<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1997
REGISTRATION NO. 333-27369
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________
MERISEL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5045 95-4172359
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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 E. ILLSON
SENIOR VICE PRESIDENT, 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:
JOSEPH J. GIUNTA, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 SOUTH GRAND AVENUE
LOS ANGELES, CA 90071-3144
(213) 687-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: The expiration
date of the Exchange Offer of the Registrant described in the Prospectus
included as a part of this Registration Statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=======================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT/SHARE OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK, PAR VALUE
$0.05 PER SHARE............... 35,342,232 SHARES(1)(2) -- (3) --
- -----------------------------------------------------------------------------------------------------------------------
WARRANTS TO PURCHASE
COMMON STOCK.................. 5,263,736 WARRANTS(2) -- (3) --
- -----------------------------------------------------------------------------------------------------------------------
TOTAL $172,179,112(3) $52,176(4)
======================================================================================================================
</TABLE>
(1) Maximum number of shares of common stock, par value $.05 per share (the "New
Common Stock"), (i) to be issued initially by Merisel, Inc. (the "Company")
pursuant to this Registration Statement and (ii) to be issued subsequently
upon the exercise of each of two series of newly created warrants, including
warrants (the "Series A Warrants") issued pursuant to the Series A Warrant
Agreement (as defined herein) and warrants (the "Series B Warrants" and,
together with the Series A Warrants, the "Warrants") issued pursuant to the
Series B Warrant Agreement (as defined herein), to purchase New Common Stock
also being registered hereby. Such number reflects a one-for-five reverse
stock split (the "Reverse Split") as further described herein.
(2) Each $1,000 principal amount of 12 1/2% Senior Notes due 2004 (the "12.5%
Notes") will be exchanged for 192.5 shares of New Common Stock, representing
an aggregate of 24,062,796 shares. Each share of the Company's previously
issued and outstanding common stock, par value $.01 per share (the "Old
Common Stock"), will receive one-fifth of a share of New Common Stock
(representing, in the aggregate, 6,015,699 shares of New Common Stock) and
one each of Series A Warrants and Series B Warrants to purchase, in the
aggregate, 5,263,736 shares of New Common Stock. An aggregate of 2,631,868
shares of New Common Stock shall be issuable upon the exercise of the Series
A Warrants at an exercise price of $7.15 per share and an aggregate of
2,631,868 shares of New Common Stock shall be issuable upon the exercise of
the Series B Warrants at an exercise price of $8.68 per share, subject in
each case to adjustment.
(3) The Proposed Maximum Aggregate Offering Price has been calculated pursuant
to Rule 457(f) as the sum of (i) the aggregate market value of the Old
Common Stock as of May 12, 1997 ($41,357,931, which is the product of (a)
$1.375, the average of the high and low prices for the Old Common Stock as
reported by the Nasdaq National Market as of May 12, 1997, and (b)
30,078,495, the number of shares of Old Common Stock issued and outstanding
on such date), and (ii) the aggregate book value of the 12.5% Notes (plus
accrued and unpaid interest) as of May 12, 1997 ($130,821,181, or the sum of
the aggregate book value of $125,000,000 and accrued and unpaid interest of
$5,821,181).
(4) A fee was paid on May 19, 1996 in respect of the Restructuring upon the
filing of the Registration Statement on Form S-4, which is amended hereby.
Pursuant to Rule 457(b) under the Securities Act of 1933, as amended (the
"Act"), the amount of such previously paid fee may be credited against the
registration fee payable in connection with this filing. Accordingly, only
$1,173 of the total registration fee of $52,176, equal to 1/33 of one
percent of the estimated Proposed Maximum Aggregate Offering Price of
$172,179,112, as calculated in accordance with Section 6(b) of the Act, is
required to be paid with this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
[Merisel, Inc. Letterhead]
[ ] , 1997
Dear Stockholder:
You are cordially invited to attend a special meeting (the "Stockholders'
Meeting") of the stockholders of Merisel, Inc. (the "Company") to be held at the
Company's headquarters located at 200 Continental Boulevard, El Segundo,
California on [ ], 1997, at 10:00 a.m., Los Angeles time. At the
Stockholders' Meeting, you will be asked to consider and vote on certain
proposals relating to the financial restructuring (the "Exchange Restructuring")
of the Company whereby holders of 12 1/2% Senior Notes due 2004 ("12.5% Notes")
as of immediately prior to the Exchange Restructuring would exchange their 12.5%
Notes for shares of common stock, par value $.05 per share, of the Company ("New
Common Stock") and stockholders of the Company ("Stockholders") as of
immediately prior to the Exchange Restructuring would receive shares of New
Common Stock, as well as warrants (the "Warrants") to purchase additional shares
of New Common Stock.
Stockholders will be asked to consider and vote upon proposals (the
"Proposals") to implement (i) the Exchange Restructuring, such proposal
consisting of (a) an amendment (the "Charter Amendment") of the Company's
Restated Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), to effect a one-for-five reverse stock split (the"Reverse
Split") of each outstanding share of Common Stock, par value $.01 per share (the
"Old Common Stock"), into one-fifth of a share of New Common Stock; and (b)
authorization of the issuance of shares of New Com mon Stock (the "New Common
Stock Issuance" and, together with the Charter Amendment the "Exchange
Restructuring Proposal") to holders of 12.5% Notes and Stockholders as of
immediately prior to the Exchange Restructuring in exchange for their 12.5%
Notes and shares of Old Common Stock, as applicable, pursuant to the terms of
the Exchange Restructuring (such shares of New Common Stock being hereinafter
referred to as the "Exchange Shares") and to holders of Warrants upon exercise
of their Warrants (such shares of New Common Stock being hereinafter referred to
as the "Warrant Shares"); and (ii) the Merisel, Inc. 1997 Stock Award and
Incentive Plan (the "Stock Award and Incentive Plan"). The Charter Amendment
would have the effect of increasing the number of shares of common stock of the
Company authorized but not issued or reserved for issuance to a level sufficient
for the New Common Stock Issuance and the issuance of New Common Stock in
exchange for the Warrants upon their exercise.
Assuming all of the conditions to consummation are fulfilled, the Exchange
Restructuring will result in the holders of the 12.5% Notes (the "Noteholders")
receiving approximately 80% of the outstanding shares of New Common Stock
(excluding the Warrants). Stockholders would receive 20% of the outstanding
shares of New Common Stock upon exchange of their Old Common Stock and would
receive Warrants which, upon exercise, would represent approximately 17.5% of
the New Common Stock outstanding immediately after giving effect to the Exchange
Restructuring and the Reverse Split. Each holder of Old Common Stock would
receive, for each share of Old Common Stock held, .0875 Series A Warrants and
.0875 Series B Warrants in addition to retaining his current stock interest as
adjusted for the Reverse Split equal to one-fifth of a share of New Common Stock
for each share of Old Common Stock. The Warrants would be exercisable for seven
years from the date of the Exchange Restructuring and would be issued in two
separately traded series. The Warrants would have an exercise price ("Exercise
Price") of $7.15 per share, in the case of the Series A Warrants, and $8.68 per
share, in the case of the Series B Warrants, and each Warrant would be
exercisable for one share of New Common Stock, in each case subject to
adjustment. Stockholders will not be entitled to receive Warrants unless and
until they exchange their certificates of Old Common Stock for certificates of
New Common Stock.
The accompanying Proxy Statement/Prospectus serves as a prospectus for the
Exchange Shares and the Warrants and Warrant Shares, and will also serve as the
Company's Annual Report to Stockholders for the fiscal year ended December 31,
1996.
<PAGE>
The stockholder votes with respect to the Exchange Restructuring Propsal
will not be effective unless and until the Exchange Restructuring has been
consummated. If approved, the Stock Award and Incentive Plan will be effective
immediately, regardless of whether the Exchange Restructuring is consummated.
The Exchange Restructuring is conditioned, among other things, on 100% of
the outstanding 12.5% Notes being validly tendered pursuant to the Exchange
Restructuring. Should less than 100% of the holders tender their 12.5% Notes
pursuant to the Exchange Restructuring, the Company intends instead to pursue
the financial restruc turing of the Company by means of the filing of a
"prepackaged plan" (the "Prepackaged Plan") of reorganization under Chapter 11
of the United States Bankruptcy Code (the "Prepackaged Restructuring" and,
together with the Exchange Restructuring, the "Restructuring"). The Prepackaged
Restructuring may be effected with a minimum of two-thirds approval of the
principal amount and a majority in number of the Noteholders voting on the
Prepackaged Plan, and would also require the approval by holders of at least
two-thirds in amount of the shares of Old Common Stock voting on the Prepackaged
Plan. If the Prepackaged Restructuring is pursued and a petition is filed under
the United States Bankruptcy Code, the Company expects that the New Common Stock
Issuance, the issuance of Warrants to holders of Old Common Stock and an
amendment to the Company's Certificate of Incorporation substantially similar to
the Charter Amendment will be implemented pursuant to the Prepackaged Plan.
NONE OF THE COMPANY'S WHOLLY OWNED OPERATING SUBSIDIARIES, INCLUDING
MERISEL AMERICAS, INC. AND MERISEL CANADA, INC. (COLLECTIVELY, THE "OPERATING
COMPANIES"), WOULD BE A PARTY TO THE PREPACKAGED PLAN AND THE COMPANY'S BUSINESS
WOULD THEREFORE CONTINUE TO BE OPERATED IN THE ORDINARY COURSE. AS SUCH, THE
PREPACKAGED PLAN WOULD NOT AFFECT THE CONTINUING AND TIMELY PAYMENT IN FULL OF
THE OPERATING COMPANIES' OBLIGATIONS TO SUPPLIERS, EMPLOYEES, AND OTHER
CREDITORS.
The purpose of the Restructuring is to enhance the long-term viability and
to contribute to the success of the Company by adjusting the Company's
capitalization, including reduction of debt levels, extension of principal
repayments and relaxation of operating covenants, to reflect current and
expected operating performance levels. Specifically, the Restructuring is
designed to reduce the Company's outstanding debt obligations by $125 million,
to levels which the Company believes can be supported by its projected cash
flow. Interest charges will be substantially reduced and stockholders' equity
will be substantially increased as a result of the Restructuring.
In addition, implementation of the Restructuring will enable the Company to
avoid certain significant amortization payments in June 1997 under the Operating
Companies' senior debt obligations if the Company pays interest on the 12.5%
Notes next due in June 1997. During the period that the Restructuring is being
implemented, such interest payments have been waived by the holders of in excess
of 75% of the outstanding principal amount of the 12.5% Notes and the holders of
the Operating Companies' indebtedness have waived any cross-default arising from
the non-payment of such interest. Failure to consummate the Restructuring could
result in such amortization payments becoming due as well as interest payment
obligations on the 12.5% Notes being reinstated. ABSENT THE RESTRUCTURING, THE
COMPANY DOES NOT BELIEVE IT WILL BE ABLE TO SATISFY SUCH OBLIGATIONS WITHOUT A
REFINANCING OF THE COMPANY'S INDEBTEDNESS UNDER THE OPERATING COMPANIES' LOAN
AGREEMENTS OR OBTAINING ADDITIONAL WAIVERS OR AMENDMENTS TO SUCH AGREEMENTS, AND
THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO OBTAIN SUCH
REFINANCING, WAIVERS OR AMENDMENTS.
Should the Stock Award and Incentive Plan be approved by the Stockholders,
the Company intends to issue options or stock appreciation rights (together,
"New Options") for up to 8% of the shares of New Common Stock to be outstanding
immediately following the Restructuring. All options outstanding prior to the
Restructuring ("Old Options") would be cancelled in exchange for New Options
exercisable for the same or a greater number of shares (after adjustment for the
Reverse Split) of New Common Stock. New Options would be priced at the average
closing price of the New Common Stock for the
<PAGE>
first 20 trading days following the Restructuring. Holders of Old Options will
not be entitled to receive Warrants pursuant to the Restructuring unless such
holders exercise their Old Options prior to the consummation of the
Restructuring.
IN ORDER TO EXPEDITE THE SOLICITATION OF ACCEPTANCES UNDER THE PREPACKAGED
PLAN, SHOULD IT BE NECESSARY, THE COMPANY IS CONCURRENTLY SOLICITING SUCH
ACCEPTANCES TOGETHER WITH PROXIES FOR THE STOCKHOLDERS' MEETING. ACCORDINGLY,
THIS PROXY STATEMENT/PROSPECTUS ALSO SERVES AS A SOLICITATION BY THE COMPANY FOR
ACCEPTANCE OF THE PREPACKAGED PLAN. Stockholders may vote in favor of the
Prepackaged Plan by signing, marking and returning the enclosed ballot for that
purpose in the enclosed envelope. Unlike the proxy, the ballot must be marked
FOR or AGAINST acceptance for it to be counted for any purpose.
IF STOCKHOLDERS DO NOT APPROVE THE EXCHANGE RESTRUCTURING PROPOSAL, OR DO
NOT EXECUTE THE REQUISITE ACCEPTANCES OF THE PREPACKAGED PLAN, THEN, UNDER THE
TERMS OF THE AGREEMENT REACHED WITH CERTAIN HOLDERS OF 12.5% NOTES, SUCH
NOTEHOLDERS WILL NOT BE BOUND TO THE TERMS OF THE RESTRUCTURING. ANY SUBSEQUENT
RESTRUCTURING OF THE COMPANY COULD RESULT IN STOCKHOLDERS OF THE COMPANY
RETAINING OR RECEIVING SUBSTANTIALLY LESS THAN THE CONSIDERATION PROVIDED FOR IN
THE RESTRUCTURING. ACCORDINGLY, YOUR BOARD OF DIRECTORS BELIEVES THE EXCHANGE
RESTRUCTURING AND THE PREPACKAGED RESTRUCTURING ARE IN THE BEST INTERESTS OF THE
COMPANY'S STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
---
APPROVAL OF THE PROPOSALS AND FOR THE ACCEPTANCE OF THE PREPACKAGED PLAN.
---
REGARDLESS OF THE SIZE OF YOUR HOLDINGS, IT IS IMPORTANT THAT YOUR SHARES
BE VOTED AT THE STOCKHOLDERS' MEETING AND WITH RESPECT TO THE PREPACKAGED PLAN.
WHETHER OR NOT YOU PLAN TO ATTEND THE STOCKHOLDERS' MEETING, PLEASE SIGN AND
RETURN BOTH YOUR PROXY AND BALLOT IN THE ENCLOSED ENVELOPE BY NO LATER THAN
[_____________], 1997 TO ASSURE THAT YOUR SHARES WILL BE VOTED WITH RESPECT TO
THE EXCHANGE RESTRUCTURING AND THE PREPACKAGED PLAN. YOUR VOTE ON THE
PREPACKAGED PLAN WILL NOT BE COUNTED UNLESS YOU RETURN A PROPERLY COMPLETED
BALLOT.
Sincerely,
Dwight A. Steffensen
Chairman of the Board and
Chief Executive Officer
<PAGE>
MERISEL, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ ], 1997
NOTICE IS HEREBY GIVEN that a special meeting of stockholders
("Stockholders") of Merisel, Inc. (the "Company") will be held at the Company's
headquarters located at 200 Continental Boulevard, El Segundo, California on
[ ], 1997, at 10:00 a.m., Los Angeles time (the "Stockholders' Meeting"), for
the purpose of implementing a financial restructuring (the "Exchange
Restructuring") of the Company whereby holders (the "Noteholders") of 12 1/2%
Senior Notes due 2004 ("12.5% Notes") would exchange their 12.5% Notes for
shares of common stock, par value $.05 per share ("New Common Stock"), of the
Company and stockholders immediately prior to the Exchange Restructuring would
receive shares of New Common Stock as well as warrants ("Warrants") to purchase
additional shares of New Common Stock. Specifically, Stockholders will be asked
to consider and vote upon the following, all of which are more fully described
in the accompanying Proxy Statement/Prospectus:
1. (a) an amendment (the "Charter Amendment") of the Company's Restated
Certificate of Incorpora tion, as amended, which would authorize (i) a
one-for-five reverse stock split of the Company's outstanding shares
of Old Common Stock (the "Reverse Split") and (ii) the simultaneous
increase of the par value of the authorized common stock of the
Company from $.01 per share to $.05 per share; and (b) the issuance of
shares of New Common Stock (the "New Common Stock Issuance" and,
together with the Charter Amendment, the "Exchange Restructuring
Proposal") to Noteholders and Stockholders as of immediately prior to
the Restructuring in exchange for their 12.5% Notes and shares of Old
Common Stock, as applicable, pursuant to the terms of the Exchange
Restructuring and to holders of Warrants upon exercise of their
Warrants;
2. the Merisel, Inc. 1997 Stock Award and Incentive Plan (the "Stock
Award and Incentive Plan"); and
3. such other business as may properly come before the Stockholders'
Meeting or any adjournments or postponements thereof.
The proposed text of the Charter Amendment is set forth in Annex I of the
accompanying Proxy Statement/Prospectus. The text of the Exchange Restructuring
Prospectus under which, if consummated, the New Common Stock Issuance would take
place is set forth in Annex IV to the accompanying Proxy Statement/Prospectus.
The proposed text of the Stock Award and Incentive Plan is set forth in Annex
III of the accompanying Proxy Statement/Prospectus.
The Exchange Restructuring Proposal, if approved, will not be implemented
pursuant to this stockholder vote if the Exchange Restructuring described in the
Exchange Restructuring Prospectus is not implemented. The Stock Award and
Incentive Plan, however, if approved, will be implemented pursuant to this
stockholder vote regardless of whether such Exchange Restructing is implemented.
The Board of Directors of the Company has fixed the close of business on
June 26, 1997 as the record date ("Record Date") for the determination of
stockholders entitled to notice of and to vote at the Stockholders' Meeting and
any adjournments or postponements thereof. Only stockholders of record at the
close of business on such date are entitled to notice of and to vote at the
Stockholders' Meeting.
<PAGE>
Common Stock, par value $.01 per share, of the Company is the only security
of the Company whose holders are entitled to vote upon the proposals to be
presented at the Stockholders' Meeting.
Your vote is important regardless of the number of shares you own. Each
Stockholder, even though he or she now plans to attend the Stockholders'
Meeting, is requested to sign, date and return the enclosed proxy, without delay
in the enclosed postage-paid envelope. You may revoke your proxy at any time
prior to its exercise. Any stockholder present at the Stockholders' Meeting or
at any adjournments or postponements thereof may revoke his or her proxy and
vote personally on each matter brought before the Stockholders' Meeting.
By Order of the Board of Directors,
James E. Illson
Senior Vice President, Finance,
Chief Financial Officer and Secretary
[ ], 1997
THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE FOR EACH OF THE PROPOSALS
---
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE
<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 as of June 27, 1997
MERISEL, INC.
PROXY STATEMENT/PROSPECTUS
AND SOLICITATION OF PREPACKAGED PLAN ACCEPTANCES
This Proxy Statement/Prospectus (this "Proxy Statement/Prospectus") is
being furnished to holders ("Stockholders") of common stock, par value $.01 per
share ("Old Common Stock"), of Merisel, Inc., a Delaware corporation (the
"Company"), in connection with (A) the solicitation of proxies by the Board of
Directors of the Company (the "Board") for use at a special meeting of
Stockholders to be held on [________], 1997 at 10:00 a.m., Los Angeles time, at
the Company's headquarters located at 200 Continental Boulevard, El Segundo,
California, and any adjournments or postponements thereof (the "Stockholders'
Meeting"), and (B) the solicitation of acceptances of a prepackaged plan of
reorganization of the Company under Chapter 11 of the United States Bankruptcy
Code (the "Prepackaged Plan"). References herein to the "Company" shall, unless
the context otherwise require, refer to Merisel, Inc. and its operating
subsidiaries. References to the "Holding Company" shall refer only to Merisel,
Inc. and not to its subsidiaries. References to the "Operating Companies" shall
mean the operating subsidiaries of the Company.
The Board is soliciting proxies to be voted at the Stockholders' Meeting.
The Stockholders' Meeting will be held to consider the proposals (the
"Proposals") described herein to implement a financial restructuring (the
"Exchange Restructuring") of the Company whereby holders (the "Noteholders") of
12 1/2% Senior Notes due 2004 ("12.5% Notes") as of immediately prior to the
Exchange Restructuring would exchange their 12.5% Notes for shares of common
stock, par value $.05 per share, of the Company ("New Common Stock") and
Stockholders as of immediately prior to the Exchange Restructuring would
receive, in the aggregate, 6,015,699 shares of New Common Stock as well as an
aggregate of 5,263,736 warrants (the "Warrants") to purchase an aggregate of
5,263,736 additional shares of New Common Stock (subject to adjustment).
Specifically, the Proxy Statement/Prospectus seeks Stockholder approval of
Proposals (A) to amend the Company's Restated Certificate of Incorporation, as
amended (the "Certificate of Incorporation), to effect a one-for-five reverse
stock split (the "Reverse Split") of each outstanding share of Old Common Stock
into one-fifth of a share of New Common Stock, (the "Charter Amendment"), and to
issue New Common Stock pursuant to the Exchange Restructuring including the
shares of New Common Stock issuable to both the Noteholders and the Stockholders
upon consummation of the Exchange Restructuring (the "Exchange Shares") and the
shares of New Common Stock issuable upon exercise of the Warrants (the "Warrant
Shares") (such issuance pursuant to either the Exchange Restructuring or the
Prepackaged Restructuring (as herein after defined), the "New Common Stock
Issuance" and, together with the Charter Amendment, the "Exchange Restructuring
Proposal"), and (B) to adopt the Merisel, Inc. 1997 Stock Award and Incentive
Plan (the "Stock Award and Incentive Plan"). If the Prepackaged Restructuring
is pursued and a petition is filed under the Bankruptcy Code, the Company
expects that the New Common Stock Issuance and an amendment substantially
similar to the Charter Amendment will be implemented pursuant to the Prepackaged
Plan. The Company's executive officers and directors, as a group, own 458,672
shares of the outstanding Old Common Stock and have advised the Company that
they intend to vote in favor of each of the Exchange Restructuring Proposal, the
Stock Award and Incentive Plan and the Prepackaged Plan.
Assuming all of the conditions to consummation are fulfilled, the Exchange
Restructuring will result in the holders of the 12.5% Notes (the "Noteholders")
receiving an aggregate of 24,062,796 shares of New Common Stock. Based upon the
current number of shares of Old Common Stock outstanding, approximately 80% of
the outstanding shares of New Common Stock (excluding the New Common Stock
issuable upon exercise of the Warrants) would be issued to Noteholders in the
Exchange Restructuring, and Stockholders would receive 20% of the outstanding
New Common Stock upon exchange of their Old Common Stock as well as Warrants
which, upon exercise, would represent approximately 17.5% of the New Common
Stock outstanding immediately after giving effect to the Exchange Restructuring
and the Reverse Split. The Warrants would be exercisable for seven years from
the date of the Exchange Restructuring and would be issued in two separately
traded series. Each holder of Old Common Stock would receive, for each share of
Old Common Stock held, .0875 Series A Warrants and .0875 Series B Warrants in
addition to retaining such holders' current stock interest as adjusted for the
Reverse Split to equal one-fifth
i
<PAGE>
of a share of New Common Stock for each share of Old Common Stock. The Warrants
would have an exercise price ("Exercise Price") of $7.15, in the case of the
Series A Warrants, and $8.68, in the case of the Series B Warrants, and each
Warrant would be exercisable for one share of New Common Stock, in each case
subject to adjustment.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH SHOULD
BE CONSIDERED IN CONNECTION WITH THE EXCHANGE RESTRUCTURING AND A DISCUSSION OF
CERTAIN CONSEQUENCES OF THE EXCHANGE RESTRUCTURING TO HOLDERS OF OLD COMMON
STOCK. SEE "RISK FACTORS" IN PART B TO THE EXCHANGE RESTRUCTURING PROSPECTUS,
ATTACHED HERETO AS ANNEX IV. FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH
SHOULD BE CONSIDERED IN CONNECTION WITH THE PREPACKAGED RESTRUCTURING.
NEITHER THE SECURITIES OFFERED HEREBY NOR THE PREPACKAGED PLAN HAS BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THESE
TRANSACTIONS OR THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JULY [ ], 1997.
ii
<PAGE>
The Company's obligation to accept 12.5% Notes tendered pursuant to the
Exchange Restructuring is conditioned, among other things, on (a) 100% of the
12.5% Notes being validly tendered and not withdrawn prior to the Expiration
Date (as defined herein) (the "Minimum Tender Condition") and (b) approval by
the Stockholders of the Exchange Restructuring Proposal and (c) consent of 100%
of certain debtholders of the Operating Companies to an extension of their
indebtedness, or a refinancing of such indebtedness on terms reasonably
acceptable to the Noteholders and the Company (the "Extension"). The Company
reserves the right to waive any of the conditions to the Exchange Restructuring
but does not currently intend to waive any condition. The Exchange
Restructuring Proposal will not become effective unless the Exchange
Restructuring is consummated. If, but only if, the Minimum Tender Condition and
the other conditions to the consummation of the Exchange Restructuring are
satisfied or waived, the Holding Company intends to consummate the Exchange
Restructuring.
Should less than 100% of the Noteholders tender their 12.5% Notes pursuant
to the Exchange Restructuring, the Company will be obligated under the terms of
the Limited Waiver Agreement (as defined herein) to instead pursue the financial
restructuring of the Company by means of the filing of the Prepackaged Plan (the
"Prepackaged Restructuring" and, together with the Exchange Restructuring, the
"Restructuring"). The Company's ability to seek confirmation of the Prepackaged
Plan depends upon certain minimum levels of acceptance thereof, as further set
forth in this Proxy Statement/Prospectus. In the event that the requisite
percentage and number of Noteholders and Stockholders have executed acceptances
of the Prepackaged Plan, but the Minimum Tender Condition has not been satisfied
or the Company determines in its sole discretion that it is unlikely to be
satisfied at or prior to the Expiration Date, the Company may elect to terminate
the Exchange Offer at or prior to its scheduled expiration and proceed directly
to the Prepackaged Plan.
THE OPERATING COMPANIES (INCLUDING MERISEL AMERICAS AND MERISEL CANADA,
WHICH ARE SUBSIDIARIES THROUGH WHICH THE HOLDING COMPANY'S DISTRIBUTION BUSINESS
IS CONDUCTED) WOULD NOT BE A PARTY TO THE PREPACKAGED PLAN, AND WOULD THEREFORE
CONTINUE TO OPERATE IN THE ORDINARY COURSE OF BUSINESS. AS SUCH, THE
PREPACKAGED PLAN WOULD NOT AFFECT THE CONTINUING AND TIMELY PAYMENT IN FULL OF
THE OPERATING COMPANIES' OBLIGATIONS TO SUPPLIERS OR OTHER CREDITORS. IN
ADDITION, THE PREPACKAGED PLAN PROVIDES FOR ALL PREPETITION UNSECURED CREDITORS
OF THE HOLDING COMPANY, INCLUDING, WITHOUT LIMITATION, TRADE CREDITORS OF THE
HOLDING COMPANY, TO BE PAID IN FULL IN ACCORDANCE WITH THEIR TERMS, AND SUCH
CREDITORS WILL NOT, THEREFORE, BE IMPAIRED AND WOULD BE DEEMED TO ACCEPT THE
PREPACKAGED PLAN.
The purpose of the Restructuring is to enhance the long-term viability and
to contribute to the success of the Company by adjusting the Company's
capitalization (including debt levels and principal repayment schedules) to
reflect current and expected operating performance levels. Specifically, the
Restructuring is designed to reduce the Company's debt obligations by $125
million, to levels which the Company believes can be supported by its projected
cash flow, and to replace a significant portion of the Company's indebtedness
with New Common Stock. Interest charges will be substantially reduced and
stockholders' equity will be substantially increased as a result of the
Restructuring.
In addition, implementation of the Restructuring will enable the Company to
avoid certain significant amortization payments in June 1977 under the Operating
Companies' senior debt obligations if the Company becomes required to pay
interest on the 12.5% Notes due in June 1997. During the period that the
Restructuring is being implemented, such interest payments have been waived by
in excess of 75% of the holders of 12.5% Notes and the holders of the Operating
Companies' indebtedness have waived any cross-default arising from the non-
payment of such interest. Failure to consummate the Restructuring could result
in such amortization payments becoming due as well as interest payments on the
12.5% Notes being reinstated. ABSENT THE RESTRUCTURING, THE COMPANY DOES NOT
BELIEVE IT WILL BE ABLE TO SATISFY SUCH OBLIGATIONS WITHOUT A REFINANCING OF THE
COMPANY'S INDEBTEDNESS UNDER THE OPERATING COMPANIES' LOAN AGREEMENTS OR
OBTAINING ADDITIONAL WAIVERS OR AMENDMENTS TO SUCH AGREEMENTS, AND THERE CAN BE
NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO OBTAIN SUCH REFINANCING WAIVERS OR
AMENDMENTS.
A copy of the proposed text of the Charter Amendment is attached hereto as
Annex I and is incorporated herein by reference. A copy of the Exchange
Restructuring Prospectus under which, if consummated, New Common Stock will be
issued to holders of 12.5% Notes is attached hereto as Part A to Annex IV. A
copy of the Warrant Agreement pursuant to which the Warrants would be issued
upon consummation of the Restructuring is attached hereto as Annex II. A copy
of the Stock Award and Incentive Plan is attached hereto as Annex III. A copy
of the Disclosure Statement with respect to the Prepackaged Plan is attached
hereto as Part B to Annex IV. A copy of the Prepackaged Plan is attached as
Appendix I to Annex IV.
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This Proxy Statement/Prospectus also constitutes the Company's Prospectus,
filed with the Securities and Exchange Commission (the "Commission") as part of
a Registration Statement (the "Registration Statement") on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
New Common Stock and Warrants (and the New Common Stock issuable upon exercise
of the Warrants) to be issued to holders of Old Common Stock in the Exchange
Restructuring and also will serve as the Company's Annual Report to Stockholders
for the fiscal year ended December 31, 1996.
The Old Common Stock is listed for trading on the Nasdaq National Market.
Application will be made to list (i) the New Common Stock to be issued to
Noteholders and holders of Old Common Stock and (ii) Warrants to be issued in
two series as separately traded securities to the holders of Old Common Stock
pursuant to the Restructuring (as defined herein) for trading on the Nasdaq
National Market. On [ ], 1997, the closing sale price for the Old Common
Stock on the Nasdaq National Market was $[ ] per share.
THE SOLICITATION PERIOD FOR ACCEPTANCES OF THE PREPACKAGED PLAN WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON [ ], 1997, UNLESS EXTENDED (THE
"EXPIRATION DATE"). VOTES ON THE PREPACKAGED PLAN MAY BE REVOKED, SUBJECT TO
THE PROCEDURES DESCRIBED HEREIN, AT ANY TIME PRIOR TO THE EXPIRATION DATE. IF A
BANKRUPTCY CASE HAS BEEN COMMENCED, REVOCATIONS OF SUCH VOTES THEREAFTER MAY BE
EFFECTED ONLY WITH THE APPROVAL OF THE APPROPRIATE BANKRUPTCY COURT.
The record date for purposes of determining which holders of Old Common
Stock are eligible to vote on the Prepackaged Plan and at the Stockholders'
Meeting is June 26, 1997 (the "Record Date"). Stockholders are not required to
vote at the Stockholders' Meeting in order to vote on the Prepackaged Plan. It
is important that all Stockholders vote to accept or to reject the Prepackaged
Plan because, under the Bankruptcy Code, for purposes of determining whether the
requisite acceptances have been received, only holders who vote will be counted.
Failure by a holder to send a duly completed and signed Ballot will be deemed to
constitute an abstention by such holder with respect to a vote on the
Prepackaged Plan. Abstentions as a result of not submitting a duly completed and
signed Ballot will not be counted as votes for or against the Prepackaged Plan.
Any Ballot which is executed by a holder but does not indicate an acceptance or
rejection of the Prepackaged Plan will not be counted as a vote for or against
the Prepackaged Plan. See "TENDERING AND VOTING PROCEDURES" in Part A to the
Exchange Restructuring Prospectus, attached hereto as Annex IV and "VOTING
PROCEDURES AND REQUIREMENTS" in Part B to the Exchange Restructuring Prospectus,
attached hereto as Annex IV.
STOCKHOLDERS WHO COMPLETE A PROXY ("PROXY") WITH RESPECT TO THE
STOCKHOLDERS' MEETING SHOULD ALSO DULY COMPLETE AND SIGN A BALLOT ("BALLOT") IN
ORDER TO VOTE ON THE PREPACKAGED PLAN.
BECAUSE NO PREPACKAGED BANKRUPTCY CASE HAS BEEN FILED, THIS PROXY
STATEMENT/PROSPECTUS AND THE DISCLOSURE STATEMENT ATTACHED HERETO HAVE NOT BEEN
APPROVED BY ANY BANKRUPTCY COURT WITH RESPECT TO THE ADEQUACY OF THE INFORMATION
CONTAINED HEREIN OR THEREIN. IF SUCH A CASE IS SUBSEQUENTLY COMMENCED, THE
COMPANY INTENDS TO SEEK AN ORDER OF SUCH COURT THAT THE SOLICITATION OF VOTES ON
THE PREPACKAGED PLAN BY MEANS OF THIS PROXY STATEMENT/PROSPECTUS AND THE
DISCLOSURE STATEMENT WAS IN COMPLIANCE WITH SECTION 1126(b) OF THE BANKRUPTCY
CODE WHICH PERMITS VOTES RECEIVED BEFORE THE FILING OF A CHAPTER 11 PETITION TO
BE COUNTED FOR PURPOSES OF CONFIRMATION OF A
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PLAN IF CERTAIN DISCLOSURE REQUIREMENTS HAVE BEEN MET.
This Proxy Statement/Prospectus, the Proxy and the applicable Ballot and
Master Ballot are first being mailed to Stockholders on or about [DATE], 1997.
v
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Commission under the Securities Act, with
respect to the securities offered hereby. As permitted by the rules and
regulations of the Commission, this Proxy Statement/Prospectus omits certain
information, exhibits and undertakings contained in the Registration Statement.
Such additional information, exhibits and undertakings can be inspected at and
obtained from the Commission in the manner set forth below. For further
information with respect to the securities offered hereby and the Company,
reference is made to the Registration Statement, and the financial schedules and
exhibits filed as a part thereof and the exhibits thereto. Statements contained
in this Proxy Statement/Prospectus as to the terms of any contract or other
documents are not necessarily complete and, in each case, reference is made to
the copy of each such contract or other document that has been filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
The Company is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports, proxy statements and other
information with the Commission. Such reports and other information filed with
the Commission, as well as the Registration Statement and the exhibits thereto,
can be inspected and copied at the public reference facilities of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at the Commission's regional
offices located at 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California
90036-3648, at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511
and at 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such material can also be obtained by mail from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains an Internet Web Site that contains reports,
proxy and information statements, and other information regarding the Company
and other registrants that file electronically with the Commission. The address
of such site is: http://www.sec.gov. In addition, the Old Common Stock is
listed and traded on the Nasdaq National Market, and such reports, proxy
statements and other information concerning the Company should be available for
inspection and copying at the National Association of Securities Dealers, Inc.,
1735 K Street, N.W. Washington, D.C. 20006.
The following documents filed by the Company with the Commission are
incorporated herein by reference and shall be deemed to be a part hereof:
1. Annual Report of the Company on Form 10-K for the fiscal year ended
December 31, 1996;
2. Amendment No. 1 to the Annual Report of the Company on Form 10-K/A for
the year ended December 31, 1996;
3. Quarterly Report of the Company on Form 10-Q for the fiscal quarter
ended March 31, 1997;
4. Amendment No. 1 to the Quarterly Report of the Company on Form 10-Q/A
for the fiscal quarter ended March 31, 1997;
5. Current Report of the Company on Form 8-K dated April 15, 1997;
6. The description of the Old Common Stock contained in its Registration
Statement on Form 8-A filed on August 30, 1988 and declared effective
on October 19, 1988; and
7. The description of the 12.5% Notes contained in its Registration
Statement on Form S-3, as amended, filed on August 24, 1994 and
declared effective on October 17, 1994.
All documents and reports filed by the Company with the Commission after
the date of this Proxy Statement/Prospectus and prior to the termination of the
Exchange Restructuring shall be deemed incorporated herein by reference and
shall be deemed to be a part hereof from the date of filing of such documents
and reports. 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 Proxy Statement/Prospectus to the extent that a statement
contained herein or in any subsequently filed document or report that also is or
is deemed to be incorporated by reference 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 Proxy
Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH
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<PAGE>
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE
SPECIFICALLY REQUESTED), ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING
ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED UPON
WRITTEN OR ORAL REQUEST DIRECTED TO MERISEL, INC., ATTENTION: JAMES E.
ILLSON, SENIOR VICE PRESIDENT, FINANCE, CHIEF FINANCIAL OFFICER AND SECRETARY,
200 CONTINENTAL BOULEVARD, EL SEGUNDO, CALIFORNIA 90245; TELEPHONE NUMBER (310)
615-6811. IN ORDER TO ASSURE TIMELY DELIVERY OF SUCH DOCUMENTS PRIOR TO THE
STOCKHOLDERS' MEETING, ANY REQUEST SHOULD BE RECEIVED BY [ ], 1997. COPIES
OF SUCH DOCUMENTS WILL ALSO BE AVAILABLE UPON REQUEST THEREAFTER UNTIL THE
EFFECTIVE TIME (AS HEREINAFTER DEFINED).
No person has been authorized to give any information or to make any
representation in connection with the Proposals, the Restructuring, the
Prepackaged Plan or the solicitation of votes for the Proposal or the
Prepackaged Plan, other than those contained in this Proxy Statement/Prospectus
and the exhibits attached hereto or incorporated by reference or referred to
herein. If given or made, such other information or representation may not be
relied upon as having been authorized by the Company. This Proxy
Statement/Prospectus does not constitute an offer to sell or the solicitation of
an offer to buy any securities other than those to which it relates, or an offer
to sell or a solicitation of an offer to buy any securities in any jurisdiction
in which, or to any person to whom, it is unlawful to make such offer or
solicitation. Neither the delivery of this Proxy Statement/Prospectus nor any
dis tribution of securities hereunder shall under any circumstances create any
implication that the information contained herein is correct as of any time
subsequent to the date hereof or that there has been no change in the
information set forth herein or in the affairs of the Company since the date
hereof. Any estimates of Claims (as defined herein) and Interests (as defined
herein) set forth in this Proxy Statement/Prospectus may vary from the final
amounts of Claims or Interests allowed by the Bankruptcy Court.
FORWARD LOOKING INFORMATION
Certain of the financial information contained herein constitutes
forward looking information, and actual results could differ materially from
current expectations. Factors that could impact actual results include
unanticipated adjustments related to the Company's trade accounts payable,
customer disputes, disruption to the Company's computer systems, adjustments
related to previously disposed assets, or potential restructuring and any
reduction in customer demand or deterioration of margins.
vii
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TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION............................................................ vi
FORWARD LOOKING INFORMATION...................................................... vii
INDEX OF CERTAIN DEFINED TERMS................................................... xi
SUMMARY.......................................................................... 1
The Company................................................................. 1
The Exchange Restructuring and Prepackaged Restructuring.................... 1
Comparison of Exchange Restructuring and Prepackaged Restructuring.......... 6
Purposes of the Exchange Restructuring...................................... 6
Risk Factors................................................................ 6
Stockholders' Meeting....................................................... 7
Voting Procedures for the Prepackaged Plan.................................. 10
Description of Warrants..................................................... 10
Summary Historical Consolidated Financial Information....................... 12
Summary Unaudited Pro Forma Condensed Consolidated Financial Information.... 14
Cash Debt Service Obligations............................................... 17
RISK FACTORS..................................................................... 18
High Leverage After Exchange Restructuring.................................. 18
Market Factors And Seasonality May Adversely Affect Cash Flow............... 18
Restrictions Under Operating Companies' Loan Agreements..................... 19
Limitation on use of Net Operating Losses................................... 20
Market Value of the Securities May Fluctuate................................ 20
Capital Expenditures........................................................ 20
Dividend Restrictions....................................................... 20
Dilution.................................................................... 20
Need for Sustained Trade Support............................................ 21
New or Intensified Competition.............................................. 21
Lack of Trading Market; Volatility.......................................... 21
Concentrated Ownership of New Common Stock.................................. 21
Potential De-listing of the Company......................................... 22
History of Net Operating Losses............................................. 22
MARKET AND TRADING INFORMATION................................................... 23
STOCKHOLDERS' MEETING, VOTING RIGHTS AND PROXIES................................. 23
Date, Time and Place of Stockholders' Meeting............................... 23
Solicitation of Proxies; Record Date........................................ 24
Purpose of Stockholders' Meeting............................................ 25
Exchange Restructuring Proposal............................................. 25
The Stock Award and Incentive Plan.......................................... 27
Voting of Proxies........................................................... 27
Voting Rights; Quorum....................................................... 28
No Dissenters' Rights....................................................... 28
Revocation of Proxies....................................................... 28
Prepackaged Plan............................................................ 28
BACKGROUND OF RESTRUCTURING...................................................... 28
The Limited Waiver Agreement................................................ 30
The Extension Under the Operating Companies' Loan Agreements................ 31
PURPOSE OF THE RESTRUCTURING..................................................... 32
Restructuring Financial Considerations...................................... 33
</TABLE>
viii
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DISCUSSION OF PROPOSALS................................................... 36
Exchange Restructuring Proposal...................................... 36
Stock Award and Incentive Plan....................................... 37
DESCRIPTION OF THE EXCHANGE RESTRUCTURING
AND THE PREPACKAGED PLAN.................................................. 45
DESCRIPTION OF NEW COMMON STOCK........................................... 45
Distributions........................................................ 45
Voting............................................................... 46
Election of Directors................................................ 46
DESCRIPTION OF WARRANTS................................................... 46
General.............................................................. 46
Adjustments.......................................................... 48
Reorganizations...................................................... 48
Amendment............................................................ 49
Governing Law........................................................ 49
BUSINESS AND PROPERTIES OF THE COMPANY.................................... 49
LEGAL PROCEEDINGS......................................................... 49
SELECTED HISTORICAL FINANCIAL DATA........................................ 49
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION....................... 49
</TABLE>
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PROJECTED CONSOLIDATED FINANCIAL INFORMATION.............................. 50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................. 50
MANAGEMENT................................................................ 51
Directors............................................................ 52
Post Restructuring Board Reconfiguration............................. 53
Executive Officers................................................... 53
Section 16 Matters................................................... 54
MANAGEMENT COMPENSATION................................................... 54
OWNERSHIP OF COMMON STOCK................................................. 56
CERTAIN AFFILIATE TRANSACTIONS............................................ 57
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. 57
Federal Income Tax Consequences to Stockholders...................... 57
Federal Income Tax Consequences to the Company....................... 58
ADVISORS AND REPRESENTATIVES.............................................. 58
LEGAL MATTERS............................................................. 59
EXPERTS................................................................... 59
OTHER MATTERS............................................................. 59
ANNEXES
Proposed Text of the Charter Amendment............................... I
Form of Warrant Agreement for Series A and Series B Warrants......... II
Stock Award and Incentive Plan.......................................III
The Exchange Restructuring Prospectus................................ IV
Proxy................................................................ V
</TABLE>
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<PAGE>
INDEX OF CERTAIN DEFINED TERMS
CERTAIN DEFINED TERMS NOT LISTED BELOW MAY BE FOUND ON THE
INDEX OF DEFINED TERMS OF THE DISCLOSURE STATEMENT, ATTACHED
HERETO AS PART B TO ANNEX IV.
As used in this Proxy Statement/Prospectus, the following are the meanings
for the terms set forth below:
"Ad Hoc Noteholders Committee" means the committee of holders of the 12.5%
Notes with which the terms of the Exchange
Offer and the Prepackaged Plan were
negotiated.
"Ballots" means ballots to vote on the Prepackaged Plan
included herewith.
"Bankruptcy Code" means the United States Bankruptcy Code 11
U.S.C. (S) (S) 101-1330, as amended.
"Board" means the Board of Directors of the Company.
"1996 Business Plan" means the business plan for the remainder of
fiscal 1996 the Company developed and
implemented in connection with negotiations
with the lenders under its various financing
agreements.
"1997 Business Strategy" means the Company's business strategy for 1997
that builds upon the actions taken under its
1996 Business Plan.
"Certificate of Incorporation" means the Restated Certificate of
Incorporation of the Company, as amended.
"Charter Amendment" means the proposed Certificate of Amendment to
the Certificate of Incorporation, as more
fully described herein.
"Claims" has the meaning given in the Disclosure
Statement, included as Part B to the Exchange
Restructuring Prospectus, attached hereto as
Annex IV.
"Commission" means the Securities and Exchange Commission.
"Company" means, unless the context otherwise requires,
Merisel, Inc., a Delaware corporation, and its
operating subsidiaries.
"Depositary" means U.S. Stock Transfer Corporation with
respect to the Old Common Stock and The Bank
of New York with respect to the 12.5% Notes.
"Disclosure Statement" means Part B of the Exchange Restructuring
Prospectus, entitled "THE PREPACKAGED
RESTRUCTURING DISCLOSURE STATEMENT," including
the appendices attached thereto.
"DLJ" means Donaldson, Lufkin & Jenrette Securities
Corporation, financial advisor to the Company
in connection with the Restructuring.
"EML" means the European, Mexican and Latin American
businesses formerly of the Company that the
Company sold to CHS Electronics, Inc.
xi
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Offer" means the Company's offer to exchange shares
of New Common Stock for the 12.5% Notes
pursuant to the terms of the Exchange
Restructuring.
"Exchange Restructuring" means the proposed financial restructuring of
the Company pursuant to the consummation of
the Exchange Offer, as more fully set forth
herein.
"Exchange Restructuring means shares of New Common Stock issued to
Proposal" Stockholders and Noteholders in exchange for
their Old Common Stock.
"Exchange Restructuring means the Prospectus to be delivered to the
Prospectus" Noteholders in connection with the Exchange
Offer and the Prepackaged Plan, attached
hereto as Annex IV.
"Exchange Shares" means the shares of New Common Stock issued to
Stockholders and Noteholders in exchange for
their Old Common Stock.
"Exercise Price" means (i) $7.15 per share, in the case of the
Series A Warrants, and (ii) $8.68 per share,
in the case of the Series B Warrants, in each
case subject to adjustment.
"Expiration Date" means, with respect to the Exchange Offer and
the solicitation of acceptances of the
Prepackaged Plan, 5:00 p.m., New York City
time, on [____________], 1997, unless the
Company, in its sole discretion, extends the
Exchange Offer or solicitation period, in
which case the term "Expiration Date" for the
Exchange Offer or solicitation period shall
mean the last time and date to which the
Exchange Offer or solicitation period is
extended.
"Extension" means the agreement in principle executed by
100% of the lenders under the Operating
Companies' Senior Debt to an extension of the
maturity of such indebtedness to January 31,
1999 or a refinancing of such indebtedness
prior to October 31, 1997
"F&D Division" means the United States Franchise and
Distribution Division of Vanstar Corporation.
"FAB" means the ComputerLand Franchise and Datago
Aggregation Business.
"GAAP" means generally accepted accounting
principles.
"Holding Company" means Merisel, Inc., a Delaware corporation.
"Indenture" means the Indenture dated October 15, 1994, as
amended, between the Company and The Bank of
New York, as successor Trustee, relating to
the 12.5% Notes.
"Information Agent" means MacKenzie Partners, Inc., Information
Agent in connection with the Exchange Offer
and the solicitation of acceptances of the
Prepack aged Plan.
"Interests" has the meaning given in the Disclosure
Statement, included as Part B to the Exchange
Restructuring Prospectus, attached hereto as
Annex IV.
xii
<PAGE>
"Limited Waiver Agreement" means, the agreement, effective April 14,
1997, by and between the Company and holders
of more than 75% of the outstanding principal
amount of its 12.5% Notes as described in
"BACKGROUND OF RESTRUCTURING".
"Master Ballots" means ballots to be voted on behalf of
beneficial owners of Old Common Stock with
respect to the Prepackaged Plan by such
beneficial owners' broker or other record
holder of such shares.
"Merisel Americas" means Merisel Americas, Inc., a subsidiary of
the Holding Company.
"Merisel Canada" means Merisel Canada, Inc., a subsidiary of
Merisel Americas.
"Minimum Tender Condition" means the condition to the Exchange Offer
requiring 100% of the aggregate principal
amount of the 12.5% Notes to be validly
tendered and not withdrawn prior to the
Expiration Date.
"NASD" means the National Association of Securities
Dealers, Inc.
"New Common Stock" means shares of common stock, par value $.05
per share of the Company.
"New Common Stock Issuance" means the issuance of New Common Stock
pursuant to the Exchange Offer, including New
Common Stock to be issued upon exercise of the
Warrants.
"Noteholders" means the holders of 12.5% Notes.
"Old Common Stock" means the issued and outstanding common stock,
par value $.01 per share, of the Company
authorized prior to the Restructuring.
"Operating Companies" means Merisel Americas and its consolidated
subsidiaries (including without limitation
Merisel Canada, Inc.)
"Operating Companies' Loan means the Subordinated Note Purchase
Agreements" Agreement, the Senior Note Purchase
Agreement Purchase Agreement, and the
Revolving Credit Agreement.
"Operating Companies' Senior means the indebtedness of the Operating
Debt" Companies under the Revolving Credit Agreement
and the Senior Note Purchase Agreement.
"Prepackaged Plan" means the prepackaged plan of reorganization
of the Company under Chapter 11 of the
Bankruptcy Code.
"Prepackaged Restructuring." means the proposed financial restructuring of
the Company pursuant to the Prepackaged Plan,
as more fully described herein.
"Proposals" means the proposals of the Board that are
described herein (A) to amend the Company's
Certificate of Incorporation, (B) to approve
the New Common Stock Issuance and (C) to
approve the Stock Award and Incentive Plan.
"Proxy" means the proxy card mailed to Stockholders
together with the Proxy Statement/Prospectus.
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"Proxy Statement/Prospectus" means the Proxy Statement/Prospectus of the
Company mailed to Stockholders in connection
with the Stockholders' Meeting.
"Record Date" June 26, 1997.
"Registration Statement" means the Registration Statement on Form S-4
the Company filed with the Commission under
the Securities Act, with respect to the
securities offered hereby.
"Reverse Split" means the one-for-five reverse stock split of
the Company's common stock pursuant to the
Charter Amendments.
"Revolving Credit Agreement" means the Amended and Restated Revolving
Credit Agreement, dated as of December 23,
1993, as amended, among Merisel Americas and
Merisel Europe, as borrowers, the Company, as
guarantor, and the lender parties thereto.
"Restructuring" means the financial restructuring of the
Company pursuant to either the Exchange
Restructuring or the Prepackaged
Restructuring, as the case may be.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Note Purchase means the Amended and Restated Senior Note
Agreement" Purchase Agreement,dated as of December 23,
1993, as amended, by and among each of the
purchasers named therein, Merisel Americas, as
issuer, and the Com pany relating to the 11.5%
Notes.
"Series A Warrants" means the warrants issued under the Series A
Warrant Agreement, as more fully described
herein.
"Series B Warrants" means the warrants issued under the Series B
Warrant Agreement, as more fully described
herein.
"Service Agreement" means, in connection with the ComputerLand
acquisition, the Distribution and Services
Agreement by and between Merisel FAB and
Vanstar.
"Stock Award and Incentive Plan" means the Merisel, Inc. 1997 Stock Award and
Incentive Plan.
"Stockholders" means the holders of Old Common Stock.
"Stockholders' Meeting" means the Special Meeting of Stockholders of
the Company to be held on [______________],
1997, at 10:00 a.m., Los Angeles time.
"Subordinated Note Purchase means the Amended and Restated Subordinated
Agreement" Note Purchase Agreement, dated as of December
23, 1993, as amended, by and among each of the
purchasers named therein and Merisel Americas
relating to the Subordinated Notes.
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"Subordinated Note Purchase means the Amended and Restated Subordinated
Agreement" Note Purchase Agreement, dated as of December
23, 1993, as amended, by and among each of the
purchasers named therein and Merisel Americas
relating to the Subordinated Notes.
"Subordinated Notes" means the subordinated notes issued by Merisel
Americas pursuant to the Subordinated Note
Purchase Agreement.
"Warrant Agreements" means the Warrant Agreements under which the
Warrants will be issued.
"Warrant Shares" means shares of New Common Stock issued to
holders of Warrants upon exercise of their
Warrants.
"Warrants" means the Series A Warrants and the Series B
Warrants exercisable for shares of New Common
Stock and issued in accordance with the
Warrant Agreements.
"11.5% Notes" means the 11 1/2% Senior Notes issued by
Merisel Americas.
"12.5% Notes" means the 12 1/2% Senior Notes due 2004 issued
by the Holding Company.
xv
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained in this
Proxy Statement/Prospectus, the Annexes hereto and the documents incorporated by
reference herein. Stockholders are urged to read this Proxy Statement/Prospectus
and the Annexes hereto in their entirety. References herein to the "Company"
shall, unless the context otherwise requires, refer to Merisel, Inc. and its
operating subsidiaries. References to the "Holding Company" shall refer only to
Merisel, Inc. and not to its subsidiaries. References to the "Operating
Companies" shall mean the operating subsidiaries of the Company.
THE COMPANY
The Company is a leading distributor of computer hardware, networking
equipment and software products. Through its main operating subsidiary, Merisel
Americas, Inc. ("Merisel Americas"), and its other subsidiaries (collectively
the "Operating Companies"), the Company markets products and services throughout
North America and has achieved operational efficiencies that have made it 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.
The Company was originally incorporated in California in October 1980, was
reincorporated in Delaware in August 1988, and changed its name from Softsel
Computer Products, Inc. to Merisel, Inc. in August 1990.
The Company's principal executive offices are located at 200 Continental
Boulevard, El Segundo, California 90245. Its telephone number is (310) 615-
3080.
For additional information concerning the Company and its business,
financial position and operations, see "SELECTED HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" and "BUSINESS AND PROPERTIES OF THE
COMPANY," each in Part A to the Exchange Restructuring Prospectus, attached to
this Proxy Statement/Prospectus as Annex IV.
THE EXCHANGE RESTRUCTURING AND PREPACKAGED RESTRUCTURING
Consideration Offered:
To holders of Old Common Stock... For each share of Old Common Stock,
holders will retain their common stock
interest and will be entitled to receive
upon exchange of their Old Common Stock a
certificate for one-fifth of one share of
New Common Stock reflecting the one-for-
five reverse stock split (the "Reverse
Split") together with certificates for
.0875 of each of Series A and Series B
Warrants to purchase shares of New Common
Stock. Each Warrant shall be exercisable
for one share of New Common Stock. As a
result, Stockholders in the aggregate, as
of the date of consummation of the
Restructuring (the "Exchange Date"), will
retain 20% of the then outstanding common
equity and will re ceive Warrants to
purchase New Common Stock constituting
approximately 17.5% of the New Common
Stock of the Company outstanding
immediately after giving effect to the
1
<PAGE>
Exchange Restructuring, in each case
based on the number of shares of
outstanding Old Common Stock as of the
Record Date. The Warrants would be
exercisable for seven years from the date
of the ex change and would be issued in
two separately trading series, Series A
and Series B, of equal size with exercise
prices of $7.15 and $8.68 per share,
respectively, in each case subject to
adjustment. In lieu of issuing any
fractional shares of New Common Stock or
fractional Warrants in the Restructuring,
fractional interests in New Common Stock
and Warrants will be aggregated and sold
by the Company, with the proceeds to be
distributed to the holders in proportion
to the amount of fractional shares of New
Common Stock and fractional Warrants such
holders would otherwise be entitled to
receive. Should the Prepackaged
Restructuring be consummated, the holders
of Old Common Stock will receive
consideration substantially similar to
that such holders would receive in the
Exchange Restructuring.
To holders of 12.5% Notes........ For each $1,000 principal amount of 12.5%
Notes (plus accrued but unpaid interest),
Noteholders would receive 192.5 shares of
New Common Stock. In lieu of issuing any
fractional shares of New Common Stock in
the Restructuring, fractional interests
in New Common Stock will be aggregated
and sold by the Company, with the
proceeds to be distributed to the holders
in proportion to the amount of fractional
shares of New Common Stock such holders
would otherwise be entitled to receive.
As a result of the Exchange
Restructuring, Noteholders in the
aggregate, as of the Exchange Date, will
receive shares of New Common Stock
equivalent to approximately 80% of the
New Common Stock outstanding immediately
after giving effect to the Exchange
Restructuring, based on the number of
shares of outstanding Old Common Stock as
of the Record Date. Noteholders will not
be entitled to receive Warrants. Should
the Prepackaged Restructuring be
consummated, the Noteholders will receive
consideration substantially similar to
that which such holders would receive in
the Exchange Restructuring.
Summary Distribution Table
--------------------------
<TABLE>
<CAPTION>
Existing New Series A Series B
Security Common Stock Warrants Warrants
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
To holders of Old Common Stock:
Per 1,000 Shares 1,000 200 87.5 87.5
In Aggregate 30,078,495 6,015,699 2,631,868 2,631,868
To holders of 12.5% Notes:
Per Note $ 1,000 192.5 -- --
In Aggregate $125,000,000 24,062,796 -- --
</TABLE>
For more information on consideration offered pursuant to the Restructuring, see
the Exchange Restructuring Prospectus, attached hereto as Annex IV.
2
<PAGE>
Expiration Date.................... With respect to the Exchange
Restructuring and the solicitation of
acceptances of the Prepackaged Plan, the
term "Expiration Date" shall mean 5:00
p.m., New York City time, on
[____________], 1997, unless the Company,
in its sole discretion, extends the
Exchange Restructuring or solicitation
period, in which case the term
"Expiration Date" for the Exchange
Restructuring or solicitation period
shall mean the last time and date to
which the Exchange Offer or solicitation
period is extended. See "TENDERING AND
VOTING PROCEDURES" in Part A to the
Exchange Restructuring Prospectus,
attached hereto as Annex IV, and "VOTING
PROCEDURES AND REQUIREMENTS" in Part B to
the Exchange Restructuring Prospectus,
attached hereto as Annex IV.
Old Common Stock................... As of the Record Date, there were
50,000,000 shares of Old Common Stock
authorized for issuance, of which
30,078,495 shares were issued and
outstanding (or 6,015,699 shares of New
Common Stock after the giving effect to
the Reverse Split). As part of the
Exchange Restructuring, holders of Old
Common Stock will be asked to consider
and approve the Charter Amendment, the
New Common Stock Issuance and the Stock
Award and Incentive Plan. See
"STOCKHOLDERS' MEETING" and "DESCRIPTION
OF THE PROPOSALS." If the Prepackaged
Restructuring is consummated, the Company
expects that similar actions will be
implemented pursuant to the Prepackaged
Plan.
Conditions to Exchange Restructuring The Company's obligation to accept 12.5%
Notes tendered pursuant to the Exchange
Restructuring is conditioned, among other
things, on (a) the Minimum Tender
Condition, (b) approval by the Company's
stockholders of the Exchange
Restructuring Proposal and (c) the
Extension. The Company has reserved the
right to waive or seek the waiver of any
one or more of these conditions but does
not currently intend to waive or seek the
waiver of any condition except that the
Company may seek the waiver of the
Minimum Tender Condition in the event
that the Company receives tenders of
approximately 95% or more, but less than
100%, of the 12.5% Notes. No decision has
been made to seek such a waiver, and
there can be no assurance that such
waiver, if sought, would be obtained. In
the event that the requisite percentage
and number of Noteholders and
Stockholders have executed acceptances of
the Prepackaged Plan, but the Minimum
Tender Condition has not been satisfied,
or the Company determines, in its sole
discretion, that the Minimum Tender
Condition is not likely to be satisfied
at or prior to the Expiration Date, the
Company may elect to terminate the
Exchange Offer at or prior to its
scheduled expiration and proceed directly
to the Prepackaged Plan. See "TENDERING
AND VOTING PROCEDURES" in Part A to the
Exchange Restructuring Prospectus,
attached hereto as Annex IV.
3
<PAGE>
Conditions to Prepackaged
Restructuring...................... The Bankruptcy Code requires that the
Bankruptcy Court determine that the
Prepackaged Plan complies with the
requirements of Section 1129 of the
Bankruptcy Code. Approval of two-thirds
of the voting principal amount and a
majority in number of the Noteholders
voting on the Prepackaged Plan, and two-
thirds of the shares of Old Common Stock
voting on the Prepackaged Plan is
required for the consummation of the
Prepackaged Restructuring. See "SUMMARY
OF THE PLAN" in Part B to the Exchange
Restructuring Prospectus, attached hereto
as Annex IV.
Certain Federal Income Tax
Considerations.................... In general, the receipt of New Common
Stock and Warrants by Stockholders
pursuant to the Restructuring will not be
a taxable event. The Company will
realize cancellation of indebtedness
income for Federal income tax purposes as
a result of the Restructuring. In the
event of an Exchange Restructuring, the
Company anticipates that such income
would likely be offset by the Company's
net operating losses and net operating
loss carryovers ("NOLs"). In the event
of a Prepackaged Restructuring, such
income would not be recognized for
Federal income tax purposes. As a result
of the Restructuring, the Company will
undergo an "ownership change" for Federal
income tax purposes and will be limited
in its ability to use its NOLs and
certain tax credit carryforwards to
offset future taxable income. See
"CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS."
Market and Trading Information:
Old Common Stock................. The Old Common Stock is currently traded
on the over-the-counter market and is
quoted on the Nasdaq National Market
under the symbol "MSEL." See "MARKET AND
TRADING INFORMATION" and "RISK FACTORS -
Potential De-listing of the Common
Stock."
Warrants......................... Application will be made to list the
Warrants for trading on the Nasdaq
National Market. There can be no
assurance that such application will be
approved or that an active market for the
Warrants will develop or as to the prices
at which they might be traded. See "RISK
FACTORS."
Post-Restructuring Board........... The Company has agreed, pursuant to the
Limited Waiver Agreement, that upon the
consummation of the Restructuring, the
Board will be comprised of members
acceptable to the Ad Hoc Noteholders
Committee and the Company, and none of
the members of the Board will be
financial or legal advisors of the
Company or members of the Ad Hoc
Noteholders Committee. Certain members of
the Board of Directors of the Company
have agreed to resign, as of the
Effective Date, to accommodate the
appointment of Messrs. James Illson,
[ ], [ ], [ ] and [ ]
(the "New Directors") to the Board of
Directors. Of the current directors, Mr.
Steffensen and Mr. Miller (the
"Continuing Directors" and, together with
the New Directors, the "New Board") would
continue to serve as directors. Messrs.
[ ] and [ ] would be appointed
to Class I, Messrs. Steffensen and Illson
would be appointed to Class II (with Mr.
Steffensen resigning as a Class III
director concurrently with such
appointment), and Messrs. Rossi, [ ]
and [ ] would be appointed to Class
III. Mr. Miller will continue in Class
II.
4
<PAGE>
Depositary/Voting Agent/Warrant Agent U.S. Stock Transfer Corporation has been
appointed as Depositary with respect to
the Old Common Stock for the
Restructuring (the "Depositary") and as
Voting Agent (as defined herein) for the
tabulation of proxies with respect to the
Stockholders' Meeting and Ballots and
Master Ballots from the Stockholders with
respect to the Prepackaged Plan and as
Warrant Agent with respect to the
Warrants. Questions and requests for
assistance may be directed to the
Depositary at one of its addresses and
telephone numbers set forth on the back
cover of this Prospectus. See "ADVISORS
AND REPRESENTATIVES".
Information Agent.................. MacKenzie, Partners, Inc. is serving as
Information Agent in connection with the
Stockholders' Meeting and the
solicitation of acceptances of the
Prepackaged Plan (the "Information
Agent"). Any questions regarding how to
vote at the Stockholders' Meeting and on
the Prepackaged Plan, and any requests
for additional copies of the Proxy
Statement/Prospectus, Proxies, Ballots or
Master Ballots should be directed to the
Information Agent at its address and
telephone number set forth on the back
cover of the Exchange and Reorganization
Prospectus. See "ADVISORS AND
REPRESENTATIVES."
5
<PAGE>
COMPARISON OF EXCHANGE RESTRUCTURING
AND PREPACKAGED RESTRUCTURING
See "Comparison of Exchange Restructuring and Prepackaged Restructuring" in
Part A to the Exchange Restructuring Prospectus, attached hereto as Annex IV.
STOCKHOLDERS WHO COMPLETE A PROXY WITH RESPECT TO THE STOCKHOLDERS' MEETING
SHOULD ALSO DULY COMPLETE AND SIGN A BALLOT IN ORDER TO VOTE ON THE PREPACKAGED
PLAN.
PURPOSES OF THE EXCHANGE RESTRUCTURING
The purpose of the Restructuring is to enhance the long-term viability and
to contribute to the success of the Company by adjusting the Company's
capitalization (including debt levels and principal repayment schedules) to
reflect current and expected operating performance levels. Specifically, the
Restructuring is designed to reduce the Company's debt obligations by $125
million, to levels which the Company believes can be supported by its projected
cash flow and to replace a significant portion of the Company's indebtedness
with New Common Stock. Interest charges will be substantially reduced and the
amount of outstanding capital stock of the Company will be substantially
increased as a result of the Restructuring.
In addition, implementation of the Restructuring will enable the Company to
avoid certain significant amortization pay ments in June 1997 under the
Operating Companies' senior debt obligations if the Company pays interest on the
12.5% Notes next due in June 1997. During the period that the Restructuring is
being implemented, such interest payments have been waived by in excess of 75%
of the holders of 12.5% Notes and the holders of the Operating Companies'
indebtedness have waived any cross-default arising from the non-payment of such
interest. Failure to consummate the Restructuring could result in such
amortization payments becoming due as well as interest payment obligations on
the 12.5% Notes being reinstated. ABSENT THE RESTRUCTURING, THE COMPANY DOES
NOT BELIEVE IT WILL BE ABLE TO SATISFY SUCH OBLIGATIONS WITHOUT A REFINANCING OF
THE COMPANY'S INDEBTEDNESS UNDER THE OPERATING COMPANIES' LOAN AGREEMENTS OR
OBTAINING ADDITIONAL WAIVERS OR AMENDMENTS TO SUCH AGREEMENTS AND THERE CAN BE
NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO OBTAIN SUCH REFINANCING, WAIVERS
OR AMENDMENTS.
For additional information on the purposes and effects of the
restructuring, see "PURPOSES OF THE EXCHANGE RESTRUCTURING."
RISK FACTORS
Under the Restructuring, the holders of Old Common Stock would give up
their shares of Old Common Stock in ex change for New Common Stock and Warrants.
There are certain risks associated with the holding of Warrants. Prior to
deciding whether to (a) vote on the Exchange Restructuring Proposal and the
Stock Award and Incentive Proposal and/or (b) vote on the Prepackaged Plan, each
holder of Old Common Stock should carefully consider all of the information
contained in this Proxy Statement/Prospectus, especially the factors outlined
below and described under "RISK FACTORS."
Risk Factors Relating to the Exchange Restructuring and the Prepackaged
Restructuring. Stockholders should consider that (a) the Company is currently
highly leveraged and will continue to have a high level of indebtedness
following the Ex change Restructuring or Prepackaged Restructuring, as
applicable, (b) seasonality and economic, market or other conditions may
adversely affect cash flow and there can be no assurance that such conditions
will not have an adverse effect on the Company's financial projections, (c) the
Operating Companies' Loan Agreements contain restrictions on the Company's
operations and requirements that the Company achieve and maintain certain
financial ratios which the Company may not be able to achieve or maintain, and
which, if not maintained or achieved, may result in a default and could lead to
the accelera tion of the Company's obligations under the Operating Companies'
Loan Agreements as well as the acceleration of other indebtedness of the
Company, (d) market forces, such as interest rates, affect the value of
6
<PAGE>
securities and are influenced by conditions beyond the Company's control, (e)
the Company's capital expenditure levels assumed in preparation of the project
ed financial data contained herein may be inadequate to maintain the Company's
long-term competitive position, (f) the Company is and, after consummation of
the Exchange Restructuring or Prepackaged Restructuring, as applicable, will
continue to be, restricted in its ability to declare and pay cash dividends on
the common stock of the Company, (g) the issuance of New Common Stock and
Warrants pursuant to the Exchange Restructuring or the Prepackaged Plan, as
applica ble, will result in significant dilution of the equity interests of the
existing holders of Old Common Stock as a percentage of the total number of
outstanding shares of the common stock of the Company, (h) if certain of the
major suppliers and vendors that the Company currently deals with were to change
the terms or credit limits or product availability that they currently extend to
the Company, it could have a significant negative impact on the Company's sales,
cash position and liquidity, (i) the Company is subject to the risk of increased
competition, which could affect its sales volume, pricing and margins, (j) there
is currently no trading market for the Warrants and there is no assurance that a
trading market will develop, (k) there are certain Federal income tax
considerations with respect to the Restructuring, including limiting the use of,
or reducing, the Company's net operating loss carryovers, although such limit
would be greater under the Exchange Restructuring than under the Prepackaged
Restructuring, (l) following the Restructuring the ownership of New Common Stock
may be substantially more concentrated than the current ownership of Old Common
Stock, which may result in an attempt to influence the direction of the Company
by one or more large stockholders, (m) the Company is not in compliance with the
continuing listing requirements of the Nasdaq National Market, and de-listing
from the Nasdaq National Market could adversely affect the liquidity of the
market for their shares of common stock of the Company, and (n) the Company has
recently suffered significant net operating losses.
Additional Risk Factors Relating to the Prepackaged Restructuring.
Stockholders should consider that (a) commencement of bankruptcy proceedings,
even if only to confirm the Prepackaged Plan, could adversely affect the
relationship between the Holding Company and its subsidiaries, employees,
customers and suppliers which, in turn, could adversely affect the Company's
ability to complete the Solicitation or obtain confirmation of the Prepackaged
Plan, (b) even if all classes of impaired creditors and equity interest holders
accept the Prepackaged Plan, the Prepackaged Plan may not be confirmed by the
Bankruptcy Court and (c) there can be no assurance that the Bankruptcy Court
will decide that the Proxy Statement/Prospectus and the Disclosure Statement
meets the disclosure requirements of the Bankruptcy Code.
STOCKHOLDERS' MEETING
Date, Time and Place of
Stockholders' Meeting ....... The Stockholders' Meeting to consider and to
vote upon the Charter Amendment, the New
Common Stock Issuance and the Stock Award and
Incentive Plan will be held at the Company's
headquarters located at 200 Continental
Boulevard, El Segundo, California, on
[____________], 1997 at 10:00 a.m., Los
Angeles time. The stockholder votes with
respect to the Exchange Restructuring Proposal
will not be effective unless and until the
Exchange Restructuring has been consummated
and the Charter Amendment has been filed. If
the Prepackaged Restructuring is pursued and a
petition is filed under the Bankruptcy Code,
the Company expects that the New Common Stock
Issuance and an amendment substantially
similar to the Charter Amendment will be
implemented pursuant to the Prepackaged Plan.
Record Date; Stockholders
Entitled to Vote; Quorum..... Holders of record of Old Common Stock at the
close of business on the Record Date will be
entitled to vote at the
7
<PAGE>
Stockholders' Meeting. Holders of Old Common
Stock will be entitled to one vote per share
with respect to the Charter Amendment, the New
Common Stock Issuance and the Stock Award and
Incentive Plan. On the Record Date there were
30,078,495 shares of Old Common Stock
outstanding, of which there were [________]
holders of record. The presence, either in
person or by properly executed proxy, of the
holders of a majority of the shares of Old
Common Stock outstanding and entitled to vote
is necessary to constitute a quorum at the
Stockholders' Meeting.
Purpose of Stockholders'
Meeting..................... The purpose of the Stockholders' Meeting is
to consider the proposals to approve the
Exchange Restructuring Proposal and the Stock
Award and Incentive Plan. The Board has
unanimously adopted a resolution proposing
that the Company's Charter be amended by the
Charter Amendment to, (i) effect a one-for-
five reverse stock split of the Company's
outstanding shares of Old Common Stock and
(ii) increase the par value of the authorized
common stock of the Company from $.01 per
share to $.05 per share. The Charter
Amendment is set forth in its entirety in
Annex I to this Proxy Statement/Prospectus.
The Charter Amendment is necessary to permit
the Company to consummate the Exchange
Restructuring on the terms contemplated by the
Exchange Offer. In addition, assuming the
aggregate market capitalization of the Company
remains constant, the Reverse Split as
implemented pursuant to the Charter Amendment
should have the effect of increasing the
trading price of the common stock of the
Company from where it would otherwise trade in
the absence of the Reverse Split. The
approval of the Stock Award and Incentive Plan
by the Stockholders is necessary to provide
appropriate incentives for those eligible to
participate thereunder. The Board has also
unanimously adopted resolutions approving, as
part of the Exchange Restructuring, the New
Common Stock Issuance and the Stock Award and
Incentive Plan. The approval of the Exchange
Restructuring Proposal by the Stockholders may
be re quired by the applicable rules of the
National Association of Securities Dealers,
Inc. (the "NASD").
Votes Required............... Under the Delaware General Corporation Law
(the "DGCL") and the Company's Certificate of
Incorporation, the Exchange Restructuring
Proposal must be approved by a majority of the
voting power of the Old Common Stock entitled
to vote at the Special Meeting. The Stock
Award and Incentive Plan must be approved by
the affirmative vote of the holders of a
majority of the voting power of the Old Common
Stock represented at the meeting. As of the
record date, the Company's executive offi-
8
<PAGE>
cers and directors, as a group, beneficially
owned approximately 458,700 shares of the
outstanding Old Common Stock. Such officers
and directors have advised the Company that
they intend to vote in favor of the Exchange
Restructuring Proposal and the Stock Award and
Incentive Plan. See "OWNERSHIP OF COMMON
STOCK". The Stockholder votes with respect to
the Exchange Restructuring Proposal will not
be effective unless and until the Charter
Amendment has been filed with the Secretary of
State of Delaware and the Exchange
Restructuring has been consummated, in which
event the Charter Amendment will become
effective either immediately prior to or
contemporane ously with the consummation of
the Exchange Restructuring. The Stock Award
and Incentive Plan will become effective
regardless of whether the Exchange
Restructuring is implemented. The Board of
Directors has reserved the right, pursuant to
Section 242(c) of the DGCL, to abandon the
Exchange Restructuring Proposal even if the
Company's Stock holders authorize the Exchange
Restructuring Proposal.
Dissenters' Rights........... Stockholders will not be entitled to
dissenters' rights or rights of appraisal in
connection with the Exchange Restructuring
Proposal or the Stock Award and Incentive
Plan.
Dilution..................... Assuming 100% acceptance of the Exchange
Offer, the Company expects to issue 24,062,796
shares of New Common Stock directly to
exchanging Noteholders, 6,015,699 shares of
New Common Stock directly to exchanging
Stockholders, and 5,263,736 additional shares
of New Common Stock (subject to adjustment)
obtainable upon exercise of the Warrants
issued to Stockholders. Based on the number
of shares of outstanding Old Common Stock as
of the Record Date, the 24,062,796 shares
issued directly to Noteholders will represent
approximately 80% of the total outstanding
shares of New Common Stock after giving effect
to the Exchange Restructuring, but excluding
shares obtainable upon exercise of Warrants.
Upon consummation of the Exchange
Restructuring, the equity interests of the
existing holders of Old Common Stock, as a
percentage of the total number of outstanding
shares of the common stock of the Company,
will be significantly diluted. Consummating
the Prepackaged Plan will have a similar
dilutive effect. See "PURPOSE OF THE
RESTRUCTURING" and "RISK FACTORS."
9
<PAGE>
VOTING PROCEDURES FOR THE PREPACKAGED PLAN
For a description of the voting procedures for the Prepackaged Plan, see
"VOTING PROCEDURES AND REQUIREMENTS" in Part B to the Exchange Restructuring
Prospectus, attached hereto as Annex IV.
DESCRIPTION OF WARRANTS
The following is a brief description of certain provisions of the Warrants.
The Warrants will be issued under the Warrant Agreements, to be dated on or
about the date of consummation of the Restructuring, between the Company and the
Warrant Agent (as defined herein). The following description of such provisions
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the detailed provisions of the Warrant Agreements
pursuant to which such securities will be issued. See "DESCRIPTION OF
WARRANTS" and the Form of Warrant Agreement, attached hereto as Annex II.
Issue........................ Up to 2,631,868 Series A Warrants and
2,631,868 Series B Warrants (together, the
"Warrants") will be issued to holders of Old
Common Stock upon consummation of the Exchange
Re structuring and after giving effect to the
Reverse Split. Each Warrant will be
exercisable for a period of seven years from
the Exchange Date and shall be exercisable for
one share of New Common Stock, subject to
adjustment unless redeemed or exchanged
earlier by the Company.
Exercise Price............... Each Warrant will be exercisable at an
exercise price ("Exercise Price") of (i) $7.15
per share, in the case of the Series A War
rants, and (ii) $8.68 per share, in the case
of the Series B Warrants. Holders of Old
Common Stock will receive, for each share of
Old Common Stock, .0875 Series A Warrants and
.0875 Series B Warrants exercisable, in the
aggregate, for 5,263,736 shares of New Common
Stock or approximately 17.5% of the New Common
Stock immediately after giving effect to the
Exchange Restructuring, based on the number of
shares of outstanding Old Common Stock as of
the Record Date. The Exercise Price and the
number of shares of New Common Stock
purchasable upon exercise of the Warrants
("Warrant Shares") are both subject to
adjustment in certain cases referred to below.
No Rights Generally as
Stockholders................. No holder of Warrants will be entitled to
any rights generally as a stockholder of the
Company unless and until such holder has
obtained shares of New Common Stock upon the
exercise of the Warrants for New Common Stock.
Stockholders will not be entitled to receive
warrants unless and until they exchange their
Old Common Stock for New Common Stock.
Adjustment of Exercise Price and
Number of Shares of New Common Stock
Obtainable Upon Exercise..... The number of shares of New Common Stock
obtainable upon exercise of each Warrant, and
correspondingly the Exercise
10
<PAGE>
Price, will be proportionately adjusted
pursuant to standard antidilution provisions
at any time the Company pays stock dividends,
subdivides, combines or reclassifies its New
Common Stock; distributes evidences of
indebtedness or assets of the Company, or
rights for such assets; issues New Common
Stock for less than market value; issues
options, warrants or other securities
convertible for New Common Stock for less than
market value; or effects similar dilutive
transactions. Upon the consummation of any
Extraordinary Transaction (as defined in the
Warrant Agreements) prior to January 1, 1998,
including a merger or sale of substantially
all of the assets of the Company, or the
agreement of the Company to perform an
Extraordinary Transaction entered into prior
to January 1, 1998, the Warrants must remain
outstanding and be exercisable in exchange for
common stock of the Company or common stock of
the acquiring company unless such
Extraordinary Transaction is approved by at
least 85% of the outstanding New Common Stock
then outstanding.
11
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following Summary Historical Consolidated Financial Information of the
Company should be read in conjunction with the consolidated financial statements
of the Company and the related notes thereto, and other financial data included
elsewhere herein. The summary financial information presented below as of and
for the years ended December 31, 1992, 1993, 1994, 1995 and 1996 are derived
from the audited consolidated financial statements of the Company. The summary
financial information presented below as of and for the three months ended March
31, 1996 and 1997 have been derived from the Company's unaudited financial
statements. Operating results for the three months ended March 31, 1997 may not
be indicative of the results that may be expected for the year ended December
31, 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
1992 1993 1994 1995 1996
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
INCOME STATEMENT DATA: (1)
Net sales $ 2,238,715 $3,085,851 $5,018,687 $5,956,967 $5,522,824
Cost of sales 2,036,292 2,827,315 4,676,164 5,633,278 5,233,570
-------------------------------------------------------------------------------
Gross profit 202,423 258,536 342,523 323,689 289,254
Selling, general &
administrative expenses 150,905 187,152 281,796 317,195 295,021
Impairment losses (2) 51,383 42,033
Restructuring charge (3) 9,333
-------------------------------------------------------------------------------
Operating Income (loss) 51,518 71,384 60,727 (54,222) (47,800)
Interest expense 15,742 17,810 29,024 37,583 37,431
Loss on sale of European, Mexican
and Latin American operations (4) 33,455
Other expense 1,299 2,722 11,752 13,885 20,150
-------------------------------------------------------------------------------
Income (loss) before income taxes 34,477 50,852 19,951 (105,690) (138,836)
Provision
(benefit) for income taxes 14,812 20,413 8,341 (21,779) 1,539
-------------------------------------------------------------------------------
Net income (loss) $ 19,665 $ 30,439 $ 11,610 $ (83,911) $ (140,375)
============================================================================
SHARE DATA: (5)
Net income (loss) per share $ 0.67 $1.00 $0.38 $(2.82) $(4.68)
Weighted average number of shares 29,274 30,454 30,389 29,806 30,001
OTHER DATA:
EBITDA(6) $ 59,528 $ 79,138 $ 65,076 $ (47,598) $ (82,616)
BALANCE SHEET DATA:
Working capital $294,626 $ 359,765 $ 399,848 $ 280,864 $ 190,544
Total assets 667,313 936,283 1,191,870 1,230,334 731,039
Long-term and subordinated debt 153,433 208,500 357,685 356,271 294,763
Total debt 179,124 259,429 395,556 382,395 294,950
Stockholders' equity 198,882 223,857 236,164 154,466 14,997
<CAPTION>
Three Months Ended
March 31, 1996 March 31, 1997
----------------------------------
<C> <C>
INCOME STATEMENT DATA: (1)
Net sales $1,536,589 $1,113,100
Cost of sales 1,449,366 1,048,124
------------------------------
Gross profit 87,223 64,976
Selling, general &
administrative expenses 83,136 51,520
Impairment losses (2)
Restructuring charge (3)
------------------------------
Operating Income (loss) 4,087 13,456
Interest expense 9,877 8,623
Loss on sale of European, Mexican
and Latin American operations (4)
Other expense 7,238 3,530
------------------------------
Income (loss) before income taxes (13,028) 1,303
Provision
(benefit) for income taxes 480 173
------------------------------
Net income (loss) $ (13,508) $ 1,130
==============================
SHARE DATA: (5)
Net income (loss) per share $(0.45) $0.04
Weighted average number of shares 29,863 30,078
OTHER DATA:
EBITDA(6) $ 2,608 $ 13,106
BALANCE SHEET DATA:
Working capital $ 250,442 $ 193,512
Total assets 1,158,676 706,020
Long-term and subordinated debt 403,861 288,331
Total debt 409,564 288,331
Stockholders' equity 138,794 15,814
</TABLE>
12
<PAGE>
(1) The Company's fiscal year is the 52- or 53-week period ending on the
Saturday nearest to December 31. For clarity of presentation throughout
this document, the Company has described year-ends and quarter-ends
presented as if the period ended on the last day of the month. Except for
1992, all fiscal years presented were 52 weeks in duration. The summary
historical consolidated financial information as set forth above includes
those balances and activities related to the Company's Australian business
until its disposal on January 1, 1996 and the Company's European, Mexican
and Latin American businesses until their disposal on October 4, 1996,
effective as of September 27, 1996. It also includes Merisel FAB from the
date such business was acquired on January 31, 1994, through the end of
March 28, 1997, the date of sale of Merisel FAB. (See Note 12 to the
consolidated financial statements - "Subsequent Events"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) During 1995 and 1996, the Company determined that the carrying value for
certain of its capitalized costs relating to the installation of a new
computer operating system and identifiable intangible assets relating to
Merisel FAB would not be recovered from their use in future operations.
Accordingly, these assets were written down to their fair values as of the
impairment dates.
Additionally, in 1995 and 1996, the Company recognized impairment losses on
the assets of Merisel FAB and Merisel Pty Ltd. (a wholly owned Australian
subsidiary) related to the expected sale of substantially all of the assets
of such subsidiaries. (See Note 4 to the consolidated financial statements
- "Impairment Losses").
(3) During 1995, the Company recorded a restructuring charge associated with
the resizing of the Company's operations. (See Note 2 to the consolidated
financial statements - "Restructuring Charge").
(4) In October 1996, the Company completed the sale of substantially all of its
European, Mexican and Latin American businesses to CHS Electronics, Inc. A
loss of $33,455,000, which includes approximately $7,400,000 of direct
costs related to the sale, was recorded on such sale. (See Note 5 to the
consolidated financial statements - "Dispositions").
(5) Net income (loss) per share and weighted average number of shares have not
been adjusted to reflect the Reverse Split.
(6) EBITDA is the sum of income before income taxes and interest, depreciation
and amortization expense. EBITDA should not be considered as an
alternative to income from operations or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of a company's
operating performance or as a measure of liquidity. However, EBITDA is
presented because it is a widely used financial indicator of a company's
ability to service indebtedness and other factors.
13
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following table sets forth the Summary Unaudited Pro Forma Condensed
Consolidated Financial Data for the fiscal year ended December 31, 1996 and the
three months ended March 31, 1997, after giving effect to (i) the sale of EML
and FAB as if each had occurred as of January 1, 1996 including the effect of
any amendment to existing debt agreements that were entered into as a direct
consequence of the sale of their businesses and related assets, (ii) the
issuance of 24.1 million shares of New Common Stock to the Noteholders, and the
Reverse Split, (iii) the extension of the maturity dates of the Revolving Credit
Agreement and the 11.5 % Notes to January 31, 1999, (iv) the payment of 3.5%
modification fees and other fees associated with the Extension to the holders of
the Revolving Credit Agreement and 11.5% Notes, and (v) the interest rate
increases on the Revolving Credit Agreement, 11.5% Notes, and Subordinated Notes
associated with the Extension, as if each of the foregoing transactions had
occurred on January 1, 1996 with respect to the statement of operations data and
as of March 31, 1997 with respect to the balance sheet data. The pro forma data
should be read in conjunction with the "Unaudited Pro Forma Condensed
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical consolidated
financial statements of the Company and related notes thereto, included
elsewhere herein. The data set forth below is not necessarily indicative of the
results that actually would have been achieved had such transactions been
consummated as of the dates indicated or that may be achieved in future periods.
<TABLE>
<CAPTION>
Pro Forma
Year Ended Three Months
December 31, Ended March 31,
1996 1997
---------- ----------
(In thousands, except per share amounts)
<S> <C> <C>
Income Statement Data: (1)
Net sales $3,441,343 $910,923
Cost of sales 3,262,105 853,624
---------- --------
Gross profit 179,238 57,299
Selling, general & administrative expenses 193,521 45,321
---------- --------
Operating (loss) income (14,283) 11,978
Interest expense 18,018 5,497
Other expense 17,967 4,518
---------- --------
(Loss) income before income taxes (50,268) 1,963
Provision for income taxes 822 158
---------- --------
Net (loss) income $ (51,090) $ 1,805
========== ========
Share Data:
Net (loss) income per share (2) $ (1.70) $ .06
Weighted average number of shares (2) 30,063 30,079
Other Data:
EBITDA (3) $ (19,890) $ 10,366
Balance Sheet Data:
Working capital $187,331
Total assets 695,933
Long-term and subordinated debt 163,331
Stockholders' equity 134,633
</TABLE>
14
<PAGE>
(1) The Company's fiscal year is the 52- or 53-week period ending on the
Saturday nearest to December 31. For clarity of presentation throughout this
document, the Company has described year-ends and quarter-ends presented as
if the period ended on the last day of the month. The summary unaudited
condensed consolidated financial data as set forth above includes those
balances and activities related to the Company's European, Mexican and Latin
American businesses until their disposal on October 4, 1996, effective as of
September 27, 1996. It also includes Merisel FAB until its disposal on March
28, 1997. (See Note 12 to the accompanying consolidated financial statements
-- "Subsequent Events"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) Net income (loss) per share and weighted average number of shares have been
adjusted to reflect the Reverse Split.
(3) EBITDA is the sum of income before income taxes and interest, depreciation
and amortization expense. EBITDA should not be considered as an alternative
to income from operations or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) and
should not be construed as an indication of a company's operating
performance or as a measure of liquidity. However, EBITDA is presented
because it is a widely used financial indicator of a company's ability to
service indebtedness and other factors.
15
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
CASH DEBT SERVICE OBLIGATIONS
The following table sets forth certain historical financial information
with respect to the Company's continuing operations for Fiscal 1996 and certain
projected financial information with respect to the Company for Fiscal 1997
through Fiscal 2002 assuming that the Exchange Restructuring is completed.
<TABLE>
<CAPTION>
Years Ending Cash Debt Total Principal Total Debt Total Debt
December 31 Service Obligations (1) Payments (2) Interest Expense (3) (at Year End) (4)
------------ ----------------------- ---------------- -------------------- -----------------
<S> <C> <C> <C> <C> <C>
(In thousands)
Historical:
1996........ $113,585 $83,129 $29,901 $294,763
Projected:
1997 (5).... 36,100 13,483 22,617 156,280
1998........ 33,698 13,610 20,088 142,670
1999........ 22,346 6,246 16,100 136,424
2000........ 20,963 5,511 15,452 130,913
2001........ 18,531 3,900 14,631 127,013
</TABLE>
(1) Cash debt service obligations in 1997 include all cash interest and
scheduled principal payments but exclude accrued but unpaid interest expense on
the 12.5% Notes through July 31, 1997 totaling $9.1 million. Assuming the
Exchange is consummated, unpaid interest expense on the 12.5% Notes will not
need to be paid.
(2) Included in total principal payments are scheduled net repayments under the
Revolving Credit Agreement, the 11.5% Notes, the Subordinated Debt and other
promissory notes.
(3) Total debt interest expense excludes interest expense of $9.1 million for
1997 related to accrued but unpaid interest expense on the 12.5% Notes through
July 31, 1997.
(4) Total debt represents the principal amount of debt outstanding at year end,
assuming that the Exchange Restructuring is consummated on July 31, 1997.
(5) The following table sets forth certain financial information with respect
to 1997 assuming the Company does not complete the Exchange Restructuring and
thus is required to make the scheduled $70 million amortization payments on the
Operating Company's Senior Debt, and the $125 million 12.5% Notes would remain
on the balance sheet as debt:
<TABLE>
<CAPTION>
Cash Debt Total Principal Total Debt Total Debt
Service Obligations Payments Interest Expense (at Year End)
- ---------------------- --------------- ---------------- -------------
<S> <C> <C> <C>
$ 116,085 $83,483 $32,602 $211,280
</TABLE>
17
<PAGE>
RISK FACTORS
Investment in the New Common Stock and Warrants involves a high degree of
risk. Prior to deciding whether to (a) participate in the Exchange Offer and/or
(b) vote to accept the Prepackaged Plan, each Noteholder should carefully
consider all of the information con tained in this Prospectus, especially the
factors described in the following paragraphs.
High Leverage After Exchange Restructuring
At March 31, 1997, the Company had $288.3 million in total debt plus $259.8
million of asset securitization and a stockholders' equity of $15.8 million. On
a pro forma basis at March 31, 1997, the Company would have approximately $163.3
million of total debt plus the same assets securitized following completion of
the Exchange Restructuring and stockholders' equity of $136.1 million and would
be able to incur additional debt, provided that the proceeds thereof are first
used to repay the indebtedness under the Operating Companies' Loan Agreements.
See "PURPOSE OF THE RESTRUCTURING." The Company has been involved in
preliminary discussions regarding possible debt and equity financing, however,
no agreement has been reached and there can be no assurance that the Company
will be able to obtain such financing on acceptable terms, if at all. While the
stockholders' equity would be substantially increased as a result of the
Exchange Restructuring, the continued high level of the Company's debt following
completion of the Exchange Restructuring will pose substantial risks to holders
of the Company's New Common Stock, including, but not limited to, risks which
may adversely affect or impair the following: (i) the ability of the Company to
pay when due principal of and cash interest on its debt securities; (ii) the
ability of the Company to obtain additional financing in the future, as needed;
(iii) the ability of the Company to withstand competitive pressures or a
continuation or worsening of current unfavorable economic conditions, to expand
its product lines or markets or to take advantage of significant new business
opportunities that may arise; and (iv) the marketability, price and future value
of the Company's securities, which could result in the loss of a
securityholder's entire investment in the Company. See "--Market Factors and
Seasonality May Adversely Affect Cash Flow."
Market Factors And Seasonality May Adversely Affect Cash Flow
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; (iii)
virtually all sales in a given quarter result from orders booked in that
quarter; (iv) changes in short and long term demand for computer products, and
national, regional and local economic conditions; and (v) unfavorable trends or
developments concerning factors such as inflation, increased costs of
components, labor and employees, regional weather or other conditions which
could adversely effect the availability and cost of the Company's inventory.
The factors noted above could result in a failure to achieve the Company's
business plan, which calls for movement toward current market growth levels,
thereby affecting the resulting profitability of the Company and its cash
resources.
18
<PAGE>
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. The financial results projected herein assume
that seasonality will not have a material adverse affect on the Company's
financial projections. While the Company believes the consummation of the
Exchange Restructuring will enable it to meet its scheduled interest and
principal payments when due, there can be no assurance that the Company will be
able to make such payments. In the event that the Company is unable to make
such payments, it may seek to refinance or restructure its debt obligations, and
failing such refinancing or restructuring, the Company may seek protection under
Chapter 11 of the United States Bankruptcy Code. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "BACKGROUND
OF THE RESTRUCTURING," each in the Disclosure Statement included as Part B to
the Exchange Restructuring Prospectus, attached hereto as Annex IV, and
"FINANCIAL PROJECTIONS," "PURPOSE OF THE RESTRUCTURING" and "UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION."
Restrictions Under Operating Companies' Loan Agreements
The Operating Companies' Loan Agreements contain certain restrictions on
the Company's operations and contain requirements that the Company achieve and
maintain certain financial ratios. Such restrictions include, among other
things, limitations on the ability of the Company and its subsidiaries to incur
additional indebtedness, to create, incur or permit the existence of certain
liens, to make certain investments, to make capital expenditures above certain
levels, to make certain sales of assets, to make certain payments with respect
to its outstanding stock, to effect certain fundamental changes and to enter
into certain types of transactions. Although the Company was in compliance
with these restrictions as of March 31, 1997 (the last reporting date under the
Operating Companies' Loan Agreements), there can be no assurance that the
Company will be able to maintain compliance with the prescribed financial ratio
tests or other requirements of the Operating Companies' Loan Agreements. Failure
to maintain compliance with such financial ratio tests or other requirements
under the Operating Companies' Loan Agreements would result in a default and
could lead to the acceleration of the Company's obligations under the Operating
Companies' Loan Agreements as well as the acceleration of other indebtedness of
the Company which, by the terms of the instruments creating, evidencing or
governing such indebtedness, would be triggered upon an acceleration under the
Operating Companies' Loan Agreements. The acceleration of any such indebtedness
would result in its becoming immediately due and payable and could result in the
Company becoming subject to a proceeding under the Federal bankruptcy laws. See
"DESCRIPTION OF INDEBTEDNESS OF THE COMPANY" in the Disclosure Statement,
included as Part B to the Exchange Restructuring Prospectus, attached hereto as
Annex IV.
19
<PAGE>
Limitation on Use of Net Operating Losses
As a result of the receipt by Noteholders of New Common Stock in exchange
for the 12.5% Notes pursuant to the Restructuring, the Company will undergo an
"ownership change" for Federal income tax purposes. Accordingly, the Company
will be limited in its ability to use its net operating loss carryovers and
certain tax credit carryforwards to offset future taxable income. See "CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS." Under the Exchange Restructuring, the
limitation imposed upon the Company's use of its net operating loss carryovers
would be more restrictive than under the Prepackaged Restructuring.
Market Value of the Company May Fluctuate
The market value of the securities to be issued in the Exchange
Restructuring will depend on the future performance of the Company and on
factors generally affecting the securities markets (including, for example,
interest rates), which factors are influenced by conditions beyond the Company's
control.
Capital Expenditures
During 1996, the Company made capital expenditures totaling approximately
$9,652,000 for the upgrading of the Company's computer systems, expenditures for
a new warehouse management system, and the upgrading of existing facilities and
leasehold improvements. The Company believes that the capital expenditure
levels assumed in the preparation of the projected financial data contained
herein will be adequate to maintain the Company's long-term competitive
position, but there can be no assurance thereof. In the event that such capital
expenditure levels are not adequate, the Company's competitive position in its
industry and consequently the Company's results of operations could be adversely
affected. Further, the fair value of capital expenditures recorded may be
impaired, resulting in the recognition of additional losses. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in
Part A to the Exchange Restructuring Prospectus, attached hereto as Annex IV and
"FINANCIAL PROJECTIONS."
Dividend Restrictions
The Company does not intend to, nor does it expect to be able to, pay any
cash dividends on the New Common Stock in the foreseeable future, and the
Operating Companies' Loan Agreements currently restrict the payment of cash
dividends on the Old Common Stock by the Company and would similarly restrict
the payment of dividends on the New Common Stock. For a description of the
limitations contained in the Operating Companies' Loan Agreements, see
"DESCRIPTION OF INDEBTEDNESS OF THE COMPANY" in Part B to the Exchange
Restructuring Prospectus, attached hereto as Annex IV.
