Attached files
file | filename |
---|---|
EX-23 - CONSENT OF ACCOUNTING FIRM - MERISEL INC /DE/ | ex23.htm |
EX-21 - SUBSIDIARIES OF THE REGISTRANT - MERISEL INC /DE/ | ex21.htm |
EX-31.2 - CFO CERTIFICATION - MERISEL INC /DE/ | cfocert.htm |
EX-31.1 - CEO CERTIFICATION - MERISEL INC /DE/ | ceocert.htm |
EX-32 - CEO AND CFO CERTIFICATION - MERISEL INC /DE/ | ceoandcfocert.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
FOR
ANNUAL AND TRANSITION REPORTS
PURSUANT
TO SECTIONS 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
(Mark
One)
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 31, 2009
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
|
01-17156
|
95-4172359
|
(State
or other jurisdiction of incorporation)
|
(Commission
File Number)
|
(I.
R. S. Employer identification No.)
|
127
W. 30th
Street, 5th
Floor
|
10001
|
|
New
York, NY
|
(Zip
Code)
|
|
(Address
of principal executive offices)
|
Registrant's
telephone number, including area code: (212)
594-4800
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 Par
Value
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
YES ¨ NO x
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Exchange Act. YES ¨ NO x
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 by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). YES
¨ NO ¨
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non accelerated
filer, or a smaller reporting company. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. ¨ LARGE ACCELERATED
FILER, ¨
ACCELERATED FILER ¨ NON-ACCELERATED FILER,
x SMALLER REPORTING
COMPANY
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act. YES ¨ NO x
As of June 30, 2009, the aggregate
market value of voting stock held by non-affiliates of the registrant based on
the last sales price as reported by the National Quotation Bureau was $984,405
(2,237,284 shares at a closing price of $0.44).
As of March 30, 2010, the registrant
had 7,214,784 shares of
Common Stock outstanding.
TABLE
OF CONTENTS
PAGE
|
||
PART
I
|
||
Item
1.
|
Business
|
1
|
Item
1A.
|
Risk
Factors
|
6
|
Item
1B.
|
Unresolved
Staff Comments
|
6
|
Item
2.
|
Properties
|
7
|
Item
3.
|
Legal
Proceedings
|
8
|
Item
4.
|
Removed
and Reserved
|
8
|
PART
II
|
||
Item
5.
|
Market
for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
9
|
Item
6.
|
Selected
Financial Data
|
11
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
11
|
Item
8.
|
Financial
Statements and Supplementary Data
|
20
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
45
|
Item
9A (T).
|
Controls
and Procedures
|
45
|
Item
9B.
|
Other
Information
|
46
|
PART
III
|
||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
47
|
Item
11.
|
Executive
Compensation
|
51
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
57
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
58
|
Item
14.
|
Principal
Accountant Fees and Services
|
60
|
PART
IV
|
||
Item
15.
|
Exhibits
|
61
|
ii
SPECIAL
NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain
statements contained in this Annual Report on Form 10-K, including without
limitation, statements containing the words “believes,” “anticipates,”
“expects,” “will,” “estimates,” “plans,” “intends” and similar expressions,
constitute “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
We intend these forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995 and they are included for purposes of complying
with these safe harbor provisions. These forward-looking statements reflect
current views about the plans, strategies and prospects of Merisel, Inc. (the
“Company”), and are based upon information currently available to the Company
and current assumptions. These forward-looking statements involve
known and unknown risks, uncertainties and other factors, which may cause actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements.
In
evaluating these forward-looking statements, you should consider these risks and
uncertainties, together with the other risks described from time to time in the
Company’s other reports and documents filed with the SEC. You are
cautioned not to place undue reliance on forward-looking
statements. The Company disclaims any obligation to update any such
factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained or incorporated by reference herein to
reflect future events or developments.
iii
PART
I
Item
1. Business
Overview - Merisel, Inc.
(together, with its subsidiaries, “Merisel” or the “Company”) is a leading
supplier of visual communication solutions.
The
Company’s imaging business, operating under its New York-based trade names
“Color Edge,” “Color Edge Visual” and “Fuel Digital,” and California-based
“Crush Creative,” provides graphic solutions, premedia and retouching services
and produces large and unusual format digital visuals and graphics, as well as
retail and trade show displays.
The
Company’s “Comp 24 Group” prototype division, operating primarily out of New
York, California and Georgia, creates prototypes and mockups used in a variety
of applications, including new product development, market testing and focus
groups, for sales samples, as props for print and television advertising, and
for samples for use in corporate presentations, point-of-sale displays, and
packaging applications.
Merisel
is a Delaware corporation formed July 29, 1987, and the successor by merger to
Softsel Computer Products, Inc., a California corporation. The
Company changed its name to Merisel in August 1990. Until August
2004, the Company’s primary businesses were computer hardware distribution
(until 2001) and a software licensing solutions business, which ceased
operations in August 2004. On March 1, 2005, the Company relocated
its headquarters from California to New York and, through its main operating
subsidiary, Merisel Americas, Inc. (“Merisel Americas”), began its current
business by acquiring New York- based imaging companies Color Edge, Inc. (“Color
Edge”) and Color Edge Visual, Inc. (“Color Edge Visual”), and prototype company
Comp 24, LLC (“Comp 24”). The Company acquired California-based
imaging company Crush Creative, Inc. (“Crush”) on August 8, 2005; California and
Georgia prototype companies Dennis Curtin Studios, Inc. (“Dennis Curtin”) and
Advertising Props, Inc. (“AdProps”) in May 2006; and New York-based premedia and
retouching company Fuel Digital, Inc. (“Fuel Digital”) on October 1,
2006. The ongoing business operations of the Company’s subsidiaries
are referred to by the above-described names, and (other than AdProps) are
currently operated through separate Delaware limited liability companies owned
by Americas. The Company aggregates these operating segments into one reportable
segment.
Merisel
maintains office and production facilities in New York, New York; Edison, New
Jersey; Burbank, California; Atlanta, Georgia; and Portland, Oregon, totaling
more than 200,000 square feet.
The
Company has omitted or abbreviated certain sections of Form 10-K in compliance
with the scaled disclosure rules applicable to “smaller reporting
companies.”
Imaging
Products and Services
The
Company provides a full line of sophisticated, state-of-the-art graphic arts
consulting and large and unusual format printing and production
services. It provides design consulting, large format digital
photographic graphics, posters, banners and visuals, inkjet and
digital output services, photo finishing, and exhibit and display
solutions. These services are provided in connection with the
production of visual communications media used primarily in the design and
production of consumer product packaging, advertising products used in retail
stores, and large format outdoor and event displays. In addition to
producing large format graphics (signs, banners, posters and larger items) and
three dimensional store displays (such as the retail kiosks found in the
cosmetics departments of major retailers), the Company provides
various premedia services, such as scanning, type setting, high-resolution file
preparation for printing, as well as retouching services for commercial and high
end art clients. These services help modify or improve the appearance
and functionality of photographic images and original designs used in
publishing, advertising or package applications.
The
Company also provides services complementary to its primary service lines,
including image database management and archiving, workflow management and
consulting services, and various related outsourcing and graphic arts consulting
services.
During
2008, the Company also expanded its services to the Portland, Oregon market,
where several major international consumer brands are headquartered, by opening
a new sales, premedia and retouching facility in Portland. The
Company introduced new graphics printing options at an expanded Edison, New
Jersey production facility, and also consolidated its New York City operations
to a single multi-floor location. These expanded and centralized
facilities permit the Company to better serve a demanding client base which
requires high quality, instant turnaround and the ability to coordinate delivery
of sophisticated graphics displays to its clients’ multiple locations across the
United States and abroad.
1
The
Company produces high-profile visual communications products that are
experienced daily by millions of consumers. Since these products play
a critical role in communicating brand image, Merisel’s clients are often
prepared to pay a premium for Merisel’s ability to deliver high-quality,
custom-made products within tight production schedules. The Company
believes that its clients choose to outsource visual communication needs to the
Company for the following reasons:
·
|
Production
Expertise: Consulting and production services are provided by
the Company’s highly-skilled
employees;
|
·
|
Technological
Capabilities: The Company uses technologically-advanced
equipment and processes, enabling it to work with multiple file formats
for virtually any size output
device;
|
·
|
Proven
Quality Standards: The Company consistently delivers customized
imaging products of superior
quality;
|
·
|
Rapid
Turnaround and Delivery Times: The Company accommodates
clients’ tight schedules, often turning around projects, from start to
finish, in less than 24 hours, by coordinating the New York, New Jersey
and California facilities, and taking advantage of Company resources
permitting timely shipment to up to 500 locations;
and
|
·
|
Broad
Scope of Services: The Company has up-to-date knowledge of
printing press specifications for converters and printers located
throughout the country, on-site resources embedded in clients’ advertising
and creative departments, and an array of value-added graphic art
production consulting services, such as digital imaging asset management
and workflow management.
|
The
combination of product quality, resources, and market share positions the
Company to benefit from positive industry trends.
The
Visual Communication Solutions and Graphic Services Industry
“Graphic
services” encompass the tasks (art production, digital photography, retouching,
color separation and plate making) involved in preparing images and text for
reproduction to exact specifications in a variety of media, including packaging
for consumer products, point-of-sale displays and other promotional or
advertising material. Graphic services, such as color separation
(preparing color images, text and layout for the printing process), were
previously performed by hand. Recent technological advances have,
however, in large part eliminated the production step of preparing photographic
film and exposing the film on a plate. Instead, plates are now often
produced directly from digital files – in “direct-to-plate” (“DTP”) or
“computer-to-plate” (“CTP”) technology.
The
Company has the capability of performing CTP production, and often receives
digitized input from clients on a variety of forms of digitally-generated
media. The current market trend is, however, for printers and
converters to provide this service as part of the bundle of services provided to
their clients.
Merisel’s
Market
Merisel’s
target market is large, brand-conscious consumer-oriented companies in the
retail, fashion/apparel, cosmetic/fragrance, consumer goods,
sports/entertainment, advertising and publishing industries, which use high-end
packaging for their consumer products and sophisticated advertising and
promotional applications. The Company markets target companies
directly and through the companies’ advertising agencies, art directors and
creative professionals, and converters and printers.
The
Company estimates that, with respect to graphic services for packaging for the
consumer products industry, the North American market is approximately $2.0
billion and the worldwide market is as high as $6.0 billion.
The
Company believes that the number of companies offering these services to the
large, multinational consumer-oriented companies that constitute Merisel’s
client base in the North American market will decline. The ongoing demand for
technological improvements in systems and equipment, the need to hire, train and
retain highly-skilled personnel, and clients’ increasing demands that companies
offer a spectrum of global services will likely result in attrition and
consolidation among such companies. This is a trend likely to favor
Merisel in light of its superior capabilities, resources and
scale.
2
Additional
industry trends include:
·
|
Shorter
turnaround- and delivery-time
requirements;
|
·
|
An
increasing number of products and packages competing for shelf space and
market share;
|
·
|
The
increased importance of package appearance and in-store advertising
promotions, due to empirical data demonstrating that most purchasing
decisions are made in-store, immediately prior to
purchase;
|
·
|
The
increased use of out-of-home advertising, such as billboards and outdoor
displays, as technology has improved image quality and durability, and its
demonstrated ability to reach larger audiences;
and
|
·
|
The
increasing demand for worldwide consistency and quality in packaging, as
companies work to build global brand-name
recognition.
|
The
Company’s Growth Strategy
The
following are key aspects of the Company’s business strategy for enhancing its
leadership position in the visual communication solutions market:
·
|
Organic
Growth: As market conditions have created growth opportunities,
the Company relies upon its highly-skilled sales force as the Company’s
primary growth driver, both in terms of new client acquisition and the
expansion of services provided to existing clients. The Company
relies upon its superior product quality, technology, service scale and
scope to both acquire clients and migrate clients from using individual
services to using a suite of products and services, ranging from initial
consultation to production and
distribution.
|
·
|
Strategic
Acquisitions: The Company completed three acquisitions in 2005
and three acquisitions in 2006, and will continue to seek additional
strategic acquisition
opportunities.
|
·
|
Initiatives
to Increase Penetration to Key Markets and Introduce New Service
Lines: The Company has adopted initiatives to market to “key”
players, such as agencies and intermediaries, to new “logos” through a new
business acquisition team, and to develop new, complementary services,
such as digital asset management, premium retouching and digital
media.
|
·
|
Geographic
Expansion: The Company’s operations are currently centered in
the New York/New Jersey and Los Angeles markets. With its
facilities in Atlanta, and expanded Portland facilities, the Company will
look to broaden its geographic footprint to other key United States
markets, and to follow key clients into other global
markets.
|
Services
The
Company provides comprehensive, high-quality digital-imaging graphic services,
including production of conventional, electronic and desktop color separations,
electronic production design, film preparation, plate making and press proofs
for lithography, flexography and gravure. The Company also provides
digital- and analog-image database archival management, creative design, 3-D
imaging, art production, large format printing, production of three dimensional
displays and various related outsourcing and graphics-arts consulting services.
The Company also provides a series of best practices-driven advisory,
implementation and management services, including workflow architecture, print
management, color management and printer evaluation.
The
Company, in its prototype division, also creates prototypes and mockups used in
a variety of applications, including new product development, market testing and
focus groups, for sales samples, as props for print and television advertising,
and for samples for use in corporate presentations, point-of-sale displays, and
packaging applications.
The
Company’s management believes that, to capitalize on market trends, the Company
must continue to offer its clients the ability to make numerous changes and
enhancements with ever shortening turnaround times. The Company has,
accordingly, focused on improving response time and has continued investing in
emerging technologies.
3
The
Company is dedicated to keeping abreast of technological developments in
consumer products packaging and visual graphics applications. The
Company is actively involved in evaluating various computer systems and
software, and independently pursues the development of software for its
operating facilities. The Company also customizes off-the-shelf
products to meet a variety of internal and client requirements.
Marketing
and Distribution
The
Company aggressively markets its products and services, through promotional
materials, industry publications, trade shows and other channels, to decision
makers at companies that fit its target market profile. The Company also uses
independent marketing companies to present the Company’s products and
services. A significant portion of the Company’s marketing is
directed toward existing clients with additional needs that can be serviced by
the Company. The Company also educates its clients about
state-of-the-art equipment and software available through the
Company.
The
Company’s 40 experienced
sales representatives include a national “new client” group, which presents the
Company’s full range of services to prospective “new logo” nationally-based
companies, as well as specialized sales representatives who focus on either the
imaging or prototypes segments, permitting them to understand clients’ technical
needs and articulate Merisel’s capacity to meet those needs. The
Company’s sales staff is further divided on a geographical basis. The
Company also has 46 client service technicians. The salespeople and
the client service technicians share responsibility for marketing the Company’s
services to existing and prospective clients, thereby fostering long-term
institutional client relationships.
The
Company has a primarily special-order and special-product business, with
products being delivered directly to individual clients, their advertising
agencies, converters or printers. Specialized advertising products
produced by the Company are distributed on a case-by-case basis, as specified by
the clients. The Company has no general distribution.
Clients
Merisel
serves many of the world’s most prominent and highly regarded brands in the
retail, fashion/apparel, cosmetic/fragrance, consumer goods,
sports/entertainment, advertising and publishing industries. These
clients are diversified by size, industry and channel. The Company has a
long-standing relationship with Apple Computer, Inc., which along with other
major customers or small group of customers, is considered to be important to
the Company’s operating results. During 2008 and 2009, sales to Apple Computer,
Inc. constituted approximately 15% and 24% of Company consolidated sales,
respectively, and approximately 28% and 20% of the Company’s consolidated
receivable balance at December 31, 2008 and 2009,
respectively. Approximately 1,400 clients used Merisel’s services
during 2009.
Many of
the Company’s clients use domestic and international
converters. Merisel maintains up-to-date client and converter
equipment specifications, and thereby plays a pivotal role in insuring that
these clients receive the consistency and quality across various media that
their multinational businesses require. Management believes that this
role has permitted the Company to establish closer and more stable relationships
with these clients.
Many of
the Company’s clients place orders on a daily or weekly basis, and work closely
with the Company on a year-round basis, as they redesign their product packaging
or introduce new products requiring new packaging. Yet, shorter,
technology-driven graphic cycle time has permitted manufacturers to tie their
promotional activities to regional or current events, such as sporting events or
the release of a movie, resulting in manufacturers redesigning packaging more
frequently. This has resulted in a correspondingly higher number of
packaging-redesign assignments for the Company, partially offsetting the
seasonal fluctuations in the volume of the Company’s business, which the Company
has historically experienced.
When it
comes to a particular product line, consumer product manufacturers tend to
single-source their visual communication solutions to insure continuity in
product image. This has resulted in the Company developing a roster
of steady clients in the food and beverage, health and beauty, retail clothing,
entertainment and home care industries. In fact, Merisel’s clients
have demonstrated a high degree of loyalty, as the customer base remains
substantially intact.
Competition
Merisel
believes that the highly-fragmented North American visual communication
solutions industry has over 1,000 market participants. Merisel is one
among a small number of companies in the independent color separator/graphic
services provider segment of the industry that has annual revenues exceeding $20
million.
4
Merisel
competes with other independent color separators, converters and printers with
graphic service capabilities. The Company believes that approximately half of
its target market is served by converters and printers, and half of its target
market is served by independent color separators. The Company also competes on a
limited basis with clients, such as advertising agencies and trade-show
exhibitors, who produce products in-house.
Converters
with graphic service capabilities compete with the Company when they perform
graphic services in connection with printing work. Independent color separators,
such as Merisel, may offer greater technical capability, image quality control
and speed of delivery. Indeed, converters often employ Merisel’s
services, due to the rigorous demands being placed on them by their clients, who
are requiring faster and faster turnaround times. Converters are
being required to invest in improving speed and technology in the printing
process, and have avoided investing in graphic services technology.
As speed
requirements continue to increase and the need to focus on core competencies
becomes more widely acknowledged, clients have increasingly recognized the
efficiency and cost-effectiveness that can be achieved through outsourcing to
the Company.
Purchasing
and Raw Materials
The
Company purchases, among other items, photographic film and chemicals, storage media, ink, and
plate materials. It also purchases a large variety of cardboard,
vinyl and other materials which it uses to produce large format graphics,
including new and environmentally friendly vinyls, metals and cardboards. These
items are available from a number of producers, are purchased from a number of
sources, and some items are held on a consignment
basis. Historically, the Company has been able to negotiate
significant volume discounts from its major suppliers.
The
Company does not anticipate any shortages.
Intellectual
Property
The
Company owns no patents.
The
Company’s principal intellectual property assets are its trademarks and trade
names – Color Edge, Comp24, Crush Creative, Dennis Curtin Studios, AdProps and
Fuel – which can be renewed periodically for indefinite
periods.
Employees
As of
March 30, 2010, Merisel had approximately 341 employees. Merisel continually
seeks to enhance employee morale and strengthen its relations with
employees. None of the employees are represented by unions and
Merisel believes that it has good relations with its employees.
Backlog
The
Company does not retain backlog figures, since projects or orders are usually in
and out of the Company’s facilities within a relatively short time
period.
Seasonality
and Cyclicality
The
Company’s digital imaging solutions business for the consumer product packaging
graphic market is generally not seasonal. As the demand for new
products increases, traditional cycles related to timing of major brand redesign
activity, previously three or four years, have become much shorter.
Some
seasonality exists with respect to the in-store display and advertising
markets. Advertising agencies and their clients typically finish
their work by mid-December and do not start up again until mid-January, so
December and January are typically the slowest months of the year in this
market. Like the consumer economy, advertising spending is generally
cyclical. When consumer spending and GDP decrease, the number of advertisement
pages, and the Company’s advertising and retail related business,
decline.
5
Environmental
Compliance
The
Company believes that it is in compliance with all material environmental laws
applicable to it and its operations.
Where
You Can Find Additional Information
The
Company is subject to the reporting requirements under the Securities Exchange
Act of 1934. The Company files with, or furnishes to, the SEC annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports and proxy statements. These filings are
available free of charge on the Company’s website, http://www.merisel.com,
shortly after they are filed with, or furnished to, the SEC.
The SEC
maintains an Internet website, http://www.sec.gov,
that contains reports, proxy and information statements and other information
regarding issuers.
Item
1A. Risk Factors
Omitted
pursuant to smaller reporting company requirements.
Item
1B. Unresolved Staff Comments
None
6
Item
2. Properties.
The
Company’s headquarters and primary production facility are located in New York,
New York, where the Company leases a 106,000 square-foot multi-story
facility. The Company currently leases the following offices and
operating facilities:
Location
|
Square Feet
(approx.)
|
Owned Leased
|
Purpose
|
Lease Expiration Date
|
Division
|
New
York, NY
|
25,000
|
Leased
|
General
Offices
|
December
2011
|
Corporate
|
New
York, NY
|
56,000
|
Leased
|
Operating
Facility
|
December
2014
|
Color
Edge/ Fuel
|
New
York, NY
|
25,000
|
Leased
|
Operating
Facility
|
April
2013
|
Comp
24
|
Edison,
NJ
|
25,000
|
Leased
|
Operating
Facility
|
September
2010
|
Color
Edge
|
Burbank,
CA
|
65,000
|
Leased
|
General
Offices, Operating Facility
|
July
2011
|
Crush
Creative/ Comp24
|
Burbank,
CA
|
10,000
|
Leased
|
Operating
Facility
|
July
2011
|
Crush
Creative
|
Atlanta,
GA
|
20,000
|
Leased
|
General
Offices, Operating Facility
|
May
2011
|
Comp24
|
Portland,
OR
|
4,370
|
Leased
|
General
Offices, Operating Facility
|
May
2013
|
Fuel
|
7
Item
3. Legal Proceedings
In
September 2007, Nomad Worldwide, LLC and ImageKing Visual Solutions, Inc.
(“ImageKing”) filed a civil complaint in the Supreme Court of the State of New
York, New York County naming as defendants Color Edge Visual, and its sales
employee, Edwin Sturmer. The plaintiffs allege that Sturmer breached
a confidentiality and non-solicitation agreement by soliciting plaintiffs’
customers, Banana Republic and the Gap, while employed by Color Edge
Visual. The plaintiffs allege causes of action for breach of
contract, breach of fiduciary duty, conversion, tortious interference with
contractual relations, tortious interference with prospective business
relations, misappropriation of trade secrets, unfair competition and unjust
enrichment. The plaintiffs seek compensatory and punitive damages totaling $5
million. The defendants have answered the complaint, asserting
various affirmative defenses, and denied liability. The parties were
previously engaged in discovery. On May 1, 2008, ImageKing filed for
relief under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of New York (Docket Number
08-11654-AJG). The United States Trustee recently moved to have the
bankruptcy case converted to Chapter 7 or dismissed on the grounds that
ImageKing has failed to show a reasonable likelihood of
rehabilitation. ImageKing has not taken any steps to prosecute the
Nomad case since its bankruptcy filing.
