<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1994
REGISTRATION NO. 33-55195
POST-EFFECTIVE AMENDMENT NO. 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
MERISEL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4172359
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 CONTINENTAL BOULEVARD
EL SEGUNDO, CALIFORNIA 90245
(310) 615-3080
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JAMES L. BRILL
SENIOR VICE PRESIDENT-FINANCE, CHIEF FINANCIAL OFFICER AND SECRETARY
MERISEL, INC.
200 CONTINENTAL BOULEVARD
EL SEGUNDO, CALIFORNIA 90245
(310) 615-3080
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
CYNTHIA M. DUNNETT, ESQ. ROGER MELTZER, ESQ.
RIORDAN & MCKINZIE CAHILL GORDON & REINDEL
300 SOUTH GRAND AVENUE 80 PINE STREET
LOS ANGELES, CALIFORNIA 90071 NEW YORK, NEW YORK 10005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being offered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
$125,000,000
[LOGO OF MERISEL]
% SENIOR NOTES DUE 2004
----------------
Merisel, Inc. (the "Company") is offering $125,000,000 aggregate principal
amount of % Senior Notes Due 2004 (the "Notes")(the "Offering"). Interest
on the Notes is payable semiannually on June 30 and December 31 of each year,
commencing December 31, 1994, at the rate of % per annum. The Notes will
mature on December 31, 2004 and are redeemable, in whole or in part, at the
option of the Company, on or after December 31, 1999, at the redemption prices
set forth herein plus accrued interest to the redemption date. Upon an Equity
Offering (as defined in "Description of Notes--Certain Definitions") up to %
of the originally issued aggregate principal amount of Notes may, until
December 31, 1997, be redeemed at the option of the Company at a redemption
price of % of the principal amount thereof plus accrued interest to the
redemption date. See "Description of Notes--Redemption."
In the event of a Change of Control (as defined in "Description of Notes--
Certain Definitions"), the Company is obligated to make an offer to purchase
all of the Notes then outstanding at a redemption price of 101% of the
principal amount thereof plus accrued interest. In addition, the Company is
obligated upon certain sales or other dispositions of assets to make offers to
purchase the Notes at a redemption price of 100% of the principal amount
thereof plus accrued interest with the net cash proceeds of such sales or other
dispositions of assets. See "Description of Notes--Change of Control" and "--
Certain Covenants."
The Notes will be senior unsecured obligations of the Company ranking pari
passu in right of payment with all other unsubordinated indebtedness of the
Company and senior to all subordinated indebtedness of the Company. The Company
is a holding company with limited assets of its own and conducts substantially
all of its business through subsidiaries. The Notes will be effectively
subordinated to all liabilities of the Company's subsidiaries, including trade
payables. As of June 30, 1994, after giving pro forma effect to the sale of the
Notes, there would have been an aggregate of approximately $631.1 million of
indebtedness and trade payables of subsidiaries of the Company to which holders
of the Notes would have been effectively subordinated in right of payment.
SEE "CERTAIN INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.................................. 100% % %
- --------------------------------------------------------------------------------
Total..................................... $125,000,000 $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from the date of original issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $469,000.
---------------
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to certain
other conditions. It is expected that delivery of the Notes will be made in New
York, New York on or about 1994.
----------------
CITICORP SECURITIES, INC.
----------------
The date of this Prospectus is October 14, 1994
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Securities and Exchange
Commission (the "Commission") are incorporated herein by reference: (a) the
Annual Report of the Company on Form 10-K for the year ended December 31, 1993,
as amended; (b) the Current Report of the Company on Form 8-K dated January 31,
1994, as filed with the Commission on February 14, 1994, and as amended on
March 24, 1994 and October 4, 1994; (c) the Quarterly Report of the Company on
Form 10-Q for the quarter ended March 31, 1994; (d) the Quarterly Report of the
Company on Form 10-Q for the quarter ended June 30, 1994; and (e) the Current
Report of the Company on Form 8-K dated June 7, 1994 as filed with the
Commission on June 17, 1994.
All documents subsequently filed by the Company with the Commission pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), prior to the termination of this Offering
shall be deemed to be incorporated by reference in this Prospectus. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents which have been incorporated by reference
herein as set forth in this section, other than exhibits to such documents
(unless such exhibits are specifically incorporated by reference herein).
Requests for such copies should be directed to: Mr. James L. Brill, Senior Vice
President-Finance, Chief Financial Officer and Secretary, Merisel, Inc., 200
Continental Boulevard, El Segundo, California 90245, telephone number (310)
615-3080.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE NOTES HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR SALE UNDER THE
SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA. THE NOTES ARE
NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD, DIRECTLY OR
INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF THE
SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
THIS DOCUMENT MAY NOT BE PASSED ON IN THE UNITED KINGDOM TO ANY PERSON UNLESS
THAT PERSON IS OF A KIND DESCRIBED IN ARTICLE 9(3) OF THE FINANCIAL SERVICES
ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1988 OR IS A PERSON TO
WHOM THIS DOCUMENT MAY OTHERWISE LAWFULLY BE ISSUED OR PASSED ON.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere, or incorporated by
reference, in this Prospectus. As used herein, except as the context otherwise
requires, the terms "Company" and "Merisel" refer to Merisel, Inc., a Delaware
corporation, and its subsidiaries. The Company's fiscal year is the 52- or 53-
week period ending on the Saturday nearest to December 31, and its fiscal
quarters are the 13- or 14-week periods ending on the Saturday nearest to
March 31, June 30, September 30, and December 31. For clarity of presentation,
the Company has described year-ends presented as if the years ended on December
31 and quarter-ends presented as if the quarters ended on March 31, June 30,
September 30, and December 31.
THE COMPANY
OVERVIEW
Merisel is the largest worldwide publicly held wholesale distributor of
microcomputer hardware and software products. Through its full-line, channel-
specialized distribution business, Merisel combines the comprehensive product
selection and operational efficiency of a full-line distributor with the
customer support of a specialty distributor offering dedicated sales
organizations to each of its customer groups. On January 31, 1994, the Company
completed the acquisition (the "ComputerLand Acquisition") of certain assets of
the United States franchise and aggregator business of Vanstar Corporation
(formerly ComputerLand Corporation) (the "ComputerLand Business"). The
ComputerLand Business is a leading aggregator, or master reseller, of computer
systems and related products from major microcomputer manufacturers, including
Apple, Compaq, Hewlett-Packard and IBM, to a network of approximately 750
independently owned computer product resellers in the United States. With the
acquisition of the ComputerLand Business, the Company has become the industry's
first "Master Distributor," combining the strengths of a full-line, channel-
specialized distributor with those of a master reseller. As a Master
Distributor, the Company believes it is well positioned to offer a wider
selection of microcomputer products to more categories of customers than any of
its competitors.
At June 30, 1994, Merisel stocked over 25,000 products from more than 900 of
the microcomputer hardware and software industry's leading manufacturers
including Apple, AST, Borland, Colorado Memory Systems, Compaq, Creative Labs,
Digital Equipment Corporation, Epson, Hayes, Hewlett-Packard, IBM, Intel,
Lotus, Microsoft, NEC, Novell, Okidata, Sun Microsystems, Symantec, Texas
Instruments, 3Com, Toshiba, WordPerfect and Wyse. Merisel sells products to
over 65,000 computer resellers worldwide, including value-added resellers,
large retail chains and franchisees, computer superstores, mass merchants,
Macintosh and UNIX resellers, system integrators and original equipment
manufacturers. In order to effectively service its large and diverse
international customer base, the Company currently maintains 20 distribution
centers that serve North America, Europe, Latin America, Australia and other
international markets. The breadth of the Company's product line, together with
its international distribution network, enable the Company to provide its
customers with a single source of supply and prompt delivery of product. For
the six months ended June 30, 1994, the Company's net sales by geographic
region were generated as follows: United States, 67.5%; Canada, 11%; Europe,
15.5%; and other international markets, 6%.
Merisel's net sales have increased from $1.6 billion in 1991 to $3.1 billion
in 1993, reflecting substantial growth in both domestic and international sales
as the worldwide market for computer products has expanded and as manufacturers
increasingly have turned to wholesale distributors for distribution of their
products. The Company's operating income has grown from $38.3 million in 1991
to $71.4 million in 1993. For the six months ended June 30, 1994, which
includes five months of operations of the ComputerLand Business, net sales were
$2.4 billion, and operating income was $35.4 million compared to $1.4 billion
and $30.8 million, respectively, for the six months ended June 30, 1993.
BUSINESS STRATEGY
Merisel has achieved its leading position by pursuing a strategy of offering
the industry's leading products and services to its customers at competitive
prices, providing cost-effective customer service through efficient operations,
expanding the Company's international business and targeting its various
customer groups using dedicated sales forces and marketing programs.
3
<PAGE>
Providing Leading Products and Services. The Company's objective is to offer
the broadest range of leading product brands in each of the product categories
it carries. By stocking the leading brands, the Company generates sales of both
those and other product brands, as reseller customers often prefer to deal with
a single source for many of their product needs. The Company continuously
evaluates new products, the demand for its current products as well as its
overall product mix and seeks to develop distribution relationships with
suppliers of products that enhance the Company's product offerings. The Company
believes that the size of its reseller customer base, its international
distribution capability and both the breadth and quality of its marketing
support programs give it a competitive advantage over smaller, regional
distributors in developing supplier relationships.
As a result of the ComputerLand Acquisition, the Company, through the
ComputerLand Business, is now able to offer to the ComputerLand Business'
franchisees and affiliates a broad range of microcomputer systems and other
products from Apple, Compaq, Hewlett-Packard and IBM. Although the Company
distributes certain products of these leading manufacturers through its
wholesale distribution arrangements, neither the Company nor its direct
wholesale distribution competitors have been authorized to sell these
manufacturers' key microcomputer systems in the United States, except on a
limited basis. Instead, these manufacturers historically have distributed their
products directly to resellers and through aggregators such as ComputerLand
Corporation.
The Company believes that an opportunity exists to generate additional,
higher-margin revenues by offering fee-based services and information to
manufacturers and resellers. In 1993, the Company formed the Channel Services
Group to provide a variety of these services, including telemarketing,
merchandising and electronic software services.
Pursuing Operational Excellence. The Company believes that high levels of
customer service and operating efficiency, or "operational excellence," are
important factors in achieving and maintaining success in the highly
competitive microcomputer products distribution industry. The Company measures
operational excellence by such standards as "ease of doing business," accuracy
and efficiency in delivering products and expediting the delivery of services
and information. Merisel maintains sufficient inventory levels in the United
States to consistently ship in excess of 95% of all units ordered on the day of
receipt. Merisel constantly strives to improve its operational processes. In
furtherance of this strategy, the Company is in the process of upgrading and
improving its computer operating systems as well as its warehouse management
systems. In addition, the Company is reorganizing its European operations,
adding new management personnel and centralizing certain functions to achieve
economies of scale. Merisel will seek to continue to refine the operational
systems at its foreign sales offices and distribution centers in order to
increase the uniformity and efficiency of the Company's worldwide operations.
These changes are intended to enhance the Company's ability to offer faster,
more efficient and accurate service to its customers.
Expanding Internationally. Merisel believes that it generates one of the
largest volumes of international sales of any U.S.-based distributor, is the
largest wholesale distributor of computer products in Canada, and is a leading
distributor in Europe, Mexico, Australia and Latin America. The Company
believes that many international markets will offer growth and profit
opportunities, due to the underdeveloped and fragmented nature of the
microcomputer distribution industry in these markets. Merisel believes it is
well positioned to capitalize on the opportunities presented in a number of
these markets because of the current scope of its international operations and
its ability to offer a broader range of products and specialized services than
many of its competitors. The Company's strategy is to expand its international
operations through internal growth and the possible acquisition of existing
distributors or the establishment of new operations in other countries.
Targeting Customer Groups. Merisel serves a variety of different reseller
channels, which have diverse product, financing and support needs. Merisel was
the first full-line distributor in the industry to offer its various customer
groups a channel-dedicated sales force as well as customized product offerings,
financing
4
<PAGE>
programs and marketing and technical support programs, all of which are
tailored to address the differing needs of these customer groups. The Company
intends to continue to monitor the markets it serves to identify customer
opportunities and develop sales and marketing programs that serve these groups
more effectively. In furtherance of this strategy, on January 31, 1994, the
Company completed the ComputerLand Acquisition.
COMPUTERLAND ACQUISITION
On January 31, 1994, the Company, through a wholly owned subsidiary, Merisel
FAB, Inc. ("Merisel FAB") (Franchisor and Aggregator Business), completed the
acquisition of the ComputerLand Business from Vanstar Corporation (formerly
ComputerLand Corporation) ("Vanstar"). Merisel paid approximately $80 million
in cash at the closing of the ComputerLand Acquisition for the acquired assets.
In addition, Merisel has agreed to make an additional payment in 1996 of up to
$30 million, the amount of which will be determined based upon the growth in
the ComputerLand Business and the Company's sales of products of designated
manufacturers to specified customers over the two-year period ending January
31, 1996. In connection with the ComputerLand Acquisition, Merisel entered into
an agreement with Vanstar(the "Services Agreement") pursuant to which Vanstar
has agreed to provide significant distribution and other support services to
the ComputerLand Business for a contractually agreed-upon fee for up to a two-
year period following the ComputerLand Acquisition. See "Business--ComputerLand
Acquisition." Under the Services Agreement, Merisel has also been granted $20
million in extended credit terms on its product purchases from Vanstar (the
"Vanstar Payable"). On a pro forma basis for the year ended December 31, 1993,
the ComputerLand Acquisition would have increased net sales by $1.1 billion,
gross profit by $54.7 million and operating income by $13.3 million.
The Company's common stock is traded on the Nasdaq National Market under the
trading symbol MSEL. The principal executive office of the Company is located
at 200 Continental Boulevard, El Segundo, California 90245, and its main
telephone number is (310) 615-3080.
5
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Securities Offered.......... $125 million aggregate principal amount of %
Senior Notes Due 2004.
Interest Payments........... Interest will accrue from the date of issuance
and will be payable semi-annually on each June
30 and December 31, commencing December 31,
1994.
Maturity Date............... December 31, 2004.
Optional Redemption......... The Notes are redeemable, in whole or in part,
at the option of the Company, on or after
December 31, 1999, at the redemption prices set
forth herein plus accrued interest.
Additionally, prior to December 31, 1997, the
Company may, at its option, redeem up to % of
the originally issued aggregate principal amount
of Notes at % of the principal amount
thereof plus accrued interest to the redemption
date with the proceeds of an Equity Offering (as
defined).
Change of Control........... In the event of a Change of Control (as
defined), the Company is obligated to make an
offer to purchase all the Notes then outstanding
at a redemption price of 101% of the principal
amount thereof plus accrued interest to the
redemption date.
Asset Sale Proceeds......... The Company is obligated in certain
circumstances to make offers to purchase the
Notes at a redemption price of 100% of the
principal amount thereof plus accrued interest
to the redemption date with the net cash
proceeds of certain sales or other dispositions
of assets.
Ranking..................... The Notes will represent general unsecured
senior obligations of the Company. The Company
is a holding company with limited assets of its
own and conducts substantially all of its
business through subsidiaries. The Notes will be
effectively subordinated to all liabilities of
the Company's subsidiaries, including
indebtedness and trade payables. See "Certain
Investment Considerations--Holding Company
Structure."
Certain Covenants........... The Indenture relating to the Notes will contain
certain covenants that, among other things,
limit the type and amount of additional
indebtedness that may be incurred by the Company
or any of its subsidiaries and impose
limitations on investments, loans, advances,
sales or transfers of assets, the making of
dividends and other payments, the creation of
liens, sale-leaseback transactions, certain
transactions with affiliates and certain
mergers.
</TABLE>
CERTAIN INVESTMENT CONSIDERATIONS
Prospective investors should carefully consider the information presented in
this Prospectus, particularly the matters set forth under the caption "Certain
Investment Considerations."
USE OF PROCEEDS
The Company will use the net proceeds of the Offering to repay in full the
$65 million in bank financing used to fund the ComputerLand Acquisition (the
"Acquisition Loan") and to repay approximately $56.25 million of indebtedness
under a $150 million revolving credit facility of Merisel Americas, Inc.
("Merisel Americas") and Merisel Europe, Inc. ("Merisel Europe"), wholly owned
subsidiaries of the Company (the "Revolving Credit Facility"). The resulting
increased capacity under the Revolving Credit Facility will be available for
general corporate purposes.
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The summary historical and pro forma consolidated financial data set forth
below are derived from the Company's Consolidated Financial Statements. This
information should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and with "Selected Consolidated Financial Data,"
"Unaudited Pro Forma Condensed Combined Statements of Income" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------ --------------------------------
PRO FORMA(1) PRO FORMA(1)
1989 1990 1991 1992 1993 1993 1993 1994 1994
------ -------- -------- -------- -------- ------------ -------- -------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $629.4 $1,192.4 $1,585.4 $2,238.7 $3,085.9 $4,157.2 $1,405.9 $2,365.1 $2,466.9
Cost of sales........... 563.0 1,073.5 1,427.4 2,036.3 2,827.3 3,843.9 1,287.3 2,201.0 2,298.7
------ -------- -------- -------- -------- -------- -------- -------- --------
Gross profit............ 66.4 118.9 158.0 202.4 258.6 313.3 118.6 164.1 168.2
Selling, general and
administrative
expenses............... 45.6 102.4 119.7 150.9 187.2 228.6 87.8 128.7 132.0
------ -------- -------- -------- -------- -------- -------- -------- --------
Operating income........ 20.8 16.5 38.3 51.5 71.4 84.7 30.8 35.4 36.2
Interest expense........ 3.5 13.7 16.0 15.7 17.8 32.0 8.9 12.6 16.7
Other (income) expense.. 0.6 (0.8) 0.8 1.3 2.7 3.1 0.6 4.9 4.7
------ -------- -------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 16.7 3.6 21.5 34.5 50.9 49.6 21.3 17.9 14.8
Income taxes............ 6.5 3.0 10.7 14.8 20.5 19.9 8.9 6.6 5.4
------ -------- -------- -------- -------- -------- -------- -------- --------
Net income.............. $ 10.2 $ 0.6 $ 10.8 $ 19.7 $ 30.4 $ 29.7 $ 12.4 $ 11.3 $ 9.4
====== ======== ======== ======== ======== ======== ======== ======== ========
Net income per share.... $ 0.81 $ 0.03 $ 0.43 $ 0.67 $ 1.00 $ 0.97 $ 0.41 $ 0.37 $ 0.31
====== ======== ======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital......... $ 89.5 $ 213.0 $ 92.5 $ 294.6 $ 359.8 $ 342.0 $ 336.9 $ 262.1 $ 326.5
Total assets............ 215.8 431.7 508.6 667.3 936.3 1,024.1 715.9 1,042.3 1,045.1
Total debt.............. 55.6 160.6 164.6 179.1 259.4 327.2 231.0 285.0 287.8
Stockholders' equity.... 48.6 114.3 125.5 198.9 223.9 223.9 208.4 238.5 238.5
OTHER DATA:
EBITDA(2)............... $ 22.0 $ 23.1 $ 45.9 $ 59.4 $ 79.1 $ 95.7 $ 35.2 $ 38.0 $ 39.1
Depreciation and
amortization........... 1.9 5.8 8.4 9.2 10.5 14.2 5.0 7.5 7.6
Capital expenditures.... 4.6 9.0 5.9 10.0 24.6 24.8 9.9 14.6 14.6
Ratio of earnings to
fixed charges(3)....... 4.69x 1.22x 2.14x 2.78x 3.25x 2.34x 2.90x 2.14x 1.75x
Ratio of EBITDA to
interest expense....... 6.35 1.68 2.87 3.77 4.44 3.00 3.95 3.03 2.34
Ratio of total debt to
EBITDA................. 2.53 6.95 3.59 3.02 3.28 3.42 N/A N/A N/A
</TABLE>
- --------
(1) The pro forma adjustments give effect to (i) the sale of the Notes, (ii)
the repayment of the Acquisition Loan and elimination of related fees,
(iii) the repayment of approximately $56.25 million of revolving credit
indebtedness and (iv) the acquisition of the ComputerLand Business, as if
each had occurred on the first day of the periods presented. See footnote 1
at "Capitalization" and "Unaudited Pro Forma Condensed Combined Statements
of Income."
(2) EBITDA represents net income before interest, income taxes, depreciation
and amortization. EBITDA is not intended to represent and should not be
considered an alternative to, or more meaningful than, net income, cash
flow or any other measure of performance in accordance with generally
accepted accounting principles. EBITDA is included here because the Company
understands that such information is used by certain investors as one
measure of an issuer's historical ability to service debt.
(3) For purposes of computing this ratio, earnings consist of income before
income taxes and fixed charges. Fixed charges consist of interest expense,
amortization of financing costs and the portion of rental expense estimated
to be interest expense.
7
<PAGE>
CERTAIN INVESTMENT CONSIDERATIONS
Prospective purchasers should carefully consider the following in connection
with an investment in the Notes.
LEVERAGE
As of June 30, 1994, the Company's consolidated total debt was $285 million.
At such date, the Company's consolidated total assets were $1.04 billion, and
its stockholders' equity was $238 million. On an as adjusted basis, after
giving effect to the sale of the Notes and the application of the net proceeds
therefrom, the Company on June 30, 1994 would have had consolidated total debt
of $289 million and stockholders' equity of $238 million. See "Capitalization."
The ability of the Company to make cash payments with respect to the Notes
will be dependent upon its future performance, which, in turn, will be subject
to general economic conditions and to financial, business and other factors,
including factors beyond its control. The Company anticipates that cash flow,
as well as borrowings under the Revolving Credit Facility will be sufficient to
meet its and its subsidiaries' operating expenses and to service its and its
subsidiaries' debt requirements as they become due. There can be no assurance,
however, that this will be the case. As a result of this Offering, the Company
may be more leveraged than certain of its competitors, which may adversely
impact the Company's ability to respond to competitive pressures in the highly
competitive microcomputer products distribution industry. See "Business--
Competition."
If the Company and its subsidiaries are unable to comply with the terms of
their debt agreements or fail to generate sufficient cash flow from operations
in the future, they may be required to refinance all or a portion of their
existing debt or to obtain additional financing. There can be no assurance that
any such refinancing would be possible or that any additional financing could
be obtained, particularly in view of the Company's high levels of consolidated
debt, and the debt incurrence restrictions under its debt agreements. In
addition, if obtained, there can be no assurance that any such refinancing or
financing would be on terms and conditions favorable to the Company. If no such
refinancing or additional financing were available, the Company could be forced
to default on its debt obligations and, as an ultimate remedy, seek protection
under the federal bankruptcy laws. A portion of the consolidated debt of the
Company bears interest at a floating rate; therefore, the financial results of
the Company are and will continue to be affected by changes in prevailing
interest rates.
HOLDING COMPANY STRUCTURE
The Company currently conducts its operations through its subsidiaries.
Substantially all of the assets of the Company are owned by its subsidiaries.
As a holding company, the Company is dependent on dividends or other
intercompany transfers of funds from its subsidiaries to meet its debt service
and other obligations. Dividends, loans, advances and repayments of
intercompany loans from certain subsidiaries of the Company are restricted by
various debt agreements. See "Certain Indebtedness and Financing Arrangements."
The Company's rights and the rights of its creditors, including holders of
Notes, to participate in the assets of any subsidiary of the Company upon such
subsidiary's liquidation or recapitalization will be subject to the prior
claims of the subsidiary's creditors, including trade creditors. As of June 30,
1994, after giving pro forma effect to the sale of the Notes, there would have
been an aggregate of approximately $631.1 million of indebtedness and trade
payables of subsidiaries of the Company to which holders of the Notes would
have been effectively subordinated in right of payment. The Indenture limits,
but does not prohibit, the incurrence of additional indebtedness by the
Company's subsidiaries.
8
<PAGE>
DECLINING MARGINS
While the Company continued to experience increases in net sales and
operating income for the six months ended June 30, 1994, due to competitive
pricing pressures worldwide and the effect of the ComputerLand Acquisition,
gross margins continued to decrease. Selling, general and administrative
expenses as a percentage of sales also decreased during this period; however,
this decrease was more than offset by the decrease in gross margins and, as a
result, operating income as a percentage of sales decreased. The Company
anticipates that it will continue to experience downward pressure on gross
margins due to industry price competition and the ComputerLand Acquisition. To
the extent gross margins continue to decline and the Company is not successful
in reducing selling, general and administrative expenses as a percentage of
sales in an amount at least equal to such decline, the Company will continue to
experience a decline in its operating margins.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes comprise a new issue of securities for which there is currently no
public market. If the Notes are traded after their initial issuance, they may
trade at a discount from their initial public offering price, depending on
prevailing interest rates, the market for similar securities, the performance
of the Company and other factors. The Company does not intend to apply for
listing of the Notes on any securities exchange. Citicorp Securities, Inc.
("Citicorp") has informed the Company that it currently intends to make a
market in the Notes. However, Citicorp is not obligated to do so and any such
market-making may be discontinued at any time without notice. Therefore, no
assurance can be given as to whether an active trading market will develop or
be maintained for the Notes. See "Underwriting."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby are
estimated to be $121.25 million. The Company will use the net proceeds from the
sale of the Notes to repay the $65 million Acquisition Loan incurred to finance
the purchase of the ComputerLand Business and to repay approximately $56.25
million of bank indebtedness expected to be outstanding under the Revolving
Credit Facility on the issue date of the Notes. The resulting increased
capacity will be available for general corporate purposes.
The Acquisition Loan and the Revolving Credit Facility mature on January 31,
1995 and May 31, 1997, respectively. At September 30, 1994, the weighted
average interest rate on such outstanding borrowings was 8.375% and 6.18%,
respectively. See "Certain Indebtedness and Financing Arrangements."
9
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1994, and as adjusted to give effect to the sale of the Notes offered
hereby and the application of the estimated net proceeds therefrom. See "Use of
Proceeds." This table should be read in conjunction with the Consolidated
Financial Statements included elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
JUNE 30, 1994
------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt and current maturities of long-term debt:
Subsidiary lines of credit................................ $ 29,631 $ 29,631
Acquisition Loan.......................................... 65,000 --
Long-term debt:
Revolving Credit Facility................................. 68,400 12,150
8.58% Merisel Americas Senior Notes due 1997.............. 100,000 100,000
11.28% Merisel Americas Subordinated Notes due 2000....... 22,000 22,000
% Senior Notes Due 2004............................... -- 125,000
-------- --------
Total debt............................................... 285,031 288,781
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none issued or outstanding................... -- --
Common stock, $.01 par value; 50,000,000 shares
authorized; 29,681,200 outstanding at June 30, 1994...... 297 297
Additional paid-in capital................................ 141,143 141,143
Retained earnings......................................... 102,826 102,826
Cumulative translation adjustment......................... (5,811) (5,811)
-------- --------
Total stockholders' equity............................... 238,455 238,455
-------- --------
Total capitalization................................... $523,486 $527,236
======== ========
</TABLE>
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below are derived from
the Company's Consolidated Financial Statements. This information should be
read in conjunction with the Consolidated Financial Statements and Notes
thereto and with "Unaudited Pro Forma Condensed Combined Statements of Income"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------ --------------------------------
PRO FORMA(1) PRO FORMA(1)
1989 1990 1991 1992 1993 1993 1993 1994 1994
------ -------- -------- -------- -------- ------------ -------- -------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $629.4 $1,192.4 $1,585.4 $2,238.7 $3,085.9 $4,157.2 $1,405.9 $2,365.1 $2,466.9
Cost of sales........... 563.0 1,073.5 1,427.4 2,036.3 2,827.3 3,843.9 1,287.3 2,201.0 2,298.7
------ -------- -------- -------- -------- -------- -------- -------- --------
Gross profit............ 66.4 118.9 158.0 202.4 258.6 313.3 118.6 164.1 168.2
Selling, general and
administrative
expenses............... 45.6 102.4 119.7 150.9 187.2 228.6 87.8 128.7 132.0
------ -------- -------- -------- -------- -------- -------- -------- --------
Operating income........ 20.8 16.5 38.3 51.5 71.4 84.7 30.8 35.4 36.2
Interest expense........ 3.5 13.7 16.0 15.7 17.8 32.0 8.9 12.6 16.7
Other (income) expense.. 0.6 (0.8) 0.8 1.3 2.7 3.1 0.6 4.9 4.7
------ -------- -------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 16.7 3.6 21.5 34.5 50.9 49.6 21.3 17.9 14.8
Income taxes............ 6.5 3.0 10.7 14.8 20.5 19.9 8.9 6.6 5.4
------ -------- -------- -------- -------- -------- -------- -------- --------
Net income.............. $ 10.2 $ 0.6 $ 10.8 $ 19.7 $ 30.4 $ 29.7 $ 12.4 $ 11.3 $ 9.4
====== ======== ======== ======== ======== ======== ======== ======== ========
Net income per share.... $ 0.81 $ 0.03 $ 0.43 $ 0.67 $ 1.00 $ 0.97 $ 0.41 $ 0.37 $ 0.31
====== ======== ======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital......... $ 89.5 $ 213.0 $ 92.5 $ 294.6 $ 359.8 $ 342.0 $ 336.9 $ 262.1 $ 326.5
Total assets............ 215.8 431.7 508.6 667.3 936.3 1,024.1 715.9 1,042.3 1,045.1
Total debt.............. 55.6 160.6 164.6 179.1 259.4 327.2 231.0 285.0 287.8
Stockholders' equity.... 48.6 114.3 125.5 198.9 223.9 223.9 208.4 238.5 238.5
OTHER DATA:
EBITDA(2)............... $ 22.0 $ 23.1 $ 45.9 $ 59.4 $ 79.1 $ 95.7 $ 35.2 $ 38.0 $ 39.1
Depreciation and
amortization........... 1.9 5.8 8.4 9.2 10.5 14.2 5.0 7.5 7.6
Capital expenditures.... 4.6 9.0 5.9 10.0 24.6 24.8 9.9 14.6 14.6
Ratio of earnings to
fixed charges(3)....... 4.69x 1.22x 2.14x 2.78x 3.25x 2.34x 2.90x 2.14x 1.75x
Ratio of EBITDA to
interest expense....... 6.35 1.68 2.87 3.77 4.44 3.00 3.95 3.03 2.34
Ratio of total debt to
EBITDA................. 2.53 6.95 3.59 3.02 3.28 3.42 N/A N/A N/A
</TABLE>
- -------
(1) The pro forma adjustments give effect to (i) the sale of the Notes, (ii)
the repayment of the Acquisition Loan and elimination of related fees,
(iii) the repayment of approximately $56.25 million of revolving credit
indebtedness and (iv) the acquisition of the ComputerLand Business, as if
each had occurred on the first day of the periods presented. See footnote
1 at "Capitalization" and "Unaudited Pro Forma Condensed Combined
Statements of Income."
(2) EBITDA represents net income before interest, income taxes, depreciation
and amortization. EBITDA is not intended to represent and should not be
considered an alternative to, or more meaningful than, net income, cash
flow or any other measure of performance in accordance with generally
accepted accounting principles. EBITDA is included here because the
Company understands that such information is used by certain investors as
one measure of an issuer's historical ability to service debt.
(3) For purposes of computing this ratio, earnings consist of income before
income taxes and fixed charges. Fixed charges consist of interest expense,
amortization of financing costs and the portion of rental expense
estimated to be interest expense.
11
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
The following unaudited pro forma condensed combined statements of income
give effect to the ComputerLand Acquisition and the issuance of the Notes as
contemplated by this Offering as if each had occurred on the first day of the
periods presented. The ComputerLand Acquisition was accounted for under the
purchase method. See "The Company--ComputerLand Acquisition."
The unaudited pro forma condensed combined statement of income for the year
ended December 31, 1993 has been prepared based upon the historical
consolidated financial statements of Merisel for the year ended December 31,
1993 and the statement of revenues and operating expenses of the ComputerLand
Business for the year ended September 30, 1993. The unaudited pro forma
condensed combined statement of income for the six months ended June 30, 1994
combines the historical consolidated financial statements of Merisel for the
six month period ended June 30, 1994 and the statement of revenues and
operating expenses of the ComputerLand Business for the one month period ended
January 31, 1994. The results of operations for the ComputerLand Business were
consolidated with those of Merisel subsequent to the ComputerLand Acquisition
on January 31, 1994. The unaudited pro forma condensed combined statements of
income may not be indicative of the results that would have occurred if the
ComputerLand Acquisition and the sale of the Notes had been consummated on the
indicated dates, or of the operating results that may be achieved in the
future.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1993
-------------------------------------------------------------
HISTORICAL PRO FORMA
----------------------- -------------------------------------
COMPUTERLAND COMPUTERLAND
MERISEL BUSINESS ACQUISITION ISSUANCE OF
12/31/93 9/30/93 ADJUSTMENTS(2) NOTES(3) COMBINED
---------- ------------ -------------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales............... $3,085,851 $1,071,306 $4,157,157
Cost of sales........... 2,827,315 1,016,584 3,843,899
---------- ---------- ----------
Gross profit............ 258,536 54,722 313,258
Selling, general and
administrative
expenses............... 187,152 38,135 $ 3,320 228,607
---------- ---------- -------- ----------
Operating income........ 71,384 $ 16,587 (3,320) 84,651
========== --------
Interest expense........ 17,810 6,431 $ 7,717 31,958
Other expense........... 2,722 950 (575) 3,097
---------- -------- ------- ----------
Income before income
taxes.................. 50,852 (10,701) (7,142) 49,596
Provision for income
taxes.................. 20,413 2,354 (2,857) 19,910
---------- -------- ------- ----------
Net income.............. $ 30,439 $(13,055) $(4,285) $ 29,686
========== ======== ======= ==========
Net income per share.... $ 1.00 $ 0.97
========== ==========
Weighted average number
of common shares
outstanding............ 30,454 30,454
========== ==========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1994
-------------------------------------------------------------
HISTORICAL PRO FORMA
----------------------- -------------------------------------
COMPUTERLAND COMPUTERLAND
MERISEL BUSINESS ACQUISITION ISSUANCE OF
6/30/94 1/31/94 ADJUSTMENTS(2) NOTES(3) COMBINED
---------- ------------ -------------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales............... $2,365,120 $101,732 $2,466,852
Cost of sales........... 2,201,050 97,600 2,298,650
---------- -------- ----------
Gross profit............ 164,070 4,132 168,202
Selling, general and
administrative
expenses............... 128,656 3,076 $ 276 132,008
---------- -------- ----- ----------
Operating income........ 35,414 $ 1,056 (276) 36,194
========
Interest expense........ 12,559 536 $ 3,597 16,692
Other expense........... 4,913 79 (287) 4,705
---------- ----- ------- ----------
Income before income
taxes.................. 17,942 (891) (3,310) 14,797
Provision for income
taxes.................. 6,628 66 (1,324) 5,370
---------- ----- ------- ----------
Net income.............. $ 11,314 $(957) $(1,986) $ 9,427
========== ===== ======= ==========
Net income per share.... $ 0.37 $ 0.31
========== ==========
Weighted average number
of common shares
outstanding............ 30,764 30,764
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined statements of
income.
12
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
1. GENERAL
The foregoing unaudited pro forma condensed combined statements of income il-
lustrate the effect of the acquisition by the Company, through Merisel FAB, of
the ComputerLand Business from Vanstar pursuant to an Asset Purchase Agreement
dated January 31, 1994 among ComputerLand, Merisel FAB and the Company, as well
as the issuance of $125 million principal amount of Notes as contemplated by
this Offering. The unaudited pro forma condensed combined statements of income
for the year ended December 31, 1993 and the six months ended June 30, 1994
illustrate the potential impact on the historical results of operations of
Merisel, assuming that the ComputerLand Acquisition and the issuance of the
Notes occurred as of the first day of the periods presented. It is also assumed
that the net proceeds from the issuance of the Notes were used to repay the $65
million Acquisition Loan and to repay bank indebtedness outstanding under the
Revolving Credit Facility. See "The Company--ComputerLand Acquisition," "Capi-
talization," "Selected Consolidated Financial Data" and "Management's Discus-
sion and Analysis of Financial Condition and Results of Operations."
Prior to its acquisition, the ComputerLand Business was not an incorporated
entity, and separate historical financial statements were not prepared;
accordingly, no such financial statements are readily available. The historical
income statement information included herein was obtained from the ComputerLand
Business' statement of revenues and operating expenses for the year ended
September 30, 1993 and the one month ended January 31, 1994. Such statements
present the revenues, direct expenses and general and administrative expenses
allocated from Vanstar to the ComputerLand Business. Selling, general and
administrative expenses include allocated expenses of $27,340,000 for the year
ended September 30, 1993 and $2,035,000 for the one month ended January 31,
1994, representing costs of the distribution centers and general corporate
overhead, including expenses for corporate functions and administrative
personnel. The expenses have been allocated to the ComputerLand Business based
upon such factors as the ratio of the ComputerLand Business' shipments to the
total shipments by Vanstar and Vanstar management's estimate of the time spent
by shared employees of Vanstar on work related to the ComputerLand Business.
Interest income, interest expense and income taxes were not allocated.
The statement of revenues and operating expenses, which includes Vanstar's
allocated expenses, may not necessarily reflect the results of operations that
would have been obtained had the ComputerLand Business been operated as a
separate, stand-alone entity for the period presented and may not be indicative
of future revenues and operating expenses of Merisel FAB.
2. ADJUSTMENTS RELATED TO THE COMPUTERLAND ACQUISITION
The initial purchase price for the ComputerLand Acquisition consisted of
$80.2 million in cash and $2 million in direct expenses. Under the purchase
method of accounting, an allocation of the purchase price to the Merisel FAB
assets and liabilities is required to reflect fair values. An allocation of the
purchase price has not yet been performed; however, the following sets forth
certain preliminary allocations:
<TABLE>
<CAPTION>
IN THOUSANDS
------------
<S> <C>
Property and equipment...................................... $ 200
Intangible assets--consisting of the purchase price over the
net assets acquired ....................................... 82,000
-------
Total................................................. $82,200
=======
</TABLE>
13
<PAGE>
Adjustments for the fiscal year ended December 31, 1993 are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
------------
<C> <S> <C>
a) Selling, general and administrative expenses
Amortization of the excess of purchase price over net
assets ($82 million/25 years)........................... $3,280
Depreciation of property and equipment ($200,000/5
years).................................................. 40
------
Total ............................................... $3,320
======
b) Interest expense
Interest expense on the Acquisition Loan ($65 million at
expected average rate of 8.125%)........................ $5,281
Interest expense on Vanstar Payable ($20 million at prime
less 2%, computed at an expected average rate of 5.75%). 1,150
------
Total................................................ $6,431
======
Note: A fluctuation of 0.125% in the interest rate would
result in a $106,000 change in interest expense.
c) Other expense
Amortization of financing fees associated with the
Acquisition Loan........................................ $ 950
======
d) Provision for income taxes
Income taxes have been adjusted to reflect an estimated
marginal income tax rate of 40%, net of pro forma
adjustments applied to income of the ComputerLand
Business.
Adjustments for the six months ended June 30, 1994 are as follows:
<CAPTION>
IN THOUSANDS
------------
<C> <S> <C>
a) Selling, general and administrative expenses
Amortization of the excess of purchase price over net
assets for one month ($82 million/25 years/12 months)... $ 273
Depreciation of property and equipment for one month
($200,000/5 years/12 months)............................ 3
------
Total................................................ $ 276
======
b) Interest expense
Interest expense for one month on the Acquisition Loan
($65 million at an expected average rate of 8.125%)..... $ 440
Interest expense for one month on Vanstar Payable ($20
million at prime less 2%, computed at an expected
average rate of 5.75%).................................. 96
------
Total................................................ $ 536
======
Note: A fluctuation of 0.125% in the interest rate would
result in a $53,000 change in interest expense.
c) Other expense
Amortization of financing fees associated with the
Acquisition Loan for one month ($950,000/12 months)..... $ 79
======
d) Provision for income taxes
Income taxes have been adjusted to reflect an estimated
marginal income tax rate of 40%, net of pro forma
adjustments applied to income of the ComputerLand
Business.
</TABLE>
14
<PAGE>
3. ADJUSTMENTS RELATED TO THE ISSUANCE OF $125 MILLION PRINCIPAL AMOUNT OF
NOTES
Adjustments for the fiscal year ended December 31, 1993 are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
------------
<C> <S> <C>
a) Interest expense
Interest expense incurred on the issuance of the Notes
($125 million at an expected rate of 12.5%)............. $15,625
Interest expense reduction for the repayment of the
Acquisition Loan ($65 million at an expected average
rate of 8.125%)......................................... (5,281)
Interest expense reduction for the repayment of debt
outstanding under the Revolving Credit Facility
($56.25 million at an estimated weighted average rate
of 4.67%)............................................... (2,627)
-------
Total................................................ $ 7,717
=======
Note: A fluctuation of 0.125% in the interest rate on the
Notes would result in a $156,000 change in interest
expense.
b) Other expense
Amortization of fees and expenses incurred on the
issuance of the Notes ($3.75 million/10 years).......... $ 375
Reduction in amortization of fees associated with the
Acquisition Loan ($950,000)............................. (950)
-------
Total................................................ $ (575)
=======
c) Provisions for income taxes
Income taxes have been adjusted to reflect an estimated
marginal income tax rate of 40% of the net pro forma
adjustment for the sale of the Notes.
</TABLE>
Adjustments for the six months ended June 30, 1994 are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
------------
<C> <S> <C>
a) Interest expense
Interest expense incurred on the issuance of the Notes
($125 million at an expected rate of 12.5%) X 6 months.. $ 7,813
Interest expense reduction for the repayment of the
Acquisition Loan ($65 million at an estimated average
rate of 8.125%) X 6 months.............................. (2,641)
Interest expense reduction for the repayment of a portion
of the debt outstanding under the Revolving Credit
Facility ($56.25 million at an estimated weighted average
rate of 5.60%) X 6 months............................... (1,575)
-------
Total................................................ $ 3,597
=======
Note: A fluctuation of 0.125% in the interest rate on the
Notes would result in a $78,000 change in interest
expense.
b) Other expense
Amortization of fees and expenses incurred on the
issuance of the Notes ($3.75 million/10 years) X 6 months. $ 188
Reduction in amortization of fees associated with the
Acquisition Loan ($950,000) X 6 months.................. (475)
-------
Total................................................ $ (287)
=======
c) Provisions for income taxes
Income taxes have been adjusted to reflect an estimated
marginal income tax rate of 40% of the net pro forma
adjustment for the sale of the Notes.
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto and "Selected Consolidated Financial
Data" and "Unaudited Pro Forma Condensed Combined Statements of Income"
included elsewhere in this Prospectus.
OVERVIEW
The Company was founded in 1980 and has grown both through internal growth
and through acquisitions of other computer products distributors. By 1989, the
Company had achieved annual revenues of $629.4 million, principally through
internal expansion. In April 1990, the Company acquired Microamerica, Inc.
("Microamerica"), another worldwide distributor of microcomputer products, with
net sales of approximately $526 million for the year ended December 31, 1989.
In the years following the Microamerica acquisition, the Company's revenues
increased from $1.6 billion in 1991 to $2.2 billion in 1992 and to $3.1 billion
in 1993, reflecting substantial growth in both domestic and international sales
as the worldwide market for computer products expanded and manufacturers
increasingly turned to wholesale distributors for distribution of their
products. The Company's net income as a percentage of sales, or net margin,
improved over this period, largely as a result of management's success in
reducing selling, general and administrative expenses and interest expense,
expressed as a percentage of sales, to more than offset lower gross margins.
On January 31, 1994, the Company completed the acquisition of certain assets
of the ComputerLand Business from Vanstar. See "Business--ComputerLand
Business." On a pro forma basis for the year ended December 31, 1993, the
ComputerLand Acquisition would have increased net sales by $1.1 billion, gross
profit by $54.7 million and operating income by $13.3 million. See "--
Acquisition of ComputerLand Business" and "Unaudited Pro Forma Condensed
Combined Statements of Income."
The Company anticipates that it will continue to experience downward pressure
on gross margins due to industry price competition. In addition, the Company's
recently acquired ComputerLand Business generates lower gross margins than the
Company's existing wholesale distribution business. The ComputerLand Business,
however, has lower selling, general and administrative expenses as a percentage
of sales and requires a significantly lower investment in working capital than
the Company's existing wholesale distribution business. See "--Acquisition of
ComputerLand Business." Although Merisel expects that over time it will be able
to continue to reduce selling, general and administrative expenses as a
percentage of sales, through (among other things) the implementation of new
computer operating systems and warehouse management systems that will enable
the Company to utilize its existing assets more productively, no assurance can
be given as to whether such reductions will, in fact, occur or as to the actual
amount of any such reductions. See "Business--Operations and Distribution." To
the extent gross margins continue to decline and the Company is not successful
in reducing selling, general and administrative expenses as a percentage of
sales, the Company will experience a negative impact on its operating income.
See "Certain Investment Considerations--Declining Margins."
