, stock of the purchasing or surviving corporation in the transaction (or of the parent corporation of the purchasing or surviving corporation) possessing more than 50% of the voting power (for the election of directors) of the outstanding capital stock of that corporation, which ownership shall be measured without regard to any stock of the purchasing, surviving or parent corporation owned by the stock holders of the Company before the transaction. (d) "Change of Control Covered Termination" shall mean any cessation of the Associate's employment by the Company that occurs after a Change of Control other than as a result of (i) Termination for Cause, (ii) Associate's death or permanent disability, or (iii) Associate's resignation without Good Reason (as hereinafter defined). (e) A resignation by Associate shall be with "Good Reason" if (A) after a Change of Control the Company does not offer and provide (for a period of at least one year) to Associate a part time position as General Counsel, with hours, salary, benefits and responsibilities substantially similar to Associate's hours, salary, benefits and responsibilities as in effect on January 1, 1996, it being noted for the sake of clarity that on January 1, 1996, Associate was required to work on Mondays, Wednesdays and Thursdays at a salary of $105,000 per annum, with full benefits, or (B) prior to a Change of Control (i) without Associate's written consent, there has been a material reduction in Associate's job responsibilities from those that existed on the date hereof, or (ii) there is a reduction in Associate's Base Salary; or (C) either prior to or after a Change of Control (i) without Associate's prior written approval, the Company requires Associate to be based anywhere other than the Associate's then current location, it being understood that required travel on the Company's business to an extent consistent with Associate's prior business travel obligations does not constitute "Good Reason", (ii) the Company ceases at any time and does not at all times provide at least $1,000,000 of professional liability insurance coverage for Associate, or (iii) a successor to all or substantially all of the business and assets of the Company fails to furnish Associate with the assumption agreement required by Section 7 hereof. (f) "Termination for Cause" shall mean if the Company terminates Associate's employment for any of the following reasons: Associate misconduct (misconduct includes physical assault, insubordination, falsification or misrepresentation of facts on company records, fraud, dishonesty, willful destruction of company property or assets, or harassment of another associate by Associate); excessive absenteeism; abuse of sick time; or Associate conviction for or a plea of nolo contendere by Associate to a felony or any crime involving moral turpitude. (g) "Expiration Date" shall mean April 30, 1997. (h) "Covered Termination" shall mean any cessation of the Associate's employment by the Company that occurs prior to a Change of Control other than as a result of (i) Termination for Cause, (ii) Associate's death or permanent disability, or (iii) Associate's resignation without Good Reason (as hereinafter defined). 2. Retention Bonus. In order to induce Associate to remain as an employee of the Company, the Company agrees to pay to Associate a bonus of $25,000 on September 1, 1996. 3. At-Will Employee. Subject to the express provisions of this Agreement, the Company shall have no obligation to retain or continue Associate as an employee and Associate's employment status as an "at-will" employee of Company is not affected by this Agreement. 4. Termination Benefits. (A) If a Change of Control shall occur on or before the Expiration Date and if a Change of Control Covered Termination shall occur within one year after the Change of Control, then: (i) on the effective date of such Change of Control Covered Termination, the Company shall make a lump sum payment to Associate equal to one half of Associate's Base Salary; and (ii) the Company will reimburse Associate for the cost of Associate's COBRA payments (at the level of coverage, including dependent care coverage, as in effect immediately prior to such Covered Termination) under the Company's health insurance plans for a six month period following the date of the Covered Termination. (B) If a Covered Termination shall occur prior to a Change of Control and on or before the Expiration Date, then: (i) on the effective date of such Covered Termination, the Company shall make a lump sum payment to Associate equal to one quarter of Associate's Base Salary; and (ii) the Company will reimburse Associate for the cost of Associate's COBRA payments (at the level of coverage, including dependent care coverage, as in effect immediately prior to such Covered Termination) under the Company's health insurance plans for a three month period following the date of the Covered Termination. (C) The amount of any reimbursement for the cost of COBRA payments upon either a Change of Control Covered Termination or a Covered Termination will be grossed up so that Associate will receive an amount equal to the COBRA payments, after taking into account all applicable taxes. The payments to be made to Associate upon a either a Change of Control Covered Termination or a Covered Termination are in addition to the payments made to employees by the Company upon termination in the ordinary course, such as reimbursement for business expenses and vacation pay through the date of termination. 5. Withholding. Company shall deduct from all payments paid to Associate under this Agreement any required amounts for social security, federal and state income tax withholding, federal or state unemployment insurance contributions, and state disability insurance or any other required taxes. 6. Mitigation. Associate shall have no obligation to mitigate the amount of any payment provided for in this Agreement by seeking employment or otherwise. 6. Associate's Obligations. In exchange for Company providing the above described benefits to Associate, Associate agrees that prior to receiving any severance compensation from Company in respect of such Covered Termination, whether under this Agreement or otherwise, Associate will execute and deliver to Company a Release and a Confidentiality Agreement, each in the form provided to Associate with this Agreement. 7. Assumption Agreement. The Company will require any successor (whether direct or indirect, by purchase, merger consolidation or otherwise) to all or substantially all of the business and assets of the Company, expressly to assume and agree to perform both this Agreement and that certain Indemnity Agreement, dated as of August 1, 1994, between the Company and Associate, both in the same manner and to the same extent that the Company would be required to perform such agreements whether or not such succession had taken place. 8. Miscellaneous. This Agreement shall be binding upon and inure to the benefit of Company and Associate; provided that Associate shall not assign any of Associate's rights or duties under this Agreement without the express prior written consent of Company. This Agreement sets forth the parties' entire agreement with regard to the subject matter hereof. No other agreements, representations, or warranties have been made by either party to the other with respect to the subject matter of this Agreement. This agreement may be amended only by a written agreement signed by both parties. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Any waiver by either party of any breach of any provision of this Agreement shall not operate as or be construed as a waiver of any subsequent breach. If any legal action is necessary to enforce the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees in addition to any other relief to which that party may be entitled. This Agreement shall continue in effect until the Expiration Date. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the day and year first written above. MERISEL, INC. By:/s/ Dwight Steffensen Its:Chairman and CEO "ASSOCIATE" /s/ Kelly M. Martin Kelly M. Martin EX-10.58 7 EMPLOYMENT AGREEMENT June 1, 1995 Archie Miller Vice President - Field Sales Merisel Americas, Inc. 200 Continental Blvd. El Segundo, CA 90245 PERSONAL AND CONFIDENTIAL Dear Archie: In light of the ongoing search for a new president for Merisel Americas, Inc. ("Americas"), I believe that it is a good idea to set forth in writing the agreement we have reached with respect to certain aspects of your employment by Merisel Americas, Inc. ("Americas"). Your employment status as an "at-will" employee of Americas is not affected by this agreement. Merisel retains the right to terminate your employment at any time, with or without cause. However, we have agreed that if at any time during the Applicable Time Period (as defined below), Americas terminates your employment, without cause, then Americas shall do the following: (a) Americas will pay you as severance compensation (the "Severence Payment") an amount equal to (i) three- quarters (3/4) of your annual base salary as in effect on the date of such termination (the "Determination Date") plus (ii) three-quarters (3/4) of the amount of any performance bonus payment received by you at any time during the fifty two weeks prior to the Determination Date. The Severence Payment shall be paid to you over a period of thirty eight weeks (the "Payment Period"), one nineteenth (1/19) of which shall be paid every two weeks in accordance with Americas' standard payroll practices. The Payment Period shall commence on the first Americas' payday following the Determination Date. In the event that you die or become disabled during the Payment Period, Americas agrees that it shall pay any Severence Payment remaining unpaid as a death or disability benefit to your estate on the same terms. Americas shall deduct from the Severence Payment paid to you any required amounts for social security, federal and state income tax withholding, federal or state unemployment insurance contributions, and state disability insurance; (b) Americas will reimburse you for the cost of your COBRA payments under Americas's health insurance plans during the Payment Period. The amount of such reimbursement will be grossed up so that you will receive an amount equal to the COBRA payments, after taking into account all applicable taxes; (c) Americas will pay you for all unused accrued vacation pay through the Determination Date; and (d) Americas will recommend to the Merisel, Inc.'s Option Committee for such Option Committee to cause the next installment of unvested options to purchase the stock of Merisel, Inc. previously granted to you to vest as of the Determination Date. As used in this agreement, "Applicable Time Period" shall mean the time of my current tenure as President of Americas plus one year from the date that my successor, as President of Americas, is hired. For purposes of this agreement, your employment shall be considered to be terminated without cause, if (i) your employment is terminated for any reason, other than your misconduct (misconduct includes, but is not limited to, physical assault, insubordination, falsification or misrepresentation of facts on company records, fraud, dishonesty, willful destruction of company property or assets, or sexual harassment of another Associate by you), poor job performance, excessive absenteeism, abuse of sick time, creating or contributing to unsafe working conditions, violation of company policy or your conviction for or a plea of nolo contendere by you to a felony or any crime involving moral turpitude or (ii) there is a material reduction in your job responsibilities, other than as a result of the reasons listed in the preceding clause (i). In exchange for Americas providing the above described benefits to you, you agree to the following: (A) You agree to continue to observe and comply with all company policies and all lawful and reasonable directions and instructions during your employment by Americas; (B) You agree that during the Payment Period, you will not directly or indirectly (a) engage in; (b) own or control any debt equity, or other interest in (except as a passive investor of less that 5% of the capital stock or publicly traded notes or debentures of a publicly held company); or (c) (1) act as director, officer, manager, employee, participant or consultant to or (2) be obligated to or connected in any advisory business enterprise or ownership capacity with, any of Tech Data Corp., Ingram Micro, Inc., Computer 2000 AG (C2000), Intelligent Electronics, Inc., MicroAge, Inc., Inacom Corp., Compucom, Entex Information Services, Inc. or Vanstar Corp. or with any subsidiary, division or successor of any of them or with any entity that acquires, whether by acquisition, merger or otherwise, any significant amount of the assets or substantial part of any of the business of any of them; (C) During the Payment Period, you will not solicit the employment of or hire any person that is or was employed by Merisel, Inc. or any of its subsidiaries at any time on or after January 1, 1995; (D) Within two weeks of the Determination Date and prior to receiving any severance compensation from Americas, you will execute and deliver to Americas a Release and a Confidentiality Agreement, each substantially in the form enclosed with this agreement, with such changes as Americas might request; and (E) In the event of any breach by you of the restrictions contained in this agreement, Americas shall have no further obligation to compensate you hereunder and you acknowledge that the harm to Americas cannot be reasonably or adequately compensated in damages in any action at law. Accordingly, you agree that, upon any violation of such restrictions, Americas shall be entitled to preliminary and permanent injunctive relief in addition to any other remedy, without the necessity of proving actual damages. This agreement shall be binding upon and inure to the benefit of Americas and you; provided that you shall not assign any of your rights or duties under this agreement without the express prior written consent of Americas. This agreement sets forth our entire agreement with regard to the subject matter hereof. No other agreements, representations, or warranties have been made by either party to the other with respect to the subject matter of this agreement. This agreement may be amended only by a written agreement signed by both of us. This agreement shall be governed by and construed in accordance with the laws of the State of California. Any waiver by either party of any breach of any provision of this agreement shall not operate as or be construed as a waiver of any subsequent breach. If any legal action is necessary to enforce the terms of this agreement, the prevailing party shall be entitled to reasonable attorneys' fees in addition to any other relief to which that party may be entitled. If you agree to the terms of this agreement and intend to be bound by it, please so indicate by signing the enclosed copy of this letter and returning it to me. Thank you. Sincerely, /s/Michael D. Pickett Michael