Former Merisel CEO, targeted I in probe, claims he was loyal.

WHEN Timothy Jenson resigned as president and chief executive of Merisel Inc. two weeks ago, the company issued a press release saying it had launched an investigation into the sale of its software licensing business, a deal he engineered in August.

Jenson's resignation, it said, "follows the decision by the audit committee of the company to investigate the sale of assets ... including notes and real property assets, to D&H Services LLC."

Merisel said it wants to know whether Jen son, who worked at the software company for 11 years, had a relationship with D&H Services or its principals, and it is considering seeking rescission of the deal.

Jenson says he has no idea why Merisel launched the probe. He says he knows little about D&H Services, despite negotiating the sale of Merisel's only remaining business with them. He also claims that his resignation had nothing to do with the audit committee investigation.

"They're in no way connected," he said from his home in Los Alamitos. "I don't know what the investigation is about--but it did not affect my resignation."

His resignation letter, and a side letter that went with it, suggest otherwise.

The side letter, filed by Merisel with the Securities and Exchange Commission, indicates the company cut off most communication with Jenson when it launched the investigation. "'so I am unable to determine or resolve whatever issues seem to be a concern."

But the resignation letter implies that the investigation played a rote in Jenson's departure.

"Given the current circumstances, I hereby tender my resignation," the letter states. Jenson also acknowledges receiving transition instructions from Merisel, and notes that he had worked "faithfully and loyally" for the company.

Calls to Allyson Vanderford, Merisel's vice president of finance, were not returned.

Several calls to Albert Fitzgibbons and Bradley Hoecker at Stonington Partners Inc., the New York investment firm that owns 65 percent of Merisel's outstanding shares, were not returned.

Last week, Merisel picked Donald Uzzi, a senior vice president at Electronic Data Systems Corp., to replace Jenson as president and chief executive.

Merisel, based in El Segundo, was once a high flyer in the technology distribution industry.

In 1999, it had $5.2 billion in revenues and 3,000 employees, but it began losing money as the industry consolidated and it found itself competing against giants such as Ingrain Micro Inc. and Tech Data Corp.

After racking up substantial debt, Merisel extricated itself from the cutthroat hardware distribution business. Jenson was tapped as chief executive in 2001 to negotiate with creditors and return Merisel to solvency--something he says he is proud of doing. Merisel's stock, which hovered at $1 a share when Jenson took over, closed on Nov. 24 at $4.69.

According to Merisel's filings with the SEC, the software licensing assets sold to D&H Services were valued at $5.5 million, but the purchaser also assumed liabilities of $6.1 million. This valuation would have resulted in an additional payment to D&H Services, something Merisel appears to be resisting.

In a Nov. 22 press release announcing Uzzi's hiring, Merisel said one focus of the probe is "whether the financial and other terms of the transaction were fair to the company."

Merisel said it is "considering available legal options, including possible rescission of the D&H transaction, and other remedies to recover any damages suffered by the company."

Jenson, who said he had been in discussions with Merisel's board since July about leaving the company, said the software licensing business was unprofitable and sold for book value. He said there is no pending litigation between him and Merisel.

Merisel has delayed filing its third-quarter 10-Q with the SEC.

Earlier this month, it announced a third-quarter loss of $1.2 million for the period ended Sept. 30, compared with net income of $683,000 in the like period a year ago. It had no revenue in the third quarter though its software licensing business generated $38 million in net revenue for the nine months ended Sept. 30. The company retains nine employees and $48 million in cash.

In October, the Nasdaq Stock Market told Merisel that it faces delisting because it has no active business operations and essentially exists as a shell corporation. The company has said it is looking for acquisition targets.

[GRAPHICS OMITTED]

Merisel Inc.

YEAR (Dec. 31)                 2003   2002

Revenue (millions)              $96   $81.6
Total Expenses (millions)      97.5    78.4
Operating Income (millions)   (1.5)     3.2
Net Loss (millions)             2.8     7.1
Earnings Per Share            $0.16   $0.74

SUMMARY

Business: Public shell, no operations
Headquarters: El Segundo
CEO: Donald Uzzi
Market Cap: $35.8 million Dividend Yield: None
Total Liabilities: $15.6 million P/E Ratio: N.A. *
Long-Term Debt: $760,000

* Company is not profitable.

Staff reporter Kate Bern' can be reached at [phone], ext. 228, or at kberry@labusiness journal.com.