16
<PAGE>
RESULTS OF OPERATIONS
For the periods indicated, the following table sets forth selected items from
the Company's Consolidated Statements of Income, expressed as a percentage of
net sales:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------------
SIX MONTHS
FISCAL YEAR ENDED ENDED JUNE
DECEMBER 31, 30,
------------------- ------------
1991 1992 1993 1993 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales......................... 90.0 91.0 91.6 91.6 93.1
----- ----- ----- ----- -----
Gross profit.......................... 10.0 9.0 8.4 8.4 6.9
Selling, general and administrative
expenses............................. 7.5 6.7 6.1 6.2 5.4
----- ----- ----- ----- -----
Operating income...................... 2.5 2.3 2.3 2.2 1.5
Interest expense...................... 1.0 0.7 0.6 0.6 0.5
Other expense......................... 0.1 0.1 0.1 0.1 0.2
----- ----- ----- ----- -----
Income before income taxes............ 1.4 1.5 1.6 1.5 0.8
Provision for income taxes............ 0.7 0.6 0.6 0.6 0.3
----- ----- ----- ----- -----
Net income............................ 0.7% 0.9% 1.0% 0.9% 0.5%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 1994 Compared to Six Months Ended June 30, 1993
Net sales increased 68.2% from $1,405.9 million in 1993 to $2,365.1 million
in 1994. The increase in net sales was due to the impact of the ComputerLand
Acquisition, as well as an increase in the number of vendors and products the
Company is authorized to sell in various geographic markets. The Company also
increased its market share of certain vendor products in various geographic
markets. Net sales for Merisel FAB were $472.5 million, or 20% of consolidated
net sales, for the six months ended June 30, 1994.
Geographically, the Company's net sales for the six months ended June 30,
1994 were generated as follows: United States, $1,595.8 million, or 67.5%;
Canada, $259.4 million, or 11%; Europe, $366.4 million, or 15.5%; and other
international markets, $143.5 million, or 6%. From 1993 to 1994, these
geographic regions experienced sales growth rates as follows: United States,
82.9% (28.7% excluding Merisel FAB); Canada, 45.3%; Europe, 44.4%; and other
international markets, 38.2%.
In the United States, including Merisel FAB, hardware and accessories
accounted for 74% of net sales, and software accounted for 26% of net sales in
1994, as compared to 56% and 44%, respectively, in 1993. The increase in
hardware sales is due to the fact that the Company has obtained additional
rights to distribute hardware products throughout the world from various
vendors and to the fact that Merisel FAB's revenues are predominantly hardware-
related.
Gross profit increased 38.4% from $118.6 million in 1993 to $164.1 million in
1994. Gross profit as a percentage of sales, or gross margin, decreased from
8.4% in 1993 to 6.9% in 1994. The decrease in gross margin is principally
attributable to competitive pressures on pricing worldwide and the effect of
the ComputerLand Acquisition. Merisel FAB has lower gross margins than those of
the Company's wholesale distribution business. Merisel FAB's operating expenses
as a percentage of sales, however, are generally lower than the Company's
wholesale distribution business, which helps offset the lower gross margins.
The Company anticipates that it will continue to experience downward pressure
on gross margin due to industry price competition.
Selling, general and administrative expenses ("SG&A") increased 46.6% from
$87.8 million in 1993 to $128.7 million in 1994. SG&A decreased as a percentage
of net sales from 6.2% in 1993 to 5.4% in 1994.
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The absolute dollar increase in SG&A is primarily due to costs associated with
the Company's 68.2% increase in net sales. The decrease in SG&A as a percentage
of sales is due to Merisel FAB's lower operating expenses as a percentage of
sales compared to that of Merisel's wholesale distribution business.
Operating income increased 15.1% from $30.8 million in 1993 to $35.4 million
in 1994. Operating income as a percentage of net sales was 2.2% in 1993 and
1.5% in 1994. Operating income for the Company's U.S. distribution business
declined as a result of lower margins and higher operating expenses. In
addition, the Company's European operations continued to experience net
operating losses as a result of continued competitive pressure on margins as
well as an increase in operating costs in Europe as a result of the Company's
implementation of its long-term strategy to centralize and integrate its
European operations.
Interest expense increased 40.9% from $8.9 million in 1993 to $12.6 million
in 1994, but decreased from 0.6% to 0.5% as a percentage of net sales in 1993
compared to 1994. The increase in interest expense is primarily attributable to
the Company's higher average borrowings in 1994, which reflected the need to
finance the ComputerLand Acquisition and to finance higher levels of working
capital to support increased sales.
Other expenses increased from $0.6 million in 1993 to $4.9 million in 1994,
primarily due to fees of $2.7 million incurred in connection with accounts
receivable securitizations, a write-off of costs of $0.5 million incurred in
connection with the Company's withdrawal of its common stock offering in May
1994, and an increase in foreign currency transaction losses of $0.6 million
experienced by the Company's Mexican subsidiary.
The Company's provision for income taxes decreased 25.1% from $8.9 million in
1993 to $6.6 million in 1994, reflecting the Company's decreased income before
income taxes. The Company's effective tax rate declined from 41.6% in 1993 to
36.9% in 1994. The lower effective tax rate reflects the increased utilization
of tax loss carryforwards by certain of the Company's foreign subsidiaries in
1994.
Net income decreased 9% from $12.4 million in 1993 to $11.3 million in 1994.
Net income per share decreased from $0.41 in 1993 to $0.37 in 1994. The
Company's weighted average number of shares increased from 30,308,000 shares in
1993 to 30,764,000 shares in 1994.
Year Ended December 31, 1993 Compared to Year Ended December 31, 1992
The Company's net sales increased 37.8% to $3.1 billion in 1993 from $2.2
billion in 1992, reflecting significant growth in both domestic and
international sales. The Company believes this increase is due principally to
the establishment of new relationships with manufacturers in various markets
around the world, the introduction of new products by existing manufacturers,
increased customer demand for computer products and increased use of wholesale
distribution by manufacturers in their distribution channels. The Company's
1992 fiscal year included 53 weeks due to the timing of the fiscal year end,
while the 1993 fiscal year contained 52 weeks. See Note 1 of Notes to
Consolidated Financial Statements.
Geographically, the Company's 1993 net sales were generated as follows:
United States, $1.95 billion, or 63%; Canada, $395 million, or 13%; Europe,
$532 million, or 17%; and other international markets,$207 million, or 7%. From
1992 to 1993, these geographic regions experienced sales growth rates of 32.3%,
30.7%, 64.1% and 51.4%, respectively. The Company's higher sales growth rate in
Europe resulted in part from the addition of new manufacturer relationships in
various European markets. In the United States, the Company's sales increase
was due in part to new product offerings from computer systems and other
hardware manufacturers. In the United States, hardware and accessories
accounted for 60.5% of net sales, and software accounted for 39.5% of net sales
in 1993, as compared to 55.9% and 44.1%, respectively, in 1992. For additional
information on the Company's operating results by geographic region, see Note
10 of Notes to Consolidated Financial Statements.
Gross profit increased 27.7% to $258.5 million in 1993 from $202.4 million in
1992, reflecting the higher 1993 net sales. Gross margin declined to 8.4% in
1993 from 9.0% in 1992, principally as a result of continuing competitive
pricing pressures worldwide.
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SG&A expenses increased 24.0% to $187.2 million in 1993 from $150.9 million
in 1992, primarily as a result of increased expenses associated with the
Company's 37.8% increase in net sales. SG&A expenses as a percentage of sales
declined to 6.1% in 1993 from 6.7% in 1992, reflecting economies of scale
resulting from higher sales volumes as well as improved operating efficiencies.
The Company's number of full-time equivalent employees increased from 1,939 at
December 31, 1992 to 2,502 at December 31, 1993.
Operating income increased 38.6% to $71.4 million in 1993 from $51.5 million
in 1992, despite small operating losses at the Company's Swiss, Austrian and
French operations. Operating income as a percentage of sales was 2.3% in both
1993 and 1992, as the decline in gross margin of 0.6% in 1993 was offset by a
corresponding decline in SG&A expenses as a percentage of sales.
Interest expense increased 13.1% to $17.8 million in 1993 from $15.7 million
in 1992, but declined as a percentage of sales to 0.6% in 1993 from 0.7% in
1992. The increase in interest expense reflects higher average borrowings,
principally to finance the Company's higher sales levels, offset in part by
lower average interest rates in 1993.
Other expense increased to $2.7 million in 1993 from $1.3 million in 1992,
but other expenses as a percentage of sales remained at 0.1% in both 1992 and
1993. Other expenses in 1993 included the fees paid by the Company in
connection with the sale of an interest in its trade accounts receivables
pursuant to an accounts receivable securitization program instituted in the
third quarter of 1993. See "--Liquidity and Capital Resources." The Company
intends to continue this program in future periods, and other expense is
therefore anticipated to increase as additional fees are incurred.
Provision for income taxes increased 37.8% to $20.4 million in 1993,
reflecting the Company's 47.5% increase in income before income taxes. The
Company's effective tax rate decreased to 40.1% in 1993 from 43.0% in 1992,
primarily as a result of a $1.7 million income tax benefit related to the
restructuring of the Company's Swiss operations in 1993. In addition, net
losses of certain of the Company's subsidiaries that derive no tax benefit from
such losses under local tax laws decreased in 1993.
Net income increased 54.8% to $30.4 million in 1993 from $19.7 million in
1992, while net income per share increased to $1.00 from $0.67. The Company's
weighted average number of shares outstanding increased from 29,274,000 shares
in 1992 to 30,454,000 shares in 1993, reflecting the issuance of 4,600,000
shares in a public offering of the Company's Common Stock in March 1992 and the
exercise of employee stock options.
Year Ended December 31, 1992 Compared to Year Ended December 31, 1991
Net sales increased 41.2% to $2.2 billion in 1992 from $1.6 billion in 1991.
The Company believes that this increase in net sales was due primarily to an
increase in market share, customer demand, sales of new products from existing
manufacturers and the establishment of new relationships with manufacturers and
customers. In addition, the Company's 1992 fiscal year included 53 weeks due to
the timing of the fiscal year end. See Note 1 of Notes to Consolidated
Financial Statements.
Hardware and accessories sales accounted for 56.6% of United States net sales
in 1992, with software sales accounting for the remaining 43.4%. In 1991,
hardware and accessories sales accounted for 57.6% of United States net sales,
with software sales accounting for the remaining 42.4%.
Geographically, the Company's 1992 net sales were generated as follows:
United States, $1.5 billion, or 66%; Canada, $303 million, or 14%; Europe, $324
million, or 14%; and other international markets,$137 million, or 6%. The
increase in net sales achieved by the European operations was primarily the
result of sales growth by the Company's United Kingdom and German subsidiaries.
This increase was offset in part by lower than expected sales levels in
Switzerland and France. For additional information on the Company's operating
results by geographic region, see Note 10 of Notes to Consolidated Financial
Statements.
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Gross profit increased 28.2% to $202.4 million in 1992 from $158.0 million in
1991, reflecting the increase in net sales in 1992. Gross margin decreased to
9.0% in 1992 from 10.0% in 1991, reflecting continued competitive pressures on
pricing.
SG&A expenses increased 26.1% to $150.9 million in 1992 from $119.7 million
in 1991, but declined as a percentage of net sales to 6.7% in 1992 from 7.5% in
1991. The absolute dollar increase in SG&A expenses was primarily due to costs
associated with the Company's 41.2% increase in net sales. The decrease in SG&A
expenses as a percentage of net sales was the result of economies of scale
resulting from higher sales volume as well as improved operating efficiencies.
The Company's number of full-time equivalent employees increased to 1,939 at
December 31, 1992 from 1,450 at December 31, 1991.
Operating income increased 34.6% to $51.5 million in 1992 from $38.3 million
in 1991, despite continuing operating losses in the Company's Swiss and
Austrian subsidiaries and an operating loss at the Company's French subsidiary.
Operating income as a percent of sales decreased to 2.3% in 1992 from 2.5% in
1991. The 0.2% decrease in operating income as a percent of net sales reflects
the fact that the decrease in gross margin of 1.0% more than offset the
decrease in SG&A expenses as a percentage of net sales of 0.8%.
Interest expense decreased 1.4% to $15.7 million in 1992 from $16.0 million
in 1991 and decreased as a percentage of net sales to 0.7% in 1992 from 1.0% in
1991. The decrease in interest expense is attributable to both the Company's
lower average borrowings in 1992 and a reduction in average funding cost. The
Company's average borrowings under all lines of available credit decreased 2.5%
to $151.2 million in 1992 from $155.0 million in 1991. The decrease in average
borrowings is a result of a public offering of 4,600,000 shares of the
Company's common stock in March 1992, providing net proceeds of $55.7 million,
partially offset by an increase in working capital requirements related to the
Company's growth and an increase in the Company's investing activities,
principally property and equipment expenditures.
The Company's provision for income taxes increased by 39.1% to $14.8 million
in 1992 from $10.7 million in 1991, reflecting the Company's increased income
before income taxes. The Company's effective tax rate declined to 43.0% in 1992
from 49.6% in 1991. The lower effective tax rate reflects the fact that,
although certain of the Company's foreign subsidiaries incurred losses with no
corresponding tax benefit, such losses comprised a smaller percentage of the
Company's consolidated income before taxes in 1992 as compared to 1991.
Net income increased 81.6% to $19.7 million in 1992 from $10.8 million in
1991. Net income per share increased to $0.67 in 1992 from $0.43 in 1991. The
Company's weighted average number of shares increased to 29,274,000 shares in
1992 from 24,896,600 shares in 1991, primarily as a result of a public offering
of 4,600,000 shares of the Company's common stock in March 1992.
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
Historically, the Company has experienced variability in its net sales and
operating margins on a quarterly basis and expects these patterns to continue
in the future. Management believes that the factors influencing quarterly
variability include: (i) the overall growth in the microcomputer industry; (ii)
shifts in short-term demand for the Company's products resulting, in part, from
the introduction of new products or updates of existing products; and (iii) the
fact that virtually all sales in a given quarter result from orders booked in
that quarter. Due to the factors noted above, as well as the fact that the
Company participates in a highly dynamic industry, the Company's revenues and
earnings may be subject to material volatility, particularly on a quarterly
basis.
Additionally, the Company's net sales in the fourth quarter have been higher
than in its other three quarters. Management believes that the pattern of
higher fourth quarter sales is partially explained by customer buying patterns
relating to calendar year-end business purchases and holiday-period purchases.
For a tabular presentation of certain quarterly financial data with respect to
1992, 1993 and 1994, see Note 11 of Notes to Consolidated Financial Statements.
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ACQUISITION OF COMPUTERLAND BUSINESS
Through the ComputerLand Acquisition, Merisel now operates the ComputerLand
Business, a leading master reseller of computer systems and related products
from the major microcomputer manufacturers to a network of approximately 750
independently-owned computer products resellers, including ComputerLand
franchisees and affiliated resellers purchasing through the Datago program. See
"Business--ComputerLand Business."
On a pro forma combined basis for the year ended December 31, 1993, the
ComputerLand Acquisition would have increased net sales by $1.1 billion, gross
profit by $54.7 million and operating income by $13.3 million. See "Unaudited
Pro Forma Condensed Combined Statements of Income." Gross margin and SG&A
expenses as a percentage of net sales for this period were 5.1% and 3.9%,
respectively, reflecting the lower margins and lower SG&A expenses incurred in
the master reseller, or aggregator, business as compared to the Company's
existing wholesale distribution business. The ComputerLand Business' operating
margin as a percentage of net revenues for this period was 1.2%.
As a master reseller, the ComputerLand Business supplies a significantly
smaller number of products to a significantly smaller number of customers than
the Company's existing distribution business. See "Business--The Industry,"
"Business--Products and Manufacturer Services" and "Business--Customers and
Customer Services." Master resellers focus on supplying computer systems and
other higher-volume products to their customers while the Company's existing
business supplies a wide range of products to many different types of
customers. Certain of the larger computer manufacturers, such as Apple, Compaq,
Hewlett-Packard and IBM, have historically required resellers to purchase their
products from an affiliated aggregator, such as the ComputerLand Business.
Wholesale distributors have not been authorized to sell these manufacturers'
key microcomputer components, except on a limited basis.
For the fiscal year ended September 30, 1993, approximately 76% of the
ComputerLand Business' revenues were generated from the sale of products from
four manufacturers: Apple, Compaq, Hewlett-Packard and IBM. The loss of any one
of these four manufacturers, or a change in the way any of these manufacturers
markets, prices or distributes its products, could have a material adverse
effect on the ComputerLand Business' operations and financial results.
Specifically, to the extent that one of the leading four manufacturers changes
its current system of limiting authorization to sell its products to master
resellers, the ComputerLand Business' sales levels would be adversely affected.
The Company believes, however, that its existing wholesale distribution
business may benefit from such changes.
All of the ComputerLand Business' franchisees are electronically linked for
the purposes of order placement and other communications, reducing the need for
sales representatives and support personnel in comparison to the Company's
existing business. In addition, over 95% of the ComputerLand Business'
customers currently finance their orders through "floor plan" financing
companies or pay on a C.O.D. basis, reducing the need for credit and collection
personnel and reducing financing costs because of improved cash flow.
As a result of the foregoing as well as other factors, master resellers such
as the ComputerLand Business tend to generate both lower gross margins and
lower operating expenses as a percentage of sales than those generated by the
Company in its existing distribution business.
Competition among master resellers is intense (see "Business--Competition"),
and the ComputerLand Business may experience downward pressures on its gross
margins due to competitive pricing decisions. Under the Services Agreement,
Vanstar will perform a material portion of the ComputerLand Business'
distribution functions for a contractually agreed-upon fee for up to a two-year
period. As a result of this outsourcing arrangement, the ComputerLand Business
does not directly control the costs of those distribution functions, and
therefore will be limited in its ability to lower its costs in response to a
lower gross margin environment during the two-year term of the Services
Agreement. Due to this limitation, the Services
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Agreement provides that the service fee, as a percentage of sales volume,
decreases if the ComputerLand Business' sales volume increases over a specified
amount. Further, in the event sales volume does not increase over a specified
amount, and the ComputerLand Business' gross margin declines, the Services
Agreement provides for a limited reduction in the service fee to offset
partially the decline in gross margin. Notwithstanding these contractual
provisions, a material decline in the ComputerLand Business' gross margins
could have a material adverse effect on the Company's results of operations.
Over 76% of the ComputerLand Business' sales currently are financed on behalf
of such customers by floor plan financing companies. The ComputerLand Business
typically receives payment from these financing companies within three business
days from the date of sale, resulting in reduced cash requirements for the
ComputerLand Business as compared to the Company's existing wholesale
distribution business. This floor plan financing is typically subsidized for
the ComputerLand Business' customers by its manufacturers. Any material change
in the availability or the terms of financing offered by such financing
companies or in the subsidies provided by manufacturers could require the
ComputerLand Business to provide such financing to its customers, thereby
substantially increasing the working capital necessary to operate its business.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth and cash needs primarily through
borrowings, income from operations, the public and private sales of its
securities and securitizations of its accounts receivable.
Net cash used for operating activities in 1993 was $125.4 million, as
compared to net cash used for operating activities in 1992 of $58.6 million.
The primary uses of cash in 1993 were increases in accounts receivables of
$194.2 million, reflecting the Company's higher sales volumes, especially in
December 1993, and greater sales to customers with extended credit terms, and
inventories of $142.9 million, reflecting the Company's higher sales volumes.
Sources of cash from operating activities included net income, after adjustment
for non-cash items, of $55.9 million and an increase in accounts payable of
$166.3 million. Net cash used in operating activities during the six months
ended June 30, 1994 was $6.7 million. Sources of cash from operating activities
include net income and non-cash charges of $26.8 million and an increase in
accounts payable and accrued liabilities of $67.8 million. The primary uses of
cash during the period were a $47.4 million increase in accounts receivable and
a $54.6 million increase in inventories. The increase in accounts receivable
was due primarily to the increase in sales volume and the increase in inventory
was due to the current and anticipated sales growth as well as the addition of
new product lines.
Net cash used for investing activities in 1993 was $25.1 million, principally
reflecting investments in new computer systems, new warehouse management
systems and new distribution facilities and equipment. The Company presently
anticipates that its capital expenditures for 1994 will be approximately $25
million, principally for development and implementation of new computer systems
in North America, new warehouse management systems, new computer systems for
the Company's European operations and a new distribution center in Europe. Net
cash used for investing activities during the six months ended June 30, 1994
was $97.2 million, reflecting the ComputerLand Acquisition and property and
equipment expenditures. The expenditures for property and equipment were
primarily for the upgrading of existing facilities, leasehold improvements, the
upgrading of the Company's computer systems and expenditures for a new
warehouse management system. See "Business--Operations and Distribution" and
"Business--International Operations."
Net cash provided by financing activities in 1993 was $156.8 million,
composed principally of net borrowings under domestic revolving lines of credit
of $70.1 million, net borrowings under foreign bank facilities of $10.2 million
and proceeds from the sale of an interest in the Company's trade accounts
receivables of $75.0 million pursuant to a receivables securitization program.
Net cash provided by financing activities during the six months ended June 30,
1994 was $101 million, composed of borrowings of $65 million in connection with
the ComputerLand Acquisition, and proceeds from the sale of an interest in the
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Company's trade accounts receivable of $75 million pursuant to a receivables
securitization program. Net cash used for financing activities was $39.4
million representing net repayments under domestic revolving lines of credit
and various local lines of credit maintained by the Company and its
subsidiaries.
To provide capital for the Company's operating and investing activities, the
Company and its subsidiaries, including Merisel Americas, Merisel Europe and
Merisel FAB, maintain a number of credit facilities. Merisel Americas and
Merisel Europe are co-borrowers under a $150 million unsecured revolving bank
credit facility expiring on May 31, 1997. At July 31, 1994, approximately
$109.2 million was outstanding under this facility, composed of approximately
$104.2 million in direct borrowings and $5 million in outstanding letters of
credit. A portion of the net proceeds of the Offering will be used to reduce
the balance due under this facility. See "Use of Proceeds." To provide for its
anticipated working capital needs, on December 23, 1993, Merisel FAB entered
into a $10 million unsecured revolving credit agreement. This agreement expires
on January 29, 1995. At July 31, 1994, no amount was outstanding under this
agreement. The Company and its subsidiaries also maintain various local lines
of credit, primarily to facilitate overnight and other short-term borrowings.
The total amount of outstanding borrowings under these lines as of June 30,
1994 was $29.6 million.
Merisel Americas has also entered into a $150 million trade accounts
receivable securitization agreement pursuant to which it sells on an ongoing
basis an undivided interest of up to $150 million in designated trade
receivables to a syndicate of purchasers. At June 30, 1994, $150 million of net
accounts receivable were sold under this agreement. The receivables are sold at
face value and fees paid in connection with such sales are recorded by the
Company as "Other expense." This facility expires in November 1994. Merisel
Americas is currently negotiating an extension of this agreement. See "Certain
Indebtedness and Financing Arrangements--Sales of Trade Accounts Receivable."
To finance the ComputerLand Acquisition, the Company borrowed $65 million
under an unsecured credit agreement with a bank lender. This agreement expires
on January 29, 1995, but is subject to mandatory prepayment upon any debt or
equity issuance by the Company. A portion of the net proceeds of the Offering,
therefore, will be used to prepay this borrowing in full. See "Use of
Proceeds." Merisel FAB also borrowed $16 million, the balance of the
ComputerLand Acquisition purchase price, under a separate credit agreement,
which was repaid in full on February 15, 1994.
Merisel Americas also has outstanding $100 million of 8.58% senior notes due
June 30, 1997, and $22 million of 11.28% subordinated notes due in five equal
annual principal installments, beginning in March 1996. For more information
regarding the Company's credit agreements, see "Certain Indebtedness and
Financing Arrangements" and Notes 6 and 7 of Notes to Consolidated Financial
Statements.
In connection with the ComputerLand Acquisition, Merisel FAB and Vanstar
entered into the Services Agreement pursuant to which Vanstar will provide
significant distribution and other support services to Merisel FAB for up to
two years for a contractually agreed-upon fee. See "Business--ComputerLand
Business." Under the Services Agreement, Merisel FAB has been granted $20
million in extended credit terms on its product purchases from Vanstar.
Merisel believes that its existing cash balances, together with the proceeds
of the Offering, income from operations and borrowings under lines of credit
will be sufficient to meet its working capital and capital investment needs
through at least the next twelve months.
ASSET MANAGEMENT
Merisel attempts to manage its inventory position to maintain levels
sufficient to achieve high product availability and same-day order fill rates.
Inventory levels may vary from period to period, due in part to increases or
decreases in sales levels, Merisel's practice of making large-volume purchases
when it deems the terms of such purchases to be attractive and the addition of
new manufacturers and products. The Company has negotiated agreements with many
of its manufacturers which contain stock balancing and price protection
provisions intended to reduce, in part, Merisel's risk of loss due to slow
moving or obsolete inventory or manufacturer price reductions. In the event of
a manufacturer price reduction, the Company generally receives a credit for
products in inventory. In addition, the Company has the right to return a
certain percentage of purchases, subject to certain limitations. Historically,
price protection and stock return
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privileges as well as the Company's inventory management procedures have helped
to reduce the risk of loss of carrying inventory.
The Company offers credit terms to qualifying customers and also sells on a
prepay, credit card and cash-on-delivery basis. With respect to credit sales,
the Company attempts to control its bad debt exposure through monitoring of
customers' creditworthiness and, where practicable, through participation in
credit associations that provide credit rating information about its customers.
In certain foreign markets, the Company may elect to purchase credit insurance
for certain accounts.
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BUSINESS
OVERVIEW
Merisel is the largest worldwide publicly-held wholesale distributor of
microcomputer hardware and software products. Through its full-line, channel-
specialized distribution business, Merisel combines the comprehensive product
selection and operational efficiency of a full-line distributor with the
customer support of a specialty distributor offering dedicated sales
organizations to each of its customer groups. On January 31, 1994, the Company
completed the acquisition of the ComputerLand Business. The ComputerLand
Business is a leading aggregator, or master reseller, of computer systems and
related products from major microcomputer manufacturers, including Apple,
Compaq, Hewlett-Packard and IBM, to a network of approximately 750
independently-owned computer product resellers in the United States. With the
acquisition of the ComputerLand Business, the Company has become the industry's
first "Master Distributor," combining the strengths of a full-line, channel-
specialized distributor with those of a master reseller. As a Master
Distributor, the Company believes it is well positioned to offer a wider
selection of microcomputer products to more categories of customers than any of
its competitors.
At June 30, 1994, Merisel stocked over 25,000 products from more than 900 of
the microcomputer hardware and software industry's leading manufacturers,
including Apple, AST, Borland, Colorado Memory Systems, Compaq, Creative Labs,
Digital Equipment Corporation, Epson, Hayes, Hewlett-Packard, IBM, Intel,
Lotus, Microsoft, NEC, Novell, Okidata, Sun Microsystems, Symantec, Texas
Instruments, 3Com, Toshiba, WordPerfect and Wyse. Merisel sells products to
over 65,000 computer resellers worldwide, including value-added resellers,
large retail chains and franchisees, computer superstores, mass merchants,
Macintosh and Unix resellers, system integrators and original equipment
manufacturers. In order to effectively service its large and diverse
international customer base, the Company currently maintains 20 distribution
centers that serve North America, Europe, Latin America, Australia and other
international markets. The breadth of the Company's product line, together with
its international distribution network, enable the Company to provide its
customers with a single source of supply and prompt delivery of product. For
the six months ended June 30, 1994, the Company's net sales by geographic
region were generated as follows: United States, 67.5%; Canada, 11%; Europe,
15.5%; and other international markets, 6%.
THE INDUSTRY
The microcomputer products distribution industry is large and growing,
reflecting both increasing demand worldwide for computer products and the
increasing use of wholesale distribution channels by manufacturers for the
distribution of their products. The industry moves product from manufacturer to
end-user through a complex combination of distribution agreements between
manufacturers, wholesale distributors, aggregators and resellers. Historically,
there have been two types of companies within the industry: those that sell
directly to the end-user ("resellers") and those that sell to resellers
("wholesale distributors" and "aggregators", which are also called "master
resellers").
Resellers sell directly to end-users, including large corporate accounts,
small- and medium-sized businesses and home users. The major reseller channels
are dealers and corporate resellers, value-added resellers ("VARs"), mail-order
firms and retailers (computer superstores, office supply chains and mass
merchants). VARs, which account for one of the largest segments of the overall
reseller channel, typically add value by combining proprietary software and/or
services with off-the-shelf hardware and software.
Wholesale distributors generally purchase a wide range of products in bulk
directly from manufacturers and then ship products in smaller quantities to
many different types of resellers, who typically include dealers, VARs, system
integrators, mail order resellers, computer products superstores and mass
merchants. Aggregators, or master resellers, are functionally similar to
wholesale distributors, but they focus on selling relatively few product lines,
typically high-volume, brand-name computer systems, to a captive network of
franchised dealers and affiliates. The larger computer manufacturers, such as
Apple, Compaq, Hewlett-Packard and IBM, have historically required resellers to
purchase their products from an affiliated aggregator,
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such as the ComputerLand Business. Wholesale distributors have not been
authorized to sell these manufacturers' key microcomputer components, except on
a limited basis. These restrictions have been eased recently, and may continue
to be eased and eventually be eliminated, with the result that the distinction
between wholesale distributors and master resellers may blur. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Acquisition of ComputerLand Business."
With the acquisition of the ComputerLand Business, the Company has become the
industry's first Master Distributor, combining the strengths of a full-line,
channel-specialized distributor with those of a master reseller.
BUSINESS STRATEGY
Merisel has achieved its leading position by pursuing a strategy of offering
the industry's leading products and services to its customers at competitive
prices, providing cost-effective customer service through efficient operations,
expanding the Company's international business and targeting its various
customer groups using dedicated sales forces and marketing programs.
Providing Leading Products and Services. The Company's objective is to offer
the broadest range of leading product brands in each of the product categories
it carries. By stocking the leading brands, the Company generates sales of both
those and other product brands, as reseller customers often prefer to deal with
a single source for many of their product needs. The Company continuously
evaluates new products, the demand for its current products as well as its
overall product mix and seeks to develop distribution relationships with
suppliers of products that enhance the Company's product offerings. The Company
believes that the size of its reseller customer base, its international
distribution capability and both the breadth and quality of its marketing
support programs give it a competitive advantage over smaller, regional
distributors in developing supplier relationships.
As a result of the ComputerLand Acquisition, the Company, through the
ComputerLand Business, is now able to offer to the ComputerLand Business'
franchisees and affiliates a broad range of microcomputer systems and other
products from Apple, Compaq, Hewlett-Packard and IBM. Although the Company
distributes certain products of these leading manufacturers through its
wholesale distribution arrangements, neither the Company nor its direct
wholesale distribution competitors have been authorized to sell these
manufacturers' key microcomputer systems in the United States, except on a
limited basis. Instead, these manufacturers historically have distributed their
products directly to resellers and through aggregators such as ComputerLand
Corporation. See "--The Industry."
The Company believes that an opportunity exists to generate additional,
higher-margin revenues by offering fee-based services and information to
manufacturers and resellers. In 1993, the Company formed the Channel Services
Group to provide a variety of these services, including telemarketing,
merchandising and electronic software services.
Pursuing Operational Excellence. The Company believes that high levels of
customer service and operating efficiency, or "operational excellence," are
important factors in achieving and maintaining success in the highly
competitive microcomputer products distribution industry. The Company measures
operational excellence by such standards as "ease of doing business," accuracy
and efficiency in delivering products and expediting the delivery of services
and information. Merisel constantly strives to improve its operational
processes. In furtherance of this strategy, the Company is in the process of
upgrading and improving its computer operating systems as well as its warehouse
management systems. See "--Operations and Distribution." In addition, the
Company is reorganizing its European operations, adding new management
personnel and centralizing certain functions to achieve economies of scale.
Merisel will seek to continue to refine the operational systems at its foreign
sales offices and distribution centers in order to increase the uniformity and
efficiency of the Company's worldwide operations. See "--International
Operations." These changes are intended to enhance the Company's ability to
offer faster, more efficient and accurate service to its customers.
Expanding Internationally. Merisel believes that it generates one of the
largest volumes of international sales of any U.S.-based distributor, is the
largest wholesale distributor of computer products in Canada and
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is a leading distributor in Europe, Mexico, Australia and Latin America. See
"--International Operations." The Company believes that many international
markets will offer growth and profit opportunities due to the underdeveloped
and fragmented nature of the microcomputer distribution industry in these
markets. Merisel believes it is well positioned to capitalize on the
opportunities presented in a number of these markets because of the current
scope of its international operations and its ability to offer a broader range
of products and specialized services than many of its competitors. The
Company's strategy is to expand its international operations through internal
growth and the possible acquisition of existing distributors or the
establishment of new operations in other countries.
Targeting Customer Groups. Merisel serves a variety of reseller channels,
which have diverse product, financing and support needs. Merisel was the first
full-line distributor in the industry to offer its various customer groups a
channel-dedicated sales force as well as customized product offerings,
financing programs and marketing and technical support programs, all of which
are tailored to address the differing needs of these customer groups. The
Company intends to continue to monitor the markets it serves to identify
customer opportunities and develop sales and marketing programs that serve
these groups more effectively. In furtherance of this strategy, on January 31,
1994 the Company completed the ComputerLand Acquisition.
PRODUCTS AND MANUFACTURER SERVICES
Merisel provides its manufacturers with access to one of the largest bases of
computer resellers worldwide while offering these manufacturers the means to
reduce the inventory, credit, marketing and overhead costs associated with
establishing a direct relationship with these resellers. This factor, along
with Merisel's access to financial resources and its economies of scale, has
allowed the Company to establish and develop long-term business relationships
with many of the leading manufacturers in the microcomputer industry. Merisel
distributes over 25,000 hardware and software products, including products for
the MS-DOS, OS/2, Macintosh, Apple and UNIX operating environments. For the
fiscal year ended December 31, 1993, net worldwide sales of hardware and
accessories accounted for approximately 60% of the Company's net sales, and
sales of software products accounted for the remaining 40% of net sales. In
addition, for the three months ended June 30, 1994, the first quarter which
reflects the results of operations of the ComputerLand Business for an entire
quarter, net worldwide sales of hardware and accessories accounted for
approximately 75% of the Company's net sales, and sales of software products
accounted for the remaining 25% of net sales.
Merisel's suppliers include many of the leading microcomputer software and
hardware manufacturers, such as Apple, AST, Borland, Colorado Memory Systems,
Compaq, Creative Labs, Digital Equipment Corporation, Epson, Hayes, Hewlett-
Packard, IBM, Intel, Lotus, Microsoft, NEC, Novell, Okidata, Sun Microsystems,
Symantec, Texas Instruments, 3Com, Toshiba, WordPerfect and Wyse. In October
1993, Merisel was selected as one of two distributors in the U.S. of Sun
Microsystems' products. Software products include business applications such as
spreadsheets, word processing programs and desktop publishing and graphics
packages, as well as a broad offering of operating systems, including local
area network operating systems, advanced language and utility products.
Hardware products offered by the Company include computer systems, printers,
monitors, disk drives and other storage devices, modems and other connectivity
products, plug-in boards and accessories. The ComputerLand Acquisition
increased the Company's ability, through the ComputerLand Business, to
distribute the product offerings of Apple, Compaq, Hewlett-Packard and IBM to
the ComputerLand Business' franchisees and affiliates. See "--The Industry."
In addition to providing manufacturers access to one of the largest bases of
computer resellers worldwide, the Company also enables manufacturers to offer
efficiently a number of special promotions, training programs and marketing
services targeted to the needs of specific reseller groups. Merisel runs a
variety of special promotions for manufacturers' products, ranging from price
discounts and bundled purchase discounts to specialized computer reseller
marketing programs, including the Vantage and Frequent Buyer Programs. These
promotional programs are designed to encourage computer resellers to increase
their volume of purchases, motivate resellers to purchase within a limited time
period and highlight specific manufacturers' products or promotion
opportunities. Additionally, Merisel provides marketing consultation services
for manufacturers' strategic marketing campaigns, as well as the opportunity to
be included in
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Merisel-sponsored trade advertisements. Merisel's marketing program specialists
work with designated manufacturers to develop and carry out marketing programs
such as dealer commission programs, sales contests and other promotions.
Merisel can also provide dedicated marketing support and targeted customer
information from its database to enhance manufacturers' product promotions.
The Company also offers two exclusive training programs: Softeach, a two-day
worldwide seminar series whereby manufacturers train resellers about their
products, and Selteach, a training seminar series that gives manufacturers an
opportunity to provide product information to Merisel's United States sales
force. In 1993, Merisel offered Softeach seminars in 26 cities and 11
countries. Merisel, through third-party consultants, also conducts training
classes regarding certain Novell, 3Com, The Santa Cruz Operation, Digital
Equipment Corporation, Sun Microsystems, Microsoft and Lotus products for its
reseller customers.
Merisel generally enters into written distribution agreements with the
manufacturers of the products it distributes. As is customary in the industry,
these agreements usually provide non-exclusive distribution rights and often
contain territorial restrictions which limit the countries in which Merisel is
permitted to distribute the products. The agreements generally provide Merisel
with stock balancing and price protection provisions which reduce in part
Merisel's risk of loss due to slow-moving inventory, supplier price reductions,
product updates or obsolescence. The Company's agreements generally have a term
of at least one year, but often contain provisions permitting earlier
termination by either party upon written notice. Some of these agreements
contain minimum purchase amounts. Failure to purchase at such minimum levels
could result in the termination of the agreement.
Although Merisel regularly stocks products and accessories supplied by more
than 900 manufacturers, 45% of the Company's net sales in 1993 (as compared to
46% in 1992 and 47% in 1991) were derived from products supplied by Merisel's
ten largest manufacturers, with the sale of products manufactured by Microsoft
accounting for approximately 16% of net sales in 1993 (as compared to 17% in
1992 and 15% in 1991). The loss of the ability to distribute a particularly
popular product could result in losses of sales unrelated to that product. The
loss of a direct relationship between the Company and any of its key suppliers
could have an adverse impact on the Company's business and financial results.
CUSTOMERS AND CUSTOMER SERVICES
Merisel sells to more than 65,000 computer resellers worldwide. Merisel's
customers include VARs, large hardware and software retail chains and
franchisees, computer superstores, mass merchants, Macintosh, UNIX and other
corporate resellers, systems integrators and original equipment manufacturers
as well as independently owned retail outlets and consultants. Merisel's
smaller customers often do not have the resources to establish a large number
of direct purchasing relationships or stock significant product inventories.
Consequently, they tend to purchase a high percentage of their products from
distributors. Larger resellers often establish direct relationships with
manufacturers for their more popular products, but utilize distributors for
slower-moving products and for fill-in orders of fast-moving products which may
not be available on a timely basis from manufacturers. No single customer
accounted for more than 3.0% of Merisel's net sales in 1991, 1992 or 1993.
In Merisel's wholesale distribution business, the Company offers its
customers a single source of supply, prompt delivery, financing programs and
customer support.
Single Source Provider. Merisel offers computer resellers a single source for
over 25,000 competitively priced hardware and software products. By purchasing
from Merisel, the reseller only needs to comply with a single set of ordering,
billing and product return procedures and may also benefit from attractive
volume pricing. In addition, resellers are typically allowed, within specified
time and dollar limits, to return slow-moving products from one manufacturer in
exchange for more popular products from other manufacturers. Merisel's policy
is to not grant cash refunds. Merisel has recently initiated a program that
provides incentives to ComputerLand franchisees and Datago affiliates to make
all their product purchases from Merisel and Merisel FAB.
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Prompt Delivery. In most areas of the world serviced by the Company, orders
received by 5:00 p.m. local time are typically shipped the same day, provided
the required inventory is in stock. Merisel maintains sufficient inventory
levels in the United States to ship consistently in excess of 95% of all units
ordered on the day of receipt. Merisel typically delivers products from its
regional warehouses via United Parcel Service and other common carriers, with
customers in most areas in the United States receiving orders within one to two
working days of shipment. Merisel also will provide overnight air handling if
requested and paid for by the customer. These services allow computer resellers
to minimize inventory investment and provide responsive service to their
customers. For larger customers in the United States, Merisel also provides a
fulfillment service so that orders are shipped directly to the computer
resellers' customer, thereby reducing the need for computer resellers to
maintain inventories of certain products. The Company's foreign subsidiaries
may have lower fill rates and longer delivery times due to differing market
requirements and the smaller size of their operations.
Financing Programs. Merisel's credit policy for qualified resellers
eliminates the need to establish multiple credit relationships with a large
number of manufacturers. In addition, the Company arranges floor plan and lease
financing through a number of credit institutions and offers a program that
permits credit card purchases by qualified customers. To allow certain
resellers to purchase larger orders in the United States, the Company offers a
"financing desk" which seeks to arrange alternative financing such as escrow
programs and special bid financing from financial institutions.
Customer Support. Merisel offers a number of customer loyalty programs,
including the Vantage and Frequent Buyer Programs, which provide incentives to
resellers to aggregate their purchases through Merisel. The Vantage Programs
offer Merisel's top-volume customers within the VAR and value-added dealer
channels increased levels of service and pricing advantages. Merisel's Frequent
Buyer Program awards resellers with credits based on the dollar amount of their
purchases from Merisel, which credits are redeemable for travel, education and
merchandise and for activities such as product promotions and advertisements.
The cost of the Frequent Buyer Program is funded by cooperative marketing
dollars paid by Merisel's suppliers.
Merisel furnishes its computer resellers with a series of publications
containing detailed information on products, pricing, promotions and
developments in the industry. Merisel publishes a Confidential Reseller Price
Book, which lists Merisel's current product offerings. Merisel also publishes
the Hot List, which ranks Merisel's current best-selling hardware and software
products in four different reseller channels. In addition, Merisel's On-Line
Literature Library offers over 20,000 data sheets of product information
literature on a fax-back system and on CD-ROM.
Merisel provides training and product information to its reseller customers
through its well-respected Softeach program, a worldwide series of training
forums whereby manufacturers conduct seminars on how to sell their products.
Softeach is held periodically in major cities throughout the United States,
Canada, Australia and Europe. In 1993, the Company believes that over 15,000
computer resellers attended Softeach seminars held in 11 countries worldwide.
Merisel also provides computer resellers with a technical support "hotline," as
well as specialized technical support for virtually all product lines sold by
Merisel. In addition, Merisel's Technical Support department provides regular
product training seminars to Merisel's sales representatives to help them
become more product-knowledgeable.
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SALES AND MARKETING
To reach diverse customer segments, the Company has organized its Sales
department for its wholesale distribution business in the United States into
nine dedicated sales divisions, which serve the dealer, VAR and consumer
channel segments.
Dealer Channel. This channel is served by the following specialized sales
divisions:
. The RETAILER division serves franchisees, independent retail chains and
storefronts, corporate resellers and direct-mail marketers.
. The RESELLER FULFILLMENT division serves the needs of direct marketers
such as Dell, IBM and Zenith through the fulfillment of orders for
third-party hardware and software products.
. The MAJOR ACCOUNTS division serves Merisel's large franchisee accounts,
computer superstores and computer retail chains through a specialized
staff that offers enhanced services, volume purchase agreements,
corporate office coordination, marketing programs and sales report data.
. The MACINTOSH division provides expertise in sales and support of third-
party Macintosh products worldwide through its own separate marketing,
sales, products and technical support and purchasing departments.
VAR Channel. This channel is served by the following specialized sales
divisions:
. The VAR division provides value-added resellers with highly
knowledgeable sales representatives, a comprehensive line of computer
systems, UNIX and connectivity products, education, financial services
and technical support.
. The ADVANCED PRODUCTS division (formerly the UNIX division) is primarily
dedicated to selling and supporting Sun Microsystems and Sun-
complementary products through its own sales, marketing, operations and
technical support departments.
. The OEM division supports Merisel's customers who integrate and/or
manufacture microprocessor-based systems and solutions utilizing OEM
versions of Merisel's hardware and software products.
. The recently created SYSTEM INTEGRATOR division supports large system
and network integrators who require specialized programs and services.
Consumer Channel.
. The CONSUMER PRODUCTS division targets mass merchants such as Circuit
City, Montgomery Ward and Office Depot by providing inventory selection
and control services, specialized marketing programs and other support
services tailored to the needs of mass-market merchandisers.
For each of the Company's international subsidiaries, the number and type of
specialized sales divisions vary based on market requirements, the size of the
subsidiary's sales force and the products carried by the subsidiary.
The Company's sales force is composed of field sales representatives who
manage relations with the larger accounts and inside telemarketing sales
representatives who receive product orders and answer customer inquiries. When
a customer calls Merisel, screen synchronization technology causes a sales
profile to appear on the sales representative's computer screen before
greetings are exchanged. Customer orders generally are placed via a toll-free
telephone call to Merisel's inside sales representatives and are entered on
Merisel's SalesNet order entry system, a proprietary local area network created
by Merisel to speed the process of taking and processing orders. Using the
SalesNet database, sales representatives can immediately enter customer orders,
obtain descriptive information regarding products, check inventory status,
determine customer credit availability and obtain special pricing and promotion
information. Merisel also offers Dial-Up
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SalesNet, a system that allows a customer, through the use of its own personal
computer and a modem, to access Merisel's database to examine pricing, credit
information, product description and availability and promotional information
and to place orders directly into Merisel's order processing system. For
certain of its larger customers, the Company has installed electronic data
interchange (EDI) systems which allow participating customers to directly
access the Company's mainframe computer system for order processing and account
information.