Dilution
Upon completion of the Exchange Offer or the Prepackaged Plan, as
applicable, the Company will issue 24,062,796 shares of New Common Stock
directly to exchanging Noteholders, and 6,015,699 shares of New Common Stock
directly to exchanging Stockholders, and will reserve 5,263,736 shares of New
Common Stock for issuance upon exercise of the Warrants. The issuance of the
24,062,796 shares to
20
<PAGE>
Noteholders upon the New Common Stock Issuance will result in dilution of the
equity interests of the holders of Old Common Stock (as a percentage of
outstanding shares of common stock) which could adversely affect the market
price and the value of the New Common Stock. Immediately following the
consummation of the Exchange Restructuring or the Prepackaged Restructuring, as
applicable, the 24,062,796 shares issued directly to Noteholders will, after
giving effect to the Restructuring, represent approximately 80% of the total
outstanding shares of New Common Stock excluding shares obtainable upon exercise
of Warrants, based on the number of shares of Old Common Stock outstanding as of
the Record Date. Upon consummation of the Restructuring, holders of Old Common
Stock will receive, for each share of Old Common Stock held, .0875 Series A
Warrants with an exercise price of $7.15 (subject to adjustment) and .0875
Series B Warrants with an exercise price of $8.68 (subject to adjustment. Based
upon the current market price of the Old Common Stock (giving effect to the
Reverse Split), the Warrants may be "out of the money" immediately following the
Restructuring, and no assurance can be made that the Warrants will ever be "in
the money." If all Warrants are exercised, the percentage of New Common Stock
held by exchanging Noteholders would be reduced from 80% to 68%. See "PURPOSE OF
THE RESTRUCTURING."
Need for Sustained Trade Support
The Company's ability to achieve sales growth and profitability includes
significant reliance on continued support from its vendors. If the Company's
major vendors reduce their credit lines or product availability to the Company,
it could have a material adverse effect on the Company's sales, cash position
and liquidity.
New or Intensified Competition
The Company operates in an industry that is made up of several high growth
oriented competitors. As such the Company is subject to the possibility of new
or intensified competition in the regions in which the Company operates as a
result of efforts by direct competitors to grow, consolidate with other
competitors, or gain market share in those regions. Such activities may affect
the Company's sales volume, pricing and/or margins. See "BUSINESSES AND
PROPERTIES OF THE COMPANY" in Part A to the Exchange Restructuring Prospectus,
attached hereto as Annex IV.
Lack of Trading Market; Volatility
There can be no assurance that an active market for the Warrants will
develop or, if any such market does develop, that it will continue to exist.
Further, the degree of price volatility in any such market that does develop may
be significant. Accordingly, no assurance can be give as to the liquidity of
the market for any of the Warrants or the price at which any sales may occur.
Concentrated Ownership of New Common Stock
Following consummation of the Restructuring, the ownership of the New
Common Stock will likely be more concentrated than was the ownership of the Old
Common Stock. Although the Company expects that, following the Restructuring,
it will continue to be controlled by a disaggregated group of stockholders, one
or more former holders of a substantial
21
<PAGE>
amount of 12.5% Notes who continue to hold New Common Stock after the
Restructuring may seek to influence the direction of the Company, and the
Company has agreed to appoint a nominee of the Noteholders to the Board of
Directors following the Restructuring. See "MANAGEMENT -- Post Restructuring
Board Configuration." The Company does not have complete information regarding
the beneficial ownership of the 12.5% Notes and is not aware of any agreement
among Noteholders to seek to influence the direction of the Company or to
otherwise act in concert following the Restructuring. There can be no
assurance, however, that no such agreements exist or that a concentrated number
of holders of New Common Stock might not attempt to influence the Company
following the Restructuring.
Potential De-listing of the Common Stock
The Company is currently not in compliance with the net tangible assets
test required for continued listing on the Nasdaq National Market. The NASD has
postponed action to seek the de-listing of the Old Common Stock pending an oral
hearing at which the Company will request that the NASD waive compliance with
such test until consummation of the Restructuring.
Should the Restructuring be consummated, the Company expects to be in full
compliance with all of the NASD's requirements for continued listing on the
Nasdaq National Market. See "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATE MENTS" in Part A to the Exchange Restructuring Prospectus,
attached hereto as Annex IV. There can be, however, no assurance that the NASD
will waive compliance of such test. If the common stock of the Company were
de-listed, there could be an adverse effect on the liquidity of the market for
such common stock.
History of Net Operating Losses
In 1995 and 1996, the Company experienced significant losses totalling
$83,911,000 and $140,375,000, respectively. Additionally, on a pro forma basis,
excluding the operating performance of FAB, which was sold effective March 28,
1997, the Company would have had a net operating loss for the first quarter of
1997 of $1,024,000. Although a large portion of the losses in 1995, and 1996
relate to the operations of, and impairments or other adjustments associated
with assets or businesses that the Company has since disposed of, a portion of
the losses are also attributable to expenses and adjustments associated with
ongoing systems and processes of the Company. These include adjustments to
trade accounts payable balances related to price protection, returns to vendors
by Merisel and inventory receipt related issues, such as short shipments,
identified through the vendor reconciliation process in 1995 and 1996. They
also include impairment charges taken in 1995 in order to bring total
capitalized development costs for the Company's computer system in line with the
estimated fair value of such assets. Increased professional fees and other
expenses associated with the development of the 1996 business plan, process
improvement efforts, lender negotiations prompted by the prior year's losses,
and severance costs related to management changes also contributed to losses in
1996.
The Company experienced sales growth and decreased expenses in the first
quarter of 1997, and although this resulted in operating results that were
consistent with management's expectation and showed considerable improvement
over the previous year, the risk exists that the Company may continue to
experience losses, and that such continued losses will have a negative impact of
the Company's liquidity.
22
<PAGE>
In order to return to profitability, the Company has pursued a strategy
that included the sale of several of its business segments. In the fourth
quarter of 1995, the Company recorded a $1,900,000 asset impairment related to
the sale of its Australian business. In September of 1996, the Company sold its
European, Mexican, and Latin American businesses at a loss of $33,400.00.
Additionally the Company recorded asset impairments of $30,000,000 in 1995 and
$42,033,000 in 1996 against the intangible assets of FAB, which it sold in the
first quarter of 1997. Of the Company's net sales of $5.5 billion in 1996,
these disposed businesses accounted for $2.1 billion. As such, it is likely
that revenues will be substantially lower in 1997. See "PROJECTED FINANCIAL
INFORMATION" in Part A of the Exchange Restructuring Prospectus, attached hereto
as Annex IV.
FOR A DISCUSSION OF CERTAIN ADDITIONAL RISK FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH VOTING ON THE PREPACKAGED PLAN, SEE "RISK FACTORS"
IN PART B TO THE EXCHANGE RESTRUCTURING PROSPECTUS, ATTACHED HERETO AS ANNEX IV.
MARKET AND TRADING INFORMATION
The Old Common Stock is currently traded on the over-the-counter market and
is quoted on the Nasdaq National Market System under the symbol "MSEL." On
April 11, 1997, the day immediately prior to the date that the Company announced
its intention to pursue the Re structuring, the closing sale price for the Old
Common Stock was $1 15/16 per share. On June 26, 1997, the closing sale price
for the Old Common Stock was $[_______] per share. See "RISK FACTORS --
POTENTIAL DE-LISTING OF THE COMMON STOCK." See also "MARKET PRICES OF OLD
COMMON STOCK; DIVIDEND HISTORY" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATION --LIQUIDITY AND CAPITAL RESOURCES"
in Part A to the Exchange Restructuring Prospectus, attached hereto as Annex IV.
Application will be made to list the Warrants for trading on the Nasdaq
National Market. There can be no assurance that such application will be
approved or that an active market for the Warrants will develop or as to the
prices at which they might be traded. See "RISK FACTORS."
STOCKHOLDERS' MEETING, VOTING RIGHTS AND PROXIES
DATE, TIME AND PLACE OF STOCKHOLDERS' MEETING
The Stockholders' Meeting (the "Stockholders' Meeting") will be held at the
Company's headquarters located at 200 Continental Boulevard, El Segundo,
California, on [ ], 1997, at 10:00 a.m., Los Angeles time. The
Stockholder votes with respect to the Exchange Restructuring Proposal will not
be effective unless and until the Exchange Restructuring has been consummated
and the Charter Amendment has been filed with the Delaware Secretary of State.
If approved, the stockholder votes with respect to the Stock Award and Incentive
Plan will be effective regardless of whether the Exchange Restructuring is
consummated or the Charter Amendment is filed. Should less than the requisite
100% of the holders of the 12.5% Notes tender their 12.5% Notes pursuant to the
Exchange Restructuring, but the Company receives sufficient acceptances of the
Prepackaged Plan to seek confirmation thereof by the Bankruptcy Court, the
Company expects that it will instead pursue the Prepackaged Restruc-
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turing. If the Prepackaged Restructuring is pursued and a petition is filed
under the Bank-ruptcy Code, the Company expects that the New Common Stock
Issuance and an amendment substantially similar to the Charter Amendment will be
implemented pursuant to the Prepack aged Plan. See "SUMMARY OF THE PLAN" in
Part B to the Exchange Restructuring Prospectus attached hereto as Annex IV.
SOLICITATION OF PROXIES; RECORD DATE
This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Board of proxies to be voted at the Stockholders' Meeting.
In addition, this Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Board of Ballots to be voted in connection with the
Prepackaged Plan. YOU MUST COMPLETE AND RETURN BOTH THE PROXY AND THE BALLOT IN
ORDER TO VOTE ON BOTH THE PROPOSALS AND THE PREPACKAGED PLAN. THE BOARD
RECOMMENDS A VOTE "FOR" BOTH THE PROPOSALS AND THE PREPACKAGED PLAN.
The record date for purposes of determining which holders of Old Common
Stock are eligible to vote on the Prepackaged Plan and at the Stockholders'
Meeting is the Record Date. On the Record Date there were 30,078,495 shares of
Old Common Stock outstanding, of which there were 458,672 holders of record.
Stockholders are not required to vote at the Stockholders' Meeting in order to
vote on the Prepackaged Plan. It is important that all Stockholders vote to
accept or to reject the Prepackaged Plan because, under the Bankruptcy Code, for
purposes of determining whether the requisite acceptances have been received,
only holders who vote will be counted. Failure by a holder to send a duly
completed and signed Ballot will be deemed to constitute an abstention by such
holder with respect to a vote on the Prepackaged Plan. Abstentions as a result
of not submitting a duly completed and signed Ballot will not be counted as
votes for or against the Prepackaged Plan. Any Ballot which is executed by a
holder but does not indicate an acceptance or rejection of the Prepackaged Plan
will not be counted as a vote for or against the Prepackaged Plan. See
"TENDERING AND VOTING PROCEDURES" in Part A to the Exchange Restructuring
Prospectus, attached hereto as Annex IV, and "VOTING PROCEDURES AND
REQUIREMENTS" in Part B to the Exchange Restructuring Prospectus, attached
hereto as Annex IV.
WHETHER OR NOT YOU ARE ABLE TO ATTEND THE STOCKHOLDERS' MEETING, YOUR VOTE
BY PROXY IS VERY IMPORTANT. STOCKHOLDERS ARE ENCOURAGED TO MARK, SIGN AND DATE
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
STOCKHOLDERS WHO COMPLETE A PROXY WITH RESPECT TO THE STOCKHOLDERS' MEETING
SHOULD ALSO DULY COMPLETE AND SIGN A BALLOT IN ORDER TO VOTE ON THE PREPACKAGED
PLAN.
Proxies and Ballots are being solicited by and on behalf of the Board. All
expenses of this solicitation, including the cost of preparing and mailing this
Proxy Statement/Prospectus, will be borne by the Company. In addition to
solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of the Company in person or by telephone,
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telegram or other means of communication. Such directors, officers and employees
will not be additionally compensated, but may be reimbursed for out-of-pocket
expenses in connection with such solicitation. Arrangements will also be made
with custodians, nominees and fiduciaries for forwarding of proxy solicitation
material to beneficial owners of Old Common Stock held of record by such
persons, and the Company may reimburse such custodians, nominees and fiduciaries
for reasonable expenses incurred in connection therewith. To assure the
presence in person or by proxy of the largest number of Stockholders possible,
MacKenzie Partners, Inc., the Information Agent, has been engaged to solicit
Proxies on behalf of the Company for a customary fee plus reasonable out-of-
pocket expenses.
PURPOSE OF STOCKHOLDERS' MEETING
The purpose of the Stockholders' Meeting is to consider the proposals (the
"Proposals") set forth in this Proxy Statement/Prospectus to approve the
Exchange Restructuring Proposal and to approve the Stock Award and Incentive
Plan. Approval of the Exchange Restructuring Proposal is a condition to the
consummation of the Exchange Restructuring.
EXCHANGE RESTRUCTURING PROPOSAL
The Charter Amendment. The Board has unanimously adopted a resolution
approving, subject to consummation of the Exchange Restructuring, the amendment
of Article IV of the Company's Certificate of Incorporation as more fully
described herein (the "Charter Amendment"). The purposes and effects of the
Charter Amendment are, among other things, to reduce the number of outstanding
shares of common stock in order to have enough authorized and unissued shares to
issue shares of New Common Stock in the Exchange Restructuring in exchange for
the 12.5% Notes and the Warrant Shares to be issued pursuant to the exercise of
the Warrants, such Warrants to be issued to Stockholders on the Restructur ing
Date. In order to provide for the authorization of a sufficient number of
shares of New Common Stock that are unissued (and not reserved for issuance
pursuant to stock options or other rights), the Charter Amendment will effect
the Reverse Split. The Reverse Split will likely also have the effect of
increasing the trading price of the common stock of the Company from where it
would otherwise trade in the absence of the Reverse Split assuming the aggregate
market capitalization of the Company remains constant. Such increase may,
although there is no assurance that it will, (i) enhance the attractiveness of
such common stock to certain institutional investors whose investing guidelines
require that the securities that they purchase meet certain minimum trading
price criteria, (ii) permit investors to purchase such common stock from
broker/dealers on margin in accordance with applicable regulations and (iii)
militate in favor of continued listing of such common stock on the Nasdaq
National Market. In addition, the Charter Amendment will increase the par value
of the authorized common stock of the Company from $.01 per share to $.05 per
share so as to preserve the value of the Company's Stated Capital on the
Company's Balance Sheet. The Charter Amendment is set forth in its entirety in
Annex I to this Proxy Statement/Prospectus. The Charter Amendment is necessary
to permit the Company to consummate the Exchange Restructuring.
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The New Common Stock Issuance. The Board has unanimously adopted a
resolution approving, as part of the Exchange Restructuring, the issuance of up
to 35,482,632 shares of New Common Stock pursuant to the Exchange Restructuring.
Upon exchange of their 12.5% Notes, the Noteholders, in the aggregate and as of
the Exchange Date, would receive 24,062,796 shares of New Common Stock, which
would represent 80% of the outstanding shares of New Common Stock after giving
effect to the Exchange Restructuring (excluding the New Common Stock issuable
upon exercise of the Warrants) based on the number of shares outstanding as of
the Record Date. Upon exchange of their Old Common Stock, the Stockholders as
of immediately to the Restructuring would receive, in the aggregate, 6,015,699
shares of New Common Stock, which would represent 20% of the Outstanding Shares
of New Common Stock after giving effect to the Exchange Restructuring. In
addition, the Stockholders would receive Warrants exercisable for an additional
5,263,736 shares of New Common Stock (subject to adjustment) immediately after
consummation of the Restructuring. The approval by the Stockholders of the New
Common Stock Issuance may be required by the applicable rules of the National
Association of Securities Dealers, Inc. (the "NASD").
The Exchange Restructuring Proposal will not take effect unless and until
the Exchange Restructuring has been consummated.
THE AFFIRMATIVE VOTE OF THE MAJORITY OF THE OUTSTANDING SHARES OF OLD
COMMON STOCK ENTITLED TO VOTE ON THE SUBJECT MATTER IS REQUIRED FOR APPROVAL OF
THE EXCHANGE RESTRUCTURING PROPOSAL. ACCORDINGLY, ABSTENTIONS AND BROKER NON-
VOTES WILL HAVE THE EFFECT OF A VOTE AGAINST THE PROPOSAL. UNLESS INSTRUCTED TO
THE CONTRARY IN THE PROXY, THE SHARES REPRESENTED BY THE PROXIES WILL BE VOTED
FOR THE EXCHANGE RESTRUCTURING PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE EXCHANGE RESTRUCTURING
PROPOSAL.
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THE STOCK AWARD AND INCENTIVE PLAN
Should the Stock Award and Incentive Plan be approved by the Stockholders,
the Company intends to issue options or stock appreciation rights (together,
"New Options") for up to 10% of the Company's shares of New Common Stock
outstanding immediately follow ing the Restructuring. Holders of Old Options
will not be entitled to receive Warrants pursuant to the Restructuring unless
such holders exercise their Old Options prior to the con summation of the
Restructuring. Grants of New Options and vesting schedules with respect to New
Options are to be determined by the Board.
Promptly following the consummation of the Restructuring, the Company's
management intends to propose to the reconstituted board of directors a
management incentive plan which will consist primarily of options to purchase
New Common Stock, in accordance with the Stock Award and Incentive Plan. The
number of new options to be granted under the Stock Award and Incentive Plan,
their strike prices, vesting schedule and term will be determined by the
reconstituted Board after consummation of the Restructuring.
If approved by a majority of the voting Old Common Stock represented at the
Stockholders' Meeting, the Stock Award and Incentive Plan will be effected
regardless of whether or not the Restructuring is effected or the Charter
Amendment is approved and filed. For more information on the Stock Incentive
and Award Plan, see "STOCK AWARD AND INCENTIVE PLAN."
THE AFFIRMATIVE VOTE OF THE MAJORITY OF THE SHARES OF OLD COMMON STOCK
ENTITLED TO VOTE AND REPRESENTED AT THE STOCKHOLDERS' MEETING ON THE PROPOSALS
IS REQUIRED FOR AP PROVAL OF THE STOCK AWARD AND INCENTIVE PLAN. ACCORDINGLY,
ABSTENTIONS WILL HAVE THE EFFECT OF A VOTE AGAINST THE PROPOSAL WHILE BROKER
NON-VOTES WILL NOT AFFECT THE OUTCOME OF THE VOTE ON THE PROPOSAL. UNLESS
INSTRUCTED TO THE CONTRARY IN THE PROXY, THE SHARES REPRESENTED BY THE PROXIES
WILL BE VOTED FOR THE PROPOSAL TO APPROVE THE CHARTER AMENDMENT.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE STOCK AWARD AND
INCENTIVE PLAN
VOTING OF PROXIES
All shares represented by a properly executed Proxy will be voted at the
Stockholders' Meeting in accordance with the directions on such Proxy. If no
direction is indicated on a properly executed Proxy, the shares covered thereby
will be voted in favor of the Exchange Restructuring Proposal and the Stock
Award and Incentive Plan.
In the event that sufficient votes in favor of the Exchange Restructuring
Proposal are not received by the time scheduled for the Stockholders' Meeting,
or if any of the other condi tions to the consummation of the Exchange
Restructuring and the other elements of the Exchange Restructuring are not
satisfied, the persons named as proxies may propose one or more adjournments of
the Stockholders' Meeting to permit further solicitation of
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Proxies with respect to such proposals or to permit the satisfaction of any such
condition. Any such adjournment will require the affirmative vote of a majority
of the voting power present or represented at the Stockholders' Meeting.
VOTING RIGHTS; QUORUM
Pursuant to the Company's Restated Certificate of Incorporation, as
amended, Stockholders will be entitled to one vote per share at the
Stockholders' Meeting. The pres ence, either in person or by properly executed
Proxy, of the holders of a majority of the shares of Old Common Stock
outstanding and entitled to vote is necessary to constitute a quorum at the
Stockholders' Meeting. There is no quorum or minimum number of votes required
to be cast with respect to the Prepackaged Plan.
NO DISSENTERS' RIGHTS
Stockholders have no appraisal or dissenters' rights with respect to the
Exchange Restructuring Proposal or the Stock Award and Incentive Plan.
REVOCATION OF PROXIES
A stockholder who has executed and returned a Proxy may revoke it at any
time before it is voted by executing and returning a Proxy bearing a later date,
by giving written notice of revocation to the Secretary of the Company or by
attending the Stockholders' Meeting and voting in person.
PREPACKAGED PLAN
Should less than 100 percent of the Noteholders tender their 12.5% Notes
pursuant to the Exchange Restructuring, but the Company receives sufficient
acceptances of the Prepackaged Plan to seek confirmation thereof by the
Bankruptcy Court, the Company intends that it will instead pursue the financial
restructuring of the Company by means of the filing of a "prepackaged plan" of
reorganization under Chapter 11 of the U.S Bankruptcy Code. The Pre packaged
Restructuring would be conditioned upon all of the conditions to the Exchange
Restructuring except that the Prepackaged Plan may be effected with the approval
of two-thirds of the voting principal amount and a majority in voting number of
the Noteholders and two-thirds of the voting outstanding shares of Old Common
Stock. If the Prepackaged Re structuring is pursued and a petition is filed
under the Bankruptcy Code, the Company expects that the New Common Stock
Issuance and an amendment to the Certificate of Incorporation substantially
similar to the Charter Amendment will be implemented pursuant to the Prepack
aged Plan. Accordingly, this Proxy Statement/Prospectus also serves as a
solicitation of acceptances by the Company for the acceptance of the Prepackaged
Plan. See "SUMMARY OF THE PLAN" in Part B to the Exchange Restructuring
Prospectus, attached hereto as Annex IV and Plan of Reorganization of Merisel,
Inc., under Chapter 11 of the Bankruptcy Code, attached to the Exchange
Restructuring Prospectus as Appendix I.
BACKGROUND OF RESTRUCTURING
In 1995, the Company incurred a net loss of $83.9 million. This loss was
principally the
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result of several large fourth quarter adjustments totaling $89.4 million.
Approximately $25,800,000 of the fourth quarter adjustments related to
adjustments to trade accounts payable balances for price protection, return to
vendors and inventory receipt related issues, such as short shipments,
identified through the vendor reconciliation process. An additional $8,200,000
charge was taken due to changes made in estimates to certain asset and liability
values. The Company also determined that portions of the carrying values of
certain of its long-lived assets and identifiable intangibles would not be
recovered from their use in future operations. Accordingly, these assets were
written down to their fair values as of December 31, 1995, for a total
adjustment of $51,400,000. Of that amount, $30,000,000 represented an
impairment of long-lived assets associated with the Company's Computerland
franchise business, and $1,900,000 represents an impairment loss for the
writedown of the net assets in the Company's Australian business, to their
realizable value. The Computerland franchise business and the Australian
businesses were both subsequently sold. The remaining impairment charge for
$19,500,000 was taken against costs associated with the Company's ongoing
computer system conversion. The Company recorded this charge in order to adjust
capitalized development and implementation costs to their estimated fair value.
Additionally, the Company's European distribution center experienced system
software start-up problems which created shipping and receiving errors that
resulted in a charge of $1.5 million, while another $2.5 million charge was
taken to expense such start-up costs.
Due to these substantial losses, the Company was required in April 1996 to
negotiate with the lenders under its various financing agreements to amend such
agreements and to waive certain defaults, which amendments and waivers were
obtained.
In connection with such negotiations, the Company developed and implemented
a business plan for the remainder of fiscal 1996 (the "1996 Business Plan") that
focused on maximizing cash flow by controlling costs, curtailing non-essential
capital expenditures, limiting investments and concentrating on its more
profitable areas of operations and product lines and slowing growth in its less
profitable areas of operations. The 1996 Business Plan assumed that the Company
would not return to profitability until the fourth quarter of 1996. At the same
time, the Company recognized that, in order to meet its obligations in 1997, it
needed to engage in some combination of asset sales, refinancing of its
borrowings and obtaining new sources of financing.
Concurrently with the implementation of the 1996 Business Plan, the Company
actively explored all of its strategic options, including the sale of the
Company, with the assistance of Merrill Lynch & Co. This ultimately led to the
Company's sale of its European, Mexican and Latin American operations in
September of 1996 after attempts to sell the entire Company proved unsuccessful.
In connection with this sale Merisel Americas and certain of its lenders agreed
in October 1996 to amend (1) the Amended and Restated Revolving Credit
Agreement, dated as of December 23, 1993, as amended, among Merisel Americas and
Merisel Europe as borrowers, the Company as guarantor, and the lenders party
thereto (the "Revolving Credit Agreement"), and (2) the Amended and Restated
Senior Note Purchase Agreement, dated as of December 23, 1993, as amended, by
and among each of the purchasers named therein, Merisel Americas as issuer, and
the Company (the "Senior Note Purchase Agreement, and, together with the
Revolving Credit Agreement, the "Operating Companies' Senior Debt") relating to
the 11.5% Notes to extend the final maturities of such indebtedness until
January 31, 1998. In connection with such amendments, the Company was required
to obtain, and did obtain, an amendment of the Amended and Restated Subordinated
Note Purchase Agreement, dated as of December 23, 1993, as amended, by and among
each of the
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purchasers named therein and Merisel Americas (the "Subordinated Note Purchase
Agreement" and, together with the Operating Companies' Senior Debt, the
"Operating Companies' Loan Agreements") relating to the Subordinated Notes.
These Operating Companies' Loan Agreements permitted the Company to make
interest payments on the 12.5% Notes with the provision that if the interest
payments due on June 30, 1997 and December 31, 1997 were paid, an additional
$40,000,000 and $30,000,000 of the indebtedness under the Operating Companies'
Loan Agreements would be required to be amortized in each of these periods,
respectively. The Company did not believe that it could satisfy these
obligations without a restructuring of the 12.5% Notes and the Operating
Companies' Loan Agreements.
In January 1997, along with its emphasis on rebuilding profitable sales
growth, the Company retained Donaldson, Lufkin and Jenrette Securities
Corporation ("DLJ") as financial advisor to assist it in restructuring its debt.
The Company did not seek or obtain any opinion from DLJ as to the fairness of
the Restructuring or otherwise in connection with their engagement. See
"ADVISORS AND REPRESENTATIVES" in Part A of the Exchange Restructuring
Prospectus attached hereto as Annex IV.
Shortly thereafter, the Company commenced negotiations with an ad hoc
committee of holders of 12.5% Notes (the "Ad Hoc Noteholders Committee").
Effective April 14, 1997, the Company and holders of more than 75% of the
outstanding principal amount of its 12.5% Notes entered into the Limited Waiver
Agreement, as described below. The following are the members of Ad Hoc
Noteholders Committee: Turnberry Capital Management, Baker Nye Advisors, Inc.,
Monarch Management Group Limited, Robert Fleming, Inc., Fisher Ewing Partners
and York Capital Management. The Company does not have complete information
regarding the beneficial ownership of the 12.5% Notes (including, without
limitation, the identity of the Consenting Noteholders), and is unaware of any
affiliations between the Noteholders, on the one hand, and the officers and
directors of the Company, on the other hand, except as follows. The Limited
Waiver Agreement requires that, on the Exchange Date, the Board shall be
composed of members acceptable to the Ad Hoc Noteholder Committee. Mr. Vincent
Rossi, a represetative of one of the members of the Ad Hoc Noteholder Committee,
will be appointed to the Board upon consummation of the Restructuring. See
"MANAGEMENT--Post-Restructuring Board Configuration." The Ad Hoc Noteholders
Committee was assisted in analyzing and negotiating the Restructuring with the
Company by Chanin and Company LLC ("Chanin"), but did not seek or obtain any
opinion from Chanin as to the fairness of the Restructuring or otherwise in
connection with their engagement. See "ADVISORS AND REPRESENTATIVES" in Part A
to the Exchange Restructuring Prospectus, attached hereto as Annex IV.
THE LIMITED WAIVER AGREEMENT
Effective April 14, 1997, the Company entered into an agreement (the
"Limited Waiver Agreement") with holders of more than 75% of the outstanding
principal amount of its 12.5% Notes (the "Consenting Noteholders"). Pursuant to
the terms of the Limited Waiver Agree ment, upon the fulfillment of certain
conditions, the Consenting Noteholders would exchange their 12.5% Notes for New
Common Stock in accordance with the terms of the Restructuring. The Limited
Waiver Agreement provides that, immediately after the consummation of the
Exchange Restructuring, the Company would issue to the holders of Old Common
Stock Warrants to purchase shares of New Common Stock. See "DESCRIPTION OF THE
WARRANTS."
The Noteholders' obligations under the Limited Waiver Agreement are subject
to certain conditions including (i) stockholder approval of the Charter
Amendment, and (ii) consents to amendments of the Operating Companies' Senior
Debt by 100% of the lenders under such agreements to extend the maturity of the
outstanding indebtedness under such agreements to January 31, 1999 (see "--The
Extension," below), or a refinancing of such indebtedness prior
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to October 31, 1997.
In the event that less than 100% of the aggregate principal amount of the
12.5% Notes are tendered in the Exchange Offer but at least two-thirds in
principal amount and a majority in number of the holders of the 12.5% Notes and
at least two-thirds of the Stockholders voting have voted in favor of the
Prepackaged Plan, the Holding Company has agreed to file the Prepackaged Plan
under Chapter 11 of the U.S. Bankruptcy Code and the Consenting Noteholders have
agreed to vote in favor of the Prepackaged Plan.
While the Restructuring is being implemented, the Consenting Noteholders
have agreed to waive any default arising from the nonpayment of interest due in
1997 on the 12.5% Notes. 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 Limited Waiver Agreement also requires that, on the Exchange Date, the
Board shall be composed of members acceptable to the Ad Hoc Noteholder Committee
and the Company. See "MANAGEMENT -- Post Restructuring Board Configuration."
Upon the consummation of any extraordinary transaction (as defined in the
Warrant Agreements) prior to January 1, 1998, including a merger or sale of
substantially all of the assets of the Company, or the agreement of the Company
to perform an extraordinary transaction entered into prior to January 1, 1998,
the Warrants must remain outstanding and be exercisable in exchange for common
stock of the Company or common stock of the acquiring company unless such
extraordinary transaction is approved by at least 85% of the outstanding New
Common Stock then outstanding.
The Limited Waiver Agreement shall terminate and the obligations to pay
interest on the 12.5% Notes shall be reinstated if (a) on the earliest to occur
of (i) the day before the first date on which the Exchange Offer could be
closed, (ii) the day before the last date on which ballots in respect of the
Prepackaged Plan may be submitted, and (iii) October 31, 1997, (1) the Company
and the other parties to the Operating Companies Loan Agreements shall have
failed to enter into the Extension (as described below) or (2) the Company shall
have failed to consummate a refinancing of all of the indebtedness outstanding
under the Operating Compa nies' Loan Agreements on terms satisfactory to the
Consenting Noteholders; (b) the Exchange Restructuring is not closed by August
31, 1997, unless Chapter 11 proceedings relating to the Prepackaged Plan have
commenced; (c) in the event Chapter 11 proceedings are commenced, the
Prepackaged Plan is not substantially consummated by October 31, 1997; (d) the
Company has changed the terms of the Exchange Restructuring or Prepackaged Plan
so as to be inconsistent with the terms contemplated by the Limited Waiver
Agreement; (e) there occurs an "Event of Default" under any of the Operating
Companies' Loan Agreements after the date specified in the Limited Waiver
Agreement; (f) the Company's Certificate of Incor poration shall not have been
amended so as to authorize enough shares of common stock to effectuate the
Exchange Restructuring; or (g) there shall have occurred any material adverse
change in the Company's business, assets, operations or condition.
THE EXTENSION UNDER THE OPERATING COMPANIES' LOAN AGREEMENTS
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As of April 14, 1997, the Company had entered into an agreement in
principle (the "Extension") with 100% of the holders of the loans made and notes
issued under the Operating Companies' Loan Agreements, pursuant to which all of
such holders have agreed, subject to execution of definitive documentation and
certain other conditions, to extend the maturities under their respective
Operating Companies Loan Agreements to January 31, 1999. In consideration of
the Extension, the Company has agreed to pay certain fees and additional
interest, as described below.
While the Restructuring is being implemented, all of the holders of loans
made and notes issued under the Operating Companies' Loan Agreements have agreed
to waive any default or cross-default resulting from the non-payment of interest
in respect of the 12.5% Notes, the commencement of either the Exchange
Restructuring or the Prepackaged Plan, or certain other events that might
otherwise cause the Company to default under the relevant agree ments. In
addition, all of the holders of indebtedness under the Operating Companies Loan
Agreements have agreed to execute amendments to the relevant agreements to
reflect the extension of their indebtedness provided that (i) the amendments
with respect to the Revolving Credit Agreement and the Senior Note Purchase
Agreement shall not become effective until they have been signed by the holders
of all such instruments, and (ii) none of the amendments shall 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.
In consideration for the waivers, the Company has agreed to pay certain
fees and additional interest, as described below. The fees payable under the
Extension include a fee equal to 1.5% of the outstanding principal amount owed
to each holders of indebtedness under the Operating Companies' Loan Agreement.
In addition, the Company will owe to the holders of Operating Companies' Senior
Debt a 2% fee upon the closing of the Restructuring, as well as fees of (i) .25%
on January 31, 1998, (ii) 0.5% on April 30, 1998 and (iii) .75% on July 31,
1998. The interest rate on the Operating Companies' Senior Debt will increase
0.5% each quarter commencing January 31, 1998 on the debt that remains
outstanding at that time. The interest rate on the Subordinated Notes will also
increase by 0.5% each quarter commencing January 31, 1998 and continuing for
three quarters thereafter. The Company would have the right to prepay such debt
at anytime without penalty.
The Extension shall terminate if (a) the Exchange Restructuring is not
closed by August 31, 1997, unless Chapter 11 proceedings pursuant to the
Prepackaged Plan have been com menced, (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 Offer or
Prepackaged Plan so as to be inconsistent with the terms contemplated by the
Extension; (d) there occurs an "Event of Default" under any of the Operating
Companies' Loan Agreements or certain other agreements; (e) the Company's
Certificate of Incorporation shall not have been amended so as to authorize
enough shares of common stock to effectuate the Exchange Restructuring; (f)
there shall have occurred any material adverse change in the Company's business,
assets, operations or condition; or (g) the Company, Merisel Americas and
Merisel Europe materially breach any obligations under the Extension.
PURPOSE OF THE RESTRUCTURING
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The purpose of the Restructuring is to enhance the long-term viability and
to contribute to the success of the Company by adjusting the Company's
capitalization (through a reduction of debt levels, an extension of principal
repayments and a relaxation of operating covenants) to reflect current and
expected operating performance levels. Specifically, the Restructuring is
designed to reduce the Company's outstanding debt obligations by $125 million,
to levels which the Company believes can be supported by its projected cash
flow, to replace a significant portion of the Company's indebtedness with New
Common Stock and to amend the covenants and final maturity on its Operating
Companies' indebtedness. Interest charges will be substantially reduced and
stockholders' equity will be substantially increased as a result of the
Restructuring.
In addition, implementation of the Restructuring will enable the Company to
avoid certain significant amortization payments totalling $40 million in June
1997 under the Operating Companies' senior debt obligations if the Company pays
interest on the 12.5% Notes next due in June 1997. During the period that the
Restructuring is being implemented, such interest payments have been waived by
in excess of 75% of the holders of 12.5% Notes and the holders of the Operating
Companies' indebtedness have waived any cross-default arising from the non-
payment of such interest. Failure to consummate the Restructuring could result
in such amortization payments becoming due as well as interest payment
obligations on the 12.5% Notes being reinstated. ABSENT THE RESTRUCTURING, THE
COMPANY DOES NOT BELIEVE IT WILL BE ABLE TO SATISFY SUCH OBLIGATIONS WITHOUT A
REFINANCING OF THE COMPANY'S INDEBTEDNESS UNDER THE OPERATING COMPANIES' LOAN
AGREEMENTS OR OBTAINING ADDITIONAL WAIVERS OR AMENDMENTS TO SUCH AGREEMENTS, AND
THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO OBTAIN SUCH
REFINANCING, WAIVERS OR AMENDMENTS.
If the Company determines that it is, or will be unable to complete the
Restructuring, the Company will consider all financial alternatives available to
it at such time, which may include the sale of all or part of the Company's
business, the implementation of an alternative restructuring arrangement outside
of bankruptcy, (including refinancing the indebtedness under the Operating
Companies' Loan Agreements or seeking waivers thereunder) or the commencement of
a Chapter 11 case with or without a preapproved plan of reorganization. There
can be no assurance, however, that any alternative restructuring would result in
a reorganization of the Company rather than a liquidation, or that any such
reorganization would be on terms as favorable to the Noteholders and
Stockholders as the terms of the Prepackaged Restructuring. If a liquidation or
a protracted and non-orderly reorganization were to occur, there is a risk that
the ability of the Noteholders and Stockholders to recover their investments
would be even more impaired than under the Prepackaged Restructuring and would
be substantially delayed. A non-consensual restructuring would likely have a
material adverse impact on the Company and its employees, suppliers and
customers.
RESTRUCTURING FINANCIAL CONSIDERATIONS
In connection with the development of its Restructuring proposal, the
Board, with the assistance of DLJ, conducted a review of certain financial
information with respect to the Company and the proposed transactions
contemplated by the Restructuring. The Company did not seek or obtain any
opinion from DLJ as to the fairness of the Restructuring: or otherwise in
connection with their engagement, and DLJ did not make any assessment or
recommendation to the Company with respect to the Restructuring. DLJ relied upon
and
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assumed the accuracy and completeness of all the financial projections and other
information that was available to it from public sources or that was provided to
or discussed with it by the Company, the Board or their respective
representatives. The Board also reviewed a liquidation analysis prepared by the
Company's management. Based upon the foregoing, the Board determined that, in
its judgment, the terms of the Restructuring are in the best interests of the
Company and its shareholders. The following paragraphs summarize the financial
information reviewed by the Board and the factors the Board considered.
Background of the Restructuring Financial Analysis. The Board reviewed the
Company's business plan and projections and the various factors influencing the
computer products distribution industry which historically had affected the
Company's operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." The Board also was aware of the
significant amortization payments that would otherwise be required upon the
payment of interest on the 12.5% Notes in June 1997 absent a Restructuring, and
that the Company's projected cash flow would be insufficient to satisfy such
debt service requirements during 1997.
Restructuring Valuation. The Board evaluated the Restructuring in the
context of the implied value of the Common Stock proposed to be exchanged for
12.5% Notes based on recent trading prices of the 12.5% Notes and the amount
owed on the 12.5% Notes. The 12.5% Notes were trading at 93.5% of principal
amount on May 13, 1997 in the over-the-counter market which values the 12.5%
Notes at $116.9 million in the aggregate. See "MARKET AND TRADING INFORMATION."
Based on their receiving 80% of the re structured equity of the Company, this
value would imply an equity valuation for 100% of the equity at $146.1 million.
Assuming the Restructuring closed on June 30, 1997, the accrued claim of
principal and interest on the 12.5% Notes would be $132.8 million. Based on the
12.5% Notes receiving 80% of the restructured equity of the Company, this would
imply an equity valuation of $166.0 million if the 12.5% Notes were to receive a
full recovery. In preparing and reviewing such analysis, the Company reviewed
financial and operating performance of the Company and its principal
competitors, including growth rates, working capital utilization, margins,
profitability and capitalization. In addition, the Company reviewed implied
valuation multiples of the Company and the market multiples of its principal
competitors based upon trailing and projected financial performance, and
reviewed valuation multiples of companies in other distribution industries by
comparing how their valuation was impacted by, among other things, size,
margins, leverage and growth rates. The Company also reviewed recoveries of
various classes of creditors in other restructurings. The market analysis of
competitors' multiples showed average market multiples for total enterprise
value to EBITDA for the preceding twelve months ("LTM EBITDA") of 11.4x for
comparable full-line distributors, 6.3x for comparable aggregators and 7.4x for
comparable electronics distributors. Based on these market multiples and
observations regarding factors that influence such valuation multiples, the
Company used a 7.5x total enterprise value to LTM EBITDA multiple in the
preparation of the liquidation analysis described below.
Liquidation Analysis. Based on its own projections and the market analysis
of competitors' multiples described above, the Company prepared a liquidation
analysis, which is included in
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the Disclosure Statement. See "LIQUIDATION ANALYSIS" in Part B to the Exchange
Restructuring Prospectus, attached hereto as Annex IV. The liquidation analysis
compares the consideration estimated to be available for distribution in the
event of a liquidation proceeding of the Company under Chapter 7 of the
Bankruptcy Code to the economic terms of the Restructuring. The liquidation
analysis estimates the gross value available for distribution in such a
liquidation at $63.1 million, less administrative expenses including trustee and
professional fees of $7.4 million. Accordingly, under such analysis the net
proceeds available to Noteholders and Stockholders would be $55.7 million.
Based on the Noteholders claim of $125 million plus accrued and unpaid interest
to the date of liquidation, the liquidation would net such Noteholders less than
a 42% recovery on their claims and leave existing holders of Old Common Stock
with no consideration, assuming a strict priority distribution.
The liquidation analysis makes numerous assumptions with respect to
industry performance, business and economic conditions, and other matters, many
of which are beyond the Company's control. Moreover, the methods and
assumptions used in preparing the liquidation analysis involve significant
elements of subjective judgment on the part of the Company and may or may not
prove to be correct. Estimates contained in the liquidation analysis are not
necessarily indicative of future results or actual values, which may be
significantly more or less favorable than such estimates. For a discussion of
the assumptions used in preparing the liquidation analysis, see "LIQUIDATION
ANALYSIS -- Notes to Liquidation Analysis" in the Disclosure Statement.
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DISCUSSION OF THE PROPOSALS
Exchange Restructuring Proposal
Charter Amendment. The Board has unanimously adopted resolutions proposing
that the Company's Restated Certificate of Incorporation, as amended, be amended
by the Charter Amendment. The purpose of the Charter Amendment is to increase
the number of authorized but unissued shares of common stock of the Company so
as to ensure that a sufficient number of such shares are available for issuance
pursuant to the Exchange Restructuring. Should the Exchange Restructuring be
accepted by the requisite 100% of Noteholders and thereafter consummated, an
aggregate of 24,062,796 shares of New Common Stock will be issued to the
Noteholders in exchange for their 12.5% Notes and 6,015,699 shares of New Common
Stock will be issued to Stockholders in exchange for their shares of Old Common
Stock. In addition, 5,263,736 Warrants, exercisable for an aggregate of
5,263,736 shares of New Common Stock (subject to adjustment), will be issued to
the Company's Stockholders.
The Charter Amendment will not be effective unless and until it is filed
with the Secretary of State of Delaware. The Board has reserved the right,
pursuant to Section 242(c) of the DGCL, to abandon such amendment even if the
Charter Amendment is authorized by the Stockholders. However, if the Exchange
Restructuring Proposal is authorized by a vote of the Company's Stockholders,
the Board intends to file the Charter Amendment with the Secretary of State of
Delaware if the Exchange Restructuring is consummated.
The Charter Amendment, if filed with the Secretary of State of Delaware,
would amend the Certificate of Incorporation to (i) effect a one-for-five
reverse stock split of the Company's outstanding shares of Old Common Stock such
that each share of Old Common Stock immediately prior to the Effective Time will
automatically convert into one-fifth of one share of New Common Stock
immediately thereafter and (ii) increase the par value of the authorized common
stock from $.01 per share to $.05 per share so as to preserve value of the
Company's Stated Capital on the Company's Balance Sheet.
The Company currently has authorized capital stock of 51,000,000 shares,
including 50,000,000 shares of Old Common Stock and 1,000,000 shares of
preferred stock, $.01 par value. The Charter Amendment will not affect the
number of authorized shares of common or preferred stock of the Company.
Article IV of the Company's Certificate of Incorporation as proposed to be
amended and restated pursuant to the Charter Amendment is set forth in its
entirety in Appendix I to Annex IV of this Proxy Statement/Prospectus. The final
text of the Charter Amendment is subject to change in order to meet the
requirements as to form that may be requested or required by the Secretary of
State's Office of the State of Delaware.
If the requisite approval of the Exchange Restructuring Proposal by the
Stockholders is obtained, the Charter Amendment will be effective upon the close
of business on the date of filing of the Charter Amendment with the Delaware
Secretary of State. Each certificate repre senting shares of Old Common Stock
immediately prior to the Exchange Restructuring will be deemed automatically,
without any action on the part of the Stockholders, to represent one-fifth the
number of shares of New Common Stock immediately after the Effective Time. A
Stockholder's proportionate ownership interest in the Company will remain
unchanged by the Charter Amendment. The New Common Stock issued pursuant to the
Charter
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Amendment will be fully paid and nonassessable. The voting and other rights of
the Old Common Stock will not be altered by the Charter Amendment except that
each share of the Old Common Stock will represent one-fifth of a share New
Common Stock.
In lieu of issuing any fractional shares of New Common Stock in the
Exchange Restructuring, fractional interests in New Common Stock will be
aggregated and sold by the Company, with the proceeds to be distributed to the
holders in proportion to the amount of fractional shares of New Common Stock
such holders would otherwise be entitled to receive. When the Charter Amendment
becomes effective, Stockholders will be asked to surrender certificates
representing shares of Old Common Stock in accordance with the procedures set
forth in a letter of transmittal to be sent by the Company. Upon such surrender,
a certificate representing the shares of New Common Stock will be issued and
forwarded to the Stockhold ers; however, each certificate representing shares of
Old Common Stock will continue to be valid and represent shares of New Common
Stock equal to one-fifth the number of shares of Old Common Stock (rounded to
the nearest whole number). Persons who hold their shares in brokerage accounts
or "street name" will not be required to take any further actions to effect the
exchange of their certificates.
New Common Stock Issuance. The Stockholder vote with respect to the
Exchange Restructuring Proposal will become effective at such time as the
Charter Amendment has been filed with the Secretary of State of Delaware and the
Exchange Restructuring has been con summated and will not be effective
otherwise. The Board has unanimously adopted a resolution approving, as part of
the Exchange Restructuring, the New Common Stock Issuance. The approval of the
New Common Stock Issuance by the Company's Stockholders may be required by the
applicable rules of the NASD.
THE BOARD RECOMMENDS A VOTE FOR THIS PROPOSAL.
IF THE STOCKHOLDERS DO NOT APPROVE THE EXCHANGE RESTRUCTURING PROPOSAL, OR
DO NOT EXECUTE THE REQUISITE ACCEPTANCES OF THE PREPACKAGED PLAN, THEN, UNDER
THE TERMS OF THE LIMITED WAIVER AGREEMENT, THE NOTEHOLDERS WILL NO LONGER BE
BOUND TO THE TERMS OF THE RESTRUCTURING. ANY SUBSEQUENT RESTRUCTURING OF THE
COMPANY COULD RESULT IN STOCKHOLDERS OF THE COMPANY RETAINING OR RECEIVING
SUBSTANTIALLY LESS THAN THE CON SIDERATION PROVIDED FOR IN THE RESTRUCTURING.
For a summary of the potential disadvantages to the Company of implementing
the Restructuring, see "RISK FACTORS."
STOCK AWARD AND INCENTIVE PLAN
The Board has adopted, subject to Stockholder approval, the Merisel, Inc.
1997 Stock Award and Incentive Plan (the "Stock Award and Incentive Plan"),
which provides for the grant of various types of stock-based compensation to
directors, officers and employees of the Holding Company and its subsidiaries
which have participants in the Stock Award and
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Incentive Plan. The Stock Award and Incentive Plan is designed to comply with
the require ments for "performance-based compensation" under Section 162(m)
("Section 162(m)") of the Internal Revenue Code of 1986, as amended (the
"Code"), and the conditions for exemption from the short-swing profit recovery
rules under Rule 16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The summary that follows is subject to the actual
terms of the Stock Award and Incentive Plan, a copy of which is attached hereto
as Annex III. Capitalized terms used but not otherwise defined in the summary
that follows shall have the respective meanings ascribed to them in the Stock
Award and Incentive Plan.
The Stock Award and Incentive Plan provides for the granting of "incentive
stock options" as described in Section 422 of the Code ("ISOs"), non-qualified
stock options ("NSOs") or both (collectively, "Options"). Options granted under
the Stock Award and Incentive Plan may be accompanied by stock appreciation
rights ("SARs"), limited stock appreciation rights ("LSARs") or both
(collectively, "Rights"). Rights may also be granted independently of Options.
NSOs and Rights may also be accompanied by dividend equivalents ("Dividend
Equivalents"). The Stock Award and Incentive Plan also provides for the
granting of restricted stock, deferred stock and performance shares
(collectively, "Restrict ed Awards") and other stock- and cash-based awards.
The Stock Award and Incentive Plan also permits the plan administrator to
authorize loans to Grantees in connection with the grant of awards, on terms and
conditions determined solely by the plan administrator. Each of the foregoing
awards ("Awards") will be evidenced by an agreement setting forth the terms and
conditions applicable thereto.
Purposes of the Stock Award and Incentive Plan
The purposes of the Stock Award and Incentive Plan are to reinforce the
long-term commitment to the Company's success of those directors, officers, and
employees of the Company and its subsidiaries who are or will be responsible for
such success; to facilitate the ownership of the Company's stock by such
individuals, thereby aligning their interests with those of the Company's
stockholders; and to assist the Company in attracting and retaining officers and
other employees with experience and ability.
Eligibility
Awards may be made by the Committee to any director, officer, or other
employee of the Company who is eligible to participate in the Stock Award and
Incentive Plan, consistent with the purposes of the Plan; provided that, ISOs
-------- ----
may only be granted to employees of the Company.
Plan Administration
The Stock Award and Incentive Plan is administered by the Board or a
committee of the Board the composition of which will at all times comply with
the requirements of Rule 16b-3 under the Exchange Act (the "Committee"). Subject
to the terms of the Stock Award and Incentive Plan, the Committee has the right
to grant awards to eligible participants and to determine the terms and
conditions of Award agreements, including the vesting schedule and exercise
price of such Awards, and the effect, if any, of a Change in Control
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(as defined in the Stock Award and Incentive Plan annexed hereto) on such
Awards.
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Shares Subject to the Stock Award and Incentive Plan
The Stock Award and Incentive Plan covers a maximum of 3,000,000 shares of
Old Common Stock and, after the Reverse Split, 3,000,000 shares of New Common
Stock, in each case representing approximately 10% of the shares then
outstanding; provided that, such number of shares shall be decreased to the
extent that shares of New Common Stock remain subject to outstanding Option
grants under any of the Company's other stock-based incentive plans. Shares
obtainable upon exercise may be treasury, authorized but unissued shares or
shares reacquired by the Company. In order to prevent dilution or enlargement of
the rights of Grantees, the Stock Award and Incentive Plan permits the Committee
to make adjustments to the aggregate number of shares subject to the Stock Award
and Incentive Plan or any Award, and to the purchase price to be paid or the
amount to be received in connection with the realization of any Award. The
Committee has the authority, in the event of any such adjustment, to provide for
the cancellation of any outstanding award in exchange for payment in cash or
other property.
Terms and Conditions of Options
Options will vest and become exercisable over the exercise period, at such
times and upon such conditions as the Committee determines and sets forth in the
Award agreement. The Committee may accelerate the exercisability of any
outstanding Option at such time and under such circumstances as it deems
appropriate. Options that are not exercised within ten years from the date of
grant, however, will expire without value. Options are exercisable during a
Grantee's lifetime only by the Grantee. The Award agreements will contain
provisions regarding the exercise of Options following termination of employment
with or service to the Company, including terminations due to the death,
disability or retirement of the Grantee, or upon a Change in Control. In
addition to the terms and conditions governing NSOs, ISOs awarded under the
Stock Award and Incentive Plan must comply with the requirements of Section 422
of the Code.
The Option Price will be as determined by the Committee and may be fully
paid in cash, by delivery of New Common Stock previously owned by the Grantee
equal in value to the Option Price, by means of a loan from the Company, or by
having shares of Common Stock with a Fair Market Value (on the date of
exercise), equal to the Option Price, withheld by the Company or sold by a
broker-dealer under qualifying circumstances (or in any combination of the
foregoing). A Grantee of an Option Award (and any tandem SAR or LSAR) will not
have the rights of a stockholder until certificates for the option shares are
actually received.
Stock Appreciation Rights and Limited Stock Appreciation Rights
Unless the Committee determines otherwise, a SAR or LSAR (1) granted in
tandem with an NSO may be granted at the time of grant of the related NSO or at
any time thereafter or (2) granted in tandem with an ISO may be granted only at
the time of grant of the related ISO. A SAR will be exercisable only to the
extent the underlying Option is exercisable. Tandem SARs and LSARs will
terminate upon the termination or exercise of the pertinent portion of the
related Option, and the pertinent portion of the related Option will terminate
upon the exercise of any such SAR or LSAR.
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Upon exercise of a SAR, the Grantee will receive, with respect to each
share subject thereto, an amount equal in value to the excess of (1) the Fair
Market Value of one share of New Common Stock on the date of exercise over (2)
the grant price of the SAR (which in the case of a SAR granted in tandem with an
Option will be the Option Price, and which in the case of any other SAR will be
the price determined by the Committee).
Upon exercise of a LSAR, the grantee will receive, with respect to each
share subject thereto, automatically upon the occurrence of a Change in Control,
an amount equal in value to the excess of (1) the Change in Control Price of one
share of Common Stock on the date of such Change in Control (which in the case
of a LSAR granted in tandem with an ISO will be the Fair Market Value), over (2)
the grant price of the LSAR (which in the case of a LSAR granted in tandem with
an Option will be the Option Price, and which in the case of any other LSAR will
be the price determined by the Committee). An LSAR Grantee who is subject to the
reporting requirements of Section 16(a) of the Exchange Act, however, will only
be entitled to receive such amount if the LSAR has been outstanding for at least
six (6) months on the Change in Control date.
Restricted Awards
A restricted stock award is an award of New Common Stock that may not be
sold, assigned, transferred, pledged, hypothecated or otherwise disposed of for
a period of ten years, or such shorter period as the Committee determines, from
the date on which the Award is granted (the "Restricted Period"). The Committee
may also impose such other restrictions and conditions on such Award as it deems
appropriate. The Committee may provide that the foregoing restrictions will
lapse with respect to specified percentages of the awarded shares on successive
anniversaries of the date of the Award. In addition, the Committee has the
authority to cancel all or any portion of any restrictions prior to the
expiration of the Restricted Period. A grant of deferred stock creates a right
to receive New Common Stock at the end of a specified deferral period.
Performance shares are shares of Common Stock subject to restrictions based upon
the attainment of performance objectives. Such performance objectives may be
based on various financial measures of the Company's performance. In addition,
performance goals may be based upon a Grantee's attainment of specific
objectives set by the Company for that Grantee's performance.
Upon the award of any restricted stock or performance shares, the Grantee
will have the rights of a stockholder with respect to the shares, including
dividend rights, subject to the conditions and restrictions generally applicable
to restricted stock or specifically set forth in the Grantee's Award agreement.
Upon an award of deferred stock, the Grantee will not have stockholder rights,
other than the right to receive dividends, during the specified deferral period.
Dividend Equivalents
Dividend Equivalents may be granted in conjunction with NSOs and in
conjunction with Rights that do not relate to ISOs. The value of a Dividend
Equivalent is equal to the product of (1) the number of shares of Common Stock
subject to the related NSO or Right and (2) the cash dividend payable per share
of such Common Stock. Dividend Equivalents may be payable either in cash or in
shares of New Common Stock, and payment may occur either as
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the Dividend Equivalents accrue or at such later time as the related NSO or
Right is exercised. Dividend Equivalents expire at the time the related NSO or
Right expires, and no dividends are payable or credited with respect to the
Dividend Equivalents themselves.
Other Stock- or Cash-Based Awards
The Committee may grant New Common Stock as a bonus or in lieu of Company
commitments to pay cash under other plans or compensatory arrangements of the
Company. The Committee may also grant other stock- or cash-based awards as an
element of or supplement to any other Award under the Stock Award and Incentive
Plan. Such Awards may be granted with value and payment contingent upon the
attainment of specified individual or Company financial goals, or upon any other
factors designated by the Committee The Committee may determine the terms and
conditions of such Awards at the date of grant or thereafter.
Death--Termination of Employment--Restrictions on Transfer
The Award agreements will state whether and to what extent Awards will be
exercisable upon termination of employment or service for any reason, including
death or disability. In no event may any Option be exercisable more than ten
years from the date it is granted. Except as otherwise determined by the
Committee in accordance with Rule 16b-3, Options and Rights are not transferable
and are exercisable during the Grantee's lifetime only by the Grantee.
Amendment; Termination
The Board may terminate or amend the Stock Award and Incentive Plan at any
time, except that stockholder approval is required for any such amendment
required to fulfill the conditions of Rule 16b-3, Section 162(m) and any other
applicable laws (but only if the Company intends to fulfill such requirements).
Termination or amendment of the Stock Award and Incentive Plan will not affect
previously granted Awards, which will continue in effect in accordance with
their terms.
Anti-Takeover Effect
The Stock Award and Incentive Plan is designed to provide incentive
compensation to management employees of the Company while aligning the interests
of management with that of the Stockholders. To achieve these goals, the Stock
Award and Incentive Plan provides for the distribution of up to 10% of the
outstanding shares of the Corporation's common stock. Although it may increase
the cost of a takeover of the Company, the Company does not believe that the
implementation and operation of the Stock Award and Incentive Plan will have any
material anti-takeover effect.
Certain Federal Income Tax Considerations
THE FOLLOWING DISCUSSION OF CERTAIN RELEVANT FEDERAL INCOME TAX EFFECTS
APPLICABLE TO AWARDS GRANTED UNDER THE STOCK AWARD AND INCENTIVE PLAN IS A
SUMMARY ONLY, AND REFERENCE IS MADE TO THE CODE FOR A COMPLETE STATEMENT OF ALL
RELEVANT FEDERAL TAX PROVISIONS. HOLDERS OF AWARDS SHOULD CONSULT THEIR TAX
ADVISORS BEFORE REALIZATION OF ANY SUCH AWARDS, AND HOLDERS OF COMMON STOCK
PURSUANT TO AWARDS SHOULD CONSULT THEIR TAX ADVISORS BEFORE DISPOSING OF ANY
SUCH SHARES. SECTION 16 INDIVIDUALS SHOULD NOTE THAT SOMEWHAT DIFFERENT RULES
THAN THOSE DESCRIBED BELOW MAY APPLY TO THEM. Under current Federal income tax
laws, Awards under the Stock Award and Incentive Plan will generally have the
following tax consequences:
Non-Qualified Stock Options. A Grantee will generally not be taxed upon
the grant of an NSO. Rather, at the time of exercise of such NSO (and in the
case of an untimely exercise of an ISO), the Grantee will recognize ordinary
income for Federal income tax purposes in an amount equal to the excess, if any,
of the Fair Market Value of the shares purchased, over the
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Option Price and will have a tax basis in such shares equal to the Option Price,
plus the amount taxable as ordinary income to the Grantee. The Company will
generally be entitled to a tax deduction at such time and in the same amount as
the Grantee recognizes ordinary income.
If shares acquired upon exercise of an NSO (or upon untimely exercise of an
ISO) are later sold or exchanged, then the difference between the sales price
and the Fair Market Value of such shares on the date that ordinary income was
recognized with respect thereto will generally be taxable as long-term or short-
term capital gain or loss (if the Common Stock is a capital asset of the
Grantee) depending upon whether the such shares have been held for more than one
year after such date.
Incentive Stock Options. A Grantee will generally not be taxed upon the
grant of an ISO or upon its timely exercise. Exercise of an ISO will be timely
if made during its term and if the Grantee remains an employee of the Company at
all times during the period beginning on the date of grant of the ISO and ending
on the date three months before the date of exercise (or one year before the
date of exercise in the case of a disabled employee). Exercise of an ISO will
also be timely, if made by the legal representative of a Grantee who dies (1)
while in the employ of the Company or (2) within three months after termination
of employment. The tax consequences of an untimely exercise of an ISO is the
same as those described for NSOs above.
If New Common Stock acquired pursuant to a timely exercised ISO is later
disposed of, the Grantee will, except as noted below with respect to a
"disqualifying disposition," recognize long-term capital gain or loss at the
time of the disposition (if the Common Stock is a capital asset of the employee)
equal to the difference between the amount realized upon such sale and the
Option Price. The Company, under these circumstances, will not be entitled to
any Federal income tax deduction in connection with either the exercise of the
ISO or the sale of such New Common Stock by the Grantee.
If, however, a Grantee disposes of New Common Stock acquired pursuant to
the exercise of an ISO (1) prior to the expiration of two years from the date of
grant of the ISO or (2) within one year from the date such New Common Stock is
transferred to him upon exercise (a "disqualifying disposition"), generally (a)
the Grantee will realize ordinary income at the time of the disposition in an
amount equal to the excess, if any, of the Fair Market Value of the shares at
the time of exercise (or, if less, the amount realized on such disqualifying
disposition) over the Option Price, and (b) if the New Common Stock is a capital
asset of the Grantee, any additional gain recognized will be taxed as short-term
or long-term capital gain. At the time of such disqualifying disposition, the
Company may claim a Federal income tax deduction only for the amount taxable to
the Grantee as ordinary income. Any capital gain recognized by the Grantee will
be long-term capital gain if the Grantee's holding period for the shares at the
time of disposition is more than one year; otherwise, it will be short-term.
The amount by which the Fair Market Value of the shares on the exercise
date of an ISO exceeds the Option Price will be an item of adjustment for
purposes of the "alternative minimum tax" imposed by Section 55 of the Code.
Exercise with Shares. Special rules may pertain to a Grantee who exercises
an Option
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and pays the Option Price with shares already owned.
Rights. A Grantee will not be taxed at the time of grant of SARs or LSARs.
Upon the exercise of SARs or LSARs (other than a Free Standing Right that is an
LSAR), the amount of any cash and the Fair Market Value as of the date of
exercise of Common Stock received is taxable to the Grantee as ordinary income.
With respect to a Free Standing Right that is an LSAR, however, a Grantee should
be required to include as taxable income on the date of a Change in Control an
amount equal to the amount of cash that could be received upon the exercise of
the LSAR, even if the LSAR is not exercised until a date subsequent to the
Change in Control date. The Company will generally be entitled to a deduction
at the same time and in an amount equal to the amount included in the Grantee's
income. Upon the sale of shares acquired upon the exercise of SARs or LSARs, a
Grantee will recognize capital gain or loss (assuming such Common Stock was held
as a capital asset) in an amount equal to the difference between the amount
realized upon such sale and the Fair Market Value of such New Common Stock on
the date that governs the determination of his ordinary income. The capital
gain or loss will be long-term or short-term depending upon whether the shares
have been held for more than one year after the date on which the income was
realized by the Grantee.
Dividend Equivalents. A Grantee will not be taxed upon the award of a
Dividend Equivalent, but will recognize ordinary income in an amount equal to
the value of the Dividend Equivalent at the time the Dividend Equivalent becomes
payable. The Company will be entitled to a deduction at such time and in the
same as the Grantee recognizes ordinary income with respect to the Dividend
Equivalent.
Restricted Awards. In the case of a restricted award, generally, a Grantee
will not be taxed upon the grant of such an Award. The Grantee will recognize
ordinary income in an amount equal to (i) the Fair Market Value of the Common
Stock at the time the shares become transferable or are otherwise no longer
subject to a substantial risk of forfeiture (as defined in the Code), minus (ii)
the price, if any, paid by the Grantee to purchase such stock. The Company will
be entitled to a deduction at the time when, and in the amount that, the Grantee
recognizes ordinary income. However, a Grantee may elect (not later than 30 days
after acquiring such shares) to recognize ordinary income at the time the
restricted shares are awarded in an amount equal to their Fair Market Value at
that time, notwithstanding the fact that such shares are subject to restrictions
on transfer and a substantial risk of forfeiture. If such an election is made,
no additional taxable income will be recognized by the Grantee at the time the
restrictions lapse. The Company will be entitled to a tax deduction at the time
when, and to the extent that, income is recognized by the Grantee. However, if
shares in respect of which such election was made are later forfeited, no tax
deduction is allowable to the Grantee for the forfeited shares, and the Company
will be deemed to recognize ordinary income equal to the amount of the deduction
allowed to the Company at the time of the election.
No awards have been made under the Stock Award and Incentive Plan.
THE BOARD OF DIRECTORS BELIEVES THAT THE IMPLEMENTATION OF THE STOCK AWARD
AND INCENTIVE PLAN IS IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS AND
RECOMMENDS ITS APPROVAL BY THE STOCKHOLDERS.
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Vote
The affirmative vote of the majority of the shares of Old Common Stock
entitled to vote and represented at the Stockholders' Meeting, provided a quorum
is present, is required for approval of the Stock Award and Incentive Plan.
Accordingly, abstentions will have the effect of a vote against the proposal
while broker non-votes will not affect the outcome of the vote on the proposal.
Unless instructed to the contrary in the proxy, the shares represented by the
proxies will be voted "FOR" the proposal to approve the Stock Award and
Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
DESCRIPTION OF THE EXCHANGE RESTRUCTURING AND THE PRE PACKAGED PLAN
For a description of the Exchange Restructuring and the Prepackaged Plan,
see the Exchange Restructuring Prospectus attached hereto as Annex IV. Also see
"Plan of Reorganization of Merisel, Inc., under Chapter 11 of the Bankruptcy
Code," attached to the Exchange Restructuring Prospectus as Appendix I.
DESCRIPTION OF NEW COMMON STOCK
The following summary description of the New Common Stock does not purport
to be complete and is qualified in its entirety by this reference to the
Company's Certificate of Incorporation and Bylaws, copies of which have been
filed as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus is a part. The New Common Stock is identical in all
material respects to the Old Common Stock except for the effects of the Reverse
Split and change in par value described herein.
Immediately after the Restructuring, the Company will have 50,000,000
authorized shares of New Common Stock, and 1,000,000 authorized shares of
preferred stock, par value $.01 per share. As of such time, 30,078,495 shares
of New Common Stock will be issued and outstanding to approximately [_______]
holders of record, and no shares of preferred stock will be issued and
outstanding. 24,062,796 shares of New Common Stock will be issued to
Noteholders as of immediately prior to the Restructuring and 6,015,699 shares of
New Common Stock will be issued to Stockholders as of immediately prior to the
Restructuring in connection with the Restructuring (not including Warrant Shares
and shares issuable upon the exercise of stock options granted to the Company's
employees and directors under the Stock Award and Incentive Plan). All of the
New Common Stock issued and outstanding as of the Effective Date will be fully
paid and nonassessable.
Distributions
Subject to such preferential rights as may be granted by the Board of
Directors in connection with future issuances of preferred stock, holders of
shares of New Common Stock will be entitled to receive ratably such dividends as
may be declared by the Board of Directors in its discretion from funds legally
available therefor. The Operating Companies' Loan Agreements contain negative
covenants that restrict, among other things, the ability of
45
<PAGE>
the Company to pay dividends. In the event of a liquidation, dissolution or
winding up of the Company, the holders of New Common Stock will be entitled to
share ratably in all assets re maining after payment of liabilities and any
liquidation preference owed to holders of any preferred stock. Holders of New
Common Stock will have no preemptive rights and have no rights to convert their
New Common Stock into any other securities.
Voting
Subject to any preferential rights of holders of preferred stock,
stockholders are entitled to one vote per share on all matters to be voted on by
stockholders. Matters submitted for stockholder approval require a majority vote
of the shares represented and entitled to vote, except, as described below, with
respect to the election of directors and the inability of stockholders to take
action by written consent, or where the vote of a greater number is re quired by
the DGCL. Article IX of the Certificate of Incorporation provides that any
action required or permitted to be taken by the stockholders of the Company must
be effected at a duly called annual or special meeting of such holders and may
not be effected by written consent of the Stockholders. Article IX may not be
repealed or amended in any respect except with the approval of 67% of the
outstanding shares of New Common Stock.
Election of Directors
Article VIII of the Certificate of Incorporation divides the Board of
Directors into three classes, with each class serving a three year term. Any
vacancies in the Board of Directors for any reason, and any directorships
resulting from any increase in the number of directors, may be filled only by
the Board of Directors. Article VIII may not be repealed or amended in any
respect except with the approval of 67% of the outstanding shares of New Common
Stock and subject to the provisions of any preferred stock outstanding.
DESCRIPTION OF WARRANTS
The following is a summary of certain provisions of the Series A Warrant
Agreement and the Series B Warrant Agreement (together, the "Warrant
Agreements"), and the Warrants (as defined below) to be issued thereunder. For
more complete information regarding the Warrant Agreements and the Warrants,
reference is made to the Warrant Agreements, a copy of the form of each of which
has been filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part and which is incorporated herein by refer ence.
Capitalized terms used but not defined herein shall have the meanings assigned
to them in the Warrant Agreements.
This Proxy Statement/Prospectus constitutes the Company's Prospectus with
respect to the Warrants (and the New Common Stock issuable upon exercise of the
Warrants) to be issued to holders of Old Common Stock immediately after the
consummation of the Restructuring.
General
Immediately after the consummation of the Restructuring and the Reverse
Split, the Company will issue to the holders of Old Common Stock upon surrender
of such holders' Old Common Stock certificates, shares of New Common Stock and
warrants to purchase shares
46
<PAGE>
of New Common Stock ("Warrant Shares") at an exercise price ("Exercise Price")
of (i) $7.15 per share, in the case of the Warrants issued under the Series A
Warrant Agreement ("Series A Warrants"), and (ii) $8.68 per share, in the case
of Warrants issued under the Series B Warrant Agreement ("Series B Warrants").
Holders of Old Common Stock will receive, for each share of Old Common Stock
held, one-fifth of a share of New Common Stock, .0875 Series A Warrants and
.0875 Series B Warrants. The holders of Old Common Stock will receive, in the
aggregate, 2,631,868 Series A Warrants and 2,631,868 Series B Warrants,
exercisable, for 5,263,736 shares of New Common Stock or approximately 17.5% of
the New Common Stock after giving effect to the Restructuring, based on
30,078,495 outstanding shares of Old Common Stock as of the Record Date. In lieu
of issuing any fractional Warrants in the Restructuring, fractional interests in
Warrants will be aggregated and sold by the Company, with the proceeds to be
distributed to the holders in proportion to the amount of fractional Warrants
such holders would otherwise be entitled to receive. The Exercise Price and the
number of Warrant Shares are both subject to adjustment in certain cases
referred to below. Following the consummation of the Exchange Restructuring,
holders of Old Common Stock will be issued Warrants upon receipt by the
Depositary of a duly completed letter of transmittal (to be sent to the
Stockholders by the Company promptly after consummation of the Restructuring).
The terms of the Warrant Agreements and the Warrants, other than the
Exercise Price, are identical.
The Warrants will be exercisable immediately after the consummation of the
Restructuring and prior to 5:00 p.m., New York time, on the seventh anniversary
of the date of issuance (the "Expiration Date"). The exercise and transfer of
the Warrants will be subject to appli cable Federal and state securities laws.
The Warrants may be exercised by surrendering to the Company at its office
designated for such purpose the warrant certificates ("Warrant Certificates")
evidencing the Warrants to be exercised with the accompanying form of election
to purchase properly completed and executed, together with payment of the
Exercise Price. Payment of the aggregate Exercise Price may be made in cash or
by certified or official bank check payable to the order of the Company. Upon
surrender of the Warrant Certificate and payment of the Exercise Price, the
Company will deliver or cause to be delivered, to or upon the written order of
such holder, stock certificates representing the number of full Warrant Shares
to which such holder is entitled. No fractional Warrant Shares will be issued
upon exercise of the Warrants. If less than all of the Warrants evidenced by a
Warrant Certificate are to be exercised, a new Warrant Certificate will be
issued for the remaining number of Warrants. The Warrant Shares to be issued
upon exercise of the Warrants will be registered under the Securities Act.
The holders of the Warrants will have no right to vote on matters submitted
to the stock holders of the Company and will have no right to receive dividends.
In the event of the liquidation, dissolution or winding up of the affairs of the
Company, the holders of the War rants will be entitled to receive, in lieu of
each share of New Common Stock such holders would otherwise be entitled to
receive upon exercise of the Warrants, the same kind and amount of any stock,
securities or assets as may be issuable, distributable or payable in such event
with respect to each share of New Common Stock. In the event a bankruptcy or
reor ganization subsequent to the Restructuring is commenced by or against the
Company, a bank ruptcy court may hold that unexercised Warrants are executory
contracts which may be subject to rejection by the Company with approval of the
bankruptcy court, and the holders of the Warrants may, even if sufficient funds
are available, receive nothing or a lesser amount as
47
<PAGE>
a result of any such bankruptcy case than they would be entitled to if they had
exercised their Warrants prior to the commencement of any such case.
In the event of a taxable distribution to holders of New Common Stock that
results in an adjustment to the number of shares of New Common Stock or other
consideration for which a Warrant may be exercised, the holders of the Warrants
may, in certain circumstances, be deemed to have received a distribution subject
to United States Federal income tax as a dividend. See "Certain Federal Income
Tax Considerations."
Adjustments
The number of shares of New Common Stock purchasable upon exercise of
Warrants and the Exercise Price will be subject to adjustment in certain events
including: (i) the issuance by the Company of dividends (and other
distributions) on its New Common Stock payable in New Common Stock or other
capital stock of the Company, (ii) subdivisions, combinations and
reclassification of New Common Stock, (iii) the issuance to all holders of New
Common Stock of rights, options, warrants or other securities convertible into
New Common Stock entitling them to subscribe for or purchase shares of New
Common Stock at a price which is less than the market price per share (as
specified in the Warrant Agreements) of New Common Stock, and (iv) the
distribution to all holders of New Common Stock of evidences of the Company's
indebtedness or assets of the Company or rights, options or warrants to acquire
such items.
No adjustment in the Exercise Price will be required if the transaction
giving rise to the adjustment is cancelled or to the extent the warrants become
convertible into cash. In addi tion, the Company shall be entitled, but not
required, to make such reductions in the Exercise Price as it in its discretion
shall determine to be advisable.
Reorganizations
In case of an Extraordinary Transaction (as defined in the Warrant
Agreements) (or an agreement by the Company that would result in an
Extraordinary Transaction) prior to January 1, 1998, the Warrants shall remain
outstanding and be convertible into New Common Stock or into common stock of the
acquiring company representing the same percentage of such Common Stock as the
Warrants would have received in the Company immediately prior to the
consummation of the Extraordinary Transaction (subject to equitable adjustment),
unless 85% of the then outstanding New Common Stock approves such transaction.
In the case of an Extraordinary Transaction agreed to or entered into after
January 1, 1998 or to which an 85% vote of the stockholders has been obtained,
the Warrants shall be exercisable for the kind and amount of securities, cash or
other assets that the holder of the Warrant would have owned immediately prior
to the transaction had such holder exercised the Warrant immediately before the
consummation of the transaction.
48
<PAGE>
Amendment
No provision of the Warrant Agreements may be amended without the consent
of a majority of the Warrants where such amendment would have a material adverse
effect on the rights of holders of Warrants. In the absence of such a material
adverse effect, the Warrant Agreements may be amended by agreement between the
Company and the Warrant Agent.
Governing Law
The Warrant Agreements and the Warrants will be governed by and construed
in accordance with, the laws of the State of Delaware, without regard to the
principles of conflicts of law.
BUSINESS AND PROPERTIES OF THE COMPANY
For a description of the business and properties of the Company, see
"BUSINESS AND PROPERTIES OF THE COMPANY" in the Exchange Restructuring
Prospectus, attached hereto as Annex IV.
LEGAL PROCEEDINGS
For a description of material pending legal proceedings of the Company, see
"BUSINESS AND PROPERTIES OF THE COMPANY -- Legal Proceedings" in the Exchange
Restructur ing Prospectus, attached hereto as Annex IV.
SELECTED HISTORICAL FINANCIAL DATA
See "SELECTED HISTORICAL FINANCIAL DATA," in Part A to the Exchange
Restructuring Prospectus attached hereto as Annex IV.
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
See "PRO FORMA FINANCIAL STATEMENTS," in Part A to the Exchange Restructuring
Prospectus, attached hereto as Annex IV.
49
<PAGE>
PROJECTED CONSOLIDATED FINANCIAL INFORMATION
See "PROJECTED CONSOLIDATED FINANCIAL INFORMATION" in Part A to the
Exchange Restructuring Prospectus, attached hereto as Annex IV.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDI TION AND
RESULTS OF OPERATIONS," in Part A to the Exchange Restructuring Prospectus,
attached hereto as Annex IV.
50
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the directors
and executive officers and former directors and officers of the Company.
<TABLE>
<CAPTION>
NAME AGE (1) POSITION
<S> <C> <C>
Dwight A. Steffensen..... 53 Chairman of the Board of Directors and
Chief Executive Officer
Robert J. McInerney(2)... 51 President and Chief Operating Officer
James E. Illson(3)....... 44 Chief Financial Officer, Senior Vice
President and Secretary
Timothy N. Jenson........ 38 Vice President-Finance, Treasurer and
Assistant Secretary
Joseph Abrams............ 61 Director
David L. House........... 54 Director
Dr. Arnold Miller........ 68 Director
Lawrence J. Schoenberg... 64 Director
James D. Wittry(4)....... 43 Senior Vice President, Merisel Americas,
Inc.
Thomas P. Reeves......... 35 Senior Vice President-Canadian Operations
William R. Page.......... 50 Vice President, The Merisel Open Computing
Alliance
</TABLE>
(1) As of March 28, 1997
(2) Mr. McInerney was appointed to his position as President and Chief
Operating Officer as of February 3, 1997, pursuant to an employment
agreement with the Company which has an initial term of three years.
(3) Mr. Illson was appointed to his position as Chief Financial Officer, Senior
Vice President and Assistant Secretary as of August 12, 1996, pursuant to
an employment agreement with the Company which has an initial term of three
years. On May 13, 1997 Mr. Illson was appointed Secretary of the Company.
(4) Mr. Wittry was appointed to his position as Senior Vice President, Merisel
Americas, Inc. as of August 29, 1996, pursuant to an employment agreement
with the Company which has an initial term of three years.
51
<PAGE>
DIRECTORS
The Board presently consists of five members divided into three classes
serving staggered terms, with one class of directors elected annually. Class I
consists of one director, and Class II and Class III each consist of two
directors. The term of the director constituting Class I will expire this year.
The term of the directors in Class II extends through 1998, and the term of the
directors in Class III extends through 1999. The table below indicates the names
of the directors in each class and the expiration of the terms of the directors
in each class.
<TABLE>
<CAPTION>
CLASS I CLASS II CLASS III
<S> <C> <C>
(TERMS EXPIRING IN 1997) (TERMS EXPIRING IN 1998) (TERMS EXPIRING IN 1999)
Lawrence J. Schoenberg Joseph Abrams David L. House
Dr. Arnold Miller Dwight A. Steffensen
</TABLE>
No arrangement or understanding exists between any director or officer and
any other person or persons pursuant to which any such person was or is to be
selected as a director or officer. None of the directors or officers has any
family relationship between them.
The business experience, principal occupations and employment during the
past five years of each of the directors, together with their periods of service
as directors and executive officers of the Company, as applicable, are set forth
below.
Dwight A. Steffensen was elected as Chief Executive Officer and Chairman of
the Board in February 1996. Mr. Steffensen has been a member of the Board since
August 1990. From January 1985 to March 1992, Mr. Steffensen served as a
director and Executive Vice President of Bergen Brunswig Corporation ("Bergen"),
a pharmaceuticals distributor. From April 1992 to October 1995, Mr. Steffensen
served as President and Chief Operating Officer for Bergen. In January 1996, he
resigned from Bergen's Board of Directors.
Joseph Abrams was elected a director of the Company following the
acquisition of Microamerica, Inc. ("Microamerica") by the Company 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. ("AGS"), a software development company, which was a
subsidiary of NYNEX Corp., a telecommunications company, from 1988 until his
retirement in 1991. He is also a director of Spectrum Signal Processing, a
hardware and software electronics company and Phonetel Technologies, a provider
of pay telephone services.
David L. House was appointed to the Board of Directors in March 1994 to
fill a vacancy. In October 1996, Mr. House was named Chairman of the Board,
President and Chief Executive Officer of Bay Networks, Inc., a marketer of
internet working products. From 1974 to 1996, he was employed by Intel
Corporation, a manufacturer of microprocessing systems, most recently as Senior
Vice President and General Manager of the Enterprise Server group.
Dr. Arnold Miller was elected to the Board of Directors in August 1989 and
was appointed the Governance Director in May 1995. 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
52
<PAGE>
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, Penn-America Group, Inc., a casualty insurance
company, and Cellular Technology Services, a provider of systems to cellular
telephone service providers.
The Board maintains an Audit Committee, comprised of Dr. Miller and Mr.
Schoenberg; an Organization and Compensation Committee, comprised of Messrs.
Abrams, House and Schoenberg; an Option Committee, comprised of Messrs. Abrams,
House and Schoenberg; and a Nominating Committee, comprised of Dr. Miller, Mr.
Schoenberg and Mr. Steffensen.
POST RESTRUCTURING BOARD CONFIGURATION
The Company has agreed, pursuant to the Limited Waiver Agreement, that upon
the consummation of the Restructuring, the Board will be comprised of members
acceptable to the Ad Hoc Noteholders Committee and the Company, and none of the
members of the Board will be financial or legal advisors of the Company or
members of the Ad Hoc Noteholders Committee. Certain members of the Board of
Directors of the Company have agreed to resign, as of the Effective Date, to
accommodate the appointment of Messrs. James Illson, [ ], [ ], [ ]
and [ ] (the "New Directors") to the Board of Directors. Of the current
directors, Mr. Steffensen and Mr. Miller (the "Continuing Directors" and,
together with the New Directors, the "New Board") would continue to serve as
directors. Messrs. [ ] and [ ] would be appointed to Class I, Messrs.
Steffensen and Illson would be appointed to Class II (with Mr. Steffensen
resigning as a Class III director concurrently with such appointment), and
Messrs. Rossi, [ ] and [ ] would be appointed to Class III. Mr.
Miller will continue in Class II. Additional information regarding the Board
of Directors of the Company will be provided prior to effectiveness.
EXECUTIVE OFFICERS
Executive officers of the Company are elected by and serve at the
discretion of the Board. Set forth below is a brief description of the business
experience for the previous five years of all executive officers except those
who are also directors. For information concerning the business experience of
Mr. Steffensen see "Directors" above.
Robert J. McInerney. Mr. McInerney joined the Company in February of 1997
in the capacity of President and Chief Operating Officer. From 1994 to 1996 Mr.
McInerney served as Executive Vice President at United Capital Corporation, a
Long Island based multinational holding company. He was responsible for the P&L,
structure and strategy of the corporation's three manufacturing groups. Mr.
McInerney is credited with achieving record operating results and increasing
profitability for all three groups. From 1981 to 1994 Mr. McInerney was employed
by Arrow Electronics, Inc., a distributor of electronic components and systems.
He served as president of Arrow's Commercial Systems Group (CSG) from 1987 to
1994 and was responsible for sales, marketing, finance and operations, marketing
communications and advertising.
James D. Wittry. Mr. Wittry joined the Company in August 1996 as Senior
Vice President, Sales of Merisel Americas, Inc. From 1994 to 1995, Mr. Wittry
was with AST Research as Senior Vice President of the Americas. From 1991 to
1994 he was employed by Ingram Micro. At Ingram Micro, Mr. Wittry
53
<PAGE>
held the office of Senior Vice President, U.S. Sales where he managed 800 U.S.
Sales and Service associates. Prior to that, Mr. Wittry spent 10 years with
Avnet Computers, where he rose to the position of National Computer Sales
Director.
Mr. James E. Illson. Prior to joining Merisel in August 1996, Mr. Illson
served as Senior Vice President and Chief Financial Officer for the Southern
California-based grocery chain, Bristol Farms. Mr. Illson was responsible for
managing all financial operations. This included implementing business plans,
reporting and control systems, and developing short-term and long-term capital
strategies. He joined Bristol Farms in 1995. From 1992 to 1995, Mr. Illson was
a partner with Kidd, Kamm & Co., a private equity investment firm where he was
responsible for activities relating to the acquisition and expansion of
portfolio companies. Prior to that, Mr. Illson spent more than 13 years with
Deloitte & Touche, most recently as a partner in Deloitte & Touche's
reorganization advisory services group.
Thomas P. Reeves. Mr. 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. From
February 1992 until August 1994, Mr. Reeves served as the Company's Managing
Director of operations in Europe. Mr. Reeves was named Senior Vice President-
European Operations in May 1992. In August 1994, he became Senior Vice
President-Canadian Operations as well as President of the Company's Canadian
subsidiary.
Timothy N. Jenson. Mr. Jenson joined the Company in 1993 as Vice President
and Treasurer. In 1996, he was promoted to Vice President-Finance, Treasurer
and Assistant Secretary. From 1989 to 1993, Mr. Jenson served as Vice President
at Citicorp North America, Inc. where he provided financial services, banking
products and advisory services to large multinational corporations. He
previously served at Bank of America as Vice President of corporate banking,
where he was responsible for the financing and banking activities of a portfolio
of Corporate Clients.
William R. Page. Mr. Page joined Merisel in 1993 and has held leadership
positions within Merisel's Product Management, VAR Channel, Sales Services and
OEM divisions. Currently he is the vice president and general manager of the
Merisel Open Computing Alliance (MOCA), which is dedicated to the sales and
support of Sun and complementary third-party products and services. Prior to
joining Merisel, Mr. Page served as Executive Vice President for Hamilton/Avnet
for 20 years. He oversaw sales, technical support, product and inventory
management, marketing and operations for this $2 billion distributor of
electronic components and computer products. He developed the plan and led
implementation of the separation of computer business from Avnet's component and
semiconductor distribution business.
SECTION 16 MATTERS
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and the Nasdaq National Market, and to
furnish the Company with copies of all Section 16(a) forms they file.
Based on its review of the copies of such forms received by it and on
written representations from such persons that no Forms 5 were required for
those persons, the Company believes that, during the fiscal year ended December
31, 1996, all filing requirements applicable to its directors and executive
officers were complied with.
MANAGEMENT COMPENSATION
Information relating to compensation of current officers and directors of
the Company is incorporated herein by reference to "EXECUTIVE COMPENSATION" in
Amendment No. 1 to the Annual Report of
54
<PAGE>
the Company on Form 10-K/A for the year ended December 31, 1996. Information
relating to the post-Restructuring Board will be furnished by amendment when
such information is available.
55
<PAGE>
OWNERSHIP OF COMMON STOCK
The following table sets forth as of March 28, 1997 certain information
regarding beneficial ownership of Common Stock by each stockholder known by the
Company to be the beneficial owner of more than 5% of Common Stock as of such
date, each director, certain executive officers of the Company and all directors
and executive officers, as a group. Unless otherwise indicated, the
stockholders have sole voting and investment power with respect to shares
beneficially owned by them, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
Common Stock Percentage After
Name and Address (1) Beneficially Owned Percent Restructuring(7)
- -------------------- --------------------- -------- ----------------
<S> <C> <C> <C>
Dwight A. Steffensen.............................. 4,000 (2) * *
Timothy N. Jenson................................. 22,850 (2) * *
Kristin Rogers 45,441(2) * *
Karen Fuller 37,750(2) * *
Thomas Reeves..................................... 137,021 (2) * *
Susan J. Miller-Smith............................. 0 * *
Lawrence Schoenberg............................... 365,884 (3) 1.20% *
Arnold Miller..................................... 6,000 (2) * *
David House....................................... 2,000 (2) * *
Joseph Abrams..................................... 599,460 (3) 1.99% *
Dimensional Fund Advisors......................... 1,793,560 (4) (5) 5.96% 1.01%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
All Directors and Executive Officers as a Group 458,672 (6) 1.52% *
(14 Persons).....................................
</TABLE>
(1) Unless otherwise indicated, the address of each person listed is Merisel,
Inc. 200 Continental Blvd. El Segundo, CA 90245-0984.
(2) All shares held by the beneficial owner are shares issuable with respect to
stock options exercisable within 60 days after March 28, 1997.
(3) Includes 4,000 shares issuable with respect to stock options exercisable
within 60 days after March 28, 1997.
(4) 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.
(5) Dimensional Fund Advisors, Inc. in its capacity as investment advisor may
be deemed beneficial owner of such shares, which are owned by certain of
its investment counseling clients.
(6) Includes 458,672 shares issuable with respect to stock options exercisable
within 60 days after March 28, 1997.
(7) Gives effect to the Charter Amendment, the New Stock Issuance and the
exercise of all of the Warrants.
56
<PAGE>
CERTAIN AFFILIATE TRANSACTIONS
The Company has entered into Indemnity Agreements with each of its
directors and certain of its officers, which agreements require the Company,
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 the Company (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.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain Federal income tax consequences
of the Restructuring to the Stockholders and the Company and is for general
information purposes only. This summary is based on the Federal income tax law
now in effect, which is subject to change, possibly retroactively. This summary
does not discuss all aspects of Federal income taxation which may be important
to particular Stockholders in light of their individual investment
circumstances, including holders who acquired their Old Common Stock pursuant to
the exercise of stock options or otherwise as compensation, or to Stockholders
subject to special tax rules (e.g., financial institutions, broker-dealers,
insurance companies, tax-exempt organizations and foreign taxpayers). In
addition, this summary does not address state, local or foreign tax
consequences. This summary assumes that Stockholders hold their Old Common
Stock, and will hold their New Common Stock and Warrants, as "capital assets"
(generally, property held for investment) under the Internal Revenue Code of
1986, as amended (the "Code"). No rulings have been or will be requested from
the Internal Revenue Service with respect to any of the matters discussed
herein. Stockholders are urged to consult their tax advisors regarding the
specific Federal, state, local and foreign income and other tax consequences of
the Restructuring.
FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS
General. In general, the receipt of New Common Stock and Warrants by
Stockholders pursuant to the Restructuring will not be a taxable event, except
that Stockholders will recognize gain or loss to the extent of any cash received
in lieu of a fractional share or fractional warrant. Stockhold ers will
generally be required to allocate the tax basis in their Old Common Stock
(reduced by any basis apportionable to any fractional share or fractional
warrant settled in cash as described above) between the New Common Stock and the
Warrants on the basis of their respective fair market values on the date of
distribution. The holding period of the New Common Stock and the Warrants will
include the holding period of the Old Common Stock.
Disposition. Upon a sale, exchange, or other disposition of the New
Common Stock or Warrants, a Stockholder will recognize a capital gain or loss in
an amount equal to the difference between the amount realized and the
Stockholder's adjusted tax basis in such stock or Warrants. Such gain or loss
will be long-term if the stock or Warrants have been held for more than one
year.
Exercise or Lapse of Warrants. Upon the exercise of a Warrant, a
Stockholder will not recognize gain or loss and will have a tax basis in the New
Common Stock received equal to the tax basis in such holder's Warrant plus the
exercise price thereof. The holding period for the New Common Stock received
pursuant to the exercise of the Warrant will begin on the day following the date
of exercise and will not include the period that the holder held his Warrant.
In the event that a Warrant lapses unexercised, a Stockholder will
recognize a long-term capital loss in an amount equal to his tax basis in the
Warrant.
Adjustment to Exercise Price. If at any time the Company makes a
distribution of prop erty to shareholders that would be taxable to such
shareholders as a dividend for Federal income tax
57
<PAGE>
purposes and, in accordance with the antidilution provisions of the Warrants,
the Exercise Price is de creased, the amount of such decrease may be deemed to
be the payment of a taxable dividend to holders of the Warrants. For example, a
decrease in the Exercise Price in the event of distributions of cash or
indebtedness of the Company will generally result in deemed dividend treatment
to holders, but generally a decrease in the event of stock dividends or the
distribution of rights to subscribe for shares of New Common Stock will not.
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY
Cancellation of Indebtedness Income. The Company will realize
cancellation of indebted ness ("COI") income, for Federal income tax purposes,
in an amount equal to the excess, if any, of the adjusted issue price of the
12.5% Notes (including any accrued but unpaid interest) over the fair market
value of the New Common Stock received by Noteholders pursuant to the
Restructuring. The Company anticipates that any COI income that is recognized
will likely be offset by the Company's operating losses and net operating loss
carryovers ("NOLs"). If COI income is realized in a case under the Bankruptcy
Code (i.e., pursuant to the Prepackaged Restructuring), then such income would
----
not be recognized under section 108 of the Code. In such event, the Company
would be required, however, to reduce certain of its tax attributes, such as its
NOLs, certain tax credits, and the basis of its assets, by the amount of the COI
income that is not recognized.
Limitation on Net Operating Loss Carryovers. As a result of the
receipt by Noteholders of New Common Stock in exchange for the 12.5% Notes
pursuant to the Restructuring, the Company will undergo an "ownership change"
(generally, a 50% change in ownership) for purposes of section 382 of the Code
and, accordingly, the Company will be limited in its ability to use its NOLs and
certain tax credit carryforwards (the "Section 382 Limitation") to offset future
taxable income. The Section 382 Limitation will generally be determined by
multiplying the value of the Company's equity before the ownership change by the
long-term tax-exempt rate (currently 5.64%). This is likely to limit
significantly the Company's use of its NOLs in any one year. If an ownership
change occurs in a case under the Bankruptcy Code, the value of a corporation's
equity for purposes of determining the Section 382 Limitation would be adjusted
to reflect any increase in such value arising from the cancellation of debt as a
result of the ownership change. Because the Company anticipates that the value
of its equity would be increased as a result of the cancellation of the 12.5%
Notes, the Company's ability to use its NOLs would be less limited under the
Prepackaged Restructuring than under the Exchange Restructuring.
ADVISORS AND REPRESENTATIVES
DLJ is serving as financial advisor to the Company in connection with the
Restructuring. Chanin is serving as financial advisor to the Ad Hoc Noteholders
Committee, and the Company has agreed to pay all expenses of the Ad Hoc
Noteholders Committee related to the Restructuring. See "ADVISORS AND
REPRESENTATIVES" in Part A to the Exchange Restructuring Prospectus, attached
hereto as Annex IV.
MacKenzie Partners, Inc. is serving as Information Agent in connection with
the Exchange Offer and the solicitation of acceptances of the Prepackaged Plan
(the "Information Agent"). Any questions regarding how to tender or consent in
the Exchange Offer or how to vote on the Prepackaged Plan, and any requests for
additional copies of this Proxy Statement/Prospectus, Ballots or Master Ballots
should be directed to the Information Agent at its address and telephone number
set forth on the back cover of this Prospectus. See "ADVISORS AND
REPRESENTATIVES" in Part A to the Exchange Restructuring Prospectus, attached
hereto as Annex IV. U.S. Stock Transfer Corp. has been appointed as Depositary
with respect to the Stockholders for the Exchange Offer (the "Depositary") and
as Voting Agent (as defined herein) for the solicitation of acceptances of
58
<PAGE>
the Prepackaged Plan with respect to the Stockholders. Questions and requests
for assistance may be directed to the Depositary at one of its addresses and
telephone numbers set forth on the back cover of this Prospectus. See "ADVISORS
AND REPRESENTATIVES" in Part A to the Exchange Restructuring Prospectus,
attached hereto as Annex IV.
LEGAL MATTERS
See "LEGAL MATTERS," in Part A to the Exchange Restructuring Prospectus
attached hereto as Annex IV.
EXPERTS
See "EXPERTS," in Part A to the Exchange Restructuring Prospectus attached
hereto as Annex IV.
OTHER MATTERS
The Board does not know of any other matters which may properly be
presented for consideration at the Stockholders' Meeting. If any business not
described herein should come before the Stockholders' Meeting, the persons named
in the enclosed Proxy will vote on those matters in accordance with their best
judgment.
59
<PAGE>
ANNEX II
FORM OF
WARRANT AGREEMENT
Dated as of
[ ], 1997
between
MERISEL, INC.
and
U.S. STOCK TRANSFER CORP.
as Warrant Agent
-------------------------------------------
Warrants for
Common Stock of
Merisel, Inc.
-------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions
SECTION 1.1 Definitions.................................................. 1
SECTION 1.2 Rules of Construction........................................ 3
ARTICLE II
Warrant Certificates
SECTION 2.1 Form of Warrant Certificates................................. 3
SECTION 2.2 Execution and Delivery of Warrant Certificates............... 4
SECTION 2.3 Loss or Mutilation........................................... 5
ARTICLE III
Exercise Terms
SECTION 3.1 Exercise Price............................................... 5
SECTION 3.2 Expiration................................................... 6
SECTION 3.3 Manner of Exercise........................................... 6
SECTION 3.4 Issuance of Warrant Shares................................... 6
SECTION 3.5 Fractional Warrant Shares.................................... 7
SECTION 3.6 Reservation of Warrant Shares................................ 7
SECTION 3.7 Compliance with Law.......................................... 7
ARTICLE IV
Antidilution Provisions
SECTION 4.1 Adjustment of Exercise Price and Warrant Number.............. 8
SECTION 4.2 Minimum Adjustment........................................... 19
SECTION 4.3 Notice of Adjustment......................................... 20
SECTION 4.4 Notice of Certain Transactions............................... 20
SECTION 4.5 Adjustment to Warrant Certificate............................ 21
SECTION 4.6 Issuance of Due Bills........................................ 21
i
<PAGE>
Page
ARTICLE V
Transferability
SECTION 5.1 Transfer and Exchange........................................ 21
SECTION 5.2 Registration, Registration of Transfer and Exchange.......... 22
SECTION 5.3 Surrender of Warrant Certificates............................ 23
ARTICLE VI
Warrant Agent
SECTION 6.1 Appointment of Warrant Agent................................. 23
SECTION 6.2 Rights and Duties of Warrant Agent........................... 23
SECTION 6.3 Individual Rights of Warrant Agent........................... 24
SECTION 6.4 Warrant Agent's Disclaimer................................... 24
SECTION 6.5 Compensation and Indemnity................................... 25
SECTION 6.6 Successor Warrant Agent...................................... 25
ARTICLE VII
Miscellaneous
SECTION 7.1 Company Resales.............................................. 27
SECTION 7.2 SEC Reports and Other Information............................ 27
SECTION 7.3 Persons Benefitting.......................................... 27
SECTION 7.4 Rights of Holders............................................ 27
SECTION 7.5 Amendment.................................................... 27
SECTION 7.6 Notices...................................................... 28
SECTION 7.7 Governing Law................................................ 29
SECTION 7.8 Successors................................................... 29
SECTION 7.9 Multiple Originals........................................... 29
SECTION 7.10 Table of Contents............................................ 30
SECTION 7.11 Severability................................................. 30
SECTION 7.12 Further Assurances........................................... 30
EXHIBIT A [FORM OF WARRANT CERTIFICATE]................................ 32
ii
<PAGE>
WARRANT AGREEMENT (this "Agreement") dated as of [ ], 1997, between
MERISEL, INC., a Delaware corporation (together with its permitted successors
and assigns, the "Company"), and U.S. Stock Transfer Corp., a __________
corporation, as Warrant Agent (together with its permitted successors and
assigns, the "Warrant Agent").
