-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IdUd1TWCJ7Jqep7DPtW5y8JWiLnReLf/xptaoVWID7bTluiQD/lWBlIMT/YOqTIZ 6Qgj4hG90uV2GZ6IQTuLAQ== 0000912057-96-027031.txt : 19961121 0000912057-96-027031.hdr.sgml : 19961121 ACCESSION NUMBER: 0000912057-96-027031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961119 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICRO WAREHOUSE INC CENTRAL INDEX KEY: 0000892872 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 061192793 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20730 FILM NUMBER: 96669241 BUSINESS ADDRESS: STREET 1: 535 CONNECTICUT AVE CITY: NORWALK STATE: CT ZIP: 06854 BUSINESS PHONE: 2038994000 MAIL ADDRESS: STREET 1: 535 CONNECTICUT AVE CITY: NORWALK STATE: CT ZIP: 06854 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _____________ to _______________ Commission File Number: 0-20730 MICRO WAREHOUSE, INC. (Exact name of registrant as specified in its charter) DELAWARE 06-1192793 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 535 CONNECTICUT AVENUE, NORWALK, CONNECTICUT 06854 (Address of principal executive offices) (203) 899-4000 (Registrant's telephone number, including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / / Indicate the number of shares outstanding of each of issuer's class of common stock as the latest practicable date: CLASS: COMMON STOCK OUTSTANDING SHARES AT SEPTEMBER 30, 1996: 34,336,592 MICRO WAREHOUSE, INC. INDEX PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements (unaudited) Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . .3 Consolidated Statements of Income. . . . . . . . . . . . . . . . . . . .4 Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . 5 Notes to Unaudited Consolidated Financial Statements . . . . . . . . . .6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . .8 PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 12 Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 6 - Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 13 SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2
PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS MICRO WAREHOUSE, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) --------------------------------- (UNAUDITED) SEPTEMBER 30, DECEMBER 31, 1996 1995(A) ---- ------ ASSETS Current assets: Cash and cash equivalents $119,106 $81,614 Marketable securities at market value 14,073 20,580 Accounts receivable, net of allowance for doubtful accounts ($9,060 and $7,498 at September 30, 1996 and December 31, 1995, respectively) 188,518 172,275 Inventories 121,607 143,941 Prepaid income taxes 21,439 16,957 Prepaid expenses and other current assets 19,061 28,156 Deferred taxes 4,849 5,266 -------- -------- TOTAL CURRENT ASSETS 488,653 468,789 -------- -------- Property, plant and equipment, net 29,544 32,175 Goodwill, net 44,893 44,644 Other assets 2,480 4,133 -------- -------- TOTAL ASSETS $565,570 $549,741 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable - trade $103,734 $109,906 Accrued expenses 51,247 34,318 Income taxes 1,483 5,939 Deferred revenue 4,435 4,602 Loans payable, bank 35,934 38,294 Equipment obligations 316 384 -------- -------- TOTAL CURRENT LIABILITIES 197,149 193,443 -------- -------- Equipment obligations 424 668 -------- -------- TOTAL LIABILITIES 197,573 194,111 -------- -------- Stockholders' equity: Preferred stock, $.01 par value: - - Authorized - 100 shares; none issued Common stock, $.01 par value: Authorized - 100,000 shares; issued and outstanding; 34,337 and 33,968 shares at September 30, 1996 and December 31, 1995 respectively 343 339 Additional paid in capital 270,488 265,648 Retained earnings 102,184 92,734 Loan to officer (1,400) - Cumulative translation adjustment (3,618) (1,033) Valuation adjustment for marketable securities - (46) Treasury stock - (2,012) -------- -------- TOTAL STOCKHOLDERS' EQUITY 367,997 355,630 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $565,570 $549,741 -------- -------- -------- --------
See accompanying Notes to Unaudited Consolidated Financial Statements (A) Financial data included in the December 31, 1995 balance sheet reflect correction of previously reported errors more specifically described in Note 1 of this quarterly report. 3 MICRO WAREHOUSE, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA) ------------------------------------------------------------------ (UNAUDITED) Three Months Ended Nine Months Ended September 30, 1996 September 30, 1996(B) ------------------ --------------------- Net sales $437,981 $1,389,547 Cost of goods sold 359,289 1,127,329 ---------- ---------- Gross profit 78,692 262,218 Selling, general and administrative expense 61,510 203,334 Write-off of goodwill - 5,977 Restructuring costs - 21,226 Merger costs - 6,113 ---------- ---------- Income from operations before interest, income taxes and extraordinary charge 17,182 25,568 Interest income 846 1,208 ---------- ---------- Income from operations before income taxes and extraordinary charge 18,028 26,776 Provision for income taxes 7,303 15,742 ---------- ---------- Income before extraordinary charge 10,725 11,034 Extraordinary charge, net of taxes - 1,584 ---------- ---------- Net income $10,725 $9,450 ---------- ---------- ---------- ---------- Net income per share $0.31 $0.27 ---------- ---------- ---------- ---------- Weighted average number of shares outstanding 34,630 34,667 ---------- ---------- ---------- ---------- See accompanying Notes to Unaudited Consolidated Financial Statements (B) Certain historical financial information is not being presented. See Note 1 which addresses the Company's intent to restate prior period financial statements. 4 MICRO WAREHOUSE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS Representing Increases (Decreases) In Cash FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS) -------------------------------------------------------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: 1996 (B) -------- Net income $ 9,450 --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,510 Write-off of goodwill 5,977 Deferred taxes 417 Restructuring charge - fixed assets 2,028 Extraordinary charge 1,900 Changes in assets and liabilities, net of effect of purchase acquisitions: Accounts receivable, net (15,576) Inventories 23,826 Prepaid expenses and other assets 10,441 Prepaid income taxes (4,482) Accounts payable-trade (6,883) Income taxes payable (4,456) Accrued expenses 16,902 Deferred revenue (167) --------- Total adjustments 38,437 --------- Net cash provided by operating activities 47,887 --------- CASH FLOWS FROM INVESTING ACTIVITIES: Sales of marketable securities, net 6,553 Purchases or adjustments to acquisitions of businesses, represented by: Goodwill (6,251) Other net assets (2,120) Acquisition of property, plant and equipment (6,876) --------- Net cash (used) by investing activities (8,694) --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock 5,456 Bank borrowings, net 17,640 Redemption of Senior Notes (21,900) Principal payments of obligations under capital leases (312) --------- Net cash provided by financing activities 884 --------- Effect of exchange rate changes on cash (2,585) --------- Net change in cash 37,492 CASH AND CASH EQUIVALENTS: Beginning of period 81,614 --------- End of period $119,106 --------- --------- See accompanying Notes to Unaudited Consolidated Financial Statements (B) Certain historical financial information is not being presented. See Note 1 which addresses the Company's intent to restate prior period financial statements. 