OPERATIONS AND DISTRIBUTION
The Company operates 20 distribution centers around the world, including
eight in the United States, two in Canada, five in Europe, four serving Latin
America and one in Australia. All of these distribution centers are leased,
except for one facility in Mexico, which is owned by the Company. In addition,
pursuant to the terms of the Services Agreement, Vanstar will continue to
provide distribution and other support services to the ComputerLand Business
operated by Merisel FAB for a period of up to two years ending January 31,
1996. See "--ComputerLand Business."
The Company's United States, Canadian and United Kingdom operations, other
than Merisel FAB, are conducted using a mainframe-based computer system,
originally implemented in the early 1980s, that operates on hardware owned and
operated by a third-party service provider. In recent years, the Company has
experienced a significant increase in both its sales volume and in the number
and types of transactions processed by the computer system. The Company
believes that the ability of its existing computer system in North America to
process the increased sales volumes contemplated for 1994 and the first three
quarters of 1995 is limited without certain modifications to the system. The
Company is in the process of implementing such modifications and believes such
modifications will be successful. If, however, there is a delay in implementing
the modifications, or if the system, as modified, performs below anticipated
service levels, the existing system may not be able to accommodate anticipated
increases in sales volumes and transaction requirements in the fourth quarter
of 1994, which in turn could have a negative effect on the Company's business
and financial results. As a result, the Company is making a significant
investment in new advanced computer and warehouse management systems for its
North American operations.
These new systems are designed to accommodate sales volumes of up to twice
current volumes as well as provide greater transaction accuracy and operating
efficiency and more flexibility to accommodate a variety of transaction types.
The Company began designing the new computer system in early 1993 and currently
anticipates that it will begin to convert to the new system in late 1994 and
will continue the conversion through 1995. The Company presently estimates that
its aggregate investment in the new computer systems, including costs of system
design, hardware, software, installation and training, will be approximately
$20 million. The Company installed its first new warehouse management system,
which includes infrared bar coding equipment and advanced computer hardware and
software systems, in one warehouse in 1993 and anticipates installation in its
remaining North American warehouses during 1994 and 1995.
The design and implementation of these new systems are complex projects and
involve risks that unanticipated problems may delay implementation of the new
systems or cause them to perform below anticipated service levels. The Company
is therefore making this substantial investment in the design and installation
of these systems and is dedicating a significant number of its personnel on a
full-time basis (82 employees and independent contractors) to these projects.
In the event the Company experiences delays in implementation of these new
systems or such systems fail to perform at anticipated service levels, the
Company may not be able to accommodate anticipated increases in sales volumes
and transaction processing requirements after the third quarter of 1995, which
in turn could have a negative effect on the Company's business and financial
results.
INTERNATIONAL OPERATIONS
The Company distributes microcomputer products throughout the world. Merisel
formed its first international subsidiary in 1982 and now operates in Canada,
the United Kingdom, France, Germany,
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Australia, Switzerland, Austria and Mexico. Merisel also has a subsidiary based
in Miami, Florida, which sells products primarily to customers in Latin America
and in other parts of the world where Merisel does not have a physical
presence. In June 1990, the Company began limited distribution of products in
Russia as part of a joint venture. The Company believes that certain of the
markets for microcomputer products outside the United States are less mature
and therefore present opportunities for further growth. Accordingly, the
Company will seek to further expand its international operations through
internal growth and the possible acquisition of existing distributors or
establishment of new operations in other countries.
The products and services offered by Merisel's international subsidiaries are
generally similar to those offered in the United States, although the breadth
of the subsidiaries' product lines and the range of manufacturers' and
customers' services offered by the subsidiaries are usually smaller due to the
smaller size of the subsidiaries and differing market requirements. Certain
subsidiaries provide products or services not offered in the United States due
to differing manufacturer relationships and market requirements. Operationally,
the management and distribution systems at the Company's international
subsidiaries vary depending on the size of the subsidiary, its length of
operation and local market requirements. As each subsidiary expands, the
Company seeks to implement systems and procedures that are more similar to
those used in the United States.
In Europe, the Company is revising its distribution strategy in response to
the reduction in cross-border shipment barriers instituted by the European
Economic Community in 1993. With the reduction of cross-border shipping
barriers, the Company believes it can more efficiently ship to a large number
of countries from a centralized master warehouse or warehouses, supplemented by
smaller warehouses in various locations across Europe. At present, the Company
maintains a full warehouse in each of the countries in which it has operations,
with the exception of Austria. The Company has begun development of a master
warehouse in Northern Europe for use beginning in mid-to-late 1995.
The Company's European operations are managed through a European
headquarters, which operates with a staff of pan-European managers to oversee
the Company's various European subsidiaries and operations. Merisel currently
is increasing its European management team and planning the computer system
revisions and other operational changes required to implement its centralized
distribution strategy.
Because the Company conducts business in a number of countries, that portion
of operating results and cash flows that is non-U.S. dollar denominated is
subject to certain currency fluctuations. The Company generally employs forward
exchange contracts to limit the impact of fluctuations in the relative values
of some of the currencies in which it does business.
In addition, international operations may also be subject to risks such as
the imposition of governmental controls, export license requirements,
restrictions on the export of certain technology, political instability, trade
restrictions, changes in tariffs, difficulties in staffing and managing
international operations and collecting accounts receivable and the impact of
local economic conditions and practices. As the Company continues to expand its
international operations, its success will be dependent, in part, on its
ability to anticipate and deal with these and other risks. There can be no
assurance that these or other factors will not have an adverse effect on the
Company's international operations.
For segment information regarding Merisel's United States and international
operations, see Note 10 of Notes to Consolidated Financial Statements.
COMPUTERLAND BUSINESS
On January 31, 1994, the Company completed the ComputerLand Acquisition. As a
result of the ComputerLand Acquisition, Merisel, through the ComputerLand
Business, will now operate as a master reseller of computer systems and related
products from the major microcomputer manufacturers to a network
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of approximately 750 independently-owned product resellers composed of two
customer groups: ComputerLand franchisees, with whom Merisel FAB acts as
franchisor by licensing the ComputerLand name and providing both product supply
and various support services, and resellers purchasing under the ComputerLand
Business' Datago program, which are independent dealers and value-added
resellers that purchase products from the ComputerLand Business on a cost-plus
basis, but do not license the ComputerLand name. On a pro forma combined basis
for the year ended December 31, 1993, the ComputerLand Acquisition would have
increased net sales by $1.1 billion, gross profit by $54.7 million and
operating income by $13.3 million. See "Unaudited Pro Forma Condensed Combined
Statements of Income" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Acquisition of ComputerLand Business."
In connection with its purchase of the ComputerLand Business, Merisel
purchased the ComputerLand Business' franchise and third-party reseller
agreements as well as the rights in the United States to ComputerLand
Corporation's trademarks, trade names, service marks, patents and logos.
Merisel paid approximately $80 million in cash at the closing of the
ComputerLand Acquisition for the acquired assets. In addition, Merisel has
agreed to make an additional payment in 1996 of up to $30 million, the amount
of which will be determined based upon the growth in Merisel FAB's and the
Company's sales of products of designated manufacturers to specified customers
over the two-year period ending January 31, 1996. Sixty-five of the
ComputerLand Business' 66 employees became employees of Merisel FAB in
connection with the ComputerLand Acquisition. Merisel did not purchase the
order fulfillment systems, warehouses or inventory used by the ComputerLand
Business. Instead, the Company eventually intends to integrate these functions
into its facilities and systems. In the interim, Merisel and Vanstar have
entered into the Services Agreement pursuant to which Vanstar will continue to
provide products and distribution and other support services to the
ComputerLand Business for a contractually agreed-upon fee for a period of up to
two years following the ComputerLand Acquisition. In addition, pursuant to the
terms of the Services Agreement, Merisel has been granted $20 million in
extended credit terms on its product purchases from Vanstar.
Following its sale of the ComputerLand Business, Vanstar continues to operate
as a reseller of computer products and services through its company-owned
locations throughout the United States and also retains its international
operations.
The ComputerLand Business' franchisees operate locations under the
ComputerLand name. The ComputerLand Business currently sells products to
franchisees at cost and receives a royalty based upon gross sales of the
franchisee, irrespective of whether the products sold were purchased from the
ComputerLand Business. During 1994, the ComputerLand Business has offered to
certain franchisees the opportunity to revise such franchisees' pricing
structure by selling products to franchisees at cost plus a mark-up and
reducing or eliminating the royalty on overall franchisee sales provided the
franchisee achieves minimum purchase targets. The franchise agreements
purchased as part of the ComputerLand Acquisition typically provide for a ten-
year exclusive contract, renewable at the option of the franchisee. In addition
to the use of the ComputerLand name, the ComputerLand Business provides
franchisees a range of services including sales and marketing materials,
management and sales support services and a proprietary-dealer management
software system. At February 1, 1994, the ComputerLand Business had agreements
with franchisee groups operating 198 locations, located primarily in secondary
metropolitan markets in the United States.
The ComputerLand Business' Datago resellers are independent dealers and
value-added resellers. These resellers generally enter into non-exclusive one-
year renewable contracts cancelable at the option of either party on short
notice. These contracts typically entitle Datago resellers to purchase the full
range of the ComputerLand Business' products at cost plus a mark-up, depending
on the dollar volume of products purchased. At February 1, 1994, the
ComputerLand Business had approximately 549 active Datago resellers. During the
six months ended June 30, 1994, no individual franchisee or Datago reseller
accounted for more than 5% of the ComputerLand Business' revenues.
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Following the ComputerLand Acquisition, the Company has undertaken an effort
to add additional resellers as customers of the ComputerLand Business under its
Datago program. Later in 1994, the Company intends to begin adding new
ComputerLand franchisees throughout the United States, focusing in particular
on locations where no reseller is using the ComputerLand name. The Company
currently expects that such new franchisees, as well as renewing franchisees,
will enter into three-year franchise agreements that allow a franchisee the
option to convert to a Datago affiliate for the third year.
The ComputerLand Business offers its franchisees and Datago resellers a
selection of major microcomputer equipment and peripherals provided by
approximately 70 suppliers. For its fiscal year ended September 30, 1993,
approximately 76% of the ComputerLand Business' revenues were generated by
sales of Apple, Compaq, Hewlett-Packard and IBM products. The loss of any one
of these four manufacturers, or a change in the way any of these manufacturers
markets, prices or distributes its products, could have a material adverse
effect on the ComputerLand Business' operations and financial results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisition of ComputerLand Business." In addition to the products
supplied directly by the ComputerLand Business, franchisees and Datago
resellers may purchase other products offered by the Company's wholesale
distribution business pursuant to separate agreements negotiated on their
behalf by Merisel FAB.
Under the two-year Services Agreement, Vanstar will continue to purchase and
warehouse manufacturers' products and fulfill reseller orders for the products
offered by Merisel FAB. Merisel FAB will purchase such products from Vanstar,
rather than directly from the supplier, and will pay Vanstar a service fee for
performing these distribution functions. Resellers will continue to place
product orders with Merisel FAB through the order placement system operated by
Vanstar. Vanstar will typically ship products to a customer within two days of
receipt of an order. During the term of the Services Agreement, Merisel FAB
will be dependent upon Vanstar to purchase and maintain inventories of products
sufficient to meet resellers' requirements and to receive and fulfill orders at
acceptable service levels. Merisel FAB and Vanstar will jointly maintain
supplier relationships. While the Company has no reason to believe that Vanstar
will not be able to perform its obligations under the Services Agreement, in
the event that Vanstar becomes unable to perform such obligations, there may be
an adverse effect on the operations and financial results of the Company. The
Services Agreement contains provisions for monetary penalties in the event that
Vanstar fails to achieve agreed-upon service levels, as well as provisions
permitting Merisel FAB to take over a portion of Vanstar's operations to
fulfill such obligations under certain circumstances.
Over 76% of the ComputerLand Business' sales to its customers currently are
financed on behalf of such customers by floor plan financing companies, and the
ComputerLand Business typically receives payment from these financing companies
within three business days from the date of sale. Such floor plan financing is
typically subsidized for the ComputerLand Business' customers by its suppliers.
Any material change in the availability or the terms of financing offered by
such financing companies or the subsidies provided by suppliers could require
Merisel FAB to provide such financing to its customers, thereby substantially
increasing the working capital necessary to operate its business.
The Company does not have experience in operating a master reseller business
such as the ComputerLand Business, with its different merchandising strategy
and customer base. While the Company believes that the personnel hired as part
of the ComputerLand Acquisition, together with the Company's senior management,
will successfully manage the ComputerLand Business, no assurances can be given
as to the future performance levels or operating results of the ComputerLand
Business.
COMPETITION
Competition in the microcomputer products distribution industry is intense
and is based primarily on price, brand selection, breadth and availability of
product offering, speed of delivery, level of training and technical support,
marketing services and programs and ability to influence a buyer's decision.
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Certain of Merisel's competitors have substantially greater financial
resources than Merisel. Merisel's principal competitors include large United
States-based international distributors such as Ingram Micro and Tech Data
Corporation, non-U.S. based international distributors such as Computer 2000,
national distributors such as Gates/FA Distributing, Inc. and Robec, Inc., and
regional distributors and franchisors. The Company competes internationally
with a variety of national and regional distributors on a country-by-country
basis.
Merisel also competes with manufacturers that sell directly to computer
resellers, sometimes at prices below those charged by Merisel for similar
products. The Company believes its broad product offering, product
availability, prompt delivery and support services may offset a manufacturer's
price advantage. In addition, many manufacturers focus their direct sales to
large computer resellers because of the high costs associated with dealing with
a large number of small-volume computer reseller customers.
The ComputerLand Business is subject to competition from other franchisors
and aggregators in obtaining and retaining franchisees and third-party
resellers, as well as competition from wholesale distributors with respect to
sales of products to customers in the ComputerLand Business' network. See "--
The Industry." The Company believes that the ComputerLand Business' pricing,
brand selection, product availability and service levels are competitive with
the industry. With respect to brand selection, the Company believes that an
important factor in the ComputerLand Business' ability to attract customers is
the fact that it is able to offer computer systems and other hardware products
from Apple, Compaq, Hewlett-Packard and IBM. These manufacturers historically
have sold their products directly to resellers and through a limited number of
master resellers such as the ComputerLand Business. The loss of any of these
manufacturers, or any change in the way any such manufacturer's markets, prices
or distributes its products, could have a material adverse effect on the
ComputerLand Business' operations and financial results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Acquisition of ComputerLand Business." The ComputerLand Business' principal
competitors are Intelligent Electronics, MicroAge and Inacom, all of which
maintain networks of franchisees and third-party dealers and which carry
products of one or more of the Company's major manufacturers. Certain of the
ComputerLand Business' competitors have greater financial resources than the
Company.
LEGAL MATTERS
In June 1994, the Company and certain of its officers and/or directors were
named in putative securities class actions filed in the United States District
Court for the Central District of California, consolidated as In re Merisel,
Inc. Securities Litigation. Plaintiffs, who are seeking damages in an
unspecified amount, purport to represent a class of all persons who purchased
Merisel common stock between February 1, 1994 andJune 7, 1994 (the "Class
Period"). The complaints allege that the defendants inflated the market price
of Merisel's common stock with material misrepresentations and omissions during
the Class Period. Plaintiffs contend that such alleged misrepresentations are
actionable under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5
promulgated thereunder. Plaintiffs filed a consolidated amended complaint on
August 15, 1994. Merisel believes that it has meritorious defenses to this
lawsuit and intends to defend the action vigorously. Management believes that
the outcome of this matter will not have a material adverse effect on the
consolidated financial position or results of operations of the Company and,
accordingly, no provision for loss has been made in the accompanying financial
statements.
The Company is also involved in certain legal proceedings arising in the
ordinary course of its business, none of which is expected to have a material
impact on the financial condition or business of Merisel.
EMPLOYEES
As of June 30, 1994, Merisel had 2,940 employees. Merisel considers its
relations with its employees to be good.
35
<PAGE>
MANAGEMENT
The current executive officers and directors of the Company are listed below,
together with their ages and all Company positions and offices held by them.
<TABLE>
<CAPTION>
NAME AGE* POSITION
---- ---- --------
<C> <C> <S>
Michael D. Pickett 47 Co-Chairman of the Board of Directors,
President
and Chief Executive Officer
Robert S. Leff 47 Co-Chairman of the Board of Directors and
Senior
Vice President-Business Development
David S. Wagman 43 Vice Chairman of the Board of Directors
James L. Brill 43 Senior Vice President-Finance, Chief Financial
Officer, Secretary and Director
Joseph Abrams 58 Director
David L. House 51 Director
Dr. Arnold Miller 66 Director
Lawrence J. Schoenberg 62 Director
Dwight A. Steffensen 51 Director
John J. Connors 39 Senior Vice President-U.S. Operations
John F. Thompson 49 Senior Vice President-Worldwide Operations
Susan J. Miller-Smith 42 Senior Vice President-European Operations
Thomas P. Reeves 33 Senior Vice President-Canadian Operations
Paul M. Lemerise 49 Senior Vice President-Worldwide Information
Services
Martin D. Wolf 35 Senior Vice President-Franchise and Aggregator
Operations
</TABLE>
- --------
*As of August 1, 1994
The business experience, principal occupations and employment of each of the
executive officers and directors, together with their periods of service as
directors and executive officers during the past five years, are set forth
below.
Michael D. Pickett joined the Company in October 1983 as Vice President-
Finance and Chief Financial Officer and was appointed President and Chief
Operating Officer effective April 1986 and Chief Executive Officer in June
1988. He was elected a director in December 1987 and became Co-Chairman of the
Board of Directors in May 1992. Prior to joining the Company, Mr. Pickett was a
partner of Deloitte & Touche, a public accounting firm.
Robert S. Leff co-founded the Company with David S. Wagman in October 1980
and was its President from that time until May 1985, at which time he became
Co-Chairman of the Board of Directors. Mr. Leff has been a director of the
Company since its inception. Mr. Leff assumed the role of Senior Vice
President-Business Development in May 1992.
David S. Wagman co-founded the Company with Mr. Leff in October 1980, was the
Chairman of the Board of Directors from that time until May 1985 and was its
Co-Chairman with Mr. Leff from May 1985 to May 1992, at which time he became
Vice Chairman of the Board. He retired from full-time employment with the
Company in December 1990. Mr. Wagman has also been a director of the Company
since its inception and served as the Company's Secretary from formation until
May 1992.
James L. Brill joined the Company in May 1988 as Vice President-Finance,
Chief Financial Officer and Assistant Secretary. He was elected a director in
April 1990 and, while retaining his position as Chief Financial Officer, became
Senior Vice President-Finance and Secretary in May 1992. For eight years prior
to joining the Company, Mr. Brill was employed at Union Bank, one of the
Company's lending banks, where his most recent position was Regional Vice
President. At Union Bank, Mr. Brill was responsible for the lending
relationship with the Company.
36
<PAGE>
Joseph Abrams was elected a director of the Company following the acquisition
of Microamerica in April 1990. Mr. Abrams had previously served as a director
of Microamerica from 1983 to April 1990 and also served as President, Chief
Operating Officer and Secretary of AGS Computers, Inc., a software development
company, which was a subsidiary of NYNEX Corp., a telecommunications company,
from 1988 through 1993 ("AGS"). Mr. Abrams retired from AGS in January 1991. He
is also a director of Spectrum Signal Processing, a hardware and software
electronics company.
David L. House was elected to the Board of Directors in March 1994 to fill a
vacancy. Since 1987, Mr. House has served as Senior Vice President and Director
of Corporate Strategy of Intel Corporation, a manufacturer of microprocessing
systems, where he has been employed in various capacities since 1974.
Dr. Arnold Miller was elected to the Board of Directors in August 1989. Since
its formation in 1987, he has been President of Technology Strategy Group, a
consulting firm organized to assist businesses and government in the fields of
corporate strategy development, international technology transfer and joint
ventures, as well as business operations support. Prior to joining Technology
Strategy Group, Dr. Miller was employed at Xerox Corporation, a consumer
products and information services company, for 14 years, where his most recent
position was Corporate Vice President with responsibility for worldwide
electronics operations.
Lawrence J. Schoenberg was elected a director of the Company following the
acquisition of Microamerica in April 1990. Mr. Schoenberg had previously served
as a director of Microamerica from 1983 to April 1990. From 1967 through 1990,
Mr. Schoenberg served as Chairman of the Board and Chief Executive Officer of
AGS. 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. He is also a director of Sungard Data
Services Inc., a computer services company, Government Technology Services
Inc., a microcomputer reseller, Image Business Systems Inc., an imaging
software company and Penn-America Group, Inc., a casualty insurance company.
Dwight A. Steffensen was elected to the Board of Directors in August 1990.
From January 1985 to March 1992, Mr. Steffensen served as a director and
Executive Vice President of Bergen Brunswig Corporation, a pharmaceuticals
distributor. In April 1992, Mr. Steffensen assumed the position of President
and Chief Operating Officer for that entity.
John J. Connors joined Microamerica in October 1979 where he held various
sales positions and became Senior Vice President-United States Sales of
Microamerica in March 1988. He became Senior Vice President, Products and
Marketing of the Company following the acquisition of Microamerica in April
1990, Senior Vice President-Sales of the Company in May 1991 and Senior Vice
President-U.S. Operations in May 1992.
John F. Thompson joined the Company in April 1983 as Vice President-
Operations, became Senior Vice President-Operations in April 1989 and became
Senior Vice President-Worldwide Operations in May 1992. Prior to joining the
Company, Mr. Thompson was Vice President, Manufacturing and Distribution, of
Vidal Sassoon, Inc., a consumer products company.
Susan J. Miller-Smith joined Merisel in 1987 as President of the Company's
Canadian subsidiary. In May 1992, Ms. Miller-Smith became the Company's Senior
Vice President in charge of Canadian Operations. In August 1994, Ms. Miller-
Smith became the Company's Senior Vice President in charge of European
Operations.
Thomas P. Reeves joined Merisel in 1987 as director of International
Strategic Planning. From March 1990 to February 1992, Mr. Reeves served as
Managing Director of the Company's United Kingdom subsidiary. In February 1992,
Mr. Reeves became Managing Director of the Company's operations in Europe, and
in May 1992 he became the Company's Senior Vice President-European Operations.
In August 1994, Mr. Reeves became the Company's Senior Vice President in charge
of Canadian Operations.
37
<PAGE>
Paul M. Lemerise joined Merisel in May 1992 as Senior Vice President-
Worldwide Information Services. From February 1990 to April 1992, Mr. Lemerise
served as Vice President of Management Information Systems at Marshall
Industries, an industrial distributor of electronic components. From 1984 to
1990, Mr. Lemerise served as Divisional Vice President, Information Services,
at Carter Hawley Hale Corporation, a major California retailer.
Martin D. Wolf joined Merisel FAB in February 1994 as its President and in
March 1994 was appointed Senior Vice President-Franchise and Aggregator
Operations of Merisel. Mr. Wolf joined ComputerLand Corporation, a computer
products reseller, in July 1988 and served as President of the ComputerLand
Business from October 1992 to February 1994.
EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation for each of
the last three fiscal years awarded to or earned by the Company's Chief
Executive Officer and the four other most highly compensated executive officers
of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS(3)
------------------------ ------------ ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION YEAR SALARY($)(2) BONUS($)(2) OPTIONS(#) ($)(4)
------------------ ---- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael D. Pickett, 1993 490,066 279,688 -0- 18,739
Co-Chairman of the Board
of Directors, Chief 1992 440,000 303,025(5) 150,000 17,157
Executive Officer
and President(7) 1991 349,997 168,500 124,871(6) --
John J. Connors, 1993 297,984 87,500 -0- 4,915
Senior Vice President-
U.S. Operations(8) 1992 257,017 116,656 75,000 198
1991 200,000 46,850 133,909(6) --
James L. Brill, 1993 207,503 72,656 -0- 4,122
Senior Vice President-
Finance, Chief 1992 190,000 75,281 55,000 3,447
Financial Officer
and Secretary 1991 167,798 64,110 120,888(6) --
Susan J. Miller-Smith, 1993 166,346 95,112 -0- 5,944
Senior Vice President-
European Operations(9) 1992 162,071 87,345 55,000 4,510
John F. Thompson, 1993 187,005 52,818 -0- 3,970
Senior Vice President-
Worldwide Operations(10) 1992 175,000 65,550 55,000 3,201
1991 154,798 59,500 115,294(6) --
</TABLE>
- --------
(1) While the named executive officers enjoyed certain perquisites commensurate
with their positions with the Company, such perquisites did not exceed the
lesser of $50,000 or ten percent (10%) of such officer's salary and bonus.
(2) Portions of the salary and/or bonus earned by named executive officers may
be deferred pursuant to the Company's executive deferred compensation plan
(the "Deferred Compensation Plan"), which was adopted by the Board of
Directors in 1990. Under the Deferred Compensation Plan, executive officers
may elect on an annual basis to defer any portion of their pre-tax
compensation until retirement or termination of employment. The Company
will pay participants in the Deferred Compensation Plan, upon retirement or
termination of employment, an amount equal to the amount of deferred
compensation plus a guaranteed return at a specified rate that is no less
than a base interest rate. In addition, upon the death of a participant the
Company will pay a death benefit to a named beneficiary.
38
<PAGE>
(3) The Company does not have a restricted stock award program and does not
presently compensate its executive officers pursuant to any long-term
incentive plans as defined in Item 402(a)(7)(iii) of Regulation S-K. The
only long-term compensatory arrangement the Company has for its executive
officers is the Company's stock option plan, grants under which are listed
in the Summary Compensation Table for completeness of presentation.
(4) For Mr. Pickett, amount listed for 1993 includes the Company's
contributions on behalf of Mr. Pickett of (a) $13,500 to Mr. Pickett's
split-dollar life insurance policy, (b) $4,717 to the Merisel, Inc. 401(k)
Retirement Savings Plan (the "401(k) Plan") and (c) $522 of premiums paid
with respect to the Company's group term life insurance policy (the "Term
Life Policy"). For Mr. Connors, amount listed for 1993 includes the
Company's contributions on behalf of Mr. Connors of (a) $4,717 to the
401(k) Plan and (b) $198 to the Term Life Policy. For Mr. Brill, amount
listed for 1993 includes the Company's contributions on behalf of Mr. Brill
of (a) $3,816 to the 401(k) Plan and (b) $306 to the Term Life Policy. For
Ms. Miller-Smith, amount listed for 1993 includes (a) $4,449 in imputed
interest with respect to a relocation loan as further described below, and
(b) the Company's contribution on behalf of Ms. Miller-Smith of $1,495 to
the Term Life Policy. For Mr. Thompson, amount listed for 1993 includes the
Company's contributions on behalf of Mr. Thompson of (a) $3,448 to the
401(k) Plan and (b) $522 to the Term Life Policy. Itemized disclosure of
amounts of other compensation in 1992, as well as disclosure of amounts of
other compensation in 1991, are not required. Disclosure of amounts for the
1991 fiscal year is not required.
(5) Includes a bonus paid to Mr. Pickett in the amount of $56,775 to allow Mr.
Pickett to pay the interest due on a promissory note issued by him to the
Company, which note was paid in full in March 1992.
(6) A portion of such options was issued to Messrs. Pickett, Connors, Brill and
Thompson in April 1991 in exchange for the cancellation of options to
purchase 146,400, 140,000, 100,000 and 100,000 shares of Common Stock,
respectively.
(7) In addition to his positions as Merisel's Chief Executive Officer and
President, Mr. Pickett became Co-Chairman of the Company's Board of
Directors in May 1992.
(8) Mr. Connors became Senior Vice President-U.S. Operations in May 1992. Mr.
Connors' employment with Merisel commenced on April 9, 1990 in connection
with the Company's acquisition of Microamerica.
(9) Ms. Miller-Smith became Senior Vice President-European Operations in August
1994.
(10) Mr. Thompson became Senior Vice President-Worldwide Operations in May
1992.
39
<PAGE>
CERTAIN INFORMATION REGARDING STOCK OPTIONS
The following tables summarize option exercises during the twelve months
ended June 30, 1994 by the executive officers named in the Summary Compensation
Table above, and the value of the options held by such persons at June 30,
1994. No option grants were made during the twelve months ended June 30, 1994
to the executive officers named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES DURING THE TWELVE MONTHS
ENDED JUNE 30, 1994 AND VALUE OF OPTIONS AT JUNE 30, 1994
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT JUNE 30, 1994 JUNE 30, 1994($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael D. Pickett...... -0- -0- 499,871 75,000 3,011,508 -0-
John J. Connors......... 24,000 299,000 104,409 37,500 384,727 -0-
James L. Brill.......... -0- -0- 148,388 27,500 704,106 -0-
Susan J. Miller-Smith... -0- -0- 51,147 27,500 135,970 -0-
John F. Thompson........ 50,000 525,000 52,794 27,500 145,440 -0-
</TABLE>
- --------
(1) Value is determined by subtracting the exercise price of each option held
by the named executive officer from $8.75, the fair market value of the
Common Stock as of June 30, 1994, and multiplying the resulting number by
the number of underlying shares of Common Stock.
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
In April 1992, the Company and Mr. Pickett entered into a five-year
employment agreement. Pursuant to the terms of that agreement, Mr. Pickett will
serve as the Co-Chairman of the Board of Directors, President and Chief
Executive Officer of Merisel with an annual salary (subject to discretionary
increases approved by the Board of Directors) of $493,500 (as of April 1, 1993)
and, if predetermined objectives are achieved, an annual performance bonus of
at least $295,000 under any management bonus plan adopted by the Board of
Directors. The agreement provides Mr. Pickett with certain other benefits,
including up to $15,000 per year for personal legal and accounting expenses,
reimbursement of business and automobile expenses and certain other benefits.
If Merisel terminates Mr. Pickett's employment without cause, his employment
agreement provides that he will receive, among other things, a severance
payment equal to his base salary for eighteen months ($740,250 based on his
current salary) and a prorated portion of his annual performance bonus. In the
event of a sale of all or substantially all of Merisel's operating assets to an
unrelated party or a reorganization, merger or consolidation in which the
capital stock of Merisel is exchanged for or converted into less than a
majority of the voting stock of the surviving entity, Mr. Pickett would be able
to terminate his employment agreement within six months of such event and
receive the same severance payments and other benefits as would be provided had
Merisel terminated his employment without cause. In the event of Mr. Pickett's
death or disability, Merisel would be obligated to make a severance payment
equal to, among other things, Mr. Pickett's base salary for six months
($246,750 based on his current salary) and a prorated portion of his annual
performance bonus.
In addition, Mr. Thompson currently serves as the Company's Senior Vice
President-Worldwide Operations under an agreement whereby in 1994 Mr. Thompson
may make an election to either leave the Company, with a termination payment
equal to one year's base salary, or remain with the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1990, Microamerica advanced $65,000 to Mr. Connors pursuant to a
one-year note bearing interest at the rate of 10% per annum. Merisel became the
lender under this note in March 1991 when Microamerica was acquired by the
Company. In March 1992, Mr. Connors paid the Company approximately $77,000 to
cover such advance, plus all accrued interest due thereon. In addition, in
October 1990, Merisel
40
<PAGE>
advanced $427,000 to Mr. Connors in connection with his relocation. In 1991,
as part of his relocation agreement, the Company forgave $127,000 of such
advance to reimburse Mr. Connors for the loss on the sale of his prior
residence. In April 1991, Mr. Connors delivered a promissory note to the
Company with regard to the $300,000 remaining balance of such advance. In
January 1994, Mr. Connors repaid the note in full.
In April 1988, the Company advanced Ms. Miller-Smith $100,000 Canadian
dollars as part of a relocation allowance. Such advance was made on an
interest-free basis and is evidenced by a fully-secured demand note payable on
the termination of Ms. Miller-Smith's employment. In September 1994, Ms.
Miller-Smith repaid the note in full.
Merisel has entered into an indemnity agreement with each of its directors
which requires Merisel, among other things, to indemnify them against certain
liabilities that may arise by reason of their status or service as directors,
officers, employees or agents of Merisel (other than liabilities arising from
conduct in bad faith or which is knowingly fraudulent or deliberately
dishonest), and, under certain circumstances, to advance their expenses
incurred as a result of proceedings brought against them.
41
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of August 1, 1994, (i) by each
stockholder known by the Company to be the beneficial owner of more than 5% of
the Company's Common Stock as of such date, (ii) by each of the Company's
directors, (iii) certain executive officers of the Company and (iv) by all
executive officers and directors of the Company as a group. Unless otherwise
indicated, the shareholders have sole voting and investment power with respect
to shares beneficially owned by them, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK PERCENT OF
NAME AND ADDRESS BENEFICIALLY OWNED SHARES OWNED
---------------- ------------------ ------------
<S> <C> <C>
David S. Wagman(1)
Merisel, Inc.
200 Continental Boulevard
El Segundo, California 90245................ 2,322,000 7.8%
Robert S. Leff(2)
Merisel, Inc.
200 Continental Boulevard
El Segundo, California 90245................ 2,096,848 7.1%
Michael D. Pickett(3)....................... 499,871 1.7%
James L. Brill(3)........................... 148,388 *
John J. Connors(3).......................... 104,409 *
Susan J. Miller-Smith(3).................... 51,147 *
John F. Thompson(3)......................... 52,794 *
David L. House(3)........................... 1,000 *
Joseph Abrams(4)............................ 598,560 2.0%
Dr. Arnold Miller(4)........................ 5,000 *
Lawrence J. Schoenberg(4)................... 362,884 1.2%
Dwight A. Steffensen(3)..................... 3,000 *
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109(5).............. 2,660,500 9.0%
State of Wisconsin Investment Board
P.O. Box 7842
Madison, Wisconsin 53707(6)................. 2,325,000 7.8%
Wellington Management Company
75 State Street
Boston, Massachusetts 02109(7).............. 2,928,680 9.9%
All Directors and Executive Officers as a
Group
(15 persons)(8)............................ 6,369,472 21.5%
</TABLE>
- --------
* Percentage of Common Stock owned is less than one percent.
(1) Shares are held by Mr. Wagman as Trustee of the David S. Wagman Trust dated
March 3, 1982; includes 2,000 shares issuable with respect to stock options
exercisable within 60 days after August 1, 1994.
(2) Shares are held by Mr. Leff as Trustee of the Robert S. Leff Trust dated
February 23, 1990. Mr. Leff's share holdings include 9,290 and 7,500 shares
held by his wife and his minor sons, respectively.
(3) Represents shares issuable with respect to stock options exercisable within
60 days after August 1, 1994.
(4) Includes 3,000 shares issuable with respect to stock options exercisable
within 60 days after August 1, 1994.
42
<PAGE>
(5) Fidelity Management & Research Company, a wholly-owned subsidiary of FMR
Corp. and an investment advisor, may be deemed to be the beneficial owner
of 1,666,200 shares of Common Stock, or 5.63%, as a result of acting as
investment advisor to several investment companies. Fidelity Management
Trust Company, a wholly-owned subsidiary of FMR Corp. and a bank (as
defined in the Exchange Act), may be deemed to be the beneficial owner of
218,200 shares of Common Stock, or 0.74%, as a result of its serving as
investment manager of several institutional accounts. Edward C. Johnson 3d
owns 34.0% of the outstanding voting stock of FMR Corp. All of the above
information is taken from and furnished in reliance upon the Schedule 13G,
as amended to date, filed by FMR Corp. and Mr. Johnson pursuant to Section
13(g) of the Exchange Act, and the Form 13F-E report for the Quarter Ended
June 30, 1994 pursuant to Section 13(f) of the Exchange Act.
(6) All information regarding share ownership is taken from and furnished in
reliance upon the Schedule 13G, as amended to date, filed by the
stockholder pursuant to Section 13(g) of the Exchange Act.
(7) All information regarding share ownership is taken from and furnished in
reliance upon the Form 13F report for the Quarter Ended June 30, 1994
pursuant to Section 13(f) of the Exchange Act.
(8) Includes 987,180 shares issuable with respect to stock options exercisable
within 60 days after August 1, 1994.
CERTAIN INDEBTEDNESS AND FINANCING ARRANGEMENTS
The following is a summary of certain indebtedness and other financing
arrangements of the Company or its subsidiaries. The following descriptions of
the Revolving Credit Facility, the 8.58% Senior Notes, the 11.28% Subordinated
Notes, the Sale of Trade Accounts Receivable and the Merisel FAB Credit
Facility are qualified in their entirety by reference to the definitive
agreements and instruments governing such financing arrangements, copies of
which have been filed or incorporated as exhibits to the Registration Statement
of which this Prospectus is a part. As a holding company, the Company is
dependent on dividends or other intercompany transfers of funds from its
subsidiaries to meet its debt service and other obligations. Dividends, loans,
advances and repayments of intercompany loans from certain subsidiaries of the
Company are restricted, and may under certain circumstances be prohibited, by
the debt agreements described below.
In December 1993, all of the assets and liabilities of Merisel, Inc. (the
"Parent") were transferred to and assumed by two newly-formed, wholly-owned
subsidiaries--Merisel Americas and Merisel Europe (the "Reorganization"). The
Reorganization was undertaken to more closely align the Company's corporate
structure with its operating and management structure and to facilitate
domestic and international borrowing. Following the Reorganization, the
Company's United States operations are conducted through Merisel Americas, and
Merisel Americas also serves as a holding company for all of the Company's
Pacific Rim and North and South American subsidiaries. Merisel FAB is a direct
subsidiary of the Parent. Merisel Europe serves as a holding company for the
Company's European subsidiaries.
REVOLVING CREDIT FACILITY
Merisel Americas and Merisel Europe are co-borrowers under the $150 million
unsecured Revolving Credit Facility, with a $15 million sublimit for letters of
credit. The facility bears interest, at the option of the borrower, at either
(i) a floating rate tied to the base rate as announced from time to time by
Citibank, N.A., (ii) a floating Eurodollar rate or (iii) a quoted rate agreed
upon by the borrower and lenders, which weighted average rate was 6.18% at
September 30, 1994. The facility also provides for payment of a commitment fee
on the unused portion of the facility at a rate per annum ranging from 0.25% to
0.50%. The interest rate and commitment fee vary depending on either the co-
borrowers' joint leverage ratio or the consolidated leverage ratio of the
Parent. The facility is guaranteed by both the Parent and, up to a limited
amount, by Merisel Americas' Canadian subsidiary ("Merisel Canada"). The
facility expires May 31, 1997.
43
<PAGE>
The Revolving Credit Facility contains a number of covenants that restrict
the co-borrowers and their subsidiaries, and in certain instances, the Parent,
including restrictions on, among other things, (i) payment of dividends or
other distributions; (ii) the acquisition or redemption of equity securities;
(iii) the disposition of assets; (iv) the incurrence or existence of liens; (v)
the incurrence or existence of indebtedness; (vi) fundamental changes in
corporate structure or business activities, including certain mergers,
consolidations, liquidations and dissolutions; (vii) investments, loans and
advances and acquisitions; (viii) transactions with affiliates and
shareholders; and (ix) the prepayment, purchase or redemption of indebtedness
subordinate to indebtedness incurred pursuant to the Revolving Credit Facility
or amendment or modification of certain provisions of other credit agreements.
In addition, the Revolving Credit Facility incorporates all covenants contained
in the Senior Notes and Subordinated Notes.
The co-borrowers are also obligated to meet joint and/or separate financial
covenants relating to (i) tangible net worth; (ii) minimum interest coverage
ratios; (iii) maximum leverage ratios; and(iv) minimum inventory turnover
ratios. In particular, the co-borrowers are obligated to maintain, for the four
quarters preceding the measurement date, a ratio of Consolidated EBITDA (as
defined) to Consolidated Interest Charges (as defined) of not less than 2.25 to
1.00 through April 1, 1995, 2.50 to 1.00 through March 31, 1996, and 2.75 to
1.00 thereafter. The co-borrowers are also obligated to maintain a ratio of
Consolidated Debt Equivalents (as defined) to the sum of Consolidated Debt
Equivalents plus Consolidated Net Worth (as defined) of not more than 0.625 to
1.00 at any time. In addition, the Parent is obligated to meet financial
covenants relating to (i) minimum interest coverage ratios and (ii) maximum
leverage ratios. In particular, the Parent is obligated to maintain a ratio of
Consolidated Debt Equivalents (as defined) to the sum of Consolidated Debt
Equivalents plus Consolidated Net Worth (as defined) of not more than 0.70 to
1.00 at any time. The Parent is also obligated to maintain a ratio of
Consolidated EBITDA to Consolidated Interest Charges of not less than 2.25 to
1.00 at any time.
The Revolving Credit Facility contains the following events of default,
together with other events of default: (i) material adverse change in the
business, earnings, properties, condition (financial or otherwise) or
operations of any co-borrower and its subsidiaries or of Parent and its
subsidiaries; (ii) change of control (as defined); (iii) certain events of
bankruptcy; (iv) payment, covenant and warranty defaults; (v) cross defaults
under certain agreements; (vi) certain uncured judgments; and (vii) the
occurrence of certain material events regarding pension or environmental
liabilities. Upon an occurrence of a default or an event of default under the
Revolving Credit Facility, the co-borrowers will be prohibited from paying
dividends or certain other distributions, including payments of intercompany
debt, to the Parent. Any indebtedness of the co-borrowers to the Parent is
required to be subordinated to the payment, in full, of the Revolving Credit
Facility.
8.58% SENIOR NOTES AND 11.28% SUBORDINATED NOTES
In connection with the Reorganization, the Parent's outstanding $100 million
of 8.58% senior notes, due June 30, 1997 (the "Senior Notes"), were transferred
to Merisel Americas. The Senior Notes are unsecured and are guaranteed by the
Parent, Merisel Europe and, up to a limited amount, Merisel Canada. The Senior
Notes may be prepaid, subject to payment of a make-whole premium. The Senior
Notes impose a number of restrictive, financial and other covenants on Merisel
Americas and its subsidiaries with respect to, among other things, Merisel
Americas' consolidated net worth, leverage ratio and interest coverage ratio
and limitations with respect to (among others) mergers and asset sales, payment
of dividends, investments, liens, incurrence of debt, restricted payments,
operating leases, sale and leaseback transactions and transactions with
affiliates. In particular, Merisel Americas and its subsidiaries may not incur,
guarantee or allow to exist any indebtedness unless the ratio of Consolidated
Debt (as defined) to Total Capitalization (as defined) does not exceed 0.60 to
1.00 and must maintain a minimum Interest Coverage Ratio (as defined) of
between 2.00 to 1.00 and 2.75 to 1.00, depending on the amount of Excess
Restricted Payments (as defined) made by Merisel Americas to the Parent. Any
indebtedness of Merisel Americas to the Parent is required to be subordinated
to the payment, in full, of the Senior Notes. The Senior Notes contain the
following events of default, together with other events of default: (i)
payment, covenant and warranty defaults; (ii) cross defaults
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under certain agreements; (iii) certain uncured judgments; (iv) the occurrence
of certain material events regarding pension liabilities; and (v) certain
events of bankruptcy. Merisel Americas may pay dividends to Parent and make
payments on account of intercompany debt owing to Parent for the sole purpose
of permitting the Parent to make scheduled interest payments with respect to
the Notes so long as no default or event of default shall have occurred and be
continuing under the Senior Notes and if at least ten days before any such
dividend or payment, Merisel Americas delivers an officers certificate to each
holder of Senior Notes to the effect that such officer has reviewed the terms
of the Senior Notes, before and after giving effect to such dividend or
payment, that Merisel Americas is, and in good faith believes it will remain,
in compliance with the requirements of the Senior Notes and that there exists
no default or event of default under the Senior Notes. Holders of the Senior
Notes may accelerate payment of the Senior Notes, together with a credit
integrity premium, upon the occurrence and during the continuance of certain
events of default.
In connection with the Reorganization, the Parent's outstanding $22 million
of 11.28% subordinated notes, due in five equal annual principal installments
beginning in March 1996 (the "Subordinated Notes"), were transferred to Merisel
Americas. The Subordinated Notes are unsecured and are subordinated to certain
senior debt. The Subordinated Notes may be prepaid, subject to payment of a
make-whole premium. The Subordinated Notes contain a number of restrictive,
financial and other covenants on Merisel Americas and its subsidiaries which,
while similar to those contained in the Senior Notes, are generally less
restrictive. In addition, the Subordinated Notes require Merisel Americas to
maintain a consolidated current ratio and contain additional indebtedness
limitations. Any indebtedness of Merisel Americas to the Parent is required to
be subordinated to the payment, in full, of the Subordinated Notes. The
Subordinated Notes contain the following events of default, together with other
events of default: (i) payment, covenant and warranty defaults; (ii) cross
defaults under certain agreements; (iii) certain uncured judgments; (iv) the
occurrence of certain material events regarding pension liabilities; and (v)
certain events of bankruptcy. Merisel Americas may pay dividends to Parent and
make payments on account of intercompany debt owing to Parent for the sole
purpose of permitting the Parent to make scheduled interest payments with
respect to the Notes so long as no default or event of default shall have
occurred and be continuing under the Subordinated Notes and if at least ten
days before any such dividend or payment, Merisel Americas delivers an officers
certificate to each holder of Subordinated Notes to the effect that such
officer has reviewed the terms of the Subordinated Notes, before and after
giving effect to such dividend or payment, that Merisel Americas is, and in
good faith believes it will remain, in compliance with the requirements of the
Subordinated Notes and that there exists no default or event of default under
the Subordinated Notes. Subject to a blockage period, holders of the
Subordinated Notes may accelerate payment upon the occurrence and during the
continuation of certain events of default. Upon a change of control, each
holder of a Subordinated Note may elect to accelerate payment of all or a
portion of the amount then due such holder.
SALES OF TRADE ACCOUNTS RECEIVABLE
In connection with the Reorganization, the Parent's trade accounts receivable
securitization agreement with a securitization company (the "Receivables
Securitization Agreement") was transferred to Merisel Americas. During the term
of the Receivables Securitization Agreement, the securitization company may
purchase on a continuing basis an undivided interest in up to $150 million of
designated Merisel Americas' trade receivables. The purchaser has retained
Merisel Americas to collect the receivables and remit the appropriate amounts
due the purchaser.
