<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 23, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING OFFERING REGISTRATION
REGISTERED REGISTERED PRICE(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
% Senior Notes Due 2004....... $150,000,000 100% $150,000,000 $51,724
</TABLE>
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(1) Estimated pursuant to Rule 457(a) solely for the purposes of calculating
the registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 AUGUST 23, 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 semi-annually on and of each year, commencing
, 1994, at the rate of % per annum. The Notes will mature on ,
2004 and are redeemable, in whole or in part, at the option of the Company, on
or after , 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 , 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.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
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<S> <C> <C> <C>
Per Note..................................... 100% % %
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Total........................................ $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from the date of original issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
----------
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 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; (c) the Quarterly
Report of the Company on Form 10-Q for the quarter ended March 31, 1994; (d)
the Current Report of the Company on Form 8-K dated June 7, 1994 as filed with
the Commission on June 17, 1994; and (e) the Quarterly Report of the Company on
Form 10-Q for the quarter ended June 30, 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
and , commencing
, 1994.
Maturity Date............... , 2004.
Optional Redemption......... The Notes are redeemable, in whole or in part,
at the option of the Company, on or after
, 1999, at the redemption prices set
forth herein plus accrued interest.
Additionally, prior to , 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 30.2 8.9 12.6 16.2
Other (income) expense.. 0.6 (0.8) 0.8 1.3 2.7 3.2 0.6 4.9 4.7
------ -------- -------- -------- -------- -------- -------- -------- --------
Income before taxes..... 16.7 3.6 21.5 34.5 50.9 51.3 21.3 17.9 15.3
Taxes................... 6.5 3.0 10.7 14.8 20.5 20.6 8.9 6.6 5.6
------ -------- -------- -------- -------- -------- -------- -------- --------
Net income.............. $ 10.2 $ 0.6 $ 10.8 $ 19.7 $ 30.4 $ 30.7 $ 12.4 $ 11.3 $ 9.7
====== ======== ======== ======== ======== ======== ======== ======== ========
Net income per share.... $ 0.81 $ 0.03 $ 0.43 $ 0.67 $ 1.00 $ 1.01 $ 0.41 $ 0.37 $ 0.32
====== ======== ======== ======== ======== ======== ======== ======== ========
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 2.45x 2.90x 2.14x 1.79x
Ratio of EBITDA to
interest expense....... 6.35 1.68 2.87 3.77 4.44 3.17 3.95 3.03 2.41
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."
9
<PAGE>
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 July 31, 1994, the weighted average
interest rate on such outstanding borrowings was 7.63% and 5.84%, respectively.
See "Certain Indebtedness and Financing Arrangements."
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 30.2 8.9 12.6 16.2
Other (income) expense.. 0.6 (0.8) 0.8 1.3 2.7 3.2 0.6 4.9 4.7
------ -------- -------- -------- -------- -------- -------- -------- --------
Income before taxes..... 16.7 3.6 21.5 34.5 50.9 51.3 21.3 17.9 15.3
Taxes................... 6.5 3.0 10.7 14.8 20.5 20.6 8.9 6.6 5.6
------ -------- -------- -------- -------- -------- -------- -------- --------
Net income.............. $ 10.2 $ 0.6 $ 10.8 $ 19.7 $ 30.4 $ 30.7 $ 12.4 $ 11.3 $ 9.7
====== ======== ======== ======== ======== ======== ======== ======== ========
Net income per share.... $ 0.81 $ 0.03 $ 0.43 $ 0.67 $ 1.00 $ 1.01 $ 0.41 $ 0.37 $ 0.32
====== ======== ======== ======== ======== ======== ======== ======== ========
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 2.45x 2.90x 2.14x 1.79x
Ratio of EBITDA to
interest expense....... 6.35 1.68 2.87 3.77 4.44 3.17 3.95 3.03 2.41
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 $ 5,938 30,179
Other expense........... 2,722 950 (510) 3,162
---------- -------- ------- ----------
Income before income
taxes.................. 50,852 (10,701) (5,428) 51,310
Provision for income
taxes.................. 20,413 2,354 (2,171) 20,596
---------- -------- ------- ----------
Net income.............. $ 30,439 $(13,055) $(3,257) $ 30,714
========== ======== ======= ==========
Net income per share.... $ 1.00 $ 1.01
========== ==========
Weighted average number
of common shares
outstanding............ 30,454 30,454
========== ==========
<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 $ 3,091 16,186
Other expense........... 4,913 79 (255) 4,737
---------- ----- ------- ----------
Income before income
taxes.................. 17,942 (891) (2,836) 15,271
Provision for income
taxes.................. 6,628 66 (1,134) 5,560
---------- ----- ------- ----------
Net income.............. $ 11,314 $(957) $(1,702) $ 9,711
========== ===== ======= ==========
Net income per share.... $ 0.37 $ 0.32
========== ==========
Weighted average number
of common shares
outstanding............ 30,764 30,764
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined statements of
income.
12
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
1. GENERAL
The foregoing unaudited pro forma condensed combined statements of income il-
lustrate the effect of the acquisition by the Company, through Merisel FAB, of
the ComputerLand Business from Vanstar pursuant to an Asset Purchase Agreement
dated January 31, 1994 among ComputerLand, Merisel FAB and the Company, as well
as the issuance of $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 il-
lustrate 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 Re-
volving 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 Analy-
sis 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>
The historical interest expense calculated below has been computed using
current market interest rates.
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
The historical interest expense calculated below has been computed using
current market interest rates.
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%)............... $16,500
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 6.25%).......................................... (3,819)
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 7.5%)................................... (1,462)
-------
Total................................................ $ 5,938
=======
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.
Adjustments for the six months ended June 30, 1994 are as follows:
<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%)............... $ 8,250
Interest expense reduction for the repayment of the
Acquisition Loan ($65 million at an estimated average
rate of 8.125%)......................................... (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 6.25%).......................................... (2,519)
-------
Total................................................ $ 3,091
=======
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 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.
16
<PAGE>
RESULTS OF OPERATIONS
For the periods indicated, the following table sets forth selected items from
the Company's Consolidated Statements of Income, expressed as a percentage of
net sales:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------------
SIX MONTHS
FISCAL YEAR ENDED ENDED JUNE
DECEMBER 31, 30,
------------------- ------------
1991 1992 1993 1993 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales......................... 90.0 91.0 91.6 91.6 93.1
----- ----- ----- ----- -----
Gross profit.......................... 10.0 9.0 8.4 8.4 6.9
Selling, general and administrative
expenses............................. 7.5 6.7 6.1 6.2 5.4
----- ----- ----- ----- -----
Operating income...................... 2.5 2.3 2.3 2.2 1.5
Interest expense...................... 1.0 0.7 0.6 0.6 0.5
Other expense......................... 0.1 0.1 0.1 0.1 0.2
----- ----- ----- ----- -----
Income before income taxes............ 1.4 1.5 1.6 1.5 0.8
Provision for income taxes............ 0.7 0.6 0.6 0.6 0.3
----- ----- ----- ----- -----
Net income............................ 0.7% 0.9% 1.0% 0.9% 0.5%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 1994 Compared to Six Months Ended June 30, 1993
Net sales increased 68.2% from $1,405.9 million in 1993 to $2,365.1 million
in 1994. The increase in net sales was due to the impact of the ComputerLand
Acquisition, as well as an increase in the number of vendors and products the
Company is authorized to sell in various geographic markets. The Company also
increased its market share of certain vendor products in various geographic
markets. Net sales for Merisel FAB were $472.5 million or 20% of consolidated
net sales for the six months ended June 30, 1994.
Geographically, the Company's net sales for the six months ended June 30,
1994 were generated as follows: United States, $1,595.8 million, or 67.5%;
Canada, $259.4 million, or 11%; Europe, $366.4 million, or 15.5%; and other
international markets, $143.5 million, or 6%. From 1993 to 1994, these
geographic regions experienced sales growth rates as follows: United States,
82.9% (28.7% excluding Merisel FAB); Canada, 45.3%; Europe, 44.4%; and other
international markets, 38.2%.
In the United States, including Merisel FAB, hardware and accessories
accounted for 74% of net sales, and software accounted for 26% of net sales in
1994, as compared to 56% and 44%, respectively, in 1993. The increase in
hardware sales is due to the fact that the Company has obtained additional
rights to distribute hardware products throughout the world from various
vendors and to the fact that Merisel FAB's revenues are predominantly hardware-
related.
Gross profit increased 38.4% from $118.6 million in 1993 to $164.1 million in
1994. Gross profit as a percentage of sales, or gross margin, decreased from
8.4% in 1993 to 6.9% in 1994. The decrease in gross margin is principally
attributable to competitive pressures on pricing worldwide and the effect of
the ComputerLand Acquisition. Merisel FAB has lower gross margins than those of
the Company's wholesale distribution business. Merisel FAB's operating expenses
as a percentage of sales, however, are generally lower than the Company's
wholesale distribution business, which helps offset the lower gross margins.
The Company anticipates that it will continue to experience downward pressure
on gross margin due to industry price competition.
Selling, general and administrative expenses ("SG&A") increased 46.6% from
$87.8 million in 1993 to $128.7 million in 1994. SG&A decreased as a percentage
of net sales from 6.2% in 1993 to 5.4% in 1994.
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The absolute dollar increase in SG&A is primarily due to costs associated with
the Company's 68.2% increase in net sales. The decrease in SG&A as a percentage
of sales is due to Merisel FAB's lower operating expenses as a percentage of
sales compared to that of Merisel's wholesale distribution business.
Operating income increased 15.1% from $30.8 million in 1993 to $35.4 million
in 1994. Operating income as a percentage of net sales was 2.2% in 1993 and
1.5% in 1994. Operating income for the Company's U.S. distribution business
declined as a result of lower margins and higher operating expenses. In
addition, the Company's European operations continued to experience net
operating losses as a result of continued competitive pressure on margins as
well as an increase in operating costs in Europe as a result of the Company's
implementation of its long term strategy to centralize and integrate its
European operations.
Interest expense increased 40.9% from $8.9 million in 1993 to $12.6 million
in 1994, but decreased from 0.6% to 0.5% as a percentage of net sales in 1993
compared to 1994. The increase in interest expense is primarily attributable to
the Company's higher average borrowings in 1994, which reflected the need to
finance the ComputerLand Acquisition and to finance higher levels of working
capital to support increased sales.
Other expenses increased from $0.6 million in 1993 to $4.9 million in 1994,
primarily due to fees of $2.7 million incurred in connection with accounts
receivable securitizations, a write-off of costs of $0.5 million incurred in
connection with the Company's withdrawal of its common stock offering in May
1994 and an increase in foreign currency transaction losses of $0.6 million
experienced by the Company's Mexican subsidiary.
The Company's provision for income taxes decreased 25.1% from $8.9 million in
1993 to $6.6 million in 1994, reflecting the Company's decreased income before
income taxes. The Company's effective tax rate declined from 41.6% in 1993 to
36.9% in 1994. The lower effective tax rate reflects the increased utilization
of tax loss carry forwards by certain of the Company's foreign subsidiaries in
1994.
Net income decreased 9% from $12.4 million in 1993 to $11.3 million in 1994.
Net income per share decreased from $0.41 in 1993 to $0.37 in 1994. The
Company's weighted average number of shares increased from 30,308,000 shares in
1993 to 30,764,000 shares in 1994.
Year Ended December 31, 1993 Compared to Year Ended December 31, 1992
The Company's net sales increased 37.8% to $3.1 billion in 1993 from $2.2
billion in 1992, reflecting significant growth in both domestic and
international sales. The Company believes this increase is due principally to
the establishment of new relationships with manufacturers in various markets
around the world, the introduction of new products by existing manufacturers,
increased customer demand for computer products and increased use of wholesale
distribution by manufacturers in their distribution channels. The Company's
1992 fiscal year included 53 weeks due to the timing of the fiscal year end,
while the 1993 fiscal year contained 52 weeks. See Note 1 of Notes to
Consolidated Financial Statements.
Geographically, the Company's 1993 net sales were generated as follows:
United States, $1.95 billion, or 63%; Canada, $395 million, or 13%; Europe,
$532 million, or 17%; and other international markets,$207 million, or 7%. From
1992 to 1993, these geographic regions experienced sales growth rates of 32.3%,
30.7%, 64.1% and 51.4%, respectively. The Company's higher sales growth rate in
Europe resulted in part from the addition of new manufacturer relationships in
various European markets. In the United States, the Company's sales increase
was due in part to new product offerings from computer systems and other
hardware manufacturers. In the United States, hardware and accessories
accounted for 60.5% of net sales, and software accounted for 39.5% of net sales
in 1993, as compared to 55.9% and 44.1%, respectively, in 1992. For additional
information on the Company's operating results by geographic region, see Note
10 of Notes to Consolidated Financial Statements.