D. Pickett Accepted and agreed to: /s/ Archie Miller Archie Miller EX-10.59 8 EMPLOYMENT AGREEMENT August 28, 1996 Archie Miller Vice President and General Manager Merisel Americas, Inc. 200 Continental Blvd. El Segundo, CA 90245 PERSONAL AND CONFIDENTIAL Dear Archie: This letter amends that certain letter agreement between you and Merisel Americas, Inc. ("Americas"), dated June 1, 1995 (the "Letter Agreement"). Except as specifically amended hereby, the Letter Agreement remains in full force and effect. The definition of "Applicable Time Period" is hereby amended to be the period commencing on the date hereof and extending through March 31, 1998. Notwithstanding anything to the contrary contained in the Letter Agreement, for purposes of the Letter Agreement, as amended hereby, your employment shall be considered to be terminated without cause, if (A) your employment is terminated for any reason, other than your misconduct (misconduct includes physical assault, insubordination, falsification or misrepresentation of facts on company records, fraud, dishonesty, willful destruction of company property or assets, or harassment of another Associate by you), excessive absenteeism, abuse of sick time or your conviction for or a plea of nolo contendere by you to a felony or any crime involving moral turpitude or (B) you resign due to any of the following having occurred (i) following an Americas Change of Control, there has been a material reduction in your job responsibilities from those that existed on the date hereof, it being understood that a mere change in title alone shall not constitute a material reduction in your job responsibilities, (ii) following an Americas Change of Control, without your prior written approval, you are required to be based anywhere other than your current location, it being understood that required business travel to an extent consistent with your current business travel obligations does not constitute a requirement that you be based somewhere other than your current location, (iii) there has been a reduction in your base salary, other than an across-the-board reduction in the salary level of all of Americas' Vice Presidents in the same percentage amount as part of a general salary level reduction, or (iv) a successor to all or substantially all of the business and assets of Americas' failed to furnish you with the assumption agreement required below. Retention Bonus. In order to induce you to remain as an employee of Americas, Americas has guaranteed to pay you 50 % of your annual target bonus for 1996 (the "Guaranteed Bonus"), a quarter of which Guaranteed Bonus shall be paid quarterly as provided in the next sentence. Accordingly, provided that you continue to be employed by Americas on the date that the earnings for the applicable fiscal quarter of Merisel, Inc. are released (the "Earnings Release Date"), Americas shall pay to you the Guaranteed Bonus for that quarter on the next regularly scheduled payday following the Earnings Release Date. The amount of Guaranteed Bonus paid to you, that would not otherwise have been earned by you based on performance, shall be excluded from the calculation of the Severance Payment under the Letter Agreement. Mitigation. You shall have no obligation to mitigate the amount of any payment provided for in the Letter Agreement, as amended hereby, by seeking employment or otherwise. Assumption Agreement. Americas will require any successor (whether direct or indirect, by purchase, merger consolidation or otherwise) to all or substantially all of the business and assets of Americas, expressly to assume and agree to perform the Letter Agreement, as amended hereby, in the same manner and to the same extent that Americas would be required to perform it whether or not such succession had taken place. An "Americas Change of Control" shall have occurred if (i) any person, corporation, partnership, trust, association, enterprise or group, other than Merisel, Inc., shall become the beneficial owner, directly or indirectly, of outstanding capital stock of Americas possessing at least 50% of the voting power (for the election of directors) of the outstanding capital stock of Americas, or (ii) there shall be a sale of all or substantially all of Americas's assets or Americas shall merge or consolidate with another corporation and the stockholders of Americas immediately prior to such transaction do not own, immediately after such transaction, stock of the purchasing or surviving corporation in the transaction (or of the parent corporation of the purchasing or surviving corporation) possessing more than 50% of the voting power (for the election of directors) of the outstanding capital stock of that corporation, which ownership shall be measured without regard to any stock of the purchasing, surviving or parent corporation owned by the stock holders of Americas before the transaction. A "Company Change of Control" shall have occurred if (i) any person, corporation, partnership, trust, association, enterprise or group shall become the beneficial owner, directly or indirectly, of outstanding capital stock of the Company possessing at least 50% of the voting power (for the election of directors) of the outstanding capital stock of the Company, or (ii) there shall be a sale of all or substantially all of the Company's assets or the Company shall merge or consolidate with another corporation and the stockholders of the Company immediately prior to such transaction do not own, immediately after such transaction, stock of the purchasing or surviving corporation in the transaction (or of the parent corporation of the purchasing or surviving corporation) possessing more than 50% of the voting power (for the election of directors) of the outstanding capital stock of that corporation, which ownership shall be measured without regard to any stock of the purchasing, surviving or parent corporation owned by the stock holders of the Company before the transaction. A "Change of Control" shall be the first to occur of a Company Change of Control or an Americas Change of Control. If you agree to the terms of this amendment to the Letter Agreement and intend to be bound by the Letter Agreement, as amended hereby, please so indicate by signing the enclosed copy of this letter and returning it to me. Thank you. Sincerely, /s/Ronald Rittenmeyer Ronald Rittenmeyer Chief Operating Officer and President. Accepted and agreed to: /s/ Archie Miller - ------------------ Archie Miller EX-10.60 9 RETENTION AGREEMENT RETENTION AGREEMENT This Retention Agreement is dated as of April 5, 1996 and is between Merisel, Inc. (the "Company"), a Delaware corporation, and the undersigned employee of the Company ("Associate"). The Company desires to retain Associate as an employee of the Company. Accordingly, Associate and the Company desire to set forth certain (i) retention benefits to be paid to the Associate and (ii) the terms and conditions governing Associate's employment by the Company following a Change of Control (as defined below). Accordingly, Associate and the Company hereby agree as follows: 1. Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: (a) "Base Salary" shall mean Associate's annual base salary as in effect on the business day preceding a Change of Control or as the same may be increased thereafter from time to time, exclusive of any bonus or incentive compensation, benefits (whether standard or special), automobile allowances, relocation or tax equalization payments, pension payments or reimbursements for professional services. (b) "Company" shall mean Merisel, Inc., a Delaware corporation, and each of its successor enterprises that result from any merger, consolidation, reorganization, sale of assets or otherwise. (c) A "Change of Control" shall have occurred if (i) any person, corporation, partnership, trust, association, enterprise or group shall become the beneficial owner, directly or indirectly, of outstanding capital stock of the Company possessing at least 50% of the voting power (for the election of directors) of the outstanding capital stock of the Company, or (ii) there shall be a sale of all or substantially all of the Company's assets or the Company shall merge or consolidate with another corporation and the stockholders of the Company immediately prior to such transaction do not own, immediately after such transaction, stock of the purchasing or surviving corporation in the transaction (or of the parent corporation of the purchasing or surviving corporation) possessing more than 50% of the voting power (for the election of directors) of the outstanding capital stock of that corporation, which ownership shall be measured without regard to any stock of the purchasing, surviving or parent corporation owned by the stock holders of the Company before the transaction. (d) "Covered Termination" shall mean any cessation of the Associate's employment by the Company that occurs after a Change of Control other than as a result of (i) Termination for Cause, (ii) Associate's death or permanent disability, or (iii) Associate's resignation without Good Reason (as hereinafter defined). (e) A resignation by Associate shall be with "Good Reason" if after a Change of Control (i) there has been a material reduction in Associate's job responsibilities from those that existed immediately prior to the Change of Control, it being understood that a mere change in title alone shall not constitute a material reduction in Associate's job responsibilities, (ii) without Associate's prior written approval, the Company requires Associate to be based anywhere other than the Associate's then current location, it being understood that required travel on the Company's business to an extent consistent with Associate's business travel obligation prior to the Change of Control does not constitute "Good Reason", (iii) there is a reduction in Associate's Base Salary, except that an across- the-board reduction in the salary level of all of the Company's Associates in the same percentage amount as part of a general salary level reduction shall not constitute "Good Reason," or (iv) a successor to all or substantially all of the business and assets of the Company fails to furnish Associate with the assumption agreement required by Section 7 hereof. (f) "Termination for Cause" shall mean if the Company terminates Associate's employment for any of the following reasons: Associate misconduct (misconduct includes physical assault, insubordination, falsification or misrepresentation of facts on company records, fraud, dishonesty, willful destruction of company property or assets, or harassment of another associate by Associate); excessive absenteeism; abuse of sick time; or Associate conviction for or a plea of nolo contendere by Associate to a felony or any crime involving moral turpitude. (g) "Expiration Date" shall mean April 30, 1997. 2. Retention Bonus. In order to induce Associate to remain as an employee of the Company, the Company shall guarantee to pay Associate fifty percent (50%) of Associate's annual target bonus for 1996 (the "Guaranteed Bonus"), a quarter of which Guaranteed Bonus shall be paid quarterly as provided in the next sentence. Accordingly, provided that Associate continues to be employed by the Company on the date that the earnings for the applicable fiscal quarter of the Company are released (the "Earnings Release Date"), the Company shall pay to the Associate the Guaranteed Bonus for that quarter on the next regularly scheduled payday following the Earnings Release Date; provided, however, for the first fiscal quarter of 1996, the "Earnings Release Date" shall be April 15, 1996. 3. At-Will Employee. Subject to the express provisions of this Agreement, the Company shall have no obligation to retain or continue Associate as an employee and Associate's employment status as an "at-will" employee of Company is not affected by this Agreement. 4. Change of Control Covered Termination. If a Change of Control shall occur on or before the Expiration Date and if a Covered Termination shall occur within one year after the Change of Control, then: (A) on the effective date of such Covered Termination, the Company shall make a lump sum payment to Associate equal to (i) one half of Associate's Base Salary plus (ii) an amount equal to one-half (1/2) times the annual performance bonus received by the Associate, excluding Guaranteed Bonus, during the year preceding the effective date of the Covered Termination; and (B) the Company will reimburse Associate for the cost of Associate's COBRA payments (at the level of coverage, including dependent care coverage, as in effect immediately prior to such Covered Termination) under the Company's health insurance plans for a six month period following the date of the Covered Termination. The amount of such reimbursement will be grossed up so that Associate will receive an amount equal to the COBRA payments, after taking into account all applicable taxes. The payments to be made to Associate upon a Covered Termination are in addition to the payments made to employees by the Company upon termination in the ordinary course, such as reimbursement for business expenses and vacation pay through the date of termination. 5. Withholding. Company shall deduct from all payments paid to Associate under this Agreement any required amounts for social security, federal and state income tax withholding, federal or state unemployment insurance contributions, and state disability insurance or any other required taxes. 6. Mitigation. Associate shall have no obligation to mitigate the amount of any payment provided for in this Agreement by seeking employment or otherwise. 6. Associate's Obligations. In exchange for Company providing the above described benefits to Associate, Associate agrees that prior to receiving any severance compensation from Company in respect of such Covered Termination, whether under this Agreement or otherwise, Associate will execute and deliver to Company a Release and a Confidentiality Agreement, each in the form provided to Associate with this Agreement. 7. Assumption Agreement. The Company will require any successor (whether direct or indirect, by purchase, merger consolidation or otherwise) to all or substantially all of the business and assets of the Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it whether or not such succession had taken place. 8. Miscellaneous. This Agreement shall be binding upon and inure to the benefit of Company and Associate; provided that Associate shall not assign any of Associate's rights or duties under this Agreement without the express prior written consent of Company. This Agreement sets forth the parties' entire agreement with regard to the subject matter hereof. No other agreements, representations, or warranties have been made by either party to the other with respect to the subject matter of this Agreement. This agreement may be amended only by a written agreement signed by both parties. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Any waiver by either party of any breach of any provision of this Agreement shall not operate as or be construed as a waiver of any subsequent breach. If any legal action is necessary to enforce the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees in addition to any other relief to which that party may be entitled. This Agreement shall continue in effect until the Expiration Date. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the day and year first written above. MERISEL, INC. By:/s/Dwight Steffensen Its:Chairman and CEO "ASSOCIATE" /s/Bruce Zeedik Bruce Zeedik Vice President and Corporate Controller Print Name and Title EX-10.61 10 EMPLOYMENT AGREEMENT November 29, 1995 Timothy Jenson Vice President, Treasurer and Assistant Secretary Merisel, Inc. 200 Continental Blvd. El Segundo, CA 90245 PERSONAL AND CONFIDENTIAL Dear Tim: This letter sets forth the agreement we have reached with respect to certain aspects of your employment by Merisel, Inc. ("Merisel"). Your employment status as an "at- will" employee of Merisel is not affected by this agreement. Merisel retains the right to terminate your employment at any time, with or without cause. However, we have agreed that if at any time during the Applicable Time Period (as defined below), Merisel terminates your employment, without cause, then Merisel shall do the following: (a) Merisel will pay you as severance compensation (the "Severance Payment") an amount equal to your annual base salary as in effect on the date of such termination (the "Determination Date") plus an amount equal to the amount of any performance bonus payment received by you at any time during the fifty two weeks prior to the Determination Date. The Severance Payment shall be paid to you over a period of fifty two weeks (the "Payment Period"), one twenty-sixth (1/26) of which shall be paid every two weeks in accordance with Merisel's standard payroll practices. The Payment Period shall commence on the first Merisel payday following the Determination Date. In the event that you die or become disabled during the Payment Period, Merisel agrees that it shall pay any Severance Payment remaining unpaid as a death or disability benefit to your estate on the same terms. Merisel shall deduct from the Severance Payment paid to you any required amounts for social security, federal and state income tax withholding, federal or state unemployment insurance contributions, and state disability insurance; (b) Merisel will reimburse you for the cost of your COBRA payments under Merisel's health insurance plans during the Payment Period. The amount of such reimbursement will be grossed up so that you will receive an amount equal to the COBRA payments, after taking into account all applicable taxes; (c) Merisel will pay you for all unused accrued vacation pay through the Determination Date; and (d) Merisel will recommend to the Merisel, Inc.'s Option Committee for such Option Committee to cause the next installment of unvested options to purchase the stock of Merisel, Inc. previously granted to you to vest as of the Determination Date. As used in this agreement, "Applicable Time Period" shall mean the one year period commencing on the date of this letter. For purposes of this agreement, your employment shall be considered to be terminated without cause, if (i) your employment is terminated for any reason, other than your misconduct (misconduct includes, but is not limited to, physical assault, insubordination, falsification or misrepresentation of facts on company records, fraud, dishonesty, willful destruction of company property or assets, or sexual harassment of another Associate by you), poor job performance (as defined in the then current Roles and Responsibilities for your position), excessive absenteeism, abuse of sick time, creating or contributing to unsafe working conditions, violation of company policy or your conviction for or a plea of nolo contendere by you to a felony or any crime involving moral turpitude or (ii) there is a material reduction in your job responsibilities, other than as a result of the reasons listed in the preceding clause (i). In exchange for Merisel providing the above described benefits to you, you agree to the following: (A) You agree to continue to observe and comply with all company policies and all lawful and reasonable directions and instructions during your employment by Merisel; (B) You agree that during the Payment Period, you will not directly or indirectly (a) engage in; (b) own or control any debt equity, or other interest in (except as a passive investor of less that 5% of the capital stock or publicly traded notes or debentures of a publicly held company); or (c) (1) act as director, officer, manager, employee, participant or consultant to or (2) be obligated to or connected in any advisory business enterprise or ownership capacity with, any of Tech Data Corp., Ingram Micro, Inc., Computer 2000 AG (C2000), Intelligent Electronics, Inc., MicroAge, Inc., Inacom Corp., Compucom, Entex Information Services, Inc. or Vanstar Corp. or with any subsidiary, division or successor of any of them or with any entity that acquires, whether by acquisition, merger or otherwise, any significant amount of the assets or substantial part of any of the business of any of them; (C) During the Payment Period, you will not solicit the employment of or hire any person that is or was employed by Merisel, Inc. or any of its subsidiaries at any time on or after January 1, 1995; (D) Within two weeks of the Determination Date and prior to receiving any severance compensation from Merisel, you will execute and deliver to Merisel a Release and a Confidentiality Agreement, each substantially in the form enclosed with this agreement, with such changes as Merisel might request; and (E) In the event of any breach by you of the restrictions contained in this agreement, Merisel shall have no further obligation to compensate you hereunder and you acknowledge that the harm to Merisel cannot be reasonably or adequately compensated in damages in any action at law. Accordingly, you agree that, upon any violation of such restrictions, Merisel shall be entitled to preliminary and permanent injunctive relief in addition to any other remedy, without the necessity of proving actual damages. This agreement shall be binding upon and inure to the benefit of Merisel and you; provided that you shall not assign any of your rights or duties under this agreement without the express prior written consent of Merisel. This agreement sets forth our entire agreement with regard to the subject matter hereof. No other agreements, representations, or warranties have been made by either party to the other with respect to the subject matter of this agreement. This agreement may be amended only by a written agreement signed by both of us. This agreement shall be governed by and construed in accordance with the laws of the State of California. Any waiver by either party of any breach of any provision of this agreement shall not operate as or be construed as a waiver of any subsequent breach. If any legal action is necessary to enforce the terms of this agreement, the prevailing party shall be entitled to reasonable attorneys' fees in addition to any other relief to which that party may be entitled. If you agree to the terms of this agreement and intend to be bound by it, please so indicate by signing the enclosed copy of this letter and returning it to me. Thank you. Sincerely, /s/ James L. Brill James L. Brill Senior Vice President, Finance and Chief Financial Officer Accepted and agreed to: /s/ Timothy Jenson Timothy Jenson EX-10.62 11 EMPLOYMENT AGREEMENT April 9, 1996 Timothy N. Jenson Vice President, Treasurer and Assistant Secretary