<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997.
--------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934
For the transition period from _______________ to ___________
Commission File Number 0-17156
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MERISEL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-4172359
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 Continental Boulevard
El Segundo, CA 90245-0984
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (310) 615-3080
--------------
________________________________________________________________________________
Former name, former address, and former fiscal year, if changed since last year
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ______
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Number of Shares Outstanding
Class August 8, 1997
----- --------------
Common Stock, $.01 par value 30,078,495 Shares
<PAGE>
MERISEL, INC.
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INDEX
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<TABLE>
<CAPTION>
Page Reference
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PART I FINANCIAL INFORMATION
<S> <C> <C>
Consolidated Balance Sheets as of 1-2
June 30, 1997 and December 31, 1996
Consolidated Statements of Operations for the
Three Months and Six Months Ended June 30, 1997 and 1996 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5-12
Management's Discussion and Analysis of 13-23
Financial Condition and Results of Operations
PART II OTHER INFORMATION 24
SIGNATURES 26
</TABLE>
ii
<PAGE>
PART 1. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 48,563 $ 44,678
Accounts receivable (net of allowances
of $23,105 and $23,684 for 1997 and
1996, respectively) 181,809 168,295
Inventories 346,730 392,557
Prepaid expenses and other current
assets 20,912 16,925
Income taxes receivable 2,183
Deferred income tax benefit 478 482
---------- ------------
Total current assets 598,492 625,120
PROPERTY AND EQUIPMENT, NET 54,866 61,430
COST IN EXCESS OF NET ASSETS
ACQUIRED, NET 25,914 41,724
OTHER ASSETS 7,805 2,765
---------- ------------
TOTAL ASSETS $687,077 $731,039
========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- --------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 347,627 $ 383,548
Accrued liabilities 37,517 37,544
Long-term debt - current 10,645 9,084
Subordinated debt - current 4,400 4,400
----------- --------------
Total current liabilities 400,189 434,576
Long-term debt 259,723 268,079
Subordinated debt 8,800 13,200
Capitalized lease obligations 187
----------- --------------
TOTAL LIABILITIES 668,712 716,042
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; 30,078,500 shares
outstanding for 1997 and 1996, respectively 301 301
Additional paid-in capital 142,300 142,300
Accumulated deficit (117,988) (121,164)
Cumulative translation adjustment (6,248) (6,440)
----------- --------------
Total stockholders' equity 18,365 14,997
----------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $687,077 $731,039
=========== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET SALES $895,754 $1,442,668 $2,008,855 $2,979,257
COST OF SALES 840,101 1,363,081 1,888,224 2,812,447
------- ---------- ---------- ---------
GROSS PROFIT 55,653 79,587 120,631 166,810
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 43,299 78,422 94,820 161,558
------- ---------- ---------- ---------
OPERATING INCOME 12,354 1,165 25,811 5,252
INTEREST EXPENSE 7,760 9,595 16,383 19,472
OTHER EXPENSE 2,389 3,528 5,919 10,766
------- ---------- ---------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES 2,205 (11,958) 3,509 (24,986)
INCOME TAX PROVISION(BENEFIT) 159 (554) 333 (74)
------- ---------- ---------- ---------
NET INCOME (LOSS) $ 2,046 $ (11,404) $ 3,176 $ (24,912)
======= ========== ========== =========
NET INCOME (LOSS) PER SHARE $0.07 $(0.38) $0.11 $(0.83)
======= ========== ========== =========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 30,078 29,878 30,078 29,871
======= ========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited) Six Months Ended June 30,
1997 1996
-------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,176 $ (24,912)
Adjustments to reconcile net loss to net
cash provided by operating
activities:
Depreciation and amortization 5,971 11,171
Provision for doubtful accounts 4,692 8,006
Deferred income taxes 396
Gain/Loss Sale of Property and Equipment (1,530)
Changes in assets and liabilities:
Accounts receivable (24,715) 66,641
Inventories 45,826 161,757
Prepaid expenses and other assets (9,050) (6,968)
Income taxes receivable/payable 3,767 28,804
Accounts payable (13,381) (183,659)
Accrued liabilities (2,121) (510)
-------------- ------------
Net cash provided by operating activities 12,635 60,726
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,831) (4,817)
Proceeds from sale of property 5,020
Earn out obligation - ComputerLand (13,409)
acquisition
Cash proceeds from sale of Australian 8,515
business
Other investing activities 1,721
-------------- ------------
Net cash provided by (used for) 2,189 (7,990)
investing activities
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of 484,708 785,850
credit
Repayments under revolving line of (488,319) (750,850)
credit
Net repayments under other bank (777) (21,487)
facilities
Proceeds from issuance of promissory 8,790
notes
Repayment of senior notes (2,407) (8,000)
Proceeds from sale of accounts (24,540)
receivable
Repayment under subordinated debt (4,400) (4,400)
agreement
Proceeds from issuance of Common Stock 217
-------------- ------------
Net cash used in financing activities (11,195) (14,420)
-------------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 256 (3,735)
-------------- ------------
NET INCREASE IN CASH AND 3,885 34,581
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF 44,678 1,378
PERIOD
-------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $48,563 $35,959
============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
Merisel, Inc., a Delaware corporation and a holding company (together with its
subsidiaries, "Merisel" or the "Company"), is a leading distributor of computer
hardware, networking equipment and software products. Through its operating
subsidiary Merisel Americas, Inc. ("Merisel Americas") and its subsidiaries
(collectively, the "Operating Company"), the Company markets products and
services throughout North America and is a valued partner to a broad range of
computer resellers, including value-added resellers (VARs), retailers, and
commercial/dealers. The Company also has established the Merisel Open Computing
Alliance (MOCA(TM)), which primarily supports Sun Microsystems' UNIX-based
product sales and installations.
The information for the three and six months ended June 30, 1997 and 1996 has
not been audited by independent accountants, but includes all adjustments
(consisting of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results for such periods.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the requirements of the Securities and
Exchange Commission, although the Company believes that the disclosures included
in these financial statements are adequate to make the information not
misleading. The consolidated financial statements as presented herein should be
read in conjunction with the consolidated financial statements and notes thereto
included in Merisel's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
Liquidity--In 1996, the Company incurred a net loss of $140,375,000 which
includes impairment losses of $42,033,000 and a loss on the sale of the
Company's European, Mexican and Latin American Business (such businesses are
referred to herein as "EML") of $33,455,000. The impairment losses were
associated with the intangible assets of the Company's wholly owned subsidiary
Merisel FAB, Inc. ("Merisel FAB") which operated the Company's Franchise and
Aggregation Business ("FAB"). As of March 28, 1997, the Company sold
substantially all of the assets of Merisel FAB to SYNNEX Information
Technologies, Inc. ("Synnex"). EML was sold as of September 27, 1996 to CHS
Electronics, Inc. ("CHS") (See Note 4-- "Dispositions"). In addition to the
losses associated with the sale of EML and impairment losses, 1996 operations
were impacted by significant charges related to customer disputes, vendor
reconcilement and other issues, costs associated with the improvement of
certain business processes, and the impact of liquidity constraints on the
Company's ability to purchase inventory on favorable terms.
The Company has developed and is implementing a business strategy for 1997 (the
"1997 Business Strategy") that focuses on profitable North American revenue
growth. Under the 1997 Business Strategy, Merisel intends to concentrate on
strengthening and building its sales infrastructure for the purpose of
increasing revenues, improving gross margins, and controlling operating
expenses. Other priorities include continuing efforts to achieve operational
excellence and implementing a strategy focused on the United States and Canada.
5
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
In order to meet its debt obligations, Merisel is actively pursuing a
restructuring plan with the debtholders under its various financing agreements.