Gross profit increased 27.7% to $258.5 million in 1993 from $202.4 million in
1992, reflecting the higher 1993 net sales. Gross margin declined to 8.4% in
1993 from 9.0% in 1992, principally as a result of continuing competitive
pricing pressures worldwide.
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SG&A expenses increased 24.0% to $187.2 million in 1993 from $150.9 million
in 1992, primarily as a result of increased expenses associated with the
Company's 37.8% increase in net sales. SG&A expenses as a percentage of sales
declined to 6.1% in 1993 from 6.7% in 1992, reflecting economies of scale
resulting from higher sales volumes as well as improved operating efficiencies.
The Company's number of full-time equivalent employees increased from 1,939 at
December 31, 1992 to 2,502 at December 31, 1993.
Operating income increased 38.6% to $71.4 million in 1993 from $51.5 million
in 1992, despite small operating losses at the Company's Swiss, Austrian and
French operations. Operating income as a percentage of sales was 2.3% in both
1993 and 1992, as the decline in gross margin of 0.6% in 1993 was offset by a
corresponding decline in SG&A expenses as a percentage of sales.
Interest expense increased 13.1% to $17.8 million in 1993 from $15.7 million
in 1992, but declined as a percentage of sales to 0.6% in 1993 from 0.7% in
1992. The increase in interest expense reflects higher average borrowings,
principally to finance the Company's higher sales levels, offset in part by
lower average interest rates in 1993.
Other expense increased to $2.7 million in 1993 from $1.3 million in 1992,
but other expenses as a percentage of sales remained at 0.1% in both 1992 and
1993. Other expenses in 1993 included the fees paid by the Company in
connection with the sale of an interest in its trade accounts receivables
pursuant to an accounts receivable securitization program instituted in the
third quarter of 1993. See "--Liquidity and Capital Resources." The Company
intends to continue this program in future periods, and other expense is
therefore anticipated to increase as additional fees are incurred.
Provision for income taxes increased 37.8% to $20.4 million in 1993,
reflecting the Company's 47.5% increase in income before income taxes. The
Company's effective tax rate decreased to 40.1% in 1993 from 43.0% in 1992,
primarily as a result of a $1.7 million income tax benefit related to the
restructuring of the Company's Swiss operations in 1993. In addition, net
losses of certain of the Company's subsidiaries that derive no tax benefit from
such losses under local tax laws decreased in 1993.
Net income increased 54.8% to $30.4 million in 1993 from $19.7 million in
1992, while net income per share increased to $1.00 from $0.67. The Company's
weighted average number of shares outstanding increased from 29,274,000 shares
in 1992 to 30,454,000 shares in 1993, reflecting the issuance of 4,600,000
shares in a public offering of the Company's Common Stock in March 1992 and the
exercise of employee stock options.
Year Ended December 31, 1992 Compared to Year Ended December 31, 1991
Net sales increased 41.2% to $2.2 billion in 1992 from $1.6 billion in 1991.
The Company believes that this increase in net sales was due primarily to an
increase in market share, customer demand, sales of new products from existing
manufacturers and the establishment of new relationships with manufacturers and
customers. In addition, the Company's 1992 fiscal year included 53 weeks due to
the timing of the fiscal year end. See Note 1 of Notes to Consolidated
Financial Statements.
Hardware and accessories sales accounted for 56.6% of United States net sales
in 1992, with software sales accounting for the remaining 43.4%. In 1991,
hardware and accessories sales accounted for 57.6% of United States net sales,
with software sales accounting for the remaining 42.4%.
Geographically, the Company's 1992 net sales were generated as follows:
United States, $1.5 billion, or 66%; Canada, $303 million, or 14%; Europe, $324
million, or 14%; and other international markets,$137 million, or 6%. The
increase in net sales achieved by the European operations was primarily the
result of sales growth by the Company's United Kingdom and German subsidiaries.
This increase was offset in part by lower than expected sales levels in
Switzerland and France. For additional information on the Company's operating
results by geographic region, see Note 10 of Notes to Consolidated Financial
Statements.
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<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 and 1993, 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
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Agreement provides that the service fee, as a percentage of sales volume,
decreases if the ComputerLand Business' sales volume increases over a
specified amount. Further, in the event sales volume does not increase over a
specified amount, and the ComputerLand Business' gross margin declines, the
Services Agreement provides for a limited reduction in the service fee to
offset partially the decline in gross margin. Notwithstanding these
contractual provisions, a material decline in the ComputerLand Business' gross
margins could have a material adverse effect on the Company's results of
operations.
Over 76% of the ComputerLand Business' sales currently are financed on
behalf of such customers by floor plan financing companies. The ComputerLand
Business typically receives payment from these financing companies within
three business days from the date of sale, resulting in reduced cash
requirements for the ComputerLand Business as compared to the Company's
existing wholesale distribution business. This floor plan financing is
typically subsidized for the ComputerLand Business' customers by its
manufacturers. Any material change in the availability or the terms of
financing offered by such financing companies or in the subsidies provided by
manufacturers could require the ComputerLand Business to provide such
financing to its customers, thereby substantially increasing the working
capital necessary to operate its business.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth and cash needs primarily through
borrowings, income from operations, the public and private sales of its
securities and securitizations of its accounts receivable.
Net cash used for operating activities in 1993 was $125.4 million, as
compared to net cash used for operating activities in 1992 of $58.6 million.
The primary uses of cash in 1993 were increases in accounts receivables of
$194.2 million, reflecting the Company's higher sales volumes, especially in
December 1993, and greater sales to customers with extended credit terms, and
inventories of $142.9 million, reflecting the Company's higher sales volumes.
Sources of cash from operating activities included net income, after
adjustment for non-cash items, of $55.9 million and an increase in accounts
payable of $166.3 million. Net cash used in operating activities during the
six months ended June 30, 1994 was $6.7 million. Sources of cash from
operating activities include net income and non-cash charges of $26.8 million
and an increase in accounts payable and accrued liabilities of $67.8 million.
The primary uses of cash during the period were a$47.4 million increase in
accounts receivable and a $54.6 million increase in inventories. The increase
in accounts receivable was due primarily to the increase in sales volume and
the increase in inventory was due to the current and anticipated sales growth
as well as the addition of new product lines.
Net cash used for investing activities in 1993 was $25.1 million,
principally reflecting investments in new computer systems, new warehouse
management systems and new distribution facilities and equipment. The Company
presently anticipates that its capital expenditures for 1994 will be
approximately $25 million, principally for development and implementation of
new computer systems in North America, new warehouse management systems, new
computer systems for the Company's European operations and a new distribution
center in Europe. Net cash used for investing activities during the six months
ended June 30, 1994 was $97.2 million, reflecting the ComputerLand Acquisition
and property and equipment expenditures. The expenditures for property and
equipment were primarily for the upgrading of existing facilities, leasehold
improvements, the upgrading of the Company's computer systems and expenditures
for a new warehouse management system. See "Business--Operations and
Distribution" and "Business--International Operations."
Net cash provided by financing activities in 1993 was $156.8 million,
composed principally of net borrowings under domestic revolving lines of
credit of $70.1 million, net borrowings under foreign bank facilities of $10.2
million and proceeds from the sale of an interest in the Company's trade
accounts receivables of $75.0 million pursuant to a receivables securitization
program. Net cash provided by financing activities during the six months ended
June 30, 1994 was $101 million, composed of borrowings of $65 million in
connection with the ComputerLand Acquisition, and proceeds from the sale of an
interest in the
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Company's trade accounts receivable of $75 million pursuant to a receivables
securitization program. Net cash used for financing activities was $39.4
million representing net repayments under domestic revolving lines of credit
and various local lines of credit maintained by the Company and its
subsidiaries.
To provide capital for the Company's operating and investing activities, the
Company and its subsidiaries, including Merisel Americas, Merisel Europe and
Merisel FAB, maintain a number of credit facilities. Merisel Americas and
Merisel Europe are co-borrowers under a $150 million unsecured revolving bank
credit facility expiring on May 31, 1997. At July 31, 1994, approximately
$109.2 million was outstanding under this facility, composed of approximately
$104.2 million in direct borrowings and $5 million in outstanding letters of
credit. A portion of the net proceeds of the Offering will be used to reduce
the balance due under this facility. See "Use of Proceeds." To provide for its
anticipated working capital needs, on December 23, 1993, Merisel FAB entered
into a $10 million unsecured revolving credit agreement. This agreement expires
on January 29, 1995. At July 31, 1994, no amount was outstanding under this
agreement. The Company and its subsidiaries also maintain various local lines
of credit, primarily to facilitate overnight and other short-term borrowings.
The total amount of outstanding borrowings under these lines as of June 30,
1994 was $29.6 million.
Merisel Americas has also entered into a $150 million trade accounts
receivable securitization agreement pursuant to which it sells on an ongoing
basis an undivided interest of up to $150 million in designated trade
receivables to a syndicate of purchasers. At June 30, 1994, $150 million of net
accounts receivable were sold under this agreement. The receivables are sold at
face value and fees paid in connection with such sales are recorded by the
Company as "Other expense." This facility expires in November 1994.
To finance the ComputerLand Acquisition, the Company borrowed $65 million
under an unsecured credit agreement with a bank lender. This agreement expires
on January 29, 1995, but is subject to mandatory prepayment upon any debt or
equity issuance by the Company. A portion of the net proceeds of the Offering,
therefore, will be used to prepay this borrowing in full. See "Use of
Proceeds." Merisel FAB also borrowed $16 million, the balance of the
ComputerLand Acquisition purchase price, under a separate credit agreement,
which was repaid in full on February 15, 1994.
Merisel Americas also has outstanding $100 million of 8.58% senior notes due
June 30, 1997, and $22 million of 11.28% subordinated notes due in five equal
annual principal installments, beginning in March 1996. For more information
regarding the Company's credit agreements, see "Certain Indebtedness and
Financing Arrangements" and Notes 6 and 7 of Notes to Consolidated Financial
Statements.
In connection with the ComputerLand Acquisition, Merisel FAB and Vanstar
entered into the Services Agreement pursuant to which Vanstar will provide
significant distribution and other support services to Merisel FAB for up to
two years for a contractually agreed-upon fee. See "Business--ComputerLand
Business." Under the Services Agreement, Merisel FAB has been granted $20
million in extended credit terms on its product purchases from Vanstar.
Merisel believes that its existing cash balances, together with the proceeds
of the Offering, income from operations and borrowings under lines of credit
will be sufficient to meet its working capital and capital investment needs
through at least the next twelve months.
ASSET MANAGEMENT
Merisel attempts to manage its inventory position to maintain levels
sufficient to achieve high product availability and same-day order fill rates.
Inventory levels may vary from period to period, due in part to increases or
decreases in sales levels, Merisel's practice of making large-volume purchases
when it deems the terms of such purchases to be attractive and the addition of
new manufacturers and products. The Company has negotiated agreements with many
of its manufacturers which contain stock balancing and price protection
provisions intended to reduce, in part, Merisel's risk of loss due to slow
moving or obsolete inventory or manufacturer price reductions. In the event of
a manufacturer price reduction, the Company generally receives a credit for
products in inventory. In addition, the Company has the right to return a
certain percentage of purchases, subject to certain limitations. Historically,
price protection and stock return
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privileges as well as the Company's inventory management procedures have helped
to reduce the risk of loss of carrying inventory.
The Company offers credit terms to qualifying customers and also sells on a
prepay, credit card and cash-on-delivery basis. With respect to credit sales,
the Company attempts to control its bad debt exposure through monitoring of
customers' creditworthiness and, where practicable, through participation in
credit associations that provide credit rating information about its customers.
In certain foreign markets, the Company may elect to purchase credit insurance
for certain accounts.
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BUSINESS
OVERVIEW
Merisel is the largest worldwide publicly-held wholesale distributor of
microcomputer hardware and software products. Through its full-line, channel-
specialized distribution business, Merisel combines the comprehensive product
selection and operational efficiency of a full-line distributor with the
customer support of a specialty distributor offering dedicated sales
organizations to each of its customer groups. On January 31, 1994, the Company
completed the acquisition of the ComputerLand Business. The ComputerLand
Business is a leading aggregator, or master reseller, of computer systems and
related products from major microcomputer manufacturers, including Apple,
Compaq, Hewlett-Packard and IBM, to a network of approximately 750
independently-owned computer product resellers in the United States. With the
acquisition of the ComputerLand Business, the Company has become the industry's
first "Master Distributor," combining the strengths of a full-line, channel-
specialized distributor with those of a master reseller. As a Master
Distributor, the Company believes it is well positioned to offer a wider
selection of microcomputer products to more categories of customers than any of
its competitors.