Merisel, Inc. 200 Continental Blvd. El Segundo, CA 90245 PERSONAL AND CONFIDENTIAL Dear Tim: This letter amends that certain letter agreement between you and Merisel, Inc. ("Merisel"), dated November 29, 1995 (the "Letter Agreement"). Except as specifically amended hereby, the Letter Agreement remains in full force and effect. Notwithstanding anything to the contrary contained in the Letter Agreement, for purposes of the Letter Agreement, as amended hereby, your employment shall be considered to be terminated without cause, if (A) your employment is terminated for any reason, other than your misconduct (misconduct includes physical assault, insubordination, falsification or misrepresentation of facts on company records, fraud, dishonesty, willful destruction of company property or assets, or harassment of another Associate by you), excessive absenteeism, abuse of sick time or your conviction for or a plea of nolo contendere by you to a felony or any crime involving moral turpitude or (B) you resign due to any of the following having occurred (i) there has been a material reduction in your job responsibilities from those that existed on the date hereof, (ii) without your prior written approval, you are required to be based anywhere other than your current location, it being understood that required business travel to an extent consistent with your current business travel obligations does not constitute a requirement that you be based somewhere other than your current location, (iii) there has been a reduction in your base salary, other than an across- the-board reduction in the salary level of all of Merisel's Vice Presidents in the same percentage amount as part of a general salary level reduction, or (iv) a successor to all or substantially all of the business and assets of Merisel fails to furnish you with the assumption agreement required below. Retention Bonus. In order to induce you to remain as an employee of Merisel, Merisel shall guarantee to pay all of your annual target bonus for 1996 (the "Guaranteed Target Bonus"), a quarter of which Guaranteed Target Bonus shall be paid quarterly as provided in the next sentence. Accordingly, provided that you continue to be employed by Merisel on the date that the earnings for the applicable fiscal quarter of Merisel are released (the "Earnings Release Date"), Merisel shall pay to you the Guaranteed Target Bonus for that quarter on the next regularly scheduled payday following the Earnings Release Date; provided, however, for the first fiscal quarter of 1996, the "Earnings Release Date" shall be April 15, 1996 and the Guaranteed Target Bonus shall be paid no later than the second regularly scheduled payday following such date. The amount of Guaranteed Target Bonus paid to you, that would not have otherwise been earned by you, shall be excluded from the calculation of the Severance Payment under the Letter Agreement. In addition, in order to induce you to remain as an employee of Merisel, Merisel agrees to also pay to you a bonus of $25,000 on each of June 1, 1996, September 1, 1996 and January 1, 1997, provided that you continue to be employed by Merisel on such dates ("the Retention Bonuses")(together with the Guaranteed Target Bonus, the "Guaranteed Bonuses"). The amount of Retention Bonuses paid to you shall be excluded from the calculation of the Severance Payment under the Letter Agreement. Any unpaid Guaranteed Bonuses will be paid to you in full upon any termination without cause following a Change in Control. Mitigation. You shall have no obligation to mitigate the amount of any payment provided for in the Letter Agreement, as amended hereby, by seeking employment or otherwise. Assumption Agreement. Merisel will require any successor (whether direct or indirect, by purchase, merger consolidation or otherwise) to all or substantially all of the business and assets of Merisel, expressly to assume and agree to perform the Letter Agreement, as amended hereby and to further amend it so that it will not expire and the minimum payout will always be at least 12 months of your maximum compensation, and otherwise perform the terms in a manner at least as favorable to you and at least to the same extent that Merisel would be required to perform it whether or not such succession had taken place. A "Change of Control" shall have occurred if (i) any person, corporation, partnership, trust, association, enterprise or group shall become the beneficial owner, directly or indirectly, of outstanding capital stock of the Company possessing at least 50% of the voting power (for the election of directors) of the outstanding capital stock of the Company, or (ii) there shall be a sale of all or substantially all of the Company's assets or the Company shall merge or consolidate with another corporation and the stockholders of the Company immediately prior to such transaction do not own, immediately after such transaction, stock of the purchasing or surviving corporation in the transaction (or of the parent corporation of the purchasing or surviving corporation) possessing more than 50% of the voting power (for the election of directors) of the outstanding capital stock of that corporation, which ownership shall be measured without regard to any stock of the purchasing, surviving or parent corporation owned by the stock holders of the Company before the transaction. If you agree to the terms of this amendment to the Letter Agreement and intend to be bound by the Letter Agreement, as amended hereby, please so indicate by signing the enclosed copy of this letter and returning it to me. Thank you. Sincerely, /s/Dwight A. Steffensen Dwight A. Steffensen Chief Executive Officer Accepted and agreed to: /s/Timothy N. Jenson Timothy N. Jenson EX-10.63 12 EMPLOYMENT AGREEMENT August 22, 1996 Timothy Jenson Vice President-Finance, Treasurer and Assistant Secretary Merisel, Inc. 200 Continental Blvd. El Segundo, CA 90245 PERSONAL AND CONFIDENTIAL Dear Tim: This letter amends that certain letter agreement dated November 29, 1995 and that certain letter agreement dated April 9, 1996 (together the "Letter Agreement") both of which are between you and Merisel, Inc. ("Merisel). Except as specifically amended hereby, the Letter Agreement remains in full force and effect. Notwithstanding anything to the contrary contained in the Letter Agreement, for purposes of the Letter Agreement, as amended hereby, the definition of Applicable Time Period is hereby amended to mean a two year period commencing after the date of this letter. If you agree to the terms of this amendment to the Letter Agreement and intend to be bound by the Letter Agreement, as amended hereby, please so indicate by signing the enclosed copy of this letter and returning it to me. Thank you. Sincerely, /s/Dwight A. Steffensen Dwight A. Steffensen Chief Executive Officer Accepted and agreed to: /s/ Timothy N. Jenson Timothy N. Jenson EX-10.64 13 EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Amended and Restated Employment Agreement ("Agreement"), is dated as of November 6, 1996 and is between Merisel, Inc. (the "Company"), a Delaware corporation, Merisel Europe, Inc., a Delaware corporation ("Europe" and together with the Company, "Merisel") and Susan J. Miller-Smith, an executive officer of the Company ("Executive"). This Agreement amends, restates and replaces, in its entirety, that certain Amended and Restated Employment Agreement dated as of July 15, 1996 between Merisel and Merisel Canada, Inc. and Executive, and supersedes that certain Retention Agreement dated as of April 22, 1996 between the Company and Executive, and that certain Letter Agreement between Executive and the Company dated October 25, 1994. Executive and Merisel desire to set forth certain of the terms and conditions governing Executive's continued employment by Merisel (as defined below). Accordingly, Executive and Merisel hereby agree as follows: 1. Term of Employment. Executive and Merisel agree that Executive shall be employed by Merisel and shall serve in the capacities of (i) Managing Director of Europe and (ii) Senior Vice President of the Company or (iii) such other capacities as Executive and the Chief Executive Officer of the Company shall mutually agree, under the terms and conditions of this Agreement until February 1, 1998 or until termination of Executive's employment pursuant to this Agreement (the period commencing on the date hereof and ending on February 1, 1998 is referred to as the "Employment Term"), and subject to renewal for additional periods as may be mutually agreed by the Company and Executive. The original term and any renewal terms of this Agreement may be sooner terminated as provided herein. 