<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1994
REGISTRATION NO. 33-55195
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 11, 1994
$150,000,000
[LOGO OF MERISEL]
% SENIOR NOTES DUE 2004
----------
Merisel, Inc. (the "Company") is offering $150,000,000 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 35%
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 110% 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 $606.8 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note..................................... 100% % %
- --------------------------------------------------------------------------------
Total........................................ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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 $ .
----------
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 , 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
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.......... $150 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 35% of
the originally issued aggregate principal amount
of Notes at 110% 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 $80.6 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 32.1 8.9 12.6 16.8
Other (income) expense.. 0.6 (0.8) 0.8 1.3 2.7 3.2 0.6 4.9 4.8
------ -------- -------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 16.7 3.6 21.5 34.5 50.9 49.4 21.3 17.9 14.6
Income taxes............ 6.5 3.0 10.7 14.8 20.5 19.8 8.9 6.6 5.3
------ -------- -------- -------- -------- -------- -------- -------- --------
Net income.............. $ 10.2 $ 0.6 $ 10.8 $ 19.7 $ 30.4 $ 29.6 $ 12.4 $ 11.3 $ 9.3
====== ======== ======== ======== ======== ======== ======== ======== ========
Net income per share.... $ 0.81 $ 0.03 $ 0.43 $ 0.67 $ 1.00 $ 0.97 $ 0.41 $ 0.37 $ 0.30
====== ======== ======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital......... $ 89.5 $ 213.0 $ 92.5 $ 294.6 $ 359.8 $ 346.0 $ 336.9 $ 262.1 $ 343.7
Total assets............ 215.8 431.7 508.6 667.3 936.3 1,024.7 715.9 1,042.3 1,045.7
Total debt.............. 55.6 160.6 164.6 179.1 259.4 327.9 231.0 285.0 288.5
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 2.32x 2.90x 2.14x 1.74x
Ratio of EBITDA to
interest expense....... 6.35 1.68 2.87 3.77 4.44 2.98 3.95 3.03 2.32
Ratio of total debt to
EBITDA................. 2.53 6.95 3.59 3.02 3.28 3.43 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, (iii) the repayment of approximately
$80.6 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 $606.8 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 $145.6 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 $80.6
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 August 31, 1994, the weighted average
interest rate on such outstanding borrowings was 8.375% and 5.85%,
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 $ 17,431(1)
Acquisition Loan........................................ 65,000 --
Long-term debt:
Revolving Credit Facility............................... 68,400 -- (1)
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............................... -- 150,000
-------- --------
Total debt............................................. 285,031 289,431
-------- --------
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 $527,886
======== ========
</TABLE>
- --------
(1) At August 1, 1994, approximately $104.1 million was outstanding under the
Revolving Credit Facility. Approximately $80.6 million of net proceeds from
the sale of the Notes will be used to repay a portion of amounts
outstanding under the Revolving Credit Facility. As only $68.4 million of
indebtedness was outstanding under the Revolving Credit Facility at June
30, 1994, the capitalization table reflects the repayment of $68.4 million
of indebtedness under the Revolving Credit Facility and $12.2 million of
indebtedness under subsidiary lines of credit.
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 32.1 8.9 12.6 16.8
Other (income) expense.. 0.6 (0.8) 0.8 1.3 2.7 3.2 0.6 4.9 4.8
------ -------- -------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 16.7 3.6 21.5 34.5 50.9 49.4 21.3 17.9 14.6
Income taxes............ 6.5 3.0 10.7 14.8 20.5 19.8 8.9 6.6 5.3
------ -------- -------- -------- -------- -------- -------- -------- --------
Net income.............. $ 10.2 $ 0.6 $ 10.8 $ 19.7 $ 30.4 $ 29.6 $ 12.4 $ 11.3 $ 9.3
====== ======== ======== ======== ======== ======== ======== ======== ========
Net income per share.... $ 0.81 $ 0.03 $ 0.43 $ 0.67 $ 1.00 $ 0.97 $ 0.41 $ 0.37 $ 0.30
====== ======== ======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital......... $ 89.5 $ 213.0 $ 92.5 $ 294.6 $ 359.8 $ 346.0 $ 336.9 $ 262.1 $ 343.7
Total assets............ 215.8 431.7 508.6 667.3 936.3 1,024.7 715.9 1,042.3 1,045.7
Total debt.............. 55.6 160.6 164.6 179.1 259.4 327.9 231.0 285.0 288.5
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 2.32x 2.90x 2.14x 1.74x
Ratio of EBITDA to
interest expense....... 6.35 1.68 2.87 3.77 4.44 2.98 3.95 3.03 2.32
Ratio of total debt to
EBITDA................. 2.53 6.95 3.59 3.02 3.28 3.43 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, (iii) the repayment of
approximately $80.6 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 $ 7,848 32,089
Other expense........... 2,722 950 (510) 3,162
---------- -------- ------- ----------
Income before income
taxes.................. 50,852 (10,701) (7,338) 49,400
Provision for income
taxes.................. 20,413 2,354 (2,935) 19,832
---------- -------- ------- ----------
Net income.............. $ 30,439 $(13,055) $(4,403) $ 29,568
========== ======== ======= ==========
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 $ 3,728 16,823
Other expense........... 4,913 79 (255) 4,737
---------- ----- ------- ----------
Income before income
taxes.................. 17,942 (891) (3,473) 14,634
Provision for income
taxes.................. 6,628 66 (1,389) 5,305
---------- ----- ------- ----------
Net income.............. $ 11,314 $(957) $(2,084) $ 9,329
========== ===== ======= ==========
Net income per share.... $ 0.37 $ 0.30
========== ==========
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
illustrate 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 $150 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, to repay bank indebtedness outstanding under the
Revolving Credit Facility and to repay borrowings outstanding under subsidiaries
lines of credit. See "The Company--ComputerLand Acquisition," "Capitalization,"
"Selected Consolidated Financial Data" and "Management's Discussion 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 $150 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
($150 million at an expected rate of 11.5%)............. $17,250
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
($61.1 million at an estimated weighted average rate
of 4.67%)............................................... (2,853)
Interest expense reduction for the repayment of a portion
of the average debt outstanding under the subsidiaries'
lines of credit ($19.5 million at an estimated weighted
average rate of 6.5%)................................... (1,268)
-------
Total.................................................... $ 7,848
=======
Note: A fluctuation of 0.125% in the interest rate on the
Notes would result in a $188,000 change in interest
expense.
b) Other expense
Amortization of fees and expenses incurred on the
issuance of the Notes ($4.4 million/10 years)........... $ 440
Reduction in amortization of fees associated with the
Acquisition Loan ($950,000)............................. (950)
-------
Total................................................ $ (510)
=======
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
($150 million at an expected rate of 11.5%) X 6 months.. $ 8,625
Interest expense reduction for the repayment of the
Acquisition Loan ($65 million at an estimated average
rate of 8.125%) X 6 months.............................. (2,640)
Interest expense reduction for the repayment of a portion
of the debt outstanding under the Revolving Credit
Facility ($80.6 million at an estimated weighted average
rate of 5.60%) X 6 months............................... (2,257)
-------
Total................................................ $ 3,728
=======
Note: A fluctuation of 0.125% in the interest rate on the
Notes would result in a $94,000 change in interest
expense.
b) Other expense
Amortization of fees and expenses incurred on the
issuance of the Notes
($4.4 million/10 years) X 6 months...................... $ 220
Reduction in amortization of fees associated with the
Acquisition Loan ($950,000) X 6 months.................. (475)
-------
Total................................................ $ (255)
=======
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.
17
<PAGE>
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.
18
<PAGE>
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.
19
<PAGE>
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.
20
<PAGE>
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
21
<PAGE>
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
22
<PAGE>
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
23
<PAGE>
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.
24
<PAGE>
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,
25
<PAGE>
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
26
<PAGE>
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
27
<PAGE>
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.
28
<PAGE>
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.
29
<PAGE>
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
30
<PAGE>
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,
31
<PAGE>
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
32
<PAGE>
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.
33
<PAGE>
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.
34
<PAGE>
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
---- ---- --------
<S> <C> <C>
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 5.85% at
August 31, 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
43
<PAGE>
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.
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
44
<PAGE>
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 under certain agreements; (iii) certain uncured judgments; (iv) the
occurrence of certain material events regarding pension liabilities; and (v)
certain events of bankruptcy. Upon an occurrence of a default or an event of
default under the Senior Notes, Merisel Americas will be prohibited from paying
dividends or certain other distributions, including intercompany debt, to the
Parent. 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. Upon an occurrence of a default or an event of
default under the Subordinated Notes, Merisel Americas will be prohibited from
paying dividends or certain other distributions, including intercompany debt,
to the Parent. 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 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.
45
<PAGE>
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
$150,000,000 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 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.
46
<PAGE>
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 35% of the
originally issued aggregate principal amount of Notes at a redemption price of
110% 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, on a pro rata basis, 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.
47
<PAGE>
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.
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 $606.8 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;
48
<PAGE>
(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, 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.
49
<PAGE>
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
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);
50
<PAGE>
(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;
(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
51
<PAGE>
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 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
52
<PAGE>
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 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.
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.
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 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
53
<PAGE>
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 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.
54
<PAGE>
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.
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 of any of the holders unless
such holders shall have offered the Trustee reasonable indemnity. 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
55
<PAGE>
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 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
56
<PAGE>
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).
"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
57
<PAGE>
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 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
58
<PAGE>
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 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),
59
<PAGE>
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 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
60
<PAGE>
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
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.
61
<PAGE>
"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.
"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.
62
<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................................................ $150,000,000
============
</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.
63
<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.
64
<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............................................................... 63
Legal Matters.............................................................. 64
Experts.................................................................... 64
Available Information...................................................... 64
Index to Consolidated Financial Statements................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$150,000,000
[LOGO OF MERISEL]
% Senior Notes Due 2004
---------------------
PROSPECTUS
---------------------
CITICORP SECURITIES, INC.
, 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.......... 5,075
Trustee fees and expenses........... 10,000
Miscellaneous....................... 45,702
--------
Total........................... $463,000
========
</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>
<CAPTION>
<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 AMENDMENT NO. 2 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 10,
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 AMENDMENT
NO. 2 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 10, 1994
____________________________________ Directors, President and
Michael D. Pickett Chief Executive Officer
(Principal Executive
Officer)
* Co-Chairman of the Board of October 10, 1994
____________________________________ Directors, and Senior Vice
Robert S. Leff President-Business
Development
* Vice Chairman of the Board October 10, 1994
____________________________________ of Directors
David S. Wagman
/s/ James L. Brill Senior Vice President- October 10, 1994
____________________________________ Finance, Chief Financial
James L. Brill Officer, Secretary and
Director (Principal
Financial Officer)
* Corporate Controller October 10, 1994
____________________________________ (Principal Accounting
Gary A. Schultz Officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director October 10, 1994
____________________________________
Joseph Abrams
Director
____________________________________
David L. House
* Director October 10, 1994
____________________________________
Dr. Arnold Miller
* Director October 10, 1994
____________________________________
Lawrence J. Schoenberg
* Director October 10, 1994
____________________________________
Dwight A. Steffensen
</TABLE>
*By /s/ James L. Brill
____________________________
James L. Brill
Attorney-in-Fact
II-5
<PAGE>
Exhibit 1.1
MERISEL, INC.
$150,000,000 aggregate principal amount of
% Senior Notes Due 2004
UNDERWRITING AGREEMENT
----------------------
, 1994
Citicorp Securities, Inc.
Citibank Canada Securities
Limited
Citibank International plc
c/o Citicorp Securities, Inc.
6th Floor/Zone 9
399 Park Avenue
New York, NY 10043
Ladies and Gentlemen:
Merisel, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to the underwriters named on Schedule I hereto (the
"Underwriters") $150,000,000 aggregate principal amount of its % Senior Notes
Due 2004 (the "Securities"). The Securities are to be issued pursuant to an
indenture to be dated as of October 15, 1994 (the "Indenture") by and among the
Company and NationsBank of Texas, N.A., as trustee (the "Trustee").
1. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to, and agrees with, each of the several Underwriters
that:
(a) The Company meets the requirements for use of Form S-3 under
the Securities Act of 1933, as amended, and the rules and regulations of
the Securities and Exchange Commission (the "Commission") promulgated
thereunder (collectively, the "Act"). A registration statement on such
Form (File No. 33-55195) with respect to the Securities, including a
prospectus subject to completion, has been filed by the Company with the
Commission under the Act, and one or more amendments to such
registration statement may have been so filed. After the execution of
this Agreement, the Company will file with the Commission
<PAGE>
-2-
either (i) if such registration statement, as it may have been amended,
has been declared by the Commission to be effective under the Act, a
prospectus in the form most recently included in an amendment to such
registration statement, with such changes or insertions as are required
by Rule 430A under the Act, as permitted by Rule 424(b) under the Act
and as have been provided to and approved by the Underwriters prior to
the execution of this Agreement or (ii) if such registration statement,
as it has been amended, has not been declared by the Commission to be
effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Underwriters prior to the execution of
this Agreement. As used in this Agreement, the term "Registration
Statement" means such registration statement, as amended at the time
when it was or is declared effective, including (A) all financial
statements and schedules and exhibits thereto and (B) any information
omitted therefrom pursuant to Rule 430A under the Act and included in
the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the
prospectus subject to completion, if any, included in the Registration
Statement or any amendment thereto at the time it was or is declared
effective); and the term "Prospectus" means the prospectus first filed
with the Commission pursuant to Rule 424(b) under the Act or, if no
prospectus is required to be filed pursuant to said Rule 424(b), such
term means the prospectus included in the Registration Statement. In
addition, any reference herein to the Registration Statement, a
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Item
12 of Form S-3, which have been filed under the Securities Exchange Act
of 1934, as amended, and the rules and regulations of the Commission
promulgated thereunder (collectively, the "Exchange Act") on or before
the effective date of the Registration Statement or the issue date of
any Preliminary Prospectus or Prospectus, as the case may be, and any
reference herein to the terms "amend," "amendment" or "supplement" with
respect to the Registration Statement, a Preliminary Prospectus or
Prospectus shall be deemed to refer to and include the filing after the
effective date of the Registration Statement, or the issue date of any
Preliminary Prospectus or Prospectus, as the case may be, of any
document with the
<PAGE>
-3-
Commission deemed to be incorporated by reference therein (all such
incorporated documents being herein called the "Incorporated
Documents").
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When the Registration
Statement or any amendment thereto was or is declared effective, it (i)
complied or will comply in all material respects with the requirements
of, the Act and the Trust Indenture Act of 1939, as amended, and the
rules and regulations of the Commission promulgated thereunder
(collectively, the "Trust Indenture Act") and (ii) did not or will not
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading.
On the date when the Prospectus or any amendment or supplement thereto
is filed with the Commission pursuant to Rule 424(b) (or, if the
Prospectus or such amendment or supplement is not required to be so
filed, on the date when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus was or
is declared effective), on the date when the Prospectus is otherwise
amended or supplemented and on the Closing Date (as hereinafter
defined), the Prospectus, as amended or supplemented at any such time,
(i) complied or will comply in all material respects with the
requirements of, the Act and the Trust Indenture Act and (ii) did not or
will not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. The foregoing provisions of this paragraph (b) do not
apply to (i) statements or omissions made in the Registration Statement
or any amendment thereto or the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter specifically for
use therein or (ii) the Statement of Eligibility and Qualification on
Form T-1 of the Trustee (the "Form T-1") filed as an exhibit to the
Registration Statement.
(c) (i) The pro forma financial information included and
incorporated by reference in the Registration Statement and the
Prospectus (A) presents fairly, in all material respects, the
information shown therein as of the dates indicated therein or for the
periods specified therein in accordance with the applicable requirements
of
<PAGE>
-4-
Rule 11-02 of Regulation S-X promulgated under the Exchange Act, and
(B) have been accurately compiled on the bases described therein and
(ii) the assumptions used in the preparation of the pro forma financial
information included in the Registration Statement and the Prospectus
are believed by the Company to be reasonable and the adjustments used
therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(d) The Company is not, and immediately after giving effect to the
issuance of the Securities and the execution, delivery and performance
of this Agreement, the Indenture and the consummation of the
transactions contemplated hereby and thereby will not be, (i) insolvent,
(ii) left with unreasonably small capital with which to engage in its
anticipated businesses or (iii) incurring debts beyond its ability to
pay such debts as they mature.
(e) No person has the right to include securities held or
beneficially owned by such party in the Registration Statement and there
is no person possessing the right to demand that the Company register
securities owned by such person, except as disclosed in the Registration
Statement and the Prospectus.
(f) The Company's consolidated financial statements included in the
Registration Statement and the Prospectus present fairly the financial
position of the Company and its consolidated subsidiaries as of the
dates indicated and the results of operations and cash flows of the
Company and its consolidated subsidiaries for the periods specified.
Such financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
except as otherwise disclosed therein or in the notes thereto. The
selected financial data included in the Registration Statement and the
Prospectus present fairly in all material respects the information shown
therein and have been compiled from data contained in the audited or, in
the case of the interim periods presented, the unaudited financial
statements of the Company and its consolidated subsidiaries.
(g) The statements of revenues and operating expenses of the United
States Franchise and Distribution Division of ComputerLand Corporation
(the "Division") incorporated by reference in the Registration Statement
and the Prospectus present fairly in all material respects
<PAGE>
-5-
the revenues and operating expenses of the Division for the periods
specified. Such financial statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent
basis except as otherwise disclosed therein or in the notes thereto.
(h) No consent, authorization, approval, license or order of, or
filing, registration or qualification with, any court or governmental
body or agency, domestic or foreign, is required for the performance by
the Company of its obligations under this Agreement, the Indenture or
the Securities, or for the consummation of the transactions contemplated
hereby or thereby except (i) such as may be required (A) in connection
with the registration under the Act of the Securities (including any
filing with the National Association of Securities Dealers, Inc.), (B)
for the qualification of the Indenture under the Trust Indenture Act or
(C) by state securities or "Blue Sky" laws in connection with the offer
and sale of the Securities.
(i) Other than the proceedings disclosed in the Registration
Statement and Prospectus, there are no proceedings pending or, to the
knowledge of the Company, threatened, against or affecting the Company
or any subsidiary of the Company in any court or before any governmental
authority or arbitration board or tribunal which, if determined
adversely could have a material adverse effect on the business,
properties, results of operations, financial condition or prospects of
the Company and its subsidiaries taken as a whole (a "Material Adverse
Effect").
(j) The Company and each subsidiary of the Company (i) owns or
possesses all the patents, trademarks, trade names, service marks,
copyrights, licenses, and rights with respect to the foregoing necessary
for the present conduct of its business without any known conflict with
the rights of others, and (ii) owns or possesses or has applied for all
the patents, trademarks, trade names, service marks, copyrights,
licenses, and rights with respect to the foregoing necessary for the
planned conduct of its business, without any known conflict with the
rights of others, except where the failure to own or possess any
patents, trademarks, trade names, service marks, copyrights, licenses,
or rights would not, individually or in the aggregate, have a Material
Adverse Effect.
<PAGE>
-6-
(k) All federal or state tax returns required to be filed by the
Company or any subsidiary of the Company have been filed, and all
federal or state taxes, assessments, fees and other governmental charges
upon the Company or any subsidiary of the Company or upon any of their
respective assets, income, or franchises, which are shown to be due and
payable in such returns have been paid other than those being contested
in good faith for which a reserve or other appropriate provision, as
shall be required by generally accepted accounting principles, has been
made. The Company does not know of any proposed additional tax
assessment against it for which adequate provision has not been made on
its books. The provisions for taxes on the books of the Company and each
subsidiary of the Company are adequate for all open years, and for its
current fiscal period.
(l) Neither the Company nor any subsidiary of the Company is a
party to or bound by (nor are any of their assets affected by) any
contract or agreement, or subject to any order, writ, injunction, or
decree or other action of any court or any governmental department,
commission, bureau, board, or other administrative agency or official,
or any charter or other corporate or contractual restriction, which
materially and adversely affects, or in the future may (so far as the
Company can reasonably foresee) materially and adversely affect, the
assets, business, profits, or condition (financial or otherwise) of the
Company and its subsidiaries taken as a whole.
(m) (i) Neither the Company nor any subsidiary of the Company is a
"public utility company" or a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," as such
terms are defined in the Public Utility Holding Company Act of 1935, as
amended, or a "public utility" within the meaning of the Federal Power
Act, as amended.
(ii) Neither the Company nor any subsidiary of the Company is an
"investment company" or an "affiliated person" of an "investment
company" or a company "controlled" by an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended.
Neither the Company nor any subsidiary of the Company is an "investment
advisor" or an "affiliated person" of an
<PAGE>
-7-
"investment advisor" as such terms are defined in the Investment
Advisors Act of 1940, as amended.
(n) Neither the Company nor any subsidiary of the Company (a) is in
violation of any law, ordinance, franchise, or governmental rule or
regulation to which it is subject, which violation could reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect, or impair the ability of the Company to perform its obligations
contained in this Agreement or the Securities; (b) is in default with
respect to any order of any court or governmental authority or
arbitration board or tribunal; or (c) has failed to obtain any license,
permit, franchise, or other governmental authorization necessary to the
ownership of its assets or to the conduct of its business, which failure
could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect.
(o) The Company and its subsidiaries are not in violation of (i)
any Environmental Laws, the violation of which could reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect or, (ii) any order, notice, or demand issued pursuant to any
Environmental Laws, in each case applicable to the assets of the Company
or any of its subsidiaries.
"Environmental Laws" shall mean all federal, state or local laws,
statutes, rules, regulations, or ordinances relating to public health,
safety, or the environment including those relating (a) to releases,
discharges, emissions, or disposals into air, water, land, or
groundwater, (b) to the withdrawal or use of groundwater, (c) to the
use, handling, or disposal of polychlorinated biphenyls or asbestos, (d)
to the disposal, treatment, storage, or management of hazardous or solid
waste, or Hazardous Substances or crude oil, fractious petroleum
derivatives, or by-products thereof, (e) to exposure to toxic or
hazardous materials, (f) to the handling, transportation, discharge, or
release of gaseous or liquid Hazardous Substances.