Effective April 14, 1997, the Company entered into a Limited Waiver and Voting
Agreement (the "Limited Waiver Agreement") with holders of more than 75% of the
outstanding principal amount of its 12.5% Senior Notes ("12.5% Notes"). Pursuant
to the terms of the Limited Waiver Agreement, upon the fulfillment of certain
conditions, holders of the 12.5% Notes would exchange (the "Exchange") their
12.5% Notes for Common Stock of the Company (the "Common Stock"), which would
equal approximately 80% of the outstanding shares of Common Stock immediately
after the Exchange. Contemporaneously with the Exchange, the holders of Common
Stock immediately prior to the Exchange would receive warrants (the "Warrants")
to purchase Common Stock constituting 17.5% of the Common Stock outstanding
immediately after giving effect to the Exchange.
Consummation of the Exchange is subject to certain conditions including (i)
stockholder approval of an amendment to the Certificate of Incorporation of the
Company to effect a one-for-five reverse split of the Common Stock and (ii) 100%
of the outstanding 12.5% Notes being validly tendered in exchange for Common
Stock. On August 1, 1997, the Company commenced the solicitation of stockholder
proxies and the noteholder exchange offer with respect to the proposed debt
restructuring plan. If less than 100% of the holders tender their 12.5% Notes
pursuant to the exchange offer but acceptances of a "prepackaged" plan (as
described below) are received from at least two-thirds in principal amount and a
majority in number of holders of the 12.5% Notes, and the holders of at least
two-thirds of the Common Stock voting, Merisel, Inc., the parent company,
intends to file a "prepackaged" plan of reorganization under Chapter 11 of the
U.S. Bankruptcy Code to effect the proposed debt restructuring on the same terms
as proposed under the Exchange (the "Prepackaged Plan"). The Operating Company
would not be a party to any Prepackaged Plan which may be required. Any such
Prepackaged Plan, if filed, would affect Merisel, Inc. only and as such would
not affect the continuing and timely payment in full of the Operating Company's
obligations to suppliers, employees and other creditors. In addition, such a
Prepackaged Plan would be subject only to the approval of the holders of the
12.5% Notes and the Company's stockholders, as no other creditors or security
holders of the Company or the Operating Company would be impaired by the plan as
contemplated. The holders of the required percentage of the outstanding
principal amount of 12.5% Notes have agreed to vote in favor of the Prepackaged
Plan subject to fulfillment of certain other conditions to the Exchange.
6
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
Also effective April 14, 1997, the Company entered into an agreement (the
"Extension") in principle with 100% of the holders of the loans made and notes
issued under financing agreements to which the Company's operating subsidiaries
are parties. Pursuant to such agreement, holders of the $84,297,000 principal
amount outstanding under a revolving credit agreement (the "Revolving Credit
Agreement") and the $56,198,000 principal amount of 11.5% Senior Notes
outstanding under a senior note purchase agreement (the "11.5% Notes") have
agreed, subject to execution of definitive documentation, to execute amendments
to extend the respective maturities of such debt to January 31, 1999, provided
that none of the amendments will become effective unless the Exchange is closed
on or prior to August 31, 1997 or the Prepackaged Plan or a similar plan has
been substantially consummated on or prior to October 31, 1997. The Company
would have the right to prepay such debt at any time without penalty.
Pursuant to the Limited Waiver Agreement and the Extension, throughout the
period the Company is implementing the proposed restructuring, in excess of 75%
of the holders of the 12.5% Notes have agreed to waive any default arising from
the nonpayment of interest that was due on June 30, 1997 on the 12.5% Notes, and
100% of the holders of debt outstanding under the Revolving Credit Agreement,
the 11.5% Notes, and the Subordinated Notes of Merisel Americas have agreed to
waive any cross-default resulting from such non-payment. In consideration of the
Extension, Merisel Americas has agreed to pay certain fees to the holders of the
Revolving Credit Agreement and the 11.5% Notes, and, subject to the Extension
becoming effective, to increase the interest rate by 0.5% per quarter during
1998 on such debt and, in the case of the Revolving Credit Agreement and the
11.5% Notes only, to pay additional fees each quarter, in each case while such
debt remains outstanding. Interest will continue to be due and payable on the
outstanding 12.5% Notes that have not consented to the waiver at the time such
payments are due; however, such holders will not be able to accelerate the
payment of the principal of the 12.5% Notes under the terms of the Indenture
governing the 12.5% Notes.
The Extension will terminate if, among other things, (a) the Exchange is not
closed by August 31, 1997, unless Chapter 11 proceedings pursuant to the
Prepackaged Plan have been commenced, (b) in the event Chapter 11 proceedings
are commenced, the Prepackaged Plan is not substantially consummated by October
31, 1997; (c) the Company has changed the terms of the Exchange or Prepackaged
Plan so as to be inconsistent with the terms contemplated by the Extension; or
(d) the Company's Certificate of Incorporation shall not have been amended so as
to authorize enough shares of common stock to effectuate the Exchange. In the
event that the Extension is terminated, the Company believes that, assuming it
achieves its 1997 Business Strategy, it will have reasonable prospects for a
refinancing of the operating company indebtedness (as described above) in the
latter half of 1997, particularly if the Exchange or a comparable restructuring
is consummated prior to or concurrently with such refinancing.
7
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
On July 15, 1997, Merisel announced that it had received a proposal from
Stonington Partners, Inc., a New York-based investment firm, to invest
$152,000,000 in order to acquire 70% of the Company's Common Stock. Current
stockholders would retain their shares which would represent 30% of the then
outstanding Common Stock after the equity investment. Under the proposal, the
12.5% Senior Notes would remain outstanding in lieu of the exchange of such
indebtedness for equity as proposed under the existing debt restructuring plan,
and the cash investment would be used to eliminate substantially all of the
approximately $150,000,000 in outstanding debt of the operating subsidiaries.
The Stonington offer was subject to certain conditions, including termination or
modification of the Limited Waiver Agreement.
On July 16, 1997, representatives of the Ad Hoc Noteholders' Committee for its
12.5% Senior Notes advised the Company that they would not agree with the
Company to terminate or modify the Limited Waiver Agreement. Accordingly, on the
morning of July 16, 1997, the Company issued a press release reiterating its
intention to submit the existing Restructuring plan to a stockholder vote in
accordance with its agreement with the Noteholders. Additionally, on July 24,
1997, Stonington advised the Company that it had received a summons and
complaint from counsel to the Ad Hoc Noteholders' Committee alleging tortious
interference by Stonington with the Limited Waiver Agreement and seeking
damages. Stonington has indicated that it intends to defend the suit
vigorously.
At June 30, 1997, the Company had cash and cash equivalents of approximately
$48,563,000. In the opinion of management, as a result of the agreement reached
with the holders of the 12.5% Notes and the waivers received from the holders of
indebtedness outstanding under the Revolving Credit Agreement, the 11.5% Notes
and the Subordinated Notes, cash on hand, additional permitted sales of accounts
receivable under the securitization facilities, together with anticipated cash
flow in 1997 will be sufficient to meet the Company's liquidity requirements for
the next 12 months. Should the Limited Waiver Agreement terminate without the
consummation of the proposed debt restructuring, the Company believes it has
sufficient cash resources to make both the outstanding interest payment on the
12.5% Notes, and the $40,000,000 aggregate principal payment that would then be
due on the 11.5% Notes and under the Revolving Credit Agreement, however, should
the Company be unable to refinance some portion of its remaining debt during the
fourth quarter, the Company's ability to maintain adequate trade credit and
inventory levels would be adversely affected, which would in turn have an
adverse impact on the Company's operations.
Recent Developments-- The Company is currently in active discussions with the Ad
Hoc Noteholders' Committee with regard to improving the current debt
restructuring proposal. In addition, on August 8 and August 10, 1997, the
Company received proposals from Stonington Partners, Inc. which would amend
Stonington's prior proposal and which are filed as exhibits hereto. The revised
Stonington proposal is made subject to the termination of the Limited Waiver
Agreement either with the noteholders' consent or by failure of the Company's
stockholders to approve the proposed debt restructuring plan.