In
connection with the Asset Purchase Agreement among Crush Creative, Inc., its
shareholders and MCRU, LLC dated July 6, 2005 (the “Crush APA”), Merisel
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, Merisel received notice from the Crush Sellers that they
contest the calculations Merisel used to reach this conclusion. Since
then, Merisel and the Crush Sellers have attempted to resolve this dispute
through negotiations, but have been unable to do so. The parties are
now following the process set forth in the 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 APA, the Crush
Sellers will be entitled to a payment of up to $750,000. Under the
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 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 $2.5 million 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. The parties are
currently engaged in discovery, and a hearing date has not yet been scheduled
for the arbitration.
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.
Item
4. Removed and Reserved
8
PART
II
Item 5. Market for
the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
The
Company's common stock trades on the National Quotation Bureau (commonly known
as the “Pink Sheets”) under the symbol “MSEL.PK”. The following table
sets forth, for the period indicated, the quarterly high and low per share sales
prices for the common stock.
Fiscal
Year 2008
|
High
|
Low
|
Fiscal
Year 2009
|
High
|
Low
|
|
First
quarter
|
$5
½
|
$ 1
81/100
|
First
quarter
|
$95/100
|
$55/100
|
|
Second
quarter
|
5
13/20
|
1
73/100
|
Second
quarter
|
63/100
|
44/100
|
|
Third
quarter
|
1 41/50
|
1
7/25
|
Third
quarter
|
61/100
|
40/100
|
|
Fourth
quarter
|
1
11/20
|
13/20
|
Fourth
quarter
|
70/100
|
43/100
|
As of
March 30, 2010, there were 645 record holders of the Company’s common
stock. This number does not include beneficial owners of the
Company’s common stock who hold shares in nominee or “street” name accounts
through brokers.
Merisel
has never declared or paid dividends on its common stock. Merisel
anticipates that it will retain its earnings in the foreseeable future to
finance the expansion of its business and, therefore, does not anticipate paying
dividends on the common stock. In addition, the Company’s credit
facility contains restrictions on the ability of the Company to pay cash
dividends.
For
information pertaining to the Company’s equity compensation, see “Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters” on page 57 of this annual report.
9
Purchase
of Merisel Equity Securities
The
Company repurchased 150,706 shares of Merisel common stock during the year ended
December 31, 2009. Since the inception of the Company’s first share
repurchase program in July 2001 and through December 31, 2009, the Company has
repurchased 1,238,887 shares of Merisel common stock.
Share
repurchases for the quarter ended December 31, 2009 were as
follows:
(in
thousands except shares and per share amounts)
Period
|
Total
Number of Shares Purchased(1)
(4)
|
Average
Price Paid per Share(2)
|
Total
Number of Shares Purchased as Part of a Publicly Announced Plans or
Programs(3)
(4)
|
Maximum
Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased
Under the Plans or Programs (3)(4)
|
||||||
October
1-31, 2009
|
17,500
|
$
|
1.00
|
17,500
|
$ |
2,069
|
||||
Total
|
17,500
|
17,500
|
||||||||
(1) All
purchases are pursuant to publicly announced programs. From inception through
July 23, 2008, all repurchases were open market transactions designed to comply
with Rule 10b-18. On July 23, 2008, the Company publicly announced
expansion of its share repurchase program to include privately negotiated
transactions.
(2)
Average share prices exclude brokerage fees.
(3) The
Board has authorized the repurchase of shares of Merisel common stock as
follows:
Date
Share Repurchase Programs were Publicly Announced
|
Approximate
Dollar Value Authorized to be Repurchased
|
|||
July
3, 2001
|
$
|
1,000
|
||
September
1, 2004
|
1,000
|
|||
August
14, 2006*
|
2,000
|
|||
Total
dollar value of shares authorized to be repurchased as
of December 31, 2009
|
$
|
4,000
|
All share
repurchase programs are authorized in dollar values of shares as of date of
purchase. Unless terminated by resolution of our Board, each share repurchase
program expires when we have repurchased the full dollar amount of shares
authorized for repurchase thereunder. Although the Company’s July 3, 2001, and
September 1, 2004, programs have not been formally terminated, the Board has
relied upon the August 14, 2006, program for the Company’s recent
repurchases.
(4) All
transactions are calculated as of December 31, 2009, and for the three-month and
inception to date periods ending on such date.
*Amended
as of July 23, 2008, to include privately negotiated transactions to purchase
shares as well as open market transactions.
10
Item
6. Selected Financial Data
Omitted
pursuant to smaller reporting company requirements.
Item
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
All
amounts are stated in thousands except per share amounts.
For an
understanding of the significant factors that influenced the Company’s
performance during the past three years, the following discussion and analysis
should be read in conjunction with the consolidated financial statements and the
related notes included elsewhere in this report.
This
discussion contains forward-looking statements based upon current expectations
that involve risks and uncertainties, such as our plans, objectives,
expectations and intentions. Actual results and the timing of events
could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors.
Introduction
The
Company is currently a leading supplier of visual communications solutions.
Founded in 1980 as Softsel Computer Products, Inc., a California corporation,
the Company re-incorporated in Delaware in 1987 under the same
name. In 1990, the Company changed its name to Merisel, Inc. in
connection with the acquisition of Microamerica, Inc. The Company
operated as a full-line international computer distributor until December
2000. Merisel’s only business from July 2001 through August 2004 was
its software licensing business, which was sold in August
2004. The Company had no operations from August 2004 until
March 2005.
The
Company and its subsidiaries currently operate in the visual communications
services business. It entered that business beginning March 2005
through a series of acquisitions, which continued through 2006. These
acquisitions include Color Edge, Inc. and Color Edge Visual, Inc. (together
“Color Edge”), Comp 24, LLC (“Comp 24”); Crush Creative, Inc. (“Crush”); Dennis
Curtin Studios, Inc. (“DCS”); Advertising Props, Inc. (“AdProps”); and Fuel
Digital, Inc. (“Fuel”). The Company conducts its operations through its main
operating subsidiary, Merisel Americas.
All of
the acquired businesses operate as a single reportable segment in the graphic
imaging industry, and the Company is subject to the risks inherent in that
industry.
Critical
Accounting Estimates
Accounts
Receivable and Allowance for Doubtful Accounts
The
Company’s accounts receivable are customer obligations due under normal trade
terms, carried at their face value, less an allowance for doubtful
accounts. Accounts receivable includes an estimate for unbilled
receivables relating to some receivables that are invoiced in the month
following shipment and completion of the billing process as a normal part of the
Company’s operations. The allowance for doubtful accounts is determined based on
the evaluation of the aging of accounts receivable and a case-by-case analysis
of high-risk customers. Reserves contemplate historical loss rate on
receivables, specific customer situations and the general economic environment
in which the Company operates. Historically, actual results in these
areas have not been materially different than the Company’s estimates, and the
Company does not anticipate that its assumptions are likely to materially change
in the future. However, if unexpected events occur, results of operations could
be materially affected.
11
Goodwill
and Other Intangible Assets
The
Company, which has two reporting units, follows the provisions of FASB ASC 350
(FAS 142 “Goodwill and Other Intangible Assets”). In accordance with
FASB ASC 350, goodwill and indefinite-lived intangible assets are not amortized,
but reviewed for impairment upon the occurrence of events or changes in
circumstances that would reduce the fair value of the Company’s reporting units
below their carrying amount. Goodwill is required to be tested for impairment at
least annually. The Company uses a measurement date of December 31. Determining
the fair value of a reporting unit under the first step of the goodwill
impairment test and determining the fair value of individual assets and
liabilities of a reporting unit (including unrecognized intangible assets) under
the second step of the goodwill impairment test is judgmental in nature and
often involves the use of significant estimates and assumptions. Similarly,
estimates and assumptions are used in determining the fair value of other
intangible assets. These estimates and assumptions could have a significant
impact on whether or not an impairment charge is recognized and also the
magnitude of any such charge. Estimates of fair value for the goodwill
impairment valuation are primarily determined using discounted cash flows. These
approaches use significant estimates and assumptions including projected future
cash flows, discount rates reflecting the risk inherent in future cash flows,
perpetual growth rates, determination of appropriate market comparables and the
determination of a weighted average cost of capital. The Company’s reporting
units are its operating segments. Goodwill was allocated to such reporting
units, for the purposes of preparing our impairment analyses, based on a
specific identification basis. As a result of our annual impairment analysis,
the Company recorded a non-cash goodwill impairment charge in the amount of
$6,750 and $13,924 for the years ended December 31, 2008 and 2009, respectively.
(See Note 4). As of December 31, 2009, the Company has no remaining
goodwill.
The
Company also performed our annual impairment test for indefinite-lived
trademarks during the fourth fiscal quarter of the year. The trademark
impairment valuation is determined using the relief from royalty method. As a
result of the impairment analysis, the Company recorded trademark impairment
charges of $4,419 as a result of decreases in projected revenues and royalty
rates for certain trademarks. The use of a lower royalty rate assumption by 0.5%
or a decrease in sales growth of 3% would result in an additional impairment of
up to $2,000.
The
method to compute the amount of impairment incorporates quantitative data and
qualitative criteria including new information that can dramatically change the
decision about the valuation of an intangible asset in a very short period of
time. The Company will continue to monitor the expected future cash flows of its
reporting units for the purpose of assessing the carrying values of its other
intangible assets. Any resulting impairment loss could have a material adverse
effect on the Company’s reported financial position and results of operations
for any particular quarterly or annual period.
Impairment
of Long-Lived Assets
In
accordance with FASB ASC 360-10-35 (FAS No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets”), long-lived assets, such as property, plant
and equipment and purchased intangibles subject to amortization, are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company
reviews the recoverability of long-lived assets to determine if there has been
any impairment. This assessment is performed based on the estimated
undiscounted future cash flows from operating activities compared with the
carrying value of the related asset. If the undiscounted future cash
flows are less than the carrying value, an impairment loss is recognized,
measured by the difference between the carrying value and the estimated fair
value of the assets.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Under this method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in results of operations in the period that
the tax change occurs. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be
realized.
12
Currently,
the Company has a full valuation allowance against its net deferred tax assets.
If, in the future the Company determines that we would be able to realize our
recorded deferred tax assets, a decrease in the valuation allowance would
increase earnings in the period in which such determination is made. The Company
assesses its income tax positions and records tax benefits for all years subject
to examination based upon our evaluation of the facts, circumstances and
information available at the reporting date. For those tax positions
where it is more likely than not that a tax benefit will be sustained, the
Company has recorded the largest amount of tax benefit with a greater than 50%
likelihood of being realized upon ultimate settlement with a taxing authority
that has full knowledge of all relevant information. For those income
tax positions where it is not more likely than not that a tax benefit will be
sustained, no tax benefit has been recognized in the financial
statements.
The
Company follows FASB ASC 740-10 (FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes — an Interpretation of FASB Statement No. 109), which contains a
two-step approach to recognizing and measuring uncertain tax positions (tax
contingencies). The Company assesses its tax positions for all years subject to
examination based upon its evaluation of the facts, circumstances and
information available at the reporting date. With limited exceptions
and due to the impact of net operating loss and other credit carryforwards, the
Company may be effectively subject to U.S. federal income tax examinations for
periods after 1996. The Company is subject to examination by state and local tax
authorities generally for the period mandated by
statute. Currently the Company has no ongoing examinations.
The first step is to evaluate the tax position for recognition by determining if
the weight of available evidence indicates it is more likely than not that the
position will be sustained on an audit, including resolution of related appeals
or litigation processes, if any. The second step is to measure the tax benefit
as the largest amount which is more than 50% likely of being realized upon
ultimate settlement. As a result of this review, the Company concluded that it
has no uncertain tax positions. The Company does not expect any reasonably
possible material changes to the estimated amount of liability associated with
its uncertain tax positions through December 31, 2010. The Company’s policy is
to recognize interest and penalties, if any, accrued on uncertain tax positions
as part of selling, general, and administrative expense.
Revenue
Recognition
The
Company recognizes revenue when revenue is realized or realizable and has been
earned. Revenue transactions represent sales of inventory. All of the Company’s
services culminate with the production of a tangible product that is delivered
to the final customer. The Company does not provide any services that are
marketed or sold separately from its final tangible products. Our policy is to
recognize revenue when title to the product, ownership and risk of loss transfer
to the customer, which is typically on the date of the shipment. Appropriate
provision is made for uncollectible accounts.
New
Accounting Pronouncements
In
January 2010, the FASB published FASB Accounting Standards Update 2010-06, Fair
Value Measurements and Disclosures (Topic 820) — Improving Disclosures about
Fair Value Measurements. This update requires some new disclosures and clarifies
some existing disclosure requirements about fair value measurement as set forth
in Codification Subtopic 820-10. The FASB’s objective is to improve these
disclosures and, thus, increase the transparency in financial reporting.
Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require:
(a) a reporting entity to disclose separately the amounts of significant
transfers in and out of Level 1 and Level 2 fair value measurements and describe
the reasons for the transfers; and (b) in the reconciliation for fair value
measurements using significant unobservable inputs, a reporting entity should
present separately information about purchases, sales, issuances, and
settlements. In addition, ASU 2010-06 clarifies the requirements of the
following existing disclosures: for purposes of reporting fair value measurement
for each class of assets and liabilities, a reporting entity needs to use
judgment in determining the appropriate classes of assets and liabilities and
should provide disclosures about the valuation techniques and inputs used to
measure fair value for both recurring and nonrecurring fair value measurements.
ASU 2010-06 is effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. As ASU
2010-06 relates specifically to disclosures, it will not have an impact on the
Company’s consolidated financial statements.
In
October 2009, the FASB issued Accounting Standards Update No. 2009-15 (ASU
2009-15), “Accounting for Own-Share Lending Arrangements in Contemplation of
Convertible Debt Issuance or Other Financing.” ASU 2009-15 amends Subtopic
470-20 to expand accounting and reporting guidance for own-share lending
arrangements issued in contemplation of convertible debt issuance. ASU 2009-15
is effective for fiscal years beginning on or after December 15, 2009 and
interim periods within those fiscal years for arrangements outstanding as of the
beginning of those fiscal years. The Company does not expect the adoption of ASU
2009-15 to have a material impact on its consolidated financial
statements.
In
October 2009, the FASB issued Accounting Standards Update No.2009-13 (ASU
2009-13), “Revenue Recognition (Topic 605)—Multiple-Deliverable Revenue
Arrangements, a consensus of the FASB Emerging Issues Task Force.” ASU 2009-13 provides
amendments to the revenue recognition criteria for separating consideration in
multiple-deliverable revenue arrangements. It establishes a hierarchy of selling
prices to determine the selling price of each specific deliverable which
includes vendor-specific objective evidence (if available), third-party evidence
(if vendor-specific evidence is not available), or estimated selling price if
neither of the first two are available. This guidance also eliminates the
residual method for allocating revenue between the elements of an arrangement
and requires that arrangement consideration be allocated at the inception of the
arrangement and expands the disclosure requirements regarding a vendor’s
multiple-deliverable revenue arrangements. This guidance is effective for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010 and early adoption is permitted. The Company
is currently assessing the potential impact, if any, the adoption of this
guidance will have on its consolidated financial statements.
13
In
September 2009, the FASB issued Accounting Standards Update No. 2009-12 (ASU
2009-12), “Fair Value Measurements and Disclosures (Topic 820): Investments in
Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).”
ASU 2009-12 provides guidance on estimating the fair value of alternative
investments. ASU 2009-12 is effective for interim and annual periods ending
after December 15, 2009. The adoption of ASU 2009-12 did not have a material
impact on the Company’s consolidated financial statements.
In August
2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05),
“Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at
Fair Value.” ASU 2009-05 provides amendments to reduce potential ambiguity in
financial reporting when measuring the fair value of liabilities. Among other
provisions, this update provides clarification in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or more of the
valuation techniques described in ASU 2009-5. ASU 2009-5 was effective October
1, 2009. The Company’s adoption of ASU 2009-05 did not have a
material impact on its consolidated financial statements.
In July
2009, the Financial Accounting Standards Board (“FASB”) issued Statement No.
168, “The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles — a replacement of FASB Statement No. 162” (“FASB
ASC 105”). FASB ASC 105 established the FASB Accounting Standards Codification
(“ASC”) as the single source of authoritative U.S. generally accepted accounting
principles (“U.S. GAAP”) recognized by the FASB to be applied by nongovernmental
entities. FASB ASC 105 will supersede all existing non-SEC accounting and
reporting standards. All other non-grandfathered non-SEC accounting literature
not included in FASB ASC 105 will become non-authoritative. Following
FASB ASC 105, the FASB will not issue new standards in the form of Statements,
FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, the FASB
will issue Accounting Standards Updates, which will serve only to: (a) update
the Codification; (b) provide background information about the guidance; and (c)
provide the bases for conclusions on the change(s) in the Codification. FASB ASC
105 and the Codification are effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The adoption of FASB
ASC 105 did not have a material impact on the Company’s consolidated financial
statements.
In May
2009, the FASB issued FASB ASC 855-10, ‘‘Subsequent Events.’’ FASB ASC 855-10
established general standards of accounting for and disclosures of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. Specifically, FASB ASC 855-10 provides; (a) the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements; (b) the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements; and (c) the disclosures that
an entity should make about events or transactions that occurred after the
balance sheet date. FASB ASC 855-10 is effective for interim or annual financial
periods ending after June 15, 2009, and shall be applied prospectively. The
adoption of this ASC did not have a material impact on the Company’s
consolidated financial statements.
In April
2009, the FASB issued ASC 805-10, ‘‘Accounting for Assets Acquired and
Liabilities assumed in a Business Combination That Arise from Contingencies — an
amendment of FASB Statement No. 141 (Revised December 2007), Business
Combinations.’’ ASC 805-10 addresses application issues raised by preparers,
auditors, and members of the legal profession on initial recognition and
measurement, subsequent measurement and accounting, and disclosure of assets and
liabilities arising from contingencies in a business combination. ASC 805-10 is
effective for assets or liabilities arising from contingencies in business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. ASC
805-10 will have an impact on the Company’s accounting for any future
acquisitions and its consolidated financial statements.
In April
2008, the FASB issued ASC 350-10, ‘‘Determination of the Useful Life of
Intangible Assets.’’ ASC 350-10 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under ASC 350-10, ‘‘Goodwill and Other Intangible
Assets.’’ ASC No. 350-10 is effective for fiscal years beginning after December
15, 2008. The adoption of this ASC did not have a material impact on the
Company’s consolidated financial statements.
14
Results
of Operations
The
economic conditions experienced in the United States during the second half of
2008 and throughout 2009 had a significant impact on our customer's businesses
and ultimately on our net sales and profitability in 2009. While our
customer base remains substantially intact, their overall marketing and
advertising budget has typically been reduced during the recession which
resulted in fewer overall projects and reduced output on many projects than we
experienced in the past. Many customers have evaluated switching to
less expensive materials and production methods, many of which we offer, and the
overall reduced demand has led to more competitive bidding than experienced in
the past. These events have resulted in revenue being reduced from $93,811 in
2007 to $84,178 in 2008 and to $62,066 in 2009. Over the same period,
the Company has reduced Selling, General and Administrative expenses, but, due
to costs which are generally fixed such as real estate leases, they could not be
reduced enough to offset the reduced revenues and gross profit experienced over
this timeframe.
Additionally,
the reduced revenues, ongoing losses, and continued uncertainty in the economy
has led to changes in future forecasts and assumptions. These changes have
resulted in impairment charges to goodwill in both 2008 and 2009 and trademarks
in 2009. Further, management believes as of December 31, 2009, that it is not
more likely than not that the Company will utilize its deferred tax assets and
accordingly has increased the valuation allowance on those assets to 100% as of
December 31, 2009.
Comparison
of Fiscal Years Ended December 31, 2009 and December 31, 2008
Net Sales - Net sales were
$62,066 for the year ended December 31, 2009, compared to $84,178 for the year
ended December 31, 2008. The decrease of $22,112 or 26.2% was due to weakening
demand for our client services and in part due to pricing pressure due to the
ongoing weak economic conditions throughout the United States, and specifically
in the retail market, which represents a significant portion of our customer
base. The decline in sales was due primarily to a decrease in volume with the
Company’s existing customers, as the Company’s customer base remains
substantially intact.
Gross Profit – Total gross
profit was $20,826 for the year ended December 31, 2009, compared to $36,028 for
the year ended December 31, 2008. The decrease in total gross profit of $15,202
or 42.1% was primarily due to the 26.2% decline in net sales, combined with a
decrease in gross profit percentage to 33.5% for the year ended December 31,
2009, from 42.8% for the year ended December 31, 2008. This 9.3% decrease in
gross margin percentage resulted from higher (percentage of sales) costs for raw
materials (in part due to pricing pressure experienced during the economic
downturn), production labor, and fixed costs including depreciation on
production equipment, and production rent and utilities expense. Production
labor decreased by $2,656 or 17.6% in absolute dollars while increasing as a
percentage of sales when compared to the year ended December 31,
2008.
Selling, General and
Administrative – Total Selling, General and Administrative expenses
decreased to $30,097 for the year ended December 31, 2009, from $40,475 for the
year ended December 31, 2008. The decrease of $10,378 or 25.6% was due primarily
to the $2,000 legal settlement with ACAS, which was recorded as a reduction in
expense during the first quarter of 2009, coupled with decreases in legal costs
and investment banking fees associated with the Company’s decision to enter into
a merger agreement of $2,275, sales salaries and commission expense of $3,264,
other compensation costs of $1,800, insurance costs of $669 and professional
fees of $477. Excluding the gain from the legal settlement with ACAS, total
Selling, General and Administrative expenses as a percentage of sales increased
to 51.0% for the year ended December 31, 2009, compared to 45.2% for the year
ended December 31, 2008. The increase in this percentage was due primarily to
the decrease in sales during 2009.
Impairment Losses - For the year
ended December 31, 2009, we recorded goodwill impairment in the amount of
$13,924 as compared to a $6,750 charge recorded for the year ended December 31,
2008. The impairment is primarily attributable to continued weaker than expected
financial performance in the Company’s reporting units resulting in lower
projected cash flows utilized in the discounted cash flow analysis.