At June 30, 1994, Merisel stocked over 25,000 products from more than 900 of
the microcomputer hardware and software industry's leading manufacturers
including Apple, AST, Borland, Colorado Memory Systems, Compaq, Creative Labs,
Digital Equipment Corporation, Epson, Hayes, Hewlett-Packard, IBM, Intel,
Lotus, Microsoft, NEC, Novell, Okidata, Sun Microsystems, Symantec, Texas
Instruments, 3Com, Toshiba, WordPerfect and Wyse. Merisel sells products to
over 65,000 computer resellers worldwide, including value-added resellers,
large retail chains and franchisees, computer superstores, mass merchants,
Macintosh and Unix resellers, system integrators and original equipment
manufacturers. In order to effectively service its large and diverse
international customer base, the Company currently maintains 20 distribution
centers that serve North America, Europe, Latin America, Australia and other
international markets. The breadth of the Company's product line, together with
its international distribution network, enable the Company to provide its
customers with a single source of supply and prompt delivery of product. For
the six months ended June 30, 1994, the Company's net sales by geographic
region were generated as follows: United States, 67.5%; Canada, 11%; Europe,
15.5%; and other international markets, 6%.
THE INDUSTRY
The microcomputer products distribution industry is large and growing,
reflecting both increasing demand worldwide for computer products and the
increasing use of wholesale distribution channels by manufacturers for the
distribution of their products. The industry moves product from manufacturer to
end-user through a complex combination of distribution agreements between
manufacturers, wholesale distributors, aggregators and resellers. Historically,
there have been two types of companies within the industry: those that sell
directly to the end-user ("resellers") and those that sell to resellers
("wholesale distributors" and "aggregators", which are also called "master
resellers").
Resellers sell directly to end-users, including large corporate accounts,
small- and medium-sized businesses and home users. The major reseller channels
are dealers and corporate resellers, value-added resellers ("VARs"), mail-order
firms and retailers (computer superstores, office supply chains and mass
merchants). VARs, which account for one of the largest segments of the overall
reseller channel, typically add value by combining proprietary software and/or
services with off-the-shelf hardware and software.
Wholesale distributors generally purchase a wide range of products in bulk
directly from manufacturers and then ship products in smaller quantities to
many different types of resellers, who typically include dealers, VARs, system
integrators, mail order resellers, computer products superstores and mass
merchants. Aggregators, or master resellers, are functionally similar to
wholesale distributors, but they focus on selling relatively few product lines,
typically high-volume, brand-name computer systems, to a captive network of
franchised dealers and affiliates. The larger computer manufacturers, such as
Apple, Compaq, Hewlett-Packard and IBM, have historically required resellers to
purchase their products from an affiliated aggregator,
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such as the ComputerLand Business. Wholesale distributors have not been
authorized to sell these manufacturers' key microcomputer components, except on
a limited basis. These restrictions have been eased recently, and may continue
to ease and eventually be eliminated, with the result that the distinction
between wholesale distributors and master resellers may blur. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Acquisition of ComputerLand Business."
With the acquisition of the ComputerLand Business, the Company has become the
industry's first Master Distributor, combining the strengths of a full-line,
channel-specialized distributor with those of a master reseller.
BUSINESS STRATEGY
Merisel has achieved its leading position by pursuing a strategy of offering
the industry's leading products and services to its customers at competitive
prices, providing cost-effective customer service through efficient operations,
expanding the Company's international business and targeting its various
customer groups using dedicated sales forces and marketing programs.
Providing Leading Products and Services. The Company's objective is to offer
the broadest range of leading product brands in each of the product categories
it carries. By stocking the leading brands, the Company generates sales of both
those and other product brands, as reseller customers often prefer to deal with
a single source for many of their product needs. The Company continuously
evaluates new products, the demand for its current products as well as its
overall product mix and seeks to develop distribution relationships with
suppliers of products that enhance the Company's product offerings. The Company
believes that the size of its reseller customer base, its international
distribution capability and both the breadth and quality of its marketing
support programs give it a competitive advantage over smaller, regional
distributors in developing supplier relationships.
As a result of the ComputerLand Acquisition, the Company, through the
ComputerLand Business, is now able to offer to the ComputerLand Business'
franchisees and affiliates a broad range of microcomputer systems and other
products from Apple, Compaq, Hewlett-Packard and IBM. Although the Company
distributes certain products of these leading manufacturers through its
wholesale distribution arrangements, neither the Company nor its direct
wholesale distribution competitors have been authorized to sell these
manufacturers' key microcomputer systems in the United States, except on a
limited basis. Instead, these manufacturers historically have distributed their
products directly to resellers and through aggregators such as ComputerLand
Corporation. See "--The Industry."
The Company believes that an opportunity exists to generate additional,
higher-margin revenues by offering fee-based services and information to
manufacturers and resellers. In 1993, the Company formed the Channel Services
Group to provide a variety of these services, including telemarketing,
merchandising and electronic software services.
Pursuing Operational Excellence. The Company believes that high levels of
customer service and operating efficiency, or "operational excellence," are
important factors in achieving and maintaining success in the highly
competitive microcomputer products distribution industry. The Company measures
operational excellence by such standards as "ease of doing business," accuracy
and efficiency in delivering products and expediting the delivery of services
and information. Merisel constantly strives to improve its operational
processes. In furtherance of this strategy, the Company is in the process of
upgrading and improving its computer operating systems as well as its warehouse
management systems. See "--Operations and Distribution." In addition, the
Company is reorganizing its European operations, adding new management
personnel and centralizing certain functions to achieve economies of scale.
Merisel will seek to continue to refine the operational systems at its foreign
sales offices and distribution centers in order to increase the uniformity and
efficiency of the Company's worldwide operations. See "--International
Operations." These changes are intended to enhance the Company's ability to
offer faster, more efficient and accurate service to its customers.
Expanding Internationally. Merisel believes that it generates one of the
largest volumes of international sales of any U.S.-based distributor, is the
largest wholesale distributor of computer products in Canada and
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is a leading distributor in Europe, Mexico, Australia and Latin America. See
"--International Operations." The Company believes that many international
markets will offer growth and profit opportunities, due to the underdeveloped
and fragmented nature of the microcomputer distribution industry in these
markets. Merisel believes it is well positioned to capitalize on the
opportunities presented in a number of these markets because of the current
scope of its international operations and its ability to offer a broader range
of products and specialized services than many of its competitors. The
Company's strategy is to expand its international operations through internal
growth and the possible acquisition of existing distributors or the
establishment of new operations in other countries.
Targeting Customer Groups. Merisel serves a variety of 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 programs and marketing and technical support programs, all of which
are tailored to address the differing needs of these customer groups. The
Company intends to continue to monitor the markets it serves to identify
customer opportunities and develop sales and marketing programs that serve
these groups more effectively. In furtherance of this strategy, on January 31,
1994 the Company completed the ComputerLand Acquisition.
PRODUCTS AND MANUFACTURER SERVICES
Merisel provides its manufacturers with access to one of the largest bases of
computer resellers worldwide while offering these manufacturers the means to
reduce the inventory, credit, marketing and overhead costs associated with
establishing a direct relationship with these resellers. This factor, along
with Merisel's access to financial resources and its economies of scale, has
allowed the Company to establish and develop long-term business relationships
with many of the leading manufacturers in the microcomputer industry. Merisel
distributes over 25,000 hardware and software products, including products for
the MS-DOS, OS/2, Macintosh, Apple and UNIX operating environments. For the
fiscal year ended December 31, 1993, net worldwide sales of hardware and
accessories accounted for approximately 60% of the Company's net sales, and
sales of software products accounted for the remaining 40% of net sales. In
addition, for the three months ended June 30, 1994, the first quarter which
reflects the results of operations of the ComputerLand Business for an entire
quarter, net worldwide sales of hardware and accessories accounted for
approximately 75% of the Company's net sales, and sales of software products
accounted for the remaining 25% of net sales.
Merisel's suppliers include many of the leading microcomputer software and
hardware manufacturers, such as Apple, AST, Borland, Colorado Memory Systems,
Compaq, Creative Labs, Digital Equipment Corporation, Epson, Hayes, Hewlett-
Packard, IBM, Intel, Lotus, Microsoft, NEC, Novell, Okidata, Sun Microsystems,
Symantec, Texas Instruments, 3Com, Toshiba, WordPerfect and Wyse. In October
1993, Merisel was selected as one of two distributors in the U.S. of Sun
Microsystems' products. Software products include business applications such as
spreadsheets, word processing programs and desktop publishing and graphics
packages, as well as a broad offering of operating systems, including local
area network operating systems, advanced language and utility products.
Hardware products offered by the Company include computer systems, printers,
monitors, disk drives and other storage devices, modems and other connectivity
products, plug-in boards and accessories. The ComputerLand Acquisition
increased the Company's ability, through the ComputerLand Business, to
distribute the product offerings of Apple, Compaq, Hewlett-Packard and IBM to
the ComputerLand Business' franchisees and affiliates. See "--The Industry."
In addition to providing manufacturers access to one of the largest bases of
computer resellers worldwide, the Company also enables manufacturers to offer
efficiently a number of special promotions, training programs and marketing
services targeted to the needs of specific reseller groups. Merisel runs a
variety of special promotions for manufacturers' products, ranging from price
discounts and bundled purchase discounts to specialized computer reseller
marketing programs, including the Vantage and Frequent Buyer Programs. These
promotional programs are designed to encourage computer resellers to increase
their volume of purchases, motivate resellers to purchase within a limited time
period and highlight specific manufacturers' products or promotion
opportunities. Additionally, Merisel provides marketing consultation services
for manufacturers' strategic marketing campaigns, as well as the opportunity to
be included in
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Merisel-sponsored trade advertisements. Merisel's marketing program specialists
work with designated manufacturers to develop and carry out marketing programs
such as dealer commission programs, sales contests and other promotions.
Merisel can also provide dedicated marketing support and targeted customer
information from its database to enhance manufacturers' product promotions.
The Company also offers two exclusive training programs: Softeach, a two-day
worldwide seminar series whereby manufacturers train resellers about their
products, and Selteach, a training seminar series that gives manufacturers an
opportunity to provide product information to Merisel's United States sales
force. In 1993, Merisel offered Softeach seminars in 26 cities and 11
countries. Merisel, through third-party consultants, also conducts training
classes regarding certain Novell, 3Com, The Santa Cruz Operation, Digital
Equipment Corporation, Sun Microsystems, Microsoft and Lotus products for its
reseller customers.
Merisel generally enters into written distribution agreements with the
manufacturers of the products it distributes. As is customary in the industry,
these agreements usually provide non-exclusive distribution rights and often
contain territorial restrictions which limit the countries in which Merisel is
permitted to distribute the products. The agreements generally provide Merisel
with stock balancing and price protection provisions which reduce in part
Merisel's risk of loss due to slow-moving inventory, supplier price reductions,
product updates or obsolescence. The Company's agreements generally have a term
of at least one year, but often contain provisions permitting earlier
termination by either party upon written notice. Some of these agreements
contain minimum purchase amounts. Failure to purchase at such minimum levels
could result in the termination of the agreement.
Although Merisel regularly stocks products and accessories supplied by more
than 900 manufacturers, 45% of the Company's net sales in 1993 (as compared to
46% in 1992 and 47% in 1991) were derived from products supplied by Merisel's
ten largest manufacturers, with the sale of products manufactured by Microsoft
accounting for approximately 16% of net sales in 1993 (as compared to 17% in
1992 and 15% in 1991). The loss of the ability to distribute a particularly
popular product could result in losses of sales unrelated to that product. The
loss of a direct relationship between the Company and any of its key suppliers
could have an adverse impact on the Company's business and financial results.
CUSTOMERS AND CUSTOMER SERVICES
Merisel sells to more than 65,000 computer resellers worldwide. Merisel's
customers include VARs, large hardware and software retail chains and
franchisees, computer superstores, mass merchants, Macintosh, UNIX and other
corporate resellers, systems integrators and original equipment manufacturers
as well as independently owned retail outlets and consultants. Merisel's
smaller customers often do not have the resources to establish a large number
of direct purchasing relationships or stock significant product inventories.
Consequently, they tend to purchase a high percentage of their products from
distributors. Larger resellers often establish direct relationships with
manufacturers for their more popular products, but utilize distributors for
slower-moving products and for fill-in orders of fast-moving products which may
not be available on a timely basis from manufacturers. No single customer
accounted for more than 3.0% of Merisel's net sales in 1991, 1992 or 1993.
In Merisel's wholesale distribution business, the Company offers its
customers a single source of supply, prompt delivery, financing programs and
customer support.