WHEREAS, the Company will undergo a financial restructuring wherein
the Company will issue, to holders of Common Stock, par value $.01 per share
("Old Common Stock") of the Company Warrants, as hereinafter described
("Warrant" or, taken collectively, the "Warrants"), to purchase shares of Common
Stock, par value $.05 per share, of the Company (the "Common Stock").
WHEREAS, the Company desires that the Warrant Agent act on behalf of
the Company in connection with the issuances, division, transfer, exchange,
substitution and exercise of the Warrants, and the Warrant Agent is willing so
to act.
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the holders of Warrants:
ARTICLE I
Definitions
SECTION 1.1 Definitions.
-----------
"Board" means the Board of Directors of the Company or any committee
thereof duly authorized to act on behalf of such Board of Directors.
"Business Day" means each day that is not a Saturday, a Sunday or a
day on which banking institutions are not required to be open in New York City
or in the city where the Warrant Agent's principal corporate trust office is
located.
"Certificated Warrants" means certificated Warrants in fully
registered definitive form.
"Common Stock" has the meaning ascribed thereto in the preamble to
this Agreement.
"Exercise Price" shall have the meaning set forth in Section 3.1.
"Expiration Date" shall have the meaning set forth in Section 3.3.
<PAGE>
"Extraordinary Transaction" shall have the meaning set forth in
Section 4.1(l).
"Fair Market 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
will be determined, except as otherwise provided, (i) if such property or asset
has a Fair Market Value of less than $1 million, by any Officer of the Company
or (ii) if such property or asset has a Fair Market Value in excess of $1
million, by a majority of the Board of Directors of the Company and evidenced by
a Board Resolution, dated within 30 days of the relevant transaction.
"Issue Date" means the date on which Warrants are initially issued.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Financial Officer or the Treasurer of the
Company.
"Old Common Stock" has the meaning ascribed thereto in the preamble to
this Agreement.
"Person" means any individual, corporation, company (including any
limited liability company), partnership, joint venture, trust, unincorporated
organization, government or any agency or political subdivision thereof.
"Record Date" shall mean June 26, 1997.
"Redeemable 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 exchangeable) or otherwise (i) matures or is mandatorily
redeemable pursuant to a sinking fund obligation or otherwise, (ii) is or may
become redeemable or repurchaseable at the option of the holder thereof, in
whole or in part, or (iii) is convertible or exchangeable for indebtedness.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Voting Stock" means all classes of capital stock of a corporation
then outstanding and normally entitled to vote in the election of directors.
2
<PAGE>
"Warrant Shares" means the Common Stock (and other securities)
issuable upon the exercise of the Warrants.
SECTION 1.2 Rules of Construction. Unless the text otherwise requires:
---------------------
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles as
in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including, without limitation; and
(v) words in the singular include the plural and words in the plural
include the singular.
ARTICLE II
Warrant Certificates
SECTION 2.1 Form of Warrant Certificates. Certificates representing
----------------------------
the Warrants (the "Warrant Certificates") shall be in registered form only and
substantially in the form attached hereto as Exhibit A. The Warrant
Certificates shall be dated the date on which countersigned by the Warrant Agent
and shall have such insertions as are appropriate or required or permitted by
this Agreement and may have such letters, numbers or other marks of
identification and such legends and endorsements typed, stamped, printed,
lithographed or engraved thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation pursuant thereto, or to
conform to usage. The Company shall approve the form of the Warrant
Certificates and any notation, legend or endorsement on them.
The terms and provisions contained in the forms of the Warrant
Certificates annexed hereto as Exhibit A shall constitute, and are hereby
expressly made, a part of this Agreement.
3
<PAGE>
The definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combination of these methods, all as
determined by the officer of the Company executing such Warrant Certificates, as
evidenced by such officer's execution of such Warrant Certificates.
Pending the preparation of definitive Warrant Certificates, temporary
Warrant Certificates may be issued, which may be printed, lithographed,
typewritten, mimeographed or otherwise produced, and which will be substantially
of the tenor of the definitive Warrant Certificates in lieu of which they are
issued.
If temporary Warrant Certificates are issued, the Company will cause
definitive Warrant Certificates to be prepared without unreasonable delay.
After the preparation of definitive Warrant Certificates, the temporary Warrant
Certificates shall be exchangeable for definitive Warrant Certificates upon
surrender of the temporary Warrant Certificates to the Warrant Agent, without
charge to the Holder. Until so exchanged the temporary Warrant Certificates
shall in all respects be entitled to the same benefits under this Agreement as
definitive Warrant Certificates.
SECTION 2.2 Execution and Delivery of Warrant Certificates. Warrant
----------------------------------------------
Certificates evidencing 2,631,868 Warrants to purchase initially an aggregate of
up to 2,631,868 Warrant Shares shall be executed on or prior to the Issue Date,
by the Company and delivered to the Warrant Agent for countersignature, and the
Warrant Agent shall immediately after the filing of the Charter Amendment
countersign and deliver such Warrant Certificates upon the order and at the
direction of the Company to the holders of Old Common Stock on the Record Date.
The Warrant Agent is hereby authorized to countersign and deliver Warrant
Certificates as required hereby.
The Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, President or any Vice President, either manually or
by facsimile signature printed thereon. The Warrant Certificates shall be
countersigned manually by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company whose
signature shall have been placed upon any of the Warrant Certificates shall
cease to be such officer of the Company before countersignature by the Warrant
Agent and issuance and delivery thereof, such Warrant Certificates may,
nevertheless, be countersigned by the Warrant Agent and issued and delivered
with the same force and effect as though such person had not ceased to be such
officer of the Company.
SECTION 2.3 Loss or Mutilation. Upon receipt by the Company and the
------------------
Warrant Agent of evidence satisfactory to them of the ownership and the loss,
theft,
4
<PAGE>
destruction or mutilation of any Warrant Certificate and of indemnity
satisfactory to them and (in the case of mutilation) upon surrender and
cancellation thereof, then, in the absence of notice to the Company or the
Warrant Agent that the Warrants represented thereby have been acquired by a bona
----
fide purchaser, the Company shall execute and the Warrant Agent shall
- ----
countersign and deliver to the registered Holder of the lost, stolen, destroyed
or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new
Warrant Certificate of the same tenor and for a like aggregate number of
Warrants. Upon the issuance of any new Warrant Certificate under this Section
2.3, the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and other
expenses (including the reasonable fees and expenses of the Warrant Agent and of
counsel to the Company) in connection therewith. Every new Warrant Certificate
executed and delivered pursuant to this Section 2.3 in lieu of any lost, stolen
or destroyed Warrant Certificate shall constitute a contractual obligation of
the Company, whether or not the allegedly lost, stolen or destroyed Warrant
Certificates shall be at any time enforceable under applicable law, and shall be
entitled to the benefits of this Agreement equally and proportionately with any
and all other Warrant Certificates duly executed and delivered hereunder. The
provisions of this Section 2.3 are exclusive and shall preclude (to the extent
lawful) all other rights or remedies with respect to the replacement of
mutilated, lost, stolen or destroyed Warrant Certificates.
ARTICLE III
Exercise Terms
SECTION 3.1 Exercise Price. The number of Warrant Shares into which
--------------
each Warrant will be exercisable (subject to adjustment as provided in this
Agreement) shall be one. The Warrants will be exercisable on or after the Issue
Date, initially at a price per Warrant Share of $[ ]/1/ the "Exercise
Price").
SECTION 3.2 Expiration. A Warrant shall terminate and become void as
----------
of the earlier of (i) the close of business on the seventh anniversary of the
Issue Date ("the Expiration Date") or (ii) the date such Warrant is exercised.
SECTION 3.3 Manner of Exercise. Warrants may be exercised, subject
------------------
to Section 3.7 upon surrender to the Warrant Agent of the Warrant Certificates,
______________________
/1/ The Exercise Price will be $7.15 per share for the Series A Warrants and
$8.68 per share for the Series B Warrants.
5
<PAGE>
together with the form of election to purchase Common Stock on the reverse
thereof duly filled in and signed by the registered holder ("Holders") thereof.
The rights represented by the Warrants shall be exercisable at the election of
the Holders thereof either in full or from time to time in part and in the event
that a Warrant Certificate is surrendered for exercise in respect of less than
all the Warrant Shares purchasable on such exercise at any time prior to the
Expiration Date a new Warrant Certificate exercisable for the remaining Warrant
Shares will be issued. The Warrant Agent shall countersign and deliver the
required new Warrant Certificates, and the Company, at the Warrant Agent's
request, shall supply the Warrant Agent with Warrant Certificates duly signed on
behalf of the Company for such purpose.
SECTION 3.4 Issuance of Warrant Shares. Upon the surrender of
--------------------------
Warrant Certificates, as set forth in Section 3.3, the Company shall issue and
cause the Warrant Agent or, if appointed, a transfer agent for the Common Stock
("Stock Transfer Agent") to countersign and deliver to or upon the written order
of the Holder and in such name or names as the Holder may designate, a
certificate or certificates for the number of full Warrant Shares so purchased
upon the exercise of such Warrants or other securities or property to which it
is entitled, registered or otherwise, to the Person or Persons entitled to
receive the same, together with cash as provided in Section 3.5 in respect of
any fractional Warrant Shares otherwise issuable upon such exercise. Such
certificate or certificates shall be deemed to have been issued and any Person
so designated to be named therein shall be deemed to have become a holder of
record of such Warrant Shares as of the date of the surrender of such Warrant
Certificates and payment of the per share Exercise Price, as aforesaid;
provided, however, that if, at such date, the transfer books for the Warrant
- -------- -------
Shares shall be closed, the certificates for the Warrant Shares in respect of
which such Warrants are then exercised shall be issuable as of the date on which
such books shall next be opened and until such date the Company shall be under
no duty to deliver any certificates for such Warrant Shares; provided, further,
-------- -------
however, that such transfer books, unless otherwise required by law, shall not
- -------
be closed at any one time for a period longer than 20 calendar days.
SECTION 3.5 Fractional Warrant Shares. The Company shall not be
-------------------------
required to issue fractional Warrant Shares on the exercise of Warrants. If
more than one Warrant shall be exercised in full at the same time by the same
Holder, the number of full Warrant Shares which shall be issuable upon such
exercise shall be computed on the basis of the aggregate number of Warrant
Shares purchasable pursuant thereto. If any fraction of a Warrant Share would,
except for the provisions of this Section 3.5, be issuable on the exercise of
any Warrant (or specified portion thereof), the Company shall pay an amount in
cash equal to the market price for one Warrant Share on the trading day
immediately preceding the date the Warrant is exercised, multiplied by such
fraction, computed to the nearest whole cent.
6
<PAGE>
SECTION 3.6 Reservation of Warrant Shares. The Company shall at all
-----------------------------
times keep reserved out of its authorized shares of Common Stock a number of
shares of Common Stock sufficient to provide for the exercise of all outstanding
Warrants. The registrar for the Common Stock (the "Registrar") shall at all
times until the Expiration Date reserve such number of authorized shares as
shall be required for such purpose. The Company will keep a copy of this
Agreement on file with the Stock Transfer Agent. The Company will supply such
Stock Transfer Agent with duly executed stock certificates for such purpose and
will itself provide or otherwise make available any cash which may be payable as
provided in Section 3.5. The Company will furnish to such Stock Transfer Agent
a copy of all notices of adjustments and certificates related thereto
transmitted to each Holder.
Before taking any action which would cause an adjustment pursuant to
Article IV to reduce the Exercise Price below the then par value (if any) of the
Common Stock, the Company shall take any and all corporate action which may, in
the opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock at the
Exercise Price as so adjusted.
The Company covenants that all shares of Common Stock which may be
issued upon exercise of Warrants will, upon issue, be fully paid, nonassessable,
free of preemptive rights, free from all taxes and free from all liens, charges
and security interests, created by or through the Company, with respect to the
issue thereof.
SECTION 3.7 Compliance with Law. (a) Notwithstanding anything in
-------------------
this Agreement to the contrary, in no event shall a Holder be entitled to
exercise a Warrant unless (i) a registration statement filed under the
Securities Act in respect of the issuance of the Warrant Shares is then
effective or (ii) in the opinion of counsel to the Company addressed to the
Warrant Agent an exemption from the registration requirements is available under
the Securities Act or otherwise for the issuance of the Warrant Shares (and the
delivery of any other securities for which the Warrants may at the time be
exercisable) at the time of such exercise.
(b) If any shares of Common Stock required to be reserved for
purposes of exercise of Warrants require, under any other Federal or state law
or applicable governing rule or regulation of any national securities exchange,
registration with or approval of any governmental authority, or listing on any
such national securities exchange before such shares may be issued upon
exercise, the Company will in good faith and as expeditiously as possible
endeavor also to cause such shares to be duly registered or approved by such
governmental authority or listed on the relevant national securities exchange,
as the case may be.
7
<PAGE>
ARTICLE IV
Antidilution Provisions
SECTION 4.1 Adjustment of Exercise Price and Warrant Number. The
-----------------------------------------------
number of Warrant Shares issuable upon the exercise of each Warrant (the
"Warrant Number") is subject to adjustment from time to time upon the occurrence
- ----------------
of the events enumerated in, or as otherwise provided in, this Section 4.1.
(a) Adjustment for Change in Capital Stock
--------------------------------------
If the Company:
(1) pays a dividend (excluding regular cash dividends payable out of
earnings or surplus and made in the ordinary course of business) or makes a
distribution on its Common Stock in shares of its Common Stock;
(2) subdivides or reclassifies its outstanding shares of Common Stock
into a greater number of shares;
(3) combines or reclassifies its outstanding shares of Common Stock
into a smaller number of shares;
(4) makes a distribution on Common Stock in shares of its capital
stock other than Common Stock; or
(5) issues by reclassification of its Common Stock any shares of its
capital stock (other than reclassification arising solely as a result of a
change in the par value or no par value of the Common Stock);
then the Warrant Number in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any Warrant thereafter exercised
may receive the aggregate number and kind of shares of capital stock of the
Company which it would have owned immediately following such action if such
Warrant had been exercised immediately prior to such action.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.
8
<PAGE>
Such adjustment shall be made successively whenever any event listed above
shall occur.
The Company shall not issue shares of Common Stock as a dividend or
distribution on any class of capital stock other than Common Stock with the
intention of denying the Warrant Holders the benefit of the foregoing provisions
unless the Warrant Holders also receive such dividend or distribution on a
ratable basis or the appropriate adjustment to the Warrant Number is made under
this Section 4.1.
(b) Adjustment for Rights Issue or Convertible Securities Issue
-----------------------------------------------------------
If the Company distributes (and receives no consideration therefor) any
rights, options, warrants or securities convertible into or exchangeable or
exercisable for Common Stock (whether or not immediately exercisable) to all
holders of any class of its Common Stock entitling them to purchase shares of
Common Stock at a price per share less than the Specified Value (as defined in
Section 4.1(g) hereof) per share on the record date relating to such
distribution, the Warrant Number shall be adjusted in accordance with the
formula:
W' = W x O + N
---------
O + N x P
-----
M
where:
W' = the adjusted Warrant Number.
W = the Warrant Number immediately prior to the record date for any such
distribution.
O = the number of shares of Common Stock outstanding on the record date
for any such distribution.
N = the number of additional shares of Common Stock issuable upon
exercise of such rights, options, warrants or upon conversion of such
securities.
P = the exercise or conversion price per share of such rights, options,
warrants or convertible securities.
M = the Specified Value per share of Common Stock on the record date for
any such distribution.
9
<PAGE>
The adjustment shall be made successively whenever any such rights,
options, warrants or convertible securities are issued and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive the rights, options or warrants or convertible
securities. If at the end of the period during which such rights, options,
warrants or convertible securities are exercisable or convertible, not all
rights, options, warrants or convertible securities shall have been exercised or
converted the adjusted Warrant Number shall be immediately readjusted to what it
would have been if "N" in the above formula had been the number of shares
actually issued.
(c) Adjustment for Other Distributions
----------------------------------
If the Company distributes to all holders of any class of its Common Stock
-----------------------------
(i) any evidences of indebtedness of the Company or any of its subsidiaries,
(ii) any assets of the Company or any of its subsidiaries (excluding regular
----------
cash dividends payable out of earnings or surplus and made in the ordinary
course of business), or (iii) any rights, options or warrants to acquire any of
the foregoing or to acquire any other securities of the Company, the Warrant
Number shall be adjusted in accordance with the formula:
W' = W x M
-----
M - F
where:
W' = the adjusted Warrant Number.
W = the Warrant Number immediately prior to the record date mentioned
below.
M = the Specified Value per share of Common Stock on the record date
mentioned below.
F = the fair market value on the record date mentioned below of the
shares, the indebtedness, assets, rights, options or warrants
distributable to the holder of one share of Common Stock.
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution. If an
adjustment is made pursuant to this subsection (c) as a result of the issuance
of rights, options or warrants and at the end of the
10
<PAGE>
period during which any such rights, options or warrants are exercisable, not
all such rights, options or warrants shall have been exercised, the adjusted
Warrant Number shall be immediately readjusted as if "F" in the above formula
was the fair market value on the record date of the indebtedness or assets
actually distributed upon exercise of such rights, options or warrants divided
by the number of shares of Common Stock outstanding on the record date.
This subsection does not apply to any transaction described in subsection
(a) of this Section 4.1 or to rights, options warrants or convertible securities
referred to in subsection (b) of this Section 4.1.
(d) "Specified Value" per share of Common Stock or of any other
---------------
security (herein collectively referred to as a "Security") at any date shall be:
---------
(i) if the Security is not registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the value of the Security
-------------
determined in good faith by a majority of the independent members of the
Board of Directors of the Company and certified in a board resolution, or
(ii) if the Security is registered under the Exchange Act, the
average of the daily market prices for each business day during the period
commencing 10 business days before such date and ending on the date one day
prior to such date or, if the Security has been registered under the
Exchange Act for less than 30 consecutive business days before such date,
then the average of the daily market prices (as hereinafter defined) for
all of the business days before such date for which daily market prices are
available. If the market price is not determinable for at least 15 business
days in such period, the Specified Value of the Security shall be
determined as if the Security was not registered under the Exchange Act.
The "market price" for any Security on each business day means:
(A) such Security's closing sales price on the principal
nationally recognized domestic securities exchange (including the Nasdaq
Stock Market - National Market recognized domestic securities exchange
(including the Nasdaq Stock Market - National Market tier) on which such
Security may, at the time, be listed, or if there have been no sales on any
such exchange on any day, the average or the highest bid and lowest asked
prices on all exchanges on which such Security may, at the time, be listed,
at the end of such day, or
11
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(B) if on any day such Security is not so listed, the average of
the representative bid and asked prices quoted in the NASDAQ Inter-Dealer
Quotation System (the "NASDAQ System") as of the close of trading in New
York, New York on such day, or
(C) if on any day such security is not quoted in the NASDAQ
System, the average of the high and low bid and asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization, as reported on
the date of the applicable issuance or sale or deemed issuance or sale, as
the case may be, provided that if such date is not a Trading Day, as
reported on the Trading Day immediately preceding such date. As used
herein, the term "Trading Day" shall mean any day on which trading takes
place on the applicable securities exchange or the NASDAQ System on which
the Common Stock is listed or traded, as the case may be.
In the case of Common Stock, if more than one class of Common Stock is
outstanding, the "Specified Value" shall be the highest of the Specified Values
per share of such classes of Common Stock.
(e) Consideration Received
----------------------
For purposes of any computation respecting consideration received pursuant
to subsection (b) of this Section 4.1, the aggregate consideration received upon
the issuance of options, warrants or other securities convertible into or
exchangeable or exercisable for shares of Common Stock shall be deemed to be the
consideration received by the Company for the issuance of such securities plus
the additional minimum consideration, if any, to be received by the Company upon
the conversion, exchange or exercise thereof (without deduction being made for
any commissions, discounts or other expenses incurred by the company for any
underwriting of the issue or otherwise in connection therewith).
(f) Adjustment to Exercise Price
----------------------------
Upon each adjustment to the Warrant Number pursuant to this Section 4.1,
the Exercise Price shall be adjusted so that it is equal to the Exercise Price
in effect immediately prior to such adjustment multiplied by a quotient, the
numerator of which is the Warrant
12
<PAGE>
Number in effect immediately prior to such adjustment, and the denominator of
which is the Warrant Number in effect immediately after such adjustment.
(g) When No Adjustment Required
---------------------------
If an adjustment is made upon the establishment of a record date for a
distribution subject to subsection (a), (b) or (c) hereof and such distribution
is subsequently cancelled, the Warrant Number and Exercise Price then in effect
shall be readjusted, effective as of the date when the Board of Directors
determines to cancel such distribution, to that which would have been in effect
if such record date had not been fixed.
To the extent the Warrants become convertible into cash, no adjustment need
be made thereafter as to the amount of cash into which such Warrants are
exercisable. Interest will not accrue on the cash.
(h) Excluded Transactions
---------------------
The following securities shall be excluded from the operation of Section
4.1:
(i) [the Series A Warrants] [the Series B Warrants]; and
(ii) any grant or exercise of options to purchase Common Stock pursuant to
any employee stock plan or non-employee director stock plan approved by the
Board of Directors and, if required, by the stockholders of the Company.
(i) Reorganizations
---------------
(1) If, prior to January 1, 1998, the Company consolidates or merges with
or into, or transfers or leases all or substantially all its assets to, any
person (each an "Extraordinary Transaction") or agrees to do any of the
foregoing, upon consummation of such Extraordinary Transaction the Warrants
shall remain outstanding and continue, (A) in the case of a merger in which the
Company is the surviving company, to be convertible into Common Stock or, (B) in
any other type of Extraordinary Transaction, to be convertible into a number of
shares of common stock of the acquiring or surviving company representing the
same percentage of such common stock as the Warrants would have received in the
Company immediately prior to the consummation of the Extraordinary Transaction
(subject to equitable adjustment as the Board deems necessary), provided,
however, that the requirements of this clause (1) will not apply in the event
that the holders of 85% of the outstanding Common Stock vote to approve the
Extraordinary Transaction prior to the consummation of such transaction.
13
<PAGE>
(2) Unless previously approved by 85% of the outstanding Common Stock, the
Company shall not enter into any agreement that would result in an Extraordinary
Transaction that provides for the holders of Warrants to receive consideration
other than as set forth in clause (1) above. If the Company should enter into
any agreement in contravention of this clause (2), such agreement shall be void
ab initio.
(3) Upon the consummation of an Extraordinary Transaction which is not
subject to the restrictions of clause (1) above, the Warrants shall
automatically become exercisable for the kind and amount of securities, cash or
other assets that the holder of a Warrant would have owned immediately after the
Extraordinary Transaction if the holder had exercised the Warrant immediately
before the effective date of the Extraordinary Transaction. Concurrently with
the consummation of such transaction, the corporation formed by or surviving any
such consolidation or merger if other than the Company, or the person to which
such sale or conveyance shall have been made, shall enter into a supplemental
Warrant Agreement so providing and further providing for adjustments which shall
be as nearly equivalent as may be practical to the adjustments provided for in
this Section. The successor Company shall mail to Warrant holders a notice
describing the supplemental Warrant Agreement.
If the issuer of securities deliverable upon exercise of Warrants under the
supplemental Warrant Agreement is an affiliate of the formed, surviving,
transferee or lessee corporation, that issuer shall join in the supplemental
Warrant Agreement. If this subsection (h) applies to any transaction,
subsections (a), (b), (c), (e) or (f) of this Section shall not apply to such
transaction.
(j) Form of Warrants
----------------
Irrespective of any adjustments in the Exercise Price or the number or kind
of shares purchasable upon the exercise of the Warrants, Warrants theretofore or
thereafter issued may continue to express the same price and number and kind of
shares as are stated in the Warrants initially issuable pursuant to this
Agreement.
(k) Other Dilutive Events
---------------------
In case any event shall occur as to which the provisions of this Section
4.1 are not strictly applicable but the failure to make any adjustment would
not, in the good faith judgment of the Board of Directors, fairly protect the
purchase rights represented by the Warrants in accordance with the essential
intent and principles of such section, then, in each such case, such Board of
Directors shall make a good faith adjustment to the Exercise Price
14
<PAGE>
and Warrant Number into which each Warrant is exercisable in accordance with the
intent of this Section 4.1.
(l) Miscellaneous
-------------
For purpose of this Section 4.1, the term "shares of Common Stock" shall
----------------------
mean (i) shares of any class of stock designated as Common Stock of the Company
as of the date of this Agreement and (ii) shares of any other class of stock
resulting from successive changes or reclassification of such shares consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4.1, the holders of Warrants shall
become entitled to purchase any securities of the Company other than, or in
addition to, shares of Common Stock, thereafter the number or amount of such
other securities so purchasable upon exercise of each Warrant shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
subsections (a) through (j) of this Section 4.1, inclusive, and the other
provisions hereof with respect to the Warrant Shares or the Common Stock shall
apply on like terms to any such other securities.
SECTION 4.2 Minimum Adjustment. The adjustments required by the
------------------
preceding Section of this Article IV shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that no adjustment
of the Exercise Price or the number of shares of Common Stock purchasable upon
exercise of Warrants that would otherwise be required shall be made (except in
the case of a subdivision or combination of shares of Common Stock, as provided
for in Section 4.1) unless and until such adjustment either by itself or with
other adjustments not previously made increases or decreases by at least 1% of
the number of shares of Common Stock purchasable upon exercise of Warrants
immediately prior to the making of such adjustment; provided, however, that any
adjustment pursuant to this Article IV (including those that require an increase
or decrease in the Exercise Price or the number of shares of Common Stock
purchasable upon exercise of Warrants of less than 1%) shall be made no later
than the earlier of three years from the date of the transaction that mandates
such adjustment and the Expiration Date. Any adjustment representing a change
of less than such minimum amount shall be carried forward and made as soon as
such adjustment, together with other adjustments required by this Article IV and
not previously made, would result in a minimum adjustment. For the purpose of
any adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence. In computing adjustments under
this Article IV, fractional interests in Common Stock shall be taken into
account to the nearest one-hundredth of a share.
15
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SECTION 4.3 Notice of Adjustment. Whenever the Exercise Price or the
--------------------
number of shares of Common Stock and other property, if any, purchasable upon
exercise of Warrants is adjusted, as herein provided, the Company shall deliver
to the Warrant Agent a certificate of an officer of the Company setting forth,
in reasonable detail, the event requiring the adjustment and the method by which
such adjustment was calculated (including a description of the basis on which
the Board of Directors of the Company determined the fair market value of any
evidences of indebtedness, other securities or property or warrants or other
subscription or purchase rights), and specifying the Exercise Price and the
number of shares of Common Stock purchasable upon exercise of Warrants after
giving effect to such adjustment. The Company shall promptly cause the Warrant
Agent to mail a copy of such certificate to each Holder in accordance with
Section 7.6. The Warrant Agent shall be entitled to rely on such certificate
and shall be under no duty or responsibility with respect to any such
certificate, except to exhibit the same from time to time, to any Holder
desiring an inspection thereof during reasonable business hours. The Warrant
Agent shall not at any time be under any duty or responsibility to any Holder to
determine whether any facts exist which may require any adjustment of the
Exercise Price or the number of shares of Common Stock or other stock or
property, purchasable on exercise of the Warrants, or with respect to the nature
or extent of any such adjustment when made, or with respect to the method
employed in making such adjustment or the validity or value of any shares of
Common Stock.
SECTION 4.4 Notice of Certain Transactions. In the event that the
------------------------------
Company shall propose (a) to pay any dividend payable in securities of any class
to the holders of its Common Stock or to make any other distribution (excluding
regular cash dividends payable out of earnings or surplus and made in the
ordinary course of business) to the holders of its Common Stock, (b) to offer
the holders of its Common Stock rights to subscribe for or to purchase any
securities convertible into shares of Common Stock or shares of stock of any
class or any other securities, rights or options, (c) to effect any
Extraordinary Transaction or (d) to effect the voluntary or involuntary
dissolution, liquidation or winding-up of the Company, the Company shall within
5 days send to the Warrant Agent and the Warrant Agent shall within 5 days send
the Holders a notice (in such form as shall be furnished to the Warrant Agent by
the Company) of such proposed action or offer, such notice to be mailed by the
Warrant Agent to the Holders at their addresses as they appear in the
Certificate register, which shall specify the record date for the purposes of
such dividend, distribution or rights, or the date such issuance or event is to
take place and the date of participation therein by the holders of Common Stock,
if any such date is to be fixed, and shall briefly indicate the effect of such
action on the Common Stock and on the number and kind of any other shares of
stock and on other property, if any, and the number of shares of Common Stock
and other property, if any, purchasable upon exercise of each Warrant and the
Exercise Price after giving effect to any adjustment, if any, which will be
required as a
16
<PAGE>
result of such action. Such notice shall be given by the Company as promptly as
possible and, in the case of any action covered by clause (a) or (b) above, at
least 10 days prior to the record date for determining holders of the Common
Stock for purposes of such action and, in the case of any other such action, at
least 20 days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of Common Stock, whichever shall be
the earlier.
SECTION 4.5 Adjustment to Warrant Certificate. The form of Warrant
---------------------------------
Certificate need not be changed because of any adjustment made pursuant to this
Article IV, and Warrant Certificates issued after such adjustment may state the
same Exercise Price and the same number of shares of Common Stock as are stated
in the Warrant Certificates initially issued pursuant to this Agreement. The
Company, however, may at any time in its sole discretion make any change in the
form of Warrant Certificate that it may deem appropriate to give effect to such
adjustments and that does not affect the substance of the Warrant Certificate,
and any Warrant Certificate thereafter issued or countersigned, whether in
exchange or substitution for an outstanding Warrant Certificate or otherwise,
may be in the form as so changed.
SECTION 4.6 Issuance of Due Bills. In any case in which this Article
---------------------
IV shall require that adjustment in the Exercise Price be made as of the record
date for a specified event, (x) the Company may elect to defer until the
occurrence of such event the issuance to the holder of any Warrant exercised
after such record date the shares of Common Stock and other capital stock of the
Company, if any, issuable upon such exercise over and above the shares of Common
Stock and other capital stock of the Company, if any, issuable upon such
exercise upon the basis of the Exercise Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the effectiveness of the event requiring
such adjustment and (y) the Common Stock transfer books of the Company shall be
deemed to have been opened immediately prior to such record date, whether or not
such transfer books were in fact open.
ARTICLE V
Transferability
SECTION 5.1 Transfer and Exchange. The Warrant Certificates shall be
---------------------
issued in registered form only. The Company shall cause to be kept at the
office of the Warrant Agent a register in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Warrant Certificates and transfers
17
<PAGE>
or exchanges of Warrant Certificates as herein provided. All Warrant
Certificates issued upon any registration of transfer or exchange of Warrant
Certificates shall be the valid obligations of the Company, evidencing the same
obligations, and entitled to the same benefit under this Agreement, as the
Warrant Certificates surrendered for such registration of transfer or exchange.
A Holder may transfer its Warrants only by complying with the terms of
this Agreement. No such transfer shall be effected until, and such transferee
shall succeed to the rights of a Holder only upon, final acceptance and
registration of the transfer by the Warrant Agent in the register. Prior to the
registration of any transfer of Warrants by a Holder as provided herein, the
Company, the Warrant Agent, any agent of the Company or the Warrant Agent may
treat the Person in whose name the Warrants are registered as the owner thereof
for all purposes and as the Person entitled to exercise the rights represented
thereby, any notice to the contrary notwithstanding. When Warrant Certificates
are presented to the Warrant Agent with a request to register the transfer or to
exchange them for an equal amount of Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange in accordance
with the provisions hereof.
SECTION 5.2 Registration, Registration of Transfer and Exchange.
---------------------------------------------------
When Certificated Warrants are presented to the Warrant Agent with a
request from the Holder of such Warrants to register the transfer or to exchange
them for an equal number of Warrants of other authorized denominations, the
Warrant Agent shall register the transfer or make the exchange as requested;
provided, however, that every Warrant presented and surrendered for registration
of transfer or exchange shall be duly endorsed and be accompanied by a written
instrument of transfer in form satisfactory to the Company, duly executed by the
Holder thereof or the Holder's attorneys duly authorized in writing.
To permit registrations of transfer and exchanges, the Company shall
make available to the Warrant Agent a sufficient number of executed Warrant
Certificates to effect such registrations of transfers and exchanges. No
service charge shall be made to the Holder for any registration of transfer or
exchange of Warrants, but the Company may require from the transferring or
exchanging Holder payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable upon exchanges pursuant to Section 2.3 and
exchanges in respect of portions of Warrants not exercised and the Company may
deduct such taxes from any payment of money to be made and such transfer or
exchange shall not be consummated (if such taxes are not deducted in full)
unless or until the Holder shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company and the Warrant
Agent that such tax has been paid.
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<PAGE>
SECTION 5.3 Surrender of Warrant Certificates. Any Warrant
---------------------------------
Certificate surrendered for registration of transfer, exchange, exercise or
repurchase of the Warrants represented thereby shall, if surrendered to the
Company, be delivered to the Warrant Agent, and all Warrant Certificates
surrendered or so delivered to the Warrant Agent shall be promptly canceled by
the Warrant Agent and shall not be reissued by the Company and, except as
provided in this Article V in case of an exchange or in Article III hereof in
case of the exercise or repurchase of less than all the Warrants represented
thereby or in case of a mutilated Warrant Certificate, no Warrant Certificate
shall be issued hereunder in lieu thereof. The Warrant Agent shall deliver to
the Company from time to time such canceled Warrant Certificates.
ARTICLE VI
Warrant Agent
SECTION 6.1 Appointment of Warrant Agent. The Company hereby
----------------------------
appoints the Warrant Agent to act as agent for the Company in accordance with
provisions of this Agreement and the Warrant Agent hereby accepts such
appointment.
SECTION 6.2 Rights and Duties of Warrant Agent.
----------------------------------
(a) Agent for the Company. In acting under this Warrant Agreement
and in connection with the Warrant Certificates, the Warrant Agent is acting
solely as agent of the Company and does not assume any obligation or
relationship or agency or trust for or with any of the holders of Warrant
Certificates or beneficial owners of Warrants.
(b) Counsel. The Warrant Agent may consult with counsel satisfactory
to it, and the advice of such counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the advice of such counsel.
(c) Documents. The Warrant Agent shall be protected and shall incur
no liability for or in respect of any action taken or thing suffered by it in
reliance upon any Warrant Certificate, notice, direction, consent, certificate,
affidavit, statement or other paper or document reasonably believed by it to be
genuine and to have been presented or signed by the proper parties.
(d) No Implied Obligations. The Warrant Agent shall be obligated to
perform only such duties as are herein and in the Warrant Certificates
specifically set forth
19
<PAGE>
and no implied duties or obligations shall be read into this Agreement or the
Warrant Certificates against the Warrant Agent. The Warrant Agent shall not be
under any obligation to take any action hereunder which may tend to involve it
in any expense or liability for which it does not receive indemnity if such
indemnity is reasonably requested. The Warrant Agent shall not be accountable
or under any duty or responsibility for use by the Company of any of the Warrant
Certificates countersigned by the Warrant Agent and delivered by it to the
Holders or on behalf of the Holders pursuant to this Agreement or for the
application by the Company of the proceeds of the Warrants. The Warrant Agent
shall have no duty or responsibility in case of any default by the Company in
the performance of its covenants or agreements contained herein or in the
Warrant Certificates or in the case of the receipt of any written demand from a
Holder with respect to such default, including any duty or responsibility to
initiate or attempt to initiate any proceedings at law or otherwise.
(e) Not Responsible for Adjustments or Validity of Stock. The
Warrant Agent shall not at any time be under any duty or responsibility to any
Holder to determine whether any facts exist that may require an adjustment of
the number of shares of Common Stock purchasable upon exercise of each Warrant
or the Exercise Price, or with respect to the nature or extent of any adjustment
when made, or with respect to the method employed, or herein or in any
supplemental agreement provided to be employed, in making the same. The Warrant
Agent shall not be accountable with respect to the validity or value of any
shares of Common Stock or of any securities or property which may at any time be
issued or delivered upon the exercise of any Warrant or upon any adjustment
pursuant to Article IV, and it makes no representation with respect thereto.
The Warrant Agent shall not be responsible for any failure of the Company to
make any cash payment or to issue, transfer or deliver any shares of Common
Stock or stock certificates upon the surrender of any Warrant Certificate for
the purpose of exercise or upon any adjustment pursuant to Article IV, or to
comply with any of the covenants of the Company contained in Article IV.
SECTION 6.3 Individual Rights of Warrant Agent. The Warrant Agent
----------------------------------
and any stockholder, director, officer or employee of the Warrant Agent may buy,
sell or deal in any of the Warrants or other securities of the Company or its
affiliates or become pecuniarily interested in transactions in which the Company
or its affiliates may be interested, or contract with or lend money to the
Company or its affiliates or otherwise act as fully and freely as though it were
not the Warrant Agent under this Agreement. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for any other
legal entity.
SECTION 6.4 Warrant Agent's Disclaimer. The Warrant Agent shall not
--------------------------
be responsible for and makes no representation as to the validity or adequacy of
this
20
<PAGE>
Agreement or the Warrant Certificates and it shall not be responsible for any
statement in this Agreement or the Warrant Certificates other than its
countersignature thereon.
SECTION 6.5 Compensation and Indemnity. The Company agrees to pay
--------------------------
the Warrant Agent from time to time such compensation for its services as the
Company and the Warrant Agent shall agree from time to time and to reimburse the
Warrant Agent upon request for all reasonable out-of-pocket expenses incurred by
it, including the reasonable compensation and expenses of the Warrant Agent's
agents and counsel. The Company shall indemnify the Warrant Agent against any
loss, liability or expense (including reasonable agents' and attorneys' fees and
expenses) incurred by it without negligence or bad faith on its part arising out
of or in connection with the acceptance or performance of its duties under this
Agreement. The Warrant Agent shall notify the Company promptly of any claim for
which it may seek indemnity. The Company need not reimburse any expense or
indemnify against any loss or liability incurred by the Warrant Agent through
willful misconduct, negligence or bad faith. The Company's payment obligations
pursuant to this Section 6.5 shall survive the termination of this Agreement.
To secure the Company's payment obligations under this Agreement, the
Warrant Agent shall have a lien prior to the Warrant Holders on all money or
property held or collected by the Warrant Agent.
SECTION 6.6 Successor Warrant Agent.
-----------------------
(a) The Company To Provide Warrant Agent. The Company agrees for the
benefit of the Holders that there shall at all times be a Warrant Agent
hereunder until all the Warrants have been exercised or are no longer
exercisable.
(b) Resignation and Removal. The Warrant Agent may at any time
resign by giving written notice to the Company of such intention on its part,
specifying the date on which its desired resignation shall become effective;
provided, however, that such date shall not be less than 60 days after the date
on which such notice is given unless the Company otherwise agrees. The Warrant
Agent hereunder may be removed at any time by the filing with it of an
instrument in writing signed by or on behalf of the Company and specifying such
removal and the date when it shall become effective, which date shall not be
less than 60 days after such notice is given unless the Warrant Agent otherwise
agrees. Any removal under this Section 6.6 shall take effect upon the
appointment by the Company as hereinafter provided of a successor Warrant Agent
(which shall be a bank or trust company authorized under the laws of the
jurisdiction of its organization to exercise corporate trust powers) and the
acceptance of such appointment by such successor Warrant Agent.
21
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(c) The Company To Appoint Successor. In case at any time the
Warrant Agent shall resign, or shall be removed, or shall become incapable of
acting, or shall be adjudged a bankrupt or insolvent, or shall commence a
voluntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or under any other applicable Federal or state bankruptcy,
insolvency or similar law or shall consent to the appointment of or taking
possession by a receiver, custodian, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Warrant Agent or its property or affairs, or
shall make an assignment for the benefit of creditors, or shall admit in writing
its inability to pay its debts generally as they become due, or shall take
corporate action in furtherance of any such action, or a decree or order for
relief by a court having jurisdiction in the premises shall have been entered in
respect of the Warrant Agent in an involuntary case under the Federal bankruptcy
laws, as now or hereafter constituted, or any other applicable Federal or State
bankruptcy, insolvency or similar law; or a decree order by a court having
jurisdiction in the premises shall have been entered for the appointment of a
receiver, custodian, liquidator, assignee, trustee, sequestrator (or similar
official) of the Warrant Agent or of its property or affairs, or any public
officer shall take charge or control of the Warrant Agent or of its property or
affairs for the purpose of rehabilitation, conservation, winding up of or
liquidation, a successor Warrant Agent, qualified as aforesaid, shall be
appointed by the Company by an instrument in writing, filed with the successor
Warrant Agent (or, in the absence of such appointment within 60 days after the
notice of resignation or removal, either party hereto may petition the
appointment of a successor by a court of competent jurisdiction). Upon the
appointment as aforesaid of a successor Warrant Agent and acceptance by the
successor Warrant Agent of such appointment, the Warrant Agent shall cease to be
Warrant Agent hereunder; provided, however, that in the event of the resignation
of the Warrant Agent under this subsection (c), such resignation shall be
effective on the earlier of (i) the date specified in the Warrant Agent's notice
of resignation and (ii) the appointment and acceptance of a successor Warrant
Agent hereunder.
(d) Successor To Expressly Assume Duties. Any successor Warrant
Agent appointed hereunder shall execute, acknowledge and deliver to its
predecessor and to the Company an instrument accepting such appointment
hereunder, and thereupon such successor Warrant Agent, without any further act,
deed or conveyance, shall become vested with all the rights and obligations of
such predecessor with like effect as if originally named as Warrant Agent
hereunder, and such predecessor, upon payment of its charges and disbursements
then unpaid, shall thereupon become obligated to transfer, deliver and pay over,
and such successor Warrant Agent shall be entitled to receive, all monies,
securities and other property on deposit with or held by such predecessor, as
Warrant Agent hereunder.
(e) Successor by Merger. Any corporation into which the Warrant
Agent hereunder may be merged or consolidated, or any corporation resulting from
any
22
<PAGE>
merger or consolidation to which the Warrant Agent shall be a party, or any
corporation to which the Warrant Agent shall sell or otherwise transfer all or
substantially all of its corporate trust business; provided that it shall be
qualified as aforesaid, shall be the successor Warrant Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto.
ARTICLE VII
Miscellaneous
SECTION 7.1 Company Resales. The Company hereby agrees with each
---------------
Holder, that the Company shall not resell any Warrants or Warrant Shares it
acquires, by purchase or otherwise, except pursuant to an effective registration
statement.
SECTION 7.2 SEC Reports and Other Information. Notwithstanding that
---------------------------------
the Company may not be subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Company shall, for all periods ending after the
date of this Warrant Agreement, file with the SEC and thereupon provide the
Warrant Agent and Holders with such annual reports and such information,
documents and other reports are as specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S. corporation subject to such Sections, such
information, documents and other reports to be so filed and provided at the
times specified for the filing of such information, documents and reports under
such Sections.
SECTION 7.3 Persons Benefitting. Nothing in this Agreement is
-------------------
intended or shall be construed to confer upon any Person other than the Company,
the Warrant Agent and the Holders any right, remedy or claim under or by reason
of this agreement or any part hereof.
SECTION 7.4 Rights of Holders. Except as expressly contemplated
-----------------
herein, holders of unexercised Warrants are not entitled (i) to receive
dividends or other distributions, (ii) to receive notice of or vote at any
meeting of the stockholders, (iii) to consent to any action of the stockholders,
(iv) to exercise any preemptive right or to receive notice of any other
proceedings of the Company or (v) to exercise any other rights whatsoever as
stockholders of the Company.
SECTION 7.5 Amendment. This Agreement may be amended by the parties
---------
hereto without the consent of any Holder for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective provision
contained herein or making
23
<PAGE>
any other provisions with respect to matters or questions arising under this
Agreement as the Company and the Warrant Agent may deem necessary or desirable;
provided, however, that the Company determines, and the Warrant Agent may rely
on such determination, that such action shall not affect adversely the rights of
the Holders. Any amendment or supplement to this Agreement that has a material
adverse effect on the interests of the Holders shall require the written consent
of the Holders of a majority of the then outstanding Warrants. The consent of
each Holder affected shall be required for any amendment pursuant to which the
Exercise Price would be increased or the number of Warrant Shares purchasable
upon exercise of Warrants would be decreased (other than pursuant to adjustments
provided in Article IV). In determining whether the Holders of the required
number of Warrants have concurred in any direction, waiver or consent, Warrants
owned by the Company or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company shall
be disregarded and deemed not to be outstanding, except that, for the purpose of
determining whether the Warrant Agent shall be protected in relying on any such
direction, waiver or consent, only Warrants which the Warrant Agent knows are so
owned shall be so disregarded. Also, subject to the foregoing, only Warrants
outstanding at the time shall be considered in any such determination.
SECTION 7.6 Notices. Any notice or communication shall be in writing
-------
and delivered in Person or mailed by first-class mail addressed as follows:
if to the Company:
Merisel, Inc.
200 Continental Boulevard
El Segundo, California 90245
Attention: [Chief Financial Officer]
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
Attention: Joseph J. Giunta
24
<PAGE>
if to the Warrant Agent:
U.S. Stock Transfer Corp.
1745 Gardena Avenue
Suite 200
Glendale, California 91204
The Company or the Warrant Agent by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Holder shall be mailed to the
Holder at the Holder's address as it appears on the register in which the
Company shall provide for the registration of Warrants and Warrant Shares and of
transfers and exchanges of Warrants and Warrant Shares and shall be sufficiently
given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
SECTION 7.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE AS
APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF DELAWARE,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY HEREBY
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND DELAWARE
STATE COURTS LOCATED IN THE CITY OF WILMINGTON IN CONNECTION WITH ANY SUIT,
ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS
CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL
JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT,
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND
ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
25
<PAGE>
SECTION 7.8 Successors. All agreements of the Company in this
----------
Agreement and the Warrant Certificates shall bind its successors. All
agreements of the Warrant Agent in this Agreement shall bind its successors.
SECTION 7.9 Multiple Originals. The parties may sign any number of
------------------
copies of this Agreement. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Agreement.
SECTION 7.10 Table of Contents. The table of contents and headings
-----------------
of the Articles and Sections of this Agreement have been inserted for
convenience of reference only, are not intended to be considered a part hereof
and shall not modify or restrict any of the terms or provisions hereof.
SECTION 7.11 Severability. The provisions of this Agreement are
------------
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
SECTION 7.12 Further Assurances. From time to time on and after the
------------------
date hereof, the Company shall deliver or cause to be delivered to the Warrant
Agent such further documents and instruments and shall do and cause to be done
such further acts as the Warrant Agent shall reasonably request (it being
understood that the Warrant Agent shall have no obligation to make such request)
to carry out more effectively the provisions and purposes of this Agreement, to
evidence compliance herewith or to assure itself that it is protected hereunder.
26
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Warrant Agreement to
be duly executed as of the date first written above.
MERISEL, INC.
By:
--------------------------------
Name:
Title:
U.S. STOCK TRANSFER CORP.,
as Warrant Agent,
By:
---------------------------------
Name:
Title:
27
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
No. [ ] Certificate for ______ Warrants
CUSIP No. ______________
WARRANTS TO PURCHASE COMMON STOCK OF
MERISEL, INC.
THIS CERTIFIES THAT [___________], or its registered assigns, is the
registered holder of the number of Warrants set forth above (the "Warrants").
Each Warrant entitles the holder thereof (the "Holder"), at its option and
subject to the provisions contained herein and in the Warrant Agreement referred
to below, to purchase from Merisel, Inc., a Delaware corporation ("the
Company"), shares of Common Stock, $0.05 par value, of the Company (the "Common
Stock") at the per share exercise price of $[ ] (the "Exercise Price").
The number of shares of Common Stock into which each Warrant will be exercisable
(subject to adjustment as provided in the Warrant Agreement) shall be [
]. This Warrant Certificate shall terminate and become void as of the close of
business on [ ], 2004 (the "Expiration Date") or upon the exercise
hereof as to all the shares of Common Stock subject hereto. The number of
shares purchasable upon exercise of the Warrants and the Exercise Price per
share shall be subject to adjustment from time to time as set forth in the
Warrant Agreement.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of [ ], 1997 (the "Warrant Agreement"),
between the Company and [ ] (the "Warrant Agent," which term
includes any successor Warrant Agent under the Warrant Agreement), and is
subject to the terms and provisions contained in the Warrant Agreement, to all
of which terms and provisions the Holder of this Warrant Certificate consents by
acceptance hereof. The Warrant Agreement is hereby incorporated herein by
reference and made a part hereof. Reference is hereby made to the Warrant
Agreement for a full statement of the respective rights, limitations of rights,
duties and
28
<PAGE>
obligations of the Company, the Warrant Agent and the Holders of the Warrants.
Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in the Warrant Agreement.
As provided in the Warrant Agreement and subject to the terms and
conditions therein set forth, the Warrants shall be exercisable at any time or
from time to time on any Business Day on or after [ ], 1997;
provided, however, that no Warrant shall be exercisable after [ ],
- -------- -------
2004. Subject to the terms of the Warrant Agreement, the Warrants may be
exercised in whole or in part by presentation of this Warrant Certificate.
If, prior to January 1, 1998, the Company consolidates or merges with
or into, or transfers or leases all or substantially all its assets to, any
person (each an "Extraordinary Transaction") or agrees to do any of the
foregoing, upon consummation of such Extraordinary Transaction the Warrants
shall remain outstanding and continue, in the case of a merger in which the
Company is the surviving company, to be convertible into Common Stock or, in any
other type of Extraordinary Transaction, to be convertible into a number of
shares of common stock of the acquiring or surviving company representing the
same percentage of such common stock as the Warrants would have received in the
Company immediately prior to the consummation of the Extraordinary Transaction,
provided, however, that the requirements of this paragraph will not apply in the
event that the holders of 85% of the outstanding Warrants vote to approve the
Extraordinary Transaction prior to the consummation of such transaction.
Upon the consummation of an Extraordinary Transaction which is not
subject to the restrictions of the immediately preceding paragraph above, the
Warrants shall automatically become exercisable for the kind and amount of
securities, cash or other assets that the holder of a Warrant would have owned
immediately after the Extraordinary Transaction if the holder had exercised the
Warrant immediately before the effective date of the Extraordinary Transaction.
Concurrently with the consummation of such transaction, the corporation formed
by or surviving any such consolidation or merger if other than the Company, or
the person to which such sale or conveyance shall have been made, shall enter
into a supplemental Warrant Agreement so providing and further providing for
adjustments which shall be as nearly equivalent as may be practical to the
adjustments provided for in this Section. The successor Company shall mail to
Warrant holders a notice describing the supplemental Warrant Agreement.
The Company may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with the transfer or
exchange of the Warrant Certificates pursuant to Section 5.2 of the Warrant
Agreement but not for any
29
<PAGE>
exchange or original issuance (not involving a transfer) with respect to
temporary Warrant Certificates, the exercise of the Warrants or the Warrant
Shares.
Upon any partial exercise of the Warrants, there shall be
countersigned and issued to the Holder hereof a new Warrant Certificate in
respect of the shares of Common Stock as to which the Warrants shall not have
been exercised. This Warrant Certificate may be exchanged at the office of the
Warrant Agent by presenting this Warrant Certificate properly endorsed with a
request to exchange this Warrant Certificate for other Warrant Certificates
evidencing an equal number of Warrants. No fractional Warrant Shares will be
issued upon the exercise of the Warrants, but the Company shall pay an amount in
cash equal to the market price for one Warrant Share on the trading day
immediately preceding the date the Warrant is exercised, multiplied by the
fraction of a Warrant Share that would be issuable on the exercise of any
Warrant.
All shares of Common Stock issuable by the Company upon the exercise
of the Warrants shall, upon such issue, be duly and validly issued and fully
paid and nonassessable.
The Holder in whose name the Warrant Certificate is registered may be
deemed and treated by the Company and the Warrant Agent as the absolute owner of
the Warrant Certificate for all purposes whatsoever and neither the Company nor
the Warrant Agent shall be affected by notice to the contrary.
The Warrants do not entitle any holder hereof to any of the rights of
a stockholder of the Company.
30
<PAGE>
This Warrant Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Warrant Agent.
MERISEL, INC.
By:
-----------------------------
Title:
Attest:
- ----------------------------------
Assistant Secretary
DATED:
Countersigned:
U.S. STOCK TRANSFER CORP.,
as Warrant Agent,
By:
-------------------------------
Authorized Signatory
31
<PAGE>
ANNEX III
MERISEL, INC.
1997 STOCK AWARD AND INCENTIVE PLAN
<PAGE>
MERISEL, INC.
1997 STOCK AWARD AND INCENTIVE PLAN
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C>
1. Purpose; Types of Awards; Construction........... 1
--------------------------------------
2. Definitions...................................... 1
-----------
3. Administration................................... 6
--------------
4. Eligibility...................................... 8
-----------
5. Stock Subject to the Plan........................ 8
-------------------------
6. Specific Terms of Awards......................... 9
------------------------
7. Change in Control Provisions..................... 15
----------------------------
8. Loan Provisions.................................. 15
---------------
9. General Provisions............................... 16
------------------
</TABLE>
i
<PAGE>
MERISEL, INC.
1997 STOCK AWARD AND INCENTIVE PLAN
1. Purpose; Types of Awards; Construction.
--------------------------------------
The purposes of the 1997 Stock Award and Incentive Plan of Merisel,
Inc. (the "Plan") is to afford an incentive to reinforce the long-term
commitment to the Company's success of those directors, officers and other
employees of the Company and its Subsidiaries who are or will be responsible for
such success; to facilitate the ownership of the Company's stock by such
individuals, thereby aligning their interests with those of the Company's
stockholders; and to assist the Company in attracting and retaining directors,
officers and other employees with experience and ability. Pursuant to Section 6
of the Plan, there may be granted Stock Options (including "incentive stock
options" and "nonqualified stock options"), stock appreciation rights and
limited stock appreciation rights (either in connection with options granted
under the Plan or independently of options), restricted stock, restricted stock
units, dividend equivalents, performance shares and other stock- or cash-based
awards. The Plan also provides the authority to make loans to purchase shares of
common stock of the Company. The Plan is designed to comply with the
requirements of Regulation G (12 C.F.R. (S)207) regarding the purchase of shares
on margin, the requirements for "performance-based compensation" under Section
162(m) of the Code and the conditions for exemption from short-swing profit
recovery rules under Rule 16b-3 of the Exchange Act, and shall be interpreted in
a manner consistent with the requirements thereof.
2. Definitions.
-----------
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Award" means any Option, SAR (including a Limited SAR),
Restricted Stock, Restricted Stock Unit, Dividend Equivalent, Performance Share
or Other Stock-Based Award or Other Cash-Based Award granted under the Plan.
(b) "Award Agreement" means any written agreement, contract, or
other instrument or document evidencing an Award.
<PAGE>
(c) "Beneficiary means the person, persons, trust or trusts which
have been designated by a Grantee in his or her most recent written beneficiary
designation filed with the Company to receive the benefits specified under the
Plan upon his or her death, or, if there is no designated Beneficiary or
surviving designated Beneficiary, then the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive such
benefits.
(d) "Board" means the Board of Directors of the Company.
(e) "Change in Control" means a change in control of the Company
which will be deemed to have occurred if:
(i) any "person," as such term is used in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof except that such term shall not include (A) the Company or any
of its subsidiaries, (B) any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any of its
affiliates, (C) an underwriter temporarily holding securities pursuant
to an offering of such securities, (D) any corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of Stock, or (E) any person or
group as used in Rule 13d-1(b) under the Exchange Act, is or becomes
the Beneficial Owner, as such term is defined in Rule 13d-3 under the
Exchange Act, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its affiliates other
than in connection with the acquisition by the Company or its
affiliates of a business) representing [50%] or more of the combined
voting power of the Company's then outstanding securities;
(ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board,
and any new director (other than (A) a director designated by a person
who has entered into an agreement with the Company to effect a
transaction described in clause (i), (iii), or (iv) of this Section
2(f) or (B) other than a director whose initial assumption of office
is in connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating to the
2
<PAGE>
election of directors of the Company) whose election by the Board
or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof;
(iii) there is consummated a merger or consolidation of the
Company or any [OR ANY DIRECT OR INDIRECT SUBSIDIARY OF THE COMPANY]
with any other corporation, other than (A) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) in combination with the
ownership of any trustee or other fiduciary holding securities under
an employee benefit plan of the Company or any subsidiary of the
Company, at least 75% of the combined voting power of the securities
of the Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or (B) a
merger or consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no person (as defined
above) is or becomes the beneficial owner, directly or indirectly, of
securities of the Company (not including in the securities
beneficially owned by such person any securities acquired directly
from the Company or its affiliates other than in connection with the
acquisition by the Company or its affiliates of a business)
representing 25% or more of the combined voting power of the Company's
then outstanding securities; or
(iv) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets (or any transaction
having a similar effect) other than a sale or disposition by the
Company of all or substantially all of the Company's assets to an
entity, at least 75% of the combined voting power of the voting
securities of which are owned by stockholders of the Company
3
<PAGE>
in substantially the same proportions as their ownership of the
Company immediately prior to such sale.
(f) "Change in Control Price" means the higher of (i) the highest
price per share paid in any transaction constituting a Change in Control or (ii)
the highest Fair Market Value per share at any time during the 60-day period
preceding or following a Change in Control.
(g) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(h) "Committee" means the Board or the committee established by the
Board to administer the Plan, the composition of which shall at all times
satisfy the provisions of Rule 16b-3.
(i) "Company" means Merisel, Inc., a corporation organized under the
laws of the State of Delaware, or any successor corporation.
(j) "Dividend Equivalent" means a right, granted to a Grantee under
Section 6(g), to receive cash, Stock, or other property equal in value to
dividends paid with respect to a specified number of shares of Stock. Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award, and may be paid currently or on a deferred basis.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(l) "Fair Market Value" means, with respect to Stock or other
property, the fair market value of such Stock or other property determined by
such methods or procedures as shall be established from time to time by the
Committee. Unless otherwise determined by the Committee in good faith, the per
share Fair Market Value of Stock as of a particular date shall mean (i) the
closing sales price per share of Stock on the national securities exchange on
which the Stock is principally traded, for the last preceding date on which
there was a sale of such Stock on such exchange, or (ii) if the shares of Stock
are then traded in an over-the-counter market, the average of the closing bid
and asked prices for the shares of Stock in such over-the-counter market for the
last preceding date on which there was a sale of such Stock in such market, or
(iii) if the shares of Stock
4
<PAGE>
are not then listed on a national securities exchange or traded in an over-the-
counter market, such value as the Committee, in its sole discretion, shall
determine.
(m) "Grantee" means a person who, as an employee or independent
contractor of the Company, a Subsidiary or an Affiliate, has been granted an
Award or Loan under the Plan.
(n) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(o) "Limited SAR" means a right granted pursuant to Section 6(c)
which shall, in general, be automatically exercised for cash upon a Change in
Control.
(p) "Loan" means the proceeds from the Company borrowed by a
Plan participant under Section 8 of the Plan.
(q) "NQSO" means any Option that is designated as a nonqualified
stock option.
(r) "Option" means a right, granted to a Grantee under Section 6(b),
to purchase shares of Stock. An Option may be either an ISO or an NQSO;
provided that, ISO's may be granted only to employees of the Company or a
- -------- ----
Subsidiary.
(s) "Other Cash-Based Award" means cash awarded under Section 6(h),
including cash awarded as a bonus or upon the attainment of specified
performance criteria or otherwise as permitted under the Plan.
(t) "Other Stock-Based Award" means a right or other interest granted
to a Grantee under Section 6(h) that may be denominated or payable in, valued in
whole or in part by reference to, or otherwise based on, or related to, Stock,
including, but not limited to (1) unrestricted Stock awarded as a bonus or upon
the attainment of specified performance criteria or otherwise as permitted under
the Plan, and (2) a right granted to a Grantee to acquire Stock from the Company
for cash and/or a promissory note containing terms and conditions prescribed by
the Committee.
5
<PAGE>
(u) "Performance Share" means an Award of shares of Stock to a
Grantee under Section 6(h) that is subject to restrictions based upon the
attainment of specified performance criteria.
(v) "Plan" means this Merisel, Inc. 1997 Stock Award and
Incentive Plan, as amended from time to time.
(w) "Restricted Stock" means an Award of shares of Stock to a Grantee
under Section 6(d) that may be subject to certain restrictions and to a risk of
forfeiture.
(x) "Restricted Stock Unit" means a right granted to a Grantee under
Section 6(e) to receive Stock or cash at the end of a specified deferral period,
which right may be conditioned on the satisfaction of specified performance or
other criteria.
(y) "Rule 16b-3" means Rule 16b-3, as from time to time in effect
promulgated by the Securities and Exchange Commission under Section 16 of the
Exchange Act, including any successor to such Rule.
(z) "Stock" means shares of the common stock, par value $.01 per
share, of the Company.
(aa) "SAR" or "Stock Appreciation Right" means the right, granted to
a Grantee under Section 6(c), to be paid an amount measured by the appreciation
in the Fair Market Value of Stock from the date of grant to the date of exercise
of the right, with payment to be made in cash, Stock, or property as specified
in the Award or determined by the Committee.
(ab) "Securities Act" means the Securities Act of 1933, as amended
from time to time, and as now or hereafter construed, interpreted and applied by
regulations, rulings and cases.
(cc) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of granting of an Award,
each of the corporations (other than the last corporation in the unbroken
chain) owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain.
6
<PAGE>
3. Administration.
--------------
The Plan shall be administered by the Committee. The Committee shall
have the authority in its discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Awards and make Loans; to determine the
persons to whom and the time or times at which Awards shall be granted and Loans
shall be made; to determine the type and number of Awards to be granted and the
amount of any Loan, the number of shares of Stock to which an Award may relate
and the terms, conditions, restrictions and performance criteria relating to any
Award or Loan; and to determine whether, to what extent, and under what
circumstances an Award may be settled, cancelled, forfeited, exchanged, or
surrendered; to make adjustments in the terms and conditions of, and the
criteria and performance objectives (if any) included in, Awards and Loans in
recognition of unusual or non-recurring events affecting the Company or any
Subsidiary or Affiliate or the financial statements of the Company or any
Subsidiary or Affiliate, or in response to changes in applicable laws,
regulations, or accounting principles; to construe and interpret the Plan and
any Award or Loan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the Award
Agreements and any promissory note or agreement related to any Loan (which need
not be identical for each Grantee); and to make all other determinations deemed
necessary or advisable for the administration of the Plan.
The Committee may appoint a chairperson and a secretary and may make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Committee shall be made by a majority of its members either present in person or
participating by conference telephone at a meeting or by written consent. The
Committee may delegate to one or more of its members or to one or more agents
such administrative duties as it may deem advisable, and the Committee or any
person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding on all persons,
including the Company, and any Subsidiary or Grantee (or any person claiming any
rights under the Plan from or through any Grantee) and any stockholder.
7
<PAGE>
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any Award
granted or Loan made hereunder.
4. Eligibility.
-----------
Subject to the conditions set forth below, Awards and Loans may be
granted to directors and selected employees of the Company and its present or
future Subsidiaries, in the discretion of the Committee. In determining the
persons to whom Awards and Loans shall be granted and the type of any Award or
the amount of any Loan (including the number of shares to be covered by such
Award), the Committee shall take into account such factors as the Committee
shall deem relevant in connection with accomplishing the purposes of the Plan.
5. Stock Subject to the Plan.
-------------------------
The maximum number of shares of Stock reserved for the grant of Awards
under the Plan shall be 3,000,000 (shares of Stock, subject to adjustment as
provided herein); provided that, such number of shares shall be decreased to
the extent that shares of Stock remain subject to outstanding options or other
stock-based awards under any other incentive or bonus plan of the Company. No
more than 100% of the total shares available for grant may be awarded to a
single individual in a single year. Such shares may, in whole or in part, be
authorized but unissued shares or shares that shall have been or may be
reacquired by the Company in the open market, in private transactions or
otherwise. If any shares subject to an Award are forfeited, cancelled,
exchanged or surrendered or if an Award otherwise terminates or expires without
a distribution of shares to the Grantee, the shares of stock with respect to
such Award shall, to the extent of any such forfeiture, cancellation, exchange,
surrender, termination or expiration, again be available for Awards under the
Plan; provided that, in the case of forfeiture, cancellation, exchange or
-------- ----
surrender of shares of Restricted Stock or Restricted Stock Units with respect
to which dividends or Dividend Equivalents have been paid or accrued, the number
of shares with respect to such Awards shall not be available for Awards
hereunder unless, in the case of shares with respect to which dividends or
Dividend Equivalents were accrued but unpaid, such dividends and Dividend
Equivalents are also forfeited, cancelled, exchanged or surrendered. Upon the
exercise of any Award granted in tandem with any other Awards or awards, such
related Awards or awards shall be cancelled to the extent of the number of
shares of Stock as to which the Award is exercised and, notwithstanding
8
<PAGE>
the foregoing, such number of shares shall no longer be available for Awards
under the Plan.
In the event that the Committee shall determine that any dividend or
other distribution (whether in the form of cash, Stock, or other property),
recapitalization, Stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Grantees under the Plan, then the Committee shall make such equitable
changes or adjustments as it deems necessary or appropriate to any or all of (i)
the number and kind of shares of Stock which may thereafter be issued in
connection with Awards, (ii) the number and kind of shares of Stock issued or
issuable in respect of outstanding Awards, and (iii) the exercise price, grant
price, or purchase price relating to any Award; provided that, with respect to
-------- ----
ISOs, such adjustment shall be made in accordance with Section 424(h) of the
Code.
6. Specific Terms of Awards.
------------------------
(a) General. The term of each Award shall be for such period
-------
as may be determined by the Committee. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a Subsidiary
or Affiliate upon the grant, maturation, or exercise of an Award may be made in
such forms as the Committee shall determine at the date of grant or thereafter,
including, without limitation, cash, Stock, or other property, and may be made
in a single payment or transfer, in installments, or on a deferred basis. The
Committee may make rules relating to installment or deferred payments with
respect to Awards, including the rate of interest to be credited with respect to
such payments. In addition to the foregoing, the Committee may impose on any
Award or the exercise thereof, at the date of grant or thereafter, such
additional terms and conditions, not inconsistent with the provisions of the
Plan, as the Committee shall determine.
(b) Options. The Committee is authorized to grant Options to
-------
Grantees on the following terms and conditions:
(i) Type of Award. The Award Agreement evidencing the
-------------
grant of an Option under the Plan shall designate the Option as an ISO
or an NQSO.
9
<PAGE>
(ii) Exercise Price. The exercise price per share of Stock
--------------
purchasable under an Option shall be determined by the Committee;
provided that, in the case of an ISO, such exercise price shall be not
-------- ----
less than the Fair Market Value of a share on the date of grant of
such Option, and in no event shall the exercise price for the purchase
of shares be less than par value. The exer cise price for Stock
subject to an Option may be paid in cash or by an exchange of Stock
previously owned by the Grantee, or a combination of both, in an
amount having a combined value equal to such exercise price. A Grantee
may also elect to pay all or a portion of the aggregate exercise price
by having shares of Stock with a Fair Market Value on the date of
exercise equal to the aggregate exercise price withheld by the Company
or sold by a broker-dealer under circumstances meeting the
requirements of 12 C.F.R. (S)220 or any successor thereof.
(iii) Term and Exercisability of Options. Unless otherwise
----------------------------------
provided in an Award Agreement, the date on which the Committee adopts
a resolution expressly granting an Option shall be considered the day
on which such Option is granted. Options shall be exercisable over the
exercise period (which shall not exceed ten years from the date of
grant), at such times and upon such conditions as the Committee may
determine, as reflected in the Award Agreement; provided that, the
-------- ----
Committee shall have the authority to accelerate the exercisability of
any outstanding Option at such time and under such circumstances as
it, in its sole discretion, deems appropriate. An Option may be
exercised to the extent of any or all full shares of Stock as to which
the Option has become exercisable, by giving written notice of such
exercise to the Com mittee or its designated agent.
(iv) Termination of Employment, etc. An Option may not be
------------------------------
exercised unless the Grantee is then in the employ of, or then
maintains an independent contractor relationship with, the Company or
a Subsidiary or an Affiliate (or a company or a parent or subsidiary
company of such company issuing or assuming the Option in a
transaction to which Section 424(a) of the Code applies),
10
<PAGE>
and unless the Grantee has remained continuously so employed, or
continuously maintained such relationship, since the date of grant of
the Option; provided that, the Award Agreement may contain provisions
-------------
extending the exercisability of Options, in the event of specified
terminations, to a date not later than the expira tion date of such
Option.
(v) Other Provisions. Options may be subject to such other
----------------
conditions including, but not limited to, restrictions on
transferability of the shares acquired upon exercise of such Options,
as the Committee may prescribe in its discretion or as may be required
by applicable law.
(c) SARs and Limited SARs. The Committee is authorized to
---------------------
grant SARs and Limited SARs to Grantees on the following terms and
conditions:
(i) In General. Unless the Committee determines otherwise,
----------
an SAR or a Limited SAR (1) granted in tandem with an NQSO may be
granted at the time of grant of the related NQSO or at any time
thereafter or (2) granted in tandem with an ISO may only be granted at
the time of grant of the related ISO. An SAR or Limited SAR granted
in tandem with an Option shall be exercisable only to the extent the
underlying Option is exercisable.
(ii) SARs. An SAR shall confer on the Grantee a right to
----
receive an amount with respect to each share subject thereto, upon
exercise thereof, equal to the excess of (1) the Fair Market Value of
one share of Stock on the date of exercise over (2) the grant price of
the SAR (which in the case of an SAR granted in tandem with an Option
shall be equal to the exercise price of the underlying Option, and
which in the case of any other SAR shall be such price as the
Committee may determine).
(iii) Limited SARs. A Limited SAR shall confer on the
------------
Grantee a right to receive with respect to each share subject thereto,
automatically upon the occurrence of a Change in Control, an amount
equal in value to the excess of (1) the Change in Control Price (in
the case of a LSAR granted in tandem with an ISO, the
11
<PAGE>
Fair Market Value), of one share of Stock on the date of such Change
in Control over (2) the grant price of the Limited SAR (which in the
case of a Limited SAR granted in tandem with an Option shall be equal
to the exercise price of the underlying Option, and which in the case
of any other Limited SAR shall be such price as the Committee
determines); provided that, in the case of a Limited SAR granted to a
-------- ----
Grantee who is subject to the reporting requirements of Section 16(a)
of the Exchange Act (a "Section 16 Individual"), such Section 16
Individual shall only be entitled to receive such amount if such
Limited SAR has been outstanding for at least six (6) months as of the
date of the Change in Control.
(d) Restricted Stock. The Committee is authorized to grant
----------------
Restricted Stock to Grantees on the following terms and conditions:
(i) Issuance and Restrictions. Restricted Stock shall be
-------------------------
subject to such restrictions on transferability and other
restrictions, if any, as the Committee may impose at the date of grant
or thereafter, which restrictions may lapse separately or in
combination at such times, under such circumstances, in such
installments, or otherwise, as the Committee may determine. Such
restrictions may include factors relating to the increase in the value
of the Stock or to individual or Company performance such as the
attainment of certain specified individual, divisional or Company-wide
performance goals, sales volume increases or increases in earnings per
share. Except to the extent restricted under the Award Agreement
relating to the Restricted Stock, a Grantee granted Restricted Stock
shall have all of the rights of a stock holder including, without
limitation, the right to vote Restricted Stock and the right to
receive dividends thereon.
(ii) Forfeiture. Upon termination of employment with or
----------
service to the Company, or upon termination of the independent
contractor relationship, as the case may be, during the applicable
restriction period, Restricted Stock and any accrued but unpaid
dividends or Dividend Equivalents that are at that time subject to
restrictions shall be forfeited; provided that, the Committee may
-------- ----
provide, by rule or regulation or in any Award Agreement, or may
determine in any individual case, that restrictions or forfeiture
12
<PAGE>
conditions relating to Restricted Stock will be waived in whole or in
part in the event of terminations resulting from specified causes,
and the Committee may in other cases waive in whole or in part the
forfeiture of Restricted Stock.
(iii) Certificates for Stock. Restricted Stock granted
----------------------
under the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are
registered in the name of the Grantee, such certificates shall bear an
appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock, and the Company
shall retain physical possession of the certificate.
(iv) Dividends. Dividends paid on Restricted Stock shall
---------
be either paid at the dividend payment date, or deferred for payment
to such date as determined by the Committee, in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of
such dividends. Stock distributed in connection with a stock split or
stock dividend, and other property distributed as a dividend, shall be
subject to restrictions and a risk of forfeiture to the same extent as
the Restricted Stock with respect to which such Stock or other
property has been distributed.
(e) Restricted Stock Units. The Committee is authorized to grant
----------------------
Restricted Stock Units to Grantees, subject to the following terms and
conditions:
(i) Award and Restrictions. Delivery of Stock or cash, as
----------------------
determined by the Committee, will occur upon expiration of the
deferral period specified for Restricted Stock Units by the Committee.
In addition, Restricted Stock Units shall be subject to such
restrictions as the Committee may impose, at the date of grant or
thereafter, which restrictions may lapse at the expiration of the
deferral period or at earlier or later specified times, separately or
in combination, in installments or otherwise, as the Committee may
determine. Such restrictions may include factors relating to the
increase in the value of the Stock or to individual or Company
performance such as the attainment of certain specified individual,
13
<PAGE>
divisional or Company-wide performance goals, sales volume increases
or increases in earnings per share.
(ii) Forfeiture. Upon termination of employment or
----------
termination of the independent contractor relationship during the
applicable deferral period or portion thereof to which forfeiture
conditions apply, or upon failure to satisfy any other conditions
precedent to the delivery of Stock or cash to which such Restricted
Stock Units relate, all Restricted Stock Units that are then subject
to deferral or restriction shall be forfeited; provided that, the
-------- ----
Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that restrictions
or forfeiture conditions relating to Restricted Stock Units will be
waived in whole or in part in the event of termination resulting from
specified causes, and the Committee may in other cases waive in whole
or in part the forfeiture of Restricted Stock Units.
(f) Stock Awards in Lieu of Cash Awards. The Committee is authorized
-----------------------------------
to grant Stock as a bonus, or to grant other Awards, in lieu of Company
commitments to pay cash under other plans or compensatory arrangements. Stock
or Awards granted hereunder shall have such other terms as shall be determined
by the Committee.
(g) Dividend Equivalents. The Committee is authorized to grant
--------------------
Dividend Equivalents to Grantees. The Committee may provide, at the date of
grant or thereafter, that Dividend Equivalents shall be paid or distributed when
accrued or shall be deemed to have been reinvested in additional Stock, or other
investment vehicles as the Committee may specify, provided that Dividend
Equivalents (other than freestanding Dividend Equivalents) shall be subject to
all conditions and restrictions of the underlying Awards to which they relate.
(h) Performance Shares and Other Stock- or Cash-Based Awards. The
--------------------------------------------------------
Committee is authorized to grant to Grantees Performance Shares and/or Other
Stock-Based Awards or Other Cash-Based Awards as an element of or supplement to
any other Award under the Plan, as deemed by the Committee to be consistent with
the purposes of the Plan. Such Awards may be granted with value and payment
contingent upon performance of the Company or any other factors designated by
the Committee, or valued by reference to the performance of specified
Subsidiaries. The Committee shall determine the terms and conditions of
14
<PAGE>
such Awards at the date of grant or, to the extent permitted by Section 162(m)
of the Code, thereafter; provided, that performance objectives for each year
--------- ----
shall be established by the Committee not later than the latest date permissible
under Section 162(m) of the Code. Such performance objectives may be expressed
in terms of one or more financial or other objective goals. Financial goals may
be expressed, for example, in terms of sales, earnings per share, stock price,
return on equity, net earnings growth, net earnings, related return ratios, cash
flow, earnings before interest, taxes, depreciation and amortization (EBITDA),
return on assets or total stockholder return. Other objective goals may include
the attainment of various productivity and long-term growth objectives,
including, without limitation reductions in the Corporation's overhead ratio and
expense to sales ratios. Any criteria may be measured in absolute terms or as
compared to another corporation or corporations. To the extent applicable, any
such performance objective shall be determined (i) in accordance with the
Corporation's audited financial statements and generally accepted accounting
principles and reported upon by the Corporation's independent accountants or
(ii) so that a third party having knowledge of the relevant facts could
determine whether such performance objective is met. Performance objectives
shall include a threshold level of performance below which no Award payment
shall be made, levels of performance above which specified percentages of target
Awards shall be paid, and a maximum level of performance above which no
additional Award shall be paid. Performance objectives established by the
Committee may be (but need not be) different from year-to-year and different
performance objectives may be applicable to different Grantees.
7. Change in Control Provisions. The following provisions shall
----------------------------
apply in the event of a Change of Control unless otherwise determined by the
Committee or the Board in writing at or after the grant of an Award, but prior
to the occurrence of such Change in Control:
(a) any Award carrying a right to exercise that was not previously
exercisable and vested shall become fully exercisable and vested; and
(b) the restrictions, deferral limitations, payment conditions, and
forfeiture conditions applicable to any other Award granted under the Plan shall
lapse and such Awards shall be deemed fully vested, and any performance
conditions imposed with respect to Awards shall be deemed to be fully achieved.
15
<PAGE>
(c) ANY INDEBTEDNESS INCURRED PURSUANT TO SECTION 8 OF THIS PLAN
SHALL BE FORGIVEN AND THE COLLATERAL PLEDGED IN CONNECTION WITH ANY SUCH LOAN
SHALL BE RELEASED; AND
(d) THE VALUE OF ALL OUTSTANDING AWARDS SHALL, TO THE EXTENT
DETERMINED BY THE COMMITTEE AT OR AFTER GRANT, BE CASHED OUT ON THE BASIS OF THE
CHANGE OF CONTROL PRICE AS OF THE DATE THE CHANGE OF CONTROL OCCURS OR SUCH
OTHER DATE AS THE COMMITTEE MAY DETERMINE PRIOR TO THE CHANGE OF CONTROL.
8. Loan Provisions. Subject to the provisions of the Plan and all
---------------
applicable federal and state laws, rules and regulations (including the require
ments of Regulation G (12 C.F.R. (S)207)), the Committee shall have the
authority to make Loans to Grantees (on such terms and conditions as the
Committee shall determine), to enable such Grantees to purchase shares in
connection with the realization of Awards under the Plan. Loans shall be
evidenced by a promissory note or other agreement, signed by the borrower, which
shall contain provisions for repayment and such other terms and conditions as
the Committee shall deter mine.
9. General Provisions.
------------------
(a) Approval of Shareholders. The Plan shall take effect upon its
------------------------
adoption by the Board but the Plan (and any grants of Awards made prior to the
shareholder approval mentioned herein) shall be subject to ratification by the
holder(s) of a majority of the issued and outstanding shares of voting
securities of the Company entitled to vote, which ratification must occur within
twelve (12) months of the date that the Plan is adopted by the Board. In the
event that the shareholders of the Company do not ratify the Plan at a meeting
of the shareholders at which such issue is considered and voted upon, then upon
such event the Plan and all rights hereunder shall immediately terminate and no
Grantee (or any permitted transferee thereof) shall have any remaining rights
under the Plan or any Award Agreement entered into in connection herewith.
(b) Nontransferability. Awards shall not be transferable by a
------------------
Grantee except by will or the laws of descent and distribution or, if then
permitted under Rule 16b-3, pursuant to a qualified domestic relations order as
defined under the Code or Title I of the Employee Retirement Income Security Act
of
16
<PAGE>
1974, as amended, or the rules thereunder, and shall be exercisable during
the lifetime of a Grantee only by such Grantee or his guardian or legal
representative.
(c) No Right to Continued Employment, etc. Nothing in the Plan or in
-------------------------------------
any Award or Loan granted or any Award Agreement, promissory note or other
agreement entered into pursuant hereto shall confer upon any Grantee the right
to continue in the employ of or to continue as an independent contractor of the
Company, any subsidiary or any Affiliate or to be entitled to any remuneration
or benefits not set forth in the Plan or such Award Agreement, promissory note
or other agreement or to interfere with or limit in any way the right of the
Company or any such Subsidiary or Affiliate to terminate such Grantee's
employment or independent contractor relationship.
(d) Taxes. The Company or any Subsidiary or Affiliate is authorized
-----
to withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Stock, or any other payment to a Grantee,
amounts of withholding and other taxes due in connection with any transaction
involving an Award, and to take such other action as the Committee may deem
advisable to enable the Company and Grantees to satisfy obligations for the
payment of withholding taxes and other tax obligations relating to any Award.
This authority shall include authority to withhold or receive Stock or other
property and to make cash payments in respect thereof in satisfaction of a
Grantee's tax obligations.
(e) Amendment and Termination of the Plan. The Board may at any time
-------------------------------------
and from time-to-time alter, amend, suspend, or terminate the Plan in whole or
in part; provided that, no amendment which requires stockholder approval in
-------- ----
order for the Plan to continue to comply with Rule 16b-3, shall be effective
unless the same shall be approved by the requisite vote of the stockhold ers of
the Company entitled to vote thereon. Notwithstanding the foregoing, no
amendment shall affect adversely any of the rights of any Grantee, without such
Grantee's consent, under any Award or Loan theretofore granted under the Plan.
(f) No Rights to Awards or Loans; No Stockholder Rights. No Grantee
---------------------------------------------------
shall have any claim to be granted any Award or Loan under the Plan, and there
is no obligation for uniformity of treatment of Grantees. Except as provided
specifically herein, a Grantee or a transferee of an Award shall have no rights
as a stockholder with respect to any shares covered by the Award until the date
of the issuance of a stock certificate to him for such shares.
17
<PAGE>
(g) Unfunded Status of Awards. The Plan is intended to constitute an
-------------------------
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Grantee pursuant to an Award, nothing contained in
the Plan or any Award shall give any such Grantee any rights that are greater
than those of a general creditor of the Company.
(h) No Fractional Shares. No fractional shares of Stock shall be
--------------------
issued or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards, or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(i) Regulations and Other Approvals.
-------------------------------
(I) The obligation of the Company to sell or deliver Common Stock
with respect to any Award granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
(II) Each Award is subject to the requirement that, if at any time
the Committee determines, in its absolute discretion, that the listing,
registration or qualification of Common Stock issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Award or the
issuance of Common Stock, no such Award shall be granted or payment made or
Common Stock issued, in whole or in part, unless listing, registration,
qualification, consent or approval has been effected or obtained free of any
conditions not acceptable to the Committee.
(III) In the event that the disposition of Common Stock acquired
pursuant to the Plan is not covered by a then current registration statement
under the Securities Act and is not otherwise exempt from such registration,
such Common Stock shall be restricted against transfer to the extent required by
the Securities Act or regulations thereunder, and the Committee may require a
Grantee receiving Common Stock pursuant to the Plan, as a condition precedent to
receipt of such Common Stock, to represent to the Company in
18
<PAGE>
writing that the Common Stock acquired by such Grantee is acquired for
investment only and not with a view to distribution.
(j) Governing Law. The Plan and all determinations made and actions
-------------
taken pursuant hereto shall be governed by the laws of the State of Delaware
without giving effect to the conflict of laws principles thereof.
(k) Effective Date; Plan Termination. The Plan shall take effect
--------------------------------
upon its adoption by the Board (the "Effective Date"), but the Plan (and any
grants of Awards made prior to the stockholder approval mentioned herein), shall
be subject to the approval of the holder(s) of a majority of the issued and
outstanding shares of voting securities of the Company entitled to vote, which
approval must occur within twelve months of the date the Plan is adopted by the
Board. In the absence of such approval, such Awards shall be null and void.
19
<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, Dated June [ ], 1997
PROSPECTUS
MERISEL, INC.
Offer to Exchange and Solicitation of Acceptances
of Prepackaged Plan of Reorganization
Merisel, Inc. (the "Holding Company"), upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal and Ballot, as the same may be amended from time to time, hereby (A)
offers to issue the following consideration in exchange for its outstanding
12 1/2% Senior Notes due 2004 (the "Exchange Offer") and (B) solicits
acceptances of a prepackaged plan of reorganization (the "Prepackaged Plan") of
the Company under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") under which such securities would be exchanged for the same
consideration offered in the Exchange Offer:
<TABLE>
<CAPTION>
For each $1,000 principal The exchanging Noteholder (as defined herein) will
amount (together with all receive:
accrued and unpaid ---------------------------------------------------
interest) of:
- -------------------------
<S> <C>
The Company's 12 1/2% 192.5 shares of common stock, par value $.05 per
Senior Notes due 2004 share (the "New Common Stock"), of the Company or,
(the "12.5% Notes") in the aggregate, up to 24,062,796 shares of New
Common Stock. As a result of the Exchange Offer,
each Noteholder will receive such Noteholder's pro
rata portion (sharing with all other Noteholders)
of shares of New Common Stock equivalent to
approximately 80% of the outstanding New Common
Stock after giving effect to the Exchange
Restructuring (as defined herein), based on the
number of shares of Old Common Stock (as defined
herein) outstanding as of June 26, 1997.
</TABLE>
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER AND THE SOLICITATION PERIOD FOR ACCEPTANCES OF THE
PREPACKAGED PLAN WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ], 1997,
UNLESS EXTENDED (AS SUCH DATE MAY BE EXTENDED, THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
The Exchange Offer is conditioned upon, among other things, 100 percent
of the aggregate principal amount of the 12.5% Notes being validly tendered and
not withdrawn prior to the Expiration Date (the "Minimum Tender Condition"). The
Company's ability to seek confirmation of the Prepackaged Plan also depends upon
certain minimum levels of acceptance thereof, as further set forth in this
Prospectus. If the Minimum Tender Condition and all other conditions to the
consummation of the Exchange Offer are satisfied or waived, the Company intends
to consummate the Exchange Offer. If the Exchange Offer is not consummated, but
the Company receives sufficient acceptances of the Prepackaged Plan to obtain
confirmation thereof by the Bankruptcy Court (as defined herein), then the
Holding Company (as defined herein) plans to pursue obtaining said confirmation
under Chapter 11 of the Bankruptcy Code (as defined herein) and to attempt to
use such acceptances to obtain confirmation of the Prepackaged Plan.
A Special Meeting of stockholders of the Company will be held on
[______________], 1997, at 10:00 a.m., Los Angeles time (the "Stockholders'
Meeting"), to consider and vote upon proposals (i) to amend the Company's
Certificate of Incorporation (the "Charter Amendment") and, to approve the
issuance of shares of New Common Stock (the "New Common Stock Issuance" and,
together with the Charter Amendment, the "Exchange Restructuring Proposal"), and
(ii) to approve the establishment of a new stock award and incentive plan for
the Company (the "Stock Award and Incentive Plan"). A Proxy Statement/Prospectus
(the "Proxy Statement/Prospectus"), further describing the proposals, will be
mailed to each stockholder of the Company. If the Prepackaged Restructuring (as
defined herein) is pursued and a petition is filed under the Bankruptcy Code,
the Company expects that the New Common Stock Issuance and an amendment
substantially similar to the Charter Amendment will be implemented pursuant to
the Prepackaged Plan.
None of the Holding Company's wholly owned operating subsidiaries,
including Merisel Americas, Inc. and Merisel Canada, Inc. (collectively, the
"Operating Companies"), would be a party to the Prepackaged Plan, and the
Holding Company's business would therefore continue to be operated in the
ordinary course. As such, the Prepackaged Plan would not
(Cover continued on the following page)
<PAGE>
affect the continuing and timely payment in full of the Operating Companies'
obligations to suppliers, employees, and other creditors.
The date of this Prospectus is [__________], 1997.
SEE "RISK FACTORS" IN PART A (AS DEFINED HEREIN) FOR A DISCUSSION OF
CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE
RESTRUCTURING AND THE PREPACKAGED RESTRUCTURING. SEE "RISK FACTORS" IN THE
DISCLOSURE STATEMENT (AS DEFINED HEREIN) FOR A DISCUSSION OF CERTAIN ADDITIONAL
RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH THE PREPACKAGED
RESTRUCTURING.
NEITHER THE SECURITIES OFFERED HEREBY NOR THE PREPACKAGED PLAN HAS BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THESE
TRANSACTIONS OR THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The terms of the Exchange Offer and the Prepackaged Plan have been
developed in the course of negotiations with an ad hoc committee of holders of
the 12.5% Notes (the "Ad Hoc Noteholders Committee"). Pursuant to an agreement
(the "Limited Waiver Agreement") between the Company and members of the Ad Hoc
Noteholders Committee, (a) holders of more than 75% of the total principal
amount outstanding of the 12.5% Notes have agreed to tender their 12.5% Notes
pursuant to the Exchange Offer and to vote such 12.5% Notes in favor of the
Prepackaged Plan and (b) holders of the common stock, par value $.01 per share
(the "Old Common Stock"), of the Company prior to the Record Date (as defined
herein) will receive from the Company shares of New Common Stock constituting
20% of the New Common Stock to be outstanding immediately after giving effect to
the Exchange Offer (together with the shares of New Common Stock issuable to the
Noteholders pursuant to the Exchange Restructuring, the "Exchange Shares") and
warrants (the "Warrants") to purchase New Common Stock (the "Warrant Shares,"
the issuance of such shares together with the issuance of the Exchange Shares,
the "New Common Stock Issuance") constituting 17.5% of the New Common Stock to
be outstanding immediately after giving effect to the Exchange Offer. The
Warrants will be exercisable for seven years from the date of the exchange and
will be issued in equal amounts in two separately trading series, Series A and
Series B, with exercise prices at $7.15 and $8.68 per share, respectively, in
each case subject to adjustment.
(Cover continued on the following page)
ii
<PAGE>
12.5% NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN,
SUBJECT TO THE PROCEDURES DESCRIBED HEREIN, AT ANY TIME BEFORE THEY ARE ACCEPTED
FOR EXCHANGE BY THE COMPANY. VOTES ON THE PREPACKAGED PLAN MAY BE REVOKED,
SUBJECT TO THE PROCEDURES DESCRIBED HEREIN, AT ANY TIME PRIOR TO THE EXPIRATION
DATE. IF A BANKRUPTCY CASE HAS BEEN COMMENCED, REVOCATIONS OF SUCH VOTES
THEREAFTER MAY BE EFFECTED ONLY WITH THE APPROVAL OF THE APPROPRIATE BANKRUPTCY
COURT.
THE COMPANY'S OBLIGATION TO ACCEPT 12.5% NOTES TENDERED PURSUANT TO THE
EXCHANGE OFFER IS CONDITIONED, AMONG OTHER THINGS, ON (A) THE MINIMUM TENDER
CONDITION AND (B) APPROVAL BY THE COMPANY'S STOCKHOLDERS OF THE EXCHANGE
RESTRUCTURING PROPOSAL. THE COMPANY RESERVES THE RIGHT TO WAIVE ANY OF THE
CONDITIONS TO THE EXCHANGE OFFER BUT DOES NOT CURRENTLY INTEND TO WAIVE ANY
CONDITION.
This Prospectus includes information relating to the Exchange Offer and
the Prepackaged Plan and is organized into a Summary followed by Parts A and B.
Part A to this Prospectus, entitled "The Exchange Restructuring" ("Part A"),
contains information principally relevant to Noteholders in deciding whether to
tender their 12.5% Notes pursuant to the Exchange Offer. Part B to this
Prospectus, entitled "Disclosure Statement with respect to Plan of
Reorganization of Merisel, Inc.," including the appendices attached thereto (the
"Disclosure Statement"), contains additional information principally relevant to
Noteholders and holders of Old Common Stock in deciding whether to vote for or
against the Prepackaged Plan. Much of the information contained in the
Disclosure Statement is also relevant to Noteholders in deciding whether to
tender their 12.5% Notes pursuant to the Exchange Offer, and various sections of
the Disclosure Statement are explicitly referenced, but are not repeated, in
Part A. Although each part of this Prospectus is relevant principally to the
persons described in the preceding sentences, all recipients are urged to review
this Prospectus in its entirety.
Regardless of whether a Noteholder completes a Letter of Transmittal,
such Noteholder should duly complete and sign a Ballot in order to vote on the
Prepackaged Plan. If the Exchange Offer is not consummated but the Prepackaged
Plan is confirmed by the Bankruptcy Court and consummated, each Noteholder would
receive substantially the same consideration offered in the Exchange Offer
whether or not such Noteholder tendered in the Exchange Offer or voted to accept
the Prepackaged Plan.
Noteholders as of the Record Date are eligible to vote on the Prepackaged
Plan. Only registered holders of 12.5% Notes, or persons who have obtained a
properly completed bond power from the registered holders thereof (for purposes
of the Exchange Offer, each a "Noteholder" and collectively, the "Noteholders"),
may tender in the Exchange Offer. Noteholders are not required to tender their
12.5% Notes in the Exchange Offer in order to vote on the Prepackaged Plan.
Failure by a holder to send a duly completed and signed Ballot will be deemed to
constitute an abstention by such holder with respect to a vote on the
Prepackaged Plan. Abstentions will not be counted as votes for or against the
Prepackaged Plan. Any Ballot which is executed by a holder but does not indicate
an acceptance or rejection of the Prepackaged Plan will not be counted as a vote
for or against the Prepackaged Plan. See "TENDERING AND VOTING PROCEDURES" in
Part A and "VOTING PROCEDURES AND REQUIREMENTS" in the Disclosure Statement.
The Board of Directors of the Company (the "Board") is separately
soliciting proxies to be voted at the Stockholders' Meeting, which will be held
to consider proposals briefly described in the Summary hereof (A) to approve the
Exchange Restructuring Proposal and (B) to approve the establishment of the
Stock Award and Incentive Plan. The Charter Amendment would convert the total
number of shares of Old Common Stock outstanding immediately prior to the date
of consummation of the Exchange Offer (the "Exchange
(Cover continued on the following page)
iii
<PAGE>
Restructuring Date") into one-fifth that number of shares of New Common Stock by
amending and restating Article IV of the Company's Charter to (i) authorize a
one-for-five reverse stock split of the Company's outstanding shares of Old
Common Stock and (ii) simultaneously increase the par value of the authorized
common stock of the Company from $.01 per share to $.05 per share. Stockholders
of the Company may obtain more detailed information with respect to the
Stockholders' Meeting from the Proxy Statement/Prospectus which has been
delivered to each stockholder of the Company. Included with the Proxy
Statement/Prospectus is a Proxy and Ballot which stockholders should use (i) to
vote on the stockholder proposals and (ii) to vote on the Prepackaged Plan.
Additional copies of the Proxy Statement/Prospectus and the accompanying Proxy
and Ballot may be obtained from the Company upon request to the Company at its
principal executive offices. The stockholder votes with respect to the Exchange
Restructuring Proposal will not be effective unless and until the Charter
Amendment has been filed and the Exchange Offer has been consummated. If the
Prepackaged Restructuring is pursued and a petition is filed under the
Bankruptcy Code, the Company expects that the New Common Stock Issuance and an
amendment substantially similar to the Charter Amendment will be implemented
pursuant to the Prepackaged Plan.
Because the terms of the Restructuring may create a potential conflict of
interest between the interests of Stockholders and Noteholders, the Board makes
no recommendation as to whether Noteholders should tender their 12.5% Notes in
the Exchange Restructuring.
The proposed financial restructuring of the Company in connection with
the Exchange Offer, as described herein, is referred to as the "Exchange
Restructuring." The proposed financial restructuring of the Company pursuant to
the Prepackaged Plan, as described herein, is referred to as the "Prepackaged
Restructuring." The term "Restructuring" as used herein means the financial
restructuring of the Company pursuant to either the Exchange Restructuring or
the Prepackaged Restructuring.
The Old Common Stock is currently traded on the over-the-counter market
and is quoted on the Nasdaq National Market under the symbol "MSEL." On June 26,
1997, the closing sale price for the Old Common Stock was $[____] per share.
BECAUSE NO PREPACKAGED BANKRUPTCY CASE HAS BEEN FILED, THIS PROSPECTUS
AND THE DISCLOSURE STATEMENT INCLUDED HEREIN HAVE NOT BEEN APPROVED BY ANY
BANKRUPTCY COURT WITH RESPECT TO THE ADEQUACY OF THE INFORMATION CONTAINED
HEREIN OR THEREIN. IF SUCH A CASE IS SUBSEQUENTLY COMMENCED, THE COMPANY INTENDS
TO SEEK AN ORDER OF SUCH COURT THAT THE SOLICITATION OF VOTES ON THE PREPACKAGED
PLAN WAS IN COMPLIANCE WITH SECTION 1126(b) OF THE BANKRUPTCY CODE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS
(Cover continued on the following page)
iv
<PAGE>
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.
This Prospectus, the Letter of Transmittal and the applicable Ballot and
Master Ballot are first being mailed to Noteholders on or about [__________],
1997.