"Hazardous Substance" shall mean any hazardous or toxic material,
substance, or waste pollutant or contaminant which is regulated as such
under any statute, law, ordinance, rule, or regulation of any federal,
state, local, or regional authority having jurisdiction over
<PAGE>
-8-
assets of the Company or any of its subsidiaries or its use, including
any material, substance, or waste which is: (a) defined as a hazardous
substance under Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317), as amended; (b) regulated as a hazardous waste
under Section 1004 of the Federal Resource Conservation and Recovery Act
(42 U.S.C. Section 6901 et seq.), as amended; (c) defined as a hazardous
-- ---
substance under Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), as
-- ---
amended; or (d) defined or regulated as a hazardous substance or
hazardous waste under any rules or regulations promulgated under any of
the foregoing statutes.
(p) No event of default or any event that with notice or the
passage of time could become an event of default has occurred and is
continuing under any agreement to which the Company or any subsidiary of
the Company is subject or is a party or by which any of their respective
assets are bound where such default could have, individually or in the
aggregate, a Material Adverse Effect.
(q) Each of the Company and its subsidiaries has insurance, with
financially sound and reputable insurers, against such casualties and
contingencies of such types and in such amounts as is customary in the
case of corporations engaged in the same or a similar business or having
similar properties similarly situated.
(r) The Company and each of its subsidiaries is in good standing
under the laws of all jurisdictions where the ownership or leasing of
its properties or the conduct of it business requires such
qualification, except where the failure to be so qualified would not
individually or in the aggregate have a Material Adverse Effect.
(s) All of the shares of capital stock of each of the Company's
subsidiaries described in the Registration Statement and Prospectus as
owned by the Company are owned by the Company beneficially, free and
clear of any security interests, liens or encumbrances, except as set
forth in the Registration Statement and Prospectus.
(t) The Company has no consolidated subsidiaries except as listed
on Exhibit 22 to the Company's Annual
<PAGE>
-9-
Report on Form 10-K for the year ended December 31, 1993 (the "Form 10-
K") and other than Merisel Properties, Inc.
(u) The Incorporated Documents, when they were or are filed with
the Commission, as the case may be, complied or will comply as the case
may be, in all material respects with the applicable requirements of the
Exchange Act.
2. Purchase and Sale. Subject to the terms and conditions and in
-----------------
reliance upon the representations and warranties of the Company herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of % of the principal amount thereof, the principal amount of the
Securities set forth opposite the name of such Underwriter on Schedule I.
3. Delivery and Payment. Delivery of and payment for the
--------------------
Securities shall be made at 7:00 A.M., Los Angeles time, on , 1994, or
such later date and time, if any, as the Underwriters and the Company shall
mutually agree (such date and time of delivery and payment for the Securities
being herein called the "Closing Date"). Delivery of the Securities shall be
made to the Underwriters against payment by the Underwriters of the purchase
price thereof to or upon the order of the Company by certified or official bank
check or checks drawn on or by a New York Clearing House bank and payable in
next day funds; provided, however, that at the request of the Company payment
-------- -------
will be made by wire transfer in immediately available funds wired in accordance
with the written instructions of the Company, in which case the Company shall
reimburse the Underwriters for their cost of obtaining such funds. Delivery of
the Securities in definitive form shall be made at such location as the
Underwriters shall reasonably designate at least two business days in advance of
the Closing Date and payment for the Securities shall be made at the office of
Riordan & McKinzie, 300 South Grand Avenue, 29th Floor, Los Angeles,
California. Certificates for the Securities shall be registered in such names
and in such denominations as the Underwriters may request not less than two full
business days in advance of the Closing Date.
The Company agrees to have the Securities available for inspection,
checking and packaging by the Underwriters in New York, New York, not later than
1:00 P.M. New York time on the business day prior to the Closing Date.
<PAGE>
-10-
4. Offering by Underwriters. It is understood that the
------------------------
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
Each Underwriter represents and agrees that (i) it has not offered or
sold and will not offer or sell in the United Kingdom, by means of any document,
any Securities other than to persons whose ordinary business it 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 Companies Act 1985 as amended), (ii) it 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 Securities in, from or otherwise
involving the United Kingdom and (iii) it 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 Securities 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.
5. Covenants of the Company. The Company covenants and agrees
------------------------
with each of the Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement,
and any amendments thereto to become effective as promptly as possible.
If required, the Company will file the Prospectus (properly completed in
accordance with Rule 430A, if applicable) and any amendment or
supplement thereto with the Commission in the manner and within the time
period required by Rule 424(b) under the Act and will provide evidence
to the Underwriters of such timely filing. During any time when a
prospectus relating to the Securities is required to be delivered under
the Act, the Company (i) will comply with all requirements imposed upon
the Company by the Act, the Exchange Act and the Trust Indenture Act to
the extent necessary to permit the continuance of sales of or dealings
in the Securities in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with
the Commission the prospectus or the amendment referred to in the third
sentence of Section 1(a) hereof, any amendment or supplement to such
prospectus or any amendment to the Registration
<PAGE>
-11-
Statement (including any document required to be filed under the
Exchange Act that upon filing is deemed to be incorporated by reference
therein) of which the Underwriters shall not previously have been
advised and furnished with a copy for a reasonable period of time prior
to the proposed filing and as to which filing the Underwriters shall not
have given their consent, which consent shall not be ureasonably
withheld. At any time when a prospectus relating to the Securities is
required to be delivered under the Act, the Company will prepare and
file with the Commission, in accordance with the rules and regulations
of the Commission, promptly upon request by the Underwriters or counsel
for the Underwriters, any amendments to the Registration Statement or
amendments or supplements to the Prospectus that may be necessary or
advisable in the reasonable judgment of the Underwriters to comply with
law, in connection with the distribution of the Securities by the
Underwriters, and will use its best efforts to cause any such amendment
to the Registration Statement to be declared effective by the Commission
as promptly as possible.
(b) The Company will advise the Underwriters promptly after
receiving notice, or obtaining knowledge thereof (and if requested by
the Underwriters, will confirm such advice in writing), of (i) when the
Registration Statement, if not effective at the time of the execution of
this Agreement, and any amendment (including any post-effective
amendments) thereto, shall have become effective (and when available
will provide evidence to the Underwriters of effectiveness), (ii) when
the Prospectus, and any supplement thereto, shall have been filed with
the Commission pursuant to Rule 424(b) (and will provide evidence to the
Underwriters of each such filing), (iii) the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereto or any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto or the institution,
threatening or contemplation of any proceedings for any such purpose,
(iv) the suspension of the qualification or exemption from qualification
of the Securities for offering or sale in any jurisdiction or the
institution, threatening or contemplation of any proceedings for any
such purpose, or (v) any request made by the Commission for amending the
Registration Statement, for amending or supplementing any Preliminary
Prospectus or
<PAGE>
-12-
the Prospectus or for additional information. The Company will use its
best efforts to prevent the issuance of any such stop order by the
Commission and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(c) The Company will cooperate with the Underwriters and their
counsel in arranging for the registration or qualification of the
Securities for offering and sale and the determination of their
eligibility for investment under the securities or Blue Sky laws of such
jurisdictions as the Underwriters may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Securities, provided, however, that in connection
-------- -------
therewith the Company shall not be required to qualify to do business as
a foreign corporation in any jurisdiction where it is not then so
qualified or required to be so qualified, to register as a broker-dealer
or to execute a general consent to service of process in any
jurisdiction.
(d) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus, as then amended or supplemented, would include any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if for any
other reason it is necessary at any time to amend or supplement the
Prospectus to comply with the Act or the Trust Indenture Act or any
other law, the Company, subject to clause (ii) of Section 5(a) hereof,
will prepare and file with the Commission, at the Company's expense, an
amendment to the Registration Statement or an amendment or supplement to
the Prospectus that corrects such statement or omission or effects such
compliance.
(e) The Company will provide to each Underwriter and to counsel for
the Underwriters, without charge, a signed copy of the registration
statement originally filed with respect to the Securities and each
amendment thereto, including any post-effective amendment thereto in
each case including financial statements, schedules and exhibits thereto
and all documents incorporated by reference therein.
<PAGE>
-13-
(f) So long as a prospectus relating to the Securities is required
to be delivered under the Act, the Company will provide to each
Underwriter as many copies of each Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto as such Underwriter
may reasonably request. The Company consents to the use of the
Preliminary Prospectus and the Prospectus and any amendment or
supplement thereto by the Underwriters and by all dealers to whom the
Securities may be sold, both in connection with the offering or sale of
the Securities contemplated herein and for such period of time
thereafter as delivery of a prospectus relating to the Securities is
required under the Act or by any state Blue Sky law.
(g) The Company, as soon as practicable, will make generally
available to its security holders and to each Underwriter a consolidated
earnings statement or statements of the Company and its subsidiaries
that satisfies the provisions of Section 11(a) of the Act and Rule 158
promulgated thereunder.
(h) The Company will furnish to each Underwriter copies of any
reports or other communications that the Company shall send to the
Trustee or the holders of the Securities pursuant to the Indenture.
(i) Prior to the Closing Date, the Company will furnish to each
Underwriter, as soon as they have been prepared by the Company, a copy
of any unaudited interim consolidated financial statements of the
Company and its subsidiaries for any period subsequent to the period
covered by the most recent financial statements of the Company and its
subsidiaries appearing in the Registration Statement and the Prospectus.
(j) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.
6. Expenses.
--------
(a) The Company will pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 11 hereof, including, but not limited to, all costs and
expenses incident to (i) the printing with respect to such
<PAGE>
-14-
transactions, including any costs of printing the registration statement
originally filed with respect to the Securities and any amendment thereto, any
Preliminary Prospectus and the Prospectus and any amendment or supplement
thereto, the Indenture, the Form T-1, this Agreement, any dealer agreement and
such other agreements related to the distribution of the Securities and any Blue
Sky or legal investment memoranda, (ii) all arrangements relating to the
delivery to the Underwriters and to dealers to whom the Securities may be sold
of copies of the foregoing documents, (iii) the fees and disbursements of the
counsel, accountants and any other experts or advisors retained by the Company,
(iv) the preparation, issuance and delivery to the Underwriters of any
certificates evidencing the Securities, (v) the qualification of the Securities
and determination of their eligibility for investment under state securities and
Blue Sky laws, including filing fees and the reasonable fees and disbursements
of counsel for the Underwriters, relating thereto, (vi) the fees and
disbursements of the Trustee, (vii) the filing fees of the Commission and the
National Association of Securities Dealers, Inc. (the "NASD") relating to the
Securities (including the reasonable fees and disbursements of counsel for the
Underwriters in respect thereof and in connection with obtaining an opinion of
the NASD concerning the fairness of the terms and arrangements of the
underwriting of the Securities), (viii) any fees charged by investment rating
agencies for the rating of the Securities and (ix) any meetings with prospective
investors in the Securities to the extent that such costs and expenses incident
to any meetings with prospective investors in the Securities are reasonable.
(b) If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth in Section 7 hereof is not satisfied, because this Agreement is terminated
pursuant to Section 11 hereof or because of any failure, refusal or inability
on the part of the Company to perform all obligations and satisfy all conditions
on its part to be performed or satisfied hereunder other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
promptly upon demand for all reasonable out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the proposed purchase and sale of the Securities. The
Company shall not in any event be liable to any Underwriter for the loss of
anticipated profits from the transactions covered by this Agreement.
<PAGE>
-15-
7. Conditions of the Underwriters' Obligations. The obligations
-------------------------------------------
of the several Underwriters to purchase and pay for the Securities shall be
subject, in the Underwriters' sole discretion, to the accuracy of the
representations and warranties of the Company contained herein as of the date
hereof and as of the Closing Date as if made on and as of the Closing Date, to
the accuracy of the statements of the officers of the Company made in
certificates delivered pursuant to the provisions hereof, to the performance by
the Company of its covenants and agreements hereunder and to the following
additional conditions:
(a) If the Registration Statement or any amendment thereto filed
prior to the Closing Date has not been declared effective as of the time
of execution hereof, the Registration Statement or such amendment shall
have been declared effective not later than 10:00 A.M., New York City
time, on the date on which the amendment to the registration statement
originally filed with respect to the Securities or to the Registration
Statement, as the case may be, containing information regarding the
initial public offering price of the Securities has been filed with the
Commission, or such later time and date as shall have been consented to
by the Underwriters; if required, the Prospectus and any amendment or
supplement thereto shall have been filed with the Commission in the
manner and within the time period required by Rule 424(b) under the Act;
no stop order suspending the effectiveness of the Registration Statement
or any post-effective amendment thereto shall have been issued, and no
proceedings for that purpose shall have been instituted or threatened
or, to the knowledge of the Company or the Underwriters, shall be
contemplated by the Commission; and the Company shall have complied with
any request of the Commission for additional information (to be included
in the Registration Statement or the Prospectus or otherwise).
(b) The Underwriters shall have received an opinion, dated the
Closing Date, of Riordan & McKinzie, counsel for the Company, to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware and is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of those
jurisdictions identified by an officer of the Company
<PAGE>
-16-
in an officer's certificate attached to such opinion as the
jurisdictions where the ownership or leasing of the Company's
properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would
not, individually or in the aggregate, have a Material Adverse
Effect; the Company has all requisite corporate power to own or
lease its properties and conduct its businesses as described in the
Registration Statement and the Prospectus.
(ii) Each of the Company's Material Subsidiaries has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation and is
duly qualified to transact business as a foreign corporation and is
in good standing under the laws of those jurisdictions identified
by an officer of the Company in an officer's certificate attached
to such opinion as the jurisdictions where the ownership or leasing
of its properties or the conduct of its businesses requires such
qualification, except where the failure to be so qualified would
not, individually or in the aggregate, have a Material Adverse
Effect; each of the Company's Material Subsidiaries has all
requisite corporate power to own or lease its respective properties
and conduct its respective businesses as described in the
Registration Statement and the Prospectus.
(iii) The Company has all requisite corporate power to
enter into this Agreement and the Indenture and to perform its
obligations hereunder and thereunder and to execute, issue and
deliver the Securities and to perform its obligations thereunder.
(iv) (A) The authorized capital stock of the Company is as
set forth in the Registration Statement and Prospectus; and (B) all
of the outstanding shares of capital stock of each of the Company
and each of the Company's Material Subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable
and, except as set forth in the Registration Statement and the
Prospectus, all of the outstanding shares of capital stock of each
of the Company's Material Subsidiaries (other than any such shares
representing any director's qualifying shares
<PAGE>
-17-
or investments by foreign nationals mandated by applicable law) are
owned of record by the Company, free and clear of any perfected
security interests.
(v) Except as set forth in the Registration Statement and
the Prospectus, to the best of such counsel's knowledge, no holders
of securities of the Company are entitled to have such securities
registered under the Registration Statement.
(vi) The execution and delivery of the Indenture has been
duly authorized by all necessary corporate action of the Company,
and the Indenture has been duly executed and delivered by the
Company. The Indenture has been duly qualified under the Trust
Indenture Act and, assuming due authorization, execution and
delivery by the Trustee, is a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with
its terms.
(vii) The execution and delivery of this Agreement has been
duly authorized by all necessary corporate action of the Company,
and this Agreement has been duly executed and delivered by the
Company.
(viii) The execution and delivery of the Securities has
been duly authorized by all necessary corporate action of the
Company, and the Securities have been duly executed and delivered
by the Company and, assuming due authentication by the Trustee and
due payment for the Securities in accordance with the terms of this
Agreement, are the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their
terms.
(ix) The Securities conform in all material respects to the
description thereof set forth under the heading "Description of
Notes" in the Prospectus.
(x) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this
Agreement, the Indenture and the Securities and the consummation of
the other transactions herein and therein contemplated do not (A)
require the consent, approval, authorization, registration or
qualification of or
<PAGE>
-18-
with any Federal or California governmental authority or under or
pursuant to the General Corporation Law of the State of Delaware,
except such as have been obtained and such as may be required under
state securities or Blue Sky laws as to which such counsel need
express no opinion, (B) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a
default (or an event that with passage of time, notice or both
would constitute a default), or result in the creation or
imposition of any lien, charge or encumbrance on the property or
assets of the Company or any of its subsidiaries under any
indenture, mortgage, deed of trust, material lease or other
agreement or instrument (including, without limitation, any
collective bargaining agreement or labor agreement) listed as an
Exhibit to the Form 10-K (provided however that such counsel need
not express any opinion as to any violation or breach of or default
based upon the violation or breach of, any covenant, restriction or
provision with respect to financial ratios or tests of any aspect
of the financial condition or results of operations of the Company
or its subsidiaries), or any Federal or California statute, rule or
regulation (other than state securities or Blue Sky laws as to
which such counsel need express no opinion), the General
Corporation Law of the State of Delaware or, to such counsel's
knowledge, any judgment, decree or order of any court or other
governmental authority or any arbitrator applicable to the Company
or any of its subsidiaries other than any such conflict, breach,
violation, lien, charge or encumbrance which, individually or in
the aggregate, would not have a Material Adverse Effect or (C)
result in the violation of any of the terms and provisions of the
charter documents or by-laws of either the Company or any of its
Material Subsidiaries.
(xi) The Company is not an "investment company" or a company
"controlled by" an "investment company" as such terms are defined
in the Investment Company Act of 1940, as amended.
(xii) To the best of such counsel's knowledge, the
statements set forth under the headings Business-Legal Proceedings
in the Prospectus, insofar as such statements constitute a summary
of legal matters,
<PAGE>
-19-
documents or proceedings referred to therein, provide a fair and
accurate summary in all material respects of such legal matters,
documents and proceedings.
(xiii) To such counsel's knowledge, no legal or
governmental proceedings are pending to which the Company or any of
its subsidiaries is a party or to which the property of the Company
or any of its subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are
not described therein as required, and to such counsel's knowldege
no such proceedings have been threatened against the Company or any
of its subsidiaries or with respect to any of their properties; and
to such counsel's knowledge no contract, agreement or other
document is required to be described in the Registration Statement
or the Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein or filed as required.
(xiv) The Registration Statement has been declared
effective under the Act and to such counsel's knowledge no stop
order suspending the effectiveness of the Registration Statement or
any post-effective amendment thereto has been issued, and to such
counsel's knowledge no proceeding for that purpose has been
instituted or threatened by the Commission; any required filing of
the Prospectus and any supplements thereto, pursuant to Rule 424(b)
has been made in a manner and within the time period required by
Rule 424(b).
(xv) (A) The Registration Statement, as of its effective
date and as of the Closing Date, and the Prospectus, as of its date
and as of the Closing Date, complied or complies as to form in all
material respects with the applicable requirements of the Act and
the Indenture complies as to form in all material respects with the
Trust Indenture Act (except that no opinion need be expressed with
respect to the Form T-1 and the financial statements and schedules
and the other financial, statistical and accounting data contained
or incorporated by reference therein), (B) the Incorporated
Documents (other than the financial statements and schedules and
the other financial, statistical and accounting data contained
<PAGE>
-20-
therein), when filed with the Commission, complied as to form in
all material respects with the applicable requirements of the
Exchange Act.
(xvi) To such counsel's knowledge, neither the consummation
of the transactions contemplated hereby nor the sale, issuance,
execution or delivery of the Securities will violate Regulation G
(12 C.F.R. Part 207), T (12 C.F.R. Part 220), U (12 C.F.R. Part
221) or X (12 C.F.R. Part 224) of the Board of Governors of the
Federal Reserve System.
(xvii) To the best of such counsel's knowledge, except as
set forth in the Prospectus, there are no outstanding rights,
warrants or options to acquire or instruments convertible into or
exchangeable for, any capital stock or other equity interests in
the Company.
Such counsel's opinions in Paragraphs (vi) and (viii) above may be
subject to limitations arising by or under (i) applicable bankruptcy,
fraudulent conveyance, insolvency, moratorium and other similar laws and
equitable principles affecting the scope and enforcement of creditors'
rights and the discretion of the court before which any proceeding therefor
may be brought; (ii) implied covenants of good faith, fair dealing and
commercially reasonable conduct; (iii) general principles of equity,
including without limitation concepts of materiality, reasonableness, good
faith and fair dealing and the possible unavailability of specific
performance or injunctive relief (regardless of whether such enforceability
is considered in a proceeding in equity or at law); (iv) statutes to the
effect, and holdings of certain decisions of the courts of the State of
California (and federal courts located in the State of California)
involving statutes, public policy or principles of equity, that (1) certain
covenants and provisions of lending agreements, including those allowing
for acceleration of indebtedness due under debt instruments upon the
occurrence of certain events, are unenforceable where such covenants or
provisions are found to impose restrictions or obligations on the borrower
and it cannot be demonstrated that the enforcement of such restrictions or
obligations upon the occurrence of such events is reasonaly necessary for
the protection of the lender, or under the circumstances, violate the
implied covenant of good faith and
<PAGE>
-21-
fair dealing, provided that it is our opinion that in the event of a
material breach of a term of the Indenture, the holders of the Securities
will be able to realize the practical benefits afforded by the Indenture,
(2) provisions contemplating the payment of a higher rate of interest or
the imposition of fees or penalties in the event of a delinquency or
default are unenforceable when it cannot be shown that the same bear a
reasonable relationship to the damage suffered by a lender, (3) provisions
declaring that the failure to exercise or delay in exercising rights or
remedies will not operate as a waiver of any such right or remedy are,
under certain circumstances, invalid, (4) purported waivers of the benefits
of statutory provisions or common law rights are unenforceable, (5)
provisions in lending agreements specifying that the provisions thereof may
only be waived in writing may not be binding or enforceable to the extent
that a nonexecutory oral agreement has been created modifying any provision
of such documents or an implied agreement by trade practices or course of
conduct has been created allowing such waivers, and (6) the enforceability
of indemnity or contribution provisions is limited as a matter of public
policy; (v) the unenforceability under certain circumstances of contractual
provisions respecting self help or automatic or summary remedies without
notice or opportunity for hearing or correction to the extent permitted in
the Indenture and of contractual provisions disclaiming liability or
responsibility in connection with the exercise of remedies; and (vi)
Section 1670.5 of the California Civil Code which provides that a court may
refuse to enforce, or may limit the application of, a contract or any
clause thereof which the court finds as a matter of law to have been
unconscionable at the time it was made.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants of the
Company and representatives of the Underwriters and representatives of
counsel for the Underwriters at which the contents of the Registration
Statement and Prospectus were discussed and, although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and Prospectus and have made no independent check or verification
thereof other than as specified in
<PAGE>
-22-
such opinion, on the basis of the foregoing, no facts have come to the
attention of such counsel that lead them to believe that either the
Registration Statement, at the time the Registration Statement became
effective or as of the Closing Date, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements contained therein not
misleading or that the Prospectus, as of its date or as of the Closing
Date, contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading (it being understood that such
counsel's statement need not apply to the financial statements and notes
thereto, the financial statements and schedules and the other financial,
statistical and accounting data included or incorporated by reference in
the Registration Statement or Prospectus or the Statement of Eligibility
and Qualification on Form T-1 under the Trust Indenture Act filed as an
exhibit to the Registration Statement).