5 MICRO WAREHOUSE, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. FINANCIAL STATEMENTS The consolidated financial statements include the accounts of Micro Warehouse, Inc. and its subsidiaries (the "Company") and have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Certain comparative historical information required to be included has been omitted for the reasons set forth in the following paragraph. On September 30, 1996, the Company announced that it had uncovered errors in its accounting procedures. On October 15, 1996 the Company announced that, after further review of the previously reported errors, it anticipated the aggregate charge to operating profits to be approximately $28 million after tax. The Company has found that since 1992 it incorrectly accounted for accrued inventory liabilities and trade payables. Inaccuracies in these accounts total approximately $47.3 million. Accordingly, the Company has increased its accounts payable by $47.3 million and also recorded an offsetting increase in the Company's prepaid income taxes of $19.1 million as of September 30, 1996. Of the $47.3 million, approximately $3.2 million before tax (relating to the first quarter of 1996) has been charged against the nine month period ending September 30, 1996. In connection with the foregoing, the Company will be recording in 1995 a $2.2 million credit before tax resulting from the rescission of 1995 incentive bonuses paid to certain senior executives. This $2.2 million credit will reduce the previously announced after-tax charge of $28.0 million to $26.8 million. The Company plans to restate the financial statements for the first quarter of 1996 reflecting the charge of $3.2 million before tax and plans to restate the appropriate prior years by adjusting the remaining $41.9 million over those years. Until the Company has completed its investigation and determined the impact of the restatement on the appropriate periods, previously issued financial statements and the related auditors' reports should not be relied upon. As a result, certain comparative information has been omitted. The unaudited condensed consolidated financial statements for the three months and nine months ended September 30, 1996 included herein reflect all adjustments which are, in the opinion of management, necessary to state fairly the results for the periods presented. As stated previously, the restated financial statements for prior periods will be issued upon completion by the Company of its investigation of these matters and the audit of the annual financial statements by the Company's independent auditors. The results for the current period are not necessarily indicative of the results expected for the full fiscal year. 6 2. NET INCOME PER SHARE Following is an analysis of the components of the shares used to compute net income per share:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1996 SEPTEMBER 30, 1996 ------------------ ------------------ (000) (000) Shares outstanding at beginning of period 34,278 33,968 Incremental shares related to stock options 352 699 ------ ------ 34,630 34,667 ------ ------
3. BUSINESS COMBINATIONS On January 25, 1996, the Company completed a merger with Inmac Corp. ("Inmac"). Under the terms of the merger, the Company exchanged 3,033,682 common shares for all of Inmac's 10,816,836 common shares in a transaction accounted for as a pooling of interests. Accordingly, all historical financial information contained in these consolidated financial statements has been restated to include Inmac. In connection with this transaction, the Company has recorded restructuring charges of $21.2 million comprised of: personnel (severance) of $10.0 million, facilities (leases and fixed asset write-offs) of $9.6 million and other of $1.6 million. Payments through September 30, 1996 have reduced this balance to $5.1 million. Management does not believe that the total restructuring charge will be significantly different from the originally recorded charge. On September 10, 1996 the Company acquired all of the issued and outstanding capital stock of Helsinki, Finland based Business Forum Oy Ltd. and Oy Mundi International Inc. for an initial cash payment of $2.5 million. An additional $1.25 million may be payable upon the achievement of certain performance criteria. Subsequent to this acquisition, the business of the acquired entities was consolidated with the Company's existing Finnish subsidiary. On October 25, 1996, the Company acquired for cash substantially all of the assets of USA Flex, Inc., a direct marketer of computer products in the United States. The purchase price was approximately $26.3 million. 4. EXTRAORDINARY CHARGE During the first quarter of 1996, the Company recorded an extraordinary charge of $1.6 million related to early extinguishment of debt (net of a tax benefit of $1.1 million) resulting from the mandatory prepayment of $20.0 million of Senior Notes of Inmac, which action was caused by the merger. The extraordinary charge consisted of a premium of $1.9 million paid on the redemption of the Senior Notes and the write-off of deferred financing costs of $0.8 million. 7 5. WRITE-OFF OF GOODWILL Due to uncertainties in the Apple Macintosh marketplace, the Company re-evaluated the carrying value of goodwill in its Macintosh-only subsidiaries in Australia, Denmark, Mexico and Switzerland. As a result of that re-evaluation, the Company recorded a charge of $6.0 million in the quarter ended June 30, 1996, which amount represents substantially all of the goodwill associated with these subsidiaries. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The Company sells computer products primarily through its two main catalogs, MacWAREHOUSE and MicroWAREHOUSE. In late 1987, the Company introduced its MacWAREHOUSE catalog for users of Macintosh computers. In 1989, the Company began distributing its first MicroWAREHOUSE catalog for users of IBM-compatible PCs and instituted its business-to-business outbound sales program. The Company also publishes targeted catalogs namely, Data CommWAREHOUSE, directed to the data communications and networking markets, Micro SystemsWAREHOUSE, offering microcomputer systems and peripherals to the PC/Windows market, and Mac SystemsWAREHOUSE, offering Mac computer systems and peripherals to the Mac market. During 1995, the Company combined the CD-Rom and Home ComputerWAREHOUSE catalogs with its core catalogs and discontinued its Paper design and Micro SuppliesWAREHOUSE catalogs. Subsequent to the Inmac acquisition, the Company commenced publication both domestically and internationally of various Inmac catalogs. Over the past few years, the Company has expanded its international operations. The Company commenced full-scale operations in the United Kingdom in 1991 and in France and Germany in 