(Cover continued on the following page)
v
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities offered hereby. As permitted by the rules
and regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. Such
additional information, exhibits and undertakings can be inspected at and
obtained from the Commission in the manner set forth below. For further
information with respect to the securities offered hereby and the Company,
reference is made to the Registration Statement, and the financial schedules and
exhibits filed as a part thereof and the exhibits thereto. Statements contained
in this Prospectus as to the terms of any contract or other documents are not
necessarily complete and, in each case, reference is made to the copy of each
such contract or other document that has been filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
The Company is subject to the information and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports, proxy statements and other
information with the Commission. Such reports and other information filed with
the Commission, as well as the Registration Statement and the exhibits thereto,
can be inspected and copied at the public reference facilities of the Commission
at 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036-3648, at
450 Fifth Street, N.W., Washington, D.C. 20549, at the Commission's regional
offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511 and at 7 World Trade Center, 13th Floor, New York, New York 10048. Copies
of such material can also be obtained by mail from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains an Internet Web Site that contains
reports, proxy and information statements, and other information regarding
Merisel and other registrants that file electronically with the Commission. The
address of such site is: http://www.sec.gov. In addition, the Old Common Stock
is listed and traded on the Nasdaq National Market, and such reports, proxy
statements and other information concerning the Company should be available for
inspection and copying at the National Association of Securities Dealers, Inc.,
1735 K Street, N.W. Washington, D.C. 20006.
The following documents filed by the Company with the Commission are
incorporated herein by reference and shall be deemed to be a part hereof:
1. Annual Report of the Company on Form 10-K for the fiscal year ended
December 31, 1996;
2. Amendment No. 1 to the Annual Report of the Company on Form 10-K/A
for the fiscal year ended December 31, 1996;
3. Quarterly Report of the Company on Form 10-Q for the fiscal quarter
ended March 31, 1997;
4. Amendment No. 1 to the Quarterly Report of the Company on Form 10-
Q/A for the fiscal quarter ended March 31, 1997;
5. Current Report of the Company on Form 8-K dated April 15, 1997;
6. The description of the Old Common Stock contained in its
Registration Statement on Form 8-A filed on August 30, 1988 and
declared effective on October 19, 1988; and
7. The description of the 12.5% Notes contained in its Registration
Statement on Form S-3, as amended, filed on August 24, 1994 and
declared effective October 17, 1994.
All documents and reports filed by the Company with the Commission after
the date of this Prospectus and prior to the termination of the Exchange Offer
shall be deemed incorporated herein
vi
<PAGE>
by reference and shall be deemed to be a part hereof from the date of filing of
such documents and reports. 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 or in any subsequently filed document or report that also is or
is deemed to be incorporated by reference 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.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN
EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY REQUESTED),
ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM THIS PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST DIRECTED TO
MERISEL, INC., ATTENTION: JAMES E. ILLSON, SENIOR VICE PRESIDENT, FINANCE, CHIEF
FINANCIAL OFFICER AND SECRETARY, 200 CONTINENTAL BOULEVARD, EL SEGUNDO,
CALIFORNIA 90245; TELEPHONE NUMBER (310) 615-6811. IN ORDER TO ASSURE TIMELY
DELIVERY OF SUCH DOCUMENTS PRIOR TO THE EXPIRATION DATE, ANY REQUEST SHOULD BE
RECEIVED BY __________, 1997. COPIES OF SUCH DOCUMENTS WILL ALSO BE AVAILABLE
UPON REQUEST THEREAFTER UNTIL THE EFFECTIVE DATE (AS HEREINAFTER DEFINED).
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer, the Prepackaged Plan or
the solicitation of votes for the Prepackaged Plan, other than those contained
in this Prospectus and the exhibits attached hereto or incorporated by reference
or referred to herein. If given or made, such other information or
representation may not be relied upon as having been authorized by the Company.
This Prospectus does not constitute an offer to sell or the solicitation of an
offer to buy any securities other than those to which it relates, or an offer to
sell or a solicitation of an offer to buy any securities in any jurisdiction in
which, or to any person to whom, it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any distribution of
securities hereunder shall under any circumstances create any implication that
the information contained herein is correct as of any time subsequent to the
date hereof or that there has been no change in the information set forth herein
or in the affairs of the Company since the date hereof. Any estimates of Claims
(as defined herein) and Interests (as defined herein) set forth in this
Prospectus may vary from the final amounts of Claims or Interests allowed by the
Bankruptcy Court.
vii
<PAGE>
FORWARD LOOKING INFORMATION
Certain of the financial information contained herein constitutes
forward looking information, and actual results could differ materially from
current expectations. Factors that could impact actual results include
unanticipated adjustments related to the Company's trade accounts payable,
customer disputes, disruption to the Company's computer systems, adjustments
related to previously disposed assets, or potential restructuring and any
reduction in customer demand or deterioration of margins.
viii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION.................................................. vi
INDEX OF CERTAIN DEFINED TERMS................. xi
SUMMARY................................................................ 1
The Company....................................................... 1
The Exchange Offer and Prepackaged Plan........................... 2
Comparison of Exchange Restructuring
and Prepackaged Restructuring.................................... 9
Purposes and Effects of the Restructuring......................... 10
Risk Factors...................................................... 10
Tendering and Voting Procedures................................... 11
Stockholders' Meeting............................................. 15
Description of Warrants........................................... 18
Summary Historical Consolidated Financial Information............. 21
Summary Unaudited Pro Forma Condensed Consolidated Financial Data. 23
PART A - THE EXCHANGE RESTRUCTURING................ A-1
TABLE OF CONTENTS...................................................... A-1
RISK FACTORS........................................................... A-4
BACKGROUND OF RESTRUCTURING............................................ A-9
The Limited Waiver Agreement...................................... A-10
The Extension under the Operating Companies' Loan Agreements...... A-12
PURPOSE OF THE RESTRUCTURING........................................... A-13
Restructuring Financial Considerations............................ A-13
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........ A-16
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION................. A-23
PROJECTED CONSOLIDATED FINANCIAL INFORMATION........................... A-25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................... A-35
BUSINESS AND PROPERTIES OF THE COMPANY................................. A-47
Business Overview................................................. A-47
Significant Events of 1996 and 1997............................... A-48
The Industry...................................................... A-49
Business Strategy................................................. A-50
Products and Manufacturer Services................................ A-51
Customers and Customer Services................................... A-52
Sales and Marketing............................................... A-53
Configuration..................................................... A-55
Operations, Distribution and Investment in Systems................ A-55
Disposed Operations............................................... A-55
Competition....................................................... A-56
Variability of Quarterly Results and Seasonality.................. A-56
Employees......................................................... A-57
Environmental Compliance.......................................... A-57
Properties........................................................ A-57
Legal Proceedings................................................. A-57
TENDERING AND VOTING PROCEDURES........................................ A-59
The Restructuring................................................. A-59
General........................................................... A-59
</TABLE>
ix
<PAGE>
<TABLE>
<S> <C>
Interest on 12.5% Notes........................................... A-60
Expiration Date; Extensions; Amendments........................... A-60
How to Tender in the Exchange Offer............................... A-61
Tenders - Additional Information.................................. A-62
Withdrawal of Tenders and Revocation of Votes..................... A-63
Conditions........................................................ A-64
Voting on the Prepackaged Plan.................................... A-66
DESCRIPTION OF 12.5% NOTES............................................. A-68
DESCRIPTION OF NEW COMMON STOCK........................................ A-68
DESCRIPTION OF INDEBTEDNESS OF THE COMPANY............................. A-70
General........................................................... A-70
Revolving Credit Agreement........................................ A-70
11.5% Notes....................................................... A-71
Subordinated Notes................................................ A-72
Canada Receivables Securitization................................. A-73
U.S. Receivables Securitization................................... A-73
Promissory Notes.................................................. A-74
MARKET PRICES OF OLD COMMON STOCK; DIVIDEND HISTORY.................... A-75
MARKET PRICES OF 12.5% Notes........................................... A-76
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.............................. A-76
Federal Income Tax Consequences to Noteholders.................... A-76
Federal Income Tax Consequences to the Company.................... A-77
MANAGEMENT............................................................. A-77
MANAGEMENT COMPENSATION................................................ A-77
OWNERSHIP OF COMMON STOCK.............................................. A-78
CERTAIN AFFILIATE TRANSACTIONS......................................... A-78
ADVISORS AND REPRESENTATIVES........................................... A-78
Financial Advisor................................................. A-78
Financial Advisor to Noteholders.................................. A-79
Information Agent................................................. A-79
Depositary........................................................ A-79
Estimated Fees and Expenses....................................... A-79
LEGAL MATTERS.......................................................... A-80
EXPERTS................................................................ A-80
APPENDICES
Plan of Reorganization of Merisel, Inc. .......................... I
</TABLE>
x
<PAGE>
INDEX OF CERTAIN DEFINED TERMS
Certain defined terms not listed below may be found on the
Index of Defined Terms of the Disclosure Statement beginning on page [__].
As used in this Prospectus, the following are the meanings for the
terms set forth below:
"Ad Hoc Noteholders Committee" means the committee of holders of the 12.5%
Notes with which the terms of the Exchange
Offer and the Prepackaged Plan were
negotiated.
"Ballots" means ballots to vote on the Prepackaged
Plan included herewith.
"Bankruptcy Code" means the United States Bankruptcy Code 11
U.S.C. (S) (S) 101-1330, as amended.
"Bankruptcy Court" means the United States Bankruptcy Court
for the judicial district in which a case
under the Bankruptcy Code is filed to
effect the Prepackaged Restructuring.
"Board" means the Board of Directors of the
Company.
"1996 Business Plan" means the business plan for the remainder
of fiscal 1996 the Company developed and
implemented in connection with negotiations
with the lenders under its various
financing agreements.
"1997 Business Strategy" means the Company's business strategy for
1997 that builds upon the actions taken
under its 1996 Business Plan.
"Certificate of Incorporation" means the Restated Certificate of
Incorporation of the Company, as amended.
"Charter Amendment" means the proposed Certificate of Amendment
to the Certificate of Incorporation, as
more fully described herein.
"Claims" has the meaning given in the Disclosure
Statement, included as Part B to this
Prospectus.
"Commission" means the Securities and Exchange
Commission.
"Company" means, unless the context otherwise
requires, Merisel, Inc., a Delaware
corporation, and its operating
subsidiaries.
"Depositary" means U.S. Stock Transfer Corporation with
respect to the Old Common Stock and The
Bank of New York with respect to the 12.5%
Notes.
"Disclosure Statement" means Part B of the Exchange Restructuring
Prospectus, entitled "THE PREPACKAGED
RESTRUCTURING DIS-
xi
<PAGE>
CLOSURE STATEMENT," including the
appendices attached thereto.
"DLJ" means Donaldson, Lufkin & Jenrette
Securities Corporation, financial advisor
to the Company in connection with the
Restructuring.
"DTC" The Depositary Trust Company.
"Effective Date" means the date of consummation of the
Prepackaged Plan.
"EML" means the former European, Mexican and
Latin American businesses of the Company
that the Company sold to CHS Electronics,
Inc.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Exchange Date" means the date of consummation of the
Restructuring.
"Exchange Offer" means the Company's offer to exchange
shares of New Common Stock for the 12.5%
Notes pursuant to the terms of the Exchange
Restructuring.
"Exchange Restructuring" means the proposed financial restructuring
of the Company pursuant to the consummation
of the Exchange Offer, as more fully set
forth herein.
"Exchange Restructuring means the date of consummation of the
Date" Restructuring.
"Exchange Restructuring means the New Common Stock Issuance
Proposal" together with the Charter Amendment.
"Exchange Restructuring
Prospectus" means the Prospectus to be delivered to the
Noteholders in connection with the Exchange
Offer and the Prepackaged Plan, included
herein as Part A.
"Exchange Shares" means the shares of New Common Stock issued
to Stockholders in exchange for their Old
Common Stock and Warrants, as applicable.
"Exercise Price" means (i) $7.15 per share, in the case of
the Series A Warrants, and (ii) $8.68 per
share, in the case of the Series B
Warrants, in each case subject to
adjustment.
"Expiration Date" means, with respect to the Exchange Offer
and the solicitation of acceptances of the
Prepackaged Plan, 5:00 p.m., New York City
time, on [____________], 1997, unless the
Company, in its sole discretion, extends
the Exchange Offer or solicitation period,
in which case the term "Expiration Date"
for the Exchange Offer or solicitation
period shall mean the last time and date to
which the Exchange Offer or solicitation
period is extended.
"Extension" means the agreement in principle executed
by 100% of the lenders under the Operating
Companies' Senior Debt to an extension of
the maturity of such indebtedness to
January 31, 1999 or a refinancing of such
indebtedness prior to October 31, 1997.
"F&D Division" means the United States Franchise and
Distribution Division of Vanstar
Corporation.
"FAB" means the ComputerLand Franchise and Datago
Aggregation Business.
xii
<PAGE>
"GAAP" means generally accepted accounting
principles.
"Holding Company" means Merisel, Inc., a Delaware
corporation.
"Indenture" means the Indenture dated October 15, 1994,
as amended, between the Company and The
Bank of New York, as successor Trustee,
relating to the 12.5% Notes.
"Information Agent" means MacKenzie Partners, Inc., Information
Agent in connection with the Exchange Offer
and the solicitation of acceptances of the
Prepackaged Plan.
"Interests" has the meaning given in the Disclosure
Statement, included herein as Part B.
"Letter of Transmittal" means the letter of transmittal mailed to
the Stockholders with the Proxy
Statement/Prospectus or to the Noteholders
with the Exchange Prospectus, as
applicable.
"Limited Waiver Agreement" means, the agreement, effective April 14,
1997, by and between the Company and
holders of more than 75% of the outstanding
principal amount of its 12.5% Notes as
described in "BACKGROUND OF RESTRUCTURING".
"Master Ballots" means ballots to be voted on behalf of
beneficial owners of Old Common Stock with
respect to the Prepackaged Plan by such
beneficial owners' broker or other record
holder of such shares.
"Merisel Americas" means Merisel Americas, Inc., a subsidiary
of the Holding Company.
"Merisel Canada" means Merisel Canada, Inc., a subsidiary of
Merisel Americas.
"Minimum Tender Condition" means the condition to the Exchange Offer
requiring 100% of the aggregate principal
amount of the 12.5% Notes to be validly
tendered and not withdrawn prior to the
Expiration Date.
"NASD" means the National Association of
Securities Dealers, Inc.
"New Common Stock" means shares of common stock, par value
$.05 per share of the Company.
"New Common Stock Issuance" means the issuance of New Common Stock
pursuant to the Exchange Offer, including
New Common Stock to be issued upon exercise
of the Warrants.
"Noteholders" means the holders of 12.5% Notes.
xiii
<PAGE>
"Old Common Stock" means the issued and outstanding common
stock, par value $.01 per share, of the
Company authorized prior to the
Restructuring.
"Operating Companies" means Merisel Americas and its consolidated
subsidiaries (including without limitation
Merisel Canada, Inc.)
"Operating Companies' Loan means the Subordinated Note Purchase
Agreements" Agreement, the Senior Note Purchase
Agreement, and the Revolving Credit
Agreement.
"Operating Companies' Senior means the indebtedness of the Operating
Debt" Companies under the Credit Agreement and
the Senior Note Purchase Agreement.
"Prepackaged Plan" means the prepackaged plan of
reorganization of the Company under Chapter
11 of the Bankruptcy Code.
"Prepackaged Restructuring." means the proposed financial restructuring
of the Company pursuant to the Prepackaged
Plan, as more fully described herein.
"Promissory Notes" Those certain promissory notes, dated
December 29, 1995, by Merisel Properties,
Inc., in favor of Heller Financial, Inc.
secured by certain equipment and real
estate, to Heller Financial, Inc.
"Proposals" means the proposals of the Board that are
described herein (A) to amend the Company's
Certificate of Incorporation, (B) to
approve the New Common Stock Issuance and
(C) to approve the Stock Award and
Incentive Plan.
"Proxy" means the proxy card mailed to Stockholders
together with the Proxy Statement/
Prospectus which also serves as a Letter of
Transmittal for the Stockholder.
"Proxy Statement/Prospectus" means the Proxy Statement/Prospectus of the
Company mailed to Stockholders in
connection with the Stockholders' Meeting.
"Record Date" June 26, 1997.
"Registration Statement" means the Registration Statement on Form S-
4 the Company filed with the Commission
under the Securities Act, with respect to
the securities offered hereby.
"Reverse Split" means the one-for-five reverse stock split
of the Company's common stock to be
effected pursuant to the Charter
Amendments.
"Revolving Credit Agreement" means the Amended and Restated Revolving
Credit Agreement, dated as of December 23,
1993, as amended, among Merisel Americas
and Merisel Europe, as borrowers, the
Company, as guarantor, and the lender
parties thereto.
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<PAGE>
"Restructuring" means the financial restructuring of the
Company pursuant to either the Exchange
Restructuring or the Prepackaged
Restructuring, as the case may be.
"Securities Act" means the Securities Act of 1933, as
amended.
"Senior Note Purchase means the Amended and Restated Senior Note
Agreement" Purchase Agreement dated as of December 23,
1993, as amended, by and among each of the
purchasers named therein, Merisel Americas,
as issuer, and the Company relating to the
11.5% Notes.
"Series A Warrants" means the warrants issued under the Series
A Warrant Agreement, as more fully
described herein.
"Series B Warrants" means the warrants issued under the Series
B Warrant Agreement, as more fully
described herein.
"Service Agreement" means, in connection with the ComputerLand
acquisition, the Distribution and Services
Agreement by and between Merisel FAB and
Vanstar.
"Stock Award and Incentive means the Merisel, Inc. 1997 Stock Award
Plan" and Incentive Plan.
"Stockholders" means the holders of Old Common Stock.
"Stockholders' Meeting" means the Special Meeting of Stockholders
of the Company to be held on
[______________], 1997, at 10:00 a.m., Los
Angeles time.
"Subordinated Note Purchase means the Amended and Restated Subordinated
Agreement" Note Purchase Agreement, dated as of
December 23, 1993, as amended, by and among
each of the purchasers named therein and
Merisel Americas relating to the
Subordinated Notes.
"Subordinated Notes" means the subordinated notes issued by
Merisel Americas pursuant to the
Subordinated Note Purchase Agreement.
"Trustee" [means The Bank of New York, as trustee for
the 12.5% Notes.]
"Warrant Agreements" means the Warrant Agreements under which
the Warrants will be issued.
"Warrant Shares" means shares of New Common Stock issued to
holders of Warrants upon exercise of their
Warrants.
"Warrants" means the Series A Warrants and the Series
B Warrants exercisable for shares of New
Common Stock and issued in accordance with
the Warrant Agreements.
"11.5% Notes" means the 11 1/2% Senior Notes due 1998
issued by Merisel Americas.
"12.5% Notes" means the 12 1/2% Senior Notes due 2004
issued by the Holding Company.
xv
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere
in this Prospectus. Reference is made to, and this summary is qualified in
its entirety by, the more detailed information contained in this
Prospectus, the Annexes hereto and the documents incorporated by reference
herein. Noteholders are urged to read this Prospectus and the Annexes
hereto in their entirety. References herein to the "Company" shall, unless
the context otherwise requires, refer to Merisel, Inc. and its operating
subsidiaries. References to the "Holding Company" shall refer only to
Merisel, Inc. and not to its subsidiaries. References to the "Operating
Companies" shall mean the operating subsidiaries of the Company.
The Company
The Company is a leading distributor of computer hardware, networking
equipment and software products. Through its main operating subsidiary,
Merisel Americas, Inc. ("Merisel Americas") and its subsidiaries (the
"Operating Companies"), the Company markets products and services
throughout North America and has achieved operational efficiencies that
have made it 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.
The Company was originally incorporated in California in October 1980,
was reincorporated in Delaware in August 1988, and changed its name from
Softsel Computer Products, Inc. to Merisel, Inc. in August 1990. The
Company's principal executive offices are located at 200 Continental
Boulevard, El Segundo, California 90245. Its telephone number is (310)
615-3080.
For additional information concerning the Company and its business,
financial position and operations, see "SELECTED HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS AND PROPERTIES OF THE
COMPANY."
1
<PAGE>
The Exchange Offer and Prepackaged Plan
Consideration Offered........ For each $1,000 principal amount of 12.5%
Notes (plus accrued but unpaid interest),
192.5 shares of New Common Stock. In lieu
of issuing any fractional shares of New
Common Stock or fractional warrants in the
Restructuring, fractional interests in New
Common Stock and Warrants will be
aggregated and sold by the Company, with
the proceeds to be distributed to the
holders in proportion to the amount of
fractional shares of New Common Stock and
fractional warrants such holders would
otherwise be entitled to receive. As a
result of the Exchange Restructuring,
Noteholders as of the date of consummation
of the Restructuring (the "Exchange Date")
will receive, in the aggregate, shares of
New Common Stock equivalent to
approximately 80% of the New Common Stock
outstanding immediately after giving effect
to the Exchange Restructuring, based on the
outstanding Old Common Stock as of the
Record Date. Noteholders will not be
entitled to receive Warrants. Should the
Prepackaged Restructuring be consummated,
the holders of Old Common Stock and the
Noteholders will receive consideration
substantially similar to that which such
holders would receive in the Exchange
Restructuring.
Summary Distribution Table
--------------------------
<TABLE>
<CAPTION>
Existing New Series A Series B
Security Common Stock Warrants Warrants
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
To holders of Old Common
Stock:
Per 1,000 Shares 1,000 200 87.5 87.5
In Aggregate 30,078,495 6,015,699 2,631,868 2,631,868
To holders of 12.5% Notes:
Per Note $ 1,000 192.5 -- --
In Aggregate $125,000,000 24,062,796 -- --
</TABLE>
For more information on consideration offered pursuant to the
Restructuring, see Part A.
Expiration Date.............. With respect to the Exchange Offer and the
solicitation of acceptances of the
Prepackaged Plan, the term "Expiration
Date" shall mean 5:00 p.m., New York City
time, on [___________], 1997, unless the
Company, in its sole discretion, extends
the Exchange Offer or solicitation period,
in which case the term "Expiration Date"
for the Exchange Offer or solicitation
period shall mean the last time and date to
which the Exchange Offer or solicitation
2
<PAGE>
period is extended. See "TENDERING AND
VOTING PROCEDURES" in Part A and "VOTING
PROCEDURES AND REQUIREMENTS" in the
Disclosure Statement.
Interest on 12.5% Notes...... The consideration to be paid pursuant to
the Exchange Offer or the Prepackaged Plan
will be paid in respect of each $1,000
principal amount of 12.5% Notes (together
with all accrued and unpaid interest)
tendered pursuant to the Exchange
Restructuring and accepted for exchange or
exchanged pursuant to the Prepackaged
Restructuring. By tendering 12.5% Notes
pursuant to the Exchange Restructuring, and
pursuant to the terms of the Prepackaged
Restructuring, a Noteholder waives all
rights to receive any payments with respect
to accrued but unpaid interest on such
12.5% Notes, other than the New Common
Stock to be paid pursuant to the Exchange
Restructuring or the Prepackaged
Restructuring. The Company has paid
interest on the 12.5% Notes through
December 31, 1996, and, assuming the
Restructuring is consummated on July 31,
1997, additional interest of $72.92 per
$1,000 principal amount of 12.5% Notes of
$72.92 will have accrued since December 31,
1996.
Outstanding 12.5% Notes at
March 31, 1997.............. As of March 31, 1997, there were
outstanding $125 million aggregate
principal amount of 12.5% Notes (plus
accrued but unpaid interest thereon of
approximately $3,906,250).
Classification and Treatment
of Claims and Interests Under
the Prepackaged Plan
(capitalized terms used in
this section and not
otherwise defined herein are
defined in the Prepackaged
Plan)....................... The classification and treatment of Claims
and Interests pursuant to the Prepackaged
Plan is as follows:
Administrative Claims.... Allowed Administrative Claims are to be
paid in full, in cash, on the later of the
consummation of the Prepackaged
Restructuring (the "Effective Date") or the
date on which such Administrative Claims
become Allowed, unless the Holder of such
Claim agrees to different treatment;
provided, however, that if incurred in the
ordinary course of business or otherwise
assumed by the Holding Company pursuant to
the Prepackaged Plan (including
Administrative Claims of governmental
units
3
<PAGE>
for taxes), an Allowed Administrative Claim
will be paid, performed or settled by
Reorganized Merisel when due in accordance
with the terms and conditions of the
particular agreements governing the
obligation.
Priority Tax Claims...... Allowed Priority Tax Claims are to be paid
(i) in full in cash on the later of the
Effective Date or when such Claims become
Allowed, or (ii) will be paid at such time
as specified under applicable laws, unless
the Holder of such Claim agrees to
different treatment.
Class 1: Secured Claims
(Unimpaired)........... On the Effective Date, or as soon
thereafter as practicable, the Holder of an
Allowed Secured Claim, in the sole
discretion of Merisel, (i) will have its
Secured Claim Reinstated or (ii) receive
such other treatment as the Holding Company
and such Holder have agreed upon in writing
as announced at or prior to the
Confirmation Hearing. The Holding Company
is not aware of any material Secured
Claims.
Class 2: Priority Claims
(Unimpaired)........... Class 2 Priority Claims are to be paid in
full in cash on the latest of (i) the
Effective Date or as soon as practicable
thereafter, (ii) the date when such Claim
becomes Allowed or (iii) the date when such
Claim would be paid in accordance with any
terms and conditions of any agreements or
understandings between the Holding Company
and the Holder of such Claim, unless such
Holder and Reorganized Merisel agree to a
different treatment.
Class 3: Subsidiary Debt
Guaranty Claims
(Unimpaired)............ On the Effective Date, or as soon
thereafter as practicable, the Holder of an
Allowed Subsidiary Debt Guaranty Claim
shall, in the sole discretion of Merisel,
(i) have its Claim Reinstated or (ii)
receive such other treatment as the Holding
Company and such Holder have agreed upon in
writing as announced at or prior to the
Confirmation Hearing.
Class 4: 12.5% Notes Claims
(Impaired)............. On the Effective Date or as soon as
practicable thereafter, each Holder of an
Allowed Class 4 Claim shall receive on
account of the unpaid principal amount plus
unpaid interest which accrued prior to the
Petition Date on its 12.5% Notes and any
Claims under the 12.5% Notes, 192.5 shares
of New
4
<PAGE>
Common Stock for each $1,000 of 12.5% Notes
held by such Holder.
Class 5: General Unsecured
Claims (Unimpaired).... Unless otherwise agreed to by the parties,
the legal, equitable and contractual rights
of each Holder of an Allowed General
Unsecured Claim will either (i) not be
altered by the Plan or (ii) at the option
of the Holding Company, receive such other
treatment that will result in such Allowed
Claim being deemed Unimpaired. The Company
is not aware of any material amount of
undisputed General Unsecured Claims.
Class 6: Old Common Stock
Interests (Impaired)... On the Effective Date or as soon as
practicable thereafter, each Holder of an
Allowed Class 6 Old Common Stock Interest
will receive, on a Pro Rata basis, on
account of each share of Old Common Stock
which it holds: (i) one-fifth of a share of
New Common Stock, (ii) .0875 Series A
Warrants to purchase New Common Stock, and
(iii) .0875 Series B Warrants to purchase
New Common Stock. Each Warrant entitles the
holder to purchase one share of New Common
Stock.
For a more detailed description of the
foregoing Classes of Claims and Interests,
see "SUMMARY OF PLAN" in the Disclosure
Statement.
Conditions to Exchange
Restructuring.............. The Company's obligation to accept 12.5%
Notes tendered pursuant to the Exchange
Restructuring is conditioned, among other
things, on (a) the Minimum Tender Condition
and (b) approval by the Company's
stockholders (the "Stockholders") of the
Exchange Restructuring Proposal. The
Company has reserved the right to waive or
seek the waiver of any one or more of these
conditions but does not currently intend to
waive or seek the waiver of any condition,
except that the Company may seek a waiver
of the Minimum Tender Condition in the
event that it receive tenders of
approximately 95% or more, but less than
100%, of the 12.5% Notes. No decision has
been made to seek such a waiver, and there
can be no assurance that such waiver, if
sought, would be obtained. In the event
that the requisite percentage and number of
Noteholders and Stockholders have executed
acceptances of the Prepackaged Plan, but
the Company determines, in its sole
discretion, that
5
<PAGE>
Minimum Tender Condition has not been
satisfied, or is not likely to be
satisfied, at or prior to the Expiration
Date, the Company may elect to terminate
the Exchange Offer at or prior to its
scheduled expiration and proceed directly
to the Prepackaged Plan. See "TENDERING AND
VOTING PROCEDURES--Conditions" in Part
A.
Conditions to Prepackaged
Restructuring.............. The Bankruptcy Code requires that the
Bankruptcy Court determine that the
Prepackaged Plan complies with the
requirements of Section 1129 of the
Bankruptcy Code. Approval of two-thirds of
the principal balance and a majority in
number of the Noteholders, and two-thirds
of the shares of Old Common Stock, in each
case of those voting on the Prepackaged
Plan, is required for the consummation of
the Prepackaged Restructuring. See
"SUMMARY OF THE PLAN in the Disclosure
Statement.
Certain Federal Income Tax
Considerations............. Noteholders will generally recognize no
gain or loss upon the receipt of New Common
Stock in exchange for the 12.5% Notes
pursuant to the Restructuring. The Company
will realize cancellation of indebtedness
income for Federal income tax purposes as a
result of the Restructuring. In the event
of an Exchange Restructuring, the Company
anticipates that such income would likely
be offset by the Company's net operating
losses and net operating loss carryovers
("NOLs"). In the event of a Prepackaged
Restructuring, such income would not be
recognized for Federal Income Tax purposes.
As a result of the Restructuring, the
Company will undergo an "ownership change"
for Federal income tax purposes and will be
limited in its ability to use its NOLs and
certain tax credit carryforwards to offset
future taxable income. See "CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS" in Part
A.
Old Common Stock............. As of the Record Date, there were
50,000,000 shares of Old Common Stock
authorized for issuance, of which
30,078,495 shares were issued and
outstanding (or 6,015,699 shares of New
Common Stock after the giving effect to the
Reverse Split). As part of the Exchange
Restructuring, holders of Old Common Stock
will be asked to consider and approve the
Exchange Restructuring, holders of Old
Common Stock will be asked to consider and
approve the
6
<PAGE>
Exchange Restructuring Proposal and the
Stock Award and Incentive Plan. If the
Prepackaged Restructuring is consummated,
the Company expects that the New Common
Stock Issuance and an amendment
substantially similar to the Charter
Amendment will be implemented pursuant to
the Prepackaged Plan. See "PURPOSES AND
EFFECTS OF THE PREPACKAGED RESTRUCTURING"
in the Disclosure Statement.
Market and Trading Information:
12.5% Notes.............. The 12.5% Notes are traded in the over-the-
counter market by certain dealers who from
time to time are willing to make a market
in such securities. Trading of the 12.5%
Notes is, however, extremely limited and
prices and trading volume are not reported
and are difficult to monitor. See "MARKET
PRICES OF 12.5% NOTES" in Part A.
Old Common Stock......... The Old Common Stock is currently traded on
the over-the-counter market and is quoted
on the Nasdaq National Market under the
symbol "MSEL." See "MARKET PRICES OF OLD
COMMON STOCK; DIVIDEND HISTORY" in Part A
and "RISK FACTORS" in Part A and the
Disclosure Statement.
Depositary/Voting Agent
The Bank of New York has been appointed as Depositary with respect to the
12.5% Notes for the Exchange Restructuring (the "Depositary"), and as
Voting Agent (as defined herein) with respect to the 12.5% Notes for the
solicitation of acceptances of the Prepackaged Plan. Questions and
requests for assistance may be directed to the Depositary at one of its
addresses and telephone numbers set forth on the back cover of this
Prospectus. See "ADVISORS AND REPRESENTATIVES" in Part A.
Information Agent.......... Mackenzie Partners, Inc. is serving as
Information Agent in connection with the
Exchange Restructuring and the solicitation
of acceptances of the Prepackaged Plan (the
"Information Agent"). Any questions
regarding how to tender in the Exchange
Offer or how to vote on the Prepackaged
Plan, and any requests for additional
copies of the Prospectus, Ballots or Master
Ballots should be directed to the
Information Agent at its address and
telephone number set forth on the back
cover of Part A to the Exchange
Restructuring Prospectus. See also
"ADVISORS
7
<PAGE>
AND REPRESENTATIVES" in Part A.
8
<PAGE>
Comparison of Exchange Restructuring
and Prepackaged Restructuring
The following is a comparison of certain of the elements of, and
differences between, the Exchange Restructuring and the Prepackaged
Restructuring.
Exchange Restructuring Prepackaged Restructuring
------------------------- -------------------------
Approval Required.......... 100 percent of the Acceptances must be
aggregate principal received from holders
amount of the 12.5% of at least two-thirds
Notes must be tendered in dollar amount and
and not withdrawn, a more than one-half in
majority of the voting number of 12.5% Notes,
power of the outstanding counting only holders
Old Common Stock must who vote, and from the
approve the Exchange holders of at least
Restructuring Proposal. two-thirds in amount of
the Old Common Stock,
counting only holders
who vote.
Effect on Noteholders Who Not applicable, as the Upon receipt of the
Do Not Participate....... Exchange Restructuring requisite acceptances
is conditioned upon, and consummation of the
among other things, 100 Prepackaged
percent of the aggregate Restructuring, all
principal amount of the 12.5% Notes would be
12.5% Notes being cancelled and holders
tendered and not of such 12.5% Notes
withdrawn. The Company would receive the same
does not intend to waive consideration as the
or seek the waiver of holders who voted in
the Minimum Tender favor of the
Condition, except that Prepackaged
the Company may seek a Restructuring.
waiver of the Minimum
Tender Condition in the
event that it receives
tenders of approximately
95% or more, but less
than 100%, of the 12.5%
Notes.
Special Meeting of At the Stockholders' At the Stockholders'
Stockholders............. Meeting, holders of Old Meeting, holders of Old
Common Stock will be Common Stock will be
asked to consider and asked to consider and
vote upon the Exchange vote upon the Exchange
Restructuring Proposal Restructuring Proposal
and the Stock Award and and the Stock Award and
Incentive Plan. The Incentive Plan, but if
stockholder votes with the Prepackaged
respect to the Exchange Restructuring is
Restructuring Proposal pursued and a petition
will not be effective is filed under the
unless and until the Bankruptcy Code, the
Charter Amendment has Company expects that
been filed and the the New Common Stock
Exchange Offer has been Issuance and an
consummated. amendment similar to
the Charter Amendment
will be implemented
pursuant to the
Prepackaged
Restructuring.
Mechanics of Noteholders who desire Impaired creditors and
Participation............. to participate in the equity interest holders
Exchange Offer must who desire to vote
properly
9
<PAGE>
complete a Letter of on the Prepackaged Plan
Transmittal and deliver must properly complete a
it, together with the Ballot or Master Ballot,
12.5% Notes and any as the case may be, and
other required documents, deliver it in accordance
to the Depositary. Only with voting instructions.
a registered Noteholder, Only beneficial owners of
or persons who have Claims or Interests or,
obtained a properly if applicable, nominees
completed bond power who are voting at the
from a registered instruction of the
Noteholder, may tender beneficial owners and
in the Exchange Offer. make a certification
with respect thereto,
may vote on the
Prepackaged Plan.
Preferred Stock
Voting Rights............. There is currently no The Charter will
preferred stock of the provide that any
Company outstanding, but preferred stock to be
any subsequently issued issued will have
shares of preferred certain specified
stock may or may not minimum voting rights,
have voting rights after as required by the
consummation of the Bankruptcy Code.
Exchange Restructuring.
Purposes and Effects of the Restructuring
The purpose of the Restructuring is to enhance the long-term viability
and to contribute to the success of the Company by adjusting the Company's
capitalization (including debt levels and principal repayment schedules) to
reflect current and expected operating performance levels. Specifically,
the Restructuring is designed to reduce the Company's debt obligations by
$125 million, to levels which the Company believes can be supported by its
projected cash flow, and to replace a significant portion of the Company's
indebtedness with New Common Stock. Interest charges will be substantially
reduced. The amount of outstanding capital stock of the Company will be
substantially increased as a result of the Restructuring. For more
information, see "PURPOSES AND EFFECTS OF THE PREPACKAGED RESTRUCTURING" in
the Disclosure Statement.
Risk Factors
Investment in the New Common Stock involves a high degree of risk.
Prior to deciding whether to (a) participate in the Exchange Offer and/or
(b) vote to accept the Prepackaged Plan, each Noteholder should carefully
consider all of the information contained in this Prospectus, especially
the factors outlined below and described under "RISK FACTORS" in each of
Part A and the Disclosure Statement, to the extent applicable.
Risk Factors Relating to the Exchange Restructuring and the
Prepackaged Restructuring. Stockholders should consider that (a) the
Company is currently highly leveraged and will continue to have a high
level of indebtedness following the Exchange Restructuring or Prepackaged
Restructuring, as applicable, (b) seasonality and economic, market or other
conditions may adversely affect cash flow and there can be no assurance
that such conditions will not have an adverse effect on the Company's
financial projections, (c) the Operating Companies' Loan Agreements contain
restrictions on the Company's operations and requirements that the Company
achieve and maintain certain financial ratios which the Company may not be
able to achieve or maintain, and which, if not maintained or achieved, may
result in a default and could lead to the acceleration of the Company's
obligations under the Operating Companies' Loan Agreements as well as the
acceleration of other indebtedness of the Company, (d)
10
<PAGE>
market forces, such as interest rates, affect the value of securities and
are influenced by conditions beyond the Company's control, (e) the
Company's capital expenditure levels assumed in preparation of the
projected financial data contained herein may be inadequate to maintain the
Company's long-term competitive position, (f) the Company is and, after
consummation of the Exchange Restructuring or Prepackaged Restructuring,
as applicable, will continue to be, restricted in its ability to declare
and pay cash dividends on the common stock of the Company, (g) if certain
of the major suppliers and vendors that the Company currently deals with
were to change the terms or credit limits or product availability that they
currently extend to the Company, it could have a significant negative
impact on the Company's sales, cash position and liquidity, (h) the Company
is subject to the risk of increased competition, which could affect its
sales volume, pricing and margins and (i) there are certain Federal income
tax considerations with respect to the Restructuring, including limiting
the use of, or reducing, the Company's net operating loss carryovers,
although such limit would be greater under the Exchange Restructuring than
under the Prepackaged Restructuring, (j) following the Restructuring the
ownership of New Common Stock may be substantially more concentrated than
the current ownership of Old Common Stock, which may result in an attempt
to influence the direction of the Company by one or more large
stockholders, (k) the Company is not in compliance with the continuing
listing requirements of the Nasdaq National Market, and de-listing from the
Nasdaq National Market, could adversely affect the liquidity of the market
for their shares of common stock of the Company and (1) the Company has
recently suffered significant net operating losses.
Additional Risk Factors Relating to the Prepackaged Restructuring.
Stockholders should consider that (a) commencement of bankruptcy
proceedings, even if only to confirm the Prepackaged Plan, could adversely
affect the relationship between the Holding Company and its subsidiaries,
employees, customers and suppliers which, in turn, could adversely affect
the Company's ability to complete the Solicitation or obtain confirmation
of the Prepackaged Plan, (b) even if all classes of impaired creditors and
equity interest holders accept the Prepackaged Plan, the Prepackaged Plan
may not be confirmed by the Bankruptcy Court and (c) there can be no
assurance that the Bankruptcy Court will decide that the Exchange
Restructuring and the Disclosure Statement meets the disclosure
requirements of the Bankruptcy Code.
For a discussion of certain additional risk factors that should be
considered in connection with voting on the Prepackaged Plan, see "RISK
FACTORS" in the Disclosure Statement.
Tendering and Voting Procedures
How to Tender in the
Exchange Offer............. Only Noteholders, or persons who have
obtained a properly completed bond power
from the registered holders thereof, may
tender in the Exchange Offer. Any
beneficial holder whose 12.5% Notes are
registered or held of record in the name
of such holder's broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender 12.5%
Notes should contact such Noteholder of
record and instruct such Noteholder to
tender 12.5% Notes.
To tender 12.5% Notes pursuant to the
Exchange Offer, a properly completed and
duly executed Letter of Transmittal (or a
manually signed facsimile thereof) or an
Agent's Message
11
<PAGE>
(as defined herein) in the case of a
book-entry transfer of 12.5% Notes,
together with any signature guarantees
and any other documents required by the
Instructions to the Letter of
Transmittal, must be received by the
Depositary at one of its addresses set
forth on the back cover page of this
Prospectus prior to the Expiration Date
and either (i) certificates representing
such 12.5% Notes must be received by the
Depositary at one of its addresses or
(ii) such 12.5% Notes must be transferred
pursuant to the procedures for book-entry
transfer set forth under "TENDERING AND
VOTING PROCEDURES" in Part A, and the
book-entry transfer of such 12.5% Notes
into the Depositary's account at a Book-
Entry Transfer Facility (as defined
herein) must be confirmed, in each case,
prior to the Expiration Date. There is no
procedure for tendering by guaranteed
delivery. Tenders by guaranteed delivery
will not be accepted. Noteholders will
not be obligated to pay the Company any
brokerage commissions or solicitation
fees in connection with the Exchange
Offer. See "TENDERING AND VOTING
PROCEDURES" in Part A.
How to Vote on the Prepackaged
Plan (capitalized terms used in
this section and not otherwise
defined herein are defined in
the Disclosure Statement)...... The following Classes of Claims and
Interests are impaired under the
Prepackaged Plan and all Holders of
Claims or Interests in such Classes as of
the Record Date are entitled to vote to
accept or to reject the Prepackaged Plan:
Claims of Holders of 12.5% Notes and
Interests of Holders of Old Common Stock.
To be entitled to vote to accept or to
reject the Prepackaged Plan, a Holder of
12.5% Notes or Old Common Stock must be
the Beneficial Interest Holder of such
security or other Claims at the close of
business on the Record Date, whether such
Claims or Interests are held of record on
the Record Date in such Holder's name or
in the name of such Holder's broker,
dealer, commercial bank, trust company or
other nominee. For purposes of
determining whether the requisite number
of acceptances is received to approve the
Prepackaged Plan, only votes which are
cast at the direction of Beneficial
Interest Holders in accordance with the
procedures set forth in the
12
<PAGE>
- --------------------------------------------------------------------------------
Disclosure Statement may be counted, and
only the votes of Holders of Allowed
Claims or Interests will be counted.
Ballots are to be used by Beneficial
Interest Holders whether such Beneficial
Interest Holders are also Record
Holders or hold through other Record
Holders. Master Ballots are to be used
by Record Holders of 12.5% Notes and/or
Old Common Stock which hold such 12.5%
Notes and/or Old Common Stock for the
account of one or more Beneficial
Interest Holders. A Record Holder which
holds 12.5% Notes and/or Old Common Stock
on behalf of one or more Beneficial
Interest Holders should collect completed
Ballots from such Beneficial Interest
Holders and should complete a Master
Ballot reflecting the votes of such
Beneficial Interest Holders, as indicated
on their respective Ballots.
Holders of Claims and/or Interests should
complete an appropriate Ballot and, where
appropriate, Master Ballot, for each
class of Claims and Interests held by
such Holders in accordance with the
instructions set forth thereon and the
procedures set forth in the Disclosure
Statement and in the Prepackaged Plan.
The Ballots require voting Holders to
make certain certifications, including
with respect to casting other votes
pursuant to the Solicitation. Each
Beneficial Interest Holder of 12.5% Notes
and each Beneficial Interest Holder of
Interests who holds Claims or Interests
in more than one Class is required to
vote separately with respect to each
Class in which such Beneficial Interest
Holder holds Claims or Interests in
aggregate amounts not in excess of the
amounts which were beneficially owned as
of the Record Date. A separate Ballot of
the appropriate form should be used to
vote on the Prepackaged Plan with respect
to each Impaired Class of Claims or
Interests. Votes must be made on the
appropriate Ballots in order to be
counted. The vote of a Holder of 12.5%
Notes will be counted only once in
determining whether the requisite number
of Holders in such Class have voted to
accept the Prepackaged Plan, regardless
of the number of Ballots relating to such
Class submitted by or on behalf of such
Holder. A Holder may not split its vote
within a Class of Impaired Claims or
Interests.
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
Under the Bankruptcy Code, for purposes
of determining whether the requisite
acceptances have been received from an
Impaired Class of Claims or Interests,
the vote will be tabulated based on the
ratio of (i) Allowed Claims and/or
Interests with respect to which a vote to
accept was received to (ii) all Allowed
Claims and/or Interests of such Impaired
Class with respect to which any valid
vote was received. Therefore, it is
possible that the Prepackaged Plan could
be approved by any Impaired Class of
Claims with the affirmative vote of
significantly less than two-thirds in
amount and one-half in number of the
entire Class of Claims, or by any
Impaired Class of Interests with the
affirmative vote of significantly less
than two-thirds in amount of the entire
Class of Interests. Failure by a Holder
of an Impaired Claim or an Impaired
Interests to submit a properly executed
Ballot or Master Ballot (as appropriate)
or to indicate acceptance or rejection of
the Prepackaged Plan in accordance with
the instructions set forth thereon and
the procedures set forth in the
Disclosure Statement shall be deemed to
constitute an abstention by such Holder
with respect to a vote regarding the
Prepackaged Plan. Abstentions as a result
of failing to submit a properly executed
Ballot or Master Ballot (as appropriate)
or failing to indicate a vote either for
acceptance or rejection of the
Prepackaged Plan will not be counted as
votes for or against the Prepackaged
Plan. The Company, in its sole
discretion, may waive any defect in any
Ballot or Master Ballot at any time,
either before or after the close of
voting, and without notice. Except as
otherwise ordered by the Bankruptcy
Court, a Ballot or where appropriate,
Master Ballot, which is either (i) not
submitted to the Voting Agent, (ii)
submitted to the Voting Agent without
proper execution or (iii) executed and
submitted to the Voting Agent without
properly indicating acceptance or
rejection of the Prepackaged Plan will
constitute an abstention with respect to
a vote on the Prepackaged Plan under
section 1126(b) of the Bankruptcy Code
for purposes of confirmation of the
Prepackaged Plan. See "VOTING AND
CONFIRMATION OF THE PLAN" in the
Disclosure Statement.
Withdrawal Rights and
Revocation
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
of Votes....................... Tenders of 12.5% Notes may be withdrawn,
subject to the procedures described in
Part A, at any time before they are
accepted for exchange by the Company.
Votes on the Prepackaged Plan may be
revoked, subject to the procedures
described in the Disclosure Statement, at
any time prior to the earlier of (i) the
Filing Date and (ii) the Expiration Date.
Revocations of such votes thereafter may
be effected only with the approval of the
Bankruptcy Court. See "TENDERING AND
VOTING" in Part A and "VOTING AND
CONFIRMATION OF THE PLAN--Withdrawal Of
Votes on the Plan" in the Disclosure
Statement.
Acceptance of 12.5% Notes
and Delivery of New Common
Stock.......................... Subject to the satisfaction or waiver
of all conditions to the Exchange Offer,
the Company will accept all 12.5% Notes
validly tendered on or prior to the
Expiration Date. The New Common Stock
will be delivered in exchange for the
12.5% Notes accepted in the Exchange
Offer promptly after acceptance on the
Expiration Date. Pursuant to the
Prepackaged Plan, 12.5% Notes will be
exchanged following the Effective Date
(as defined herein) upon the receipt by
the Company of such 12.5% Notes.
In lieu of issuing any fractional shares
of New Common Stock in the Restructuring,
fractional interests in New Common Stock
will be aggregated and sold by the
Company, with the proceeds to be
distributed to the holders in proportion
to the amount of fractional shares of New
Common Stock such holders would otherwise
be entitled to receive.
Stockholders' Meeting
Date, Time and Place of
Stockholders' Meeting.......... The Stockholders' Meeting to consider and
to vote upon the Charter Amendment, the
New Common Stock Issuance and the Stock
Award and Incentive Plan will be held at
the Company's headquarters located at 200
Continental Boulevard, El Segundo,
California, on [____________], 1997 at
10:00 a.m. Los Angeles time. The
stockholder votes with respect to
the
- --------------------------------------------------------------------------------
15
<PAGE>
Exchange Restructuring Proposal will not
be effective unless and until the
Exchange Restructuring has been
consummated and the Charter Amendment has
been filed. If the Prepackaged
Restructuring is pursued and a petition
is filed under the Bankruptcy Code, the
Company expects that the New Common Stock
Issuance and an amendment substantially
similar to the Charter Amendment will be
implemented pursuant to the Prepackaged
Plan.
Record Date; Stockholders
Entitled to Vote; Quorum....... Holders of record of Old Common Stock at
the close of business on the Record Date,
will be entitled to vote at the
Stockholders' Meeting. Holders of Old
Common Stock will be entitled to one vote
per share with respect to the Exchange
Restructuring Proposal and the Stock
Award and Incentive Plan. On the Record
Date there were 30,078,495 shares of Old
Common Stock outstanding, of which there
were [________] holders of record. The
presence, either in person or by properly
executed proxy, of the holders of a
majority of the shares of Old Common
Stock outstanding and entitled to vote is
necessary to constitute a quorum at the
Stockholders' Meeting.
Purpose of Stockholders'
Meeting........................ The purpose of the Stockholders' Meeting
is to consider the proposals to approve
the Exchange Restructuring Proposal and
the Stock Award and Incentive Plan. The
Board has unanimously adopted a
resolution proposing that the Company's
Charter be amended by the Charter
Amendment to, (i) effect a one-for-five
reverse stock split of the Company's
outstanding shares of Old Common Stock
and (ii) increase the par value of the
authorized common stock of the Company
from $.01 per share to $.05 per share.
The Charter Amendment is set forth in its
entirety in Annex I to this Proxy
Statement/Prospectus. The Charter
Amendment is necessary to permit the
Company to consummate the Exchange
Restructuring on the terms contemplated
by the Exchange Offer.
16
<PAGE>
- --------------------------------------------------------------------------------
The approval of the Stock Award and
Incentive Plan by the Stockholders is
necessary to provide appropriate
incentives for those eligible to
participate thereunder. The Board has
also unanimously adopted resolutions
approving, as part of the Exchange
Restructuring, the New Common Stock
Issuance and the Stock Award and
Incentive Plan. The approval of the
Exchange Restructuring Proposal may be
required by the applicable rules of the
National Association of Securities
Dealers, Inc. (the "NASD").
Votes Required................. Under the Delaware General Corporation
Law (the "DGCL") and the Company's
Certificate of Incorporation, the
Exchange Restructuring Proposal must be
approved by a majority of the voting
power of the Old Common Stock entitled to
vote at the Special Meeting. The Stock
Award and Incentive Plan must be approved
by the affirmative vote of the holders of
a majority of the voting power of the Old
Common Stock represented at the meeting.
The Company's executive officers and
directors, as a group, beneficially own
less than 458,672 shares of the
outstanding Old Common Stock. Such
officers and directors have advised the
Company that they intend to vote in favor
of the Exchange Restructuring Proposal
and the Stock Award and Incentive Plan.
See "OWNERSHIP OF COMMON STOCK". The
Stockholder votes with respect to the
Exchange Restructuring Proposal will not
be effective unless and until the Charter
Amendment has been filed with the
Secretary of State of Delaware and the
Exchange Restructuring has been
consummated, in which event the Charter
Amendment will become effective either
immediately prior to or contemporaneously
with the consummation of the Exchange
Restructuring. The Stock Award and
Incentive Plan will become effective
regardless of whether the Exchange
Restructuring is implemented. The Board
of Directors has reserved the right,
pursuant to Section 242(c) of the DGCL,
to abandon the Charter Amendment
- --------------------------------------------------------------------------------
17
<PAGE>
even if the Company's Stockholders
authorize the Charter Amendment. However,
the Board of Directors intends to file
the Charter Amendment with the Secretary
of State of Delaware if the Exchange
Restructuring is consummated.
Dissenters' Rights............. Stockholders will not be entitled to
dissenters' rights or rights of appraisal
in connection with the Exchange
Restructuring Proposal or the Stock Award
and Incentive Plan.
Dilution....................... Assuming 100% acceptance of the Exchange
Offer, the Company expects to issue
24,062,796 shares of New Common Stock
directly to exchanging Noteholders and
5,263,736 additional shares of New Common
Stock obtainable upon exercise of the
Warrants issued to Stockholders if the
Exchange Restructuring is consummated.
The 24,062,796 shares issued directly to
Noteholders will represent approximately
80% of the total outstanding shares of
New Common Stock after giving effect to
the Exchange Restructuring, but excluding
shares obtainable upon exercise of
Warrants, based on the outstanding Old
Common Stock as of the Record Date. Upon
consummation of the Exchange
Restructuring, the equity interests of
the existing holders of Old Common Stock,
as a percentage of the total number of
outstanding shares of the common stock of
the Company, will be significantly
diluted. Consummating the Prepackaged
Plan will have a similar dilutive effect.
See "PURPOSE OF THE RESTRUCTURING" and
"RISK FACTORS."
Description of Warrants
The following is a brief description of certain provisions of the
Warrants. The Warrants will be issued to holders of Old Common Stock under
the Warrant Agreements to be dated on or about the Restructuring Closing
Date between the Company and the Warrant Agent (as defined herein). The
following description of such provisions does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the
detailed provisions of the Warrant Agreements pursuant to which such
securities will be issued.
Issue.......................... Up to 2,631,868 Series A Warrants and
2,631,868 Series B Warrants (together,
the "Warrants") will be issued to
holders of Old Common Stock upon
consummation of the Exchange
Restructuring and after giving effect
to
18
<PAGE>
the Reverse Split. Each Warrant will be
exercisable for a period of seven years
from the Exchange Date and shall be
exercisable for one share of New Common
Stock, subject to adjustment unless
redeemed or exchanged earlier by the
Company.
Exercise Price...................... Each Warrant will be exercisable at an
exercise price ("Exercise Price") of (i)
$7.15 per share, in the case of the
Series A Warrants, and (ii) $8.68 per
share, in the case of the Series B
Warrants. Holders of Old Common Stock
will receive, for each share of Old
Common Stock, .0875 Series A Warrants and
.0875 Series B Warrants exercisable, in
the aggregate, for 5,263,736 shares of
New Common Stock or approximately 17.5%
of the New Common Stock immediately after
giving effect to the Exchange
Restructuring, based on the outstanding
Old Common Stock as of the Record
Date. The Exercise Price and the number
of shares of New Common Stock purchasable
upon exercise of the Warrants ("Warrant
Shares") are both subject to adjustment
in certain cases referred to below.
No Rights Generally as Stockholders. No holder of Warrants will be
entitled to any rights generally as a
stockholder of the Company unless and
until such holder has obtained shares of
New Common Stock upon the exercise of the
Warrants for New Common Stock.
Stockholders will not be entitled to
receive warrants unless and until they
submit to the Depositary duly completed
Letters of Transmittal.
Adjustment of Exercise Price and
Number of Shares of New Common Stock
Obtainable Upon Exercise............ The number of shares of New Common Stock
obtainable upon exercise of each Warrant
and correspondingly the Exercise Price,
will be proportionately adjusted subject
to standard antidilution provisions at
any time the Company pays stock
dividends, subdivides, combines or
reclassifies its New Common Stock;
distributes evidences of indebtedness or
assets of the Company, or rights for such
assets; issues New Common Stock for less
than market value; issues options,
warrants or other securities convertible
for New Common Stock for less than market
value; or effects similar dilutive
transactions. Upon the consummation of
any
19
<PAGE>
Extraordinary Transaction (as defined
in the Warrant Agreements), including a
merger or sale of substantially all of
the assets of the Company, agreed to by
the Company, prior to January 1, 1998,
the Warrants must remain outstanding and
be exercisable in exchange for common
stock of the Company or common stock of
the acquiring company unless such
Extraordinary Transaction is approved by
at least 85% of the outstanding New
Common Stock then outstanding.
20
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following Summary Historical Consolidated Financial Information of
the Company should be read in conjunction with the consolidated financial
statements of the Company and the related notes thereto, and other financial
data included elsewhere herein. The summary financial information presented
below as of and for the years ended December 31, 1992, 1993, 1994, 1995 and 1996
is derived from the audited consolidated financial statements of the Company.
The summary financial information presented below as of and for the three months
ended March 31, 1996 and 1997 has been derived from the Company's unaudited
financial statements. Operating results for the three months ended March 31,
1997 may not be indicative of the results that may be expected for the year
ended December 31, 1997.
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended
1992 1993 1994 1995 1996 March 31, March 31,
1996 1997
----------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data: (1)
Net sales $2,238,715 $3,085,851 $5,018,687 $5,956,967 $5,522,824 $1,536,589 $1,113,100
Cost of sales 2,036,292 2,827,315 4,676,164 5,633,278 5,233,570 1,449,366 1,048,124
----------------------------------------------------------------------------------------------
Gross profit 202,423 258,536 342,523 323,689 289,254 87,223 64,976
Selling, general &
administrative expenses 150,905 187,152 281,796 317,195 295,021 83,136 51,520
Impairment losses (2) 51,383 42,033
Restructuring charge (3) 9,333
----------------------------------------------------------------------------------------------
Operating Income (loss) 51,518 71,384 60,727 (54,222) (47,800) 4,087 13,456
Interest expense 15,742 17,810 29,024 37,583 37,431 9,877 8,623
Loss on sale of European, Mexican,
and Latin American operations (4) 33,455
Other expense 1,299 2,722 11,752 13,885 20,150 7,238 3,530
----------------------------------------------------------------------------------------------
Income (loss) before income taxes 34,477 50,852 19,951 (105,690) (138,836) (13,028) 1,303
Provision
(benefit) for income taxes 14,812 20,413 8,341 (21,779) 1,539 480 173
----------------------------------------------------------------------------------------------
Net income (loss) $ 19,665 $ 30,439 $ 11,610 $ (83,911) $ (140,375) $ (13,508) $ 1,130
==============================================================================================
Share Data: (5)
Net income (loss) per share $0.67 $1.00 $0.38 $(2.82) $(4.68) $(0.45) $0.04
Weighted average number of shares 29,274 30,454 30,389 29,806 30,001 29,863 30,078
Other Data:
EBITDA(6) $ 59,528 $ 79,138 $ 65,076 $ (47,598) $ (82,616) $ 2,608 $ 13,106
BALANCE SHEET DATA:
Working capital $ 294,626 $ 359,765 $ 399,848 $ 280,864 $ 190,544 $ 250,442 $ 193,512
Total assets 667,313 936,283 1,191,870 1,230,334 731,039 1,158,676 706,020
Long-term and subordinated debt 153,433 208,500 357,685 356,271 294,763 403,861 288,331
Total debt 179,124 259,429 395,556 382,395 294,950 409,564 288,331
Stockholders' equity 198,882 223,857 236,164 154,466 14,997 138,794 15,814
</TABLE>
21
<PAGE>
(1) The Company's fiscal year is the 52- or 53-week period ending on the
Saturday nearest to December 31. For clarity of presentation throughout
this document, the Company has described year-ends and quarter-ends
presented as if the period ended on the last day of the month. Except for
1992, all fiscal years presented were 52 weeks in duration. The summary
historical consolidated financial information as set forth above includes
those balances and activities related to the Company's Australian business
until its disposal on January 1, 1996 and the Company's European, Mexican
and Latin American businesses until their disposal on October 4, 1996,
effective as of September 27, 1996. It also includes Merisel FAB from the
date such business was acquired on January 31, 1994, through the end of
March 28, 1997, the date of sale of Merisel FAB. (See Note 12 to the
consolidated financial statements -"Subsequent Events"). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) During 1995 and 1996, the Company determined that the carrying value for
certain of its capitalized costs relating to the installation of a new
computer operating system and identifiable intangible assets relating to
Merisel FAB would not be recovered from their use in future operations.
Accordingly, these assets were written down to their fair values as of the
impairment dates.
Additionally, in 1995 and 1996, the Company recognized impairment losses on
the assets of Merisel FAB and Merisel Pty Ltd. (a wholly owned Australian
subsidiary) related to the expected sale of substantially all of the assets
of such subsidiaries. (See Note 4 to the consolidated financial statements
- "Impairment Losses").
(3) During 1995, the Company recorded a restructuring charge associated with
the resizing of the Company's operations. (See Note 2 to the consolidated
financial statements - "Restructuring Charge").
(4) In October 1996, the Company completed the sale of substantially all of its
European, Mexican, and Latin American businesses to CHS Electronics, Inc. A
loss of $33,455,000, which includes approximately $7,400,000 of direct
costs related to the sale, was recorded on such sale. (See Note 5 to the
consolidated financial statements -"Dispositions").
(5) Net income (loss) per share and weighted average number of shares have not
been adjusted to reflect the Reverse Split.
(6) EBITDA is the sum of income before income taxes and interest, depreciation
and amortization expense. EBITDA should not be considered as an alternative
to income from operations or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) and
should not be construed as an indication of a company's operating
performance or as a measure of liquidity. However, EBITDA is presented
because it is a widely used financial indicator of a company's ability to
service indebtedness and other factors.
22
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following table sets forth the Summary Unaudited Pro Forma Condensed
Consolidated Financial Data for the fiscal year ended December 31, 1996 and the
three months ended March 31, 1997, after giving effect to (i) the sale of EML
and FAB as if each had occurred as of January 1, 1996 including the effect of
any amendment to existing debt agreements that were entered into as a direct
consequence of the sale of their businesses and related assets, (ii) the
issuance of 24.1 million shares of New Common Stock to the Noteholders, and the
Reverse Split, (iii) the extension of the maturity dates of the Revolving Credit
Agreement and the 11.5 % Notes to January 31, 1999, (iv) the payment of 3.5%
modification fees and other fees associated with the Extension to the holders of
the Revolving Credit Agreement and 11.5% Notes, and (v) the interest rate
increases on the Revolving Credit Agreement, 11.5% Notes, and Subordinated Notes
associated with the Extension, as if each of the foregoing transactions had
occurred on January 1, 1996 with respect to the statement of operations data and
as of March 31, 1997 with respect to the balance sheet data. The pro forma data
should be read in conjunction with the "Unaudited Pro Forma Condensed
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical consolidated
financial statements of the Company and related notes thereto, included
elsewhere herein. The data set forth below is not necessarily indicative of the
results that actually would have been achieved had such transactions been
consummated as of the dates indicated or that may be achieved in future periods.
<TABLE>
<CAPTION>
Pro Forma
Year Ended Three Months
December 31, Ended March 31,
1996 1997
---------- ----------
(In thousands, except per share amounts)
<S> <C> <C>
Income Statement Data: (1)
Net sales $3,441,343 $910,923
Cost of sales 3,262,105 853,624
---------- --------
Gross profit 179,238 57,299
Selling, general & administrative expenses 193,521 45,321
---------- --------
Operating (loss) income (14,283) 11,978
Interest expense 18,018 5,497
Other expense 17,967 4,518
---------- --------
(Loss) income before income taxes (50,268) 1,963
Provision for income taxes 822 158
---------- --------
Net (loss) income $ (51,090) $ 1,805
========== ========
Share Data:
Net (loss) income per share (2) $ (1.70) $ .06
Weighted average number of shares (2) 30,063 30,079
Other Data:
EBITDA (3) $ (19,890) $ 10,366
Balance Sheet Data:
Working capital $187,331
Total assets 695,933
Long-term and subordinated debt 163,331
Stockholders' equity 134,633
</TABLE>
23
<PAGE>
(1) The Company's fiscal year is the 52- or 53-week period ending on the
Saturday nearest to December 31. For clarity of presentation throughout this
document, the Company has described year-ends and quarter-ends presented as
if the period ended on the last day of the month. The summary unaudited
condensed consolidated financial data as set forth above includes those
balances and activities related to the Company's European, Mexican and Latin
American businesses until their disposal on October 4, 1996, effective as of
September 27, 1996. It also includes Merisel FAB until its disposal on March
28, 1997. (See Note 12 to the accompanying consolidated financial statements
-- "Subsequent Events"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) Net income (loss) per share and weighted average number of shares have been
adjusted to reflect the Reverse Split.
(3) EBITDA is the sum of income before income taxes and interest, depreciation
and amortization expense. EBITDA should not be considered as an alternative
to income from operations or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) and
should not be construed as an indication of a company's operating
performance or as a measure of liquidity. However, EBITDA is presented
because it is a widely used financial indicator of a company's ability to
service indebtedness and other factors.
24
<PAGE>
Cash Debt Service Obligations
The following table sets forth certain historical financial information with
respect to the Company's continuing operations for Fiscal 1996 and certain
projected financial information with respect to the Company for Fiscal 1997
through Fiscal 2002 assuming that the Exchange Restructuring is completed.
<TABLE>
<CAPTION>
Years Ending Cash Debt Total Principal Total Debt Total Debt
December 31 Service Obligations (1) Payments (2) Interest Expense (3) (at Year End) (4)
--------------- ----------------------- ---------------- -------------------- -----------------
<S> <C> <C> <C> <C>
(In thousands)
Historical:
1996........ $ 113,585 $ 83,129 $ 29,901 $ 294,763
Projected:
1997(5)..... 36,100 13,483 22,617 156,280
1998........ 33,698 13,610 20,088 142,670
1999........ 22,346 6,246 16,100 136,424
2000........ 20,963 5,511 15,452 130,913
2001........ 18,531 3,900 14,631 127,013
</TABLE>
(1) Cash debt service obligations in 1997 include all cash interest and
scheduled principal payments but exclude accrued but unpaid interest expense on
the 12.5% Notes through July 31, 1997 totaling $9.1 million. Assuming the
Exchange is consummated, unpaid interest expense on the 12.5% Notes will not
need to be paid.
(2) Included in total principal payments are scheduled net repayments under the
Revolving Credit Agreement, the 11.5% Notes, the Subordinated Debt, and other
promissory notes.
(3) Total debt interest expense excludes interest expense of $9.1 million for
1997 related to accrued but unpaid interest expense on the 12.5% Notes through
July 31, 1997.
(4) Total debt represents the principal amount of debt outstanding at year end,
assuming that the Exchange Restructuring is consummated on July 31, 1997.
(5) The following table sets forth certain financial information with respect to
1997 assuming the Company does not complete the Exchange Restructuring and thus
is required to make the scheduled $70 million amortization payments on the
Operating Company's Senior Debt, and the $125 million 12.5% Notes would remain
on the balance sheet as debt:
<TABLE>
<CAPTION>
Cash Debt Total Principal Total Debt Total Debt
Service Obligations Payments Interest Expense (at Year End)
- --------------------- --------------- ---------------- -------------
<S> <C> <C> <C>
$ 116,085 $ 83,483 $ 32,602 $ 211,280
</TABLE>
25
<PAGE>
PART A
EXCHANGE RESTRUCTURING
PART A - THE EXCHANGE RESTRUCTURING
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS............................................................... A-3
BACKGROUND OF RESTRUCTURING................................................ A-6
The Limited Waiver Agreement.......................................... A-7
The Extension Under the Operating Companies' Loan Agreements.......... A-8
PURPOSE OF THE RESTRUCTURING............................................... A-9
Restructuring Financial Considerations................................ A-10
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.................................................. A-12
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION..................... A-14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................................. A-15
Overview.............................................................. A-15
Results of Operations................................................. A-15
Comparison of the Three Months Ended March 31, 1997 and
March 31, 1996..................................................... A-16
Interest Expense; Other Expense; And Income Tax Provision............. A-17
Consolidated Income (Loss)............................................ A-17
Comparison of the Three Months Ended March 31, 1996 and
March 31, 1995..................................................... A-18
Interest Expense; Other Expense; and Income Tax Provision............. A-19
Consolidated Income (Loss)............................................ A-20
Comparison of the Fiscal Years Ended December 31, 1995 and
December 31, 1994.................................................. A-20
Interest Expense; Other Expense; and Income Tax Provision............. A-20
Consolidated Income (Loss)............................................ A-21
Variability of Quarterly Results and Seasonality...................... A-21
Liquidity and Capital Resources....................................... A-21
Inflation............................................................. A-25
Asset Management...................................................... A-25
PROJECTED FINANCIAL INFORMATION............................................ A-27
BUSINESS AND PROPERTIES OF THE COMPANY..................................... A-28
Business Overview..................................................... A-28
Significant Events of 1996 and 1997................................... A-29
The Industry.......................................................... A-30
Business Strategy..................................................... A-31
Products and Manufacturer Services.................................... A-31
Customers and Consumer Services....................................... A-33
Sales and Marketing................................................... A-34
Configuration......................................................... A-35
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
Operations, Distributions and Investments in Systems.................. A-36
Disposed Operations................................................... A-36
Competition........................................................... A-36
Variability of Quarterly Results and Seasonality...................... A-37
Employees............................................................. A-37
Environmental Compliance.............................................. A-37
Properties............................................................ A-37
Legal Proceedings..................................................... A-38
TENDERING AND VOTING PROCEDURES............................................ A-39
The Restructuring..................................................... A-39
General............................................................... A-39
Interest on 12.5% Notes............................................... A-40
Expiration Date; Extensions; Amendments............................... A-40
How to Tender in the Exchange Offer................................... A-41
Tenders - Additional Information...................................... A-41
Withdrawal of Tenders and Revocation of Votes......................... A-43
Conditions............................................................ A-43
Voting on the Prepackaged Plan........................................ A-45
DESCRIPTION OF 12.5% Notes................................................. A-48
DESCRIPTION OF INDEBTEDNESS OF THE COMPANY................................. A-69
General............................................................... A-69
Revolving Credit Agreement............................................ A-69
11.5% Notes........................................................... A-70
Subordinated Notes.................................................... A-71
Canada Receivables Securitization..................................... A-72
U.S. Receivables Securitization....................................... A-72
Promissory Notes...................................................... A-73
MARKET PRICES OF OLD COMMON STOCK; DIVIDEND HISTORY........................ A-74
MARKET PRICES OF 12.5% Notes............................................... A-75
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.................................. A-75
Federal Income Tax Consequences to Noteholders........................ A-75
Federal Income Tax Consequences to the Company........................ A-76
MANAGEMENT................................................................. A-75
Management Compensation............................................... A-75
Ownership of Common Stock............................................. A-75
ADVISORS AND REPRESENTATIVES............................................... A-77
Financial Advisor..................................................... A-77
Financial Advisor to Noteholders...................................... A-77
Information Agent..................................................... A-78
Depositary............................................................ A-78
Estimated Fees and Expenses........................................... A-78
LEGAL MATTERS.............................................................. A-79
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
EXPERTS.................................................................... A-79
</TABLE>
A-3
<PAGE>
RISK FACTORS
Investment in the New Common Stock involves a high degree of risk. Prior to
deciding whether to (a) participate in the Exchange Offer and/or (b) vote to
accept the Prepackaged Plan, each Noteholder should carefully consider all of
the information contained in this Prospectus, especially the factors described
in the following paragraphs.
High Leverage After Exchange Restructuring
At March 31, 1997, the Company had $288.3 million in total debt plus $259.8
million of asset securitization and a stockholders' equity of $15.8 million. On
a pro forma basis at March 31, 1997, the Company would have approximately $163.3
million of total debt plus the same assets securitized following completion of
the Exchange Restructuring and stockholders' equity of $134.6. See "PURPOSE OF
THE RESTRUCTURING." The Company has been involved in preliminary discussions
regarding possible debt and equity financing after the Restructuring, however,
no agreement has been reached and there can be no assurance that the Company
will be able to obtain such financing on acceptable terms, if at all. While the
stockholders' equity would be substantially increased as a result of the
Exchange Restructuring, the continued high level of the Company's debt following
completion of the Exchange Restructuring will pose substantial risks to holders
of the Company's New Common Stock, including, but not limited to, risks which
may adversely affect or impair the following: (i) the ability of the Company to
pay when due principal of and cash interest on its debt securities; (ii) the
ability of the Company to obtain additional financing in the future, as needed;
(iii) the ability of the Company to withstand competitive pressures or a
continuation or worsening of current unfavorable economic conditions, to expand
its product lines or markets or to take advantage of significant new business
opportunities that may arise; and (iv) the marketability, price and future value
of the Company's securities, which could result in the loss of a
securityholder's entire investment in the Company. See "-- Market Factors and
Seasonality May Adversely Affect Cash Flow."
Market Factors And Seasonality May Adversely Affect Cash Flow
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; (iii)
virtually all sales in a given quarter result from orders booked in that
quarter; (iv) changes in short and long term demand for computer products, and
national, regional and local economic conditions; and (v) unfavorable trends or
developments concerning factors such as inflation, increased costs of
components, labor and employees, regional weather or other conditions which
could adversely effect the availability and cost of the Company's inventory. The
factors noted above could result in a failure to achieve the Company's business
plan, which calls for movement toward current market growth levels, thereby
affecting the resulting profitability of the Company and its cash resources.
A-4
<PAGE>
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. The financial results projected herein assume
that seasonality will not have a material adverse affect on the Company's
financial projections. While the Company believes the consummation of the
Exchange Restructuring will enable it to meet its scheduled interest and
principal payments when due, there can be no assurance that the Company will be
able to make such payments. In the event that the Company is unable to make such
payments, it may seek to refinance or restructure its debt obligations, and
failing such refinancing or restructuring, the Company may seek protection under
Chapter 11 of the United States Bankruptcy Code. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "BACKGROUND
OF THE RESTRUCTURING," each in the Disclosure Statement, and "PROJECTED
FINANCIAL INFORMATION," "PURPOSE OF THE RESTRUCTURING" and "UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
Restrictions Under Operating Companies' Loan Agreements
The Operating Companies' Loan Agreements contain certain restrictions on
the Company's operations and contain requirements that the Company achieve and
maintain certain financial ratios. Such restrictions include, among other
things, limitations on the ability of the Company and its subsidiaries to incur
additional indebtedness, to create, incur or permit the existence of certain
liens, to make certain investments, to make capital expenditures above certain
levels, to make certain sales of assets, to make certain payments with respect
to its outstanding stock, to effect certain fundamental changes and to enter
into certain types of transactions. Although the Company was in compliance with
these restrictions as of March 31, 1997 (the last reporting date under the
Operating Companies' Loan Agreements), there can be no assurance that the
Company will be able to maintain compliance with the prescribed financial ratio
tests or other requirements of the Operating Companies' Loan Agreements. Failure
to maintain compliance with such financial ratio tests or other requirements
under the Operating Companies' Loan Agreements would result in a default and
could lead to the acceleration of the Company's obligations under the Operating
Companies' Loan Agreements as well as the acceleration of other indebtedness of
the Company which, by the terms of the instruments creating, evidencing or
governing such indebtedness, would be triggered upon an acceleration under the
Operating Companies' Loan Agreements. The acceleration of any such indebtedness
would result in its becoming immediately due and payable and could result in the
Company becoming subject to a proceeding under the Federal bankruptcy laws. See
"DESCRIPTION OF INDEBTEDNESS OF THE COMPANY" in the Disclosure Statement.
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Limitation on Use of Net Operating Losses
As a result of the receipt by Noteholders of New Common Stock in exchange
for the 12.5% Notes pursuant to the Restructuring, the Company will undergo an
"ownership change" for Federal income tax purposes. Accordingly, the Company
will be limited in its ability to use its net operating loss carryovers and
certain tax credit carryforwards to offset future taxable income. See "CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS." Under the Exchange Restructuring, the
limitation imposed upon the Company's use of its net operating loss carryovers
would be more restrictive than under the Prepackaged Restructuring.
Market Value of the Securities May Fluctuate
The market value of the securities to be issued in the Exchange
Restructuring will depend on the future performance of the Company and on
factors generally affecting the securities markets (including, for example,
interest rates), which factors are influenced by conditions beyond the Company's
control.
Capital Expenditures
During 1996, the Company made capital expenditures totaling approximately
$9,652,000 for the upgrading of the Company's computer systems, expenditures for
a new warehouse management system and the upgrading of existing facilities and
leasehold improvements. The Company believes that the capital expenditure levels
assumed in the preparation of the projected financial data contained herein will
be adequate to maintain the Company's long-term competitive position, but there
can be no assurance thereof. In the event that such capital expenditure levels
are not adequate, the Company's competitive position in its industry and
consequently the Company's results of operations could be adversely affected.
Further, the fair value of capital expenditures recorded may be impaired,
resulting in the recognition of additional losses. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "PROJECTED
FINANCIAL INFORMATION" in Part A.
Dividend Restrictions
The Company does not intend to, nor does it expect it to be able to, pay
any cash dividends on the New Common Stock in the foreseeable future, and the
Operating Companies' Loan Agreements currently restrict the payment of cash
dividends on the Old Common Stock by the Company and would similarly restrict
the payment of dividends on the New Common Stock. For a description of the
limitations contained in the Operating Companies' Loan Agreements, see
"DESCRIPTION OF INDEBTEDNESS OF THE COMPANY" in Part B.
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Dilution
Upon completion of the Exchange Offer or the Prepackaged Plan, as
applicable, the Company will issue approximately 24,062,796 shares of New Common
Stock directly to exchanging Noteholders, 6,015,699 shares of New Common Stock
directly to exchanging Stockholders, and will reserve 5,263,736 shares of New
Common Stock for issuance upon exercise of the Warrants. The issuance of such
shares upon exercise of the Warrants will result in dilution of the equity
interests of the holders of New Common Stock (as a percentage of outstanding
shares of New Common Stock) which could adversely affect the market price and
the value of the New Common Stock. Immediately following the consummation of the
Exchange Restructuring or the Prepackaged Plan, as applicable, the 24,062,796
shares issued directly to exchanging Noteholders will represent approximately
80% of the total outstanding shares of New Common Stock, excluding shares
obtainable upon exercise of Warrants. Based on the number of shares of Old
Common Stock outstanding as of the Record Date (after giving effect to the
Reverse Split and the Exchange Restructuring), if all such Warrants are
exercised, such percentage would drop to 68.1%. See "PURPOSES AND EFFECTS OF THE
EXCHANGE RESTRUCTURING."
Need for Sustained Trade Support
The Holding Company and its subsidiaries' ability to achieve sales growth
and profitability includes significant reliance on continued support from its
vendors. If the Company's major vendors reduce their credit lines or product
availability to the Company, it could have a material adverse effect on the
Company's sales, cash position and liquidity.
New or Intensified Competition
The Company operates in an industry that is made up of several high growth-
oriented competitors. As such the Company is subject to the possibility of new
or intensified competition in the regions in which the Company operates as a
result of efforts by direct competitors to grow, consolidate with other
competitors, or gain market share in those regions. Such activities may affect
the Company's sales volume, pricing and/or margins.
Concentrated Ownership of New Common Stock
Following consummation of the Restructuring, the ownership of the New
Common Stock will likely be more concentrated than was the ownership of the Old
Common Stock. Although the Company expects that, following the Restructuring, it
will continue to be controlled by a disaggregated group of stockholders, one or
more former holders of a substantial amount of 12.5% Notes who continue to hold
New Common Stock after the Restructuring may seek to influence the direction of
the Company, and the Company has agreed to appoint a nominee of the Noteholders
to the Board of Directors following the Restructuring. See "MANAGEMENT-- Post
Restructuring Board Configuration." The Company does not have complete
information regarding the beneficial ownership of the 12.5% Notes and is not
aware of any agreement among Noteholders to seek to influence the direction of
the Company or to otherwise act in concert following the Restructuring. There
can be no assurance, however, that no such agreements exist or that a
concentrated number of holders of New Common Stock might not attempt to
influence the Company following the Restructuring.
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Potential De-Listing of the Common Stock
The Company is currently not in compliance with the net tangible assets
test required for continued listing on the Nasdaq National Market. The NASD
has postponed action to seek the de-listing of the Old Common Stock pending an
oral hearing at which the Company will request that the NASD waive compliance
with such test until consummation of the Restructuring.
Should the Restructuring be consummated, the Company expects to be in full
compliance with all of the NASD's requirements for continued listing on the
Nasdaq National Market. See "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS" in Part A. There can be, however, no assurance that the
NASD will waive compliance of such test. If the common stock of the Company were
de-listed, there could be an adverse effect on the liquidity of the market for
such common stock.
History of Net Operating Losses
In 1995 and 1996, the Company experienced significant losses totalling
$83,911,000 and $140,375,000, respectively. Additionally, on a pro forma basis,
excluding the operating performance of FAB, which was sold effective March 28,
1997, the Company would have had a net operating loss for the first quarter of
1997 of $1,024,000. Although a large portion of the losses in 1995, and 1996
relate to the operations of, and impairments or other adjustments associated
with assets or businesses that the Company has since disposed of, a portion of
the losses are also attributable to expenses and adjustments associated with
ongoing systems and processes of the Company. These include adjustments to trade
accounts payable balances related to price protection, returns to vendors by
Merisel and inventory receipt related issues, such as short shipments,
identified through the vendor reconciliation process in 1995 and 1996. They also
include impairment charges taken in 1995 in order to bring total capitalized
development costs for the Company's computer system in line with the estimated
fair value of such assets. Increased professional fees and other expenses
associated with the development of the 1996 business plan, process improvement
efforts, lender negotiations prompted by the prior year's losses, and severance
costs related to management changes also contributed to losses in 1996. The
Company experienced sales growth and decreased expenses in the first quarter of
1997, and although this resulted in operating results that were consistent with
management's expectation and showed considerable improvement over the previous
year, the risk exists that the Company may continue to experience losses, and
that such continued losses will have a negative impact of the Company's
liquidity.
In order to return to profitability, the company has pursued a strategy
that included the sale of several of its business segments. In the fourth
quarter of 1995, the Company recorded a $1,900,000 asset impairment related to
the sale of its Australian business. In September of 1996, the Company sold its
European, Mexican, and Latin American businesses at a loss of $33,400,000.
Additionally the Company recorded asset impairments of $30,000,000 in 1995 and
$42,033,000 in 1996 against the intangible assets of FAB, which it sold in the
first quarter of 1997. Of the Company's net sales of $5.5 billion in 1996, these
disposed businesses accounted for $2.1 billion. As such, it is likely that
revenues will be substantially lower in 1997. See "PROJECTED FINANCIAL
INFORMATION."
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For a discussion of certain additional risk factors that should
be considered in connection with voting on the Prepackaged Plan, see
"RISK FACTORS" in the Disclosure Statement.
BACKGROUND OF RESTRUCTURING
In 1995, the Company incurred a net loss of $83.9 million. This loss was
principally the result of several large fourth quarter adjustments totaling
$89.4 million. Approximately $25,800,000 of the fourth quarter adjustments
related to adjustments to trade accounts payable balances for price protection,
return to vendors and inventory receipt related issues, such as short shipments,
identified through the vendor reconciliation process. An additional $8,200,000
charge was taken due to changes made in estimates to certain asset and liability
values. The Company also determined that portions of the carrying values of
certain of its long lived assets and identifiable intangibles would not be
recovered from their use in future operations. Accordingly, these assets were
written down to their fair values as of December 31, 1995, for a total
adjustment of $51,400,000. Of that amount, $30,000,000 represented an impairment
of long-lived assets associated with the Company's Computerland franchise
business, and $1,900,000 represents an impairment loss for the writedown of the
net assets in the Company's Australian business, to their realizable value. The
Computerland franchise business and the Australian businesses were both
subsequently sold. The remaining impairment charge for $19,500,000 was taken
against costs associated with the Company's ongoing computer system conversion.
The Company recorded this charge in order to adjust capitalized development and
implementation costs to their estimated fair value. Additionally, the Company's
European distribution center experienced system software start-up problems which
created shipping and receiving errors that resulted in a charge of $1.5 million,
while another $2.5 million charge was taken to expense such start-up costs.
Due to these substantial losses, the Company was required in April 1996 to
negotiate with the lenders under its various financing agreements to amend such
agreements and to waive certain defaults, which amendments and waivers were
obtained.
In connection with such negotiations, the Company developed and implemented
a business plan for the remainder of fiscal 1996 (the "1996 Business Plan") that
focused on maximizing cash flow by controlling costs, curtailing non-essential
capital expenditures, limiting investments, concentrating on its more profitable
areas of operations and product lines and slowing growth in its less profitable
areas of operations. The 1996 Business Plan assumed that the Company would not
return to profitability until the fourth quarter of 1996. At the same time, the
Company recognized that, in order to meet its obligations in 1997, it needed to
engage in some combination of asset sales, refinancing of its borrowings and
obtaining new sources of financing.
Concurrently with the implementation of the 1996 Business Plan, the Company
actively explored all of its strategic options, including the sale of the
Company, with the assistance of Merrill Lynch & Co. This ultimately led to the
Company's sale of its European, Mexican and Latin American operations in
September of 1996 after attempts to sell the entire Company proved unsuccessful.
In connection with this sale, Merisel Americas and certain of its lenders agreed
in October 1996 to amend (1) the Amended and Restated Revolving Credit
Agreement, dated as of December 23, 1993, as amended, among Merisel Americas and
Merisel Europe, as borrowers, the Company, as guarantor, and the lenders party
thereto (the "Revolving Credit Agreement"), and (2) the Amended and Restated
Senior Note Purchase
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Agreement, dated as of December 23, 1993, as amended, by and among each of the
purchasers named therein, Merisel Americas, as issuer, and the Company (the
"Senior Note Purchase Agreement, and, together with the Revolving Credit
Agreement, the "Operating Companies' Senior Debt") relating to the 11.5% Notes
to extend the final maturities of such indebtedness until January 31, 1998. In
connection with such amendments, the Company was required to obtain, and did
obtain an amendment of the Amended and Restated Subordinated Note Purchase
Agreement, dated as of December 23, 1993, as amended, by and among each of the
purchasers named therein and Merisel Americas (the "Subordinated Note Purchase
Agreement" and, together with the Operating Companies' Senior Debt, the
"Operating Companies' Loan Agreements) relating to the Subordinated Notes.
These Operating Companies' Loan Agreements permitted the Company to make
interest payments on the 12.5% Notes with the provision that if the interest
payments due on June 30, 1997 and December 31, 1997 were paid, an additional
$40,000,000 and $30,000,000 of the indebtedness under the Operating Companies'
Loan Agreements would be required to be amortized in each of these periods,
respectively. The Company did not believe that it could satisfy these
obligations without a restructuring of the 12.5% Notes and the Operating
Companies' Loan Agreements.
In January 1997, along with its emphasis on rebuilding profitable sales
growth, the Company retained Donaldson, Lufkin and Jenrette Securities
Corporation ("DLJ") as financial advisor to assist it in restructuring its debt.
The Company did not seek or obtain any opinion from DLJ as to the fairness of
the Restructuring or otherwise in connection with their engagement. See
"ADVISORS AND REPRESENTATIVES."
Shortly thereafter, the Company commenced negotiations with the Ad Hoc
Noteholders Committee. Effective April 14, 1997, the Company and holders of more
than 75% of the outstanding principal amount of its 12.5% Note entered into the
Limited Waiver Agreement, as described below. The following are the members of
the Ad Hoc Noteholders Committee: Turnberry Capital Management, Baker Nye
Advisors, Inc., Monarch Management Group Limited, Robert Fleming, Inc., Fisher
Ewing Partners and York Capital Management. The Company does not have complete
information regarding the beneficial ownership of the 12.5% Notes (including,
without limitation, the identity of the Consenting Noteholder), and is unaware
of any affiliations between the Noteholders, on the one hand, and the officers
and directors of the Company, on the other hand, except as follows. The Limited
Waiver Agreement requires that, on the Exchange Date, the Board shall be
composed of members acceptable to the Ad Hoc Noteholder Committee. Mr. Vincent
Rossi, a representative of one of the members of the Ad Hoc Noteholder
Committee, will be appointed to the Board upon consummation of the
Restructuring. See "-- Post-Restructuring Board Configuration." The Ad Hoc
Noteholders Committee was assisted in analyzing and negotiating the
Restructuring with the Company by Chanin and Company LLC ("Chanin"). The Ad Hoc
Noteholders Committee did not seek or obtain any opinion from Chanin as to the
fairness of the restructuring or otherwise in connection with their engagement.
See "ADVISORS AND REPRESENTATIVES."
The Limited Waiver Agreement
Effective April 14, 1997, the Company entered into an agreement (the
"Limited Waiver Agreement") with holders of more than 75% of the outstanding
principal amount of its 12.5% Notes (the "Consenting Noteholders"). Pursuant to
the terms of the Limited Waiver Agreement, upon the fulfillment of certain
conditions, the Consenting Noteholders would exchange their 12.5% Notes for New
Common Stock in accordance with the terms of the Restructuring. The Limited
Waiver Agreement provides that, immediately after the consummation of the
Exchange Restructuring, the Company would issue to the holders of Old Common
Stock Warrants to purchase shares of New Common Stock.
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<PAGE>
The Noteholders' obligations under the Limited Waiver Agreement are subject
to certain conditions including (i) stockholder approval of the Charter
Amendment and (ii) consents to amendments of the Operating Companies' Senior
Debt by 100% of the lenders under such agreements to extend the maturity of the
outstanding indebtedness under such agreements to January 31, 1999 (see "--The
Extension Under the Operating Companies' Loan Agreements," below), or a
refinancing of such indebtedness prior to October 31, 1997.
In the event that less than 100% of the aggregate principal amount of the
12.5% Notes are tendered in the Exchange Offer but at least two-thirds in
principal amount and a majority in number of the holders of the 12.5% Notes and
at least two-thirds of the Stockholders voting have voted in favor of the
Prepackaged Plan, the Holding Company has agreed to file the Prepackaged Plan
under Chapter 11 of the U.S. Bankruptcy Code and the Consenting Noteholders have
agreed to vote in favor of the Prepackaged Plan.
While the Restructuring is being implemented, the Consenting Noteholders
have agreed to waive any default arising from the nonpayment of interest due in
1997 on the 12.5% Notes. 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 Limited Waiver Agreement also requires that, on the Exchange
Restructuring Date, the Board shall be composed of members acceptable to the Ad
Hoc Noteholder Committee and the Company. Upon the consummation of any
Extraordinary Transaction (as defined in the Warrant Agreements) prior to
January 1, 1998, including a merger or sale of substantially all of the assets
of the Company, or the agreement of the Company to perform an Extraordinary
Transaction entered into prior to January 1, 1998, the Warrants must remain
outstanding and be exercisable in exchange for common stock of the Company or
common stock of the acquiring company unless such Extraordinary Transaction is
approved by at least 85% of the outstanding New Common Stock then
outstanding.
The Limited Waiver Agreement shall terminate and the obligations to pay
interest shall be reinstated if (a) on the earliest to occur of (i) the day
before the first date on which the Exchange Offer could be closed, (ii) the day
before the last date on which ballots in respect of the Prepackaged Plan may be
submitted, and (iii) October 31, 1997, (1) the Company and the other parties to
the Operating Companies Loan Agreements shall have failed to enter into the
Extension (as described below) or (2) the Company shall have failed to
consummate a refinancing of all of the indebtedness outstanding under the
Operating Companies' Loan Agreements on terms satisfactory to the Consenting
Noteholders; (b) the Exchange Restructuring is not closed by August 31, 1997,
unless Chapter 11 proceedings relating to the Prepackaged Plan have commenced;
(c) in the event Chapter 11 proceedings are commenced, the Prepackaged Plan is
not substantially consummated by October 31, 1997; (d) the Company has changed
the terms of the Exchange Restructuring or Prepackaged Plan so as to be
inconsistent with the terms contemplated by the Limited Waiver Agreement; (e)
there occurs an "Event of Default" under any of the Operating Companies' Loan
Agreements after the date specified in the Limited Waiver Agreement; (f) the
Company's Certificate of Incorporation shall not have been amended so as to
authorize enough shares of common stock to effectuate the Exchange
Restructuring; or (g) there shall have occurred any material adverse change in
the Company's business, assets, operations or condition.
A-11
<PAGE>
The Extension Under the Operating Companies' Loan Agreements
As of April 14, 1997, the Company had entered into an agreement in
principle (the "Extension") with 100% of the holders of the loans made and notes
issued under the Operating Companies' Loan Agreements, pursuant to which all of
such holders have agreed, subject to execution of definitive documentation and
certain other conditions, to extend the maturities under their respective
Operating Companies Loan Agreements to January 31, 1999. In consideration of the
Extension, the Company has agreed to pay certain fees and additional interest,
as described below.
While the Restructuring is being implemented, all of the holders of loans
made and notes issued under the Operating Companies' Loan Agreements have agreed
to waive any default or cross-default resulting from the non-payment of interest
in respect of the 12.5% Notes, the commencement of either the Exchange
Restructuring or the Prepackaged Plan, or certain other events that might
otherwise cause the Company to default under the relevant agreements. In
addition, all of the holders of indebtedness under the Operating Companies Loan
Agreements have agreed to execute amendments to the relevant agreements to
reflect the extension of their indebtedness provided that (i) the amendments
with respect to the Revolving Credit Agreement and the Senior Note Purchase
Agreement shall not become effective until they have been signed by the holders
of all such instruments, and (ii) none of the amendments shall 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.
In consideration for the waivers, the Company has agreed to pay certain
fees and additional interest, as described below. The fees payable under the
Extension include a fee equal to 1.5% of the outstanding principal amount owed
to each holders of indebtedness under the Operating Companies' Loan Agreement.
In addition, the Company will owe to the holders of Operating Companies' Senior
Debt a 2% fee upon the closing of the Restructuring, as well as fees of (i) .25%
on January 31, 1998, (ii) 0.5% on April 30, 1998 and (iii) .75% on July 31,
1998. The interest rate on the Operating Companies' Senior Debt will increase
0.5% each quarter commencing January 31, 1998 on the debt that remains
outstanding at that time. The interest rate on the Subordinated Notes will also
increase by 0.5% each quarter commencing January 31, 1998 and continuing for
three quarters thereafter. The Company would have the right to prepay such debt
at anytime without penalty.
The Extension shall terminate if (a) the Exchange Restructuring 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 Offer or
Prepackaged Plan so as to be inconsistent with the terms contemplated by the
Extension; (d) there occurs an "Event of Default" under any of the Operating
Companies' Loan Agreements or certain other agreements; (e) the Company's
Certificate of Incorporation shall not have been amended so as to authorize
enough shares of common stock to effectuate the Exchange Restructuring; (f)
there shall have occurred any material adverse change in the Company's business,
assets, operations or condition; or (g) the Company, Merisel Americas and
Merisel Europe materially breach any obligations under the Extension.
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<PAGE>
PURPOSE OF THE RESTRUCTURING
The purpose of the Restructuring is to enhance the long-term viability and
to contribute to the success of the Company by adjusting the Company's
capitalization (through a reduction of debt levels, an extension of principal
repayments and a relaxation of operating covenants) to reflect current and
expected operating performance levels. Specifically, the Restructuring is
designed to reduce the Company's outstanding debt obligations by $125 million,
to levels which the Company believes can be supported by its projected cash
flow, to replace a significant portion of the Company's indebtedness with New
Common Stock and to amend the covenants and final maturity on its Operating
Companies' indebtedness. Interest charges will be substantially reduced and
stockholders' equity will be substantially increased as a result of the
Restructuring.
In addition, implementation of the Restructuring will enable the Company to
avoid certain significant amortization payments totaling $40 million in June
1997 under the Operating Companies' senior debt obligations if the Company pays
interest on the 12.5% Notes next due in June 1997. During the period that the
Restructuring is being implemented, such interest payments have been waived by
in excess of 75% of the holders of 12.5% Notes and the holders of the Operating
Companies' indebtedness have waived any cross-default arising from the non-
payment of such interest. Failure to consummate the Restructuring could result
in such amortization payments becoming due as well as interest payment
obligations on the 12.5% Notes being reinstated. Absent the Restructuring, the
Company does not believe it will be able to satisfy such obligations without a
refinancing of the Company's indebtedness under the Operating Companies' Loan
Agreements or obtaining additional waivers or amendments to such agreements, and
there can be no assurance that the Company will be able to obtain such
refinancing, waivers or amendments.
If the Company determines that it is, or will be unable to complete the
Restructuring, the Company will consider all financial alternatives available to
it at such time, which may include the sale of all or part of the Company's
business, the implementation of an alternative restructuring arrangement outside
of bankruptcy, (including refinancing the indebtedness under the Operating
Companies' Loan Agreements or seeking waivers thereunder) or the commencement of
a Chapter 11 case with or without a preapproved plan of reorganization. There
can be no assurance, however, that any alternative restructuring would result in
a reorganization of the Company rather than a liquidation, or that any such
reorganization would be on terms as favorable to the Noteholders and
Stockholders as the terms of the Prepackaged Restructuring. If a liquidation or
a protracted and non-orderly reorganization were to occur, there is a risk that
the ability of the Noteholders and Stockholders to recover their investments
would be even more impaired than under the Prepackaged Restructuring and would
be substantially delayed. A non-consensual restructuring would likely have a
material adverse impact on the Company and its employees, suppliers and
customers.
Restructuring Financial Considerations
In connection with the development of its Restructuring proposal, the
Board, with the assistance of DLJ, conducted a review of certain financial
information with respect to the Company and the proposed transactions
contemplated by the Restructuring. The Company did
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not seek or obtain any opinion from DLJ as to the fairness of the Restructuring
or otherwise in connection with their engagement, and DLJ did not make any
assessment or recommendation to the Company with respect to the Restructuring.
DLJ relied upon and assumed the accuracy and completeness of all the financial
projections and other information that was available to it from public sources
or that was provided to or discussed with it by the Company, the Board or their
respective representatives. The Board also reviewed a liquidation analysis
prepared by the Company's management. Based upon the foregoing, the Board
determined that, in its judgment, the terms of the Restructuring are in the best
interests of the Company and its stockholders. The following paragraphs
summarize the financial information reviewed by the Board and the factors the
Board considered.
Background of the Restructuring Financial Analysis. The Board reviewed the
Company's business plan and projections and the various factors influencing the
computer products distribution industry which historically had affected the
Company's operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." The Board also was aware of the
significant amortization payments that would otherwise be required upon the
payment of interest on the 12.5% Notes in June 1997 absent a Restructuring, and
that the Company's projected cash flow would be insufficient to satisfy such
debt service requirements during 1997.
Restructuring Valuation. The Board evaluated the Restructuring in the
context of the implied value of the Common Stock proposed to be exchanged for
12.5% Notes based on recent trading prices of the 12.5% Notes and the amount
owed on the 12.5% Notes. The 12.5% Notes were trading at 93.5% of principal
amount on May 13, 1997 in the over-the-counter market which values the 12.5%
Notes at $116.9 million in the aggregate. See "MARKET AND TRADING INFORMATION."
Based on their receiving 80% of the restructured equity of the Company, this
value would imply an equity valuation for 100% of the equity at $146.1 million.