In rendering any such opinion, such counsel may rely as to matters of
fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and its subsidiaries and public
officials and, as to matters involving the application of laws of any
jurisdiction other than the State of California, the corporate laws of the
State of Delaware, and the federal laws of the United States, to the extent
such counsel deems proper and specifies in such opinion and to the extent
such opinion is satisfactory in form and scope to counsel for the
Underwriters, upon the opinion of other counsel qualified in such
jurisdictions who they believe are reliable and who are satisfactory to
counsel for the Underwriters. Copies of any such opinion shall be
delivered to the Underwriters and counsel for the Underwriters.
Notwithstanding the foregoing, to the extent the foregoing matters
involve the application of laws other than the Federal laws of the United
States, or the laws of any jurisdiction other than any State of the United
States or the District of Columbia this condition (b) may be satisfied by
delivery by the Company to the Underwriters of an opinion of counsel
qualified to opine on such other laws or in such other jurisdiction.
<PAGE>
-23-
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date
of such opinion. For purposes of this paragraph (b) Material Subsidiaries
shall mean Merisel FAB, Inc., Merisel Europe, Inc., Merisel Americas, Inc.,
Merisel Canada, Inc., Merisel, U.K., Merisel, GmbH and Merisel, Pty
Ltd.
(c) The Underwriters shall have received an opinion, dated the Closing
Date, of Cahill Gordon & Reindel, counsel for the Underwriters, with
respect to the issuance and sale of the Securities, the Registration
Statement, the Prospectus, the Indenture and such other related matters as
the Underwriters may reasonably require, and the Company shall have
furnished to such counsel such documents as they may reasonably request for
the purpose of enabling them to pass upon such matters.
(d) The Underwriters shall have received from Deloitte & Touche,
Certified Public Accountants for the Company and its consolidated
subsidiaries, a letter or letters dated, respectively, the date hereof and
the Closing Date, in form and substance satisfactory to the Underwriters,
to the effect that:
(i) they are independent accountants with respect to the
Company and its consolidated subsidiaries with the meaning of the
Act and the applicable rules and regulations thereunder;
(ii) in their opinion the audited consolidated financial
statements and schedules included in the Registration Statement and
the Prospectus comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published rules and regulations thereunder;
(iii) on the basis of a reading of the latest available
interim unaudited consolidated financial statements of the Company
and its consolidated subsidiaries made available by the Company,
carrying out certain specified procedures (which do not constitute
an examination made in accordance with generally accepted auditing
standards) that would not necessarily reveal matters of
significance with respect to the comments set forth in this
paragraph (iii), a reading of the minute books of the shareholders,
the
<PAGE>
-24-
board of directors and committees thereof of the Company and its
consolidated subsidiaries, and inquiries of certain officials of
the Company and its consolidated subsidiaries who have
responsibility for financial and accounting matters, nothing came
to their attention that caused them to believe that:
(A) the interim unaudited consolidated financial
statements of the Company and its consolidated subsidiaries
included in the Registration Statement and the Prospectus do
not comply as to form in all material respects with the
applicable accounting requirements of the Act and the
related published rules and regulations thereunder, or are
not in conformity with generally accepted accounting
principles applied on a basis substantially consistent with
that of the audited consolidated financial statements
included in the Registration Statement and the Prospectus;
or
(B) at a specific date not more than five business days
prior to the date of such letter, there were any changes in
the capital stock or increases in long-term debt of the
Company and its consolidated subsidiaries or any decreases
in net current assets or stockholders' equity of the Company
and its subsidiaries, in each case compared with amounts
shown on the June 30, 1994 consolidated financial statements
of the Company included in the Registration Statement, or
for the period from July 1, 1994 to such specified date
there were any decreases, as compared with the corresponding
period in the previous fiscal quarter, in net sales, gross
profit, operating income, or total or per share amounts of
net income of the Company and its consolidated subsidiaries,
except in all instances for such changes, decreases or
increases as are set forth in such letter;
(iv) nothing has come to their attention that has caused
them to believe that the pro forma unaudited consolidated
statements included in the Registration Statement and the
Prospectus (i) do not comply as to form in all material respects
with the applicable accounting requirements of rule 11-02 of
<PAGE>
-25-
Regulation S-X of the Act and that the pro forma adjustments have
not been properly applied to the historical amounts in the
compilation of such statements; and
(v) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages
and financial information that are included in the Registration
Statement and the Prospectus and in Exhibit 12 to the Registration
Statement, and have compared such amounts, percentages and
financial information with the accounting records of the Company
and its consolidated subsidiaries and with information derived from
such records and have found them to be in agreement, excluding any
questions of legal interpretation.
In the event that either letter referred to above sets forth any
such changes, decreases or increases, it shall be a further condition to
the obligations of the Underwriters that such letter or letters shall be
accompanied by a written explanation of the Company as to the
significance thereof, unless the Underwriters deem such explanation
unnecessary.
References to the Registration Statement and the Prospectus in this
paragraph (d) with respect to either letter referred to above shall
include any amendment or supplement thereto at the date of such letter.
For purposes of this paragraph (d) all financial statements and
schedules and other financial information included in any Incorporated
Document shall be deemed included in the Registration Statement.
(e) Subsequent to the date hereof or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of
any amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any changes, decreases or
increases specified in subsection (iii)(B) of paragraph (d) of this
Section 7 or (ii) any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
business or properties of the Company and its subsidiaries the effect of
which, in any case referred to in clause (i) or (ii) above, is, in the
sole judgment of the Underwriters, so material and adverse as to make it
impractical or
<PAGE>
-26-
inadvisable to proceed with the public offering or the delivery of the
Securities as contemplated by the Registration Statement (exclusive of
any amendment thereto) and the Prospectus (exclusive of any supplement
thereto).
(f) The Company shall have furnished to the Underwriters a
certificate, signed by the Chairman of the Board or the President and
the principal financial or accounting officer of the Company, dated the
Closing Date, to the effect that the signers of such certificates have
carefully examined the Registration Statement, the Prospectus, any
supplement to the Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in
this Agreement are true and correct in all material respects on and
as of the Closing Date with the same effect as if made on the
Closing Date and the Company has complied in all material respects
with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the Closing Date;
(ii) the Company is not, nor will it be, as the result of
the issuance of the Securities, the execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby and in the Registration Statement,
(x) insolvent, (y) left with capital or assets that are
unreasonably small in relation to its current and currently
anticipated businesses or (z) incurring debts beyond its ability to
pay such debts as they mature;
(iii) to the best of each such signer's knowledge, no stop
order suspending the effectiveness of the Registration Statement or
any post-effective amendment thereto has been issued and no
proceedings for that purpose have been instituted or, to the best
of each such signer's knowledge, threatened; and
(iv) since the date of the most recent financial statements
included in the Registration Statement and the Prospectus
(exclusive of any supplement thereto), there has been no material
adverse change in the condition (financial or other), earnings,
business, properties, or results of operations or prospectus of
<PAGE>
-27-
the Company and its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of business,
except as set forth in or contemplated by the Prospectus (exclusive
of any supplement thereto).
(g) After the execution and delivery of this Agreement, there shall
not have been any downgrading in the ratings of any of the debt
securities of the Company or any subsidiary of the Company by any
"nationally recognized rating agency" (as defined in Rule 436(g) under
the Act) or any notice given thereby of, or any other action thereby
threatening, any intended or potential downgrading in any such rating or
of a possible change in any such rating that does not indicate the
direction of the possible change or any action thereby placing the
Company or any subsidiary of the Company under special surveillance.
(h) On or before the Closing Date, the Underwriters and counsel for
the Underwriters shall have received such further certificates,
documents or other information as they may have reasonably requested
from the Company.
(i) The Underwriters shall have received from Ernst & Young,
Certified Public Accountants for the Division, a letter or letters dated
respectively, the date hereof and the Closing Date, in form and
substance satisfactory to the Underwriters, covering the matters set
forth in clause (d) of this Section 7, to the extent applicable, with
respect to the financial statements of the Division incorporated by
reference in the Prospectus and Registration Statement.
If any of the conditions specified in this Section 7 shall not have been
fulfilled when and as provided in this Agreement, or if any of the opinions and
certificates mentioned in this Section 7 shall not be satisfactory in form and
substance to the Underwriters and counsel for the Underwriters, this Agreement
and all obligations of the Underwriters hereunder may be cancelled at, or any
time prior to, the Closing Date by the Underwriters. Notice of such cancellation
shall be given to the Company in writing or by telephone, facsimile transmission
or telegraph and confirmed in writing. The Company shall furnish to the
Underwriters such conformed copies of such opinions, certificates, letters and
documents in such quantities as the Underwriters and counsel for the
Underwriters shall reasonably request.
<PAGE>
-28-
8. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of any Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter,
such director, officer, employee or agent, or such controlling person may become
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions, suits or proceedings in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
originally filed with respect to the Securities or any amendment thereto or any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
or the omission or alleged omission to state in such registration statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse,
as incurred, each Underwriter, each such director, officer, employee or agent
and each such controlling person for any legal or other out-of-pocket expenses
reasonably incurred by such indemnified party in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action in respect thereof; provided,
--------
however, that the Company will not be liable in any such case to the extent that
- -------
any such loss, claim, damage or liability arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter specifically for use therein; and provided, further, that the
-------- -------
Company will not be liable to any Underwriter or any person controlling such
Underwriter with respect to any such untrue statement or omission made in any
Preliminary Prospectus that is corrected in the Prospectus (or any amendment or
supplement thereto) if the person asserting any such loss, claim, damage or
liability purchased Securities from such Underwriter but was not sent or given a
copy of the Prospectus (as amended or supplemented), other than the documents
incorporated by reference therein, at or prior to the written confirmation of
the sale of such Securities to such person in any
<PAGE>
-29-
case where such delivery of the Prospectus (as amended or supplemented) is
required by the Act and the untrue statement or alleged untrue statement of a
material fact, or the omission or alleged omission to state a material fact,
that is found to be or is alleged to be the basis of liability in such
Preliminary Prospectus was corrected in the Prospectus as amended or
supplemented and if such Underwriter would not have been liable had a copy of
such Prospectus been so sent or given, unless such failure to deliver the
Prospectus (as amended or supplemented) was a result of noncompliance by the
Company with Section 5(f) of this Agreement. This indemnity agreement will be in
addition to any liability which the Company may otherwise have. The Company will
not, without the prior written consent of each Underwriter, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not such Underwriter, any director, officer, employee or
agent of such Underwriter or any person who controls such Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to
such claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of such Underwriter, each such
director, officer, employee and agent of such Underwriter and each such
controlling person from all liability arising from such claim, action, suit or
proceeding.
(b) Each Underwriter will indemnify and hold harmless the Company,
each director and officer of the Company who signed the Registration Statement
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act against any losses, claims,
damages or liabilities to which either the Company or any such director, officer
or controlling person may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions,
suits or proceedings in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement or any amendment thereto, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or the omission or the
alleged omission to state therein a material fact required to be stated in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or
<PAGE>
-30-
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter specifically for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other out-of-pocket expenses reasonably incurred by the Company or any such
director, officer, or controlling person in connection with investigating or
defending or appearing as a third-party witness in connection with any such
loss, claim, damage, liability or any action in respect thereof. This indemnity
agreement will be in addition to any liability which any such Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action or proceeding (including a
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 8,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party (i) will not relieve it from any liability
under paragraph (a) or (b) above unless and to the extent it did not otherwise
learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, that if the defendants in any such
-------- -------
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be one or more
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnifying party shall not have the right to direct the defense of such action
on behalf of such indemnified party or parties and such indemnified party or
parties shall have the right to select separate counsel to defend such action on
behalf of such indemnified party or parties. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof
and approval by such indemnified party of counsel appointed to defend such
action, the indemnifying party will not be liable to such indemnified
<PAGE>
-31-
party under this Section 8 for any legal or other expenses, other than
reasonable costs of investigation, subsequently incurred by such indemnified
party in connection with the defense thereof, unless (i) the indemnified party
shall have employed separate counsel in accordance with the proviso to the next
preceding sentence (it being understood, however, that in connection with such
action the indemnifying party shall not be liable for the expenses of more than
one separate counsel (in addition to local counsel) in any one action or
separate but substantially similar actions in the same jurisdiction arising out
of the same general allegations or circumstances, designated by the Underwriters
in the case of paragraph (a) of this Section 8, representing all the indemnified
parties under such paragraph (a) who are parties to such action or actions) or
(ii) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. After such notice
from the indemnifying party to such indemnified party, the indemnifying party
will not be liable for the costs and expenses of any settlement of such action
effected by such indemnified party without the consent of the indemnifying party
(which consent shall not, in light of such action and the defenses available to
the indemnified party, be unreasonably withheld), unless such indemnified party
waived its rights under this Section 8, in which case the indemnified party may
effect such a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other from the offering
of the Securities or (ii) if the allocation provided by the foregoing clause (i)
is not permitted by applicable law, not only such relative benefits but also the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative benefits received by
the Company on the one hand and the Underwriters on
<PAGE>
-32-
the other shall be deemed to be in the same proportion as the total proceeds
from the offering (net of underwriting discounts and commissions but before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault of
the parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Underwriters, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission,
and any other equitable considerations appropriate in the circumstances. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in this paragraph shall be deemed to
include, subject to the limitations set forth herein, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Each of the Company and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), no Underwriter shall
be obligated to make contributions hereunder that in the aggregate exceed the
total public offering price of the Securities purchased by such Underwriter
under this Agreement, less the aggregate amount of any damages that such
Underwriter has otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute are several and
not joint, and contributions among Underwriters shall be governed by the
Citicorp Securities, Inc. Master Agreement Among Underwriters. For purposes of
this paragraph (d), each director, officer, employee and agent of an Underwriter
and each person, if any, who controls an Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act shall have the same
rights to contribution as such Underwriter, and each director and each officer
of the Company who signed the Registration Statement and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act shall have the same rights to contribution as the
Company.
<PAGE>
-33-
9. Default of Underwriters. If one or more of the Underwriters
-----------------------
defaults in its obligation to purchase Securities hereunder and the aggregate
principal amount of such Securities that such defaulting Underwriters agreed but
failed to purchase is ten percent or less of the aggregate principal amount of
Securities to be purchased by all of the Underwriters at such time hereunder,
the other Underwriters may make arrangements for the purchase of such Securities
by other persons (who may include the non-defaulting Underwriters), but if no
such arrangements are made by the Closing Date, the non-defaulting Underwriters
shall be obligated to purchase the Securities that the defaulting Underwriters
agreed but failed to purchase. If one or more of the Underwriters so defaults
with respect to an aggregate principal amount of Securities that is more than
ten percent of the Securities to be purchased by all of the Underwriters at such
time hereunder, and if arrangements are not made within 36 hours after such
default for the purchase by other persons (who may include the non-defaulting
Underwriters) of the Securities with respect to which such default or defaults
occurs, this Agreement will terminate without liability on the part of the non-
defaulting Underwriters or the Company other than as provided in Section 10
hereof. In the event of any default by one or more of the Underwriters as
described in this Section 9, the non-defaulting Underwriters shall have the
right to postpone the Closing Date established as provided in Section 3 hereof
for not more than seven business days in order that any necessary changes may be
made in the arrangements or documents for the purchase and delivery of the
Securities. As used in this Agreement, the term "Underwriter" includes any
person substituted for an Underwriter under this Section 9. Nothing herein shall
relieve any defaulting Underwriter from liability for its default.
10. Survival. The respective representations, warranties,
--------
agreements, covenants, indemnities and other statements of the Company, its
officers and each of the Underwriters set forth in this Agreement or made by or
on behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, any Underwriter, any director,
officer, employee or agent of such Underwriter or any controlling person
referred to in Section 8 hereof and (ii) delivery of and payment for the
Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 6 and 8 hereof shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement.
<PAGE>
-34-
11. Termination.
-----------
(a) This Agreement may be terminated in the sole discretion of the
Underwriters by notice to the Company given prior to the delivery and payment
for the Securities, if at or prior to the delivery and payment for the
Securities:
(i) a general banking moratorium shall have been declared by
California, New York or United States authorities;
(ii) there shall have been an outbreak or escalation of
hostilities or any other calamity or crisis having an effect on the
financial markets in the United States or the market for the
Securities and other similar securities that, in the sole judgment of
the Underwriters, makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Securities as
contemplated by the Registration Statement, as amended as of the date
hereof; or
(iii) trading in securities generally on the New York Stock
Exchange, American Stock Exchange, or the NASDAQ National Market
System shall have been suspended or minimum or maximum prices shall
have been established on the New York Stock Exchange, American Stock
Exchange or the NASDAQ National Market System.
(b) Termination of this Agreement pursuant to this Section 11 shall be
without liability of any party to any other party except as provided in Section
10 hereof.
12. Information Supplied by Underwriters. The statements set forth
------------------------------------
in the last paragraph on the front cover page and under the heading
"Underwriting" in any Preliminary Prospectus or the Prospectus (to the extent
such statements relate to the Underwriters) constitute the only information
furnished by any Underwriter to the Company for the purposes of Sections 1(b)
and 8 hereof. The Underwriters confirm that such statements (to such extent)
are correct.
13. Notices. Notice given pursuant to any of the provisions of this
-------
Agreement shall be in writing and shall be mailed or delivered (a) to the
Company at:
<PAGE>
-35-
Merisel, Inc.
200 Continental Boulevard
El Segundo, California 90245-0984
Attention:
or (b) to the Underwriters at:
Citicorp Securities, Inc.
399 Park Avenue
6th Floor/Zone 7
New York, New York 10022
Attention: High-Yield Finance Group
with a copy to:
Citibank, N.A.
399 Park Avenue
New York, New York 10022
Attention: Donald A. Bendernagel, Esq.
Vice President
Any notice given hereunder may be made by telecopier, telephone or telegraph,
but if so made shall be subsequently confirmed in writing.
14. Successors. This Agreement shall inure to the benefit of and
----------
shall be binding upon each of the Underwriters, the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Company contained in Section 8 of this Agreement shall
also be for the benefit of the directors, officers, employees and agents of any
Underwriter and any person or persons who control any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Underwriters contained in Section 8 of this Agreement shall
also be for the benefit of the directors and officers of the Company who have
signed the Registration Statement and any person or persons who control the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No purchaser of Securities from any
<PAGE>
-36-
Underwriter shall be deemed a successor because of such purchase.
15. APPLICABLE LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE
--------------
IN THE STATE OF NEW YORK. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS.
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
-37-
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriters and the Company in accordance with its terms.
Very truly yours,
MERISEL, INC.
By: ____________________________
Name:
Title:
Confirmed and accepted as of
the date first above written:
CITICORP SECURITIES, INC.
CITIBANK CANADA SECURITIES LIMITED
CITIBANK INTERNATIONAL PLC
BY: CITICORP SECURITIES, INC.
By: _________________________________
Name:
Title:
<PAGE>
-38-
Schedule I
----------
Aggregate Principal
Amount of Securities
Underwriter to Be Purchased
----------- --------------------
Citicorp Securities, Inc.............. $
Citibank Canada Securities Limited.... $
Citibank International plc............ $
-----------------
Total ........................... $150,000,000
<PAGE>
Exhibit 10.1
FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT
Dated as of September 29, 1994
This First Amendment to Revolving Credit Agreement (this "Amendment") is
dated as of September 29, 1994 by and among Merisel Americas, Inc., a Delaware
corporation ("Merisel Americas"), Merisel Europe, Inc., a Delaware corporation
("Merisel Europe") (Merisel Americas and Merisel Europe each referred to herein
individually as a "Borrower" and collectively as the "Borrowers"), Merisel,
Inc., a Delaware corporation ("Merisel Parent"), as guarantor, the financial
institutions listed on the signature pages hereof, Citicorp USA, Inc. as Agent
for the Lenders, NationsBank of Texas, N.A. as Co-Agent for the Lenders, and
Citibank, N.A. as Designated Issuer, and is made with reference to that certain
Revolving Credit Agreement dated as of December 23, 1994 (the "Existing
Agreement") by and among the parties listed on the signature pages hereof.
Capitalized terms used herein without definition shall have the same meanings
herein as set forth in the Existing Agreement.
RECITAL
The parties hereto have agreed to amend the Existing Agreement as
hereinafter set forth.
IN CONSIDERATION of the mutual promises and covenants set forth herein, the
parties hereto agree as follows:
SECTION 1. AMENDMENT TO THE EXISTING AGREEMENT
1.1 The Existing Agreement is hereby amended by adding the following to
the end of the definition of "Applicable Margin" in Section 1.01:
";provided, however, that at any time that the Consolidated Debt
Equivalents/Capital Ratio of Merisel Parent (as more fully described
in Section 7.01(g)) is greater than 0.625:1.00, (i) the Eurodollar
Margin shall be 1.7500, (ii) the Commitment Fee shall be 0.5000, (iii)
the Commission shall be 1.7500 and (iv) the Standby Fee shall be
1.7500."
1.2 The Existing Agreement is hereby amended by inserting the following
definition after the definition of "Consolidated" in Section 1.01:
<PAGE>
""Consolidated Adjusted Tangible Net Worth" means Consolidated
Tangible Net Worth as reduced by the aggregate amount of Intercompany
Debt Payments and calculated without giving effect to any foreign
currency translation adjustments."