8
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
Assuming such condition is met, under the amended proposal Stonington would loan
$152,000,000 to the Company in the form of a convertible debt instrument to
refinance existing operating company debt, which would be convertible into
10,482,800 shares of Common Stock at $14.50 per share (after giving effect to
the proposed one-for-five reverse split of the Common Stock). Such shares would
represent 63.5% of the outstanding shares of Common Stock after giving effect to
the conversion. Stonington's amended proposal permits the Company to offer
certain incentives to the holders of its 12.5% Notes in exchange for their
agreement to terminate the Limited Waiver Agreement. These incentives, which the
Company has presented to representatives of the noteholders, include provisions
to pay up to $250 per $1,000 face amount of 12.5% Notes outstanding, warrants
exercisable for a nominal amount over a five-year period to purchase five
percent of the Common Stock then outstanding, and the elimination of the
optional redemption feature of the 12.5% Notes.
On August 11, 1997, the Company received an alternative proposal from Stonington
which is conditioned on the holders of the 12.5% Notes agreeing to terminate the
Limited Waiver Agreement and not to put the 12.5% Notes to the Company for
repurchase upon a change of control. Under this alternative proposal, Stonington
would loan $152 million to the Company in the form of a convertible debt
instrument to refinance existing operating company debt, which would be
convertible into 10,059,563 shares of Common Stock at $15.11 per share (after
giving effect to the proposed reverse stock split) or approximately 58 percent
of the outstanding shares of Common Stock after giving effect to the conversion.
This proposal contains the same incentive provisions as the amended proposals
received on August 8 and 10, but with an increase in the warrants exercisable
for a nominal amount from five percent to approximately 7.2 percent of the
Common Stock then outstanding.
Representatives of holders of the 12.5% Notes have informed the Company that the
Ad Hoc Committee has unanimously rejected these proposals. As a result, the
Company will continue discussions with representatives of holders of the 12.5%
Notes to amend the existing debt restructuring plan to improve stockholder
value. No assurances can be given that any agreement will be reached. The
outcome of discussions with the Noteholders will be filed in a Form 4-K when
available.
2. New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings per Share" (SFAS 128) which is
effective for financial statements issued for periods ending after December 15,
1997. SFAS 128 simplifies the previous standards for computing earnings per
share and requires the disclosure of basic and diluted earnings per share. For
the year ended December 31, 1996 and for the subsequent interim period reported,
the amount reported as net income per common and common equivalent share is not
materially different than that which would have been reported for basic and
diluted earnings per share in accordance with SFAS 128.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting for Comprehensive Income" and
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
These statements are effective for financial statements issued for periods
beginning after December 15, 1997. The Company has not yet analyzed the impact
of adopting these statements.
3. Fiscal Year
The Company's fiscal year is the 52- or 53-week period ending on the Saturday
nearest to December 31. The Company's second quarter is the 13-week period
ending on the Saturday nearest to June 30. For simplicity of presentation, the
Company has described the interim periods and year-end period as of June 30, and
December 31, respectively.
9
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
4. Dispositions
In March 1996, effective as of January 1, 1996, the Company sold its interest in
its wholly owned Australian subsidiary, Merisel Pty Ltd. ("Australia"), to Tech
Pacific Holdings Ltd. Under the terms of the agreement, the Company received
consideration of $9,900,000 in the form of repayment of certain intercompany
debt obligations. The Company recognized a $1,900,000 charge as an impairment
loss for the write down of the Australian net assets to their net realizable
value in the fourth quarter of 1995.
On October 4, 1996, Merisel completed the sale of EML to CHS. The sale was
effective as of September 27, 1996. A loss of $33,455,000, which includes
approximately $7,400,000 of direct costs related to the sale, was recorded on
such sale. The sale price, computed based on the combined closing balance sheet
of EML, was $147,631,000, consisting of (i) $110,379,000 in cash, (ii) the
assumption of Merisel's European asset securitization agreement against which
$26,252,000 was outstanding at closing and (iii) a receivable for $11,000,000,
which has been paid in full.
As of March 28, 1997, the Company completed the sale of substantially all of the
assets of Merisel FAB to a wholly owned subsidiary of Synnex. The sale price,
computed based upon the February 21, 1997 balance sheet of Merisel FAB, was
$31,992,000 consisting of the assumption by the buyer of $11,992,000 of trade
payables and accrued liabilities and a $20,000,000 extended payable due to
Vanstar Corporation. As part of the sale, the Company agreed to extend rebates
to Synnex on future purchases at a defined rate per dollar of purchases, not to
exceed $2,000,000 in aggregate rebates. In the quarter ended December 31, 1996,
the Company recorded an impairment charge of $2,033,000 to adjust Merisel FAB's
assets to their estimated fair market value.
Following is summarized pro forma operating results assuming that the Company
had sold the assets of Merisel FAB and EML as of January 1, 1996.
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE
DATA)
Six Months Six Months
Ended Ended
June 30, June 30,
1996 1997
------------- ------------
<S> <C> <C>
Net Sales $1,710,519 $1,806,677
Gross Profit 95,553 112,952
Net Income (loss) (25,448) 1,022
============ ============
Net Income (loss) per share $ (0.85) $ 0.03
============ ============
Weighted Average Shares Outstanding 29,871 30,078
============ ============
</TABLE>
10
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
EML is not an incorporated entity for which historical financial statements were
prepared. The historical balances used in preparing the above pro forma balances
represent combined balances obtained from the separate unaudited financial
statements for the individual entities comprising EML. The pro forma results
include adjustments for general and administrative expenses that would not have
been eliminated due to the sale of EML. The pro forma adjustments also include
adjustments for amortization of intangible assets and for interest expense on
debt repaid with a portion of the proceeds from the sale, net of the effect of
an interest rate increase resulting from the renegotiation of certain debt
agreements as a result of the sale. Historical balances obtained from FAB's
unaudited financial statements were also used in preparing the pro forma
balances above.
5. Debt
At June 30, 1997, two of the Company's subsidiaries, Merisel Americas and
Merisel Europe, Inc. ("Merisel Europe"), had outstanding unsecured senior
borrowings consisting of $54,398,000 principal amount of 11.5% Notes issued by
Merisel Americas and $81,597,000 principal amount incurred under a Revolving
Credit Agreement by Merisel Americas and Merisel Europe. Advances under the
Revolving Credit Agreement bear interest at specific rates based upon market
reference incurred rates plus a specified percentage. The average interest rate
for borrowings under the Revolving Credit Agreement at June 30, 1997 was
approximately 11.0%. At June 30, 1997, Merisel Americas also had outstanding
$13,200,000 principal amount of 11.8% subordinated notes. Additionally, at June
30, 1997, Merisel, Inc. had outstanding $125,000,000 principal amount of the
12.5% Notes. As a result of the sale of EML, Merisel Europe is no longer an
operating entity.
At June 30, 1997, the Company had promissory notes outstanding with an aggregate
balance of $9,373,000. Such notes provide for interest at the rate of
approximately 7.7% per annum and are repayable in 48 and 60 monthly installments
commencing February 1, 1996, with balloon payments due at maturity. The notes
are collateralized by certain of the Company's real property and equipment.
See Note 1--"Liquidity" for a discussion of the Company's proposed debt
restructuring.
6. Net Income (Loss) Per Share
Net income (loss) per share is computed by dividing net income(loss) by the
weighted average number of shares of Common Stock outstanding during the related
period, including Common Stock options when dilutive.
11
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
7. Supplemental Disclosure of Cash Flow Information
Cash paid (received) in the six month periods ended June 30 for interest and
income taxes was as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(in thousands)
<S> <C> <C>
Interest $14,245 $ 21,452
Income taxes $(3,401) $(28,066)
</TABLE>
Effective March 28, 1997, the Company sold substantially all of the assets of
Merisel FAB. The recorded sale price was $31,992,000, consisting of the
assumption of $11,992,000 of trade payables and accrued liabilities and a
$20,000,000 extended payable due to a third party, in full consideration for the
assets (See Note 4- "Dispositions").