2. Scope of Duties. Executive shall undertake and assume the responsibility of performing for and on behalf of Merisel those duties as shall be consistent with the positions of Managing Director of Europe, Senior Vice President of the Company or such other positions as Executive and the Chief Executive Officer of the Company shall mutually agree. Executive covenants and agrees that at all times during the term of this Agreement, she shall devote her substantially full-time and best efforts to the execution of her duties pursuant hereto. Executive shall report to either the Chairman of the Board, the Chief Executive Officer or the President of the Company, as determined by the Company. Merisel acknowledges and agrees that Executive shall not be required to reside in any particular location without her prior consent. 3. Compensation. As compensation for services rendered pursuant to this Agreement, Merisel shall pay to Executive, in installments customary with the Company's standard payroll periods, base annual compensation of US$ 250,000 during the Employment Term, provided that the Board of Directors (the "Board') may, in its sole discretion, increase such base annual compensation as merited by the performance of Executive. Merisel shall deduct from all payments paid to Executive under this Agreement any required amount for applicable income tax withholding or any other required taxes or contributions. The amount of base annual salary under this Section 3 to be paid to Executive is the aggregate amount to be paid by Merisel and Merisel may elect to allocate such payments among the Company and Europe, in any amount it deems appropriate. 4. Bonus and Additional Benefits. In addition to the compensation to be paid to Executive pursuant to Section 3, Merisel shall pay, reimburse or otherwise confer the following items of benefit to Executive: 4.1 Merisel shall pay the cost to relocate Executive and Executive's immediate family to Toronto, Ontario, Canada, grossed up so that Executive receives an amount equal to the cost of such relocation, after taking into account all applicable taxes. Provided, however, that the amount of this relocation benefit and the particulars of the relocation shall be in conformity with the Company's relocation policy as then in effect. For example, Executive may be required to use the least expensive available carrier, air travel will be coach class and the Company may pay the moving service directly or may require Executive to use a moving service chosen by the Company. This relocation benefit only covers the cost of moving Executive and her family and does not cover any cost or loss Executive may incur in the sale of Executive's home. 4.2 During the Employment Term, Executive shall be eligible to receive an annual bonus of up to US$ 125,000 on the basis of such criteria and financial/ performance objectives as Executive and the Chief Executive Officer of the Company shall mutually agree. 4.3 In addition, Executive shall be eligible to participate in all other benefit programs and plans that may be afforded to either senior management of the Company who are resident in the location where Executive is resident. Merisel shall make contributions to such plans and arrangements on behalf of Executive as shall be required or consistent with the terms and conditions of such plans. Such plans and programs may included, by way of example, deferred compensation, group insurance benefits, long-term or permanent disability insurance and major medical coverage. Executive shall be entitled, during the Employment Term, to vacation time with compensation and time off with compensation on account of illness or injury, in accordance with the Company's written policies for employees in effect from time to time. 4.4 Merisel shall reimburse Executive for the cost of Executive's preparing and filing the applicable personal taxation forms for the 1996 tax year. 5. Termination of Employment. 5.1 Notice. Executive may resign or Merisel may terminate Executive's employment in either case prior to the expiration of the Employment Term, upon 30 days written notice by Executive or Merisel, as the case may be, to the other party. Upon any such resignation or termination, Merisel shall promptly pay Executive all salary and other compensation, including amounts payable, if any, under Section 3 and any unused vacation pay, earned by her through the effective date of such termination or resignation. 5.2 Termination following a Sale. If there is a Covered Termination (as defined below) within one year following either (i) a Sale of the Company or (ii) October 4, 1996, then in addition to the amounts due under Section 5.1: (a) Company shall make a lump sum payment to Executive within two weeks of the effective date of the Covered Termination equal to (i) Executive's annual base salary as then in effect plus (ii) the average of the annual performance bonus received by the Executive over the three year period preceding the effective date of the Covered Termination (excluding from such calculation however, any performance bonus that was paid on a guaranteed basis and was not earned as a result of achievement of financial/ performance criteria); and (b) Company will recommend to the Company's Option Committee for such Option Committee to cause all unvested options to purchase the stock of the Company previously granted to Executive to vest as of the date of such Covered Termination (the benefits provided in the foregoing clauses (a) and (b) are referred to herein as the "Severance Benefit"). 5.3 Voluntary Resignation by Executive. In the event that Executive resigns without Good Reason (as defined below) prior to August 1, 1997 and except as mutually agreed with the Company's Chief Executive Officer pursuant to the next sentence, then, at the time the resignation is effective, all benefits and payments provided for hereunder shall terminate, and, without limiting the foregoing, Executive shall not be entitled to the Severance Benefit or any other severance payment other than amounts due under Section 5.1. In the event Executive and the Chief Executive Officer of the Company mutually agree that Executive should resign, then, at the time the resignation is effective, the Company shall pay Executive the Severance Benefit and any other amounts due under Section 5.1. 