1.3 The Existing Agreement is hereby amended by inserting the following
definition after the definition of "Contingent Obligation" in Section
1.01:
""Current Debt Service Amount" means, as of any date of determination,
the amount of regularly scheduled interest due and payable on the
Merisel Parent Debt on the next regularly scheduled payment date for
the Merisel Parent Debt to occur after such date of determination."
1.4 The Existing Agreement is hereby amended by inserting the following
definition after the definition of "Debt" in Section 1.01:
""Debt Dividend Amount" means, for any period, the sum of all
dividends, Intercompany Debt Payments and other distributions (other
than Operating Expense Payments) declared and paid during such period
pursuant to section 7.01(d)(v) plus the Current Debt Service Amount."
1.5 The Existing Agreement is hereby amended by inserting the following
definition after the definition of "Incipient Default" in Section
1.01:
""Intercompany Debt Payments" means, for any period, any payment of
principal in respect of any intercompany Debt between any Borrower and
Merisel Parent, except Operating Expense Payments."
1.6 The Existing Agreement is hereby amended by inserting the following
definition after the definition of "Merisel Canada Guaranty" in
Section 1.01:
""Merisel Parent Debt" means debt of Merisel Parent not in existence
prior to September 30, 1994 and not exceeding $150,000,000 in
principal amount."
1.7 The Existing Agreement is hereby amended by inserting the following
definition after the definition of "Obligations" in Section 1.01:
""Operating Expense Payments" means, for any period, aggregate
payments of principal in respect of any intercompany Debt between any
Borrower and Merisel Parent in an amount not to exceed the amount of
2
<PAGE>
operating expenses actually incurred by Merisel Parent for such
period, but only to the extent that such payments are actually used by
Merisel Parent to pay such operating expenses. For purposes of this
definition, "operating expenses" shall mean operating expenses of
Merisel Parent that are customarily incurred in the ordinary course of
business.".
1.8 The Existing Agreement is hereby amended by inserting "7.01(p),"
before "7.02(f)(ii)" where it appears in clause (i) of paragraph (a)
of Section 2.08.
1.9 The Existing Agreement is hereby amended by inserting the following
after the term "Bid Reduction" and before the parentheses appearing in
clause (A) of paragraph (a) of Section 4.05 and after the term "Bid
Advances" and before the parentheses appearing in clause (i) of clause
(A) of paragraph (a) of Section 4.05:
"if the Consolidated Debt Equivalents/Capital Ratio of Merisel Parent
(as more fully described in Section 7.01(g)) is less than or equal to
0.625:1.00."
1.10 The Existing Agreement is hereby amended by deleting in its entirety
Section 7.01(g) and inserting the following:
"(g) Maintenance of Merisel Parent's Debt Equivalents/Capital Ratio.
--------------------------------------------------------------
Maintain a ratio of (i) Consolidated Debt Equivalents of Merisel
Parent to (ii) the sum of (y) Consolidated Debt Equivalents of Merisel
Parent plus (z) Consolidated Net Worth of Merisel Parent, of not more
----
than 0.70 to 1.00 at any time."
1.11 The Existing Agreement is hereby amended by replacing "$140,000,000"
in Section 7.01(h) with "$161,268,000" and by replacing the term
"Consolidated Tangible Net Worth" wherever it appears in Section
7.01(h) with the term "Consolidated Adjusted Tangible Net Worth".
1.12 The Existing Agreement is hereby amended by deleting in its entirety
Section 7.01(j) and inserting the following:
"(j) Maintenance of Borrowers' Interest Coverage Ratio. Maintain,
-------------------------------------------------
for each period of four consecutive fiscal quarters, a ratio of the
aggregate Consolidated EBITDA of both of the Borrowers to the
aggregate Consolidated Interest Charges (including such portion of
Consolidated Interest Charges as represents interest on intercompany
Debt paid to Merisel Parent, and excluding such portion of
Consolidated Interest Charges as represents interest on all other
intercompany Debt) of
3
<PAGE>
both of the Borrowers, of not less than (x) 2.25 to 1.00, for the
period commencing September 30, 1994 and ending April 1, 1995, (y)
2.50:1.00, for the period commencing April 2, 1995 and ending March
31, 1996 and (z) 2.75:1.00, after March 31, 1996."
1.13 The Existing Agreement is hereby amended by replacing "2.60:1.00" in
Section 7.01(k) with "2.25:1.00".
1.14 The Existing Agreement is hereby amended by adding the following
after Section 7.01(o):
"(p) Merisel Parent Debt. No later than December 31, 1994, incur or
-------------------
issue Merisel Parent Debt in an amount not less than $100,000,000 and
use the net proceeds (after all costs of issuance) from such Merisel
Parent Debt minus $65,000,000 to prepay the then outstanding Revolving
-----
Facility Advances or Swing Line Advances, to the extent of such
Advances outstanding."
1.15 The Existing Agreement is hereby amended by deleting the phrase
"except that" appearing before the first colon in Section 7.02(d) and
-------
replacing it with the phrase "or make any Intercompany Debt Payments,
except that".
------
1.16 The Existing Agreement is hereby amended by deleting in its entirety
Section 7.02(d)(iii) and inserting the following:
"(iii) The Borrowers may declare and deliver dividends and other
distributions payable in cash, common stock or other assets to Merisel
Parent and make Intercompany Debt Payments, provided that (w) the sum
--------
of the cumulative aggregate amount of such dividends and distributions
and Intercompany Debt Payments by the Borrowers plus the Current Debt
Service Amount, in each case from and including December 23, 1993 to
and including any date of determination shall not exceed an amount
equal to 25% of the Consolidated Net Income of Merisel Americas plus
----
25% of the Consolidated Net Income of Merisel Europe for that same
period of time, (x) the sum of the cumulative aggregate amount of such
dividends and distributions and Intercompany Debt Payments made during
any fiscal quarter plus the Current Debt Service Amount for such
fiscal quarter shall not exceed the aggregate Consolidated Net Income
of both of the Borrowers for that fiscal quarter, (y) such dividends
and distributions and Intercompany Debt Payments shall be paid only
from net income of the Borrowers and (z) immediately after giving
effect to any such declaration or deliverance or Intercompany Debt
Payment, no event shall occur and be continuing
4
<PAGE>
which constitutes an Event of Default or an Incipient Default."
1.17 The Existing Agreement is hereby amended by adding the following
clause (v) to Section 7.02(d):
"(v) The Borrowers, in any fiscal quarter, may declare and deliver
dividends and other distributions payable in cash to Merisel Parent
and make Intercompany Debt Payments, if, and only if, the aggregate
amount thereof would not be greater than the Current Debt Service
Amount; provided, (x) Merisel Parent shall use such dividends,
distributions and Intercompany Debt Payments to pay the Current Debt
Service Amount on the Merisel Parent Debt and (y) immediately after
giving effect to any such dividends, distributions and Intercompany
Debt Payments, no event shall occur and be continuing which
constitutes an Event of Default or an Incipient Default."
1.18 The Existing Agreement is hereby amended by adding the following
clause (ix) to Section 7.02(g):
"(ix) Loans and advances by Merisel Parent to any of its direct or
indirect Subsidiaries; provided that such loans and advances shall be
subordinated (both as to payment and remedies) to the Obligations in
form and substance satisfactory to the Agent.
SECTION 2. CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective upon the satisfaction of the
following conditions precedent (the date of satisfaction of such conditions
being referred to herein as the "Amendment Effective Date"): (i) the execution
of this Amendment by the Borrowers, Merisel Parent and the Majority Lenders in
accordance with Section 11.01 of the Existing Agreement; (ii) the receipt by the
Borrowers and Merisel Parent of amendments to the Senior Note Purchase Agreement
and the Subordinated Note Purchase Agreement to remove certain restrictions on
the ability of direct or indirect subsidiaries of Merisel Parent to pay
dividends to Merisel Parent which amendments shall be substantially similar to
the provisions of the amendment contained in Section 1.17 hereof and which
amendments shall otherwise be satisfactory to the Agent, acting on behalf of the
Lenders; (iii) the delivery by the Borrowers and Merisel Parent to the Lenders
(or to the Agent with sufficient originally executed copies, where appropriate,
for each Lender) of (a) certified resolutions of their respective Board of
Directors approving and authorizing the execution, delivery, and performance of
this Amendment, (b) signature and incumbency certificates of the officers
executing this Amendment, and (c) executed copies of this Amendment; (iv) on or
before the
5
<PAGE>
Amendment Effective Date, all corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and all documents
incidental thereto not previously found acceptable by the Agent, acting on
behalf of the Lenders, and their counsel shall be satisfactory in form and
substance to the Agent and such counsel, and the Agent and such counsel shall
have received all such counterpart originals or certified copies of such
documents as the Agent may reasonably request; and (v) on or before the
Amendment Effective Date, the Borrowers shall have paid fees and reasonable
legal expenses.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS AND MERISEL
PARENT
In order to induce the Lenders to enter into this Amendment and to amend
the Existing Agreement in the manner provided herein, the Borrowers and Merisel
Parent represent and warrant to each Lender that the following statements are
true, correct and complete:
Corporate Power and Authority
Each Borrower and Merisel Parent has all requisite corporate power and
authority to enter into this Amendment and to carry out the transactions
contemplated by, and perform its respective obligations under, the Existing
Agreement as amended by this Amendment (the "Amended Agreement").
Authorization of Agreements
The execution and delivery of this Amendment and the performance of the
Amended Agreement have been duly authorized by all necessary corporate action by
each Borrower and Merisel Parent.
No Conflict
The execution and delivery by each Borrower and Merisel Parent of this
Amendment and the performance by each Borrower and Merisel Parent of the Amended
Agreement do not and will not (i) violate any provision of law, rule or
regulation applicable to the Borrowers, Merisel Parent or any of their
respective Subsidiaries, the Certificate of Incorporation or bylaws of the
Borrowers, Merisel Parent or any of their respective Subsidiaries, (ii) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any material contractual obligation of the Borrowers,
Merisel Parent or any of their respective Subsidiaries, (iii) result in or
require the creation or imposition of any Lien upon any of their properties or
assets, or (iv) require any approval of stockholders or any approval or consent
of any Person under
6
<PAGE>
any contractual obligation of the Borrowers, Merisel Parent or any of their
respective Subsidiaries.
Governmental Consents
The execution and delivery by the Borrowers and Merisel Parent and the
performance by the Borrowers and Merisel Parent of the Amended Agreement do not
and will not require any registration with, consent or approval of, or notice
to, or other action to, with or by, any Federal, state or other governmental
authority or regulatory body or other Person.
Binding Obligation
This Amendment and the Amended Agreement are the legally valid and binding
obligation of the Borrowers and Merisel Parent, enforceable against each of them
in accordance with their respective terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or limiting creditors' rights generally or by equitable principles
relating to enforceability.
Incorporation of Representations and Warranties From Existing Agreement
Other than the representations set forth in Section 6.01(g) of the Existing
Agreement, which representations are hereby modified by deleting Schedule II to
the Existing Agreement and replacing it with the Amended and Restated Schedule
II attached hereto, the representations and warranties contained in Article VI
of the Existing Agreement are and will be true, correct and complete in all
material respects on and as of the effective date of this Amendment to the same
extent as though made on and as of that date, except to the extent that such
representations and warranties specifically relate to an earlier date, in which
case they are true, correct and complete in all material respects as of such
earlier date.
Absence of Default
No event has occurred and is continuing or will result from the
consummation of the transactions contemplated by this Amendment which would
constitute an Event of Default, or an event that with the passage of time, the
giving of notice or both would constitute an Event of Default.
7
<PAGE>
SECTION 4. MISCELLANEOUS
Reference to and Effect on the Existing Agreement and the Other Loan
Documents
(i) On and after the effective date of this Amendment, each reference in
the Existing Agreement to "this Agreement", "hereunder", "hereof", "herein", or
words of like import referring to the Existing Agreement, and each reference in
the other Loan Documents to the "Revolving Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Existing Agreement shall mean
and be a reference to the Existing Agreement as amended by this Amendment.
(ii) Except as specifically amended by this Amendment, the Existing
Agreement and the other Loan Documents shall remain in full force and effect and
are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any provision
of, or operate as a waiver of any right, power or remedy of the Agent or any
Lender under, the Existing Agreement or any of the other Loan Documents.
Execution and Counterparts
This Amendment may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
taken together shall constitute one and the same instrument.
Headings
Section and subsection headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose or be given any substantive effect.
Applicable Law
THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO AND ALL
OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER, SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
CALIFORNIA.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to Revolving Credit Agreement to be executed by their respective
officers thereunto duly authorized as of the date first above written.
THE BORROWERS
-------------
MERISEL AMERICAS, INC.
By: /s/ TIMOTHY N. JENSON
------------------------
Name: Timothy N. Jenson
Title: Vice President and Treasurer
MERISEL EUROPE, INC.
By: /s/ TIMOTHY N. JENSON
------------------------
Name: Timothy N. Jenson
Title: Vice President and Treasurer
THE PARENT GUARANTOR
--------------------
MERISEL, INC.
By: /s/ TIMOTHY N. JENSON
------------------------
Name: Timothy N. Jenson
Title: Vice President and Treasurer
THE AGENT
---------
CITICORP USA, INC., as Agent
By: /s/ BARBARA A. COHEN
______________________________
Name: Barbara A. Cohen
Title: Vice President
THE CO-AGENT
------------
NATIONSBANK OF TEXAS, N.A., as Co-Agent
By: /s/ JANET E. SOCKWELL
______________________________
Name: Janet E. Sockwell
Title: Assistant Vice President
THE DESIGNATED ISSUER
---------------------
CITIBANK, N.A., as Designated Issuer
By: /s/ GERALD R. GALLUCCI
______________________________
Name: Gerald R. Gallucci
Title: Vice President
9
<PAGE>
THE LENDERS
-----------
CITICORP USA, INC.
By: /s/ BARBARA A. COHEN
---------------------------------------
Name: Barbara A. Cohen
Title: Vice President
NATIONSBANK OF TEXAS, N.A.
By: /s/ JANET SOCKWELL
---------------------------------------
Name: Janet Sockwell
Title: Assistant Vice President
UNION BANK
By: /s/ ROBERT PETERSON
---------------------------------------
Name: Robert Peterson
Title: Vice President
By: /s/ H. CASNER
---------------------------------------
Name: H. Casner
Title: Senior Vice President
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
LOS ANGELES AGENCY
By: /s/ MOTOKAZU UEMAGSU
---------------------------------------
Name: Motokazu Uemagsu
Title: Deputy General Manager
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
LOS ANGELES AGENCY
By: /s/ STEVEN SAVOLDELLI
--------------------------------------
Name: Steven Savoldelli
Title: Vice President
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By: /s/ LEO G. LEITNER
---------------------------------------
Name: Leo G. Leitner
Title: Vice President
10
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ L. GENE BEUBE
-------------------------------------
Name: L. Gene Beube
Title: Senior Vice President
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
NEW YORK AND CAYMAN ISLAND BRANCHES
By: /s/ J. G. HILSGEN
-------------------------------------
Name: J. G. Hilsgen
Title: Vice President
By: /s/ J. M. MALLEY
-------------------------------------
Name: J. M. Malley
Title: Associate
THE DAIWA BANK, LTD.
By: /s/ MITCHELL M. OZAWA
-------------------------------------
Name: Mitchell M. Ozawa
Title: Vice President
By: /s/ DAVID M. LAWRENCE
-------------------------------------
Name: David M. Lawrence
Title: Vice President and Manager
COMMERZBANK
By: /s/ ROBERT HOCHHALTER
-------------------------------------
Name: Robert Hochhalter
Title: Senior Vice President and
Manager
By: /s/ STEVEN S. LARSEN
-------------------------------------
Name: Steven S. Larsen
Title: Vice President
11
<PAGE>
AMENDED AND RESTATED SCHEDULE II
PENDING OR THREATENED LITIGATION OR PROCEEDING
- ----------------------------------------------
AFFECTING MERISEL, INC., MERISEL AMERICAS, INC.,
- ------------------------------------------------
MERISEL EUROPE, INC. OR ANY OF THEIR SUBSIDIARIES
- -------------------------------------------------
In June 1994, Merisel, Inc. (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
the Company's 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 Section 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. The Company 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.
12
<PAGE>
Exhibit 10.2
SECOND AMENDMENT TO CREDIT AGREEMENT
Dated as of September 30, 1994
This Second Amendment to Credit Agreement (this "Amendment") is dated
as of September 30, 1994 by and among Merisel Inc., a Delaware corporation (the
"Company"), and NationsBank of Texas, N.A. (the "Bank"), and is made with
reference to that certain Credit Agreement dated as of December 23, 1993, as
amended by that certain First Amendment to Credit Agreement dated as of January
31, 1994 (as so amended, the "Existing Agreement") by and among the parties
hereto. Capitalized terms used herein without definition shall have the same
meanings herein as set forth in the Existing Agreement.
RECITAL
The parties hereto have agreed to amend the Existing Agreement as
hereinafter set forth.
IN CONSIDERATION of the mutual promises and covenants set forth
herein, the parties hereto agree as follows:
SECTION 1. AMENDMENT TO THE EXISTING AGREEMENT
1.1 The Existing Agreement is hereby amended by inserting the following
clause (c) at the end of Section 8.05:
"(c) the Company or any Subsidiary of the Company may convey, sell,
transfer or otherwise dispose of, in one transaction or a series of
transactions, accounts receivable or interests therein pursuant to
securitizations thereof under (i) that certain Trade Receivables Purchase
and Sale Agreement, dated as of September 24, 1993, among Merisel, Inc.,
Ciesco L.P., and Citicorp North America, Inc., as "Agent", as amended by
the Amendment thereto dated as of October 20,1993, the Assumption and
Second Amendment thereto dated as of December 23, 1993, and the Third
Amendment thereto dated as of March 24, 1994, and (ii) that certain Trade
Receivables Purchase and Sale Agreement, dated as of September 24, 1993,
among Merisel, Inc., Citibank, N.A., the "Banks" identified therein, and
Citicorp North America, Inc., individually and as "Agent", as amended by
the Amendment thereto dated as of October 20, 1993, the Assumption and
Second Amendment thereto dated as of December 23, 1993 and the Third
Amendment thereto dated as of March 24, 1994, as each may be amended,
restated, modified, replaced or extended, including pursuant to the terms
of the currently contemplated Fourth Amendment thereto (draft dated
September 15, 1994, as the same may be revised)."
1
<PAGE>
1.2 The Existing Agreement is hereby amended by deleting the first sentence
of Section 8.13 and inserting in place thereof the following :
"The Company agrees, for the benefit of the Bank, to perform, to comply
with and to be bound by each of its covenants, agreements and obligations
contained in Sections 7.01(g), 7.01 (k) and 7.02(m) of the Americas
Revolving Credit Agreement, as amended by Amendment No. 1 thereto dated as
of September 29, 1994, and without giving effect to any subsequent
modifications or supplements to the Americas Revolving Credit Agreement, or
termination of the Americas Revolving Credit Agreement.."
1.3 The Existing Agreement is hereby amended by deleting clause (i) of
Section 8.17 and inserting in place thereof the following:
"Section 7.01 of the Americas Revolving Credit Agreement, as amended by
Amendment No. 1 thereto dated as of September 29, 1994, and without giving
effect to any subsequent modifications or supplements to the Americas
Revolving Credit Agreement, or termination of the Americas Revolving Credit
Agreement,"
SECTION 2. CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective upon (i) the execution of this
Amendment by the Company and the Bank in accordance with Section 10.04 of the
Existing Agreement and (ii) the effectiveness of Amendment No. 1 to the Americas
Revolving Credit Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS
In order to induce the Bank to enter into this Amendment and to amend
the Existing Agreement in the manner provided herein, the Company represents and
warrants to the Bank that the following statements are true, correct and
complete:
Corporate Power and Authority
The Company has all requisite corporate power and authority to enter
into this Amendment and to carry out the transactions contemplated by, and
perform its respective obligations under, the Existing Agreement as amended by
this Amendment (the "Amended Agreement").
2
<PAGE>
Authorization of Agreements
The execution and delivery of this Amendment and the performance of
the Amended Agreement have been duly authorized by all necessary corporate
action of the Company.
No Conflict
The execution and delivery by the Company of this Amendment and the
performance by the Company of the Amended Agreement do not and will not (i)
violate any provision of law, rule or regulation applicable to the Company or
any of its Subsidiaries, or the Certificate of Incorporation or bylaws of the
Company or any of its Subsidiaries, (ii) conflict with, result in a breach of
or constitute (with due notice or lapse of time or both) a default under any
material contractual obligation of the Company or any of its Subsidiaries, (iii)
result in or require the creation or imposition of any Lien upon any of the
properties or assets of the Company or any of its Subsidiaries, or (iv)
require any approval of stockholders or any approval or consent of any Person
under any contractual obligation of the Company or any of its Subsidiaries.
Governmental Consents
The execution and delivery by the Company of this Amendment and the
performance by the Company of the Amended Agreement do not and will not require
any registration with, consent or approval of, or notice to, or other action to,
with or by, any Federal, state or other governmental authority or regulatory
body or other Person.
Binding Obligation
This Amendment and the Amended Agreement are the legally valid and
binding obligation of the Company, enforceable against it in accordance with
their respective terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
limiting creditors' rights generally or by equitable principles relating to
enforceability.
Incorporation of Representations and Warranties From Existing Agreement
Other than the representations set forth in Section 7.03 of the
Existing Agreement, which representations are hereby modified by deleting
Schedule 7.03 to the Existing Agreement and replacing it with the Amended and
Restated Schedule 7.03 attached hereto, the representations and warranties
contained in Section 7 of the Existing Agreement are and will be true, correct
and complete in all material respects on and as of the effective date of this
Amendment to the same extent as though made on and as of that date, except to
the extent that such representations and warranties specifically relate to an
earlier date, in which case they are true, correct and complete in all material
respects as of such earlier date.