The undivided interest in receivables is sold by Merisel Americas at face
value. The Company pays a yield to the purchaser that approximates the A1/P1
commercial paper rate. In the event the purchaser is unable to purchase
receivables, the Company has entered into a back-up purchase agreement (the
"Back-Up Agreement") with a group of banks. Under the Back-Up Agreement, such
banks may elect to purchase an undivided interest in Merisel Americas'
receivables. Under this agreement, the Company pays a higher yield than under
the Receivables Securitization Agreement. To date, Merisel Americas has not
been required to utilize the Back-Up Agreement. In addition to the yields
realized by the purchasers, Merisel Americas pays an agency fee under the
Receivables Securitization Agreement and under the Back-Up Agreement and a
liquidity fee under the Back-Up Agreement. Both the Receivables Securitization
Agreement and the Back-Up
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Agreement currently expire on November 30, 1994, subject to earlier
termination upon an event of default. Merisel Americas is currently
negotiating an extension of the Receivables Securitization Agreement and the
Back-up Agreement to October 6, 1995. Merisel Americas' failure to pay certain
amounts under the Revolving Credit Facility, or certain defaults under
covenants contained in the Revolving Credit Facility (among other events),
will cause the termination of the Receivables Securitization Agreement.
MERISEL FAB CREDIT FACILITY
To provide for its anticipated working capital needs, on December 23, 1993,
Merisel FAB entered into a $10 million unsecured revolving credit agreement,
which expires on January 29, 1995 (the "FAB Revolver"). At July 31, 1994, no
amount was outstanding under the FAB Revolver.
The FAB Revolver contains a number of restrictive covenants that, among
other things, place limitations on Merisel FAB and the Parent (and, in certain
cases, the Parent's direct and indirect subsidiaries) with respect to liens,
indebtedness and transactions with affiliates, and contains financial
covenants requiring Merisel FAB to meet certain leverage ratio, net worth and
net income requirements. In addition, the Parent is subject to certain
consolidated leverage ratio and interest coverage ratio requirements. The FAB
Revolver also contains certain events of default, including upon a change in
control of the Parent. The FAB Revolver is guaranteed by the Parent.
LINES OF CREDIT
The Company and its subsidiaries also maintain various local lines of
credit, which typically do not contain material covenants, primarily to
facilitate overnight and other short-term borrowings. The total amount of
outstanding borrowings under these lines as of June 30, 1994 was $29.6
million.
DESCRIPTION OF NOTES
The Notes will be issued under an indenture to be dated as of October 15,
1994 (the "Indenture") between the Company and NationsBank of Texas, N.A., as
trustee (the "Trustee"). A copy of the form of the Indenture has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
The following summary of certain provisions of the Indenture does not purport
to be complete and is subject to, and qualified in its entirety by reference
to, the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"),
and to all of the provisions of the Indenture, including the definitions of
certain terms therein and those terms made a part of the Indenture by
reference to the Trust Indenture Act, as in effect on the date of the
Indenture. The definitions of certain capitalized terms used in the following
summary are set forth below under "Certain Definitions."
GENERAL
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Notes may be
presented for transfer at the corporate trust office or agency of the Trustee
in the City of New York maintained for such purposes at 40 Broad Street, 22nd
Floor, New York, New York 10004. Interest may be paid by wire transfer or
check mailed to the person entitled thereto as shown on the register for the
Notes. No service charge will be made for any registration of transfer or
exchange of the Notes, except for any tax or other governmental charge that
may be imposed in connection therewith.
MATURITY, INTEREST AND PRINCIPAL
The Notes will be general unsecured obligations of the Company, limited to
$125,000,000 aggregate principal amount, and will mature on December 31, 2004.
Interest on the Notes will accrue at the rate of % per annum and will be
payable semiannually on each June 30 and December 31, commencing December 31,
1994, to the holders of record of Notes at the close of business on the June
15 and December 15 immediately preceding such interest payment date. Interest
on the Notes will accrue from the most recent date to which
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interest has been paid or, if no interest has been paid, from the original
date of issuance (the "Issue Date"). Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months. Interest on overdue
principal and (to the extent permitted by law) on overdue installments of
interest will accrue at the rate of interest borne by the Notes.
REDEMPTION
Optional Redemption. All or any of the Notes will be redeemable, in whole or
in part, at the option of the Company, at any time on or after December 31,
1999 at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest to the date of redemption, if
redeemed during the 12-month period beginning on December 31 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1999...................................
2000...................................
2001...................................
2002 and thereafter.................... 100%
</TABLE>
In addition to the optional redemption of the Notes in accordance with the
provisions of the preceding paragraph, prior to December 31, 1997, the Company
may use the net proceeds of an Equity Offering to redeem up to % of the
originally issued aggregate principal amount of Notes at a redemption price of
% of the principal amount thereof plus accrued and unpaid interest to the
redemption date.
Selection and Notice. In the event that less than all of the Notes are to be
redeemed at any time, selection of Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes
are not listed on a national securities exchange by lot or by such method as
the Trustee shall deem fair and appropriate, provided, however, that no Note
of $1,000 or less shall be redeemed in part. Notice of redemption shall be
mailed by first-class mail at least 30 days but not more than 60 days before
the date of redemption to each holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. On and after the date of redemption,
interest will cease to accrue on Notes or portions thereof called for
redemption unless the Company defaults in making the redemption payment.
CHANGE OF CONTROL
In the event of a Change of Control (the date of such occurrence, the
"Change of Control Date"), the Company shall notify the holders of Notes in
writing of such occurrence and shall make an offer to purchase (the "Change of
Control Offer") on a business day (the "Change of Control Payment Date") not
later than 60 days following the Change of Control Date all Notes then
outstanding at a purchase price equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the Change of Control Payment
Date.
Notice of a Change of Control Offer shall be mailed by the Company to the
holders of Notes not less than 30 days nor more than 60 days before the Change
of Control Payment Date. The Change of Control Offer is required to remain
open for at least 20 business days and until the close of business on the
business day next preceding the Change of Control Payment Date.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including but not limited to Rule 14e-1, in
connection with any Change of Control Offer required to be made by the Company
as a result of a Change of Control.
RANKING
The indebtedness of the Company evidenced by the Notes will rank senior in
right of payment to all subordinated indebtedness of the Company and pari
passu in right of payment with all other existing and future unsubordinated
indebtedness of the Company.
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The Company is a holding company with limited assets of its own and conducts
substantially all of its business through subsidiaries. Any right of the
Company and its creditors, including holders of the Notes, to participate in
the assets of any of the Company's subsidiaries upon any liquidation of any
such subsidiary will be subject to the prior claims of the subsidiary's
creditors, including trade creditors. Accordingly, after giving effect to the
sale of the Notes, as of June 30, 1994, holders of the Notes would have been
effectively subordinated to approximately $631.1 million of indebtedness and
trade payables of subsidiaries of the Company. See "Certain Investment
Considerations--Holding Company Structure."
CERTAIN COVENANTS
Set forth below are certain covenants which will be contained in the
Indenture.
Limitation on Additional Indebtedness. The Indenture will provide that the
Company shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly, create, incur, assume, issue, guarantee, or in any manner become
liable for or with respect to the payment of ("incur"), any Indebtedness
(including Acquired Indebtedness), except for (each of which shall be given
independent effect):
(a) Indebtedness of the Company if, at the time of incurrence and after
giving pro forma effect to the incurrence thereof, the EBITDA Coverage
Ratio of the Company would be greater than or equal to 2.50:1;
(b) Indebtedness of the Company or its Subsidiaries outstanding from time
to time pursuant to the Revolving Credit Agreement (including Indebtedness
in the nature of obligations with respect to overdraft protection) in a
principal amount not to exceed in the aggregate (x) 75% of the net book
value of the accounts receivable of the Company and its Subsidiaries at the
time of the incurrence of such Indebtedness calculated on a consolidated
basis in accordance with GAAP, minus (y) $100,000,000;
(c) Indebtedness under the Notes and the Indenture;
(d) Indebtedness not otherwise referred to in this covenant and
outstanding on the Issue Date;
(e) Indebtedness of a Wholly-Owned Subsidiary issued to and held by the
Company or another Wholly-Owned Subsidiary of the Company or Indebtedness
of the Company issued to and held by a Wholly-Owned Subsidiary of the
Company;
(f) Indebtedness in the nature of or in connection with any Sale-
Leaseback Transaction permitted under "Limitation on Sale-Leaseback
Transactions" below;
(g) Purchase Money Indebtedness of the Company or its Subsidiaries or
Indebtedness of the Company or its Subsidiaries incurred in connection with
or arising out of Capitalized Lease Obligations; provided that the
aggregate principal amount and/or liquidation preference of Indebtedness
incurred pursuant to this clause (g) shall not exceed, in the aggregate,
10% of the Company's Consolidated Net Worth;
(h) the guarantee by the Company or by any Subsidiary of the Company of
Indebtedness of any Subsidiary of the Company, which Indebtedness is
otherwise permitted to be incurred pursuant to this "Limitation on
Additional Indebtedness" covenant;
(i) Indebtedness of a Subsidiary of the Company (which is not a Wholly-
Owned Subsidiary of the Company) issued to and held by the Company or a
Subsidiary of the Company; provided that such Indebtedness constitutes an
Investment made pursuant to and in compliance with clause (v) of the
"Limitation on Investments, Loans and Advances" covenant;
(j) any deferrals, renewals, extensions, replacements, refinancings or
refundings of, amendments, modifications or supplements to, Indebtedness
incurred under clauses (a), (c) and (d) above and under clause (l) below,
whether involving the same or any other lender or creditor or group of
lenders or creditors; provided that any such deferrals, renewals,
extensions, replacements, refinancings, refundings, amendments,
modifications or supplements (i) shall not provide for any mandatory
redemption,
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amortization or sinking fund requirement in an amount greater than, or at a
time prior to, the amounts and times specified in the Indebtedness being
deferred, renewed, extended, replaced, refinanced, refunded, amended,
modified or supplemented, (ii) shall not exceed the principal amount and/or
liquidation preference (plus accrued dividends and interest and repayment
premium, if any) of the Indebtedness being deferred, renewed, extended,
replaced, refinanced, refunded, amended, modified or supplemented, and
(iii) shall be contractually subordinated in right of payment to the Notes
at least to the same extent as the Indebtedness being deferred, renewed,
extended, replaced, refinanced, refunded, amended, modified or
supplemented; provided that any Indebtedness of the Company that is
deferred, renewed, extended, replaced, refinanced, refunded, amended,
modified or supplemented ("Refinanced Company Indebtedness") shall
subsequent to any such deferral, renewal, extension, replacement,
refinancing, refunding, amendment, modification or supplement be solely the
obligation of the Company (provided that, to the extent that any such
Refinanced Company Indebtedness was previously guaranteed by a Subsidiary
of the Company, the Indebtedness represented by such guarantee may also be
refinanced pursuant to and subject to the other terms and provisions of
this clause (j));
(k) Acquired Indebtedness of a Subsidiary of the Company (other than any
such Acquired Indebtedness incurred in connection with or in anticipation
of any Asset Acquisition) if, at the time of incurrence and after giving
pro forma effect to the incurrence thereof, the EBITDA Coverage Ratio of
the Company would be greater than or equal to 2.50:1;
(l) Indebtedness of the Company or a Subsidiary of the Company incurred
pursuant to any overnight or other short-term line of credit as in
existence on the Issue Date; and
(m) other Indebtedness of the Company that does not exceed $20,000,000 in
aggregate principal amount and/or liquidation preference at any one time
outstanding.
Limitation on Restricted Payments. The Indenture will provide that the
Company shall not make, and shall not cause, suffer or permit any of its
Subsidiaries to make, directly or indirectly, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Restricted Payment;
(b) at the time of and after giving effect to any such Restricted
Payment, the Company could incur at least $1 of Indebtedness pursuant to
clause (a) of the "Limitation on Additional Indebtedness" covenant; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
through and including the date of such Restricted Payment (the "Base
Period") does not exceed the sum of (i) 50% of the Company's cumulative
Consolidated Net Income during the Base Period (or in the event such
Consolidated Net Income shall be a deficit, minus 100% of such deficit)
plus (ii) 100% of the aggregate Net Proceeds and the Fair Market Value of
marketable securities and property received by the Company from the issue
or sale, after the Issue Date, of Capital Stock (other than Disqualified
Stock) of the Company or of any Indebtedness or other securities of the
Company convertible into or exercisable or exchangeable for Capital Stock
(other than Disqualified Stock) of the Company which have been so
converted, exercised or exchanged, as the case may be. For purposes of
determining under this clause (c) the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount thereof and
property other than cash shall be valued at its Fair Market Value.
The provisions of this covenant will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at such date
of declaration such payment would comply with the provisions of the Indenture;
(ii) the retirement of any shares of Capital Stock or subordinated Indebtedness
of the Company in exchange for, by conversion into, or out of the Net Proceeds
of the substantially concurrent sale (other than to a Subsidiary of the
Company) of other shares of Capital Stock of the Company (other than
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Disqualified Stock); and (iii) the redemption or retirement of subordinated
Indebtedness of the Company in exchange for, by conversion into, or out of the
Net Proceeds of the substantially concurrent incurrence of subordinated
Indebtedness of the Company (other than any such subordinated Indebtedness
owing to a Subsidiary of the Company) that is contractually subordinated in
right of payment to the Notes and that is permitted to be incurred in
accordance with the covenant described under "Limitation on Additional
Indebtedness" above.
In determining the amount of Restricted Payments permissible under clause (c)
above, the amounts expended pursuant to clauses (i) and (ii) above shall be
included as Restricted Payments.
Limitation on Investments, Loans and Advances. The Indenture will provide
that the Company shall not make and shall not permit any of its Subsidiaries to
make any capital contributions, advances or loans to (including, without
duplication, any guarantees of loans to), or investments in, or purchases of
Capital Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by, any Person (collectively, "Investments"), except: (i)
Investments by the Company in any Wholly-Owned Subsidiary of the Company and
Investments in the Company or a Wholly-Owned Subsidiary of the Company by any
Subsidiary of the Company; (ii) Investments represented by either Capital Stock
received in connection with a settlement of debts owing to the Company or any
of its Subsidiaries or accounts receivable created or acquired in the ordinary
course of business; (iii) advances or loans to employees in the ordinary course
of business; (iv) Investments under or pursuant to interest rate protection
agreements; (v) Investments made after the Issue Date in joint ventures,
partnerships or Persons that are not Wholly-Owned Subsidiaries that are made
solely for the purpose of acquiring businesses related to the Company's or its
Subsidiaries' businesses in an aggregate amount not to exceed, when made, 10%
of the Company's Consolidated Net Worth; (vi) loans or advances to franchisees
and Datago affiliates made in the ordinary course of business; (vii) Cash
Equivalents; and (viii) Investments permitted to be made under the "Limitation
on Restricted Payments" covenant.
Limitation on Liens. The Indenture will provide that the Company shall not,
and shall not permit, cause or suffer any of its Subsidiaries to, create, incur
or assume or, other than with respect to Liens created, incurred or assumed
pursuant to clause (k) below, suffer to exist any Lien of any kind upon any of
its property or assets now owned or hereafter acquired by it, unless the Notes
also are equally and ratably secured by such Lien, except for:
(a) Permitted Liens;
(b) Liens existing as of the Issue Date;
(c) Liens securing Purchase Money Indebtedness, provided that (i) the
Indebtedness secured by such Liens shall have otherwise been permitted to
be incurred under the Indenture, and (ii) such Liens shall not encumber any
other assets or property of the Company and its Subsidiaries (other than
the assets or property purchased or constructed with the proceeds of such
Purchase Money Indebtedness), and shall attach to such assets or property
within 60 days of the acquisition or construction of such assets or
property;
(d) Liens on the assets or property of a Subsidiary of the Company
existing at the time such Subsidiary became a Subsidiary of the Company and
not incurred as a result of (or in connection with or in anticipation of)
such Subsidiary becoming a Subsidiary of the Company, provided such Liens
do not extend to or cover any property or assets of the Company or any of
its other Subsidiaries (other than the property or assets so acquired);
(e) Liens on the accounts receivable and inventory of the Company and its
Subsidiaries securing Indebtedness under the Revolving Credit Agreement;
(f) Liens to secure Capitalized Lease Obligations, provided (i) such
Liens do not extend to or cover any property or assets of the Company or
any of its Subsidiaries (other than the property or assets subject to such
Capitalized Lease Obligations) and (ii) the Capitalized Lease Obligations
secured by such Liens shall have otherwise been permitted to be incurred
under the Indenture;
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(g) Liens arising under leases and subleases of real property by the
Company or any of its Subsidiaries as tenants which Liens do not interfere
with the ordinary conduct of the business of the Company or any of its
Subsidiaries, and which are made on customary and usual terms applicable to
similar properties;
(h) Liens securing Indebtedness which is incurred to refinance
Indebtedness which has been secured by a Lien permitted under the Indenture
and is permitted to be refinanced under the Indenture, provided that such
Liens do not extend to or cover any property or assets of the Company or
any of its Subsidiaries not securing the Indebtedness so refinanced;
(i) Liens in favor of customs and revenue authorities arising by
operation of law to secure payment of customs duties in connection with the
importation of goods, which custom duties are not overdue for a period of
more than 60 days;
(j) Liens in favor of the Company or any Subsidiary of the Company on the
assets of any Subsidiary of the Company;
(k) Liens securing Indebtedness of the Company and its Subsidiaries,
provided that the aggregate amount of outstanding Indebtedness secured by
such Liens plus the aggregate amount of outstanding Attributable
Indebtedness of the Company and its Subsidiaries shall not exceed at any
one time 10% of the Consolidated Net Worth of the Company and its
Subsidiaries;
(l) Liens in the form of cash collateral pledged by Subsidiaries of the
Company to support their reimbursement obligations under letters of credit
entered into in the ordinary course of business in connection with the
purchase of inventory and Liens securing reimbursement obligations under
letters of credit but only to the extent such Liens are in or upon
inventory the purchase of which was financed by such letters of credit;
(m) Liens on inventory granted pursuant to "flooring arrangements"
entered into in the ordinary course of business and consistent with past
business practices;
(n) Liens on accounts receivable (or interests therein) and on property
securing or otherwise supporting accounts receivable granted pursuant to
any accounts receivable securitization transaction or other sale or
transfer of accounts receivable (or interests therein) that is not a part
of a transfer of the business from which such accounts receivable arose;
and
(o) Liens on property or assets, other than accounts receivable, and on
property securing or otherwise supporting such property or assets granted
pursuant to any asset securitization transaction; provided that any such
asset securitization transaction complies with the applicable provisions of
"Disposition of Proceeds of Asset Sales."
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Indenture will provide that the Company shall not, and shall
not permit any Subsidiary of the Company to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective, or enter into any
agreement with any Person that would cause or create, any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary of the
Company to (a) pay dividends, in cash or otherwise, or make any other
distributions on its Capital Stock or any other interest or participation in,
or measured by, its profits owned by the Company or a Subsidiary of the
Company, (b) make any loans or advances to, or pay any Indebtedness owed to,
the Company or any Subsidiary of the Company or (c) transfer any of its
properties or assets to the Company or to any Subsidiary of the Company,
except, in each case, for such encumbrances or restrictions existing under or
contemplated by or by reason of (i) any agreements in effect on the Issue Date
(including the Notes and the Indenture); (ii) any Person or the property or
assets of such Person acquired by the Company or any Subsidiary of the Company
and existing at the time of such acquisition (but not created in contemplation
of such acquisition), which encumbrances or restrictions are not applicable to
any Person or the property or assets of any Person other than such Person (or
any Subsidiary of such Person) or the property or assets of such Person so
acquired; (iii) any restrictions existing under any agreement that renews,
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refinances, defers, extends, amends, modifies, supplements, or replaces an
agreement containing a restriction permitted by clause (i) or (ii) above,
provided that the terms and conditions of any such restrictions are not
materially less favorable in the aggregate to the holders of the Notes than
those under or pursuant to the agreement being renewed, refinanced, deferred,
extended, amended, modified, supplemented or replaced; and (iv) restrictions
contained in agreements evidencing Indebtedness of a Subsidiary of the Company
issued to and held by the Company or a Subsidiary of the Company, provided that
the terms and conditions of any such restrictions are not materially less
favorable in the aggregate to the holders of the Notes than those contained in
that certain Promissory Note of Merisel Americas in favor of the Company, as in
effect on the Issue Date.
Limitation on Sale-Leaseback Transactions. The Indenture will provide that
the Company will not, and will not permit any of its Subsidiaries to, enter
into any Sale-Leaseback Transaction, unless at least one of the following
conditions is satisfied:
(i) the lease with respect to such Sale-Leaseback Transaction is between
the Company and a Wholly-Owned Subsidiary of the Company or between Wholly-
Owned Subsidiaries of the Company;
(ii) the Company or a Subsidiary of the Company could create a Lien to
secure Indebtedness in an amount at least equal to the Attributable
Indebtedness in connection with such Sale-Leaseback Transaction; or
(iii) the Company or a Subsidiary of the Company within 90 days of the
effective date of such Sale-Leaseback Transaction makes an optional
prepayment of principal with respect to any Indebtedness which, to the
extent such Indebtedness is Indebtedness of the Company, ranks pari passu
with the Notes and in any event is in an amount at least equal to the
Attributable Indebtedness in connection with such Sale-Leaseback
Transaction (less any transaction costs actually incurred in connection
with such Sale-Leaseback Transaction).
Disposition of Proceeds of Asset Sales. The Indenture will provide that the
Company shall not, and shall not permit any of its Subsidiaries to, make any
Asset Sale unless (a) such Asset Sale is for Fair Market Value, (b) the
consideration received therefor consists of at least 85% cash or Cash
Equivalents (with Indebtedness of the Company or its Subsidiaries assumed by
the purchaser being counted as cash for such purposes if the Company and its
Subsidiaries are released from all liability therefor), and (c) the Company
shall commit to apply or shall cause its Subsidiary to commit to apply the Net
Cash Proceeds of such Asset Sale within 270 days of such Asset Sale and shall
apply such Net Cash Proceeds within 360 days of such Asset Sale as follows:
(i) to prepay any Indebtedness of a Subsidiary of the Company; provided
that the Net Cash Proceeds of any Asset Sale involving any property or
asset of Merisel FAB, Inc. shall be used to prepay Indebtedness of Merisel
FAB, Inc. only;
(ii) to acquire or construct property or assets in lines of business
related to the Company's and its Subsidiaries' business on the Issue Date;
or
(iii) to make an offer to purchase (the "Asset Sale Offer") from all
holders of Notes, up to a maximum principal amount (expressed as a multiple
of $1,000) of Notes equal to, to the extent the Company elects not to apply
Net Cash Proceeds pursuant to the preceding clauses (i) and (ii), 100% of
such Net Cash Proceeds or to the extent the Company elects to apply Net
Cash Proceeds pursuant to the preceding clauses (i) and (ii), the amount of
any Net Cash Proceeds remaining after such application (the "Available
Amount"). Any Asset Sale Offer shall be at a purchase price per Note equal
to 100% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of purchase, provided that the Company may
defer any Asset Sale Offer until there is an aggregate unutilized Available
Amount equal to or in excess of $5,000,000 resulting from one or more Asset
Sales (at which time the entire unutilized Available Amount, and not just
the amount in excess of $5,000,000, shall be applied as required pursuant
to this paragraph). The Asset Sale Offer shall remain open for a period of
20 business days or such longer period as may be required by law. To the
extent the Asset Sale Offer is
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not fully subscribed to by the holders of the Notes, the Company may
retain, subject to the other provisions contained in the Indenture, any
unutilized portion of the Net Cash Proceeds.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including but not limited to Rule 14e-1, in
connection with the repurchase of the Notes pursuant to any Asset Sale Offer
required to be made by the Company.
Restriction on Sale or Transfer of Assets. In addition to any restrictions
set forth under "Disposition of Proceeds of Asset Sales," the Indenture will
provide that the Company shall not, directly or indirectly, convey, transfer,
lease (including by means of sale-leaseback) or otherwise dispose of, to any
Person, any of its assets or property owned as of the Issue Date or with
respect to any corporate management information systems assets only, any
improvements or additions thereto, other than dispositions of any Capital Stock
of any Person or of any obsolete equipment in the ordinary course of business.
Ownership of Stock of Wholly-Owned Subsidiaries. The Indenture will provide
that the Company shall at all times maintain ownership, directly or indirectly
through one or more other Wholly-Owned Subsidiaries, of 100% of each class of
voting securities of, and all other equity securities in, each Wholly-Owned
Subsidiary of the Company existing on the Issue Date (other than any such
securities representing any director's qualifying shares or investments by
foreign nationals mandated by applicable law), except any Wholly-Owned
Subsidiary that shall be disposed of in its entirety or consolidated or merged
with or into the Company or another Wholly-Owned Subsidiary of the Company, in
each case in accordance with the provisions described under "Consolidation,
Merger, Conveyance, Transfer or Lease" below and "Disposition of Proceeds of
Asset Sales" above.
Limitation on Transactions with Affiliates. The Indenture will provide that
the Company shall not, and shall not permit, cause or suffer any Subsidiary of
the Company to, conduct any business or enter into any transaction or series of
transactions with or for the benefit of any Affiliate of the Company or any of
its Subsidiaries (each an "Affiliate Transaction"), except in good faith and on
terms that are no less favorable to the Company or such Subsidiary, as the case
may be, than those that could have been obtained in a comparable transaction on
an arm's-length basis from a Person not an Affiliate of the Company or such
Subsidiary. All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other market value in excess of $1,000,000 shall be approved by the
Board of Directors of the Company, such approval to be evidenced by a Board
Resolution stating that the Board of Directors has, in good faith, determined
that such transaction complies with the foregoing provisions. Notwithstanding
the foregoing, the restrictions set forth in this covenant shall not apply to
customary directors' fees and consulting fees, transactions between or among
the Company and one or more Wholly-Owned Subsidiaries of the Company or
transactions between or among one or more Wholly-Owned Subsidiaries of the
Company.
Securities Owned by the Company or an Affiliate of the Company. The Indenture
will provide that the Company shall promptly as reasonably practicable notify
the Trustee of any Notes owned by the Company or any Affiliate of the Company
and that the Trustee shall provide to each holder upon the request of such
holder all such information furnished to the Trustee.
REPORTS
Pursuant to the Indenture, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will file with the Commission and the Trustee and distribute to holders
of the Notes copies of the financial information that would have been contained
in such annual reports, quarterly reports and other documents that the Company
would have been required to file with the Commission pursuant to the Exchange
Act. Such financial information shall include annual reports containing
consolidated financial statements and notes thereto, together with an opinion
thereon expressed by an independent public accounting firm, management's
discussion and analysis of financial condition and
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results of operations as well as quarterly reports containing unaudited
condensed consolidated financial statements for the first three quarters of
each fiscal year.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Indenture will provide that the Company shall not consolidate with or
merge with or into or sell, assign, convey, lease or transfer all or
substantially all of its properties and assets as an entirety to any Person or
group of affiliated Persons in a single transaction or through a series of
transactions, and the Company will not permit any of its Subsidiaries to enter
into any such transaction or series of transactions, if such transaction or
series of transactions would result in a sale, assignment, conveyance, lease or
transfer of all or substantially all of the properties and assets of the
Company and its Subsidiaries taken as a whole, unless after giving effect
thereto: (a) the Company shall be the continuing Person, or the resulting,
surviving or transferee Person (the "surviving entity") shall be a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia, (b) the surviving entity shall expressly assume,
by a supplemental indenture executed and delivered to the Trustee in form and
substance reasonably satisfactory to the Trustee, all of the obligations of the
Company under the Notes and the Indenture; (c) immediately before and
immediately after giving effect to such transaction or series of transactions
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing; (d) the Company or the surviving entity shall, immediately after
giving effect to such transaction or series of transactions, have a
Consolidated Net Worth (including, without limitation, any Indebtedness
incurred or anticipated to be incurred in connection with or in respect of such
transaction or series of transactions) equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction or
series of transactions; (e) immediately after giving effect to such transaction
or series of transactions on a pro forma basis, the Company or the surviving
entity could incur $1.00 of Indebtedness pursuant to clause (a) of the
"Limitation on Additional Indebtedness" covenant above; and (f) the Company or
the surviving entity shall have delivered to the Trustee an Officers'
Certificate stating that such consolidation, merger, sale, assignment,
conveyance, transfer or lease and, if a supplemental indenture is required in
connection with such transaction or series of transactions, such supplemental
indenture complies with this covenant and that all conditions precedent
provided for in the Indenture relating to such transaction or series of
transactions have been satisfied.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
(i) default in the payment of any interest on the Notes when it becomes
due and payable and the continuance of any such default for a period of 30
days; or
(ii) default in the payment of the principal of or premium, if any, on
the Notes when due and payable at maturity, upon redemption, pursuant to an
offer to purchase required under the Indenture, by acceleration or
otherwise; or
(iii) default in the performance, or breach, of any covenant in the
Indenture (other than defaults specified in clause (i) or (ii) above), and
the continuance of such default or breach for a period of 30 days after
written notice thereof has been given to the Company by the Trustee or to
the Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the outstanding Notes; or
(iv) failure by the Company or any Subsidiary (a) to make any payment
when due, after giving effect to any applicable periods of grace, with
respect to any other Indebtedness under one or more classes or issues of
Indebtedness in an aggregate principal amount of $10,000,000 or more; or
(b) to perform any term, covenant, condition or provision of one or more
classes or issues of Indebtedness in
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an aggregate principal amount of $10,000,000 or more, which failure, in the
case of this clause (b), results in an acceleration of the maturity
thereof; or
(v) one or more judgments, orders or decrees for the payment of money in
excess of $10,000,000, either individually or in an aggregate amount, shall
be entered against the Company, any of its Subsidiaries or any of their
respective properties and shall not be satisfied or discharged, and there
shall have been a period of 60 days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or
(vi) certain events of bankruptcy or insolvency, reorganization or
similar proceedings with respect to the Company or any Material Subsidiary
shall have occurred.
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) occurs and is continuing, then the
holders of at least 25% in aggregate principal amount of the outstanding Notes
may, by written notice to the Company and the Trustee, or the Trustee may, and
upon the request of the holders of not less than 25% in aggregate principal
amount of the outstanding Notes shall, declare the principal of, premium, if
any, and accrued interest on all the Notes to be due and payable immediately.
Upon any such declaration, such principal, premium, if any, and accrued
interest shall become due and payable immediately. If an Event of Default
specified in clause (vi) occurs with respect to the Company then the principal
of, premium, if any, and accrued interest on all the Notes shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holder.
After a declaration of acceleration, the holders of a majority in aggregate
principal amount of the outstanding Notes may, by written notice to the
Trustee, rescind such declaration of acceleration if all existing Events of
Default have been cured or waived, other than non-payment of principal of,
premium, if any, and accrued interest on the Notes that has become due solely
as a result of such acceleration and if the rescission of acceleration would
not conflict with any judgment or decree. The holders of a majority in
aggregate principal amount of the outstanding Notes also have the right to
waive existing defaults under the Indenture except a default in the payment of
the principal of, premium, if any, or interest on any Note or in respect of any
covenant or a provision of the Indenture which cannot be modified or amended
without the consent of all holders.
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder unless such holder gives to
the Trustee written notice of a continuing Event of Default, the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request and offered satisfactory indemnity to the Trustee (it being
understood that the Trustee will not unreasonably withhold its satisfaction) to
institute such proceeding as Trustee, the Trustee does not pursue the remedy
addressed in such request within 30 days after receipt of such notice and
offer, and the Trustee has not within such 30-day period received directions
inconsistent with such written request from holders of a majority in principal
amount of the outstanding Notes. Such limitations do not apply, however, to a
suit instituted by a holder of a Note for the enforcement of the payment of the
principal of, premium, if any, or accrued interest on such Note on or after the
due date expressed in such Note (including acceleration thereof) or the
institution of any proceeding with respect to the Indenture or any remedy
thereunder, including acceleration, by the holders of a majority in principal
amount of outstanding Notes with respect to such holders' Notes, provided that
upon institution of any proceeding or exercise of any remedy such holders
provide the Trustee with prompt notice.
Except as set forth in the last sentence of this paragraph, during the
existence of an Event of Default known to the Trustee, the Trustee is required
to exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
is not under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction
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of any of the holders unless such holders shall have offered satisfactory
indemnity to the Trustee (it being understood that the Trustee will not
unreasonably withhold such satisfaction). Subject to certain provisions
concerning the rights of the Trustee, the holders of a majority in aggregate
principal amount of the outstanding Notes have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee.
DEFEASANCE
The Company may at any time terminate all of its obligations with respect to
the Notes ("legal defeasance"), except for certain obligations, including those
regarding any trust established for a defeasance and obligations to register
the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain agencies in respect of the Notes. The Company may
at any time terminate its obligations under certain covenants set forth in the
Indenture, some of which are described under "Certain Covenants" above, and any
omission to comply with such obligations shall not constitute a Default or an
Event of Default with respect to the Notes issued under the Indenture
("covenant defeasance"). In order to exercise either legal defeasance or
covenant defeasance, the Company must irrevocably deposit in trust with the
Trustee, for the benefit of the holders of the Notes, money or U.S. government
obligations, or a combination thereof, in such amounts as will be sufficient to
pay the principal of, premium, if any, and interest on the Notes to redemption
or maturity and comply with certain other conditions, including the delivery of
an opinion as to certain tax and bankruptcy matters.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to certain surviving rights or registration of transfer or exchange
of Notes) as to all outstanding Notes when either (a) all such Notes
theretofore authenticated and delivered (except lost, stolen or destroyed Notes
which have been replaced or paid) have been delivered to the Trustee for
cancellation and the Company has paid all sums payable by it under the
Indenture or (b)(i) all such Notes not theretofore delivered to the Trustee for
cancellation have become due and payable pursuant to the redemption provisions
of the Indenture, and the Company has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose an amount of
money or U.S. government obligations sufficient to pay and discharge the entire
Indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation for principal, premium, if any, and accrued interest to the date
of maturity or redemption, and (ii) the Company has delivered irrevocable
instructions to the Trustee to apply the deposited money or U.S. government
obligations toward the payment of the Notes at maturity or on the redemption
date, as the case may be. In addition, the Company must deliver an Officers'
Certificate and an Opinion of Counsel stating that all conditions precedent to
satisfaction and discharge have been complied with.
AMENDMENTS AND WAIVERS
From time to time the Company, when authorized by a Board Resolution, and the
Trustee may, without the consent of the holders of the Notes, amend, waive or
supplement the Indenture or the Notes for certain specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies,
maintaining the qualification of the Indenture under the Trust Indenture Act or
making any change that does not adversely affect the rights of any holder.
Other amendments and modifications of the Indenture or the Notes may be made by
the Company and the Trustee with the consent of the holders of not less than a
majority of the aggregate principal amount of the outstanding Notes; provided,
however, that no such modification or amendment may, without the consent of the
holder of each outstanding Note affected thereby, (i) reduce the principal
amount outstanding, extend the fixed maturity or alter the redemption
provisions of the Notes,(ii) change the currency in which any Notes or any
premium or accrued interest thereon is payable, (iii) reduce the percentage in
principal amount outstanding of Notes necessary for consent to an amendment,
supplement or waiver or consent to take any action under the Indenture or the
Notes, (iv) impair the right to
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institute suit for the enforcement of any payment on or with respect to the
Notes, (v) waive a default in payment with respect to the Notes, (vi) reduce
the rate or extend the time for payment of interest on the Notes, or (vii)
amend, change or modify the obligation of the Company to make and consummate a
Change of Control Offer or Asset Sale Offer or modify any of the provisions or
definitions with respect thereto.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the Indenture.
Reference is made to the Indenture for the full definition of all such terms,
as well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Subsidiary of the Company or assumed in connection with
an Asset Acquisition of such Person, including, without limitation,
Indebtedness incurred in connection with, or in anticipation of, such Person's
becoming a Subsidiary of the Company.
"Affiliate" of any specified Person means any other Person which, directly or
indirectly, controls, is controlled by or is under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Acquisition" means (i) any capital contribution (by means of transfers
of cash or other property to others or payments for property or services for
the account or use of others or otherwise) or purchase or acquisition of
Capital Stock by the Company or any of its Subsidiaries to or in any other
Person, in either case as a result of which such Person shall become a
Subsidiary of the Company or any of its Subsidiaries or shall be merged with or
into the Company or any of its Subsidiaries or (ii) any acquisition by the
Company or any of its Subsidiaries of the assets of any Person which constitute
substantially all of an operating unit or business of such Person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(including by means of sale- leaseback) or other disposition to any Person
other than the Company or a Subsidiary of the Company, in one transaction or a
series of related transactions, of (i) any Capital Stock of any Subsidiary of
the Company (including by way of issuance by such Subsidiary) or (ii) any other
property or asset of the Company or any Subsidiary of the Company, in each case
other than inventory or obsolete or excess equipment sold in the ordinary
course of business, inventory sold to vendors or flooring companies whether or
not in the ordinary course of business and other than such isolated
transactions which do not exceed $1,000,000 individually. For the purposes of
this definition, the term "Asset Sale" shall not include (i) any sale, transfer
or securitization of receivables or interests therein (and of property securing
or otherwise supporting such receivables) not a part of a sale or transfer of
the business from which such receivables arose, (ii) any disposition of
properties and assets of the Company or any Subsidiary that is governed by and
complies with the "Consolidation, Merger, Conveyance, Transfer or Lease"
covenant or clause (iii) of the "Limitations on Sale Lease-Back Transactions"
covenant described above, (iii) rights granted to franchisees pursuant to
franchise agreements entered into in the ordinary course of business or (iv)
any sale of the Company's Capital Stock.
"Attributable Indebtedness" means in respect of a Sale-Leaseback Transaction,
as at the time of determination, the greater of (i) the fair value of the
property subject to such Sale-Leaseback Transaction or (ii) the present value
(discounted at the interest rate borne by the Notes, compounded annually) of
the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale-Leaseback Transaction (including any
period for which such lease has been extended).
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"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have
been duly adopted by the Board of Directors of such Person and to be in full
force and effect on the date of such certification and delivered to the
Trustee.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or nonvoting) of, such Person's capital stock, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP, and, for the
purpose of the Indenture, the amount of such obligation at any date shall be
the capitalized amount thereof at such date, determined in accordance with
GAAP.
"Cash Equivalents" means, at any time, (i) commercial paper, bankers
acceptances, time deposits, and certificates of deposit with final maturities
of one year or less issued by banks, trust companies, and savings and loan
institutions organized under the laws of a jurisdiction within the United
States of America or, with respect to a Subsidiary of the Company, under the
laws of the country in which such Subsidiary operates having (x) capital and
surplus at the end of its most recently ended fiscal year in excess of U.S.
$100,000,000 and (y) in the case of any United States entities, a commercial
paper rating of "A-1" or better by Standard and Poor's Corporation or "P-1" or
better by Moody's Investors Service, Inc.; (ii) direct obligations of the
United States of America or obligations of any instrumentality or agency
thereof, with respect to which the payment of principal and interest is
unconditionally guaranteed by the United States of America; provided however,
that any such obligation shall be payable in U.S. dollars and shall have a
final maturity date no more than one year after the acquisition thereof; (iii)
repurchase agreements of banks or brokerage institutions organized under the
laws of a jurisdiction within the United States of America or, with respect to
a Subsidiary of the Company, under the laws of the country in which such
Subsidiary operates having capital and surplus at the end of its most recently
ended fiscal year in excess of U.S. $100,000,000; provided however, that any
such agreement shall be payable in U.S. dollars or, with respect to a
Subsidiary of the Company, the applicable local currency, shall have a final
maturity date no more than one year after the acquisition thereof, and shall be
fully collaterized; (iv) time deposits, eurodollar certificates of deposit of
foreign branches of the institutions described in clause (iii) above and
obligations of money market funds which invest in any such time deposits and
eurodollar certificates of deposit; provided however, that any such deposit or
obligation shall be payable in U.S. dollars or, with respect to a Subsidiary of
the Company, the applicable local currency, and shall have a final maturity
date no more than one year after the acquisition thereof.
"Change of Control" means (a) all or substantially all of the assets of the
Company are sold, leased, exchanged, or otherwise transferred to any person or
entity or group of persons or entities acting in concert as a partnership or
other group (a "Group of Persons") other than an Affiliate of the Company, (b)
the Company is merged or consolidated with or into another corporation with the
effect that the then-existing equity holders of the Company hold less than 50%
of the combined voting power of the then-outstanding securities of the
surviving corporation of such merger or the corporation resulting from such
consolidation ordinarily (and apart from rights arising under special
circumstances) having the right to vote in the election of directors,(c) a
majority of the Board of Directors of the Company shall be replaced, over a
two-year period, from the directors who constituted the Board of Directors of
the Company at the beginning of such period, and such replacement shall not
have been approved by a vote of at least a majority of the Board of Directors
then still in office who were either members of such Board of Directors at the
beginning of such period or whose election as a member of such Board of
Directors was previously so approved, or (d) a Person or Group of Persons
shall, as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, have become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of the securities of
the Company representing 50% or more of the combined voting power of
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the then-outstanding securities of the Company ordinarily (and apart from
rights arising under special circumstances) having the right to vote in the
election of directors.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
Consolidated Net Income of such Person for such period, increased (to the
extent deducted in determining Consolidated Net Income) by the sum of the
following items for such Person and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP: (i) depreciation,
(ii) amortization, including, without limitation, amortization of capitalized
debt issuance costs, (iii) Consolidated Interest Expense, (iv) all United
States Federal, state and foreign income taxes paid or accrued (other than
income taxes attributable to extraordinary, unusual or nonrecurring gains or
losses), and (v) any other noncash charges to the extent deducted from
Consolidated Net Income.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, all cash and noncash interest expense (including capitalized interest,
amortization of original issue discount and the interest portion of deferred
payment obligations) of such Person and its Subsidiaries determined in
accordance with GAAP (exclusive of deferred financing fees of such Person and
its Subsidiaries) and the aggregate amount of cash dividends or other
distributions accrued, declared or paid on Capital Stock (other than Common
Stock) of such Person and its Subsidiaries.
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided,
however, that (a) the Net Income of any Person (the "Other Person") in which
the Person in question or any of its Subsidiaries has a joint interest with a
third party (which interest does not allow the Net Income of such Other Person
to be consolidated into the Net Income of the Person in question in accordance
with GAAP) shall be included only to the extent of the amount of dividends or
distributions actually paid to the Person in question or to the Subsidiary, (b)
other than with respect to the calculation of the "EBITDA Coverage Ratio," the
Net Income (or loss) of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (c) any net gain (but not net loss) resulting from an Asset Sale by
the Person in question or any of its Subsidiaries other than in the ordinary
course of business shall be excluded, and (d) extraordinary gains and losses
and any one-time increase or decrease to Net Income that is required to be
recorded because of the adoption of new accounting policies, practices or
standards required by GAAP shall be excluded.
"Consolidated Net Worth" means, with respect to any Person at any date of
determination, the consolidated stockholders' equity represented by the shares
of such Person's Capital Stock (other than Disqualified Stock) outstanding at
such date, as determined on a consolidated basis in accordance with GAAP.
"Default" means any event that is, or after notice or passage of time or both
would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
that, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking-fund
obligation or otherwise, or is exchangeable for Indebtedness, or is redeemable
at the option of the holder thereof, in whole or in part, in each case on or
prior to the final maturity date of the Notes.
"EBITDA Coverage Ratio" means, with respect to any Person, the ratio of (i)
Consolidated EBITDA of such Person for the four full fiscal quarters for which
financial statements are available that immediately precede the date of the
transaction or other circumstances giving rise to the need to calculate the
EBITDA Coverage Ratio (the "Transaction Date") to (ii) Consolidated Interest
Expense of such Person for such four full fiscal quarter period. For purposes
of this definition, if the Transaction Date occurs prior to the date on which
the Company's consolidated financial statements for the four full fiscal
quarters subsequent to the Issue
59
<PAGE>
Date are first available, then "Consolidated EBITDA" and "Consolidated Interest
Expense" shall be calculated, in the case of the Company, after giving effect
on a pro forma basis as if the Notes outstanding on the Transaction Date were
issued and as if any Indebtedness repaid with the proceeds of the Notes was
repaid on the first day of such four-full-fiscal-quarter period. In addition to
and without limitation of the foregoing two sentences, for purposes of this
definition, "Consolidated EBITDA" and "Consolidated Interest Expense" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to (i) the incurrence of or permanent redemption or repayment of
any Indebtedness of such Person or any of its Subsidiaries at any time during
the period (the "Reference Period") (A) commencing on the first day of the
four-full-fiscal-quarter period for which financial statements are available
that precedes the Transaction Date and (B) ending on and including the
Transaction Date, as if the incurrence of any Indebtedness giving rise to the
need to make such calculation, as well as the incurrence of any other
Indebtedness or the permanent redemption or repayment of any Indebtedness
occurred on the first day of the Reference Period; provided, that if such
Person or any of its Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the above clause shall give effect to the
incurrence of such guaranteed Indebtedness as if such Person or Subsidiary had
directly incurred such guaranteed Indebtedness and (ii) any Asset Sales or
Asset Acquisitions (including, without limitation, any Asset Acquisition giving
rise to the need to make such calculation as a result of the Company or any of
its Subsidiaries (including any Person who becomes a Subsidiary as a result of
the Asset Acquisition) incurring Acquired Indebtedness) occurring during the
Reference Period and any retirement of Indebtedness in connection therewith as
if such Asset Sale or Asset Acquisition and/or retirement occurred on the first
day of the Reference Period. Furthermore, in calculating the denominator (but
not the numerator) of this "EBITDA Coverage Ratio," (1) subject to the next
succeeding clause (2), interest on Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to accrue at a fixed rate per annum equal to the
rate of interest on such Indebtedness in effect on the Transaction Date; and
(2) notwithstanding clause (1) above, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements
relating to interest rate protection obligations, shall be deemed to accrue at
the rate per annum resulting after giving effect to the operation of such
agreements.