Single Source Provider. Merisel offers computer resellers a single source for
over 25,000 competitively priced hardware and software products. By purchasing
from Merisel, the reseller only needs to comply with a single set of ordering,
billing and product return procedures and may also benefit from attractive
volume pricing. In addition, resellers are typically allowed, within specified
time and dollar limits, to return slow-moving products from one manufacturer in
exchange for more popular products from other manufacturers. Merisel's policy
is to not grant cash refunds. Merisel has recently initiated a program that
provides incentives to ComputerLand franchisees and Datago affiliates to make
all their product purchases from Merisel and Merisel FAB.
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Prompt Delivery. In most areas of the world serviced by the Company, orders
received by 5:00 p.m. local time are typically shipped the same day, provided
the required inventory is in stock. Merisel maintains sufficient inventory
levels in the United States to ship consistently in excess of 95% of all units
ordered on the day of receipt. Merisel typically delivers products from its
regional warehouses via United Parcel Service and other common carriers, with
customers in most areas in the United States receiving orders within one to two
working days of shipment. Merisel also will provide overnight air handling if
requested and paid for by the customer. These services allow computer resellers
to minimize inventory investment and provide responsive service to their
customers. For larger customers in the United States, Merisel also provides a
fulfillment service so that orders are shipped directly to the computer
resellers' customer, thereby reducing the need for computer resellers to
maintain inventories of certain products. The Company's foreign subsidiaries
may have lower fill rates and longer delivery times due to differing market
requirements and the smaller size of their operations.
Financing Programs. Merisel's credit policy for qualified resellers
eliminates the need to establish multiple credit relationships with a large
number of manufacturers. In addition, the Company arranges floor plan and lease
financing through a number of credit institutions and offers a program that
permits credit card purchases by qualified customers. To allow certain
resellers to purchase larger orders in the United States, the Company offers a
"financing desk" which seeks to arrange alternative financing such as escrow
programs and special bid financing from financial institutions.
Customer Support. Merisel offers a number of customer loyalty programs,
including the Vantage and Frequent Buyer Programs, which provide incentives to
resellers to aggregate their purchases through Merisel. The Vantage Programs
offer Merisel's top-volume customers within the VAR and value-added dealer
channels increased levels of service and pricing advantages. Merisel's Frequent
Buyer Program awards resellers with credits based on the dollar amount of their
purchases from Merisel, which credits are redeemable for travel, education and
merchandise and for activities such as product promotions and advertisements.
The cost of the Frequent Buyer Program is funded by cooperative marketing
dollars paid by Merisel's suppliers.
Merisel furnishes its computer resellers with a series of publications
containing detailed information on products, pricing, promotions and
developments in the industry. Merisel publishes a Confidential Reseller Price
Book, which lists Merisel's current product offerings. Merisel also publishes
the Hot List, which ranks Merisel's current best-selling hardware and software
products in four different reseller channels. In addition, Merisel's On-Line
Literature Library offers over 20,000 data sheets of product information
literature on a fax-back system and on CD-ROM.
Merisel provides training and product information to its reseller customers
through its well-respected Softeach program, a worldwide series of training
forums whereby manufacturers conduct seminars on how to sell their products.
Softeach is held periodically in major cities throughout the United States,
Canada, Australia and Europe. In 1993, the Company believes that over 15,000
computer resellers attended Softeach seminars held in 11 countries worldwide.
Merisel also provides computer resellers with a technical support "hotline," as
well as specialized technical support for virtually all product lines sold by
Merisel. In addition, Merisel's Technical Support department provides regular
product training seminars to Merisel's sales representatives to help them
become more product-knowledgeable.
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SALES AND MARKETING
To reach diverse customer segments, the Company has organized its Sales
department for its wholesale distribution business in the United States into
nine dedicated sales divisions, which serve the dealer, VAR and consumer
channel segments.
Dealer Channel. This channel is served by the following specialized sales
divisions:
. The RETAILER division serves franchisees, independent retail chains and
storefronts, corporate resellers and direct-mail marketers.
. The RESELLER FULFILLMENT division serves the needs of direct marketers
such as Dell, IBM and Zenith through the fulfillment of orders for
third-party hardware and software products.
. The MAJOR ACCOUNTS division serves Merisel's large franchisee accounts,
computer superstores and computer retail chains through a specialized
staff that offers enhanced services, volume purchase agreements,
corporate office coordination, marketing programs and sales report data.
. The MACINTOSH division provides expertise in sales and support of third-
party Macintosh products worldwide through its own separate marketing,
sales, products and technical support and purchasing departments.
VAR Channel. This channel is served by the following specialized sales
divisions:
. The VAR division provides value-added resellers with highly
knowledgeable sales representatives, a comprehensive line of computer
systems, UNIX and connectivity products, education, financial services
and technical support.
. The ADVANCED PRODUCTS division (formerly the UNIX division) is primarily
dedicated to selling and supporting Sun Microsystems and Sun-
complementary products through its own sales, marketing, operations and
technical support departments.
. The OEM division supports Merisel's customers who integrate and/or
manufacture microprocessor-based systems and solutions utilizing OEM
versions of Merisel's hardware and software products.
. The recently created SYSTEM INTEGRATOR division supports large system
and network integrators who require specialized programs and services.
Consumer Channel.
. The CONSUMER PRODUCTS division targets mass merchants such as Circuit
City, Montgomery Ward and Office Depot by providing inventory selection
and control services, specialized marketing programs and other support
services tailored to the needs of mass-market merchandisers.
For each of the Company's international subsidiaries, the number and type of
specialized sales divisions vary based on market requirements, the size of the
subsidiary's sales force and the products carried by the subsidiary.
The Company's sales force is composed of field sales representatives who
manage relations with the larger accounts and inside telemarketing sales
representatives who receive product orders and answer customer inquiries. When
a customer calls Merisel, screen synchronization technology causes a sales
profile to appear on the sales representative's computer screen before
greetings are exchanged. Customer orders generally are placed via a toll-free
telephone call to Merisel's inside sales representatives and are entered on
Merisel's SalesNet order entry system, a proprietary local area network created
by Merisel to speed the process of taking and processing orders. Using the
SalesNet database, sales representatives can immediately enter customer orders,
obtain descriptive information regarding products, check inventory status,
determine customer credit availability and obtain special pricing and promotion
information. Merisel also offers Dial-Up
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SalesNet, a system that allows a customer, through the use of its own personal
computer and a modem, to access Merisel's database to examine pricing, credit
information, product description and availability and promotional information
and to place orders directly into Merisel's order processing system. For
certain of its larger customers, the Company has installed electronic data
interchange (EDI) systems which allow participating customers to directly
access the Company's mainframe computer system for order processing and account
information.
OPERATIONS AND DISTRIBUTION
The Company operates 20 distribution centers around the world, including
eight in the United States, two in Canada, five in Europe, four serving Latin
America and one in Australia. All of these distribution centers are leased,
except for one facility in Mexico, which is owned by the Company. In addition,
pursuant to the terms of the Services Agreement, Vanstar will continue to
provide distribution and other support services to the ComputerLand Business
operated by Merisel FAB for a period of up to two years ending January 31,
1996. See "--ComputerLand Business."
The Company's United States, Canadian and United Kingdom operations, other
than Merisel FAB, are conducted using a mainframe-based computer system,
originally implemented in the early 1980s, that operates on hardware owned and
operated by a third-party service provider. In recent years, the Company has
experienced a significant increase in both its sales volume and in the number
and type of transactions processed by the computer system. The Company believes
that the ability of its existing computer system in North America to process
the increased sales volumes contemplated for 1994 and the first three quarters
of 1995 is limited without certain modifications to the system. The Company is
in the process of implementing such modifications and believes such
modifications will be successful. If, however, there is a delay in implementing
the modifications, or if the system, as modified, performs below anticipated
service levels, the existing system may not be able to accommodate anticipated
increases in sales volumes and transaction requirements in the fourth quarter
of 1994, which in turn could have a negative effect on the Company's business
and financial results. As a result, the Company is making a significant
investment in new advanced computer and warehouse management systems for its
North American operations.
These new systems are designed to accommodate sales volumes of up to twice
current volumes as well as provide greater transaction accuracy and operating
efficiency and more flexibility to accommodate a variety of transaction types.
The Company began designing the new computer system in early 1993 and currently
anticipates that it will begin to convert to the new system in late 1994 and
will continue the conversion through 1995. The Company presently estimates that
its aggregate investment in the new computer systems, including costs of system
design, hardware, software, installation and training, will be approximately
$20 million. The Company installed its first new warehouse management system,
which includes infrared bar coding equipment and advanced computer hardware and
software systems, in one warehouse in 1993 and anticipates installation in its
remaining North American warehouses during 1994 and 1995.
The design and implementation of these new systems are complex projects and
involve risks that unanticipated problems may delay implementation of the new
systems or cause them to perform below anticipated service levels. The Company
is therefore making this substantial investment in the design and installation
of these systems and is dedicating a significant number of its personnel on a
full-time basis (82 employees and independent contractors) to these projects.
In the event the Company experiences delays in implementation of these new
systems or such systems fail to perform at anticipated service levels, the
Company may not be able to accommodate anticipated increases in sales volumes
and transaction processing requirements after the third quarter of 1995, which
in turn could have a negative effect on the Company's business and financial
results.
INTERNATIONAL OPERATIONS
The Company distributes microcomputer products throughout the world. Merisel
formed its first international subsidiary in 1982 and now operates in Canada,
the United Kingdom, France, Germany,
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Australia, Switzerland, Austria and Mexico. Merisel also has a subsidiary based
in Miami, Florida, which sells products primarily to customers in Latin America
and in other parts of the world where Merisel does not have a physical
presence. In June 1990, the Company began limited distribution of products in
Russia as part of a joint venture. The Company believes that certain of the
markets for microcomputer products outside the United States are less mature
and therefore present opportunities for further growth. Accordingly, the
Company will seek to further expand its international operations through
internal growth and the possible acquisition of existing distributors or
establishment of new operations in other countries.
The products and services offered by Merisel's international subsidiaries are
generally similar to those offered in the United States, although the breadth
of the subsidiaries' product lines and the range of manufacturers' and
customers' services offered by the subsidiaries are usually smaller due to the
smaller size of the subsidiaries and differing market requirements. Certain
subsidiaries provide products or services not offered in the United States due
to differing manufacturer relationships and market requirements. Operationally,
the management and distribution systems at the Company's international
subsidiaries vary depending on the size of the subsidiary, its length of
operation and local market requirements. As each subsidiary expands, the
Company seeks to implement systems and procedures that are more similar to
those used in the United States.
In Europe, the Company is revising its distribution strategy in response to
the reduction in cross-border shipment barriers instituted by the European
Economic Community in 1993. With the reduction of cross-border shipping
barriers, the Company believes it can more efficiently ship to a large number
of countries from a centralized master warehouse or warehouses, supplemented by
smaller warehouses in various locations across Europe. At present, the Company
maintains a full warehouse in each of the countries in which it has operations,
with the exception of Austria. The Company has begun development of a master
warehouse in Northern Europe for use beginning in mid-to-late 1995.
The Company's European operations are managed through a European
headquarters, which operates with a staff of pan-European managers to oversee
the Company's various European subsidiaries and operations. Merisel currently
is increasing its European management team and planning the computer system
revisions and other operational changes required to implement its centralized
distribution strategy.
Because the Company conducts business in a number of countries, that portion
of operating results and cash flows that is non-U.S. dollar denominated is
subject to certain currency fluctuations. The Company generally employs forward
exchange contracts to limit the impact of fluctuations in the relative values
of some of the currencies in which it does business.
In addition, international operations may also be subject to risks such as
the imposition of governmental controls, export license requirements,
restrictions on the export of certain technology, political instability, trade
restrictions, changes in tariffs, difficulties in staffing and managing
international operations and collecting accounts receivable and the impact of
local economic conditions and practices. As the Company continues to expand its
international operations, its success will be dependent, in part, on its
ability to anticipate and deal with these and other risks. There can be no
assurance that these or other factors will not have an adverse effect on the
Company's international operations.
For segment information regarding Merisel's United States and international
operations, see Note 10 of Notes to Consolidated Financial Statements.
COMPUTERLAND BUSINESS
On January 31, 1994, the Company completed the ComputerLand Acquisition. As a
result of the ComputerLand Acquisition, Merisel, through the ComputerLand
Business, will now operate as a master reseller of computer systems and related
products from the major microcomputer manufacturers to a network
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of approximately 750 independently-owned product resellers composed of two
customer groups: ComputerLand franchisees, with whom Merisel FAB acts as
franchisor by licensing the ComputerLand name and providing both product supply
and various support services, and resellers purchasing under the ComputerLand
Business' Datago program, which are independent dealers and value-added
resellers that purchase products from the ComputerLand Business on a cost-plus
basis, but do not license the ComputerLand name. On a pro forma combined basis
for the year ended December 31, 1993, the ComputerLand Acquisition would have
increased net sales by $1.1 billion, gross profit by $54.7 million and
operating income by $13.3 million. See "Unaudited Pro Forma Condensed Combined
Statements of Income" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Acquisition of ComputerLand Business."