Assuming the Restructuring closed on June 30, 1997, the accrued claim of
principal and interest on the 12.5% Notes would be $132.8 million. Based on the
12.5% Notes receiving 80% of the restructured equity of the Company, this would
imply an equity valuation of $166.0 million if the 12.5% Notes were to receive a
full recovery. In preparing and reviewing such analysis, the Company reviewed
financial and operating performance of the Company and its principal
competitors, including growth rates, working capital utilization, margins,
profitability and capitalization. In addition, the Company reviewed implied
valuation multiples of the Company and the market multiples of its principal
competitors based upon trailing and projected financial performance, and
reviewed valuation multiples of companies in other distribution industries by
comparing how their valuation was impacted by, among other things, size,
margins, leverage and growth rates. The Company also reviewed recoveries of
various classes of creditors in other restructuring.
The market analysis of competitors' multiples showed average market
multiples for total enterprise value to EBITDA for the preceding twelve months
("LTM EBITDA") of 11.4x for comparable full-line distributors, 6.3x for
comparable aggregators and 7.4x for comparable electronics distributors. Based
on these market multiples and observations regarding factors that influence such
valuation multiples, the Company used a 7.5x total enterprise value to LTM
EBITDA multiple in the preparation of the liquidation analysis described below.
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Liquidation Analysis. Based on its own projections and the market analysis
of competitors' multiples described above, the Company prepared a liquidation
analysis, which is included in the Disclosure Statement. See "CHAPTER 7
LIQUIDATION ANALYSIS" in the Disclosure Statement. This liquidation assumes that
the Company's operating subsidiaries are sold as a going concern. A forced asset
liquidation of these entities could result in substantially lower recoveries.
The liquidation analysis compares the consideration estimated to be available
for distribution in the event of a liquidation proceeding of the Company under
Chapter 7 of the Bankruptcy Code to the economic terms of the Restructuring. The
liquidation analysis estimates the gross value available for distribution in
such a liquidation at $63.1 million, less administrative expenses including
trustee and professional fees of $7.4 million. Accordingly, under such analysis
the net proceeds available to Noteholders and Stockholders would be $55.7
million. Based on the Noteholders claim of $125 million plus accrued and unpaid
interest to the date of liquidation, the liquidation would net such Noteholders
less than a 42% recovery on their claims and leave existing holders of Old
Common Stock with no consideration, assuming a strict priority distribution.
The liquidation analysis makes numerous assumptions with respect to
industry performance, business and economic conditions, and other matters, many
of which are beyond the Company's control. Moreover, the methods and assumptions
used in preparing the liquidation analysis involve significant elements of
subjective judgment on the part of the Company and may or may not prove to be
correct. Estimates contained in the liquidation analysis are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than such estimates. For a discussion of the assumptions used
in preparing the liquidation analysis, see "CHAPTER 7 LIQUIDATION ANALYSIS --
Notes to Liquidation Analysis" in the Disclosure Statement.
- -----------------------------
While the Board has determined that, in its judgment, the terms of the
Restructuring are in the best interests of the Company and its Stockholders,
because the terms of the Restructuring may create potential conflict of interest
between the interests of stockholders and noteholders, the Board makes no
recommendation as to whether Noteholders should tender their 12.5% Notes in the
Exchange Restructuring.
A-15
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Balance
Sheet as of March 31, 1997 and the Unaudited Pro Forma Condensed Consolidated
Statements of Operations for the fiscal year ended December 31, 1996 and the
three-month period ended March 31, 1997 are based upon the historical financial
position and results of operations as of and for the periods then ended. There
are pro forma adjustments to the historical consolidated statements of
operations, which give effect to the sale of EML and FAB (referred to in the
tables as "former operations") as if each had occurred as of January 1, 1996,
including the effect of any amendment to existing debt agreements that were
entered into as a direct consequence of the sale of these businesses and related
assets. Additional pro forma adjustments to the historical results of operations
(based on the assumptions set forth below) give affect to the Exchange
Restructuring transactions, including (i) the issuance of 24.1 million shares,
after giving affect to the Reverse Split, of New Common Stock to Noteholders,
(ii) the extension of the maturity dates of the Revolving Credit Agreement and
the 11.5% Notes to January 31, 1999, (iii) the payment of 3.5% modification fees
and other fees associated with the Extension to the holders of the Revolving
Credit Agreement and 11.5% Notes, and (iv) the interest rate increases on the
Revolving Credit Agreement, 11.5% Notes and Subordinated Notes associated with
the Extension, as if each had occurred on January 1, 1996. The following
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1997
includes pro forma adjustments as if the Exchange Restructuring had been
completed on that date.
The pro forma adjustments are based on available information and
upon certain assumptions that the Company believes are reasonable under the
circumstances. The unaudited pro forma condensed consolidated financial
statements and accompanying notes should be read in conjunction with the
historical consolidated financial statements of the Company, including the notes
thereto, and the other information pertaining to the Company appearing elsewhere
in this Prospectus or incorporated herein.
THESE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE
CONSTRUED TO BE INDICATIVE OF THE FINANCIAL CONDITIONS OR RESULTS OF OPERATIONS
OF THE COMPANY HAD THE TRANSACTIONS DESCRIBED THEREIN BEEN CONSUMMATED ON THE
RESPECTIVE DATES INDICATED AND ARE NOT INTENDED TO BE PREDICTIVE OF THE
FINANCIAL CONDITION OR RESULTS OF OPERATIONS OF THE COMPANY AT ANY FUTURE DATE
OR FOR ANY FUTURE PERIOD.
A-16
<PAGE>
MERISEL, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
March 31, 1997 Adjustments March 31, 1997
--------------- ------------ ---------------
(In thousands)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 47,930 $ (10,775) (1) $ 37,155
Accounts receivable (net of allowances of $23,206) 189,376 189,376
Inventories 358,208 358,208
Prepaid expenses and other current assets 17,371 688 (2) 18,059
Income taxes receivable 1,404 1,404
Deferred income tax benefit 482 482
----------------------------------------------------
Total current assets 614,771 (10,087) 604,684
PROPERTY AND EQUIPMENT, NET 58,763 58,763
COST IN EXCESS OF NET ASSETS ACQUIRED, NET 26,108 26,108
OTHER ASSETS 6,378 6,378
----------------------------------------------------
TOTAL ASSETS $ 706,020 $ (10,087) $ 695,933
====================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 367,634 $ 367,634
Accrued liabilities 34,241 $ (3,906) (3) 30,335
Long-term debt - current 14,984 14,984
Subordinated Debt - Current 4,400 4,400
----------------------------------------------------
Total Current Liabilities 421,259 (3,906) 417,353
LONG TERM DEBT 260,147 (125,000) (4) 135,147
SUBORDINATED DEBT 8,800 8,800
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock
Common stock 301 1,203 (5) 1,504
Additional paid-in capital 142,300 123,016 (6) 265,316
Retained earnings (accumulated deficit) (120,034) (5,400) (7) (125,434)
Cumulative translation adjustment (6,753) (6,753)
----------------------------------------------------
Total stockholders' equity 15,814 118,819 134,633
----------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 706,020 $ (10,087) $ 695,933
====================================================
</TABLE>
See notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements.
<PAGE>
MERISEL, INC.
Unaudited Pro Forma Condensed Consolidated
Statement of Operations
For The Year Ended December 31, 1996
<TABLE>
<CAPTION>
Historical Year Pro Forma Year
Ended December Former Pro Forma Adjusted Pro Forma Ended December
31, 1996 Operations Adjustments Total Adjustments 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $5,522,824 $2,081,481 $3,441,343 $3,441,343
Cost of sales 5,233,570 1,971,465 3,262,105 3,262,105
- ---------------------------------------------------------------------------------------------------------------------------------
Gross profit 289,254 110,016 179,238 179,238
Selling, general and
administrative 295,021 104,986 (3,486) (8) 193,521 193,521
Impairment loss 42,033 42,033
- ---------------------------------------------------------------------------------------------------------------------------------
Operating (loss) (47,800) (37,003) 3,486 (14,283) (14,283)
Loss on sale of Europe, Mexico
and Latin American operations 33,455 33,455 -
Interest expense 37,431 7,530 2,238 (9) 27,663 9,6456 (10) 18,018
Other expense 20,150 2,183 17,967 17,967
- ---------------------------------------------------------------------------------------------------------------------------------
(Loss) before income taxes (138,836) (80,171) 1,248 (59,913) (9,645) (50,268)
Provision for income taxes (11) 1,539 717 822 822
- ---------------------------------------------------------------------------------------------------------------------------------
Net (loss) $ (140,375) $ (80,888) $ 1,248 $ (60,735) $(9,645) $ (51,090)
- ---------------------------------------------------------------------------------------------------------------------------------
Net (loss) per share (12) $ (23,40) $(10.12) $(1.70)
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted average number of
shares outstanding (12) 6,000 6,000 24,063 30,063
=================================================================================================================================
</TABLE>
<PAGE>
MERISEL, INC.
Unaudited Pro Forma Condensed Consolidated
Statement of Operations
For The Three Months Ended March 31, 1997
<TABLE>
<CAPTION>
Historical Three Pro Forma Three
Months Ended Former Pro Forma Adjusted Pro Forma Months Ended
March 31, 1997 Operations Adjustments Subtotal Adjustments March 31, 1997
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,113,100 $202,177 $910,923 $910,923
Cost of sales 1,048,124 194,500 853,624 853,624
-------------------------------------------------------------------------------------------
Gross profit 64,976 7,677 57,299 57,299
Selling, general and
administrative 51,520 6,199 45,321 45,321
-------------------------------------------------------------------------------------------
Operating income 13,456 1,478 11,978 11,976
Interest expense 8,623 297 8,326 2,829 (10) 5,497
Other expense (income) 3,530 (988) 4,518 4,518
-------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,303 2,169 (866) (2,829) 1,983
Provision for income taxes (11) 173 15 158 158
-------------------------------------------------------------------------------------------
Net (loss) income $ 1,130 $ 2,154 $ (1,024) $(2,829) $ 1,805
-------------------------------------------------------------------------------------------
Net income per share (12) $0.19 $(0.17) $0.06
-------------------------------------------------------------------------------------------
Weighted average number of
shares outstanding (12) 6,016 6,016 24,063 30,079
===========================================================================================
</TABLE>
A-19
<PAGE>
MERISEL, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
ADJUSTMENTS FOR THE SALE OF ASSETS
The pro forma adjustments related to the sale of assets (specifically,
the sale of EML, which took effect on September 27, 1996, and the sale of
FAB, which took effect on March 28, 1997) are made to the statement of
operations for the year ended December 31, 1996, and for the three months
ended March 28, 1997 in order to illustrate the effect that would have been
given if these assets had been sold as of January 1, 1996. The assumptions
underlying the pro forma adjustments also take into account the effect of
certain amendments to existing debt agreements that were entered into as a
direct consequence of the sale of these businesses and related assets.
These adjustments are summarized in the following tables and more fully
described in the notes thereto.
ADJUSTMENTS FOR THE EXCHANGE RESTRUCTURING
The pro forma adjustments related to the Exchange Restructuring and
related transactions are summarized in the following tables and are more
fully described in the notes thereto. The following pro forma adjustments
assume that the Exchange Restructuring will be accomplished as outlined in
"BACKGROUND OF THE RESTRUCTURING".
If less than 100% of the Noteholders tender in the Exchange
Restructuring, the Company may affect the transaction via the Prepackaged
Restructuring whereby the Holding Company would file the Prepackaged Plan
as outlined in "BACKGROUND OF THE RESTRUCTURING". Under the Prepackaged
Restructuring, in addition to the following pro forma adjustments, the
Company would incur additional estimated professional and legal fees and
expenses of approximately $3 million related to the filing. These fees
would be expensed and would increase the pro forma net loss for the pro
forma year ended December 31, 1996 by $3 million.
ACCOUNTING TREATMENT
The Company assumes that the adjusted carrying value of the 12.5% Notes
(including accrued interest less unamortized debt issuance costs) will
approximately equal the fair market value of the New Common Stock received
by the Noteholders pursuant to the Exchange Restructuring. Accordingly,
the Company currently anticipates that no extraordinary gain or loss will
be recognized in connection with the Exchange Restructuring.
The Exchange Restructuring assumes that the transaction will be
consummated outside of a Chapter 11 case. If the Prepackaged Restructuring
is used, the Company would implement the provisions of SOP 90-7 "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code".
Pursuant to SOP 90-7, the Company assumes that the reorganization value of
the Company on the effective date of the Prepackaged Plan will exceed the
amount of affected claims and expected post petition liabilities. Under
SOP 90-7, if the reorganization value of the Company is greater than the
sum of the affected claims and post petition liabilities, fresh start
accounting would not apply. As such, the Company presently assumes that
fresh start accounting will not be implemented.
A-20
<PAGE>
MERISEL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
BALANCE SHEET
Column numbers reflect the footnotes from the Unaudited Pro Forma
Condensed Consolidated Balance Sheet.
<TABLE>
<CAPTION>
Footnote Number (1) (2) (3) (4) (5) (6) (7)
Cash Prepaid Accrued Long-term Common Additional Retained
assets liabilities debt stock paid-in capital earnings
------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
(a) $ (4,775) $ 4,775
(b) (6,000) 600 $(5,400)
(c) (4,687) $(3,906) $(125,000) $1,203 $123,016
------------------------------------------------------------------------------------------------
Total $(10,775) $ 688 $(3,906) $(125,000) $1,203 $123,016 $(5,400)
</TABLE>
(a) To record payment of the 3.5% modification fee associated with the
Extension to the holders of the Revolving Credit Agreement and the
11.5% Notes.
(b) To record estimated professional fees and expenses totaling
approximately $6 million. The fees and expenses consist of estimated
deferred financing costs of $600,000 related to the extension of
maturities on the Revolving Credit Agreement and 11.5% Notes, and
estimated direct expenses of $5.4 million related to the Exchange
Restructuring.
(c) To reflect the issuance of 24.1 million shares, after giving effect to
the Reverse Split, of New Common Stock to the Noteholders and the
related write-off of accrued interest and unamortized deferred
financing cost on the 12.5% Notes.
A-21
<PAGE>
MERISEL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
STATEMENTS OF OPERATIONS
(8) Represents costs allocated by Merisel to former operations that would not
have been eliminated due to the sale of such operations.
(9) Interest expense is adjusted to reflect the effect of the amendments to the
11.5% notes and the RCA agreement that were entered into by the Company as
a result of the sale of EML. Specifically the adjustment represents the
savings from the aggregate reduction in principal of $72.5 million net of
the effect of an average increase in interest rate on the instruments of
approximately 2.25%. The adjustment is for the period from January 1, 1996
through the end of September when the sale of EML effectively took place,
and is set forth below:
Interest saved from $72,500,000 combined paydown
Paydown of debt on the RCA and 11.5% notes 5,914
Additional interest expense from increased
rate of interest on RCA and 11.5% notes as amended (3,676)
Net pro forma savings in interest expense for 1996 2,238
(10) The following table details the net adjustment to interest expense related
to the exchange of the outstanding principal balance of $125 million of the
12.5% Notes for 24.1 million shares of New Common Stock after giving effect
to the Reverse Split, pursuant to the terms of the Exchange
Restructuring.
<TABLE>
<CAPTION>
Year Ended Quarter Ended
December, 1996 March 31, 1997
--------------------------------
($ in thousands)
<S> <C> <C>
Elimination of amortization of deferred
financing costs on $125 million of
12.5% Notes retired through the Exchange
Restructuring $ (547) $ (156)
Elimination of interest on $125 million
of 12.5% Notes retired through the Exchange
Restructuring (15,625) (3,906)
Change in amortization of deferred financing
costs related to extension of maturity dates
of the Revolving Credit Agreement and the
11.5% Notes to January 31, 1999 (113) 14
Amortization of 3.5% modification fee over
the remaining life of 37 months of the
Revolving Credit Agreement and the 11.5%
Notes based upon actual amounts paid and
expected to be paid in 1997 1,548 387
Amortization of estimated deferred
financing costs over remaining life of 37
months of the Revolving Credit Agreement,
and 11.5% Notes 195 49
Additional modification fees relating to
the Extension of maturity dates of the
Revolving Credit Agreement and the 11.5%
Notes 2,716
Increase in interest rate of 0.5% per
quarter, for pro forma purposes assumed
to begin 6 months after the Exchange
Restructuring Date, on the Revolving
Credit Agreement, 11.5% Notes, and the
Subordinated Notes 2,181 783
----------------------------
Net adjustment to interest expense $(9,645) $(2,829)
============================
</TABLE>
(11) Due to the Company's net operating losses, on a pro forma basis, the
Company would not owe additional taxes nor receive additional tax benefits
as a result of the decreases in interest expense and net loss or increases
in net income.
(12) Net income (loss) per share and weighted average number of shares
outstanding have been adjusted to reflect the Reverse Split.
A-22
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following Selected Historical Consolidated Financial Information of
the Company should be read in conjunction with the consolidated financial
statements of the Company and the related notes thereto, and other
financial data included elsewhere herein. The summary financial
information presented below as of and for the years ended December 31,
1992, 1993, 1994, 1995 and 1996 are derived from the audited consolidated
financial statements of the Company. The summary financial information
presented below as of and for the three months ended March 31, 1996 and
1997 have been derived from the Company's unaudited financial statements.
Operating results for the three months ended March 31, 1997 may not be
indicative of the results that may be expected for the year ended December
31, 1997.
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended
1992 1993 1994 1995 1996 March 31, March 31,
1996 1997
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Income Statement Data: (1)
Net sales $2,238,715 $3,085,851 $5,018,687 $5,956,967 $5,522,824 $1,536,589 $1,113,100
Cost of sales 2,036,292 2,827,315 4,676,164 5,633,278 5,233,570 1,449,366 1,048,124
----------------------------------------------------------------------------------------------
Gross profit 202,423 258,536 342,523 323,689 289,254 87,223 64,976
Selling, general &
administrative expenses 150,905 187,152 281,796 317,195 295,021 83,136 51,520
Impairment losses (2) 51,383 42,033
Restructuring charge (3) 9,333
----------------------------------------------------------------------------------------------
Operating Income (loss) 51,518 71,384 60,727 (54,222) (47,800) 4,087 13,456
Interest expense 15,742 17,810 29,024 37,583 37,431 9,877 8,623
Loss on sale of European, Mexican,
and Latin American operations (4) 33,455
Other expense 1,299 2,722 11,752 13,885 20,150 7,238 3,530
----------------------------------------------------------------------------------------------
Income (loss) before income taxes 34,477 50,852 19,951 (105,690) (138,836) (13,028) 1,303
Provision
(benefit) for income taxes 14,812 20,413 8,341 (21,779) 1,539 480 173
----------------------------------------------------------------------------------------------
Net income (loss) $ 19,665 $ 30,439 $ 11,610 $ (83,911) $ (140,375) $ (13,508) $ 1,130
==============================================================================================
Share Data: (5)
Net income (loss) per share $0.67 $1.00 $0.38 $(2.82) $(4.68) $(0.45) $0.04
Weighted average number of shares 29,274 30,454 30,389 29,806 30,001 29,863 30,078
Other Data:
EBITDA(6) $ 59,528 $ 79,138 $ 65,076 $ (47,598) $ (82,616) $ 2,608 $ 13,106
BALANCE SHEET DATA:
Working capital $ 294,626 $ 359,765 $ 399,848 $ 280,864 $ 190,544 $ 250,442 $ 193,512
Total assets 667,313 936,283 1,191,870 1,230,334 731,039 1,158,676 706,020
Long-term and subordinated debt 153,433 208,500 357,685 356,271 294,763 403,861 288,331
Total debt 179,124 259,429 395,556 382,395 294,950 409,564 288,331
Stockholders' equity 198,882 223,857 236,164 154,466 14,997 138,794 15,814
</TABLE>
A-23
<PAGE>
(1) The Company's fiscal year is the 52- or 53-week period ending on the
Saturday nearest to December 31. For clarity of presentation throughout
this document, the Company has described year-ends and quarter-ends
presented as if the period ended on the last day of the month. Except for
1992, all fiscal years presented were 52 weeks in duration. The summary
historical consolidated financial information as set forth above includes
those balances and activities related to the Company's Australian business
until its disposal on January 1, 1996 and the Company's European, Mexican
and Latin American businesses until their disposal on October 4, 1996,
effective as of September 27, 1996. It also includes Merisel FAB from the
date such business was acquired on January 31, 1994, through the end of
March 28, 1997, the date of sale of Merisel FAB. (See Note 12 to the
consolidated financial statements -"Subsequent Events"). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) During 1995 and 1996, the Company determined that the carrying value for
certain of its capitalized costs relating to the installation of a new
computer operating system and identifiable intangible assets relating to
Merisel FAB would not be recovered from their use in future operations.
Accordingly, these assets were written down to their fair values as of the
impairment dates.
Additionally, in 1995 and 1996, the Company recognized impairment losses on
the assets of Merisel FAB and Merisel Pty Ltd. (a wholly owned Australian
subsidiary) related to the expected sale of substantially all of the assets
of such subsidiaries. (See Note 4 to the consolidated financial
statements - "Impairment Losses").
(3) During 1995, the Company recorded a restructuring charge associated with
the resizing of the Company's operations. (See Note 2 to the consolidated
financial statements - "Restructuring Charge").
(4) In October 1996, the Company completed the sale of substantially all of its
European, Mexican, and Latin American businesses to CHS Electronics, Inc. A
loss of $33,455,000, which includes approximately $7,400,000 of direct
costs related to the sale, was recorded on such sale. (See Note 5 to the
consolidated financial statements -"Dispositions").
(5) Net income (loss) per share and weighted average number of shares have not
been adjusted to reflect the Reverse Split.
(6) EBITDA is the sum of income before income taxes and interest, depreciation
and amortization expense. EBITDA should not be considered as an alternative
to income from operations or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) and
should not be construed as an indication of a company's operating
performance or as a measure of liquidity. However, EBITDA is presented
because it is a widely used financial indicator of a company's ability to
service indebtedness and other factors.
A-24
<PAGE>
PROJECTED CONSOLIDATED FINANCIAL INFORMATION
The Company does not as a matter of course make public projections as
to future sales, earnings or other results. However, the management of the
Company has prepared the projected consolidated financial information set
forth below to present the anticipated effects of the expected Exchange
Restructuring. These projections were not prepared with a view toward
public disclosure or with a view towards complying with the guidelines
established by the American Institute of Certified Public Accountants with
respect to prospective financial information, but, in the view of the
Company's management, were prepared on a reasonable basis, reflect the best
currently available estimates and judgments and present, to the best of
management's knowledge and belief, the expected course of action and the
expected future financial performance of the Company assuming the
consummation of the expected Exchange Restructuring. However, this
information is not fact and should not be relied upon as necessarily
indicative of future results, and readers of this Prospectus are cautioned
not to place undue reliance on the projected consolidated financial
information.
During the first quarter of 1997, in connection with the planning and
development of the Exchange Restructuring, the Company prepared five year
financial projections with 1996 as the base period. In preparing the
projections, the historical 1996 operating results have been adjusted to
remove the operations and balances of businesses that the Company has
disposed of including EML and FAB and certain adjustments made to accounts
payable, accounts receivable and certain expense accounts in 1996 which the
Company does not expect to recur in the future. These projections have not
been updated to reflect the actual operating results for the quarter ended
March 31, 1997. (See Note 15 below for a comparison of projected first
quarter 1997 operating results to the actual operating results.) The
projections have been updated to reflect the expected date of consummation
of the Exchange Restructuring of July 31, 1997, and present the effects of
(i) the conversion of the 12.5% Notes to New Common Stock, (ii) the
amendments of the Revolving Credit Agreement and the 11.5% Notes and (iii)
the payment of fees and expenses related to the Exchange Restructuring.
The projections assume the Exchange Restructuring will be implemented in
accordance with its terms, and present the anticipated effects of the
consummation of the Exchange Restructuring and various other factors on the
Company's consolidated financial condition and results of operations for
1997 through 2001.
THE ASSUMPTIONS AND ESTIMATES UNDERLYING THE PROJECTIONS ARE INHERENTLY
UNCERTAIN AND, THOUGH CONSIDERED REASONABLE BY THE MANAGEMENT OF THE
COMPANY AS OF THE DATE HEREOF, ARE SUBJECT TO A WIDE VARIETY OF SIGNIFICANT
BUSINESS, ECONOMIC AND COMPETITIVE RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED, INCLUDING, AMONG
OTHERS, RISKS AND UNCERTAINTIES INCLUDING THE FOLLOWING: (A) THE COMPANY
IS CURRENTLY HIGHLY LEVERAGED WITH $288.3 MILLION IN TOTAL DEBT AND $259.8
MILLION ADDITIONAL ASSET SECURITIZATION OBLIGATIONS RELATED
A-25
<PAGE>
TO THE SALE OF ACCOUNTS RECEIVABLE AS OF MARCH 31, 1997 AND WILL CONTINUE
TO HAVE A HIGH LEVEL OF INDEBTEDNESS FOLLOWING THE EXCHANGE RESTRUCTURING
OR PREPACKAGED RESTRUCTURING AS APPLICABLE, (B) ON AN ESTIMATED BASIS,
INTEREST FOLLOWING THE COMPLETION OF THE EXCHANGE RESTRUCTURING OR
PREPACKAGED RESTRUCTURING AS APPLICABLE, WILL CONTINUE TO BE HIGH IN
RELATION TO THE COMPANY'S LEVEL OF PROJECTED EBITDA, WITH PROJECTED
PRINCIPAL AND INTEREST PAYMENTS OF $36,100,000 IN FISCAL 1997 AND
$33,698,000 IN FISCAL 1998, (C) SEASONALITY AND MARKET FACTORS MAY AFFECT
CASH FLOW AND THERE CAN BE NO ASSURANCE THAT SUCH CONDITIONS WILL NOT HAVE
AN ADVERSE EFFECT ON THE COMPANY'S FINANCIAL PROJECTIONS, (D) IF CERTAIN OF
THE MAJOR SUPPLIERS AND VENDORS THAT THE COMPANY CURRENTLY DEALS WITH WERE
TO CHANGE THE TERMS ON WHICH THEY CURRENTLY DEAL WITH THE COMPANY OR CREDIT
LIMITS OR PRODUCT AVAILABILITY THAT THEY CURRENTLY EXTEND TO THE COMPANY,
IT COULD HAVE A SIGNIFICANT NEGATIVE IMPACT ON THE COMPANY'S SALES, CASH
POSITION AND LIQUIDITY, (E) THE COMPANY IS SUBJECT TO THE POSSIBILITY OF
NEW OR INTENSIFIED COMPETITION IN THE REGIONS IN WHICH THE COMPANY OPERATES
AS A RESULT OF EFFORTS BY DIRECT COMPETITORS TO GROW OR GAIN MARKET SHARE
IN THOSE REGIONS WHICH MAY IN TURN EFFECT THE COMPANY'S SALES VOLUME,
PRICING AND/OR MARGINS IN THOSE REGIONS, (F) THERE IS A RISK THAT THE
COMPANY'S FINANCIAL PERFORMANCE COULD BE IMPACTED BY A RECESSION OR
DEPRESSION, (G) THE LOAN AGREEMENTS CONTAIN RESTRICTIONS AND REQUIREMENTS
THAT THE COMPANY ACHIEVE AND MAINTAIN CERTAIN FINANCIAL RATIOS WHICH THE
COMPANY MAY NOT BE ABLE TO ACHIEVE AND MAINTAIN, AND WHICH, IF NOT
MAINTAINED OR ACHIEVED, MAY RESULT IN A DEFAULT AND COULD LEAD TO THE
ACCELERATION OF THE COMPANY'S OBLIGATIONS UNDER THE LOAN AGREEMENTS AS WELL
AS THE ACCELERATION OF OTHER INDEBTEDNESS OF THE COMPANY, (H) MARKET FORCES
(SUCH AS INTEREST RATES) AFFECT THE VALUE OF SECURITIES AND ARE INFLUENCED
BY CONDITIONS BEYOND THE COMPANY'S CONTROL, AND (I) THE COMPANY'S CAPITAL
EXPENDITURE LEVELS ASSUMED IN PREPARATION OF THE PROJECTED FINANCIAL DATA
CONTAINED HEREIN MAY BE INADEQUATE TO MAINTAIN THE COMPANY'S LONG-TERM
COMPETITIVE POSITION. SEE "RISK FACTORS." ACCORDINGLY, THERE CAN BE NO
ASSURANCE THAT PROJECTED RESULTS ARE INDICATIVE OF THE FUTURE PERFORMANCE
OF THE COMPANY OR THAT ACTUAL RESULTS WILL NOT BE MATERIALLY HIGHER OR
LOWER THAN THOSE PROJECTIONS. INCLUSION OF THESE PROJECTIONS IN THIS
PROSPECTUS SHOULD NOT BE REGARDED AS A REPRESENTATION BY ANY PERSON THAT
THE PROJECTED RESULTS WILL BE ACHIEVED.
A-26
<PAGE>
The Company does not generally publish its business plans and strategies or
make external projections of its anticipated financial position or results
of operations. Accordingly, after the expected date of consummation of the
Exchange Restructuring, the Company does not intend to update or otherwise
revise the projections to reflect circumstances existing since their
preparation or to reflect the occurrence of unanticipated events, even in
the event that any or all of the underlying assumptions are shown to be in
error. Furthermore, the Company does not intend to update or revise the
projections to reflect changes in general economic or industry conditions.
However, the Company's regular quarterly and annual financial statements,
and the accompanying discussion and analysis, contained in the Company's
Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K, will
contain disclosure concerning the Company's actual financial condition and
results of operations during the periods covered by the projections.
Neither the Company's independent auditors, nor any other independent
accountants or financial advisors, have compiled, examined, or performed
any procedures with respect to the projected consolidated financial
information contained herein, nor have they expressed any opinion or any
other form of assurance on such information or its achieveability, and
assume no responsibility for, and disclaim any association with, the
projected consolidated financial information.
Projected income statement, balance sheet and cash flow statements for the
Company are included for each of the twelve month periods ending December
31, 1997, 1998, 1999, 2000 and 2001.
Additional information relating to the principal assumptions used in
preparing the projections is set forth below. See "Risk Factors" for a
discussion of various factors that could materially affect the Company's
financial condition, results of operations, business, prospects and
securities.
A-27
<PAGE>
PROJECTED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
For The Years Ended December 31,
-------------------------------------------------------------------------------
Historical Projected
-------------------------------------------------------------------------------
(In thousands, except per share data) 1996 (a) 1997 1998 1999 2000 2001
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $3,441,343 $4,092,093 $4,888,215 $5,807,495 $6,863,985 $8,084,100
Cost of Sales 3,262,105 3,830,788 4,571,957 5,430,392 6,417,644 7,557,905
--------------- ---------------------------------------------------------------
Gross Profit 179,238 261,305 316,258 377,103 446,341 526,195
Selling, General and Administrative Expenses 210,897 246,095 287,665 334,928 391,133
--------------- ---------------------------------------------------------------
Operating (Loss) Income 50,408 70,163 89,438 111,413 135,062
Interest Expense 29,901 30,947 19,488 15,500 14,852 14,031
Other Expense 17,992 16,049 19,906 27,125 33,207 39,744
--------------- ---------------------------------------------------------------
(Loss) Income before Income Taxes (62,176) 3,412 30,769 46,813 63,354 81,287
Provision for Income Taxes 823 7,736 11,838 26,293 33,646
--------------- ---------------------------------------------------------------
Net (Loss) Income $ $ 3,412 $ 23,033 $ 34,975 $ 37,061 $ 47,641
=============== ===============================================================
Net (Loss) Income per Share (16) $ $0.11 $0.77 $1.16 $1.23 $1.58
=============== ===============================================================
Shares Outstanding (16) 6,000 30,078 30,078 30,078 30,078 30,078
=============== ===============================================================
Other Data:
EBITDA (17) $ 48,868 $ 64,956 $ 82,149 $ 104,678 $ 132,432
</TABLE>
(a) Historical 1996 balances represent unaudited balances for the
continuing operations of the Company and, as such, do not reflect the
results of operations for EML and Merisel FAB. These balances also exclude
certain adjustments made to accounts payable, accounts receivable and
certain expense accounts in 1996 which the Company does not expect to recur
in the future.
A-28
<PAGE>
PROJECTED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------------------------
Historical Projected
-------------- -----------------------------------------------------------
(In thousands) 1996 (a) 1997 1998 1999 2000 2001
-------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 44,678 $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000
Accounts receivable - net of allowances 161,445 210,494 275,338 306,846 346,164 404,636
Inventories 390,567 442,661 523,494 621,785 734,827 865,388
Prepaid expenses and other current assets 19,577 10,671 9,970 12,678 15,799 19,404
-------------- ------------------------------------------------------------
Total current assets 616,267 683,826 828,802 961,309 1,116,790 1,309,428
PROPERTY AND EQUIPMENT,NET 60,888 63,505 75,231 84,361 92,984 97,067
COSTS IN EXCESS OF NET ASSETS
ACQUIRED, NET 26,351 25,367 24,383 23,455 22,679 21,903
OTHER ASSETS 1,244 1,500 1,500 1,500 1,500 1,500
-------------- ------------------------------------------------------------
TOTAL ASSETS $704,750 $774,198 $928,916 $1,070,625 $1,233,953 $1,429,898
============== ============================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $359,365 $421,318 $558,693 $ 663,594 $ 784,236 $ 923,577
Accrued liabilities 35,624 48,555 56,475 64,554 75,690 88,553
Long-term debt - current 13,483 13,610 6,246 5,511 3,900
-------------- ------------------------------------------------------------
Total current liabilities 408,472 483,483 621,414 733,659 863,826 1,012,130
LONG-TERM DEBT 268,080 133,870 132,024 130,913 127,013 127,013
SUBORDINATED DEBT 13,200 8,800 4,400
STOCKHOLDERS' EQUITY 14,998 148,045 171,078 206,053 243,114 290,755
-------------- ------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $704,750 $774,198 $928,916 $1,070,625 $1,233,953 $1,429,898
============== ============================================================
</TABLE>
(a) Historical 1996 balances represent unaudited balances related to the
continuing operations of the Company and, as such, do not include Merisel FAB
balances.
A-29
<PAGE>
PROJECTED STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
For The Years Ended December 31,
------------------------------------------------------------------------------
1997 1998 1999 2000 2001
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net Income $ 3,412 $ 23,033 $ 34,975 $ 37,061 $ 47,641
Adjustments:
Depreciation and amortization 14,509 14,700 19,835 26,472 37,113
Provision for doubtful accounts 23,768 28,361 33,694 39,823 46,902
Accounts receivable (72,817) (93,205) (65,202) (79,141) (105,374)
Inventories (52,094) (80,833) (98,291) (113,042) (130,561)
Prepaid expenses & other current assets 8,906 701 (2,708) (3,121) (3,605)
Accounts payable 61,953 137,375 104,901 120,642 139,341
Accrued liabilities 12,931 7,920 8,079 11,136 12,863
----------------------------------------------------------
Net cash provided by operating activities 568 38,052 35,283 39,830 44,320
Cash Flows From Investing Activities
Purchase of property and equipment (16,142) (24,442) (29,037) (34,319) (40,420)
Other investing activities (256)
----------------------------------------------------------
Net cash used for investing activities (16,398) (24,442) (29,037) (34,319) (40,240)
Cash Flows From Financing Activities
Repayments under revolving line of credit (4,500) (4,500)
Repayments under senior notes (3,000) (3,000)
Repayment under subordinated debt agreement (4,400) (4,400) (4,400) (4,400)
Other 3,052 (1,710) (1,846) (1,111) (3,900)
----------------------------------------------------------
Net cash used for financing activities (8,848) (13,610) (6,246) (5,511) (3,900)
----------------------------------------------------------
Net decrease in cash and cash equivalents (24,678) 0 0 0 0
Cash and cash equivalents, beginning of period 44,678 20,000 20,000 20,000 20,000
----------------------------------------------------------
Cash and cash equivalents, end of period $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000
==========================================================
</TABLE>
A-30
<PAGE>
(1) ACCOUNTING TREATMENT. The Company has assumed that the adjusted
carrying value of the 12.5% Notes (including accrued interest less
unamortized debt issuance costs) will approximately equal the fair market
value of the New Common Stock received by the Noteholders pursuant to the
Exchange Restructuring. Accordingly, the Company currently anticipates
that no extraordinary gain or loss will be recognized in connection with
the Exchange Restructuring.
The Exchange Restructuring assumes that the Exchange Restructuring will be
consummated outside of a prepackaged plan of reorganization. If the
Prepackaged Plan is filed, the Company would implement the provisions of
SOP 90-7 "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code." Pursuant to SOP 90-7, the Company has assumed that the
reorganization value of the Company on the expected date of consummation of
the Prepackaged Restructuring will exceed the amount of affected claims and
expected post petition liabilities. Under SOP 90-7, if the reorganization
value of the Company is greater than the sum of affected claims and post
petition liabilities, fresh start accounting would not apply. As such, the
Company presently assumes that fresh start accounting will not be
implemented.
(2) EFFECTIVE DATE AND TERMS OF THE EXCHANGE RESTRUCTURING. The
projections assume that the Exchange Restructuring will be confirmed in
accordance with its terms, and that all transactions contemplated by the
Exchange Restructuring will be consummated as of July 31, 1997. The actual
date of consummation of the Exchange Restructuring is not known, however,
the Company expects it to occur at or near July 31, 1997. Any significant
delay in the expected date of consummation of the Exchange Restructuring of
the plan could have a significant unfavorable impact on financial
performance, including net income for the year ended December 31, 1997, and
could result in additional professional and other fees.
(3) GENERAL ECONOMIC CONDITIONS. The projections were prepared assuming
economic conditions, including prevailing inflation rates, computer
industry growth rates, labor costs, interest rates and other factors, in
the markets served by the Company do not differ materially over the next
five years from current economic conditions.
(4) REVENUE. The projected net revenues are assumed to increase 18.9% in
1997, 19.5% in 1998, 18.8% in 1999, 18.2% in 2000, and 17.8% in 2001. The
project revenue increases have been developed based on (a) historical
growth rates within different markets of the Company's business (US
distribution, MOCA/TM/ and Canada), (ii) expected market growth rates and
(iii) expected sales growth by customer type (Commercial, VAR and Retail).
(5) GROSS MARGIN. The gross profit margin is expected to be 6.4% for 1997
and 6.5% in 1998 through 2001. The projected increase in gross profit
margin is due to an anticipated focus on higher margin product lines.
(6) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Projected selling,
general and administrative expenses are assumed at 5.2% of revenues for
1997. For 1998 through 2001, selling general and administrative expenses
as a percentage of revenues are projected at 5.0% for 1998, 5.0% for 1999,
4.9% for 2000, and 4.8% for 2001. Selling, general and administrative
expenses are expected to grow at rates somewhat lower than the increase in
sales because (i) certain fixed cost infrastructure expenses are in place
and will not increase as a result of additional sales and
A-31
<PAGE>
(ii) starting in 1999, the Company expects to begin to realize the cost
savings associated with its planned SAP computer system implementation.
The Company projects cost savings from the system implementation of $2
million in 1999 and $4 million per year thereafter.
(7) INTEREST EXPENSE. The projections reflect a reduction in interest
expense resulting from the lower levels of indebtedness after the
conversion of $ 125 million of 12.5% Notes to New Common Stock and the
projected debt repayments of $13.5 million in 1997, $13.6 million in 1998,
$6.2 million in 1999, $5.5 million in 2000 and $3.9 million in 2001. 1997
projected interest expense includes $9.1 million of interest expense
accrued on the 12.5% Notes which will not be paid if the Exchange
Restructuring is consummated.
(8) INTEREST INCOME. Interest income at a rate of 3.0% is assumed to be
earned on excess cash balances. Excess cash balances are assumed to
approximate $20 million throughout the projection period.
(9) OTHER EXPENSE. Other expense includes asset securitization fees
related to the sale of trade accounts receivables increasing from $16.0
million in 1997 to $39.7 million in 2001. The increase in securitization
fees reflects the Company's anticipated use of its securitization
facilities as a primary source of cash to support its growth. The Company
assumes that it will successfully renegotiate its asset securitization
facilities to provide additional capacity at various points throughout the
projection period.
(10) INCOME TAXES. Projected income taxes are based on an assumed federal
tax rate of 35% and a blended state effective income tax rate of 6% offset
by the utilization of net operating loss carryforwards (NOLs) of $3 .3
million in 1997 and $16.3 million in 1998. The Company's projections
assume available NOLs totaling $42.3 million after the Exchange
Restructuring, the utilization of $24.8 million of which will be limited as
required by Section 382 of the Internal Revenue Code. See "Certain Federal
Income Tax Considerations". See 14 - "Prepackaged Plan of Reorganization"
for potential impact a Prepackaged Plan would have upon NOL availability.
For financial accounting purposes it is assumed that at the time of the
Exchange Restructuring, the Company will provide a valuation allowance
equal to the NOLs. In 1999, after achieving consistent profitability, the
Company assumed that the remaining valuation allowance established against
the deferred tax asset associated with the NOLs will be reversed, thereby
reducing the projected income tax provision in 1999 by $7.7 million.
(11) BALANCE SHEET CONSIDERATIONS. Projections of changes in certain
balance sheet accounts such as accounts receivable, inventory and accounts
payable are primarily based upon historical ratios.
(12) LONG-TERM DEBT. The projections assume that the maturity date of both
the Revolving Credit Agreement and 11.5% Notes, both currently due in
January 1998 will be extended to January 31, 1999 in accordance with the
Extension and that the Company will pay the related fees and increased
interest rates in accordance with the Extension. The projections assume
that this debt will further be extended or refinanced beyond December 31,
2001 and will bear effective interest at 11.5% annually.
A-32
<PAGE>
(13) CAPITAL EXPENDITURES. Cash capital expenditures of $16.1 million in
1997 are expected to increase to $24.4 million. $29.0 million, $34.3
million and $40.4 million in 1998, 1999, 2000 and 2001.
(14) PREPACKAGED PLAN OF REORGANIZATION. The Prepackaged Plan, if
required, would have a significant impact upon the projections. The most
significant impacts include additional professional fees and other fees
which are currently estimated to be $3 million and the amount of available
NOLs. The amount of gross NOLs available to the Company after a
prepackaged filing could be significantly greater than that outside of a
filing by as much as $81 million based upon an assumed equity increase of
approximately $120 million. If the Company consummates the Prepackaged
Plan, net income and net income per share in 1997 would decrease by
approximately $3 million or $0.10 per share as a result of the increased
professional fees and expenses in connection with the Prepackaged Plan. In
1999, after achieving consistent profitability, the Company would reverse
the established valuation allowance equal to the amount of unused NOLs,
thereby increasing net income by approximately $27 million or $0.90 per
share.
(15) The following table compares the Company's adjusted unaudited
historical condensed consolidated results of operations to the projected
condensed consolidated results of operations for the three months ended
March 31, 1997.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
-------------------------------------
Adjusted
Historical(a) Projected Difference
---------------------------------------
<S> <C> <C> <C>
(In thousands, except per share data)
NET SALES $910,923 $902,930 $7,993
COST OF SALES 853,624 845,930 7,694
---------------------------------------
GROSS PROFIT 57,299 57,000 299
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 45,322 49,686 4,364
---------------------------------------
OPERATING INCOME 11,977 7,314 4,663
INTEREST EXPENSE 8,325 8,183 142
OTHER EXPENSE 4,518 3,528 990
---------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (866) (4,397) 3,531
PROVISION FOR INCOME TAXES 158 158
---------------------------------------
NET INCOME (LOSS) $ (1,024) $ (4,397) $3,373
=======================================
NET INCOME (LOSS) PER SHARE (16) $(0.17) (0.73) 0.56
=======================================
WEIGHTED AVERAGE NUMBER
OF SHARES (16) 6,016 6,016
=======================================
</TABLE>
(a) The Adjusted Historical 1997 balances for the three months ended
March 31, 1997 presented above represent unaudited balances for the
continuing operations of the Company and, as such, do not reflect the
results of operations for Merisel FAB. The favorable variance between
projected and actual results is primarily due to better than projected
management of operating expenses.
(16) Net income (loss) per share and weighted average number of shares
have been adjusted to reflect the Reverse Split.
A-33
<PAGE>
(17) EBITDA is the sum of income before income taxes and interest,
depreciation and amortization expense. EBITDA should not be considered as
an alternative to income from operations or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of a company's
operating performance or as a measure of liquidity. However, EBITDA is
presented because it is a widely used financial indicator of a company's
ability to service indebtedness and other factors.
A-34
<PAGE>
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A-35
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
A-36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Consolidated Financial Data and the Consolidated Financial Statements and other
more detailed financial information appearing elsewhere herein. For information
concerning the Reorganization and its pro forma effect on the Company, see "Pro
Forma Financial Statements" appearing elsewhere in this Prospectus.
Overview
The Company was founded in 1980 as Softsel, Inc. and has grown through
internal growth and acquisitions of other computer products distributors. By
1989, the Company had achieved annual revenues of $629,400,000 principally
through internal expansion. In April 1990, the Company acquired Microamerica,
Inc. ("Microamerica"), another distributor of computer products with net sales
of approximately $526,000,000 for the year ended December 31, 1989. In
connection with this acquisition, the Company changed its name to Merisel, Inc.
In the years following the Microamerica acquisition, the Company's revenues
increased rapidly, reaching $5.0 billion in 1994 and $6.0 billion in 1995. This
increase partially reflected the substantial growth in both domestic and
international sales as the worldwide market for computer products expanded and
manufacturers increasingly turned to wholesale distributors for product
distribution. The growth also reflected the acquisition of certain assets of the
United States Franchise and Distribution Division (the "F&D Division") of
Vanstar Corporation (formerly ComputerLand Corporation) (the "ComputerLand
Acquisition") from Vanstar Corporation, which contributed additional revenues in
excess of $1 billion during each of the three years ended 1994, 1995, and 1996.
Despite the revenues generated by Merisel FAB, sales in 1996 decreased to $5.5
billion, primarily due to the sale of certain businesses during such period.
Results of Operations
Net losses for 1996 were $140,375,000 or 2.5% of net sales. The losses
include $42,033,000 or 0.8% of sales related to the recognition of asset
impairment losses at Merisel FAB, $33,455,000 or 0.6% of sales related to a loss
on the sale of its European, Mexican and Latin American operations ("EML"),
$13,400,000 or 0.2% of sales due to customer dispute issues in the United
States, $8,129,000 or 0.1% of net sales related to operating losses generated by
businesses that were sold during the year, $9,600,000 or 0.2% of sales related
to vendor reconciliation and other margin issues in Canada, and $4,400,000 or
0.1% of sales due to vendor reconciliation issues in the United States.
During 1996, the Company pursued a business plan that was developed to
address capital structure issues by curtailing non-essential capital
expenditures, eliminating investments, 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").
The sales price, computed based upon the February 21, 1997 balance sheet of
Merisel FAB was $31,992,000 consisting of the buyer assuming $11,992,000 of
trade payables and accrued liabilities, and a $20,000,000 extended payable due
to Vanstar Corporation.
A-37
<PAGE>
As a result of these asset dispositions, The Company's operations are now
focused exclusively in North America. In 1996, the North American Business (as
defined below) produced approximately $3.4 billion in revenues and the Former
Operations (as defined below) produced approximately $2.1 billion in revenue. As
the North American Business now represents the ongoing business of the Company,
the following discussion and analysis will compare the results of operations
solely for the North American Business.
As used in this discussion and analysis, the term "North American Business"
refers to Merisel's United States and Canadian operations, and the term "Former
Operations" refers to those operations disposed of since the beginning of 1996,
namely EML, FAB and the Australian operations.
Comparison of the Three Months Ended March 31, 1997 and March 31, 1996
The following table sets forth the unaudited results of operations for the
North American Business and for the Former Operations for the three months ended
March 31, 1997 and March 31, 1996.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 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 $910,923 $202,177 $1,113,100 $881,565 $655,024 $1,536,589
Cost of Sales 853,624 194,500 1,048,124 829,984 619,382 1,449,366
-------- -------- ---------- -------- -------- ----------
Gross Profit 57,299 7,677 64,976 51,581 35,642 87,223
SG&A Expenses 45,321 6,199 51,520 50,163 32,973 83,136
-------- -------- ---------- -------- -------- ----------
Operating (Loss) In-
come $ 11,978 $ 1,478 $ 13,456 $ 1,418 $ 2,669 $ 4,087
======== ======== ========== ======== ======== ==========
</TABLE>
For the quarter ended March 31, 1997, net sales for the North American
Business increased by 3.3% from $881,565,000 in the quarter ended March 31, 1996
to $910,923,000 in the quarter ended March 31, 1997. Net sales decreased by 1.1%
in the United States, and increased by 21.1% in Canada. The Company lost market
share in the United States due to competitive pressures, liquidity constraints
and cost controls implemented by the Company, which curtailed sales growth.
Canadian sales growth for the quarter was in line with industry growth rates.
In the North American Business, hardware and accessories accounted for 75%
of net sales, and software accounted for 25% of net sales in the first quarter
of 1997, as compared to 76% and 24% for the same categories, respectively, in
the first quarter of 1996.
Gross profit for the North American Business increased 11.1% from
$51,581,000 in 1996 to $57,299,000 in 1997. Gross profit as a percentage of
sales or gross margin increased from 5.9% in 1996 to 6.3% in 1997. The increase
in gross profit is in part attributable to a concentrated effort in the United
States and Canada to focus attention on more profitable product lines, and
improved controls over margin management related activities such as sales
execution, improved processes, vendor rebate programs and purchasing discounts.
The improved margins also reflect the continued growth in the Company's MOCA
division, which has historically achieved higher average margins. MOCA sales
were equal to 9.9% of total North American business sales in the current quarter
as compared to 7.7% in the first quarter of
A-38
<PAGE>
1996. The Company believes that in the past, its gross margins have been below
the industry average, and as such, corrective actions have been undertaken as
part of the overall business strategy to concentrate on profitability for 1997.
Gross margins in the United States and Canada were 6.40% and 5.94%,
respectively, for the first quarter of 1997, compared to 5.85% and 5.87%,
respectively, for the first quarter of 1996. Despite the improved margin
performance experienced in the first three months 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 9.7% from $50,163,000 in the first quarter of 1996 to
$45,321,000 in the first quarter of 1997. The $4,842,000 decrease is due to
several factors in the first quarter of 1996. These factors include increased
expenses such as severance costs associated with carrying out the Company's 1996
business plan and strategies, continuing professional fees and other costs
incurred to develop business plans and strategies and to improve certain
business processes. Additionally, the Company incurred 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 $10,559,000 from $1,418,000 for the first quarter of 1996
to $11,977,000 for the first quarter of 1997.
Interest Expense; Other Expense; And Income Tax Provision
Interest expense for the Company, including former operations, decreased
12.7% from $9,877,000 in 1996 to $8,623,000 in 1997. The decrease in interest
expense is attributable to the amortization and paydown of the Company's debt by
approximately $122,918,000 from April of 1996 through the end of March, 1997 and
is offset by an increase in interest rates under the Company's 11.5% Notes,
Revolving Credit Agreement and the Subordinated Notes, of 2.9%, 3.3% and .05%,
respectively. Approximately $72,500,000 of the paydown was affected in October
of 1996, using proceeds from the sales of EML.
A-39
<PAGE>
Other Expenses for the Company, including Former Operations, decreased from
$7,238,000 in the three months ended March 31, 1996, to $3,530,000 for the same
period in 1997. This decrease is due primarily to one time financing charges in
the first quarter of 1996, for approximately $3,125,000 related to amendments of
the Company's financing agreements. Additionally, securitization fees, which are
included in Other Expenses, decreased by approximately $1,022,000, partially due
to lower average borrowings in the North American Business, and to the disposal
of the European asset securitization facility, as part of the divestiture of
EML, in the third quarter of 1996. The average month end proceeds from the
accounts receivable sales under all of the Company's various securitization
facilities decreased from $289,113,000 for the three months ended March 31, 1996
to $251,294,000 in for the same period in 1997.
The income tax provision decreased from an expense of $480,000 for the
three months ended March 31, 1996, to an expense of $173,000 for the same period
in 1997. In both periods the income tax rate reflects only the minimal statutory
tax requirements in the various locations in which the Company conducts
business, as the company has sufficient net operating loss provisions to offset
federal income taxes.
Consolidated Income (Loss)
On a consolidated basis, net income for the Company, including the Former
Operations, increased from a loss of $13,508,000 for the three months ended
March 31, 1996, to income of $1,130,000 for the three months ended March 31,
1997, due to the factors described above. Net income per share increased from a
loss of $0.45 per share in 1996 to income of $0.04 per share in 1997.
The following table sets forth the results of operations for the North
American Business and for the Former Operations for the fiscal years indicated.
<TABLE>
<CAPTION>
(in thousands)
North American Business Former Operations
December 31, December 31,
------------------------------------------------ -------------------------------------------------
1994 1995 1996 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Net Sales.............. $ 2,876,074 $ 3,427,821 $ 3,441,343 $ 2,142,613 $ 2,529,146 $ 2,081,481
Cost of Sales.......... 2,665,059 3,242,903 3,262,105 2,011,105 2,390,375 1,971,465
Gross Profit........... 211,015 184,918 179,238 131,508 138,771 110,016
SG&A................... 163,278 181,042 193,521 118,518 136,153 101,500
Impairment
loss................. 19,500 31,883 42,033
Restructuring
charge............... 5,228 4,105
------------- ------------- ------------- ------------- ------------- -------------
Operating
(loss)Income......... $ 47,737 $ (20,852) $ (14,283) $ 12,990 $ (33,370) $ (33,517)
============= ============= ============= ============= ============= =============
<CAPTION>
Consolidated Total
December 31,
------------------------------------------------
1994 1995 1996
<S> <C> <C> <C>
Net Sales.............. $ 5,018,687 $ 5,956,967 $ 5,522,824
Cost of Sales.......... 4,676,164 5,633,278 5,233,570
Gross Profit........... 342,523 323,689 289,254
SG&A................... 281,796 317,195 295,021
Impairment
loss................. 51,383 42,033
Restructuring
charge............... 9,333
------------- ------------- -------------
Operating
(loss)Income......... $ 60,727 $ (54,222) $ (47,800)
============= ============= =============
</TABLE>
Comparison of Fiscal Years Ended December 31, 1996 and December 31, 1995
The Company's net sales for the North American Business increased 0.4% from
$3,427,821,000 in 1995 to $3,441,343,000 for the year ended December 31, 1996.
This increase resulted from increased sales of 12.4% in Canada offset by a 2.0%
decrease in sales in the United States. In the third quarter of 1995, the North
American Business sold approximately $124,000,000 of Microsoft Windows '95
following its launch in August 1995. Excluding the effect of this additional
revenue, net sales would have increased 2.0% in the United States and 14.5% in
Canada. The Canadian sales increase is in line with the growth in the industry
for the markets in which that subsidiary competes. In the United States, the
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Company did not keep pace with industry growth rates, due to liquidity
constraints, cost controls which Merisel implemented to conserve cash outflow
and competitive pressures.
In the North American Business, hardware and accessories accounted for 75%
of net sales, and software accounted for 25% of net sales for the year ended
December 31, 1996 as compared to 69% and 31% for the same categories
respectively, for the year ended December 31, 1995. Software sales were a larger
percentage of total sales in the prior year due to the sales generated from the
Microsoft Windows '95 launch in August 1995.
Gross profit for the North American Business decreased 3.1% from
$184,918,000 in 1995 to $179,238,000 in 1996. Gross profit as a percentage of
sales, or gross margin, decreased from 5.4% in 1995 to 5.2% in 1996. Both years
were affected by large margin adjustments. In 1995, the Company recorded a
$25,800,000 charge to margin in the United States related to accounts payable
reconcilement issues. In 1996, $17,750,000 was charged related to customer
disputes, vendor reconciliations and other issues in the United States, and
$9,588,000 was charged for similar issues in Canada. Excluding the effect of
these margin adjustments, gross profit would have been $174,079,000 or 6.1% of
net sales and $36,639,000 or 6.4% of net sales in the United States and Canada,
respectively, for the year ended December 31, 1995, as compared to $168,531,000
or 6.0% of net sales and $38,045,000 or 5.9% of net sales in the United States
and Canada, respectively, for the year ended December 31, 1996. The decrease in
adjusted gross profit is primarily attributable to the impact of liquidity
constraints on the Company's ability to purchase on favorable terms and
competitive pricing pressures, each of which, in the absence of the
Restructuring, is expected to continue in 1997.
In 1996, a total charge of $17,750,000 was recorded to margin in the United
States of which $13,400,000 related to customer dispute issues with the
remaining $4,340,000 relating to vendor reconcilement issues. A total charge of
$9,588,000 was recorded to margin in Canada of which $8,092,000 related to
vendor reconcilement issues, $1,173,000 to customer dispute issues and $323,000
to other margin issues. Customer dispute issues relate primarily to adjustments
for deductions taken by customers on payments for which the Company does not
believe it will be able to collect. Vendor reconcilement issues relate to
adjustments for price protection, returns to vendors by Merisel and inventory
receipt related issues, such as short shipments identified through the vendor
reconcilement process. The charge for other margin issues primarily relate to
adjustments to the value of liabilities.
Selling, general and administrative expenses for the North American
Business increased by 6.9% from $181,042,000 for the year ended December 31,
1995 to $193,521,000 for the year ended December 31, 1996. Selling, general
administrative expenses in 1995 include a fourth quarter charge of $8,200,000 to
adjust the value of certain assets and liabilities. Excluding this fourth
quarter 1995 charge, selling, general and administrative expense levels have
increased approximately $20,679,000 from the prior year. Of this increase,
$10,500,000 related to professional fees incurred as part of the development of
the 1996 Business Plan, process improvements and lender negotiations and
severance charges related to management changes. Selling General and
Administrative charges in 1996 excluding these charges were $183,021,000. The
remaining increase in expenses is related to higher operating costs associated
with the installation of new computer systems. Selling, general and
administrative costs include depreciation and amortization expense totaling
$11,756,000 in 1995 and $12,360,000 in 1996.
In the fourth quarter of 1995, the North American business recorded an
asset impairment charge for $19,500,000 in order to adjust capitalized system
development costs related to the installation of new computer systems. Also in
1995, $5,228,000 in restructuring charges were recorded in the North American
Business as a result of the planned closure of a warehouse and other
restructuring activities. As of December 31, 1996 the company has used
$4,747,000 of this charge and the remaining amount of $481,000 is included in
accrued liabilities. No such charge was deemed necessary in 1996.
As a result of the above items, the operating loss for the North American
Business of $20,852,000 for the year ended December 31, 1995 decreased to an
operating loss of $14,283,000 for the year ended December 31, 1996. Excluding
the margin adjustments taken in both years, the professional fees and severance
costs incurred in 1996, the fourth quarter charges taken to operating expense in
1995, the impairment charge in 1995, and the restructuring charge in 1995, all
of which are
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<PAGE>
quantified above, the North American Business would have had operating income of
$37,876,000 in 1995 as compared to operating income of $23,555,000 in 1996.
Interest Expense; Other Expense; Income Tax Provision
Interest expense for the Company, including Former Operations, decreased
0.4% from $37,583,000 for the year ended December 31, 1995 to $37,431,000 for
the year ended December 31, 1996. The decrease resulted from lower average
borrowings in the fourth quarter of 1996, offset by higher average interest
rates and higher average borrowings in the first three quarters of the year.
Other expense for the Company, including Former Operations, increased from
$13,885,000 for the year ended December 31, 1995 to $20,150,000 for the year
ended December 31,1996. The increase was primarily attributable to fees incurred
in connection with an increase in the Company's trade receivable securitizations
in 1996. The increase in securitization fees is primarily attributable to an
increase in the amount of net receivables sold.
The income tax provision increased from a benefit of $21,779,000 for the
year ended December 31, 1995 to an expense of $1,539,000 for the same period in
1996. The Company has not recognized a tax provision benefit with respect to its
current losses, having fully utilized its ability to carryback those losses and
obtain refunds of taxes paid in prior years. Further, the Company has recognized
tax provision expense that primarily represents the establishment of a valuation
allowance against a previously recognized state deferred tax asset. (See "Notes
to Consolidated Financial Statements--Note 8.")
Consolidated Loss
The Company, including Former Operations, reported an increase in its net
loss from $83,911,000 in 1995 to $140,375,000 in 1996. The net loss per share
increased from $2.82 in 1995 to $4.68 in 1996.
Comparison of Fiscal Years Ended December 31, 1995 and December 31, 1994
The Company's net sales for the North American Business increased 19.2%
from $2,876,074,000 in 1994 to $3,427,821,000 for the year ended December 31,
1995. The gain was due to increased sales of 21.0% in the United States and
10.8% in Canada. These increases were primarily due to growth in existing
distribution operations resulting from the growth of the overall market for
hardware and software products, as well as an increase in the number of products
certain vendors are selling through distribution.
In the North American Business, hardware and accessories accounted for 69%
of net sales, and software accounted for 31% of net sales for the year ended
December 31, 1995, as compared to 68% and 32% for the same categories,
respectively, for the year ended December 31, 1994.
Gross profit for the North American Business decreased 12.4% from
$211,015,000 in 1994 to $184,918,000 in 1995. Gross profit as a percentage of
sales or gross margin, decreased from 7.3% in 1994 to 5.4% in 1995. The decrease
in gross margin was principally attributable to competitive pricing pressures.
In addition, a portion of the fourth quarter 1995 adjustments was charged to
cost of sales, which further contributed to the decrease in gross profit.
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Selling, general and administrative expenses for the North American
Business increased 10.9% from $163,378,000 for the year ended December 31, 1994
to $181,042,000 for the year ended December 31, 1995. The increase was primarily
due to costs associated with the Company's 19.2% increase in net sales, and
fourth quarter charges taken in 1995, including adjustments to the values of
certain assets and liabilities for $8,200,000.
In the fourth quarter of 1995, the North American business recorded an
asset impairment charge of $19,500,000 in order to adjust capitalized system
development costs related to the installation of new computer systems.
During 1995, $5,228,000 in restructuring charges were recorded in the North
American Business related to the planned closure of a warehouse and other
restructuring activities.
As a result of the above items, operating income for the North American
Business of $47,737,000 for the year ended December 31, 1994 decreased to an
operating loss of $20,852,000 for the year ended December 31, 1995.
Interest Expense; Other Expense; Income Tax Provision
Interest for the Company, including Former Operations, increased 29.5% from
$29,024,000 for the year ended December 31, 1994 to $37,583,000 for the year
ended December 31, 1995. The increase is primarily attributable to the Company's
higher debt levels and, to a lessor extent, an increase in interest rates.
Other expense for the Company, including Former Operations, increased from
$11,752,000 for the year ended December 31, 1994 to $13,885,000 for the year
ended December 31, 1995. The increase in other expense in 1995 primarily related
to an increase of $3,000,000 in fees incurred in connection with accounts
receivable securitizations.
The income tax provision decreased from an expense of $8,341,000 for the
year ended December 31, 1994 to a benefit of $21,779,000 for the year ended
December 31, 1995, reflecting the Company's loss position in 1995 and the
utilization of loss carryback provisions. The decrease in the effective tax rate
was principally the result of an increase in the valuation allowance related to
United States deferred tax assets.
Consolidated Loss
On a consolidated basis for the Company, including Former Operations, net
income decreased from $11,610,000 for the year ended December 31, 1994 to a net
loss of $83,911,000 for the year ended December 31, 1995. Net income per share
decreased from $.38 in 1994 to a net loss per share of $2.82 in 1995.
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
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<PAGE>
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.
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 sale of assets.
Recent Developments
Effective April 14th, 1997, the Company entered into certain agreements
relating to the restructuring of its debt obligations, and to amend certain
covenants contained in its debt instruments. (See "Background of the
Restructuring.") Accordingly, the Company believes that it will be able to
satisfy all of its material debt obligations under such instruments in 1997
pending the consummation of the Restructuring and the Extension. Interest will
continue to be due and payable on the outstanding 12.5% Notes that have not
consented to the waiver by 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.
First quarter, 1997.
Net cash provided by operating activities during the three months ended
March 31, 1997, was $10,577,000. The primary sources of cash from operating
activities was a decrease in inventory of $34,348,000, increased accounts
payable of $6,626,000 and a profit of and $1,131,000. The primary use of cash
during the period was a $32,384,000 increase in accounts receivable. The primary
use of cash during the period was a $32,384,000 increase in accounts receivable.
This increase was the primarily the result of normal seasonal fluctuations in
the Company's Canadian operations and higher than normal sales during the last
few days of the quarter. This increase is not expected to have a material impact
on the Company's future results or financial condition. The increase in accounts
payable related primarily to the purchasing activities of Merisel FAB during the
quarter and prior to the sale of substantially all of the assets of Merisel FAB.
The accounts payable levels for the North American Business did not change
significantly from the end of 1996.
Net cash used in investing activities for the three months ended March 31,
1997, was $648,000 consisting entirely of leasehold improvements and equipment
expenditures. 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
consisting of costs
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<PAGE>
of upgrading and modifying existing computer systems, warehouse systems, and
facilities in Canada and the United States. Net cash used in financing
activities was $6,432,000 and was comprised primarily of scheduled payments
under the Company's various debt facilities.
Fiscal Year Ended 1996
Net cash provided by operating activities during the year ended December
31, 1996 was $29,249,000. The primary sources of cash from operating activities
were decreases in accounts receivable, inventories, and income taxes receivable
of $132,480,000, $91,059,000 and $33,470,000, respectively. The primary use of
cash from operations during the period was a decrease in accounts payable of
$179,304,000. Lower inventory and accounts receivable levels resulted primarily
from improved management of inventories and collections. The decrease in
inventories also contributed to the decrease in accounts payable.
Net cash provided from investing activities in 1996 was $101,041,000,
consisting of proceeds from the sale of EML and the Company's Australian
business of $110,379,000 and $8,515,000, respectively, partially offset by the
Company's earn out obligation under the ComputerLand Acquisition of $13,409,000
and property and equipment expenditures of $9,652,000, net of proceeds from the
sale of property and equipment of $5,975,000. Expenditures for property and
equipment were primarily attributed to the upgrading of the Company's computer
systems, expenditures for a new warehouse management system and the upgrading of
existing facilities and leasehold improvements.
Net cash used in financing activities was $82,765,000, related primarily to
repayments of the 11.5% Notes of $43,195,000, net repayments under the Revolving
Credit Agreement (as defined below) of $17,792,000, the payment of the first
installment of $4,400,000 of the Subordinated Notes (as defined below), and
repayment of $17,741,000 under other bank facilities.
Liquidity and borrowings
Funds are also generated through the sale of receivables by Merisel Capital
Funding, Inc., a wholly owned subsidiary of the Company's Merisel America's,
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 and did obtain amendments and waivers with respect to
certain covenants under this facility, which expires 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 Merisel's Canadian subsidiary. 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.
Effective October 16, 1995, Merisel U.K. Ltd. ("Merisel U.K.") entered into
a receivables purchase agreement with a securitization company to provide
funding for Merisel's U.K. subsidiary. This
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<PAGE>
facility, including $26,300,000 outstanding thereunder, was assumed by CHS in
connection with the purchase of EML.
Under these securitization facilities, the receivables are sold at face
value with payment of a portion of the purchase price being deferred. As of
March 31, 1997, the total amount outstanding under these facilities was
$259,830,000. Fees incurred in connection with the sale of accounts receivable
are recorded as other expense and for the three months ended March 31, 1997 and
1996 were, $3,573,000, and $4,544,000 respectively. For the years ended December
31, 1996 and December 31, 1995, these fees totalled $16,029,000 and $10,291,000
respectively.
At March 31, 1997, the Company's subsidiaries, Merisel Americas and Merisel
Europe had unsecured senior borrowings which, as amended, consisted of
$56,198,000 of 11.5% Notes by Merisel Americas, and an $84,297,000 the Revolving
Credit Agreement, all of which were outstanding. 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 March 31, 1997 was approximately 10.8%. 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.
As amended, these agreements 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 current period. In the absence of the Restructuring,
the 11.5% Notes and the Revolving Credit Agreement provide that if the Company
makes the June 30, 1997 interest payment on its 12.5% Notes at any time before
January 31, 1998, then the Company shall 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 anytime 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. The 11.5% Notes and the Revolving Credit Agreement
are due in full on January 31, 1998. The amendments also provide that certain
tax refunds and asset sale proceeds when 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.
The 11.5% Notes and the Revolving Credit Agreement 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. These agreements also require the Company or certain of its
subsidiaries to maintain certain specified financial ratios. Such financial
ratios include: interest coverage; minimum adjusted tangible net worth; minimum
earnings before interest, taxes, depreciation, amortization and securitization
expense; total debt equivalents to adjusted tangible net worth; 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 Senior Notes
and the Revolving
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<PAGE>
Credit Agreement for the Company's third fiscal quarter of 1996, and amendments
of such covenants for future periods.
At March 31, 1997, Merisel Americas had outstanding an aggregate of
$13,200,000 of 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 1998, March 1999 and in March 2000. The
Company has made all of these payments as scheduled to date. Commencing on
September 10, 1996, accrued interest on the Subordinated Notes is required to be
paid quarterly, rather than semi-annually. 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, or sell
certain assets and those that 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.
At March 31, 1997, Merisel, Inc. had outstanding $125,000,000 principal
amount of the 12.5% Notes. The 12.5% Notes provide for an interest rate of 12.5%
payable semi-annually. By virtue of being an obligation of Merisel, Inc., the
12.5% Notes are effectively subordinated to all liabilities of the Company's
subsidiaries, including trade payables and are not guaranteed by any of the
Company's operating entities. The Indenture relating to the 12.5% Notes contains
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 imposes limitations on investments, loans, advances, asset
sales or transfers, dividends and other payments, the creation of liens, sale-
leaseback transactions with affiliates and certain mergers. Without a
restructuring or refinancing of the Company's debt, the Company may be unable to
make its June 30, 1997 and December 31, 1997 interest payments on the 12.5%
Notes and the additional $40,000,000 and $30,000,000 repayments on the 11.5%
Notes and the Revolving Credit Agreement required before such interest payments
on the 12.5% Notes can be made. In addition, the restriction on dividend
payments contained in the 11.5% Notes and the Revolving Credit Agreement could
limit the ability of the Company to repay principal and interest on the 12.5%
Notes if, and to the extent that, such limitations prevent cash or other
dividends from being paid to the Company. Further, in the event of a default
under the 11.5% Notes and the Revolving Credit Agreement, payments of principal
and interest on the 12.5% Notes are prohibited.
At March 31, 1997, the Company had promissory notes outstanding with an
aggregate balance of $9,635,000. 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.
In connection with the ComputerLand acquisition, Merisel FAB and Vanstar
entered into the Distribution and Services Agreement (the "Service Agreement")
which as extended and amended provided significant distribution and other
support services to Merisel FAB for a contractually agreed upon fee. Also under
the terms of the Services Agreement, Vanstar agreed to provide extended credit
to Merisel FAB (the "Vanstar Payable") which was to be reduced by scheduled
payment amounts. At December 31, 1995 and 1996, $23,500,000 and $20,000,000 was
outstanding on the Vanstar payable and is included in accounts payable. The
Vanstar Payable was assumed by, and the Service Agreement was assigned to,
Synnex pursuant to the sale of substantially all of the assets of Merisel FAB as
of March 28, 1997.
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<PAGE>
At March 31, 1997, the Company had cash and cash equivalents of
approximately $47,930,000. 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 the Revolving Credit Agreement, the 11.5% Notes and the
Subordinated Notes, cash on hand, together with anticipated cash flow in 1997
will be sufficient to meet the Company's liquidity requirements for the next 12
months.
Inflation
Due to the short-term nature of the Company's contracts and agreements with
customers and vendors, the Company does not believe that inflation had a
material impact on its operations.
Asset Management
The Company 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, the Company'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, the Company'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.
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.
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BUSINESS AND PROPERTIES OF THE COMPANY
Business Overview
Merisel, Inc., a Delaware holding company (the "Company"), is a leading
distributor of computer hardware, networking equipment and software
products. Through its main operating subsidiary, Merisel Americas, and its
subsidiaries, the Company markets products and services throughout North
America and has achieved operational efficiencies that have made it 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.
At December 31, 1996, the Company stocked more than 25,000 products from
more than 500 of the computer hardware and software industry's leading
manufacturers, including American Power Conversion, Apple, AST, Compaq,
Creative Labs, Digital Equipment Corporation, Epson, Hayes, Hewlett-
Packard, IBM/Lotus, Intel, Kingston Technology, Microsoft, NEC, Novell,
Okidata, Sony, Sun Microsystems, Symantec, Texas Instruments, 3Com, Toshiba
and U.S. Robotics. Merisel sells products to more than 45,000 computer
resellers throughout North America, including VARs, large retail chains,
dealers, computer superstores, mass merchants, Macintosh and Sun
Microsystems resellers, system integrators and original equipment
manufacturers ("OEMs"). The breadth of the Company's product line,
together with its extensive distribution network, enable the Company to
provide its customers with a single supply source and prompt product
delivery. The Company's sales were $3.4 billion for 1996, after excluding
revenues from operations sold in the third quarter of 1996 and in the first
quarter of 1997. Of these sales, 81% were generated in the United States
and 19% were generated in Canada.
During 1996, the Company determined to sell substantially all of its
assets and operations outside of North America. In addition the Company
also developed a plan that called for the downsizing of remaining
operations in order to conserve cash. As of January 1, 1996, the Company
sold its Australian operations to Tech Pacific Holdings Ltd. ("Tech
Pacific"). On October 4, 1996, the Company completed the sale of
substantially all of its European, Mexican and Latin American businesses
(such businesses are referred to herein as "EML") to CHS Electronics, Inc.
("CHS"). In addition, as of March 28, 1997, the Company completed the sale
of substantially all of the assets of its wholly owned subsidiary, Merisel
FAB, Inc. ("Merisel FAB"), which operated the ComputerLand Franchise and
Datago Aggregation Business ("FAB"), to a wholly owned subsidiary of SYNNEX
Information Technologies, Inc. ("Synnex"). The Company sold its minority
interest in a corporation engaged in the distribution of computer hardware
and software products in the former Soviet Union; the transaction is
expected to close in the second quarter of 1997. As a result of the
foregoing transactions, the Company's operations are now focused
exclusively in North America.
The Company has developed and is implementing a business strategy for
1997 (the "1997 Business Strategy") that builds upon the actions taken
under its 1996 Business Plan (as described below). Significantly, the 1997
Business Strategy now focuses on profitable North American revenue growth
instead of managing for cash. Under the 1997 Business Strategy, Merisel
intends to concentrate on strengthening and building its sales
infrastructure, improving gross margins and controlling operating expenses.
The Company's efforts in buildings its sales infrastructure will focus upon
selective additions to its sales function primarily in the areas of sales
management as well as additional personnel in inside and field sales. The
Company is actively working to improve its gross margin through changes in
sales
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compensation by incentivizing margin performance as well as revenue growth.
Further, the Company is improving its gross margin reporting to allow for
more effective evaluation of margin related activities. At the same time
the Company is focusing on sales growth and margin improvement, procedures
have been established to control and analyze operating expenses. Most
specifically, the Company is operating the business to a comprehensive
expense budget and all nonbudgeted expenses require senior management
approval. Other priorities include continuing efforts to achieve
operational excellence, addressing financial controls and policies by
emphasizing margin improvements and tight expense control, and implementing
a strategy focused on the United States and Canada. At the same time, in
order to meet its debt obligations in mid-1997, the Company is actively
pursuing the Restructuring. While the Company believes that it will be
able to successfully implement its 1997 Business Strategy and the
Restructuring so as to enable it to meet all of its financial obligations,
there can be no assurance that it will be able to do so.
The 1997 Business Strategy assumes that the Company will not experience
any significant changes in payment terms to, or product availability from,
its key vendors. While management does not expect, and there has not been,
any material deterioration in such credit terms or product availability,
there can be no assurance that significant changes will not occur. Any
such deterioration in the absence of the development of alternate financing
sources could adversely impact the Company's cash flow and its future
results of operations.
Significant Events of 1996 and 1997
In February 1996, the Company engaged Merrill Lynch & Co. to assist the
Company in assessing its strategic options in order to maximize stockholder
value. On March 7, 1996, Merisel sold its interest in its wholly owned
Australian subsidiary, Merisel Pty Ltd. ("Merisel Australia"), to Tech
Pacific. The sale was effective as of January 1, 1996. Under the terms of
the agreement, the Company received consideration of $9,900,000 in the form
of repayment of certain intercompany debt obligations for $8,500,000, and
$1,400,000 in non-cash asset transfers. 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. These net assets, after the write down, totaled $9,900,000 and
were classified in the December 31, 1995 consolidated balance sheet as
other current assets. Prior to the $1,900,000 charge in the fourth quarter
of 1995, Merisel Australia had reported a loss of $6,100,000 for 1995. See
"Legal Proceedings."
Due to substantial losses for the fourth quarter and fiscal year ended
December 31, 1995, the Company was required in April 1996 to negotiate with
the lenders under its various financing agreements to amend such agreements
and to waive certain defaults, which amendments and waivers were obtained.
In connection with such negotiations, the Company developed and
implemented the 1996 Business Plan, that focused on maximizing cash flow by
controlling costs, curtailing non-essential capital expenditures, limiting
investments and concentrating on its more profitable areas of operations
and product lines and slowing growth in its less profitable areas of
operations. The 1996 Business Plan assumed that the Company would not
return to profitability until the fourth quarter of 1996. At the same
time, the Company recognized that, in order to meet its obligations in
1997, it needed to engage in some combination of asset sales, refinancing
of its borrowings and obtaining new sources of financing.
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Concurrently with the implementation of the 1996 Business Plan, the
Company actively explored all of its strategic options with the assistance
of Merrill Lynch & Co., including the sale of the Company. This ultimately
led to the Company's sale of EML to CHS, after attempts to sell the entire
Company proved unsuccessful. The sale was effective as of September 27,
1996. A loss of approximately $33,455,000, which includes approximately
$7,400,000 of direct costs related to the sale, was recorded in connection
with the sale. The final sales price, computed based on the combined
closing balance sheet, was $147,631,000, consisting of (i) $110,379,000 in
cash, (ii) the assumption of the Company's European asset securitization
agreement, against which $26,252,000 was outstanding at closing, and (iii)
a receivable of $11,000,000 payable in three installments of $3,000,000,
$4,000,000 and $4,000,000, due at various dates through 1997. The initial
cash inflow of $110,379,000 was used to reduce the Company's debt and
improve its working capital.
In connection with the Company's sale of EML, the Company and certain of
its lenders agreed in October 1996 to amend (1) the Revolving Credit
Agreement and (2) the Senior Note Purchase Agreement to extend the final
maturities of those agreements until January 31, 1998. In connection with
such amendments, the Company was required to obtain, and did obtain, an
amendment of the Subordinated Note Purchase Agreement. In addition, such
amendments required a waiver of certain provisions of the Indenture. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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 buyer assuming $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 the Synnex on future purchases at a defined
rate per dollar of purchases, not to exceed $2,000,000. The purchase price
is subject to adjustments based upon Merisel FAB's March 28, 1997 balance
sheet. 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
fair value.
The Industry
The computer products distribution industry is large and growing,
reflecting both the growing use of wholesale distribution channels by
manufacturers for the distribution of their products and increasing
worldwide demand for computer products. The industry moves product from
manufacturer to end-user through a sophisticated 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").
Reseller customers include large corporate accounts, small and medium-
sized businesses and home users. The major reseller channels are VARs,
commercial resellers/dealers (corporate resellers and 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 a wide spectrum of resellers. Aggregators
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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. Aggregators typically work on a lower cost model with a high
proportion of electronic commerce and vendor flooring to minimize working
capital requirements. The larger computer manufacturers, such as Apple,
Compaq, Hewlett-Packard and IBM, have historically required resellers to
purchase their products from an affiliated aggregator. In recent years,
manufacturers have increasingly offered products through wholesale
distributors' aggregation divisions. The result of this practice is
increasing similarity between wholesale distributors and aggregators.
Business Strategy
The Company offers leading products and services to customers at
competitive prices. The Company provides cost-effective customer service to
targeted customer groups through its inside and field sales forces and
specialized marketing programs. In 1996, the Company continued to actively
pursue sales via "electronic commerce," which encompasses the internet and
other electronic interfaces to market products, establish accounts and take
orders at typically lower operating costs than traditional sales
methods.
Providing Leading Products and Services. The Company's objective is to
offer a broad range of leading brands in each of the product categories it
carries. By stocking a broad mix of products, the Company meets the needs
of resellers who prefer to deal with a single source for many of their
product needs. The Company continually evaluates new products, the demand
for current products, and 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, combined with the breadth and quality of its
marketing support programs, give Merisel a competitive advantage over
smaller, regional distributors in developing and maintaining supplier
relationships.
Customer Service and Satisfaction. The Company believes that a high level
of customer satisfaction is important to achieve and maintain success in
the highly competitive microcomputer products distribution industry. The
Company measures customer satisfaction by such standards as the customer's
"ease of doing business," accuracy and efficiency in delivering products
and expediting the delivery of services and information. It was with these
objectives in mind that the company established its Vantage Loyalty
incentive program to provide increased services, support and better pricing
to large volume customers. Merisel constantly strives to improve its
operational processes in order to achieve increasingly high levels of
customer satisfaction.
Targeting Customer Groups. The Company serves a variety of reseller
channels, which have diverse product, financing and support requirements.
The Company was among the first major wholesale distributors 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 focusing on the profitability of the markets it serves to
identify customer opportunities and develop sales and marketing programs
that serve these groups more effectively.
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Products and Manufacturer Services
The Company distributes more than 25,000 hardware and software products
for MS-DOS, Windows NT, OS/2, Macintosh, Apple and Sun Microsystems/UNIX
operating environments. Hardware products include computer components such
as servers, printers, monitors, disk drives and other storage devices,
modems and other connectivity devices, routers, switching products,
communication/networking (local and wide area) products, plug-in boards and
accessories. The Company's software mix includes business application
software for spreadsheets, word processing programs, desktop publishing and
graphics packages, educational software and games, as well as a broad
offering of operating systems, including local area networks, advanced
language and utility products.
In fiscal 1996 for the Company's ongoing U.S. and Canadian distribution
businesses, net sales of hardware and accessories accounted for
approximately 75% of sales, while software product sales accounted for the
remaining 25% of sales.
The Company has established and developed long-term business
relationships with many of the leading manufacturers in the computer
industry. The Company's suppliers include American Power Conversion,
Apple, AST, Compaq, Creative Labs, Digital Equipment Corporation, Epson,
Hayes, Hewlett-Packard, IBM/Lotus, Intel, Kingston Technology, Microsoft,
NEC, Novell, Okidata, Sony, Sun Microsystems, Symantec, Texas Instruments,
3Com/U.S. Robotics and Toshiba. The Company is one of only three
distributors in the United States authorized to sell Sun Microsystems
products.
The Company provides its manufacturers with access to one of the largest
bases of computer resellers in North America, as well as the means to
reduce inventory, credit, marketing, and overhead costs typically
associated with maintaining direct reseller relationships. Through its
product marketing group, the Company develops and implements promotional
programs for specific manufacturers to increase customer purchasing depth
and breadth. Promotional programs include bundle offers, growth goal
incentives, reseller training events, as well as channel communication
vehicles such as target direct mail, fax and advertising.
The Company offers one of the industry's largest reseller forums,
Softeach(TM), a two-day seminar series in which more than 50 manufacturers
host training seminars on product usage. In 1996, the Company offered
Softeach(TM) seminars in 12 cities in the United States and Canada. More
than 7,000 resellers enrolled for Softeach(TM) seminars in 1995 and 1996.
The Company's educational services division, in conjunction with third-
party consultants, also conducts training and certification classes on a
fee basis for resellers of certain Digital Equipment, Lotus, Microsoft,
Novell, Santa Cruz Operation, Sun and 3Com products.
The Company 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 that limit the countries
in which Merisel is permitted to distribute the products. The agreements
generally provide the Company with stock balancing and price protection
provisions which partially reduce the Company's risk of loss due to slow-
moving inventory, supplier price reductions, product updates or
obsolescence. The Company's agreements which generally have a term of at
least one year, may contain minimum purchase amounts and often contain
provisions permitting earlier termination by either party upon written
notice.
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Although the Company regularly stocks products and accessories supplied
by more than 500 manufacturers, 60% of the Company's net sales in 1996 (as
compared to 63% in 1995 and 56% in 1994) were derived from products
supplied by Merisel's 10 largest manufacturers, with the sale of products
manufactured by Hewlett-Packard, Microsoft and Compaq accounting for
approximately 9%, 14% and 10%, respectively, of net sales in 1996 (as
compared to 16%, 14% and 11% respectively in 1995, and 12%, 12% and 11%,
respectively, in 1994). Because reseller customers often prefer to deal
with a single source for many of their product needs, 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.
In the course of its business, the Company reconciles its accounts
payable balances to statements provided by its vendors. During the fourth
quarter of 1995 and the first three quarters of 1996, the Company incurred
charges resulting from adjustments to trade accounts payable balances.
These charges were related to adjustments for price protection, returns to
vendors by the Company and inventory receipt-related issues, such as short-
shipments identified through the reconciliation process. In order to
minimize further supplier account reconciliation losses, the Company began
implementing processes and procedures to address current system
deficiencies and engaged the assistance of outside consultants. By the end
of 1996, substantial progress was made in the implementation of these
processes and procedures, and the Company believes that it is adequately
reserved.
Customers and Customer Services
In 1996, the Company sold products and services to more than 45,000
computer resellers worldwide. The Company's smaller customers often do not
have the resources to establish a large number of direct purchasing
relationships or stock significant product inventories, nor can they meet
minimum purchase requirements or obtain acceptable credit. Consequently,
they tend to purchase a high percentage of their products from distributors
such as the Company, which can meet their inventory needs quickly and
efficiently. 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 4% of the Company's net sales in 1994,
1995 or 1996.
Single Source Provider. The Company offers computer resellers a single
source for more than 25,000 competitively priced hardware and software
products. By purchasing from the Company, 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 and third-party financing
programs. In addition, certain resellers are allowed, within specified time
limits, and/or specified volume limits, to return slow-moving products from
one manufacturer in exchange for more popular products from other
manufacturers.
Prompt Delivery. In the United States and Canada, orders received by
5:00 p.m. local time are typically shipped the same day, provided the
required inventory is in stock. The Company maintains sufficient inventory
levels in the United States to fill consistently in excess of 95% of all
units ordered on the day of receipt. As part of a continuing effort to
improve accuracy, the Company's Information and Logistical Efficiency
System (MILES) was first installed in the Company's Atlanta warehouse in
early 1994. In 1996, installation of this custom computerized warehouse
management system was completed in all nine of the Company's North American
warehouses. The successful implementation of MILES has
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resulted in significant improvements in shipping accuracy rates. The
Company believes that its inventory and shipping accuracy rates are among
the highest in the industry.
The Company typically delivers products from its regional warehouses via
FedEx, United Parcel Service and other common carriers. Most customers in
the United States receive orders within one or two working days of
shipment. The Company also provides customer-paid overnight air handling
upon request. These services allow resellers to minimize inventory
investment and serve their customers responsively. For larger customers in
the United States, the Company also provides a fulfillment service to ship
orders directly to resellers' customers to speed delivery and further
minimize reseller inventories.
Financing Programs. The Company's credit policy for qualified resellers
eliminates the need for them to establish multiple credit relationships
with a large number of manufacturers. In addition, the Company arranges
floor plan, credit card and lease financing through a number of credit
institutions and offers a program for credit card purchases by qualified
customers. To allow certain resellers to purchase larger orders in the
United States, the Company offers to arrange alternative financing such as
escrow programs and special bid financing.
Customer Support. The Company offers a number of customer loyalty
programs, which provide incentives to resellers to aggregate their
purchases through the Company. Through its customer information services
group, the Company furnishes its computer resellers with a series of
publications containing detailed information on products, pricing,
promotions and developments in the industry. The Company publishes a
Merisel Product Catalog, as well as a monthly Promo Pak and VARfile
publication. The Company also publishes the Hot List(R), which ranks the
Company's current best-selling hardware and software products in four
different reseller channels. In addition, the Company's On-Line Literature
Library offers more than 40,000 data sheets of product information
literature via a fax-back system and CD-ROM. Information is also provided
electronically through the Company's Web site (www.merisel.com) and
proprietary SELline(R) Electronic Service.
The Company provides training and product information to its reseller
customers through its well-respected Softeach(TM) program, a series of
manufacturer hosted training forums. See "Products and Manufacturer
Services." The Company also provides computer resellers with pre-sale
technical support for virtually all product lines. In addition, the
Company's technical support services department provides pre-and post-sale
technical support to the Company's customers, as well as regular product
training seminars to the Company's sales representatives.
Sales and Marketing
During 1996, the Company's sales department for its core distribution
business in the United States was organized into four sales divisions to
serve the VAR, retail, commercial reseller/dealer and Sun Microsystems
reseller market segments. The VAR division offers specialized services and
technical products to value-added resellers, system integrators and OEMs
who offer service, support and consulting to clients in addition to selling
computer products. The Company's MOCA(TM) division is a division dedicated
primarily to selling and supporting Sun Microsystems and products through
its own sales, marketing, operations and technical support departments. The
retail division primarily services mass merchants and computer chain
stores, while the commercial reseller/dealer division offers direct
fulfillment services, electronic data interchange (EDI) transaction support
and dedicated field and inside support to large-volume national accounts.
Additionally, the Company's value-added services department offers
telemarketing, educational and merchandising services to resellers and
retailers.
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The Company's sales department for its distribution business in Canada
was also structured in 1996 to reflect VAR, retail, dealer and national
account/commercial customer segments. The sales organization was enhanced
through the addition of six national sales directors to reflect market
needs, and a new regional sales office was opened in Halifax, Nova Scotia.
Additionally, in February 1997, the Company launched its MOCA(TM) division
in Canada.
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 the Company, screen synchronization technology
automatically causes a sales profile to appear on the sales
representative's computer screen. Customer orders generally are placed via
a toll-free telephone call to the Company's inside sales representatives
and, in the United States, are entered on the Company's SalesNet for
Windows order entry system, a proprietary local area network created by the
Company to speed the process of taking and processing orders. Using the
SalesNet for Windows 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.
In 1993, the Company introduced its Vantage Loyalty incentive program to
provide increased services, support and better pricing to larger volume
customers. The Vantage program was enhanced in late 1996 with the launch
of the "Vantage Visa" card as a frequent buyer program to reward resellers
for more frequent and higher volume purchases. The Vantage Visa program
offers unique promotional and bundling opportunities to resellers.
In line with its strategy of making the Company the easiest distributor
with which to do business, the Company is continuing to expand its
participation in "electronic commerce" and the "electronic marketplace,"
which represents growing sales opportunities in the computer products
distribution industry. Electronic commerce is the overall term applied to
the development and maintenance of business-to-business relationships via
such electronic services as EDI, on-line systems, electronic mail, and
Internet Web sites. Electronic commerce can simplify account set up,
ordering, shipping, and support and thereby facilitate sales while it
decreases both selling and purchasing costs. Electronic commerce is likely
to become a significant factor as the computer products distribution
industry evolves.
The Company began to actively promote its electronic commerce offering
with the introduction of SELline in 1994. This system was the industry's
first graphical user interface (GUI) application to allow customers to
access specific, customized information directly from various databases
owned and maintained by the Company. This includes access to real-time
pricing, credit, product descriptions, and availability information. The
Company also utilizes EDI systems to allow large volume customers to
communicate with the Company's mainframe computer system directly for order
processing and account data.
SELline usage increased with the 1996 introduction of "@Merisel," the
Company's first World Wide Web site that allows customers internet access
to key technical information and hyperlink access to more than 400
manufacturer internet sites from one location. In November 1996, the Web
site enabled the Company to introduce the distribution industry's first
national web-based order-entry system that features a SELline interface for
24-hour, secure order processing. The site facilitates new customer
enrollment and currently serves more than 21,000 reseller enrollees.
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Configuration
Configuration involves the assembly of computer products from multiple
vendors into a single unit or system. While at one time configuration was
a very minor aspect of a wholesale distributor's business, it has become a
major initiative as manufacturers outsource this segment of production to
wholesale distributors.
In 1996, the Company conducted its configuration business by outsourcing
to two third-party providers, the Cerplex Group, Inc. and Vanstar
Corporation. The Company intends to implement an internal configuration
operation during the latter part of fiscal year 1997.
Operations, Distribution and Investment in Systems
Locations. At December 31, 1996, the Company operated nine distribution
centers throughout North America: seven in the United States and two in
Canada. All of these distribution centers are leased.
Systems. The Company 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 the Company's
nine North American warehouses now utilize the MILES computerized warehouse
management system, which uses infrared bar coding and advanced computer
hardware and software to improve shipping, receiving and picking accuracy
rates.
The Company 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. In the early
implementation stages, the Canadian conversion produced results below the
Company's expectations. These results added to the Company's fourth quarter
1995 net operating loss. This system is now fully implemented in Canada and
is performing to expectations.
The Company plans to convert its United States operations to the SAP
system in the future. The design and implementation of these new systems
are complex projects and involve certain risks. As a result, the United
States system implementation will be delayed beyond 1997. Until such
implementation, the Company will continue to modify its existing United
States systems and may experience difficulty in processing transactions,
which could adversely affect operating income and cash flows.
Disposed Operations
International Operations. The Company formed its first international
subsidiary in 1982 and began 1996 with International operations as a
leading distributor of computer hardware and software products in
Australia, Austria, Canada, France, Germany, Holland, Latin America,
Mexico, Switzerland and the United Kingdom. Effective January 1, 1996, the
Company sold its operations in Australia. In September 1996, the Company
sold certain assets and businesses that included its operations in all of
its remaining foreign locations with the exception of Canada. In addition,
the Company is in the process of selling its minority stock interest in a
corporation engaged in the distribution of computer hardware and software
products in the former Soviet Union; the transaction is expected to close
in the second quarter
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of fiscal 1997. As a result, the Company's operations are now focused
exclusively in North America. For more information concerning the
divestiture of foreign businesses, see Note 5, Dispositions, in the Notes
to Consolidated Financial Statements.
Because the Company conducted business in a number of countries,
that portion of operating results and cash flows that is non-United States
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 1995, the Company incurred foreign currency losses due
primarily to declines in values of the Mexican Peso and other foreign
currencies against the United States dollar. In 1996, the net impact of
foreign currency transactions for the year was insignificant.
Domestic Operations. In March 1997, the Company sold substantially all of
the assets of Merisel FAB, to Synnex. Merisel FAB operated the Company's
Franchise and Aggregation business. The sale of this business marks the
Company's return to a primary focus on computer hardware and software
distribution, which has been its core business.
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 the Company's competitors have substantially greater financial
resources than the Company. The Company'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.
The Company also competes with manufacturers that sell directly to
computer resellers, sometimes at prices below those charged by the Company
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.
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) 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 qualities of the computer products distribution
industry, the Company's revenues and earnings may be subject to material
volatility, particularly on a quarterly basis.
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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."
Employees
As of December 31, 1996, the Company had approximately 2,000 employees.
The Company believes it has good relations with its employees and currently
has no collective bargaining agreements in place.
Environmental Compliance
The Company believes that it is in substantial compliance with all
environmental laws applicable to it and its operations.
Properties
At December 31, 1996, the Company maintained distribution centers in
seven locations throughout the United States and in two locations in
strategic areas of Canada. All of the Company's distribution centers are
leased. Additionally the Company maintains United States administrative
and sales offices in El Segundo, California; Marlborough, Massachusetts;
and Cary, North Carolina; as well as Canadian administrative and sales
offices in Toronto, Ontario; Montreal, Quebec; Vancouver, British Columbia;
and Halifax, Nova Scotia.
The Company's headquarters are located in El Segundo, California, where
the Company owns a 112,500 square-foot facility and leases another 50,700
square-foot facility. Merisel also maintains sales offices throughout the
United States and Canada. In addition, the Company owns undeveloped land in
Cary, North Carolina of which a substantial portion it intends to sell. The
Company believes that its facilities provide sufficient space for its
present needs, and that additional suitable space will be available on
reasonable terms, if needed.
Legal Proceedings
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 Old 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 Old Common Stock
with material misrepresentations and omissions during the Class Period.
Plaintiffs contend that such alleged misrepresentations are actionable
under Section 10(b) and 20(a) of the Exchange Act and Rule 10b-5
promulgated thereunder. 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. Plaintiffs filed
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a notice of appeal of the District Court's decision on April 26, 1995. The
Ninth Circuit heard oral arguments on June 4, 1996. As of the date of this
report there has been no decision from the Ninth Circuit.
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 the Company; 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 $9.9 million 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. The plaintiffs seek to recover specified damages
exceeding $8 million as well as unspecified damages plus interest and costs
and expenses associated with the claim. The Company intends to defend
itself vigorously against this 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.
Both the securities class action claims and the Tech Pacific claims are
included in Class 5, general unsecured claims, in the Prepackaged Plan, and
would be left unimpaired if the Plan were confirmed. Thus, the filing of
the Prepackaged Restructuring would have no effect on the claims, if either
is ultimately determined to be a liability of the Company.
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.
The filing of the Prepackaged Plan could have an adverse impact on
certain aspects of the business of the Company as described above. See
"RISK FACTORS."
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TENDERING AND VOTING PROCEDURES
The Restructuring
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company is offering in the
Exchange Offer to issue to each Noteholder 192.5 shares (adjusted to reflect the
one-for-five reverse stock split described herein) of New Common Stock, for each
$1,000 principal amount of 12.5% Notes (together with all accrued and unpaid
interest) which is validly tendered and not withdrawn (as described below) prior
to the Expiration Date. Nominees or other record holders of 12.5% Notes that
hold for more than one beneficial owner will be entitled to make elections that
reflect the elections of each of the beneficial holders for whom they exchange
12.5% Notes. The Company is also soliciting from the holders of 12.5% Notes
acceptances of the Prepackaged Plan, under which the 12.5% Notes would be
exchanged for the same consideration offered in the Exchange Offer. Instructions
for voting on the Prepackaged Plan are contained in the Disclosure Statement and
in the instructions attached to the Ballots and Master Ballots. See "VOTING
PROCEDURES AND REQUIREMENTS" in the Disclosure Statement.