5.4 Definitions. (a) A "Sale" of a designated corporation shall have occurred if (i) any person, corporation, partnership, trust, association, enterprise or group (collectively, an "Entity"), other than the Company or any of its subsidiaries, shall become the beneficial owner, directly or indirectly, of outstanding capital stock of such designated corporation possessing at least 50% of the voting power (for the election of directors) of the outstanding capital stock of such designated corporation, or (ii) there shall be a sale of all or substantially all of such designated corporation's assets or such designated corporation shall merge or consolidate with another corporation and the stockholders of such designated corporation immediately prior to such transaction do not own, immediately after such transaction, stock of the purchasing or surviving corporation in the transaction (or of the parent corporation of the purchasing or surviving corporation) possessing more than 50% of the voting power (for the election of directors) of the outstanding capital stock of that corporation, which ownership shall be measured without regard to any stock of the purchasing, surviving or parent corporation owned by the stock holders of such designated corporation before the transaction. (b) "Covered Termination" shall mean any termination of the Executive's employment by the Company that occurs prior to February 1, 1998 other than as a result of (i) Termination for Cause, (ii) Executive's death or permanent disability, or (iii) Executive's resignation without Good Reason. (c) A resignation by Executive shall be with "Good Reason" if after a Sale of the Company or after a Sale of Europe, (A) there has been a material reduction in Executive's job responsibilities from those that existed immediately prior to the Change of Control, (B) without Executive's prior written approval, the Company requires Executive to be based anywhere other than the Executive's then current location, or (C) a successor to all or substantially all of the business and assets of the Company fails to furnish Executive with the assumption agreement required by Section 8 hereof. (d) "Termination for Cause" shall mean if the Company terminates Executive's employment for any of the following reasons: Executive misconduct (misconduct shall mean physical assault, falsification or misrepresentation of facts on company records, fraud, dishonesty, creating or contributing to unsafe working conditions, willful destruction of company property or assets, or harassment of another Associate by Executive); or Executive conviction for or a plea of nolo contendere by Executive to a felony or to any crime involving moral turpitude. 6. Mitigation. Executive shall have no obligation to mitigate the amount of any payment provided for in this Agreement by seeking employment or otherwise, unless the Company in its sole discretion determines that Executive's choice of new employer following a Covered Termination is detrimental to the Company. Executive shall not be entitled to payment hereunder if Executive's employment ceases as a result of Executive's death or permanent disability. 7. Executive's Obligations. 7.1 Executive agrees that during the Employment Term and for a period of 180 days following receipt of a Severance Benefit (the "Benefit Period"), Executive will not directly or indirectly (a) engage in; (b) own or control any debt equity, or other interest in (except as a passive investor of less that 5% of the capital stock or publicly traded notes or debentures of a publicly held company); or (c) (1) act as director, officer, manager, employee, participant or consultant (except as a officer, manager or employee resident anywhere other than North America and with responsibilities unrelated to North American operations) to or (2) be obligated to or connected in any advisory business enterprise or ownership capacity (except in an advisory business capacity while Executive is resident anywhere other than North America and related to operations located outside of North America) with, any of Tech Data Corp., Ingram Micro, Inc., Computer 2000 AG (C2000), Intelligent Electronics, Inc., MicroAge, Inc., Inacom Corp., Compucom, Entex Information Services, Inc. or Vanstar Corp. or with any subsidiary, division or successor of any of them or with any entity that acquires, whether by acquisition, merger or otherwise, any significant amount of the assets or substantial part of any of the business of any of them. 7.2 During the term of this Agreement, or if longer, the Benefit Period, Executive will not, on behalf of any business enterprise other than the Company and its subsidiaries, solicit the employment of or hire any person that is or was employed by the Company or any of its subsidiaries at any time on or after January 1, 1995. 7.3 Within two weeks of the effective date of a Covered Termination, and prior to receiving any severance compensation from Company in respect of such Covered Termination, whether under this Agreement or otherwise, Executive will execute and deliver to Company a Release and a Confidentiality Agreement, each substantially in the form provided to Executive with this Agreement, with such changes as Company might request. 7.4 In the event of any breach by Executive of the restrictions contained in this Agreement, Company shall have no further obligation to compensate Executive hereunder and Executive acknowledges that the harm to Company cannot be reasonably or adequately compensated in damages in any action at law. Accordingly, Executive agrees that, upon any violation of such restrictions, Company shall be entitled to preliminary and permanent injunctive relief in addition to any other remedy, without the necessity of proving actual damages. 8. Assumption Agreement. In the event of a Sale of the Company, the Company will require any successor (whether direct or indirect, by purchase, merger consolidation or otherwise) to all or substantially all of the business and assets of the Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it whether or not such succession had taken place. 9. Miscellaneous. This Agreement shall be binding upon and inure to the benefit of Company and Executive; provided that Executive shall not assign any of Executive's rights or duties under this Agreement without the express prior written consent of Company. This Agreement sets forth the parties' entire agreement with regard to the subject matter hereof. No other agreements, representations, or warranties have been made by either party to the other with respect to the subject matter of this Agreement. This agreement may be amended only by a written agreement signed by both parties. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Any waiver by either party of any breach of any provision of this Agreement shall not operate as or be construed as a waiver of any subsequent breach. If any legal action is necessary to enforce the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees in addition to any other relief to which that party may be entitled. WHEREOF, the parties hereto have executed this Agreement, as of the day and year first written above. MERISEL, INC., for itself and on behalf of MERISEL EUROPE, INC. By:/s/ Dwight A. Steffensen Dwight A. Steffensen, Chief Executive Officer "EXECUTIVE" /s/Susan J. Miller-Smith Susan J. Miller-Smith EX-27 14 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS FOR MERISEL, INC. FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 26,923 0 338,069 18,913 278,165 643,797 113,874 50,266 762,444 463,255 0 0 0 300 12,984 762,444 4,372,789 4,372,789 4,148,786 285,640 49,947 0 29,085 (140,669) 0 (142,050) 0 0 0 (142,050) (4.75) (4.75)
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