1992. In 1993, the Company established a licensing arrangement in Australia and acquired, through newly-formed foreign subsidiaries, businesses with operations in Denmark, Norway and Sweden. During 1994, the Company acquired eight additional businesses with operations in Holland, Belgium, Finland, Norway, Sweden, France, Mexico and Canada. The Company also began operations in Japan. In 1995, the Company acquired complimentary businesses in the United Kingdom, Germany, Australia (including its licensee) and Switzerland. Micro Warehouse international catalog distribution includes the MacWAREHOUSE, MicroWAREHOUSE, LanWAREHOUSE (the European counterpart to the U.S. Data CommWAREHOUSE) catalogs and various Inmac catalogs. RESULTS OF OPERATIONS As discussed in Item 1 of this Quarterly Report, the Company has determined that prior period financial statements must be restated as a consequence of discovering errors in its accounting procedures. While the Company has determined the cumulative effect of these items, it has not yet determined the individual prior quarterly periods to which the adjustments relate. When this determination is made, the Company will restate the affected periods. The Company believes the amounts for the three and nine months ended September 30, 1995 described in the following discussion will not materially change as a result of the restatement of prior periods. 8 THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1995 SALES Net sales increased by $14.5 million or 3.4% to $438.0 million for the three months ended September 30, 1996 from $423.5 million for the previously reported three months ended September 30, 1995. This increase in net sales was primarily attributable to continued growth in the domestic IBM PC-compatible ("Wintel") business (excluding Inmac) which increased by 35% to $121.4 million due to significant growth in catalog circulation which was up 26% and an increase in the average order size of 29% to $569. Offsetting this growth was a decline in the international business of 7% to $137.4 million. The domestic Macintosh business declined 1% to $159.2 million, which decline was attributable to a reduced response rate to the Company's MacWAREHOUSE and Mac SYSTEMSWarehouse catalogs. Average order value increased slightly to $428, up from $400 last year. Net sales for the domestic Inmac business, which was acquired in January, 1996, declined by 17% to $20.0 million attributable to a reduced response rate to catalog mailings as well as reduced revenue due to the relocation of Inmac's sales function from Dallas, Texas to Gibbsboro, New Jersey. International sales decreased by 7% to $137.4 million which was comprised of Micro Warehouse sales (exclusive of Inmac) down 13% and Inmac sales which were up 1%. The international business was more heavily impacted by the decrease in the sales of Macintosh products. The international Macintosh business decreased by 18% from the same quarter last year. The international Wintel business (including Inmac) was unchanged from the prior year. The Company decreased overall international catalog circulation by 9% as it eliminated certain unprofitable Inmac catalogs and reacted to the traditionally slower summer months. GROSS PROFIT FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 Consolidated gross profit, which consists of net sales less product and transportation costs, was 18.0% of sales. In the U.S., gross profit was 17.8% of sales; international gross profit was 18.4% of sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 Selling, general and administrative expenses were 14.0% of sales. NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 SALES Net sales increased by $207.1 million or 17.5% to $1,389.5 million for the nine months ended September 30, 1996 from $1,182.4 million for the previously reported nine months ended September 30, 1995. The increase in net sales was attributable to increases in the Company's domestic Macintosh business, up 17%, the Wintel business, up 30% and the international business, up 9%. The Company's domestic Wintel business, exclusive of Inmac, was up by 41% due to increased catalog circulation of 34% and a 9 higher average order size up 30% to $545. The domestic Inmac business was down 9% for the nine months. International sales, which were up 9%, are comprised of Micro Warehouse sales (exclusive of Inmac) which were up 17%, and Inmac sales which were up 1%. Inmac sales are approximately 46% of total international sales. The Wintel business was up 11% (inclusive of Inmac) with the Micro Warehouse business up 43% and Inmac up 1%. The Macintosh business was up 7% internationally. GROSS PROFIT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 Consolidated gross profit was 18.9% of sales. In the U.S., gross profit was 18.3% of sales; international gross profit was 20.0% of sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 Selling, general and administrative expenses were 14.6% of sales. LIQUIDITY AND CAPITAL RESOURCES In October 1995, the Company completed a follow-on offering of its common stock resulting in net proceeds to the Company of $50.8 million. As of September 30, 1996, the Company had cash and short-term investments totaling $133.2 million. Inventories decreased to $121.6 million at September 30, 1996 from $143.9 million at December 31, 1995. Annualized inventory turns were 12.0 at September 30, 1996. Accounts receivable increased to $188.5 million at September 30, 1996 from $172.3 million at December 31, 1995. The days sales outstanding increased to 44.8 days in 1996 from 44.3 days at September 30, 1995. Capital expenditures for the first nine months of 1996 and 1995 were $6.9 million and $11.0 million, respectively, primarily for computer systems and distribution equipment both in the United States and internationally. Although the Company's primary capital needs will be to fund its working capital requirements for expected sales growth, the Company expects that future growth will also require continued expansion of its computer systems and distribution capacity. The Company has a multi-currency borrowing facility for $75 million. The purpose of this facility is to provide working capital financing for its foreign subsidiaries in local currencies, thus limiting exposure to foreign exchange fluctuation. Total borrowings as of September 30, 1996 under this arrangement were $35.9 million. Additionally, at September 30, 1996 the Company had an unused line of credit in the United States which provided for unsecured borrowings of up to $15.0 million for working capital purposes. On September 10, 1996 the Company acquired all of the issued and outstanding capital stock of Business Forum Oy Ltd. and Oy Mundi International Inc. for an initial cash payment of $2.5 million. An additional $1.25 million may be payable upon the achievement of certain performance criteria. Subsequent to this acquisition, the business of the acquired entities was consolidated with the Company's existing Finnish subsidiary. On October 25, 1996, the Company purchased substantially all of the assets 10 of USA Flex, Inc. for an aggregate cash purchase price of $26.3 million. This acquisition has reduced the Company's available cash balances subsequent to the balance sheet date. The Company believes that its existing cash reserves, cash flow from operations and existing credit facilities will be sufficient to satisfy its operating cash needs for at least the next 12 months. Thereafter, the Company may require additional cash reserves. ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS AND LIQUIDITY The Company and certain of its directors and officers have been named as defendants in putative class action lawsuits which allege violations of various provisions of the federal securities laws and the common law; certain of the same directors have been named as defendants in a derivative lawsuit charging breach of fiduciary duties. In addition, the Company is the subject of an informal inquiry by the Securities and Exchange Commission relating to circumstances underlying the proposed restatement of the Company's financial results. See Part II Item 1 captioned "Legal Proceedings". The Company expects to incur significant legal and other costs associated with these matters which will increase general and administrative expenses. Neither the Company nor the other defendants have responded to any of the lawsuits. The Company is unable to determine the amount or materiality of the resolution of these matters. OUTLOOK The Company expects that the installed base of personal computers will continue to expand but at slower rates than experienced in the past. Although the Mac business performed well for the Company in the 1996 first quarter with a growth rate of 50%, the Macintosh business has suffered considerably with sales in the third quarter down by approximately 6% year over year reflecting continued uncertainties in the Apple marketplace. The growth in the installed base of personal computers, coupled with the Company's prospecting activities for new customers should increase the Company's sales in the future subject, however, to continued uncertainties in the Mac business. The Company continues to expand its Wintel business and will continue to seek out opportunities in this connection in order to reduce its reliance on the Mac platform. STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT With the exception of the historical information contained in this report, the matters described herein contain forward-looking statements that involve risk and uncertainties including but not limited to economic, competitive, governmental, technological and litigation factors outside of the control of the Company. These factors more specifically include: Uncertainties surrounding the demand for and supply of products manufactured by and compatible with those of Apple Computer, Inc.; success of the Company's diversification away from its Apple products; growth of the personal computer industry; timely availability of existing and new products; competition from other catalog and retail store resellers and the ultimate outcome of the legal proceedings brought against the Company described herein. These and other factors are described in this quarterly report and more generally in the MD&A section of the Company's 1995 Annual Report to Stockholders and most specifically in the paragraphs in that section 11 captioned "Liquidity and Capital Resources", "Impact of Inflation and Seasonality", "Subsequent Event", and "Outlook". PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS During October 1996, the Company and certain of its directors and officers were named as defendants in seven lawsuits brought in the United States District Court for the District of Connecticut by parties which seek to represent classes of stockholders who purchased shares of the Company's common stock during different periods between January, 1994 and September, 1996, or exchanged shares in a merger transaction completed in January, 1996. These lawsuits advance claims under various provisions of the federal securities laws and the common law and assert that various misleading disclosures were made concerning the Company's financial performance and condition and other related circumstances during the periods described and seek unspecified monetary damages and in certain instances rescission. The lawsuits followed and are predicated upon the Company's announcements in September and October, 1996 that it intends to restate certain prior financial statements. The matters are all at an initial stage. Neither the Company nor the other defendants have responded to any of them. In November, 1996, a shareholder derivative action was filed in the United States District Court for the District of Connecticut, purportedly on behalf of, and for recovery by, the Company, which is named as a nominal defendant. The complaint charges certain directors and officers with violation of fiduciary duties in selling Company stock based on non-public information and in causing or permitting the exposure of the Company to damage, such as through the class litigation described above, attributable to the same circumstances that are the subject of the class litigation. The derivative action is at a preliminary stage, and neither the Company nor any of the defendants have responded to it. In addition, the staff of the Securities and Exchange Commission has notified the Company that the staff is conducting an informal inquiry into the events that underlie the Company's announced intention to restate certain prior period financial statements. The Company is cooperating with the staff in its investigation. The Company is unable to determine the amount or materiality of the resolution of the matters discussed in this Item. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 10.1 - Employment Agreement of Linwood A. Lacy, Jr. dated as of September 4, 1996. Exhibit 10.2 - Amendment to Employment Agreement of Linwood A. Lacy, Jr. dated as of September 4, 1996. 12 Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K 1) The Company filed a Form 8-K pursuant to Item 5 on October 1, 1996 to report that the Company may restate its 1994 and 1995 financial results. 2) The Company filed a Form 8-K pursuant to Item 5 on October 3, 1996 to report that Linwood A. Lacy, Jr. was appointed President and Chief Executive Officer of the Company effective as of October 1, 1996. 3) The Company filed a Form 8-K pursuant to Item 5 on October 3, 1996 to report that a class action complaint dated October 1, 1996 had been filed against the Company in the U.S. District Court in Bridgeport, Connecticut captioned Bruce Payne, et als. v. Micro Warehouse, Inc., et als bearing docket no. 396CV01920 claiming a possible violation of Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10(b)-5. 4) The Company filed a Form 8-K pursuant to Item 5 on October 16, 1996 to report that it continues to oversee a review of previously reported errors in its accounting procedures and confirmed that it will restate 1994 and 1995 and first quarter 1996 financial results and it may restate 1993 financial results. 