Additionally, as a result of its trademark impairment analysis, the Company
recorded a trademark impairment charge in the amount of $4,419 as of December
31, 2009. There was no trademark impairment charge in the year ended December
31, 2008
15
Interest Expense - Interest
expense for the Company decreased by $114 or 22.1% from $514 for the year ended
December 31, 2008 to $400 for the year ended December 31, 2009. The
change primarily reflects decreased loan balances from principal payments on
capital leases and installment notes.
Interest Income - Interest
income for the Company decreased by $289 or 75.0% from $385 for the year ended
December 31, 2008 to $96 for the year ended December 31, 2009. The change
primarily reflects lower average balances and rates of return in short-term
interest-bearing investments classified as cash and cash
equivalents.
Income Taxes – The Company
recorded income tax expense of $39,861 for the year ended December 31, 2009
compared to a benefit of $4,840 for the year ended December 31, 2008. Income tax
expense for the year ended December 31, 2009 is recorded at an effective tax
rate of (142.8%) as compared to (42.7%) for the year ended December 31, 2008.
During the year ended December 31, 2009, the Company increased its valuation
allowance on its deferred tax assets to 100% of the asset and recorded deferred
tax expense in the amount of $39,936.
Net Loss - As a result of the
above items, the Company had net loss of $67,779 for the year ended December 31,
2009 compared to a loss of $6,486 for the year ended December 31,
2008.
Comparison
of Fiscal Years Ended December 31, 2008 and December 31, 2007
Net Sales - Net sales were
$84,178 for the year ended December 31, 2008 compared to $93,181 for the year
ended December 31 2007. The decrease of $9,003 or 9.7% was due to
continued weakening demand for our client services due to softer economic
conditions throughout the United States and specifically in our retail
channel.
Gross Profit – Total gross
profit was $36,028 for the year ended December 31, 2008 compared to $43,890 for
the year ended December 31, 2007. The decrease in total gross profit
of $7,862 or 17.9% was due to the 9.7% decline in net sales and a 430 basis
point reduction in gross profit margin. Gross margin percentage
decreased to 42.8% for the year ended December 31, 2008 from 47.1% for the year
ended December 31, 2007. This decrease resulted from higher
(percentage of sales) costs for raw materials, outside purchases, delivery and
shipping expenses, and depreciation on production equipment. Actual production
labor costs for the year ended December 31, 2008 were the same percentage of
sales as compared to the same period last year.
Selling, General and
Administrative – Total Selling, General and Administrative expenses
increased to $40,475 for the year ended December 31, 2008 from $38,316 for the
year ended December 31, 2007. The increase of $2,159 or 5.6% was due
to $538 of incremental legal costs and investment banking fees associated with
the Company’s decision to enter into a merger agreement with ACAS with the
balance of the increase attributable to higher expenses for professional fees of
$684, a decrease in bad debt benefit of $208 as a result of a reduction in the
bad debt reserve, and an increase in depreciation/amortization of
$497. Total Selling, General and Administrative expenses as a
percentage of sales increased to 48.1% for the year ended December 31, 2008
compared to 41.1% for the year ended December 31, 2007.
Impairment Losses - For the year
ended December 31, 2008, we recorded goodwill impairment in the amount of
$6,750. The impairment is primarily attributable to weaker than expected
financial performance in one of the Company’s reporting units resulting in lower
projected cash flows utilized in the discounted cash flow analysis.
Interest Expense - Interest
expense for the Company decreased by $345 or 40.2% from $859 for the year ended
December 31, 2007 to $514 for the year ended December 31, 2008. The
change primarily reflects decreased loan balances from principal payments on
capital leases and installment notes.
Interest Income - Interest
income for the Company decreased by $88 or 18.6% from $473 for the year ended
December 31, 2007 to $385 for the year ended December 31, 2008. The change
primarily reflects lower average balances in short-term interest-bearing
investments classified as cash equivalents.
Income Taxes – The Company
recorded an income tax benefit of $4,840 for the year ended December 31, 2008
compared to $30,594 for the year ended December 31, 2007. Income tax benefit for
the year ended December 31, 2008 is recorded at an effective tax rate of (42.7%)
as compared to (559.9%) for the year ended December 31, 2007. During the year
ended December 31, 2007, the Company reduced its valuation allowance on its
deferred tax assets and recorded a deferred tax benefit in the amount of
$31,375.
16
Discontinued Operations – The
Company did not have income from discontinued operations during the year ended
December 31, 2008. The Company recorded income from discontinued operations of
$145 for the year ended December 31, 2007 related to the sale of real property
transferred to the Company in settlement of a note receivable. This figure
consists of the sale price of $1,192, net of cost basis of $914 and taxes of
$112 and other expenses of $21.
Net Income - As a result of
the above items, the Company had net loss of $6,486 for the year ended December
31, 2008 compared to income of $35,927 for the year ended December 31,
2007.
Liquidity
and Capital Resources
Cash
Flow Activity for 2007, 2008 and 2009
Analysis
of Cash Flows
|
For
the Years Ended
|
|||||||||||
(in
thousands)
|
2007
|
2008
|
2009
|
|||||||||
Cash
flows provided by (used in) operating activities
|
$ | 14,061 | $ | (847 | ) | $ | 3,904 | |||||
Cash
flows used in investing activities
|
(5,099 | ) | (3,048 | ) | (2,346 | ) | ||||||
Cash
flows used in financing activities
|
(1,231 | ) | (1,607 | ) | (729 | ) | ||||||
Net
cash provided by discontinued operations
|
1,059 | - | - | |||||||||
Net
increase (decrease) in cash and cash equivalents
|
$ | 8,790 | $ | (5,502 | ) | $ | 829 |
Net cash
provided by operating activities was $3,904 during the year ended December 31,
2009. The primary source of cash was a decrease of $4,570 in accounts
receivable, a decrease in inventories of $1,562, $729 reclassification of
restricted cash to unrestricted, depreciation and amortization of $5,251, a
decrease deferred taxes of $39,936, and intangible impairments of $18,343,
partially offset by the net loss of $67,779. The net loss was reduced by the
ACAS settlement of $2,000 ($1,144 after tax benefit).
Net cash
used in operating activities was $847 during the year ended December 31,
2008. The primary use of cash was payment of $2,846 in legal costs
and investment banking fees associated with the Company’s decision to enter into
a merger agreement with ACAS. Net cash provided by remaining operating
activities was $1,999. This positive operating cash flow was generated by a
pre-tax loss from continuing operations of $11,326 net of expenses related to
legal and investment banking fees of $2,365 mentioned above, and offset by
depreciation and amortization of $4,793 and goodwill impairment of
$6,750.
Net cash
provided by operating activities was $14,061 during the year ended December 31,
2007. The primary source of cash was pre-tax earnings from continuing
operations of $5,188 before non-cash items of depreciation, amortization of
$3,986. A release of restricted cash of $841 and a decrease of $5,118 in
accounts receivable added to the increase. The Company used $556 in legal costs
and investment banking fees associated with the Company’s decision to enter into
a merger agreement with ACAS.
For the
year ended December 31, 2009, net cash used in investing activities was $2,346
which consisted of $275 used for contingent payments made to the former
shareholders of Fuel and $2,071 used for capital expenditures.
For the
year ended December 31, 2008, net cash used in investing activities was $3,048
which consisted of $750 used for contingent payments made to the former
shareholders of Fuel and $2,298 was used for capital expenditures.
For the
year ended December 31, 2007, net cash used in investing activities was $5,099
which consisted of $1,296 used in acquisition purchase price adjustments, $1,236
used for contingent payments made to the former shareholders of Crush, Fuel, and
AdProps, and $2,567 used for capital expenditures.
17
For the
year ended December 31, 2009, net cash used for financing activities was $729,
consisting of $500 related to repayments of bank debt, $178 related to
repayments of capital leases, and $136 used to repurchase treasury
stock.
For the
year ended December 31, 2008, net cash used for financing activities was $1,607,
consisting of $673 related to repayments of bank debt and capital leases, and
$934 used to repurchase treasury stock.
For the
year ended December 31, 2007, net cash used for financing activities was $1,231
used for repayments of installment notes and capital leases.
Debt
Obligations, Financing Sources and Capital Expenditures
In June
2000, an affiliate of Stonington Partners, Inc., which currently owns
approximately 69% of the Company’s outstanding common stock, purchased 150,000
shares of convertible preferred stock (the “Convertible Preferred”) issued by
the Company for an aggregate purchase price of $15,000. The
Convertible Preferred provides for an 8% annual dividend payable in additional
shares of Convertible Preferred. Dividends are cumulative and will
accrue from the original issue date whether or not declared by the Board of
Directors. As of December 31, 2009, 169,801 shares of Convertible Preferred have
been accrued as dividends and 163,531 shares have been issued to Stonington
Partners, Inc. in payment of that accrual. The remaining 6,270 shares were
issued on February 2, 2010. Additionally, cumulative accrued dividends of
$16,980 and $14,544 were recorded as temporary equity at December 31, 2009, and
as equity at December 31, 2008, respectively. At the option of the holder, the
Convertible Preferred is convertible into the Company’s common stock at a per
share conversion price of $17.50. At the option of the Company, the Convertible
Preferred can be converted into Common Stock when the average closing price of
the Common Stock for any 20 consecutive trading days is at least $37.50. At the
Company’s option, after September 30, 2008, the Company may redeem outstanding
shares of the Convertible Preferred at $100 per share plus accrued and unpaid
dividends. In the event of a defined change of control, holders of the
Convertible Preferred have the right to require the redemption of the
Convertible Preferred at $101 per share plus accrued and unpaid
dividends.
In
connection with the Company's financing of the Comp 24 and Color Edge
acquisitions, the Company entered into two credit agreements with Amalgamated
Bank (“Amalgamated”) dated March 1, 2005. The credit agreements provided for two
three-year revolving credit facilities and two term loans. The credit
agreement has been amended several times to date, the most recent of which was
on September 30, 2009 (the “Amended and Restated Credit Agreement” or the
“Agreement”). The Agreement is for a single $12,000 revolving credit
facility (the “Facility”) and required the early retirement of the remaining
balance of the existing term loan prior to its maturity on December 31, 2009,
which the Company paid off the balance in full on September 30, 2009. The
Facility includes two financial covenants requiring the company maintains a
minimum tangible net worth of $15,500 at all times, and no EBITDA losses on a
consolidated basis in any quarterly period beginning with the quarter ending
December 31, 2009. The maturity date of the Facility is August 31,
2011, and the interest rate is at a “Base Rate,” which is a floating rate equal
to the greater of (a) Amalgamated’s prime rate in effect on such day and (b) the
Federal Funds Effective Rate in effect on such day, plus 2.5%. As of December
31, 2009, this rate was 5.75%.
The
Company’s borrowing base under the Facility is set at 80% of its eligible
accounts receivable and the Facility must be prepaid when the amount of the
borrowings exceeds the borrowing base. In addition, borrowings under the
Facility must be prepaid with net cash proceeds that result from certain sales
or issuances of stock or from capital contributions. Voluntary prepayments are
permitted, in whole or in part, without premium or penalty, at the Company’s
option, in minimum principal amounts of $100.
Color
Edge, Color Edge Visual and Crush are named as borrowers under the
Agreement. All borrowings under the Agreement are guaranteed by the
Company, Merisel Americas, and each of their existing operating subsidiaries, as
guarantors, and must be guaranteed by all of their future subsidiaries. The
borrowings are secured by a first priority lien on substantially all, subject to
certain exceptions, of the borrowers’ and the guarantors’ properties and assets,
and the properties and assets of their existing and future
subsidiaries.
As of
December 31, 2009, the Company has $8,715 outstanding on the
Facility. As of December 31, 2009, the minimum tangible net worth of
the Company is below the required $15,500. Accordingly, the Company
is in violation of the covenant under the Agreement, and as such the Bank may
request repayment of the loan at any time. Based on this, the Company
has classified the outstanding balance as of December 31, 2009, as short term on
its balance sheet.
18
Management
believes that, with its cash balances and anticipated cash balances, it has
sufficient liquidity for the next twelve months and believes that in the event
Amalgamated requests repayment of the loan, the Company would be able
to obtain a replacement facility. However, the Company’s operating cash flow can
be impacted by macroeconomic factors outside of its control.
Through
December 31, 2009, the Company spent approximately $2,071 in capital
expenditures. The total 2010 expenditures are expected to be
similar.
19
Item
8. Financial Statements and Supplementary
Data.
MERISEL,
INC. AND SUBSIDIARIES
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Page
No
|
|
Report
of Independent Registered Public Accounting Firm
|
21
|
Consolidated
Balance Sheets
|
22
|
Consolidated
Statements of Operations
|
23
|
Consolidated
Statements of Stockholders’ Equity (Deficit)
|
24
|
Consolidated
Statements of Cash Flows
|
25-26
|
Notes
to Consolidated Financial Statements
|
27
|
(All
other items on this report are inapplicable)
20
Report
of Independent Registered Public Accounting Firm
Board of
Directors and Stockholders
Merisel,
Inc.
New York,
NY
We have
audited the accompanying consolidated balance sheets of Merisel, Inc. and
Subsidiaries (the “Company”) as of December 31, 2009 and 2008 and the related
consolidated statements of operations, stockholders’ equity (deficit), and cash
flows for each of the three years in the period ended December 31,
2009. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, audits of its
internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above in the first
paragraph present fairly, in all material respects, the financial position of
the Company at December 31, 2009 and 2008, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2009
in conformity with accounting principles generally accepted in the United
States.
/s/ BDO
Seidman, LLP
New York,
NY
March 31,
2010
21
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share and per share data)
December
31,
|
||||||||
2008
|
2009
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 9,752 | $ | 10,581 | ||||
Accounts
receivable, net of allowance of $334 and $262,
respectively
|
17,597 | 12,456 | ||||||
Inventories
|
3,268 | 1,706 | ||||||
Prepaid
expenses and other current assets
|
1,191 | 919 | ||||||
Deferred
tax asset
|
2,616 | - | ||||||
Total
current assets
|
34,424 | 25,662 | ||||||
Property,
plant and equipment, net
|
7,519 | 7,599 | ||||||
Restricted
cash
|
2,961 | 2,232 | ||||||
Goodwill
|
13,649 | - | ||||||
Trademarks
|
10,609 | 6,190 | ||||||
Other
intangible assets, net
|
5,129 | 3,648 | ||||||
Deferred
tax asset
|
37,320 | - | ||||||
Other
assets
|
121 | 94 | ||||||
Total
assets
|
$ | 111,732 | $ | 45,425 | ||||
LIABILITIES,
TEMPORARY EQUITY, AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 4,785 | $ | 5,374 | ||||
Accrued
liabilities
|
4,748 | 5,100 | ||||||
Capital
lease obligations, current maturities
|
69 | 269 | ||||||
Installment
notes, current maturities
|
500 | - | ||||||
Revolving
credit agreement
|
8,630 | 8,715 | ||||||
Total
current liabilities
|
18,732 | 19,458 | ||||||
Capital
lease obligations, less current maturities
|
17 | 749 | ||||||
Other
liabilities
|
710 | 670 | ||||||
Total
liabilities
|
19,459 | 20,877 | ||||||
Commitments
and Contingencies
|
||||||||
Temporary
equity:
|
||||||||
Convertible
preferred stock, $.01 par value, authorized 600,000 shares;
313,531
shares issued and outstanding at December 31, 2009
|
- | 31,980 | ||||||
Stockholders'
equity (deficit):
|
||||||||
Convertible
preferred stock, $.01 par value; authorized 300,000 shares;
289,653
shares issued and outstanding at December 31, 2008
|
29,544 | - | ||||||
Common
stock, $.01 par value; authorized 30,000,000 shares; issued: 8,473,503 and
8,453,671, respectively; outstanding: 7,385,322 and 7,214,784,
respectively
|
85 | 84 | ||||||
Additional
paid-in capital
|
270,713 | 268,468 | ||||||
Accumulated
deficit
|
(206,261 | ) | (274,040 | ) | ||||
Treasury
stock, at cost, 1,088,181 and 1,238,887 shares repurchased,
respectively
|
(1,808 | ) | (1,944 | ) | ||||
Total
stockholders' equity (deficit)
|
92,273 | (7,432 | ) | |||||
Total
liabilities, temporary equity, and stockholders' equity
(deficit)
|
$ | 111,732 | $ | 45,425 |
See
accompanying notes to consolidated financial statements.
22
MERISEL,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share amounts)
For
the year ended
December
31,
|
||||||||||||
2007
|
2008
|
2009
|
||||||||||
Net
sales
|
$ | 93,181 | $ | 84,178 | $ | 62,066 | ||||||
Cost
of sales
|
49,291 | 48,150 | 41,240 | |||||||||
Gross
profit
|
43,890 | 36,028 | 20,826 | |||||||||
Selling,
general and administrative expenses
|
38,316 | 40,475 | 30,097 | |||||||||
Intangible
impairment
|
- | 6,750 | 18,343 | |||||||||
Operating
income (loss)
|
5,574 | (11,197 | ) | (27,614 | ) | |||||||
Interest
expense
|
(859 | ) | (514 | ) | (400 | ) | ||||||
Interest
income
|
473 | 385 | 96 | |||||||||
Income
(loss) from continuing operations before (benefit) provision for income
tax
|
5,188 | (11,326 | ) | (27,918 | ) | |||||||
Income
tax (benefit) provision
|
(30,594 | ) | (4,840 | ) | 39,861 | |||||||
Income
(loss) from continuing operations
|
35,782 | (6,486 | ) | (67,779 | ) | |||||||
Income
from discontinued operations, net of taxes
|
145 | - | - | |||||||||
Net
income (loss)
|
$ | 35,927 | $ | (6,486 | ) | $ | (67,779 | ) | ||||
Preferred
stock dividends
|
2,079 | 2,250 | 2,436 | |||||||||
Net
income (loss) available to common stockholders
|
$ | 33,848 | $ | (8,736 | ) | $ | (70,215 | ) | ||||
Net
income (loss) per share (basic):
Income
(loss) from continuing operations available to common
stockholders
|
$ | 4.32 | $ | (1.12 | ) | $ | (9.75 | ) | ||||
Income
from discontinued operations
|
.02 | - | - | |||||||||
Net
income (loss) available to common stockholders
|
$ | 4.34 | $ | (1.12 | ) | $ | (9.75 | ) | ||||
Net
income (loss) per share (diluted):
Income
(loss) from continuing operations available to common
stockholders
|
$ | 4.20 | $ | (1.12 | ) | $ | (9.75 | ) | ||||
Income
from discontinued operations
|
.02 | - | - | |||||||||
Net
income (loss) available to common stockholders
|
$ | 4.22 | $ | (1.12 | ) | $ | (9.75 | ) | ||||
Weighted
average number of shares:
|
||||||||||||
Basic
|
7,793 | 7,797 | 7,202 | |||||||||
Diluted
|
8,016 | 7,797 | 7,202 |
See
accompanying notes to consolidated financial statements.
23
MERISEL,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In
thousands, except share data)
Preferred
Stock
|
Common
Stock
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Treasury
Stock
|
Total
|
Comprehensive
Income
(Loss)
|
||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||||||
Balance
at January 1, 2007
|
150,000 | $ | 25,215 | 8,429,518 | $ | 84 | $ | 273,957 | $ | (235,702 | ) | (418,780 | ) | $ | (874 | ) | $ | 62,680 | ||||||||||||||||||||||
Accumulation
of convertible preferred stock dividend
|
2,079 | (2,079 | ) | - | ||||||||||||||||||||||||||||||||||||
Issue
of preferred stock
|
117,595 | - | - | |||||||||||||||||||||||||||||||||||||
Issue
of restricted stock
|
41,705 | - | - | |||||||||||||||||||||||||||||||||||||
Cancellation
of restricted stock
|
(18,500 | ) | - | - | ||||||||||||||||||||||||||||||||||||
Stock
compensation
|
716 | 716 | ||||||||||||||||||||||||||||||||||||||
Net
income
|
35,927 | 35,927 | $ | 35,927 | ||||||||||||||||||||||||||||||||||||
Total
Comprehensive Income
|
$ | 35,927 | ||||||||||||||||||||||||||||||||||||||
Balance
at December 31, 2007
|
267,595 | $ | 27,294 | 8,452,723 | $ | 84 | $ | 272,594 | $ | (199,775 | ) | (418,780 | ) | $ | (874 | ) | $ | 99,323 | ||||||||||||||||||||||
Accumulation
of convertible preferred stock dividend
|
2,250 | (2,250 | ) | - | ||||||||||||||||||||||||||||||||||||
Issue
of preferred stock
|
22,058 | - | - | |||||||||||||||||||||||||||||||||||||
Issue
of restricted stock
|
20,780 | 1 | (1 | ) | - | |||||||||||||||||||||||||||||||||||
Purchase
of treasury stock
|
(669,401 | ) | (934 | ) | (934 | ) | ||||||||||||||||||||||||||||||||||
Stock
compensation
|
370 | 370 | ||||||||||||||||||||||||||||||||||||||
Net
loss
|
(6,486 | ) | (6,486 | ) | $ | (6,486 | ) | |||||||||||||||||||||||||||||||||
Total
Comprehensive Loss
|
$ | (6,486 | ) | |||||||||||||||||||||||||||||||||||||
Balance
at December 31, 2008
|
289,653 | $ | 29,544 | 8,473,503 | $ | 85 | $ | 270,713 | $ | (206,261 | ) | (1,088,181 | ) | $ | (1,808 | ) | $ | 92,273 | ||||||||||||||||||||||
Accumulation
of convertible preferred stock dividend
|
2,436 | (2,436 | ) | - | ||||||||||||||||||||||||||||||||||||
Issue
of preferred stock
|
23,878 | - | - | |||||||||||||||||||||||||||||||||||||
Reclassification
of preferred stock to temporary equity
|
(313,531 | ) | (31,980 | ) | (31,980 | ) | ||||||||||||||||||||||||||||||||||
Cancellation
of restricted stock
|
(19,832 | ) | (1 | ) | 1 | - | ||||||||||||||||||||||||||||||||||
Purchase
of treasury stock
|
(150,706 | ) | (136 | ) | (136 | ) | ||||||||||||||||||||||||||||||||||
Stock
compensation
|
190 | 190 | ||||||||||||||||||||||||||||||||||||||
Net
loss
|
(67,779 | ) | (67,779 | ) | $ | (67,779 | ) | |||||||||||||||||||||||||||||||||
Total
Comprehensive Loss
|
$ | (67,779 | ) | |||||||||||||||||||||||||||||||||||||
Balance
at December 31, 2009
|
- | $ | - | 8,453,671 | $ | 84 | $ | 268,468 | $ | (274,040 | ) | (1,238,887 | ) | $ | (1,944 | ) | $ | (7,432 | ) | |||||||||||||||||||||
See
accompanying notes to consolidated financial statements.