"Equity Offering" means any public or private offering of Capital Stock
(other than Disqualified Stock) of the Company.
"Fair Market Value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free-market
transaction, for cash, between a willing seller and a willing buyer, neither of
whom is under undue pressure or compulsion to complete the transaction. Fair
Market Value shall be determined by the Board of Directors of the Company
acting in good faith and shall be evidenced by a Board Resolution delivered to
the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as of the Issue Date.
"Indebtedness" means, with respect to any Person, without duplication (i) any
liability, contingent or otherwise, of such Person (A) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such Person or only to a portion thereof) or (B) evidenced by a note, debenture
or similar instrument or letters of credit (excluding undrawn documentary
letters of credit for trade payables arising in the ordinary course of
business), including a purchase money obligation or other obligation relating
to the deferred purchase price of property (other than trade payables incurred
in the ordinary course of business but including any liability for the payment
of money relating to a Capitalized Lease Obligation); (ii) any liability of
others of the kind described in the preceding clause (i), which the Person has
guaranteed or which is otherwise its legal liability (excluding accounts
payable of the Company or any of its Subsidiaries incurred in the ordinary
course of business); (iii) any obligation secured by a Lien to which the
property or assets of
60
<PAGE>
such Person are subject, whether or not the obligations secured thereby shall
have been assumed by or shall otherwise be such Person's legal liability
(excluding Liens on inventory sold pursuant to flooring arrangements or assets
sold pursuant to any securitization transaction); and (iv) any and all
deferrals, renewals, extensions, replacements, refinancing and refundings of,
or amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (i), (ii) or (iii). In addition,
Indebtedness shall include, with respect to the Company, any Disqualified Stock
of the Company and with respect to a Subsidiary of the Company, any Preferred
Stock of such Subsidiary. Indebtedness shall not include any obligations under
interest rate protection agreements entered into to protect against changes in
interest rates or currency hedging agreements entered into to protect against
changes or fluctuations in currencies.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any mortgage, lien (statutory or other), pledge, security
interest, encumbrance, hypothecation, assignment for security or other security
agreement of any kind or nature whatsoever. For purposes of the Indenture, a
Person shall be deemed to own subject to a Lien any property that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such Person.
"Material Subsidiary" means a Subsidiary of the Company which would
constitute a "significant subsidiary" of the Company within the meaning of
Regulation S-X of the Commission. In any event, for purposes of the Indenture,
Merisel Europe, Merisel Americas and Merisel FAB shall be deemed to be Material
Subsidiaries of the Company.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof received by the Company or any Subsidiary of the Company in the form of
cash or Cash Equivalents, including payments in respect of deferred payment
obligations when received in the form of cash or Cash Equivalents (except to
the extent that such obligations with respect to Indebtedness are financed or
sold with recourse to the Company or any of its Subsidiaries) net of (i)
brokerage commissions and other reasonable fees and expenses (including
reasonable fees and expenses of counsel and investment bankers) related to such
Asset Sale; (ii) provisions for all taxes payable as a result of such Asset
Sale; (iii) payments made to retire Indebtedness secured by the assets subject
to such Asset Sale to the extent required pursuant to the terms of such
Indebtedness; and(iv) appropriate amounts to be provided by the Company or any
of its Subsidiaries, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained by the
Company or any of its Subsidiaries, as the case may be, after such Asset Sale,
including, without limitation, pension and other postemployment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale.
"Net Income" means, with respect to any Person for any period, the net income
(loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock (other than
Disqualified Stock) by the Company, the aggregate net proceeds received by the
Company, after payment of expenses (including legal and accounting fees),
commissions and the like incurred in connection therewith, whether such
proceeds are in cash or in property (valued at the Fair Market Value thereof,
as determined in good faith by the Board of Directors of the Company, at the
time of receipt), (b) in the case of any exchange, exercise or conversion of
outstanding securities of any kind of the Company for or into shares of Capital
Stock of the Company that is not Disqualified Stock, the net book value of such
outstanding securities on the date of such exchange, exercise, conversion or
surrender (plus any additional amount required to be paid by the holder to the
Company upon such exchange, exercise, conversion or surrender, less any and all
payments made to the holders, e.g., on account of fractional shares, and less
all expenses incurred by the Company in connection therewith), and (c) in the
case of the issuance of any subordinated Indebtedness by the Company, the
61
<PAGE>
aggregate net cash proceeds received by the Company, after payment of expenses
(including legal and accounting fees), commissions and the like incurred in
connection therewith.
"Permitted Liens" means, with respect to any Person, any lien arising by
reason of (a) any attachment, judgment, decree or order of any court, so long
as such Lien is being contested in good faith and is either adequately bonded
or execution thereon has been stayed pending appeal or review, and any
appropriate legal proceedings that may have been duly initiated for the review
of such attachment, judgment, decree or order shall not have been finally
terminated, or the period within which such proceedings may be initiated shall
not have expired; (b) taxes, assessments or governmental charges not yet
delinquent or that are being contested in good faith; (c) security for payment
of workers' compensation or other insurance; (d) security for the performance
of tenders, bids, leases and contracts (other than contracts for the payment of
money);(e) deposits to secure public or statutory obligations or in lieu of
surety or appeal bonds or to secure permitted contracts for the purchase or
sale of any currency entered into in the ordinary course of business; (f)
operation of law in favor of carriers, warehousemen, landlords, mechanics,
materialmen, laborers, employees or suppliers, incurred in the ordinary course
of business for sums that are not yet delinquent or are being contested in good
faith by negotiations or by appropriate proceedings that suspend the collection
thereof;(g) security for surety or appeal bonds; and (h) easements, rights-of-
way, zoning and similar covenants and restrictions and other similar
encumbrances or title defects which, in the aggregate, are not substantial in
amount and which do not in any case materially interfere with the ordinary
conduct of the business of the Company or any of its Subsidiaries.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the Issue Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"Purchase Money Indebtedness" means any Indebtedness incurred in the ordinary
course of business by a Person to finance the cost (including the cost of
construction) of an item of property, the principal amount and/or liquidation
preference of which does not exceed the sum of (i) 100% of such cost and (ii)
the reasonable fees and expenses of such Person (including any sales taxes)
incurred in connection therewith.
"Restricted Investment" means an Investment other than an Investment
permitted by clauses (i)-(vii) of the covenant described under "Limitation on
Investments, Loans and Advances."
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Capital Stock of the
Company or any Subsidiary of the Company or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the Company
or any Subsidiary of the Company (other than (x) dividends or distributions
payable solely in Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase Capital Stock (other than Disqualified
Stock) and (y) in the case of Subsidiaries of the Company, dividends or
distributions payable to the Company or to a Subsidiary of the Company), (ii)
the purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company or any of its Subsidiaries (other than any such
Capital Stock owned by the Company or any of its Wholly-Owned Subsidiaries),
(iii) the making of any principal payment on, or the purchase, defeasance,
repurchase, redemption or other acquisition or retirement for value, prior to
any scheduled maturity, scheduled repayment or scheduled sinking-fund payment,
of any Indebtedness that is subordinated in right of payment to the Notes
(other than Indebtedness acquired in anticipation of satisfying a sinking-fund
obligation, principal installment or final maturity, in each case due within
one year of the date of acquisition) and (iv) the making of any Restricted
Investment.
62
<PAGE>
"Revolving Credit Agreement" means, collectively, the credit agreements to
which the Company or any of its Subsidiaries is or becomes a party
(irrespective of the term of any such credit agreement), in each case providing
for short-term working capital financing, as any such credit agreement may at
any time be amended, amended and restated, supplemented or otherwise modified,
including any refinancing, refunding, renewal, deferral, replacement, or
extension thereof by the same or any other lender or group of lenders.
"Sale-Leaseback Transaction" means any arrangement with any Person providing
for the leasing by the Company or any Subsidiary of the Company of any real or
tangible personal property owned by the Company or a Subsidiary of the Company
as of the Issue Date or thereafter acquired, which property has been or is to
be sold or transferred by the Company or such Subsidiary to a Person and leased
back from such Person.
"Subsidiary" means, with respect to any Person, (i) any corporation of which
the outstanding Capital Stock having more than 50% of the votes entitled to be
cast in the election of directors under ordinary circumstances shall at the
time be owned, directly or indirectly, by such Person, by a Subsidiary of such
Person or by such Person and a Subsidiary of such Person, or (ii) any other
Person (other than a corporation) of which more than 50% of the voting interest
is at the time, directly or indirectly, owned by such Person, by a Subsidiary
of such Person or by such Person and a Subsidiary of such Person.
"Wholly-Owned Subsidiary" means any Subsidiary of the Company, 100% of the
Capital Stock of which (other than shares of Capital Stock representing any
director's qualifying shares or investments by foreign nationals mandated by
applicable law) is owned by the Company, by a Wholly-Owned Subsidiary of the
Company or by the Company and a Wholly-Owned Subsidiary of the Company.
63
<PAGE>
UNDERWRITING
Citicorp Securities, Inc. ("Citicorp"), Citibank Canada Securities Limited
and Citibank International plc (collectively, the "Underwriters") have agreed,
subject to the terms and conditions set forth in the Underwriting Agreement
among the Company and the Underwriters, to purchase from the Company the
aggregate principal amount of Notes set forth opposite their names below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
<S> <C>
Citicorp Securities, Inc................................. $
Citibank Canada Securities Limited.......................
Citibank International plc...............................
------------
Total................................................ $125,000,000
============
</TABLE>
The nature of the Underwriters' obligation is such that they are committed to
purchase all of the Notes if any are purchased.
The Underwriters propose to offer the Notes directly to the public at the
public offering price set forth on the cover page of this Prospectus. The
Underwriters have advised the Company that sales of the Notes may be made to
certain selected dealers at a concession not in excess of % per Note, and
that the Underwriters may allow, and such dealers may reallow, a concession not
in excess of % per Note to certain other dealers. After the initial public
offering of the Notes, the public offering price, concessions and reallowances
with respect to the Notes may be changed.
The Company has been advised by Citicorp that it presently intends to make a
market in the Notes; however, Citicorp is not obligated to do so and any
market-making activities with respect to the Notes may be discontinued at any
time without notice. There can be no assurance that an active public market for
the Notes will develop or be maintained. See "Certain Investment
Considerations--Absence of Public Market for the Notes."
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), or to contribute to payments the Underwriters may be
required to make in respect of such liabilities.
Citibank International plc and Citibank Canada Securities Limited have each
agreed that, as part of the distribution of the Notes offered hereby and
subject to certain exceptions, it will not offer or sell any Notes within the
United States, its territories or possessions or to persons who are residents
therein.
Each Underwriter has represented and agreed that it (or any affiliate) (i)
has not offered or sold and will not offer or sell in the United Kingdom, by
means of any document, any Notes other than to persons whose ordinary business
is to buy or sell shares or debentures, whether as principal or agent (except
in circumstances which do not constitute an offer to the public within the
meaning of the Company Act 1985, as amended), (ii) has complied with and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Notes in, from, or otherwise
involving, the United Kingdom and (iii) has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issue of the Notes to a person who is of a kind described
in Article 9(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1988 or is a person to whom the document may otherwise
lawfully be issued or passed on.
Citicorp USA, Inc., an affiliate of the Underwriters, is the agent under the
Revolving Credit Facility. Citicorp North America, Inc., an affiliate of the
Underwriters, is the agent under the Receivables Securitization Agreement. In
addition, from time to time, certain affiliates of the Underwriters have
entered into financing arrangements with certain affiliates of the Company.
Customary fees have been received in connection with all of the foregoing
services.
64
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Riordan &
McKinzie, a Professional Corporation, and for the Underwriters by Cahill Gordon
& Reindel (a partnership including a professional corporation).
EXPERTS
The Consolidated Financial Statements of the Company included in this
Prospectus, and the Consolidated Financial Statements and the related Financial
Statement Schedules incorporated by reference from the Company's Annual Report
on Form 10-K, as amended, for the year ended December 31, 1993 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and incorporated herein by reference, and are included
herein and incorporated herein by reference in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
The statements of revenues and operating expenses of the United States
Franchise and Distribution Division of ComputerLand Corporation for the years
ended September 30, 1993 and 1992, appearing in the Company's Current Report on
Form 8-K dated January 31, 1994, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act,
and the rules and regulations thereunder, and in accordance therewith files
reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the following Regional Offices of the Commission: Suite 1400, Northwest Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661-2511; and 13th Floor,
7 World Trade Center, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such
reports, proxy statements and other information concerning the Company are also
available for inspection at the offices of The Nasdaq Stock Market, Inc.,
Reports Section, 1735 K Street, Washington, D.C. 20006.
Whether or not required by the rules and regulations of the Commission, the
Company is obligated under the indenture pursuant to which the Notes will be
issued to file with the Commission and to distribute or cause to be distributed
to holders of the Notes copies of the annual reports, quarterly reports and
other reports required to be filed with the Commission pursuant to Sections 13
or 15 of the Exchange Act.
The Company has filed with the Commission a Registration Statement on Form S-
3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement.
65
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets at December 31, 1992 and 1993 and June 30, 1994
(unaudited)............................................................... F-3
Consolidated Statements of Income for each of the three years in the period
ended December 31, 1993 and for the six months ended June 30, 1993 and
1994 (unaudited).......................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for each of the
three years in the period ended December 31, 1993 and for the six months
ended June 30, 1994 (unaudited)........................................... F-5
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1993 and for the six months ended
June 30, 1993 and 1994 (unaudited)........................................ F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Merisel, Inc.:
We have audited the accompanying consolidated balance sheets of Merisel, Inc.
and subsidiaries as of December 31, 1992 and 1993, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1993. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Merisel, Inc. and subsidiaries at
December 31, 1992 and 1993, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1993 in
conformity with generally accepted accounting principles.
Deloitte & Touche llp
Los Angeles, California
February 22, 1994
F-2
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JUNE 30,
------------------ -----------
1992 1993 1994
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.......................................... $ 133 $ 14 $ 212
Accounts receivable (net of allowance for
doubtful accounts of $11,160, $16,543 and
$15,332 at December 31, 1992, 1993 and June
30, 1994, respectively)...................... 296,192 393,252 357,275
Inventories................................... 299,526 442,392 497,003
Prepaid expenses and other current assets..... 5,029 15,443 9,668
Deferred income tax benefit................... 5,620 8,942 8,917
-------- -------- ----------
Total current assets..................... 606,500 860,043 873,075
PROPERTY AND EQUIPMENT, NET.................... 24,857 39,858 50,026
COST IN EXCESS OF NET ASSETS ACQUIRED, NET..... 34,186 32,832 113,701
OTHER ASSETS................................... 1,770 3,550 5,468
-------- -------- ----------
TOTAL ASSETS................................... $667,313 $936,283 $1,042,270
======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................. $248,545 $414,841 $ 467,361
Accrued liabilities........................... 30,149 26,811 45,766
Short-term bank debt.......................... 25,691 50,929 94,631
Income taxes payable.......................... 7,489 7,697 3,200
-------- -------- ----------
Total current liabilities................ 311,874 500,278 610,958
-------- -------- ----------
DEFERRED INCOME TAX LIABILITY.................. 916 1,787 1,618
-------- -------- ----------
LONG-TERM DEBT................................. 131,433 186,500 168,400
-------- -------- ----------
SUBORDINATED DEBT.............................. 22,000 22,000 22,000
-------- -------- ----------
MINORITY INTEREST.............................. 2,208 1,861 839
-------- -------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized
1,000,000 shares; none issued or outstanding
Common stock, $.01 par value; authorized
50,000,000 shares; outstanding 29,297,200,
29,604,300 and 29,681,200 at December 31,
1992, 1993 and June 30, 1994,
respectively................................. 293 296 297
Additional paid-in capital.................... 139,319 140,775 141,143
Retained earnings............................. 61,073 91,512 102,826
Cumulative translation adjustment............. (1,803) (8,726) (5,811)
-------- -------- ----------
Total stockholders' equity............... 198,882 223,857 238,455
-------- -------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..... $667,313 $936,283 $1,042,270
======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- ---------------------
1991 1992 1993 1993 1994
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES............... $1,585,446 $2,238,715 $3,085,851 $1,405,880 $2,365,120
COST OF SALES........... 1,427,491 2,036,292 2,827,315 1,287,325 2,201,050
---------- ---------- ---------- ---------- ----------
GROSS PROFIT............ 157,955 202,423 258,536 118,555 164,070
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 119,682 150,905 187,152 87,779 128,656
---------- ---------- ---------- ---------- ----------
OPERATING INCOME........ 38,273 51,518 71,384 30,776 35,414
INTEREST EXPENSE........ 15,972 15,742 17,810 8,916 12,559
OTHER EXPENSE........... 823 1,299 2,722 577 4,913
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME
TAXES.................. 21,478 34,477 50,852 21,283 17,942
PROVISION FOR INCOME
TAXES.................. 10,652 14,812 20,413 8,858 6,628
---------- ---------- ---------- ---------- ----------
NET INCOME.............. $ 10,826 $ 19,665 $ 30,439 $ 12,425 $ 11,314
========== ========== ========== ========== ==========
NET INCOME PER SHARE.... $ 0.43 $ 0.67 $ 1.00 $ 0.41 $ 0.37
========== ========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES.............. 24,896,600 29,274,000 30,454,000 30,308,000 30,764,000
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL CUMULATIVE RECEIVABLE
----------------- PAID-IN RETAINED TRANSLATION COMMON
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
---------- ------ ---------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER
31, 1990............... 24,261,400 $243 $ 82,473 $ 30,582 $ 1,566 $(581) $114,283
Exercise of stock
options and other..... 189,500 2 204 206
Amortization of
deferred compensation. 148 148
Cumulative translation
adjustment............ 74 74
Net income............. 10,826 10,826
---------- ---- -------- -------- ------- ----- --------
BALANCE AS OF DECEMBER
31, 1991............... 24,450,900 245 82,825 41,408 1,640 (581) 125,537
Exercise of stock
options and other..... 246,300 2 676 678
Amortization of
deferred compensation. 124 124
Payments on notes due
from sale of stock.... 581 581
Issuance of common
stock from public
offering.............. 4,600,000 46 55,694 55,740
Cumulative translation
adjustment............ (3,443) (3,443)
Net income............. 19,665 19,665
---------- ---- -------- -------- ------- ----- --------
BALANCE AS OF DECEMBER
31, 1992............... 29,297,200 293 139,319 61,073 (1,803) 198,882
Exercise of stock
options and other..... 307,100 3 1,456 1,459
Cumulative translation
adjustment............ (6,923) (6,923)
Net income............. 30,439 30,439
---------- ---- -------- -------- ------- ----- --------
BALANCE AS OF DECEMBER
31, 1993 .............. 29,604,300 296 140,775 91,512 (8,726) 223,857
Unaudited:
Exercise of stock
options and other..... 76,900 1 368 369
Cumulative translation
adjustment............ 2,915 2,915
Net income............. 11,314 11,314
---------- ---- -------- -------- ------- ----- --------
BALANCE AS OF JUNE 30,
1994 (unaudited)....... 29,681,200 $297 $141,143 $102,826 $(5,811) -- $238,455
========== ==== ======== ======== ======= ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEARS ENDED MONTHS ENDED JUNE
DECEMBER 31, 30,
--------------------------- ------------------
1991 1992 1993 1993 1994
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $10,826 $19,665 $30,439 $12,425 $11,314
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities:
Depreciation and amortization........ 8,420 9,185 10,476 4,979 7,540
Provision for bad debts.............. 13,404 15,471 17,441 7,373 8,130
Deferred income taxes................ (1,182) (789) (2,451) (1,234) (143)
Amortization of deferred
compensation........................ 148 124
Changes in assets and liabilities,
net of the effects from
acquisitions:
Accounts receivable................ (60,785) (91,298) (194,214) (22,924) (47,398)
Inventories........................ (34,267) (72,010) (142,866) (16,550) (54,612)
Prepaid expenses and other assets.. 70 (1,257) (6,613) (10,870) 5,168
Accounts payable................... 54,644 59,080 166,296 (7,384) 52,520
Accrued liabilities................ 3,292 2,592 (4,124) (1,425) 15,275
Income taxes payable............... 6,785 629 208 (3,644) (4,497)
------- -------- -------- -------- --------
Net cash provided by (used for)
operating activities............. 1,355 (58,608) (125,408) (39,254) (6,703)
------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment..... (5,938) (9,969) (24,576) (9,927) (14,561)
Proceeds from sale of property and
equipment............................. 1,004
Investments in unconsolidated
affiliates............................ (844)
Acquisitions, net of cash acquired..... (685) (82,686)
Cash acquired in connection with
acquisition of subsidiary............. 15
------- -------- -------- -------- --------
Net cash used for investing
activities....................... (5,938) (9,954) (25,101) (9,927) (97,247)
------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings (repayments) under
subsidiaries bank facilities.......... 7,197 12,790 10,237 10,549 (6,298)
Borrowings under revolving line of
credit ............................... 437,400 912,830
Repayments under revolving line of
credit ............................... (396,100) (945,930)
Net (repayments) borrowings under new
or existing revolving lines of
credit................................ (3,162) 29,500 70,067
Repayment of prior revolving lines of
credit................................ (128,394)
Borrowings under senior notes.......... 100,000
Borrowings in connection with
ComputerLand Acquisition.............. 65,000
Proceeds from sale of accounts
receivable............................ 75,000 75,000
Net proceeds from sale of common
stock................................. 55,740
Proceeds from issuance of common
stock................................. 206 679 1,459 730 369
Payments received from notes due from
sale of stock......................... 581
------- -------- -------- -------- --------
Net cash provided by financing
activities....................... 4,241 70,896 156,763 52,579 100,971
------- -------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH. 74 (2,742) (6,373) (3,448) 3,177
------- -------- -------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................ (268) (408) (119) (50) 198
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................. 809 541 133 133 14
------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................. $ 541 $ 133 $ 14 $ 83 $ 212
======= ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--
Cash paid (received) during the year
for:
Interest $15,125 $10,582 $20,741 $ 12,409 $ 13,325
Income taxes (927) 14,811 20,924 13,026 7,486
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITY--On April 1, 1992, the
Company purchased a 50% interest in a Mexican distribution company. The Company
paid cash in exchange for newly issued stock. As of June 30, 1994, the Company
paid $214,000 and accrued $2,786,000 to reflect its minimum liability for the
acquisition of an additional 30% interest in the Mexican distributor. (See Note
2).
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED INSOFAR AS THESE NOTES RELATE TO THE SIX MONTHS ENDED JUNE 30, 1993
AND JUNE 30, 1994)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--Merisel, Inc. ("Merisel" or the "Company") is a worldwide
distributor of microcomputer hardware and software products. In addition, as a
result of its acquisition of the United States franchise and aggregator
business of Vanstar Corporation (formerly ComputerLand Corporation) ("the
ComputerLand Business") the Company is a leading aggregator, or master
reseller, of computer systems and related products from major microcomputer
manufacturers to ComputerLand franchises and Datago affiliates. The
consolidated financial statements include the accounts of Merisel and its
consolidated subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Interim Period Presentation--The consolidated financial statements for the
six-month periods ended June 30, 1994 and June 30, 1993 are unaudited, but
include all adjustments (consisting of normal recurring accruals) which are, in
the opinion of management, necessary for a fair presentation of the
consolidated financial statements for the periods presented. The results of
operations for the six-month period ended June 30, 1994 are not necessarily
indicative of results that may be expected for future periods.
Revenue Recognition, Returns and Sales Incentives--The Company recognizes
revenue from hardware and software sales as products are shipped. The Company,
subject to certain limitations, permits its customers to exchange products or
receive credits against future purchases. The Company offers its customers
several sales incentive programs which, among others, include funds available
for cooperative promotion of product sales. Customers earn credit under such
programs based upon volume of purchases. The cost of these programs is
partially subsidized by marketing allowances provided by the Company's
manufacturers. The allowance for sales returns and costs of customer incentive
programs is accrued concurrently with the recognition of revenue.
Cash Equivalents--The Company considers all highly liquid investments
purchased with initial maturities of three months or less to be cash
equivalents.
Inventories--Inventories are valued at the lower of cost or market; cost is
determined on the average cost method.
Property and Depreciation--Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided on the straight-line method
over the estimated useful lives of the assets, generally three to seven years.
Leasehold improvements are amortized over the shorter of the life of the lease
or the improvement.
Cost in Excess of Net Assets Acquired--Cost in excess of net assets acquired
results principally from the acquisition in 1990 of Microamerica, Inc. and the
acquisition in January 1994 of the ComputerLand Business. The cost in excess of
assets acquired from the MicroAmerica, Inc. acquisition is being amortized over
a period of forty years. Based on a preliminary allocation, the cost in excess
of net assets acquired from the ComputerLand Business is being amortized over
an aggregate period of 25 years. Accumulated amortization was $2,533,000 and
$3,468,000 at December 31, 1992 and 1993, respectively.
Income Taxes--Deferred income taxes represent the amounts which will be paid
or received in future periods based on the income tax rates that are expected
to be in effect when the temporary differences are scheduled to reverse.
At December 31, 1992 and 1993, the cumulative amount of undistributed
earnings on which the Company has not recognized United States income taxes was
approximately $11 million and $15 million, respectively. The Company intends to
invest the undistributed earnings of its foreign subsidiaries indefinitely.
Accordingly, the Company has not provided United States income taxes for such
amounts.
F-7
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED INSOFAR AS THESE NOTES RELATE TO THE SIX MONTHS ENDED JUNE 30, 1993
AND JUNE 30, 1994)
The Company adopted Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes," effective January 1, 1992. The adoption of this
statement had no material effect on the Company's financial statements.
Disclosures about the Fair Values of Financial Instruments--The fair values
of financial instruments, other than long-term debt, closely approximate their
carrying value. The estimated fair value of long-term debt including current
maturities, based on reference to quoted market prices, exceeded the carrying
value by approximately $6,000,000 and $8,700,000 as of December 31, 1992 and
1993, respectively.
Foreign Currency Translation--Assets and liabilities of foreign subsidiaries
are translated into United States dollars at the exchange rate in effect at the
close of the period. Revenues and expenses of these subsidiaries are translated
at the average exchange rate during the period. The aggregate effect of
translating the financial statements of foreign subsidiaries is included in a
separate component of stockholders' equity entitled Cumulative Translation
Adjustment. In the normal course of business, the Company advances funds to
certain of its foreign subsidiaries, which are not expected to be repaid in the
foreseeable future. Translation adjustments resulting from these advances are
included in Cumulative Translation Adjustment. In an attempt to minimize
foreign exchange transaction gains and losses, forward contracts are used to
hedge short-term advances to foreign subsidiaries and inventory purchases.
Gains and losses on the transactions being hedged are offset by the gains or
losses on these contracts. At December 31, 1993, the Company had approximately
$85 million of short-term forward contracts outstanding. In 1991, 1992 and
1993, there were net foreign currency gains of $70,000, $843,000 and $283,000,
respectively.
Net Income per Share--Net income per share is computed by dividing net income
by the weighted average number of shares of common stock and common stock
equivalents (common stock options) outstanding during the related period,
unless such inclusion is antidilutive. The weighted average number of shares
includes shares issuable upon the assumed exercise of stock options less the
number of shares assumed purchased with the proceeds available from such
exercise.
Fiscal Periods--The Company's fiscal year is the 52- or 53-week period ending
on the Saturday nearest to December 31, and its fiscal quarters are the 13- or
14-week periods ending on the Saturday nearest to March 31, June 30, September
30, and December 31. For clarity of presentation, the Company has described
year-ends presented as if the years ended on December 31 and quarter-ends
presented as if the quarters ended on March 31, June 30, September 30, and
December 31. The 1991 and 1993 fiscal years were 52 weeks, while the 1992
fiscal year was 53 weeks in duration. The six-month periods ended June 30, 1993
and June 30, 1994 were 26 week periods. All quarters during 1992, 1993 and the
six months ended June 30, 1994 were 13 weeks except for the quarter ended
December 31, 1992, which was 14 weeks in duration.
2. ACQUISITIONS
On January 31, 1994, the Company, through its wholly owned subsidiary,
Merisel FAB, Inc. ("Merisel FAB"), acquired certain assets of the United States
Franchise and Distribution Division (the "F&D Division") of Vanstar Corporation
(formerly ComputerLand Corporation) (the "ComputerLand Acquisition"). The
Company paid $80.2 million in cash at closing for the acquired assets and $2.5
million of direct acquisition and financing costs. In addition, the Company has
agreed to make an additional payment in 1996 of up to $30 million. The amount
of such payment will be based upon the growth of the Company's and Merisel
FAB's sales of products of designated vendors to specified customers over the
two-year period ending January 31, 1996. The acquisition has been accounted for
as a purchase. Under the purchase method of accounting, an allocation of the
purchase price to the Merisel FAB assets and liabilities is required to reflect
F-8
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED INSOFAR AS THESE NOTES RELATE TO THE SIX MONTHS ENDED JUNE 30, 1993
AND JUNE 30, 1994)
fair values. Based on a preliminary allocation, $82 million of the purchase
price has been allocated to intangible assets with an estimated aggregate life
of 25 years. A final allocation of the purchase price has not yet been
performed.
Merisel FAB has also entered into a Distribution and Services Agreement (the
"Agreement") with Vanstar Corporation ("Vanstar") whereby Vanstar will provide
products and distribution and other support services to Merisel FAB for two
years following the ComputerLand Acquisition. Under the Agreement, Merisel has
been granted $20 million in extended credit terms on its product purchases from
Vanstar (the "Vanstar Payable"). The Vanstar Payable accrues interest at prime
rate less 2% per annum (5.25% at June 30, 1994), payable monthly, with the
principal balance due on February 1, 1996).
Following is summarized pro forma operating results assuming that the Company
had acquired the F&D Division on January 1, 1993 (such amounts exclude the
effect of the issuance of the Notes as contemplated by the Offering).
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JUNE 30,
---------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Net Sales................................................ $2,466,852 $1,929,638
Income before taxes...................................... 18,107 24,567
Net income............................................... 11,413 14,396
Net income per share..................................... 0.37 0.47
Weighted average shares outstanding...................... 30,764 30,308
</TABLE>
Prior to its acquisition, the ComputerLand Business was not an incorporated
entity, and separate historical financial statements were not prepared.
Accordingly, no such financial statements were readily available. The
summarized pro forma operating results are based, in part, on historical income
statement information obtained from the F&D Division's unaudited statement of
revenues and operating expenses for the month ended January 31, 1994, and the
six months ended June 30, 1993. Such historical statements present the
revenues, direct expenses and general and administrative expenses allocated
from Vanstar. The pro forma information for 1994 includes the historical
operating results for the period from February 1, 1994 to June 30, 1994 (during
such period the financial statements of the ComputerLand Business were
consolidated with those of the Company). In addition, the summarized pro forma
information for the F&D Division, prior to its acquisition by the Company,
includes adjustments to reflect the allocation of general and administrative
expenses, such as the costs of the distribution centers and general corporate
functions and expenses and administrative personnel. Such expenses have been
allocated based upon such factors as the ratio of shipments by the F&D Division
to total shipments by Vanstar and Vanstar's management's estimate of the time
spent by shared employees of Vanstar. The pro forma results also include
adjustments for interest expense on debt incurred in connection with the
acquisition, amortization of intangible assets and provision for income taxes,
assuming a 40% marginal income tax rate. In addition, the summarized pro forma
information also includes the potential impact from the sale of the Notes as
contemplated by this Offering. The summarized pro forma information may not be
indicative of the results that would have occurred if the acquisition had been
consummated on January 1, 1994 or 1993, or which may be achieved in the future.
Effective April 1, 1992, the Company purchased a fifty percent interest in a
computer products distribution company in Mexico. Merisel paid cash, which was
retained by the Mexican distributor in exchange for newly issued common stock.
As of June 30, 1994, the Company paid $214,000 and has accrued $2,786,000 to
reflect its minimum liability for the acquisition of an additional 30% interest
in the Mexican distributor.
F-9
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED INSOFAR AS THESE NOTES RELATE TO THE SIX MONTHS ENDED JUNE 30, 1993
AND JUNE 30, 1994)
In August 1994, the Company acquired the remaining 20% interest. Pro forma
income statement information related to this acquisition has not been provided
as the financial statement impact is not significant.
3. SALE OF ACCOUNTS RECEIVABLE
In September 1993, the Company entered into a trade accounts receivable
securitization agreement with a securitization company. As amended in March
1994, the securitization company may purchase on an ongoing basis for a one-
year period up to $150 million of an undivided interest in designated accounts
receivable. At December 31, 1993 and June 30, 1994, $75 million and $150
million, respectively, of net accounts receivable were sold under this
agreement. Fees of $685,000 and $2,679,000 incurred in connection with the sale
of these receivables were included in Other Expense in the year ended December
31, 1993 and the six months ended June 30, 1994, respectively.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------------
1992 1993
-------- --------
<S> <C> <C>
Land and building..................................... $ 478 $ 390
Equipment............................................. 28,731 37,988
Furniture and fixtures................................ 5,749 7,886
Leasehold improvements................................ 9,991 11,514
Construction in progress.............................. 2,265 10,687
-------- --------
Total................................................. 47,214 68,465
Less accumulated depreciation and amortization........ (22,357) (28,607)
-------- --------
Property and equipment, net........................... $ 24,857 $ 39,858
======== ========
</TABLE>
5. INCOME TAXES
The components of income before income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1991 1992 1993
---------- ---------- ----------
<S> <C> <C> <C>
Domestic................................. $ 20,723 $ 31,208 $ 46,080
Foreign.................................. 755 3,269 4,772
---------- ---------- ----------
Total.................................. $ 21,478 $ 34,477 $ 50,852
========== ========== ==========
</TABLE>
F-10
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED INSOFAR AS THESE NOTES RELATE TO THE SIX MONTHS ENDED JUNE 30, 1993
AND JUNE 30, 1994)
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................ $ 8,772 $10,046 $15,552
State.............................................. 2,137 2,596 3,994
Foreign............................................ 925 2,341 3,318
------- ------- -------
Total current...................................... 11,834 14,983 22,864
------- ------- -------
Deferred:
Domestic........................................... (1,944) (744) (2,636)
Foreign............................................ 762 573 185
------- ------- -------
Total deferred..................................... (1,182) (171) (2,451)
------- ------- -------
Total provision................................ $10,652 $14,812 $20,413
======= ======= =======
</TABLE>
Deferred tax liabilities and assets were comprised of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------
1992 1993
------- -------
<S> <C> <C>
Deferred tax liabilities
State taxes........................................... $ 138 $ 203
Depreciation.......................................... 1,468 3,343
------- -------
Total............................................... $ 1,606 $ 3,546
======= =======
Deferred tax assets
Net operating loss of foreign subsidiaries............ $ 5,200 $ 3,200
Expense accruals...................................... 5,104 8,642
Other, net............................................ 1,206 2,059
------- -------
11,510 13,901
Valuation allowances.................................. (5,200) (3,200)
------- -------
Total............................................... $ 6,310 $10,701
======= =======
</TABLE>
The major elements contributing to the difference between the federal
statutory tax rate and the effective tax rate are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1991 1992 1993
------ ------ ------
<S> <C> <C> <C>
Statutory rate...................................... 34.0% 34.0% 35.0%
Foreign income subject to tax at other than
statutory rate..................................... 1.1 1.2 1.0
Utilization of net operating losses of foreign
subsidiary......................................... (3.3)
State income taxes, less effect of federal
deduction.......................................... 6.0 4.6 4.1
Foreign losses without tax benefits................. 5.5 3.7 2.6
Goodwill amortization............................... 1.4 0.7 0.5
Other............................................... 1.6 (1.2) 0.2
------ ------ ------
Effective tax rate.................................. 49.6% 43.0% 40.1%
====== ====== ======
</TABLE>
F-11
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED INSOFAR AS THESE NOTES RELATE TO THE SIX MONTHS ENDED JUNE 30, 1993
AND JUNE 30, 1994)
6. DEBT
At December 31, 1993, the Company's subsidiaries Merisel Americas, Inc.
("Merisel Americas") and Merisel Europe, Inc. ("Merisel Europe") had unsecured
senior borrowing commitments of $250 million, which consisted of $100 million
of 8.58% senior notes ("Senior Notes") by Merisel Americas, and a $150 million
revolving credit agreement ("Revolver") by Merisel Americas and Merisel Europe.
The Senior Notes are due on June 30, 1997, and the Revolver is due on May 31,
1997.
At December 31, 1993 and June 30, 1994, there was $100 million outstanding
under the Senior Notes, and $86.5 million and $68.4 million, respectively,
outstanding under the Revolver. In addition, the Company had $5 million in
outstanding letters of credit under its Revolver at December 31, 1993 and June
30, 1994. Advances under the Revolver bear interest at specific rates based
upon market reference rates and the Company's performance relative to specific
levels of debt to total capitalization. The combined average interest rate at
December 31, 1993 was approximately 4.7%. The Company is also required to pay a
commitment fee on the unused available funds on the Revolver.
The Senior Notes and Revolver agreements both contain various covenants,
including those which prohibit the payment of cash dividends, require a minimum
amount of tangible net worth and place limitations on the acquisition of
assets. The agreements also require the Company to maintain certain specified
financial ratios, including interest coverage, total debt to total
capitalization and inventory turnover.
To finance the ComputerLand Acquisition, the Company borrowed $65 million
under an unsecured credit agreement with a bank. The loan agreement provides
for periodic interest payments prior to maturity, starting at the prime rate,
with quarterly increases of 0.5% until maturity. This agreement expires on
January 29, 1995, but is subject to mandatory prepayment upon any debt or
equity issuance by the Company.
At December 31, 1993, approximately $102 million of outstanding debt was
advanced to foreign subsidiaries. In addition, the Company and its subsidiaries
have various unsecured lines of credit denominated in their local currencies
under which they may borrow an aggregate of $81 million. The Company had
borrowings under the lines of credit of $27.6 million, $50.9 million and $29.6
million outstanding at December 31, 1992, 1993 and June 30, 1994, respectively.
7. LONG-TERM SUBORDINATED DEBT
On March 30, 1990, the Company sold an aggregate of $22,000,000 of privately
placed subordinated notes. The notes provide for interest at the rate of 11.28%
per annum and are repayable in five equal annual installments beginning March
1996. These notes were assigned to the Company's subsidiary Merisel Americas in
December 1993. The subordinated debt agreement contains certain restrictive
covenants, including those that limit the ability of Merisel Americas to incur
debt, acquire the stock of or merge with other corporations, or sell certain
assets, and prohibits the payment of dividends. The subordinated debt agreement
also requires Merisel Americas to maintain specified financial ratios similar
in nature, but generally less restrictive, than those described in Note 6.
8. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under noncancelable
operating leases. Future minimum rental payments, under leases that have
initial or remaining noncancelable lease terms in excess of one year are
$12,333,000 in 1994, $9,409,000 in 1995, $8,707,000 in 1996, $7,712,000 in
1997, $7,420,000 in 1998 and $22,402,000 thereafter. Certain of the leases
contain inflation escalation clauses and requirements for the payment of
property taxes, insurance, and maintenance expenses. Rent expense for 1991,
1992 and 1993 was $8,889,000, $11,007,000, and $12,617,000, respectively.
F-12
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED INSOFAR AS THESE NOTES RELATE TO THE SIX MONTHS ENDED JUNE 30, 1993
AND JUNE 30, 1994)
In June 1994, the Company and certain of its officers and/or directors were
named in putative securities class actions filed in the United States District
Court for the Central District of California, consolidated as In re Merisel,
Inc. Securities Litigation. Plaintiffs, who are seeking damages in an
unspecified amount, purport to represent a class of all persons who purchased
Merisel common stock between February 1, 1994 and June 7, 1994 (the "Class
Period"). The complaints allege that the defendants inflated the market price
of Merisel's common stock with material misrepresentations and omissions during
the Class Period. Plaintiffs contend that such alleged misrepresentations are
actionable under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder. Plaintiffs filed a consolidated
amended complaint on August 15, 1994. Merisel believes that it has meritorious
defenses to this lawsuit and intends to defend the action vigorously.
Management believes that the outcome of this matter will not have a material
adverse effect on the consolidated financial position or results of operations
of the Company, and accordingly, no provision for loss has been made in the
accompanying financial statements.
The Company is also involved in certain legal proceedings arising in the
ordinary course of business, none of which is expected to have a material
impact on the Company's financial statements.
9. EMPLOYEE STOCK OPTIONS AND BENEFIT PLANS
Under the Company's stock option plans, incentive stock options may be
granted to employees and nonqualified options may be granted to employees,
directors, and consultants. The plans authorized the issuance of an aggregate
of 4,616,200 shares upon exercise of options granted thereunder. The optionees,
option prices, vesting provisions, dates of grant and number of shares granted
under the plans are determined primarily by the Board of Directors, though
incentive stock options must be granted at prices which are no less than the
fair market value of the Company's common stock at the date of grant. Options
granted under the plans expire ten years from the date of grant. The following
summarizes activity in the plans for the three years ended December 31, 1993:
<TABLE>
<CAPTION>
NUMBER
OF OPTIONS OPTION EXERCISES PRICE
---------- ------------------------
PER SHARE TOTAL
---------- ------------
<S> <C> <C> <C>
Outstanding, December 31, 1990..... 1,734,790 $1.11--$8.41 $ 9,157,000
Granted............................ 1,048,830 3.00 3,147,000
Exercised.......................... (58,110) 1.11--3.00 (123,000)
Canceled........................... (1,285,080) 2.20--8.41 (7,924,000)
---------- -----------
Outstanding, December 31, 1991..... 1,440,430 1.11--8.41 4,257,000
Granted............................ 741,500 11.38 8,434,000
Exercised.......................... (239,580) 1.11--6.25 (685,000)
Canceled........................... (78,810) 3.00--6.25 (446,000)
---------- -----------
Outstanding, December 31, 1992..... 1,863,540 1.11--11.38 11,560,000
Granted............................ 327,000 11.75--11.88 3,883,000
Exercised.......................... (307,100) 1.11--11.38 (1,051,000)
Canceled........................... (27,300) 3.00--11.38 (266,000)
---------- -----------
Outstanding, December 31, 1993..... 1,856,140 2.20--11.88 $14,126,000
========== ===========
</TABLE>
A total of 1,032,000 and 1,089,500 options were exercisable under the stock
option plans at December 31, 1992 and 1993, respectively.
F-13
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED INSOFAR AS THESE NOTES RELATE TO THE SIX MONTHS ENDED JUNE 30, 1993
AND JUNE 30, 1994)
During 1987, the Company's Board of Directors authorized the issuance of
350,000 nonqualified stock options to an officer of the Company for the
purchase of common stock at an exercise price of $.01 per share. The options
vested over five years from the date of grant and are exercisable for a period
of up to ten years. The difference between the fair market value of the common
stock underlying the nonqualified stock options as of the date of grant and
the exercise price, an aggregate of $1,484,000, was amortized as compensation
expense over the five-year vesting period. Compensation expense related to
these stock options was $148,000 and $124,000 in 1991 and 1992, respectively.
As of December 31, 1993, 150,000 options remained outstanding.
The Company offers a 401(k) savings plan under which all employees who are
21 years of age with at least one month 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.
The Company's contributions vest 25% per year. The Company contributed
$285,000, $378,000 and $443,000 to the plan during the years ended December
31, 1991, 1992 and 1993, respectively.