13 MICRO WAREHOUSE, INC. FORM 10-Q SEPTEMBER 30, 1996 ------------------------------------- SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MICRO WAREHOUSE, INC. The Registrant Date: November 19, 1996 By_______________________________ STEVEN PURCELL Vice President-Finance, Chief Financial Officer and Treasurer (Duly Authorized Officer of the Registrant and Principal Financial Officer) 14 EX-10.1 2 EXHIBIT 10.1 EMPLOYMENT AGREEMENT This agreement ("Agreement") made as of the 4th day of September, 1996 between Micro Warehouse, Inc., a Delaware corporation (hereinafter referred to as the "Employer" or the "Company"), with its principal place of business at 535 Connecticut Avenue, Norwalk, Connecticut 06854, and Linwood A. Lacy, Jr. whose address is 2304 Cranborne Road, Midlothian, Virginia 23113 (hereinafter referred to as "Employee"). WHEREAS, the parties hereto entered into a consulting arrangement on or about August 1, 1996 and, for good and valuable consideration, they are now terminating the same and entering into this Employment Agreement which shall represent the entire agreement between the parties with respect to the subject matter herein. 1. EMPLOYMENT. The Company hereby employs Employee, and Employee agrees to serve the Company, commencing as of October 14, 1996, on the terms and conditions set forth below. 2. DUTIES. During the Period of Employment (as hereinafter defined), the Company shall employ Employee as President and Chief Executive Officer. The Employee shall be responsible for the general supervision, direction and control of the business and affairs of the Company and shall work in cooperation with the Chairman and Board of Directors to perform such duties as are consistent with those of President and Chief Executive Officer. The precise responsibilities of Employee may be revised from time to time provided the same do not materially 1 affect Employee's executive position. In furtherance of the foregoing, Employee hereby agrees to perform his duties faithfully. During the Period of Employment and except for vacations in accordance herewith and absences due to temporary illness, Employee shall devote all of his available business time and energies during normal business hours to the business of the Company. Subject to the reasonable review and concurrence of the Board of Directors, the Employee shall be permitted to participate as a board member of other publicly traded and privately held companies provided said participation does not interfere with the discharge of the Employee's duties or obligations hereunder. 3. TERM. The Company shall retain Employee and Employee shall accept employment by the Company for a term commencing October 14, 1996 and ending December 31, 2000 (the "Period of Employment"). At least one (1) year prior to the expiration of the Period of Employment, each party will inform the other of its or his intentions with respect to extending the term beyond the Period of Employment; it being understood, however, that neither party shall be obligated beyond the Period of Employment unless by mutual agreement. If the parties mutually agree to extend the Period of Employment after any initial mutually agreed extended period it shall continue thereafter to be renewed automatically for additional one-year terms unless one or the other chooses not to renew. In such successive one-year terms, each party shall inform the other of its intentions with respect to any possible further renewal at least 90 days prior to the expiration of the same. 4. COMPENSATION. 2 (A) BASE SALARY. For all services rendered by the Employee under this Agreement, the Company shall pay to him a minimum "Base Salary" at the rate of Five Hundred Thirteen Thousand Nine Hundred and 00/100 ($513,900.00) Dollars per annum during the Period of Employment payable in at least equal monthly installments. The term "Base Salary" shall mean regular cash compensation paid on a periodic basis exclusive of benefits, bonuses or incentive payments. The Base Salary for the year commencing January 1, 1997 shall be increased by any cost of living increase reported by the U.S. Department of Labor for the year January 1, 1996 through December 31, 1996. Effective December, 1997, the Base Salary shall be subject to an annual review with the proviso that the Company may not reduce the same but shall not be obligated to increase the same except in its discretion. (B) BONUS. On or about February 1, 1997, the Company shall pay the Employee a bonus in the amount of Eighty Thousand Three Hundred Dollars ($80,300.00). (C) ANNUAL INCENTIVE COMPENSATION. In addition to Base Salary, the Employee shall be eligible to receive annual incentive compensation ("Incentive Compensation") as set forth below, which amount of Incentive Compensation shall not exceed One Hundred Fifty Percent (150%) of Base Salary in any one year. (i) Prior to January 1 of each year that this Agreement remains in effect, the Board of Directors and the Employee shall mutually agree upon and establish a plan (the "Incentive Plan") describing anticipated results of operations for the coming fiscal year which Incentive Plan shall contain financial goals (hereinafter "Targets") and other goals (hereinafter 3 "Other Goals"). The Incentive Plan shall be determined in the sole discretion of the Board and the Employee and may vary from year to year. The Incentive Plan shall be memorialized and a copy of the same shall be provided to the Company's Certified Public Accountants (CPAs). Subsequent to the conclusion of the year the CPAs shall compare the actual results of operations for said year to the Incentive Plan. The Incentive Plan shall set forth a target bonus amount, One Hundred Percent (100%) of which shall be payable for accomplishing One Hundred Percent (100%) of Targets and Other Goals which amount shall be Seventy-Five Percent (75%) of Base Salary (hereinafter "Target Bonus Amount") for the year ending December 31, 1997. The Board of Directors can modify upward the Target Bonus Amount as part of the salary review process for years subsequent to 1997. The actual amount, if any, of Incentive Compensation to which the Employee may be entitled shall range on a linear basis from Fifty Percent (50%) of Target Bonus Amount if Eighty Percent (80%) of Targets are achieved to a maximum of One Hundred Fifty Percent (150%) of Target Bonus Amount if One Hundred Twenty Percent (120%) of Targets are achieved. Sixty Percent (60%) of Incentive Compensation as determined shall be automatically due and payable to the Employee based on the level of accomplishment of Targets and the remaining Forty Percent (40%) shall be payable as determined by the Board of Directors based upon the accomplishment of Other Goals. No Incentive Compensation shall be paid if less than Eighty Percent (80%) of Targets are achieved. 