24
MERISEL,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
For
the years ended
December
31,
|
||||||||||||
CONTINUING
OPERATIONS:
|
2007
|
2008
|
2009
|
|||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
Net
income (loss)
|
$ | 35,927 | $ | (6,486 | ) | $ | (67,779 | ) | ||||
Less:
income from discontinued operations, net
|
145 | - | - | |||||||||
Income
(loss) from continuing operations
|
35,782 | (6,486 | ) | (67,779 | ) | |||||||
Adjustments
to reconcile income (loss) from operations to net cash provided
by (used in) operating activities:
|
||||||||||||
Stock
based compensation
|
716 | 370 | 190 | |||||||||
Deferred
occupancy costs
|
168 | 44 | (40 | ) | ||||||||
Bad
debt provision (recovery)
|
(289 | ) | (81 | ) | 571 | |||||||
Deferred
income taxes (credit)
|
(31,375 | ) | (4,964 | ) | 39,936 | |||||||
Restricted
cash
|
843 | 234 | 729 | |||||||||
Intangible
impairment
|
- | 6,750 | 18,343 | |||||||||
Gain
on sale of equipment
|
- | - | (19 | ) | ||||||||
Depreciation
and amortization
|
3,986 | 4,793 | 5,251 | |||||||||
Changes
in assets and liabilities, exclusive of acquisitions:
|
||||||||||||
Accounts
receivable
|
5,407 | (402 | ) | 4,570 | ||||||||
Inventories
|
121 | (1,254 | ) | 1,562 | ||||||||
Prepaid
expenses and other assets
|
(223 | ) | (265 | ) | 299 | |||||||
Accounts
payable
|
(998 | ) | 2,556 | 589 | ||||||||
Accrued
liabilities
|
(77 | ) | (2,142 | ) | (298 | ) | ||||||
Net
cash provided by (used in) operating activities
|
14,061 | (847 | ) | 3,904 | ||||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Acquisition
earn-out payments and purchase price adjustments
|
(2,532 | ) | (750 | ) | (275 | ) | ||||||
Capital
expenditures
|
(2,567 | ) | (2,298 | ) | (2,071 | ) | ||||||
Net
cash used in investing activities
|
(5,099 | ) | (3,048 | ) | (2,346 | ) | ||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Capital
lease payments
|
(634 | ) | (298 | ) | (178 | ) | ||||||
Installment
note repayments
|
(597 | ) | (375 | ) | (500 | ) | ||||||
Revolving
credit agreement drawdown
|
- | - | 85 | |||||||||
Purchase
of treasury stock
|
- | (934 | ) | (136 | ) | |||||||
Net
cash used in financing activities
|
(1,231 | ) | (1,607 | ) | (729 | ) | ||||||
Cash
provided by (used in) continuing activities
|
7,731 | (5,502 | ) | 829 | ||||||||
(Continued
on next page)
See
accompanying notes to consolidated financial statements
25
MERISEL,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
(In
thousands)
For
the years ended
December
31,
|
||||||||||||
2007
|
2008
|
2009
|
||||||||||
DISCONTINUED
OPERATIONS:
|
||||||||||||
Cash
provided by (used in) operating activities
|
1,059 | - | - | |||||||||
NET
CASH PROVIDED BY DISCONTINUED OPERATIONS:
|
1,059 | - | - | |||||||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
8,790 | (5,502 | ) | 829 | ||||||||
CASH
AND CASH EQUIVALENTS, BEGINNING OF YEAR
|
6,464 | 15,254 | 9,752 | |||||||||
CASH
AND CASH EQUIVALENTS, END OF PERIOD YEAR
|
$ | 15,254 | $ | 9,752 | $ | 10,581 | ||||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||||||
Cash
paid during the year for:
|
||||||||||||
Interest
expense
|
$ | 802 | $ | 562 | $ | 427 | ||||||
Income
taxes
|
$ | 893 | $ | 258 | $ | - | ||||||
Noncash
activities:
|
||||||||||||
Equipment
Purchases Financed through Capital Leases
|
$ | - | $ | - | $ | 1,110 | ||||||
Equipment
Purchases Financed through Accounts Payable and Trade-in
|
$ | - | $ | - | $ | 975 | ||||||
Preferred
dividend accumulated
|
$ | 2,079 | $ | 2,250 | $ | 2,436 | ||||||
See
accompanying notes to consolidated financial statements.
26
MERISEL,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, 2008, and 2009
(In
thousands except per share data)
1.
|
Description
of Business and Basis of
Presentation
|
General— Merisel, Inc.
(“Merisel”, or the “Company”) was founded in 1980 as Softsel Computer Products,
Inc., was incorporated in Delaware in 1987 and changed its name to Merisel, Inc.
in 1990 in connection with the acquisition of Microamerica, Inc. The Company
operated as a full-line computer distributor through 2000 and as a software
licensing distributor through August 2004, when the remaining operations were
sold. All of the Company’s former operations with the exception of
acquisition activity have been classified as discontinued operations in the
Company’s financial statements.
The
Company and its subsidiaries currently operate in the visual communications
services business. It entered that business beginning March 2005
through a series of acquisitions, which continued through 2006. These
acquisitions include Color Edge, Inc. and Color Edge Visual, Inc. (together
“Color Edge”), Comp 24, LLC (“Comp 24”); Crush Creative, Inc. (“Crush”); Dennis
Curtin Studios, Inc. (“DCS”); Advertising Props, Inc. (“AdProps”); and Fuel
Digital, Inc. (“Fuel”). The acquisitions of the Company’s seven operating
entities are referred to below as “Acquisitions.” The Company’s financial
statements are on a consolidated basis.
2.
|
Summary
of Significant Accounting Policies
|
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates include the valuation allowances for deferred tax assets,
the carrying amount of intangibles, stock based compensation, allowance for
doubtful accounts and estimate of useful life.
Consolidation
Policy
The
consolidated financial statements include the accounts of Merisel Americas,
Inc., which include Color Edge, Comp 24, Crush, AdProps, DCS, Fuel and Merisel
Corporate. All material intercompany accounts and transactions have
been eliminated in consolidation.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with initial
maturities of three months or less to be cash equivalents. Cash
equivalents were $0 and $807 at December 31, 2008 and 2009,
respectively. The Company invests excess cash in interest-bearing
accounts. Interest income earned on cash balances for 2007, 2008 and
2009 was $473, $385 and $96, respectively.
Accounts
Receivable and Allowance for Doubtful Accounts
The
Company’s accounts receivable are customer obligations due under normal trade
terms, carried at their face value, less an allowance for doubtful
accounts. The allowance for doubtful accounts is determined based on
the evaluation of the aging of accounts receivable and a case-by-case analysis
of high-risk customers. Reserves contemplate historical loss rate on
receivables, specific customer situations and the general economic environment
in which the Company operates. Historically, actual results in these
areas have not been materially different than the Company’s estimates, and the
Company does not anticipate that its assumptions are likely to materially change
in the future. However, if unexpected events occur, results of operations could
be materially affected.
27
Unbilled
Accounts Receivable
Accounts
receivable included approximately $2,317 and $1,013 of unbilled receivables at
December 31, 2008 and 2009, respectively. These receivables are a
normal part of the Company’s operations, as some receivables are normally
invoiced in the month following shipment and completion of the billing
process.
Concentration
of Credit Risk
The
Company extends credit to qualified customers in the ordinary course of its
business. The Company performs ongoing credit evaluations of its customers’
financial conditions and has established an allowance for doubtful accounts
based on factors surrounding the credit risk of customers, historical trends,
and other information which limits their risk. The Company had one customer that
accounted for approximately 10% of net sales in 2007, approximately 15% of net
sales in 2008, and approximately 24% of net sales in 2009. As of December 31,
2008 and 2009, that one customer’s receivable balances were $3,563 or 20% of the
total accounts receivable balance and $3,464 and 28% of the total accounts
receivable balance, respectively.
Inventories
Inventories,
which consist of raw materials and work-in-progress, are stated at the lower of
cost (first-in, first-out method) or market value. An inventory
reserve is established to account for slow-moving materials, obsolescence and
shrinkage.
Property
and Depreciation
Property
and equipment are stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets, generally three to ten years. Leasehold improvements are
amortized using the straight-line method over their estimated useful lives, or
the lease term, whichever is shorter.
Goodwill
and Other Intangible Assets
The
Company, which has two reporting units, follows the provisions of FASB ASC 350
(FAS 142 “Goodwill and Other Intangible Assets”). In accordance with
FASB ASC 350, goodwill and indefinite-lived intangible assets are not amortized,
but reviewed for impairment upon the occurrence of events or changes in
circumstances that would reduce the fair value of the Company’s reporting units
below their carrying amount. Goodwill is required to be tested for impairment at
least annually. The Company uses a measurement date of December 31. Determining
the fair value of a reporting unit under the first step of the goodwill
impairment test and determining the fair value of individual assets and
liabilities of a reporting unit (including unrecognized intangible assets) under
the second step of the goodwill impairment test is judgmental in nature and
often involves the use of significant estimates and assumptions. Similarly,
estimates and assumptions are used in determining the fair value of other
intangible assets. These estimates and assumptions could have a significant
impact on whether or not an impairment charge is recognized and also the
magnitude of any such charge. Estimates of fair value for the goodwill
impairment valuation are primarily determined using discounted cash flows. These
approaches use significant estimates and assumptions including projected future
cash flows, discount rates reflecting the risk inherent in future cash flows,
perpetual growth rates, determination of appropriate market comparables and the
determination of a weighted average cost of capital. The Company’s reporting
units are its operating segments. Goodwill was allocated to such reporting
units, for the purposes of preparing our impairment analyses, based on a
specific identification basis. As a result of our annual impairment analysis,
the Company recorded a non-cash goodwill impairment charge in the amount of
$6,750 and $13,924 for the years ended December 31, 2008 and 2009, respectively.
(See Note 4). As of December 31, 2009, the Company has no remaining
goodwill.
The
Company also performed the annual impairment test for indefinite-lived
trademarks during the fourth fiscal quarter of the year. The trademark
impairment valuation is determined using the relief from royalty method. As a
result of the impairment analysis, the Company recorded trademark impairment
charges of $4,419 as a result of decreases in projected revenues and royalty
rates for certain trademarks. The use of a lower royalty rate assumption by 0.5%
or a decrease in sales growth of 3% would result in an additional impairment of
up to $2,000.
The
method to compute the amount of impairment incorporates quantitative data and
qualitative criteria including new information that can dramatically change the
decision about the valuation of an intangible asset in a very short period of
time. The Company will continue to monitor the expected future cash flows of its
reporting units for the purpose of assessing the carrying values of its other
intangible assets. Any resulting impairment loss could have a material adverse
effect on the Company’s reported financial position and results of operations
for any particular quarterly or annual period.
Impairment
of Long-Lived Assets
28
In
accordance with FASB ASC 360-10-35 (FAS No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets”), long-lived assets, such as property, plant
and equipment and purchased intangibles subject to amortization, are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company
reviews the recoverability of long-lived assets to determine if there has been
any impairment. This assessment is performed based on the estimated
undiscounted future cash flows from operating activities compared with the
carrying value of the related asset. If the undiscounted future cash
flows are less than the carrying value, an impairment loss is recognized,
measured by the difference between the carrying value and the estimated fair
value of the assets.
Shipping
and Handling Fees and Costs
Shipping
and handling fees billed to customers for product shipments are recorded as a
component of Net Sales. Shipping and handling costs are included in
Cost of Goods Sold when jobs are completed and invoiced.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Under this method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in results of operations in the period that
the tax change occurs. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
Currently,
the Company has a full valuation allowance against its net deferred tax assets.
If, in the future the Company determines that it would more likely than not
realize our recorded deferred tax assets, a decrease in the valuation allowance
would increase earnings in the period in which such determination is made. The
Company assesses its income tax positions and records tax benefits for all years
subject to examination based upon our evaluation of the facts, circumstances and
information available at the reporting date. For those tax positions
where it is more likely than not that a tax benefit will be sustained, the
Company has recorded the largest amount of tax benefit with a greater than 50%
likelihood of being realized upon ultimate settlement with a taxing authority
that has full knowledge of all relevant information. For those income
tax positions where it is not more likely than not that a tax benefit will be
sustained, no tax benefit has been recognized in the financial
statements.
The
Company follows FASB ASC 740-10 (FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes — an Interpretation of FASB Statement No. 109), which contains a
two-step approach to recognizing and measuring uncertain tax positions (tax
contingencies). The Company assesses its tax positions for all years subject to
examination based upon its evaluation of the facts, circumstances and
information available at the reporting date. With limited exceptions
and due to the impact of net operating loss and other credit carryforwards, the
Company may be effectively subject to U.S. federal income tax examinations for
periods after 1996. The Company is subject to examination by state and local tax
authorities generally for the period mandated by
statute. Currently the Company has no ongoing examinations.
The first step is to evaluate the tax position for recognition by determining if
the weight of available evidence indicates it is more likely than not that the
position will be sustained on an audit, including resolution of related appeals
or litigation processes, if any. The second step is to measure the tax benefit
as the largest amount which is more than 50% likely of being realized upon
ultimate settlement. As a result of this review, the Company concluded that it
has no uncertain tax positions. The Company does not expect any reasonably
possible material changes to the estimated amount of liability associated with
its uncertain tax positions through December 31, 2010. The Company’s policy is
to recognize interest and penalties, if any, accrued on uncertain tax positions
as part of selling, general, and administrative expense.
Revenue
Recognition
The
Company recognizes revenue when revenue is realized or realizable and has been
earned. Revenue transactions represent sales of inventory. All of the Company’s
services culminate with the production of a tangible product that is delivered
to the final customer. The Company does not provide any services that are
marketed or sold separately from its final tangible products. Our policy is to
recognize revenue when title to the product, ownership and risk of loss transfer
to the customer, which is typically on the date of the shipment. Appropriate
provision is made for uncollectible accounts.
29
Fair
Value Measurements
In
determining fair value, the Company utilizes valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs to the
extent possible as well as considers counterparty credit risk in its assessment
of fair value.
The fair
value hierarchy consists of three broad levels, which gives the highest priority
to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy under FASB ASC 820 (FAS No. 157,
“Fair Value Measurements”) are described as follows:
·
|
Level
1- Unadjusted quoted prices in active markets for identical assets or
liabilities that are accessible at the measurement
date.
|
·
|
Level
2- Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly.
Level 2 inputs include quoted prices for similar assets or liabilities in
active markets; quoted prices for identical or similar assets or
liabilities in markets that are not active; inputs other than quoted
prices that are observable for the asset or liability; and inputs that are
derived principally from or corroborated by observable market data by
correlation or other means.
|
·
|
Level
3- Inputs that are unobservable for the asset or
liability.
|
On a
nonrecurring basis, the Company uses fair value measures when analyzing asset
impairment. Long-lived tangible assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If it is determined such indicators are present and the
review indicates that the assets will not be fully recoverable, based on
undiscounted estimated cash flows over the remaining amortization periods, their
carrying values are reduced to estimated fair value. The Company uses an income
approach and inputs that constitute level 3. During the fourth quarter of each
year, the Company evaluates goodwill and indefinite-lived and
definite-lived intangibles for impairment at the reporting unit
level.
Financial
instruments include cash and cash equivalents. The approximate fair values of
cash and cash equivalents, accounts receivable, security deposits, and accounts
payable approximate their carrying value because of their short-term nature. The
revolving credit fair value approximates carrying value due to the variable
nature of the interest rate.
Accounting
for Stock-Based Compensation
The
Company follows the provisions of FASB ASC 718 (FAS No. 123 (revised 2004)
“Share-Based Payment”) which addresses the accounting for transactions in which
an entity exchanges its equity instruments for employee services in share-based
payment transactions. FASB ASC 718 requires measurement of the cost of employee
services received in exchange for an award of equity instruments based on the
grant date fair value of the award (with limited exceptions). Incremental
compensation costs arising from subsequent modifications of awards after the
grant date must be recognized. FASB ASC 718 requires companies to estimate the
fair value of share-based payment awards on the date of grant using an
option-pricing model. The value of the portion of the award that is ultimately
expected to vest is recognized as expense over the requisite service periods in
the Company’s Consolidated Statements of Operations. Stock-based compensation
recognized in the Company’s Consolidated Statements of Operations for the years
ended December 31, 2007, 2008, and 2009 includes compensation expense for
share-based awards granted prior to, but not fully vested as of January 1, 2006
based on the grant date fair value estimated in accordance with FASB ASC 718.
The Company currently uses the Black-Scholes option pricing model to determine
grant date fair value.
Earnings
(Loss) Per Share
Basic and
diluted earnings (loss) per share are computed and presented in accordance with
FASB ASC 260-10 (FAS No. 128, “Earnings per Share”). Basic earnings
(loss) per share was determined by dividing net earnings (loss) by the
weighted-average number of common shares outstanding during each
period. Diluted earnings per share of the Company includes the impact
of certain potentially dilutive securities. However, diluted earnings
per share excludes the effects of potentially dilutive securities because
inclusion of these instruments would be anti-dilutive. A
reconciliation of the net income (loss) available to common stockholders and the
number of shares used in computing basic and diluted earnings per share is
provided in Note 14.
30
Segment
Reporting
The
Company evaluates its operating segment information in accordance with the
provisions of FASB ASC 280 (FAS No. 131, ‘‘Segment Reporting’’) which provides
for annual and interim reporting standards for operating segments of a company.
ASC 280 requires disclosures of selected segment-related financial information
about products, major customers, and geographic areas based on the Company’s
internal accounting methods. The Company’s chief operating decision-maker
evaluates performance, makes operating decisions, and allocates resources based
on consolidated information. As a result, the Company aggregates its two
operating segments into one reportable segment.
Deferred
Rent Policy
The
Company expenses rent on a straight line basis over the life of the lease, with
the non-cash expense portion accumulating in a deferred rent liability
account.
Reclassifications
Certain
reclassifications were made to prior year statements to conform to the current
year presentation.
New
Accounting Pronouncements
In
January 2010, the FASB published FASB Accounting Standards Update 2010-06, Fair
Value Measurements and Disclosures (Topic 820) — Improving Disclosures about
Fair Value Measurements. This update requires some new disclosures and clarifies
some existing disclosure requirements about fair value measurement as set forth
in Codification Subtopic 820-10. The FASB’s objective is to improve these
disclosures and, thus, increase the transparency in financial reporting.
Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require:
(a) a reporting entity to disclose separately the amounts of significant
transfers in and out of Level 1 and Level 2 fair value measurements and describe
the reasons for the transfers; and (b) in the reconciliation for fair value
measurements using significant unobservable inputs, a reporting entity should
present separately information about purchases, sales, issuances, and
settlements. In addition, ASU 2010-06 clarifies the requirements of the
following existing disclosures: for purposes of reporting fair value measurement
for each class of assets and liabilities, a reporting entity needs to use
judgment in determining the appropriate classes of assets and liabilities and
should provide disclosures about the valuation techniques and inputs used to
measure fair value for both recurring and nonrecurring fair value measurements.
ASU 2010-06 is effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. As ASU
2010-06 relates specifically to disclosures, it will not have an impact on the
Company’s consolidated financial statements.
In
October 2009, the FASB issued Accounting Standards Update No. 2009-15 (ASU
2009-15), “Accounting for Own-Share Lending Arrangements in Contemplation of
Convertible Debt Issuance or Other Financing.” ASU 2009-15 amends Subtopic
470-20 to expand accounting and reporting guidance for own-share lending
arrangements issued in contemplation of convertible debt issuance. ASU 2009-15
is effective for fiscal years beginning on or after December 15, 2009 and
interim periods within those fiscal years for arrangements outstanding as of the
beginning of those fiscal years. The Company does not expect the adoption of ASU
2009-15 to have a material impact on its consolidated financial
statements.
In
October 2009, the FASB issued Accounting Standards Update No.2009-13 (ASU
2009-13), “Revenue Recognition (Topic 605)—Multiple-Deliverable Revenue
Arrangements, a consensus of the FASB Emerging Issues Task Force.” ASU 2009-13 provides
amendments to the revenue recognition criteria for separating consideration in
multiple-deliverable revenue arrangements. It establishes a hierarchy of selling
prices to determine the selling price of each specific deliverable which
includes vendor-specific objective evidence (if available), third-party evidence
(if vendor-specific evidence is not available), or estimated selling price if
neither of the first two are available. This guidance also eliminates the
residual method for allocating revenue between the elements of an arrangement
and requires that arrangement consideration be allocated at the inception of the
arrangement and expands the disclosure requirements regarding a vendor’s
multiple-deliverable revenue arrangements. This guidance is effective for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010 and early adoption is permitted. The Company
is currently assessing the potential impact, if any, the adoption of this
guidance will have on its consolidated financial statements.
In
September 2009, the FASB issued Accounting Standards Update No. 2009-12 (ASU
2009-12), “Fair Value Measurements and Disclosures (Topic 820): Investments in
Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).”
ASU 2009-12 provides guidance on estimating the fair value of alternative
investments. ASU 2009-12 is effective for interim and annual periods ending
after December 15, 2009. The adoption of ASU 2009-12 did not have a material
impact on the Company’s consolidated financial statements.
31
In August
2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05),
“Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at
Fair Value.” ASU 2009-05 provides amendments to reduce potential ambiguity in
financial reporting when measuring the fair value of liabilities. Among other
provisions, this update provides clarification in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or more of the
valuation techniques described in ASU 2009-5. ASU 2009-5 was effective October
1, 2009. The Company’s adoption of ASU 2009-05 did not have a
material impact on its consolidated financial statements.
In July
2009, the Financial Accounting Standards Board (“FASB”) issued Statement No.
168, “The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles — a replacement of FASB Statement No. 162” (“FASB
ASC 105”). FASB ASC 105 established the FASB Accounting Standards Codification
(“ASC”) as the single source of authoritative U.S. generally accepted accounting
principles (“U.S. GAAP”) recognized by the FASB to be applied by nongovernmental
entities. FASB ASC 105 will supersede all existing non-SEC accounting and
reporting standards. All other non-grandfathered non-SEC accounting literature
not included in FASB ASC 105 will become non-authoritative. Following
FASB ASC 105, the FASB will not issue new standards in the form of Statements,
FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, the FASB
will issue Accounting Standards Updates, which will serve only to: (a) update
the Codification; (b) provide background information about the guidance; and (c)
provide the bases for conclusions on the change(s) in the Codification. FASB ASC
105 and the Codification are effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The adoption of FASB
ASC 105 did not have a material impact on the Company’s consolidated financial
statements.