This Prospectus and the Letter of Transmittal are first being mailed to
registered Noteholders on or about June 26, 1997.
General
As of March 31, 1997, there were outstanding $125 million aggregate
principal amount of 12.5% Notes (plus accrued but unpaid interest thereon of
approximately $3.9 million).
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange, and to have exchanged, validly tendered 12.5% Notes in
the Exchange Offer when, as and if the Company has given oral or written notice
thereof to the Depositary. The Depositary will act as agent for the tendering
Noteholders for the purposes of receiving New Common Stock from the Company and
transmitting such New Common Stock to tendering Noteholders.
The New Common Stock will be delivered in exchange for 12.5% Notes
accepted in the Exchange Offer promptly after acceptance on the Expiration Date
or, in the event of confirmation of the Prepackaged Plan, promptly after the
Effective Date as described in the Prepackaged Plan. The Company's obligation to
accept 12.5% Notes for exchange in the Exchange Offer is subject to the
satisfaction of the conditions set forth below under "Conditions." The Company
reserves the right, in its sole discretion, to waive any or all of the
conditions to the Exchange Offer or amend the terms of the Exchange Offer but
does not currently intend to waive any condition or amend any of the terms of
the Exchange Offer. The Exchange Offer is subject to extension of the time
period during which it is open. See "Expiration Date; Extensions; Amendments"
below.
New Common Stock will be rounded up or down to the nearest whole number
in the Prepackaged Restructuring, but not in the Exchange Restructuring. In lieu
of issuing any fractional shares of New Common Stock in the Exchange
Restructuring, fractional interests in New Common Stock will be aggregated and
sold by the Company, with the proceeds to be distributed to the holders in
proportion to the amount of fractional shares of New Common Stock such holders
would otherwise be entitled to receive.
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Noteholders who receive New Common Stock pursuant to the Exchange
Restructuring will not be required to pay brokerage commissions or fees to the
Company or, subject to the instructions in the Letter of Transmittal, transfer
taxes with respect to the receipt of New Common Stock pursuant to the Exchange
Restructuring. The Company will pay all charges and expenses, other than certain
applicable taxes, in connection with the Exchange Restructuring.
Interest on 12.5% Notes
Exchange Offer consideration will be paid in respect of each $1,000
principal amount of 12.5% Notes, together with all accrued and unpaid interest,
tendered and accepted for exchange. By tendering 12.5% Notes, a Noteholder
waives all rights to receive any payments with respect to accrued but unpaid
interest on such 12.5% Notes other than the New Common Stock to be issued
pursuant to the Exchange Offer. The Company has paid interest on the 12.5% Notes
through December 31, 1996. Assuming the Exchange Restructuring is consummated on
July 31, 1997, additional interest will have accrued in the amount of $72.92 per
$1,000 principal amount of 12.5% Notes.
Expiration Date; Extensions; Amendments
With respect to the Exchange Offer and the solicitation of acceptance of
the Prepackaged Plan, the term "Expiration Date" shall mean 5:00 p.m., New York
City time, on [__________], 1997, unless the Company, in its sole discretion,
extends the Exchange Offer or solicitation period, in which case the term
"Expiration Date" for such Exchange Offer or solicitation period shall mean the
last time and date to which the Exchange Offer or solicitation period is
extended.
The Company expressly reserves the right, at any time or from time to
time, to extend the period during which the Exchange Offer is open. In order to
extend the Expiration Date, the Company will notify the Depositary of any
extension by oral or written notice and will make a public announcement thereof,
the announcement to be issued no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date. Such
announcement may state that the Company is extending the Exchange Offer for a
specified period or on a daily basis.
The Company also expressly reserves the right to (a) delay accepting any
12.5% Notes, to extend the Exchange Offer and the solicitation period for
acceptances of the Prepackaged Plan or to terminate the Exchange Offer and the
solicitation period for acceptances of the Prepackaged Plan and not accept 12.5%
Notes not previously accepted, if any of the conditions set forth herein under
"Conditions" shall not have been satisfied or validly waived by the Company, by
giving oral or written notice of such delay, extension or termination to the
Depositary or (b) amend, at any time or from time to time, the terms of the
Exchange Offer and the Prepackaged Plan in any respect. The Company also
expressly reserves the right to terminate the Exchange Offer at any time as
described herein under "Conditions." Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by public
announcement thereof. If the terms of the Exchange Offer or the Prepackaged Plan
are amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment in a manner reasonably
calculated to inform the affected Noteholders of such amendment and the Company
will extend the Exchange Offer or the solicitation period for acceptances of the
Prepackaged Plan for a period which the Company in its discretion deems
appropriate, depending upon the significance of the amendment and the manner of
disclosure to Noteholders, if the Exchange Offer or the solicitation period for
acceptances of the Prepackaged Plan would otherwise expire during such period.
Any such extension shall, in the case of the Exchange Offer and, prior to the
filing of the
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Prepackaged Plan, in the case of the Prepackaged Plan, be in compliance with any
applicable rules and regulations of the Commission.
Without limiting the manner in which the Company may choose to make a
public announcement of any extension, amendment or termination of the Exchange
Offer or the solicitation period for acceptances of the Prepackaged Plan, the
Company shall have no obligation, unless otherwise required by law, to publish,
advertise, or otherwise communicate any such public announcement, other than by
making a timely release to the Dow Jones News Service.
How to Tender in the Exchange Offer
To tender 12.5% Notes pursuant to the Exchange Offer, a properly
completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof) or an Agent's Message (as defined herein) in the case of a
book-entry transfer of 12.5% Notes, together with any signature guarantees and
any other documents required by the Instructions to the Letter of Transmittal,
must be received by the Depositary at one of its addresses set forth on the back
cover page of this Prospectus prior to the Expiration Date and either (i)
certificates representing such 12.5% Notes must be received by the Depositary at
one of its addresses or (ii) such 12.5% Notes must be transferred pursuant to
the procedures for book-entry transfer set forth below and the book-entry
transfer of such 12.5% Notes into the Depositary's account at a Book-Entry
Transfer Facility must be confirmed, in each case, prior to the Expiration Date.
Letters of Transmittal and any 12.5% Notes tendered pursuant to the Exchange
Offer should be sent only to the Depositary, not to the Company, the Trustee,
the Information Agent or the Financial Advisor.
Only registered Noteholders, or persons who have obtained a properly
completed bond power from the registered Noteholders thereof, may tender in the
Exchange Offer. Any beneficial holder whose 12.5% Notes are registered in the
name of his broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender 12.5% Notes should contact such registered Noteholder and
instruct such registered Noteholder to tender 12.5% Notes on his behalf. If such
beneficial holder wishes to tender 12.5% Notes on his own behalf, such
beneficial holder must, prior to completing and executing the Letter of
Transmittal and delivering his 12.5% Notes, either make appropriate arrangements
to register ownership of the 12.5% Notes in such beneficial holder's name or
obtain a properly completed bond power from the Noteholder. The transfer of
record ownership of 12.5% Notes may take considerable time and, depending on
when such transfer is requested, may not be accomplished prior to the Expiration
Date.
The Depositary and The Depository Trust Company's ("DTC") have confirmed
that the Exchange Offer is eligible to ATOP. Accordingly, DTC participants may
electronically transmit their acceptance of the Exchange Offer by causing DTC to
transfer 12.5% Notes to the Depositary in accordance with DTC's ATOP procedures
for transfer. DTC will then send an Agent's Message to the Depositary.
The term "Agent's Message" means a message transmitted by DTC, received
by the Depositary and forming part of the confirmation of book-entry transfer,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering 12.5% Notes which are the subject of such
confirmation of book-entry transfer that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Company may enforce such agreement against such participant.
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Tenders - Additional Information
The tender by a Noteholder pursuant to one of the procedures set forth
herein will constitute an agreement between such Noteholder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
The method of delivery of 12.5% Notes, the Letter of Transmittal and all
other required documents to be delivered to the Depositary, including delivery
through a Book-Entry Transfer Facility and any acceptance or Agent's Message
transmitted through ATOP, is at the election and risk of each Noteholder. Except
as otherwise provided herein, such delivery will be deemed made only when
actually received by the Depositary. If such delivery is by mail, registered
mail, with return receipt requested, properly insured, is recommended, and
sufficient time should be allowed to assure timely delivery. No documents should
be sent to the Company, the financial advisor, the Information Agent, the
Trustee or the transfer agent for the New Common Stock.
The Depositary will establish accounts with respect to the 12.5% Notes
within two business days after the date of this Prospectus at DTC and the
Philadelphia Depository Trust Company ("Philadep," and together with DTC,
collectively referred to as the "Book-Entry Transfer Facilities") for the
purpose of the Exchange Offer. Any financial institution that is a participant
in any of the Book-Entry Transfer Facilities' systems may make book entry
delivery of the 12.5% Notes by causing DTC or Philadep to transfer such 12.5%
Notes into the Depositary's account in accordance with such Book-Entry Transfer
Facility's procedure for such transfer. Although delivery of 12.5% Notes may be
effected through book entry transfer in the Depositary's account at DTC or
Philadep, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, or an Agent's Message,
must in any case, be transmitted to and received or confirmed by the Depositary
at one of its addresses set forth on the back cover of this Prospectus prior to
the Expiration Date. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
DEPOSITARY.
Signatures on each Letter of Transmittal must be guaranteed by an
Eligible Institution (as defined herein) unless the 12.5% Notes delivered
pursuant thereto are delivered (a) by a Noteholder (or a participant in one of
the Book-Entry Transfer Facilities whose name appears on a security position
listing as the owner of 12.5% Notes) who has not completed the boxes on the
Letter of Transmittal entitled "Special Issuance Instructions" or "Special
Delivery Instructions" or (b) for the account of an Eligible Institution. An
"Eligible Institution" means a participant in the Security Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Program or
the Stock Exchange Medallion Program. If the 12.5% Notes are registered in the
name of a person other than the signer of the Letter of Transmittal, then the
signatures on the Letters of Transmittal accompanying the tendered 12.5% Notes
must be guaranteed by an Eligible Institution as described above. See
Instructions to the Letter of Transmittal.
If the Letter of Transmittal with respect to any 12.5% Notes is signed by
a person other than the Noteholder of any certificate(s) listed thereon, such
certificate(s) must be endorsed or accompanied by appropriate bond powers signed
exactly as the name or names of the Noteholder or Noteholders appear on the
certificate(s) with the signature(s) on the 12.5% Notes or instruments of
transfer guaranteed as provided herein. If the exchanging holder is not the
registered holder of the 12.5% Notes, then the registered holder must also sign
a valid proxy in favor of the exchanging holder. If the
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Letter of Transmittal, or any certificates, bond powers, stock powers or proxies
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
Tenders of 12.5% Notes for exchange may be made only in principal amounts
of $1,000 and integral multiples thereof.
If a Noteholder desires to tender 12.5% Notes, but the certificates
evidencing such 12.5% Notes have been mutilated, lost, stolen or destroyed, such
Noteholder should contact the Trustee to receive information about the
procedures for obtaining replacement certificates for 12.5% Notes at the
following address or telephone number: The Bank of New York.
Notwithstanding any other provision hereof, payment for 12.5% Notes
tendered and accepted for exchange pursuant to the Exchange Offer will, in all
cases, be made only after timely receipt by the Depositary of such 12.5% Notes
(or confirmation of a book-entry transfer of such 12.5% Notes into the
Depositary's account at a Book-Entry Transfer Facility as described above) and a
Letter of Transmittal (or facsimile thereof) with respect to such 12.5% Notes,
properly completed and duly executed, with any required signature guarantees and
any other documents required by the Letter of Transmittal, or an Agent's Message
in the case of a book-entry transfer of the 12.5% Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, withdrawal and revocation of tendered 12.5% Notes will be
resolved by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders and withdrawals
of 12.5% Notes that are not in proper form or the acceptance of which would, in
the opinion of the Company or counsel for the Company, be unlawful. The Company
also reserves the absolute right, in its sole discretion, to waive any defect or
irregularity in any tender as to particular 12.5% Notes, whether or not similar
defects or irregularities are waived in the case of other 12.5% Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding. Unless waived, any irregularities in connection with tenders and
withdrawals of 12.5% Notes must be cured within such time as the Company shall
determine. None of the Company, the Depositary, the Trustee or any other person
shall be under any duty to give notification of defects in such tenders,
withdrawals, deliveries or revocations or shall incur any liability for failure
to give such notification. Tenders and withdrawals of 12.5% Notes will not be
deemed to have been made until such irregularities have been cured or waived.
Any 12.5% Notes received by the Depositary that are not properly tendered or
delivered and as to which the irregularities have not been cured or waived will
be returned by the Depositary to the tendering Noteholders unless otherwise
provided in the Letter of Transmittal as soon as practicable following the
Expiration Date.
THERE IS NO PROCEDURE FOR TENDERING BY GUARANTEED DELIVERY. TENDERS BY
GUARANTEED DELIVERY WILL NOT BE ACCEPTED.
Withdrawal of Tenders and Revocation of Votes
Tenders of 12.5% Notes may be withdrawn, subject to the procedures
described herein, at any time before they are accepted for exchange by the
Company. The Company shall be deemed to have
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accepted for exchange, and to have exchanged, validly tendered 12.5% Notes in
the Exchange Offer when, as and if the Company has given oral or written notice
thereof to the Depositary.
Any Noteholder who has tendered 12.5% Notes, or who succeeds to the
record ownership of 12.5% Notes in respect of which such tenders have previously
been given, may withdraw such 12.5% Notes by delivery of a written notice of
withdrawal or revocation. To be effective, a written, telegraphic or facsimile
transmission notice of withdrawal or revocation of a tender must (a) be timely
received by the Depositary at one of its addresses specified on the back cover
of this Prospectus, before such 12.5% Notes are accepted for exchange by the
Company, (b) specify the name of the person who tendered the 12.5% Notes to be
withdrawn, (c) contain the description of the 12.5% Notes to be withdrawn, the
certificate numbers shown on the particular certificates evidencing such 12.5%
Notes (unless the 12.5% Notes were tendered by book-entry transfer) and the
aggregate principal amount represented by such 12.5% Notes and (d) be signed by
such Noteholder in the same manner as the original signature on the Letter of
Transmittal (including any required signature guarantees), or be accompanied by
documents of transfer sufficient to have the Trustee register the transfer of
such 12.5% Notes into the name of the person withdrawing 12.5% Notes. The
signature(s) on the notice of withdrawal must be guaranteed by an Eligible
Institution unless such 12.5% Notes have been tendered (a) by a registered
Noteholder who has not completed the boxes on the Letter of Transmittal entitled
"Special Issuance Instructions" or "Special Delivery Instructions" or (b) for
the account of an Eligible Institution. If the 12.5% Notes to be withdrawn have
been delivered or otherwise identified to the Depositary, a properly completed
and signed notice of withdrawal shall be effective immediately upon receipt
thereof even if physical release is not yet effected. A withdrawal of 12.5%
Notes can only be accomplished in accordance with the foregoing procedures.
Any 12.5% Notes which have been tendered for exchange but which are not
exchanged will be returned to the Noteholder without cost to such Noteholder as
soon as practicable following the Expiration Date. Properly withdrawn 12.5%
Notes may be retendered at any time prior to the Expiration Date by following
one of the procedures described under "How to Tender in the Exchange Offer."
Votes on the Prepackaged Plan may be revoked, subject to the procedures
described in the Disclosure Statement at any time prior to the earlier of (i)
the Filing Date and (ii) the Expiration Date. If a bankruptcy case has been
commenced, revocations of such votes thereafter may be effected only with the
approval of the appropriate bankruptcy court. See "VOTING PROCEDURES AND
REQUIREMENTS" in the Disclosure Statement.
Conditions
The obligation of the Company to accept for exchange any 12.5% Notes
validly tendered pursuant to the Exchange Offer is subject to the satisfaction
of the following conditions:
(1) the Minimum Tender Condition (requiring 100 percent of the
aggregate principal amount of the 12.5% Notes being validly tendered and
not withdrawn prior to the Expiration Date); and
(2) the approval by the Company's stockholders of the Exchange
Restructuring Proposal.
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In addition, notwithstanding any other provisions of the Exchange
Offer and without prejudice to the Company's other rights under the Exchange
Offer, the Company, in its sole discretion, may amend, extend or terminate the
Exchange Offer, or may delay or refrain from accepting for exchange or
exchanging any 12.5% Notes subject to the Exchange Offer, in each event subject
to Rule 14e-1(c) under the Exchange Act, if, at any time prior to the Expiration
Date, any of the following shall occur:
(a) there shall be threatened, instituted, or pending any
action, proceeding, application, claim or counterclaim before any
court or governmental regulatory or administrative agency, authority
or tribunal, domestic or foreign, which in the sole judgment of the
Company (i) challenges or makes or seeks to make illegal the
acceptance for exchange, or exchange of, any of the 12.5% Notes
pursuant to the Exchange Offer, (ii) could result in a delay in the
ability of the Company to accept for exchange or exchange some or all
of the 12.5% Notes, (iii) imposes or seeks to impose limitations on
the ability of the Company to acquire, hold or exercise full rights of
ownership of the 12.5% Notes or (iv) may prohibit, restrict or delay
consummation of, or otherwise have a material adverse effect on the
contemplated benefits to the Company of, the Exchange Offer or the
Exchange Restructuring;
(b) any change (or any condition, event or development
involving a prospective change) shall have occurred or be threatened
in the general economic, financial, currency exchange or market
conditions in the United States or abroad that, in the sole judgment
of the Company, has or may have a material adverse effect upon (i) the
market prices of the 12.5% Notes, (ii) the trading in the 12.5% Notes
or (iii) the value of the 12.5% Notes to the Company;
(c) a general deterioration in the prices of equity or debt
(including high-yield debt) securities in the United States from
levels prevailing at the date hereof shall have occurred which, in the
sole judgment of the Company, may have a material adverse effect on
the contemplated benefits of, or otherwise may make it inadvisable for
the Company to proceed with, the Exchange Offer;
(d) (i) any general suspension of or limitation on times for
trading in, or limitation on prices for, securities on the New York
Stock Exchange, the Nasdaq Stock Market, the American Stock Exchange
or in the over-the-counter market, (ii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the
United States or any limitation (whether or not mandatory) by any
federal, state or foreign governmental authority on, or any other
event which might affect, the extension of credit by banks or other
financial institutions, (iii) a commencement of a war, armed
hostilities or other international or national calamity directly or
indirectly involving the United States, (iv) a material adverse change
(or development or threatened development including a prospective
material adverse change) in United States or any other currency
exchange rates or a suspension of or limitation on the markets
therefor or (v) in the case of any of the foregoing existing at the
date hereof, a material acceleration or worsening thereof;
(e) any statute, order, rule or regulation shall have been
proposed or enacted or deemed applicable, or any action shall have
been taken by any governmental authority, that would or might
prohibit, restrict or delay consummation of the Exchange Restructuring
or, in the sole judgment of the Company, materially affect the
contemplated benefits to the Company of the Exchange Restructuring;
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(f) there exists, in the sole judgment of the Company, any
other actual or threatened legal impediment (including a default under
an agreement, indenture (including the 12.5% Note Indenture) or other
instrument or obligation to which the Company is a party, or by which
it is bound) to the acceptance for exchange, or exchange of, any of
the 12.5% Notes pursuant to the Exchange Offer;
(g) a preliminary or permanent injunction or other order by any
court or governmental agency shall have been issued and remain in
effect which restrains or prohibits the consummation of any component
of the Exchange Restructuring; or
(h) any change shall occur or be threatened in the business,
assets, properties, liabilities, condition (financial or other),
income, results of operations or prospects of the Company or any of
its Subsidiaries, which, in the sole judgment of the Company, is or
may be material to the Company.
The conditions (a) through (h) set forth above are for the sole
benefit of the Company. Each such condition may be asserted by the Company
regardless of the circumstances, including any action or inaction by the Company
giving rise thereto, and each may be waived by the Company with respect to the
12.5% Notes subject to the Exchange Offer in whole or in part at any time, and
from time to time, in its sole discretion.
If any of the conditions set forth herein is not satisfied, the
Company may (a) refuse to accept any 12.5% Notes and return all tendered 12.5%
Notes to tendering Noteholders, (b) extend the Exchange Offer and retain all
12.5% Notes previously tendered or (c) waive or modify any of such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
12.5% Notes. If such waiver constitutes a material change to the Exchange Offer,
the Company will promptly disclose such waiver in a manner reasonably calculated
to inform Noteholders of such waiver, and the Company will extend the Exchange
Offer for a period which the Company in its discretion deems appropriate,
subject to any applicable laws, depending on the significance of the waiver or
amendment and the manner of disclosure to Noteholders. In the event the Company
waives or modifies any of such conditions, the Company and/or Noteholders may be
exposed to additional risks which cannot currently be predicted or evaluated.
See "Expiration Date; Extensions; Amendments."
In addition, the Company may, in its sole discretion, (a) terminate
the Exchange Offer at any time prior to the Expiration Date for any reason
(whether or not the Registration Statement of which this Prospectus is a part
has become effective under the Securities Act) or (b) amend, at any time or from
time to time, the terms of the Exchange Offer. The Company has no present
intention of terminating or amending the terms of the Exchange Offer, except
that the Company may seek a waiver of the Minimum Tender Condition in the event
that it receives tenders of approximately 95% or more, but less than 100%, of
the 12.5% Notes. No decision has been made to seek a waiver, and there can be no
assurance that such waiver, if sought, would be obtained.
Voting on the Prepackaged Plan
Instructions for voting on the Prepackaged Plan are contained in the
Disclosure Statement and in the instructions attached to the Ballots and Master
Ballots. See "VOTING PROCEDURES" in the Disclosure Statement.
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Under the Bankruptcy Code, for purposes of determining whether the
requisite acceptances of the classes of Claims and Interests have been received,
only Holders who vote will be counted. Failure of a Holder to send duly
completed and signed Ballots or Master Ballots will be deemed to constitute an
abstention by such Holder with respect to a vote regarding the Prepackaged Plan.
Abstentions as a result of not submitting duly signed Ballots or Master Ballots
will not be counted as votes for or against the Prepackaged Plan. Any Ballot or
Master Ballot which is validly executed by a Holder but does not indicate an
acceptance or rejection of the Prepackaged Plan will not be counted as a vote
for or against the Prepackaged Plan. Any Ballot or Master Ballot which is
validly executed by a Holder and which indicates both acceptance and rejection
of the Prepackaged Plan will not be counted as a vote for or against the
Prepackaged Plan.
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<PAGE>
DESCRIPTION OF 12.5% NOTES
The 12.5% Notes were issued under an indenture dated as of October 15,
1994 (the "Indenture") between the Company, as issuer, and The Bank of New York
(as successor to NationsBank of Texas, N.A.), as trustee (the "Trustee"). A
summary of the terms of the 12.5% Notes is incorporated herein by reference to
the Registration Statement on Form S-3, as amended, filed on August 24, 1994 and
declared effective October 17, 1994.
DESCRIPTION OF NEW COMMON STOCK
The following summary description of the New Common Stock does not
purport to be complete and is qualified in its entirety by this reference to the
Company's Certificate of Incorporation and Bylaws, copies of which have been
filed as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus is a part. The New Common Stock is identical in all
material respects to the Old Common Stock except for the effects of the Reverse
Split and change in par value described herein.
Immediately after the Restructuring, the Company will have 50,000,000
authorized shares of New Common Stock, and 1,000,000 authorized shares of
preferred stock, par value $.01 per share. As of such time, 30,078,495 shares of
New Common Stock will be issued and outstanding to approximately [_______]
holders of record, and no shares of preferred stock will be issued and
outstanding. 24,062,796 shares of New Common Stock will be issued to Noteholders
as of immediately prior to the Restructuring and 6,015,699 shares of New Common
Stock will be issued to Stockholders as of immediately prior to the
Restructuring in connection with the Restructuring (not including Warrant Shares
and shares issuable upon the exercise of stock options granted to the Company's
employees and directors under the Stock Award and Incentive Plan). All of the
New Common Stock issued and outstanding as of the Effective Date will be fully
paid and nonassessable.
Distributions
Subject to such preferential rights as may be granted by the Board of
Directors in connection with future issuances of preferred stock, holders of
shares of New Common Stock will be entitled to receive ratably such dividends as
may be declared by the Board of Directors in its discretion from funds legally
available therefor. The Operating Companies' Loan Agreements contain negative
covenants that restrict, among other things, the ability of the Company to pay
dividends. In the event of a liquidation, dissolution or winding up of the
Company, the holders of New Common Stock will be entitled to share ratably in
all assets remaining after payment of liabilities and any liquidation preference
owed to holders of any preferred stock. Holders of New Common Stock will have no
preemptive rights and have no rights to convert their New Common Stock into any
other securities.
Voting
Subject to any preferential rights of holders of preferred stock, on
by stockholders. Matters submitted for stockholder approval require a majority
vote of the shares represented and entitled to vote, except, as described below,
with respect to the election of directors and the inability of stockholders to
take action by written consent, or where the vote of a greater number is
required by the DGCL. Article IX of the
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<PAGE>
Certificate of Incorporation provides that any action required or permitted to
be taken by the stockholders of the Company must be effected at a duly called
annual or special meeting of such holders and may not be effected by written
consent of the Stockholders. Article IX may not be repealed or amended in any
respect except with the approval of 67% of the outstanding shares of New Common
Stock.
Election of Directors
Article VIII of the Certificate of Incorporation divides the Board of
Directors into three classes, with each class serving a three year term. Any
vacancies in the Board of Directors for any reason, and any directorships
resulting from any increase in the number of directors, may be filled only by
the Board of Directors. Article VIII may not be repealed or amended in any
respect except with the approval of 67% of the outstanding shares of New Common
Stock and subject to the provisions of any preferred stock outstanding.
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<PAGE>
DESCRIPTION OF INDEBTEDNESS OF THE COMPANY
The following summary of the principal terms of the indebtedness of the
Company does not purport to be complete and is qualified in its entirety by
reference to the documents governing such indebtedness, including the
definitions of certain terms therein, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
Whenever particular provisions of such documents are referred to herein, such
provisions are incorporated by reference, and the statements are qualified in
their entirety by such reference.
General
The following is a summary of certain indebtedness and other financing
arrangements of the Company or its subsidiaries. The descriptions of the loans
outstanding under the Revolving Credit Agreement, the 11.5% Notes, the
Subordinated Notes, the U.S. Receivables Facility, the Canada Receivables
Facility and the Mortgage Notes (each as defined below) are qualified in their
entirety by reference to the agreements and instruments governing such financing
arrangements. Noteholders are referred to the Revolving Credit Agreement, the
Senior Note Purchase Agreement, the Subordinated Note Purchase Agreement, the
U.S. Receivables Facilities Agreements, the Canada Receivables Facility
Agreement and the Mortgage Documents (each as defined below) for a statement of
their terms.
The holders of the obligations outstanding under the Revolving Credit
Agreement, Senior Note Purchase Agreement and Subordinated Note Purchase
Agreement have agreed to permit certain amendments to those agreements. Those
amendments, which are summarized below, will become effective upon [consummation
of the Restructuring]. Such holders have also agreed to grant waivers of certain
events of default arising out of the Restructuring or in respect of the
covenants that such holders have agreed to amend. In partial consideration of
such waivers and amendments, the Company and Merisel Americas have paid the
holders of the loans outstanding under the Revolving Credit Agreement and
holders of 11.5% Notes a fee equal to 1-1/2% of the principal amount of such
obligations at signing, and they have agreed to pay additional fees equal to 2%
of the principal amount outstanding upon the consummation of the Restructuring,
1/4% on January 31, 1998, 1/2% on April 30, 1998 and 3/4% on July 31, 1998.
The statements under this caption are summaries and do not purport to be
complete. Such summaries make use of certain terms defined in those agreements
and instruments, and are qualified in their entirety by express reference
thereto. Copies of the above agreements and instruments have been filed or
incorporated as exhibits to the Registration Statement of which this Prospectus
is a part.
Revolving Credit Agreement
Merisel Americas and Merisel Europe (collectively, the "Borrowers") are co-
obligors on loans outstanding under the Revolving Credit Agreement, dated June
30, 1992. As of March 31, 1997, loans having an aggregate principal amount of
$84,297,000 were outstanding. Such loans currently bear interest at either (i)
Citibank's base rate plus 3.35% or (ii) the London Interbank Offered Rate plus
5.35%. The weighted average interest rate borne by loans outstanding under the
Revolving Credit Agreement as of March 31, 1997 was approximately 10.8%.
The Revolving Credit Agreement requires that $900,000 of principal be
repaid on each of May 31, 1997 and June 30, 1997 and that $4,500,000 be repaid
on January 2, 1998. The Revolving Credit
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Agreement requires the Borrowers to use a portion of the proceeds from certain
asset sales and from certain tax refunds to pay amounts outstanding under the
Revolving Credit Agreement. The current final stated maturity of loans
outstanding under the Revolving Credit Agreement is January 31, 1998. Loans
under the Revolving Credit Agreement are guaranteed by the Company and Merisel
Canada, Inc., which is a subsidiary of Merisel Americas. The guaranty by the
Company is pari passu with its guaranty of the 11.5% Notes.
---- -----
The Revolving Credit Agreement imposes a number of restrictive covenants
that affect the Borrowers and their subsidiaries, and, in many instances, the
Company with respect to, among other things, (i) creating liens, (ii) incurring
indebtedness and contingent obligations, (iii) paying dividends and redeeming
capital stock, (iv) merging and selling assets, (v) engaging in sale and
leaseback transactions, (vi) engaging in certain intercompany transactions,
(vii) making investments in other persons, (viii) making capital expenditures,
(ix) entering into operating leases, (x) selling accounts receivable, (xi)
making payment on the Subordinated Notes, (xii) amending certain of its debt
instruments and making payment in respect of the obligations represented thereby
and (xiii) engaging in transactions with stockholders and affiliates. In
addition, the Borrowers are required to meet a number of financial ratios.
The Revolving Credit Agreement contains a number of events of default,
including the following: (i) failure to make payments of interest and principal
when due, (ii) a material error in any representation, warranty or certificate
made under the Revolving Credit Agreement, (iii) failure of a Borrower, the
Company or Merisel Canada to perform any of their respective agreement under the
Revolving Credit Agreement, (iv) default in the payment of any obligation of a
Borrower, the Company or any of their subsidiaries on indebtedness in excess of
$5,000,000 and any other default in respect of indebtedness if the maturity
thereof can be accelerated, (v) entry of judgment in excess of $5,000,000, (vi)
certain events of insolvency and bankruptcy of a Borrower, the Company or any of
their subsidiaries, (vii) certain events in respect of pension plans, (viii) the
incurrence of environmental liability, (ix) certain change of control events and
(x) a material adverse change in the condition (financial or otherwise) or
operations of the Borrower, the Company or Merisel Canada.
Effective April 14, 1997, the holders of loans outstanding under the
Revolving Credit Agreement have entered into the Extension. See "BACKGROUND OF
THE RESTRUCTURING -- The Extension." Pending the effectiveness of such
amendments, such holders have granted waivers of certain defaults arising as a
result of the Restructuring and in respect of the covenants that they have
agreed to amend. As a part of such amendment, the final stated maturity of the
loans outstanding under the Revolving Credit Agreement will be extended to
January 31, 1999. The Company agreed to apply a portion of tax refunds received
in respect of tax loss carrybacks to repay principal outstanding under the
Revolving Credit Agreement. In addition, the rate of interest borne by the loans
will increase by .5% on January 31, 1998 and by an additional .5% on each of
April 30, 1998, July 31, 1998 and October 31, 1998. The holders agreed to
release Merisel Europe as a Borrower under the Revolving Credit Agreement.
11.5% Notes
Merisel Americas is the obligor on the 11.5% Notes outstanding pursuant to
a Senior Note Purchase Agreement dated as of June 30, 1992 (as subsequently
amended, the "Senior Note Purchase Agreement"). The 11.5% Notes currently bear
interest at 11.5%. As of March 31, 1997, the aggregate principal amount of 11.5%
Notes outstanding was $56,198,000.
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The Senior Note Purchase Agreement requires that $600,000 of principal be
repaid on each of May 31, 1997 and June 30, 1997 and that $3,000,000 be repaid
on January 2, 1998. The Senior Note Purchase Agreement requires Merisel Americas
to use a portion of the proceeds from certain asset sales and from certain tax
refunds to pay amounts outstanding under the 11.5% Notes. The current final
stated maturity of loans outstanding under the 11.5% Notes is January 31, 1998.
Currently, voluntary prepayments of the 11.5% Notes must be accompanied by a
voluntary Make-Whole Premium. The 11.5% Notes are guaranteed by the Company,
Merisel Canada and Merisel Europe. The guaranty by the Company is pari passu
---- -----
with its guaranty of the loans outstanding under the Revolving Credit Agreement.
The Senior Note Purchase Agreement imposes a number of restrictive
covenants that affect Merisel Americas and its subsidiaries, and, in many
instances, the Company and its subsidiaries with respect to, among other things,
(i) incurring indebtedness, (ii) creating liens, (iii) merging and selling
assets, (iv) engaging in sale and leaseback transactions, (v) entering into
operating leases, (vi) selling accounts receivable, (vii) amending certain of
its debt instruments, (viii) incurring contingent obligations, (ix) paying
dividends and redeeming capital stock, (x) engaging in certain intercompany
transactions, (xi) making investments in other persons, (xii) making payments on
the Subordinated Notes and (xiii) engaging in transactions with stockholders and
affiliates. In addition, the Borrowers are required to meet a number of
financial ratios.
The Senior Note Purchase Agreement contains a number of events of default,
including the following: (i) failure to make payments of interest, Make-Whole
Premium and principal when due, (ii) default in the payment of any obligation of
the Borrower, the Company or any of their subsidiaries on indebtedness in excess
of $5,000,000 and any other default in respect of indebtedness if the maturity
thereof can be accelerated, (iii) failure of the Borrower or the Company to
perform any of its respective agreements under the Senior Note Purchase
Agreement, (iv) a material error in any representation, warranty or certificate
made under the Senior Note Purchase Agreement, (v) entry of judgment in excess
of $1,000,000, (vi) certain events in respect of pension plans, (vii) failure by
the Company, Merisel Canada or Merisel Europe to perform in respect of their
respective guaranties and (viii) certain events of insolvency and bankruptcy of
Merisel Americas, the Company or any of their subsidiaries.
Effective April 14, 1997, the holders of the 11.5% Notes have entered into
the Extension. See "BACKGROUND OF THE RESTRUCTURING -- The Extension." Pending
the effectiveness of such amendments, such holders have granted waivers of
certain defaults arising as a result of the Restructuring and in respect of the
covenants that they have agreed to amend. As a part of such amendment, the final
stated maturity of the 11.5% Notes will be extended to January 31, 1999. The
Company agreed to apply a portion of tax refunds received in respect of tax loss
carrybacks to repay principal of the 11.5% Notes. In addition, the rate of
interest borne by the 11.5% Notes will increase by .5% on January 31, 1998 and
by an additional .5% on each of April 30, 1998, July 31, 1998 and October 31,
1998. As amended, the 11.5% Notes may be prepaid at any time without the payment
of the Make-Whole Premium.
Subordinated Notes
Merisel Americas is the obligor on the Subordinated Notes outstanding
pursuant to the Note Purchase Agreement, dated as of March 30, 1990 (as
subsequently amended, the "Subordinated Note Purchase Agreement"). The
Subordinated Notes currently bear interest at 11.78%. As of March 31, 1997, the
aggregate principal amount of Subordinated Notes outstanding was $13,200,000.
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<PAGE>
Principal of the Subordinated Notes in the three equal installments of
$4,400,000 will be payable in March of 1998, 1999 and 2000. They may be prepaid,
subject to payment of a Make-Whole Amount (as defined therein). The Subordinated
Notes are unsecured and rank subordinate to the loan outstanding under the
Revolving Credit Agreement and to the 11.5% Notes and senior to the indebtedness
of Merisel Americas to the Company.
The Subordinated Notes contain or incorporate many of the covenants
contained in the Senior Note Purchase Agreement.
The Subordinated Note Purchase Agreement contains a number of events of
default, including the following: (i) failure to make payments of interest and
principal when due, (ii) a material error in any representation, warranty or
certificate made under the Subordinated Note Purchase Agreement, (iii) failure
of Merisel Americas to perform any of its agreements under the Subordinated Note
Purchase Agreement, (iv) default in the payment of any obligation of the
Borrower, the Company or any of their subsidiaries on indebtedness in excess of
$5,000,000 and any other default in respect of indebtedness if the maturity
thereof has been accelerated, (v) entry of judgment in excess of $5,000,000,
(vi) certain events of insolvency and bankruptcy of Merisel Americas and its
significant subsidiaries and (vii) certain events in respect of pension plans.
Effective April 14, 1997, the holders of the Subordinated Notes have agreed
(as have the holders of Operating Companies' Senior Debt) to waive certain
cross-defaults relating to the Indenture. See "BACKGROUND OF THE RESTRUCTURING
-- The Extension." Pending the effectiveness of such amendments, such holders
have granted waivers of certain defaults arising as a result of the
Restructuring and in respect of the covenants that they holders have agreed to
amend. The rate of interest borne by the Subordinated Notes will increase by .5%
on January 31, 1998 and by an additional .5% on each of April 30, 1998, July 31,
1998 and October 31, 1998. Merisel Americas has agreed that if the loan
outstanding under the Revolving Credit Agreement and the 11.5% Notes are
redeemed in whole, the Subordinated Notes will be redeemed within 90 days
thereafter.
Canada Receivables Securitization
Effective December 15, 1995, Merisel Canada entered into a receivables
purchase agreement (the "Canada Receivables Facility Agreement") with a
securitization company to provide funding for Merisel Canada. 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 extendable by notice from the securitization
company, subject to the Company's approval.
U.S. Receivables Securitization
Funds from operations are generated in part through the sale of receivables
by Merisel Capital Funding, Inc., a wholly owned subsidiary of Merisel America.
Merisel Capital Funding's sole business is the ongoing purchase of trade
receivables form Merisel Americas. Merisel Capital Funding sells these
receivables, in turn, under an agreement with a securitization company (the
"Canada Receivables Facility Agreement"), 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
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year 1996, Merisel Americas and Merisel Capital Funding obtained amendments and
waivers with respect to certain covenants under this facility, which expires
October 2000.
Promissory Notes
Merisel Properties, Inc., a wholly-owned subsidiary of the Company, issued
two promissory notes to the order of Heller Financial, Inc. on December 29, 1995
(collectively, the "Promissory Notes"). The first, in the principal amount of
$6,500,000, bears interest at a rate of 7.71% per annum and is due in 2001. The
second, in the principal amount of $5,000,000, bears interest at a fixed rate of
7.66% per annum and is due in 2000.
The payment of the Promissory Notes is secured by a Deed of Trust, Security
Agreement, Assignment of Leases and Rents and Fixture Filing, dated December 29,
1995 (collectively, with the Promissory Notes, the "Mortgage Documents"), by
which Merisel Properties mortgaged the property it owns at 2101 East El Segundo
Boulevard, El Segundo, Los Angeles County, California. The Promissory Notes are
guaranteed by the Company.
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<PAGE>
MARKET PRICES OF OLD COMMON STOCK; DIVIDEND HISTORY
The following table sets forth the quarterly high and low sale prices for
the Common Stock as reported by the Nasdaq National Market System.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR 1995
First quarter.............. 8 1/2 3 7/8
Second quarter............. 7 3/4 4 1/2
Third quarter.............. 8 3/8 5 1/2
Fourth quarter............. 6 5/8 4 1/8
FISCAL YEAR 1996
First quarter.............. 5 7/8 2 1/4
Second quarter............. 5 1/16 2 1/4
Third quarter.............. 3 13/16 1 13/16
Fourth quarter............. 2 5/16 1 5/8
FISCAL YEAR 1997
First quarter.............. 2 1/2 1 9/16
Second quarter............. 2 7/16 1 1/32
(through May 14, 1997)
</TABLE>
On April 11, 1997, the day immediately prior to the date that the Company
announced its intention to pursue the Restructuring, the closing sale price for
the Old Common Stock was $1 15/16 per share. On [_________] , 1997, the closing
sale price for the Old Common Stock was $[___] per share.
The Old Common Stock is currently traded on the over-the-counter market and
is quoted on the Nasdaq National Market System under the symbol "MSEL." As of
the Record Date, 30,078,495 shares of Old Common Stock were outstanding, and
there were approximately [_____] record and beneficial holders of Old Common
Stock. Merisel has never declared or paid and does not expect to declare or pay
dividends on the outstanding Old Common Stock. Restrictions contained in the
instruments governing the outstanding indebtedness of Merisel restrict its
ability to provide funds that might otherwise be used by Merisel for the payment
of dividends on the Old Common Stock. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources."
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<PAGE>
MARKET PRICES OF 12.5% NOTES
The 12.5% Notes are traded in the over-the-counter market by certain
dealers who from time to time are willing to make a market in such securities.
Trading of the 12.5% Notes is, however, extremely limited. Prices and trading
volume of the 12.5% Notes in the over-the-counter market are not reported and
are difficult to monitor. To the extent that 12.5% Notes are traded, prices may
fluctuate widely depending on, among other things, the trading volume and the
balance between buy and sell orders.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain Federal income tax consequences of
the Restructuring to the Noteholders and the Company and is for general
information purposes only. This summary is based on the Federal income tax law
now in effect, which is subject to change, possibly retroactively. This summary
does not discuss all aspects of Federal income taxation which may be important
to particular Noteholders in light of their individual investment circumstances
or to Noteholders subject to special tax rules (e.g., financial institutions,
broker-dealers, insurance companies, tax-exempt organizations and foreign
taxpayers). In addition, this summary does not address state, local or foreign
tax consequences. This summary assumes that Noteholders hold their 12.5% Notes,
and will hold their New Common Stock, as "capital assets" (generally, property
held for investment) under the Internal Revenue Code of 1986, as amended (the
"Code"). No rulings have been or will be requested from the Internal Revenue
Service with respect to any of the matters discussed herein. Noteholders are
urged to consult their tax advisors regarding the specific Federal, state, local
and foreign income and other tax consequences of the Restructuring.
Federal Income Tax Consequences to Noteholders
- ----------------------------------------------
General. The Restructuring, if consummated as described herein, will
-------
constitute a tax-free recapitalization for purposes of the Code. Accordingly,
for Federal income tax purposes:
(i) no gain or loss will be recognized by a Noteholder upon the receipt of
New Common Stock pursuant to the Restructuring, except that the Noteholder
will (a) recognize gain or loss to the extent of any cash received in lieu of
a fractional share and (b) recognize income to the extent of the value of the
shares of New Common Stock received in the Restructuring which are allocable
to any interest on the 12.5% Notes that accrued on or after the beginning of
the Noteholder's holding period and which interest was not previously included
in the Noteholder's taxable income (the "Accrued Interest");
(ii) the aggregate tax basis of the New Common Stock received by a
Noteholder in the Restructuring will be the same as the aggregate tax basis of
the 12.5% Notes exchanged therefor (reduced by any basis apportionable to any
fractional share settled in cash as described above), except that the basis of
the shares of New Common Stock received which are treated as attributable to
Accrued Interest will be equal to the fair market value of the shares on the
date on which the Restructuring is consummated; and
(iii) the holding period of the shares of New Common Stock in the hands of
the Noteholders will include the holding period of their 12.5% Notes exchanged
therefor, except that the holding period
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<PAGE>
of the shares of New Common Stock treated as attributable to Accrued Interest
will begin the day after the date on which the Restructuring is consummated.
Market Discount. Noteholders who acquired their 12.5% Notes at a
---------------
"market discount" subsequent to the initial offering of the 12.5% Notes may be
required to carry over any accrued (but unrecognized) market discount to the New
Common Stock received in the Restructuring, which discount will be recognized as
ordinary income upon disposition of such New Common Stock.
Federal Income Tax Consequences to the Company
Cancellation of Indebtedness Income. The Company will realize cancellation
-----------------------------------
of indebtedness ("COI") income, for Federal income tax purposes, in an amount
equal to the excess, if any, of the adjusted issue price of the 12.5% Notes
(including any accrued but unpaid interest) over the fair market value of the
New Common Stock received by Noteholders pursuant to the Restructuring. The
Company anticipates that any COI income that is recognized will likely be offset
by the Company's operating losses and net operating loss carryovers ("NOLs"). If
COI income is realized in a case under the Bankruptcy Code (i.e., pursuant to
----
the Prepackaged Restructuring), then such income would not be recognized under
section 108 of the Code. In such event, the Company would be required, however,
to reduce certain of its tax attributes, such as its NOLs, certain tax credits,
and the basis of its assets, by the amount of the COI income that is not
recognized.
Limitation on Net Operating Loss Carryovers. As a result of the receipt by
-------------------------------------------
Noteholders of New Common Stock in exchange for the 12.5% Notes pursuant to the
Restructuring, the Company will undergo an "ownership change" (generally, a 50%
change in ownership) for purposes of section 382 of the Code and, accordingly,
the Company will be limited in its ability to use its NOLs and certain tax
credit carryforwards (the "Section 382 Limitation") to offset future taxable
income. The Section 382 Limitation will generally be determined by multiplying
the value of the Company's equity before the ownership change by the long-term
tax-exempt rate (currently 5.64%). This is likely to limit significantly the
Company's use of its NOLs in any one year. If an ownership change occurs in a
case under the Bankruptcy Code, the value of a corporation's equity for purposes
of determining the Section 382 Limitation would be adjusted to reflect any
increase in such value arising from the cancellation of debt as a result of the
ownership change. Because the Company anticipates that the value of its equity
would be increased as a result of the cancellation of the 12.5% Notes, the
Company's ability to use its NOLs would be less limited under the Prepackaged
Restructuring than under the Exchange Restructuring.
MANAGEMENT
See "Directors and Executive Officers of Registrant" in Amendment No. 1 to
the Annual Report of the Company on Form 10-K/A for the fiscal year ended
December 31, 1996, incorporated herein by reference.
Post Restructuring Board Configuration
Certain members of the Board of Directors of the Company have agreed to
resign, as of the Effective Date, to accommodate the appointment of Messrs.
James Illson, [ ], [ ], and [ ] (the "New Directors") to the Board
of Directors. Of the current directors, Mr. Steffensen and Mr. Miller (the
"Continuing Directors" and, together with the New Directors, the "New Board")
would continue to serve as directors. Messrs. [ ] and [ ] would be
appointed to Class I, Messrs. Steffensen and Illson would be appointed to Class
II (with Mr. Steffensen resigning as a Class III director concurrently with such
appointment), and Messrs. Rossi, [ ] and [ ] would be appointed to Class
III. Mr. Miller will continue in Class II. Additional information regarding the
Board of Directors of the Company will be provided prior to effectiveness.
MANAGEMENT COMPENSATION
Information relating to compensation of current officers and directors of
the Company is incorporated herein by reference to "EXECUTIVE COMPENSATION" in
Amendment No. 1 to the Annual Report of the Company on Form 10-K/A for the year
ended December 31, 1996. Information relating to the post-Restructuring Board
will be furnished by amendment when such information is available.
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<PAGE>
OWNERSHIP OF COMMON STOCK
See Amendment No. 1 to the Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1996, incorporated herein by reference.
CERTAIN AFFILIATE TRANSACTIONS
The Company has entered into Indemnity Agreements with each of its
directors and certain of its officers, which agreements require the Company,
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 the Company (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.
ADVISORS AND REPRESENTATIVES
Financial Advisor
Pursuant to an agreement effective as of January 16, 1997, as amended on
March 20, 1997 between DLJ and the Company (the "DLJ Agreement"), the Company
has engaged DLJ to act as its exclusive financial advisor in connection with the
Restructuring.
Pursuant to the DLJ Agreement, the Company has agreed to pay DLJ a
restructuring fee in the amount of $1.25 million, half of which is payable upon
receipt of a sufficient number of Ballots from creditors to consummate the
Restructuring and the other half of which is payable upon consummation of the
Restructuring. The Company also has agreed to pay DLJ a modification fee of
$750,000, payable upon the modification of the indebtedness of Merisel Americas
if such indebtedness is to mature during or after 1999, or $375,000 if such
indebtedness is modified to mature before 1999. The Company paid a fee of
$100,000 upon execution of the DLJ Agreement, such amount to be credited against
the restructuring and modification fees. In addition, the Company has agreed to
pay a monthly fee of $75,000 (which commenced February 15, 1997), such fee to be
credited against accruals of the restructuring and modification fees. The
Company has also agreed to pay DLJ reasonable out-of-pocket costs.
The Company has agreed to indemnify DLJ and its affiliates from and against
all claims, liabilities, losses, damages, and expenses relating to the
Restructuring, except for any claims, liabilities, losses, damages or expenses
that result from the willful misconduct or gross negligence of DLJ or materially
untrue statement or omission with respect to information provided by DLJ
expressly for use in offering documents. The Company has also agreed to make
payments in respect of contributions to DLJ or its affiliates where
indemnification is unavailable.
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Financial Advisor to Noteholders
Pursuant to an agreement (the "Chanin Agreement") effective as of March 1,
1997, between the Company and Chanin and Company LLC, the financial advisor to
the Noteholders, ("Chanin"), the Company has agreed to provide certain
compensation and indemnification to Chanin in connection with its services to
the Noteholders. Such services include the analysis, consideration and
formulation of a potential recapitalization of the Company, such as the proposed
Restructuring. As consideration for Chanin's performing such services, the
Company agreed to pay Chanin financial advisory fees of $100,000 payable each
month until the consummation of a recapitalization of the Company that is
approved by its Board of Directors, and an additional $12,500 per month to
accrue and be payable upon such consummation.
The Company has also agreed to pay Chanin's reasonable out-of-pocket
expenses. The Company has agreed to indemnify Chanin and its affiliates from and
against all claims, liabilities, losses damages, and expenses relating to its
services to the Noteholders as set forth in the Chanin Agreement, except, among
other things, for any claims, liabilities, losses, damages or expenses that
result from the willful misconduct or gross negligence or materially untrue
statement or omission.
Information Agent
[__________________] has been appointed as Information Agent in connection
with the Exchange Offer and the solicitation of acceptances of the Prepackaged
Plan. Any questions regarding how to tender in the Exchange Offer or how to vote
on the Prepackaged Plan and any requests for additional copies of this
Prospectus, Letters of Transmittal, Ballots or Master Ballots should be directed
to the Information Agent at its address and telephone number set forth on the
back cover of this Prospectus.
Depositary
[_________________] has been appointed as Depositary for the Exchange Offer
and as voting agent in connection with the solicitation of acceptances of the
Prepackaged Plan. Questions and requests for assistance may be directed to the
Depositary at one of its addresses and telephone numbers set forth on the back
cover of this Prospectus.
Estimated Fees and Expenses
The Company estimates that fees and expenses incurred in connection with
the Restructuring will be approximately $10.8 million, including financial
advisory fees, commitment fees, legal fees, printing fees, accounting fees,
Depositary fees, Information Agent fees, out-of-pocket expenses, retention
payments and other fees and expenses. The Company will also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Prospectus and related
documents to the beneficial owners of the 12.5% Notes and Old Common Stock and
in handling or forwarding tenders of their customers.
Below is a breakdown of the estimated fees and expenses related to the
Restructuring (in thousands):
<TABLE>
<S> <C>
Bank Fees and Expenses....... $ 4,775
Investment Banking Services.. 3,000
Legal Services............... 1,600
Accounting Services.......... 800
</TABLE>
A-81
<PAGE>
<TABLE>
<S> <C>
Other Fees and Expenses...... 600
-------
Total...................... $10,775
-------
</TABLE>
As of April 30, 1997, approximately $2,943,000 million of such fees and
expenses had been accrued by the Company. The Company intends to pay the fees
and expenses with cash from operations, cash on hand and additional borrowings
as necessary.
LEGAL MATTERS
Certain legal matters in connection with the New Common Stock and the
Warrants offered hereby will be passed upon by Skadden, Arps, Slate, Meagher &
Flom LLP, special counsel to the Company.
EXPERTS
The Company's financial statements as of December 31, 1996 and 1995 and for
the years ended December 31, 1996, 1995 and 1994 included in this Prospectus and
incorporated by reference from the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and related supplemental schedules incorporated by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 in the Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and incorporated by reference in the Registration Statement, and have been so
included herein and incorporated by reference in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
A-82
<PAGE>
APPENDIX I
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF
-------------
In re ) Case No. [ ]
)
MERISEL, INC., ) Chapter 11
)
Debtor. )
PLAN OF REORGANIZATION OF MERISEL, INC.
DATED AS OF [ ], 1997
IMPORTANT: A BANKRUPTCY CASE HAS NOT BEEN FILED
AS OF THE DATE OF DISTRIBUTION OF THIS DOCUMENT
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 South Grand Avenue
Los Angeles, California 90071-3144
(213) 687-5000
919 Third Avenue
New York, New York 10022
(212) 735-3000
- and -
One Rodney Square
Wilmington, Delaware 19899-0636
(302) 651-3000
ATTORNEYS FOR MERISEL, INC.
Dated: , 1997
-------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
I. INTRODUCTION.......................................................................... I-5
II. DEFINITIONS, INTERPRETATION AND RULES OF CONSTRUCTION................................. I-5
A. Scope of Definitions............................................................. I-5
B. Definitions...................................................................... I-5
C. Rules of Interpretation..........................................................I-10
D. Computation of Time..............................................................I-11
III. DESIGNATION OF CLASSES OF CLAIMS AND INTERESTS........................................I-11
A. Introduction.....................................................................I-11
B. Claims...........................................................................I-11
C. Interests........................................................................I-12
IV. TREATMENT OF CLAIMS AND INTERESTS.....................................................I-12
A. Treatment of Unclassified Claims.................................................I-12
1. Administrative Claims.......................................................I-12
a. General................................................................I-12
b. Payment of Statutory Fees..............................................I-12
c. Bar Date for Administrative Claims.....................................I-12
(1) General Provisions............................................I-12
(2) Professionals.................................................I-12
(3) Ordinary Course Liabilities...................................I-13
2. Priority Tax Claims.........................................................I-13
B. Treatment of Secured Claims......................................................I-13
1. Class 1: Secured Claims....................................................I-13
2. Class 2: Priority Claims...................................................I-13
3. Class 3: Subsidiary Debt Guaranty Claims...................................I-14
4. Class 4: 12.5% Notes Claims................................................I-14
5. Class 5: General Unsecured Claims..........................................I-14
C. Treatment of Interests...........................................................I-14
1. Class 6: Old Common Stock Interests........................................I-14
D. Treatment of Trade Creditors and Employees under the Plan........................I-15
1. Treatment of Trade Claims...................................................I-15
2. Treatment of Employee Claims................................................I-15
E. Modification of Treatment of Claims..............................................I-15
F. Listing of New Common Stock......................................................I-15
V. DISTRIBUTIONS UNDER THE PLAN..........................................................I-16
A. Disbursing Agent.................................................................I-16
B. Timing of Distributions..........................................................I-16
C. Methods of Distributions.........................................................I-16
1. Cash Payments...............................................................I-16
2. Transfers of New Common Stock and New Warrants..............................I-16
3. Compliance with Tax Requirements............................................I-17
D. Pro Rata Distribution............................................................I-17
E. Distribution Record Date.........................................................I-17
F. Surrender of Cancelled Old Securities............................................I-17
1. Special Procedures for Lost, Stolen, Mutilated or Destroyed Instruments.....I-17
2. Failure to Surrender Cancelled Instrument...................................I-17
G. Undeliverable or Unclaimed Distributions.........................................I-18
H. Objections to Claims and Authority to Prosecute Objections; Claims Resolution....I-18
1. Generally...................................................................I-18
2. Professionals, Administration Claims, Trade Claims and Employee Claims......I-18
I. Disputed Claims; Reserve and Estimations.........................................I-18
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Treatment of Disputed Claims................................................I-19
2. Distributions on Account of Disputed Claims Once They Are Allowed...........I-19
J. Setoffs..........................................................................I-19
VI. INDIVIDUAL HOLDER PROOFS OF INTEREST..................................................I-19
VII. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES.................................I-20
A. Assumptions......................................................................I-20
B. Cure of Defaults in Connection with Assumption...................................I-20
C. Rejections.......................................................................I-20
D. Bar Date for Rejection Damages...................................................I-20
VIII. MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN....................................I-20
A. Corporate Action.................................................................I-20
1. Cancellation of Old Securities and Related Agreements.......................I-21
2. Certificate of Incorporation and Bylaw Amendments...........................I-21
3. Management of Reorganized Merisel...........................................I-21
B. Implementation...................................................................I-21
C. Payment of Statutory Fees........................................................I-21
D. No Interest......................................................................I-21
E. Retiree Benefits.................................................................I-21
F. Issuance of New Securities.......................................................I-22
IX. CONFIRMATION AND EFFECTIVE DATE CONDITIONS............................................I-22
A. Conditions to Confirmation.......................................................I-22
B. Conditions to Effective Date.....................................................I-22
C. Waiver of Conditions to Confirmation and Effective Date..........................I-22
X. EFFECTS OF PLAN CONFIRMATION..........................................................I-23
A. Discharge of Debtor and Injunction...............................................I-23
B. Limitation of Liability..........................................................I-23
C. Releases.........................................................................I-23
D. Indemnification..................................................................I-24
E. Vesting of Assets................................................................I-24
F. Preservation of Causes of Action.................................................I-24
G. Retention of Bankruptcy Court Jurisdiction.......................................I-25
H. Failure of Bankruptcy Court to Exercise Jurisdiction.............................I-26
I. Committees.......................................................................I-26
XI. MISCELLANEOUS PROVISIONS..............................................................I-26
A. Final Order......................................................................I-26
B. Modification of the Plan.........................................................I-26
C. Revocation of the Plan...........................................................I-27
D. Severability of Plan Provisions..................................................I-27
E. Successors and Assigns...........................................................I-27
F. Saturday, Sunday or Legal Holiday................................................I-27
G. Post-Effective Date Effect of Evidences of Claims or Interests...................I-27
H. Headings.........................................................................I-27
I. Governing Law....................................................................I-27
J. No Liability for Solicitation or Participation...................................I-27
K. No Admissions or Waiver of Objections............................................I-28
L. Confirmability of Plan and Cramdown..............................................I-29
</TABLE>
I-3
<PAGE>
I.
INTRODUCTION
Merisel, Inc. (defined herein as "Merisel") hereby proposes the following
Plan of Reorganization (defined herein as the "Plan") for the resolution of
Merisel's outstanding creditor claims and equity interests and requests
Confirmation of the Plan pursuant to Section 1129 of the Bankruptcy Code.
All Holders of Claims and Interests are encouraged to read the Plan and the
accompanying solicitation materials in their entirety before voting to accept or
reject the Plan. No materials, other than the accompanying solicitation
materials and any exhibits and schedules attached thereto or referenced therein,
have been approved by Merisel for use in soliciting acceptances or rejections of
the Plan.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, ALL STATEMENTS IN THIS
PLAN AND THE ACCOMPANYING SOLICITATION MATERIALS CONCERNING THE HISTORY OF
MERISEL'S BUSINESSES, THE PAST OR PRESENT FINANCIAL CONDITION OF MERISEL,
TRANSACTIONS TO WHICH MERISEL WAS OR IS A PARTY, OR THE EFFECT OF CONFIRMATION
OF THE PLAN ON SECURED CREDITORS, UNSECURED CREDITORS OR EQUITY SECURITY HOLDERS
ARE ATTRIBUTABLE EXCLUSIVELY TO MERISEL AND NOT TO ANY OTHER PARTY.
II.
DEFINITIONS, INTERPRETATION AND RULES OF CONSTRUCTION
A. SCOPE OF DEFINITIONS.
For purposes of this Plan, except as expressly provided in other sections
of the Plan or unless the context otherwise requires, all capitalized terms not
otherwise defined shall have the meanings ascribed to them in this Article II of
the Plan. Any term used in this Plan that is not defined herein, but is defined
in the Bankruptcy Code or the Bankruptcy Rules, shall have the meaning ascribed
to that term in the Bankruptcy Code or the Bankruptcy Rules.
B. DEFINITIONS.
1. "12.5% NOTES" means the $125 million aggregate principal amount of
12.5% Senior Notes due on December 31, 2004, issued by Merisel on or about
October 24, 1994.
2. "11.5% SENIOR NOTES" means the Amended and Restated 11.5% Senior Notes
due on January 31, 1998, authorized and issued by Merisel Americas.
3. "11.5% SENIOR NOTES GUARANTY CLAIM" means any unsecured Claim against
the Company arising out of Merisel's guaranty of the obligations of Merisel
Americas under the 11.5% Senior Notes.
4. "AD HOC NOTEHOLDERS COMMITTEE" means Turnberry Capital Management,
Baker Nye Advisors, Inc., Monarch Management Group Limited, Robert Fleming,
Inc., Fisher Ewing Partners, and York Capital Management, and/or such other
representatives of the 12.5% Notes Claims as may be designated from time to
time.
5. "ADMINISTRATIVE CLAIM" means a Claim for payment of an administrative
expense of a kind specified in section 503(b) of the Bankruptcy Code and
entitled to priority pursuant to Section 507(a)(1) of the Bankruptcy Code,
including, without limitation, the actual and necessary costs and expenses
incurred after the commencement of a Chapter 11 case of preserving the estate or
operating the business of Merisel (including wages, salaries and commissions for
services), loans and advances to Merisel made after the Petition Date,
compensation for legal and other services and reimbursement of expenses awarded
or allowed under Section 330(a) or 331 of the Bankruptcy Code, certain retiree
benefits, certain reclamation claims, and all fees and charges against the
estate under chapter 123 of Title 28, United States Code.
6. "ALLOWED CLAIM" or "ALLOWED INTEREST" means a Claim against or
Interest in Merisel to the extent that
I-4
<PAGE>
a. A proof of such Claim or Interest
(1) was timely Filed and no objection to the Claim or Interest is
Filed within the time fixed by the Bankruptcy Court for such objections; or
(2) is deemed Filed under applicable law or pursuant to a Final Order
of the Bankruptcy Court and no objection to the Claim or Interest is Filed
within the time fixed by the Bankruptcy Court for such objections; or
(3) is Allowed pursuant to subparagraphs b or c immediately below.
b. If Merisel files an objection to a proof of Claim or Interest within a
time fixed by the Bankruptcy Court, the Claim or Interest shall be Allowed to
the extent of
(1) any amount of such Claim or Interest to which Merisel did not
object;
(2) any amount otherwise authorized by Final Order or the Plan; or
(3) any amount temporarily allowed by an Order for purposes of voting
on the Plan.
c. Upon the execution of the Stipulations of Amount and Nature of Claim
referred to in Section V.I.1 hereof, the relevant claimant's claim shall be
deemed allowed for all purposes under this Plan, including but not limited to
voting on this Plan and receiving distributions under this Plan, without the
necessity of filing any proofs of Claim with respect thereto.
"ALLOWED ADMINISTRATIVE CLAIM," "ALLOWED PRIORITY TAX CLAIM," "ALLOWED
SECURED CLAIM" and "ALLOWED UNSECURED CLAIM" have correlative meanings.
7. "ALLOWED CLASS ... CLAIM" means an Allowed Claim in the particular
Class described.
8. "ALLOWED CLASS ... INTEREST" means an Allowed Interest in the
particular Class described.
9. "BANKRUPTCY CODE" means title 11 of the United States Code, as now in
effect or hereafter amended if such amendments are made applicable to the
Reorganization Case.
10. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the
District in which the Reorganization Case is Filed, or if such Court ceases to
exercise jurisdiction over the Reorganization Case, such court or adjunct
thereof that exercises jurisdiction over the Reorganization Case in lieu of the
United States Bankruptcy Court for such District.
11. "BANKRUPTCY RULES" means the Federal Rules of Bankruptcy Procedure, as
applicable from time to time in the Reorganization Case.
12. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a
"Legal Holiday" (as defined in Bankruptcy Rule 9006(a)).
13. "CASH" means currency, a certified check, a cashier's check or a wire
transfer of good funds from any source, or a check drawn on a domestic bank from
Reorganized Merisel or other Person making any distribution under the Plan.
14. "CLAIM" means a claim against Merisel, whether or not asserted or
allowed, as defined in section 101(5) of the Bankruptcy Code.
15. "CLASS" means a class of Claims or Interests designated pursuant to
the Plan.
16. "CLERK" means the Clerk of the Bankruptcy Court.
I-5
<PAGE>
17. "COMMITTEE" means any statutory committee of creditors or equity
interest Holders of Merisel appointed by the United States Trustee pursuant to
Section 1102 of the Bankruptcy Code.
18. "CONFIRMATION" means the entry by the Bankruptcy Court of the
Confirmation Order.
19. "CONFIRMATION DATE" means the date on which the Clerk enters the
Confirmation Order on the Docket.
20. "CONFIRMATION HEARING" means the hearing on confirmation of the Plan,
as the Plan may be modified hereafter.
21. "CONFIRMATION ORDER" means the Order of the Bankruptcy Court
confirming the Plan under section 1129 of the Bankruptcy Code.
22. "CREDITORS COMMITTEE" means the official committee of creditors of
Merisel appointed by the United States Trustee pursuant to Section 1102 of the
Bankruptcy Code or, if no such committee is appointed, the Ad Hoc Noteholders
Committee.
23. "DEBTOR" means Merisel, as debtor.
24. "DEBTOR IN POSSESSION" means the Debtor, when acting in the capacity
of representative of the Estate in the Reorganization Case.
25. "DESIGNATED PROFESSIONAL" means Skadden, Arps, Slate, Meagher & Flom
LLP and its affiliates; Donaldson, Lufkin & Jenrette Securities Corporation; and
Deloitte & Touche LLP.
26. "DISBURSING AGENT" means the Person responsible for making
distributions under the Plan. Reorganized Merisel, or such Person(s) as Merisel
may employ in their sole discretion, will serve as Disbursing Agent.
27. "DISCLOSURE STATEMENT" means the Disclosure Statement With Respect To
Plan Of Reorganization Of Merisel, Inc. (and all exhibits and schedules annexed
thereto or referred to therein), as it may be amended or supplemented from time
to time.
28. "DISPUTED CLAIM" means a Claim, not otherwise Allowed or paid pursuant
to the Plan, as to which (i) a proof of claim has been Filed or deemed Filed and
(ii) an objection has been Filed timely or deemed Filed timely and which
objection has not been withdrawn on or before any date fixed for Filing such
objections by the Plan or Order of the Bankruptcy Court and (if not withdrawn)
has not been overruled or denied by a Final Order. A Claim shall be considered a
Disputed Claim to the extent of any Filed or deemed Filed objection.
29. "DISPUTED INTEREST" means an Interest as to which an objection has
been or may be timely Filed or deemed timely Filed and which objection has not
been withdrawn on or before any date fixed for Filing such objections by the
Plan or Order of the Bankruptcy Court and (if not withdrawn) has not been
overruled or denied by a Final Order. An Interest shall be considered a Disputed
Interest to the extent of any Filed or deemed Filed objection.
30. "DISTRIBUTION RECORD DATE" means the date or dates fixed by the
Bankruptcy Court as the record date for determining the Holders of 12.5% Notes
and Old Common Stock, respectively, who are entitled to receive distributions
under this Plan.
31. "DOCKET" means the docket in the Reorganization Case maintained by the
Clerk.
32. "EFFECTIVE DATE" means a Business Day, as determined by Merisel, that
is as soon as reasonably practicable [but that is at least 11 days after the
Confirmation Date and] on which all conditions to the Effective Date set forth
herein have been satisfied or, if permitted, waived by Merisel, and on which no
stay of the Confirmation Order is in effect; provided, however, that, upon
-------- -------
request of Merisel or Reorganized Merisel, the Bankruptcy Court may extend the
deadline for the Effective Date to occur following notice and a hearing.
I-6
<PAGE>
33. "EMPLOYEE CLAIMS" means Claims which are asserted by employees of
Merisel in connection with their employment including, without limitation,
Claims arising from or relating to salaries or wages, accrued paid vacation,
health related benefits, severance benefits, field management and
executive/administrative management incentive plans and similar employee
benefits.
34. "ESTATE" means the estate created in the Reorganization Case under
section 541 of the Bankruptcy Code.
35. "FILE" or "FILED" means filed with the Bankruptcy Court in the
Reorganization Case.
36. "FINAL ORDER" means an order or judgment of the Bankruptcy Court, as
entered on the Docket in the Reorganization Case, which has not been reversed,
stayed, modified or amended, and as to which (a) the time to appeal or seek
certiorari has expired and no appeal or petition for certiorari has been timely
filed, or (b) any appeal that has been or may be taken or any petition for
certiorari that has been or may be filed has been resolved by the highest court
to which the order or judgment was appealed or from which certiorari was sought.
37. "HOLDER" means a Person who holds a Claim or Interest. Where the
identity of the Holder of a Claim or Interest is set forth on a register or
other record maintained by or at the direction of Merisel, the Holder of such
Claim or Interest shall be deemed to be the holder as identified on such
register or record unless Merisel is otherwise notified in a writing authorized
by such Holder.
38. "IMPAIRED" shall have the definition given to it in Section 1124 of
the Bankruptcy Code.
39. "INDENTURE TRUSTEE" means The Bank of New York, as successor indenture
trustee for the 12.5% Notes.
40. "INDENTURE TRUSTEE EXPENSES" means any unpaid Indenture Trustee's
fees, and reasonable unpaid out-of-pocket costs or expenses incurred through the
Effective Date by an Indenture Trustee, including, without limitation,
reasonable out-of-pocket costs and expenses and reasonable fees of legal counsel
to the Indenture Trustee, which are secured or which are entitled to be secured
under the Indenture by a lien or other priority in payment against distributions
to be made to Holders of Claims under the respective Indenture.
41. "INSTRUMENT" means any share of stock, security, promissory note or
other "Instrument," within the meaning of that term, as defined in section
9105(1) (i) of the UCC.
42. "INTEREST" means the interest, whether or not asserted, of any equity
security Holder of Merisel.
43. "LOCAL BANKRUPTCY RULES" means the local rules of the Bankruptcy
Court, as applicable from time to time in the Reorganization Case.
44. "MERISEL" means Merisel, Inc., a Delaware corporation.
45. "NEW COMMON STOCK" means common stock of Reorganized Merisel, par
value $.10 per share, which may be issued by Reorganized Merisel on and after
the Effective Date pursuant to the Plan or otherwise.
46. "NEW WARRANTS" means, collectively, the New Series A Warrants and New
Series B Warrants to purchase New Common Stock representing in the aggregate
approximately 17.5% of the New Common Stock on a fully diluted basis as of the
Effective Date.
47. "NEW SERIES A WARRANTS" means the warrants to purchase New Common
Stock issued under the Series A Warrant Agreement.
48. "NEW SERIES B WARRANTS" means the warrants to purchase New Common
Stock issued under the Series B Warrant Agreement.
49. "OLD COMMON STOCK" means the common stock of Merisel, par value $.01
per share, issued and outstanding as of the Petition Date.
I-7
<PAGE>
50. "OLD PREFERRED STOCK" means the authorized preferred stock of Merisel,
par value $.01 per share, none of which is issued and outstanding.
51. "OLD SECURITIES" means, collectively, the 12.5% Notes and the Old
Common Stock.
52. "ORDER" means an order or judgment of the Bankruptcy Court as entered
on the Docket.
53. "ORDINARY COURSE PROFESSIONALS ORDER" means the order which, if
entered by the Clerk, will authorize Merisel to (a) employ various professionals
who are not directly working to implement the Reorganization Case and (b) pay
such professionals without need for application, hearing and Final Order.
54. "PERSON" means any person, governmental unit, official committee
appointed by the United States Trustee in the Reorganization Case, unofficial
committee of Holders of Claims or Interests, or other entity (all as defined in
the Bankruptcy Code).
55. "PETITION DATE" means __________, 1997, the date on which the petition
commencing the Reorganization Case was Filed.
56. "PLAN" means this Plan of Reorganization of Merisel, Inc. and all
exhibits and schedules annexed hereto or referred to herein, as such may be
amended, modified or supplemented from time to time.
57. "PRIORITY CLAIM" means an Allowed Claim entitled to priority under
sections 507(a)(3) through 507(a)(9) of the Bankruptcy Code, but excludes
Priority Tax Claims.
58. "PRIORITY TAX CLAIM" means an Allowed Claim for an amount entitled to
priority under section 507(a)(8) of the Bankruptcy Code.
59. "PRO RATA" means proportionately so that, with respect to any Class,
the ratio of (a) the amount of consideration distributed on account of a
particular Allowed Claim or Allowed Interest to (b) the amount of the Allowed
Claim or Allowed Interest, is the same as the ratio of (x) the amount of
consideration distributed on account of all Allowed Claims or Allowed Interests
of the Class in which the particular Allowed Claim or Allowed Interest is
included to (y) the aggregate amount of all Allowed Claims or Allowed Interests
of that Class.
60. "REINSTATED" or "REINSTATEMENT" means, with respect to any Allowed
Claim or Allowed Interest, that such Claim or Interest is treated as Unimpaired
under the Plan. "REINSTATED" or "REINSTATEMENT" also means (i) leaving
unaltered the legal, equitable, and contractual rights to which a Claim entitles
the holder of such Claim so as to leave such Claim unimpaired in accordance with
section 1124 of the Bankruptcy Code or (ii) notwithstanding any contractual
provision or applicable law that entitles the holder of such Claim to demand or
receive accelerated payment of such Claim after the occurrence of a default (a)
curing any such default that occurred before or after the Petition Date, other
than a default of a kind specified in section 365(b)(2) of the Bankruptcy Code;
(b) reinstating the maturity of such Claim as such maturity existed before such
default; (c) compensating the holder of such Claim for any damages incurred as a
result of any reasonable reliance by such holder on such contractual provision
or such applicable law; and (d) not otherwise altering the legal, equitable, or
contractual rights to which such Claim entitles the holder of such Claim;
provided, however, that any contractual right that does not pertain to the
- -------- --------
payment when due of principal and interest on the obligation on which such Claim
is based, including, but not limited to, financial covenant ratios, negative
pledge covenants, covenants or restrictions on merger or consolidation, and
affirmative covenants regarding corporate existence prohibiting certain
transactions or actions contemplated by the Plan, or conditioning such
transactions or actions on certain factors, shall not be required to be
reinstated in order to accomplish Reinstatement.
61. "REORGANIZATION CASE" means Merisel's case under chapter 11 of the
Bankruptcy Code.
62. "REORGANIZED MERISEL" means Merisel, as reorganized on and after the
Effective Date.
63. "REORGANIZED MERISEL BYLAWS" means the amended and restated bylaws of
Reorganized Merisel that will be effective on the Effective Date, in the form
which will be Filed at or prior to the Confirmation Hearing.
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<PAGE>
64. "REORGANIZED MERISEL CERTIFICATE OF INCORPORATION" means the amended
and restated certificate of incorporation that will be effective on the
Effective Date, in the form which will be Filed at or prior to the Confirmation
Hearing.
65. "SECURED CLAIM" means any Claim that is secured by a lien on property
in which the Estate has an interest or that is subject to setoff under section
553 of the Bankruptcy Code, to the extent of the value of the Claim Holder's
interest in the Estate's interest in such property or to the extent of the
amount subject to setoff, as applicable, as determined pursuant to section
506(a) of the Bankruptcy Code.
[66. "SECURITIES CLAIM" means (a) any Claim arising from rescission of a
purchase or sale of Old Common Stock or for damages arising from the purchase or
sale of Old Common Stock, or (b) any Claim for indemnity, reimbursement, of
contribution on account of any such Claim.]
67. "SERIES A WARRANT AGREEMENT" means the warrant agreement in
substantially the form annexed as Exhibit A to the Plan.
68. "SERIES B WARRANT AGREEMENT" means the warrant agreement in
substantially the form annexed as Exhibit B to the Plan.
69. "SUBSIDIARY" means any directly or indirectly wholly-owned subsidiary
of Merisel.
70. "SUBSIDIARY DEBT GUARANTY CLAIM" means any unsecured Claim against the
Company arising out of any guaranty by Merisel of any debt repayment obligation
of any Subsidiary.
71. "TRADE CLAIMS" means any unsecured Claim against the Company arising
from (i) the delivery of goods or services in the ordinary course of business or
(ii) insurance-related service (including insurance premiums). "Trade Claim"
excludes Claims (i) arising under Sections 502(e) or 502(g) of the Bankruptcy
Code, (ii) of the type described in Section 726(a)(4) of the Bankruptcy Code, or
(iii) arising in tort for personal injury or property loss.
72. "UCC" means the Uniform Commercial Code, as in effect at any
---------
relevant time.
73. "U.S. TRUSTEE" means the United States Trustee for the Region in which
the Reorganization Case is pending.
74. "UNIMPAIRED" means, with reference to a Class of Claims or Interests,
that the Class is not Impaired.
75. "UNSECURED CLAIM" means any Claim that is not an Administrative Claim,
Priority Claim, Priority Tax Claim or Secured Claim.
76. "VOTING DEADLINE" means the date on which ballots must be received by
the Voting Agent at the address set forth on the applicable ballot used for
voting on the Plan. For purposes of the Plan, the Voting Deadline is ,
1997, or, if Merisel extends the Voting Deadline, the latest date on which a
ballot will be accepted.
C. RULES OF INTERPRETATION.
For purposes of the Plan (a) whenever it appears appropriate from the
context, each term, whether stated in the singular or the plural, shall include
both the singular and the plural and; the masculine gender shall include the
feminine, and the feminine gender shall include the masculine, (b) any reference
in the Plan to a contract, instrument, release or other agreement or document
being in a particular form or on particular terms and conditions means that such
document shall be substantially in such form or substantially on such terms and
conditions; provided, however, that any change to such form, terms, or
conditions which is material to a party to such document shall not be made
without such party's consent; (c) any reference in the Plan to an existing
document or exhibit Filed or to be Filed means such document or exhibit, as it
may have been or (to the extent otherwise permitted, hereafter) may be amended,
modified or supplemented from time to time; (d) unless otherwise specified in a
particular reference, all references in the Plan to Sections, Articles,
Schedules, and
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Exhibits are references to Sections, Articles, Schedules and Exhibits of or to
the Plan; (e) the words "herein," "hereof," "hereto," "hereunder" and others of
similar import refer to the Plan in its entirety rather than to only a
particular portion of the Plan; (f) captions and headings to Articles and
Sections are inserted for convenience of reference only and are not intended to
be a part of or to affect the interpretations of the Plan; (g) the rules of
construction set forth in section 102 of the Bankruptcy Code shall apply; and
(h) all exhibits to the Plan are incorporated into the Plan, and shall be deemed
to be included in the Plan, provided that they are Filed no later than the
Confirmation Hearing.
D. COMPUTATION OF TIME.
In computing any period of time prescribed or allowed by the Plan, the
provisions of Bankruptcy Rule 9006(a) shall apply.
III.
DESIGNATION OF CLASSES OF CLAIMS AND INTERESTS
A. INTRODUCTION.
Set forth below is a designation of the Classes of Claims and Interests
under the Plan. All Claims and Interests, except Administrative Claims and
Priority Tax Claims, are placed in the classes designated below. In accordance
with section 1123(a)(1) of the Bankruptcy Code, Administrative Claims and
Priority Tax Claims have not been classified and are excluded from the following
Classes.
A Claim or Interest is classified in a particular Class only to the extent
that the Claim or Interest qualifies within the description of that Class, and
is classified in another Class or Classes to the extent that any portion of the
Claim or Interest falls within the description of such other Class or Classes.
A Claim or Interest is classified in a particular Class only to the extent
that the Claim or Interest is an Allowed Claim or Allowed Interest in that Class
and has not been paid, released or otherwise satisfied before the Effective
Date; a Claim or Interest which is not an Allowed Claim or Allowed Interest is
not in any Class. A Disputed Claim or Disputed Interest, to the extent that it
subsequently becomes an Allowed Claim or Allowed Interest, shall be included in
the Class for which it would have qualified had it not been disputed.
Notwithstanding anything to the contrary contained in the Plan, no
distribution shall be made on account of any Claim or Interest which is not an
Allowed Claim or an Allowed Interest.
B. CLAIMS.
CLASS 1: SECURED CLAIMS (UNIMPAIRED - NOT ENTITLED TO VOTE)
CLASS 2: PRIORITY CLAIMS (UNIMPAIRED - NOT ENTITLED TO VOTE)
CLASS 3: SUBSIDIARY DEBT GUARANTY CLAIMS - (UNIMPAIRED - NOT ENTITLED TO
VOTE)
CLASS 4: 12.5% NOTES CLAIMS (IMPAIRED - ENTITLED TO VOTE)
CLASS 5: GENERAL UNSECURED CLAIMS (UNIMPAIRED - NOT ENTITLED TO VOTE)
C. INTERESTS.
CLASS 6: OLD COMMON STOCK INTERESTS (IMPAIRED - ENTITLED TO VOTE)
IV.
TREATMENT OF CLAIMS AND INTERESTS
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A. TREATMENT OF UNCLASSIFIED CLAIMS.
1. ADMINISTRATIVE CLAIMS.
A. GENERAL.
Subject to certain additional requirements for professionals and certain
other entities set forth below, Reorganized Merisel shall pay to each Holder of
an Allowed Administrative Claim, on account of its Administrative Claim and in
full satisfaction thereof, Cash equal to the amount of such Allowed
Administrative Claim, unless such Holder and Merisel or Reorganized Merisel
agree or shall have agreed to other treatment of such Claim; provided, however,
-------- -------
that if incurred in the ordinary course of business or otherwise assumed by
Merisel pursuant to the Plan, an Allowed Administrative Claim (including
Administrative Claims of governmental units for taxes), will be paid, performed
or settled by Reorganized Merisel when due in accordance with the terms and
conditions of the particular agreement(s) governing the obligation in the
absence of the Reorganization Case.
B. PAYMENT OF STATUTORY FEES.
On or before the Effective Date, all fees payable pursuant to 28 U.S.C. (S)
1930, as determined by the Bankruptcy Court at the Confirmation Hearing, shall
be paid in Cash equal to the amount of such Administra tive Claims.
C. BAR DATE FOR ADMINISTRATIVE CLAIMS.
(1) GENERAL PROVISIONS.
Except as provided below for non-tax liabilities incurred in the ordinary
course of business by the Debtor in Possession, requests for payment of
Administrative Claims must be Filed and served on counsel for Merisel and
Reorganized Merisel no later than (x) sixty (60) days after the Effective Date,
or (y) such later date, if any, as the Bankruptcy Court shall order upon
application made prior to the end of such 60-day period. Holders of
Administrative Claims (including, without limitation, professionals requesting
compensation or reimbursement of expenses and the Holders of any Claims for
federal, state or local taxes) that are required to File a request for payment
of such Claims and that do not File such requests by the applicable bar date
shall be forever barred from asserting such Claims against Merisel or
Reorganized Merisel, or any of their respective properties.
(2) PROFESSIONALS.
All professionals or other Persons requesting compensation or reimbursement
of expenses pursuant to any of sections 327, 328, 330, 331, 503(b) and 1103 of
the Bankruptcy Code for services rendered on or before the Effective Date
(including, without limitation, any compensation requested by any professional
or any other Person for making a substantial contribution in the Reorganization
Case) shall File and serve on Reorganized Merisel and counsel for Reorganized
Merisel an application for final allowance of compensation and reimbursement of
expenses no later than (i) sixty (60) days after the Effective Date, or (ii)
such later date, if any, as the Bankruptcy Court shall order upon application
made prior to the end of such 60-day period; provided, however, that any
-------- -------
Professional who may receive compensation or reimbursement of expenses pursuant
to the Ordinary Course Professionals Order without having filed an application
may continue to receive compensation or reimbursement for services rendered
before the Effective Date without further Bankruptcy Court review or approval
pursuant to the Ordinary Course Professionals Order. Objections to applications
of professionals for compensation or reimbursement of expenses must be Filed and
served on Reorganized Merisel, counsel for Reorganized Merisel and the
professionals to whose application the objections are addressed on or before the
later of (x) ninety (90) days after the Effective Date and (y) thirty (30) days
after such date as the Bankruptcy Court shall establish as the bar date for such
applications. Any professional fees and reimbursements or expenses incurred by
Reorganized Merisel subsequent to the Effective Date may be paid by Reorganized
Merisel without application to the Bankruptcy Court.
(3) ORDINARY COURSE LIABILITIES.
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Holders of Administrative Claims based on liabilities incurred in the
ordinary course of Merisel's businesses (other than Claims of governmental units
for taxes or Claims and/or penalties related to such taxes) shall not be
required to File any request for payment of such Claims. Such Administrative
Claims shall be assumed and paid by Reorganized Merisel pursuant to the terms
and conditions of the particular transaction giving rise to such Administrative
Claim, without any further action by the Holders of such Claims.
2. PRIORITY TAX CLAIMS.
Unless otherwise agreed to by Merisel and a Holder of a Priority Tax Claim,
each Holder of an Allowed Priority Tax Claim shall receive (i) Cash equal to the
unpaid portion of such Allowed Priority Tax Claim on the later of (a) the
Effective Date and (b) the date on which such Claim becomes an Allowed Priority
Tax Claim; or (ii) payment at such time as specified under applicable laws.
Pursuant to Section 1123(a)(1) of the Bankruptcy Code, Priority Tax Claims are
not designated a Class of Claims for purposes of the Plan, and the Holders of
Allowed Priority Tax Claims are not entitled to vote on the Plan.
B. TREATMENT OF SECURED CLAIMS.
1. CLASS 1: SECURED CLAIMS
Class 1 consists of each Secured Claim secured by a security interest in or
lien upon property in which Merisel's Estate has an interest. To the extent, if
any, that the value of the collateral securing a Class 1 Secured Claim is less
than the amount of such Allowed Claim, the difference shall be treated as a
Class 5 General Unsecured Claim.
Class 1 Secured Claims are Unimpaired and, accordingly, Holders of Class 1
Secured Claims will not be entitled to vote for or against the Plan and will be
deemed to have accepted the Plan. Holders of Claims in Class 1 are not required
to file proofs of claim with the Bankruptcy Court, and no bar date will be
enforced as to such claims.
Notwithstanding any provision of this Plan to the contrary, nothing herein
shall affect the right or ability of Merisel or Reorganized Merisel to avoid any
purported lien or security interest.
On the Effective Date, or as soon thereafter as practicable, the holder of
an Allowed Class 1 Secured Claim, in full satisfaction, settlement, release, and
discharge of and in exchange for such Allowed Class 1 Secured Claim, shall, in
the sole discretion of Merisel, (a) have its Allowed Class 1 Secured Claim
Reinstated, or (b) receive such other treatment as Merisel and such holder shall
have agreed upon in writing as announced at or prior to the Confirmation
Hearing.
2. CLASS 2: PRIORITY CLAIMS
Class 2 consists of all Priority Claims. Class 2 Claims are Unimpaired
and, accordingly, Holders of Allowed Class 2 Claims are not entitled to vote for
or against the Plan, and will be deemed to have accepted the Plan.
Each Holder of an Allowed Class 2 Claim shall be entitled to receive Cash
equal to the amount of such Claim, unless the Holder of such Claim and
Reorganized Merisel agree to a different treatment, on the latest of (a) the
Effective Date or as soon as practicable thereafter, (b) the date such Claim
becomes an Allowed Priority Claim, and (c) the date that such Claim would be
paid in accordance with any terms and conditions of any agreements or
understandings relating thereto between Merisel and the Holder of such Claim.
3. CLASS 3: SUBSIDIARY DEBT GUARANTY CLAIMS
Class 3 consists of each Subsidiary Debt Guaranty Claim. Class 3 Claims
are Unimpaired and, accordingly, Holders of Allowed Class 3 Claims are not
entitled to vote for or against the Plan, and will be deemed to have accepted
the Plan. Holders of Claims in Class 3 are not required to file proofs of claim
with the Bankruptcy Court and no bar date will be enforced as to such Claims.
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On the Effective Date, or as soon thereafter as practicable, the holder of
an Allowed Class 3 Subsidiary Debt Guaranty Claim, in full satisfaction,
settlement, release, and discharge of and in exchange for such Allowed Class 3
Claim, shall, in the sole discretion of Merisel, (a) have its Allowed Class 3
Claim Reinstated, or (b) receive such other treatment as Merisel and such holder
shall have agreed upon in writing as announced at or prior to the Confirmation
Hearing.
4. CLASS 4: 12.5% NOTES CLAIMS
Class 4 consists of all 12.5% Notes Claims. Class 4 is Impaired and,
accordingly, Holders of Allowed Class 4 Claims are entitled to vote for or
against the Plan.
On the Effective Date or as soon as practicable thereafter, each Holder of
an Allowed Class 4 Claim shall receive on account of all Claims arising under or
related to the 12.5% Notes, including the unpaid principal amount plus unpaid
interest plus all other amounts, if any, which accrued prior to the Petition
Date on its 12.5% Notes, 192.5 shares of New Common Stock for each $1,000 of
12.5% Notes held by such Holder.
5. CLASS 5: GENERAL UNSECURED CLAIMS
Class 5 consists of all Claims, except Administrative Claims, Priority Tax
Claims and Claims in Classes 1 through 4, and including, but not limited to,
Claims for damages arising or resulting from the rejection of leases or
executory contracts, Securities Claims and pre-Petition Date Claims for
indemnification of the kind described in Section X.D hereof.
Class 5 Claims are Unimpaired and, accordingly, Holders of Allowed Class 5
Claims are not entitled to vote for or against the Plan and will be deemed to
have accepted the Plan. Holders of Claims in Class 5 are not required to file
proofs of claim with the Bankruptcy Court, and no bar date will be enforced as
to such Claims.
Unless otherwise agreed to by the parties, the legal, equitable and
contractual rights of each Holder of an Allowed Claim in Class 5 will either (a)
not be altered by this Plan or (b) at the option of Merisel, receive such other
treatment that will result in such Allowed Claim being deemed Unimpaired.
Class 5 also includes Trade Claims. As set forth in Section IV.D.1 below,
Merisel intends to seek Bankruptcy Court approval to pay in the ordinary course
of business all outstanding Trade Claims to trade creditors who continue to
provide normal trade credit terms to or have reinstated normal trade credit
terms for the Company or who have previously agreed to compromise their Claims
in a manner acceptable to Merisel. In any event, all Allowed Claims in Class 5
that have become due and owing on or before the Effective Date (unless
previously paid during the Reorganization Case) will be paid in full, in Cash
(with interest, to the extent permitted by the Bankruptcy Court), on or as soon
as practicable after the Effective Date, or at such other time as is mutually
agreed upon by Merisel and the Holder of such Claim, or if not due and owing on
the Effective Date, such Trade Claims shall be Reinstated and paid in full in
accordance with their respective terms or otherwise rendered Unimpaired.
C. TREATMENT OF INTERESTS
1. CLASS 6: OLD COMMON STOCK INTERESTS.
CLASS 6 consists of the Allowed Interests of Holders of Old Common Stock.
Class 6 Interests are Impaired and, accordingly, Holders of Allowed Class 6
Interests are entitled to vote for or against the Plan.
On the Effective Date or as soon as practicable thereafter, each Holder of
an Allowed Class 6 Claim shall receive, on a Pro Rata basis, on account of each
share of Old Common Stock which it holds (i) .2 shares of New Common Stock, (ii)
.0875 New Series A Warrants, and (iii) .0875 New Series B Warrants.
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D. TREATMENT OF TRADE CREDITORS AND EMPLOYEES UNDER THE PLAN
1. TREATMENT OF TRADE CLAIMS.
Trade Claims are Unimpaired and will be paid in full under the Plan.
Notwithstanding provisions of the Bankruptcy Code that may defer payment of the
Trade Claims until the effectiveness of the Plan, Merisel has sought or,
simultaneously with the Filing of this Plan, will seek authority from the
Bankruptcy Court to pay immediately Holders of Trade Claims arising in the
ordinary course who, following commencement of the Reorganization Case, agree to
continue to provide the Company with customary trade terms or to reinstate
customary trade terms or who have previously agreed to compromise their Claims
in a manner acceptable to Merisel.
Holders of Trade Claims will not be required to file proofs of claim with
the Bankruptcy Court and no bar date will be enforced as to such Trade Claims.
On and after the Effective Date, all undisputed, noncontingent and liquidated
Trade Claims not already paid will be paid in full or in the ordinary course of
business of Reorganized Merisel. If the Company or Reorganized Merisel disputes
any Trade Claim, such dispute will be determined, resolved or adjudicated, as
the case may be, in the manner in which such dispute would have been determined,
resolved or adjudicated if the Reorganization Case had not been commenced, and
will survive the Effective Date and the consummation of the Plan as if the
Reorganization Case had not been commenced.
Any Claim arising from the rejection of an executory contract or unexpired
lease under the Plan shall not be treated as a Trade Claim, will be determined
in accordance with the procedures set forth in Section VII.D. hereof, and will
be paid as a Class 5 Claim when and to the extent such Claim is Allowed by the
Bankruptcy Court.
2. TREATMENT OF EMPLOYEE CLAIMS.
Employee Claims that accrue pre-petition will receive Unimpaired treatment
under the terms of the Plan. To ensure the continuity of Merisel's work force
and to further accommodate the Unimpaired treatment of Employee Claims, Merisel
has sought or, simultaneous with the Filing of this Plan, will seek immediate
authorization from the Bankruptcy Court to honor payroll checks outstanding as
of the Petition Date (or to issue replacement checks), to permit employees to
utilize paid vacation time accrued prior to the Petition Date (so long as they
remain employees of Merisel or Reorganized Merisel) and to continue paying
medical and other benefits under all applicable insurance plans. Employee
Claims and benefits not paid or honored prior to the Effective Date will be paid
or honored upon the Effective Date or as soon thereafter as such payment or
other obligation becomes due or performable. Employees will not be required to
file proofs of claim on account of Employee Claims. If the Company or
Reorganized Merisel disputes any Employee Claim, such dispute will be
determined, resolved or adjudicated, as the case may be, in the manner in which
such dispute would have been determined, resolved or adjudicated if the
Reorganization Case had not been commenced, and will survive the Effective Date
and the consummation of the Plan as if the Reorganization Case had not been
commenced.
E. MODIFICATION OF TREATMENT OF CLAIMS.
Merisel reserves the right to modify the treatment of any Allowed Claim or
Interest in any manner adverse only to the Holder of such Claim or Interest at
any time after the Effective Date upon the consent of the creditor or interest
holder whose Allowed Claim or Interest, as applicable, is being adversely
affected.
F. LISTING OF NEW COMMON STOCK.
Reorganized Merisel shall use its best efforts to cause the shares of New
Common Stock to be listed on the NASDAQ National Market.
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<PAGE>
V.
DISTRIBUTIONS UNDER THE PLAN
A. DISBURSING AGENT.
Reorganized Merisel, or such Person(s) as Merisel may employ in its sole
discretion, will act as Disbursing Agent under the Plan. The Disbursing Agent
will make all distributions of Cash, New Common Stock and New Warrants required
to be distributed under the applicable provisions of the Plan. Any Disbursing
Agent may employ or contract with other entities to assist in or make the
distributions required by the Plan. Each Disbursing Agent will serve without
bond, and each Disbursing Agent, other than Reorganized Merisel, will receive,
without further Bankruptcy Court approval, reasonable compensation for
distribution services rendered pursuant to the Plan and reimbursement of
reasonable out-of-pocket expenses incurred in connection with such services from
Reorganized Merisel on terms acceptable to Reorganized Merisel.
B. TIMING OF DISTRIBUTIONS.
Property to be distributed hereunder on account of Allowed Claims and
Allowed Interests in an Impaired Class (a) shall be distributed on the Effective
Date or as soon as practicable thereafter to each Holder of an Allowed Claim or
an Allowed Interest in that Class that is an Allowed Claim or an Allowed
Interest as of the Effective Date, and (b) shall be distributed to each Holder
of an Allowed Claim or an Allowed Interest of that Class that becomes an Allowed
Claim or Allowed Interest after the Effective Date, as soon as practicable after
the order of the Bankruptcy Court allowing such Claim or Interest becomes a
Final Order. Property to be distributed under the Plan on account of Claims in
a Class that are not Impaired or on account of an Adminis trative Claim shall be
distributed on the later of (i) the Effective Date or as soon as practicable
thereafter, or if any Claim is not an Allowed Claim, on the date the order
allowing such Claim becomes a Final Order and (ii) the date on which the
distribution to the Holder of the Claim would have been due and payable in the
ordinary course of business or under the terms of the Claim if the
Reorganization Case had not been commenced.
C. METHODS OF DISTRIBUTIONS.
1. CASH PAYMENTS.
Cash payments made pursuant to the Plan will be in U.S. dollars. Cash
payments of $1,000,000 or more to be made pursuant to the Plan will, to the
extent requested in writing no later than five days after the Confirmation Date,
be made by wire transfer from a domestic bank. Cash payments to foreign
creditors may be made, at the option of Merisel or Reorganized Merisel, in such
funds and by such means as are necessary or customary in a particular foreign
jurisdiction. Cash payments made pursuant to the Plan in the form of checks
issued by Reorganized Merisel shall be null and void if not cashed within 90
days of the date of the issuance thereof. Requests for reissuance of any check
shall be made directly to the Disbursing Agent as set forth in Section V.G
below.