10. SEGMENT INFORMATION
The Company's operations involve a single industry segment -- the wholesale
distribution of micro-computer hardware and software products. The geographic
areas in which the Company operates are the United States, Canada, Europe
(United Kingdom, France, Germany, Switzerland, and Austria), and Other
International (Latin America and Australia in 1991, and Latin America,
Australia and Mexico in 1992 and 1993). Net sales, operating income (before
interest, other nonoperating expenses and income taxes) and identifiable
assets by geographical area were as follows (in thousands):
<TABLE>
<CAPTION>
UNITED OTHER CON-
STATES CANADA EUROPE INTERNATIONAL ELIMINATIONS SOLIDATED
---------- -------- -------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
1991:
Net sales:
Unaffiliated
customers............. $1,045,161 $257,718 $211,215 $ 71,352 $1,585,446
Transfers between
geographical areas.... 36,142 28 $(36,170)
---------- -------- -------- -------- -------- ----------
Total................ $1,081,303 $257,718 $211,215 $ 71,380 $(36,170) $1,585,446
========== ======== ======== ======== ======== ==========
Operating income
(loss)................ $ 34,430 $ 3,091 $ 1,416 $ (664) $ 38,273
========== ======== ======== ======== ==========
Identifiable assets.... $ 333,964 $ 87,810 $ 81,218 $ 24,782 $(19,188) $ 508,586
========== ======== ======== ======== ======== ==========
1992:
Net sales:
Unaffiliated
customers............. $1,475,222 $302,512 $324,180 $136,801 $2,238,715
Transfers between
geographical areas.... 39,047 502 $(39,549)
---------- -------- -------- -------- -------- ----------
Total................ $1,514,269 $302,512 $324,180 $137,303 $(39,549) $2,238,715
========== ======== ======== ======== ======== ==========
Operating income
(loss)................ $ 45,151 $ 5,489 $ (664) $ 1,542 $ 51,518
========== ======== ======== ======== ==========
Identifiable assets.... $ 414,161 $100,592 $126,953 $ 50,917 $(25,310) $ 667,313
========== ======== ======== ======== ======== ==========
1993:
Net sales:
Unaffiliated
customers............. $1,951,411 $395,375 $531,938 $207,127 $3,085,851
Transfers between
geographical areas.... 40,193 113 $(40,306)
---------- -------- -------- -------- -------- ----------
Total................ $1,991,604 $395,375 $531,938 $207,240 $(40,306) $3,085,851
========== ======== ======== ======== ======== ==========
Operating income....... $ 59,945 $ 7,421 $ 372 $ 3,646 $ 71,384
========== ======== ======== ======== ==========
Identifiable assets..... $ 588,711 $123,844 $192,097 $ 68,951 $(37,320) $ 936,283
========== ======== ======== ======== ======== ==========
</TABLE>
F-14
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED INSOFAR AS THESE NOTES RELATE TO THE SIX MONTHS ENDED JUNE 30, 1993
AND JUNE 30, 1994)
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected financial information for the quarterly periods for the fiscal years
ended 1992, 1993 and 1994 is presented below (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1992
----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales..................... $ 487,103 $ 512,735 $554,250 $684,627
Gross profit.................. 46,442 47,920 47,749 60,312
Net income.................... 4,140 4,442 3,535 7,548
Net income per share.......... 0.16 0.15 0.12 0.25
<CAPTION>
1993
----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales..................... $ 692,458 $ 713,422 $731,442 $948,529
Gross profit.................. 59,423 59,132 61,556 78,425
Net income.................... 6,353 6,072 6,108 11,906
Net income per share.......... 0.21 0.20 0.20 0.39
<CAPTION>
1994
---------------------
MARCH 31 JUNE 30
---------- ----------
<S> <C> <C>
Net sales..................... $1,154,622 $1,210,498
Gross profit.................. 82,306 81,764
Net income.................... 8,596 2,718
Net income per share.......... 0.28 0.09
</TABLE>
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any
information or to make representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or the solicitation of any offer to buy any
security other than the Notes offered by this Prospectus, nor does it
constitute an offer to sell or a solicitation of an offer to buy the Notes by
anyone in any jurisdiction in which such offer or solicitation is not
authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that
information herein is correct as of any time subsequent to the date hereof.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Documents Incorporated by Reference........................................ 2
Prospectus Summary......................................................... 3
Certain Investment Considerations.......................................... 8
Use of Proceeds............................................................ 9
Capitalization............................................................. 10
Selected Consolidated Financial Data ...................................... 11
Unaudited Pro Forma Condensed
Combined Statements of Income............................................. 12
Notes to the Unaudited Pro Forma
Condensed Combined Statements
of Income................................................................. 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ............................................................ 16
Business................................................................... 25
Management................................................................. 36
Executive Compensation..................................................... 38
Principal Shareholders..................................................... 42
Certain Indebtedness and Financing
Arrangements ............................................................. 43
Description of Notes....................................................... 46
Underwriting............................................................... 64
Legal Matters.............................................................. 65
Experts.................................................................... 65
Available Information...................................................... 65
Index to Consolidated Financial Statements................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$125,000,000
[LOGO OF MERISEL]
% Senior Notes Due 2004
---------------------
PROSPECTUS
---------------------
CITICORP SECURITIES, INC.
October 14, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the sale and distribution of the securities being registered. All of the
amounts shown are estimated except the registration fee of the Commission and
the NASD fee.
<TABLE>
<CAPTION>
AMOUNT
PAID BY
THE
ITEM COMPANY
---- --------
<S> <C>
SEC registration fee................ $ 51,723
NASD fee............................ 15,500
Rating agency fee................... 90,000
Printing and engraving expenses..... 95,000
Accounting fees and expenses........ 75,000
Legal fees and expenses............. 75,000
Blue sky fees and expenses.......... 25,075
Trustee fees and expenses........... 10,000
Miscellaneous....................... 31,702
--------
Total........................... $469,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has adopted provisions in its Restated Certificate of
Incorporation (the "Certificate") that limit the liability of its directors. As
permitted by the Delaware General Corporation Law (the "Delaware Law"), the
Certificate provides that directors shall not be personally liable for breach
of fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its shareholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware Law (governing
unlawful payments of dividends and unlawful stock purchases and redemptions),
as the same exists or hereafter may be amended or (iv) for any transaction from
which the director derived an improper benefit.
The Company's Bylaws and Certificate further provide that the Company may
indemnify and hold harmless its directors and officers to the fullest extent
authorized by the Delaware Law, which provides a detailed statutory framework
covering indemnification of directors and officers against liabilities and
expenses arising out of legal proceedings brought against them by reason of
their status or service as directors or officers.
Section 145 of the Delaware Law provides that a director or officer of a
corporation (i) shall be indemnified by the corporation for expenses in defense
of any action or proceeding if the director or officer is sued by reason of his
service to the corporation, to the extent that such person has been successful
in defense of such action or proceeding, or in defense of any claim, issue or
matter raised in such litigation, (ii) may, in actions other than actions by or
in the right of the corporation (such as derivative actions), be indemnified
for expenses, judgments, fines, amounts paid in settlement of such litigation
and other amounts, even if he is not successful on the merits, if he acted in
good faith and in a manner he reasonably believed to be in or not
II-1
<PAGE>
opposed to the best interests of the corporation (and in the case of a criminal
proceeding, if he did not have reasonable cause to believe his conduct was
unlawful) and (iii) may be indemnified by the corporation for expenses (but not
judgments or settlements) of any action by the corporation or of a derivative
action (such as a suit by a stockholder alleging a breach by the director or
officer of a duty owed to the corporation), even if he is not successful on the
merits, provided that he acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation,
provided that no indemnification is permitted without court approval if the
director was adjudged liable to the corporation.
The permissive indemnification described in clauses (ii) and (iii) of the
previous paragraph may be made only upon a determination by (a) a majority of a
quorum of disinterested directors, (b) the shareholders or (c) under certain
circumstances, by independent legal counsel in a written opinion that
indemnification is proper in the circumstances because the applicable standard
of conduct has been met. The Board of Directors may authorize the advancement
of litigation expenses to a director or officer upon receipt of an undertaking
by such director or officer to repay such expenses if it is ultimately
determined that such director or officer is not entitled to indemnification.
The Company has entered into indemnity agreements (the "Indemnity
Agreements") with each director of the Company, including directors who are
also officers and employees of the Company. The Indemnity Agreements contain
provisions which are in some respects broader than the specific indemnification
provisions contained in the Delaware Law. The Indemnity Agreements constitute
binding agreements of the Company and will prevent the Company from modifying
its indemnification policy in any way which is adverse to any person (an
"Indemnified Party") who is a party to and required to be indemnified pursuant
to an Indemnity Agreement.
The Indemnity Agreements also alter or clarify the statutory indemnity in a
number of ways, including the following: (i) indemnification is required in
most circumstances unless the Indemnified Party's actions are adjudged to be in
bad faith, knowingly fraudulent or deliberately dishonest; (ii) indemnification
is explicitly provided for settlements and costs of investigation and appeal in
derivative actions; (iii) the Company must advance the expenses incurred in
defending, investigating or appealing any proceeding to which the Indemnified
Party is a party as a result of service to the Company, but the Indemnified
Party must repay such expenses if it is ultimately determined that such person
is not entitled to indemnification; (iv) the Company must provide
indemnification unless it is determined promptly by a majority of disinterested
directors, by independent legal counsel or a panel of arbitrators that the
person is not entitled to indemnification; (v) partial indemnification is
permitted in the event that the Indemnified Party is not entitled to full
indemnification; and (vi) if the determining body finds indemnification
inappropriate, the Indemnified Party may petition a court for an independent
determination. Neither the failure by the directors, counsel or arbitrators to
make such a determination, or an actual determination by any of them that the
Indemnified Party failed to meet the applicable standard of conduct, will be a
defense to such action or create a presumption that the Indemnified Party did
not meet the applicable standard of conduct. The indemnity also covers action
by a director, officer or key employee as a director, officer or agent of an
employee benefit plan or other corporation, partnership, joint venture or other
enterprise when such person is serving in such capacities at the request of the
Company. The enforceability of certain provisions of the Indemnity Agreement
has not been tested in court and remains subject to considerations of state law
and public policy.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
4.1 Form of Indenture between the Company and NationsBank of Texas, N.A.
as Trustee, relating to the Company's % Senior Notes Due 2004,
including the form of such Senior Notes attached as Exhibit A
thereto.
5.1 Opinion of Riordan & McKinzie.*
10.1 First Amendment, dated as of September 29, 1994, to Revolving Credit
Agreement, dated as of December 23, 1993, by and among Merisel
Americas, Inc., Merisel Europe, Inc., Merisel, Inc. and the
financial institutions named therein.*
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.2 Second Amendment dated as of September 30, 1994, to Credit
Agreement, dated as of December 23, 1994, by and among Merisel, Inc.
and NationsBank of Texas, N.A.*
10.3 First Amendment, dated as of September 30, 1994, to Amended and
Restated Senior Note Purchase Agreement, dated as of December 23,
1994, by and among the Noteholders named therein and Merisel
Americas, Inc.*
10.4 First Amendment, dated as of September 30, 1994, to Amended and
Restated Subordinated Note Purchase Agreement, dated as of December
23, 1994, by and among the Noteholders named therein and Merisel
Americas, Inc.*
10.5 Fourth Amendment, dated as of October 7, 1994, to Trade Receivables
Purchase and Sale Agreement, dated as of September 24, 1993, among
Merisel Americas, Inc., CIESCO L.P., Citibank, N.A., Citicorp North
America, Inc. and the financial institutions named therein.*
12.1 Computation of ratio of earnings to fixed charges.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Riordan & McKinzie (included in the opinion filed as
Exhibit 5.1 hereto).*
24.1 Power of Attorney.*
25.1 Form T-1 Statement of Eligibility of NationsBank of Texas, N.A.*
27 Financial Data Schedules.*
</TABLE>
- --------
* Previously filed as an exhibit to this Registration Statement
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indication for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post- effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS POST-EFFECTIVE
AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF EL SEGUNDO, STATE OF
CALIFORNIA, OCTOBER 13, 1994.
Merisel, Inc.
By
/s/ James L. Brill
___________________________________
James L. Brill
Senior Vice President-Finance,
Chief Financial Officer and
Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-
EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Co-Chairman of the Board of October 13, 1994
____________________________________ Directors, President and
Michael D. Pickett Chief Executive Officer
(Principal Executive
Officer)
* Co-Chairman of the Board of October 13, 1994
____________________________________ Directors, and Senior Vice
Robert S. Leff President-Business
Development
* Vice Chairman of the Board October 13, 1994
____________________________________ of Directors
David S. Wagman
/s/ James L. Brill Senior Vice President- October 13, 1994
____________________________________ Finance, Chief Financial
James L. Brill Officer, Secretary and
Director (Principal
Financial Officer)
* Corporate Controller October 13, 1994
____________________________________ (Principal Accounting
Gary A. Schultz Officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director October 13, 1994
____________________________________
Joseph Abrams
Director
____________________________________
David L. House
* Director October 13, 1994
____________________________________
Dr. Arnold Miller
* Director October 13, 1994
____________________________________
Lawrence J. Schoenberg
* Director October 13, 1994
____________________________________
Dwight A. Steffensen
</TABLE>
*By /s/ James L. Brill
____________________________
James L. Brill
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT 4.1
================================================================================
MERISEL, INC.,
as Issuer,
and
NATIONSBANK OF TEXAS, N.A.,
as Trustee
_______________________
INDENTURE
Dated as of , 1994
_______________________
$125,000,000
% SENIOR NOTES, DUE 2004
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
---------------------
<TABLE>
<CAPTION>
TIA Section Indenture Section
- ----------- -----------------
<S> <C>
(S) 310(a)(1)................................... 7.10
(a)(2)..................................... 7.10
(a)(3)..................................... N.A.
(a)(4)..................................... N.A.
(a)(5)..................................... 7.10
(b)........................................ 7.8; 7.10; 10.2
(c)........................................ N.A.
(S) 311(a)...................................... 7.11
(b)........................................ 7.11
(c)........................................ N.A.
(S) 312(a)...................................... 2.5
(b)........................................ 10.3
(c)........................................ 10.3
(S) 313(a)...................................... 7.6
(b)(1)..................................... N.A.
(b)(2)..................................... N.A.
(c)........................................ 7.6; 10.2
(d)........................................ 7.6
(S) 314(a)...................................... 4.7; 10.2
(b)........................................ N.A.
(c)(1)..................................... 10.4
(c)(2)..................................... 10.4
(c)(3)..................................... N.A.
(d)........................................ N.A.
(e)........................................ 10.5
(f)........................................ N.A.
(S) 315(a)...................................... 7.1(b)
(b)........................................ 7.5; 10.2
(c)........................................ 7.1(a)
(d)........................................ 7.1(c)
(e)........................................ 6.11
(S) 316(a) (last sentence)...................... 2.9
(a)(1)(A).................................. 6.5
(a)(1)(B).................................. 6.4
(a)(2)..................................... N.A.
(b)........................................ 6.7
(c)........................................ 9.4
(S) 317(a)(1)................................... 6.8
(a)(2)..................................... 6.9
(b)........................................ 2.4
(S) 318(a)...................................... 10.1
- --------------------
</TABLE>
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of this Indenture.
-i-
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
DEFINITIONS AND
INCORPORATION BY REFERENCE
<TABLE>
<CAPTION>
Section Page
- ------- ----
<C> <S>............................................................ <C>
1.1 Definitions.................................................... 1
1.2 Incorporation by Reference of Trust
Indenture Act................................................ 14
1.3 Rules of Construction.......................................... 15
ARTICLE II
THE SECURITIES
2.1 Form and Dating................................................ 16
2.2 Execution and Authentication................................... 16
2.3 Registrar and Paying Agent..................................... 17
2.4 Paying Agent To Hold Money in Trust............................ 17
2.5 Securityholder Lists........................................... 18
2.6 Transfer and Exchange.......................................... 18
2.7 Replacement Securities......................................... 19
2.8 Outstanding Securities......................................... 19
2.9 Treasury Securities............................................ 20
2.10 Temporary Securities........................................... 20
2.11 Cancellation................................................... 20
2.12 Defaulted Interest............................................. 21
2.13 CUSIP Number................................................... 21
2.14 Deposit of Moneys.............................................. 21
ARTICLE III
REDEMPTION
3.1 Notices to Trustee............................................. 22
3.2 Selection of Securities To Be
Redeemed..................................................... 22
3.3 Notice of Redemption........................................... 22
3.4 Effect of Notice of Redemption................................. 23
3.5 Deposit of Redemption Price; Unclaimed
Monies....................................................... 24
3.6 Securities Redeemed in Part.................................... 24
ARTICLE IV
COVENANTS
4.1 Payment of Securities.......................................... 25
4.2 Maintenance of Office or Agency................................ 25
4.3 Corporate Existence............................................ 26
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<C> <S> <C>
4.4 Payment of Taxes and Other Claims............................... 26
4.5 Maintenance of Properties; Insurance;
Books and Records; Compliance with
Law........................................................... 26
4.6 Compliance Certificates......................................... 27
4.7 Provision for Financial Information............................. 28
4.8 Further Assurance to the Trustee................................ 28
4.9 Limitation on Additional Indebtedness........................... 29
4.10 Limitation on Liens............................................. 31
4.11 Limitation on Restricted Payments............................... 33
4.12 Limitation on Investments, Loans and
Advances...................................................... 34
4.13 Disposition of Proceeds of Asset
Sales......................................................... 35
4.14 Limitation on Transactions with Affiliates...................... 38
4.15 Change of Control............................................... 38
4.16 Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries........................... 40
4.17 Limitation on Sale-Leaseback Transactions....................... 41
4.18 Ownership of Stock of Wholly-Owned
Subsidiaries.................................................. 42
4.19 Waiver of Stay, Extension or Usury Laws......................... 42
4.20 Securities Owned by the Company or an
Affiliate of the Company...................................... 42
4.21 Restriction on Sale or Transfer of Assets....................... 42
ARTICLE V
SUCCESSOR CORPORATION
5.1 When Company May Merge, Etc..................................... 42
5.2 Successor Entity Substituted.................................... 44
ARTICLE VI
DEFAULT AND REMEDIES
6.1 Events of Default............................................... 44
6.2 Acceleration.................................................... 46
6.3 Other Remedies.................................................. 46
6.4 Waiver of Past Default.......................................... 47
6.5 Control by Majority............................................. 47
6.6 Limitation on Suits............................................. 47
6.7 Rights of Holders To Receive Payment............................ 48
6.8 Collection Suit by Trustee...................................... 48
6.9 Trustee May File Proofs of Claim................................ 49
6.10 Priorities...................................................... 49
6.11 Undertaking for Costs........................................... 50
</TABLE>
-iii-
<PAGE>
ARTICLE VII
TRUSTEE
<TABLE>
<CAPTION>
Section Page
- ------- ----
<C> <S> <C>
7.1 Duties of Trustee............................................... 50
7.2 Rights of Trustee............................................... 52
7.3 Individual Rights of Trustee.................................... 53
7.4 Trustee's Disclaimer............................................ 53
7.5 Notice of Defaults.............................................. 53
7.6 Reports by Trustee to Holders................................... 53
7.7 Compensation and Indemnity...................................... 54
7.8 Replacement of Trustee.......................................... 55
7.9 Successor Trustee by Merger, Etc................................ 56
7.10 Eligibility; Disqualification................................... 56
7.11 Preferential Collection of Claims Against
Company....................................................... 56
ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
8.1 Termination of Company's Obligations............................ 57
8.2 Legal Defeasance and Covenant Defeasance........................ 58
8.3 Application of Trust Money...................................... 62
8.4 Repayment to Company............................................ 62
8.5 Reinstatement................................................... 63
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
9.1 Without Consent of Holders...................................... 63
9.2 With Consent of Holders......................................... 64
9.3 Compliance with Trust Indenture Act............................. 65
9.4 Revocation and Effect of Consents............................... 65
9.5 Notation on or Exchange of Securities........................... 66
9.6 Trustee To Sign Amendments, Etc................................. 66
ARTICLE X
MISCELLANEOUS
10.1 Trust Indenture Act Controls.................................... 67
10.2 Notices......................................................... 67
10.3 Communications by Holders with Other Holders.................... 68
10.4 Certificate and Opinion of Counsel as to
Conditions Precedent.......................................... 68
10.5 Statements Required in Certificate and
Opinion of Counsel............................................ 68
10.6 Rules by Trustee, Paying Agent, Registrar....................... 69
10.7 Legal Holidays.................................................. 69
10.8 GOVERNING LAW................................................... 69
10.9 No Recourse Against Others...................................... 69
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Section Page
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<C> <S> <C>
10.10 Successors...................................................... 70
10.11 Duplicate Originals............................................. 70
10.12 Separability.................................................... 70
10.13 Table of Contents, Headings, Etc................................ 70
</TABLE>
SIGNATURES............................................................. 70
EXHIBIT A - Form of Security
-v-
<PAGE>
INDENTURE dated as of , 1994, between MERISEL, INC., a Delaware
corporation, as Issuer (the "Company") and NATIONSBANK OF TEXAS, N.A., as
Trustee (the "Trustee").
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of the % Senior Notes Due 2004 of the
Company (the "Securities") to be issued as provided for in this Indenture.
The parties hereto agree as follows for the benefit of each other and
for the equal and ratable benefit of the Holders of the Securities:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
------------------------------------------
SECTION 1.1 Definitions.
-----------
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Subsidiary of the Company or assumed in connection
with an Asset Acquisition of such Person, including, without limitation,
Indebtedness incurred in connection with, or in anticipation of, such Person's
becoming a Subsidiary of the Company.
"Affiliate" of any specified Person means any other Person which,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Affiliate Transaction" has the meaning provided in Section 4.14.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others or otherwise) or purchase or
acquisition of Capital Stock by the Company or any of its Subsidiaries to or in
any other Person, in either case as a result of which such Person shall become a
<PAGE>
-2-
Subsidiary of the Company or any of its Subsidiaries or shall be merged with or
into the Company or any of its Subsidiaries or (ii) any acquisition by the
Company or any of its Subsidiaries of the assets of any Person which constitute
substantially all of an operating unit or business of such Person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer,
lease (including by means of sale-leaseback) or other disposition to any Person
other than the Company or a Subsidiary of the Company, in one transaction or a
series of related transactions, of (i) any Capital Stock of any Subsidiary of
the Company (including by way of issuance by such Subsidiary) or (ii) any other
property or asset of the Company or any Subsidiary of the Company, in each case,
other than inventory or obsolete or excess equipment sold in the ordinary course
of business, inventory sold to vendors or flooring companies whether or not in
the ordinary course of business and other than such isolated transactions which
do not exceed $1,000,000 individually. For the purposes of this definition, the
term "Asset Sale" shall not include (i) any sale, transfer or securitization of
receivables or interests therein (and of property securing or otherwise
supporting such receivables) not a part of a sale or transfer of the business
from which such receivables arose, (ii) any disposition of properties and assets
of the Company or any Subsidiary that is governed by and complies with Section
5.1 hereof or clause (iii) of Section 4.17 hereof, (iii) rights granted to
franchisees pursuant to franchise agreements entered into in the ordinary course
of business or (iv) any sale of the Company's Capital Stock.
"Asset Sale Offer" has the meaning provided in Section 4.13(i)(c).
"Asset Sale Payment Date" means, with respect to any Available Amount
from an Asset Sale, the earlier of (x) the 360th day following receipt of such
Available Amount or (y) such earlier date on which an Asset Sale Offer shall
expire.
"Attributable Indebtedness" means in respect of a Sale-Leaseback
Transaction, as at the time of determination, the greater of (i) the fair value
of the property subject to such Sale-Leaseback Transaction or (ii) the present
value (discounted at the interest rate borne by the Securities, compounded
annually) of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale Lease-Back Transaction
(including any period for which such lease has been extended).
"Available Amount" has the meaning provided in Section 4.13(i)(c).
<PAGE>
-3-
"Bankruptcy Law" means Title 11 of the U.S. Code or any similar
federal or state law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or, except as used in the definition of "Change of
Control," any committee of such Board of Directors authorized to act for it
hereunder.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification and delivered to the
Trustee.
"Business Day" means any day except a Saturday, a Sunday or any day on
which banking institutions in New York, New York, Los Angeles, California or
Dallas, Texas are required or authorized by law or other governmental action to
be closed.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or nonvoting) of, such Person's capital stock, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock.
"Capitalized Lease Obligation" means any obligation to pay rent or
other amounts under a lease of (or other agreement conveying the right to use)
any property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP, and, for the
purposes of this Indenture, the amount of such obligation at any date shall be
the capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means, at any time, (i) commercial paper, bankers
acceptances, time deposits, and certificates of deposit with final maturities of
one year or less issued by banks, trust companies, and savings and loan
institutions organized under the laws of a jurisdiction within the United States
of America or, with respect to a Subsidiary of the Company, under the laws of
the country in which such Subsidiary operates having (x) capital and surplus at
the end of its most recently ended fiscal year in excess of U.S. $100,000,000
and (y) in the case of any United States entities, a commercial paper rating of
"A-1" or better by Standard & Poor's Corporation or "P-1" or better by Moody's
Investors Service, Inc.; (ii) direct obligations of the United States of
<PAGE>
-4-
America or obligations of any instrumentality or agency thereof, with respect to
which the payment of principal and interest is unconditionally guaranteed by the
United States of America; provided however, that any such obligation shall be
-------- -------
payable in U.S. dollars and shall have a final maturity date no more than one
year after the acquisition thereof; (iii) repurchase agreements of banks or
brokerage institutions organized under the laws of a jurisdiction within the
United States of America or, with respect to a Subsidiary of the Company, under
the laws of the country in which such Subsidiary operates having capital and
surplus at the end of its most recently ended fiscal year in excess of U.S.
$100,000,000; provided however, that any such agreement shall be payable in U.S.
-------- -------
dollars or, with respect to a Subsidiary of the Company, the applicable local
currency, shall have a final maturity date no more than one year after the
acquisition thereof, and shall be fully collaterized; (iv) time deposits,
eurodollar certificates of deposit of foreign branches of the institutions
described in clause (iii) above and obligations of money market funds which
invest in any such time deposits and eurodollar certificates of deposit;
provided however, that any such deposit or obligation shall be payable in U.S.
- -------- -------
dollars or, with respect to a Subsidiary of the Company, the applicable local
currency, and shall have a final maturity date no more than one year after the
acquisition thereof.
"Change of Control" means (a) all or substantially all of the assets
of the Company are sold, leased, exchanged or otherwise transferred to any
Person or entity or group of Persons or entities acting in concert as a
partnership or other group (a "Group of Persons") other than an Affiliate of the
Company, (b) the Company is merged or consolidated with or into another
corporation with the effect that the then-existing equity holders of the Company
hold less than 50% of the combined voting power of the then-outstanding
securities of the surviving corporation of such merger or the corporation
resulting from such consolidation ordinarily (and apart from rights arising
under special circumstances) having the right to vote in the election of
directors, (c) a majority of the Board of Directors of the Company shall be
replaced, over a two-year period, from the directors who constituted the Board
of Directors of the Company at the beginning of such period, and such
replacement shall not have been approved by a vote of at least a majority of the
Board of Directors then still in office who were either members of such Board of
Directors at the beginning of such period or whose election as a member of such
Board of Directors was previously so approved, or (d) a Person or Group of
Persons shall, as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, have become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of the
<PAGE>
-5-
securities of the Company representing 50% or more of the combined voting power
of the then outstanding securities of the Company ordinarily (and apart from
rights arising under special circumstances) having the right to vote in the
election of directors.
"Change of Control Date" has the meaning provided in Section 4.15.
"Change of Control Offer" has the meaning provided in Section 4.15.
"Change of Control Payment Date" has the meaning provided in Section
4.15.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such Person's common stock, whether
outstanding on the Issue Date or issued after the Issue Date and includes,
without limitation, all series and classes of such common stock.
"Company" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and,
thereafter, means the successor.
"Consolidated EBITDA" means, with respect to any Person, for any
period, the Consolidated Net Income of such Person for such period increased (to
the extent deducted in determining Consolidated Net Income) by the sum of the
following items for such Person and its Subsidiaries for such period, determined
on a consolidated basis in accordance with GAAP: (i) depreciation; (ii)
amortization, including, without limitation, amortization of capitalized debt
issuance costs; (iii) Consolidated Interest Expense; (iv) all United States
Federal, state and foreign income taxes paid or accrued (other than income taxes
attributable to extraordinary, unusual or non-recurring gains or losses); and
(v) any other non-cash charges to the extent deducted from Consolidated Net
Income.
"Consolidated Interest Expense" means, with respect to any Person, for
any period, all cash and noncash interest expense (including capitalized
interest, amortization of original issue discount and the interest portion of
deferred payment obligations) of such Person and its Subsidiaries determined in
accordance with
<PAGE>
-6-
GAAP (exclusive of deferred financing fees of such Person and its Subsidiaries)
and the aggregate amount of cash dividends or other distributions accrued,
declared or paid on Capital Stock (other than Common Stock) of such Person and
its Subsidiaries.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person (the "Other Person") in
- -------- -------
which the Person in question or any of its Subsidiaries has a joint interest
with a third party (which interest does not allow the Net Income of such Other
Person to be consolidated into the Net Income of the Person in question in
accordance with GAAP) shall be included only to the extent of the amount of
dividends or distributions actually paid to the Person in question or to the
Subsidiary, (b) other than with respect to the calculation of the EBITDA
Coverage Ratio, the Net Income (or loss) of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (c) any net gain (but not net loss) resulting from an Asset Sale by
the Person in question or any of its Subsidiaries other than in the ordinary
course of business shall be excluded, and (d) extraordinary gains and losses and
any one-time increase or decrease in Net Income that is required to be recorded
because of the adoption of new accounting policies, practices or standards
required by GAAP shall be excluded.
"Consolidated Net Worth" means, with respect to any Person at any date
of determination, the consolidated stockholders' equity represented by the
shares of such Person's Capital Stock (other than Disqualified Stock)
outstanding at such date, as determined on a consolidated basis in accordance
with GAAP.
"Custodian" has the meaning provided in Section 6.1(b).
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock that, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is exchangeable for Indebtedness, or is redeemable
at the option of the holder thereof, in whole or in part, in each case on or
prior to the maturity date of the Securities.
<PAGE>
-7-
"EBITDA Coverage Ratio" means, with respect to any Person, the ratio
of (i) Consolidated EBITDA of such Person for the four full fiscal quarters for
which financial statements are available that immediately precede the date of
the transaction or other circumstances giving rise to the need to calculate the
EBITDA Coverage Ratio (the "Transaction Date") to (ii) Consolidated Interest
Expense of such Person for such four full fiscal quarter period. For purposes
of this definition, if the Transaction Date occurs prior to the date on which
the Company's consolidated financial statements for the four full fiscal
quarters subsequent to the Issue Date are first available, then "Consolidated
EBITDA" and "Consolidated Interest Expense" shall be calculated, in the case of
the Company, after giving effect on a pro forma basis as if the Securities
outstanding on the Transaction Date were issued and as if any Indebtedness
repaid with the proceeds of the Securities was repaid on the first day of such
four-full-fiscal-quarter period. In addition to and without limitation of the
foregoing two sentences, for purposes of this definition, "Consolidated EBITDA"
and "Consolidated Interest Expense" shall be calculated after giving effect on a
pro forma basis for the period of such calculation to (i) the incurrence of or
permanent redemption or repayment of any Indebtedness of such Person or any of
its Subsidiaries at any time during the period (the "Reference Period") (A)
commencing on the first day of the four-full-fiscal-quarter period for which
financial statements are available that precedes the Transaction Date and (B)
ending on and including the Transaction Date, as if the incurrence of any
Indebtedness giving rise to the need to make such calculation, as well as the
incurrence of any other Indebtedness or the permanent redemption or repayment of
any Indebtedness occurred on the first day of the Reference Period; provided,
that if such Person or any of its Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the above clause shall give effect to the
incurrence of such guaranteed Indebtedness as if such Person or Subsidiary had
directly incurred such guaranteed Indebtedness and (ii) any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of the Company or any of its
Subsidiaries (including any Person who becomes a Subsidiary as a result of the
Asset Acquisition) incurring Acquired Indebtedness) occurring during the
Reference Period and any retirement of Indebtedness in connection therewith as
if such Asset Sale or Asset Acquisition and/or retirement occurred on the first
day of the Reference Period. Furthermore, in calculating the denominator (but
not the numerator) of this "EBITDA Coverage Ratio," (1) subject to the next
succeeding clause (2), interest on Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to accrue
<PAGE>
-8-
at a fixed rate per annum equal to the rate of interest on such Indebtedness in
effect on the Transaction Date; and (2) notwithstanding clause (1) above,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to interest rate protection
obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Equity Offering" means any public or private offering of Capital
Stock (other than Disqualified Stock) of the Company.
"Event of Default" has the meaning provided in Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" or "fair value" means, with respect to any asset
or property, the price which could be negotiated in an arms' length free market
transaction, for cash, between a willing seller and a willing buyer, neither of
whom is under undue pressure or compulsion to complete the transaction. Fair
Market Value shall be determined by the Board of Directors of the Company acting
in good faith and shall be evidenced by a Board Resolution delivered to the
Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as of the Issue Date.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books.
"incur" means, with respect to any Indebtedness, to directly or
indirectly create, incur, assume, issue, guarantee or in any manner become
liable for or with respect to the payment of any such Indebtedness, and the
terms "incurred," "incurrence" and "incurring" shall have meanings correlative
to the foregoing.
"Indebtedness" means, with respect to any Person, without duplication,
(i) any liability, contingent or otherwise, of such Person (A) for borrowed
money (whether or not the recourse of the lender is to the whole of the assets
of such Person or only to a
<PAGE>
-9-
portion thereof) or (B) evidenced by a note, debenture or similar instrument or
letters of credit (excluding undrawn documentary letters of credit for trade
payables arising in the ordinary course of business), including a purchase money
obligation or other obligation relating to the deferred purchase price of
property (other than trade payables incurred in the ordinary course of business
but including any liability for the payment of money relating to a Capitalized
Lease Obligation); (ii) any liability of others of the kind described in the
preceding clause (i) which the Person has guaranteed or which is otherwise its
legal liability (excluding accounts payable of the Company or any of its
Subsidiaries incurred in the ordinary course of business); (iii) any obligation
secured by a lien to which the property or assets of such Person are subject,
whether or not the obligations secured thereby shall have been assumed by or
shall otherwise be such Person's legal liability (excluding Liens on inventory
sold pursuant to flooring arrangements or assets sold pursuant to any
securitization transaction); and (iv) any and all deferrals, renewals,
extensions, replacements, refinancing and refundings of, or amendments,
modifications or supplements to, any liability of the kind described in any of
the preceding clauses (i), (ii) or (iii). In addition, Indebtedness shall
include, with respect to the Company, any Disqualified Stock of the Company and
with respect to a Subsidiary of the Company, any Preferred Stock of such
Subsidiary. Indebtedness shall not include any obligations under interest rate
protection agreements entered into to protect against changes in interest rates
or currency hedging agreements entered into to protect against changes or
fluctuations in currencies.
"Indenture" means this Indenture as amended or supplemented from time
to time pursuant to the terms hereof.
"interest," when used with respect to any Security, means the amount
of all interest accruing on such Security, including all interest accruing
subsequent to the occurrence of any events specified in Sections 6.1(a)(vi) and
(vii) or which would have accrued but for any such event.
"Interest Payment Date," when used with respect to any Security, means
the stated maturity of an installment of interest specified in such Security.
"Interest Rate," when used with respect to any Security, means the
rate per annum specified in such Security as the rate of interest accruing on
the principal amount of such Security.
"Investment" has the meaning provided in Section 4.12.
<PAGE>
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"Issue Date" means , 1994.
"Legal Holiday" means any day other than a Business Day.
"Lien" means any mortgage, lien (statutory or other), pledge, security
interest, encumbrance, hypothecation, assignment for security or other security
agreement of any kind or nature whatsoever. For purposes of this Indenture, a
Person shall be deemed to own subject to a Lien any property that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such Person.
"Material Subsidiary" means a Subsidiary of the Company which would
constitute a "significant subsidiary" of the Company within the meaning of
Regulation S-X of the Commission. In any event, for purposes of this Indenture,
Merisel Europe, Inc., Merisel Americas, Inc. and Merisel FAB, Inc. shall be
deemed to be Material Subsidiaries of the Company.
"Maturity Date," when used with respect to any Security, means the
date specified in such Security as the fixed date on which the principal of such
Security is due and payable.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof received by the Company or any Subsidiary of the Company in the
form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(except to the extent that such obligations with respect to Indebtedness are
financed or sold with recourse to the Company or any of its Subsidiaries) net of
(i) brokerage commissions and other reasonable fees and expenses (including
reasonable fees and expenses of counsel and investment bankers) related to such
Asset Sale; (ii) provisions for all taxes payable as a result of such Asset
Sale; (iii) payments made to retire Indebtedness secured by the assets subject
to such Asset Sale to the extent required pursuant to the terms of such
Indebtedness; and (iv) appropriate amounts to be provided by the Company or any
of its Subsidiaries, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained by the
Company or any of its Subsidiaries, as the case may be, after such Asset Sale,
including, without limitation, pension and other postemployment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale.
<PAGE>
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"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock
(other than Disqualified Stock) by the Company, the aggregate net proceeds
received by the Company, after payment of expenses (including legal and
accounting fees), commissions and the like incurred in connection therewith,
whether such proceeds are in cash or in property (valued at the Fair Market
Value thereof, as determined in good faith by the Board of Directors of the
Company, at the time of receipt), (b) in the case of any exchange, exercise or
conversion of outstanding securities of any kind of the Company for or into
shares of Capital Stock of the Company that is not Disqualified Stock, the net
book value of such outstanding securities on the date of such exchange,
exercise, conversion or surrender (plus any additional amount required to be
paid by the holder to the Company upon such exchange, exercise, conversion or
surrender, less any and all payments made to the holders, e.g., on account of
---
fractional shares, and less all expenses incurred by the Company in connection
therewith), and (c) in the case of the issuance of any subordinated Indebtedness
by the Company, the aggregate net cash proceeds received by the Company, after
payment of expenses (including legal and accounting fees), commissions and the
like incurred in connection therewith.
"Officer" means, with respect to any Person, the Chairman, the
President, any Vice President, the Chief Financial Officer, the Treasurer, the
Secretary or the Controller of such Person.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Officers or by an Officer and an Assistant Treasurer
or Assistant Secretary of such Person.
"Opinion of Counsel" means, with respect to any Person, a written
opinion from legal counsel who is acceptable to the Trustee, which may include
counsel to such Person.
"Paying Agent" has the meaning provided in Section 2.3.
"Permitted Liens" means, with respect to any Person, any Lien arising
by reason of (a) any attachment, judgment, decree or order of any court, so long
as such Lien is being contested in good faith and is either adequately bonded or
execution thereon has been stayed pending appeal or review, and any appropriate
legal proceedings which may have been duly initiated for the review of such
attachment, judgment, decree or order shall not have been
<PAGE>
-12-
finally terminated, or the period within which such proceedings may be initiated
shall not have expired; (b) taxes, assessments or governmental charges not yet
delinquent or which are being contested in good faith; (c) security for payment
of workers' compensation or other insurance; (d) security for the performance of
tenders, bids, leases and contracts (other than contracts for the payment of
money); (e) deposits to secure public or statutory obligations or in lieu of
surety or appeal bonds or to secure permitted contracts for the purchase or sale
of any currency entered into in the ordinary course of business; (f) operation
of law in favor of carriers, warehousemen, landlords, mechanics, materialmen,
laborers, employees or suppliers, incurred in the ordinary course of business
for sums that are not yet delinquent or are being contested in good faith by
negotiations or by appropriate proceedings which suspend the collection thereof;
(g) security for surety or appeal bonds; and (h) easements, rights-of-way,
zoning and similar covenants and restrictions and other similar encumbrances or
title defects which, in the aggregate, are not substantial in amount, and which
do not in any case materially interfere with the ordinary conduct of the
business of the Company or any of its Subsidiaries.
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock whether now outstanding or issued
after the Issue Date, and including, without limitation, all classes and series
of preferred or preference stock of such person.
"principal" of a debt security means the principal amount of the
security plus, when appropriate, the premium, if any, on the security.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount and/or liquidation
preference of which does not exceed the sum of (i) 100% of such cost and (ii)
the reasonable fees and expenses of such Person (including any sales taxes)
incurred in connection therewith.
"Redemption Date" means, with respect to any Security, the Maturity
Date of such Security or the date on which such
<PAGE>
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Security is to be redeemed by the Company pursuant to the terms of the
Securities.
"Registrar" has the meaning provided in Section 2.3.
"Restricted Investment" means an Investment other than an Investment
permitted by clauses (i)-(vii) of Section 4.12 hereof.
"Restricted Payment" means any of the following: (i) the declaration
or payment of any dividend or any other distribution on Capital Stock of the
Company or any Subsidiary of the Company or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the Company
or any Subsidiary of the Company (other than (x) dividends or distributions
payable solely in Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase Capital Stock (other than Disqualified
Stock) and (y) in the case of Subsidiaries of the Company, dividends or
distributions payable to the Company or to a Subsidiary of the Company), (ii)
the purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company or any of its Subsidiaries (other than any such
Capital Stock owned by the Company or any of its Wholly-Owned Subdidiaries),
(iii) the making of any principal payment on, or the purchase, defeasance,
repurchase, redemption or other acquisition or retirement for value, prior to
any scheduled maturity, scheduled repayment or scheduled sinking fund payment,
of any Indebtedness that is subordinated in right of payment to the Securities
(other than Indebtedness acquired in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition), and (iv) the making of any Restricted
Investment.
"Revolving Credit Agreement" means, collectively, the credit
agreements to which the Company or any of its Subsidiaries is or becomes a party
(irrespective of the term of any such credit agreement), in each case providing
for short-term working capital financing, as any such credit agreement may at
any time be amended, amended and restated, supplemented or otherwise modified,
including any refinancing, refunding, renewal, deferral, replacement or
extension thereof by the same or any other lender or group of lenders.
"Sale-Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of the Company of any
real or tangible personal property owned by the Company or a Subsidiary of the
Company as of the Issue Date or thereafter acquired, which property has been or
is to be
<PAGE>
-14-
sold or transferred by the Company or such Subsidiary to a Person and leased
back from such Person.
"Securities" means the % Senior Notes Due 2004 issued,
authenticated and delivered under this Indenture, as amended or supplemented
from time to time pursuant to the terms of this Indenture.
"Subsidiary" means, with respect to any Person, (i) any corporation of
which the outstanding Capital Stock having more than 50% of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person, by a Subsidiary of
such Person or by such Person and a Subsidiary of such Person, or (ii) any other
Person (other than a corporation) of which more than 50% of the voting interest
is at the time, directly or indirectly, owned by such Person, by a Subsidiary of
such Person or by such Person and a Subsidiary of such Person.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
77aaa-77bbbb) as in effect on the date of this Indenture, except as required by
Section 9.3 hereof.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means an officer or assistant officer of the Trustee
assigned to the Corporate Trust Department, or any successor to such department
or, in the case of a successor trustee, an officer assigned to the department,
division or group performing the corporate trust work of such successor.
"U.S. Government Obligations" has the meaning provided in Section
8.1(b).
"Wholly-Owned Subsidiary" means any Subsidiary of the Company, 100% of
the Capital Stock of which (other than shares of Capital Stock representing any
director's qualifying shares or investments by foreign nationals mandated by
applicable law) is owned by the Company, by a Wholly-Owned Subsidiary of the
Company or by the Company and a Wholly-Owned Subsidiary of the Company.
SECTION 1.2 Incorporation by Reference
of Trust Indenture Act.
--------------------------
Whenever this Indenture refers to a provision of the TIA, the
provision shall be deemed incorporated by reference in and made
<PAGE>
-15-
a part of this Indenture. The following TIA terms used in this Indenture have
the following meanings:
(a) "indenture securities" means the Securities;
(b) "indenture security holder" means a Securityholder;
(c) "indenture to be qualified" means this Indenture;
(d) "indenture trustee" or "institutional trustee" means the Trustee;
and
(e) "obligor" on the indenture securities means the Company or any
other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and not otherwise defined herein have the meanings so assigned to them therein.
SECTION 1.3 Rules of Construction.
---------------------
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) words in the singular include the plural, and words in the plural
include the singular;
(c) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
Subdivision; and
(d) unless otherwise specified herein, all accounting terms used
herein shall be interpreted, all accounting determinations hereunder shall
be made, and all financial statements required to be delivered hereunder
shall be prepared in accordance with GAAP as in effect on the Issue Date.
<PAGE>
-16-
ARTICLE II
THE SECURITIES
--------------
SECTION 2.1 Form and Dating.
---------------
The Securities and the Trustee's certificates of authentication with
respect thereto shall be substantially in the form set forth in Exhibit A
---------
annexed hereto, which is hereby incorporated in and expressly made a part of
this Indenture. The Securities may have notations, legends or endorsements
required by law, rule, usage or agreement to which the Company is subject. Each
Security shall be dated the date of its authentication. The terms and
provisions contained in the Securities shall constitute, and are expressly made,
a part of this Indenture.
SECTION 2.2 Execution and Authentication.
----------------------------
Two Officers shall execute the Securities on behalf of the Company by
either manual or facsimile signature. The Company's seal shall be impressed,
affixed, imprinted or reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security or at any time
thereafter, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. Such
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate Securities for original issue in an
aggregate principal amount not to exceed $125,000,000, upon receipt of an
Officers' Certificate signed by two Officers directing the Trustee to
authenticate the Securities and certifying that all conditions precedent to the
issuance of the Securities contained herein have been complied with. The
aggregate principal amount of Securities outstanding at any time may not exceed
$125,000,000 except as provided in Section 2.7.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee
<PAGE>
-17-
includes authentication by such agent. Such authenticating agent shall have the
same rights as the Trustee with respect to authentication of Securities in any
dealings hereunder with the Company or with any of the Company's Affiliates.
SECTION 2.3 Registrar and Paying Agent.
--------------------------
The Company shall maintain an office or agency (which shall be located
in the Borough of Manhattan in the City of New York, State of New York) where
Securities may be presented for registration of transfer or for exchange (the
"Registrar"), an office or agency (which shall be located in the Borough of
Manhattan, City of New York, State of New York) where Securities may be
presented for payment (the "Paying Agent") and an office or agency where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Registrar shall keep a register of the Securities
and of their transfer and exchange. The Company may have one or more co-
registrars and one or more additional paying agents. The term "Paying Agent"
includes any additional paying agent. Neither the Company nor any Affiliate
thereof may act as Paying Agent.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which shall incorporate the provisions of
the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee of the name and
address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.7.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notices and demands to or upon the Company in
connection with the Securities.
SECTION 2.4 Paying Agent To Hold Money in Trust.
------------------------------------
Each Paying Agent shall hold in trust for the benefit of the
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal of, or interest on, the Securities, and the Company and the
Paying Agent shall notify the Trustee of any default by the Company in making
any such payment. Money held in trust by the Paying Agent need not be
segregated except as required by law and unless the Paying Agent otherwise
agrees in writing the Paying Agent shall not be liable for any interest on any
money received by it hereunder. The Company at any time may require the Paying
Agent to pay all money held by it to the Trustee and account for any funds
disbursed and the Trustee may
<PAGE>
-18-
at any time during the continuance of any Event of Default specified in Section
6.1(a)(i) or (ii), upon written request to the Paying Agent, require such Paying
Agent to pay forthwith all money so held by it to the Trustee and to account for
any funds disbursed. Upon making such payment, the Paying Agent shall have no
further liability for the money delivered to the Trustee.