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
GENERAL
- -------
Merisel, Inc., a Delaware corporation and a holding company (together with its
subsidiaries, "Merisel" or the "Company"), is a leading distributor of computer
hardware, networking equipment and software products. Through its operating
subsidiary Merisel Americas, Inc. ("Merisel Americas") and its subsidiaries
(collectively, the "Operating Company"), the Company markets products and
services throughout North America is a valued partner to a broad range of
computer resellers, including value-added resellers (VARs), commercial
resellers/dealers, and retailers. The Company also has established the Merisel
Open Computing Alliance (MOCA)(TM), a division which primarily supports Sun
Microsystems' UNIX-based product sales and installations.
During 1996, the Company pursued a business plan that was developed to address
capital structure issues by curtailing non-essential capital expenditures and
disposing of assets. Effective January 1, 1996, the Company sold its Australian
operations. As of September 27, 1996, the Company completed the sale of its
European, Mexican and Latin American businesses (referred to herein as "EML").
In addition, as of March 28, 1997, the Company completed the sale of
substantially all of the assets of Merisel FAB to a wholly owned subsidiary of
SYNNEX Information Technologies, Inc. ("Synnex").
As a result of these asset dispositions, the Company's operations are now
focused exclusively in North America. In the year ended December 31, 1996, the
North American Business (as defined below) produced $3.4 billion in revenues,
and the Former Operations (as defined below) produced $2.1 billion in revenue.
As the North American Business represents the ongoing business of the Company,
the following discussion and analysis will compare the components of operating
income for the three months and six months ended June 30, 1997 for the North
American Business only. As used in this discussion and analysis, the term
"North American Business" refers to Merisel's United States and Canadian
distribution businesses, and the term "Former Operations" refers to those
operations disposed of by Merisel during 1996 and the first quarter of 1997,
namely the Australian Business, EML, and Merisel FAB's franchise and aggregation
businesses ("FAB").
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended June 30, 1997 as Compared to the Three Months Ended June 30,
- -------------------------------------------------------------------------------
1996.
- -----
The quarter ended June 30, 1997, represented the first period in which the
consolidated results of operations included only the Company's North American
Business. The following table sets forth the unaudited results of operations
for the North American Business and Former Operations for the three months ended
June 30, 1996 and the results of operations for the three months ended June 30,
1997 for comparative purposes.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
---------------------------------------------- -------------------------------------------
North North
American Former Consolidated American Former Consolidated
Business Operations Total Business Operations Total
------------- ------------ --------------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 895,754 $ $ 895,754 $ 828,954 $ 613,714 $ 1,442,668
Cost of Sales 840,101 840,101 784,982 578,099 1,363,081
------------- ------------ --------------- ----------- ------------ --------------
Gross Profit 55,653 55,653 43,972 35,615 79,587
SG& A Expenses 43,299 43,299 48,047 30,375 78,422
------------- ------------ --------------- ----------- ------------ --------------
Operating
Income $ 12,354 $ $ 12,354 $ (4,075) $ 5,240 $ 1,165
============= ============ =============== =========== ============ ==============
</TABLE>
Net sales for the North American Business increased 8.1% from $828,954,000 in
the quarter ended June 30, 1996 to $895,754,000 in the quarter ended June 30,
1997. The increase resulted from a 5.2% increase in net sales for the U.S.
division and a 23.0% increase in Canada. The U.S. division experienced growth
over the prior period, with particularly strong growth in its MOCA(TM) and VAR
segments, but overall growth was partially offset by a decrease in retail sales.
The decline in retail sales reflects the Company's decision to substantially
reduce its sales in the retail segment industry in early 1996, in part to
address cash management objectives and constraints. The Company has recommitted
significant resources to rebuilding its retail customer base in 1997.
In the North American Business, hardware and accessories accounted for 78% of
net sales and software accounted for 22% of net sales in the second quarter of
1997, as compared to 75% and 25% for the same categories, respectively, in the
second quarter of 1996.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
Gross profit for the North American Business increased 26.6% or $11,682,000 from
$43,972,000 in 1996 to $55,654,000 in 1997. Gross profit as a percentage of
sales, or gross margin, increased from 5.3% in 1996 to 6.2% in 1997. Gross
profit in the prior year includes a second quarter charge of $2,200,000 related
to vendor reconciliation issues. Of the remaining $9,482,000 improvement in
gross profit, $3,543,000 is due to the growth in sales volume and $3,290,000 is
due to favorable resolutions of vendor reconciliation issues as a result of
improved processes. The resolution of future vendor reconciliation issues may or
may not favorably affect margins in subsequent periods. The remaining increase
in gross profit is attributable to efforts to sustain stronger margins on a
long-term basis through improved controls over margin management related
activities such as greater focus on sales execution, increased participation in
vendor rebate programs, improved utilization of vendor purchasing discounts and
an increased attention on more profitable product lines. The Company believes
that its gross margins have been below the industry average, and as such, these
corrective actions have been undertaken as part of the overall business strategy
to concentrate on profitability in 1997. Gross margins in the United States and
Canada were 6.2% and 6.3%, respectively, for the second quarter of 1997,
compared to 5.2% and 6.1%, respectively, for the first quarter of 1996.
Excluding the effect of the both the $2,200,000 charge in 1996 and the
$3,290,000 benefit in 1997 related to accounts payable and vendor reconciliation
issues as noted above, the margin in the U.S. would have been 5.8% for the
second quarter of 1997 compared to 5.5% for the same quarter of 1996. Despite
the improved margin performance experienced in the first half of 1997, the
Company expects that it will continue to face intense competitive pricing
pressures.
Selling, general and administrative expenses for the North American Business
decreased by 9.9% from $48,047,000 in the second quarter of 1996 to $43,299,000
in the second quarter of 1997. The higher level of expenses in the 1996 period
was primarily attributable to expenses associated with carrying out the
Company's 1996 business plan and strategies, such as severance costs,
professional fees and other costs incurred to develop business plans and
strategies and to improve certain business processes as well as increased
expenses associated with the Company's new computer operating system in 1996.
As a result of the above items, operating income for the North American Business
improved by $16,430,000 from a loss of $4,075,000 for the second quarter of 1996
to income of $12,354,000 for the second quarter of 1997.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
Six Months Ended June 30, 1997 as Compared to the Six Months Ended June 30,
- ---------------------------------------------------------------------------
1996.
- -------
The following table sets forth the unaudited results of operations for the North
American Business and Former Operations for the six months ended June 30, 1997
and June 30, 1996.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
(In Thousands) (Unaudited) (In Thousands) (Unaudited)
---------------------------------------------- ----------------------------------------------
North North
American Former Consolidated American Former Consolidated
Business Operations Total Business Operations Total
--------------- ------------ ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 1,806,677 $ 202,178 $ 2,008,855 $ 1,710,519 $ 1,268,738 $ 2,979,257
Cost of Sales 1,693,724 194,500 1,888,224 1,614,966 1,197,481 2,812,447
--------------- ------------ ------------- ------------- -------------- -------------
Gross Profit 112,953 7,678 120,631 95,553 71,257 166,810
SG&A Expenses 88,620 6,200 94,820 98,332 63,226 161,558
--------------- ------------ ------------- ------------- -------------- -------------
Operating
Income $ 24,333 $ 1,478 $ 25,811 $ (2,779) $ 8,031 $ 5,252
=============== ============ ============= ============= ============== =============
</TABLE>
Net sales for the North American Business increased 5.6% from $1,710,519,000 for
the six months ended June 30, 1996 to $1,806,677,000 for the six months ended
June 30, 1997. The increase resulted from a 2.0% increase in net sales for the
U.S. division and a 21.9% increase in Canada. The growth rate in the U.S.
reflects improved year-over-year performance in the second quarter due to those
factors summarized in the discussion of sales for the three months ended June
30, 1997 and 1996.
In the North American Business, hardware and accessories accounted for 77% of
net sales and software accounted for 23% of net sales in the first six months of
1997, as compared to 75% and 25% for the same categories, respectively, in the
first six months of 1996.