3
<PAGE>
Absence of Default
No event has occurred and is continuing or will result from the
consummation of the transactions contemplated by this Amendment which would
constitute an Event of Default, or an event that with the passage of time, the
giving of notice or both would constitute an Event of Default.
SECTION 4. MISCELLANEOUS
Reference to and Effect on the Existing Agreement
(i) On and after the effective date of this Amendment, each reference
in the Existing Agreement to "this Agreement", "hereunder", "hereof", "herein",
or words of like import referring to the Existing Agreement, and each reference
in the other Basic Documents to the "Agreement," the "Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Existing
Agreement shall mean and be a reference to the Existing Agreement as amended by
this Amendment.
(ii) Except as specifically amended by this Amendment, the Existing
Agreement and the other Basic Documents shall remain in full force and effect
and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any provision
of, or operate as a waiver of any right, power or remedy of the Bank under, the
Existing Agreement or any of the other Basic Documents.
Execution and Counterparts
This Amendment may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
taken together shall constitute one and the same instrument.
Headings
Section and subsection headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose or be given any substantive effect.
Applicable Law
THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO
AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER, SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF CALIFORNIA.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the day and year first above written.
MERISEL, INC.
By: /s/ TIMOTHY N. JENSON
---------------------------------
Name: Timothy N. Jenson
Title: Vice President & Treasurer
NATIONSBANK OF TEXAS, N.A.
By: /s/ JANET E. STOCKWELL
---------------------------------
Name: Janet E. Stockwell
Title: Assistant Vice President
5
<PAGE>
AMENDED AND RESTATED SCHEDULE 7.03
PENDING OR THREATENED LITIGATION OR
-----------------------------------
PROCEEDING AFFECTING OBLIGORS
-----------------------------
In June 1994, Merisel, Inc. (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
the Company's 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 Section 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. The Company 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.
6
<PAGE>
EXHIBIT 10.3
FIRST AMENDMENT TO AMENDED AND
RESTATED SENIOR NOTE PURCHASE AGREEMENT
Re: $100,000,000 of Amended and Restated 8.58% Senior Notes
Due June 30, 1997
Dated as of September 30, 1994
This First Amendment (this "Amendment") to the Amended and Restated Senior
Note Purchase Agreement dated as of December 23, 1993, (the "Existing
Agreement"), is entered into as of September 30, 1994 by and among the
Noteholders identified on the signature pages hereof and Merisel Americas, Inc.,
a Delaware corporation (the "Company"). Capitalized terms used herein without
definition shall have the same meanings herein as set forth in the Existing
Agreement.
RECITAL
The parties hereto have agreed to amend the Existing Agreement as
hereinafter set forth.
IN CONSIDERATION of the mutual promises and covenants set forth herein, the
parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE EXISTING AGREEMENT.
a. Section 2.1 of the Existing Agreement hereby is amended to add the
following definition(s) in alphabetical order:
"Excess Restricted Payments" shall mean the aggregate amount of all
Restricted Payments (including Parent Notes Restricted Payments) declared,
ordered, paid, made, or set apart subsequent to the Closing Date in excess
of an amount equal to (i) 25% of Consolidated Net Income realized
subsequent to January 1, 1994 (in each case reduced by 100% of any losses,
if Consolidated Net Income is a loss during any fiscal period), plus (ii)
----
100% of the aggregate amount of net cash proceeds received by the Company
from the sale of additional common stock issued after the Closing Date or
other Securities issued after the Closing Date and subsequently converted
into common stock.
<PAGE>
"Interest Coverage Ratio" shall mean, with respect to any date of
determination, a ratio of Earnings before Interest and Taxes for the
Company's preceding four fiscal quarters to Interest Expense for the
Company's preceding four fiscal quarters.
"Parent Notes" shall mean promissory notes issued by Merisel, Inc.
prior to December 31, 1994 in an aggregate original principal amount of not
more than $150,000,000, with interest only payable semi-annually on the
last day of each of the second and fourth fiscal quarters of the Company
(or, if such last day is not a Business Day, on the next succeeding
Business Day) and no interim scheduled payments of principal prior to
September 30, 1999, as the same may be amended, extended, renewed, or
refinanced; provided that any such amendment or refinancing does not result
in any increase in the amount of principal or in any change in the payment
schedule thereof that would result in any interim scheduled payments of
principal prior to September 30, 1999.
"Parent Notes Restricted Payment" shall mean a Restricted Payment to
Merisel, Inc. for the sole purpose of permitting Merisel, Inc. to make the
scheduled interest payment then due and owing in respect of the Parent
Notes.
"Restricted Payment Compliance Condition" shall mean the delivery by
the Company to each Noteholder, at least ten (10) days prior to declaring,
paying, making, or setting apart any funds or Assets for any Restricted
Payment, of a certificate of the Chief Financial Officer or Treasurer of
the Company stating that (A) such officer has reviewed the provisions of
the Agreement, (B) before and after giving effect to such Restricted
Payment, the Company is, and in good faith believes it will remain, in
compliance with the requirements of Section 6.6 through Section 6.15 and
----------- ------------
Section 6.25, and providing detailed computations of the Company's
------------
compliance with Sections 6.6. 6.7, 6.9, 6.11, and 6.25 and, if applicable,
--------------------------------------
Sections 6.8, 6.10, 6.12, 6.13, 6.14, and 6.15, and (C) there exists no
----------------------------------------------
Event of Default or Default.
b. Section 6.7 of the Existing Agreement hereby is deleted in its entirety
and the following hereby is substituted in lieu thereof:
6.7 Limitation on Consolidated Debt.
(a) The Company and its Subsidiaries shall not incur, create, assume,
suffer to exist, or guarantee any Debt unless, after giving effect thereto,
the ratio of Consolidated Debt to Total Capitalization does not exceed .60
to 1.0.
(b) The Company and its Subsidiaries shall not incur, create, assume,
suffer to exist, or guarantee any Debt unless, after giving effect thereto,
the ratio of Consolidated Debt plus Securitization Proceeds to Total
Capitalization plus Securitization Proceeds does not exceed .635 to 1.0.
2
<PAGE>
For purposes of the calculation required by the foregoing subsections (a)
and (b) in the case of Debt being incurred, created, assumed, or guaranteed
in connection (i) with an acquisition by the Company or any of its
Subsidiaries of assets, (ii) a merger involving the Company or any of its
Subsidiaries, or (iii) the acquisition of stock or securities by the
Company or any of its Subsidiaries, Earnings before Interest and Taxes
shall be deemed to include (in addition to Earnings before Interest and
Taxes of the Company and its Subsidiaries) the earnings before interest and
taxes (x) attributable to such assets, (y) of the corporation, other than
the Company or its Subsidiaries, involved in the merger, or (z)
attributable to such stock or securities, in each case for the four fiscal
quarters preceding the effectiveness of the transaction.
c. Section 6.9 of the Existing Agreement hereby is deleted in its entirety
and the following hereby is substituted in lieu thereof:
6.9 Limitation on Restricted Payments. The Company shall not, and
shall not permit its Subsidiaries to, directly or indirectly, declare,
order, pay, make, or set apart any funds or Assets for any Restricted
Payment, unless, after giving effect thereto: (a) no Default or Event of
Default shall have occurred and be continuing; (b) the aggregate amount of
all Restricted Payments (including Parent Notes Restricted Payments)
declared, ordered, paid, made, or set apart subsequent to the Closing Date
does not exceed an amount equal to (i) 25% of Consolidated Net Income
realized subsequent to January 1, 1994 (in each case reduced by 100% of any
losses, if Consolidated Net Income is a loss during any fiscal period),
plus (ii) 100% of the aggregate amount of net cash proceeds received by
----
the Company from the sale of additional common stock issued after the
Closing Date or other Securities issued after the Closing Date and
subsequently converted into common stock; and (c) the Restricted Payment
Compliance Condition shall have been satisfied. Any failure to satisfy the
foregoing condition (b) notwithstanding, the Company may make Parent Notes
Restricted Payments.
d. Subsection (a) of Section 6.17 of the Existing Agreement hereby is
deleted in its entirety and the following hereby is substituted in lieu thereof:
(a) Quarterly Statements. (i) As soon as available and in any event
within 45 days after the end of each of the first three fiscal quarters in
each fiscal year of the Company, unaudited consolidated and consolidating
balance sheets of the Company and its Subsidiaries as of the end of such
fiscal quarter and consolidated and consolidating statements of income and
retained earnings and of source and application of funds of the Company and
its Subsidiaries for such fiscal quarter and for the period commencing at
the end of the previous fiscal year and ending with the end of such fiscal
quarter, and setting forth in comparative form the corresponding figures
for the corresponding periods of the previous fiscal year, all in
reasonable detail and duly certified (subject to year-end audit adjustments
and the absence of footnotes) by the Chief
3
<PAGE>
Financial Officer or Treasurer of the Company as having been prepared in
accordance with GAAP consistently applied; and (ii) as soon as available
and in any event within 45 days after the end of each fiscal quarter of the
Company, a written report, in form and substance satisfactory to the
Noteholders, specifying the actual outstanding daily balance of
indebtedness owed by the Company to Merisel, Inc. as of the end of each
Business Day during that fiscal quarter.
e. Section 6.25 of the Existing Agreement hereby is deleted in its entirety
and the following hereby is substituted in lieu thereof:
6.25 Ratio of Earnings before Interest and Taxes to Interest Expense.
The Company and its Subsidiaries, on a consolidated basis, shall at all
times maintain an Interest Coverage Ratio of: (a) at least 2.0 to 1.0, in
the event the then extant amount of Excess Restricted Payments is less than
or equal to zero; (b) at least 2.1 to 1.0, in the event the then extant
amount of Excess Restricted Payments exceeds zero but is less than
$7,500,000; (c) at least 2.2 to 1.0, in the event the then extant amount of
Excess Restricted Payments exceeds $7,500,000 but is less than $15,000,000;
(d) at least 2.3 to 1.0, in the event the then extant amount of Excess
Restricted Payments exceeds $15,000,000 but is less than $22,500,000; (e)
at least 2.4 to 1.0, in the event the then extant amount of Excess
Restricted Payments exceeds $22,500,000 but is less than $30,000,000; (f)
at least 2.5 to 1.0, in the event the then extant amount of Excess
Restricted Payments exceeds $30,000,000 but is less than $37,500,000; and
(g) at least 2.75 to 1.0, in the event the then extant amount of Excess
Restricted Payments is equal to or exceeds $37,500,000.
f. Section 7.02(d)(iii) of the New Revolving Credit Agreement, as amended
concurrently with this Amendment, hereby is incorporated into the Existing
Agreement as a new Section 6.26 thereof.
SECTION 2. CONDITIONS TO EFFECTIVENESS.
The satisfaction of each of the following shall constitute conditions
precedent to the effectiveness of this Amendment:
a. the execution and delivery of this Amendment by the Company and the
Required Noteholders in accordance with Section 8 of the Existing Agreement;
b. the execution and delivery by Merisel, Inc. of the Amendment,
Reaffirmation, and Consent attached hereto as Exhibit A (the "Parent Guaranty
Amendment");
c. the execution and delivery by Merisel Canada of the Reaffirmation and
Consent attached hereto as Exhibit B;
4
<PAGE>
d. the execution and delivery by Merisel Europe of the Reaffirmation and
Consent attached hereto as Exhibit C;
e. the receipt by the Company, Merisel Europe, Inc. and Merisel, Inc. of
amendments to the New Revolving Credit Agreement and the Subordinated Note
Purchase Agreement to remove certain restrictions on the ability of direct or
indirect subsidiaries of Merisel, Inc. to pay dividends or make distributions to
Merisel, Inc., which amendments shall be substantially similar to the provisions
of the amendment contained in Section 1(c) hereof;
f. the representations and warranties in this Amendment and the Existing
Agreement as amended by this Amendment (the "Amended Agreement") shall be true,
correct and complete in all respects on and as of the date hereof, as though
made on such date (except to the extent that such representations and warranties
relate solely to an earlier date, in which case they are true, correct and
complete in all material respects as of such earlier date);
g. no Default or Event of Default shall have occurred and be continuing on
the date hereof, nor shall result from the consummation of the transactions
contemplated herein;
h. no injunction, writ, restraining order, or other order of any nature
prohibiting, directly or indirectly, the consummation of the transactions
contemplated herein or in the Parent Guaranty as amended by the Parent Guaranty
shall have been issued and remain in force by any governmental authority against
the Company or Merisel, Inc.;
i. the Company shall have delivered a certificate from the Secretary of the
Company attesting to the resolutions of the Company's Board of Directors
authorizing its execution and delivery of this Amendment and authorizing
specific officers of the Company to execute same;
j. the Company shall have delivered copies of the Company's By-laws and
Certificate of Incorporation, as amended, modified, or supplemented to the date
hereof, certified by the Secretary of the Company;
k. the Company shall have delivered a certificate of corporate status with
respect to the Company, dated within ten (10) days of the date hereof, by the
Secretary of State of Delaware, which certificate shall indicate that the
Company is in good standing in such state;
l. Merisel, Inc. shall have delivered a certificate from the Secretary of
Merisel, Inc. attesting to the resolutions of Merisel, Inc.'s Board of Directors
authorizing its execution and delivery of the Parent Guaranty Amendment and
authorizing specific officers of Merisel, Inc. to execute same;
5
<PAGE>
m. Merisel, Inc. shall have delivered copies of Merisel, Inc.'s By-laws and
Certificate of Incorporation, as amended, modified, or supplemented to the date
hereof, certified by the Secretary of Merisel, Inc.; and
n. Merisel, Inc. shall have delivered a certificate of corporate status
with respect to Merisel, Inc., dated within ten (10) days of the date hereof, by
the Secretary of State of Delaware, which certificate shall indicate that
Merisel, Inc. is in good standing in such state.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
In order to induce the Noteholders to enter into this Amendment and to
amend the Existing Agreement in the manner provided herein, the company
represents and warrants to each Noteholder that the following statements are
true, correct and complete:
a. Corporate Power and Authority. The Company has all requisite corporate
power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under the Amended
Agreement.
b. Authorization of Agreements. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly authorized
by all necessary corporate action by the Company.
c. No Conflict. The execution and delivery by the Company of this
Amendment and the performance by the Company of the Amended Agreement do not and
will not (i) violate any provision of law, rule or regulation applicable to the
Company or any of its Subsidiaries, the Certificate of Incorporation or bylaws
of the Company or any of its Subsidiaries, (ii) conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any material contractual obligation of the Company or any of its
Subsidiaries, (iii) result in or require the creation or imposition of any Lien
upon any of its properties or assets, or (iv) require any approval of
stockholders or any approval or consent of any Person under any contractual
obligation of the Company or any of its Subsidiaries.
d. Governmental Consents. The execution and delivery by the Company and
the performance by the Company of the Amended Agreement do not and will not
require any registration with, consent or approval of, or notice to, or other
action to, with or by, any Federal, state or other governmental authority or
regulatory body or other Person.
e. Binding Obligation. This Amendment and the Amended Agreement are the
legally valid and binding obligations of the Company, enforceable against it in
accordance with their respective terms, except as enforcement may be limited by
bankruptcy,
6
<PAGE>
insolvency, reorganization, moratorium or other similar laws relating to or
limiting creditors' rights generally or by equitable principles relating to
enforceability.
SECTION 4. MISCELLANEOUS.
a. Reference to and Effect on the Existing Agreement.
(1) On and after the effective date of this Amendment, each reference in
the Existing Agreement to "this Agreement", "hereunder", "hereof", "herein", or
words of like import referring to the Existing Agreement, shall mean and be a
reference to the Existing Agreement as amended by this Amendment.
(2) Except as specifically amended by this Amendment, the Existing
Agreement shall remain in full force and effect and hereby is ratified and
confirmed in all respects. The execution, delivery, and performance of this
Amendment shall not operate as a waiver of, or except as expressly set forth
herein, as an amendment, of any right, power, or remedy of the Noteholders under
the Existing Agreement, as in effect prior to the date hereof, or any further or
other matter.
(3) The execution, delivery and performance of this Amendment shall not,
except as expressly provided herein, constitute a waiver of any provision of, or
operate as a waiver of any right, power or remedy of any Noteholder under, the
Existing Agreement.
b. Execution and Counterparts. This Amendment may be executed in any
number of counterparts, and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts taken together shall constitute one and the
same instrument.
c. Headings. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose of be given any substantive
effective.
d. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER,
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF CALIFORNIA.
7
<PAGE>
IN WITNESS WHEREOF, the Company and the Noteholders have caused this
Amendment to be duly executed by their respective duly authorized officers, all
as of the day and year first above written.
MERISEL AMERICAS, INC.,
a Delaware corporation
By: /s/ Timothy N. Jenson
-------------------------------------
Name: Timothy N. Jenson
Title: Vice President & Treasurer
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY,
an Iowa corporation
By: /s/ James C. Fifield
-------------------------------------
Name: James C. Fifield
Title: Counsel
By: /s/ Jon O. Heiny
-------------------------------------
Name: Jon O. Heiny
Title: Counsel
MASSACHUSETTS MUTUAL LIFE INSURANCE CO.,
a Massachusetts corporation
By: /s/ John B. Joyce
-------------------------------------
Name: John B. Joyce
Title: Vice President
FIRST AUSA LIFE INSURANCE COMPANY
By: /s/ Gregory W. Theobald
-------------------------------------
Name: Gregory W. Theobald
Title: VP & Asst. Secretary
8
<PAGE>
PFL LIFE INSURANCE COMPANY
By: /s/ Gregory W. Theobald
----------------------------
Name: Gregory W. Theobald
Title: VP & Asst. Secretary
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
By: /s/ Gregory W. Theobald
-----------------------------
Name: Gregory W. Theobald
Title: VP & Asst. Secretary
BANKERS UNITED LIFE ASSURANCE COMPANY
By: /s/ Gregory W. Theobald
----------------------------
Name: Gregory W. Theobald
Title: VP & Asst. Secretary
INTERNATIONAL LIFE INVESTORS INSURANCE CO.
By: /s/ Gregory W. Theobald
----------------------------
Name: Gregory W. Theobald
Title: VP & Asst. Secretary
CONNECTICUT MUTUAL LIFE INSURANCE CO.,
a Connecticut Corporation
By: /s/ Norman A. Thetford
-------------------------------
Name: Norman A. Thetford
Title: Senior Investment Officer
9
<PAGE>
C M LIFE INSURANCE COMPANY,
a Connecticut corporation
By: /s/ Norman A. Thetford
---------------------------------
Name: Norman A. Thetford
Title: Senior Investment Officer
PACIFIC MUTUAL LIFE INSURANCE COMPANY,
a California corporation
By: /s/ W R Schmidt
---------------------------------
Name: W R Schmidt
Title: Assistant Vice President
AMERITAS LIFE INSURANCE CORP.,
a Nebraska corporation
By:
------------------------------------
Name:
Title:
SHENENDOAH LIFE INSURANCE COMPANY,
a Virginia corporation
By:
------------------------------------
Name:
Title:
THE CANADA LIFE ASSURANCE COMPANY
By:
------------------------------------
Name:
Title:
10
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA,
a Michigan corporation
By: -------------------------------------
Name:
Title:
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
OF PHILADELPHIA, a Pennsylvania corporation
By: ------------------------------------
Name:
Title:
PROVIDENT MUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA, a Pennsylvania corporation
By: /s/
------------------------------------
Name:
Title:
GUARANTEE MUTUAL LIFE COMPANY,
a Nebraska corporation
By: /s/ Steven A. Scanlan
-----------------------------------
Name: Steven A. Scanlan
Title: Senior Investment Officer-
Securities
11
<PAGE>
Exhibit A
----------
Amendment, Reaffirmation and Consent of Guarantor
All capitalized terms used herein but not otherwise defined herein shall
have the meanings ascribed to them in that certain First Amendment to Amended
and Restated Senior Note Purchase Agreement, dated as of September ___, 1994
(the "Amendment").
The Parent Guaranty hereby is amended by deleting Section 12 thereof in its
entirety and substituting the following in lieu thereof:
12. Subordination. Guarantor hereby agrees that any and all present and
-------------
future indebtedness of Debtor owing to Guarantor is postponed in favor of
and subordinated to payment, in full, in cash, of the Guaranteed
Obligations and all obligations under the "Subordinated Note Purchase
Agreement" (as defined in the Guaranteed Agreement) (the "Subordinated
Notes Obligations"). In this regard, no payment of any kind whatsoever
shall be made with respect to such indebtedness until the Guaranteed
Obligations and the Subordinated Notes Obligations have been indefeasibly
paid in full; provided, however, that so long as (a) no "Default" (as
-------- -------
defined in the Guaranteed Agreement") or "Event of Default" (as defined in
the Guaranteed Agreement") has occurred and is continuing or would be
caused thereby, and (b) no "Blockage Period" (as defined in the
Subordinated Note Purchase Agreement) is in effect, Debtor may make
principal and interest payments on any indebtedness owed by Debtor to
Guarantor.
The undersigned hereby (a) represents and warrants to the Noteholders that
the execution, delivery, and performance of this Amendment, Reaffirmation and
Consent of Guarantor are within its corporate powers, have been duly authorized
by all necessary corporate action, and are not in contravention of any law,
rule, or regulation, or any order, judgment, decree, writ, injunction, or award
of any arbitrator, court, or governmental authority, or of the terms of its
charter or bylaws, or of any contract or undertaking to which it is a party or
by which any of its properties may be bound or affected; (b) consents to the
amendment of the Existing Agreement by the Amendment; (c) acknowledges and
reaffirms its obligations owing under the Parent Guaranty; and (d) agrees that
(i) except as specifically amended hereby, the Parent Guaranty shall remain in
full force and effect and hereby is ratified and confirmed in all respects, and
(ii) the execution, delivery, and performance hereof shall not operate as a
waiver
12
<PAGE>
of, or except as expressly set forth herein, as an amendment, of any
right, power, or remedy of the Noteholders under the Parent Guaranty, as in
effect prior to the date hereof, or any further or other matter.
MERISEL, INC.