SECTION 2.5 Securityholder Lists.
--------------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Securityholders. If the Trustee is not the Registrar, the Company shall
furnish to the Trustee at least five Business Days before each Interest Payment
Date, and at such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably require of the names
and addresses of the Securityholders.
SECTION 2.6 Transfer and Exchange.
---------------------
When Securities are presented to the Registrar or a co-Registrar with
a request from the Holder of such Securities to register the transfer or to
exchange them for an equal aggregate principal amount of Securities of other
authorized denominations, the Registrar shall register the transfer or make the
exchange as requested; provided, that every Security presented or surrendered
--------
for registration of transfer or exchange shall be duly endorsed or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar, duly executed by the Holder thereof or his attorneys
duly authorized in writing. To permit registrations of transfers and exchanges,
the Company shall issue and execute and the Trustee shall authenticate new
Securities evidencing such transfer or exchange at the Registrar's request. No
service charge shall be made to the Securityholder for any registration of
transfer or exchange. The Company or Registrar may require from the
Securityholder payment of a sum sufficient to cover any transfer taxes or other
governmental charge that may be imposed in relation to a transfer or exchange,
but this provision shall not apply to any exchange pursuant to Section 2.10,
3.6, 4.13, 4.15 or 9.5 (in which events the Company will be responsible for the
payment of such taxes). The Trustee shall not be required to exchange or
register a transfer of any Security for a period of 15 days immediately
preceding the first mailing of notice of redemption of Securities to be redeemed
or of any Security selected, called or being called for redemption except the
unredeemed portion of any Security being redeemed in part.
<PAGE>
-19-
SECTION 2.7 Replacement Securities.
----------------------
If a mutilated Security is surrendered to the Registrar or the Trustee
or if the Holder of a Security claims that the Security has been lost, destroyed
or wrongfully taken, in the absence of notice to the Company and the Trustee
that such lost, destroyed or wrongfully taken Security has been acquired for
value in good faith by a bona fide purchaser, the Company shall issue and the
Trustee shall authenticate a replacement Security if the Holder of such Security
furnishes to the Company and to the Trustee evidence reasonably acceptable to
them of the ownership and the destruction, loss or theft of such Security. If
required by the Trustee or the Company, an indemnity bond shall be posted by the
Holder, sufficient in the judgment of both to protect the Company, the Trustee
or any Paying Agent from any loss that any of them may suffer if such Security
is replaced. The Company and the Trustee each may charge such Holder for its
expenses in replacing such Security. Every replacement Security shall constitute
an additional obligation of the Company. To the extent lawful, the provisions of
this Section 2.7 are exclusive and shall preclude all other rights and remedies
with respect to the replacement or payment of mutilated, destroyed, lost or
wrongfully taken Securities.
SECTION 2.8 Outstanding Securities.
----------------------
The Securities outstanding at any time are all Securities that have
been authenticated by the Trustee except for (a) those cancelled by it, (b)
those delivered to it for cancellation, (c) to the extent set forth in Sections
8.1 and 8.2, on or after the date on which the conditions set forth in Section
8.1 or 8.2 have been satisfied, those Securities theretofore authenticated and
delivered by the Trustee hereunder and (d) those described in this Section 2.8
as not outstanding. A Security does not cease to be outstanding because the
Company or one of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser in whose hands such Security
is a legal, valid and binding obligation of the Company.
If the Paying Agent holds, in its capacity as such, on any Maturity
Date or on any optional redemption date, money sufficient to pay all accrued
interest and principal with respect to such Securities payable on that date and
is not prohibited from paying such money to the Holders thereof pursuant to the
terms of
<PAGE>
-20-
this Indenture, then on and after that date such Securities cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.9 Treasury Securities.
-------------------
In determining whether the Holders of the required aggregate principal
amount of Securities have concurred in any declaration of acceleration or notice
of default or direction, waiver or consent or any amendment, modification or
other change to this Indenture, Securities owned by the Company or an Affiliate
of the Company shall be disregarded as though they were not outstanding, except
that for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent or any amendment, modification
or other change to this Indenture, only Securities with respect to which the
Company has informed the Trustee are so owned as provided in Section 4.20 hereof
or that the Trustee otherwise actually knows are so owned shall be so
disregarded.
SECTION 2.10 Temporary Securities.
--------------------
Until definitive Securities are prepared and ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive Securities
but may have variations that the Company considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate definitive Securities in exchange for temporary
Securities. Until such exchange, temporary Securities shall be entitled to the
same rights, benefits and privileges as definitive Securities.
SECTION 2.11 Cancellation.
------------
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall (subject to
the record-retention requirements of the Exchange Act) deliver a certificate of
disposition thereof to the Company. The Company may not reissue or resell, or
issue new Securities to replace, Securities that the Company has redeemed or
paid, or that have been delivered to the Trustee for cancellation.
<PAGE>
-21-
SECTION 2.12 Defaulted Interest.
------------------
If the Company defaults on a payment of interest on the Securities, it
shall pay the defaulted interest, plus (to the extent permitted by law) any
interest payable on the defaulted interest, in accordance with the terms hereof,
to the Persons who are Securityholders on a subsequent special record date,
which date shall be not less than 10 days prior to the payment date for such
defaulted interest. The Trustee shall fix such special record date and payment
date in a manner satisfactory to the Trustee. The Company shall notify the
Trustee in writing of the amount of defaulted interest proposed to be paid on
each Security and the date of the proposed payment and shall make arrangements
satisfactory to the Trustee for the deposit of an amount of money equal to the
aggregate amount proposed to be paid in respect of such defaulted interest prior
to the date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such defaulted interest as
provided in this Section 2.12. At least 15 days before such special record date,
the Company shall mail to each Securityholder a notice that states the special
record date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid.
SECTION 2.13 CUSIP Number.
------------
The Company in issuing the Securities may use a "CUSIP" number, and if
so, such CUSIP number shall be included in notices of redemption, purchase or
exchange as a convenience to Holders; provided, however, that any such notice
-------- -------
may state that no representation is made as to the correctness or accuracy of
the CUSIP number printed in the notice or on the Securities, and that reliance
may be placed only on the other identification numbers printed on the
Securities. The Company will promptly notify the Trustee of any change in the
CUSIP number.
SECTION 2.14 Deposit of Moneys.
-----------------
On or before 10:00 a.m. New York time each Interest Payment Date and
Maturity Date,the Company shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
on such Interest Payment Date or Maturity Date, as the case may be, in a timely
manner which permits the Paying Agent to remit payment to the Holders on such
Interest Payment Date or Maturity Date, as the case may be.
<PAGE>
-22-
ARTICLE III
REDEMPTION
----------
SECTION 3.1 Notices to Trustee.
------------------
If the Company elects to redeem Securities pursuant to Paragraph 5 of
the Securities, it shall notify the Trustee and the Paying Agent in writing of
the Redemption Date and the aggregate principal amount of Securities to be
redeemed.
The Company shall give each notice provided for in this Section 3.1 at
least 45 days before the Redemption Date (unless a shorter notice shall be
agreed to by the Trustee in writing), together with an Officers' Certificate
stating that such redemption will comply with the conditions contained herein
and in the Securities.
SECTION 3.2 Selection of Securities
To Be Redeemed.
-----------------------
In the event that less than all of the Securities are to be redeemed
at any time, selection of Securities for redemption will be made by the Trustee
in compliance with the requirements of the principal national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not listed on a national securities exchange by lot or by such method as the
Trustee shall deem fair and appropriate. The Trustee shall make the selection
from the Securities outstanding and not previously called for redemption. The
Trustee shall promptly notify the Company in writing of such Securities selected
for redemption and, in the case of Securities selected for partial redemption,
the principal amount to be redeemed. The Trustee may select for redemption
portions of the principal amount of Securities that have denominations larger
than $1,000. Securities and portions of them the Trustee selects shall be in
amounts of $1,000 or integral multiples of $1,000. Provisions of this Indenture
that apply to Securities called for redemption also apply to portions of
Securities called for redemption.
SECTION 3.3 Notice of Redemption.
--------------------
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail or cause the mailing of a notice of redemption by first-
class mail to each Holder of Securities to be redeemed and to the Trustee and
any Paying Agent.
<PAGE>
-23-
The notice shall identify the Securities to be redeemed and shall
state:
(a) the Redemption Date;
(b) the redemption price and the amount of accrued interest, if any,
to be paid;
(c) the name and address of the Paying Agent;
(d) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price and accrued interest, if any,
which may be made in a single payment therefor;
(e) that, unless the Company defaults in making the redemption
payment, interest on the portion of the Securities called for redemption
ceases to accrue on and after the Redemption Date and the only remaining
right of the Holders of such Securities is to receive payment of the
redemption price upon surrender to the Paying Agent of the Securities
redeemed and, in the case of a partial redemption, any new Security or
Securities described in Section 3.3(f);
(f) if any Security is to be redeemed in part, the portion of the
principal amount (equal to $1,000 or any integral multiple thereof) of such
Security to be redeemed and that, on or after the Redemption Date, upon
surrender of such Security, a new Security or Securities in aggregate
principal amount equal to the unredeemed portion thereof will be issued
without charge to the Securityholder;
(g) if less than all of the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities estimated to be
outstanding after such partial redemption; and
(h) the CUSIP number, if any, pursuant to Section 2.13.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense.
SECTION 3.4 Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the Redemption Date and at the redemption price. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price plus accrued
<PAGE>
-24-
interest to the Redemption Date, but interest installments whose maturity is on
or prior to such Redemption Date will be payable on the relevant Interest
Payment Dates to the Holders of record at the close of business on the relevant
record dates referred to in the Securities.
SECTION 3.5 Deposit of Redemption Price;
Unclaimed Monies.
----------------------------
Not later than 10:00 A.M. New York time on the Redemption Date, the
Company shall deposit with the Paying Agent in immediately available funds money
sufficient to pay the redemption price of and accrued interest on all Securities
or portions thereof to be redeemed on that date.
If any Security surrendered for redemption in the manner provided in
the Securities shall not be so paid on the Redemption Date due to the failure of
the Company to deposit sufficient funds with the Paying Agent, interest will
continue to accrue from the Redemption Date until such payment is made on the
unpaid principal and, to the extent lawful, on any interest not paid on such
Redemption Date, in each case at the date and in the manner provided in the
Securities.
If money on deposit with the Trustee or the Paying Agent, as the case
may be, for the payment of principal or interest remains unclaimed for two years
after the date of deposit, the Trustee and the Paying Agent will pay the money
back to the Company at its request. Thereafter, Securityholders entitled to the
money must look to the Company for payment unless an abandoned property law
designates another Person and all liability of the Trustee and such Paying Agent
with respect to such money shall cease.
SECTION 3.6 Securities Redeemed in Part.
---------------------------
Upon surrender to the Paying Agent of a Security that is redeemed in
part, the Company shall execute and the Trustee shall authenticate for the
Holder a new Security equal in principal amount to the unredeemed portion of the
Security surrendered.
<PAGE>
-25-
ARTICLE IV
COVENANTS
---------
SECTION 4.1 Payment of Securities.
---------------------
The Company shall pay the principal of, and interest on, the
Securities on the dates and in the manner provided in the Securities and this
Indenture.
An installment of principal or interest shall be considered paid on
the date due if the Trustee or the Paying Agent holds on such date immediately
available funds designated for and sufficient to pay such installment and is not
prohibited by law from paying such installment on such date.
The Company shall pay interest on overdue principal and (to the extent
permitted by law) on overdue installments of interest at a rate equal to the
same rate borne by the Securities.
SECTION 4.2 Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency, where Securities may be surrendered for
registration of transfer or exchange or for presentation for payment and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 10.2.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
- -------- -------
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York, for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
<PAGE>
-26-
The Company hereby initially designates 40 Broad Street, 22nd Floor,
New York, New York 10004 as an agency of the Company in accordance with this
Section 4.2 and Section 2.3.
SECTION 4.3 Corporate Existence.
-------------------
Subject to Article V, the Company shall do or cause to be done, at its
own cost and expense, all things necessary to and will cause each of its
Subsidiaries to, preserve and keep in full force and effect the corporate or
partnership existence and rights (charter and statutory) of the Company and each
of its Subsidiaries; provided, however, that the Company or any of its
-------- -------
Subsidiaries shall not be required to preserve any such rights if the Board of
Directors of the Company shall reasonably determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company or
such Subsidiary and the loss thereof is not adverse in any material respect to
the Holders.
SECTION 4.4 Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon its or its Subsidiaries' income,
profits or property and (b) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a Lien upon its property; provided,
--------
however, that the Company shall not be required to pay or discharge or cause to
- -------
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
negotiations or proceedings and for which disputed amounts adequate reserves
have been made.
SECTION 4.5 Maintenance of Properties; Insurance;
Books and Records; Compliance with Law.
--------------------------------------
(a) The Company shall, and shall cause each of its Subsidiaries to, at
all times cause all properties used or useful in the conduct of its business to
be maintained and kept in good condition, repair and working order (ordinary
wear and tear excepted) and supplied with all necessary equipment, and shall
cause to be made all reasonable and necessary repairs, renewals, replacements,
betterments and improvements thereto.
(b) The Company shall, and shall cause each of its Subsidiaries to,
maintain insurance in respect of its respective properties and its respective
businesses in such amounts and covering such risks as are usually and
customarily carried with
<PAGE>
-27-
respect to similar facilities according to their respective locations.
(c) The Company shall, and shall cause each of its Subsidiaries to,
keep proper books of record and account, in which full and correct entries shall
be made of all financial transactions and the assets and business of the Company
and each Subsidiary of the Company, in accordance with GAAP consistently applied
to the Company and its Subsidiaries taken as a whole.
(d) The Company shall, and shall cause each of its Subsidiaries to,
comply with all statutes, laws, ordinances, or government rules and regulations
to which it is subject, non-compliance with which would materially adversely
affect the business, prospects, earnings, properties, assets or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole.
SECTION 4.6 Compliance Certificates.
-----------------------
(a) The Company shall deliver to the Trustee, within 50 days after the
end of each of the first three quarters of the Company's fiscal year, and within
100 days after the end of such fiscal year, an Officers' Certificate of the
Company stating (i) that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal quarter or year, as the case may be,
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and (ii) that, to the best knowledge of each
Officer signing such certificate, the Company has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions hereof (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which such Officers may
have knowledge, their status and what action the Company is taking or proposes
to take with respect thereto). The Officers' Certificate shall also include all
calculations necessary to show covenant compliance.
(b) So long as (and to the extent) not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
annual financial statements delivered pursuant to Section 4.7 shall be
accompanied by a written statement of the Company's independent public
accountants that in making the examination necessary for certification of such
annual financial statements nothing has come to their attention that would lead
them to believe that the Company has violated any provisions of this
<PAGE>
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Indenture or, if any such violation has occurred, specifying the nature and
period of existence thereof, it being understood that such accountants shall not
be liable directly or indirectly to any Person for any failure to obtain
knowledge of any such violation.
(c) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, promptly upon any Officer becoming aware of
any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
SECTION 4.7 Provision for Financial Information.
------------------------------------
So long as any of the Securities are outstanding, whether or not the
Company is subject to Section 13(a) or 15(d) of the Exchange Act, the Company
shall file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been required to file with the Commission
pursuant to such Sections 13(a) and 15(d) if the Company were so subject, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Company would have been required so
to file such documents if the Company were so subject. The Company shall also
in any event (x) within 15 days of each Required Filing Date (i) transmit by
mail to all Holders, as their names and addresses appear in the register of
Securities maintained by the Registrar, without cost to such Holders and (ii)
file with the Trustee, copies of the annual reports, quarterly reports and other
documents which the Company would have been required to file with the Commission
pursuant to Sections 13(a) and 15(d) of the Exchange Act if the Company were
subject to such Sections and (y) if filing such documents by the Company with
the Commission is not permitted under the Exchange Act, promptly upon written
request supply copies of such documents to any prospective Holder. The Company
shall also comply with the other provisions of TIA Section 314(a).
SECTION 4.8 Further Assurance to the Trustee.
--------------------------------
The Company shall, upon request of the Trustee, execute and deliver
such further instruments and do such further acts as may reasonably be necessary
or proper to carry out more effectively the provisions of this Indenture.
<PAGE>
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SECTION 4.9 Limitation on Additional
Indebtedness.
------------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, incur any Indebtedness (including any Acquired Indebtedness), except for the
following (each of which shall be given independent effect):
(a) Indebtedness of the Company if, at the time of incurrence and
after giving pro forma effect to the incurrence thereof, the EBITDA
Coverage Ratio of the Company would be greater than or equal to 2.50:1;
(b) Indebtedness of the Company or its Subsidiaries outstanding from
time to time pursuant to the Revolving Credit Agreement (including
Indebtedness in the nature of obligations with respect to overdraft
protection) in a principal amount not to exceed in the aggregate (x) 75% of
the net book value of the accounts receivable of the Company and its
Subsidiaries at the time of the incurrence of such Indebtedness, calculated
on a consolidated basis in accordance with GAAP, minus (y) $100,000,000;
(c) Indebtedness under the Securities and this Indenture;
(d) Indebtedness not otherwise referred to in this Section 4.9 and
outstanding on the Issue Date;
(e) Indebtedness of a Wholly-Owned Subsidiary issued to and held by
the Company or another Wholly-Owned Subsidiary of the Company or
Indebtedness of the Company issued to and held by a Wholly-Owned Subsidiary
of the Company;
(f) Indebtedness in the nature of or in connection with any Sale-
Leaseback Transaction permitted under Section 4.17 hereof;
(g) Purchase Money Indebtedness of the Company or its Subsidiaries or
Indebtedness of the Company or its Subsidiaries incurred in connection with
or arising out of Capitalized Lease Obligations provided that the aggregate
principal amount and/or liquidation preference of Indebtedness incurred
pursuant to this clause (g) shall not exceed, in the aggregate, 10% of the
Company's Consolidated Net Worth;
(h) the guarantee by the Company or by any Subsidiary of the Company
of Indebtedness of any Subsidiary of the Company,
<PAGE>
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which Indebtedness is otherwise permitted to be incurred pursuant to this
Section 4.9;
(i) Indebtedness of a Subsidiary of the Company (which is not a
Wholly-Owned Subsidiary of the Company) issued to and held by the Company
or a Subsidiary of the Company; provided that such Indebtedness constitutes
an Investment made pursuant to and in compliance with clause (v) of
Section 4.12;
(j) any deferrals, renewals, extensions, replacements, refinancings or
refundings of, or amendments, modifications or supplements to, Indebtedness
incurred under clauses (a), (c), (d) and (l) of this Section 4.9, whether
involving the same or any other lender or creditor or group of lenders or
creditors; provided that any such deferrals, renewals, extensions,
replacements, refinancings, refundings, amendments, modifications or
supplements (i) shall not provide for any mandatory redemption,
amortization or sinking fund requirement in an amount greater than, or at a
time prior to, the amounts and times specified in the Indebtedness being
deferred, renewed, extended, replaced, refinanced, refunded, amended,
modified or supplemented, (ii) shall not exceed the principal amount and/or
liquidation preference (plus accrued dividends and interest) and repayment
premium, if any, of the Indebtedness being deferred, renewed, extended,
replaced, refinanced, refunded, amended, modified or supplemented, and
(iii) shall be contractually subordinated in right of payment to the
Securities at least to the same extent as the Indebtedness being deferred,
renewed, extended, replaced, refinanced, refunded, amended, modified or
supplemented; provided that any Indebtedness of the Company that is
deferred, renewed, extended, replaced, refinanced, refunded, amended,
modified or supplemented ("Refinanced Company Indebtedness") shall
subsequent to any such deferral, renewal, extension, replacement,
refinancing, refunding, amendment, modification or supplement be solely the
obligation of the Company (provided that to the extent that any such
Refinanced Company Indebtedness was previously guaranteed by a Subsidiary
of the Company, the Indebtedness represented by such guarantee may also be
refinanced pursuant to and subject to the other terms and provisions of
this clause (j));
(k) Acquired Indebtedness of a Subsidiary of the Company or the
Company (other than any such Acquired Indebtedness incurred in connection
with or in anticipation of any Asset Acquisition) if, at the time of
incurrence and after giving pro forma effect to the incurrence thereof, the
EBITDA Coverage Ratio of the Company would be greater than or equal to
2.50:1;
<PAGE>
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(l) Indebtedness of the Company or a Subsidiary of the Company
incurred pursuant to any overnight or other short-term line of credit as in
existence on the Issue Date; and
(m) other Indebtedness of the Company that does not exceed $20,000,000
in aggregate principal amount and/or liquidation preference at any one time
outstanding.
SECTION 4.10 Limitation on Liens.
-------------------
The Company shall not, and shall not permit, cause or suffer any
Subsidiary of the Company to, create, incur, assume or, other than with respect
to Liens created, incurred or assumed pursuant to clause (k) below, suffer to
exist any Lien of any kind upon any of its property or assets now owned or
hereafter acquired by it, unless the Securities also are equally and ratably
secured by such Lien, except for:
(a) Permitted Liens;
(b) Liens existing as of the Issue Date;
(c) Liens securing Purchase Money Indebtedness, provided that (i) the
--------
Indebtedness secured by such Liens shall have otherwise been permitted to
be incurred under this Indenture and (ii) such Liens shall not encumber any
other assets or property of the Company and its Subsidiaries (other than
the assets or property purchased or constructed with the proceeds of such
Purchase Money Indebtedness), and shall attach to such assets or property
within 60 days of the acquisition or construction of such assets or
property;
(d) Liens on the assets or property of a Subsidiary of the Company
existing at the time such Subsidiary became a Subsidiary of the Company and
not incurred as a result of (or in connection with or in anticipation of)
such Subsidiary becoming a Subsidiary of the Company, provided that such
Liens do not extend to or cover any property or assets of the Company or
any of its other Subsidiaries (other than the property or assets so
acquired);
(e) Liens on accounts receivable and inventory of the Company and its
Subsidiaries securing Indebtedness under the Revolving Credit Agreement;
(f) Liens to secure Capitalized Lease Obligations, provided (i) such
Liens do not extend to or cover any property or assets of the Company or
any of its Subsidiaries (other
<PAGE>
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than the property or assets subject to such Capitalized Lease Obligations)
and (ii) the Capitalized Lease Obligations secured by such Liens shall have
otherwise been permitted to be incurred under this Indenture;
(g) Liens arising under leases and subleases of real property by the
Company or any of its Subsidiaries as tenants which Liens do not interfere
with the ordinary conduct of the business of the Company or any of its
Subsidiaries, and which are made on customary and usual terms applicable to
similar properties;
(h) Liens securing Indebtedness which is incurred to refinance
Indebtedness which has been secured by a Lien permitted under this
Indenture and is permitted to be refinanced under this Indenture, provided
that such Liens do not extend to or cover any property or assets of the
Company or any of its Subsidiaries not securing the Indebtedness so
refinanced;
(i) Liens in favor of customs and revenue authorities arising by
operation of law to secure payment of customs duties in connection with the
importation of goods, which custom duties are not overdue for a period of
more than 60 days;
(j) Liens in favor of the Company or any Subsidiary of the Company on
the assets of any Subsidiary of the Company;
(k) Liens securing Indebtedness of the Company and its Subsidiaries,
provided that the aggregate amount of outstanding Indebtedness secured by
such Liens plus the aggregate amount of outstanding Attributable
Indebtedness of the Company and its Subsidiaries shall not exceed at any
one time 10% of the Consolidated Net Worth of the Company and its
Subsidiaries;
(l) Liens in the form of cash collateral pledged by Subsidiaries of
the Company to support their reimbursement obligations under letters of
credit entered into in the ordinary course of business in connection with
the purchase of inventory and Liens securing reimbursement obligations
under letters of credit but only to the extent such Liens are in or upon
inventory the purchase of which was financed by such letters of credit;
(m) Liens on inventory granted pursuant to "flooring arrangements"
entered into in the ordinary course of business and consistent with past
business practices;
<PAGE>
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(n) Liens on accounts receivable (or interests therein) and on
property securing or otherwise supporting accounts receivable granted
pursuant to any accounts receivable securitization transaction or other
sale or transfer of accounts receivable (or interests therein) that is not
a part of a transfer of the business from which such accounts receivable
arose; and
(o) Liens on property or assets, other than accounts receivable, and
on property securing or otherwise supporting such property or assets,
granted pursuant to any asset securitization transaction; provided that any
such asset securitization transaction complies with the applicable
provisions of Section 4.13.
SECTION 4.11 Limitation on Restricted Payments.
---------------------------------
The Company shall not make, and shall not cause, suffer or permit any
of its Subsidiaries to make, directly or indirectly, any Restricted Payment,
unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Restricted
Payment;
(b) at the time of and after giving effect to any such Restricted
Payment, the Company could incur at least $1 of Indebtedness pursuant to
clause (a) of Section 4.9 hereof; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
through and including the date of such Restricted Payment (the "Base
Period") does not exceed the sum of (a) 50% of the Company's cumulative
Consolidated Net Income during the Base Period (or in the event such
Consolidated Net Income shall be a deficit, minus 100% of such deficit)
plus (b) 100% of the aggregate Net Proceeds and the Fair Market Value of
marketable securities and property received by the Company from the issue
or sale, after the Issue Date, of Capital Stock (other than Disqualified
Stock) of the Company, or any Indebtedness or other securities of the
Company convertible into or exercisable or exchangeable for Capital Stock
(other than Disqualified Stock) of the Company which have been so
converted, exercised or exchanged, as the case may be. For purposes of
determining under this clause (c) the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount thereof and
property other than cash shall be valued at its Fair Market Value.
The provisions of this Section 4.11 shall not prohibit:
<PAGE>
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(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would
comply with the provisions of this Indenture;
(ii) the retirement of any shares of Capital Stock of the Company or
subordinated Indebtedness of the Company in exchange for, by conversion
into or out of the Net Proceeds of the substantially concurrent sale (other
than to a Subsidiary of the Company) of other shares of Capital Stock of
the Company (other than Disqualified Stock); and
(iii) the redemption or retirement of subordinated Indebtedness of the
Company in exchange for, by conversion into or out of the Net Proceeds of
the substantially concurrent incurrence of subordinated Indebtedness of the
Company (other than any such subordinated Indebtedness owing to a
Subsidiary of the Company) that is contractually subordinated in right of
payment to the Securities and that is permitted to be incurred under
Section 4.9.
In determining the amount of Restricted Payments permissible under
clause (c) above, the amounts expended pursuant to clauses (i) and (ii) above
shall be included as Restricted Payments.
SECTION 4.12 Limitation on Investments,
Loans and Advances.
--------------------------
The Company shall not make and shall not permit any of its
Subsidiaries to make any capital contributions, advances or loans to (including,
without duplication, any guarantees of loans to), or investments in, or
purchases of Capital Stock, bonds, notes, debentures or other securities or
evidences of Indebtedness issued by, any Person (collectively, "Investments"),
except: (i) Investments by the Company in any Wholly-Owned Subsidiary of the
Company and Investments in the Company or a Wholly-Owned Subsidiary of the
Company by any Subsidiary of the Company; (ii) Investments represented by either
Capital Stock received in connection with a settlement of debts owing to the
Company or any of its Subsidiaries or accounts receivable created or acquired in
the ordinary course of business; (iii) advances or loans to employees in the
ordinary course of business; (iv) Investments under or pursuant to interest rate
protection agreements; (v) Investments made after the Issue Date in joint
ventures, partnerships or Persons that are not Wholly-Owned Subsidiaries that
are made solely for the purpose of acquiring interests in businesses related to
the Company's or its Subsidiaries' businesses
<PAGE>
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in an aggregate amount not to exceed, when made, 10% of the Company's
Consolidated Net Worth; (vi) loans or advances to franchisees and Datago
Affiliates made in the ordinary course of business; (vii) Cash Equivalents; and
(viii) Investments permitted to be made under Section 4.11 hereof.
SECTION 4.13 Disposition of Proceeds of Asset Sales.
--------------------------------------
(i) The Company shall not, and shall not permit any of its
Subsidiaries to, make any Asset Sale unless (a) such Asset Sale is for Fair
Market Value, (b) the consideration received therefor consists of at least 85%
cash or Cash Equivalents (with Indebtedness of the Company or its Subsidiaries
assumed by the purchaser being counted as cash for such purposes if the Company
and its Subsidiaries are released from all liability therefor) and (c) the
Company shall commit to apply or shall cause its Subsidiary to commit to apply
the Net Cash Proceeds of such Asset Sale within 270 days of such Asset Sale and
shall apply such Net Cash Proceeds within 360 days of such Asset Sale as
follows:
(a) to prepay any Indebtedness of a Subsidiary of the Company;
provided that the Net Cash Proceeds of any Asset Sale involving any
property or asset of Merisel FAB, Inc. shall be used to prepay Indebtedness
of Merisel FAB, Inc. only;
(b) to acquire or construct property or assets in lines of business
related to the Company's and its Subsidiaries' business on the Issue Date;
or
(c) to make an offer to purchase (the "Asset Sale Offer") on the Asset
Sale Payment Date from all Holders of Securities up to a maximum principal
amount (expressed as a multiple of $1,000) of Securities equal to, to the
extent the Company elects not to apply Net Cash Proceeds pursuant to the
preceding clauses (a) and (b), 100% of such Net Cash Proceeds or, to the
extent the Company elects to apply Net Cash Proceeds pursuant to the
preceding clauses (a) and (b), the amount of any Net Cash Proceeds
remaining after such application (the "Available Amount"). Any Asset Sale
Offer shall be at a purchase price per Security equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon, if any,
to the date of purchase, provided that the Company may defer any Asset Sale
Offer until there is an aggregate unutilized Available Amount equal to or
in excess of $5,000,000 resulting from one or more Asset Sales (at which
time the entire unutilized Available Amount, and not just the amount in
excess of $5,000,000, shall be applied as required pursuant to this
paragraph).
<PAGE>
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(ii) The Company shall provide the Trustee with notice of the Asset
Sale Offer at least 30 days before any notice of any Asset Sale Offer is mailed
to Holders of the Securities (unless shorter notice is acceptable to the
Trustee). Notice of an Asset Sale Offer shall be mailed by the Company to all
Holders of Securities not less than 30 days nor more than 60 days before the
Asset Sale Payment Date at their last registered address with a copy to the
Trustee and the Paying Agent. The Asset Sale Offer shall remain open from the
time of mailing for at least 20 Business Days and until at least 5:00 p.m., New
York City time, on the Business Day next preceding the Asset Sale Payment Date.
The notice, which shall govern the terms of the Asset Sale Offer, shall include
such disclosures as are required by law and shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
4.13;
(b) the purchase price (including the amount of accrued interest, if
any) for each Security and the Asset Sale Payment Date;
(c) that any portion of the Security not tendered or accepted for
payment will continue to accrue interest in accordance with the terms
thereof;
(d) that, unless the Company defaults on making the payment, any
portion of the Security accepted for payment pursuant to the Asset Sale
Offer shall cease to accrue interest after the Asset Sale Payment Date;
(e) that Holders electing to have Securities or portions thereof
purchased pursuant to an Asset Sale Offer will be required to surrender
their Securities to the Paying Agent at the address specified in the notice
prior to 5:00 p.m., New York City time, on the Business Day next preceding
the Asset Sale Payment Date and must complete any form letter of
transmittal proposed by the Company and acceptable to the Trustee and the
Paying Agent;
(f) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than 5:00 p.m., New York City time, on the
Business Day next preceding the Asset Sale Payment Date, a tested telex,
facsimile transmission or letter setting forth the name of the Holder, the
aggregate principal amount of Securities the Holder delivered for purchase,
the Security certificate number (if any) and a statement that such Holder
is withdrawing his election to have such Securities or portions thereof
purchased;
<PAGE>
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(g) that if Securities in an aggregate principal amount in excess of
the Available Amount are tendered pursuant to the Asset Sale Offer, the
Company shall purchase Securities on a pro rata basis among the Securities
--- ----
tendered (with such adjustments as may be deemed appropriate by the Company
so that only Securities in denominations of $1,000 or integral multiples of
$1,000 shall be acquired);
(h) that Holders whose Securities are purchased only in part will be
issued new Securities equal in aggregate principal amount to the
unpurchased portion of the Securities surrendered; and
(i) the instructions that Holders must follow in order to tender their
Securities.
On or before the Asset Sale Payment Date, the Company shall (i) accept
for payment, on a pro rata basis among the Securities (subject to adjustment as
--------
contemplated by clause (g) above) or portions thereof tendered pursuant to the
Asset Sale Offer, (ii) deposit with the Paying Agent on the Asset Sale Payment
Date money, in immediately available funds, in an amount sufficient to pay the
purchase price of all Securities or portions thereof so tendered and accepted
and (iii) deliver to the Paying Agent the Securities so accepted together with
an Officers' Certificate setting forth the Securities or portions thereof
tendered to and accepted for payment by the Company. The Paying Agent shall
promptly mail or deliver to Holders of Securities so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly mail or
deliver to such Holders a new Security executed by the Company and authenticated
by the Trustee equal in principal amount to any unpurchased portion of the
Security surrendered. Any Securities not so accepted shall be promptly mailed or
delivered by the Paying Agent to the Holder thereof. To the extent an Asset Sale
Offer is not fully subscribed to by the Holders, the Company may retain, subject
to the other provisions contained in this Indenture, any unutilized portion of
the Available Amount.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to the
Asset Sale Offer. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.13, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section 4.13 by virtue
thereof.
<PAGE>
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SECTION 4.14 Limitation on Transactions with
Affiliates.
-------------------------------
The Company shall not, and shall not permit, cause or suffer any of
its Subsidiaries to, conduct any business or enter into any transaction or
series of transactions with or for the benefit of any Affiliate of the Company
or any of its Subsidiaries (each an "Affiliate Transaction"), except in good
faith and on terms that are no less favorable to the Company or such Subsidiary,
as the case may be, than those that could have been obtained in a comparable
transaction on an arm's length basis from a Person not an Affiliate of the
Company or such Subsidiary. All Affiliate Transactions (and each series of
related Affiliate Transactions which are similar or part of a common plan)
involving aggregate payments or other market value in excess of $1,000,000 shall
be approved by the Board of Directors of the Company, such approval to be
evidenced by a Board Resolution stating that the Board of Directors of the
Company has, in good faith, determined that such transaction complies with the
provisions of this Section 4.14. Notwithstanding the foregoing, the restrictions
set forth in this Section 4.14 shall not apply to (i) customary directors' fees
and consulting fees; (ii) transactions between or among the Company and one or
more Wholly-Owned Subsidiaries of the Company; or (iii) transactions between or
among one or more Wholly-Owned Subsidiaries of the Company.
SECTION 4.15 Change of Control.
-----------------
In the event of a Change of Control (the date of such occurrence, the
"Change of Control Date"), the Company shall notify the holders of Securities in
writing of such occurrence and shall make an offer to purchase (the "Change of
Control Offer") on a Business Day (the "Change of Control Payment Date") not
later than 60 days following the Change of Control Date, all Securities then
outstanding at a purchase price equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the Change of Control Payment Date.
Notice of a Change of Control Offer shall be mailed by the Company not
less than 30 days nor more than 60 days before the Change of Control Payment
Date to the Holders of Securities at their last registered addresses with a copy
to the Trustee and the Paying Agent. The Change of Control Offer shall remain
open from the time of mailing for at least 20 Business Days and until 5:00 p.m.,
New York City time, on the Business Day next preceding the Change of Control
Payment Date. The notice, which shall govern the terms of the Change of Control
Offer, shall include such disclosures as are required by law and shall state:
<PAGE>
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(a) that a Change of Control Offer is being made pursuant to this
Section 4.15 and that all Securities will be accepted for payment;
(b) the purchase price (including the amount of accrued interest, if
any) for each Security and the Change of Control Payment Date;
(c) that any Security or portion thereof not tendered for payment will
continue to accrue interest in accordance with the terms thereof;
(d) that, unless the Company defaults on making the payment, any
portion of a Security tendered for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Payment Date;
(e) that Holders electing to have Securities or any portion thereof
purchased pursuant to a Change of Control Offer will be required to
surrender their Securities to the Paying Agent at the address specified in
the notice prior to 5:00 p.m., New York City time, on the Business Day next
preceding the Change of Control Payment Date and must complete any form
letter of transmittal proposed by the Company and acceptable to the Trustee
and the Paying Agent;
(f) that Holders of Securities will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m., New York
City time, on the Business Day next preceding the Change of Control Payment
Date, a tested telex, facsimile transmission or letter setting forth the
name of the Holder, the aggregate principal amount of Securities the Holder
delivered for purchase, the Security certificate number (if any) and a
statement that such Holder is withdrawing his election to have such
Securities or any portion thereof purchased;
(g) that Holders whose Securities are tendered only in part will be
issued Securities equal in aggregate principal amount to the untendered
portion of the Securities surrendered;
(h) the instructions that Holders must follow in order to tender their
Securities; and
(i) the circumstances and relevant facts regarding such Change of
Control (including, but not limited to, information with respect to pro
forma historical financial information after giving effect to such Change
of Control, information
<PAGE>
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regarding the Persons acquiring control and such Persons' business plans
going forward).
On the Change of Control Payment Date, the Company shall (i) accept
for payment Securities or portions thereof tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Securities or portions thereof so tendered and accepted
and (iii) deliver to the Trustee the Securities so accepted together with an
Officers' Certificate setting forth the Securities or portions thereof tendered
to and accepted for payment by the Company. The Paying Agent shall promptly
mail or deliver to the Holders of Securities so accepted payment in an amount
equal to the purchase price, and the Trustee shall promptly authenticate and
mail or deliver to such Holders a new Security equal in principal amount to any
untendered portion of the Security surrendered. Any Securities withdrawn from
tender shall be promptly mailed or delivered by the Company to the Holder
thereof.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act, and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to a
Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Section 4.15, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under this Section 4.15 by virtue
thereof.
SECTION 4.16 Limitation on Dividends and Other
Payment Restrictions Affecting
Subsidiaries.
---------------------------------
The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective or enter into any agreement with any Person that would cause or
create, any consensual encumbrance or restriction of any kind on the ability of
any Subsidiary of the Company to (a) pay dividends, in cash or otherwise, or
make any other distributions on its Capital Stock or any other interest or
participation in, or measured by, its profits owned by the Company or a
Subsidiary of the Company, (b) make any loans or advances to, or pay any
Indebtedness owed to, the Company or any Subsidiary of the Company or (c)
transfer any of its properties or assets to the Company or to any Subsidiary of
the Company, except, in each case, for such encumbrances or restrictions
existing under or contemplated by or by reason of (i) any agreements in effect
on the Issue Date (including the Securities and this Indenture); (ii) any Person
or
<PAGE>
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the property or assets of such Person acquired by the Company or any Subsidiary
of the Company and existing at the time of such acquisition (but not created in
contemplation of such acquisition), which encumbrances or restrictions are not
applicable to any Person or the property or assets of any Person other than such
Person (or any Subsidiary of such Person) or the property or assets of such
Person so acquired; (iii) any restrictions existing under any agreement that
renews, refinances, defers, extends, amends, modifies, supplements, or replaces
an agreement containing a restriction permitted by clause (i) or (ii) above,
provided that the terms and conditions of any such restriction are not
materially less favorable in the aggregate to the Holders of the Securities than
those under or pursuant to the agreement being renewed, refinanced, deferred,
extended, amended, modified, supplemented or replaced; and (iv) restrictions
contained in agreements evidencing Indebtedness of a Subsidiary of the Company
issued to and held by the Company or a Subsidiary of the Company, provided that
the terms and conditions of any such restrictions are not materially less
favorable in the aggregate to the Holders of the Securities than those contained
in that certain Promissory Note of Merisel Americas, Inc. in favor of the
Company, as in effect on the Issue Date.
SECTION 4.17 Limitation on Sale-Leaseback
Transactions.
----------------------------
The Company will not, and will not permit any of its Subsidiaries to,
enter into any Sale-Leaseback Transaction, unless at least one of the following
conditions is satisfied:
(i) the lease with respect to such Sale-Leaseback Transaction is
between the Company and a Wholly-Owned Subsidiary of the Company or between
Wholly-Owned Subsidiaries of the Company;
(ii) the Company or a Subsidiary of the Company could create a Lien
to secure Indebtedness in an amount at least equal to the Attributable
Indebtedness in connection with such Sale-Leaseback Transaction; or
(iii) the Company or a Subsidiary of the Company within 90 days of
the effective date of such Sale-Leaseback Transaction makes an optional
prepayment of principal with respect to any Indebtedness which, to the
extent such Indebtedness is Indebtedness of the Company, ranks pari passu
----------
with the Securities, and in any event is in an amount at least equal to the
Attributable Indebtedness in connection with such Sale-Leaseback
Transaction (less any transaction costs
<PAGE>
-42-
actually incurred in connection with such Sale-Leaseback Transaction).
SECTION 4.18 Ownership of Stock of Wholly-
Owned Subsidiaries.
-----------------------------
The Company will at all times maintain ownership, directly or
indirectly through one or more other Wholly-Owned Subsidiaries, of 100% of each
class of voting securities of, and all other equity securities in, each Wholly-
Owned Subsidiary of the Company existing on the Issue Date (other than any such
securities representing any director's qualifying shares or investments by
foreign nationals mandated by applicable law), except any Wholly-Owned
Subsidiary that shall be disposed of in its entirety or consolidated or merged
with or into the Company or another Wholly-Owned Subsidiary of the Company, in
each case in accordance with the applicable provisions of Sections 4.13 and 5.1
hereof.
SECTION 4.19 Waiver of Stay, Extension
or Usury Laws.
-------------------------
The Company covenants (to the extent permitted by law) that it will
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay or extension law or any usury law or other
law that would prohibit or forgive the Company from paying all or any portion of
the principal of, or interest on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or that may affect the covenants
or the performance of this Indenture; and (to the extent permitted by law) the
Company hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee or the Holders, but will suffer and permit the
execution of every such power as though no such law had been enacted.
SECTION 4.20 Securities Owned by the Company
or an Affiliate of the Company.
-------------------------------
The Company shall promptly as reasonably practicable notify the
Trustee of any Securities owned by the Company or any Affiliate of the Company.
The Trustee shall provide to each Holder upon the request of such Holder all
information furnished to the Trustee pursuant to this Section 4.20.
SECTION 4.21 Restriction on Sale or Transfer
of Assets.
-------------------------------
The Company shall not, directly or indirectly, convey, transfer,
lease (including by means of sale-leaseback) or otherwise dispose of, to any
Person, any of its assets or property owned as of the Issue Date or with respect
to any corporate management information systems assets only, any improvements or
additions thereto, other than dispositions of any Capital Stock of any Person
or of any obsolete equipment in the ordinary course of business.
ARTICLE V
SUCCESSOR CORPORATION
---------------------
SECTION 5.1 When Company May Merge, Etc.
---------------------------
The Company shall not consolidate with or merge with or into or sell,
assign, convey, lease or transfer all or substantially all of its properties
and assets as an entirety to any Person or group of affiliated Persons, in a
single transaction or through a series of transactions, and the Company shall
not permit any of its Subsidiaries to enter into any such transaction
<PAGE>
-43-
or series of transactions, if such transaction or series of transactions would
result in a sale, assignment, conveyance, lease or transfer of all or
substantially all of the properties and assets of the Company and its
Subsidiaries taken as a whole, unless after giving effect thereto:
(a) the Company shall be the continuing Person, or the resulting,
surviving or transferee Person (the "surviving entity") shall be a
corporation organized and existing under the laws of the United States, any
State thereof or the District of Columbia;
(b) the surviving entity shall expressly assume, by a supplemental
indenture executed and delivered to the Trustee in form and substance
reasonably satisfactory to the Trustee, all of the obligations of the
Company under the Securities and this Indenture;
(c) immediately before and immediately after giving effect to such
transaction or series of transactions (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions), no Default or
Event of Default shall have occurred and be continuing;
(d) the Company or the surviving entity shall, immediately after
giving effect to such transaction or series of transactions, have a
Consolidated Net Worth (including, without limitation, any Indebtedness
incurred or anticipated to be incurred in connection with or in respect of
such transaction or series of transactions), equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction
or series of transactions;
(e) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Company or the surviving entity
could incur $1.00 of Indebtedness pursuant to clause (a) of Section 4.9;
and
(f) the Company or the surviving entity shall have delivered to the
Trustee an Officers' Certificate stating that such consolidation, merger,
sale, assignment, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction or series of
transactions, such supplemental indenture, complies with this Section 5.1,
and that all conditions precedent provided for in this Indenture relating
to such transaction or series of transactions have been satisfied.
<PAGE>
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SECTION 5.2 Successor Entity Substituted.
----------------------------
Upon any consolidation, merger or any transfer of all or substantially
all of the assets of the Company in accordance with Section 5.1, the surviving
entity formed by such consolidation or into which the Company is merged or to
which such transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such surviving entity had been named as the Company herein.
ARTICLE VI
DEFAULT AND REMEDIES
--------------------
SECTION 6.1 Events of Default.