Gross profit for the North American Business increased 18.2% or $17,400,000 from
$95,553,000 in 1996 to $112,953,000 in 1997. Gross profit as a percentage of
sales, or gross margin, increased from 5.6% in 1996 to 6.3% in 1997. Gross
profit in the prior year period includes a charge totaling $4,400,000 related to
vendor reconciliation issues. Of the remaining $13,000,000 improvement in gross
profit, $5,614,000 is due to the growth in sales volume, and $3,290,000 is due
to favorable resolutions of vendor reconciliation issues realized in the second
quarter, as a result of improved processes. The resolution of future vendor
reconciliation issues may or may not favorably affect margins in subsequent
periods. The remaining increase is attributable to the same factors summarized
in the discussion of gross profit for the three months ended June 30, 1997 and
1996. Gross margins in the U.S. and Canada were 6.3% and 6.1%, respectively, for
the first half of 1997, compared to 5.5% and 6.0%, respectively, for the first
half of 1996. Excluding the effect of both the $4,400,000 of charges in 1996 and
the $3,290,000 benefit in 1997 related to accounts payable and vendor
reconciliation issues as noted above, the margin in the U.S. would have been
6.1% for the first half of 1997 compared to 5.8% for the same period of 1996.
Despite the improved margin performance experienced in the first half of 1997,
the Company expects that it will continue to face intense competitive pricing
pressures.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
Selling, general and administrative expenses for the North American Business
decreased by 9.9% from $98,332,000 in the six months ended June 30, 1996 to
$88,621,000 in the six months ended June 30, 1997. The higher level of expenses
in the 1996 period was primarily attributable to expenses associated with
carrying out the Company's 1996 Business Plan and strategies, such as severance
costs, professional fees and other costs incurred to develop business plans and
strategies and to improve certain business processes as well as increased
expenses associated with its new computer operating system in 1996.
As a result of the above items, operating income for the North American Business
improved by $27,111,000 from a loss of $2,779,000 for the first six months of
1996 to income of $24,332,000 for the first six months of 1997.
INTEREST EXPENSE; OTHER EXPENSE; AND INCOME TAX PROVISION
Interest expense for the Company, including Former Operations, decreased 19.1%
from $9,595,000 in the quarter ended June 30, 1996 to $7,760,000 in the quarter
ended June 30, 1997. For the six months ended June 30, 1996, interest expense
decreased 15.9% from $19,472,000 in the 1996 period to $16,383,000 in the 1997
period. The decrease in interest expense is attributable to the amortization and
paydown of the Company's debt by approximately $104,225,000 from the end of June
of 1996 through the end of June, 1997, and is offset by an increase in interest
rates under the Company's 11.5% Notes, Revolving Credit Agreement and
Subordinated Notes. Approximately $72,500,000 of the paydown occurred in October
of 1996 using proceeds from the sale of EML. Interest expense for the three and
six months ended June 30, 1997 includes interest accruals related to the 12.5%
Notes of $3,906,000 and $7,813,000, respectively, which the Company will not be
obligated to pay if the Exchange is consummated. See Note 1--"Liquidity" for a
discussion of the Company's proposed debt restructuring.
Other expenses for the Company, including Former Operations, decreased from
$3,528,000 and $10,766,000 for the three and six months ended June 30, 1996,
respectively, to $2,389,000 and $5,919,000 for the three and six months ended
June 30, 1997, respectively. The decrease for the quarter was primarily due to
the recording of a gain on the sale of property held in North Carolina for
$1,530,000. For the six month period, in addition to the effect of the gain on
the sale of property, the decrease was also attributable to increased expenses
in the first quarter of 1996 related to one time financing charges of
approximately $3,125,000 paid to negotiate amendments of the Company's financing
agreements.
The income tax provision increased from a benefit of $554,000 and $74,000 for
the three and six months ended June 30, 1996, respectively, to an expense of
$159,000 and $333,000 for the same periods of 1997. In 1996 the Company was
able to realize some benefit related to available net operating loss carry back
provisions. In the current year, the income tax rate reflects only the minimal
statutory tax requirements in the various states and provinces in which the
Company conducts business, as the Company has sufficient net operating loss
provisions from prior year losses to offset federal income taxes related to 1997
income.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
CONSOLIDATED INCOME (LOSS)
On a consolidated basis, net income for the Company, including Former
Operations, increased from losses of $11,404,000 and $24,912,000 for the three
and six months ended June 30, 1996, respectively, to income of $2,046,000 and
$3,176,000 for the three and six months ended June 30, 1997, due to the factors
described above. Net income per share increased from losses of $.83 and $.38
per share for the three and six months ended June 30, 1996 to income of $ .07
and $.11 per share for the same periods of 1997.
SYSTEMS AND PROCESSES
- ---------------------
Merisel has made significant investments in new, advanced computer and warehouse
management systems for its North American operations to support sales growth and
improve service levels. All of Merisel's nine North American warehouses now
utilize Merisel's Information and Logistical Efficiency System ("MILES"), a
computerized warehouse management system, which uses infrared bar coding and
advanced computer hardware and software to maintain high picking, receiving and
shipping accuracy rates.
Merisel is in the process of converting its North American operations to the SAP
client/server operating system. SAP is an enterprise-wide system which
integrates all functional areas of the business including order entry, inventory
management and finance in a real-time environment. The Company began designing
the new system in 1993 and converted its Canadian operations from a mainframe to
the client/server operating system in August 1995. The new system is designed to
provide greater transaction accuracy, flexibility, and custom pricing
applications.
The Company plans to convert its U.S. operations to the SAP system no later than
the first part of 1999. The design and implementation of these new systems are
complex projects and involve certain risks. As a result, the U.S. system
implementation will be delayed beyond 1997. Until such implementation, the
Company will continue to modify its existing U.S. systems and may experience
difficulty in processing transactions, which could adversely affect operating
income and cash flows.
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 computer 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 dynamic
characteristics of the computer product distribution industry, the Company's
revenues and earnings may be subject to material volatility, particularly on a
quarterly basis.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
Additionally, in the U.S. and Canada, the Company's net sales in the fourth
quarter have been historically 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 and
holiday purchases. As a result of this pattern the Company's working capital
requirements in the fourth quarter have typically been greater than other
quarters. Net sales in the Canadian operations are also historically strong in
the first quarter of the fiscal year. This is primarily due to buying patterns
of Canadian Government Agencies. See "Liquidity and Capital Resources" below.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has financed its growth and cash needs primarily through borrowings,
securitizations of its trade receivables and the public and private sales of its
securities.
Net cash provided by operating activities during the six months ended June 30,
1997 was $12,635,000. The primary uses of cash were a decrease in accounts
payable of $13,381,000, an increase in accounts receivable of $24,715,000, and
an increase in prepaid and other assets of $9,050,000. Sources of cash included
a decrease in inventory of $45,826,000 and net profit of $3,176,000 which
included depreciation expense of $5,971,000. The decreased inventory and
accounts payable from the fourth quarter of 1996 is primarily the result of the
effect of seasonal fluctuations on inventory needs. The increase in accounts
receivable relates to a very strong final week of sales in the quarter,
particularly from its MOCA(TM) segment, which also was a factor in driving
inventory down beyond the decrease in accounts payable. The increase in prepaid
and other assets includes professional fees paid related to the debt
restructuring of approximately $5,100,000.
Net cash provided by investing activities was $2,189,000 consisting of proceeds
from the sale of land held in North Carolina totaling $5,020,000, offset by
capital expenditures of $2,831,000. The expenditures were primarily for the
maintenance and improvements of existing facilities. The Company presently
anticipates that its capital expenditures for 1997 will be between $15,000,000
and $18,000,000, primarily consisting of costs of upgrading and modifying
existing computer systems, warehouse systems and other Company facilities, and
capital expenditures related to building the sales infrastructure. Net cash
used in financing activities was $11,195,000 and was comprised primarily of
scheduled payments under the Company's various debt facilities.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
Funds are also generated through the sale of receivables by Merisel Capital
Funding, Inc., a wholly owned subsidiary of the Company's Merisel Americas,
Inc. operating subsidiary. Merisel Capital Funding's sole business is the
ongoing purchase of trade receivables from Merisel Americas. Merisel Capital
Funding sells these receivables, in turn, under an agreement with a
securitization company, whose purchases yield proceeds of up to $300,000,000 at
any point in time. Merisel Capital Funding is a separate corporate entity with
separate creditors who, upon its liquidation, are entitled to be satisfied out
of Merisel Capital Funding's assets prior to any value in the subsidiary
becoming available to the subsidiary's equity holder. As a result of losses the
Company incurred in fiscal year 1996, Merisel Americas and Merisel Capital
Funding were obliged to and did obtain amendments and waivers with respect to
certain covenants under this facility, which expires in October 2000.