By /s/ Timothy N. Jenson
---------------------------------------
Title: Vice President & Treasurer
-----------------------------------
Acknowledged and agreed as
of _____________, 1994:
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY,
an Iowa corporation
By: /s/ James C. Fifield
------------------------------------
Name: James C. Fifield
Title: Counsel
By: /s/ Jon O. Heiny
------------------------------------
Name: John O. Heiny
Title: Counsel
MASSACHUSETTS MUTUAL LIFE INSURANCE CO.,
a Massachusetts corporation
By: /s/ John B. Joyce
------------------------------------
Name: John B. Joyce
Title: Vice President
13
<PAGE>
FIRST AUSA LIFE INSURANCE COMPANY
By: /s/ Gregory W. Theobald
-------------------
Name: Gregory W. Theobald
Title: VP & Asst. Secretary
PFL LIFE INSURANCE COMPANY
By: /s/ Gregory W. Theobald
-------------------
Name: Gregory W. Theobald
Title: VP & Asst. Secretary
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
By: /s/ Gregory W. Theobald
-------------------
Name: Gregory W. Theobald
Title: VP & Asst. Secretary
BANKERS UNITED LIFE ASSURANCE COMPANY
By: /s/ Gregory W. Theobald
-------------------
Name: Gregory W. Theobald
Title: VP & Asst. Secretary
INTERNATIONAL LIFE INVESTORS INSURANCE CO.
By: /s/ Gregory W. Theobald
-------------------
Name: Gregory W. Theobald
Title: VP & Asst. Secretary
14
<PAGE>
CONNECTICUT MUTUAL LIFE INSURANCE CO.,
a Connecticut Corporation
By: /s/ Norman A. Thetford
------------------
Name: Norman A. Thetford
Title: Senior Investment Officer
C M LIFE INSURANCE COMPANY,
a Connecticut corporation
By: /s/ Norman A. Thetford
------------------
Name: Norman A. Thetford
Title: Senior Investment Officer
PACIFIC MUTUAL LIFE INSURANCE COMPANY,
a California corporation
By: /s/ WR Schmidt
----------
Name: WR Schmidt
Title: Asst VP
AMERITAS LIFE INSURANCE CORP.,
a Nebraska corporation
By:
Name:
Title:
SHENENDOAH LIFE INSURANCE COMPANY,
a Virginia corporation
By:
Name:
Title:
15
<PAGE>
THE CANADA LIFE ASSURANCE COMPANY
By:
Name:
Title:
CANADA LIFE INSURANCE COMPANY OF AMERICA,
a Michigan corporation
By:
Name:
Title:
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
OF PHILADELPHIA, a Pennsylvania corporation
By:
Name:
Title:
PROVIDENT MUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA, a Pennsylvania corporation
By:
Name:
Title:
GUARANTEE MUTUAL LIFE COMPANY,
a Nebraska corporation
By: /s/ Steven A. Scanlan
-----------------
Name: Steven A. Scanlan
Title: Senior Investment Officer - Securities
16
<PAGE>
Exhibit B
----------
Reaffirmation and Consent of Guarantor
All capitalized terms used herein but not otherwise defined herein shall
have the meanings ascribed to them in that certain First Amendment to Amended
and Restated Senior Note Purchase Agreement, dated as of September ___, 1994
(the "Amendment"). The undersigned hereby (a) represents and warrants to the
Noteholders that the execution, delivery, and performance of this Reaffirmation
and Consent of Guarantor are within its corporate powers, have been duly
authorized by all necessary corporate action, and are not in contravention of
any law, rule, or regulation, or any order, judgment, decree, writ, injunction,
or award of any arbitrator, court, or governmental authority, or of the terms of
its charter or bylaws, or of any contract or undertaking to which it is a party
or by which any of its properties may be bound or affected; (b) consents to the
amendment of the Existing Agreement by the Amendment; (c) acknowledges and
reaffirms its obligations owing under the Canada Guaranty; and (d) agrees that
the Canada Guaranty is and shall remain in full force and effect.
MERISEL CANADA INC.
/s/ Timothy N. Jenson
By ___________________________
Assistant Treasurer
Title: _______________________
17
<PAGE>
Exhibit C
----------
Reaffirmation and Consent of Guarantor
All capitalized terms used herein but not otherwise defined herein shall
have the meanings ascribed to them in that certain First Amendment to Amended
and Restated Senior Note Purchase Agreement, dated as of September ___, 1994
(the "Amendment"). The undersigned hereby (a) represents and warrants to the
Noteholders that the execution, delivery, and performance of this Reaffirmation
and Consent of Guarantor are within its corporate powers, have been duly
authorized by all necessary corporate action, and are not in contravention of
any law, rule, or regulation, or any order, judgment, decree, writ, injunction,
or award of any arbitrator, court, or governmental authority, or of the terms of
its charter or bylaws, or of any contract or undertaking to which it is a party
or by which any of its properties may be bound or affected; (b) consents to the
amendment of the Existing Agreement by the Amendment; (c) acknowledges and
reaffirms its obligations owing under the Europe Guaranty; and (d) agrees that
the Europe Guaranty is and shall remain in full force and effect.
MERISEL EUROPE, INC.
/s/ Timothy N. Jenson
By ______________________________
Vice President & Treasurer
Title:___________________________
18
<PAGE>
EXHIBIT 10.4
FIRST AMENDMENT TO AMENDED AND
RESTATED SUBORDINATED NOTE PURCHASE AGREEMENT
Re: $22,000,000 of Amended and Restated 11.28% Subordinated
Notes due March 10, 2000
Dated as of September 30, 1994
This First Amendment (this "Amendment") to the Amended and Restated
Subordinated Note Purchase Agreement, dated as of December 23, 1993 (the
"Existing Agreement"), is entered into as of September 30, 1994 by and among
the Noteholders identified on the signature pages hereof (the "Noteholders") and
Merisel Americas, Inc., a Delaware corporation (the "Company"). Capitalized
terms used herein without definition shall have the same meanings herein as set
forth in the Existing Agreement.
RECITAL
The parties hereto have agreed to amend the Existing Agreement as
hereinafter set forth.
IN CONSIDERATION of the mutual promises and covenants set forth herein, the
parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE EXISTING AGREEMENT.
a. Section 12.1 of the Existing Agreement hereby is amended to add the
following definition(s) in alphabetical order:
"Excess Restricted Payments" shall mean the aggregate amount of all
Restricted Payments (including Parent Notes Restricted Payments) declared,
ordered, paid, made, or set apart subsequent to the Closing Date in excess
of an amount equal to (i) 25% of Consolidated Net Income (as defined in (S)
12.7) realized subsequent to January 1, 1994 (in each case reduced by 100%
of any losses, if Consolidated Net Income (as defined in (S) 12.7) is a
loss during any fiscal period), plus (ii) 100% of the aggregate amount of
----
net cash proceeds received by the Company from the sale of additional
common stock issued after the Closing Date or other Securities issued after
the Closing Date and subsequently converted into common stock.
"Interest Coverage Ratio" shall mean, with respect to any date of
determination, a ratio of Earnings before Interest and Taxes (as defined in
(S) 12.7) for the Company's preceding four fiscal quarters to Interest
Expense (as defined in (S) 12.7) for the Company's preceding four fiscal
quarters.
1
<PAGE>
"Parent Notes" shall mean promissory notes issued by Merisel, Inc.
prior to December 31, 1994 in an aggregate original principal amount of not
more than $150,000,000, with interest only payable semi-annually on the
last day of each of the second and fourth fiscal quarters of the Company
(or, if such last day is not a Business Day, on the next succeeding
Business Day) and no interim scheduled payments of principal prior to
September 30, 1999, as the same may be amended, extended, renewed, or
refinanced; provided that any such amendment or refinancing does not result
in any increase in the amount of principal or in any change in the payment
schedule thereof that would result in any interim scheduled payments of
principal prior to September 30, 1999 .
"Parent Notes Restricted Payment" shall mean a Restricted Payment to
Merisel, Inc. for the sole purpose of permitting Merisel, Inc. to make the
scheduled interest payment then due and owing in respect of the Parent
Notes.
"Restricted Payment" shall mean (a) any dividend or other distribution
on any shares of the Company's stock (except a dividend payable solely in
shares of capital stock, and dividends or other distributions payable to
the Company or any of its Subsidiaries) and any redemption, retirement,
purchase of any shares of capital stock of the Company or any of its
Subsidiaries, and (b) any loans or advances to, and investments in the
stock or securities of, entities other than Subsidiaries of the Company,
except for Permitted Investments.
"Restricted Payment Compliance Condition" shall mean the delivery by
the Company to each Noteholder, at least ten (10) days prior to declaring,
paying, making, or setting apart any funds or assets for any Restricted
Payment, of a certificate of the Chief Financial Officer or Treasurer of
the Company stating that (A) such officer has reviewed the provisions of
the Agreement, (B) before and after giving effect to such Restricted
Payment, the Company is, and in good faith believes it will remain, in
compliance with the requirements of Section 9.6 through Section 9.18, and
----------- ------------
providing detailed computations of the Company's compliance with Section
-------
9.10 through Section 9.15 and, if applicable, Section 9.16 through Section
---- ------------ ------------ -------
9.18, and (C) there exists no Event of Default or Default.
----
b. Section 9.13 of the Existing Agreement hereby is deleted in its entirety
and the following hereby is substituted in lieu thereof:
(S) 9.13 Interest Coverage Ratio. The Company and its Subsidiaries, on
a consolidated basis, shall at all times maintain an Interest Coverage
Ratio of: (a) at least 2.0 to 1.0, in the event the then extant amount of
Excess Restricted Payments is less than or equal to zero; (b) at least 2.1
to 1.0, in the event the then extant amount of Excess Restricted Payments
exceeds zero but is less than $7,500,000; (c) at least 2.2 to 1.0, in the
event the then extant amount of Excess Restricted Payments exceeds
$7,500,000 but is less than $15,000,000; (d) at least 2.3 to 1.0, in the
event the then extant amount of Excess Restricted Payments exceeds
$15,000,000 but is less than $22,500,000; (e) at least 2.4 to 1.0, in the
event the then extant amount of Excess Restricted Payments exceeds
$22,500,000 but is less than $30,000,000; (f) at least 2.5
2
<PAGE>
to 1.0, in the event the then extant amount of Excess Restricted Payments
exceeds $30,000,000 but is less than $37,500,000; and (g) at least 2.75 to
1.0, in the event the then extant amount of Excess Restricted Payments is
equal to or exceeds $37,500,000.
c. Section 9.14 of the Existing Agreement hereby is deleted in its entirety
and the following hereby is substituted in lieu thereof:
(S) 9.14 Consolidated Tangible Net Worth. As of the Closing Date, the
Company shall have and maintain Consolidated Tangible Net Worth (as defined
in (S) 12.7) of not less than $130,000,000. As of December 31, 1993, the
Company shall have and maintain Consolidated Tangible Net Worth (as defined
in (S) 12.7) of not less than $140,939,000. As of the end of each fiscal
quarter following December 31, 1993, the Company shall have and maintain
Consolidated Tangible Net Worth (as defined in (S) 12.7) of not less than
the sum of (a) $140,939,000 plus (b) seventy-five percent (75%) of the
----
cumulative Consolidated Net Income (as defined in (S) 12.7) (without any
deduction for any negative Consolidated Net Income (as defined in (S)
12.7)) earned after December 31, 1993.
d. Section 9.15 of the Existing Agreement hereby is deleted in its entirety
and the following hereby is substituted in lieu thereof:
(S) 9.15 Limitation on Restricted Payments. The Company shall not, and
shall not permit its Subsidiaries to, directly or indirectly, declare,
order, pay, make, or set apart any funds or Assets for any Restricted
Payment, unless, after giving effect thereto: (a) no Default or Event of
Default shall have occurred and be continuing; (b) the aggregate amount of
all Restricted Payments (including Parent Notes Restricted Payments)
declared, ordered, paid, made, or set apart subsequent to the Closing
Date does not exceed an amount equal to (i) 25% of Consolidated Net
Income (as defined in (S) 12.7) realized subsequent to January 1, 1994
(in each case reduced by 100% of any losses, if Consolidated Net Income (as
defined in (S) 12.7) is a loss during any fiscal period), plus (ii) 100% of
----
the aggregate amount of net cash proceeds received by the Company from
the sale of additional common stock issued after the Closing Date or other
Securities issued after the Closing Date and subsequently converted into
common stock; and (c) the Restricted Payment Compliance Condition shall
have been satisfied. Any failure to satisfy the foregoing condition (b)
notwithstanding, the Company may make Parent Notes Restricted Payments.
e. Section 7.02(d)(iii) of the Revolving Credit Agreement, as amended
concurrently with this Amendment, hereby is incorporated into the Existing
Agreement as a new Section 9.19 thereof.
f. A new subsection (f) hereby is added to Section 10.1 of the Existing
Agreement as follows:
(f) Daily Balances of Indebtedness to Merisel, Inc. As soon as
available and in any event within 45 days after the end of each fiscal
quarter
3
<PAGE>
of the Company, a written report, in form and substance satisfactory to the
Noteholders, specifying the actual outstanding daily balance of
indebtedness owed by the Company to Merisel, Inc. as of the end of each
Business Day during that fiscal quarter.
g. A new section 12.7 hereby is added to the Existing Agreement as follows:
12.7 Alternative Definitions for certain Financial Covenants. The
-------------------------------------------------------
following terms shall have the following meanings for purposes of the
definitions of "Excess Restricted Payments" and "Interest Coverage Ratio"
in (S) 12.1, for purposes of (S) 9.14, (S) 9.15, and for purposes of the
other definitions in this (S) 12.7:
"Consolidated Net Income" for any period shall mean the gross revenues
of the Company and its Subsidiaries for such period less all expenses and
other proper charges (including taxes on income), determined on a
consolidated basis after eliminating earnings or losses attributable to
outstanding Minority Interests (as defined in the Senior Note Purchase
Agreement) in the Company or any Subsidiary of the Company, but excluding
in any event: (a) any gains or losses on the sale or other disposition of
Permitted Investments or fixed or capital assets, and any taxes on such
excluded gains and any tax deductions or credits on account of any such
excluded losses; (b) the proceeds of any life insurance policy; (c) net
earnings and losses of any Subsidiary of the Company accrued prior to the
date it became a Subsidiary; (d) net earnings and losses of any corporation
(other than a Subsidiary of the Company), substantially all the assets of
which have been acquired in any manner by the Company or any Subsidiary of
the Company, realized by such corporation prior to the date of such
acquisition; (e) net earnings and losses of any corporation (other than a
Subsidiary of the Company) with which the Company or a Subsidiary of the
Company shall have consolidated or which shall have merged into or with the
Company or a Subsidiary of the Company prior to the date of such
consolidation or merger; (f) earnings resulting from any reappraisal,
revaluation or write-up of assets; (g) any deferred or other credit
representing any excess of the equity in any Subsidiary of the Company at
the date of acquisition thereof over the amount invested in such
Subsidiary; (h) any gain arising from the acquisition of any securities of
the Company or any Subsidiary of the Company; and (i) any reversal of any
contingency reserve, except to the extent that provision for such
contingency reserve shall have been made from income arising during the
most recently audited fiscal year. As used in this (S) 12.7, "Consolidated
Net Income" shall not include any proceeds received by the Company or any
of its Subsidiaries from a sale of an interest in its accounts receivable
pursuant to any Approved Securitization Transaction (as defined in the
Senior Note Purchase Agreement).
"Consolidated Tangible Net Worth" shall mean the sum of the
consolidated shareholders' equity, less all Intangible Assets (as defined
in the Senior Note Purchase Agreement), and deferred taxes to the extent a
credit exists, (excluding any write-up of the book value of any assets of
the Company and its Subsidiaries resulting from revaluation thereof
subsequent to December 31, 1992) determined in accordance with GAAP.
4
<PAGE>
"Earnings before Interest and Taxes" shall mean Consolidated Net
Income plus (to the extent deducted in determining Consolidated Net Income)
----
Interest Expense and provisions for income taxes of the Company and its
Subsidiaries as determined in accordance with GAAP.
"Interest Expense" shall mean amounts paid in respect of (a) interest
paid on Consolidated Debt (as defined in the Senior Note Purchase
Agreement) plus (b) Imputed Securitization Interest (as defined in the
----
Senior Note Purchase Agreement), in each case during the applicable period.
h. A new section 14.7 hereby is added to the Existing Agreement as follows:
14.7 Subordination of Company Indebtedness Owing to Merisel, Inc.
------------------------------------------------------------
Any present and future indebtedness of the Company to Merisel, Inc. shall
be postponed in favor of and subordinated to payment, in full, in cash of
all obligations under the Agreement (the "Subordinated Notes Obligations"),
and no payment of any kind whatsoever shall be made with respect to such
indebtedness until the Subordinated Notes Obligations have been
indefeasibly paid in full; provided, however, that so long as (a) no
-------- -------
Default or Event of Default has occurred and is continuing or would be
caused thereby, and (b) no Blockage Period is in effect, the Company may
make principal and interest payments on its indebtedness owed to Merisel,
Inc .
SECTION 2. CONDITIONS TO EFFECTIVENESS.
The satisfaction of each of the following shall constitute conditions
precedent to the effectiveness of this Amendment:
a. the execution and delivery of this Amendment by the Company and the
requisite Noteholders in accordance with Section 14.4 of the Existing Agreement;
b. the receipt by the Company, Merisel Europe, Inc. and Merisel, Inc. of
amendments to the Senior Note Purchase Agreement and the Revolving Credit
Agreement to remove certain restrictions on the ability of direct or indirect
subsidiaries of Merisel, Inc. to pay dividends to Merisel, Inc., which
amendments shall be substantially similar to the provisions of the amendment
contained in Section 1(d) hereof;
c. the representations and warranties in this Amendment and the Existing
Agreement as amended by this Amendment (the "Amended Agreement") shall be true,
correct and complete in all respects on and as of the date hereof, as though
made on such date (except to the extent that such representations and warranties
relate solely to an earlier date, in which case they are true, correct and
complete in all material respects as of such earlier date);
5
<PAGE>
d. no Default or Event of Default shall have occurred and be continuing on
the date hereof, nor shall result from the consummation of the transactions
contemplated herein;
e. no injunction, writ, restraining order, or other order of any nature
prohibiting, directly or indirectly, the consummation of the transactions
contemplated herein shall have been issued and remain in force by any
governmental authority against the Company or Merisel, Inc.;
f. the Company shall have delivered a certificate from the Secretary of the
Company attesting to the resolutions of the Company's Board of Directors
authorizing its execution and delivery of this Amendment and authorizing
specific officers of the Company to execute same;
g. the Company shall have delivered copies of the Company's By-laws and
Certificate of Incorporation, as amended, modified, or supplemented to the date
hereof, certified by the Secretary of the Company; and
h. the Company shall have delivered a certificate of corporate status with
respect to the Company, dated within ten (10) days of the date hereof, by the
Secretary of State of Delaware, which certificate shall indicate that the
Company is in good standing in such state.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
In order to induce the requisite Noteholders under (S) 14.4 of the Existing
Agreement to enter into this Amendment and to amend the Existing Agreement in
the manner provided herein, the company represents and warrants to each
Noteholder that the following statements are true, correct and complete:
a. Corporate Power and Authority. The Company has all requisite corporate
power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under the Amended
Agreement.
b. Authorization of Agreements. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly authorized
by all necessary corporate action by the Company.
c. No Conflict. The execution and delivery by the Company of this
Amendment and the performance by the Company of the Amended Agreement do not and
will not (i) violate any provision of law, rule or regulation applicable to the
Company or any of its Subsidiaries, the Certificate of Incorporation or bylaws
of the Company or any of its Subsidiaries, (ii) conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any material contractual obligation of the Company or any of its
Subsidiaries, (iii) result in or require the creation or imposition of any Lien
upon any of its
6
<PAGE>
properties or assets, or (iv) require any approval of stockholders or any
approval or consent of any Person under any contractual obligation of the
Company or any of its Subsidiaries.
d. Governmental Consents. The execution and delivery by the Company and
the performance by the Company of the Amended Agreement do not and will not
require any registration with, consent or approval of, or notice to, or other
action to, with or by, any Federal, state or other governmental authority or
regulatory body or other Person.
e. Binding Obligation. This Amendment and the Amended Agreement are the
legally valid and binding obligations of the Company, enforceable against it in
accordance with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or limiting creditors' rights generally or by equitable principles
relating to enforceability.
SECTION 4. MISCELLANEOUS.
a. Reference to and Effect on the Existing Agreement.
(1) On and after the effective date of this Amendment, each reference
in the Existing Agreement to "this Agreement", "hereunder", "hereof", "herein",
or words of like import referring to the Existing Agreement, shall mean and be a
reference to the Existing Agreement as amended by this Amendment.
(2) Except as specifically amended by this Amendment, the Existing
Agreement shall remain in full force and effect and hereby is ratified and
confirmed in all respects. The execution, delivery, and performance of this
Amendment shall not operate as a waiver of, or except as expressly set forth
herein, as an amendment, of any right, power, or remedy of the Noteholders under
ther Existing Agreement, as in effect prior to the date hereof, or any further
or other matter.
(3) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any provision
of, or operate as a waiver of any right, power or remedy of any Noteholder
under, the Existing Agreement.
b. Execution and Counterparts. This Amendment may be executed in any
number of counterparts, and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts taken together shall constitute one and the
same instrument.
c. Headings. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose of be given any substantive
effective.
7
<PAGE>
Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER,
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF CALIFORNIA.
IN WITNESS WHEREOF, the Company and the Noteholders have caused this
Amendment to be duly executed by their respective duly authorized officers, all
as of the day and year first above written.
MERISEL AMERICAS, INC.
By: /s/ Timothy N. Jenson
-------------------------------------------
Name: Timothy N. Jenson
Title: Vice President & Treasure
THE UNION CENTRAL LIFE INSURANCE CO.
By: /s/
-------------------------------------------
Name:
Title:
THE CANADA LIFE ASSURANCE COMPANY
By: /s/
-------------------------------------------
Name:
Title:
GUARANTEE MUTUAL LIFE COMPANY
By: /s/ Steven A. Scanlan
-------------------------------------------
Name: Steven A. Scanlan
Title: Senior Investment Officer-Securities
8
<PAGE>
PRINCIPAL MUTUAL LIFE INSURANCE CO.
