Note 10 - Commitments and Contingencies

3 Months Ended

Mar. 31, 2012

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, and 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, therefore, 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, Merisel received a letter from Saints Capital Granite.  In the letter addressed to the Special Committee of the Board of Directors of the Company, Saints Capital Granite informed the Company that it withdrew its Proposal.  The February 8th letter referenced the December 28th letter, which stated that Saints Capital Granite would have a termination right in the event that the transaction becomes the subject of shareholder litigation.

All of the foregoing actions were voluntarily dismissed.

The class action lawsuits are discussed in more detail in Item 3 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

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.

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 and further ordered the former President of Fuel 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, County of 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 concluded that for each of the above cases that no accrual was necessary because the amount of loss is not currently probable and/or estimable.

Facilities Leases

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 Company expensed $197 in rent, real estate taxes, and operating expenses related to this location for the three months ended March 31, 2012.

The Company leases 106,000 square feet of office and production space on  the 1st through 5th floors at its New York City (“NYC”) location.  During the month of January, 2012, the Company vacated most of the 1st thorough 4th floors and relocated and consolidated its manufacturing and production operations at its new 77,000 square feet facility in Carlstadt, New Jersey. Various creative services, sales, marketing and admin activities remain in the NYC location.  On March 28, 2012, the Company entered into an agreement with its NYC landlord to terminate its current leases for the 1st through 4th floors (See Note 7) and entered into a ten (10) year lease (the “New Lease”) to move its remaining activities to the 8th floor in the same building.

Under the terms of the New Lease, the Company will rent the 8th floor at an annual base rent of $1,139 beginning January 1, 2013,with increases at the rate of 2% per annum beginning January 1, 2014.  The Landlord agreed to rent concessions through December 31, 2012 and to reimburse the Company for up to $1,084 in costs expended by the Company in its build-out of the 8th floor, which work is scheduled to be completed by September 30, 2012. The Company’s sublease for the 5th floor terminated on December 31, 2011. The Company has extended its occupancy of that space through an interim lease agreement with the Landlord at the rate of $15 per month until its move to the 8th Floor, and will retain the basement space through the end of 2012 at the rate of $2 per month.

The Company will relocate remaining functions, currently housed in a portion of the Existing Premises, plus the Company’s executive and sales offices located on the 5th Floor, to the New Premises when work on the 8th Floor is completed, on or about September 30, 2012. In the event the Company does not vacate the portion of the existing premises it still occupies and the 5th floor by September 30, 2012, it may be subject to additional charges at the rate of $3 per day.