Effective December 15, 1995, Merisel Canada, Inc. ("Merisel Canada") entered
into a receivables purchase agreement with a securitization company to provide
funding for its operations. In accordance with this agreement, Merisel Canada
sells receivables to the securitization company, which yields proceeds of up to
$150,000,000 Canadian dollars. The facility expires December 12, 2000, but is
extendible by notice from the securitization company, subject to the Company's
approval.
Under these securitization facilities, the receivables are sold at face value
with payment of a portion of the purchase price being deferred. As of June 30,
1997, the total amount outstanding under these facilities was $247,445,000. Fees
incurred in connection with the sale of accounts receivable for the three months
and six months ended June 30, 1997, were $3,776,000, and $7,350,000,
respectively, compared to $3,931,000 and $8,526,000 incurred for the three
months and six months ended June 30, 1996 and are recorded as other expense.
At June 30, 1997, two of the Company's subsidiaries, Merisel Americas and
Merisel Europe, Inc. ("Merisel Europe"), had unsecured senior borrowings
consisting of $54,398,000 principal amount of 11.5% notes issued by Merisel
Americas and an $81,597,000 principal amount incurred under the Revolving Credit
Agreement by Merisel Americas and Merisel Europe. Advances under the Revolving
Credit Agreement bear interest at specific rates based upon market reference
rates plus a specified percentage. The average interest rate for the Revolving
Credit Agreement at June 30, 1997 was approximately 11.0%. On October 4, 1996,
the Company amended the 11.5% Notes and the Revolving Credit Agreement in
connection with the sale of EML and permanently reduced the outstanding
borrowings on the 11.5% Notes and the Revolving Credit Agreement by $29,000,000
and $43,500,000, respectively. As a result of the sale of EML, Merisel Europe no
longer is an operating entity.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
As amended, the agreement relating to the 11.5% notes and the Revolving Credit
Agreement require that the Company make an aggregate of five consecutive
principal payments of $1,500,000 each on the last calendar day of each month
from February through June 1997 plus an additional principal repayment of
$7,500,000 on January 2, 1998. The Company has made these payments as scheduled
through the date of this report. The agreements also provide that certain tax
refunds and asset sale proceeds received by the Company shall be used to
permanently prepay the 11.5% Notes and Revolving Credit Agreement. The principal
repayments will be shared ratably by the lenders under the Revolving Credit
Agreement and the holders of the 11.5% Notes. Pursuant to the Extension, the
maturities of the 11.5% Notes and borrowings under the Revolving Credit
Agreement have been extended from January 31, 1998 to January 31, 1999. If the
Company makes the June 30, 1997 interest payment on its $125,000,000 principal
amount 12.5% Notes at any time before January 31, 1998, then the Company is
required to make an aggregate principal repayment of an additional $40,000,000
on the 11.5% Notes and the Revolving Credit Agreement. Further, if the Company
makes the December 31, 1997 interest payment on its 12.5% Notes at any time
before January 31, 1998, the Company must make an additional aggregate principal
payment of $30,000,000 on the 11.5% Notes and the Revolving Credit Agreement. As
of the date of this report, the Company has not made the June 30, 1997 interest
payment on the 12.5% Notes, and such payment has been waived by in excess of 75%
of the holders of the 12.5% Notes. Should the Limited Waiver Agreement
terminate without the consummation of the proposed debt restructuring, the
Company believes it has sufficient cash resources to make both the outstanding
interest payment on the 12.5% Notes, and the $40,000,000 aggregate principal
payment that would then be due on the 11.5% Notes and under the Revolving Credit
Agreement, however, should the Company be unable to refinance some portion of
its remaining debt during the fourth quarter, the Company's ability to maintain
adequate trade credit and inventory levels would be adversely affected, which
would in turn have an adverse impact on the Company's operations.
The 11.5% Notes and the Revolving Credit Agreement contain various covenants,
including those which prohibit the payment of cash dividends, require that a
minimum amount of tangible net worth, and place limitations on the acquisition
of assets. These agreements also require the Company or certain of its
subsidiaries to maintain certain specified financial ratios. Such financial
ratios include: minimum interest coverage; minimum adjusted tangible net worth;
minimum earnings before interest, taxes, depreciation, amortization and
securitization expense; maximum total debt equivalents to adjusted tangible net
worth; minimum inventory turnover; minimum accounts payable; and minimum
accounts payable to inventory. In connection with the sale of EML and as a
result of the substantial losses incurred by the Company for the years ended
December 31, 1996, and December 31, 1995, the Company was required to obtain
and did obtain waivers of various covenants, including financial ratio
covenants, contained in the 11.5% Notes and the Revolving Credit Agreement for
the Company's third fiscal quarter of 1996, and amendments of such covenants for
future periods. See Note 1--"Liquidity" for a discussion of the Company's
proposed debt restructuring.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
At June 30, 1997, Merisel Americas had outstanding an aggregate of $13,200,000
of privately placed subordinated notes (the "Subordinated Notes"). The
Subordinated Notes, as amended during 1996, provide for an interest rate
increase of .50% to 11.78% per annum effective April 15, 1996, and are repayable
in three remaining equal annual installments of $4,400,000 due in March of 1998,
1999 and 2000. The Company has made these payments as scheduled through the
date of this report. Accrued interest on the Subordinated Notes is required to
be paid quarterly. The Subordinated Notes contain certain restrictive covenants,
including those that limit the Company's ability to incur debt, acquire the
stock of or merge with other corporations, sell certain assets and prohibit the
payment of dividends. The Subordinated Notes also incorporate the financial
covenants contained in the Senior Notes and the Revolving Credit Agreement. In
connection with the amendment of the Revolving Credit Agreement and the Senior
Notes described above, the Company was required to obtain and did obtain an
amendment of the Subordinated Note Purchase Agreement. See Note 1--"Liquidity"
for a discussion of the Company's proposed debt restructuring.
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 to factors including increases or
decreases in sales levels, Merisel's practice of making large-volume purchases
when it deems 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. The Company is not assured
that these agreements will succeed in reducing this risk. 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 privileges, as well as the Company's inventory
management procedures, have helped to reduce the risk of loss of carrying
inventory.
The Company has purchased foreign exchange contracts whenever available to
minimize foreign exchange transaction gains and losses. Such contracts were
temporarily not available to the Company beginning in the latter part of 1996.
The Company experienced net transaction losses of approximately $350,000 in the
first quarter of 1997, prior to the renewed availability of foreign exchange
contracts. The Company plans to continue to use foreign exchange contracts in
the future, to the extent they are available and necessary.
The Company offers credit terms to qualifying customers and also sells on a
prepay, credit card and cash-on-delivery basis. The Company also offers
financing for its sales to certain of its customers through various floor plan
financing companies. With respect to credit sales, the Company attempts to
control its bad debt exposure by monitoring customers' creditworthiness and,
where practicable, through participation in credit associations that provide
customer credit rating information for certain accounts. In addition, the
Company purchases credit insurance as it deems appropriate.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
COMPETITION
- -----------
Traditionally, competition in the computer products distribution industry is
intense. Competitive factors include price, brand selection, breadth and
availability of product offering, financing options, shipping and packaging
accuracy, speed of delivery, level of training and technical support, marketing
services and programs and ability to influence a buyer's decision.
Certain of Merisel's competitors have substantially greater financial resources
than Merisel. Merisel's principal competitors include large United States-based
distributors and aggregators such as Gates/Arrow, Inacom, Ingram Micro, MicroAge
and Tech Data Corporation, as well as regional distributors and franchisors.
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 concentrate their direct sales on
large computer resellers because of the relatively high costs associated with
dealing with small-volume computer reseller customers.