2. TRANSFERS OF NEW COMMON STOCK AND NEW WARRANTS.
Notwithstanding any other provision of the Plan, only whole numbers of
shares of New Common Stock and New Warrants will be issued or transferred, as
the case may be, pursuant to the Plan. When any distribution on account of an
Allowed Claim or Interest pursuant to the Plan would otherwise result in the
issuance or transfer of a number of shares of New Common Stock that is not a
whole number, fractional interests in New Common Stock will be aggregated and
sold by Reorganized Merisel, with the proceeds to be distributed to Holders of
such interests in proportion to the amount of fractional shares of New Common
Stock such Holders would otherwise be entitled to receive. When any distribution
on account of an Allowed Class 6 Interest would otherwise result in the issuance
or transfer of a number of New Warrants that is not a whole number, fractional
interests in New Warrants will be aggregated and sold by Reorganized Merisel,
with the proceeds to be distributed to Holders of such interests in proportion
to the fractional number of New Warrants such Holders would otherwise be
entitled to receive.
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3. COMPLIANCE WITH TAX REQUIREMENTS.
In connection with the distributions set forth herein, to the extent
applicable, the Disbursing Agent shall comply with all tax withholding and
reporting requirements imposed on it by any governmental unit, and all
distributions pursuant to this Plan will be subject to such withholding and
reporting requirements. The Disbursing Agent will be authorized to take any and
all actions that may be necessary or appropriate to comply with such withholding
and reporting requirements.
Notwithstanding any other provision contained herein: (i) each Holder of
an Allowed Claim or Interest that is to receive a distribution of Cash, New
Common Stock or New Warrants pursuant to the Plan will have sole and exclusive
responsibility for the satisfaction and payment of any tax obligations imposed
by any governmental unit, including income, withholding and other tax
obligations, on account of such distribution; and (ii) no distribution will be
made to or on behalf of such Holder pursuant to the Plan unless and until such
Holder has made arrangements satisfactory to the Disbursing Agent for the
payment and satisfaction of such tax obligations. Any Cash, New Common Stock or
New Warrants to be distributed pursuant to the Plan will, pending the
implementation of such arrangements, be treated as an undeliverable distribution
pursuant to Section V.G of the Plan.
D. PRO RATA DISTRIBUTION.
Where the Plan provides for Pro Rata distribution, the property to be
distributed under this Plan shall be divided Pro Rata among the Holders of
Allowed Claims or Allowed Interests of the relevant Class.
E. DISTRIBUTION RECORD DATE.
As of the close of business on the Distribution Record Date, the transfer
registers for the 12.5% Notes and Old Common Stock maintained by Merisel, or its
respective agents, will be closed. The Disbursing Agent and its respective
agents will have no obligation to recognize the transfer of any 12.5% Notes or
Old Common Stock occurring after the Distribution Record Date and will be
entitled for all purposes relating to this Plan to recognize and deal only with
those Holders of record as of the close of business on the Distribution Record
Date.
F. SURRENDER OF CANCELLED OLD SECURITIES.
As a condition precedent to receiving any distribution pursuant to this
Plan on account of an Allowed 12.5% Notes Claim or Allowed Old Common Stock
Interest evidenced by the Instruments cancelled pursuant to Section VIII.A.1
hereof, the Holder of such Claim or Interest shall tender the applicable
Instruments evidencing such Claim or Interest to the Disbursing Agent pursuant
to a letter of transmittal furnished by the Disbursing Agent. Any Cash, New
Common Stock or New Warrants to be distributed pursuant to this Plan on account
of any such Claim or Interest will, pending such surrender, be treated as an
undeliverable distribution pursuant to Section V.G below.
1. SPECIAL PROCEDURES FOR LOST, STOLEN, MUTILATED OR DESTROYED
INSTRUMENTS.
In addition to any requirements under Merisel's pre-petition Certificate of
Incorporation or Bylaws, any Holder of a Claim or an Interest evidenced by an
Instrument that has been lost, stolen, mutilated or destroyed will, in lieu of
surrendering such Instrument, deliver to the Disbursing Agent: (a) evidence
satisfactory to the Disbursing Agent of the loss, theft, mutilation or
destruction; and (b) such security or indemnity as may be required by the
Disbursing Agent to hold the Disbursing Agent harmless from any damages,
liabilities or costs incurred in treating such individual as a Holder of an
Instrument. Upon compliance with this Section, the Holder of a Claim or Interest
evidenced by any such lost, stolen, mutilated or destroyed Instrument will, for
all purposes under the Plan, be deemed to have surrendered such Instrument.
2. FAILURE TO SURRENDER CANCELLED INSTRUMENT.
Any Holder of an Instrument that fails to surrender or be deemed to have
surrendered such Instrument within two years after the Effective Date will have
its claim for a distribution pursuant to the Plan on account of such Instrument
discharged and shall be forever barred from asserting any such claim against
Reorganized Merisel
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or its property. In such cases, any Cash, New Common Stock or New Warrants held
for distribution on account of such claim will be disposed of pursuant to the
provisions of Section V.G hereof.
G. UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS.
Any Person that is entitled to receive a Cash distribution under this Plan
but that fails to cash a check within 90 days of its issuance shall be entitled
to receive a reissued check from Reorganized Merisel for the amount of the
original check, without any interest, if such person requests the Disbursing
Agent to reissue such check and provides the Disbursing Agent with such
documentation as the Disbursing Agent requests to verify that such Person is
entitled to such check, prior to the second anniversary of the Effective Date.
If a Person fails to cash a check within 90 days of its issuance and fails to
request reissuance of such check prior to the second anniversary of the
Effective Date, such Person shall not be entitled to receive any distribution
under this Plan. If the distribution to any Holder of an Allowed Claim or
Allowed Interest is returned to a Disbursing Agent as undeliverable, no further
distributions will be made to such Holder unless and until the applicable
Disbursing Agent is notified in writing of such Holder's then-current address.
Undeliverable distributions will remain in the possession of the applicable
Disbursing Agent pursuant to Section V.A. of the Plan until such time as a
distribution becomes deliverable. Undeliverable Cash will be held in trust in
segregated bank accounts in the name of the applicable Disbursing Agent for the
benefit of the potential claimants of such funds, and will be accounted for
separately. Any Disbursing Agent holding undeliverable Cash shall invest such
Cash in a manner consistent with Merisel's investment and deposit guidelines.
Undeliverable New Common Stock and New Warrants will be held in trust for the
benefit of the potential claimants of such securities and rights by the
applicable Disbursing Agent in principal amounts or number of shares sufficient
to fund the unclaimed amounts of such securities and rights, and shall be
accounted for separately.
Pending the distribution of any New Common Stock, pursuant to the Plan, the
Disbursing Agent will cause the New Common Stock held by it in its capacity as
Disbursing Agent to be: (i) represented in person or by proxy at each meeting
of the stockholders of Reorganized Merisel; and (ii) voted with respect to any
matter of Reorganized Merisel, proportionally with the votes cast by other
stockholders of Reorganized Merisel.
All claims for undeliverable distributions shall be made on or before the
second (2nd) anniversary of the Effective Date. After such date, all unclaimed
property shall revert to Reorganized Merisel and the claim of any holder or
successor to such holder with respect to such property shall be discharged and
forever barred notwithstanding any federal or state escheat laws to the
contrary.
H. OBJECTIONS TO CLAIMS AND AUTHORITY TO PROSECUTE OBJECTIONS; CLAIMS
RESOLUTION.
1. GENERALLY.
Except as otherwise provided in Section V.H.2 below and except as otherwise
ordered by the Bankruptcy Court after notice and a hearing, objections to
Claims, including without limitation Administrative Claims, shall be Filed and
served upon the Holder of such Claim or Administrative Claim no later than the
later of (a) 60 days after the Effective Date, and (b) 60 days after a proof of
claim or request for payment of such Claim is Filed, unless this period is
extended by the Bankruptcy Court. Such extension may be granted on an ex parte
basis without notice or hearing. After the Confirmation Date, only Merisel and
Reorganized Merisel will have the authority to File objections, settle,
compromise, withdraw or litigate to judgment objections to Claims and Interests.
From and after the Confirmation Date, Merisel and Reorganized Merisel may settle
or compromise any Disputed Claim or Disputed Interest without approval of the
Bankruptcy Court.
2. PROFESSIONALS, ADMINISTRATION CLAIMS, TRADE CLAIMS AND EMPLOYEE CLAIMS.
Except as otherwise ordered by the Bankruptcy Court, objections to claims
of professionals shall be governed by the provisions of Section IV.A.1.c.(2)
hereof. Objections to Administrative Claims based upon ordinary course
liabilities, Trade Claims and Employee Claims shall be governed by applicable
law as if the Reorganization Case had not been commenced.
I. DISPUTED CLAIMS; RESERVE AND ESTIMATIONS.
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1. TREATMENT OF DISPUTED CLAIMS.
Notwithstanding any other provisions of this Plan, no payments or
distributions will be made on account of a Disputed Claim or a Disputed Interest
until such Claim or Interest becomes an Allowed Claim or Allowed Interest.
Prior to the Petition Date, Merisel will deliver Stipulations of Amount and
Nature of Claim to the Indenture Trustees. Such Stipulations, once executed and
to the extent unpaid, will be treated as Allowed Claims as of the Petition Date
in the amounts set forth in such Stipulation of Amount and Nature of Claim and
will not be treated as Disputed Claims. Merisel or Reorganized Merisel may, at
any time, request that the Bankruptcy Court estimate any contingent or
unliquidated Claim pursuant to section 502(c) of the Bankruptcy Code,
irrespective of whether Merisel or Reorganized Merisel has previously objected
to such Claim or whether the Bankruptcy Court has ruled on any such objection
unless such ruling has become a final order. The Bankruptcy Court will retain
jurisdiction to estimate any contingent or unliquidated Claim at any time during
litigation concerning any objection to the Claim, including during the pendency
of any appeal relating to any such objection. If the Bankruptcy Court estimates
any contingent or unliquidated Claim, that estimated amount will constitute
either the amount of such Allowed Claim or a maximum limitation on such Claim,
as determined by the Bankruptcy Court. If the estimated amount constitutes a
maximum limitation on such Claim, Merisel or Reorganized Merisel may elect to
pursue any supplemental proceedings to object to any ultimate payment on account
of such Claim. All of these Claims objection, estimation and resolution
procedures are cumulative and not necessarily exclusive of one another. In
addition to seeking estimation of Claims as provided in this Section, Merisel or
Reorganized Merisel may resolve or adjudicate certain Disputed Claims of Holders
in Unimpaired Classes in the manner in which the amount of such Claim and the
rights of the Holder of such Claim would have been resolved or adjudicated if
the Reorganization Case had not been commenced; provided, however, that the
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amount of such claim and the remedies available shall not be limited by
discharge pursuant to section 1141(d)(1) of the Bankruptcy Code and other
applicable bankruptcy law. Claims may be subsequently compromised, settled,
withdrawn or resolved by Merisel or Reorganized Merisel pursuant to Section V.H
hereof.
2. DISTRIBUTIONS ON ACCOUNT OF DISPUTED CLAIMS ONCE THEY ARE ALLOWED.
Within 30 days after the end of each calendar quarter following the
Effective Date, the applicable Disbursing Agent will make all distributions on
account of any Disputed Claim or Disputed Interest that has become an Allowed
Claim or Allowed Interest during the preceding calendar quarter. Such
distributions will be made pursuant to the provisions of the Plan governing the
applicable Class. Holders of Disputed Claims or Disputed Interests that are
ultimately allowed will also be entitled to receive, on the basis of the amount
ultimately allowed: (i) matured and payable interest, if any, at the rate
provided for the consideration payable to the Class to which such Claim belongs;
and (ii) any dividends or other payments made on account of New Common Stock
held pending distribution.
J. SETOFFS.
Except with respect to claims of Merisel or Reorganized Merisel released
pursuant to the Plan or any contract, instrument, release, indenture or other
agreement or document created in connection with the Plan, Merisel or
Reorganized Merisel may, pursuant to section 553 of the Bankruptcy Code or
applicable nonbankruptcy law, set off against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim (before
any distribution is made on account of such Claim), the claims, rights and
causes of action of any nature that Merisel or Reorganized Merisel may hold
against the Holder of such Allowed Claim; provided, however, that neither the
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failure to effect such a setoff nor the Allowance of any Claim hereunder will
constitute a waiver or release by Merisel or Reorganized Merisel of any such
claims, rights and causes of action that Merisel or Reorganized Merisel may
possess against such Holder.
VI.
INDIVIDUAL HOLDER PROOFS OF INTEREST
Individual Holders of Class 6 Old Common Stock are not required to File
proofs of Interests unless they disagree with the number of shares set forth on
Merisel's stock register.
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VII.
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. ASSUMPTIONS.
Except as otherwise provided herein, or in any contract, instrument,
release, indenture or other agreement or document entered into in connection
with this Plan, on the Effective Date, pursuant to section 365 of the Bankruptcy
Code, Merisel will assume each executory contract and unexpired lease entered
into by Merisel prior to the Petition Date, including any employee stock options
or stock appreciation right agreement, that has not previously (a) expired or
terminated pursuant to its own terms or (b) been assumed or rejected pursuant to
section 365 of the Bankruptcy Code. The Confirmation Order will constitute an
Order of the Bankruptcy Court approving the assumptions described in this
Section, pursuant to section 365 of the Bankruptcy Code, as of the Effective
Date.
B. CURE OF DEFAULTS IN CONNECTION WITH ASSUMPTION.
Any monetary amounts by which each executory contract and unexpired lease
to be assumed pursuant to the Plan is in default will be satisfied, pursuant to
section 365(b)(1) of the Bankruptcy Code, at the option of Merisel or
Reorganized Merisel (a) by payment of the default amount in Cash on the
Effective Date or as soon as practicable thereafter or (b) on such other terms
as are agreed to by the parties to such executory contract or unexpired lease.
If there is a dispute regarding (i) the amount of any cure payments, (ii) the
ability of Reorganized Merisel to provide "adequate assurance of future
performance" (within the meaning of section 365 of the Bankruptcy Code) under
the contract or lease to be assumed, or (iii) any other matter pertaining to
assumption, the cure payments required by section 365(b)(1) of the Bankruptcy
Code will be made following the entry of a Final Order resolving the dispute and
approving the assumption.
C. REJECTIONS.
Except as otherwise provided herein or in any contract, instrument,
release, indenture or other agreement or document entered into in connection
with the Plan, on the Effective Date, pursuant to section 365 of the Bankruptcy
Code, Merisel will reject each of the executory contracts and unexpired leases
listed on a schedule to be filed prior to the Confirmation Hearing (the
"Schedule") hereto; provided, however, that Merisel reserves the right, at any
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time prior to the Effective Date, to amend such schedule to delete any executory
contract or unexpired lease listed therein, thus providing for its assumption
pursuant to Sections VII.A and VII.B above. Each contract and lease listed on
the Schedule will be rejected only to the extent that any such contract or lease
constitutes an executory contract or unexpired lease. Listing a contract or
lease on the Schedule does not constitute an admission by Merisel or Reorganized
Merisel that such contract or lease is an executory contract or unexpired lease,
or that Merisel or Reorganized Merisel has any liability thereunder. The
Confirmation Order shall constitute an Order of the Bankruptcy Court approving
such rejections, pursuant to section 365 of the Bankruptcy Code, as of the
Effective Date.
D. BAR DATE FOR REJECTION DAMAGES.
If the rejection of an executory contract or unexpired lease pursuant to
the preceding Section VII.C gives rise to a Claim by the non-Debtor party or
parties to such contract or lease, such Claim shall be forever barred and shall
not be enforceable against Merisel, Reorganized Merisel, or its successors or
properties unless (a) a Stipulation of Amount and Nature of Claim has been
entered into with respect to the rejection of such executory contract or
unexpired lease or (b) a proof of Claim is Filed and served on Reorganized
Merisel and counsel for Reorganized Merisel within 30 days after the Effective
Date or such earlier date as established by the Bankruptcy Court.
VIII.
MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN
A. CORPORATE ACTION.
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1. CANCELLATION OF OLD SECURITIES AND RELATED AGREEMENTS.
On the Effective Date, the 12.5% Notes and the Old Common Stock, and all
obligations of Merisel under all of the foregoing, shall be terminated, canceled
and extinguished.
2. CERTIFICATE OF INCORPORATION AND BYLAW AMENDMENTS.
On the Effective Date, Reorganized Merisel shall be deemed to have adopted
the Reorganized Merisel Certificate of Incorporation and the Reorganized Merisel
Bylaws pursuant to applicable non-bankruptcy law and section 1123(a)(5)(I) of
the Bankruptcy Code. The Reorganized Merisel Certificate of Incorporation and
the Reorganized Merisel Bylaws will, among other provisions: (i) authorize the
issuance of the New Common Stock, and (ii) prohibit the issuance of nonvoting
equity securities to the extent required by section 1123(a)(6) of the Bankruptcy
Code. The Reorganized Merisel Certificate of Incorporation and the Reorganized
Merisel Bylaws, in substantially the form of Merisel's pre-petition Restated
Certificate of Incorporation and Bylaws attached hereto as Exhibits [ ] and [ ],
respectively, will become effective upon the last to occur of the following:
(1) Confirmation of the Plan, (2) the occurrence of the Effective Date and (3)
the filing with the Delaware Secretary of State of the Reorganized Merisel
Certificate of Incorporation.
3. MANAGEMENT OF REORGANIZED MERISEL.
As of the Effective Date, the Persons identified in the Proxy
Statement/Prospectus will serve as the initial members of the Board of Directors
of Reorganized Merisel. Such Persons shall be deemed elected to the Board of
Directors, and such elections shall be deemed effective as of the Effective
Date, without any requirement of further action by stockholders of Merisel or
Reorganized Merisel. The Persons identified as such in the Proxy
Statement/Prospectus will serve as the initial officers of Reorganized Merisel
as of the Effective Date. Subject to any requirement of Bankruptcy Court
approval under Section 1129(a)(5) of the Bankruptcy Code, those persons
designated as directors and officers of Reorganized Merisel in the Proxy
Statement/Prospectus shall assume their offices as of the Effective Date and
shall continue to serve in such capacities thereafter, pending further action of
the Board of Directors or stockholders of Reorganized Merisel in accordance with
the Reorganized Merisel Bylaws, Reorganized Merisel Certificate and applicable
state law.
B. IMPLEMENTATION.
Merisel shall be authorized to take all necessary steps, and perform all
necessary acts, to consummate the terms and conditions of the Plan. On or
before the Effective Date, Merisel may file with the Bankruptcy Court such
agreements and other documents as may be necessary or appropriate to effectuate
or further evidence the terms and conditions of this Plan and the other
agreements referred to herein. Merisel and Reorganized Merisel may, and shall,
execute such documents and take such other actions as are necessary to
effectuate the transactions provided for in the Plan.
C. PAYMENT OF STATUTORY FEES.
All fees payable to the U.S. Trustee pursuant to 28 U.S.C. (S) 1930 as
determined by the Bankruptcy Court at the Confirmation Hearing shall be paid by
Merisel on or before the Effective Date.
D. NO INTEREST.
Except as expressly provided herein, no Holder of an Allowed Class or
Allowed Interest shall receive interest on the distribution to which such Holder
is entitled hereunder, regardless of whether such distribution is made on the
Effective Date or thereafter.
E. RETIREE BENEFITS.
On and after the Effective Date, to the extent required by section
1129(a)(13) of the Bankruptcy Code, Reorganized Merisel shall continue to pay
all retiree benefits (if any), as the term "retiree benefits" is defined in
section 1114(a) of the Bankruptcy Code, maintained or established by Merisel
prior to the Confirmation Date.
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<PAGE>
F. ISSUANCE OF NEW SECURITIES.
The issuance and distribution of the following securities by Reorganized
Merisel is hereby authorized and directed without further act or action under
applicable law, regulation, order or rule:
a. 50,000,000 shares of New Common Stock, of which approximately
35,482,632 shares shall be issued and distributed pursuant to the Plan; and
b. 2,631,868 New Series A Warrants.
c. 2,631,868 New Series B Warrants.
IX.
CONFIRMATION AND EFFECTIVE DATE CONDITIONS
A. CONDITIONS TO CONFIRMATION.
Confirmation of this Plan cannot occur until all of the substantive
confirmation requirements under the Bankruptcy Code have been satisfied pursuant
to section 1129 of the Bankruptcy Code. In addition, the Bankruptcy Court will
not enter the Confirmation Order unless the Confirmation Order is acceptable in
form and substance to Merisel, and the Confirmation Order expressly authorizes
and directs Merisel and Reorganized Merisel to perform those actions specified
herein.
B. CONDITIONS TO EFFECTIVE DATE.
The Effective Date will not occur and the Plan will not be consummated
unless and until each of the following conditions has been satisfied or waived
by Merisel:
(i) The Confirmation Order shall authorize and direct that
Merisel and Reorganized Merisel take all actions necessary
or appropriate to enter into, implement and consummate the
contracts, instruments, releases, leases, and other
agreements or documents created in connection with the Plan,
including those actions contemplated by the provisions of
this Plan set forth in Section X hereof.
(ii) The Confirmation Order shall have become a Final Order.
(iii) The statutory fees owing the U.S. Trustee shall have been
paid in full.
(iv) All other actions and documents necessary to implement the
provisions of the Plan shall have been effected or executed
or, if waivable, waived by the Person or Persons entitled to
the benefit thereof.
C. WAIVER OF CONDITIONS TO CONFIRMATION AND EFFECTIVE DATE.
Each of the conditions to Confirmation and the Effective Date, other than
the conditions set forth in Section IX.B.iii of the Plan, may be waived in whole
or in part by Merisel at any time, without notice or an Order of the Bankruptcy
Court. The failure to satisfy or to waive any condition may be asserted by
Merisel regardless of the circumstances giving rise to failure of such condition
to be satisfied (including any action or inaction by Merisel). The failure of
Merisel to exercise any of the foregoing rights will not be deemed a waiver of
any other rights, and each such right will be deemed an ongoing right that may
be asserted at any time.
If each condition to the Effective Date has not been satisfied or duly
waived within 60 days after the Confirmation Date, then (unless the period for
satisfaction or waiver of conditions has been extended at the option of Merisel
for a period not exceeding 120 days) upon motion by any party in interest, made
before the time that each of the conditions has been satisfied or duly waived
and upon notice to such parties in interest as the Bankruptcy Court may direct,
the Confirmation Order will be vacated by the Bankruptcy Court; provided,
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<PAGE>
however, that notwithstanding the Filing of such motion, the Confirmation Order
- -------
may not be vacated if each of the conditions to the Effective Date is either
satisfied or duly waived before the Clerk enters a Final Order granting such
motion. If the Confirmation Order is vacated pursuant to this Section IX.C.,
the Plan shall be deemed null and void in all respects, including without
limitation the discharge of Claims and termination of Interests pursuant to
section 1141 of the Bankruptcy Code and the assumptions or rejections of
executory contracts and unexpired leases provided for herein, and nothing
contained herein shall (1) constitute a waiver or release of any claims by or
against, or any interests in, Merisel or (2) prejudice in any manner the rights
of Merisel.
X.
EFFECTS OF PLAN CONFIRMATION
A. DISCHARGE OF DEBTOR AND INJUNCTION.
Except as otherwise provided in the Plan or the Confirmation Order, on the
Effective Date, Merisel shall be discharged and released to the fullest extent
permitted by section 1141 of the Bankruptcy Code from all Claims and Interests.
Except as otherwise provided in the Plan or the Confirmation Order, on and
after the Effective Date, all Persons who have held, currently hold or may hold
a debt, Claim or Interest discharged pursuant to the terms of the Plan are
permanently enjoined from taking any action to the fullest extent permitted by
section 524 of the Bankruptcy Code. Any Person injured by any willful violation
of such injunction shall recover actual damages, including costs and attorneys'
fees, and, in appropriate circumstances, may recover punitive damages, from the
willful violator.
B. LIMITATION OF LIABILITY.
Neither Merisel nor Reorganized Merisel nor the Ad Hoc Noteholders
Committee, nor any of their respective post-Petition Date employees, officers,
directors, agents or representatives, or any professional persons employed by
any of them (a "Plan Participant"), shall have or incur any liability to any
Person whatsoever, including, specifically, any Holder of a Claim or Interest,
under any theory of liability (except for any claim based upon willful
misconduct or gross negligence), for any act taken or omission made in good
faith directly related to formulating, preparing, disseminating, implementing,
confirming, or consummating the Plan, the Proxy Statement/Prospectus, the
Confirmation Order, or any contract, instrument, release, or other agreement or
document created or entered into, or any other act taken or omitted to be taken
in connection with the Plan, provided that nothing in this paragraph shall limit
the liability of any Person for breach of any express obligation it has under
the terms of this Plan or under any agreement or other document entered into by
such Person either post-petition or in accordance with the terms of this Plan or
for any breach of a duty of care owed to any other Person occurring after the
Effective Date. Reorganized Merisel shall also indemnify each Plan Participant,
hold each Plan Participant harmless from, and reimburse each Plan Participant
for, any and all losses, costs, expenses (including attorneys' fees and
expenses), liabilities and damages sustained by a Plan Participant arising from
any liability described above.
C. RELEASES.
On the Effective Date, the Company will release unconditionally, and hereby
is deemed to release unconditionally (i) each of the Company's officers,
directors, shareholders, employees, consultants, attorneys, accountants,
financial advisors and other representatives (including without limitation their
respective Designated Professionals), (ii) the Creditors' Committee and, solely
in their capacity as members of representatives of the Creditors' Committee,
each member, consultant, attorney, accountant or other representative of the
Creditors' Committee (including without limitation their respective Designated
Professionals), (iii) the Ad Hoc Noteholders Committee and, solely in their
capacity as members or representatives of the Ad Hoc Noteholders Committee, each
member, consultant, attorney, accountant or other representative of the Ad Hoc
Noteholders Committee (including without limitation their respective Designated
Professionals), and (iv) the Indenture Trustees, in their respective capacity as
Indenture Trustee (the entities specified in clauses (i), (ii), (iii), and (iv)
are referred to collectively as the "Releasees"), from any and all claims,
obligations, suits, judgments, damages, rights, causes of action and liabilities
whatsoever, whether known or unknown, foreseen or unforeseen, existing or
hereafter
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<PAGE>
arising, in law, equity or otherwise, based on whole or in part upon any act or
omission, transaction, event or other occurrence taking place on or prior to the
Effective Date in any way relating to the Releasees, the Company, the
Reorganization Case or the Plan.
D. INDEMNIFICATION.
The obligations of Merisel as of the Petition Date to indemnify its
present, and any individuals who formerly were, directors or officers,
respectively, against any obligations pursuant to Merisel's certificates of
incorporation, by-laws, applicable state law or specific agreement, or any
combination of the foregoing, shall survive confirmation of the Plan, remain
unaffected thereby, be assumed by Reorganized Merisel and not be discharged.
Merisel shall fully indemnify and Reorganized Merisel shall assume Merisel's
obligations to indemnify any person by reason of the fact that he or she is or
was a director, officer, employee or agent, Designated Professional, member of
other authorized representative of Merisel, the Creditors Committee, or the
Indenture Trustees (the "Indemnitees") against any claims, liabilities, actions,
suits, damages, fines, judgments or expenses (including reasonable attorney's
fees), arising during the course of, or otherwise in connection with or in any
way related to, the negotiation, preparation, formulation, solicitation,
dissemination, implementation, confirmation and consummation of the Plan and the
transactions contemplated thereby; provided, however, that the foregoing
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indemnification shall not apply to any liabilities arising from the gross
negligence or wilful misconduct of any Indemnitee. If any claim, action or
proceeding is brought or asserted against an Indemnitee in respect of which
indemnity may be sought from Reorganized Merisel, the Indemnitee shall promptly
notify Reorganized Merisel in writing and Reorganized Merisel shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnitee, and the payment of all expenses. The Indemnitee shall have the
right to employ separate counsel in any such claim, action or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnitee unless (a) Reorganized Merisel has
agreed to pay the fees and expenses of such counsel, or (b) Reorganized Merisel
shall have failed promptly to assume the defense of such claim, action or
proceeding and employ counsel reasonably satisfactory to the Indemnitee in any
such claim, action or proceeding, or (c) the named parties to any such claim,
action or proceeding (including any impleaded parties) include both the
Indemnitee and Reorganized Merisel, and the Indemnitee believes, in the exercise
of its business judgment and in the opinion of its legal counsel, reasonably
satisfactory to Reorganized Merisel, that the joint representation of
Reorganized Merisel and the Indemnitee will likely result in a conflict of
interest (in which case, if the Indemnitee notifies Reorganized Merisel in
writing that it elects to employ separate counsel at the expense of Reorganized
Merisel, Reorganized Merisel shall not have the right to assume the defense of
such action or proceeding on behalf of the Indemnitee). In addition,
Reorganized Merisel shall not effect any settlement or release from liability in
connection with any matter for which the Indemnitee would have the right to
indemnification from Reorganized Merisel, unless such settlement contains a
full and unconditional release of the Indemnitee, or a release of the Indemnitee
reasonably satisfactory in form and substance to the Indemnitee.
E. VESTING OF ASSETS.
Except as otherwise provided in any provision of the Plan, on the Effective
Date, all property of the Estate shall vest in Reorganized Merisel, all free and
clear of all Claims, liens, encumbrances and Interests of Holders of Claims and
Holders of Old Common Stock. From and after the Effective Date, Reorganized
Merisel may operate its business and use, acquire, and dispose of property and
settle and compromise claims or interests arising post-Confirmation without
supervision by the Bankruptcy Court and free of any restrictions of the
Bankruptcy Code, the Bankruptcy Rules or the Local Bankruptcy Rules, other than
those restrictions expressly imposed by the Plan and the Confirmation Order.
F. PRESERVATION OF CAUSES OF ACTION.
Except as otherwise provided herein, or in any contract, instrument,
release, or other agreement entered into in connection with the Plan, in
accordance with section 1123(b) of the Bankruptcy Code, Reorganized Merisel
shall retain (and may enforce) any claims, rights and causes of action that
Merisel or the Estate may hold against any Person, including, inter alia, any
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claims, rights or causes of action under sections 544 through 550 of the
Bankruptcy Code or any similar provisions of state law, or any other statute or
legal theory.
G. RETENTION OF BANKRUPTCY COURT JURISDICTION.
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<PAGE>
Notwithstanding the entry of the Confirmation Order, the occurrence of the
Effective Date, and the closing of the Reorganization Case, the Bankruptcy Court
will retain such jurisdiction over the Reorganization Case after the Effective
Date as is legally permissible, including, without limitation, jurisdiction to:
(i) Allow, disallow, determine, liquidate, classify, estimate or
establish the priority or secured or unsecured status of any
Claim or Interest, including the resolution of any request
for payment of any Administrative Claim, the resolution of
any objections to the allowance or priority of Claims or
Interests and the resolution of any dispute as to the
treatment necessary to Reinstate a Claim pursuant to the
Plan;
(ii) Grant or deny any applications for allowance of compensation
or reimbursement of expenses authorized pursuant to the
Bankruptcy Code or the Plan, for periods ending before the
Effective Date;
(iii) Resolve any matters related to the assumption or rejection
of any executory contract or unexpired lease to which
Merisel is a party or with respect to which Merisel may be
liable, and to hear, determine and, if necessary, liquidate
any Claims arising there from;
(iv) Ensure that distributions to Holders of Allowed Claims or
Allowed Interests are accomplished pursuant to the
provisions of the Plan;
(v) Decide or resolve any motions, adversary proceedings,
contested or litigated matters and any other matters and
grant or deny any applications involving Merisel or
Reorganized Merisel that may be pending on the Effective
Date;
(vi) Enter such Orders as may be necessary or appropriate to
implement or consummate the provisions of the Plan and all
contracts, instruments, releases, indentures and other
agreements or documents created in connection with the Plan,
the Disclosure State ment or the Confirmation Order, except
as otherwise provided herein;
(vii) Resolve any cases, controversies, suits or disputes that may
arise in connection with the consummation, interpretation or
enforcement of the Plan or the Confirmation Order, including
the release and injunction provisions set forth in and
contemplated by the Plan and the Confirmation Order, or any
entity's rights arising under or obligations incurred in
connection with this Plan or the Confirmation Order;
(viii) Subject to any restrictions on modifications provided in any
contract, instrument, release, indenture or other agreement
or document created in connection with the Plan, modify this
Plan before or after the Effective Date pursuant to section
1127 of the Bankruptcy Code or modify the Disclosure
Statement, the Confirmation Order or any contract,
instrument, release or other agreement or document created
in connection with the Plan, the Disclosure Statement or
the Confirmation Order; or remedy any defect or omission or
reconcile any inconsistency in any Bankruptcy Court Order,
this Plan, the Disclosure Statement, the Confirmation Order
or any contract, instrument, release or other agreement or
document created in connection with the Plan, the Disclosure
Statement or the Confirmation Order, in such manner as may
be necessary or appropriate to consummate this Plan, to the
extent authorized by the Bankruptcy Code;
(ix) Issue injunctions, enter and implement other Orders or take
such other actions as may be necessary or appropriate to
restrain interference by any entity with consummation,
implementation or enforcement of the Plan or the
Confirmation Order;
(x) Enter and implement such Orders as are necessary or
appropriate if the Confirmation Order is for any reason
modified, stayed, reversed, revoked or vacated;
(xi) Determine any other matters that may arise in connection
with or relating to the Plan, the Disclosure Statement, the
Confirmation Order or any contract, instrument, release
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<PAGE>
or other agreement or document created in connection with
this Plan, the Disclosure Statement or the Confirmation
Order, except as otherwise provided in this Plan; and
(xii) Enter an Order Closing the Reorganization Case.
H. FAILURE OF BANKRUPTCY COURT TO EXERCISE JURISDICTION.
If the Bankruptcy Court abstains from exercising or declines to exercise
jurisdiction, or is otherwise without jurisdiction over any matter arising out
of the Reorganization Case, including the matters set forth in Section X.G
above. Section X.G shall not prohibit or limit the exercise of jurisdiction by
any other court having competent jurisdiction with respect to such matter.
I. COMMITTEES.
On the Effective Date, all Committees, if any, shall be dissolved, and the
members of such Committees shall be released and discharged from all further
rights and duties arising from or related to the Reorganization Case. The
professionals retained by such Committees and the members thereof shall not be
entitled to compensation or reimbursement of expenses incurred for services
rendered after the Effective Date other than for services rendered pursuant to
the Plan or in connection with other activities reserved to such Committees or
such professionals under the Plan or the Confirmation Order or in connection
with any application for allowance of compensation and reimbursement of expenses
pending as of, or Filed after, the Effective Date.
XI.
MISCELLANEOUS PROVISIONS
A. FINAL ORDER.
Any requirement in this Plan that an Order be a Final Order may be waived
by Merisel, provided that nothing contained herein or elsewhere in this Plan
shall prejudice the right of any party in interest to seek a stay pending appeal
with respect to such order.
B. MODIFICATION OF THE PLAN.
Merisel reserves the right to amend or modify the Plan at any time prior to
the Confirmation Date in the manner provided for by Section 1127 of the
Bankruptcy Code or as otherwise permitted by law without additional disclosure
pursuant to Section 1125 of the Bankruptcy Code, except as the Bankruptcy Court
may otherwise order. If any of the terms of the Plan are amended in a manner
determined by Merisel to constitute a material adverse change, Merisel will
promptly disclose any such amendment in a manner reasonably calculated to inform
the Holders of Old Securities of such amendment, and Merisel will extend the
solicitation period for acceptances of this Plan for a period which Merisel, in
its sole discretion, deems appropriate, depending upon the significance of the
amendment and the manner of disclosure to Holders of the Old Securities, if the
solicitation period would otherwise expire during such period.
Merisel reserves the right to amend the terms of the Plan or waive any
conditions thereto if and to the extent Merisel determines, after consultation
with the Ad Hoc Noteholders Committee, that such amendments or waivers are
necessary or desirable in order to consummate the Plan. Merisel will give all
Holders of Claims and Interests notice of such amendments or waivers as may be
required by applicable law and the Bankruptcy Court. If, after receiving
sufficient acceptances but prior to Confirmation of the Plan, Merisel seeks to
modify the Plan, Merisel can only use such previously solicited acceptances to
the extent permitted by applicable law. Merisel reserves the right to use
acceptances of the Plan received during its pre-petition solicitation of
acceptances under any other circumstances, including the filing of an
involuntary petition, subject to approval of the Bankruptcy Court.
C. REVOCATION OF THE PLAN.
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Merisel reserves the right to revoke or withdraw the Plan prior to the
Confirmation Date. If Merisel revokes or withdraws the Plan, or if Confirmation
does not occur, then the Plan shall be null and void, and nothing contained in
the Plan shall: (i) constitute a waiver or release of any Claims by or against,
or any Interests in, Merisel, or (ii) prejudice in any manner the rights of
Merisel in any further proceedings involving Merisel.
D. SEVERABILITY OF PLAN PROVISIONS.
If any term or provision of the Plan is held by the Bankruptcy Court to be
invalid, void or unenforceable, the Bankruptcy Court will have the power, upon
the request of Merisel, to alter and interpret such term or provision to make it
valid or enforceable to the maximum extent practicable, consistent with the
original purpose of the term or provision held to be invalid, void or
unenforceable, and such term or provision will then be applicable as altered or
interpreted. Notwithstanding any such holding, alteration or interpretation,
the remainder of the terms and provisions of this Plan will remain in full force
and effect and will in no way be affected, impaired or invalidated by such
holding, alteration or interpretation. The Confirmation Order will constitute a
judicial determination and will provide that each term and provision of this
Plan, as it may have been altered or interpreted in accordance with the
foregoing, is valid and enforceable pursuant to its terms.
E. SUCCESSORS AND ASSIGNS.
The rights, benefits and obligations of any Person named or referred to in
the Plan shall be binding on, and shall inure to the benefit of, any heir,
executor, trustee, administrator, successor or assign of such Person.
F. SATURDAY, SUNDAY OR LEGAL HOLIDAY.
If any payment or act under the Plan is required to be made or performed on
a date that is not a Business Day, then the making of such payment or the
performance of such act may be completed on the next succeeding Business Day,
but shall be deemed to have been completed as of the required date.
G. POST-EFFECTIVE DATE EFFECT OF EVIDENCES OF CLAIMS OR INTERESTS.
Notes, bonds, stock certificates and other evidences of Claims against or
Interests in Merisel, and all Instruments of Merisel (in either case, other than
those executed and delivered as contemplated hereby in connection with the
consummation of the Plan), shall, effective upon the Effective Date, represent
only the right to participate in the distributions contemplated by the Plan.
H. HEADINGS.
The headings used in the Plan are inserted for convenience only and neither
constitute a portion of the Plan nor in any manner affect the provisions of the
Plan.
I. GOVERNING LAW.
Unless a rule of law or procedure is supplied by (i) federal law (including
the Bankruptcy Code, the Bankruptcy Rules or the Local Bankruptcy Rules), (ii)
an express choice of law provision in any agreement, contract, instrument, or
document provided for, or executed in connection with, the Plan, or (iii)
applicable non-bankruptcy law, the rights and obligations arising under the Plan
and any agreements, contracts, documents, and instruments executed in connection
with the Plan shall be governed by, and construed and enforced in accordance
with, the laws of the State of Delaware without giving effect to the principles
of conflict of laws thereof.
J. NO LIABILITY FOR SOLICITATION OR PARTICIPATION.
As specified in section 1125(e) of the Bankruptcy Code, Persons that
solicit acceptances or rejections of the Plan and/or that participate in the
offer, issuance, sale, or purchase of securities offered or sold under the Plan,
in good faith and in compliance with the applicable provisions of the Bankruptcy
Code, shall not be liable, on account of such solicitation or participation, for
violation of any applicable law, rule, or regulation governing the solicitation
of acceptances or rejections of the Plan or the offer, issuance, sale, or
purchase of securities.
I-26
<PAGE>
K. NO ADMISSIONS OR WAIVER OF OBJECTIONS.
Notwithstanding anything herein to the contrary, nothing contained in the
Plan shall be deemed as an admission by Merisel or any other party with respect
to any matter set forth herein including, without limitation, liability on any
Claim or the propriety of any Claims classification.
I-27
<PAGE>
L. CONFIRMABILITY OF PLAN AND CRAMDOWN.
In the event at least one impaired Class of Claims votes to accept the Plan
(and at least one impaired Class either votes to reject the Plan or is deemed to
have rejected the Plan), Merisel reserves the right to request the Bankruptcy
Court to confirm the Plan under section 1129(b) of the Bankruptcy Code.
DATED: , 1997
MERISEL, INC., a Delaware corporation
By:
--------------------------------------------
[Name: ]
[Title: ]
PRESENTED BY:
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 South Grand Avenue
Los Angeles, California 90071-3144
(213) 687-5000
919 Third Avenue
New York, New York 10022-3897
(212) 735-3000
- and -
One Rodney Square
Wilmington, Delaware 19899-0636
(302) 651-3000
ATTORNEYS FOR MERISEL, INC.
I-28
<PAGE>
PART B
THE PREPACKAGED RESTRUCTURING DISCLOSURE STATEMENT
IMPORTANT: A BANKRUPTCY CASE HAS NOT BEEN COMMENCED
AS OF THE DATE OF THE DISTRIBUTION OF THIS DOCUMENT.
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF
--------------
- ----------------------------- x
)
In re: ) Case No. [ ]
)
MERISEL, INC., ) Chapter 11
)
Debtor. )
- ------------------------------x
DISCLOSURE STATEMENT WITH RESPECT TO
PLAN OF REORGANIZATION OF MERISEL, INC.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 South Grand Avenue
Los Angeles, California 90071-3144
(213) 687-5000
- and -
919 Third Avenue
New York, New York 10022
(212) 735-3000
- and -
One Rodney Square
Wilmington, Delaware 19899-0636
(302) 651-3000
ATTORNEYS FOR MERISEL, INC.
Date: , 1997
---------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I. INTRODUCTION................................................... 1
A. General................................................... 1
B. The Company............................................... 2
C. The Restructuring......................................... 2
1. Exchange Restructuring............................... 2
2. Prepackaged Restructuring............................ 3
D. Summary Of Classification And Treatment Of Claims
And Interests........................................... 4
E. Notice To Holders Of Claims And Interests................. 5
II. BUSINESS AND PROPERTIES OF THE COMPANY......................... 5
III. SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION......... 5
IV. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................ 6
V. BACKGROUND OF THE RESTRUCTURING................................ 6
VI. PURPOSES AND EFFECTS OF THE PREPACKAGED RESTRUCTURING.......... 6
A. Purpose Of The Prepackaged Restructuring.................. 6
B. Effects Of The Prepackaged Restructuring.................. 7
1. Dilution Of Equity Interests......................... 7
2. Provisions For Trade Creditors, Other Unsecured
Creditors And Secured Creditors..................... 7
3. Provisions For Employees............................. 8
VII. THE REORGANIZATION CASE........................................ 9
A. Timetable For Reorganization Case......................... 9
B. Advisors To The Company................................... 9
C. Committees................................................ 9
D. Actions To Be Taken Upon Commencement Of Case............. 10
VIII. OFFICERS AND DIRECTORS OF THE COMPANY.......................... 12
IX. SUMMARY OF THE PLAN............................................ 12
A. Brief Explanation Of Chapter 11........................... 12
B. General Information Concerning Treatment Of Claims
And Interests........................................... 13
C. Classification And Treatment Of Claims And Interests...... 13
1. Unclassified Claims.................................. 14
2. Classified Claims And Interests...................... 15
3. Additional Information Regarding Treatment Of
Certain Claims...................................... 16
D. Securities To Be Issued And Transferred Under The Plan.... 18
1. The New Common Stock................................. 18
2. The Warrants......................................... 18
3. Market And Trading Information....................... 18
E. Sources Of Cash To Make Plan Distributions................ 18
F. Conditions Precedent To Confirmation And
Consummation Of The Plan................................ 18
i
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
G. Modification Or Revocation Of The Plan; Severability...... 18
H. Distributions Under The Plan.............................. 19
I. Objections To Claims And Authority To Prosecute
Objections; Claims Resolution........................... 19
J. Setoffs................................................... 19
K. Executory Contracts And Unexpired Leases.................. 19
L. Continued Corporate Existence; Vesting Of Assets
In Reorganized Merisel.................................. 19
M. Preservation Of Rights Of Action Held By Merisel Or
Reorganized Merisel..................................... 20
N. Discharge Of Claims And Termination Of Interests;
Related Injunction...................................... 20
O. Releases And Certain Settlements Under The Plan;
Related Injunction; Indemnity........................... 20
P. Limitation Of Liability................................... 20
Q. Retention Of Bankruptcy Court Jurisdiction................ 21
X. RISK FACTORS................................................... 21
A. Disruption Of Operations Relating To Bankruptcy Filing.... 21
B. Certain Risks Of Non-Confirmation......................... 21
C. Certain Bankruptcy Considerations......................... 22
1. Treatment Of The Warrants............................ 22
2. Failure To File Prepackaged Plan..................... 23
3. Effect On Operations................................. 23
4. Nonconsensual Confirmation........................... 24
XI. OWNERSHIP OF CAPITAL SECURITIES................................ 24
XII. MARKET PRICES OF OLD COMMON STOCK; DIVIDEND HISTORY............ 24
XIII. MARKET PRICES OF 12.5% NOTES................................... 24
XIV. APPLICATION OF SECURITIES ACT.................................. 24
A. The Solicitation.......................................... 24
B. Issuance Of New Securities Pursuant To The Plan........... 24
XV. PREPACKAGED RESTRUCTURING ACCOUNTING TREATMENT................. 26
XVI. DESCRIPTION OF INDEBTEDNESS OF THE COMPANY..................... 26
XVII. DESCRIPTION OF 12.5% NOTES..................................... 26
XVIII. FINANCIAL PROJECTIONS AND ASSUMPTIONS USED..................... 26
XIX. PRO FORMA CONSOLIDATED FINANCIAL INFORMATION................... 26
XX. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN............ 26
A. Federal Income Tax Consequences To The Company............ 27
B. Federal Income Tax Consequences To Holders Of 12.5% Notes. 27
C. Federal Income Tax Consequences To Holders Of Old
Common Stock............................................ 27
ii
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
XXI. FEASIBILITY OF THE PLAN AND THE BEST INTERESTS OF CREDITORS TEST 28
A. Feasibility Of The Plan................................... 28
B. Best Interests Test....................................... 29
C. Chapter 7 Liquidation Analysis............................ 30
1. Liquidation Value Of The Company..................... 31
a. Estimated Liquidation Proceeds................. 31
b. Impact on Merisel's Operations Of The
Conversion To A Chapter 7 Liquidation....... 32
c. Nature And Timing Of The Liquidation Process... 32
d. Additional Liabilities And Reserves............ 32
e. Distributions; Absolute Priority............... 32
2. Conclusion........................................... 33
XXII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN...... 35
A. Continuation Of The Chapter 11 Case....................... 35
B. Liquidation Under Chapter 7 Or Chapter 11................. 35
XXIII. VOTING AND CONFIRMATION OF THE PLAN............................ 36
A. Voting Procedures And Requirements........................ 36
B. Who May Vote.............................................. 37
C. Voting Procedures For Holders Of Old Securities........... 37
D. Beneficial Owners Of Old Securities....................... 38
E. Brokerage Firms, Banks And Other Nominees................. 39
F. Securities Clearing Agent................................. 39
G. Incomplete Ballots........................................ 39
H. Voting Deadline And Extensions............................ 39
I. Withdrawal Of Votes On The Plan........................... 40
J. Information Agent......................................... 40
K. Acceptance Or Cramdown.................................... 40
XXIV. CONCLUSION..................................................... 42
</TABLE>
iii
<PAGE>
IMPORTANT
---------
A BANKRUPTCY CASE HAS NOT BEEN COMMENCED
AS OF THE DATE OF THE DISTRIBUTION OF THIS DOCUMENT.
THIS DISCLOSURE STATEMENT 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.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT. IF
MERISEL, INC. FILES A PETITION FOR RELIEF UNDER CHAPTER 11 OF THE BANKRUPT CY
CODE AND SEEKS CONFIRMATION OF ITS PREPACKAGED PLAN OF REORGANIZATION, THIS
DISCLOSURE STATEMENT WILL BE SUBMITTED TO THE BANKRUPTCY COURT.
DISCLOSURE STATEMENT, DATED [ ], 1997
---------------------------------------------------
SOLICITATION OF ACCEPTANCES WITH RESPECT
TO REORGANIZATION PLAN OF
REORGANIZATION OF MERISEL, INC.
FROM THE HOLDERS OF ITS OUTSTANDING
12 1/2 SENIOR NOTES DUE 2004
AND
COMMON STOCK
AS OF THE CLOSE OF BUSINESS ON [_______], 1997
THE VOTING DEADLINE TO ACCEPT OR REJECT
THE PLAN OF REORGANIZATION IS 5:00 P.M.,
EASTERN TIME, ON [__________], 1997, UNLESS EXTENDED.
i
<PAGE>
MERISEL, INC. ("MERISEL") HAS NOT COMMENCED A CASE UNDER THE BANKRUPTCY
CODE AT THIS TIME, BUT IS SOLICITING ACCEPTANCES OF THE PLAN FROM THE FOLLOWING
HOLDERS OF IMPAIRED CLAIMS AGAINST AND IMPAIRED INTERESTS IN MERISEL: HOLDERS OF
12.5% NOTES AND HOLDERS OF OLD COMMON STOCK. SIMULTANEOUSLY WITH THE
SOLICITATION OF ACCEPTANCES OF THE PLAN FROM MERISEL'S IMPAIRED CREDITORS AND
INTEREST HOLDERS, MERISEL IS (I) SOLICITING TENDERS FROM THE HOLDERS OF 12.5%
NOTES IN THE EXCHANGE OFFER AND (II) SOLICITING PROXIES FROM MERISEL'S
STOCKHOLDERS TO APPROVE THE CHARTER AMENDMENT, THE NEW COMMON STOCK ISSUANCE,
AND THE STOCK AWARD AND INCENTIVE PLAN PROPOSAL (EACH AS DEFINED IN PART A OF
THE EXCHANGE RESTRUCTURING PROSPECTUS).
IF LESS THAN 100% OF THE HOLDERS OF THE 12.5% NOTES TENDER THEIR 12.5%
NOTES UNDER THE EXCHANGE RESTRUCTURING, BUT SUFFICIENT VOTES FOR ACCEPTANCE OF
THE PLAN ARE RECEIVED, MERISEL INTENDS TO FILE THE REORGANIZATION CASE AND TO
SEEK CONFIRMATION OF THE PLAN. IF MERISEL DOES NOT RECEIVE THE REQUISITE
ACCEPTANCES OF THE PLAN BY THE VOTING DEADLINE (AS DEFINED BELOW), MERISEL
INTENDS TO EVALUATE OTHER AVAILABLE OPTIONS TO REORGANIZE MERISEL'S LIABILITIES,
INCLUDING COMMENCEMENT OF A NON-PREPACKAGED CHAPTER 11 REORGANIZATION CASE.
MERISEL'S OPERATING COMPANIES, INCLUDING WITHOUT LIMITATION MERISEL
AMERICAS, INC. AND MERISEL CANADA, INC., ARE NOT CHAPTER 11 DEBTORS AND DO NOT
INTEND TO COMMENCE CASES UNDER CHAPTER 11 OF THE BANKRUPTCY CODE. MERISEL'S
OPERATING COMPANIES WILL CONTINUE TO DO BUSINESS IN THE ORDINARY COURSE IF
MERISEL COMMENCES THE REORGANIZATION CASE.
MERISEL DOES NOT CURRENTLY INTEND TO COMMENCE A CASE UNDER CHAPTER 11 OF
THE BANKRUPTCY CODE WITH RESPECT TO ANY OF ITS OPERATING COMPANIES OR TO INCLUDE
ANY OF ITS OPERATING COMPANIES IN MERISEL'S PREPACKAGED CHAPTER 11 CASE.
MERISEL'S OPERATING COMPANIES INTEND TO CONTINUE OPERATING THEIR BUSINESSES IN
CHAPTER 11 IN THE ORDINARY COURSE AND TO SEEK NECESSARY RELIEF FROM THE
BANKRUPTCY COURT TO PAY THEIR EMPLOYEES, TRADE AND CERTAIN OTHER CREDITORS IN
FULL AND ON TIME. SUCH CREDITORS ARE NOT IMPAIRED UNDER THE PLAN.
THIS DISCLOSURE STATEMENT, WHICH HAS NOT BEEN REVIEWED OR APPROVED BY THE
BANKRUPTCY COURT, SOLICITS (THE "SOLICITATION") YOUR ACCEPTANCE OF THE ATTACHED
PLAN AND CONTAINS INFORMATION RELEVANT TO YOUR DECISION. PLEASE READ THIS
DISCLOSURE STATEMENT, THE PLAN AND THE OTHER SOLICITATION MATERIALS COMPLETELY
AND CAREFULLY. MERISEL BELIEVES THAT ACCEPTANCE OF THE PLAN IS IN THE BEST
INTERESTS OF ITS CREDITORS AND EQUITY HOLDERS. THE PLAN IS ATTACHED AS APPENDIX
I TO THIS DISCLOSURE STATEMENT. ALTHOUGH THIS DISCLOSURE STATEMENT HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AS PART OF THE PROSPECTUS,
NEITHER THE PLAN NOR THE SECURITIES TO BE ISSUED THEREUNDER HAVE BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THE PLAN OR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ONLY CLASSES OF CLAIMS AND INTERESTS IMPAIRED (AS DEFINED IN THE
BANKRUPTCY CODE) UNDER THE PLAN, AND ENTITLED TO VOTE ON THE PLAN, ARE CLASS 4
12.5% NOTES CLAIMS AND CLASS 6 OLD COMMON STOCK INTERESTS. BECAUSE NO OTHER
CLASSES ARE IMPAIRED, ALL HOLDERS OF CLAIMS IN SUCH OTHER CLASSES ARE NOT
ENTITLED TO VOTE ON, AND ARE CONCLUSIVELY PRESUMED TO HAVE ACCEPTED, THE PLAN.
HOLDERS OF IMPAIRED CLAIMS AND INTERESTS ARE ENCOURAGED TO READ AND CAREFULLY
CONSIDER THE MATTERS DESCRIBED IN THIS DISCLOSURE STATEMENT, INCLUDING THOSE
UNDER "RISK FACTORS," PRIOR TO SUBMITTING BALLOTS OR MASTER BALLOTS PURSUANT TO
THE SOLICITATION.
ii
<PAGE>
MERISEL HAS NEGOTIATED THE TERMS OF THE PLAN WITH THE AD HOC NOTEHOLDERS
COMMITTEE. THE AD HOC NOTEHOLDERS COMMITTEE HAS UNANIMOUSLY AGREED TO VOTE IN
FAVOR OF THE PLAN.
FOR THE PLAN TO BE CONFIRMED BY THE BANKRUPTCY COURT AS A CONSENSUAL PLAN,
(I) THE HOLDERS (OTHER THAN ANY HOLDER DESIGNATED UNDER SUBSECTION 1126(E) OF
THE BANKRUPTCY CODE) OF CLASS 4 12.5% NOTES CLAIMS WHO CAST VOTES IN FAVOR OF
THE PLAN MUST HOLD (A) AT LEAST TWO-THIRDS IN DOLLAR AMOUNT OF THE ALLOWED
CLAIMS ACTUALLY VOTING IN SUCH CLASS AND (B) MORE THAN ONE-HALF IN NUMBER OF THE
ALLOWED CLAIMS ACTUALLY VOTING IN SUCH CLASS, AND (II) THE HOLDERS (OTHER THAN
ANY HOLDER DESIGNATED UNDER SUBSECTION 1126(E) OF THE BANKRUPTCY CODE) OF CLASS
6 OLD COMMON STOCK INTERESTS WHO CAST VOTES IN FAVOR OF THE PLAN MUST HOLD AT
LEAST TWO-THIRDS IN AMOUNT OF ALLOWED INTERESTS ACTUALLY VOTING IN SUCH CLASS.
THERE IS NO MINIMUM LEVEL OF VOTING PARTICIPATION REQUIRED FOR CONFIRMATION OF
THE PLAN.
IF THE REORGANIZATION CASE IS COMMENCED, THE REQUISITE ACCEPTANCES TO THE
PLAN ARE RECEIVED, THE PLAN IS CONFIRMED BY THE BANKRUPTCY COURT AND THE
EFFECTIVE DATE OCCURS, ALL HOLDERS OF ALLOWED 12.5% NOTES CLAIMS AND HOLDERS OF
ALLOWED OLD COMMON STOCK INTERESTS (INCLUDING THOSE WHO DO NOT SUBMIT BALLOTS OR
MASTER BALLOTS TO ACCEPT OR TO REJECT THE PLAN AND THE TRANSACTIONS CONTEMPLATED
THEREBY) WILL BE BOUND BY THE PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE
DATE HEREOF AND NEITHER THE DELIVERY OF THIS DISCLOSURE STATEMENT NOR ANY
DISTRIBUTION OF PROPERTY PURSUANT TO THE PLAN WILL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AT ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
EACH CREDITOR AND EQUITY SECURITY HOLDER OF MERISEL SHOULD CONSULT WITH
SUCH CREDITOR'S OR EQUITY SECURITY HOLDER'S LEGAL, BUSINESS, FINANCIAL AND TAX
ADVISORS AS TO ANY SUCH MATTERS CONCERNING THE SOLICITATION, THE PLAN AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
iii
<PAGE>
I. INTRODUCTION
A. GENERAL
This Disclosure Statement is being furnished by Merisel, Inc. ("Merisel"),
a Delaware corporation, pursuant to section 1126(b) of the United States
Bankruptcy Code (the "Bankruptcy Code") and Bankruptcy Rule 3018(b), in
connection with the solicitation of acceptances, prior to the commencement of
the Reorganization Case, of Merisel's prepackaged plan of reorganization (the
"Plan") attached as Appendix I hereto (as it may be altered, amended, modified
or supplemented as described herein) from Holders of (i) 12.5% Notes and (ii)
Old Common Stock (the "Solicitation"). Capitalized terms not otherwise defined
herein shall have the respective meanings ascribed to them in the Plan.
The Plan is intended to enhance the long-term viability and contribute to
the success of Merisel by adjusting Merisel's capitalization (including debt
levels and principal repayment schedules) to reflect current and projected
operating performance levels. The Plan is designed to reduce Merisel's debt
service obligations to levels which can be supported by its projected cash flow
and to replace a significant portion of Merisel's indebtedness with New Common
Stock. Interest charges, required principal payments and total debt outstanding
will be substantially reduced if the Plan is approved and consummated. See
"UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION" herein.
The Plan provides for, among other things: (i) issuing and distributing New
Common Stock to Holders of 12.5% Notes; and (ii) issuing and distributing New
Common Stock and the Warrants to Holders of Old Common Stock. In consideration
of such distributions, the 12.5% Notes and Old Common Stock will be cancelled.
MERISEL'S OPERATING SUBSIDIARIES, INCLUDING WITHOUT LIMITATION MERISEL
AMERICAS, INC. AND MERISEL CANADA, INC., ARE NOT CHAPTER 11 DEBTORS AND DO NOT
INTEND TO COMMENCE CASES UNDER CHAPTER 11 OF THE BANKRUPTCY CODE. MERISEL'S
OPERATING SUBSIDIARIES INTEND TO CONTINUE TO DO BUSINESS IN THE ORDINARY COURSE
IF MERISEL COMMENCES THE REORGANIZATION CASE.
Holders of the 12.5% Notes and Holders of Old Common Stock should read this
Prospectus and Disclosure Statement, together with the Plan, the form of Ballot
and/or Master Ballot, as applicable, and the applicable Voting Instructions
(collectively, the "Solicitation Materials"), in their entirety before voting on
the Plan.
Pursuant to the provisions of the Bankruptcy Code, only Impaired Classes of
Claims and Interests are entitled to vote to accept or reject the Plan. The
only Class of Claims impaired under the Plan consists of the Holders of Class 4
12.5% Notes Claims. The only Class of Interests impaired under the Plan
consists of the Holders of Class 6 Old Common Stock Interests. See "SUMMARY OF
PLAN" herein for a description of these Classes. Merisel is seeking acceptance
of the Plan by Holders of Class 4 12.5% Notes Claims and Holders of Class 6 Old
Common Stock Interests. ALL OTHER CLASSES ARE UNIMPAIRED AND HOLDERS OF CLAIMS
IN SUCH CLASSES ARE CONCLUSIVELY PRESUMED TO HAVE ACCEPTED THE PLAN PURSUANT TO
SECTION 1126(F) OF THE BANKRUPTCY CODE.
UNLESS OTHERWISE DIRECTED BY THE BANKRUPTCY COURT, ONLY VOTES CAST BY OR AT
THE DIRECTION OF BENEFICIAL INTEREST HOLDERS OF OLD SECURITIES IN ACCORDANCE
WITH THE VOTING INSTRUCTIONS WILL BE COUNTED FOR PURPOSES OF VOTING ON THE PLAN.
SEE "VOTING AND CONFIRMATION OF THE PLAN" HEREIN.
The Solicitation will expire at 5:00 p.m., Eastern time on the Voting
Deadline, [__________, _______ __, 1997,] unless the Voting Deadline is extended
or waived by Merisel. After carefully reviewing this Disclosure Statement, the
Plan and the other applicable Solicitation Materials, each Holder of a 12.5%
Notes
<PAGE>
Claim and each Holder of an Old Common Stock Interest should vote to accept or
reject the Plan in accordance with the Voting Instructions, and return the
appropriate Ballot(s) or Master Ballot(s) in accordance with the instructions
set forth therein so they are received prior to the Expiration Date. For
further information, see "VOTING AND CONFIRMATION OF THE PLAN" herein.
B. THE COMPANY
Merisel, a holding company, is a leading distributor of computer hardware,
networking equipment and software products. Through its main operating
Subsidiary, Merisel Americas, Inc. ("Merisel Americas") and its other operating
Subsidiaries (collectively, the "Operating Companies"), Merisel markets products
and services throughout North America and has achieved operational efficiencies
that have made it a valued partner to a broad range of computer resellers,
including value-added resellers (VARs), commercial resellers/dealers, and
retailers. Merisel also has established the Merisel Open Computing Alliance
(MOCA(TM)), a division which primarily supports Sun Microsystems' UNIX-based
product sales and installations.
Merisel was originally incorporated in California in October 1980, was
reincorporated in Delaware in August 1988, and changed its name from Softsel
Computer Products, Inc. to Merisel, Inc. in August 1990.
In this Disclosure Statement, unless the context otherwise requires,
Merisel and its Subsidiaries are referred to as the "Company." The Company's
principal executive offices are located at 200 Continental Boulevard, El
Segundo, California 90245. Its telephone number is (310) 615-3080.
C. THE RESTRUCTURING
Merisel is simultaneously proposing alternative means of accomplishing its
financial restructuring. The proposed financial restructuring of Merisel
pursuant to the Plan is referred to as the "Prepackaged Restructuring." The
proposed financial restructuring of Merisel pursuant to the Exchange Offer and
without commencement of a bankruptcy case is referred to as the "Exchange
Restructuring." The term "Restructuring" as used herein means the financial
restructuring of Merisel pursuant to either the Exchange Restructuring or the
Prepackaged Restructuring. The term "Restructuring Closing Date" as used herein
means either the consummation of the Exchange Offer or the occurrence of the
Effective Date under the Plan, as the case may be.
1. EXCHANGE RESTRUCTURING
The Exchange Restructuring is designed to accomplish the Restructuring
without the commencement of a bankruptcy case. Before the Exchange
Restructuring can be consummated (but subject to Merisel's right to amend and/or
waive conditions to the Exchange Offer), Holders of 12.5% Notes must tender (and
not subsequently withdraw) by the expiration date for the Exchange Offer one
hundred percent (100%) of the aggregate principal amount of the 12.5% Notes
pursuant to Merisel's offer to all such Holders to effect the exchange described
below. The Exchange Restructuring would permit Holders of 12.5% Notes to
exchange their 12.5% Notes for New Common Stock.
In connection with the Exchange Restructuring, Merisel is soliciting
proxies from Merisel's stockholders and is holding a Special Meeting of
Stockholders to consider and vote upon the Common Stock Issuance, the Charter
Amendment, and the Stock Award and Incentive Plan Proposal (each as defined in
Part A of this Prospectus). For additional information concerning the terms of
the Exchange Restructuring, recipients of this Disclosure Statement are referred
to Part A of this Prospectus.
2
<PAGE>
2. PREPACKAGED RESTRUCTURING
The Prepackaged Restructuring would be accomplished by obtaining an order
of a bankruptcy court confirming the Plan as to which acceptances in sufficient
number and amount have been solicited and received prior to filing the
Reorganization Case. The Prepackaged Restructuring generally would give effect
to the same transactions contemplated in the Exchange Restructuring, including
(i) the exchange of 12.5% Notes for New Common Stock on similar terms as
provided in the Exchange Offer, (ii) a distribution of New Common Stock and
Warrants to holders of Old Common Stock, and (iii) changes to Merisel's
Certificate of Incorporation similar to the Charter Amendment. See "PURPOSES
AND EFFECTS OF THE PREPACKAGED RESTRUCTURING" and "SUMMARY OF THE PLAN" herein.
If the Plan is confirmed and the Effective Date occurs, (i) all 12.5% Notes
will be cancelled and satisfied in full by the issuance of New Common Stock to
holders of 12.5% Notes and (ii) Holders of Old Common Stock will receive New
Common Stock and the Warrants, and (iii) the Reorganized Merisel Certificate of
Incorporation will become effective.
Under the terms of both the Prepackaged Restructuring and the Exchange
Restructuring, Holders of 12.5% Notes would receive, in the aggregate,
approximately 80% of the New Common Stock. All Priority Claims, Unsecured
Claims and Secured Claims will remain unimpaired.
Generally, for the Plan to be approved, acceptances must be received from
(i) the Holders of Class 4 Claims constituting at least two-thirds in dollar
amount of such Allowed Claims and more than one-half in number of the Allowed
Class 4 Claims, in each case, counting only Holders that vote, and (ii) the
Holders of at least two-thirds in amount of the Allowed Old Common Stock
Interests in Class 6, counting only Holders of such Interests that vote. There
is no minimum level of voting participation required for confirmation of the
Plan. See "SUMMARY OF THE PLAN" herein. For a discussion of the procedures for
voting on the Plan, see "VOTING AND CONFIRMATION OF THE PLAN" herein.
Holders are not required to tender their 12.5% Notes and Old Common Stock
to vote on the Plan. It is important, however, that all Holders of 12.5% Notes
(whether or not they tender their 12.5% Notes in the Exchange Offer) and all
Holders of Old Common Stock vote to accept or reject the Plan, because under the
Bankruptcy Code, for purposes of determining whether the requisite acceptance of
Holders has been received with respect to an Impaired Class of Claims or an
Impaired Class of Interests, the vote will be tabulated based on the ratio of
accepting Holders of each Class of Claims or Interests to all voting Holders of
such Class of Claims or Interests. In each case, only the votes of Holders of
Allowed Claims and Interests are counted. Abstentions, as a result of failing
to submit a Ballot or Master Ballot (as applicable) or submitting a Ballot or
Master Ballot (as applicable) which has not been properly executed and completed
with respect to voting, will not be counted as votes for or against the Plan.
See "VOTING AND CONFIRMATION OF THE PLAN" herein.
If Merisel receives the Minimum Tender of 12.5% Notes and has satisfied or
waived all conditions required to consummate the Exchange Restructuring and also
receives sufficient acceptances of the Plan, Merisel intends to consummate the
Exchange Restructuring. If Merisel does not receive the Minimum Tender pursuant
to the Exchange Offer to permit its consummation, but does obtain sufficient
acceptances in the amounts set forth above of the Plan to seek confirmation
thereof by a bankruptcy court, Merisel expects to seek relief under Chapter 11
of the Bankruptcy Code and attempt to use such acceptances to obtain
confirmation of the Plan. If the requisite number and amount of votes for
acceptance of the Plan are not received (or if received, are subsequently
revoked or withdrawn) by the Expiration Date, Merisel will consider all
financial alternatives available to it at such time, which may include the sale
of all or part of Merisel's business, the implementation of an alternative
restructuring arrangement outside of bankruptcy (including refinancing the
indebtedness under the Operating Companies Loan Agreements or seeking waivers
thereunder) or the filing of a Chapter 11 case without a pre-approved plan of
reorganization. See "ALTERNATIVES TO
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<PAGE>
CONFIRMATION AND CONSUMMATION OF THE PLAN" herein. Merisel hereby reserves the
absolute right to use any votes which have been received (and not subsequently
revoked or withdrawn) pursuant to the Solicitation to seek confirmation of the
Plan (or any modification thereof) if it has not received the acceptance of all
Impaired Classes of Interests in the amounts set forth above.
Confirmation of the Plan is conditioned on satisfaction of all substantive
confirmation requirements of section 1129 of the Bankruptcy Code, the
Confirmation Order being acceptable in form and substance to Merisel, and entry
of a Confirmation Order expressly authorizing and directing Merisel to perform
therein. Consummation of the Plan is conditioned on the Confirmation Order
having become a Final Order, and payment of all statutory fees owing the United
States Trustee. Merisel, in its sole discretion, may waive any of the
conditions to Confirmation and/or the Effective Date of the Plan at any time,
without notice or an order of the Bankruptcy Court and without any formal action
other than proceeding to confirm and/or consummate the Plan. See "SUMMARY OF
THE PLAN" herein.
At the closing of the Prepackaged Restructuring, which would occur on the
Effective Date (i.e., the date selected by Merisel, which shall be as soon as
reasonably practicable but that is at least 11 days after the Confirmation Date
and on which all conditions to the Effective Date set forth in the Plan have
been satisfied or, if permitted, waived by Merisel), among other things, the
Plan would become effective, the New Common Stock and Warrants would become
issuable, the 12.5% Notes and the Old Common Stock would be cancelled and
Merisel's obligations thereunder would be discharged, and the Reorganized
Merisel Certificate of Incor poration would become effective.
D. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
The Plan categorizes into six Classes the Claims against and Interests in
Merisel which will exist on the date Merisel files its voluntary petition for
reorganization relief under Chapter 11 of the Bankruptcy Code. The Plan also
provides that Administrative Expenses incurred by Merisel during the
Reorganization Case will be paid in full and specifies the manner in which the
Claims and Interests in each Class are to be treated. The table below provides
a summary of the classification and treatment of, and distributions to, Claims
and Interests under the Plan:
<TABLE>
<CAPTION>
CLASS TYPE OF CLAIM DISTRIBUTION
OR EQUITY INTEREST
<S> <C> <C>
Class 1 Secured Claims Reinstated
Class 2 Priority Claims Paid in full
Class 3 Subsidiary Debt Guaranty Claims Reinstated
Class 4 12.5% Notes Claims Will receive 80% of New Common Stock
Class 5 General Unsecured Claims Paid in full
Class 6 Old Common Stock Interests Will receive 20% of New Common Stock
and
Warrants
</TABLE>
For a more detailed description of the foregoing Classes of Claims and
Equity Interests, see "SUMMARY OF THE PLAN" herein.
4
<PAGE>
E. NOTICE TO HOLDERS OF CLAIMS AND INTERESTS
This Disclosure Statement is being transmitted only to holders of Impaired
Claims against and Impaired Interests in Merisel who are entitled to vote to
accept or reject the Plan.
WHEN CONFIRMED BY THE BANKRUPTCY COURT, THE PLAN WILL BIND ALL HOLDERS OF
CLAIMS AGAINST AND INTERESTS IN MERISEL, WHETHER OR NOT THEY ARE ENTITLED TO
VOTE OR DID VOTE ON THE PLAN AND WHETHER OR NOT THEY RECEIVE OR RETAIN ANY
DISTRIBUTIONS OR PROPERTY UNDER THE PLAN. THUS, ALL HOLDERS OF IMPAIRED CLAIMS
AGAINST AND IMPAIRED INTERESTS IN MERISEL ARE ENCOURAGED TO READ THE PROXY
STATEMENT/PROSPECTUS, THE EXCHANGE RESTRUCTURING PROSPECTUS, THIS DISCLOSURE
STATEMENT AND ITS EXHIBITS CAREFULLY AND IN THEIR ENTIRETY BEFORE VOTING TO
ACCEPT OR TO REJECT THE PLAN. This Disclosure Statement contains important
information about the Plan, considerations pertinent to acceptance or rejection
of the Plan, and developments concerning the Reorganization Case.
CERTAIN OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS BY ITS
NATURE FORWARD LOOKING AND CONTAINS ESTIMATES, ASSUMPTIONS, AND PROJECTIONS THAT
MAY BE MATERIALLY DIFFERENT FROM ACTUAL, FUTURE RESULTS.
Except with respect to the projections referenced in "FINANCIAL PROJECTIONS
AND ASSUMPTIONS USED" herein (the "Projections") and except as otherwise
specifically and expressly stated herein, this Disclosure Statement does not
reflect any events that may occur subsequent to the date hereof. Such events
may have a material impact on the information contained in this Disclosure
Statement. Merisel and Reorganized Merisel do not intend to update the
Projections. Thus, the Projections will not reflect the impact of any
subsequent events not already accounted for in the assumptions underlying the
Projections. Further, Merisel does not anticipate that any amendments or
supplements to this Disclosure Statement will be distributed to reflect such
occurrences. Accordingly, the delivery of this Disclosure Statement shall not
under any circumstance imply that the information herein is correct or complete
as of any time subsequent to the date hereof.
EXCEPT WHERE SPECIFICALLY NOTED, THE FINANCIAL INFORMATION CONTAINED HEREIN
HAS NOT BEEN AUDITED BY A CERTIFIED PUBLIC ACCOUNTANT AND HAS NOT BEEN PREPARED
IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
If you did not receive a Ballot in your package of Solicitation Materials
and believe that you should have, please contact the Information Agent named
below at the address or telephone number set forth in Section XXIII.J of this
Disclosure Statement.
II. BUSINESS AND PROPERTIES OF THE COMPANY
For a discussion of the business and properties of the Company, see
"BUSINESS AND PROPERTIES OF THE COMPANY" in Part A of the Exchange Restructuring
Prospectus.
III. SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
For selected financial data concerning the Company for each of the five
years ended December 31, 1996, see "SELECTED HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION" in Part A of the Exchange Restructuring Prospectus.
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<PAGE>
IV. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
For management's discussion and analysis of the Company's financial
condition and the results of its operations, see "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in Part A of the
Exchange Restructuring Prospectus.
V. BACKGROUND OF THE RESTRUCTURING
For a discussion of the background of and events leading to the
Restructuring, see "BACKGROUND OF THE RESTRUCTURING" in Part A of the Exchange
Restructuring Prospectus.
VI. PURPOSES AND EFFECTS OF THE PREPACKAGED RESTRUCTURING
A. PURPOSE OF THE PREPACKAGED RESTRUCTURING
The Plan is intended to enhance the long-term viability and contribute to
the success of Merisel by adjusting Merisel's capitalization (including debt
levels and principal repayment schedules) to reflect current and projected
operating performance levels. Specifically, the Plan is designed to reduce
Merisel's debt obligations by $125 million, to levels which Merisel believes can
be supported by its projected cash flow and to replace a significant portion of
Merisel's indebtedness with New Common Stock. Interest charges will be
substantially reduced if the Plan is approved and consummated. In addition,
required principal payments and total debt outstanding will be substantially
reduced. The amount of outstanding Capital Stock of Merisel will be
substantially increased as a result of the Prepackaged Restructuring. See "PRO
FORMA CONSOLIDATED FINANCIAL INFORMATION" herein. For a discussion of the
purpose and effects of the Exchange Restructuring, see "PURPOSES OF THE
RESTRUCTURING" in Part A of the Exchange Restructuring Prospectus.
THE OPERATING COMPANIES, INCLUDING WITHOUT LIMITATION MERISEL AMERICAS,
INC. AND MERISEL CANADA, INC., ARE NOT CHAPTER 11 DEBTORS AND DO NOT INTEND TO
COMMENCE CASES UNDER CHAPTER 11 OF THE BANKRUPTCY CODE. MERISEL'S OPERATING
COMPANIES WILL CONTINUE TO DO BUSINESS IN THE ORDINARY COURSE IF MERISEL
COMMENCES THE REORGANIZATION CASE.
Merisel believes that the Prepackaged Restructuring is a significantly more
attractive alternative than a bankruptcy case without a pre-approved plan of
reorganization. Merisel believes that acceptance of the Plan before a
bankruptcy case is commenced would be more beneficial to Merisel and all of its
creditors, equity security holders and other constituents than seeking to obtain
confirmation of a plan having the same terms as the Plan after a bankruptcy case
is commenced, because the Plan should minimize disputes during such case
concerning the reorganization of Merisel, significantly shorten the time
required to accomplish the reorganization, reduce the expenses of a case under
Chapter 11 of the Bankruptcy Code, minimize the disruption of Merisel's business
that would result from a protracted and contested bankruptcy case, and therefore
result in a larger distribution to Merisel's creditors and equity security
holders than would any non-prepackaged reorganization under Chapter 11 of the
Bankruptcy Code or a liquidation under Chapter 7 of the Bankruptcy Code. See
Section XXI.C - "Chapter 7 Liquidation Analysis" herein.
There can be no assurance, however, that even if all requisite acceptances
of the Plan are received and the Reorganization Case is commenced, the
Prepackaged Restructuring would ever be completed, that Merisel could
successfully be reorganized under Chapter 11 of the Bankruptcy Code, that
Merisel would not
6
<PAGE>
suffer a disruption in its business operations as a result of filing the
Reorganization Case or, even if the Prepackaged Restructuring were eventually
completed, that the time period which it would take Merisel to emerge from the
Reorganization Case in connection with the Plan would be significantly shorter
than under a non-prepackaged Chapter 11 case. If Merisel determines that it is
or will be unable to complete the Restructuring, Merisel will consider all
financial alternatives available to it at such time, which may include the sale
of all or part of Merisel's business, the implementation of an alternative
restructuring arrangement outside of bankruptcy (including refinancing the
indebtedness under the Operating Companies Loan Agreement or seeking waivers
thereunder) or the commencement of a Chapter 11 case without a pre-approved plan
of reorganization. See "ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE
PLAN" herein. There can be no assurance, however, that any alternative
restructuring would result in a reorganization of Merisel rather than a
liquidation, or that any such reorganization would be on terms as favorable to
the Holders of Claims and Holders of Interests as the terms of the Prepackaged
Restructuring. If a liquidation or a protracted and non-orderly reorganization
were to occur, there is a risk that the ability of the Holders of Claims and
Interests to recover their investments would be even more impaired than under
the Prepackaged Restructuring and would be substantially delayed and a non-
consensual restructuring would likely have a material adverse impact on the
Company and its employees, suppliers and customers. See "RISK FACTORS" herein.
B. EFFECTS OF THE PREPACKAGED RESTRUCTURING
If confirmed, the Plan will implement the Prepackaged Restructuring by
providing for, among other things (i) the exchange of 12.5% Notes for New Common
Stock on substantially the same terms as provided in the Exchange Offer and (ii)
the issuance of New Common Stock and Warrants to holders of Old Common Stock.
If the Reorganization Case is commenced and the Plan is confirmed, all
Holders of 12.5% Notes and Holders of Old Common Stock will be bound by the
terms of the Plan whether or not they have voted to accept the Plan in
accordance with the Plan and the Voting Instructions. To be counted, Ballots
and Master Ballots to vote to accept or reject the Plan described herein must be
submitted in accordance with the Voting Instructions. See "VOTING AND
CONFIRMATION OF THE PLAN" herein.
1. DILUTION OF EQUITY INTERESTS
Under the Plan, each Holder of 12.5% Notes will be entitled to receive, in
full and final satisfaction of such Holder's Allowed Class 4 Claim, 192.5 shares
of New Common Stock for each $1,000 of 12.5% Notes held by such Holder, thus
enabling such Holders to participate in the economic results and any future
growth of Reorganized Merisel. The issuance to Holders of 12.5% Notes of shares
of New Common Stock upon consummation of the Plan will result in significant
dilution of the equity interests of the existing holders of Common Stock.
Following consummation of the Plan, the 24,062,796 shares issued directly to
Holders of Allowed 12.5% Note Claims will represent approximately 80 percent of
the total outstanding shares of New Common Stock (excluding shares obtainable
upon exercise of Warrants) and the 35,342,232 million total shares (including
those obtainable upon exercise of the Warrants) will represent 68.1 percent of
the total outstanding shares of New Common Stock, in each case based on shares
that will be issued and outstanding as of the Effective Date. See "Section IX.E
herein - "Securities To Be Issued Under The Plan."
2. PROVISIONS FOR TRADE CREDITORS, OTHER UNSECURED CREDITORS AND SECURED
CREDITORS
DURING THE PENDENCY OF THE REORGANIZATION CASE AND THEREAFTER, MERISEL
INTENDS TO CONTINUE TO OPERATE ITS BUSINESS IN THE ORDINARY COURSE AND MAKE
PAYMENT IN FULL ON A TIMELY BASIS TO ITS POSTPETITION TRADE CREDITORS. MERISEL
ALSO EXPECTS THAT IMMEDIATELY UPON FILING THE PREPACKAGED CHAPTER 11 CASE, IT
WILL REQUEST AUTHORITY FROM THE BANKRUPTCY COURT TO
7
<PAGE>
PAY ALL UNDISPUTED TRADE CLAIMS AND CERTAIN OTHER CLASS 5 CLAIMS IN THE ORDINARY
COURSE OF ITS BUSINESS.
If Merisel commences the Reorganization Case, Merisel intends and the Plan
provides that Class 1 Secured Claims and Class 5 General Unsecured Claims
(including Trade Claims) will be unimpaired and that after confirmation of the
Plan Creditors holding such Claims will be entitled to assert their Claims to
the full extent of the legal and equitable rights of such Creditors as they
existed immediately prior to the commencement of the Reorganization Case, but
subject to all of the legal and equitable rights of the parties with respect to
such Claims as such rights existed immediately prior to the filing of the
Reorganization Case. Because Merisel is a holding company whose operating
businesses are conducted by Merisel's Operating Companies, Merisel has few trade
creditors. Merisel's Operating Companies, including, without limitation,
Merisel Americas, Inc. and Merisel Canada, Inc., do not intend to commence
Chapter 11 cases.
Subject to Bankruptcy Court approval, the legal, equitable and contractual
rights of the Holders of Class 1 Claims and Class 5 Claims are unaltered by the
Plan and the maturity date or dates of such Claims shall be reinstated to the
date or dates which existed in the agreements evidencing such Claims prior to
any acceleration of such Claims, subject to the legal and equitable rights of
the parties with respect to such Claims as they existed immediately prior to the
filing of the Plan. Holders of Class 1 Claims and/or Class 5 Claims under
rejected executory contracts and unexpired leases must file proofs of claim, and
will be subject to the provisions of the Bankruptcy Code, however. Merisel will
make payments required by section 1124(2) of the Bankruptcy Code to Holders of
Class 1 Claims and Class 5 Claims on the Effective Date or as soon thereafter as
is practicable, but in no event later than thirty days after the Effective Date.
See "SUMMARY OF THE PLAN" herein.
Under the Plan, Holders of Secured Claims and Unsecured Claims do not have
to file, and should not file, proofs of claims with the court and no bar date
will be enforced as to their Claims. Notwithstanding the previous sentence, any
Holder of a Claim under an executory contract or an unexpired lease which has
been rejected by Merisel must file a proof of claim with the Bankruptcy Court, a
bar date will be enforced as to such Claims and Holders of such Claims will be
subject to the provisions of the Bankruptcy Code. It is the intention of
Merisel that, subject to successful Confirmation and consummation of the Plan,
disputes, if any, relating to Secured Claims and Unsecured Claims (other than
claims under rejected executory contracts or unexpired leases) will be
determined, resolved or adjudicated in accordance with applicable law as if the
Reorganization Case had not been filed.
3. PROVISIONS FOR EMPLOYEES
If Merisel files the Plan, Merisel intends for salaries or wages, as the
case may be, accrued paid vacation, health-related benefits, severance benefits
and similar employee benefits to be unaffected. Employee benefit claims that
accrue prior to the Petition Date will receive unimpaired treatment under the
terms of the Plan. See "SUMMARY OF THE PLAN" herein.
The Holding Company, has only four (4) employees, three of whom are senior
executive officers. In order to ensure the continuity of this work force and to
further accommodate the unimpaired treatment of employee benefits, Merisel
intends to seek the approval of the Bankruptcy Court, immediately upon
commencement of the Prepackaged Chapter 11 Case, to honor payroll checks
outstanding as of the Petition Date, to permit Merisel employees to utilize
their paid vacation time which was accrued prior to the commencement of the
Reorganization Case and to continue paying medical benefits under applicable
employee health plans. Merisel also intends to seek authorization from the
Bankruptcy Court to honor, pay and/or perform in the ordinary course, wages,
salaries, paid vacation and other employee benefits which accrue after the
Petition Date. There can be no assurance, however, that any necessary approval
will be obtained. Employee claims and benefits not paid or honored, as the case
may be, prior to the consummation of the Plan, will be paid or
8
<PAGE>
honored upon consummation or as soon thereafter as such payment or other
obligation becomes due or payable. Merisel also intends to leave unaltered all
other legal, equitable and contractual rights of employees under its employment
and severance policies, compensation and benefit plans including any employee
stock options or stock appreciation right agreement, and all other agreements,
contracts and programs applicable to its employees. See "SUMMARY OF THE PLAN"
herein.
VII. THE REORGANIZATION CASE
A. TIMETABLE FOR REORGANIZATION CASE
Following the Petition Date, Merisel expects the Reorganization Case to
proceed on the following estimated timetable. There can be no assurance,
however, that the Bankruptcy Court's Orders to be entered on or after the
Petition Date will permit the Reorganization Case to proceed as expeditiously as
anticipated.
Merisel anticipates that the hearing on confirmation of the Plan, at which
the Bankruptcy Court would also consider whether the Solicitation complied with
Section 1126(b) of the Bankruptcy Code so as to permit the prepetition votes on
the Plan to be counted towards Confirmation, would occur on or about day 30 of
the Reorganization Cases following at least 25 days notice of the Confirmation
Hearing and of the time for filing objections to Confirmation of the Plan.
Assuming that the Plan is confirmed at the initial Confirmation Hearing,
the Plan provides that the Effective Date will be a Business Day, as determined
by Merisel, that is as soon as reasonably practicable but that is at least 11
days after the Confirmation Date and on which: (a) no stay of the Confirmation
Order is in effect and (b) all conditions to the Effective Date set forth in
Section IX of the Plan have been satisfied or waived (if available) pursuant to
Section IX.C of the Plan.
Under the foregoing timetable, Merisel would emerge from the Reorganization
Case within 45 to 60 days after the Petition Date. There can be no assurance,
however, that this projected timetable will be achieved.
B. ADVISORS TO THE COMPANY
Merisel intends to seek bankruptcy court authorization to retain certain
professionals to represent it and assist it in connection with the
Reorganization Case. These professionals were consulted in connection with the
negotiation and development of the Plan. These professionals may include, among
others: (i) Skadden, Arps, Slate, Meagher & Flom LLP, as counsel for Merisel;
(ii) Donaldson, Lufkin & Jenrette ("DLJ"), as financial advisors to Merisel, and
(iii) Deloitte & Touche LLP, as accountants to Merisel.
For additional discussion of professional advisors retained by Merisel in
connection with the Restructuring, see "ADVISORS AND REPRESENTATIVES" in Part A
of the Exchange Restructuring Prospectus.
C. COMMITTEES
To facilitate negotiations and otherwise provide for a unified and
efficient representation of unsecured creditors and equity interest holders with
similar rights and interests, the U.S. Trustee will generally appoint one or
more statutory committees as soon as practicable after the Filing Date, pursuant
to section 1102 of the Bankruptcy Code. Ordinarily, one committee will be
appointed to represent unsecured creditors, but the U.S. Trustee may appoint
additional committees to represent equity interest holders and/or creditors if
deemed necessary to assure adequate representation of creditors or equity
interest holders. A creditors committee will ordinarily consist of those
creditors willing to serve who hold the seven largest claims against Merisel of
those
9
<PAGE>
claims to be represented by the committee, or of the members of a prepetition
committee if it was fairly chosen and is representative. The fees and expenses
of such committees, including those of legal counsel and financial advisors, are
paid for from Merisel's Estate.
Merisel expects that, if the Reorganization Case is commenced, a request
may be made to the U.S. Trustee to appoint the Ad Hoc Noteholders Committee as
the official committee of unsecured creditors during the Reorganization Case.
Holders of equity interests are not ordinarily represented by an official
committee, but such a committee may be appointed if the Bankruptcy Court
determines such an official committee to be necessary to assure the adequate
representation of Interest Holders. Committees appointed by the U.S. Trustee
would be considered parties in interest and would have a right to be heard on
all matters concerning the Chapter 11 cases, including the Confirmation of the
Plan and, additionally, would be entitled to consult with Merisel concerning the
administration of the Reorganization Case and perform such other functions and
services that would further the interests of those creditors or Interest Holders
they represent.
D. ACTIONS TO BE TAKEN UPON COMMENCEMENT OF CASE
Merisel does not expect the Reorganization Case to be protracted. To
expedite its emergence from Chapter 11, Merisel intends to seek the relief
detailed below, among other relief, from the Bankruptcy Court on the Petition
Date. Such relief, if granted, will facilitate the administration of the
Reorganization Case, but there can be no assurance, however, that the Bankruptcy
Court will grant the relief sought.
APPLICATIONS TO RETAIN PROFESSIONALS. Upon commencement of the
reorganization Case, Merisel intends to file applications to retain the
reorganization professionals who will assist and advise Merisel in connection
with administration of the Reorganization Case. Merisel also intends to seek
authority to retain certain professionals to assist with the operations of the
Company's businesses in the ordinary course. Such so-called "ordinary course
professionals" will not be involved in the administration of the Reorganization
Case.
MOTION TO WAIVE FILING OF SCHEDULES AND STATEMENT OF FINANCIAL AFFAIRS.
Section 521 of the Bankruptcy Code and Bankruptcy Rule 1007 direct that debtors
must prepare and file certain schedules of claims, executory contracts and
unexpired leases and related information (the "Schedules") and a statement of
financial affairs (the "Statement") when a Chapter 11 case is commenced. The
purpose of filing the Schedules and the Statement is to provide a debtor's
creditors, equity interest holders and other interested parties with sufficient
information to make informed decisions regarding the debtor's reorganization.
Filing the Schedules and the Statement, however, is not mandatory. A bankruptcy
court may modify or dispense with the filing of the Schedules and the Statement
pursuant to section 521 of the Bankruptcy Code. Merisel believes that the
Reorganization Case constitutes an ideal case wherein the filing of the
Statement and the Schedules should not be required. Therefore, Merisel intends
to request that the Bankruptcy Court waive the necessity of filing the Schedules
and the Statement.
MOTION TO MAIL NOTICES AND TO PROVIDE ONLY PUBLICATION NOTICE OF MEETING OF
CREDITORS TO UNIMPAIRED CREDITORS. Pursuant to the Bankruptcy Rules, the Clerk
of the Bankruptcy Court, or another party that the Court may direct, must
provide notice of the commencement of the Reorganization Cases and of the first
statutory meeting of creditors held pursuant to section 341 of the Bankruptcy
Code (the "Section 341 Meeting") to all creditors. In addition, at least two
other notices, notice of the hearing on approval of Confirmation of the Plan and
notice of the entry of an Order Confirming the Plan, must be given to all
creditors and equity security Holders. Due to the size of the Reorganization
Case and the large number of creditors and equity security holders, Merisel will
request that Merisel, or its noticing agent, be authorized to mail all required
notices in the Reorganization Case. In addition, because several classes of
claims are not impaired under the Plan and will pass through the Reorganization
Case unaffected, Merisel will request that it be authorized to provide only
publication notice of the events set forth above, in one or more newspapers of
national circulation, to Holders of Unimpaired Claims.
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<PAGE>
MOTION TO CONTINUE USING EXISTING CASH MANAGEMENT SYSTEM. Because Merisel
expects the Reorganization Case to be pending for less than two months, and
because of the administrative hardship that any operating changes would impose
on it, Merisel intends to seek authority to continue using its existing cash
management system, bank accounts and business forms and to follow its internal
investment and deposit guidelines. Absent the Bankruptcy Court's authorization
of the continued use of Merisel's current cash management system, cash flow
among Merisel and its Operating Companies would be impeded, to the detriment of
Merisel's Estate and its creditors and shareholders.
Continued use of its existing cash management system will facilitate
Merisel's smooth and orderly transition into Chapter 11, minimize the disruption
to its businesses while in Chapter 11, and expedite Merisel's emergence from
Chapter 11. Requiring Merisel to adopt and implement a new cash management
system would likely increase the costs of the Reorganization Case. For the same
reasons, requiring Merisel to cancel its existing bank accounts and establish
new accounts or create new business forms would only frustrate Merisel's efforts
to reorganize expeditiously.
In the event that the Bankruptcy Court authorizes Merisel to continue using
its existing cash management system, Merisel will continue its pre-Petition
Date, ordinary course practice of obtaining unsecured credit from, and incurring
unsecured debt to, certain of its Subsidiaries. Merisel believes that such
intercompany borrowing and cash management transactions will qualify as
"ordinary course of business" credit transactions within the meaning of section
364(a) of the Bankruptcy Code.
MOTION FOR AUTHORITY TO PAY PREPETITION TRADE CLAIMS. Trade Claims are
defined in the Plan as prepetition General Unsecured Claims against Merisel
arising from or with respect to the delivery of goods or services to Merisel in
the ordinary course of Merisel's business. Trade Claims are included in Class
5. Notwithstanding provisions of the Bankruptcy Code that would otherwise
require Merisel to defer payment of Trade Claims until the Effective Date,
Merisel intends to seek authority from the Bankruptcy Court to pay Trade Claims
in the ordinary course of its businesses.
MOTION FOR AUTHORITY TO PAY PREPETITION EMPLOYEE WAGES AND ASSOCIATED
BENEFITS. Merisel believes that any delay in paying prepetition compensation or
benefits to its employees would destroy Merisel's relationships with employees
and irreparably harm employee morale at a time when the dedication, confidence
and cooperation of Merisel's employees are most critical. Accordingly, Merisel
will seek authority to pay compensation and benefits which were accrued but
unpaid as of the Petition Date.
MOTION FOR AUTHORITY TO MAINTAIN WORKERS' COMPENSATION INSURANCE POLICIES
AND TO PAY PREPETITION WORKERS' COMPENSATION CLAIMS. To ensure that Merisel's
workers' compensation, automobile and general liability insurance coverages
remain in effect, Merisel shall seek authority to assume and maintain their
workers' compensation, automobile and general liability insurance policies.
Likewise, to the extent necessary, Merisel shall also seek authority to pay
retroactive prepetition premiums on certain other workers' compensation
insurance policies and to honor prepetition workers' compensation claims. The
failure to maintain such insurance by the payment of the premiums could subject
Merisel or their officers to criminal penalties.
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<PAGE>
VIII. OFFICERS AND DIRECTORS OF THE COMPANY
For a discussion of the officers and directors of Merisel, see "MANAGEMENT"
and "MANAGE MENT COMPENSATION" in Part A of the Exchange Offer.
OFFICERS AND DIRECTORS OF REORGANIZED MERISEL. As of the Effective Date,
the Persons identified in the Proxy Statement/Prospectus will serve as the
initial members of the Board of Directors of Reorganized Merisel. Such Persons
shall be deemed elected to the Board of Directors, and such elections shall be
deemed effective as of the Effective Date, without any requirement of further
action by stockholders of Merisel or Reorganized Merisel. The Persons
identified in the Proxy Statement/Prospectus as the current officers of Merisel
will serve as the initial officers of Reorganized Merisel as of the Effective
Date. Subject to any requirement of Bankruptcy Court approval under section
1129(a) of the Bankruptcy Code, those persons designated as directors and
officers of Reorganized Merisel in the Proxy Statement/Prospectus shall assume
their offices as of the Effective Date and shall continue to serve in such
capacities thereafter, pending further action of the Board of Directors or
stockholders or Reorganized Merisel in accordance with the Reorganized Merisel
Bylaws, Reorganized Merisel Certificate of Incorporation and applicable state
law.
IX. SUMMARY OF THE PLAN
A. BRIEF EXPLANATION OF CHAPTER 11
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under Chapter 11 of the Bankruptcy Code, a debtor is
authorized to reorganize its business for the benefit of itself and its
creditors and stockholders. In addition to permitting rehabilitation of the
debtor, another goal of Chapter 11 is to promote equality of treatment of
creditors and equity security holders, respectively, who hold substantially
similar claims or interests with respect to the distribution of the value of a
debtor's assets. In furtherance of these two goals, upon the filing of a
petition for relief under Chapter 11, section 362 of the Bankruptcy Code
generally provides for an automatic stay of substantially all acts and
proceedings against the debtor and its property, including all attempts to
collect claims or enforce liens that arose prior to the commencement of the
debtor's Chapter 11 case.
The consummation of a plan of reorganization is the principal objective of
a Chapter 11 case. A plan of reorganization sets forth the means for satisfying
claims against and interests in a debtor. Confirmation of a plan of
reorganization by the Bankruptcy Court makes the plan binding upon the debtor,
any issuer of securities under the plan, any person or entity acquiring property
under the plan and any creditor of or equity security holder in the debtor,
whether or not such creditor or equity security holder (i) is impaired under or
has accepted the plan or (ii) receives or retains any property under the plan.
Subject to certain limited exceptions and other than as provided in the plan
itself or the confirmation order, the confirmation order discharges the debtor
from any debt that arose prior to the date of confirmation of the plan and
substitutes therefor the obligations specified under the confirmed plan and
terminates all rights and interests of prepetition equity security holders.
The following is an overview of certain material provisions of the Plan.
The following summaries of the material provisions of the Plan do not purport to
be complete and are qualified in their entirety by reference to all the
provisions of the Plan, including all exhibits thereto, all documents described
therein and the definitions therein of certain terms used below.