In May
2009, the FASB issued FASB ASC 855-10, ‘‘Subsequent Events.’’ FASB ASC 855-10
established general standards of accounting for and disclosures of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. Specifically, FASB ASC 855-10 provides; (a) the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements; (b) the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements; and (c) the disclosures that
an entity should make about events or transactions that occurred after the
balance sheet date. FASB ASC 855-10 is effective for interim or annual financial
periods ending after June 15, 2009, and shall be applied prospectively. The
adoption of this ASC did not have a material impact on the Company’s
consolidated financial statements.
In April
2009, the FASB issued ASC 805-10, ‘‘Accounting for Assets Acquired and
Liabilities assumed in a Business Combination That Arise from Contingencies — an
amendment of FASB Statement No. 141 (Revised December 2007), Business
Combinations.’’ ASC 805-10 addresses application issues raised by preparers,
auditors, and members of the legal profession on initial recognition and
measurement, subsequent measurement and accounting, and disclosure of assets and
liabilities arising from contingencies in a business combination. ASC 805-10 is
effective for assets or liabilities arising from contingencies in business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. ASC
805-10 will have an impact on the Company’s accounting for any future
acquisitions and its consolidated financial statements.
In April
2008, the FASB issued ASC 350-10, ‘‘Determination of the Useful Life of
Intangible Assets.’’ ASC 350-10 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under ASC 350-10, ‘‘Goodwill and Other Intangible
Assets.’’ ASC No. 350-10 is effective for fiscal years beginning after December
15, 2008. The adoption of this ASC did not have a material impact on the
Company’s consolidated financial statements.
32
3.
|
Restricted
Cash
|
At
December 31, 2008 and 2009, the Company has restricted cash totaling $2,961 and
$2,232, respectively, in Letters of Credit (“LOC”) securing the security
deposits on the Company’s real estate leases. Approximately $1,500 of the
deposits are held in a single preferred deferred annuity and the remaining funds
are held in 1-2 year certificates of deposit. These deposits are held to
maturity based upon the terms of the real estate leases, since they
collateralize the LOC securing the security deposits. The fair value of these
deposits approximate their carrying value.
4.
|
Goodwill
and Intangibles
|
As of
December 31, 2008 and 2009, the acquired intangible assets related to the
acquisitions of Color Edge, Comp 24, Crush, DCS, AdProps, and Fuel. Intangible
assets, resulting primarily from these acquisitions accounted for under the
purchase method of accounting, consist of the following (in
thousands):
Definite
Lived Intangible Assets
December
31, 2008
|
||||||||||||||||
Acquired
Value
|
Accumulated
Amortization
|
Carrying
Value
|
Weighted
Average Amortization Period
|
|||||||||||||
Customer
relationships
|
$ | 3,799 | $ | 873 | $ | 2,926 | 16 | |||||||||
Non-compete
agreements
|
4,087 | 2,992 | 1,095 | 5 | ||||||||||||
Software
licenses
|
90 | 90 | - | 0 | ||||||||||||
Domain
name(s)
|
3 | 3 | - | 0 | ||||||||||||
Employment
agreements
|
1,109 | 868 | 241 | 3 | ||||||||||||
Trade
know how
|
1,341 | 474 | 867 | 8 | ||||||||||||
Definite
lived intangibles
|
10,429 | 5,300 | 5,129 | 13.0 |
December
31, 2009
|
||||||||||||||||
Acquired
Value
|
Accumulated
Amortization
|
Carrying
Value
|
Weighted
Average Amortization Period
|
|||||||||||||
Customer
relationships
|
$ | 3,799 | $ | 1,118 | $ | 2,681 | 16 | |||||||||
Non-compete
agreements
|
4,087 | 3,819 | 268 | 5 | ||||||||||||
Software
licenses
|
90 | 90 | - | 0 | ||||||||||||
Domain
name(s)
|
3 | 3 | - | 0 | ||||||||||||
Employment
agreements
|
1,109 | 1,109 | - | 0 | ||||||||||||
Trade
know how
|
1,341 | 642 | 699 | 8 | ||||||||||||
Definite
lived intangibles
|
10,429 | 6,781 | 3,648 | 13.0 |
33
Amortization
expense is calculated on a straight line basis over the estimated useful life of
the asset. The expense related to definite-lived intangible assets was $1,605,
$1,579, and $1,481 for the years ended December 31, 2007, 2008, and 2009,
respectively.
Estimated
amortization expense on an annual basis for the succeeding five years is as
follows:
For
the year ended December 31,
|
||||
Amount
|
||||
2010
|
$ | 673 | ||
2011
|
420 | |||
2012
|
413 | |||
2013
|
378 | |||
2014
|
308 | |||
Thereafter
|
1,456 | |||
$ | 3,648 |
Indefinite
Lived Intangible Assets
December
31, 2008
|
||||||||||||||||
Acquired
Value
|
Current
Year Impairment Charge
|
Cumulative
Impairment Charges
|
Carrying
Value
|
|||||||||||||
Trademark
|
$ | 10,609 | $ | - | $ | - | $ | 10,609 | ||||||||
Goodwill
|
20,399 | 6,750 | 6,750 | 13,649 | ||||||||||||
Total
|
$ | 31,008 | $ | 6,750 | $ | 6,750 | $ | 24,258 |
December
31, 2009
|
||||||||||||||||
Acquired
Value
|
Current
Year Impairment Charge
|
Cumulative
Impairment Charges
|
Carrying
Value
|
|||||||||||||
Trademark
|
$ | 10,609 | $ | 4,419 | $ | 4,419 | $ | 6,190 | ||||||||
Goodwill
|
20,674 | 13,924 | 20,674 | - | ||||||||||||
Total
|
$ | 31,283 | $ | 18,343 | $ | 25,093 | $ | 6,190 |
During
2008, the Company made a goodwill adjustment of $750 resulting from payments
made to former shareholders of Crush, in accordance with the Asset Purchase
Agreement effective August 8, 2005. These payments were made as a result of
Crush achieving certain earnings targets in the earnout period subsequent to the
Company’s acquisition of Crush. These payments were not included in the final
appraisal and resulted in an increase in goodwill.
34
During
2009, the Company made a goodwill adjustment of $275 resulting from payments
made to former shareholders of Fuel Digital. In connection with the Asset
Purchase Agreement between the Company and Fuel Digital dated October 4, 2006
(the “APA”), Merisel informed Fuel Digital and its former shareholders
(collectively, the “Sellers”) in November 2008, that Fuel Digital’s continuing
business had not met performance criteria which would entitle the Sellers to an
earnout payment for the one-year period ended September 30, 2008. On December
16, 2008, Merisel received, as required by the APA, a timely Notice of
Disagreement from the Sellers contesting Merisel's calculations. On April 9,
2009, the parties executed an agreement under which the Company agreed to pay
$275 to Sellers in settlement of the earnout payment for the one-year period
ended September 30, 2008. The amount was paid on April 15, 2009 and recorded as
an increase to goodwill.
In
accordance with FASB ASC 350, the Company tests for goodwill impairment at least
annually. The Company uses a measurement date of December 31. As a result of the
annual impairment analysis, the Company recorded a non-cash goodwill impairment
charge in the amount of $6,750 and $13,924 for the years ended December 31, 2008
and 2009, respectively. The impairment is primarily attributable to weaker than
expected financial performance and higher discount rates in both of the
Company’s reporting units resulting in lower projected cash flows utilized in
the discounted cash flow analysis. As of December 31, 2009, the entire balance
of goodwill was written off for the impaired reporting units.
The
Company also performed the annual impairment test for indefinite-lived
trademarks during the fourth fiscal quarter of the year. The trademark
impairment valuation is determined using the relief from royalty method. As a
result of the impairment analysis, the Company recorded trademark impairment
charges of $4,419 as a result of decreases in projected revenues and royalty
rates for certain trademarks.
5.
|
Inventories
|
Inventories
consist of the following (in thousands):
December
31,
|
||||||||
2008
|
2009
|
|||||||
Raw
materials
|
$ | 1,748 | $ | 1,199 | ||||
Work-in-progress
|
1,525 | 510 | ||||||
Reserve
for obsolescence
|
(5 | ) | (3 | ) | ||||
Inventory,
net
|
$ | 3,268 | $ | 1,706 |
6.
|
Property
and Equipment
|
At
December 31, 2008 and 2009, property and equipment consists of the following (in
thousands):
2008
|
2009
|
|||||||
Equipment
under capitalized leases
|
$ | 694 | $ | 2,175 | ||||
Machinery
and equipment
|
11,577 | 13,599 | ||||||
Furniture
and fixtures
|
780 | 810 | ||||||
Automobiles
|
104 | 104 | ||||||
Leasehold
improvements
|
2,664 | 2,836 | ||||||
Total
|
15,819 | 19,524 | ||||||
Less:
accumulated depreciation and amortization
|
(8,300 | ) | (11,925 | ) | ||||
Net
book value
|
$ | 7,519 | $ | 7,599 |
.
Depreciation
and amortization expense related to property and equipment (including
capitalized leases) was approximately $2,381, $3,214, and $3,770 for the years
ended December 31, 2007, 2008, and 2009 respectively. Equipment as of December
31, 2008 and 2009 included approximately $694 and $ 2,175, respectively under
capital lease agreements. Accumulated depreciation and amortization relating to
those assets under capital leases totaled $419 and $26 as of December 31, 2008
and 2009, respectively.
35
7.
|
Accrued
Expenses
|
Accrued
expenses consist of the following at December 31 (in thousands):
2008
|
2009
|
|||||||
Accrued
liabilities:
|
||||||||
Compensation
and other benefit accruals
|
3,161 | 2,403 | ||||||
Other
accruals
|
1,587 | 2,697 | ||||||
Total
accrued liabilities
|
$ | 4,748 | $ | 5,100 |
8.
|
Income
Taxes
|
Deferred
income tax assets and liabilities were comprised of the following (in
thousands):
December
31,
|
||||||||
2008
|
2009
|
|||||||
Deferred
tax assets:
|
||||||||
Net
operating loss carryforwards
|
$ | 89,240 | $ | 93,572 | ||||
AMT
credit carryforward
|
359 | 359 | ||||||
Allowance
for doubtful accounts
|
143 | 238 | ||||||
Depreciable
assets
|
1,249 | 1,474 | ||||||
Goodwill
|
1,041 | 6,361 | ||||||
Other
intangible assets
|
1,231 | 1,600 | ||||||
Trademarks
|
- | 437 | ||||||
Deferred
vacation and bonus
|
175 | 105 | ||||||
Deferred
occupancy costs
|
304 | 287 | ||||||
Inventory
uniform capitalization
|
420 | 245 | ||||||
Stock-based
compensation
|
564 | 635 | ||||||
Other
|
12 | 15 | ||||||
Total
deferred tax asset
|
$ | 94,738 | $ | 105,328 | ||||
Deferred
tax liabilities
|
||||||||
Change
in accounting method
|
$ | 61 | $ | - | ||||
Trademarks
|
1,152 | - | ||||||
Total
deferred tax liabilities
|
$ | 1,213 | $ | - | ||||
Net
deferred tax asset before valuation allowance
|
$ | 93,525 | $ | 105,328 | ||||
Valuation
allowance
|
(53,589 | ) | (105,328 | ) | ||||
Net
deferred tax asset
|
$ | 39,936 | $ | - | ||||
Balance
sheet classification:
|
||||||||
Current
asset
|
$ | 2,616 | $ | - | ||||
Non-current
asset
|
37,320 | - | ||||||
$ | 39,936 | $ | - |
36
Under
Section 382 of the Internal Revenue Code of 1986, as amended, the Company’s use
of its federal net operating loss (“NOL”) carryforwards may be limited if the
Company has experienced an ownership change, as defined in Section 382. In 1997
the Company experienced an ownership change for Federal income tax purposes,
resulting in an annual limitation on the Company’s ability to utilize its net
operating loss carryforwards to offset future taxable income. The
annual limitation was determined by multiplying the value of the Company’s
equity before the change by the long-term tax exempt rate as defined by the
Internal Revenue Service. The Company adjusted its deferred tax asset
to reflect the estimated limitation. At December 31, 2009, the
Company had available U.S. Federal net operating loss carryforwards of $261,460
which expire at various dates beginning December 31, 2011. As of December 31,
2009, $22,125 of the net operating loss carryforwards is restricted as a result
of the ownership change and the remaining amount of $239,335 is not
restricted. The restricted net operating loss is subject to an annual
limitation of $7,476. At December 31, 2009, the Company had available
California net operating loss carryforwards of $14,149 which expire at various
dates beginning December 31, 2010. The Company has other state net operating
losses, which, due to limitations, are not expected to be fully utilized and may
expire.
Income
taxes are accounted for under the asset and liability method. Under this method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences are expected to become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment.
At
December 31, 2007 based on historical operating results and, based on a ten-year
forecast, management determined that it was more likely than not that the
Company would realize a portion of the benefits of these deductible differences.
Accordingly, the Company reduced its valuation allowance and recorded a net
deferred tax asset in the amount of $34,972 for the year ended December 31,
2007. A similar analysis was performed at December 31, 2008 and, as a result,
the Company recorded a deferred tax benefit for its 2008 loss and recorded a net
deferred tax asset of $39,936.
At
December 31, 2009, after weighing both the positive and negative evidence of
realizing the deferred tax asset, management determined that, based on the
weight of all available evidence, it is more likely than not that the Company
will not realize its deferred tax assets. The most influential
weighted negative evidence considered was two consecutive years of current
taxable losses and uncertainty as to when taxable profit can be predicated in
the future due to current economic environment. As such, the Company has
placed a full valuation allowance on its net deferred tax assets and recorded
deferred tax expense of $39,936 for the year ended December 31,
2009.
37
The
provision (benefit) for income taxes consisted of the following (in
thousands):
For
the Years ended
December
31,
|
||||||||||||
2007
|
2008
|
2009
|
||||||||||
Continuing
Operations:
|
||||||||||||
Current
|
$ | 781 | $ | 124 | $ | (75 | ) | |||||
Deferred
|
1,278 | (5,078 | ) | (11,803 | ) | |||||||
Net
Change in Valuation Allowance
|
(32,653 | ) | 114 | 51,739 | ||||||||
Total
provision
|
$ | (30,594 | ) | $ | (4,840 | ) | $ | 39,861 | ||||
The
above is further comprised of the
|
||||||||||||
following:
|
||||||||||||
Federal
|
$ | 76 | $ | (3 | ) | $ | - | |||||
State
|
705 | 127 | (75 | ) | ||||||||
Total
current provision
|
$ | 781 | $ | 124 | $ | (75 | ) | |||||
Deferred
tax expense, net of change in
|
||||||||||||
valuation
allowance:
|
||||||||||||
Federal
|
$ | (31,534 | ) | $ | (3,317 | ) | $ | 42,627 | ||||
State
|
159 | (1,647 | ) | (2,691 | ) | |||||||
Total
deferred provision
|
$ | (31,375 | ) | $ | (4,964 | ) | $ | 39,936 | ||||
Discontinued
Operations:
|
||||||||||||
Federal
|
$ | 5 | $ | - | $ | - | ||||||
State
|
107 | - | - | |||||||||
Total
provision
|
$ | 112 | $ | - | $ | - | ||||||
The major
elements contributing to the difference between the federal statutory tax rate
and the effective tax rate on income from continuing operations are as
follows:
For
the Years Ended
December
31,
|
||||||||||||
2007
|
2008
|
2009
|
||||||||||
Statutory
rate
|
35.0 | % | (35.0 | %) | 35.0 | % | ||||||
Change
in valuation allowance
|
(608.3 | ) | 1.0 | (185.3 | ) | |||||||
Prior
year under-accrual
|
1.5 | (0.6 | ) | 0.1 | ||||||||
State
and local income taxes
|
10.5 | (8.7 | ) | 7.7 | ||||||||
Certain
non-deductible expenses and other
|
1.4 | 0.6 | (0.3 | ) | ||||||||
Effective
tax rate
|
(559.9 | %) | (42.7 | %) | (142.8 | %) |
38
9.
|
Debt
|
In
connection with the Company's financing of the Comp 24 and Color Edge
acquisitions, the Company entered into two credit agreements with Amalgamated
Bank (“Amalgamated”) dated March 1, 2005. The credit agreements provided for two
three-year revolving credit facilities and two term loans. The credit
agreement has been amended several times to date, the most recent of which was
on September 30, 2009 (the “Amended and Restated Credit Agreement” or the
“Agreement”). The Agreement is for a single $12,000 revolving credit
facility (the “Facility”) and required the early retirement of the remaining
balance of the existing term loan prior to its maturity on December 31, 2009,
which the Company paid off the balance in full on September 30, 2009. The
Facility includes two financial covenants requiring the company maintains a
minimum tangible net worth of $15,500 at all times, and no EBITDA losses on a
consolidated basis in any quarterly period beginning with the quarter ending
December 31, 2009. The maturity date of the Facility is August 31,
2011, and the interest rate is at a “Base Rate,” which is a floating rate equal
to the greater of (a) Amalgamated’s prime rate in effect on such day and (b) the
Federal Funds Effective Rate in effect on such day, plus 2.5%. As of December
31, 2009, this rate was 5.75%.
The
Company’s borrowing base under the Facility is set at 80% of its eligible
accounts receivable and the Facility must be prepaid when the amount of the
borrowings exceeds the borrowing base. In addition, borrowings under the
Facility must be prepaid with net cash proceeds that result from certain sales
or issuances of stock or from capital contributions. Voluntary prepayments are
permitted, in whole or in part, without premium or penalty, at the Company’s
option, in minimum principal amounts of $100.
Color
Edge, Color Edge Visual and Crush are named as borrowers under the
Agreement. All borrowings under the Agreement are guaranteed by the
Company, Merisel Americas, and each of their existing operating subsidiaries, as
guarantors, and must be guaranteed by all of their future subsidiaries. The
borrowings are secured by a first priority lien on substantially all, subject to
certain exceptions, of the borrowers’ and the guarantors’ properties and assets,
and the properties and assets of their existing and future
subsidiaries.
As of
December 31, 2009, the Company has $8,715 outstanding on the
Facility. As of December 31, 2009, the minimum tangible net worth of
the Company is below the required $15,500. Accordingly, the Company
is in violation of the covenant under the Agreement, and as such the Bank may
request repayment of the loan at any time. Based on this, the Company
has classified the outstanding balance as of December 31, 2009, as short term on
its balance sheet. The Company believes that in the event Amalgamated requests
repayment of the loan, the Company would be able to obtain a replacement
facility.
During
the year ended December 31, 2009, the Company entered into two new capital lease
agreements totaling $1,110. The proceeds from the leases were used to finance
the acquisition of certain pieces of production equipment during the three
months ended September 30, 2009. Both leases have 48 month terms expiring in
July 2013 and have a fixed rate of 7.75%. As of December 31, 2009, the balance
of all capital leases was $1,018, of which $269 is current.
10.
|
Discontinued
Operations
|
The
Company operated its software licensing distribution business until August 2004
at which time the Company completed the sale of the majority of its software
licensing business to D&H Services, LLC. The sale was rescinded in February
2005. However, since the operations of the business permanently
ceased as of the date of the sale, results related to the liquidation of this
business continue to be presented as a discontinued operations.
The
Company recorded income from discontinued operations of $145 for the year ended
December 31, 2007 related to the sale of real property transferred to the
Company in settlement of a note receivable. This figure consists of the sale
price of $1,192, net of cost basis of $914 and taxes of $112 and other expenses
of $21.
The
Company had no income from discontinued operations for the years ended December
31, 2008 and December 31, 2009.
39
11.
|
Commitments
and Contingencies
|
In
September 2007, Nomad Worldwide, LLC and ImageKing Visual Solutions, Inc.
(“ImageKing”) filed a civil complaint in the Supreme Court of the State of New
York, New York County naming as defendants Color Edge Visual, and its sales
employee, Edwin Sturmer. The plaintiffs allege that Sturmer breached
a confidentiality and non-solicitation agreement by soliciting plaintiffs’
customers, Banana Republic and the Gap, while employed by Color Edge
Visual. The plaintiffs allege causes of action for breach of
contract, breach of fiduciary duty, conversion, tortious interference with
contractual relations, tortious interference with prospective business
relations, misappropriation of trade secrets, unfair competition and unjust
enrichment. The plaintiffs seek compensatory and punitive damages totaling
$5,000. The defendants have answered the complaint, asserting various
affirmative defenses, and denied liability. The parties were
previously engaged in discovery. On May 1, 2008, ImageKing filed for
relief under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of New York (Docket Number
08-11654-AJG). The United States Trustee recently moved to have the
bankruptcy case converted to Chapter 7 or dismissed on the grounds that
ImageKing has failed to show a reasonable likelihood of
rehabilitation. ImageKing has not taken any steps to prosecute the
Nomad case since its bankruptcy filing. The Company has not accrued for payment
because the amount of loss is not currently probable.
On March
30, 2009, Merisel and TU Holdings, Inc. and TU Merger, Inc., both subsidiaries
of American Capital Strategies, Ltd. (collectively, “ACAS”) executed a
settlement agreement under which ACAS agreed to pay Merisel the total amount of
$2,000 and the parties agreed to dismiss with prejudice their claims against one
another. The Company recorded this income in the first quarter of 2009. The
Company recorded expenses related to legal and investment banking fees related
to the sale of the Company to ACAS of $1,827 and $2,365 for the years ended
December 31, 2007 and 2008, respectively. These income and expenses are recorded
in selling, general, and administrative expenses in the Company’s Statements of
Operations.
In
connection with the Asset Purchase Agreement among Crush Creative, Inc., its
shareholders and MCRU, LLC dated July 6, 2005 (the “Crush APA”), Merisel
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, Merisel received notice from the Crush Sellers that they
contest the calculations Merisel used to reach this conclusion. Since then, the
Company and the Crush Sellers have attempted to resolve this dispute through
negotiations, but have been unable to do so. The parties are now
following the process set forth in the APA for resolving such disputes through
the 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 APA, the Crush
Sellers will be entitled to a payment of up to $750. Under the APA,
the Arbitration Firm’s determination is final, conclusive and
binding. The Company has not accrued for payment because the amount
of loss is not currently probable.
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 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. The parties are
currently engaged in discovery, and a hearing date has not yet been scheduled
for the arbitration. The Company has not accrued for payment because the amount
of loss is not currently probable.