In connection with its purchase of the ComputerLand Business, Merisel
purchased the ComputerLand Business' franchise and third-party reseller
agreements as well as the rights in the United States to ComputerLand
Corporation's trademarks, trade names, service marks, patents and logos.
Merisel paid approximately $80 million in cash at the closing of the
ComputerLand Acquisition for the acquired assets. In addition, Merisel has
agreed to make an additional payment in 1996 of up to $30 million, the amount
of which will be determined based upon the growth in Merisel FAB's and the
Company's sales of products of designated manufacturers to specified customers
over the two-year period ending January 31, 1996. Sixty-five of the
ComputerLand Business' 66 employees became employees of Merisel FAB in
connection with the ComputerLand Acquisition. Merisel did not purchase the
order fulfillment systems, warehouses or inventory used by the ComputerLand
Business. Instead, the Company eventually intends to integrate these functions
into its facilities and systems. In the interim, Merisel and Vanstar have
entered into the Services Agreement pursuant to which Vanstar will continue to
provide products and distribution and other support services to the
ComputerLand Business for a contractually agreed-upon fee for a period of up to
two years following the ComputerLand Acquisition. In addition, pursuant to the
terms of the Services Agreement, Merisel has been granted $20 million in
extended credit terms on its product purchases from Vanstar.
Following its sale of the ComputerLand Business, Vanstar continues to operate
as a reseller of computer products and services through its company-owned
locations throughout the United States and also retains its international
operations.
The ComputerLand Business' franchisees operate locations under the
ComputerLand name. The ComputerLand Business currently sells products to
franchisees at cost and receives a royalty based upon gross sales of the
franchisee, irrespective of whether the products sold were purchased from the
ComputerLand Business. During 1994, the ComputerLand Business has offered to
certain franchisees the opportunity to revise such franchisees' pricing
structure by selling products to franchisees at cost plus a mark-up and
reducing or eliminating the royalty on overall franchisee sales provided the
franchisee achieves minimum purchase targets. The franchise agreements
purchased as part of the ComputerLand Acquisition typically provide for a ten-
year exclusive contract, renewable at the option of the franchisee. In addition
to the use of the ComputerLand name, the ComputerLand Business provides
franchisees a range of services including sales and marketing materials,
management and sales support services and a proprietary-dealer management
software system. At February 1, 1994, the ComputerLand Business had agreements
with franchisee groups operating 198 locations, located primarily in secondary
metropolitan markets in the United States.
The ComputerLand Business' Datago resellers are independent dealers and
value-added resellers. These resellers generally enter into non-exclusive one-
year renewable contracts cancelable at the option of either party on short
notice. These contracts typically entitle Datago resellers to purchase the full
range of the ComputerLand Business' products at cost plus a mark-up, depending
on the dollar volume of products purchased. At February 1, 1994, the
ComputerLand Business had approximately 549 active Datago resellers. During the
six months ended June 30, 1994, no individual franchisee or Datago reseller
accounted for more than 5% of the ComputerLand Business' revenues.
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Following the ComputerLand Acquisition, the Company has undertaken an effort
to add additional resellers as customers of the ComputerLand Business under its
Datago program. Later in 1994, the Company intends to begin adding new
ComputerLand franchisees throughout the United States, focusing in particular
on locations where no reseller is using the ComputerLand name. The Company
currently expects that such new franchisees, as well as renewing franchisees,
will enter into three-year franchise agreements that allow a franchisee the
option to convert to a Datago affiliate for the third year.
The ComputerLand Business offers its franchisees and Datago resellers a
selection of major microcomputer equipment and peripherals provided by
approximately 70 suppliers. For its fiscal year ended September 30, 1993,
approximately 76% of the ComputerLand Business' revenues were generated by
sales of Apple, Compaq, Hewlett-Packard and IBM products. The loss of any one
of these four manufacturers, or a change in the way any of these manufacturers
markets, prices or distributes its products, could have a material adverse
effect on the ComputerLand Business' operations and financial results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisition of ComputerLand Business." In addition to the products
supplied directly by the ComputerLand Business, franchisees and Datago
resellers may purchase other products offered by the Company's wholesale
distribution business pursuant to separate agreements negotiated on their
behalf by Merisel FAB.
Under the two-year Services Agreement, Vanstar will continue to purchase and
warehouse manufacturers' products and fulfill reseller orders for the products
offered by Merisel FAB. Merisel FAB will purchase such products from Vanstar,
rather than directly from the supplier, and will pay Vanstar a service fee for
performing these distribution functions. Resellers will continue to place
product orders with Merisel FAB through the order placement system operated by
Vanstar. Vanstar will typically ship products to a customer within two days of
receipt of an order. During the term of the Services Agreement, Merisel FAB
will be dependent upon Vanstar to purchase and maintain inventories of products
sufficient to meet resellers' requirements and to receive and fulfill orders at
acceptable service levels. Merisel FAB and Vanstar will jointly maintain
supplier relationships. While the Company has no reason to believe that Vanstar
will not be able to perform its obligations under the Services Agreement, in
the event that Vanstar becomes unable to perform such obligations, there may be
an adverse effect on the operations and financial results of the Company. The
Services Agreement contains provisions for monetary penalties in the event that
Vanstar fails to achieve agreed-upon service levels, as well as provisions
permitting Merisel FAB to take over a portion of Vanstar's operations to
fulfill such obligations under certain circumstances.
Over 76% of the ComputerLand Business' sales to its customers currently are
financed on behalf of such customers by floor plan financing companies, and the
ComputerLand Business typically receives payment from these financing companies
within three business days from the date of sale. Such floor plan financing is
typically subsidized for the ComputerLand Business' customers by its suppliers.
Any material change in the availability or the terms of financing offered by
such financing companies or the subsidies provided by suppliers could require
Merisel FAB to provide such financing to its customers, thereby substantially
increasing the working capital necessary to operate its business.
The Company does not have experience in operating a master reseller business
such as the ComputerLand Business, with its different merchandising strategy
and customer base. While the Company believes that the personnel hired as part
of the ComputerLand Acquisition, together with the Company's senior management,
will successfully manage the ComputerLand Business, no assurances can be given
as to the future performance levels or operating results of the ComputerLand
Business.
COMPETITION
Competition in the microcomputer products distribution industry is intense
and is based primarily on price, brand selection, breadth and availability of
product offering, speed of delivery, level of training and technical support,
marketing services and programs and ability to influence a buyer's decision.
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
---- ---- --------
<C> <C> <S>
Michael D. Pickett 47 Co-Chairman of the Board of Directors,
President and Chief Executive Officer
Robert S. Leff 47 Co-Chairman of the Board of Directors and
Senior Vice President-Business Development
David S. Wagman 43 Vice Chairman of the Board of Directors
James L. Brill 43 Senior Vice President-Finance, Chief Financial
Officer, Secretary and Director
Joseph Abrams 58 Director
David L. House 51 Director
Dr. Arnold Miller 66 Director
Lawrence J. Schoenberg 62 Director
Dwight A. Steffensen 51 Director
John J. Connors 39 Senior Vice President-U.S. Operations
John F. Thompson 49 Senior Vice President-Worldwide Operations
Susan J. Miller-Smith 42 Senior Vice President-European Operations
Thomas P. Reeves 33 Senior Vice President-Canadian Operations
Paul M. Lemerise 49 Senior Vice President-Worldwide Information
Services
Martin D. Wolf 35 Senior Vice President-Franchise and Aggregator
Operations
</TABLE>
- --------
*As of August 1, 1994
The business experience, principal occupations and employment of each of the
executive officers and directors, together with their periods of service as
directors and executive officers during the past five years are set forth
below.
Michael D. Pickett joined the Company in October 1983 as Vice President-
Finance and Chief Financial Officer and was appointed President and Chief
Operating Officer effective April 1986 and Chief Executive Officer in June
1988. He was elected a director in December 1987 and became Co-Chairman of the
Board of Directors in May 1992. Prior to joining the Company, Mr. Pickett was a
partner of Deloitte & Touche, a public accounting firm.
Robert S. Leff co-founded the Company with David S. Wagman in October 1980
and was its President from that time until May 1985, at which time he became
Co-Chairman of the Board of Directors. Mr. Leff has been a director of the
Company since its inception. Mr. Leff assumed the role of Senior Vice
President-Business Development in May 1992.
David S. Wagman co-founded the Company with Mr. Leff in October 1980, was the
Chairman of the Board of Directors from that time until May 1985 and was its
Co-Chairman with Mr. Leff from May 1985 to May 1992, at which time he became
Vice Chairman of the Board. He retired from full-time employment with the
Company in December 1990. Mr. Wagman has also been a director of the Company
since its inception and served as the Company's Secretary from formation until
May 1992.
James L. Brill joined the Company in May 1988 as Vice President-Finance,
Chief Financial Officer and Assistant Secretary. He was elected a director in
April 1990 and, while retaining his position as Chief Financial Officer, became
Senior Vice President-Finance and Secretary in May 1992. For eight years prior
to joining the Company, Mr. Brill was employed at Union Bank, one of the
Company's lending banks, where his most recent position was Regional Vice
President. At Union Bank, Mr. Brill was responsible for the lending
relationship with the Company.
36
<PAGE>
Joseph Abrams was elected a director of the Company following the acquisition
of Microamerica in April 1990. Mr. Abrams had previously served as a director
of Microamerica from 1983 to April 1990 and also served as President, Chief
Operating Officer and Secretary of AGS Computers, Inc., a software development
company, which was a subsidiary of NYNEX Corp., a telecommunications company,
from 1988 through 1993 ("AGS"). Mr. Abrams retired from AGS in January 1991. He
is also a director of Spectrum Signal Processing, a hardware and software
electronics company.
David L. House was elected to the Board of Directors in March 1994 to fill a
vacancy. Since 1987, Mr. House has served as Senior Vice President and Director
of Corporate Strategy of Intel Corporation, a manufacturer of microprocessing
systems, where he has been employed in various capacities since 1974.
Dr. Arnold Miller was elected to the Board of Directors in August 1989. Since
its formation in 1987, he has been President of Technology Strategy Group, a
consulting firm organized to assist businesses and government in the fields of
corporate strategy development, international technology transfer and joint
ventures, as well as business operations support. Prior to joining Technology
Strategy Group, Dr. Miller was employed at Xerox Corporation, a consumer
products and information services company, for 14 years, where his most recent
position was Corporate Vice President with responsibility for worldwide
electronics operations.
Lawrence J. Schoenberg was elected a director of the Company following the
acquisition of Microamerica in April 1990. Mr. Schoenberg had previously served
as a director of Microamerica from 1983 to April 1990. From 1967 through 1990,
Mr. Schoenberg served as Chairman of the Board and Chief Executive Officer of
AGS. From January to December 1991, Mr. Schoenberg served as Chairman and as a
member of the executive committee of the Board of Directors of AGS. Mr.
Schoenberg retired from AGS in 1992. He is also a director of Sungard Data
Services Inc., a computer services company, Government Technology Services
Inc., a microcomputer reseller, Image Business Systems Inc., an imaging
software company and Penn-America Group, Inc., a casualty insurance company.
Dwight A. Steffensen was elected to the Board of Directors in August 1990.
From January 1985 to March 1992, Mr. Steffensen served as a director and
Executive Vice President of Bergen Brunswig Corporation, a pharmaceuticals
distributor. In April 1992, Mr. Steffensen assumed the position of President
and Chief Operating Officer for that entity.
John J. Connors joined Microamerica in October 1979 where he held various
sales positions and became Senior Vice President-United States Sales of
Microamerica in March 1988. He became Senior Vice President, Products and
Marketing of the Company following the acquisition of Microamerica in April
1990, Senior Vice President-Sales of the Company in May 1991 and Senior Vice
President-U.S. Operations in May 1992.
John F. Thompson joined the Company in April 1983 as Vice President-
Operations, became Senior Vice President-Operations in April 1989 and became
Senior Vice President-Worldwide Operations in May 1992. Prior to joining the
Company, Mr. Thompson was Vice President, Manufacturing and Distribution, of
Vidal Sassoon, Inc., a consumer products company.
Susan J. Miller-Smith joined Merisel in 1987 as President of the Company's
Canadian subsidiary. In May 1992, Ms. Miller-Smith became the Company's Senior
Vice President in charge of Canadian Operations. In August 1994, Ms. Miller-
Smith became the Company's Senior Vice President in charge of European
Operations.