4 By way of example, if Base Salary is Five Hundred Thirteen Thousand Nine Hundred Dollars ($513,900.00), One Hundred Percent (100%) of Target Bonus Amount at accomplishment of One Hundred Percent (100%) of Targets and Other Goals shall be Three Hundred Eighty-Five Thousand Four Hundred Twenty-Five Dollars ($385,425.00). If the Company achieves Eighty Percent (80%) of Targets, Target Bonus Amount shall be One Hundred Ninety-Two Thousand Seven Hundred Twelve and 50/100 Dollars ($192,712.50) (i.e., .5 x $385,425.00) and One Hundred Fifteen Thousand Six Hundred Twenty-Seven and 50/100 Dollars ($115,627.50) (i.e., .6 x $192,712.50) shall be automatically due and payable to the Employee with up to the full balance of Seventy-Seven Thousand Eighty-Five Dollars ($77,085.00) (i.e., .4 x $192,712.50) payable upon the achievement of Other Goals. By way of further example: If Base Salary is Five Hundred Thirteen Thousand Nine Hundred Dollars ($513,900.00), One Hundred Percent (100%) of Target Bonus Amount at accomplishment of One Hundred Percent (100%) of Targets and Other Goals shall be Three Hundred Eighty-Five Thousand Four Hundred Twenty- Five Dollars ($385,425.00). Further, if the Company achieves One Hundred Ten Percent (110%) of Targets, Target Bonus Amount shall be Four Hundred Eighty-One Thousand Seven Hundred Eighty-One and 25/100 Dollars ($481,781.25) (i.e., 1.25 x $385,425.00) and Two Hundred Eighty-Nine Thousand Sixty-Eight and 75/100 Dollars ($289,068.75) (i.e., .6 x $482,781.25) shall be automatically due and payable to the Employee with up to the full balance of One Hundred Ninety-Two Thousand Seven 5 Hundred Twelve and 50/100 ($192,712.50) (i.e., .4 x $481,781.25) payable upon the achievement of Other Goals. (ii) Incentive Compensation shall be paid to Employee as soon as practicable after the CPAs determine the amounts, if any, which are due the Employee. (D) SPECIAL INCENTIVE COMPENSATION. Prior to December 31, 1997 the Company and Employee shall mutually establish and agree upon a Special Incentive Compensation Program specifically defining performance targets and criteria for the year commencing January 1, 1998. The Target Bonus Amount for this Special Incentive Compensation program shall be Twenty-Five Percent (25%) of the Stock Purchase Loan amount described in paragraph 5 hereinbelow. If the Company achieves mutually established and agreed goals in calendar 1998, the payment of Stock Incentive Compensation pursuant to this paragraph otherwise due the Employee shall, to the extent of the same, be credited to forgive the principal balance due on the fifth anniversary date of this Agreement. (E) INCENTIVE STOCK OPTIONS. (i) Upon execution of this Agreement the Company shall grant to the Employee options to purchase Five Hundred Thousand (500,000) common shares at an exercise price of Twenty-Five Dollars ($25.00) per share at least Four Thousand (4,000) of which shall be "qualified" stock options. Said options shall vest at the rate of Twenty-Five Percent (25%) per year commencing October 14, 1997. 6 (ii) As an incentive and inducement to the Employee to remain in the employ of the Company and devote his best efforts to the affairs of the Company, the Employee shall receive at the end of each year an option to purchase a minimum of 40,000 and a maximum of 50,000 shares of common stock of the Company, the exact number, terms and option price of which shall be determined yearly by the Stock Option Committee of the Board of Directors. The options set forth herein shall be granted to the Employee pursuant to the Company's 1994 Stock Option Plan and the Employee shall be subject to the terms and conditions set forth therein. 5. STOCK PURCHASE LOAN. Upon execution of this Agreement the Company shall cause to be loaned to the Employee that amount sufficient to permit the Employee to acquire Fifty Thousand (50,000) of the Company's common shares from the Company. The loan shall be secured by a pledge of said shares and shall be repayable, if not sooner, five (5) years from the date hereof (subject to the further conditions of this paragraph). Interest only at the annual rate of 6.73% shall be due semi-annually. Provided the Employee is in the employ of the Company at the anniversary dates indicated, the Company shall forgive Twenty- Five Percent (25%) of the principal balance due on each of the second, third, fourth and fifth anniversary dates of this Agreement. In the event that the Employee re-pays any portion of said loan (other than by loan forgiveness pursuant to this Agreement) the Company shall pay to the Employee additional compensation in the amount of any such re-payment on each anniversary date when loan forgiveness would otherwise have occurred. If the employment relationship has terminated the 7 principal balance still due and any accrued interest thereon shall be payable within ninety (90) days of the date of said termination. 6. BUSINESS EXPENSES. During the Period of Employment, the Company agrees to reimburse Employee for reasonable and necessary expenses incurred by him in connection with the performance of his duties hereunder. Employee shall submit vouchers, invoices and such other documentation in accordance with the Company's general policy with respect thereto. 7. BENEFITS. During the Period of Employment, the Company will provide or, as necessary, reimburse Employee with or for the following benefits: (A) ORDINARY INSURANCE. Medical, dental and hospitalization insurance and short-term disability coverage for himself and his dependents, to the extent provided generally to the senior employees of the Company. (B) LIFE AND PERMANENT DISABILITY INSURANCE. (i) Term life insurance in the principal face amount of One Million Dollars ($1,000,000) insuring the life of the Employee. In this connection the Employee is not aware of any circumstances which might require that the same be obtained at other than standard rates. (ii) Permanent disability insurance in the amount of One Million Dollars ($1,000,000.00) insuring the Employee, the benefits of which shall be payable to the Employee as and when received. 8 (C) VACATIONS. Employee shall be entitled to four (4) weeks paid vacation per year, the scheduling of which shall be in accordance with the general policies and practices of the Company with respect thereto. 8. DEATH OR PERMANENT DISABILITY. In the event of the death or Permanent Disability ("Permanent Disability" being defined as an illness which will prevent the Employee from performing his duties for a period of six consecutive months or nine out of any consecutive twelve months) prior to the expiration of the Period of Employment, his employment shall be deemed to cease as of the end of the month of the date of his death or Permanent Disability and this Agreement shall terminate forthwith and all rights under it shall expire, except that Employee or Employee's estate shall be entitled to receive Base Salary for a period of six (6) months from the date of death or Permanent Disability plus the pro rata amount of Incentive Compensation which would have been due the Employee pursuant to paragraph 4(C) hereinabove for the period January 1 of said year through the date of death or Permanent Disability. Said Base Salary shall be paid at the time it would regularly be paid. Said Incentive Compensation shall be paid as soon as practicable after a determination of the amount due is made by the Company's CPAs. Additionally, any options eligible to vest within twelve months of the date of death or Permanent Disability shall be deemed accelerated and fully vested as of the date of death or Permanent Disability subject to the further terms and conditions of the Stock Option Plan pursuant to which the same were granted. 