40
12.
|
Temporary
Equity
|
In June
2000, an affiliate of Stonington Partners, Inc., a majority shareholder,
purchased 150,000 shares of convertible preferred stock (the “Convertible
Preferred”) issued by the Company for an aggregate purchase price of
$15,000. The Convertible Preferred provides for an 8% annual dividend
payable in additional shares of Convertible Preferred. Dividends are
cumulative and will accrue from the original issue date whether or not declared
by the Board of Directors. As of December 31, 2009, 169,801 shares of
Convertible Preferred have been accrued as dividends and 163,531 shares have
been issued to Stonington Partners, Inc. in payment of that accrual. The
remaining 6,270 shares were issued on February 2, 2010. Additionally, cumulative
accrued dividends of $16,980 and $14,544 were recorded as temporary equity at
December 31, 2009, and as equity at December 31, 2008, respectively. At the
option of the holder, the Convertible Preferred is convertible into the
Company’s common stock at a per share conversion price of $17.50. At the option
of the Company, the Convertible Preferred can be converted into Common Stock
when the average closing price of the Common Stock for any 20 consecutive
trading days is at least $37.50. At the Company’s option, after September 30,
2008, the Company may redeem outstanding shares of the Convertible Preferred at
$100 per share plus accrued and unpaid dividends. In the event of a defined
change of control, holders of the Convertible Preferred have the right to
require the redemption of the Convertible Preferred at $101 per share plus
accrued and unpaid dividends.
In
accordance with FASB ASC 480-10 (EITF Abstracts, Topic D-98 “Classification and
Measurement of Redeemable Securities”), the Company has determined in 2009, the
Convertible Preferred should be treated outside of permanent equity. Regulation
S-X requires preferred securities that are redeemable for cash to be classified
outside of permanent equity if they are redeemable (1) at a fixed or
determinable price on a fixed or determinable date, (2) at the option of the
holder, or (3) upon the occurrence of an event that is not solely within the
control of the issuer. The SEC staff believes that if the preferred security
holders control a majority of the votes of the board of directors through direct
representation on the board of directors or through other rights, the preferred
security is redeemable at the option of the holder and its classification
outside of permanent equity is required. During the first quarter of 2009,
Stonington Partner’s ownership percentage of the Company’s common stock
increased such that, according to Company’s bylaws, it now has sufficient votes
to change the size and composition of the board of directors. As such, the
Company believes the Convertible Preferred is redeemable at the option of the
holder and should be re-classified to outside permanent equity. Prior to 2009,
in no case were the convertible preferred mandatorily redeemable or was
redemption outside of the Company and as such the Convertible Preferred was
classified at permanent equity. The Company will continue to accrue dividends on
the Convertible Preferred, which will increase temporary equity and continue to
decrease net income available to common shareholders.
13.
|
Stock
Based Compensation
|
On
December 19, 1997, the Company’s stockholders approved the Merisel Inc. 1997
Stock Award and Incentive Plan (the “1997 Plan”). On December 3,
2008, the Company’s stockholders approved the Merisel, Inc. 2008 Stock Award and
Incentive Plan (the “2008 Plan”). Under both the 1997 Plan and the
2008 Plan, incentive stock options and nonqualified stock options as well as
other stock-based awards may be granted to employees, directors, and
consultants. The 1997 Plan authorized the issuance of an aggregate of
800,000 shares of Common Stock less the number of shares of Common Stock that
remain subject to outstanding option grants under any of the Company’s other
stock-based incentive plans for employees after December 19, 1997 and are not
either canceled in exchange for options granted under the 1997 Plan or
forfeited. The 2008 Plan authorized the issuance of an aggregate of
500,000 shares of Common Stock, less the same limit for outstanding
options. At December 31, 2009, 51,839 shares were available for grant
under the 1997 Plan, and 500,000 shares were available for grant under the 2008
Plan. The grantees, terms of the grant (including option prices and
vesting provisions), dates of grant and number of shares granted under the plans
are determined primarily by the Board of Directors or the committee authorized
by the Board of Directors to administer such plans, although incentive stock
options are granted at prices which are no less than the fair market value of
the Company's Common Stock at the date of grant.
Stock
Options
There
were no stock options granted in 2007, 2008, or 2009. Compensation expense
related to stock options was $184 for the year ended December 31, 2007. There
was no expense for the years ended December 31, 2008 and 2009. As of December
31, 2009, 300,000 options remain outstanding under the 1997 Plan.
41
The
following summarizes the aggregate activity in all of the Company’s plans for
the three years ended December 31, 2009:
2007
|
2008
|
2009
|
||||||||||||||||||||||
Shares
|
Weighted
Average
Exer.
Price
|
Shares
|
Weighted
Average
Exer.
Price
|
Shares
|
Weighted
Average
Exer.
Price
|
|||||||||||||||||||
Outstanding
at beginning of year
|
330,200 | 9.17 | 330,200 | 9.17 | 300,000 | 8.33 | ||||||||||||||||||
Granted
|
- | N/A | - | N/A | - | N/A | ||||||||||||||||||
Exercised
|
- | N/A | - | N/A | - | N/A | ||||||||||||||||||
Canceled
|
- | N/A | (30,200 | ) | 17.51 | - | N/A | |||||||||||||||||
Outstanding
at end of year
|
330,200 | 9.17 | 300,000 | 8.33 | 300,000 | 8.33 | ||||||||||||||||||
Options
exercisable at year end
|
255,200 | 300,000 | 300,000 | |||||||||||||||||||||
Weighted
average fair value at date of grant of
options granted during the year
|
N/A | N/A | N/A |
There is
no total intrinsic value of options outstanding or exercisable at December 31,
2009.
Restricted
Stock Grants
The
Company awarded 150,000 shares of restricted stock to its Chief Executive
Officer in November 2004 under the 1997 Plan. These shares were
issued in November 2005. Compensation expense, measured by the fair
value at the grant date of the Company's common stock issuable in respect of the
units, was recorded over the related three-year vesting period starting in
November 2004. Compensation expense was $158 for the year ended
December 31, 2007. There was no expense for the years ended December 31, 2008
and 2009.
On May 1,
2006, the Company awarded 7,500 shares of restricted stock to its Chief
Financial Officer under the 1997 Plan. Compensation expense, measured by the
fair value at the grant date of the Company’s common stock issuable in respect
of the units, was recorded over the related one-year vesting period starting in
May 2006. Compensation expense was $18 for the year ended December 31, 2007.
There was no expense for the years ended December 31, 2008 and
2009.
On May
31, 2006, the Company awarded 20,990 shares of restricted stock to
non-management Directors under the 1997 Plan. Compensation expense, measured by
the fair value at the grant date of the Company’s common stock issuable in
respect of the units, was recorded over the related one-year vesting period
starting in May 2006. Compensation expense was $58 for the year ended December
31, 2007. There was no expense for the years ended December 31, 2008 and
2009.
On
December 13, 2006, the Company awarded 185,500 shares of restricted stock to key
officers and employees under the 1997 Plan. Compensation expense, measured by
the fair value at the grant date of the Company’s common stock issuable in
respect of the units, was recorded over the related three-year vesting period
starting in December 2006. Compensation expense was $227, $214, $180 for the
years ended December 31, 2007, 2008, and 2009, respectively.
On July
30, 2007, the Company awarded 24,345 shares of restricted stock to
non-management directors under the 1997 Plan. Compensation expense, measured by
the fair value of the restricted stock at the grant date, was recorded over the
related ten month vesting period starting in August 2007. Compensation expense
was $63 for the years ended December 31, 2007 and 2008. There was no expense for
the year ended December 31, 2009.
On
December 12, 2007, the Company awarded 20,780 shares of restricted stock to
non-management directors under the 1997 Plan. Compensation expense, measured by
the fair value of the restricted stock at the grant date, was recorded over the
related one-year vesting period starting in December 2007. These shares were
issued during the first quarter of 2008. Compensation expense was $4 and $71 for
the years ended December 31, 2007 and 2008, respectively. There was
no expense for the year ended December 31, 2009.
42
During
2007, the Company awarded 17,500 shares of restricted stock to key officers and
employees under the 1997 Plan. Compensation expense, measured by the fair value
at the grant date of the Company’s common stock issuable in respect of the
units, will be recorded over the related three-year vesting period. Compensation
expense was $4, $22, and $10 for the years ended December 31, 2007, 2008, and
2009 respectively.
A summary
of the status of the Company’s nonvested restricted shares as of December 31,
2008, and changes during the twelve months ended December 31, 2009 is as
follows:
Shares
|
Weighted
Average Grant-Date Fair Value
|
|||||||
Nonvested
shares at December 31, 2008
|
67,334 | $ | 3.83 | |||||
Granted
|
- | - | ||||||
Vested
|
(45,502 | ) | $ | 3.90 | ||||
Cancelled
|
(19,832 | ) | $ | 3.56 | ||||
Nonvested
shares at December 31, 2009
|
2,000 | $ | 4.98 |
As of
December 31, 2009, there was $5 of total unrecognized compensation cost related
to nonvested restricted share-based compensation arrangements. That
cost is expected to be recognized over a weighted average period of
approximately 7 months.
Benefit
Plan
The
Company offers a 401(k) savings plan under which all employees who are 21 years
of age with at least 30 days of service are eligible to participate. The plan
permits eligible employees to make contributions up to certain limitations, with
the Company matching certain of those contributions at the discretion of the
Board of Directors. In January 2009, the Board of Directors elected to
discontinue the Company’s matching contribution. The Company's contributions
vest 25% per year. The Company contributed $654, 542, and $20 to the plan during
the years ended December 31, 2007, 2008 and 2009, respectively. The
contributions to the 401(k) plan were in the form of cash.
Stock
repurchase program
The
Company announced various Board of Directors authorizations to repurchase shares
of the Company’s common stock from time to time in the open market or otherwise.
On August 14, 2006, the Company announced that its Board of Directors had
authorized the expenditure of up to an additional $2,000 for repurchases of its
common stock at a maximum share price to be determined by the Board of Directors
from time to time. As of December 31, 2009, the Company had
repurchased a total of 1,238,887 shares, for an aggregate cost of $1,944, which
shares have been reflected as treasury stock in the accompanying consolidated
balance sheets. During 2009, the Company purchased 150,706 shares at an
aggregate cost of $136. During 2008, the Company purchased 669,401 shares at an
aggregate cost of $934. No repurchases were made during 2007. At December 31,
2007, 418,780 shares had been repurchased.
14.
|
Earnings
(Loss) Per Share
|
The
Company calculates earnings (loss) per share (“EPS”) in accordance with FASB ASC
260-10 (FAS No. 128, “Earnings Per Share”). Basic earnings (loss) per
share is calculated using the average number of common shares
outstanding. Diluted earnings (loss) per share is computed on the
basis of the average number of common shares outstanding plus the effect of
dilutive outstanding stock options using the “treasury stock”
method. In 2004, the Board of Directors of the Company granted
150,000 shares of restricted stock and 300,000 stock options. In 2007, the board
of directors granted 62,625 shares of restricted stock, respectively, which
along with the 2004 and 2005 grants are dilutive common stock equivalents in the
earnings per share calculations for 2007. Diluted earnings (loss) per
common share for 2008 and 2009 does not include the effects of 154,994 and
45,104 shares of restricted stock as the effect of their inclusion would be
anti-dilutive. The convertible preferred stock and stock options are
anti-dilutive, and as such, are excluded from diluted earnings per share
calculations.
43
The
following tables reconcile the weighted average shares used in the computation
of basic and diluted EPS and income available to common stockholders for the
income statement periods presented herein (in thousands):
For
the Years Ended December 31,
|
||||||||||||
Weighted
average shares outstanding
|
2007
|
2008
|
2009
|
|||||||||
Basic
|
7,793 | 7,797 | 7,202 | |||||||||
Diluted
|
8,016 | 7,797 | 7,202 |
2007
|
2008
|
2009
|
||||||||||
Income
(loss) from operations
|
$ | 35,782 | $ | (6,486 | ) | $ | (67,779 | ) | ||||
Preferred
stock dividends
|
2,079 | 2,250 | 2,436 | |||||||||
Income
(loss) to common stockholders
|
33,703 | (8,736 | ) | (70,215 | ) | |||||||
Income
from discontinued operations
|
145 | - | - | |||||||||
Net
income (loss) available to common stockholders
|
$ | 33,848 | (8,736 | ) | $ | (70,215 | ) |
44
Item
9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
None.,
Item
9A (T). Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
As of the
end of the period covered by this Annual Report on Form 10-K, we carried out an
evaluation under the supervision and with the participation of our management,
including the Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as defined in Exchange Act Rules 13a-15(e) and
15d-15(e). Disclosure controls and procedures are designed to ensure
that information required to be disclosed in our reports filed under the
Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms and that such information is accumulated and communicated to our
management, including the Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure. Based on
this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that the design and operation of our disclosure controls and
procedures were effective as of December 31, 2009.
Changes
in Internal Control Over Financial Reporting
There
were no changes in the Company’s internal control over financial reporting
during the fiscal quarter ended December 31, 2009 that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and
15d-15(f). Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting as of December
31, 2009 based on the criteria established in Internal Control — Integrated
Framework and additional guidance provided by Internal Control over Financial
Reporting – Guidance for Smaller Public Companies as issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
Based on
the results of this evaluation, we concluded that our internal control over
financial reporting was effective as of December 31, 2009.
This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit us to provide only management's
report in this annual report.
45
Item
9B. Other Information.
Submission
of Matters to a Vote of Security Holders
a)
|
The
Company held its 2009 annual meeting of stockholders on December 16,
2009.
|
b)
|
Each
of Edward A. Grant, Ronald P. Badie, Albert J. Fitzgibbons III, Bradley J.
Hoecker, Lawrence J. Schoenberg and Donald R. Uzzi were elected as
directors for a new one-year term.
|
c)
|
The
following matters were submitted to a vote of security holders at the
annual meeting:
|
1.
|
Election
of nominees as directors to the Board of Directors. The
nominees were elected as indicated by the following vote
counts:
|
Nominee
|
Votes For
|
Votes Withheld
|
Ronald
P. Badie
|
6,630,126
|
95,414
|
Albert
J. Fitzgibbons III
|
6,531,734
|
193,806
|
Edward
A. Grant
|
6,630,126
|
95,414
|
Bradley
J. Hoecker
|
6,530,522
|
195,018
|
Lawrence
J. Schoenberg
|
6,629,899
|
95,641
|
Donald
R. Uzzi
|
6,431,603
|
293,937
|
2.
|
The
stockholders voted upon and approved a proposal to ratify the appointment
of BDO Seidman, LLP as the Company’s independent registered public
accounting firm for 2009. The vote on the proposal was as
follows:
|
For
|
Against
|
Abstentions
|
Broker Non-Votes
|
6,637,486
|
74,833
|
13,221
|
-
|
d)
|
Proxies
were solicited only by the
Company.
|
46
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance
The
following table sets forth the names, ages and positions of those individuals
who served as executive officers and directors of the Company as March 31,
2010.
Name
|
Age
|
Position
|
Donald
R. Uzzi (6)
|
57
|
Chairman
of the Board, Chief Executive Officer and President
|
Victor
L. Cisario (1)
|
48
|
Executive
Vice President, Chief Financial Officer
|
Raymond
Powers
|
42
|
Executive
Vice President, Business Development
|
Albert
J. Fitzgibbons III (3) (4) (6)
|
64
|
Director
|
Ronald
P. Badie (2) (5)
|
67
|
Director
|
Bradley
J. Hoecker (3) (4) (6)
|
48
|
Director
|
Edward
A. Grant (2) (4)
|
59
|
Director
|
Lawrence
J. Schoenberg (2) (3) (4)
|
77
|
Director
|
(1)
|
Mr.
Cisario has served as the Company’s Executive Vice President and Chief
Financial Officer since June 2009.
|
(2)
|
Member
of Audit Committee.
|
(3)
|
Member
of Nominating Committee.
|
(4)
|
Member
of Compensation Committee.
|
(5)
|
Lead
Director.
|
(6)
|
Member
of Share Repurchase Committee.
|
47
For
each Director of the Company, the following sets forth the name, age as of March
31, 2010, principal occupation for at least the past five years, and the names
of any other public companies for which the Director served in directorship
capacity in the past five years. In determining that each of the
Directors is qualified to be a director, the Board relied on the experience and
attributes listed below and on the direct personal knowledge of each Director’s
prior service on the Board:
Donald R.
Uzzi, 57, has served as Chief Executive Officer and President since November
2004 and as a member of the Board of Directors since December 2004. He was
elected Chairman of the Board of Directors in April 2005. From December 2002 to
November 2004, Mr. Uzzi provided consulting services for various companies on
marketing, corporate strategy and communications. From July 1999 to December
2002, Mr. Uzzi was Senior Vice President of Electronic Data Systems Corporation.
From July 1998 to July 1999, Mr. Uzzi was a principal officer of Lighthouse
Investment Group. From August 1996 to April 1998, Mr. Uzzi served as Executive
Vice President at Sunbeam Corporation. Prior to 1996, Mr. Uzzi held the position
of President of the Gatorade North America division of Quaker Oats.
Albert J.
Fitzgibbons III, 64, has been a member of the Board of Directors since December
1997. Mr. Fitzgibbons is a Partner and Director of Stonington Partners, Inc. and
a Partner and Director of Stonington Partners, Inc. II, positions that he has
held since 1994. He served as a Director of Merrill Lynch Capital Partners,
Inc., a private investment firm associated with Merrill Lynch & Co., from
1988 to 1994 and as a Consultant to Merrill Lynch Capital Partners from 1994 to
December 2000. He was a Partner of Merrill Lynch Capital Partners from 1993 to
1994 and Executive Vice President of Merrill Lynch Capital Partners from 1988 to
1993. Mr. Fitzgibbons was also a Managing Director of the Investment Banking
Division of Merrill Lynch & Co. from 1978 to July 1994. Mr.
Fitzgibbons is also currently a Director of Obagi Medical Products,
Inc.
Ronald P.
Badie, 67, has been a member of the Board of Directors since October 2004. In
March 2002, Mr. Badie retired from Deutsche Bank after 35 years of service. At
the time of his retirement, he was Vice Chairman of Deutsche Bank Alex. Brown
(now Deutsche Bank Securities), the firm’s investment banking subsidiary. Over
the years, Mr. Badie has held a variety of management positions with the firm
and its predecessor, Bankers Trust Company, in both New York and Los Angeles.
Mr. Badie is also currently a Director of Amphenol Corporation, Nautilus, Inc.,
and Obagi Medical Products, Inc. Mr. Badie has also been a
Director of Integrated Electrical Services, Inc. and Global Motorsport Group,
Inc.
Bradley
J. Hoecker, 48, has been a member of the Board of Directors since December 1997.
Mr. Hoecker has been a Partner and Director of Stonington Partners and a Partner
and Director of Stonington Partners, Inc. II since 1997. Prior to being named
partner in 1997, Mr. Hoecker was a Principal of Stonington Partners since 1993.
He was a Consultant to Merrill Lynch Capital Partners from 1994 to December 2000
and was an Associate in the Investment Banking Division of Merrill Lynch Capital
Partners from 1989 to 1993. Mr. Hoecker has also served as a Director of Obagi
Medical Products, Inc.
Lawrence
J. Schoenberg, 77, has been a member of the Board of Directors since 1990. From
1967 through 1990, Mr. Schoenberg served as Chairman of the Board and Chief
Executive Officer of AGS Computers, Inc., a computer software company. From
January to December 1991, Mr. Schoenberg served as Chairman and as a member of
the executive committee of the Board of Directors of AGS. Mr. Schoenberg retired
from AGS in 1992. Mr. Schoenberg was also a Director of SunGard Data Systems,
Inc., a computer software company, a Director of Government Technology Services,
Inc., a reseller and integrator of information systems for the federal
government, and a Director of Cellular Technology Services, Inc., a software
company.
Edward A.
Grant, 59, has been a member of the Board of Directors since May
2006. Mr. Grant is a principal and practice director at Arthur
Andersen LLP. He has been a professional at Andersen for more than
thirty years. He was an audit partner with the firm for sixteen
years, serving as the auditor on numerous public companies. Mr. Grant
is a Director of Obagi Medical Products, Inc. and is the Chair of its Audit
Committee. Mr. Grant has a bachelor’s and two master’s degrees from
the University of Wisconsin-Madison and became a Certified Public Accountant in
1976. He is a past member of the American Institute of Certified
Public Accountants and the Illinois Certified Public Accountants Society and has
served on several civic boards.
48
Arrangements
for Nomination as Directors and Changes in Procedures for
Nomination
Mr.
Hoecker and Mr. Fitzgibbons serve as Directors as a result of their nomination
by Stonington Partners, which, through its affiliates, is the owner of the
Company’s Preferred Stock and more than 50% of the common stock and holds the
contractual right to nominate three Directors. No other arrangement
or understanding exists between any Director or nominee and any other persons
pursuant to which any individual was or is to be selected or serve as a
Director. No Director has any family relationship with any other
Director or with any of the Company’s executive officers. Mr. Uzzi is
the Chief Executive Officer and President of the Company.
The
Company has not changed its procedures for the identification, nomination and
election of directors since they were described in the Proxy Statement with
respect to its Annual Meeting held on December 16, 2009.
The
following individuals were the Company’s Executive Officers as of March 31,
2010.
Donald R.
Uzzi, 57, has served as Chief Executive Officer and President since November
2004 and as a member of the Board of Directors since December 2004. He was
elected Chairman of the Board of Directors in April 2005. Between
December 2002 and November 2004, Mr. Uzzi provided consulting services to
various companies in the areas of marketing, corporate strategy and
communications. Between July 1999 and December 2002, Mr. Uzzi was the Senior
Vice President of Electronic Data Systems Corporation. Between July 1998 and
July 1999, Mr. Uzzi was a principal officer of Lighthouse Investment
Group. Between August 1996 and April 1998, Mr. Uzzi was the Executive
Vice President of Sunbeam Corporation. Prior to 1996, Mr. Uzzi was
the President of the Gatorade North America division of Quaker
Oats.
Victor L.
Cisario, 48, has served as Merisel’s Executive Vice President and Chief
Financial Officer since June 2009. He joined Merisel from Outside
Ventures, LLC, an independent sales organization primarily focused on credit
card processing and cash advances to businesses, where he had served as Chief
Financial Officer since January 2008. At Outside Ventures, LLC, Mr.
Cisario was responsible for all financial reporting, budgeting and financial
strategy. In 2007, Mr. Cisario worked as a consultant for various
private companies. Mr. Cisario was the Chief Financial Officer of
Fuel Digital, Inc. from 2002 until Merisel’s acquisition of Fuel Digital, Inc.
in 2006. At Fuel Digital, Inc., Mr. Cisario created the financial
strategy of the company, handled all banking relations, implemented budgeting
procedures, created and implemented internal control procedures and oversaw
financial reporting.