Thomas P. Reeves joined Merisel in 1987 as director of International
Strategic Planning. From March 1990 to February 1992, Mr. Reeves served as
Managing Director of the Company's United Kingdom subsidiary. In February 1992,
Mr. Reeves became Managing Director of the Company's operations in Europe, and
in May 1992 he became the Company's Senior Vice President-European Operations.
In August 1994, Mr. Reeves became the Company's Senior Vice President in charge
of Canadian Operations.
37
<PAGE>
Paul M. Lemerise joined Merisel in May 1992 as Senior Vice President-
Worldwide Information Services. From February 1990 to April 1992, Mr. Lemerise
served as Vice President of Management Information Systems at Marshall
Industries, an industrial distributor of electronic components. From 1984 to
1990, Mr. Lemerise served as Divisional Vice President, Information Services,
at Carter Hawley Hale Corporation, a major California retailer.
Martin D. Wolf joined Merisel FAB in February 1994 as its President and in
March 1994 was appointed Senior Vice President-Franchise and Aggregator
Operations of Merisel. Mr. Wolf joined ComputerLand Corporation, a computer
products reseller, in July 1988 and served as President of the ComputerLand
Business from October 1992 to February 1994.
EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation for each of
the last three fiscal years awarded to or earned by the Company's Chief
Executive Officer and the four other most highly compensated executive officers
of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS(3)
------------------------ ------------ ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION YEAR SALARY($)(2) BONUS($)(2) OPTIONS(#) ($)(4)
------------------ ---- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael D. Pickett, 1993 490,066 279,688 -0- 18,739
Co-Chairman of the Board
of Directors, 1992 440,000 303,025(5) 150,000 17,157
Chief 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, 1992 190,000 75,281 55,000 3,447
Chief 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 1992 162,071 87,345 55,000 4,510
Operations(9)
John F. Thompson, 1993 187,005 52,818 -0- 3,970
Senior Vice President-
Worldwide 1992 175,000 65,550 55,000 3,201
Operations(10) 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.
Merisel has entered into Indemnity Agreements with each of its directors
which require 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.
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 a $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 5.84% at July
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 and commitment fee vary depending on the co-borrowers' joint
leverage ratio. 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 credit agreement for this facility contains a number of restrictive
financial and other covenants which, among other things, (i) impose an
obligation on the co-borrowers to meet joint and/or separate net worth,
leverage ratio, interest coverage ratio and inventory turnover ratio
requirements (determined on a consolidated basis for each co-borrower) and
impose an obligation on the Parent, on a consolidated basis, to meet leverage
ratio and interest coverage requirements, and (ii) place limitations on the co-
borrowers and their subsidiaries, and in certain cases the Parent, with respect
to the incurrence of indebtedness, liens,
43
<PAGE>
investments in, and loans to, other persons or entities, including a
prohibition on loans to or investments by either co-borrower or their
respective subsidiaries to the Company or Merisel FAB, and dividends on and
repurchases of stock. The credit agreement also contains certain events of
default, including upon a change in control of either co-borrower or the
Parent.
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, interest coverage ratio,
asset sales, payment of dividends, investments, liens, and incurrence of debt.
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 with
respect to, among other things, Merisel Americas' consolidated current ratio,
debt, net worth, interest coverage ratio, payment of dividends and investments.
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 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.
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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 Parents' direct and indirect subsidiaries), with respect to liens,
indebtedness and dividends, and contains financial covenants requiring the
Company to meet 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.
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 , 1994
(the "Indenture") between the Company and U.S. Trust Company of California, 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 ,
New York, New York. 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 , 2004.
Interest on the Notes will accrue at the rate of % per annum and will be
payable semi-annually on each , and , commencing
, 1994, to the holders of record of Notes at the close of business
on the and 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.
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REDEMPTION
Optional Redemption. The Notes will be redeemable, in whole or in part, at
the option of the Company, at any time on or after , 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 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
</TABLE>
In addition to the optional redemption of the Notes in accordance with the
provisions of the preceding paragraph, prior to , 1997, the
Company may use the net proceeds of an Equity Offering to redeem up to 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.
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 45 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.
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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
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 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;
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(j) any deferrals, renewals, extensions, replacements, refinancings or
refundings of, amendments, modifications or supplements to, Indebtedness
incurred under clauses (a), (c) and (d) above, 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, 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 2.50:1; and
(l) 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 permit any of its Subsidiaries to,
directly or indirectly, make, 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 has been so converted,
exercised or exchanged, as the case may be. For purposes of determining
under this clause (c) the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its Fair Market Value.
The provisions of this covenant will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at such date
of declaration such payment would comply with the provisions of the Indenture;
(ii) the retirement of any shares of Capital Stock or subordinated Indebtedness
of the
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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
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 Subsidiaries (other than the property or assets so acquired);
(e) Liens on the accounts receivable and inventory of the Company and its
Subsidiaries securing Indebtedness under the Revolving Credit Agreement;
(f) Liens to secure Capitalized Lease Obligations, provided (i) such
Liens do not extend to or cover any property or assets of the Company or
any of its Subsidiaries (other than the property or assets subject
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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) Leases and subleases of real property which 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; and
(n) Liens on property or assets sold or securitized pursuant to an asset
securitization transaction; provided that the Net Cash Proceeds from any
such sale are applied as provided under "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 Indenture); (ii) any Person or the property or assets of such
Person acquired by the Company or any Subsidiary of the Company and existing at
the time of such acquisition (but not created in contemplation of such
acquisition), which encumbrances or restrictions are not applicable to any
Person or the property or assets of any Person other than such Person (or any
Subsidiary of such Person) or the property or assets of such Person so
acquired; (iii) any restrictions existing under any agreement that renews,
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
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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 permanently released from all liability therefor), and (c) the
Company shall or shall cause its Subsidiary, as the case may be, 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 permanently prepay any Indebtedness of a Subsidiary of the Company
(provided that in connection with any such prepayment, the related loan
commitment (if any) is permanently reduced in an amount equal to the amount
so prepaid);
(ii) to acquire or construct property or assets in lines of business
related to the Company's and its Subsidiaries' business on the Issue Date;
or
(iii) to make an offer to purchase (the "Asset Sale Offer") from all
holders of Notes, up to a maximum principal amount (expressed as a multiple
of $1,000) of Notes equal to, to the extent the Company elects not to apply
Net Cash Proceeds pursuant to the preceding clauses (i) and (ii), 100% of
such Net Cash Proceeds or to the extent the Company elects to apply Net
Cash Proceeds pursuant to the preceding clauses (i) and (ii), the amount of
any Net Cash Proceeds remaining after such application (the "Available
Amount"). Any Asset Sale Offer shall be at a purchase price per Note equal
to 100% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of purchase, provided that the Company may
defer any Asset Sale Offer until there is an aggregate unutilized Available
Amount equal to or in excess of $5,000,000 resulting from one or more Asset
Sales (at which time the entire unutilized Available Amount, and not just
the amount in excess of $5,000,000, shall be applied as required pursuant
to this paragraph). The Asset Sale Offer shall remain open for a period of
20 business days or such longer period as may be required by law. To the
extent the Asset Sale Offer is 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.
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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 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 the Company 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
$1.0 million shall be approved by the Board of Directors of the Company, such
approval to be evidenced by a Board Resolution stating that such 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 and quarterly reports 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 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
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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 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 Officer's 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 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.
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, and the Trustee 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
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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 and is continuing, 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 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 past 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 a covenant or a provision 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 the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee, the Trustee does not pursue the remedy addressed in
such request within 15 days after receipt of such notice and offer, and the
Trustee has not within such 15-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 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.
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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 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 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, (vii) amend, change or modify the obligation of the
Company to make and consummate a Change of Control Offer or Asset Sale Offer or
modify any of the provisions or definitions with respect thereto.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the Indenture.
Reference is made to the Indenture for the full definition of all such terms,
as well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Subsidiary of the Company or assumed in connection with
an Asset Acquisition of such Person, including, without limitation,
Indebtedness incurred in connection with, or in anticipation of, such Person's
becoming a Subsidiary of the Company.
"Affiliate" of any specified Person means any other Person which, directly or
indirectly, controls, is controlled by or is under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
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"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) a sale, transfer
or securitization of receivables not a part of a sale or transfer of the
business from which they arose, (ii) any disposition of properties and assets
of the Company or any Subsidiary that is governed under 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 ,
(iv) rights granted to franchisees pursuant to franchise agreements entered
into in the ordinary course of business or (v) any sale of the Company's
Capital Stock.
"Attributable Indebtedness" means in respect of a Sale Lease-Back
Transaction, as at the time of determination, the greater of (i) the fair value
of the property subject to such Sale Lease-Back 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 Lease-Back 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 non-voting) 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 the most recently ended fiscal year in excess of US
$100,000,000 and (y) in the case of any United States entities, a commercial
paper rating of "A-1" or better by Standard and Poor's Corporation or "P-1" or
better by Moody's Investors Service, Inc.; (ii) direct obligations of the
United States of America or obligations of any instrumentality or agency
thereof, with respect to which the payment of principal and interest is
unconditionally guaranteed by the United States of America; provided however,
that any such obligation shall be payable in US dollars and shall have a final
maturity date no more
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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 US $100,000,000; provided however, that any such agreement shall be payable
in 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 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 either were
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, (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 of such Person and its Subsidiaries for such period, determined
on a consolidated basis in accordance with GAAP: (i) depreciation, (ii)
amortization, including, without limitation, amortization of capitalized debt
issuance costs, (iii) Consolidated Interest Expense, (iv) all United States
Federal, state and foreign income taxes paid or accrued (other than income
taxes attributable to extraordinary, unusual or non-recurring gains or losses),
and (v) any other non-cash charges to the extent deducted from Consolidated Net
Income.
"Consolidated Interest Expense" means, with respect to any period, for any
Person all cash and non-cash interest expense (including capitalized interest,
amortization of original issue discount and the interest portion of deferred
payment obligations) of such Person and its Subsidiaries determined in
accordance with GAAP (exclusive of deferred financing fees of such Person and
its Subsidiaries) and the aggregate amount of cash dividends or other
distributions accrued, declared or paid on Capital Stock (other than Common
Stock) of such Person and its Subsidiaries.
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided,
however, that (a) the Net Income of any Person (the "Other Person") in which
the Person in question or any of its Subsidiaries has a joint interest with a
third party (which interest does not allow the Net Income of such Other Person
to be consolidated into the Net Income of the Person in question in accordance
with GAAP) shall be included only to the extent of the amount of dividends or
distributions actually paid to the Person in question or the Subsidiary, (b)
the Net Income of any Subsidiary of the Person
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in question that is subject to any contractual restriction or limitation on the
payment of dividends or the making of other distributions shall be excluded to
the extent of such restriction or limitation, (c) 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, (d) 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 (e) 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),
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
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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 an underwritten registered public offering of Capital
Stock (other than Disqualified Stock) of the Company pursuant to a registration
statement that has been declared effective by the Commission.
"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 accounts receivable (or property securing or otherwise
supporting accounts receivable) sold pursuant to any securitization
transaction); and (iv) any and all deferrals, renewals, extensions,
replacements, refinancing and refundings of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (i), (ii) or (iii). In addition, Indebtedness shall include, with
respect to the Company, any Disqualified Stock of the Company and with respect
to a Subsidiary of the Company, any Preferred Stock of such Subsidiary.
Indebtedness shall not include any obligations under interest rate protection
agreements entered into to protect against changes in interest rates or
currency hedging agreements entered into to protect against changes or
fluctuations in currencies.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any mortgage, lien (statutory or other), pledge, security
interest, encumbrance, hypothecation, assignment for security or other security
agreement of any kind or nature whatsoever. For purposes of the Indenture, a
Person shall be deemed to own subject to a Lien any property that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such Person.
"Material Subsidiary" means a Subsidiary of the Company which would
constitute a "significant subsidiary" of the Company within the meaning of
Regulation S-X of the Commission. In any event, for purposes of the Indenture,
Merisel Europe, Merisel Americas and Merisel FAB shall be deemed to be Material
Subsidiaries of the Company.
59
<PAGE>
"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 post-employment 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.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
60
<PAGE>
"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.
61
<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 its name below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
<S> <C>
Citicorp Securities, Inc................................. $
Citibank Canada Securities Limited.......................
Cititbank 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--No Public Market."
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 Citicorp is the agent under the Revolving
Credit Facility. Citicorp North America, Inc., an affiliate of Citicorp is the
agent under the Receivables Securitization Agreement.
62
<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 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.