9 9. CONFIDENTIAL INFORMATION. Employee acknowledges that the Company would be damaged if Employee's knowledge with respect to the business of the Company were disclosed to or utilized by parties other than the Company. Accordingly, Employee covenants and agrees that he will not disclose any presently known or hereafter acquired confidential or proprietary information of the Company or its business to any person, firm, corporation or other entity. For the purposes of this paragraph, the term "confidential or proprietary information" shall mean all information which is currently known to or hereafter acquired by Employee and relates to such matters as customer mailing lists, pricing and credit techniques, marketing techniques, research and development activities, sources of product, lists of magazines or other publications containing advertising of the Company and other confidential or restricted information which is not in the public domain. Confidential or proprietary information shall not be deemed to include information released generally to the public by the Company or others, information required by law to be disclosed or information learned by the Employee from third parties without restrictions on disclosure provided the same would not, if released, damage the Company. The provisions of this paragraph shall survive the termination of this Agreement. 10. COVENANT NOT TO COMPETE. (A) The Employee hereby covenants and agrees that from the date hereof until eighteen (18) months after the termination of the Period of Employment or the actual date of termination in the event of early termination in the event this Agreement is renewed (the "Non-Compete Period") for the consideration set forth in paragraph 10(B) hereinbelow, he shall not, directly or 10 indirectly, own, operate, manage, join, control, participate in the ownership, management, operation or control of, or be paid or employed by, or acquire any securities of, or otherwise become associated with or provide assistance to, as an employee, consultant, director, officer, shareholder, partner, agent, associate, principal, representative or in any other capacity, any business entity or activity which is directly or indirectly a "Competitive Business" (as hereinafter defined); provided, however, that the foregoing shall not prevent the Employee from (a) performing services for a Competitive Business if such Competitive Business is also engaged in other lines of business and if the Employee's services are restricted to employment in such other lines of business; or (b) acquiring the securities of or an interest in any Competitive Business, provided such ownership of securities or interests represents at the time of such acquisition, but including any previously held ownership interests, less than two percent (2%) of any class or type of securities of, or interest in, such Business. The term "Competitive Business" shall mean and include any business or activity that is substantially the same as any business or activity then conducted by the Company, regardless of where such Competitive Business is located. (B) The Employee's Covenant Not to Compete shall be in consideration for the Company's payment to the Employee of 1.375 times the Employee's Base Salary in effect on the day prior to the commencement of the Non-Compete Period for said 18 month period which shall be payable in at least equal monthly installments at said rate. (C) In the event that the Company commences any business and an effect of the Company's engaging in such business would be that Employee would then be in breach of 11 covenant not to compete under the Agreement dated June 1, 1996 with Ingram Industries and Ingram Micro, Inc., Employee shall have the right to terminate this Agreement for cause pursuant to Paragraph 12(D)(ii) hereinbelow. 11. COVENANT NOT TO SOLICIT. Unless the Employee has obtained the prior written consent of the Company, he hereby covenants and agrees that, from the date hereof until the expiration of the Non-Compete Period, he shall not, for or on behalf of a Competitive Business, directly or indirectly, as owner, officer, director, stockholder, partner, associate, consultant, manager, advisor, representative, employee, agent creditor or otherwise, attempt to solicit or in any other way disturb or service any person, firm or corporation that has been a customer account of the Company at any time or times prior to the termination of the Period of Employment, whether or not he at any time had any direct or indirect account responsibility for, or contact with, such customer account. 12. TERMINATION. In addition to termination for death or Permanent Disability pursuant to paragraph 8, the employment of the Employee by the Company pursuant to this Agreement shall terminate upon the occurrence of any of the following: (A) TERMINATION UPON PRIOR NOTICE. The Company may terminate this Agreement by giving the Employee ninety (90) days prior written notice. (B) EMPLOYEE TERMINATION FOR CAUSE. At the election of the Company, it may immediately upon written notice by the Company to the Employee terminate the Employee for cause. For the purposes of this paragraph, cause for termination shall be deemed to exist upon (i) 12 a good faith finding by the Company of a willful failure or refusal of the Employee to perform assigned duties for the Company of which he has knowledge, or the commission of any other willful or grossly negligent action with the intent to injure the Company; (ii) any material breach of any material provision of this Agreement by the Employee if the Employee fails to correct such breach (or to take substantial steps to correct such breach) within ten (10) days after receiving written notice thereof; or (iii) the conviction of the Employee of, or the entry of a plea of guilty or nolo contendere by the Employee to, a crime involving an act of fraud or embezzlement against the Company or the conviction of the Employee of, or the entry of a plea of guilty or nolo contendere by the Employee to, any felony involving moral turpitude. Notwithstanding the foregoing, the Company shall not terminate the Employee for cause pursuant to this paragraph unless and until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote of the Board of Directors at a meeting called and held after reasonable notice to the Employee and an opportunity for the Employee, together with his counsel, to be heard before the Board of Directors, finding that in the good faith opinion of the Board of Directors the Employee is guilty of conduct set forth in subparagraphs (i) and (ii) of this paragraph and specifying the particulars thereof in reasonable detail. (C) EMPLOYEE'S ELECTION FOR CAUSE. At the election of the Employee, he may terminate his employment for cause immediately upon written notice by Employee to the Company. For purposes of this paragraph, cause for termination shall be deemed to exist upon (i) a material failure by the Company to continue the Employee's participation in any bonus, compensation or 13 other benefit plan in which the Employee is entitled to participate pursuant hereto or the taking by the Company of any action