By: /s/ James C. Fifield
------------------------------------------
Name: James C. Fifield
Title: Counsel
By: /s/ Jon C. Heiny
------------------------------------------
Name: Jon C. Heiny
Title: Counsel
PAN AMERICAN LIFE INSURANCE COMPANY
By: /s/ Luis Ingles, Jr.
------------------------------------------
Name: Luis Ingles, Jr., C.F.A.
Title: Senior Vice President-Investments
9
<PAGE>
EXHIBIT 10.5
FOURTH AMENDMENT
Dated as of October 7, 1994
THIS FOURTH AMENDMENT is entered into among MERISEL AMERICAS, INC., a
Delaware corporation (the "Seller"), CIESCO L.P. ("CIESCO"), CITIBANK, N.A.
("Citibank"), CITICORP NORTH AMERICA, INC., individually ("CNA") and as agent
(the "Agent"), and the other financial institutions listed on the signature
pages hereof under the heading "Banks" (together with Citibank, the "Banks"),
being the financial institutions willing, on the terms and conditions set forth
herein, to continue their respective obligations to purchase (i) "Percentage
Interests" (as such term is defined in that certain Asset Purchase Agreement
dated as of March 25, 1994 (said Asset Purchase Agreement being the "Asset
Purchase Agreement") between each Bank other than Citibank and the Agent) in
respect of Eligible Assets purchased from time to time under and as defined in
the Trade Receivables Purchase and Sale Agreement dated as of September 24,
1993, as amended by the Assumption and Second Amendment dated as of December 23,
1993 and the Third Amendment dated as of March 24, 1994 (said Agreement, as so
amended, being the "CIESCO Agreement"), by the Investor, and (ii) ratable
interests in Eligible Assets purchased from time to time under and as defined in
the Trade Receivables Purchase and Sale Agreement dated as of September 24,
1993, as amended by the Amendment dated as of October 20, 1993, the Assumption
and Second Amendment dated as of December 23, 1993 and the Third Amendment dated
as of March 24, 1994 (said Agreement, as so amended, being the "Parallel
Purchase Commitment" and, together with the CIESCO Agreement, the "Agreements").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings set forth in the respective Agreements.
PRELIMINARY STATEMENT. The Banks, the Seller, CIESCO, CNA and the Agent,
on the terms and conditions stated below, have agreed to, among other things,
extend the Facility Termination Date under the CIESCO Agreement, the Purchase
Termination Date under the Asset Purchase Agreement and the Commitment
Termination Date under the Parallel Purchase Commitment to October 6, 1995,
subject to the satisfaction of certain conditions, and to provide for the
payment of certain additional fees by the Seller.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Amendments to CIESCO Agreement. The CIESCO Agreement is,
------------------------------
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 5 hereof, hereby amended as follows:
<PAGE>
2
(a) The definitions of the terms "Assignee", "Contract", "Credit
Agreement", "Fee Letter", "Obligor" and "Receivable", contained in Section
1.01 of the CIESCO Agreement, are amended in their entirety to read as
follows, respectively:
"'Assignee' means Citibank, CNA or the Investor, or any of their
--------
respective Affiliates, as the assignee of an Eligible Asset pursuant
to Article IX and, in the case of any assignment pursuant to Section
9.02, all but not part of the rights and obligations of the Investor
hereunder."
"'Contract' means (i) an agreement between the Seller and an
--------
Obligor, in substantially the form of one of the forms of written
contract delivered to the Agent prior to the date hereof (or in
substantially the form of any other form of written contract delivered
from time to time to the Agent by the Seller after the date hereof if
such other form shall have been approved by the Agent in its
reasonable discretion) or containing payment terms and conditions and
covering sales of merchandise or services of a type substantially
similar thereto, or in the case of an open account agreement, as
evidenced by an invoice of the Seller in substantially the form of one
of the forms of invoices delivered to the Agent prior to the date
hereof (or in substantially the form of any other form of written
invoice delivered from time to time to the Agent by the Seller after
the date hereof if such other form shall have been approved by the
Agent in its reasonable discretion) or containing payment terms and
conditions and covering sales of merchandise or services of a type
substantially similar thereto, in each case pursuant to or under which
such Obligor shall be obligated to pay for its purchase of merchandise
or services from time to time, or (ii) in the case of a Receivable of
the type described in clause (ii) of the definition of the term
'Receivable', the agreement or arrangement of the type described in
clause (iii) of the definition of the term 'Related Security' under
which such Receivable arose."
"'Credit Agreement' means the Revolving Credit Agreement dated as
----------------
of December 23, 1993, as amended by the First Amendment to Revolving
Credit Agreement dated as of September 29, 1994, among the Seller and
Merisel Europe, Inc., as borrowers, Merisel, as
<PAGE>
3
guarantor, the lenders party thereto, Citibank, as designated issuer,
and Citicorp USA, Inc. as agent for such lenders, without giving
effect to any other amendment, supplement or other modification
thereof or thereto or any waiver of any provision or any termination
thereof."
"'Fee Letter' means the letter agreement regarding additional
----------
fees, dated the date hereof, as amended by the letter agreement dated
October 7, 1994, between the Seller and the Agent."
"'Obligor' means a Person (other than the Seller) either (i)
-------
which is obligated to make payments pursuant to a Contract of the type
described in clause (i) of the definition of the term 'Contract' or
(ii) which is obligated to finance (by lending to an Obligor referred
to in clause (i) above, or by purchasing from the Seller, or
otherwise), or is a party to an agreement that contemplates that such
Person may so finance, a Receivable."
"'Receivable' means (i) the indebtedness of any Original Obligor
----------
under a Contract of the type described in clause (i) of the definition
of the term 'Contract' arising from a sale of merchandise or services
by the Seller to such Original Obligor, including without limitation
any such indebtedness which may be financed by any Floor Plan Obligor,
and (ii) the indebtedness of any Floor Plan Obligor arising from the
sale of any Receivable referred to in clause (i) above to such Floor
Plan Obligor as contemplated by Section 5.03(a), and, in the case of
clauses (i) and (ii) above, includes the right to payment of any
interest or finance charges and other obligations of such Obligor with
respect thereto. Unless otherwise stated, the term 'Obligor' of any
Receivable refers to both the Original Obligor that owes such
Receivable and, if applicable, the Floor Plan Obligor that finances,
or may finance, such Receivable."
(b) The definition of the term "Eligible Asset", contained in Section
1.01 of the CIESCO Agreement, is amended by adding to the end of clause
(iii) thereof the parenthetical "(including, without limitation, proceeds
in the form of cash or indebtedness arising from the sale of Pool
Receivables to Floor Plan Obligors as contemplated by Section 5.03(a))."
<PAGE>
4
(c) Clause (v) of the definition of the term "Eligible Receivable",
contained in Section 1.01 of the CIESCO Agreement, is amended in its
entirety to read as follows:
"(v) which, according to the Contract related thereto, is
required to be paid in full within 61 days of the original invoice
date therefor, in the case of any Receivable of the type described in
clause (i) of the definition of the term 'Receivable', or, in the case
of any Receivable of the type described in clause (ii) of the
definition of such term, by the date by which the Pool Receivable the
sale of which gave rise to such Receivable was so required to have
been paid in full;".
(d) The definition of the term "Facility Termination Date", contained
in Section 1.01 of the CIESCO Agreement, is amended by adding to the end
thereof the following proviso:
-------
"; provided, however, that the 'Facility Termination Date' shall be
-------- -------
extended to the earlier of October 6, 1995 or the date of termination
of the Facility pursuant to Section 2.03 or Section 7.01 if, and only
if, (i) prior to November 30, 1994, Merisel shall have received
funding in an aggregate amount of at least $100,000,000 from new
sources of liquidity (other than the Credit Agreement), and from
Persons which are not Affiliates of Merisel, the term of which sources
of liquidity is at least five years, and (ii) the Seller shall have
performed and observed the covenants set forth in Sections 5.01(k) and
(l) hereof pursuant to the terms thereof, with such extension to occur
automatically, without any further action, upon the satisfaction of
the conditions set forth in clauses (i) and (ii) above."
(e) Section 1.01 of the CIESCO Agreement is further amended by adding
thereto definitions of the new terms "Assignment and Acceptance",
"Investor", "Restructuring Fee" and "Resyndication Fee", such definitions
of such new terms to read as follows:
"'Assignment and Acceptance' means an assignment and acceptance
-------------------------
entered into by the Investor and an Assignee in substantially the form
of Exhibit H hereto."
<PAGE>
5
"'Investor' has the meaning assigned to that term at the
--------
beginning of this Agreement; provided, however, that upon any
-------- -------
assignment of all of the Eligible Assets owned by the Investor
together with all of the rights and obligations of the Investor
hereunder pursuant to Section 9.02, the Assignee thereof shall be the
Investor for all purposes hereunder."
"'Restructuring Fee' has the meaning specified in Section 2.11."
-----------------
"'Resyndication Fee' has the meaning specified in Section 2.11."
-----------------
(f) Clause (ii) of Section 2.11 of the CIESCO Agreement is amended by
replacing the rate for the Program Fee of "20/100 of 1% per annum" with the
following rate:
"20/100 of 1% per annum for the fiscal quarter next following each
fiscal quarter at the end of which the ratio of Consolidated Debt
Equivalents (as defined in the Credit Agreement) for the Seller to the
sum of such Consolidated Debt Equivalents plus Consolidated Net Worth
(as defined in the Credit Agreement) for the Seller is equal to or
less than .55 to 1, or 25/100 of 1% per annum for the fiscal quarter
next following each fiscal quarter at the end of which such ratio is
greater than .55 to 1 but equal to or less than .625 to 1, or 375/1000
of 1% per annum for the fiscal quarter next following each fiscal
quarter at the end of which such ratio is greater than .625 to 1".
(g) Section 2.11 of the CIESCO Agreement is further amended by adding
to the end thereof a new subsection (d) to read as follows:
"(d) The Seller shall also pay to the Agent, on the first date
on which all of the conditions set forth in clauses (i) and (ii) of
the proviso to the definition of the term 'Facility Termination Date'
-------
shall have been satisfied, (i) for the account of the Agent a
restructuring fee (the 'Restructuring Fee') as set forth in the Fee
Letter, and (ii) for the account of Citibank, in consideration for its
support of the Eligible Assets purchased hereunder, a resyndication
fee (the 'Resyndication Fee') in the amount of 1/20 of 1% of the
entire Purchase Limit (whether used or unused) on such date; provided,
--------
<PAGE>
6
however, that the Seller shall be entitled to a credit against the
-------
Restructuring Fee and the Resyndication Fee payable under this
Agreement equal to the full amount of the 'Restructuring Fee' and the
'Resyndication Fee', respectively, actually paid by the Seller under
the Parallel Purchase Commitment."
(h) Section 4.01(f) of the CIESCO Agreement is amended in its entirety
to read as follows:
"(f) Except as disclosed in Merisel's 1992 annual report on Form
10-K, a copy of which has been furnished to the Agent, or as set forth
on Schedule IV hereto, there is no pending or, to the best knowledge
of the Seller, threatened action or proceeding affecting the Seller or
any of its subsidiaries before any court, governmental agency or
arbitrator which may materially adversely affect (i) the financial
condition or operations of the Seller and its subsidiaries taken as a
whole or (ii) the ability of the Seller to perform its obligations
under this Agreement, the Certificate or the Fee Letter, or which
purports to affect the legality, validity or enforceability of this
Agreement, the Certificate or the Fee Letter."
(i) Section 5.01(i) of the CIESCO Agreement is amended in its entirety
to read as follows:
"(i) Lock-Box Agreements. Deliver, or cause to be delivered, to
-------------------
the Agent on or before October 31, 1994, a Lock-Box Agreement with
Bank of America National Trust and Savings Association or any
replacement Lock-Box Bank therefor, duly executed by the Seller and
such Lock-Box Bank, together with Lock-Box Notices related thereto
executed by the Seller."
(j) Section 5.01 of the CIESCO Agreement is further amended by adding
to the end thereof new subsections (k) and (l) to read as follows:
"(k) Bankruptcy Remote Subsidiary. On or prior to October 18,
----------------------------
1994 (or such later date (but in no event later than November 30,
1994), if any, as shall have been approved by the Agent in writing in
its
<PAGE>
7
sole discretion, with such approval not to be unreasonably withheld so
long as the Seller is, in the Agent's determination, diligently
working towards the full performance of the requirements of this
Section 5.01(k)), (i) establish a wholly-owned bankruptcy-remote
subsidiary of the Seller created solely to purchase from time to time
from the Seller, and to sell from time to time to the Owners undivided
interests (similar to the Eligible Assets) in, the Pool Receivables,
and (ii) enter into, and cause such subsidiary to enter into, new
purchase and sale agreements in form and substance satisfactory to the
Agent providing for such purchases and sales by such subsidiary and
taking the place of this Agreement and the Parallel Purchase
Commitment, and cause such agreements to become effective in
accordance with their respective terms (including without limitation
as a result of the delivery to the Agent of (A) a favorable opinion of
counsel to the Seller and such subsidiary in form and substance
satisfactory to the Agent to the effect that (1) such sales of Pool
Receivables from the Seller to such subsidiary would be 'true sales'
for bankruptcy purposes and (2) upon the bankruptcy of the Seller, the
assets and liabilities of such subsidiary would not be substantively
consolidated with those of the Seller, and (B) a favorable opinion of
counsel to the Seller and such subsidiary with respect to such new
purchase and sale agreements and the other instruments and documents
furnished by the Seller or such subsidiary pursuant thereto but
otherwise substantially in the form of Exhibit E hereto and as to such
other matters as the Agent may reasonably request)."
"(l) Further Amendment. On or prior to November 29, 1994, enter
-----------------
into and cause to become effective an amendment to this Agreement and
to the Parallel Purchase Commitment, in form and substance
satisfactory to the Agent, separating the Loss and Dilution Reserve
into two separate reserves sized according to rating agency standards
for structuring securitizations and structured on a basis acceptable
to the Seller and the Agent."
(k) Section 7.01(b) of the CIESCO Agreement is amended by replacing
the Section references "Section 5.02(c), 5.03(e) or 6.03(a)" with the
Section references "Section 5.01(k), 5.01(l), 5.02(c), 5.03(e) or 6.03(a)".
<PAGE>
8
(l) Section 9.02 of the CIESCO Agreement is amended in its entirety to
read as follows:
"SECTION 9.02. Assignment of Rights and Obligations. (a) The
------------------------------------
Investor may assign to any Assignee all of its rights and obligations
under this Agreement (including, without limitation, its right to make
Purchases and reinvestments from time to time hereunder and all
Eligible Assets owned by it); provided, however, that (i) each such
-------- -------
assignment shall be of all but not part of the Investor's rights and
obligations under this Agreement and all Eligible Assets owned by it,
(ii) each such assignment shall be to an Assignee, (iii) the parties
to each such assignment shall execute and deliver to the Agent, for
its acceptance, an Assignment and Acceptance, and (iv) the consent of
the Agent shall first have been obtained. Upon such execution,
delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, which effective date
shall be the later of (x) the date the Agent receives the executed
Assignment and Acceptance and (y) the date of such Assignment and
Acceptance, (I) the assignee thereunder shall be a party hereto and
shall have all the rights and obligations of the Investor hereunder
and (II) the assigning Investor shall relinquish all of its rights and
be released from all of its obligations under this Agreement.
(b) By executing and delivering an Assignment and Acceptance, the
assigning Investor and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other
than as provided in such Assignment and Acceptance, the assigning
Investor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement, the
Certificate or the Fee Letter or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement,
the Certificate or the Fee Letter or any other instrument or document
furnished pursuant hereto; (ii) the assigning Investor makes no
representation or warranty and assumes no responsibility with respect
to the financial condition of the Seller or the performance or
observance by the Seller of any of its obligations under this
Agreement, the Certificate or the Fee Letter or any other instrument
or document furnished
<PAGE>
9
pursuant hereto; (iii) such assignee confirms that it has received a
copy of this Agreement and the Fee Letter, together with copies of the
financial statements referred to in Section 4.01, information
regarding the Obligors and such other documents and information as it
has deemed appropriate to make its own analysis and decision to enter
into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent, any of its
Affiliates, the assigning Investor or any former Owner and based on
such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not
taking action under this Agreement and the Fee Letter; (v) such
assignee confirms that it is an Assignee; (vi) such assignee appoints
and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement and the Fee Letter as
are delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; (vii) such Assignee
appoints as its agent the Collection Agent from time to time
designated pursuant to Section 6.01 to enforce its respective rights
and interests in and under the Pool Receivables, the Related Security
and the related Contracts; (viii) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by
the terms of this Agreement are required to be performed by it as the
Investor; (ix) such Assignee agrees that it will not institute against
the assigning Investor or any former Investor any proceeding of the
type referred to in Section 7.01(g) so long as any Commercial Paper
Notes or Medium Term Notes issued by the assigning Investor or any
former Investor shall be outstanding or there shall not have elapsed
one year plus one day since the last day on which any such Commercial
Paper Notes or Medium Term Notes shall have been outstanding; and (x)
such Assignee agrees that it will comply with the provisions of
Section 11.08(b) and perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be
performed by it as the Investor.
(c) The Agent shall maintain at its office referred to in
Section 11.02 a copy of each Assignment and Acceptance delivered to
and accepted by it, which shall be available for inspection by the
Seller at any reasonable time and from time to time upon reasonable
prior notice.
<PAGE>
10
(d) Upon its receipt of an Assignment and Acceptance
executed by any assigning Investor and an assignee representing that
it is an Assignee, the Agent shall, if such Assignment and Acceptance
has been completed and is in substantially the form of Exhibit H
hereto, (i) accept such Assignment and Acceptance and (ii) give prompt
notice thereof to the Seller."
(m) Article IX of the CIESCO Agreement is further amended by adding to
the end thereof a new Section 9.03 to read as follows:
"SECTION 9.03. Annotation of Certificate. The Agent shall
-------------------------
annotate the Certificate to reflect any assignments made pursuant to
Section 9.01 or 9.02 or otherwise."
(n) The CIESCO Agreement is further amended by adding thereto a new
Exhibit H in the form of Exhibit H hereto.
(o) The CIESCO Agreement is further amended by adding thereto a new
Schedule IV in the form of Schedule IV hereto.
SECTION 2. Amendments to Parallel Purchase Commitment. The Parallel
------------------------------------------
Purchase Commitment is, effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 5 hereof, hereby
amended as follows:
(a) The definitions of the terms "Contract", "Credit Agreement", "Fee
Letter", "Investor", "Obligor" and "Receivable", contained in Section 1.01
of the Parallel Purchase Commitment, are amended in their entirety to read
as follows, respectively:
"'Contract' means (i) an agreement between the Seller and an
--------
Obligor, in substantially the form of one of the forms of written
contract delivered to the Agent prior to the date hereof (or in
substantially the form of any other form of written contract delivered
from time to time to the Agent by the Seller after the date hereof if
such other form shall have been approved by the Agent in its
reasonable discretion) or containing payment terms and conditions and
covering sales of merchandise or services of a type substantially
similar thereto, or in the case of an open account agreement, as
<PAGE>
11
evidenced by an invoice of the Seller in substantially the form of one
of the forms of invoices delivered to the Agent prior to the date
hereof (or in substantially the form of any other form of written
invoice delivered from time to time to the Agent by the Seller after
the date hereof if such other form shall have been approved by the
Agent in its reasonable discretion) or containing payment terms and
conditions and covering sales of merchandise or services of a type
substantially similar thereto, in each case pursuant to or under which
such Obligor shall be obligated to pay for its purchase of merchandise
or services from time to time, or (ii) in the case of a Receivable of
the type described in clause (ii) of the definition of the term
'Receivable', the agreement or arrangement of the type described in
clause (iii) of the definition of the term 'Related Security' under
which such Receivable arose."
"'Credit Agreement' means the Revolving Credit Agreement dated as
----------------
of December 23, 1993, as amended by the First Amendment to Revolving
Credit Agreement dated as of September 29, 1994, among the Seller and
Merisel Europe, Inc., as borrowers, Merisel, as guarantor, the lenders
party thereto, Citibank, as designated issuer, and Citicorp USA, Inc.
as agent for such lenders, without giving effect to any other
amendment, supplement or other modification thereof or thereto or any
waiver of any provision or any termination thereof."
"'Fee Letter' means the letter agreement regarding additional
----------
fees, dated the date hereof, as amended by the letter agreement dated
October 7, 1994, between the Seller and the Agent."
"'Investor' means Ciesco L.P., a New York limited partnership, or
--------
any other 'Investor' under and as defined in the CIESCO Agreement from
time to time."
"'Obligor' means a Person (other than the Seller) either (i)
-------
which is obligated to make payments pursuant to a Contract of the type
described in clause (i) of the definition of the term 'Contract' or
(ii) which is obligated to finance (by lending to an Obligor referred
to in clause (i) above, or by purchasing from the Seller, or
otherwise), or is a party to an agreement that
<PAGE>
12
contemplates that such Person may so finance, a Receivable."
"'Receivable' means (i) the indebtedness of any Original Obligor
----------
under a Contract of the type described in clause (i) of the definition
of the term 'Contract' arising from a sale of merchandise or services
by the Seller to such Original Obligor, including without limitation
any such indebtedness which may be financed by any Floor Plan Obligor,
and (ii) the indebtedness of any Floor Plan Obligor arising from the
sale of any Receivable referred to in clause (i) above to such Floor
Plan Obligor as contemplated by Section 5.03(a), and, in the case of
clauses (i) and (ii) above, includes the right to payment of any
interest or finance charges and other obligations of such Obligor with
respect thereto. Unless otherwise stated, the term 'Obligor' of any
Receivable refers to both the Original Obligor that owes such
Receivable and, if applicable, the Floor Plan Obligor that finances,
or may finance, such Receivable."
(b) The definition of the term "Eligible Asset", contained in Section
1.01 of the Parallel Purchase Commitment, is amended by adding to the end
of clause (iii) thereof the parenthetical "(including, without limitation,
proceeds in the form of cash or indebtedness arising from the sale of Pool
Receivables to Floor Plan Obligors as contemplated by Section 5.03(a))."