63
<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, 1993 and 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>
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>
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 EX-
PENSES................. 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 AT 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 AT 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 AT 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 AT 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 AT 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 ACITIVITIES:
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>
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>
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>
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. 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 and 1993 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
UNAUDITED
---------------------
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 Underwriter. 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............................................................ 10
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....................................................... 45
Underwriting............................................................... 62
Legal Matters.............................................................. 63
Experts.................................................................... 63
Available Information...................................................... 63
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.................... *
Printing and engraving expenses...... *
Fees of transfer agent............... *
Accounting fees and expenses......... *
Legal fees and expenses.............. *
Blue sky fees and expenses........... *
Trustee fees and expenses............ *
-------
Miscellaneous........................ *
-------
Total............................ $ *
=======
</TABLE>
- --------
*To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has adopted provisions in its Restated Certificate of
Incorporation (the "Certificate") that limit the liability of its directors. As
permitted by the Delaware General Corporation Law (the "Delaware Law"), the
Certificate provides that directors shall not be personally liable for breach
of fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its shareholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware Law (governing
unlawful payments of dividends and unlawful stock purchases and redemptions),
as the same exists or hereafter may be amended or (iv) for any transaction from
which the director derived an improper benefit.
The Company's Bylaws and Certificate further provide that the Company may
indemnify and hold harmless its directors and officers to the fullest extent
authorized by the Delaware Law, which provides a detailed statutory framework
covering indemnification of directors and officers against liabilities and
expenses arising out of legal proceedings brought against them by reason of
their status or service as directors or officers.
Section 145 of the Delaware Law provides that a director or officer of a
corporation (i) shall be indemnified by the corporation for expenses in defense
of any action or proceeding if the director or officer is sued by reason of his
service to the corporation, to the extent that such person has been successful
in defense of such action or proceeding, or in defense of any claim, issue or
matter raised in such litigation, (ii) may, in actions other than actions by or
in the right of the corporation (such as derivative actions), be indemnified
for expenses, judgments, fines, amounts paid in settlement of such litigation
and other amounts, even if he is not successful on the merits, if he acted in
good faith and in a manner he reasonably believed to be in or not
II-1
<PAGE>
opposed to the best interests of the corporation (and in the case of a criminal
proceeding, if he did not have reasonable cause to believe his conduct was
unlawful) and (iii) may be indemnified by the corporation for expenses (but not
judgments or settlements) of any action by the corporation or of a derivative
action (such as a suit by a stockholder alleging a breach by the director or
officer of a duty owed to the corporation), even if he is not successful on the
merits, provided that he acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation,
provided that no indemnification is permitted without court approval if the
director was adjudged liable to the corporation.
The permissive indemnification described in clauses (ii) and (iii) of the
previous paragraph may be made only upon a determination by (a) a majority of a
quorum of disinterested directors, (b) the shareholders or (c) under certain
circumstances, by independent legal counsel in a written opinion that
indemnification is proper in the circumstances because the applicable standard
of conduct has been met. The Board of Directors may authorize the advancement
of litigation expenses to a director or officer upon receipt of an undertaking
by such director or officer to repay such expenses if it is ultimately
determined that such director or officer is not entitled to indemnification.
The Company has entered into indemnity agreements (the "Indemnity
Agreements") with each director of the Company, including directors who are
also officers and employees of the Company. The Indemnity Agreements contain
provisions which are in some respects broader than the specific indemnification
provisions contained in the Delaware Law. The Indemnity Agreements constitute
binding agreements of the Company and will prevent the Company from modifying
its indemnification policy in any way which is adverse to any person (an
"Indemnified Party") who is a party to and required to be indemnified pursuant
to an Indemnity Agreement.
The Indemnity Agreements also alter or clarify the statutory indemnity in a
number of ways, including the following: (i) indemnification is required in
most circumstances unless the Indemnified Party's actions are adjudged to be in
bad faith, knowingly fraudulent or deliberately dishonest; (ii) indemnification
is explicitly provided for settlements and costs of investigation and appeal in
derivative actions; (iii) the Company must advance the expenses incurred in
defending, investigating or appealing any proceeding to which the Indemnified
Party is a party as a result of service to the Company, but the Indemnified
Party must repay such expenses if it is ultimately determined that such person
is not entitled to indemnification; (iv) the Company must provide
indemnification unless it is determined promptly by a majority of disinterested
directors, by independent legal counsel or a panel of arbitrators that the
person is not entitled to indemnification; (v) partial indemnification is
permitted in the event that the Indemnified Party is not entitled to full
indemnification; and (vi) if the determining body finds indemnification
inappropriate, the Indemnified Party may petition a court for an independent
determination. Neither the failure by the directors, counsel or arbitrators to
make such a determination, or an actual determination by any of them that the
Indemnified Party failed to meet the applicable standard of conduct, will be a
defense to such action or create a presumption that the Indemnified Party did
not meet the applicable standard of conduct. The indemnity also covers action
by a director, officer or key employee as a director, officer or agent of an
employee benefit plan or other corporation, partnership, joint venture or other
enterprise when such person is serving in such capacities at the request of the
Company. The enforceability of certain provisions of the Indemnity Agreement
has not been tested in court and remains subject to considerations of state law
and public policy.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
4.1 Form of Indenture between the Company and U.S. Trust Company of
California as Trustee, relating to the Company's % Senior Notes due
2004, including the form of such Senior Notes attached as Exhibit
thereto.*
5.1 Opinion of Riordan & McKinzie.*
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
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 (included on Page II-4).
25.1 Form T-1 Statement of Eligibility of U.S. Trust Company of California.
27 Financial Data Schedules*
</TABLE>
- --------
* To be filed by amendment
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 REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED IN THE CITY OF EL SEGUNDO, STATE OF CALIFORNIA, AUGUST 23, 1994.
Merisel, Inc.
By /s/ James L. Brill
___________________________________
James L. Brill
Senior Vice President-Finance,
Chief Financial Officer and
Secretary
POWER OF ATTORNEY
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Michael D. Pickett and James L. Brill and each
of them, with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities (unless
revoked in writing) to sign any and all amendments (including positive
amendments thereto) to this Form S-3 Registration Statement to which this power
of attorney is attached, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting to such attorney-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to intents
and purposes as he might and could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Michael D. Pickett Co-Chairman of the Board of August 23, 1994
_______________________________ Directors, President and
Michael D. Pickett Chief Executive Officer
(Principal Executive
Officer)
/s/ Robert S. Leff Co-Chairman of the Board of August 23, 1994
_______________________________ Directors, and Senior Vice
Robert S. Leff President-Business
Development
/s/ David S. Wagman Vice Chairman of the Board August 23, 1994
_______________________________ of Directors
David S. Wagman
II-4
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ James L. Brill Senior Vice President- August 23, 1994
_______________________________ Finance, Chief Financial
James L. Brill Officer, Secretary and
Director (Principal
Financial Officer)
/s/ Gary A. Schultz Corporate Controller August 23, 1994
_______________________________ (Principal Accounting
Gary A. Schultz Officer)
/s/ Joseph Abrams Director August 23, 1994
_______________________________
Joseph Abrams
Director August 23, 1994
_______________________________
David L. House
/s/ Arnold Miller Director August 23, 1994
_______________________________
Dr. Arnold Miller
/s/ Lawrence J. Schoenberg Director August 23, 1994
_______________________________
Lawrence J. Schoenberg
/s/ Dwight A. Steffensen Director August 23, 1994
_______________________________
Dwight A. Steffensen
II-5
<PAGE>
EXHIBIT 1.1
MERISEL, INC.
$150,000,000 aggregate principal amount of
% Senior Notes Due 200
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 200 (the
"Securities"). The Securities are to be issued pursuant to an indenture to be
dated as of , 1994 (the "Indenture") by and among the Company
and , 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- ) 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 either (i) if such registration
statement, as it may have
<PAGE>
-2-
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 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) contained or
will contain all statements required to be stated therein in accordance
with, and 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
<PAGE>
-3-
(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) contained or will contain all statements
required to be stated therein in accordance with, and 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 or 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 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 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
<PAGE>
-4-
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 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) The Company has delivered to the Underwriters a true and correct
copy of the Revolving Credit Agreement dated among the Company,
Merisel Americas, Inc., Merisel Europe, Inc. and Citibank, N.A., together
with all schedules and exhibits thereto (collectively, the "Credit
Agreement") and there have been no amendments, alterations, modifications
or waivers of any of the provisions of the Credit Agreement and each of the
representations and warranties given by the Company, Merisel Americas, Inc.
and Merisel Europe, Inc. in the Credit Agreement are true and
<PAGE>
-5-
correct on and as of the date hereof and will be true and correct as of the
Closing Date and (after giving effect to the transactions contemplated by
this Agreement) there does not exist as of the date hereof and there shall
not exist as of the Closing Date, any condition which would constitute a
Default or Event of Default (each as defined in the Credit Agreement) under
the Credit Agreement.
(j) The Company has no consolidated subsidiaries except as listed on
Exhibit 21.1 to the Registration Statement.
(k) 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 the Underwriters, and the Underwriters
agree to purchase from the Company, all of the Securities at a purchase price of
% of the principal amount thereof.
3. Delivery and Payment. Delivery of and payment for the Securities
--------------------
shall be made at 10:00 A.M., New York City 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
Cahill Gordon & Reindel, 80 Pine Street, New York, New York. 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. on the business day prior to the Closing Date.
<PAGE>
-6-
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 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 compiled 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 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. 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
<PAGE>
-7-
Statement or amendments or supplements to the Prospectus that may be
necessary or advisable in the reasonable judgment of the Underwriters, 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 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
<PAGE>
-8-
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.
(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. The
Company will provide or cause to be provided to each Underwriter a copy of
each Report on Form SR filed by the Company as required by Rule 463 under
the Act.
(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.
<PAGE>
-9-
(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 or other production
(including word processing and duplication), with respect to such
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 (which shall
include the reasonable disbursements of counsel for the Underwriters in
respect thereof), (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.
(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 out-of-pocket
expenses (including fees and disbursements of counsel) that shall have been
incurred by them in
<PAGE>
-10-
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.
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 all other
jurisdictions where ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on
the business, properties, results of operations, final condition or
prospects of the Company and its subsidiaries, taken as a whole (a
"Material Adverse Effect"); the
<PAGE>
-11-
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 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 all other 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 have a Material Adverse Effect; each of the Company's 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 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 subsidiaries are
owned of record and, to the best knowledge of such counsel,
beneficially by the Company, free and clear of any security interests,
liens or encumbrances.
(v) Except as set forth in the Registration Statement and the
Prospectus, 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 subject to applicable
bankruptcy, insolvency, fraudulent conveyance, moratorium,
<PAGE>
-12-
reorganization and similar laws affecting creditors' rights and
remedies generally and subject to general principles of equity,
including principles of commercial reasonableness, good faith and fair
dealing (regardless whether enforcement is sought in a proceeding at
law or in equity).
(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 subject to
applicable bankruptcy, insolvency, fraudulent conveyance, moratorium,
reorganization and similar laws affecting creditors' rights and
remedies generally and subject to general principles of equity,
including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding
at law or in equity).
(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
with any governmental authority, 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) known to such counsel, to which the
Company or any of its subsidiaries is a party or by which any of them
or their respective properties are
<PAGE>
-13-
bound, or any statute, rule or regulation (other than state securities
or Blue Sky laws as to which such counsel need express no opinion) or
any judgment, decree or order of any court or other governmental
authority or any arbitrator applicable to the Company or any of its
subsidiaries 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 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) The statements set forth under the headings Business-
Legal Proceedings in the Prospectus, insofar as such statements
constitute a summary of legal matters, documents or proceedings
referred to therein, provide a fair and accurate summary in all
material respects of such legal matters, documents and proceedings and
the information with respect thereto required under the Act.
(xiii) 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 no such
proceedings have been threatened against the Company or any of its
subsidiaries or with respect to any of their properties; and 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 is effective under the Act
and no stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereto has been issued, and
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 with the
applicable requirements of the Act and 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
<PAGE>
-14-
therein), (B) the Incorporated Documents (other than the financial
statements and schedules and the other financial, statistical and
accounting data contained therein), when filed with the Commission,
complied as to form in all material respects with the applicable
requirements of the Exchange Act.
(xvi) 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) 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.
(xviii) The Company meets the requirements for the use of
Form S-3 under the Act.
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 (except as otherwise indicated above), 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 need express no opinion with respect 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).
<PAGE>
-15-
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 New York, 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.
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.
(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
<PAGE>
-16-
respect to the comments set forth in this paragraph (iii), a reading
of the minute books of the shareholders, the 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 year, 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 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
<PAGE>
-17-
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 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
<PAGE>
-18-
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) 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 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
<PAGE>
-19-
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.