Raymond
Powers, 42, has served as Vice President, Business Development since January
2010, and was a consultant to the Company beginning in March 2009. Prior to
joining Merisel, Mr. Powers spent 14 years with Seven Worldwide and Schawk,
which acquired Seven in 2005. Mr. Powers’ most recent role was
Managing Director of Schawk’s downtown Chicago business. Prior to
Seven Worldwide’s acquisition by Schawk, Mr. Powers was the Senior Vice
President of Operations for the Pharmaceutical and Consumer Product business
sectors.
Certain
Legal Proceedings
On May
15, 2001, the SEC filed a civil action (SEC v. Dunlap, S.D. Fla.
(Case No. 01-8437) (Middlebrooks)) against Mr. Uzzi alleging violations of the
federal securities laws in connection with his role as executive vice president
of Sunbeam Corporation. On January 23, 2003, Mr. Uzzi entered into a consent and
undertaking (the “Consent and Undertaking”) with the SEC. Pursuant to
the Consent and Undertaking, Mr. Uzzi agreed, without admitting or denying the
allegations in the SEC’s complaint, to the entry of a judgment (1) permanently
enjoining him from violating Section 17(a) of the Securities Act of 1933 and
from violating or aiding and abetting violations of Sections 10(b), 13(a),
13(b)(2)(A),13(b)(2)(B) and 13(b)(5) of the Exchange Act of 1934 and Rules
10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder, and (2) pursuant to Section
20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act, the
payment of a $100,000 civil penalty. The final judgment was entered on January
27, 2003 (the “Final Judgment”). The Board of Directors of the Company carefully
reviewed the Consent and Undertaking and the Final Judgment prior to hiring Mr.
Uzzi, and determined that since Mr. Uzzi did not admit or deny liability in the
Consent and Undertaking or the Final Judgment, the terms of the Consent and
Undertaking and Final Judgment did not present a legal obstacle to the Company’s
hiring Mr. Uzzi. The Board of Directors further determined that Mr. Uzzi was fit
for office.
There are
no proceedings to which any of our directors or executive officers or any of
their associates is a party adverse to the Company or any of its subsidiaries,
or in which any director or executive officer has a material interest adverse to
the Company or any of its subsidiaries.
49
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires the Company’s executive officers, directors
and beneficial owners of more than 10% of the Company’s common stock to file
reports of ownership and changes in ownership with the SEC and to furnish the
Company with copies of all such reports they file. Based solely on
its review of the copies of such reports received by it, or on written
representations from such persons, the Company believes that, during 2009, all
Section 16(a) filing requirements applicable to its executive officers,
directors and 10% stockholders were complied with.
Code
of Business Conduct
The
Company has adopted a Code of Business Conduct, which also includes the code of
ethics that applies to the Company’s finance professionals as required by SEC
rules and regulations. The Code of Business Conduct can be found on
the Company’s website www.merisel.com.
Audit
Committee
The Board
of Directors maintains an Audit Committee that is currently comprised of Mr.
Grant, who chairs the Committee, Mr. Schoenberg and Mr. Badie. The
Board of Directors has determined that Messrs. Grant and Schoenberg, both
independent Directors as defined by the SEC and NASD, are “audit committee
financial experts,” as defined by the SEC rules.
50
Item
11. Executive Compensation
Summary
of Executive Compensation 2007-2009
The
following table sets forth the compensation of the Company’s Chief Executive
Officer and each of the other two most highly compensated executive officers for
services in all capacities to the Company in 2008 and 2009, except as otherwise
indicated.
Name
and
Principal
Position
|
Year
|
Salary
($) (1)
|
Bonus
($) (1)
|
Stock
Awards
($)
(2)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Non-Qualified
Deferred Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
Donald
R. Uzzi
Chief
Executive
Officer
and
President
|
2008
2009
|
400,000
400,000
|
135,000
50,000
|
--
--
|
--
--
|
--
--
|
--
--
|
6,900
(3)
50,000
(4)
|
541,900
500,000
|
John
J. Sheehan (5)
President,
Color Edge Visual
|
2008
2009
|
300,000
300,000
|
--
20,000
|
--
--
|
--
--
|
--
--
|
--
--
|
6,900
(3)
12,800
(4)
|
306,900
332,800
|
Kenneth
Wasserman
President,
Comp 24 (6)
|
2008
2009
|
248,800
287,500
|
--
20,000
|
--
--
|
--
--
|
--
--
|
--
--
|
6,900
(3)
11,700
(4)
|
255,700
319,200
|
(1)
|
The
dollar amount represents the amounts recognized in 2008 and 2009 on the
accrual basis.
|
(2)
|
No
stock awards were made in 2008 or 2009. Amounts recognized for
financial reporting purposes for those years are reported in Item 8, Note
13.
|
(3)
|
The
dollar amount represents the Company’s contributions to the 401(k)
Plan.
|
(4)
|
The
following table sets forth the compensation elements of “All Other
Compensation” column for 2009:
|
Executive
|
Company
Contribution to 401(k) Plan ($)
|
Vacation
Accrual Payment
|
||
Donald
R. Uzzi
|
1,000
|
49,000
|
||
John
J. Sheehan
|
1,300
|
11,500
|
||
Kenneth
Wasserman
|
635
|
11,065
|
During
2009, the Company made a one-time payment for accrued vacation time and changed
the respective agreements to a policy whereby vacation time must used in the
year earned and will not be carried forward to future years.
(5)
|
Mr.
Sheehan’s Employment Agreement expired pursuant to its terms on March 1,
2010.
|
(6)
|
Mr.
Wasserman’s Employment Agreement expired pursuant to its terms on March 1,
2010, and he was offered
continued employment under new terms after such date. However,
Mr. Wasserman resigned and his employment with the Company terminated on
March 9, 2010.
|
51
Outstanding
Equity Awards at December 31, 2009
Name
|
Number
of Securities Underlying Unexercised Options (#) Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
Market
Value of Shares or Units of Stock That Have Not Yet Vested
($)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested
(#)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested
($)
|
Donald
R.Uzzi
|
100,000
100,000
100,000
|
-
-
-
|
-
-
-
|
5.00
8.00
12.00
|
11/22/2014
11/22/2014
11/22/2014
|
-
|
-
|
-
|
-
|
John
J. Sheehan
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Kenneth
Wasserman
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Pension
Benefits
The
Company does not offer pension benefits to its executive officers.
Non-qualified
Defined Contribution and other Nonqualified Deferred Compensation
Plans
The
Company does not offer non-qualified contribution or other deferred compensation
plans to its executive officers.
Executive
Employment, Termination and Change of Control Arrangements
CEO
Compensation, Termination and Change of Control Arrangements
Donald R.
Uzzi serves as the Chief Executive Officer and President of the Company pursuant
to an employment agreement dated November 22, 2004, as amended in March 2006,
January 2008 and June 2009. Mr. Uzzi’s base salary pursuant to his
agreement is $400,000 per year. The base salary increases to $450,000
upon an attainment by the Company of earnings before taxes of at least
$12,000,000 on a rolling four-quarter basis, and to $500,000 upon an attainment
by the Company of earnings before taxes of at least $15,000,000 on a rolling
four-quarter basis. Mr. Uzzi also is eligible for an annual bonus
with a target level of 100% of his base salary, to be awarded based on such
criteria as may be determined by the Board of Directors or the Compensation
Committee. Such criteria may include a combination of the achievement
by the Company of specified financial performance goals as well as achievement
by Mr. Uzzi of specified performance targets. The decision as to
whether to award an annual bonus is in the sole discretion of the Board of
Directors or the Compensation Committee.
Mr. Uzzi
did not receive an annual bonus for calendar year 2008 but received a special
bonus award of $135,000. For calendar year 2009, Mr. Uzzi received an
annual bonus award of $50,000.
After the
expiration of the initial employment term of three years, Mr. Uzzi’s employment
continuously renews for additional one-year terms unless either party gives
written notice of non-renewal at least 90 days prior to the expiration of the
effective term.
52
If Mr.
Uzzi’s employment is terminated by the Company without “cause” (as defined in
the employment agreement) prior to the expiration of a one-year term, or if his
employment is not renewed by the Company at the end of each term, Mr. Uzzi will
be entitled to a lump sum payment equal to 12 months of base
salary. In the event of termination of Mr. Uzzi’s employment by the
Company without “cause,” or resignation by Mr. Uzzi for “good reason” (as
defined in the employment agreement) during the one-year period following a
change in control of the Company, Mr. Uzzi will be also entitled to a lump sum
payment equal to 12 months of base salary. The Company will also pay
Mr. Uzzi’s premiums for COBRA coverage in the event of termination without
“cause” prior to the expiration of the term, as well as for termination without
“cause” or resignation for “good reason” following a change in control, or
nonrenewal of his employment by the Company, until the earlier of the 12-month
anniversary of the date of termination, or the date that Mr. Uzzi becomes
employed with a new employer. In the event of termination of
employment due to Mr. Uzzi’s death or disability, Mr. Uzzi will be entitled to
continuation of base salary for 60 days following termination. Mr.
Uzzi will be entitled to a pro rata portion of his annual bonus for the calendar
year in which the termination occurs, based upon the attainment of the
applicable criteria up to the date of termination, in the event of (i)
termination by the Company without “cause,” (ii) within one year following a
change in control, termination by the Company without “cause” or resignation by
Mr. Uzzi for “good reason,” (iii) termination following the Company’s delivery
to Mr. Uzzi of a notice of nonrenewal, or (iv) Mr. Uzzi’s death or
disability.
The
employment agreement also contains customary confidentiality, non-compete and
non-solicitation provisions.
Compensation,
Termination and Change of Control Agreements of Other NEOs
John J.
Sheehan was employed by the Company pursuant to an agreement dated March 1, 2005 with
Merisel Americas, whereby Mr. Sheehan served as President of Color Edge
Visual. The agreement provided for a five-year term with continuous
renewal for additional one-year terms unless either party gave written notice of
nonrenewal at least 60 days prior to the expiration of the then-effective
term. In December 2009, the Company provided notice to Mr. Sheehan
that the Company would not be renewing his employment agreement and, on March 1,
2010, the agreement expired by its terms.
Under the
employment agreement, Mr. Sheehan received a base salary of $300,000 per
year. The base salary was to be increased to $322,500 per year if
Merisel Americas attained EBITDA of at least $16,500,000 on a rolling
four-quarter basis, and to $346,688 per year if Merisel Americas attained EBITDA
of at least $18,000,000 on a rolling four-quarter basis. Mr. Sheehan
was also eligible for an annual bonus with a target level of 60% of his base
salary, which was to be awarded by the Board of Directors or the Compensation
Committee based on achievement by Merisel Americas of forecasted EBITDA in the
financial plan approved by the Board of Directors and such other criteria as was
to be determined by the Board of Directors or the Compensation
Committee.
The
Company did not make any severance payments upon the Company’s nonrenewal of Mr.
Sheehan’s employment. If Mr. Sheehan’s employment had been terminated
by the Company without “cause” (as defined in the employment agreement) or Mr.
Sheehan had terminated his employment for “good reason” (as defined in the
employment agreement) prior to the expiration of the five-year employment term,
Mr. Sheehan would have been entitled to a continuation of his base salary for
the remainder of the five-year term, plus any accrued and unpaid bonus amounts
owed for the year of termination, pro-rated through the date of termination, and
any other amounts owed to him through the date of termination. If Mr.
Sheehan had been terminated for “cause”, he would have been only entitled to his
earned and unpaid base salary through the date of termination. If Mr.
Sheehan had been terminated due to death or disability (as defined in the
employment agreement), Mr. Sheehan would have been entitled to (i) a pro rata
portion of his annual bonus for the calendar year in which the termination
occurred, based upon the attainment of the applicable criteria up to the date of
termination, plus any annual bonus for a completed calendar year that had
accrued but not yet paid at the time of such termination and (ii) a continuation
of his base salary for 30 days commencing on the date of
termination.
The
employment agreement also contained customary confidentiality, non-compete and
non-solicitation provisions.
Kenneth
Wasserman was employed pursuant to an agreement dated March 1, 2005 with Merisel
Americas whereby Mr. Wasserman served as President of Comp 24. The
employment agreement provided for a five-year term with continuous renewal for
additional one-year terms unless either party gave written notice of nonrenewal
at least 60 days prior to the expiration of the then-effective
term. Mr. Wasserman’s
Employment Agreement expired pursuant to its terms on March 1, 2010, and
he was offered continued employment under new terms for
2010. However, Mr. Wasserman resigned and his employment with the
Company terminated on March 9, 2010.
53
Under the
employment agreement, Mr. Wasserman received a base salary of $287,500 per year.
The base salary was to be increased to $309,063 per year if Merisel Americas
attained EBITDA of at least $16,500,000 on a rolling four-quarter basis, and to
$332,243 per year if Merisel Americas attained EBITDA of at least $18,000,000 on
a rolling four-quarter basis. Mr. Wasserman was also eligible for an
annual bonus with a target level of 60% of his base salary, to be awarded by the
Board of Directors or the Compensation Committee based on achievement by Merisel
Americas of forecasted EBITDA in the financial plan approved by the Board of
Directors and such other criteria as was to be determined by the Board of
Directors or the Compensation Committee.
The
Company did not make any severance payments upon the Company’s nonrenewal of Mr.
Wasserman’s employment. If Mr. Wasserman’s employment had been
terminated by the Company without “cause” (as defined in the employment
agreement) or Mr. Wasserman terminated his employment for “good reason” (as
defined in the employment agreement) prior to the expiration of the five-year
employment term, Mr. Wasserman would have been entitled to a continuation of the
base salary for the remainder of the five-year term, plus any accrued and unpaid
bonus amounts owed for the year of termination, pro-rated through the date of
termination, and any other amounts owed to him through the date of
termination. If Mr. Wasserman had been terminated for “cause”, he
would have been only entitled to his earned and unpaid base salary through the
date of termination. If Mr. Wasserman had been terminated due to
death or disability (as defined in the employment agreement), Mr. Wasserman
would have been entitled to (i) a pro rata portion of his annual bonus for the
calendar year in which the termination occurred, based upon the attainment of
the applicable criteria up to the date of termination, plus any annual bonus for
a completed calendar year that had accrued but not yet paid at the time of such
termination and (ii) a continuation of his base salary for 30 days commencing on
the date of termination.
The
employment agreement also contained customary confidentiality, non-compete and
non-solicitation provisions.
54
Compensation
of Directors
The
following table sets forth, for the year ended December 31, 2009, information
relating to the compensation of each director of the Company who served during
the fiscal year and who was not a named executive officer. Compensation received
or accrued by Donald R. Uzzi, Chief Executive Officer and President of the
Company and Chairman of the Board of Directors, is fully reflected in the tables
above.
Name
|
Fees
Earned or Paid in Cash ($)(1)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation ($)
|
Nonqualified
Deferred Compensation Earnings ($) (2)
|
All
Other Compensation ($)
|
Total
($)
|
Edward
A. Grant
|
76,500
|
-
|
-
|
-
|
-
|
-
|
76,500
|
Lawrence
J. Schoenberg
|
72,500
|
-
|
-
|
-
|
-
|
-
|
72,500
|
Ronald
P. Badie
|
71,500
|
-
|
-
|
-
|
-
|
-
|
71,500
|
Albert
J. Fitzgibbons III
|
66,000
|
-
|
-
|
-
|
-
|
-
|
66,000
|
Bradley
J. Hoecker
|
70,000
|
-
|
-
|
-
|
-
|
-
|
70,000
|
(1) Includes
$28,000 contingent cash grant awarded to non-employee Directors on December 3,
2008 (in lieu of their 2008 annual award of restricted stock) and vesting on
December 3, 2009.
(2) Does
not include $28,000 contingent cash grant awarded to non-employee Directors on
October 13, 2009 (in lieu of their 2009 annual award of restricted stock) and
vesting on December 16, 2010.
Narrative
to Director Compensation Table
All cash
and stock awards described in the above table were paid to the Company’s
non-employee directors pursuant to the Company’s compensation plan for
non-employee directors, which was first adopted by the Board of Directors in
2005 and is described in detail below.
Pursuant
to the Company’s compensation plan for non-employee directors, beginning in
2006, each non-employee director is entitled to receive an annual retainer fee
of $30,000 and additional payments of $1,500 for each Board of Directors meeting
attended ($500 for meetings held telephonically after four telephonic meetings
per year, which are included in the annual retainer), $2,000 quarterly for
acting as the chairman of the Audit Committee of the Board of Directors, $1,000
quarterly for acting as the chairman of any other Committee of the Board of
Directors, $1,250 quarterly for acting as lead director (a position created in
the third quarter of 2005) and $500 for each Committee meeting attended, plus
reimbursement for travel expenses incurred in attending Board of Directors and
Committee meetings. In addition, beginning in 2006, non-employee
directors are entitled to an annual grant of restricted stock with a fair market
value of $28,000 as determined at the date the grant is authorized, which vests
on the first anniversary of the date of grant. If a director leaves for any
reason, other than a change of control, prior to vesting, all unvested shares
are forfeited. New or substituted securities or other property will
be substituted for unvested shares in the event of a consolidation, a merger or
sale of all, or substantially all, of the assets of the Company.
Non-employee
directors are able to elect on an annual basis to take up to 25 percent of their
annual retainer fee in shares of Common Stock in lieu of cash, based on the
market price of the Common Stock on the first day of the quarter following each
annual meeting of stockholders.
55
During
2008, the market price of the Company’s publicly-traded Common Stock dropped
precipitously due to a number of factors, including termination of the Company’s
March 28, 2008 Merger Agreement with certain subsidiaries of American Capital
Strategies, Ltd. and subsequent litigation arising therefrom, as well as
economic conditions that severely affected the general economy, the industries
to which the Company is a supplier, the imaging and specialty printing industry
as a whole and the Company’s performance. In early November 2008, in
the course of its review of management and non-employee director compensation,
the Compensation Committee determined that a December 2008 stock award in the
amount of $28,000 worth of Common Stock to each non-employee director, as
required under the non-employee directors’ compensation plan described above,
would have had a disproportionately dilutive effect upon the Company’s
outstanding shares of Common Stock. If the Company’s stock price did
not change substantially prior to the Annual Meeting, each non-employee director
of the Company would have been entitled to receive more than five times the
number of shares that had been issued to him in previous years.
Therefore,
the Compensation Committee consulted with the Company’s outside counsel and
outside compensation consultant and recommended to the Board of Directors on
November 4, 2008 that the Company amend the non-employee directors’ compensation
plan, for 2008 only. On November 4, 2008, the Board of Directors
adopted the Compensation Committee’s recommendation. The amendment
replaced the scheduled 2008 grant to each director of restricted common stock
with a $28,000 contingent cash grant, which grant will vest upon the same terms
as the restricted stock. Accordingly, each $28,000 cash grant vested
and was payable to the non-employee director one year after the date of grant
and was contingent upon the non-employee director remaining on the Board of
Directors through such vesting date.
On
October 13, 2009, after determining that a December 2009 stock award in the
amount of $28,000 to each director would have a similarly dilutive effect on the
Company’s outstanding Common Stock, the Compensation Committee recommended that
the Board of Directors vote to extend the amendment for 2009, and the Board
adopted its recommendation. Accordingly, the scheduled 2009
restricted stock grant to each director of restricted stock will be replaced
with a $28,000 cash grant, which grant will vest upon the same terms as the
restricted stock.
The
Company does not have a uniform policy or agreement concerning payments to
directors upon their departure from the Board. No directors left the
Board in 2009.
56
Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The
following table sets forth certain information as of March 30, 2010, as to
shares of our common stock beneficially owned by: (i) each person (including any
“group” as that term is used in Section 13(d)(3) of the Exchange Act) known by
us to be the beneficial owner of more than 5% of our common stock, (ii) each of
our directors and our Chief Executive Officer and the named executive officers
at the end of the last completed fiscal year and (iii) all of our
directors and executive officers as a group.
We have
determined beneficial ownership in accordance with the rules of the
SEC. Except as indicated by the footnotes below, we believe, based on
the information furnished to us, that the persons and entities named in the
table below have sole voting and investment power with respect to all shares of
our common stock that they beneficially own.
Shares Beneficially Owned
|
||||||||
Name
|
Number
|
Percentage
|
||||||
Phoenix
Acquisition Company II, L.L.C. (1)
|
6,827,436 | 73.08 | % | |||||
540
Madison Avenue, 25th
Floor
|
||||||||
New
York, NY 10022
|
||||||||
Freestone
Opportunity Partners LP and Gary Furukawa (2)
|
769,241 | 8.23 | % | |||||
1191
Second Avenue, Suite 2100
|
||||||||
Seattle,
WA 98101
|
||||||||
Ronald
P. Badie
|
18,714 | * | ||||||
Albert
J. Fitzgibbons III (3)
|
18,714 | * | ||||||
Edward
A. Grant
|
13,223 | * | ||||||
Bradley
J. Hoecker (3)
|
18,714 | * | ||||||
Lawrence
J. Schoenberg
|
54,773 | * | ||||||
Donald
R. Uzzi (4)
|
530,000 | 5.67 | % | |||||
Kenneth
Wasserman
|
15,000 | * | ||||||
John
Sheehan
|
15,000 | |||||||
All
Directors and Executive Officers as a Group
(7
Persons) (5)
|
* | |||||||
637,638 | 7.04 | % |
*Represents
less than 1%
(1)
|
As
of March 30, 2010, Phoenix Acquisition Company II, L.L.C., together with
its affiliates, Stonington Capital Appreciation 1994 Fund, L.P.,
Stonington Partners, L.P., Stonington Partners, Inc. II, and Stonington
Partners, Inc. held beneficial ownership (with shared voting power and
shared dispositive power) of 6,827,436 shares, including 1,827,436 shares
of the common stock of Merisel, into which the 319,801 shares of
convertible preferred stock of Merisel that are beneficially owned by
Phoenix Acquisition Company II, L.L.C. are convertible at its option.
Absent such conversion, Phoenix Acquisition Company II, L.L.C. (together
with its affiliates) would beneficially own approximately 69% of the
outstanding common stock of
Merisel.
|
(2)
|
Based
on information contained in the Schedule 13G/A filed on February 14, 2008
with the SEC by Freestone Opportunity Partners LP, Gary I. Furukawa and
Freestone Advisors, LLC, such persons beneficially owned an aggregate of
769,241 shares of Merisel common stock as of December 31,
2007.
|
(3)
|
Messrs.