(c) Clause (v) of the definition of the term "Eligible Receivable",
contained in Section 1.01 of the Parallel Purchase Commitment, is amended
in its entirety to read as follows:
"(v) which, according to the Contract related thereto, is
required to be paid in full within 61 days of the original invoice
date therefor, in the case of any Receivable of the type described in
clause (i) of the definition of the term 'Receivable', or, in the case
of any Receivable of the type described in clause (ii) of the
definition of such term, by the date by which the Pool Receivable the
sale of which gave rise to such Receivable was so required to have
been paid in full;".
(d) The definition of the term "Commitment Termination Date",
contained in Section 1.01 of the
<PAGE>
13
Parallel Purchase Commitment, is amended by adding to the end thereof the
following proviso:
-------
"; provided, however, that the 'Commitment Termination Date' shall be
-------- -------
extended to the earlier of October 6, 1995 or the date of termination
of the Commitments pursuant to Section 2.03 or Section 7.01 if, and
only if, (i) prior to November 30, 1994, Merisel shall have received
funding in an aggregate amount of at least $100,000,000 from new
sources of liquidity (other than the Credit Agreement), and from
Persons which are not Affiliates of Merisel, the term of which sources
of liquidity is at least five years, and (ii) the Seller shall have
performed and observed the covenants set forth in Sections 5.01(k) and
(l) hereof pursuant to the terms thereof, with such extension to occur
automatically, without any further action, upon the satisfaction of
the conditions set forth in clauses (i) and (ii) above."
(e) Section 1.01 of the Parallel Purchase Commitment is further
amended by adding thereto definitions of the new terms "Restructuring Fee"
and "Resyndication Fee", such definitions of such new terms to read as
follows:
"'Restructuring Fee' has the meaning specified in Section 2.10."
-----------------
"'Resyndication Fee' has the meaning specified in Section 2.10."
-----------------
(f) Clause (ii) of Section 2.10 of the Parallel Purchase Commitment is
amended by replacing the rate for the Commitment Fee of "20/100 of 1% per
annum" with the following rate:
"20/100 of 1% per annum for the fiscal quarter next following each
fiscal quarter at the end of which the ratio of Consolidated Debt
Equivalents (as defined in the Credit Agreement) for the Seller to the
sum of such Consolidated Debt Equivalents plus Consolidated Net Worth
(as defined in the Credit Agreement) for the Seller is equal to or
less than .55 to 1, or 25/100 of 1% per annum for the fiscal quarter
next following each fiscal quarter at the end of which such ratio is
greater than .55 to 1 but equal to or less than .625 to 1, or 375/1000
of 1% per annum for the fiscal quarter next following each fiscal
quarter at the end of which such ratio is greater than .625 to 1".
<PAGE>
14
(g) Section 2.10 of the Parallel Purchase Commitment is further
amended by adding to the end thereof a new subsection (d) to read as
follows:
"(d) The Seller shall also pay to the Agent, on the first date
on which all of the conditions set forth in clauses (i) and (ii) of
the proviso to the definition of the term 'Commitment Termination
-------
Date' shall have been satisfied, (i) for the account of the Agent a
restructuring fee (the 'Restructuring Fee') as set forth in the Fee
Letter, and (ii) for the account of each Bank, a resyndication fee
(the 'Resyndication Fee') in the amount of 1/20 of 1% of such Bank's
entire Commitment (whether used or unused) on such date."
(h) Section 4.01(f) of the Parallel Purchase Commitment is amended in
its entirety to read as follows:
"(f) Except as disclosed in Merisel's 1992 annual report on Form
10-K, a copy of which has been furnished to the Agent, or as set forth
on Schedule IV hereto, there is no pending or, to the best knowledge
of the Seller, threatened action or proceeding affecting the Seller or
any of its subsidiaries before any court, governmental agency or
arbitrator which may materially adversely affect (i) the financial
condition or operations of the Seller and its subsidiaries taken as a
whole or (ii) the ability of the Seller to perform its obligations
under this Agreement, the Certificate or the Fee Letter, or which
purports to affect the legality, validity or enforceability of this
Agreement, the Certificate or the Fee Letter."
(i) Section 5.01(i) of the Parallel Purchase Commitment is amended in
its entirety to read as follows:
"(i) Lock-Box Agreements. Deliver, or cause to be delivered, to
-------------------
the Agent on or before October 31, 1994, a Lock-Box Agreement with
Bank of America National Trust and Savings Association or any
replacement Lock-Box Bank therefor, duly executed by the Seller and
such Lock-Box Bank, together with Lock-Box Notices related thereto
executed by the Seller."
<PAGE>
15
(j) Section 5.01 of the Parallel Purchase Commitment is further
amended by adding to the end thereof new subsections (k) and (l) to read as
follows:
"(k) Bankruptcy Remote Subsidiary. On or prior to October 18,
----------------------------
1994 (or such later date (but in no event later than November 30,
1994), if any, as shall have been approved by the Agent in writing in
its sole discretion, with such approval not to be unreasonably
withheld so long as the Seller is, in the Agent's determination,
diligently working towards the full performance of the requirements of
this Section 5.01(k)), (i) establish a wholly-owned bankruptcy-remote
subsidiary of the Seller created solely to purchase from time to time
from the Seller, and to sell from time to time to the Owners undivided
interests (similar to the Eligible Assets) in, the Pool Receivables,
and (ii) enter into, and cause such subsidiary to enter into, new
purchase and sale agreements in form and substance satisfactory to the
Agent providing for such purchases and sales by such subsidiary and
taking the place of this Agreement and the CIESCO Agreement, and cause
such agreements to become effective in accordance with their
respective terms (including without limitation as a result of the
delivery to the Agent of (A) a favorable opinion of counsel to the
Seller and such subsidiary in form and substance satisfactory to the
Agent to the effect that (1) such sales of Pool Receivables from the
Seller to such subsidiary would be 'true sales' for bankruptcy
purposes and (2) upon the bankruptcy of the Seller, the assets and
liabilities of such subsidiary would not be substantively consolidated
with those of the Seller, and (B) a favorable opinion of counsel to
the Seller and such subsidiary with respect to such new purchase and
sale agreements and the other instruments and documents furnished by
the Seller or such subsidiary pursuant thereto but otherwise
substantially in the form of Exhibit E hereto and as to such other
matters as the Agent may reasonably request)."
"(l) Further Amendment. On or prior to November 29, 1994, enter
-----------------
into and cause to become effective an amendment to this Agreement and
to the CIESCO Agreement, in form and substance satisfactory to the
Agent, separating the Loss and Dilution Reserve into two separate
reserves sized according to rating agency standards for structuring
securitizations and structured on a basis acceptable to the Seller and
the Agent."
<PAGE>
16
(k) Section 7.01(b) of the Parallel Purchase Commitment is amended by
replacing the Section references "Section 5.02(c), 5.03(e) or 6.03(a)" with
the Section references "Section 5.01(k), 5.01(l), 5.02(c), 5.03(e) or
6.03(a)".
(l) The Parallel Purchase Commitment is further amended by adding
thereto a new Schedule IV in the form of Schedule IV hereto.
SECTION 3. Amendment to the Asset Purchase Agreement. The Asset
-----------------------------------------
Purchase Agreement is, effective automatically, without any further action, upon
the extension, if any, of the Facility Termination Date under the CIESCO
Agreement pursuant to the proviso to the definition of such term (giving effect
-------
to Section 1(b) of this Fourth Amendment) and subject to the satisfaction of the
conditions precedent set forth in Section 5 hereof, hereby amended by amending
the definition of the term "Purchase Termination Date" contained therein by
replacing the date "November 30, 1994" set forth on the signature page thereto
of each Bank (other than Citibank), respectively, next to the caption "Purchase
Termination Date" with the date "October 6, 1995".
SECTION 4. Amendment to the Fee Letter Agreements. Each of the
--------------------------------------
respective fee letter agreements dated March 25, 1994 between the Agent and the
respective Banks (other than Citibank) (the "Side Letters") is, effective as of
the date hereof and subject to the satisfaction of the conditions precedent set
forth in Section 5 hereof, hereby amended by amending in its entirety paragraph
A (entitled "Fees") thereof to read as follows:
"A. Fees
----
Your rights as a Purchaser of interests in Eligible Assets shall
be as set forth in the Receivables Purchase Agreement and in the APA,
but shall not extend to any of the fees set forth in Section 2.11 of
the Receivables Purchase Agreement or the Fee Letter except as set
forth in the following sentences. Whenever all or any portion of the
Program Fee is paid by or on behalf of the Seller pursuant to the
Receivables Purchase Agreement, and to the extent the Program Fee
relates to the period from the date hereof until the later of the date
of termination of your commitment under the APA or, if applicable, the
date of repayment of the amount paid by you under Section 1(b) of the
APA, we, as Agent, will pay, or cause to be paid, to you in U.S.
dollars, and in the kind of funds received, your
<PAGE>
17
interest therein (referred to herein as your 'Facility Fee') equal to
20/100 of 1% per annum for the fiscal quarter next following each
fiscal quarter at the end of which the ratio of Consolidated Debt
Equivalents to Capital Ratio (in each case as defined in the Credit
Agreement) is equal to or less than .55 to 1, or 25/100 of 1% per
annum for the fiscal quarter next following each fiscal quarter at the
end of which such ratio is greater than .55 to 1 but equal to or less
than .625 to 1, or 375/1000 of 1% per annum for the fiscal quarter
next following each fiscal quarter at the end of which such ratio is
greater than .625 to 1, in each case on your 'Commitment' (whether
used or unused) from time to time under the Parallel Purchase
Commitment (or, if there is no such 'Commitment' during the period
referred to above for which the Program Fee is paid, the average daily
amount of your Percentage of Capital of Eligible Assets from time to
time outstanding under the Receivables Purchase Agreement, interests
in which you have either agreed to purchase or have purchased pursuant
to the APA, and of your ratable interest in 'Capital' of 'Eligible
Assets' outstanding under the Parallel Purchase Commitment); provided
that if we receive only a partial payment of the Program Fee, we will
pay to you that portion of the Facility Fee you otherwise would be
entitled to hereunder as the amount of such partial payment of the
Program Fee bears to the full amount of the Program Fee that we should
have received. If all or any portion of the Resyndication Fee is paid
by or on behalf of the Seller pursuant to the Receivables Purchase
Agreement, we, as Agent, will pay, or cause to be paid, to you in U.S.
dollars, and in the kind of funds received, your interest therein
(referred to herein as your 'Extension Fee') equal to 1/20 of 1% of
your 'Commitment' (whether used or unused) at such time under the
Parallel Purchase Commitment; provided that if we receive only a
partial payment of the Resyndication Fee, we will pay to you that
portion of the Extension Fee you otherwise would be entitled to
hereunder as the amount of such partial payment of the Resyndication
Fee bears to the full amount of the Resyndication Fee that we should
have received."
SECTION 5. Conditions of Effectiveness. This Fourth Amendment shall
---------------------------
become effective when, and only when, all of the following shall have occurred:
(a) The Agent shall have received counterparts of (i) this Fourth
Amendment executed by the Seller, CIESCO,
<PAGE>
18
each Bank, CNA and the Agent, and (ii) the letter agreement dated the date
hereof (the "Fee Letter Amendment") between the Seller and the Agent
amending the Fee Letter and setting forth an additional restructuring fee
payable by the Seller;
(b) The Agent shall have additionally received all of the following
documents, each document (unless otherwise indicated) being dated the date
hereof, in form and substance satisfactory to the Agent:
(i) A certified copy of the resolutions of the Board of Directors
of the Seller approving this Fourth Amendment and the Fee Letter
Amendment and the matters contemplated hereby and thereby;
(ii) A certificate of the Secretary or an Assistant Secretary of
the Seller certifying the names and true signatures of the officers
thereof authorized to sign this Fourth Amendment and the Fee Letter
Amendment and the other documents to be delivered by it hereunder;
(iii) An undated Preliminary Lock-Box Notice to Harris Trust and
Savings Bank executed by the Seller;
(iv) A favorable opinion of Riordan & McKinzie, counsel for the
Seller, covering this Fourth Amendment and the Fee Letter Amendment
and being in form and substance reasonably acceptable to the Agent;
and
(v) A certificate signed by a duly authorized officer of the
Seller stating that:
(A) The representations and warranties contained in Section
4.01 of (i) the Trade Receivables Purchase and Sale Agreement
dated as of September 24, 1993, as amended by the Assumption and
Second Amendment thereto dated as of December 23, 1993, the Third
Amendment thereto dated as of March 24, 1994 and the Fourth
Amendment thereto dated as of October 7, 1994, among Merisel
Americas, Inc., CIESCO L.P. and Citicorp North America, Inc., as
Agent, and (ii) the Trade Receivables Purchase and Sale Agreement
dated as of September 24, 1993, as amended by the Amendment
thereto dated as of October 20, 1993, the Assumption and Second
Amendment thereto dated as of December 23, 1993,
<PAGE>
19
the Third Amendment thereto dated as of March 24, 1994 and the
Fourth Amendment thereto dated as of October 7, 1994, among
Merisel Americas, Inc., Citibank, N.A. and the other financial
institutions party thereto as "Banks" and Citicorp North America,
Inc., individually and as Agent, are correct in all material
respects on and as of the date of such certificate as though made
on and as of such date, and
(B) No event has occurred and is continuing which
constitutes an Event of Investment Ineligibility or Event of
Termination, as applicable, under and as defined in such
Agreements, or would constitute an Event of Investment
Ineligibility or Event of Termination but for the requirement
that notice be given or time elapse or both; and
(c) The Agent shall have additionally received, in lawful money of the
United States in same day funds, payment of (i) a fee for the account of
each Bank in the amount of 1/20 of 1% of its entire Commitment (whether
used or unused) under and as defined in the Parallel Purchase Commitment on
the date hereof and (ii) an additional restructuring fee for the account of
the Agent as set forth in the Fee Letter Amendment.
SECTION 6. Reference to and Effect on the Agreements, etc. (a) Upon
-----------------------------------------------
the effectiveness of this Fourth Amendment, on and after the date hereof, each
reference in either of the Agreements, the Asset Purchase Agreement or the Side
Letters to "this Agreement" (or, in the case of the Side Letters, "this
letter"), "hereunder", "hereof", "herein" or words of like import referring to
such Agreement, the Asset Purchase Agreement or such Side Letters, and each
reference to either of the Agreements, the Asset Purchase Agreement or such Side
Letters in the Certificates or any other document delivered in connection with
either of the Agreements, shall mean and be a reference to such Agreement, the
Asset Purchase Agreement or such Side Letters as amended hereby.
(b) Except as specifically amended above and in the Fee Letter
Amendment, the Agreements, the Certificates, the Fee Letter, the Asset Purchase
Agreement, the Side Letters and the other documents delivered in connection
therewith are and shall continue to be in full force and effect and are hereby
ratified and confirmed.
<PAGE>
20
SECTION 7. Costs and Expenses. The Seller agrees to pay on demand
------------------
all reasonable costs and expenses of the Agent in connection with the
preparation, execution and delivery of this Fourth Amendment and the other
documents to be delivered in connection herewith including, without limitation,
the reasonable fees and out-of-pocket expenses of counsel for the Agent with
respect thereto and with respect to advising the Agent as to its rights and
responsibilities hereunder and thereunder.
SECTION 8. Execution in Counterparts. This Fourth Amendment may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument. Delivery of an executed counterpart of a signature
page to this Fourth Amendment and any other document to be delivered hereunder
by telefacsimile shall be effective as delivery of a manually executed
counterpart of this Fourth Amendment or such document.
SECTION 9. Governing Law. This Fourth Amendment shall be governed
-------------
by, and construed in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
MERISEL AMERICAS, INC.
By: /s/ TIMOTHY N. JENSON
______________________________
Vice President and Treasurer
CIESCO L.P.
By: CITICORP NORTH AMERICA, INC., its Attorney-in-
Fact
By: /s/ ERIC D. ALSBERG
__________________________
Vice President
CITIBANK, N.A.
By: /s/ ERIC D. ALSBERG
______________________________
Vice President
<PAGE>
21
CITICORP NORTH AMERICA, INC., individually and as
Agent
By: /s/ ERIC D. ALSBERG
______________________________
Vice President
BANKS
-----
THE BANK OF NOVA SCOTIA
By: /s/ M. AREK
______________________________
Title: Officer
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By: /s/ JEFF HEALY
______________________________
Title:
THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH
By: /s/ HIROSHI AMANO
______________________________
Name: Hiroshi Amano
Title:
UNION BANK
By: /s/ BRET A. MARTIN
______________________________
Title: Vice President
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By: /s/ MATTHEW F. TALO
______________________________
Title: Associate
By: /s/ MICHAEL F. MEHLTER
------------------------------
Title: Managing Director
<PAGE>
EXHIBIT H
ASSIGNMENT AND ACCEPTANCE
Dated ___________, 19__
Reference is made to the Trade Receivables Purchase and Sale Agreement
dated as of September 24, 1993, as amended (the "Agreement"), among Merisel
Americas, Inc. (the "Seller"), Ciesco L.P. and Citicorp North America, Inc., as
Agent. Terms defined in the Agreement are used herein with the same meaning.
_______________________ (the "Assignor") and ____________________ (the
"Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, (i) all of the
Assignor's rights and obligations under the Agreement as of the date hereof
(including, without limitation, its rights to make Purchases and reinvestments
from time to time thereunder) and (ii) the existing Eligible Assets owned by it.
2. In consideration of the payment of $__________, being the existing
aggregate Capital of the Eligible Assets referred to above, and of
$____________, being the aggregate unpaid accrued Yield for such Eligible
Assets, receipt of which payment is hereby acknowledged, the Assignor hereby
assigns to the Agent for the account of the Assignee, and the Assignee hereby
purchases from the Assignor, all of the Assignor's rights and obligations, and
all of the Assignee's right, title and interest in and to such Eligible Assets,
under the Agreement.
3. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest and the Eligible Assets being assigned by it
hereunder and that such interest and such Eligible Assets are free and clear of
any Adverse Claim; (ii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Agreement, the Certificate or the Fee Letter
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Agreement, the Certificate or the Fee Letter or any other
instrument or document furnished pursuant thereto; and (iii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Seller or the performance or observance by the Seller
of any of its obligations under the Agreement, the Certificate or the Fee Letter
or any other instrument or document furnished pursuant thereto.
<PAGE>
2
4. The Assignee (i) confirms that it has received a copy of the
Agreement and the Fee Letter, together with copies of the financial statements
referred to in Section 4.01 thereof, information regarding the Obligors and such
other documents and information as it has deemed appropriate to make its own
analysis and decision to enter into this Assignment and Acceptance and purchase
such Eligible Assets; (ii) agrees that it will, independently and without
reliance upon the Agent, any of its Affiliates, the Assignor or any former Owner
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Agreement and the Fee Letter; (iii) confirms that it is an Assignee;
(iv) appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under the Agreement and the Fee Letter as are
delegated to the Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; (v) appoints as its agent the Collection Agent
from time to time designated pursuant to Section 6.01 of the Agreement to
enforce its respective rights and interests in and under the Pool Receivables,
Related Security and the related Contracts; (vi) agrees that it will comply with
the provisions of Section 11.08(b) of the Agreement and perform in accordance
with their terms all of the obligations which by the terms of the Agreement are
required to be performed by it as the Investor; (vii) specifies as its address
for notices the office set forth beneath its name on the signature pages hereof;
and (viii) agrees that it will not institute against the Assignor or any former
Investor any proceeding of the type referred to in Section 7.01(g) of the
Agreement so long as any Commercial Paper Notes or Medium Term Notes issued by
the Assignor or any former Investor shall be outstanding or there shall not have
elapsed one year plus one day since the last day on which any such Commercial
Paper Notes or Medium Term Notes shall have been outstanding.
5. The effective date for this Assignment and Acceptance shall be the
later of (i) the date the Agent receives this Assignment and Acceptance executed
by the parties hereto and (ii) the date of this Assignment and Acceptance (the
"Effective Date"). Following the execution of this Assignment and Acceptance,
such Assignment and Acceptance will be delivered to the Agent for acceptance and
recording by the Agent.
6. Upon such acceptance and recording, as of the Effective Date, (i)
the Assignee shall be a party to the Agreement and have the rights and
obligations of the Investor thereunder and (ii) the Assignor shall relinquish
its rights and be released from its obligations under the Agreement.
<PAGE>
3
7. Upon such acceptance and recording, from and after the Effective
Date, the Agent shall make all payments under the Agreement in respect of the
interest assigned hereby (including, without limitation, all payments of
Capital, Yield and fees with respect thereto) to the Assignee. The Assignor and
Assignee shall make all appropriate adjustments in payments under the Agreement
for periods prior to the Effective Date directly between themselves.
8. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of California.
[NAME OF ASSIGNOR]
By:___________________________
Title:
[NAME OF ASSIGNEE]
By:___________________________
Title:
[Address]
Accepted this _____ day
of ______________, 19__
[NAME OF AGENT]
By:__________________________
Title:
<PAGE>
SCHEDULE IV
PENDING OR THREATENED LITIGATION OR PROCEEDING
- ----------------------------------------------
AFFECTING MERISEL, INC., MERISEL AMERICAS, INC.,
- ------------------------------------------------
MERISEL EUROPE, INC. OR ANY OF THEIR SUBSIDIARIES
- -------------------------------------------------
In June 1994, Merisel, Inc. (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
the Company's 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 Section 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. The Company 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.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to (a) the use in this Amendment No. 2 to Registration Statement
No. 33-55195 of Merisel, Inc. our report dated February 22, 1994,
appearing in the Prospectus, which is part of this Registration Statement, (b)
the incorporation by reference in this Amendment No. 2 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.
DELOITTE & TOUCHE LLP
Los Angeles, California
October 10, 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 Amendment
No. 2 to the Registration Statement (Form S-3 No. 33-55195) and related
Prospectus of Merisel, Inc. for the registration of $150,000,000 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.
ERNST & YOUNG, LLP
San Jose, California
October 10, 1994