which would directly or indirectly materially reduce his participation therein; or (ii) a material breach of any provision of this Agreement by the Company, or any breach of any provision of this Agreement by the Company, whether or not material, if such breach is not corrected (or substantial steps have not been taken to correct such breach) within thirty (30) days after the Board received written notice thereof. (D) EFFECT OF TERMINATION. (i) TERMINATION BY THE COMPANY FOR CAUSE. In the event the Employee's employment is terminated for cause pursuant to paragraph 12(B)(i) or (ii), the Company shall pay to the Employee the Base Salary and Incentive Compensation due, if any, under paragraph 4, on a pro rata basis to the date of termination at the time such Base Salary and Incentive Compensation would regularly be paid and benefits otherwise payable to him hereunder all through the last day of his actual employment by the Company. (ii) TERMINATION AT THE ELECTION OF THE COMPANY WITHOUT CAUSE OR AT THE ELECTION OF THE EMPLOYEE FOR CAUSE. In the event that the Employee's employment is terminated without cause by the Company pursuant to paragraph 12(A) or with cause by the Employee pursuant to paragraph 12(C), then, following the occurrence of such event, the Company shall pay to the Employee the Incentive Compensation due, if any, under paragraph 4 hereof, on a pro rata basis to the date of termination and shall continue to pay to Employee 1.375 times his Base Salary in effect on the day prior to termination for the 18 months subsequent to said termination in at least 14 equal monthly installments at said rate. During said period, the Employee shall continue to be bound by his Covenant Not to Compete. 13. BUSINESS COMBINATION. For purposes of this paragraph, a "Business Combination" shall mean the merger or consolidation of the Company with, the sale of all or substantially all the assets of the Company to any person or entity not affiliated with the Company as of the date of this Agreement. If, during the term of this Agreement, there shall occur, with or without the consent of the Company, a Business Combination Employee shall have the option to terminate this Agreement pursuant to paragraph 12(D)(ii) hereinabove on thirty (30) days notice provided that the surviving entity in a merger or consolidation may require the Employee to continue discharging his responsibilities during a transition period subsequent to the consummation of the merger or consolidation. Additionally, all of the Employee's unvested stock options shall be immediately accelerated and become fully vested. 14. NOTICES. All notices, elections, demands or other communications required or permitted to be made or given pursuant to this Agreement shall be in writing and shall be considered properly given or made if sent by Telecopier, Telex, courier service or certified mail, return receipt requested and addressed to the parties at the respective addresses specified below. Either party may change its address by giving notice in writing pursuant to this paragraph to the other of its new address. To the Company: Mr. Peter Godfrey Micro Warehouse, Inc. 535 Connecticut Avenue Norwalk, Connecticut 06854 15 To Employee: Mr. Linwood A. Lacy, Jr. 2304 Cranborne Road Midlothian, Virginia 23113 15. ARBITRATION. Any controversy, claim or breach (except those relating to monetary damages) arising out of or relating to this Agreement shall be submitted for settlement to an arbitrator agreed upon by the parties. The decision of such arbitrator shall be final and binding on the parties. If the parties cannot agree upon an arbitrator, the controversy, claim or breach shall be referred to the American Arbitration Association with a request that an arbitrator be appointed pursuant to the rules of said Association. Such arbitration shall be held in New Haven, Connecticut, in accordance with the rules and practices of the American Arbitration Association pertaining to single-party arbitration then in effect, and the judgement upon the award rendered shall be entered by consent in any court having jurisdiction thereof. 16. ENTIRE AGREEMENT. This Agreement constitutes the full and complete understanding and agreement of the parties. Neither party has relied upon any representation of the other not set forth herein. This Agreement may not be changed orally but only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 17. BINDING EFFECT. This Agreement shall be binding upon and accrue to the benefit of the parties hereto, their heirs, executors, administrators and successors. 16 18. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut without regard to its principles with respect to conflicts of law. 19. COUNSEL FEES. Except as set forth herein the parties hereto shall bear their own fees, costs and expenses incurred in connection with this Agreement. If either party is required to bring suit or otherwise seek enforcement of its or his rights in connection with the same, the prevailing party in such action or proceeding shall be entitled to recover counsel fees incurred in such action or proceeding. The Employee shall be reimbursed in an amount not to exceed Two Thousand Dollars ($2,000.00) for legal fees and costs incurred in connection with the review of this Agreement by his own counsel. IN WITNESS WHEREOF, the parties hereto have affixed their signatures on the day and year first above written. EMPLOYER: MICRO WAREHOUSE, INC. By: /Peter Godfrey/ -------------------------------- Peter Godfrey EMPLOYEE: /Linwood A. Lacy, Jr./ ------------------------------------- Linwood A. Lacy, Jr. 17 EX-10.2 3 EXHIBIT 10.2 AMENDMENT TO EMPLOYMENT AGREEMENT DATED AS OF SEPTEMBER 4, 1996 BETWEEN MICRO WAREHOUSE, INC. AND LINWOOD A. LACY, JR. This Amendment is made as of the 1st day of October, 1996 between Micro Warehouse, Inc. and Linwood A. Lacy, Jr. WHEREAS, the parties hereto entered into an Employment Agreement dated as of September 4, 1996 (the "Agreement"); and WHEREAS, the parties are now desirous of amending Article 3 thereof solely with respect to the commencement date. NOW, THEREFORE, the Agreement is amended as follows: The first sentence of Article 3 of the Agreement is hereby amended so that the same shall now read as follows: "The Company shall retain Employee and Employee shall accept employment by the Company for a term commencing October 1, 1996 and ending December 31, 2000 (the "Period of Employment")." Except as amended herein, the Agreement shall otherwise remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have affixed their signatures on the day and year first above written. EMPLOYER: MICRO WAREHOUSE, INC. By: ----------------------------- Peter Godfrey EMPLOYEE: --------------------------------- Linwood A. Lacy, Jr. EX-27 4 FINANCIAL DATA SCHEDULE
5 Financial Data Schedule Pursuant fo Article 5 of Regulation S-X (in thousands, except per share data) 1,000 3-MOS DEC-31-1996 JUL-01-1996 SEP-30-1996 119,106 14,073 188,518 9,060 121,607 488,653 29,544 37,155 565,570 197,149 424 0 0 343 367,654 565,570 437,981 437,981 359,289 420,799 0 0 846 18,028 7,303 10,725 0 0 0 10,725 0.31 0
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