23
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
In June 1994, Merisel 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 November 8, 1993 and June 7, 1994 (the "Class Period"). The
complaint, as amended and consolidated, alleges that the defendants inflated the
market price of Merisel's common stock with material misrepresentations and
omissions during the Class Period. Plaintiffs contend that such alleged
misrepresentations are actionable under Section 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Following
the granting of defendant's first motion to dismiss on December 5, 1994,
plaintiffs filed a second consolidated and amended complaint December 22, 1994.
On April 3, 1995, Federal District Judge Real dismissed the complaint with
prejudice. On August 8, 1997 the Ninth Circuit reversed the dismissal and
remanded the case to the trial court. The Company intends to defend itself
vigorously against this claim.
In January 1997, the Company received notice that Tech Pacific had brought a
claim in the Supreme Court of New South Wales, Sydney Registry Commercial
Division, against Merisel; its subsidiary Merisel Asia, Inc. ("Merisel Asia");
Patrick T. Woods, former managing director of Merisel Australia and Michael D.
Pickett, former CEO and Chairman of Merisel, in a proceeding captioned Tech
Pacific Holdings Limited, v. Merisel, Inc., et. al. In March 1996, Tech Pacific
purchased Merisel Australia, Merisel's Australian subsidiary, for a purchase
price of $9,900,000 pursuant to the Share Purchase Agreement dated as of March
7, 1996 between Merisel Asia and Tech Pacific. The claim asserts various
breaches of representations and warranties as well as misleading and deceptive
conduct under relevant provisions of Australian law with respect to the
financial position of Merisel Australia as represented by the disclosure
documents. The plaintiffs seek to recover specified damages exceeding $8 million
as well as unspecified damages plus costs and expenses associated with the
claim; however, the Company is unable at this preliminary point in the
proceedings to reasonably estimate the probable loss, if any, that would be
incurred. The Company intends to defend itself vigorously against this claim.
The Company is involved in certain other legal proceedings arising in the
ordinary course of business, none of which is expected to have a material impact
on the financial condition or business of Merisel.
Item 3. Defaults Upon Senior Securities
-------------------------------
As of the date of this report, the Company has not made a semi-annual interest
payment of $7,813,000 due on June 30, 1997 related to the 12.5% Notes, and such
payment has been waived by in excess of 75% of the holders of the 12.5% Notes
pursuant to the Limited Waiver Agreement.
24
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27 Financial Data Schedule.
99.1 Letters dated August 8, 10, and 11, 1997 addressed to the Company
from Stonington Partners, Inc.
(b) The following Report on Form 8-K was filed during the quarter ended
June 30, 1997.
Current Report on Form 8-K, dated April 14, 1997 which reports the
sale of the Company's wholly-owned subsidiary Merisel FAB, Inc. The report
includes a Pro Forma Condensed Consolidated Balance Sheet as of December
31, 1996 and Pro Forma Condensed Consolidated Statement of Earnings for the
years ended December 31, 1996 and December 31, 1995.
25
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 12, 1997
Merisel, Inc.
By: /s/ James E. Illson
----------------------------------
James E. Illson
Senior Vice President, Finance,
Chief Financial Officer and Assistant
Secretary
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS FOR MERISEL, INC. FOR THE QUARTERLY PERIOD ENDED MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 48,563
<SECURITIES> 0
<RECEIVABLES> 204,914
<ALLOWANCES> 23,105
<INVENTORY> 346,730
<CURRENT-ASSETS> 598,492
<PP&E> 112,357
<DEPRECIATION> 57,491
<TOTAL-ASSETS> 687,077
<CURRENT-LIABILITIES> 400,189
<BONDS> 0
0
0
<COMMON> 301
<OTHER-SE> 18,064
<TOTAL-LIABILITY-AND-EQUITY> 687,077
<SALES> 2,008,855
<TOTAL-REVENUES> 2,008,855
<CGS> 1,888,224
<TOTAL-COSTS> 94,820
<OTHER-EXPENSES> 5,919
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,383
<INCOME-PRETAX> 3,509
<INCOME-TAX> 333
<INCOME-CONTINUING> 3,176
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,176
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
<PAGE>
EXHIBIT 99.1
STONINGTON PARTNERS
August 8, 1997
Dwight A. Steffensen
Chairman and
Chief Executive Officer
Merisel, Inc.
200 Continental Boulevard
El Segundo, California 90245-0984
Dear Dwight:
Reference is made to our letter dated July 14, 1997 (the "July 14th
---------
Letter"), as amended by our letter dated July, 20, 1997, to you regarding our
- ------
proposal to acquire (the "Acquisition") newly issued shares of Merisel, Inc.
-----------
(the "Company") upon the terms and conditions set forth therein and the summary
-------
of terms attached thereto (the "Proposal"). Defined terms used herein not
--------
otherwise defined herein have the meaning set forth in the Proposal.
We propose to amend the Proposal by deleting the references to an
acquisition of 70% of the Shares for $152 million and replacing them with either
(i) an acquisition of 10,482,800 Shares at a purchase price of $14.50 per share
or (ii) a convertible debt instrument with the terms and conditions set forth on
the attached term sheet. The number of Shares set forth in the preceding
sentence and in the attached term sheet is based on the assumption that there
will be 6,015,699 Shares issued and outstanding (after the one-for-five split
and immediately prior to our acquisition). The other terms of the Proposal
would remain in effect except that (i) the litigation provision set forth in the
second numbered paragraph of the July 14th Letter would be revised to read as
follows:
(c) the absence of (i) any injunction, order or similar restraint issued by
any court or governmental entity of competent jurisdiction that enjoins,
restrains or prohibits the purchase by us of the Shares or imposes
limitations on our ability to exercise full rights of ownership with
respect to the Shares and (ii) a finding that the Company has breached or
is in breach of any material obligation under the Limited Waiver and Voting
Agreement dated as of April 11, 1997, whether preliminary, interlocutory or
final, by a court or governmental entity of competent jurisdiction
and (ii) the conditions to execution of the Stock Purchase Agreement would be
revised by deleting the reference to waiver by the holder of the Notes.
<PAGE>
and (ii) the conditions to execution of the Stock Purchase Agreement would be
revised by deleting the reference to waiver by the holder of the Notes.
We confirm that, if the Company, in connection with the Proposal, as
amended by this letter, agrees to (i) enter into an amendment to the Indenture
dated as of October 15, 1994, between the Company and the Bank of New York, as
successor to Nations Bank of Texas, N.A., as trustee (the "Indenture") relating
---------
to the Company's 12 1/2% Senior Notes (the "Senior Notes"), pursuant to which
------------
the Company eliminates its right to redeem the Senior Notes issued under the
Indenture pursuant to Article III thereof and paragraph 5 of such Senior Notes,
(ii) grant holders of the Senior Notes the right to convert up to [50]% of the
aggregate amount of the Senior Notes and unpaid interest thereon into Shares of
common stock of the Company at a conversion price equal to the purchase price
per share contemplated in the Proposal ($14.50 per share), (iii) pay any
interest due on the Notes, such agreement or actions will not negatively impact
our willingness to enter into a definitive agreement with you in connection with
the Proposal, as amended by this letter and (iv) if the holders of the Notes
agree to terminate the Limited Waiver and Voting Agreement, pay to the holders
of the Notes $100 per $1000 face amount of the Notes and in addition pay to each
such holder that commits to not convert its Notes pursuant to clause (ii) of
this paragraph an additional $100 per $1000 face amount.
We expect this letter to be promptly delivered to the holders of the
Notes and the shareholders of the Company.