Fitzgibbons and Hoecker are directors or partners of certain affiliates of
Phoenix Acquisition Company II, L.L.C. and may therefore be deemed to
beneficially own 6,827,436 shares of common stock beneficially owned by
Phoenix Acquisition Company II, L.L.C. and its affiliates. Each of Mr.
Fitzgibbons and Mr. Hoecker disclaims such beneficial ownership and the
information set forth in the table above solely reflects beneficial
ownership of Mr. Fitzgibbons and Mr. Hoecker in each of their individual
capacities.
|
(4)
|
Includes
300,000 shares of common stock that are subject to currently exercisable
stock options.
|
(5)
|
Includes
all shares of restricted stock and all shares of common stock that are
subject to stock options.
|
57
Change of Control
The
limited partnership agreement of Stonington Capital Appreciation 1994 Fund, L.P.
(the “Fund”), which is the parent of Phoenix Acquisition Company II, L.L.C. and
controls 69% of the outstanding common stock of the Company, provides for the
termination of the und and liquidation and distribution of its assets to its
limited partners at the end of a set term. As of the date hereof, the
term of the Fund has expired and Stonington Partners, Inc. is engaged in the
liquidation of the Fund’s assets by December 31, 2010, unless the limited
partnership agreement is amended. If an asset, such as publicly
listed stock, of the Fund, cannot be liquidated, the limited partnership
agreement permits the general partners to distribute that stock to the limited
partners as part of their distribution of assets, unless a majority in interest
of the limited partners approves the retention of an investment. In the event
Company common stock owned by Phoenix Acquisition Company II, L.L.C. is either
sold or distributed to the limited partners of the Fund, it would constitute a
“change of control” of the Company. To date, the Company has received
no notice that any such transaction concerning Company stock is
planned.
Equity
Compensation Plan Information
The
following table provides information regarding the shares of common stock
authorized for issuance under the Company’s equity compensation plans as of
December 31, 2009:
|
Number of securities
to
be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted-average
exercise
price of outstanding options, warrants
and
rights
|
Number of securities
remaining available for future issuance under
equity compensation
plans
(1)
|
|||
Equity
compensation plans approved by the stockholders
|
|
300,000
(2)
|
$8.33
|
501,807
(3)
|
1.
|
Excludes
shares reflected in the first
column.
|
2.
|
Represents
outstanding options granted under the Company’s 1997 Stock Award and
Incentive Plan.
|
3. Represents 1,807 shares available for issuance under the 1997
Stock Award and Incentive Plan and 500,000
shares available for issuance under the 2008 Stock Award and Incentive
Plan.
Item
13. Certain
Relationships and Related Transactions and Director Independence
There are
no family relationships among any of the executive officers and directors of the
Company.
In 2006
the Company entered into indemnity agreements (the “Indemnity Agreements”) with
each of its directors, Mr. Uzzi and Jon H. Peterson, who was the Company’s Chief
Financial Officer until June 12, 2009. The Company later entered into
Indemnity Agreements with (i) Mr. Grant upon his election to the Board, (ii)
Fiona Gould upon her election as a corporate officer, (iii) Mr. Cisario upon his
appointment as the Chief Financial Officer and (iv) Jennifer Collier, upon her
election as Corporate Secretary. The Indemnity Agreements provide
that the Company will indemnify each party (the “Indemnitee”) against expenses
and damages in connection with claims relating to the Indemnitee’s service to
the Company, to the fullest extent permitted by the Company’s bylaws and the
Delaware General Corporation Law.
The
Indemnity Agreements provide that the Company will pay the expenses of the
Indemnitee incurred in any such proceedings prior to final disposition of the
claim, without regard to Indemnitee’s ability to repay the expenses or ultimate
entitlement to indemnification under other provisions of the Indemnity
Agreements. However, by executing and delivering the Indemnity
Agreement, the Indemnitee undertakes to repay the advance to the extent it is
ultimately determined that the Indemnitee was not entitled to
indemnification. The Indemnity Agreements specify certain procedures
and assumptions applicable in connection with requests for indemnification and
advancement of expenses and also requires the Company to maintain fiduciary
liability insurance for directors, officers, employees and other agents of the
Company. The rights provided to the Indemnitees under the Indemnity
Agreements are additional to any other rights the Indemnitees may have under the
Company's certificate of incorporation, bylaws, any agreement, applicable law,
vote of stockholders or resolution of directors.
58
On May
31, 2008, the Company made an earn-out payment in the amount of $750,000 to 1919
Empire, Inc. (formerly Crush Creative, Inc.), its shareholders and their named
shareholder representative (collectively, the “Crush Sellers”), pursuant to the
Company’s asset purchase agreement with the Crush Sellers. The
earn-out was paid in connection with performance criteria met by Crush Creative
during the one-year period ended December 31, 2007. Guy Claudy, who
served the Company as President of Crush Creative until July 2009, is the named
shareholder representative for the Crush Sellers.
In April
2009, the Company informed the Crush Sellers that Crush Creative’s business had
not met the performance criteria which would entitle them to an earn-out 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 contested the Company’s calculations. Since then, Merisel and
the Crush Sellers have attempted to resolve this dispute through negotiations,
but have been unable to do so. The parties are now following the
process set forth in the asset purchase agreement for resolving such disputes
through the 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
agreement, the Crush Sellers will be entitled to a payment of up to
$750,000.
Certain
members of the Company’s Board of Directors currently serve on boards of other
public and private companies, which are also under the control of Stonington
Partners, Inc. or its affiliates. These entities may be considered to
be under “common control” with the Company.
The
following table lists all “parents” of the Company showing the basis of control
and as to each parent, the percentage of voting securities owned or other basis
of control by its immediate parent, if any.
Name
of Parent
|
Basis
of Control
|
Immediate
Parent
|
Percentage
of Voting Securities Owned or Other Basis of Control
|
Phoenix
Acquisition Company II, L.L.C.
|
Ownership/control
of common stock constituting 69% of outstanding
shares
|
Stonington
Capital Appreciation 1994 Fund, L.P.
|
100%
|
Director
Independence
The Board
of Directors has determined that the Company is a “controlled company” under the
NASD’s rules because more than 50% of the Company’s common stock is held by one
entity, Phoenix Acquisition Company II, L.L.C., an affiliate of Stonington
Partners, Inc. Accordingly, the Company is not required to, and, in fact, does
not have a majority of independent directors on its Board, nor does it have
compensation or nominating committees comprised solely of independent directors.
The Board of Directors has determined that Messrs. Badie, Grant and Schoenberg
meet the independence requirements of the SEC and NASD.
59
Item
14. Principal
Accountant Fees and Services
The
following table presents fees billed for professional audit services rendered by
BDO Seidman, LLP (“BDO”), the Company’s current principal accounting firm, for
the audit of the Company’s annual financial statements for 2008 and 2009, review
of the quarterly financial statements for 2008 and 2009 and fees billed for
other services rendered by BDO in 2008 and 2009.
2008
|
2009
|
|||||||
Audit
fees
|
$ | 268,500 | 255,000 | |||||
Audit-related
fees (1)
|
55,000 | 55,000 | ||||||
Total
|
$ | 323,500 | 310,000 |
|
(1) The
2008 billings relate to the 2007 audit of the employee benefit plan and
various consulting services. The 2009 billings relate to the 2008 audit of
the employee benefit plan and various consulting
services.
|
In
accordance with existing Audit Committee policy and the more recent requirements
of the Sarbanes-Oxley Act, all services to be provided by BDO are subject to
pre-approval by the Audit Committee. This includes audit services, audit-related
services, tax services and other services. In some cases, pre-approval is
provided by the full Audit Committee for up to a year, and relates to a
particular category or group of services and is subject to a specific
budget. In other cases, the Audit Committee has delegated authority
to Mr. Edward A. Grant to pre-approve
additional services, which then is to be communicated to the full Audit
Committee. All of the fees listed above have been approved by the
Audit Committee.
60
PART
IV
Item
15. Exhibits
and Financial Statement Schedules.
(a) List
of documents filed as part of this Report:
1.
|
Financial
Statements included in Item 8:
|
·
|
Report
of Independent Registered Public Accounting
Firm.
|
·
|
Consolidated
Balance Sheets at December 31, 2008 and
2009.
|
·
|
Consolidated
Statements of Operations for each of the three years in the period ended
December 31, 2009.
|
·
|
Consolidated
Statements of Changes in Stockholders’ Equity for each of the three years
in the period ended December 31,
2009.
|
·
|
Consolidated
Statements of Cash Flows for each of the three years in the period ended
December 31, 2009.
|
·
|
Notes
to Consolidated Financial
Statements.
|
2.
|
Exhibits:
|
The exhibits listed on the accompanying
Index of Exhibits are filed as part of this report.
61
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date:
March 31,
2010 MERISEL,
INC.
By:/s/ Donald R.
Uzzi
Donald R. Uzzi
|
Chairman
of the Board, Chief Executive Officer and
President
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature
|
Title
|
Date
|
/s/Donald R. Uzzi
Donald
R. Uzzi
|
Chairman
of the Board, Chief Executive Officer
and
President (Principal Executive Officer)
|
March
31, 2010
|
/s/ Victor L. Cisario
Victor
L. Cisario
|
Chief
Financial Officer
(Principal
Accounting Officer)
|
March
31, 2010
|
/s/Ronald P. Badie
Ronald
P. Badie
|
Director
|
March
31, 2010
|
/s/Albert J. Fitzgibbons III
Albert
J. Fitzgibbons III
|
Director
|
March
31, 2010
|
/s/Bradley J. Hoecker
Bradley
J. Hoecker
|
Director
|
March
31, 2010
|
/s/Edward A. Grant
Edward
A. Grant
|
Director
|
March
31, 2010
|
/s/Lawrence J. Schoenberg
Lawrence
J. Schoenberg
|
Director
|
March
31, 2010
|
62
Index
of Exhibits
Exhibit
|
Description
|
Method of
Filing
|
2.1
|
Asset
Purchase Agreement dated as of December 24, 2004, as amended, by and among
Merisel, Inc., MCEV, LLC, Color Edge Visual, Inc. (“CEV”), Photobition New
York, Inc. (“PBNY”) and the direct or indirect shareholders or members of
CEV and PBNY signatories thereto.
|
Filed
as Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the
SEC on March 7, 2005. **
|
|
2.2
|
Asset
Purchase Agreement dated as of December 24, 2004, as amended, by and among
Merisel, Inc., MC24, LLC, Comp 24, LLC (“Comp 24”) and the direct and
indirect shareholders or members of Comp 24 signatories
thereto.
|
Filed
as Exhibit 2.3 to the Company’s Current Report on Form 8-K filed with the
SEC on March 7, 2005. **
|
|
2.3
|
Amendment
and Waiver to Asset Purchase Agreement dated as of March 1, 2005 by and
among MCEI, LLC, Merisel, Inc. and Color Edge, Inc. and the direct and
indirect shareholders set forth on the signature pages
thereto.
|
Filed
as Exhibit 2.4 to the Company’s Current Report on Form 8-K filed with the
SEC on March 7, 2005. **
|
|
2.4
|
Amendment
and Waiver to Asset Purchase Agreement dated as of March 1, 2005 by and
among MCEV, LLC, Merisel, Inc. and Color Edge Visual, Inc. and the direct
and indirect shareholders set forth on the signature pages
thereto.
|
Filed
as Exhibit 2.5 to the Company’s Current Report on Form 8-K filed with the
SEC on March 7, 2005. **
|
|
2.5
|
Amendment
and Waiver to Asset Purchase Agreement dated as of March 1, 2005 by and
among MC24, LLC, Merisel, Inc. and Comp 24, LLC and the direct and
indirect shareholders set forth on the signature pages
thereto.
|
Filed
as Exhibit 2.6 to the Company’s Current Report on Form 8-K filed with the
SEC on March 7, 2005. **
|
|
2.6
|
Asset
Purchase Agreement dated as of July 6, 2005 by and among Merisel, Inc.,
MCRU, LLC, Crush Creative, Inc. (“Crush”) and the shareholders of Crush
signatories thereto, as amended by that certain Amendment and Waiver to
Asset Purchase Agreement, dated as of August 8, 2005 by and among Merisel,
MCRU, Crush and Guy Claudy as Shareholders Representative.
|
Filed
as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the
SEC on August 9, 2005. **
|
|
2.7
|
Amendment
and Waiver to Asset Purchase Agreement, dated as of August 8, 2005 by and
among Merisel, Inc., MCRU, LLC, Crush Creative, Inc. and Guy Claudy as
Shareholders Representative.
|
Filed
as Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the
SEC on August 9, 2005. **
|
|
2.8
|
Asset
Purchase Agreement, dated as of October 4, 2006 by and among Merisel,
Inc., Merisel FD, LLC, Fuel Digital, Inc. and the shareholders of Fuel
signatories thereto.
|
Filed
as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the
SEC on October 6, 2006. **
|
63
3.1
|
Restated
Certificate of Incorporation of Merisel, Inc., as amended.
|
Filed
as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2005. **
|
|
3.2
|
Bylaws
of Merisel, Inc., as amended.
|
Filed
as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2005. **
|
|
4.1
|
Certificate
of Designation of Convertible Preferred Stock of Merisel,
Inc.
|
Filed
as Exhibit 99.2 to the Company’s Current Report on Form 8-K dated June 9,
2000. **
|
|
*10.1
|
Merisel,
Inc. 1997 Stock Award and Incentive Plan.
|
Filed
as Annex II to the Company’s Schedule 14A dated October 6, 1997.
**
|
|
*10.2
|
Form
of Nonqualified Stock Option Agreement under the Merisel, Inc. 1997 Stock
Award and Incentive Plan.
|
Filed
as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 1997. **
|
|
10.3
|
Stock
Subscription Agreement by and between Merisel, Inc. and Phoenix
Acquisition Company II, L.L.C. dated as of June 2, 2000.
|
Filed
as Exhibit 99.1 to the Company’s Current Report on Form 8-K, dated June 9,
2000. **
|
|
10.4
|
Amended
and Restated Registration Rights Agreement dated June 9, 2000 (executed
November 7, 2002) between Merisel, Inc. and Phoenix Acquisition Company
II, L.L.C.
|
Filed
as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002. **
|
|
*10.5
|
Employment
Agreement dated November 22, 2004 between Merisel, Inc. and Donald R.
Uzzi.
|
Filed
as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the
SEC on November 24, 2004. **
|
|
*10.6
|
Employment
Agreement dated as of March 1, 2005 by and between Merisel Americas, Inc.
and Kenneth Wasserman.
|
Filed
as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the
SEC on March 7, 2005. **
|
|
*10.7
|
Employment
Agreement dated as of March 1, 2005 by and between Merisel Americas, Inc.
and John Sheehan.
|
Filed
as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the
SEC on March 7, 2005. **
|
|
10.8
|
Credit
Agreement dated as of March 1, 2005 by and among MCEI, LLC, MCEV, LLC,
Merisel, Inc., Merisel Americas, Inc., MC24, LLC and Amalgamated
Bank.
|
Filed
as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the
SEC on March 7, 2005. **
|
|
10.9
|
Pledge
Agreement, dated as of March 1, 2005, made among MCEI, LLC, MCEV, LLC,
Merisel, Inc., Merisel Americas, Inc., and Amalgamated Bank.
|
Filed
as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the
SEC on March 7, 2005. **
|
|
10.10
|
Security
Agreement, dated as of March 1, 2005, made by MCEI, LLC, MCEV, LLC,
Merisel, Inc., Merisel Americas, Inc., and MC24, LLC, in favor of
Amalgamated Bank.
|
|
Filed
as Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the
SEC on March 7, 2005. **
|
10.11
|
Corporate
Guarantee, dated as of March 1, 2005, made among each signatory hereto, in
favor of Amalgamated Bank.
|
Filed
as Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the
SEC on March 7, 2005. **
|
|
10.12
|
Credit
Agreement dated as of March 1, 2005 by and among MC24, LLC, Merisel, Inc.,
Merisel Americas, Inc., MCEI, LLC, MCEV, LLC and Amalgamated
Bank.
|
Filed
as Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the
SEC on March 7, 2005. **
|
64
10.13
|
Pledge
Agreement, dated as of March 1, 2005, made among MC24, LLC, Merisel, Inc.,
Merisel Americas, Inc., and Amalgamated Bank.
|
Filed
as Exhibit 10.9 to the Company’s Current Report on Form 8-K filed with the
SEC on March 7, 2005. **
|
|
10.14
|
Security
Agreement, dated as of March 1, 2005 made by MC24, LLC, Merisel, Inc.,
Merisel Americas Inc., MCEI, LLC, MCEV, LLC, and each of their
Subsidiaries from time to time parties thereto, in favor of Amalgamated
Bank.
|
Filed
as Exhibit 10.10 to the Company’s Current Report on Form 8-K filed with
the SEC on March 7, 2005. **
|
|
10.15
|
Corporate
Guarantee, dated as of March 1, 2005, made among each signatory hereto, in
favor of Amalgamated Bank.
|
Filed
as Exhibit 10.11 to the Company’s Current Report on Form 8-K filed with
the SEC on March 7, 2005. **
|
|
10.16
|
Amendment
No. 1 to Credit Agreement dated as of August 8, 2005 by and among MCRU,
Color Edge LLC (formerly known as MCEI, LLC), Color Edge Visual, LLC
(formerly known as MCEV, LLC), Comp 24 LLC (formerly known as MC24, LLC),
Merisel Americas, Inc., the Company and Amalgamated Bank, entered into in
connection with the MCEI/MCEV Credit Agreement.
|
Filed
as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
SEC on August 9, 2005. **
|
|
*10.17
|
Amendment
to Employment Agreement dated November 22, 2004 between Merisel, Inc. and
Donald R. Uzzi.
|
Filed
as Exhibit 10.1 to the Company’s current report on Form 8-K filed with the
SEC on March 9, 2006.**
|
|
*10.18
|
Form
of Indemnity Agreement entered into between Merisel, Inc. and each of its
Directors and certain Officers.
|
Filed
as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the
SEC on March 9, 2006.**
|
|
10.19
|
Amendment
No. 2 to Asset Purchase Agreement and Amendment to Confidentiality and
Non-Competition Agreement (MCEI).
|
Filed
as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
SEC on May 1, 2006. **
|
|
10.20
|
Amendment
No. 2 to Asset Purchase Agreement and Amendment to Confidentiality and
Non-Competition Agreement (MCEV).
|
Filed
as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the
SEC on May 1, 2006. **
|
|
*10.21
|
1997
Merisel Inc. Stock Award and Incentive Plan Form of Restricted Stock
Agreement for Executives and Key Employees.
|
Filed
as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the SEC on December 19, 2006.
**
|
|
*10.22
|
1997
Merisel Inc. Stock Award and Incentive Plan Form of Restricted Stock
Agreement for Directors.
|
Filed
as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the
SEC on December 19, 2006.**
|
|
10.23
|
Amendment
No. 2 to Credit Agreement, dated February 27, 2008, among Color Edge LLC,
Color Edge Visual LLC and Crush Creative LLC, as borrowers, the Company,
Merisel Americas, Inc., Comp 24 LLC, Fuel Digital, LLC, Dennis Curtin
Studios, LLC, MADP, LLC and Advertising Props, Inc., as guarantors, and
Amalgamated Bank, as lender.
|
Filed
as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
SEC on March 4, 2008.**
|
65
10.24
|
Reaffirmation
and Confirmation Agreement (Security Documents), dated February 27, 2008,
among Color Edge LLC, Color Edge Visual LLC and Crush Creative LLC, as
borrowers, the Company, Merisel Americas, Inc., Comp 24 LLC, Fuel Digital,
LLC, Dennis Curtin Studios, LLC, MADP, LLC and Advertising Props, Inc., as
guarantors, in favor of Amalgamated Bank.
|
Filed
as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the
SEC on March 4, 2008.**
|
|
*10.25
|
Amendment
to 1997 Merisel Inc. Stock Award and Incentive Plan Form of Restricted
Stock Agreement for Directors.
|
Filed
as Exhibit 10.50 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2007. **
|
|
*10.26
|
Amendment
No. 2 to Employment Agreement, dated January 18, 2008, between Merisel,
Inc. and Donald R. Uzzi.
|
Filed
as Exhibit 10.51 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2007. **
|
|
*10.27
|
Merisel,
Inc. 2008 Stock Award and Incentive Plan.
|
Filed
as Annex A to the Company’s Schedule 14A dated November 7, 2008.
**
|
|
10.28
|
Amendment
No. 3 to Credit Agreement, dated March 26, 2009, among Color Edge LLC,
Color Edge Visual LLC and Crush Creative LLC, as borrowers, the Company,
Merisel Americas, Inc., Comp 24 LLC, Fuel Digital, LLC, Dennis Curtin
Studios, LLC, MADP, LLC and Advertising Props, Inc., as guarantors, and
Amalgamated Bank, as lender.
|
Filed
as Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2008.
|
|
*10.29
|
Employment
Agreement dated May 6, 2009 by and between Merisel, Inc. and Victor L.
Cisario.
|
Filed
as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
SEC on June 12, 2009.**
|
|
*10.30
|
Amendment
#3 to Employment Agreement, dated June 29, 2009 by and between Merisel,
Inc. and Donald R. Uzzi.
|
Filed
as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
SEC on September 30, 2009.**
|
|
10.31
|
Amended
and Restated Credit Agreement dated September 30, 2009, among Color Edge
LLC, Color Edge Visual LLC and Crush Creative LLC, as borrowers, the
Company, Merisel Americas, Inc. and certain other affiliates of borrowers,
as corporate guarantors, and Amalgamated Bank, as lender.
|
Filed
as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
SEC on October 5, 2009.**
|
|
10.32
|
Second
Reaffirmation and Confirmation Agreement (Security Documents) dated
September 30, 2009, among Color Edge LLC, Color Edge Visual LLC and Crush
Creative LLC, as borrowers, the Company, Merisel Americas, Inc. and
certain other affiliates of borrowers, as corporate guarantors, in favor
of Amalgamated Bank.
|
Filed
as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the
SEC on October 5, 2009.**
|
|
14.1
|
Code
of Business Conduct.
|
|
Filed
as exhibit 99.2 to the Company’s
Annual
Report on Form 10-K for the year
ended
December 31, 2002.**
|
21
|
Subsidiaries
of the Registrant.
|
Filed
herewith.
|
66
23
|
Consent
of BDO Seidman, LLP
Independent
Registered Accounting Firm.
|
Filed
herewith.
|
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
Filed
herewith.
|
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
Filed
herewith.
|
|
32
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350.
|
Filed
herewith.
|
* Management
contract or executive compensation plan or arrangement.
**
Incorporated by reference.