-----------------
(a) An "Event of Default" occurs if:
(i) the Company defaults in the payment of any interest on the
Securities when it becomes due and payable and the continuance of any such
default for a period of 30 days; or
(ii) the Company defaults in the payment of the principal of any
Security when due and payable at maturity, upon redemption, pursuant to an
offer to purchase required under this Indenture, by acceleration or
otherwise; or
(iii) the Company defaults in the performance of, or breaches, any
covenant in this Indenture (other than defaults specified in clause (i) or
(ii) above), and the continuance of such default or breach for a period of
30 days after written notice to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the outstanding Securities; or
(iv) the Company or any Subsidiary fails (a) to make any payment
when due, after giving effect to any applicable periods of grace, with
respect to any other Indebtedness under one or more classes or issues of
Indebtedness in an aggregate principal amount of $10,000,000 or more; or
(b) to perform any term, covenant, condition or provision of one or more
classes or issues of Indebtedness in an aggregate principal amount of
$10,000,000 or more, which failure, in the case of this clause (b), results
in an acceleration of the maturity thereof; or
<PAGE>
-45-
(v) one or more judgments, orders or decrees for the payment of
money in excess of $10,000,000, either individually or in an aggregate
amount, shall be entered against the Company or any of its Subsidiaries or
any of their respective properties and shall not be satisfied or discharged
and there shall have been a period of 60 days during which a stay of
enforcement of such judgment or order, by reason of pending appeal or
otherwise, shall not be in effect; or
(vi) the Company or any Material Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding,
(B) consents to the entry of an order for relief against it in an
involuntary case or proceeding,
(C) consents to the appointment of a Custodian of it or for all
or substantially all of its property,
(D) makes a general assignment for the benefit of its creditors
or
(E) shall generally not pay its debts when such debts become due
or shall admit in writing its inability to pay its debts generally;
or
(vii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Material Subsidiary
in an involuntary case or proceeding,
(B) appoints a Custodian of the Company or any Material
Subsidiary for all or substantially all of its properties, or
(C) orders the liquidation of the Company or any Material
Subsidiary,
and in each case the order or decree remains unstayed and in effect for 60 days;
provided, however, that if the entry of such order or decree is appealed and
- -------- -------
dismissed on appeal then the Event of Default hereunder by reason of the entry
of such order or decree shall be deemed to have been cured.
(b) For purposes of this Section 6.1, the term "Custodian" means any
receiver, trustee, assignee, liquidator,
<PAGE>
-46-
sequestrator or similar official charged with maintaining possession or control
over property for one or more creditors.
(c) Subject to the provisions of Sections 7.1 and 7.2, the Trustee
shall not be charged with knowledge of any Event of Default unless written
notice thereof shall have been given to a Trust Officer at the corporate trust
office of the Trustee by the Company or any other Person.
SECTION 6.2 Acceleration.
------------
If an Event of Default (other than an Event of Default specified in
Section 6.1(a)(vi) or (vii) with respect to the Company) occurs and is
continuing, the Holders of at least 25% in aggregate principal amount of the
outstanding Securities may, by written notice to the Company and the Trustee,
the Trustee may, and upon the request of the Holders of not less than 25% in
aggregate principal amount of the outstanding Securities shall, declare the
principal of and accrued interest on all the Securities to be due and payable
immediately. Upon any such declaration such principal and accrued interest
shall become due and payable immediately. If an Event of Default specified in
Section 6.1(a)(vi) or (vii) occurs with respect to the Company, then the
principal of and accrued interest on all the Securities shall ipso facto become
---- -----
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder. The Holders of a majority in aggregate
principal amount of outstanding Securities may, by notice to the Trustee,
rescind such declaration of acceleration if all existing Events of Default have
been cured or waived, other than the non-payment of principal of and accrued
interest on the Securities that has become due solely as a result of such
acceleration and if the rescission of acceleration would not conflict with any
judgment or decree. No such rescission shall affect any subsequent default or
impair any right consequent thereto.
SECTION 6.3 Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
All rights of action and claims under this Indenture or the Securities
may be enforced by the Trustee even if the Trustee does not possess any of the
Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any
<PAGE>
-47-
Securityholder in exercising any right or remedy accruing upon an Event of
Default shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative to the extent permitted by law.
SECTION 6.4 Waiver of Past Default.
----------------------
Subject to Sections 6.7 and 9.2, the Holders of, in the aggregate, at
least a majority in aggregate principal amount of the outstanding Securities by
notice to the Trustee may waive an existing Default or Event of Default and its
consequences, except a Default specified in Section 6.1(a)(i) or (ii) or in
respect of any covenant or a provision hereof which cannot be modified or
amended without the consent of the Holder so affected pursuant to Section 9.2.
When a Default or Event of Default is so waived, it shall be deemed cured and
ceases in accordance with the waiver.
SECTION 6.5 Control by Majority.
-------------------
The Holders of at least a majority in aggregate principal amount of
the outstanding Securities may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on it; provided, however, that the Trustee may refuse to
-------- -------
follow any direction that (i) conflicts with law or this Indenture, (ii) the
Trustee determines may be unduly prejudicial to the rights of another
Securityholder, or (iii) may involve the Trustee in personal liability unless
the Trustee has indemnification satisfactory to it (it being understood that the
Trustee will not unreasonably withhold such satisfaction) against any loss or
expense caused by its following such direction; and provided, further, that
-------- -------
the Trustee may take any other action deemed proper by the Trustee that is not
inconsistent with such direction.
SECTION 6.6 Limitation on Suits.
-------------------
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(a) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(b) the Holders of at least 25% in aggregate principal amount of the
outstanding Securities make a written request to the Trustee to pursue a
remedy;
<PAGE>
-48-
(c) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense (it being understood that the Trustee will not
unreasonably withhold such satisfaction);
(d) the Trustee does not comply with the request within 30 days after
receipt of the request and the offer and, if requested, provision of
indemnity; and
(e) during such 30-day period the Holders of a majority in aggregate
principal amount of the outstanding Securities do not give the Trustee a
direction inconsistent with the request.
The foregoing limitations shall not apply to a suit instituted by a
Holder for the enforcement of the payment of principal of, premium, if any, or
accrued interest on such Security on or after the respective due dates set forth
in such Security (including acceleration thereof) or the institution of any
proceeding with respect to this Indenture or any remedy hereunder, including
acceleration, by the Holders of a majority in principal amount of outstanding
Securities with respect to such Holders' Securities, provided that upon
institution of any proceeding or exercise of any remedy such Holders provide the
Trustee with prompt notice thereof.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.7 Rights of Holders To Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in the Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, is
absolute and unconditional and shall not be impaired or affected without the
consent of such Holder.
SECTION 6.8 Collection Suit by Trustee.
--------------------------
If an Event of Default specified in Section 6.1(a)(i) or (ii) occurs
and is continuing, the Trustee may recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal and accrued interest remaining unpaid, together with interest overdue
on principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the Interest Rate
and such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
<PAGE>
-49-
SECTION 6.9 Trustee May File Proofs of Claim.
--------------------------------
The Trustee shall be entitled and empowered to file such proofs of
claim and other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and the Securityholders allowed in any judicial proceedings
relative to the Company or the Subsidiaries of the Company, its creditors or its
property and shall be entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon the conversion or
exchange of the Securities or upon any such claims and to distribute the same,
and any Custodian in any such judicial proceedings is hereby authorized by each
Securityholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 7.7. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10 Priorities.
----------
If the Trustee collects any money pursuant to this Article VI, it
shall pay out such money in the following order:
First: to the Trustee for amounts due under Section 7.7 or elsewhere in
this Indenture;
Second: to Holders for interest accrued on the Securities, ratably,
without preference or priority of any kind, according to the amounts due
and payable on the Securities for interest;
Third: to Holders for principal amounts owing under the Securities,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for principal; and
Fourth: to the Company.
<PAGE>
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The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Securityholders pursuant to this
Section 6.10.
SECTION 6.11 Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.7, or a suit by Holders of more than 10% in aggregate
principal amount of the outstanding Securities.
ARTICLE VII
TRUSTEE
-------
SECTION 7.1 Duties of Trustee.
-----------------
(a) If an Event of Default actually known to the Trustee has occurred
and is continuing, the Trustee shall, other than with respect to any action
taken by the Trustee as directed by a majority in aggregate principal amount of
the outstanding Securities in accordance with Section 6.5 hereof, exercise such
of the rights and powers vested in it by this Indenture and use the same degree
of care and skill in their exercise as a prudent person would exercise or use
under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default actually
known to the Trustee:
(i) The Trustee need perform only those duties as are specifically
set forth in this Indenture and no others.
(ii) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
in the case of any such certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall examine such certificates and opinions to determine whether
or not they conform to the requirements of this Indenture.
<PAGE>
-51-
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(i) This paragraph does not limit the effect of paragraph (b) of
this Section 7.1.
(ii) The Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.2, 6.4 or 6.5.
(iv) No provision of this Indenture or the Securities shall require
the Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder or in
the exercise of any of its rights or powers if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it.
(d) Every provision of this Indenture or the Securities that in any
way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this
Section 7.1.
(e) The Trustee shall not be liable for interest on any money received
by it under this Indenture or the Securities except as the Trustee may agree in
writing with the Company. Except as otherwise provided herein money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
(f) Notwithstanding any provision of this Indenture or the Securities
to the contrary, the Trustee may refuse to perform any duty or exercise any
right or power unless it is provided adequate funds to enable it to do so and it
receives indemnity satisfactory to it against any loss, liability, fee or
expense (it being understood that the Trustee will not unreasonably withhold
such satisfaction).
<PAGE>
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SECTION 7.2 Rights of Trustee.
-----------------
Subject to Section 7.1:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any document believed by it to be genuine and
to have been signed or presented by the proper Person. The Trustee shall
not be bound to make any investigation into the facts or matters stated in
any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Trustee, in
its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine
the books, records and premises of the Company, personally or by agent or
attorney.
(b) Before the Trustee acts or refrains from acting with respect to
any matter contemplated by this Indenture or the Securities, it may require
an Officers' Certificate or an Opinion of Counsel, which shall conform to
the provisions of Section 10.5. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any attorney or agent
(other than the negligence or willful misconduct of an agent who is an
employee of the Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or
within its rights or powers, provided that the Trustee's conduct does not
constitute negligence or bad faith.
(e) The Trustee may consult with counsel and the advice or opinion of
such counsel as to matters of law shall be full and complete authorization
and protection from liability in respect of any action taken, omitted or
suffered by it hereunder or under the Securities in good faith and in
accordance with the advice or opinion of such counsel.
<PAGE>
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SECTION 7.3 Individual Rights of Trustee.
----------------------------
The Trustee in its individual capacity or any other capacity may
become the owner or pledgee of Securities and may otherwise deal with the
Company or its Subsidiaries and Affiliates with the same rights it would have if
it were not Trustee. Any Agent may do the same with like rights. However, the
Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.4 Trustee's Disclaimer.
--------------------
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Securities, or any
rights or remedies of any party purported to be created or granted thereby, and
it shall not be accountable for the Company's use of the proceeds from the
issuance of the Securities, and it shall not be responsible for any statement of
the Company in this Indenture or any document issued in connection with the sale
of Securities or any statement in the Securities other than the Trustee's
certificate of authentication.
SECTION 7.5 Notice of Defaults.
------------------
If a Default or an Event of Default with respect to the Securities
occurs and is continuing and is actually known to the Trustee, the Trustee shall
mail to each Securityholder notice of the Default or Event of Default within 45
days after the occurrence thereof. Except in the case of a Default or an Event
of Default in payment of principal of, or interest on, any Security, the Trustee
may withhold the notice to the Securityholders if a committee of its Trust
Officers in good faith determines that withholding the notice is in the interest
of Securityholders.
SECTION 7.6 Reports by Trustee to Holders.
-----------------------------
To the extent required by TIA (S) 313(a), within 60 days after
May 15 of each year commencing with 1995 and for as long as there are
Securities outstanding hereunder, the Trustee shall mail to each Securityholder
the Company's brief report dated as of such date that complies with TIA (S)
313(a). The Trustee also shall comply with TIA (S) 313(c) and (d). A copy of
such report at the time of its mailing to Securityholders shall be filed with
the Commission, if required, and each stock exchange, if any, on which the
Securities are listed.
The Company shall promptly notify the Trustee if the Securities become
listed on any stock exchange, and the Trustee shall comply with TIA (S) 313(d).
<PAGE>
-54-
SECTION 7.7 Compensation and Indemnity.
--------------------------
The Company shall pay to the Trustee, the Paying Agent and the
Registrar from time to time reasonable compensation for their respective
services rendered hereunder. The Trustee's, the Paying Agent's and the
Registrar's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee, the
Paying Agent and the Registrar upon request for all reasonable out-of-pocket
disbursements, expenses and advances (including fees and expenses of counsel)
incurred or made by each of them in addition to the compensation for their
respective services. Such expenses shall include the reasonable compensation,
out-of-pocket disbursements and expenses of the Trustee's, the Paying Agent's
and the Registrar's agents and counsel.
The Company shall indemnify the Trustee, the Paying Agent and the
Registrar for, and hold each of them harmless against, any claim, demand,
expense (including but not limited to reasonable attorneys' fees and expenses),
loss or liability incurred by each of them arising out of or in connection with
the administration of this Indenture and their respective duties hereunder.
Each of the Trustee, the Paying Agent and the Registrar shall notify the Company
promptly of any claim asserted against it for which it may seek indemnity.
However, failure by the Trustee, the Paying Agent or the Registrar to so notify
the Company shall not relieve the Company of its obligations hereunder.
However, the Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee, the Paying Agent or the Registrar
through the Trustee's, the Paying Agent's or the Registrar's, as the case may
be, own willful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section 7.7, each
of the Trustee, the Paying Agent and the Registrar shall have a Lien prior to
the Securities on all money or property held or collected by it, in its capacity
as Trustee, Paying Agent or Registrar, as the case may be, except money or
property held in trust to pay principal of, or interest on, particular
Securities.
When any of the Trustee, the Paying Agent and the Registrar incurs
expenses or renders services after an Event of Default specified in Section
6.1(a)(vi) or (vii) occurs with respect to the Company, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
<PAGE>
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SECTION 7.8 Replacement of Trustee.
----------------------
The Trustee may resign at any time by so notifying the Company in
writing, such resignation to be effective upon the appointment of a successor
Trustee. The Holders of a majority in aggregate principal amount of the
outstanding Securities may remove the Trustee by so notifying the Trustee in
writing and may appoint a successor Trustee with the Company's consent, which
consent shall not be unreasonably withheld. The Company may remove the Trustee
if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent;
(c) a receiver or other public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of the Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in aggregate principal amount of the Securities may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee (subject to the lien provided in Section 7.7), the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 25% in aggregate principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for
<PAGE>
-56-
the removal of the Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.8, the Company's obligations under Section 7.7 shall continue for the benefit
of the retiring Trustee.
SECTION 7.9 Successor Trustee by Merger, Etc.
--------------------------------
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or national banking association, the resulting, surviving or
transferee corporation or national banking association without any further act
shall be the successor Trustee, provided such corporation shall be otherwise
qualified and eligible under this Article VII.
SECTION 7.10 Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee shall have, or in
the case the Trustee is a corporation included in a bank holding company system,
the related bank holding company system shall have, a combined capital and
surplus of at least $50,000,000 as set forth in its most recent published annual
report of condition. The Trustee shall comply with TIA (S) 310(b); provided,
--------
however, that there shall be excluded from the operation of TIA (S) 310(b)(1)
- -------
any indenture or indentures under which other securities, or certificates of
interest or participation in other securities, of the Company are outstanding if
the requirements for such exclusion set forth in TIA (S) 310(b)(1) are met. The
provisions of TIA (S) 310 shall apply to the Company, as obligor of the
Securities.
SECTION 7.11 Preferential Collection of
Claims Against Company.
--------------------------
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein. The
provisions of TIA (S) 311 shall apply to the Company, as an obligor on the
Securities.
<PAGE>
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ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
----------------------------------
SECTION 8.1 Termination of Company's Obligations.
-------------------------------------
The Company may terminate its obligations under the Securities and
this Indenture, except those obligations referred to in the penultimate
paragraph of this Section 8.1, if all Securities previously authenticated and
delivered (other than destroyed, lost or stolen Securities which have been
replaced or paid) have been delivered to the Trustee for cancellation and the
Company has paid all sums payable by it hereunder, or if:
(a) pursuant to Article III, the Company shall have given notice to
the Trustee and mailed a notice of redemption to each Holder of the
redemption of all of the Securities under arrangements satisfactory to the
Trustee for the giving of such notice;
(b) the Company shall have irrevocably deposited or caused to be
deposited with the Trustee or a trustee satisfactory to the Trustee, under
the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust solely for the benefit
of the Holders for that purpose, money or direct non-callable obligations
of, or non-callable obligations guaranteed by, the United States of America
for the payment of which guarantee or obligation the full faith and credit
of the United States is pledged ("U.S. Government Obligations") maturing as
to principal and interest in such amounts and at such times as are
sufficient without consideration of any reinvestment of such interest, to
pay principal of and interest on the outstanding Securities to maturity or
redemption, as the case may be, provided that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to the payment of said principal and interest with
respect to the Securities; and
(c) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent providing for the termination of the Company's obligation under
the Securities and this Indenture have been complied with.
Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.5, 2.6, 2.7, 2.8, 4.1, 4.2, 7.7, 7.8, 8.4 and 8.5 shall survive until
the Securities are no longer
<PAGE>
-58-
outstanding. After the Securities are no longer outstanding, the Company's
obligations in Sections 7.7, 8.4 and 8.5 shall survive.
After such delivery or irrevocable deposit the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
the Securities and this Indenture except for those surviving obligations
specified above.
SECTION 8.2 Legal Defeasance and Covenant
Defeasance.
-----------------------------
(a) The Company may, at its option by Board Resolution, at any time,
with respect to the Securities, elect to have either paragraph (b) or paragraph
(c) below be applied to the outstanding Securities upon compliance with the
conditions set forth in paragraph (d).
(b) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (b), the Company shall be deemed to have been
released and discharged from its obligations with respect to the outstanding
Securities on the date the conditions set forth below are satisfied
(hereinafter, "legal defeasance"). For this purpose, such legal defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Securities, which shall thereafter
be deemed to be "outstanding" only for the purposes of paragraph (e) below and
the other Sections of and matters under this Indenture referred to in (i), (ii)
and (iv) below, and to have satisfied all its other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (i) the rights of Holders of
outstanding Securities to receive solely from the trust fund described in
paragraph (d) below and as more fully set forth in such paragraph, payments in
respect of the principal of, and interest on such Securities when such payments
are due, (ii) the Company's obligations with respect to such Securities under
Sections 2.6, 2.7 and 4.2, and, with respect to the Trustee, under Section 7.7,
(iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder
and (iv) this Section 8.2. Subject to compliance with this Section 8.2, the
Company may exercise its option under this paragraph (b) notwithstanding the
prior exercise of its option under paragraph (c) below with respect to the
Securities.
(c) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (c), the Company shall be
<PAGE>
-59-
released and discharged from its obligations under any covenant contained in
Article V and in Sections 4.6 through 4.18 with respect to the outstanding
Securities on and after the date the conditions set forth below are satisfied
(hereinafter, "covenant defeasance"), and the Securities shall thereafter be
deemed to be not "outstanding" for the purpose of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder. For this purpose, such covenant defeasance
means that, with respect to the outstanding Securities, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 6.1, but, except as specified above, the remainder of
this Indenture and such Securities shall be unaffected thereby.
(d) The following shall be the conditions to application of either
paragraph (b) or paragraph (c) above to the outstanding Securities:
(i) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 who shall agree to comply with the provisions of this
Section 8.2 applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (A)
money in an amount, or (B) U.S. Government Obligations which through the
scheduled payment of principal of and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment, money in an amount, or (C) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge principal of and
interest on the outstanding Securities on the Maturity Date of such
principal or installment of principal or interest in accordance with the
terms of this Indenture and of such Securities; provided, however, that the
-------- -------
Trustee (or other qualifying trustee) shall have received
<PAGE>
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an irrevocable written order from the Company instructing the Trustee (or
other qualifying trustee) to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the Securities;
(ii) no Default or Event of Default or event which with notice or
lapse of time or both would become a Default or an Event of Default with
respect to the Securities shall have occurred and be continuing on the date
of such deposit;
(iii) such legal defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a Default or Event of
Default under, this Indenture or any other agreement or instrument to which
the Company is a party or by which it is bound;
(iv) in the case of an election under paragraph (b) above, the
Company shall have delivered to the Trustee an Opinion of Counsel stating
that (x) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (y) since the date of this Indenture,
there has been a change in the applicable Federal income tax law, in either
case to the effect that, and based thereon such opinion shall confirm that,
the Holders of the outstanding Securities will not recognize income, gain
or loss for Federal income tax purposes as a result of such legal
defeasance and will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such legal defeasance had not occurred;
(v) in the case of an election under paragraph (c) above, the
Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders of the outstanding Securities will not recognize
income, gain or loss for Federal income tax purposes as a result of such
covenant defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred;
(vi) in the case of an election under either paragraph (b) or (c)
above, an Opinion of Counsel to the effect that, (x) the trust funds will
not be subject to any rights of any other holders of Indebtedness of the
Company, and (y) after the 91st day following the deposit, the trust funds
will not be subject to the
<PAGE>
-61-
effect of any applicable Bankruptcy Law; provided, however, that if a court
-------- -------
were to rule under any such law in any case or proceeding that the trust
funds remained property of the Company, no opinion needs to be given as to
the effect of such laws on the trust funds except the following: (A)
assuming such trust funds remained in the Trustee's possession prior to
such court ruling to the extent not paid to Holders of Securities, the
Trustee will hold, for the benefit of the Holders of Securities, a valid
and enforceable security interest in such trust funds that is not avoidable
in bankruptcy or otherwise, subject only to principles of equitable
subordination, (B) the Holders of Securities will be entitled to receive
adequate protection of their interests in such trust funds if such trust
funds are used, and (C) no property, rights in property or other interests
granted to the Trustee or the Holders of Securities in exchange for or with
respect to any of such funds will be subject to any prior rights of any
other Person, subject only to prior Liens granted under Section 364 of
Title 11 of the U.S. Bankruptcy Code (or any section of any other
Bankruptcy Law having the same effect), but still subject to the foregoing
clause (B); and
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that (A) all conditions
precedent provided for relating to either the legal defeasance under
paragraph (b) above or the covenant defeasance under paragraph (c) above,
as the case may be, have been complied with and (B) if any other
Indebtedness of the Company shall then be outstanding or committed, such
legal defeasance or covenant defeasance will not violate the provisions of
the agreements or instruments evidencing such Indebtedness.
(e) All money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee (or other qualifying trustee, collectively
for purposes of this paragraph (e), the "Trustee") pursuant to paragraph (d)
above in respect of the outstanding Securities shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Securities and
this Indenture, to the payment, either directly or through any Paying Agent
(other than the Company) as the Trustee may determine, to the Holders of such
Securities of all sums due and to become due thereon in respect of principal and
interest, but such money need not be segregated from other funds except to the
extent required by law.
<PAGE>
-62-
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to paragraph (d) above or the principal and interest received
in respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the outstanding Securities.
Anything in this Section 8.2 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request,
in writing, by the Company any money or U.S. Government Obligations held by it
as provided in paragraph (d) above which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
legal defeasance or covenant defeasance.
SECTION 8.3 Application of Trust Money.
--------------------------
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Sections 8.1 and 8.2, and shall apply the
deposited money and the money from U.S. Government Obligations in accordance
with this Indenture to the payment of principal of, and interest on the
Securities.
SECTION 8.4 Repayment to Company.
--------------------
Subject to Sections 7.7, 8.1 and 8.2, the Trustee shall promptly pay
to the Company, upon receipt by the Trustee of an Officers' Certificate, any
excess money, determined in accordance with Sections 8.2(d)(i) and (e), held by
it at any time. The Trustee and the Paying Agent shall pay to the Company, upon
receipt by the Trustee or the Paying Agent, as the case may be, of an Officers'
Certificate, any money held by it for the payment of principal or interest that
remains unclaimed for two years; provided, however, that the Trustee and the
-------- -------
Paying Agent before being required to make any payment may, but need not, at the
expense of the Company cause to be published once in a newspaper of general
circulation in The City of New York or mail to each Holder entitled to such
money notice that such money remains unclaimed and that after a date specified
therein, which shall be at least 30 days from the date of such publication or
mailing, any unclaimed balance of such money then remaining will be repaid to
the Company. After payment to the Company, Securityholders entitled to money
must look solely to the Company for payment as general creditors unless an
applicable abandoned property law designates another
<PAGE>
-63-
Person, and all liability of the Trustee or Paying Agent with respect to such
money shall thereupon cease.
SECTION 8.5 Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Indenture by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
and only then the Company's obligations under this Indenture and the Securities
shall be revived and reinstated as though no deposit had been made pursuant to
this Indenture until such time as the Trustee is permitted to apply all such
money or U.S. Government Obligations in accordance with this Indenture;
provided, however, that if the Company has made any payment of interest on or
- -------- -------
principal of any Securities because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the holders of such Securities to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
-----------------------------------
SECTION 9.1 Without Consent of Holders.
--------------------------
The Company, when authorized by a Board Resolution, and the Trustee
may amend, waive or supplement this Indenture or the Securities without notice
to or consent of any Securityholder:
(a) to cure any ambiguity, defect or inconsistency, provided that such
amendment or supplement does not adversely affect the rights of any Holder;
(b) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(c) to comply with any requirements of the Commission under the TIA;
(d) to evidence the succession in accordance with Article V hereof of
another Person to the Company and the assumption by any such successor of
the covenants of the Company herein and in the Securities;
<PAGE>
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(e) to evidence and provide for the acceptance of appointment
hereunder by a separate or successor Trustee with respect to the
Securities; or
(f) to make any change that does not adversely affect the rights of
any Holder.
SECTION 9.2 With Consent of Holders.
-----------------------
Subject to Section 6.7 and the provisions of this Section 9.2, the
Company and the Trustee may amend or supplement this Indenture or the Securities
with the written consent of the Holders of at least a majority in aggregate
principal amount of the Securities then outstanding. Subject to Section 6.7 and
the provisions of this Section 9.2, the Holders of, in the aggregate, at least
a majority in aggregate principal amount of the outstanding Securities affected
may waive compliance by the Company with any provision of this Indenture or the
Securities without notice to any other Securityholder. However, without the
consent of each Securityholder affected, an amendment, supplement or waiver,
including a waiver pursuant to Section 6.4, may not:
(a) reduce the amount of Securities the Holders of which must consent
to an amendment, supplement or waiver or consent of any provision of this
Indenture or the Securities;
(b) reduce the rate of, change the method of calculation of, or extend
the time for, payment of interest on any Security;
(c) reduce the principal amount outstanding of or extend the fixed
maturity of any Security or alter the redemption provisions with respect
thereto;
(d) waive a default in the payment of the principal of or interest on,
or redemption payment or an offer to purchase required hereunder with
respect to, any Security;
(e) change the currency in which any Security or any premium or the
accrued interest thereon is payable;
(f) affect the ranking of the Securities;
(g) impair the right to institute suit for the enforcement of any
payment on or with respect to the Securities;
<PAGE>
-65-
(h) amend, change or modify the obligation of the Company to make and
consummate a Change of Control Offer or Asset Sale Offer or modify any of
the provisions or definitions hereof with respect thereto; or
(i) modify this Section 9.2 or Section 6.4.
It shall not be necessary for the consent of the Holders under this
Section 9.2 to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.2
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 9.3 Compliance with Trust Indenture Act.
-----------------------------------
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as then in effect.
SECTION 9.4 Revocation and Effect of Consents.
---------------------------------
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of that
Security or portion of that Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. However, any such Holder or subsequent Holder may revoke the consent
as to his Security or portion of a Security. Such revocation shall be effective
only if the Trustee receives the notice of revocation before the date the
amendment, supplement or waiver becomes effective. Notwithstanding the above,
nothing in this paragraph shall impair the right of any Securityholder under (S)
316(b) of the TIA.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the
second and third sentences of the immediately preceding paragraph, those Persons
who were Holders at such record date (or their duly designated proxies), and
only those Persons, shall be entitled to consent to such amendment, supplement
or waiver or to revoke any consent previously given,
<PAGE>
-66-
whether or not such Persons continue to be Holders after such record date. Such
consent shall be effective only for actions taken within 90 days after such
record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(a) through (i) of Section 9.2; if it makes such a change, the amendment,
supplement or waiver shall bind every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security.
SECTION 9.5 Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may (in accordance with the specific direction of the Company)
request the Holder of the Security to deliver it to the Trustee. The Trustee
may (in accordance with the specific direction of the Company) place an
appropriate notation on the Security about the changed terms and return it to
the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms. Failure to make
the appropriate notation or issue a new Security shall not affect the validity
and effect of such amendment, supplement or waiver.
SECTION 9.6 Trustee To Sign Amendments, Etc.
-------------------------------
The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article IX if the amendment, supplement or waiver does not
adversely affect the rights, duties or immunities of the Trustee. If it does,
the Trustee may, but need not, sign it. In signing any amendment, supplement or
waiver, the Trustee shall be entitled to receive, if requested, an indemnity
satisfactory to it in its sole discretion and to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article IX is
authorized or permitted by this Indenture. The Company may not sign an
amendment until its Board of Directors approves it.
<PAGE>
-67-
ARTICLE X
MISCELLANEOUS
-------------
SECTION 10.1 Trust Indenture Act Controls.
----------------------------
If any provision of this Indenture limits, qualifies, or conflicts
with another provision which is required to be included in this Indenture by the
TIA, the required provision shall control.
SECTION 10.2 Notices.
-------
Any notice or communication shall be sufficiently given if in writing
and delivered in Person or mailed by first-class mail addressed as follows:
(a) if to the Company:
MERISEL, INC.
200 Continental Boulevard
El Segundo, California 90245
Attention: Treasurer
with a copy to
MERISEL, INC.
200 Continental Boulevard
El Segundo, California 90245
Attention: General Counsel
(b) if to the Trustee:
NATIONSBANK OF TEXAS, N.A.
901 Main Street, 18th Floor
Dallas, Texas 75202
Attention: Corporate Trust Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder, including any
notice delivered in connection with TIA (S) 310(b), TIA (S) 313(c), TIA (S)
314(a) and TIA (S) 315(b), shall be mailed to him or her, first-class postage
prepaid, at his or her address as it
<PAGE>
-68-
appears on the registration books of the Registrar and shall be sufficiently
given to him or her if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. Except for a notice to the Trustee, which is deemed given only
when received, if a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 10.3 Communications by Holders with Other
Holders.
------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA (S) 312(c).
SECTION 10.4 Certificate and Opinion of Counsel
as to Conditions Precedent.
----------------------------------
Upon any request or application by the Company to the Trustee to take
any action under this Indenture or the Securities, the Company shall furnish to
the Trustee at the request of the Trustee (a) an Officers' Certificate in form
and substance satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture or the
Securities, as the case may be, relating to the proposed action have been
complied with, (b) an Opinion of Counsel in form and substance satisfactory to
the Trustee stating that, in the opinion of counsel, all such conditions have
been complied with and (c) where applicable, a certificate or opinion by an
independent certified public accountant satisfactory to the Trustee that
complies with TIA (S) 314(c).
SECTION 10.5 Statements Required in Certificate
and Opinion of Counsel.
----------------------------------
Each certificate and Opinion of Counsel with respect to compliance
with a condition or covenant provided for in this Indenture shall include:
(a) a statement that the Person making such certificate has read such
covenant or condition;
<PAGE>
-69-
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements contained in such certificate are
based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him or her
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with.
SECTION 10.6 Rules by Trustee, Paying Agent,
Registrar.
-------------------------------
The Trustee may make reasonable rules in accordance with the Trustee's
customary practices for action by or at a meeting of Securityholders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 10.7 Legal Holidays.
--------------
If a payment date is a Legal Holiday at a place of payment, payment
may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
SECTION 10.8 GOVERNING LAW.
-------------
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA SHALL GOVERN THIS
INDENTURE AND THE SECURITIES WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
SECTION 10.9 No Recourse Against Others.
--------------------------
A trustee, director, officer, employee, stockholder or beneficiary, as
such, of the Company shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. Each
Securityholder by accepting a Security waives and releases all such liability.
<PAGE>
-70-
SECTION 10.10 Successors.
----------
All agreements of the Company in this Indenture and the Securities
shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successor.
SECTION 10.11 Duplicate Originals.
-------------------
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 10.12 Separability.
------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and a Holder shall have no claim therefor against any party hereto.
SECTION 10.13 Table of Contents, Headings, Etc.
--------------------------------
The table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, and are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
MERISEL, INC., Issuer
By
----------------------------------------------
Title:
NATIONSBANK OF TEXAS, N.A.
as Trustee
By
----------------------------------------------
Title:
<PAGE>
Exhibit A
---------
MERISEL, INC.
No. $
% SENIOR NOTE DUE 2004
MERISEL, INC. promises to pay to or
registered assigns the principal sum of Dollars on
December 31, 2004.
Interest Payment Dates: , , and at maturity
Record Dates: , and 15 days prior to
maturity
MERISEL, INC.
By:
----------------------------------------------
[SEAL]
By:
----------------------------------------------
Dated:
--------------------
Certificate of Authentication
This is one of the % Senior Notes Due 2004 referred to in the
within-mentioned Indenture.
NATIONSBANK OF TEXAS, N.A.
as Trustee
By:
----------------------------------------------
Authorized Signatory
<PAGE>
-2-
(REVERSE OF SECURITY)
MERISEL, INC.
% SENIOR NOTE DUE 2004
1. Interest. MERISEL, INC., a Delaware corporation (the "Company"),
--------
promises to pay, until the principal hereof is paid or made available for
payment, interest on the principal amount set forth on the reverse side hereof
at a rate of % per annum. Interest on the Senior Notes will accrue from
--- -----
and including the most recent date to which interest has been paid or, if no
interest has been paid, from and including , 1994 to but excluding
the date on which interest is paid. Interest shall be payable in arrears on
, , and at the stated maturity, commencing , 1994. Interest
will be computed on the basis of a 360-day year of twelve 30-day months. The
Company shall pay interest on overdue principal and on overdue interest (to the
full extent permitted by law) at a rate of % per annum.
2. Method of Payment. The Company will pay interest on the Senior
-----------------
Notes (except defaulted interest) to the Persons who are registered Holders of
Senior Notes at the close of business on the or next
preceding the Interest Payment Date and on the 15th day next preceding the
Maturity Date. Holders must surrender Senior Notes to a Paying Agent to collect
principal payments. The Company will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. Interest may be paid by check mailed to the person entitled
thereto as shown on the Registrar for the Senior Notes.
3. Paying Agent and Registrar. Initially, NationsBank of Texas,
--------------------------
N.A. (the "Trustee") will act as Paying Agent and Registrar. The Company may
change any Paying Agent, Registrar or co-Registrar without notice. Neither the
Company nor any of its Subsidiaries may act as Paying Agent, Registrar or co-
Registrar.
4. Indenture. The Company issued the Senior Notes under an
---------
Indenture dated as of , 1994 (the "Indenture") between the Company and
the Trustee. This Senior Note is one of an issue of Senior Notes of the Company
issued under the Indenture. The terms of the Senior Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb), as amended from time
to time. The Senior Notes are subject to all such terms, and Holders are
referred to the Indenture and such Act
<PAGE>
-3-
for a statement of them. Capitalized and certain other terms used herein and
not otherwise defined have the meanings set forth in the Indenture. The Senior
Notes are general unsecured obligations of the Company limited in aggregate
principal amount to $125,000,000. The Indenture limits, among other things, the
incurrence of Indebtedness by the Company and its Subsidiaries; the creation of
Liens by the Company and its Subsidiaries; purchases, redemptions, and other
acquisitions or retirements of Capital Stock of the Company and its
Subsidiaries; transactions by the Company and its Subsidiaries with their
respective Affiliates; Sale-Leaseback Transactions; the making of dividends and
other payments; Asset Sales; the making of Investments; and the ability of the
Company or any of its Subsidiaries to merge with or into another entity. The
limitations are subject to a number of important qualifications and exceptions.
The Company must report to the Trustee quarterly on compliance with the
limitations contained in the Indenture.
5. Optional Redemption. The Company, at its option, may redeem all
-------------------
or any of the Senior Notes, in whole or in part, at any time on or after
, 1999 at the redemption prices (expressed in percentages of principal amount)
set forth below plus accrued and unpaid interest to the Redemption Date, if
redeemed during the 12-month period beginning of the years indicated
below:
Year Percentage
---- ----------
In addition to the optional redemption of the Senior Notes in
accordance with the provisions of the preceding paragraph, prior to
, 1997, the Company may use the net proceeds of an Equity Offering to redeem up
to ___% of the originally issued aggregate principal amount of Senior Notes at a
redemption price of ___% of the principal amount thereof plus accrued and unpaid
interest to the Redemption Date.
"Equity Offering" means any public or private offering of Capital
Stock (other than Disqualified Stock) of the Company.
6. Notice of Redemption. Notice of redemption will be mailed at
--------------------
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Senior Notes to be redeemed at his or her registered address. On and
after the Redemption Date, unless the Company defaults in making the redemption
payment, interest ceases to accrue on Senior Notes or portions thereof called
for redemption.
<PAGE>
-4-
7. Offers To Purchase. Sections 4.13 and 4.15 of the Indenture
------------------
provide that after an Asset Sale or upon the occurrence of a Change of Control,
and subject to further limitations contained therein, the Company shall make an
offer to purchase a certain amount of Senior Notes with respect to any such
offer after an Asset Sale and all outstanding Senior Notes with respect to any
such offer after a Change of Control, all in accordance with the procedures set
forth in the Indenture.
8. Denominations, Transfer, Exchange. The Senior Notes are in
---------------------------------
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. A Holder may transfer or exchange Senior Notes in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay to
it any taxes and fees required by law or permitted by the Indenture. The
Registrar need not transfer or exchange any Senior Notes or portion of a Senior
Note selected for redemption, or transfer or exchange any Senior Notes for a
period of 15 days before a selection of Senior Notes to be redeemed.
9. Persons Deemed Owners. The registered Holder of a Senior Note
---------------------
shall be treated as the owner of it for all purposes.
10. Unclaimed Money. If money for the payment of principal, premium,
---------------
if any, or interest remains unclaimed for two years, the Trustee or Paying Agent
will pay the money back to the Company at its request. After that, Persons
entitled to the money must look to the Company for payment as general creditors
unless an "abandoned property" law designates another Person.
11. Amendment, Supplement, Waiver. The Company and the Trustee (if a
-----------------------------
party thereto) may, without the consent of the Holders of any outstanding Senior
Notes, amend, waive or supplement the Indenture or the Senior Notes for certain
specified purposes, including, among other things, curing ambiguities, defects
or inconsistencies, maintaining the qualification of the Indenture under the
Trust Indenture Act of 1939, as amended, or making any change that does not
adversely affect the rights of any Holder. Other amendments and modifications
of the Indenture or the Senior Notes may be made by the Company and the Trustee
with the consent of the Holders of not less than a majority of the aggregate
principal amount of the outstanding Senior Notes, subject to certain exceptions
requiring the consent of the Holders of the particular Senior Notes to be
affected.
12. Successor Corporation. When a successor corporation assumes all
---------------------
the obligations of its predecessor under the Senior
<PAGE>
-5-
Notes and the Indenture and the transaction complies with the terms of Article V
of the Indenture, the predecessor corporation will be released from those
obligations.
13. Defaults and Remedies. Events of Default are set forth in the
---------------------
Indenture. Subject to certain limitations in the Indenture, if an Event of
Default (other than an Event of Default specified in Section 6.1(a)(vi) or (vii)
of the Indenture (with respect to the Company)) occurs and is continuing, then
the Holders of not less than 25% in aggregate principal amount of the
outstanding Senior Notes may, or the Trustee may, and upon the request of the
Holders of not less than 25% in aggregate principal amount of the outstanding
Senior Notes shall, declare the principal of and interest on all of the Senior
Notes to be due and payable immediately. If an Event of Default specified in
Section 6.1(a)(vi) or (vii) of the Indenture (with respect to the Company)
occurs, the principal of, premium, if any, and interest on all of the Senior
Notes shall ipso facto become and be immediately due and payable without any
---- -----
declaration or other act on the part of the Trustee or any Holder. Holders may
not enforce the Indenture or the Senior Notes except as provided in the
Indenture. Except asset form in the Indenture, the Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Senior Notes (it
being understood that the Trustee will not unreasonably withhold such
satisfaction). Subject to certain limitations, Holders of a majority in
aggregate principal amount of the then outstanding Senior Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders notice of any continuing default (except a default in payment of
principal, premium, if any, or interest) if it determines that withholding
notice is in their interests. The Company must furnish a quarterly compliance
certificate to the Trustee.
14. Trustee Dealings with Company. The Trustee, in its individual or
-----------------------------
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not Trustee.
15. No Recourse Against Others. No director, officer, employee or
--------------------------
stockholder, as such, of the Company shall have any liability for any
obligations of the Company under the Senior Notes or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Senior Note waives and releases all such
liability. The waiver and release are part of the consideration for the issue
of the Senior Notes.
<PAGE>
-6-
16. Discharge. The Company's obligations pursuant to the Indenture
---------
will be discharged, except for obligations pursuant to certain sections thereof,
subject to the terms of the Indenture, upon the payment of all the Senior Notes
or upon the irrevocable deposit with the Trustee of money or U.S. Government
Obligations sufficient to pay when due principal of, premium, if any, and
interest on the Senior Notes to maturity or redemption, as the case may be.
17. Authentication. This Senior Note shall not be valid until the
--------------
Trustee signs the certificate of authentication on the other side of this Senior
Note.
18. Abbreviations. Customary abbreviations may be used in the name
-------------
of a Holder or an assignee, such as: TEN COM (= tenants in common), TENANT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
MERISEL, INC.
200 Continental Boulevard
El Segundo, California 90245
Attention: Treasurer
with a copy to
MERISEL, INC.
200 Continental Boulevard
El Segundo, California 90245
Attention: General Counsel
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Senior Note, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Senior Note to
_______________________________________________________________________________
(Insert assignee's social security or tax ID number) __________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type assignee's name, address and zip code) and irrevocably appoint
_______________________________________________________________________________
agent to transfer this Senior Note on the books of the Company. The agent may
substitute another to act for him.
_______________________________________________________________________________
Date:__________________ Your signature:________________________________________
(Sign exactly as your name appears on the other side of this Senior Note)
Signature Guarantee:___________________________________________________________
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Senior Note purchased by the Company pursuant
to Section 4.13 or 4.15 of the Indenture, check the Box: [ ]
If you wish to have a portion of this Senior Note purchased by the
Company pursuant to Section 4.13 or 4.15 of the Indenture, state the amount:
$__________________
Date: _____________________ Your Signature: ________________________________
(Sign exactly as your name appears on the other side of this Senior Note)
Signature Guarantee: __________________________________________________________
<PAGE>
EXHIBIT 12.1
MERISEL, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, PRO ENDED JUNE 30, PRO
------------------------------------------ FORMA ---------------- FORMA
1989 1990 1991 1992 1993 1993 1993 1994 1994
------ ------ ------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income
taxes per statement of income $16,663 $ 3,553 $21,478 $34,477 $50,852 $49,596 $21,283 $17,942 $14,797
Add
Portion of rents representative
of the interest factor 1,047 2,111 2,933 3,632 4,164 4,202 2,082 2,475 2,475
Interest on indebtedness 3,472 13,720 15,972 15,742 17,810 31,958 8,916 12,559 16,692
Amortization of debt expense
and premium 605 980 191 749 540
------- ------- ------- ------- ------- ------- ------- ------- -------
Income as adjusted $21,182 $19,384 $40,383 $53,851 $73,431 $86,736 $32,472 $33,725 $34,504
======= ======= ======= ======= ======= ======= ======= ======= =======
Fixed charges
Interest on indebtedness:
Merisel, Inc. and consolidated
subsidiaries (1) $ 3,472 $13,720 $15,972 $15,742 $17,810 $31,958 $ 8,916 $12,559 $16,692
------- ------- ------- ------- ------- ------- ------- ------- -------
Amortization of debt expense
and premium (2) 605 980 191 749 540
------- ------- ------- ------- ------- ------- ------- ------- -------
Rents:
Merisel, Inc. and consolidated
subsidiaries 3,172 6,398 8,889 11,007 12,617 12,733 6,310 7,500 7,500
------- ------- ------- ------- ------- ------- ------- ------- -------
Portion of rents representative
of interest factors (3) 1,047 2,111 2,933 3,632 4,164 4,202 2,082 2,475 2,475
------- ------- ------- ------- ------- ------- ------- ------- -------
Fixed charges (1)+(2)+(3) $ 4,519 $15,831 $18,905 $19,374 $22,579 $37,140 $11,189 $15,783 $19,707
======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 4.69 1.22 2.14 2.78 3.25 2.34 2.90 2.14 1.75
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to (a) the use in this post effective Amendment No. 1 to
Registration Statement No. 33-55195 of Merisel, Inc. of our report dated
February 22, 1994, appearing in the Prospectus, which is part of this
Registration Statement, (b) the incorporation by reference in this post
effective Amendment No. 1 to Registration Statement of our report dated February
22, 1994 appearing in the Annual Report on Form 10-K of Merisel, Inc., as
amended, for the year ended December 31, 1993, and (c) the reference to us under
the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
October 14, 1994
<PAGE>
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Post-
Effective Amendment No. 1 to the Registration Statement (Form S-3 No. 33-55195)
and related Prospectus of Merisel, Inc. for the registration of Senior Notes and
to the incorporation by reference therein of our report dated January 7, 1994,
with respect to the statements of revenues and operating expenses of the United
States Franchise and Distribution Division of ComputerLand Corporation for the
years ended September 30, 1993 and 1992 included in Merisel, Inc.'s Current
Report on Form 8-K dated January 31, 1994, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG, LLP
San Jose, California
October 14, 1994