Very truly yours,
/s/ Albert J. Fitzgibbons
2
<PAGE>
Merisel Convertible Debt Financing Proposal
Summary of Indicative Terms and Conditions
------------------------------------------
Issue: Senior Convertible Notes (the "Notes")
Co-Issuers: Merisel Americas, Inc. and Merisel Inc. ("Merisel")
Amount: $152.0 million aggregate principal amount
Maturity: In amounts and at times corresponding to the operating
company debt to be refinanced with the proceeds of the
Notes:
$138.8 million maturing on January 31, 1998
4.4 million maturing on March 10, 1998
4.4 million maturing on March 10, 1999
4.4 million maturing on March 10, 2000
------
$152.0 million
Use of Funds: Refinance existing operating company debt under the 11.28%
Subordinated Notes due March 10, 2000, the 11.5% Senior
Notes and the Revolving Credit Agreement indebtedness, plus
any accrued and unpaid interest thereon and repayment
premium in connection with such refinancing and the payment
of Stonington's commitment fee
Interest: 11.5% per annum, increasing by an additional one percentage
point at the end of each month commencing at the end of the
second month after the issuance of the Notes for as long as
the Notes are outstanding, subject to a cap of 18% per
annum. Interest can be paid in cash or PIK, at the Company's
option; provided that interest can only be in cash after
January 31, 1998.
Optional
Redemption: Notes are redeemable in whole at any time prior to Maturity,
upon written notice, at the option of the Issuer at par plus
accrued interest plus a premium of 108% (the "Redemption
Price").
Change of Control: Upon the occurrence of a Change of Control (which will be
defined to include, among other things, any agreement by the
Company relating to a future change of control), the
3
<PAGE>
Holders of Notes will have the right to require the Issuer
to repurchase the Notes at the Redemption Price.
Conversion: Up to $152 million aggregate principal amount of Notes will
convertible into 10,482,800 shares of common stock of
Merisel (after giving effect to a one-for-five stock split)
at a conversion price of $14.50 per share, subject to
customary antidilution provisions. The Holders of Notes can
convert the Notes in part for up to 19.9% of the issued and
outstanding common stock of Merisel at any time at their
option. The Note automatically converts into the amount of
common stock referred to in the first sentence above upon
receipt of the shareholder vote required under the NASD
rules, subject to certain conditions (which can be waived by
the holders of Notes), including the absence of any default
under any debt instruments of Merisel and its subsidiaries
and the absence of any bankruptcy, insolvency or similar
events. Any amounts of the Notes in excess of $152 million
(representing PIK interest) and any accrued and unpaid
interest would not have to be paid upon conversion of the
remainder of the Note in its entirety.
Covenants: Substantially the same as under the existing Revolving
Credit Agreement. In addition, Merisel will agree to call a
special meeting of shareholders to approve the issuance of
shares upon conversion of the Notes and, if the shareholders
do not approve such issuance, to use its best efforts to
repay to Notes as promptly as possible thereafter. The "Deal
Protection" provisions contained in the original letter from
Stonington dated July 14, 1997 (the "Original Letter") would
continue to apply. In the event Stonington is entitled to
its break up fee under the "Deal Protection Provisions" and
the Notes are redeemed in their entirety pursuant to the
optional redemption provision or the holder of Notes puts
the Notes pursuant to the change of control provision, any
break up fee to which Stonington would be entitled would be
credited against any such payment received upon redemption
or put.
Defaults: Substantially the same as under the existing Revolving
Credit Agreement.
4
<PAGE>
Conditions to
Closing: Stockholders of Merisel vote against a proposal to issue
shares to the holders of Merisel's 12 1/2% Senior Notes due
2004 (other than any vote required to allow the issuance of
equity as contemplated in the third paragraph of the letter
to which this term sheet is attached). Other conditions
includes conditions set forth in Original Letter except that
the litigation condition shall be amended as referred to in
the letter to which this term sheet is attached and no
NASDAQ approval for inclusion of the common stock would be
needed as condition of Notes closing.
Representations
and Warranties: Customary representations and warranties by Merisel as to
legal, financial, tax, environmental, compensation and
benefits and operational matters.
Tag-Along Rights;
Registration
Rights: Same as in Original Letter. In addition, the holders of
Notes would be able to transfer such Notes, subject to
securities law limitations, and would have demand
registration rights with respect to the Notes on terms
similar to those applying to the common shares in the
Original Letter.
Commitment Fee: Upon closing, Stonington will receive from Merisel a fee of
$3 million, payable in cash.
Other: The Original Letter, as amended by the terms hereof, will
continue in effect until closing of the Notes at which time
the terms of the Notes purchase agreement will supersede
such Original Letter.
5
<PAGE>
STONINGTON PARTNERS
August 10,1997
Dwight A. Steffensen
Chairman and
Chief Executive Officer
Merisel, Inc.
200 Continental Blvd.
El Segundo, CA 90245-0984
Dear Dwight:
Reference is made to our letter to you dated August 8, 1997 (the "August 8th
----------
Letter") in which we proposed certain amendments to our letter dated July 14,
- -------
1997, as amended by our letter dated July 20, 1997 (the "July 14th Letter";
----------------
together with the August 8th Letter, the "Proposal"), to you regarding our
--------
proposal to acquire newly issued shares of Merisel, Inc. (the "Company").
-------
Defined terms used herein not otherwise defined herein have the meaning set
forth in the Proposal.
With respect to certain agreements and actions of the Company set forth in the
third paragraph of the August 8th Letter, below are alternative agreements and
actions that the Company could enter into or take in place of those set forth in
the August 8th Letter:
We confirm that, if the Company, in connection with the Proposal, as amended
by this letter, agrees to (i) enter into an amendment to the Indenture dated
as of October 15, 1994, between the Company and the Bank of New York, as
successor to Nations Bank of Texas, N. A., as trustee (the "Indenture")
---------
relating to the Company's 12 1/2% Senior Notes (the "Senior Notes"), pursuant
------------
to which the Company eliminates its right to redeem the Senior Notes issued
under the Indenture pursuant to Article III thereof and paragraph 5 of such
Senior Notes, (ii) pay any interest due on the Senior Notes, (iii) if the
holders of the Senior Notes agree to terminated the Limited Waiver and Voting
Agreement, pay to the holders of the Senior Notes $150 per $1,000 face amount
of the Senior Notes and (iv) to each holder of a Senior Notes that does not
put its Senior Notes pursuant to Section 4.15 of Indenture following a Change
of Control (as defined in the Indenture), (a) pay an additional $100 per $1000
face amount of the Senior Notes and (b) grant warrants, exercisable for a
nominal amount for a period of five years following the grant, entitling the
holders of such warrants to purchase, in the aggregate, Shares constituting 5%
of the Shares issued and outstanding immediately following such Change of
Control, such agreements or actions will not negatively impact our willingness
to enter into a definitive agreement with you in connection with the Proposal,
as amended by this letter.
<PAGE>
In addition, if the holders of the Senior Notes agree to terminate the Limited
Waiver and Voting Agreement and the Company issues the Notes contemplated by the
August 8th Letter, we would agree to fund the $50 million revolving credit
factuality referred to in the July 14th Letter simultaneously with the issuance
of such Notes.
We expect this letter to be promptly delivered to the holders of the Senior
Notes and the shareholders of the Company.
Very truly yours,
/s/ Albert J. Fitzgibbons III
<PAGE>
STONINGTON PARTNERS
August 11, 1997
Mr. Dwight A. Steffensen
Chairman and Chief Executive Officer
Merisel, Inc.
200 Continental Boulevard
El Segundo, CA 90245-0984
Dear Dwight:
Enclosed is a term sheet outlining the Stonington proposal to the bondholders.
Please forward the proposal to the bondholders' committee and their counsel.
Very truly yours,
/s/ Albert J. Fitzgibbons
-------------------------
<PAGE>
SUMMARY OF STONINGTON PROPOSAL
---------------------------------
. Stonington purchases 10,059,563 shares at $15.11 per share for an aggregate
purchase price of $152 million
. Upon termination of the Limited Waiver and Voting Agreement and agreement
by the bondholders not to tender upon a change in control, bondholders will
receive accrued interest due and $250 per bond. Such payment will be made
immediately after funding by Stonington.
. The Company will eliminate its rights to redeem the Senior Notes.
. Upon the favorable vote of Merisel stockholders for the Stonington
proposal, the Company will issue ten warrants per bond. Each warrant will
be exercisable into one share of common stock for $.01 per share, for a
period of five years following the grant.