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. This indemnity agreement will
<PAGE>
-20-
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 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
<PAGE>
-21-
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 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 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.
<PAGE>
-22-
(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 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
<PAGE>
-23-
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.
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 Issuers 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>
-24-
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
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 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:
Merisel, Inc.
200 Continental Boulevard
El Segundo, California 90245-0984
Attention:
<PAGE>
-25-
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 Underwriter shall be deemed a
successor because of such purchase.
<PAGE>
-26-
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>
-27-
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>
Schedule I
----------
<TABLE>
<CAPTION>
Aggregate Principal
Amount of Securities
Underwriter to Be Purchased
----------- --------------------
<S> <C>
Citicorp Securities, Inc.............. $
Citibank Canada Securities Limited.... $
Citibank International plc............ $
-----------------
Total . . . . . . . . . . . . . . $
</TABLE>
<PAGE>
EXHIBIT 12.1
MERISEL, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, PRO ENDED JUNE 30, PRO
------------------------------------------ FORMA ---------------- FORMA
1989 1990 1991 1992 1993 1993 1993 1994 1994
------ ------ ------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income
taxes per statement of income $16,663 $ 3,553 $21,478 $34,477 $50,852 $51,310 $21,283 $17,942 $15,271
Add
Portion of rents representative
of the interest factor 1,047 2,111 2,933 3,632 4,164 4,202 2,082 2,475 2,475
Interest on indebtedness 3,472 13,720 15,972 15,742 17,810 30,179 8,916 12,559 16,186
Amortization of debt expense
and premium 605 1,045 191 749 573
------- ------- ------- ------- ------- ------- ------- ------- -------
Income as adjusted $21,182 $19,384 $40,383 $53,851 $73,431 $86,736 $32,472 $33,725 $34,505
======= ======= ======= ======= ======= ======= ======= ======= =======
Fixed charges
Interest on indebtedness:
Merisel, Inc. and consolidated
subsidiaries (1) $ 3,472 $13,720 $15,972 $15,742 $17,810 $30,179 $ 8,916 $12,559 $16,186
------- ------- ------- ------- ------- ------- ------- ------- -------
Amortization of debt expense
and premium (2) 605 1,045 191 749 573
------- ------- ------- ------- ------- ------- ------- ------- -------
Rents:
Merisel, Inc. and consolidated
subsidiaries 3,172 6,398 8,889 11,007 12,617 12,733 6,310 7,500 7,500
------- ------- ------- ------- ------- ------- ------- ------- -------
Portion of rents representative
of interest factors (3) 1,047 2,111 2,933 3,632 4,164 4,202 2,082 2,475 2,475
------- ------- ------- ------- ------- ------- ------- ------- -------
Fixed charges (1)+(2)+(3) $ 4,519 $15,831 $18,905 $19,374 $22,579 $35,426 $11,189 $15,783 $19,234
======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 4.69 1.22 2.14 2.78 3.25 2.45 2.90 2.14 1.79
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to (a) the use in this Registration Statement of Merisel, Inc.
on Form S-3 of our report dated February 22, 1994, appearing in the Prospectus,
which is part of this Registration Statement, (b) the incorporation by reference
in this 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
August 23, 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 the
Registration Statement on Form S-3 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
August 22, 1994
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)_____
------------
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
(exact name of trustee as specified in its charter)
95-4311476
(I.R.S. employer
identification No.)
555 South Flower Street, Suite 2700
Los Angeles, CA 90071 90071
(address of principal (zip code)
executive offices)
DWIGHT LIU
555 South Flower Street, Suite 2700
Los Angeles, California 90071
(213) 488-4000
(name, address, including zip code and telephone number of agent for service)
------------
MERISEL, INC.
(exact name of obligor as specified in its charter)
DELAWARE 95-4172359
(state or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
200 Continental Boulevard
El Segundo, California 90245
(Address of principal executive offices)
___% Senior Notes due 2004
(title of indenture securities)
<PAGE>
GENERAL
-------
1. General Information.
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
490 L'Enfant Plaza East, S.W.
Washington, D.C. 20219
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Federal Reserve Bank (12th District)
San Francisco, California
(b) Whether is it authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15.
The obligor currently is not in default under any of its outstanding
securities for which U.S. Trust Company of California, N.A. is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and
15 of Form T-1 are not required under General Instruction B.
16. List of Exhibits
----------------
T-1.1 - A copy of the Articles of Association of U.S. Trust Company of
California, N.A. currently in effect; incorporated herein by
reference to Exhibit T-1.1 filed with Form T-1 statement,
Registration No. 33-33031.
T-1.2 - Included in Exhibit T-1.1
T-1.3 - Included in Exhibit T-1.1
T-1.4 - A copy of the By-Laws of U.S. Trust Company of California, N.A.,
as amended to date; incorporated by reference to Exhibit T-1.4
filed with Form T-1 Statement, Registration No. 33-54136.
T-1.6 - The consent of the trustee required by section 321(b) of the
Trust Indenture Act of 1939; incorporated herein by reference to
Exhibit T-1.6 filed with Form T-1 Statement, Registration No. 33-
33031.
T-1.7 - A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority.
2
<PAGE>
NOTE
- ----
As of August 15, 1994 the trustee had 20,000 shares of Capital Stock
outstanding, all of which are owned by U.S. Trust Corporation. U.S. Trust
Corporation had 9,380,898 shares of Common Stock as of August 15, 1994.
The term "trustee" in Items 2, 5, 6, 7, 8, 9, 10, 11, and 14 refers to each of
U.S. Trust Company of California, N.A. and U.S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
U.S. Trust Company of California, N.A., a corporation organized and existing
under the laws of the State of California, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Los Angeles, and State of
California, on the 16th day of August, 1994.
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
Trustee
By: /s/ Margaret S. Swindall
------------------------
Margaret S. Swindall
Authorized Signatory
3
<PAGE>
Exhibit T-1.7
U.S. TRUST COMPANY OF CALIFORNIA, N.A. Call Date: 06/30/94
555 SOUTH FLOWER STREET, SUITE 2700 ST-BK: 06-0784
LOS ANGELES, CA 90071 Page RC-1
Vendor ID: D CERT: 33332 9
Transit Number: 12204024
Consolidated Report of Condition for Insured Commercial and State-Chartered
Savings Banks for June 30, 1934
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC - Balance Sheet
C100
Dollar Amounts in Thousands
- --------------------------------------------------------------------------
ASSETS
1. Cash and balances due from depository
institutions: RCON
----
a. Noninterest-bearing balances and
currency and coin (1,2) _________________0081.. 2,209 1.a
b. Interest-bearing balances (3) ___________0071.. 34 1.b
2. Securities
a. Held-to-maturity securities
(from Schedule RC-B, column A) __________1754.. 0 2.a
b. Available-for-sale securities
(from Schedule RC-B, column D) __________1773.. 71,275
3. Federal funds sold and securities
purchased under agreements to resell:
a. Federal funds sold (4) __________________0276.. 10,000 3.a
b. Securities purchased under
agreements to resell (5) ________________0277.. 0 3.b
4. Loans and lease financing receivables:
a. Loans and leases, net of
unearned income RCON
----
(from Schedule RC-C) ___________2122.. 53,624 ...... 4.a
b. LESS: Allowance for loan
and lease losses _______________3123.. 516 ...... 4.b
c. LESS: Allocated transfer
risk reserve ___________________3128.. 0 ...... 4.c
d. Loans and leases, net of unearned
income, allowance, and reserve
(item 4.a minus 4.b and 4.c) ____________2125.. 53,108 4.d
5. Assets held in trading accounts ______________3545.. 0 5.
6. Premises and fixed assets
(including capitalized leases) _______________2145.. 2,826 6.
7. Other real estate owned
(from Schedule RC-M) _________________________2150.. 0 7.
8. Investments in unconsolidated
subsidiaries and associated
companies (from Schedule RC-M) _______________2130.. 8 8.
4
<PAGE>
9. Customers' liability to this bank on
acceptances outstanding ________________2155.. 0 9.
10. Intangible assets
(from Schedule RC-M) ___________________2143.. 1,770 10.
11. Other assets (from Schedule RC-F) ______2160.. 3,186 11.
12. a. Total assets
(sum of items 1 through 11) ________2170.. 144,408 12.a
b. Losses deferred pursuant to
12 U.S.C. 1823(j)
(from Schedule RC-M) _______________0306.. 0 12.b
c. Total assets and losses deferred
pursuant to 12 U.S.C. 1823(j)
(sum of items 12.a and 12.b) _______0307.. 144,408 12.c
_______________
(1) Includes cash items in process of collection and unposted debits. Report
deposit accounts "due from" depository institutions that are overdrawn in
Schedule RC, item 16, "Other borrowed money."
(2) The amount reported in this item must be greater than or equal to the sum of
Schedule RC-M, items 2 and 3.
(3) Includes time certificates of deposit not held in trading accounts.
(4) Report "term federal funds sold" in Schedule RC, item 4.a, "Loans and
leases, net of unearned income", and in Schedule RC-C, part I.
(5) Report securities purchased under agreements to resell that involve the
receipt of immediately available funds and mature in one business day or
roll over under a continuing contract in Schedule RC, item 3.a, "Federal
funds sold."
5
<PAGE>
U.S. TRUST COMPANY OF CALIFORNIA, N.A. Call Date: 06/30/94
555 SOUTH FLOWER STREET, SUITE 2700 ST-BK: 06-0784
LOS ANGELES, CA 90071 Page RC-2
Vendor ID: D CERT: 33332 10
Transit Number: 12204024
Schedule RC - Continued
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------
LIABILITIES
13. Deposits:
a. In domestic offices (sum of
totals of columns A and C RCON
----
from Schedule RC-E) _______________2200.. 124,278 13.a
(1) Noninterest-
bearing(1) _____________6631.. 53,038 ....... 13.a.1
(2) Interest-bearing ______6636.. 71,240 ....... 13.a.2
b. In foreign offices, Edge and
Agreement subsidiaries, and IBFs _________
(1) Noninterest-bearing _________________
(2) Interest-bearing ____________________
14. Federal funds purchased and securities
sold under agreements to repurchase:
a. Federal funds sold (2) ______________0278.. 0 14.a
b Securities sold under agreements
to repurchase (3) ___________________0279.. 0 14.b
15. a. Demand notes issued to the U.S.
Treasury: ___________________________2840.. 0 15.a
b. Trading Liabilities _________________3548..
16. Other borrowed money:
a. With original maturity of
one year or less ____________________2332.. 0 16.a
b. With original maturity of
more than one year __________________2333.. 0 16.b
17. Mortgage indebtedness and obligations
under capitalized leases _________________2910.. 0 17.
18. Bank's liability on acceptances
executed and outstanding _________________2920.. 0 18.
19. Subordinated notes and debentures ________3200.. 0 19.
20. Other liabilities
(from Schedule RC-G) _____________________2930.. 3,540 20.
21. Total liabilities (sum of
items 13 through 20) _____________________2948.. 127,818 21.
22. Limited-life preferred stock
and related surplus ______________________3282.. 0 22.
EQUITY CAPITAL
23. Perpetual preferred stock and related
surplus __________________________________3838.. 5,000 23.
24. Common stock _____________________________3230.. 2,000 24.
25. Surplus (exclude all surplus
related to preferred stock) ______________3632.. 10,251 25.
26. a. Undivided profits and
capital reserves ____________________3632.. (578) 26.a
6
<PAGE>
b. Net unrealized holding gains
(losses) on available-for-sale
securities ______________________________8434.. (83) 26.b
27. Cumulative foreign currency
translation adjustments ___________________________
28. a. Total equity capital (sum of
items 23 through 27) ___________________3210.. 16,590 28.a
b. Losses deferred pursuant to
12 U.S.C. 1823(j)
(from Schedule RC-M) ___________________0306.. 0 28.b
c. Total equity capital and losses
deferred pursuant to 12 U.S.C
1823(j)
(sum of items 28.a and 28.b) ___________3559.. 16,590 28.c
29. Total liabilities, limited-life
preferred stock, equity capital,
and losses deferred pursuant to
12 U.S.C. 1823(j) (sum of
items 21, 22, and 28.c) _____________________2257.. 144,408 29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right
the number of the statement below
that best describes the most
comprehensive level of auditing
work performed for the bank by
independent external auditors as
of any date during 1993 _____________________6724.. N/A M.1
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
_______________
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits
(2) Report "term federal funds purchased" in Schedule RC, item 16, "Other
borrowed money."
(3) Report securities sold under agreements to repurchase that involve the
receipt of immediately available funds and mature in one business day or
roll over under a continuing contract in Schedule RC, item 14.a, "Federal
funds purchased."
7
