Note 10 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2011

Notes To Financial Statements

Commitments and Contingencies Disclosure [Text Block]

10.   Commitments and Contingencies

Litigation Arising from the Saints Capital Granite, L.P. Proposal

In the first quarter of 2012, four class action lawsuits were filed by shareholders of the Company, naming as defendants Merisel, members of the Company’s Board of Directors, Saints Capital Granite, L.P (“Saints Capital Granite”), and its general partner, Saints Capital Granite, LLC (collectively, “Saints Capital”).  The lawsuits arose from a proposal received by Merisel on December 28, 2011 from Saints Capital Granite, the holder of approximately 69.3% of the outstanding shares of Common Stock of the Company and 100% of the outstanding shares of Series A Preferred Stock of the Company, to acquire all of the outstanding shares of Merisel at a price of $1.35 per share (the “Proposal”).

Plaintiffs generally alleged that the Board of Directors failed to adequately consider whether the Proposal maximizes shareholder value and, as such, the Board should have been enjoined from consummating the transaction.  Plaintiffs further averred causes of action for breach of fiduciary duty against the Board of Directors, breach of duty of loyalty against Saints Capital and certain individual directors of Merisel, and aiding and abetting such breaches of fiduciary duty against Merisel and Saints Capital.

On February 8, 2012, Saints Capital Granite withdrew its proposal.  All of the cases were voluntarily dismissed.

Other Matters

In connection with the Asset Purchase Agreement among Crush Creative, Inc., its shareholders and MCRU, LLC dated July 6, 2005 (the “Crush APA”), the Company informed the former shareholders of Crush Creative, Inc. (the “Crush Sellers”) in April 2009 that Crush Creative’s continuing business had not met the performance criteria that would entitle the Crush Sellers to an earnout payment for the one-year period ended December 31, 2008.  On April 29, 2009 and September 14, 2009, the Company received notice from the Crush Sellers that they contest the calculations Merisel used to reach this conclusion.  The parties are following the process set forth in the Crush APA for resolving such disputes through appointment of a third-party accounting firm (the “Arbitration Firm”), which will arbitrate the dispute.  If the Arbitration Firm finds that Crush Creative has met the performance criteria set forth in the Crush APA, the Crush Sellers will be entitled to a payment of up to $750.  Under the Crush APA, the Arbitration Firm’s determination is final, conclusive and binding.

On May 19, 2009, the President of Crush Creative provided the Company with a letter of resignation, claiming that he was resigning for "Good Reason" as defined by his employment agreement.  In particular, he claimed that the Company had breached his employment agreement by reducing his base salary and materially reducing his responsibilities, and that the Company had defamed him.  The Company responded by letter dated June 5, 2009 in which it denied the employee’s allegations, provided a 60-day notice of non-renewal of the employee’s employment agreement (as required by that agreement), and offered to work with the employee to address, for the remainder of his tenure, the concerns he had raised in his letter.  On July 2, 2009, the employee departed the Company.

On June 19, 2009, the Company received a letter from the American Arbitration Association (“AAA”) advising that the employee had filed a Demand for Arbitration with the AAA, asserting a $2,500 claim for alleged unpaid bonuses, base salary, loss of future earnings, damages, and punitive damages.  Merisel filed an answer to this claim in which it denied the substantive allegations, denied that the employee is entitled to the relief demanded, and asserted various affirmative defenses.  A hearing date had been scheduled for October 2011.

The parties have agreed to the terms of a settlement.  Under the agreement, once the full settlement amount has been paid, a stipulation of dismissal with prejudice will be filed with AAA. The Company’s insurance carrier has provided coverage for certain costs and expenses incurred by the Company in defending this matter.  In addition, the insurance carrier contributed to the settlement. On December 16, 2011, the Company paid $90 related to the settlement.

In February 2011, the Company filed an order to show cause, request for a temporary restraining order and civil complaint in the Supreme Court of the State of New York, New York County naming as defendants the former President of Fuel, a former executive of Merisel, Splash (New York) Inc. and Splash (Northwest), Inc. The complaint alleges, among other things, that the former President of Fuel violated various provisions of his employment agreement with Merisel dated October 4, 2006 (the “Employment Agreement”) and that the defendants worked in concert to deprive the Company of the benefit of the good will of Fuel in connection with the Asset Purchase Agreement between Merisel FD, LLC and Fuel dated October 4, 2006 (the "APA").  The Company alleges causes of action for recovery of chattel/replevin, conversion, unjust enrichment/rescission, trespass, breach of contract, fraudulent inducement, breach of fiduciary duty, tortious interference with contract and interference with prospective advantage. The Company seeks injunctive relief and unspecified compensatory and punitive damages.  The Court denied the Company’s application for a temporary restraining order; however, the Court ordered the defendants to produce certain materials in his possession or control, if any.  The defendants have answered the complaint, asserting various affirmative defenses, and denied liability. The parties are currently engaged in discovery.

In March 2011, the former President of Fuel filed a civil complaint against the Company and two of its officers in the Supreme Court of the State of New York, New York. The plaintiff alleges causes of action for breach of the Employment Agreement, breach of the APA, defamation, tortious interference with prospective business relations, violation of New York Labor Law § 191(3), abuse of process and prima facie tort.  The plaintiff seeks compensatory damages of at least $3,000, plus unspecified punitive damages.  The Company has answered the complaint, asserting various affirmative defenses, and denied liability.  The parties are currently engaged in discovery.

The Company is involved in certain legal proceedings arising in the ordinary course of business.  None of these proceedings is expected to have a material impact on the Company’s financial condition or results of operations.  The Company has evaluated its potential exposure and has established reserves for potential losses arising out of such proceedings, if necessary.  There can be no assurance that the Company’s accruals will fully cover any possible exposure.  For each of the above cases, the Company has not accrued for payment because the amount of loss is not currently probable and/or estimable.

The Company leases certain of its facilities and equipment under non-cancelable operating leases with various expiration dates through 2021.  On June 20, 2011, the Company entered into a lease for 77,000 square feet of industrial and graphic production space, with use of outside loading and parking facilities, in Carlstadt, New Jersey.  The lease has a 126-month term expiring in December 2021, with an annual base rent obligation ranging from approximately $650 to $700 per year through the lease term, exclusive of real estate tax and operating expense pass throughs estimated at $165 per year in year one. The lease also included $575 of landlord allowances, which will be recognized as reductions of rental expense on a straight-line basis over the term of the lease.  The lease grants the Company an option, exercisable in 2012, to lease an additional 24,000 square feet of adjacent industrial and warehouse space on the same terms per square foot.