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B. GENERAL INFORMATION CONCERNING TREATMENT OF CLAIMS AND INTERESTS
The Plan provides for payment in full or other Reinstatement of
Administrative Claims, Priority Tax Claims, Priority Claims, Secured Claims,
Subsidiary Debt Guaranty Claims and General Unsecured Claims. The Plan provides
that Holders of Allowed Impaired 12.5% Notes Claims will receive New Common
Stock in exchange for their Allowed Claims. The Plan also provides that Holders
of Old Common Stock, which will be cancelled pursuant to the Plan, will receive
New Common Stock and Warrants on account of their Allowed Old Common Stock. See
"Securities To Be Issued And Transferred Under The Plan" in this Article X for a
description of the New Common Stock, and "Description of Warrants" for a
description of the New Series A Warrants and New Series B Warrants.
To allow Merisel to complete a financial restructuring in the manner which
will maximize its enterprise value, Merisel is soliciting prepetition
acceptances of the Plan from Holders of Impaired 12.5% Notes Claims and Old
Common Stock Interests prior to filing the Reorganization Case. Merisel
presently intends to seek to consummate the Plan and to cause the Effective Date
to occur as soon as practicable. There can be no assurance, however, as to when
the Effective Date will actually occur. Procedures for the distribution of cash
and securities pursuant to the Plan, including matters that are expected to
affect the timing of the receipt of distributions by Holders of Claims and
Interests in certain Classes and that could affect the amount of distributions
ultimately received by such Holders, are described in "Distributions Under The
Plan" in this Article X.
Management of Merisel believes that the Plan provides consideration to all
Classes of Claims and Interests reflecting an appropriate resolution of their
Claims and Interests, taking into account the differing nature and priority of
such Claims and Interests. The Bankruptcy Court must find, however, that a
number of statutory tests are met before it may confirm the Plan. Many of these
tests are designed to protect the interests of Holders of Claims or Interests
who do not vote to accept the Plan, but who will be bound by the provisions of
the Plan if it is confirmed by the Bankruptcy Court. The "cramdown" provisions
of section 1129(b) of the Bankruptcy Code, for example, permit confirmation of a
Chapter 11 plan of reorganization in certain circumstances even if the plan is
not accepted by all impaired classes of claims and interests. See Article XXIII
herein -- "Voting And Confirmation Of The Plan."
Merisel reserves the right to request confirmation of the Plan pursuant to
the cramdown provisions of section 1129(b) of the Bankruptcy Code and to amend
the Plan if, and to the extent necessary, Class 6 Old Common Stock Interests
fail to accept the Plan. Although Merisel believes that, if necessary, the Plan
could be confirmed under the cramdown provisions of the Bankruptcy Code if
certain Class 6 Common Stock Interests do not accept the Plan, there can be no
assurance that the requirements of such provisions would be satisfied. If Class
4 12.5% Notes Claims do not vote to accept the Plan, cramdown of Class 6 Old
Common Stock Interests is not possible.
C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
Section 1123 of the Bankruptcy Code provides that a plan of reorganization
shall classify the claims of a debtor's creditors and equity interest holders.
In compliance therewith, the Plan divides Claims and Interests into six Classes
and sets forth the treatment for each Class. In accordance with section
1123(a), Administrative Claims and Priority Tax Claims have not been classified.
Merisel also is required, under section 1122 of the Bankruptcy Code, to classify
Claims against and Interests in Merisel into Classes that contain Claims and
Interests that are substantially similar to the other Claims and Interests in
such Classes. Merisel believes that the Plan has classified all Claims and
Interests in compliance with the provisions of section 1122, but once the
Reorganization Case has been commenced, it is possible that a Holder of a Claim
or Interest may challenge the classification of Claims and Interests and that
the Bankruptcy Court may find that a different classification is required for
the Plan to be Confirmed. In such event, Merisel intends, to the extent
permitted by the Bankruptcy Court and the Plan, to make such reasonable
modifications of the
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classifications under the Plan to permit Confirmation and to use the Plan
acceptances received in this solicitation for the purpose of obtaining the
approval of the reconstituted Class or Classes of which the accepting Holder is
ultimately deemed to be a member. Any such reclassification could adversely
affect the Class in which such Holder was initially a member, or any other Class
under the Plan, by changing the composition of such Class and the vote required
of that Class for approval of the Plan. Furthermore, a reclassification of a
Claim or Interest after approval of the Plan could necessitate a resolicitation
of acceptances of the Plan.
The classification of Claims and Interests and the nature of distributions
to Holders of Impaired Claims or Impaired Interests in each Class are summarized
below. See "Securities To Be Issued And Transferred Under The Plan" in this
Article X for a description of the manner in which the number of shares of New
Common Stock will be determined and "RISK FACTORS" herein for a discussion of
various other factors that could materially affect the value of the New Common
Stock distributed pursuant to the Plan.
Except for Disputed Claims, distributions will be deemed made on the
Effective Date if made on the Effective Date or as promptly thereafter as
practicable, but in any event no later than (i) 10 days after the Effective Date
or (ii) such later date when the applicable conditions under the Plan relating
to such distributions are satisfied. See "Distributions Under The Plan" in this
Article X for a discussion of Plan provisions that may affect the timing of
distributions under the Plan. Distributions on account of Claims that become
Allowed Claims after the Effective Date will be made pursuant to Section V.B of
the Plan (relating to timing and calculation of amounts to be distributed under
the Plan) and Section V.I of the Plan (relating to distributions on account of
Disputed Claims once they are Allowed). See Section X.J herein.
1. UNCLASSIFIED CLAIMS
The Bankruptcy Code does not require classification of certain priority
claims against a debtor. In this case, these unclassified claims include
Administrative Claims and Priority Tax Claims. All distributions referred to
below that are scheduled for the Effective Date will be made on the Effective
Date or as soon as practicable thereafter.
ADMINISTRATIVE CLAIMS. Under the Plan, each Holder of an Allowed
Administrative Claim will receive cash equal to the unpaid portion of such
Allowed Administrative Claim on the latest of (i) the Effective Date, (ii) the
date on which such Claim becomes an Allowed Administrative Claim and (iii) the
date on which such Claim becomes payable pursuant to any agreement between the
Holder of such Claim and Merisel. Holders of Administrative Claims (other than
Trade Claims arising in the ordinary course of business and employee claims)
shall have until 60 days after the Effective Date to file requests for payment.
Subject to certain additional requirements for professionals and certain other
entities, each Holder of an Allowed Administrative Claim will receive on the
Effective Date cash equal to the amount of such Allowed Administra tive Claim,
unless the Holder and Merisel or Reorganized Merisel agree to other terms;
provided, however, that if incurred in the ordinary course of business or
- -------- -------
otherwise assumed by Merisel pursuant to the Plan (including Administrative
Claims of governmental units for taxes), an Allowed Administrative Claim will be
paid, performed or settled by Reorganized Merisel when due in accordance with
the terms and conditions of the particular agreement(s) governing the
obligation.
CLAIMS BY PROFESSIONALS. Professionals or other entities requesting
compensation or reimbursement of expenses pursuant to sections 327, 328, 330,
331, 503(b) and 1103 of the Bankruptcy Code for post-petition services rendered
before the Effective Date (including compensation requested pursuant to section
503(b)(4) of the Bankruptcy Code by any professional or other entity for making
a substantial contribution in the Reorganization Case) must file and serve on
Reorganized Merisel and counsel for Reorganized Merisel an application for final
allowance of compensation and reimbursement of expenses no later than 60 days
after the Effective Date, unless such filing and service deadline is extended by
the Bankruptcy Court; provided,
--------
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however, that any professional who may receive compensation or reimbursement of
- -------
expenses pursuant to the Ordinary Course Professionals Order without having
filed an application may continue to receive compensation or reimbursement for
services rendered before the Effective Date without further Bankruptcy Court
review or approval pursuant to the Ordinary Course Professionals Order.
Objections to applications of professionals or other entities for compensation
or reimbursement of expenses must be filed and served on Merisel, counsel for
Reorganized Merisel and the requesting professional or other entity no later
than 30 days after the date on which the applicable application for compensation
or reimbursement was filed.
PRIORITY TAX CLAIMS. Unless otherwise agreed to by Merisel and a Holder of
a Priority Tax Claim, each Holder of an Allowed Priority Tax Claim shall receive
(i) Cash equal to the unpaid portion of such Allowed Priority Tax Claim on the
later of (a) the Effective Date and (b) the date on which such Claim becomes an
Allowed Priority Tax Claim; or (ii) payment at such time as specified under
applicable laws. The foregoing treatment of Allowed Priority Tax Claims is
consistent with the provisions of section 1129(a)(9)(C) of the Bankruptcy Code,
and the Holders of Allowed Priority Tax Claims are not entitled to vote on the
Plan.
The Internal Revenue Service has issued to the Company a report proposing
the assessment of an addi tional income tax liability, including interest, of
approximately $1.7 million in respect of the 1992 and 1993 taxable years. The
Company has filed with the Internal Revenue Service an administrative appeal of
the proposed assessment, intends to continue to vigorously contest the matter,
and believes that it will ultimately prevail.
2. CLASSIFIED CLAIMS AND INTERESTS
CLASS 1 - SECURED CLAIMS. Class 1 consists of each Secured Claim secured
by a security interest in or lien upon property in which Merisel's Estate has an
interest. To the extent, if any, that the value of the collateral securing a
Class 1 Secured Claim is less than the amount of such Allowed Claim, the
difference will be treated as a Class 5 General Unsecured Claim.
Class 1 Secured Claims are Unimpaired and, accordingly, are not entitled to
vote for or against the Plan and will be deemed to have accepted the Plan.
Holders of Claims in Class 1 will not be required to file proofs of claim, and
no bar date will be enforced as to such Claims. Merisel is unaware of any
material Secured Claims.
On the Effective Date, or as soon thereafter as practicable, the Holder of
an Allowed Class 1 Secured Claim, in full satisfaction, settlement, release and
discharge of and in exchange for such Allowed Class 1 Secured Claim, shall, in
the sole discretion of Merisel, (a) have its Allowed Class 1 Secured Claim
Reinstated, or (b) receive such other treatment as Merisel and such holder shall
have agreed upon in writing as announced at or prior to the Confirmation
Hearing.
CLASS 2 - UNSECURED PRIORITY CLAIMS. Class 2 Claims are Unimpaired. Class
2 consists of all Allowed Unsecured Priority Claims. A Priority Claim is a
Claim for an amount entitled to priority under Sections 507(a)(3), 507(a)(4),
507(a)(5) or 507(a)(6) of the Bankruptcy Code, and does not include any
Administrative Claim or Tax Claim. These Unsecured Priority Claims include,
among others: (a) unsecured Claims for accrued employee compensation earned
within 90 days prior to the Petition Date, to the extent of $4,000 per employee;
and (b) contributions to employee benefit plans arising from services rendered
within 180 days prior to the Petition Date, but only for such plans to the
extent of (i) the number of employees covered by such plans multiplied by
$4,000, less (ii) the aggregate amount paid to such employees under Section
507(a)(3) of the Bankruptcy Code, plus the aggregate amount paid by the estate
on behalf of such employees to any other employee benefit plan.
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The Plan provides that, unless otherwise agreed to by the parties, each
Holder of an Allowed Claim in Class 2 will be paid the Allowed Amount of such
Claim in full in Cash by Reorganized Merisel on the latest of (i) the Effective
Date or as soon as practicable thereafter, (ii) the date such Claim becomes an
Allowed Priority Claim, and (iii) the date that such Claim would be paid in
accordance with any terms and conditions of any agreements or understandings
relating thereto between Merisel and the Holder of such Claim. Allowed Claims
in Class 2 are not Impaired under the Plan and the Holders of Allowed Claims in
Class 2 will be deemed to have accepted the Plan.
CLASS 3 - SUBSIDIARY DEBT GUARANTY CLAIMS. Class 3 consists of each
Subsidiary Guaranty Claim. Class 3 Claims are Unimpaired and, accordingly,
Holders of such Claims are not entitled to vote for or against the Plan and will
be deemed to have accepted the Plan. On the Effective Date, each Subsidiary
Debt Guaranty Claim will be Reinstated or receive such other treatment agreed to
by the Holder of such Claim. Under the Plan, Holders of Claims in Class 3 are
not required to file proofs of claim with the Bankruptcy Court and no bar date
would be enforced as to such Claims.
CLASS 4 - CLAIMS ARISING FROM 12.5% NOTES. Class 4 will consist of Claims
arising under or related to the 12.5% Notes, including an aggregate principal
amount of $125 million and aggregate accrued and unpaid interest of
approximately $9.1 million through, but not including, the Petition Date
(assuming the Petition Date occurs on July 31, 1997), plus all other amounts, if
any, which accrued prior to the Petition Date on the 12.5% Notes. Class 4 is
Impaired. Each Holder of an Allowed Class 4 Claim will receive on the Effective
Date or as soon as practicable thereafter, on account of the unpaid principal
amount plus unpaid interest and all other amounts, if any, which accrued prior
to the Petition Date on its 12.5% Notes, 192.5 shares of New Common Stock for
each $1,000 of 12.5% Notes held by such Holder.
CLASS 5 - GENERAL UNSECURED CLAIMS. Class 5 is Unimpaired. Class 5
consists of all Claims against Merisel, except Administrative Claims, Tax Claims
and Claims in Classes 1 through 4, and including, but not limited to, Claims
arising under damages resulting from the rejection of leases or executory
contracts. Class 5 also includes Trade Claims, Securities Claims and pre-
Petition Date Claims for indemnification of the kind described in Section X.D of
the Plan.
The Plan provides that unless otherwise agreed to by the parties, the
legal, equitable and contractual rights of each Holder of an Allowed Claim in
Class 5 will either (a) not be altered by the Plan or (b) at the option of
Merisel, receive such other treatment that will result in such Allowed Claim
being deemed unimpaired under Section 1124 of the Bankruptcy Code. Allowed
Claims in Class 5 are not Impaired under the Plan and the Holders of Claims in
Class 5 will be deemed to have accepted the Plan.
Under the Plan, Holders of Claims in Class 5 would not be required to file
proofs of claim with the Bankruptcy Court and no bar date would be enforced as
to such Claims.
CLASS 6 - INTERESTS OF HOLDERS OF OLD COMMON STOCK. Class 6 is Impaired.
Class 6 consists of Allowed Interests of Holders of Old Common Stock. On the
Effective Date or as soon as practicable thereafter, each Holder of an Allowed
Class 6 Claim will receive, on a Pro Rata basis, on account of each share of Old
Common Stock which it holds: (i) .2 shares of New Common Stock, (ii) .0875 New
Series A Warrants and (iii) .0875 New Series B Warrants.
3. ADDITIONAL INFORMATION REGARDING TREATMENT OF CERTAIN CLAIMS
PROVISIONS FOR TRADE CREDITORS. If and when Merisel files the Plan,
Merisel intends that all Claims of its trade creditors will be unimpaired and
paid in full.
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A Trade Claim is defined in the Plan as any unsecured Claim against Merisel
arising from (i) the delivery of goods or services in the ordinary course of
business or (ii) insurance-related service (including insurance premiums).
Trade Claim excludes Claims (i) arising under Section 502(g) and 502(e) of the
Bankruptcy Code, (ii) of the type described in Section 726(a)(4) of the
Bankruptcy Code, or (iii) arising in tort for personal injury or property loss.
The Plan sets forth Merisel's intention to treat Trade Claims as if the
Reorganization Case had never been commenced. Accordingly, after commencement
of the Reorganization Cases, Merisel will seek Bankruptcy Court approval to pay
in the ordinary course of business all outstanding Trade Claims to trade
creditors who continue to provide normal trade credit terms to Merisel. Because
Merisel is a holding company whose operating businesses are conducted by its
Operating Companies, Merisel has few trade creditors. In any event, all Allowed
Trade Claims in Class 5 that have become due and owing on or before the
Effective Date (unless previously paid during the Reorganization Cases) will be
paid in full, in cash (with interest, to the extent permitted by the Bankruptcy
Court), on or as soon as practicable after the Effective Date, or at such other
time as is mutually agreed upon by Merisel and the Holder of such Claim. If not
due and owing on the Effective Date, Trade Claims will be Reinstated and paid in
full in accordance with their respective terms or otherwise rendered Unimpaired
in accordance with section 1124 of the Bankruptcy Code. The legal, equitable,
and contractual rights of the Holders of these Claims will be unaffected by the
Plan.
If the Plan is confirmed, Holders of Trade Claims will not be required to
file proofs of claim with the Bankruptcy Court and no bar date will be enforced
as to such Trade Claims. On and after the Effective Date (and, subject to
Bankruptcy Court approval, prior to the Effective Date), all undisputed, non-
contingent and liquidated Trade Claims not already paid will be paid in full or
in the ordinary course of business of Reorganized Merisel. If Merisel disputes
any Trade Claim, such dispute will be determined, resolved or adjudicated, as
the case may be, in the manner in which such dispute would have been determined,
resolved or adjudicated if the Reorganization Case had not been commenced, and
will survive the Effective Date and the consummation of the Plan as if the
Reorganization Case had not been commenced.
Any Claim arising from the rejection of an executory contract or unexpired
lease under the Plan does not constitute a Trade Claim and will be paid when
such Claim is Allowed by the Bankruptcy Court. See "Executory Contracts and
Unexpired Leases" in this Article X.
PROVISIONS FOR EMPLOYEES. If and when Merisel files the Plan, Merisel
intends that salaries or wages, as the case may be, accrued paid vacation,
health related benefits, severance benefits, field management and
executive/administrative management incentive plans and similar employee
benefits will be unaffected. Employee Claims that accrue pre-petition will
receive Unimpaired treatment under the terms of the Plan. To ensure the
continuity of Merisel's work force and to further accommodate the unimpaired
treatment of employee benefits, Merisel intends to seek immediate authorization
from the Bankruptcy Court to honor payroll checks outstanding as of the Petition
Date (or to issue replacement checks), to permit employees to utilize paid
vacation time accrued prior to the Petition Date (so long as they remain
employees of Merisel) and to continue paying medical and other benefits under
all applicable insurance plans. All undisputed, non-contingent and liquidated
Employee Claims and benefits not paid or honored prior to consummation of the
Plan will be paid or honored upon consummation of the Plan or as soon thereafter
as such payment or other obligation becomes due or performable. Employees will
not be required to file proofs of claim on account of Employee Claims. If
Merisel disputes any Employee Claim, such dispute will be determined, resolved
or adjudicated, as the case may be, in the manner in which such dispute would
have been determined, resolved or adjudicated if the Reorganization Case had not
been commenced, and will survive the Effective Date and the consummation of the
Plan as if the Reorganization Case had not been commenced.
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TREATMENT OF LITIGATION CLAIMS. See "BUSINESS AND PROPERTIES OF THE
COMPANY -- Legal Proceedings" in Part A of the Exchange Offer for a description
of the Securities Litigation and the Tech Pacific Claim.
Under the Plan, all Claims asserted in or arising out of disputed
litigation pending on the Petition Date, including ordinary course legal
proceedings, the Securities Litigation and the Tech Pacific Litigation
(collectively, the "Disputed Litigation Claims"), will be treated as Class 5
General Unsecured Claims. Accordingly, if the Plan is confirmed, Holders of
such Disputed Litigation Claims will not be required to file proofs of claim
with the Bankruptcy Court and no bar date will be enforced as to such Claims.
Disputed Litigation Claims will be determined, resolved or adjudicated, as the
case may be, in the manner in which such litigation would have been determined,
resolved or adjudicated, if the Reorganization Case had not been commenced, and
will survive the Effective Date and the consummation of the Plan as if the
Reorganization Case had not been commenced.
D. SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PLAN
A DESCRIPTION OF THE NEW COMMON STOCK AND WARRANTS TO BE ISSUED AND
TRANSFERRED UNDER THE PLAN IS SET FORTH BELOW.
As of the Effective Date, Reorganized Merisel will issue the New Common
Stock and the Warrants. The New Common Stock will be issued for distribution in
accordance with the Plan to Holders of Allowed Class 4 Claims and Allowed Class
6 Interests. The Warrants will be issued for distribution in accordance with
the Plan to Holders of Allowed Class 6 Interests.
1. THE NEW COMMON STOCK
For a description of the New Common Stock, see "DESCRIPTION OF NEW COMMON
STOCK" in Part A of the Exchange Restructuring Prospectus.
2. THE WARRANTS
For a description of the Warrants, see "DESCRIPTION OF WARRANTS" in the
Proxy Statement/Prospectus.
3. MARKET AND TRADING INFORMATION
For information relating to the market for the New Common Stock and
Warrants, see "MARKET AND TRADING INFORMATION" in the Proxy
Statement/Prospectus.
E. SOURCES OF CASH TO MAKE PLAN DISTRIBUTIONS
Except as otherwise provided in the Plan or the Confirmation Order, all
cash necessary for Reorganized Merisel to make payments pursuant to the Plan
will be obtained from Reorganized Merisel's cash balances and the operations of
Merisel or Reorganized Merisel.
F. CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Plan provides for certain conditions precedent to Confirmation and the
Effective Date of the Plan. The Plan also provides for waiver of such
conditions. See Article X of the Plan.
G. MODIFICATION OR REVOCATION OF THE PLAN; SEVERABILITY
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The Plan provides that Merisel may seek to amend, modify or revoke the Plan
at any time prior to the Confirmation Date in the manner provided for by section
1127 of the Bankruptcy Code or as otherwise permitted by law without additional
disclosure pursuant to section 1125 of the Bankruptcy Code, except as the
Bankruptcy Court may otherwise order. The Plan also provides for severability
of Plan provisions. See Sections XI.B, XI.C and XI.D of the Plan.
H. DISTRIBUTIONS UNDER THE PLAN
The Plan contains provisions for distributions of Cash, New Common Stock
and Warrant as required under the Plan. See Sections V.A-G of the Plan.
I. OBJECTIONS TO CLAIMS AND AUTHORITY TO PROSECUTE OBJECTIONS; CLAIMS
RESOLUTION
The Plan provides for objections to Claims, Disputed Claims, resolution of
Disputed Claims and distributions on account of Disputed Claims, once they are
Allowed. See Sections V.H-I of the Plan.
J. SETOFFS
The Plan makes provisions for setoffs pursuant to section 553 of the
Bankruptcy Code and applicable nonbankruptcy law. See Section V.J of the Plan.
K. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Under section 365 of the Bankruptcy Code, Merisel has the right, subject to
Bankruptcy Court approval, to assume or reject any executory contracts or
unexpired leases. If an executory contract or unexpired lease entered into
before the Petition Date is rejected by Merisel, it will be treated as if
Merisel breached such contract or lease on the date immediately preceding the
Petition Date, and the other party to the agreement may assert an Unsecured
Claim for damages incurred as a result of the rejection. In the case of
rejection of employment agreements and real property leases, damages are subject
to certain limitations imposed by sections 365 and 502 of the Bankruptcy Code.
See Article VII of the Plan.
L. CONTINUED CORPORATE EXISTENCE; VESTING OF ASSETS IN REORGANIZED MERISEL
Reorganized Merisel will exist after the Effective Date as a separate
corporate entity, with all of the powers of a corporation under the general
corporation law of Delaware, and without prejudice to any right to alter or
terminate its existence (whether by merger or otherwise). The Reorganized
Merisel Certificate of Incorporation and the Reorganized Merisel Bylaws will be
substantially similar to the current Restated Certificate of Incorporation and
Bylaws of Merisel, copies of which are attached as exhibits to this Prospectus
is a part. Pursuant to section 1123 of the Bankruptcy Code, the Reorganized
Merisel Certificate of Incorporation will prohibit the issuance of nonvoting
equity securities. Accordingly, any preferred stock issued by Reorganized
Merisel will have minimum voting rights as required by the Bankruptcy Code.
Except as otherwise provided in the Plan, on and after the Effective Date,
all property of the Estate, including all claims, rights and causes of action
(other than those released pursuant to Section XI.C of the Plan), and any
property acquired by Merisel or Reorganized Merisel under or in connection with
the Plan, will vest in Reorganized Merisel free and clear of all Claims, liens,
charges, encumbrances and Interests. On and after the Effective Date,
Reorganized Merisel may operate its businesses and may use, acquire and dispose
of property and compromise or settle any Claims or Interests without supervision
or approval by the Bankruptcy Court and free of any restrictions of the
Bankruptcy Code or Bankruptcy Rules, other than restrictions expressly imposed
by the Plan or the Confirmation Order. Without limiting the foregoing,
Reorganized Merisel may pay the charges that it incurs on or after the Effective
Date for professionals' fees, disbursements, expenses or related support
services without application to the Bankruptcy Court, except for
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compensation or reimbursement of expenses for any services rendered after the
Effective Date in connection with any applications for compensation and
reimbursement pending on the Effective Date or Filed and served after the
Effective Date pursuant to Section IV.A.1.C.(2) of the Plan.
M. PRESERVATION OF RIGHTS OF ACTION HELD BY MERISEL OR REORGANIZED MERISEL
Except as provided in the Plan, or in any contract, instrument, release,
indenture or other agreement entered into in connection with the Plan, in
accordance with section 1123(b) of the Bankruptcy Code, Reorganized Merisel
will retain and may enforce any claims, rights and causes of action that Merisel
or its Estate may hold against any entity. Reorganized Merisel or its
successors may pursue such retained claims, rights or causes of action, as
appropriate, in accordance with the best interests of Reorganized Merisel.
N. DISCHARGE OF CLAIMS AND TERMINATION OF INTERESTS; RELATED INJUNCTION
The Plan provides for discharge of Claims against and Interests in Merisel
and a related injunction pursuant to section 524 of the Bankruptcy Code. See
Section X.A of the Plan.
O. RELEASES AND CERTAIN SETTLEMENTS UNDER THE PLAN; RELATED INJUNCTION;
INDEMNITY
On the Effective Date, Merisel will release unconditionally (i) each of
Merisel's officers, directors, shareholders, employees, consultants, attorneys,
accountants, financial advisors and other representatives, (ii) the Creditors'
Committee and, solely in their capacity as members or representatives of the
Creditors' Committee, each member, consultant, attorney, accountant or other
representative of the Creditors' Committee, (iii) Ad Hoc Noteholders Committee
and, solely in their capacity as members or representatives of the Ad Hoc
Noteholders Committee, each member, consultant, attorney, accountant or other
representative of the Ad Hoc Debentureholders Committee and (iv) the Indenture
Trustees, in their respective capacities as Indenture Trustee (the entities
specified in clauses (i), (ii), (iii), and (iv) and their respective Designated
Professionals are referred to collectively as the "Releasees"), from any and all
claims, obligations, suits, judgments, damages, rights, causes of action and
liabilities whatsoever, whether known or unknown, foreseen or unforeseen,
existing or hereafter arising, in law, equity or otherwise, based in whole or in
part upon any act or omission, transaction, event or other occurrence taking
place on or prior to the Effective Date in any way relating to the Releasees,
Merisel, the Reorganization Case or the Plan. Merisel is unaware of and does not
believe that there are any particular claims against any of the Releases and
therefore is not receiving any consideration for the releases. Provision for
such releases may be part of a plan under the Bankruptcy Code. The proposed
releases will not be effectuated absent Bankruptcy Court approval of the Plan,
and Merisel does not intend to seek independent or separate Bankruptcy Court
approval of the releases.
Merisel has indemnified its officers, directors, employees, consultants,
attorneys, financial advisors, accountants and other representatives for any
matter in connection with or related to the Plan and the reorganization other
than matters arising from such person's gross negligence or willful misconduct.
The indemnification obligations will be assumed by Reorganized Merisel. Merisel
is not aware of any claims against any of the entities that it has indemnified,
other than the Securities Litigation and Tech Pacific Claim described in
"BUSINESS AND PROPERTIES OF THE COMPANY -- Legal Proceedings" in Part A of the
Exchange Restructuring Prospectus.
P. LIMITATION OF LIABILITY
Section 1125(e) of the Bankruptcy Code provides in general that a person
who, in good faith and in compliance with the applicable provisions of the
Bankruptcy Code, either (i) solicits acceptance or rejection of a plan of
reorganization or (ii) participates in the offer, issuance, sale or purchase of
a security under a plan, is not liable on account of such solicitation or
participation for violation of any applicable law governing solicitation of
acceptance or rejection of a plan of reorganization or the offer, issuance, sale
or purchase of securities under a plan. If Merisel commences the Reorganization
Case and files the Plan with the Bankruptcy Court, Merisel will be able to
confirm the Plan based on the prepetition acceptances that it has solicited only
if the Bankruptcy Court finds that the solicitation of acceptances and
rejections from Holders of Claims and Holders of Interests was in compliance
with applicable bankruptcy law including the Securities Act and the Exchange Act
and the rules and regulations thereunder and the provisions of sections 1125 and
1126 of the Bankruptcy Code. If the Bankruptcy Court makes such a finding,
management of Merisel believes that the
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limitations of liability provided under section 1125(e) of the Bankruptcy Code
will be applied to this solicitation of acceptances of the Plan.
In addition, section 1123(b)(6) of the Bankruptcy Code provides that a plan
of reorganization may contain any appropriate provision that is not inconsistent
with the applicable provisions of the Bankruptcy Code. Pursuant to this
provision, the Plan provides for a limitation of liability for certain
participants in the Plan process. Specifically, Merisel, Reorganized Merisel,
the Ad Hoc Noteholders Committee, any of their respective post-Petition Date
employees, officers, directors, agents, or representatives, and any professional
persons employed by any of them (a "Plan Participant") will neither have nor
incur any liability to any entity, including, specifically any Holder of a Claim
or Interest, for any act taken or omitted to be taken in connection with or
related to the formulation, preparation, dissemination, implementation,
Confirmation or consummation of the Plan, the Proxy Statement/Prospectus, the
Confirmation Order or any contract, instrument, release or other agreement or
document created or entered into, or any other act taken or omitted to be taken
in connection with the Plan. Reorganized Merisel will also indemnify each Plan
Participant, hold each Plan Participant harmless from, and reimburse each Plan
Participant for, any and all losses, costs, expenses (including attorneys' fees
and expenses), liabilities and damages sustained by a Plan Participant arising
from any liability described in Section X.B of the Plan.
Q. RETENTION OF BANKRUPTCY COURT JURISDICTION
The Plan provides that, with respect to certain matters, the Bankruptcy
Court will retain jurisdiction over the Reorganization Case after the Effective
Date. See Section X.G of the Plan.
X. RISK FACTORS
THE NEW COMMON STOCK AND THE WARRANTS TO BE ISSUED PURSUANT TO THE PLAN ARE
SUBJECT TO A NUMBER OF MATERIAL RISKS. THE HOLDER OF AN IMPAIRED CLAIM AGAINST
OR IMPAIRED INTEREST IN MERISEL SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS
BEFORE DECIDING WHETHER TO VOTE TO ACCEPT OR TO REJECT THE PLAN. FOR DISCUSSION
OF ADDITIONAL RISKS ASSOCIATED WITH THE RESTRUCTURING, SEE "RISK FACTORS" IN
PART A OF THE EXCHANGE RESTRUCTURING PROSPECTUS.
A. DISRUPTION OF OPERATIONS RELATING TO BANKRUPTCY FILING
Merisel's solicitation of acceptances of the Plan, or any subsequent
commencement of the Reorganiza tion Case, even in connection with the Plan,
could adversely affect Merisel's and its Operating Companies' relationships with
their customers, suppliers or employees. If Merisel's and its Operating
Companies' relation ships with customers, suppliers or employees are adversely
affected, the Company's operations could be materially affected. Weakened
operating results could adversely affect Merisel's ability to obtain
confirmation of the Plan or to avoid financial difficulties after consummation
of the Plan. Merisel anticipates, however, that it will have sufficient cash to
service the obligations that it intends to pay during the period prior to and
through the consummation of the Plan.
MERISEL DOES NOT CURRENTLY INTEND TO COMMENCE A CASE UNDER CHAPTER 11 OF
THE BANKRUPTCY CODE WITH RESPECT TO ANY OF ITS OPERATING COMPANIES OR TO INCLUDE
ANY OF ITS OPERATING COMPANIES IN MERISEL'S PREPACKAGED CHAPTER 11 CASE.
B. CERTAIN RISKS OF NON-CONFIRMATION
Even if the requisite acceptances are received, there can be no assurance
that the Bankruptcy Court will confirm the Plan. A non-accepting creditor of
Merisel or a stockholder of Merisel might challenge the adequacy of the
disclosure or the balloting procedures and results as not being in compliance
with the
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Bankruptcy Code. Even if the Bankruptcy Court were to determine that the
disclosure and the balloting procedures and results were appropriate, the
Bankruptcy Court could still decline to confirm the Plan if it were to find that
any statutory conditions to confirmation had not been met. Section 1129 of the
Bankruptcy Code sets forth the requirements for confirmation and requires, among
other things, a finding by the Bankruptcy Court that the confirmation of the
Plan is not likely to be followed by a liquidation or a need for further
financial reorganization and that the value of distributions to non-accepting
creditors and Interest Holders will not be less than the value of distributions
such creditors and Interest Holders would receive if the debtor were liquidated
under Chapter 7 of the Bankruptcy Code. While there can be no assurance that
the Bankruptcy Court will conclude that these requirements have been met,
Merisel believes that the Plan will not be followed by a need for further
financial reorganization and that non-accepting creditors and Interest Holders
will receive distributions at least as great as would be received following a
liquidation pursuant to Chapter 7 of the Bankruptcy Code. See "VOTING AND
CONFIRMATION OF THE PLAN" herein.
Additionally, even if the required acceptances of each of Class 4 and Class
6 are received, the Bankruptcy Court might find that the Solicitation did not
comply with the solicitation requirements made applicable by subsection 1126(b)
of the Bankruptcy Code and Bankruptcy Rule 3018(b). In such an event, Merisel
may seek to resolicit acceptances, but confirmation of the Plan could be
substantially delayed and possibly jeopardized. Merisel believes that its
Solicitation of acceptances of the Plan complies with the requirements of
subsection 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018(b), that duly
executed Ballots and Master Ballots will be in compliance with applicable
provisions of the Bankruptcy Code and the Bankruptcy Rules, and that, if
sufficient acceptances are received, the Plan should be confirmed by the
Bankruptcy Court. Merisel, however, expressly reserves the right not to file
the Plan and to pursue other alternatives.
Should the Bankruptcy Court fail to confirm the Plan after the
Reorganization Case has been filed, Merisel would then face the prospect of a
protracted and non-orderly reorganization with all the attendant risk of adverse
consequences to its and its Operating Companies' businesses, operations,
employees, customers and supplier relations and their ultimate ability to
function effectively and competitively.
Even if the Plan is confirmed by the Bankruptcy Court, there can be no
assurance that Merisel would not thereafter suffer a disruption in its business
operations as a result of filing the Reorganization Case.
The confirmation and consummation of the Plan are also subject to certain
conditions. See "Section IX.G herein, "Conditions Precedent To Confirmation And
Consummation Of The Plan."
If the Plan, or a plan determined not to require resolicitation of any
Classes by the Bankruptcy Court, were not to be confirmed, it is unclear whether
a reorganization could be implemented and what holders of Claims and Interests
would ultimately receive with respect to their Claims and Interests. If an
alternative reorganization could not be agreed to, it is possible that Merisel
would have to liquidate its assets, in which case it is likely that Holders of
Claims and Interests would receive less than they would have received pursuant
to the Plan.
C. CERTAIN BANKRUPTCY CONSIDERATIONS
1. TREATMENT OF THE WARRANTS
In the event of a subsequent bankruptcy case involving Merisel, it is
likely that the Warrants, which will be received by Holders of Old Common Stock
in partial consideration for dilution of their ownership interest in Merisel,
would be treated as equity securities, and that the equity interests of holders
of the Warrants would be of similar priority to the equity interests of holders
of New Common Stock. Despite the similar priority, however, the Warrants may
receive less favorable treatment than the New Common Stock in
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a subsequent bankruptcy case, because the equity interests in Reorganized
Merisel represented by the Warrants would not be so direct as the equity
interests in Reorganized Merisel represented by the New Common Stock.
2. FAILURE TO FILE PREPACKAGED PLAN
Merisel believes that the completion of the Restructuring is critical to
its continuing viability. If the Exchange Restructuring is not consummated, but
Ballots and Master Ballots containing votes to accept the Plan are received in
sufficient amounts and numbers, in Merisel's judgment, to confirm the Plan,
Merisel expects to (but expressly reserves the right not to) file a prepackaged
Chapter 11 case and use such Ballots and Master Ballots to confirm the Plan.
Merisel believes that obtaining sufficient acceptances before commencing a
bankruptcy case would be preferable from the point of view of its creditors,
stockholders and other constituents because such acceptances should minimize
disputes during such a case concerning the reorganization of Merisel and should,
therefore, substantially reduce the time and costs of such a case, result in a
larger distribution to Merisel's creditors and stockholders than would be
available under a non-prepackaged reorganization under Chapter 11 of the
Bankruptcy Code or a liquidation under Chapter 7 of the Bankruptcy Code and
afford Merisel the best opportunity to accomplish the Restructuring in a
bankruptcy case. If the Exchange Restructuring is not consummated and Merisel
does not have the necessary acceptances to confirm the Plan, Merisel might
nevertheless file a petition for relief under Chapter 11 of the Bankruptcy Code
and seek confirmation of the Plan notwithstanding the dissent of certain Class 6
Old Common Stock Interests. See "Section XXIII.K, "Acceptance Or Cramdown." In
such event, Merisel would seek to satisfy the Bankruptcy Code standards for
confirmation by means of a "cramdown," which could require that the Plan be
modified in a manner which would be material to any class which has rejected the
Plan and any class junior to any class which has rejected the Plan.
Alternatively, Merisel may seek to accomplish an alternative restructuring of
its capitalization and its obligations to its stockholders and creditors and
obtain their consent to any such restructuring plan with or without a pre-
approved plan of reorganization or otherwise. See "ALTERNATIVES TO CONFIRMATION
AND CONSUMMATION OF THE PLAN" herein. There can, however, be no assurance that
any alternative restructuring arrangement or plan would result in a
reorganization of Merisel other than a liquidation, or that any such
reorganization would be on terms as favorable to the Holders of Claims and
Holders of Interests as the terms of the Plan. There is a risk that
distributions to Holders of Claims and Interests under a liquidation or under a
protracted and non-orderly reorganization would be substantially delayed and
diminished.
For purposes of comparison with the anticipated distributions under the
Prepackaged Plan, the Corporation has prepared an analysis of estimated
recoveries in a liquidation under Chapter 7 of the Bankruptcy Code. See "Section
XXI.C herein, "Chapter 7 Liquidation Analysis." A description of procedures
followed and the assumptions and qualifications in connection with this analysis
is set forth in the notes thereto. See "Best Interests Test" under "SUMMARY OF
PREPACKAGED PLAN -- Confirmation of the Prepackaged Plan," for a general
discussion of the liquidation analysis.
3. EFFECT ON OPERATIONS
Merisel believes that the Solicitation and any subsequent commencement of a
Chapter 11 Case in connection with the Plan should not materially adversely
affect Merisel's and its Operating Companies' relationships with customers,
employees and suppliers, provided that Merisel can demonstrate sufficient
liquidity to continue to operate the business and a likelihood of success for
the Prepackaged Restructuring in a reasonably short time frame. Merisel
believes that the Solicitation offers the most expeditious means to achieve
success for the Prepackaged Restructuring.
It is possible that despite the belief and intent of the Company, the
Solicitation or any subsequent commencement of a Chapter 11 case could adversely
affect the relationships between Merisel, its Operating Companies and their
employees, customers and suppliers. There is a risk that, due to uncertainty
about Merisel's future, (i) employees may be distracted from performance of
their duties or more easily attracted
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to other career opportunities, (ii) customers may seek alternative sources of
supply or require financial assurances of future performance and (iii) suppliers
may restrict ordinary credit terms or require financial assurances of
performance. If such relationships were adversely affected, Merisel and its
Operating Companies' financial performance and working capital position could
materially deteriorate. This deterioration could adversely affect Merisel's
ability to complete the Solicitation or, if such Solicitation is successfully
completed, to obtain confirmation of the Plan.
4. NONCONSENSUAL CONFIRMATION
In the event that Impaired Class 6 Old Equity Interests do not accept the
Plan, pursuant to the "cramdown" provisions of the Bankruptcy Code, the
Bankruptcy Court may nevertheless confirm the Plan at Merisel's request if Class
4 12.5% Notes Claims have accepted the Plan (with such acceptance being
determined without including the acceptance of any "insider" in such Class), and
the Bankruptcy Court determines that the Plan "does not discriminate unfairly"
and is "fair and equitable" with respect to Class 6. See "Section XXI.C herein,
"Chapter 7 Liquidation Analysis." In the event that Class 6 Old Common Stock
Interests fail to accept the Plan in accordance with subsection 1129(a)(8) of
the Bankruptcy Code, the Company reserves the right to request Confirmation of
the Plan without the acceptance of Class 6 in accordance with subsection 1129(b)
of the Bankruptcy Code. Merisel, however, will not seek Confirmation of the
Plan unless it is accepted by Class 4.
XI. OWNERSHIP OF CAPITAL SECURITIES
For a discussion of the ownership of Capital Securities, see "OWNERSHIP OF
COMMON STOCK" in Part A of the Exchange Restructuring Prospectus..
XII. MARKET PRICES OF OLD COMMON STOCK; DIVIDEND HISTORY
For a discussion of the market prices of the Old Common Stock and its
dividend history, see "MARKET PRICES OF OLD COMMON STOCK; DIVIDEND HISTORY" in
Part A of the Prospectus.
XIII. MARKET PRICES OF 12.5% NOTES
For a discussion of the market prices of the 12.5% Notes, see "MARKET
PRICES OF 12.5% NOTES" in Part A of the Exchange Restructuring Prospectus.
XIV. APPLICATION OF SECURITIES ACT
A. THE SOLICITATION
The Company has registered under the Securities Act of 1933, as amended
(the "Securities Act"), the offer to exchange New Common Stock and Warrants for
12.5% Notes and Old Common Stock which may be deemed to be made by the Company
pursuant to the Solicitation.
B. ISSUANCE OF NEW SECURITIES PURSUANT TO THE PLAN
Generally, section 1145(a)(1) of the Bankruptcy Code exempts the issuance
of securities from the registration requirements of the Securities Act and
equivalent state securities and "blue sky" laws if all of the following
conditions are satisfied: (i) the securities are issued by a debtor (or its
successor) under a plan of reorganization; (ii) the recipients of the securities
hold a claim against, an interest in, or a claim for an
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administrative expense against, the debtor; and (iii) the securities are issued
entirely in exchange for the recipient's claim against or interest in the
debtor, or are issued "principally" in such exchange and "partly" for cash or
property. The Company believes that the distribution of the New Common Stock
and the Warrants pursuant to the Plan would satisfy the aforementioned
requirements, and the Company may rely on the section 1145 exemption in respect
of such issuance.
Any New Common Stock and Warrants issued pursuant to the section 1145
exemption may be resold by the holders thereof without restriction, unless, as
more fully described below, any such holder is deemed to be an "underwriter"
with respect to such securities, as defined in section 1145(b)(1) of the
Bankruptcy Code. Generally, section 1145(b)(1) of the Bankruptcy Code defines
an "underwriter" as any person who (A) purchases a claim against, or interest
in, a bankruptcy case, with a view towards the distribution of any security to
be received in exchange for such claim or interest, (B) offers to sell
securities issued under a bankruptcy plan on behalf of the holders of such
securities, (C) offers to buy securities issued under a bankruptcy plan from
persons receiving such securities, if the offer to buy is made with a view
towards distribution of such securities, or (D) is an issuer as contemplated by
section 2(11) of the Securities Act. Although the definition of the term
"issuer" appears in section 2(4) of the Securities Act, the reference (contained
in section 1145(b)(1)(D) is an issuer as contemplated by section 2(11) of the
Securities Act purports to include as "underwriters" all persons who, directly
or indirectly, through one or more intermediaries, control, are controlled by,
or are under common control with, an issuer of securities. "Control" (as such
term is defined in Rule 405 of Regulation C under the Securities Act) means the
possession, directly or indirectly, of the power to direct or cause the
direction of the policies of a person, whether through the ownership of voting
securities, by contract, or otherwise. Accordingly, an officer or director of a
reorganized debtor (or its successor) under a plan or reorganization may be
deemed to be a "control person," particularly if such management position is
coupled with the ownership of a significant percentage of the debtor's (or
successor's) voting securities. Moreover, the legislative history of section
1145 of the Bankruptcy Code suggests that a creditor who owns at least 10
percent of the securities of a reorganized debtor may be presumed to be a
"control person."
BECAUSE OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A
PARTICULAR HOLDER MAY BE AN UNDERWRITER, MERISEL MAKES NO REPRESENTATION
CONCERNING THE ABILITY OF ANY PERSON TO DISPOSE OF THE SECURITIES TO BE
DISTRIBUTED UNDER THE PLAN.
MOREOVER, SUCH SECURITIES, OR THE DOCUMENTS THAT ESTABLISH THE TERMS AND
PROVISIONS THEREOF, MAY CONTAIN TERMS AND LEGENDS THAT RESTRICT OR INDICATE THE
EXISTENCE OF RESTRICTIONS ON THE TRANSFERABILITY OF SUCH SECURITIES.
MERISEL RECOMMENDS THAT RECIPIENTS OF SECURITIES UNDER THE PLAN CONSULT
WITH LEGAL COUNSEL CONCERNING THE LIMITATIONS ON THEIR ABILITY TO DISPOSE OF
SUCH SECURITIES.
There can be no assurance that an active market for any of the securities
to be distributed under the Plan will develop and no assurance can be given as
to the prices at which they might be traded.
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XV. PREPACKAGED RESTRUCTURING ACCOUNTING TREATMENT
For a discussion of pertinent accounting treatment of the Prepackaged
Restructuring, see "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION" and "PROJECTED CONSOLIDATED FINANCIAL INFORMATION" in Part A of the
Exchange Restructuring Prospectus.
XVI. DESCRIPTION OF INDEBTEDNESS OF THE COMPANY
For a description of the principal terms of the indebtedness of the
Company, see "DESCRIPTION OF INDEBTEDNESS OF THE COMPANY" of Part A of the
Exchange Restructuring Prospectus.
XVII. DESCRIPTION OF 12.5% NOTES
For a description of the 12.5% Notes, see "DESCRIPTION OF 12.5% NOTES" in
Part A of the Exchange Restructuring Prospectus.
XVIII. FINANCIAL PROJECTIONS AND ASSUMPTIONS USED
For Merisel's financial projections and the assumptions underlying them,
See "PROJECTED CONSOLIDATED FINANCIAL PROJECTIONS" in Part A of the Exchange
Restructuring Prospectus.
XIX. PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
For a discussion of the Company's pro forma financial statements, See "PRO
FORMA CONSOLIDATED FINANCIAL INFORMATION" in Part A of the Exchange
Restructuring Prospectus.
XX. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following is a summary of certain Federal income tax consequences
expected to result from the consummation of the Plan to Holders of 12.5% Notes,
Holders of Old Common Stock, and the Company and is for general information
purposes only. This summary is based on the Federal income tax law now in
effect, which is subject to change, possibly retroactively. This summary does
not discuss all aspects of Federal income taxation which may be important to
particular Holders of 12.5% Notes or Holders of Old Common Stock in light of
their individual investment circumstances, including Holders who acquired their
Old Common Stock pursuant to the exercise of stock options or otherwise as
compensation, or to Holders of 12.5% Notes or Holders of Old Common Stock
subject to special tax rules (e.g., financial institutions, broker-dealers,
----
insurance companies, tax-exempt organizations, and foreign taxpayers). In
addition, this summary does not address state, local or foreign tax
consequences. This summary assumes that Holders hold their 12.5% Notes or Old
Common Stock, and will hold their New Common Stock and, in the case of Holders
of Old Common Stock, Warrants, as "capital assets" (generally, property held for
investment) under the Internal Revenue Code of 1986, as amended (the "Code").
No rulings have been or will be requested from the Internal Revenue Service with
respect to any of the matters discussed herein. Holders of 12.5% Notes and
Holders of Old Common Stock are urged to consult their tax advisors regarding
the specific Federal, state, local, and foreign income and other tax
consequences resulting from the consummation of the Plan.
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A. FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY
CANCELLATION OF INDEBTEDNESS INCOME. Merisel will realize cancellation of
indebtedness ("COI") income, for Federal income tax purposes, in an amount
equal to the excess, if any, of the adjusted issue price of the 12.5% Notes
(including any accrued but unpaid interest) over the fair market value of the
New Common Stock received by Holders of 12.5% Notes pursuant to the Plan. COI
income that is realized in a case under the Bankruptcy Code (i.e., pursuant to
----
the Plan) will not be recognized under section 108 of the Code. Merisel will be
required, however, to reduce certain of its tax attributes, such as its
operating losses and net operating loss carryovers ("NOLs"), certain tax
credits, and the basis of its assets, by the amount of the COI income that is
not recognized.
LIMITATION ON NET OPERATING LOSS CARRYOVERS. As a result of the
confirmation and consummation of the Plan, Merisel will undergo an "ownership
change" (generally, a 50% change in ownership) for purposes of section 382 of
the Code and, accordingly, Merisel will be limited in its ability to use its
NOLs and certain tax credit carryforwards (the "Section 382 Limitation") to
offset future taxable income. The Section 382 Limitation will generally be
determined by multiplying the value of Merisel's equity before the ownership
change by the long-term tax-exempt rate (currently 5.64%). Because Merisel
will undergo an ownership change in a case under the Bankruptcy Code, however,
Merisel anticipates that the value of its equity for purposes of determining the
Section 382 Limitation would be adjusted to reflect the increase in such value
arising from the cancellation of the 12.5% Notes.
B. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF 12.5% NOTES
GENERAL. The Plan, if confirmed and consummated as described herein, will
constitute a tax-free recapitalization for purposes of the Code. Accordingly,
for Federal income tax purposes:
(i) no gain or loss will be recognized by a Holder of 12.5% Notes upon
the receipt of New Common Stock pursuant to the Plan, except that the
Holder will (a) recognize gain or loss to the extent of any cash received
in lieu of a fractional share or fractional Warrant and (b) recognize
income to the extent of the value of the New Common Stock received pursuant
to the Plan which is allocable to any interest on the notes that accrued on
or after the beginning of the holder's holding period and which was not
previously included in the Holder's taxable income (the "Accrued
Interest");
(ii) the aggregate tax basis of the New Common Stock received by a
Holder of 12.5% Notes pursuant to the Plan will be the same as the
aggregate tax basis of the notes exchanged therefor (reduced by any basis
apportionable to any fractional share settled in cash as described above),
except that the basis of the shares of New Common Stock received which are
treated as attributable to Accrued Interest will be equal to the fair
market value of such shares on the Effective Date; and
(iii) the holding period of the New Common Stock in the hands of a
Holder of 12.5% Notes will include the holding period of the notes
exchanged therefor, except that the holding period of the New Common Stock
treated as attributable to Accrued Interest will begin the day after the
Effective Date.
Market Discount. Holders of 12.5% Notes who acquired their notes at a
---------------
"market discount" subsequent to the initial offering of the notes may be
required to carry over any accrued (but unrecognized) market discount to the New
Common Stock received pursuant to the Plan, which discount will be recognized as
ordinary income upon disposition of such New Common Stock.
C. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF OLD COMMON STOCK
GENERAL. In general, the receipt of New Common Stock and Warrants by
Holders of Old Common Stock pursuant to the Plan will not be a taxable event,
except a Holder will recognize gain or loss to the extent of any cash received
in lieu of a fractional share or a fractional Warrant. Holders of Old Common
Stock will be required to allo-
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cate the adjusted tax basis in their Old Common Stock (reduced by any basis
apportionable to any fractional share settled in cash as described above)
between the New Common Stock and the Warrants on the basis of their respective
fair market values on the date of distribution. The holding period of the New
Common Stock and the Warrants will include the holding period of the Old Common
Stock.
DISPOSITION. Upon a sale, exchange, or other disposition of the New Common
Stock or the Warrants, a Holder will recognize a capital gain or loss in an
amount equal to the difference between the amount realized and the Holder's
adjusted tax basis in such New Common Stock or Warrants. Such gain or loss will
be long-term if the New Common Stock or Warrants have been held for more than
one year.
EXERCISE OR LAPSE OF WARRANTS. Upon the exercise of a Warrant, a Holder
will not recognize gain or loss and will have a tax basis in the New Common
Stock received equal to the tax basis in such Holder's Warrant plus the exercise
price thereof. The holding period for the New Common Stock received pursuant to
the exercise of the Warrant will begin on the day following the date of exercise
and will not include the period that the Holder held his Warrant.
In the event that a Warrant lapses unexercised, a Holder will recognize a
long-term capital loss in an amount equal to his tax basis in such Warrant.
ADJUSTMENT TO EXERCISE PRICE. If at any time Reorganized Merisel makes a
distribution of property to shareholders that would be taxable to such
shareholders as a dividend for Federal income tax purposes and, in accordance
with the antidilution provisions of the Warrants, the Exercise Price is
decreased, the amount of such decrease may be deemed to be the payment of a
taxable dividend to Holders of the Warrants. For example, a decrease in the
Exercise Price in the event of distributions of cash or indebtedness of
Reorganized Merisel will generally result in deemed dividend treatment to
Holders, but generally a decrease in the event of stock dividends or the
distribution of rights to subscribe for shares of New Common Stock will not.
XXI. FEASIBILITY OF THE PLAN AND THE BEST INTERESTS OF CREDITORS TEST
A. FEASIBILITY OF THE PLAN
In connection with confirmation of the Plan, Section 1129(a)(11) requires
that the Bankruptcy Court find that confirmation of the Plan is not likely to be
followed by the liquidation or the need for further financial reorganization of
Merisel. This is the so-called "feasibility" test.
To support its belief in the feasibility of the Plan, Merisel, with the
assistance of the professionals retained in connection with the Exchange
Restructuring, has prepared financial Projections for the period January 1, 1997
through December 31, 2001. The professionals have not performed an independent
investigation of the accuracy or completeness of such financial Projections.
See "FINANCIAL PROJECTIONS" in Part A of the Exchange Restructuring Prospectus.
The Projections indicate that Reorganized Merisel should have sufficient
cash flow to make the payments required under the Plan on the Effective Date and
to repay and service its debt obligations and to maintain its operations.
Accordingly, Merisel believes that the Plan complies with the standard of
section 1129(a)(11) of the Bankruptcy Code. As noted in the Projections,
however, Merisel cautions that no representations can be made as to the
accuracy of the Projections or as to Reorganized Merisel's ability to achieve
the projected results. Many of the assumptions upon which the Projections are
based are subject to uncertainties outside the control of Merisel. Some
assumptions inevitably will not materialize, and events and circumstances
occurring after the date on which the Projections were prepared may be different
from those assumed or may be unanticipated, and may adversely affect Merisel's
financial results. As discussed elsewhere in this Disclosure Statement, there
are numerous circumstances that may cause actual results to vary from the
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projected results, and the variations may be material and adverse. See "RISK
FACTORS" herein for a discussion of certain risk factors that may affect
financial feasibility of the Plan.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH THE
GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
OR THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION REGARDING
PROJECTIONS. FURTHERMORE, THE PROJECTIONS HAVE NOT BEEN AUDITED BY MERISEL'S
INDEPENDENT CERTIFIED ACCOUNTANTS. ALTHOUGH PRESENTED WITH NUMERICAL
SPECIFICITY, THE PROJECTIONS ARE BASED UPON A VARIETY OF ASSUMPTIONS, SOME OF
WHICH HAVE NOT BEEN ACHIEVED TO DATE AND MAY NOT BE REALIZED IN THE FUTURE, AND
ARE SUBJECT TO SIGNIFICANT BUSINESS, LITIGATION, ECONOMIC, AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF
MERISEL. CONSEQUENTLY, THE PROJECTIONS SHOULD NOT BE REGARDED AS A
REPRESENTATION OR WARRANTY BY MERISEL, OR ANY OTHER PERSON, THAT THE PROJECTIONS
WILL BE REALIZED. ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE PRESENTED IN
THE PROJECTIONS.
B. BEST INTERESTS TEST
Even if the Plan is accepted by Impaired Class 4 Claims and Impaired Class
6 Interests, the Bankruptcy Code requires that the Bankruptcy Court find either
that all members of an impaired class of Claims or Interests have accepted the
plan or that the plan will provide a member who has not accepted the plan with a
recovery of property of a value, as of the effective date of the plan, that is
not less than the amount that such holder would receive or retain if the debtor
were liquidated under Chapter 7 of the Bankruptcy Code.
To calculate the probable distribution to members of each impaired class of
holders of Claims or Interests if a debtor were liquidated under Chapter 7, the
Bankruptcy Court must first determine the aggregate dollar amount that would be
generated from the debtor's assets if its Chapter 11 case were converted to a
Chapter 7 case under the Bankruptcy Code. This "liquidation value" would
consist primarily of the proceeds from a forced sale of the debtor's assets by a
Chapter 7 trustee.
The amount of liquidation value available to unsecured creditors would be
reduced by, first, the claims of secured creditors to the extent of the value of
their collateral, and, second, by the costs and expenses of liquidation, as well
as by other administrative expenses and costs (including any break up or
termination fees approved by the Bankruptcy Court) of both the Chapter 7 case
and the Chapter 11 Case. Costs of liquidation under Chapter 7 of the Bankruptcy
Code would include the compensation of a trustee, as well as of counsel and
other professionals retained by the trustee, asset disposition expenses, all
unpaid expenses incurred by the debtor in its Chapter 11 case (such as
compensation of attorneys, financial advisors, and accountants) that are allowed
in the Chapter 7 case, litigation costs, and claims arising from the operations
of the debtor during the pendency of the Chapter 11 case. The liquidation
itself would trigger certain priority payments that otherwise would be due in
the ordinary course of business. Those priority claims would be paid in full
from the liquidation proceeds before the balance would be made available to pay
general claims or to make any distribution in respect of equity interests. The
liquidation would also prompt the rejection of executory contracts and unexpired
leases and thereby create a higher amounts of Unsecured Claims.
Section 510(a) of the Bankruptcy Code provides that subordination
agreements are enforceable in a bankruptcy case to the same extent that such
subordination is enforceable under applicable non-bankruptcy law. Therefore, no
class of claims that is contractually subordinated to another class would
receive any payment on account of its claims, unless and until such senior class
were paid in full.
Once the Bankruptcy Court ascertains the recoveries in liquidation of
secured creditors and priority claimants, it must determine the probable
distribution to general unsecured creditors from the remaining avail-
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able proceeds in liquidation. If such probable distribution has a value greater
than the distributions to be received by such creditors under the Plan, then
the Plan is not in the best interests of creditors and cannot be confirmed by
the Bankruptcy Court. Under a Chapter 7 liquidation, no class of claims that is
junior to a class of claims may be paid unless the senior class of claims is
paid in full. As shown in the Liquidation Analysis, Merisel believes that each
Holder of 12.5% Notes in Impaired Class 4 will receive more under the Plan than
they would receive if Merisel were liquidated. With respect to Class 6 Old
Common Stock Interests, Merisel believes that each Holder of Old Common Stock
will receive no distribution of any property in a Chapter 7 liquidation on
account of its Interests. Since liquidation will not yield more for such
Interest holders, the Plan meets the requirements of Section 1129(a)(7) as to
Class 6 Interest holders as well.
C. CHAPTER 7 LIQUIDATION ANALYSIS
As indicated above, Merisel believes that under the Plan, Holders of Class
4 12.5% Notes Claims, Impaired Claims or Impaired Old Common Stock Interests
will receive property with a value equal to or in excess of the value such
Holder would receive in a liquidation of Merisel under Chapter 7 of the
Bankruptcy Code.
To estimate the potential returns to Holders of Claims and Interests in a
Chapter 7 liquidation, Merisel determined, as might a Bankruptcy Court
conducting such an analysis, the amount of liquidation proceeds that might be
available for distribution and the allocation of such proceeds among the Classes
of Claims and Interests based on their relative priority. Merisel considered a
number of factors and data, including the market value based on a multiple of
EBITDA, defined as earnings before interest, taxes, depreciation and
amortization (EBITDA), of publicly traded companies reasonably comparable to the
operating businesses of the Company. Merisel has valued the Company in its
entirety based on a multiple of EBITDA. The liquidation proceeds available to
Merisel for distribution to Holders of Claims against and Interests in Merisel
would consist of net proceeds from the disposition of the continuing operations
of its wholly-owned Subsidiary, Merisel Americas, Inc., augmented by other cash
held and generated during the assumed holding period stated herein by Merisel
and after deducting the incremental expenses of operating the businesses pending
disposition.
The relative priority of distribution of liquidation proceeds with respect
to any Claim or Interest depends on (i) its status as secured, priority
unsecured or nonpriority unsecured and (ii) its relative subordination. The
capital structure of the Company's Subsidiary, Merisel Americas, includes
substantial debt. Consequently, the estimated net proceeds from the assumed
liquidation of Merisel Americas as a going concern were first applied to its
existing indebtedness. Proceeds in excess of Merisel Americas' debt were assumed
available for distribution to the Holders of Claims against and Interests in
Merisel.
In general, liquidation proceeds would be allocated in the following
priority: (i) first, to the Claims of secured creditors to the extent of the
value of their collateral; (ii) second, to the costs, fees and expenses of the
liquidation, as well as other administrative expenses of Merisel's hypothetical
Chapter 7 case, including tax liabilities; (iii) third, to the unpaid
Administrative Claims of the Reorganization Case (if commenced); (iv) fourth, to
Priority Tax Claims and other Claims entitled to priority in payment under the
Bankruptcy Code; (v) fifth, to General Unsecured Claims, including the 12.5%
Notes Claims and the Tech Pacific Claims; (vi) sixth, to Subsidiary Guaranty
Claims; (vii) seventh, to Holders of Old Common Stock and subordinated
Securities Litigation claims. Merisel's liquidation costs in a Chapter 7 case
would include the compensation of a bankruptcy trustee, as well as compensation
of counsel and of other professionals retained by such trustee, asset
disposition expenses, applicable taxes, litigation costs, Claims arising from
the operation of Merisel during the pendency of the Chapter 7 case and all
unpaid Administrative Claims incurred by Merisel during the Reorganization Case
(if commenced) that are Allowed in the Chapter 7 case. The liquidation itself
might trigger certain Priority Claims, such as Claims for severance pay, and
would likely accelerate or, in the case of taxes, make it likely that the
Internal Revenue Service would assert all of its claims as Priority Tax Claims
rather than asserting them in due course as is expected to occur under the
Reorganization Case. These Priority Claims would be paid in full out of the net
liquidation proceeds, after payment of secured Claims, Chapter 7
30
<PAGE>
costs of administration and other Administrative Claims, before the balance
would be made available to pay Unsecured Claims or to make any distribution in
respect of Interests.
The following Chapter 7 liquidation analysis is provided solely to discuss
the effects of a hypothetical Chapter 7 liquidation of Merisel and is subject to
the assumptions set forth herein. There can be no assurance that such
assumptions would be accepted by a Bankruptcy Court. The Chapter 7 Liquidation
Analysis has not been independently audited or verified.
THE FOLLOWING LIQUIDATION ANALYSIS ASSUMES A LIQUIDATION SALE OF MERISEL'S
OPERATING COMPANIES AS A GOING CONCERN. A FORCED ASSET LIQUIDATION SALE,
HOWEVER, MIGHT RESULT IN THE REALIZATION OF SUBSTANTIALLY LOWER SALE PROCEEDS.
1. LIQUIDATION VALUE OF THE COMPANY
The table below details the computation of Merisel's liquidation value and
the estimated distributions to Holders of Impaired Claims and Impaired Interests
in a Chapter 7 liquidation of Merisel. This analysis is based upon a number of
estimates and assumptions that are inherently subject to significant
uncertainties and contingencies, many of which would be beyond the control of
Merisel. Accordingly, while the analyses that follow are necessarily presented
with numerical specificity, there can be no assurance that the values assumed
would be realized if Merisel were in fact liquidated, nor can there be any
assurance that a Bankruptcy Court would accept this analysis or concur with such
assumptions in making its determinations under section 1129(a) of the Bankruptcy
Code. ACTUAL LIQUIDATION PROCEEDS COULD BE MATERIALLY LOWER OR HIGHER THAN THE
AMOUNTS SET FORTH BELOW; NO REPRESENTATION OR WARRANTY CAN BE OR IS BEING MADE
WITH RESPECT TO THE ACTUAL PROCEEDS THAT COULD BE RECEIVED IN A CHAPTER 7
LIQUIDATION OF MERISEL. The liquidation valuations have been prepared solely
for purposes of estimating proceeds available in a Chapter 7 liquidation of the
Estate and do not represent values that may be appropriate for any other
purpose. Nothing contained in these valuations is intended or may constitute a
concession or admission of Merisel for any other purpose.
In addition to the specific assumptions described in the footnotes to the
table below, the following general assumptions were used in formulating the
liquidation analysis:
A. ESTIMATED LIQUIDATION PROCEEDS
While Merisel is knowledgeable and experienced in operating a significant
distribution company, it is not experienced in selling or attempting to sell all
or substantially all of the assets or stock of the enterprise, or any material
portion thereof, as is contemplated in this hypothetical liquidation analysis.
The following information and factors, not listed in order of importance, were
among others, generally considered by Merisel in estimating the proceeds which
might be received from the liquidation sale:
(a) Merisel's operating and projected financial performance.
(b) The attractiveness of the Company to potential buyers.
(c) The potential universe of buyers.
(d) The potential impact of a Chapter 7 case upon the Company, as well as
possible buyers' pricing strategies.
(e) The relative timing of the potential sale of the Company.
(f) Analysis of the liabilities and obligations of the Company.
In estimating the liquidation proceeds and applying the foregoing factors
and considerations to make such estimate, both the general economic environment
as well as the current condition of Merisel's businesses were considered. See
"BUSINESS AND PROPERTIES OF THE COMPANY" and "MANAGEMENT'S
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<PAGE>
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in
Part A of the Exchange Restructuring Prospectus.
B. IMPACT ON MERISEL'S OPERATIONS OF THE CONVERSION TO A CHAPTER 7
LIQUIDATION.
Management believes that a conversion to a Chapter 7 liquidation and the
resulting pendency of a liquidation sale of the Operating Companies would
adversely affect the morale of Merisel's and its Operating Companies' management
and employees as well as significantly impair their ability to maintain adequate
working capital. There can be no assurance that the conversion to a Chapter 7
liquidation would not result in the inability of the Operating Companies to
continue to raise working capital under the Revolving Credit Agreement and
related securitization of accounts receivables.
C. NATURE AND TIMING OF THE LIQUIDATION PROCESS.
Under section 704 of the Bankruptcy Code, a Chapter 7 trustee must, among
other duties, collect and convert the property of the debtor's estate to cash
and close the estate as expeditiously as is compatible with the best interests
of the parties in interest. Solely for purposes of preparing this liquidation
analysis, it is assumed that Merisel would file the Reorganization Cases on July
31, 1997 and the case would be converted to a Chapter 7 liquidation on July 31,
1997. Merisel assumed disposition of its assets in a sale of its Operating
Companies' ongoing operations to a single buyer.
D. ADDITIONAL LIABILITIES AND RESERVES.
Merisel believes that there would be certain actual and contingent
liabilities and expenses for which provision would be required in a Chapter 7
liquidation before distributions could be made to creditors in addition to the
expenses that would be incurred in a Chapter 11 reorganization, including: (a)
Administrative Claims including the fees of a trustee and of counsel and other
professionals (including financial advisors and accountants) and other
liabilities (including retirement, vacation pay, and other employee-related
administrative costs and liabilities) that would be funded from continuing
operations if Merisel were reorganized as a going concern; and (b) certain
administrative costs including the incremental expenses of continuing to operate
the businesses pending disposition. Management believes that there is
significant uncertainty as to the reliability of Merisel's estimates of the
amounts related to the foregoing that have been assumed in the liquidation
analysis.
E. DISTRIBUTIONS; ABSOLUTE PRIORITY.
Under a Chapter 7 liquidation all secured claims are required to be
satisfied from the proceeds of the collateral securing such claims before any
such proceeds would be distributed to any other claim holders. The following
analysis assumes the application of the rule of absolute priority of
distributions with respect to the remaining proceeds of Merisel. Under that
rule, no junior creditor receives any distribution until all senior creditors
are paid in full. Proceeds remaining after satisfaction of all secured claims
would first be distributed to the Administrative and Priority Claimants, then to
unsecured claimants, and finally to subordinated claimants and stockholders.
2. CONCLUSION
In summary, Merisel believes that a Chapter 7 liquidation of Merisel would
result in a substantial diminution in the value to be realized by the Holders of
Claims and Interests. As set forth in the table below, Merisel's management
estimates that the total liquidation proceeds available for distribution to
unsecured creditors would aggregate approximately $55.7 million. Accordingly,
Old Common Stock Interests likely would be entitled to no distribution in the
event of a Chapter 7 liquidation of Merisel. IN THE EVENT OF
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<PAGE>
A FORCED ASSET LIQUIDATION SALE, THE ACTUAL AMOUNT OF LIQUIDATION PROCEEDS
AVAILABLE TO CREDITORS AND STOCKHOLDERS MIGHT BE CONSIDERABLY LESS.
MERISEL, INC.
LIQUIDATION ANALYSIS
($ in millions)
<TABLE>
<CAPTION>
I. STATEMENT OF ASSETS
NOTE
REFERENCE $
--------- ----
<S> <C> <C>
EBITDA (1) 36.9
EBITDA Multiple (2) 7.5X
-----
Total Enterprise Value 276.8
Discount for Chapter 7 Sale (3) 25.0%
-----
Adjusted Equity Value 207.6
Less: Operating Losses During Liquidation (4) (7.4)
Plus: Cash (5) 20.0
-----
Sub-Total 220.2
Less: Operating Company Debt (6) (157.1)
-----
Estimated Proceeds From Asset Liquidation 63.1
</TABLE>
33
<PAGE>
II. DISTRIBUTION OF ESTIMATED PROCEEDS OF ASSET LIQUIDATION
<TABLE>
<CAPTION>
ESTIMATED
ESTIMATED LIQUIDATION RECOVERY
NOTE AMOUNT -----------------------
REFERENCE OF CLAIM PERCENTAGE AMOUNT
---------- --------- ------------------------
<S> <C> <C> <C> <C>
Estimated Proceeds of Asset Liquidation $63.1
Secured Claims (7) $ 0.0 0.0% 0.0
Chapter 7 Administrative Expenses (8) 4.4 100.0% 4.4
Chapter 11 Administrative Expenses (9) 3.0 100.0% 3.0
Pre-Petition Priority Claims (10) 0.0 0.0% 0.0
Contingent Administrative Claims (11) 0.0 0.0% 0.0
Priority Tax Claims (12) 0.0 0.0% 0.0
-----
Total Secured Administrative and 7.4
Priority Claims
Net Proceeds for Distribution to $55.7
Unsecured Creditors
Claims Classification (13)
- ------------------------------------------
Class 4 12.5% Noteholder Claims (14) 134.1 41.5% 55.7
Class 6 Old Common Stock Interests Unknown 0.0% 0.0
</TABLE>
Notes to Liquidation Analysis
- -----------------------------
(1) Estimated EBITDA is for Merisel's continuing Operating Companies only.
Historical results for Q3 1996 have been adjusted for certain charges made
to accounts receivable, accounts payable and certain expense accounts which
the Company does not expect to recur. The EBITDA projections are based on
actual results for the third quarter of 1996 through the first quarter of
1997, and planned results for the second quarter of 1997. The analysis
assumes Liquidation started July 31, 1997 and is completed in 90 days. It
also assumes that Merisel Americas, Inc. and Merisel Canada, Inc. (the
Operating Companies) will be liquidated as going concerns with all debt and
other liabilities (including trade claims and the asset securitization
facilities) assumed and/or paid in full.
(2) The EBITDA multiple is based on a market analysis of competitors' Enterprise
Value/EBITDA multiples, adjusted for Merisel's historical performance and
the multiples of potential acquirors.
(3) The analysis assumes that a potential buyer would apply a discount to the
purchase price in order to accomplish a rapid acquisition of the Operating
Companies in a 90-day time frame under a Chapter 7 liquidation.
(4) The Operating Companies are projected to incur a loss of $7.4 million during
a Chapter 7 liquidation due to loss of customers and trade vendor support
resulting from a sales decline of 20% during this 90-day sale period.
(5) A minimum cash balance of $20 million was assumed to be maintained for day-
to-day operations.
(6) The Operating Company Debt includes the Revolving Credit Agreement; 11.5%
Senior Notes, 11.78% Subordinated Notes and the Promissory notes.
(7) No material secured claims exist at the Holding Company.
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<PAGE>
(8) These fees include a Trustee fee of 3% of proceeds available from the
Liquidation and fees for the Trustee's legal and financial professionals.
(9) These fees represent the remaining professional fees from the Chapter 11
proceeding.
(10) The analysis assumes no material pre-petition Priority Claims exist at the
Holding Company.
(11) The analysis assumes no material Contingent Priority Claims exist at the
Holding Company.
(12) The analysis assumes no material Priority Tax Claims exist at the Holding
Company.
(13) The analysis excludes any potential recovery for the Tech Pacific
litigation or any other Merisel litigation claims which may be contingent
liabilities
(14) This includes the $125 million principal balance and 7 months of accrued,
but unpaid interest on the 12.5% Senior Notes.
XXII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
Merisel believes that the Plan affords holders of all Claims and Old Common
Stock Interests the potential for the greatest realization on Merisel assets
and, therefore, is in the best interests of such holders.
If the Plan is not confirmed, however, the theoretical alternatives include
(a) continuation of the Reorganization Case and formulation of an alternative
plan or plans of reorganization or (b) liquidation of Merisel under Chapter 7 or
Chapter 11 of the Bankruptcy Code.
A. CONTINUATION OF THE CHAPTER 11 CASE
If Merisel were to commence the Reorganization Case and remain in Chapter
11, Merisel could continue to operate its businesses and manage its properties
as a debtor-in-possession, but it would remain subject to the restrictions
imposed by the Bankruptcy Code. It is not clear whether Merisel could survive
as a going concern in a protracted Chapter 11 case. Merisel could have
difficulty sustaining the high costs, operating financing, and the confidence of
Merisel's and its Operating Companies' customers and trade vendors, of Merisel
remaining in Chapter 11. Ultimately, Merisel (or other parties in interest)
could propose another plan or attempt to liquidate Merisel under Chapter 7 or
Chapter 11. Such plans might involve either a reorganization and continuation
of Merisel's business, or an orderly liquidation of its assets, or a combination
of both.
B. LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11
If the Plan is not confirmed, Merisel's Reorganization Case could be
converted to a liquidation case under Chapter 7 of the Bankruptcy Code. In a
Chapter 7 case, a trustee would be appointed to liquidate promptly the assets of
Merisel.
Merisel believes that in liquidation under Chapter 7, before creditors
received any distribution, additional administrative expenses involved in the
appointment of a trustee and attorneys, accountants, and other professionals to
assist such trustees, along with an increase in expenses associated with an
increase in the number of unsecured claims such as warranty claims that would be
expected, would cause a substantial diminution in the value of the Estate. The
assets available for distribution to creditors would be reduced by such
additional expenses and by Claims, some of which would be entitled to priority,
which would arise by reason of the liquidation and from the rejection of leases
and other executory contracts in connection with the cessation of Merisel
operations and the failure to realize the greater going concern value of
Merisel's assets.
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<PAGE>
Merisel could also be liquidated pursuant to the provisions of a Chapter 11
plan of reorganization. In a liquidation under Chapter 11, Merisel assets could
be sold in a more orderly fashion over a longer period of time than in a
liquidation under Chapter 7. Thus, Chapter 11 liquidation might result in
larger recoveries than in a Chapter 7 liquidation, but the delay in
distributions could result in lower present values received and higher
administrative costs. Because a trustee is not required in a Chapter 11 case,
expenses for professional fees could be lower than in a Chapter 7 case, in which
a trustee must be appointed. Any distribution to the holders of Claims under a
Chapter 11 liquidation plan probably would be delayed substantially.
Merisel's liquidation analysis, prepared with its financial advisors and
included above in this Disclosure Statement, is by law premised upon a
liquidation in a Chapter 7 case. In that analysis, Merisel has taken into
account the nature, status, and underlying value of its assets, the ultimate
realizable value of its assets, and the extent to which such assets are subject
to liens and security interests.
XXIII. VOTING AND CONFIRMATION OF THE PLAN
The Bankruptcy Code requires that, in order to confirm the Plan, the
Bankruptcy Court must make a series of findings concerning the Plan and Merisel,
including, without limitation, that (i) the Plan has classified Claims and
Interests in a permissible manner, (ii) the Plan complies with applicable
provisions of the Bankruptcy Code, (iii) Merisel has complied with applicable
provisions of the Bankruptcy Code, (iv) Merisel has proposed the Plan in good
faith and not by any means forbidden by law, (v) the disclosure required by
Section 1125 of the Bankruptcy Code has been made, (vi) the Plan has been
accepted by the requisite votes of creditors (except to the extent that cramdown
is available under section 1129(b) of the Bankruptcy Code) (see " Acceptance or
Cramdown"), (vii) the Plan is feasible and Confirmation is not likely to be
followed by the liquidation or the need for further financial reorganization of
Merisel, (viii) the Plan is in the "best interests" of all Holders of Claims or
Interests in an impaired Class by providing to such Holders on account of their
Claims or Interests property of a value, as of the Effective Date, that is not
less than the amount that such Holder would receive or retain in a Chapter 7
liquidation, unless each Holder of a Claim or Interest in such Class has
accepted the Plan, (ix) all fees and expenses payable under 28 U.S.C. (S) 1930,
as determined by the Bankruptcy Court at the hearing on Confirmation, have been
paid or the Plan provides for the payment of such fees on the Effective Date,
and (x) the Plan provides for the continuation after the Effective Date of all
retiree benefits, as defined in section 1114 of the Bankruptcy Code, at the
level established at any time prior to Confirmation pursuant to sections
1114(e)(1)(B) or 1114(g) of the Bankruptcy Code, for the duration of the period
that Merisel has obligated itself to provide such benefits.
A. VOTING PROCEDURES AND REQUIREMENTS
Pursuant to the Bankruptcy Code, only Classes of Claims and Interests that
are "impaired," as defined in section 1124 of the Bankruptcy Code, under the
Plan are entitled to vote to accept or reject the Plan. A Class is impaired if
the legal, equitable or contractual rights to which the Claims or Interests of
that Class entitle the Holders of such Claims or Interests are modified, other
than by curing defaults and reinstating the debt or by payment in full in cash.
Classes of Claims and Interests that are not impaired are conclusively presumed
to have accepted the Plan and are not entitled to vote on the Plan. Classes of
Claims and Interests whose Holders receive or retain no property under the Plan
are deemed to have rejected the Plan and are not entitled to vote on the Plan.
The classification of Claims and Interests is summarized, together with
notations as to whether each Class of Claims or Interests is impaired or
unimpaired, in Section IX.C herein, "Classification And Treatment Of Claims And
Interests." Additional information regarding voting is contained in the
instructions accompanying the ballots.
Under section 1126(b) of the Bankruptcy Code, a Holder of a claim or
interest that has accepted a plan of reorganization before the commencement of a
Chapter 11 case will be deemed to have accepted the plan for purposes of
confirmation under Chapter 11 of the Bankruptcy Code if the bankruptcy court
determines that the solicitation of such acceptance was in compliance with any
applicable nonbankruptcy law governing the adequacy of disclosure in connection
with such a solicitation. Solicitations of acceptances of a plan of
reorganization before the commencement of a Chapter
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<PAGE>
11 case shall be rejected by a Bankruptcy Court if the court finds that (i) the
plan was not transmitted to substantially all creditors and equity interest
holders of the same class, (ii) an unreasonably short time was prescribed for
such creditors or equity interest holders to vote on the plan or (iii) the
solicitation was not in compliance with section 1126(b) of the Bankruptcy Code.
Merisel believes that its solicitation of acceptances of the Plan complies with
the requirements of section 1126(b) and all applicable federal and state
securities laws for purposes of solicitation of acceptances or rejections of the
Plan. If the Bankruptcy Court finds such compliance, then Holders casting
ballots to accept or reject the Plan will be deemed by the Bankruptcy Court to
have accepted or rejected the Plan. Unless the Bankruptcy Court later
determines that any acceptances of the Plan may be revoked, all such acceptances
will remain in full force and effect until the Bankruptcy Court determines
whether such acceptances constitute acceptances or rejections for purposes of
Confirmation under the Bankruptcy Code. Merisel also reserves the right to use
acceptances of the Plan received in this solicitation to seek Confirmation under
any other circumstances, including the filing of an involuntary bankruptcy
petition against Merisel. For a discussion of other significant conditions to
Confirmation under the Bankruptcy Code, see "Acceptance or Cramdown" below.
This Disclosure Statement and the appropriate ballot are being distributed
to all Holders of Class 4 Claims and Class 6 Interests, the only Holders who are
entitled to vote on the Plan. There is a separate ballot designated for each
Class of Claims and Interests in order to facilitate vote tabulation; however,
all ballots are substantially similar in form and substance and the term
"ballot" is used without intended reference to the ballot of any specific Class
of Claims or Interests.
B. WHO MAY VOTE
Under the Plan, the Claims against and the Interests in Merisel are divided
into six Classes. Pursuant to the Bankruptcy Code, only Classes of Claims or
Interests that are Impaired are entitled to vote on the Plan. Claims or
Interests in the following Classes are Impaired under the Plan and therefore may
vote on the Plan:
Class 4: 12.5% Notes Claims
Class 6: Old Common Stock Interests.
Only beneficial owners of 12.5% Notes and Old Common Stock (the "Old
Securities") on the Distribution Record Date, or their authorized signatories,
are eligible to vote on the Plan. The Distribution Record Date is
__________________, 1997.
C. VOTING PROCEDURES FOR HOLDERS OF OLD SECURITIES
If you are a registered Holder of Old Securities, you will receive the
ballot relating to the securities you hold of record. Registered Holders may
include brokerage firms, commercial banks, trust companies or other nominees.
If such entities do not hold Old Securities for their own account, they should
provide copies of this Prospectus and an appropriate ballot to their customers
and to beneficial owners. For further instructions, see "Beneficial Owners Of
Old Securities" below. Any beneficial owner who has not received a prospectus
or ballot should contact their brokerage firm or nominee or the Information
Agent.
All votes to accept or reject the Plan must be cast by using the ballot or,
in the case of a brokerage firm or other nominee holding Old Securities in its
own name on behalf of a beneficial owner, the Master Ballot, enclosed with this
Disclosure Statement (or original, manually executed facsimiles thereof).
Brokerage firms or other nominees holding Old Securities for the account of only
one beneficial owner may use a ballot. Purported votes which are cast in any
other manner will not be counted. Ballots and Master Ballots must be received by
the voting agent (the "Voting Agent") at its address set forth on the applicable
ballot no later than 5:00 p.m., Eastern Time, on , 1997 (the "Voting
Deadline"), which may be extended at the Company's discretion.
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<PAGE>
You may receive a ballot relating to Old Securities that you did not
beneficially own on the applicable record date. You should complete only the
ballot corresponding to each class of Old Securities which you beneficially
owned on the Distribution Record Date. Holders who purchase or whose purchase
is registered after the Distribution Record Date, and who wish to vote on the
Plan must arrange with their seller to receive a proxy from the Holder of record
on such record date, a form of which is provided with each ballot and Master
Ballot.
Holders of Old Securities who elect to vote on the Plan should complete and
sign the ballot in accordance with the instructions thereon being sure to check
the appropriate box entitled "Accept the Plan" or "Reject the Plan." Holders may
not split their vote on the Plan with respect to a particular class of Old
Securities. A Holder must vote all securities beneficially owned in a
particular class in the same way (i.e., all "accept" or all "reject") even if
such Old Securities are owned through more than one broker or bank.
Delivery of all documents must be made to the Voting Agent at its address
set forth on the applicable ballot. The method of such delivery is at the
election and risk of the Holder. If such delivery is by mail, it is recommended
that Holders use an air courier with a guaranteed next day delivery or
registered mail, properly insured, with return receipt requested. In all cases,
sufficient time should be allowed to assure timely delivery.
YOU MAY RECEIVE MULTIPLE MAILINGS OF THIS DISCLOSURE STATEMENT, ESPECIALLY
IF YOU OWN YOUR OLD SECURITIES THROUGH MORE THAN ONE BROKER OR BANK. IF YOU
SUBMIT MORE THAN ONE BALLOT FOR A CLASS OR ISSUE OF OLD SECURITIES BECAUSE YOU
BENEFICIALLY OWN SUCH OLD SECURITIES THROUGH MORE THAN ONE BROKER OR BANK, BE
SURE TO INDICATE IN ITEM 3 OF THE BALLOT(S), THE NAME OF ALL BROKER DEALERS OR
OTHER INTERMEDIATES WHO HOLD OLD SECURITIES FOR YOU.
D. BENEFICIAL OWNERS OF OLD SECURITIES
Section 1126(b) of the Bankruptcy Code has been interpreted to require that
a solicitation for acceptances prior to filing a plan of reorganization must
include the beneficial owners of securities, regardless of whether such
beneficial owners are the holders of record. Accordingly, a beneficial owner of
Old Securities on the Record Date is eligible to vote on the Plan, whether the
Old Securities were held on the Distribution Record Date in such beneficial
owner's name or in the name of a brokerage firm, commercial bank, trust company
or other nominee.
Any beneficial owner holding Old Securities in its own name can vote by
completing and signing the enclosed ballot and returning it directly to the
Voting Agent using the enclosed pre-addressed stamped envelope.
A beneficial owner holding Old Securities in "street name" (i.e., through a
brokerage firm, bank, trust company or other nominee) or a beneficial owner's
authorized signatory (a broker or other intermediary having power of attorney to
vote on behalf of a beneficial owner) can vote by following the instructions set
forth below:
1. Fill in all the applicable information on the ballot.
2. Sign the ballot (unless the ballot has already been signed by the
bank, trust company or other nominee).
3. Return the ballot to the addressee in the preaddressed, stamped
envelope enclosed with the ballot. If no envelope was enclosed, contact the
Information Agent (identified below) or the Voting Agent identified on the
applicable ballot for instructions.
Authorized signatories voting on behalf of more than one beneficial owner
must complete a separate ballot for each such beneficial owner. Any ballot
submitted to a brokerage firm or proxy intermediary will not be counted until
such brokerage firm or proxy intermediary (i) properly executes and delivers
such ballot to the Voting Agent or (ii) properly completes and delivers a
corresponding Master Ballot to the Voting Agent.
By submitting a vote for or against the Plan, you are certifying that you
are the beneficial owner of the Old Securities being voted or an authorized
signatory for such a beneficial owner. Your submission of a ballot will also
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<PAGE>
constitute a request that you (or in the case of an authorized signatory, the
beneficial owner) be treated as the record holder of such securities for
purposes of voting on the Plan.
E. BROKERAGE FIRMS, BANKS AND OTHER NOMINEES
A brokerage firm, commercial bank, trust company or other nominee which is
the registered holder of an Old Security for a beneficial owner, or its a
participant in a securities clearing agency and is authorized to vote in the
name of such securities clearing agency pursuant to an omnibus proxy (as
described below) and is acting for a beneficial owner, can vote on behalf of
such beneficial owner by (i) distributing a copy of this Prospectus and all
appropriate ballots to such owner, (ii) collecting all such ballots, (iii)
completing a Master Ballot compiling the votes and other information from the
ballots collected, and (iv) transmitting such completed Master Ballot to the
Voting Agent. A proxy intermediary acting on behalf of a brokerage firm or bank
may follow the procedures outlines in the preceding sentence to vote on behalf
of such beneficial owner. A brokerage firm, commercial bank, trust company or
other nominee which is the registered holder of an Old Security for only one
beneficial owner also may arrange for such beneficial owner to vote by executing
the appropriate ballot and by distributing a copy of the Prospectus and such
executed ballot to such beneficial owner for voting and returning such ballot to
the Voting Agent at the address set forth on the applicable ballot.
F. SECURITIES CLEARING AGENT
The ______________, as nominee holder of Old Securities, will execute an
omnibus proxy in favor of its respective participants. As a result of the
omnibus proxy, each such participant will be authorized to vote the securities
owned by it and held in the name of such securities clearing agency.
G. INCOMPLETE BALLOTS
It is important that all Class 4 creditors and all Class 6 Interest Holders
vote to accept or to reject the Plan, because under the Bankruptcy Code, for
purposes of determining whether the requisite acceptances have been received
from an Impaired Class of Claims or Interests, the vote will be tabulated based
on the ratio of (i) Allowed Claims or Interests with respect to which a vote to
accept was received to (ii) all Allowed Claims or Interests of such Impaired
Class with respect to which any valid vote was received. Therefore, it is
possible that the Plan could be approved with the affirmative vote of
significantly less than two-thirds in amount and one-half in number of the
entire Class of 12.5% Notes Claims, or by Class 6 Old Common Stock Interests
with the affirmative vote of significantly less than two-thirds in amount of the
entire Class of Old Common Stock Interests. Failure by a Holder of an Impaired
Class 4 Claim or an Impaired Class 6 Interest to submit a properly executed
Ballot or Master Ballot (as appropriate) or to indicate acceptance or rejection
of the Plan in accordance with the instructions set forth thereon and the
procedures set forth herein shall be deemed to constitute an abstention by such
Holder with respect to a vote regarding the Plan. Abstentions as a result of
failing to submit a properly executed Ballot or Master Ballot (when appropriate)
or failing to indicate a vote either for acceptance or rejection of the Plan
will not be counted as votes for or against the Plan. The Company, in its sole
discretion, may waive any defect in any Ballot or Master Ballot at any time,
either before or after the close of voting, and without notice.
EXCEPT AS OTHERWISE ORDERED BY THE BANKRUPTCY COURT, A BALLOT OR, WHERE
APPROPRIATE, MASTER BALLOT, WHICH IS EITHER (I) NOT TIMELY SUBMITTED TO THE
VOTING AGENT AT THE ADDRESS SET FORTH ON THE APPLICABLE BALLOT, (II) SUBMITTED
TO SUCH VOTING AGENT WITHOUT PROPER EXECUTION OR (III) EXECUTED AND SUBMITTED TO
SUCH VOTING AGENT WITHOUT PROPERLY INDICATING ACCEPTANCE OR REJECTION OF THE
PLAN WILL CONSTITUTE AN ABSTENTION WITH RESPECT TO A VOTE ON THE PLAN UNDER
SECTION 1126(b) OF THE BANKRUPTCY CODE FOR PURPOSES OF CONFIRMATION OF THE
PLAN.
H. VOTING DEADLINE AND EXTENSIONS
39
<PAGE>
In order to be counted for purposes of Voting on the Plan, all of the
information requested on the applicable ballot must be provided by the Voting
Deadline. THE VOTING DEADLINE IS , 1997, 5:00 P.M., EASTERN TIME.
Ballots must be received by the Voting Agent at its address set forth on the
applicable ballot. Merisel reserves the right, in its sole discretion, to
extend the Voting Deadline, in which case the term "Voting Deadline" shall mean
the latest date on which a ballot will be accepted. To extend the Voting
Deadline, Merisel will make an announcement thereof, prior to 9:00 p.m., Eastern
Time, not later than the next business day immediately preceding the previously
scheduled Voting Deadline. Such announcement may state that Merisel is
extending the Voting Deadline for a specified period of time or on a daily basis
until 5:00 p.m., Eastern Time, on the date on which sufficient acceptances
required to seek Confirmation of the Plan have been received.
I. WITHDRAWAL OF VOTES ON THE PLAN
The solicitation of acceptances of the Plan will expire on the Voting
Deadline. A properly submitted ballot may be withdrawn only with the approval
of the Bankruptcy Court.
J. INFORMATION AGENT
MacKenzie Partners, Inc. has been appointed as Information Agent for the
Plan. Questions and requests for assistance may be directed to the Information
Agent. Requests for additional copies of this Prospectus, the ballots or the
Master Ballots should be directed to the Information Agent. Such requests should
be addressed to the Information Agent as follows: MacKenzie Partners, Inc., 156
Fifthe Avenue, New York, New York 10010 (Phone:(800) 322-2885).
K. ACCEPTANCE OR CRAMDOWN
A plan is accepted by an impaired class of claims if holders of at least
two-thirds in dollar amount and more than one-half in number of claims of that
class vote to accept the plan. A plan is accepted by an impaired class of
interests if holders of at least two-thirds of the number of shares in such
class vote to accept the plan. Only those holders of claims or interests who
actually vote count in these tabulations.
The Bankruptcy Code contains the so-called "cramdown" provisions of section
1129(b) authorizing the confirmation of a plan even if it is not accepted by all
impaired classes, as long as at least one impaired class of claims (without
including any acceptance of the plan by an insider) has accepted it. In the
event that Class 4 12.5% Notes Claims votes to accept the Plan (and at least one
impaired Class either votes to reject the Plan or is deemed to have rejected the
Plan), Merisel reserves the right to request the Bankruptcy Court to confirm the
Plan under the cramdown provisions of the Bankruptcy Code. In that event,
Merisel has reserved the right to modify the Plan to the extent, if any, that
Confirmation pursuant to section 1129(b) of the Bankruptcy Code requires or
permits modification of the Plan. If a request to confirm the Plan pursuant to
the cramdown provisions of the Bankruptcy Code were to be granted by the
Bankruptcy Court and, if necessary, corresponding modifications of the Plan were
to be made in connection therewith, the dissenting Classes could receive, in
certain circumstances, alternative treatment under the Plan. IF MERISEL SEEKS
CONFIRMATION PURSUANT TO SUCH ALTERNATIVE CRAMDOWN PROVISIONS, THERE CAN BE NO
ASSURANCE THAT THE REQUIREMENTS OF SUCH PROVISIONS WILL BE SATISFIED OR, EVEN IF
SUCH REQUIREMENTS ARE SATISFIED, THAT SUCH ALTERNATIVE TREATMENT WILL NOT
MATERIALLY AFFECT THE PROPOSED CONSIDERATION TO BE DISTRIBUTED TO CERTAIN
HOLDERS OF CLAIMS AND INTERESTS.
As indicated above, a plan may be confirmed under the cramdown provisions
if, in addition to satisfying the other requirements of section 1129 of the
Bankruptcy Code, it (i) is "fair and equitable" and (ii) "does not discriminate
unfairly" with respect to each class of claims or interests that is impaired
under, and has not accepted, the plan. The "fair and equitable" standard, also
known as the "absolute priority rule," requires, among other things, that unless
a dissenting class of claims or a class of interests receives full compensation
for its allowed claims or allowed interests, no holder of claims or interests in
any junior class may receive or retain any property on account of such claims.
The Bankruptcy Code establishes different "fair and equitable" tests for secured
creditors, unsecured creditors and equity holders, as follows:
40
<PAGE>
(a) Secured Creditors: either (i) each impaired secured creditor
retains its liens securing its secured claim and receives on account of its
secured claim deferred cash payments having a percent value equal to the
amount of its allowed secured claim, (ii) each impaired secured creditor
realizes the "indubitable equivalent" of its allowed secured claim, or
(iii) the property securing the claim is sold free and clear of liens with
such liens to attach to the proceeds, and the liens against such proceeds
are treated in accordance with clause (i) or (ii) of this subparagraph (a).
(b) Unsecured Creditors: either (i) each impaired unsecured creditor
receives or retains under the plan or reorganization property of a value
equal to the amount of its allowed claim, or (ii) the holders of claims and
equity interests that are junior to the claims of the nonaccepting class do
not receive any property under the plan of reorganization on account of
such claims and equity interests.
(c) Equity Holders: either (i) each equity holder will receive or
retain under the plan of reorganization property of a value equal to the
greater of (a) the fixed liquidation preference or redemption price, if
any, of such stock or (b) the value of the stock, or (ii) the holders of
interests that are junior to the nonaccepting class will not receive any
property under the plan of reorganization.
The "fair and equitable" standard has also been interpreted to prohibit any
class senior to a dissenting class from receiving under a plan more than 100% of
its allowed claims. The requirement that a plan not "discriminate unfairly"
means, among other things, that a dissenting class must be treated substantially
equally with respect to other classes of equal rank.
Merisel believes that, if necessary, the Plan may be crammed down over the
dissent of Class 6 Old Common Stock Interests. If Class 6 fails to accept the
Plan, Merisel reserves its right to amend the Plan to permit cramdown of Class 6
Old Common Stock Interests. Even if Class 6 were not to accept the Plan and
Merisel were to elect to cram down Class 6, there can be no assurance that the
requirements of section 1129(b) of the Bankruptcy Code would be satisfied even
if the Plan treatment provisions were amended or withdrawn as to Class 6 Old
Common Stock Interests.
Merisel does not believe that the Plan unfairly discriminates against any
Class that may not accept or otherwise consent to the Plan. A plan of
reorganization "does not discriminate unfairly" if (i) the legal rights of a
nonaccepting class are treated in a manner that is consistent with the treatment
of other classes whose legal rights are similarly situated to those of the
nonaccepting class, and (ii) no class receives payments in excess of that which
it is legally entitled to receive for its claims or equity interests. Merisel
believes the Plan does not discriminate unfairly.
MERISEL RESERVES THE ABSOLUTE RIGHT TO SEEK CONFIRMATION OF THE PLAN UNDER
SECTION 1129(b) OF THE BANKRUPTCY CODE IN THE EVENT THE PLAN IS NOT ACCEPTED BY
ALL IMPAIRED CLASSES OF INTERESTS.
Subject to the conditions set forth in the Plan, a determination by the
Bankruptcy Court that the Plan is not confirmable pursuant to section 1129 of
the Bankruptcy Code will not limit or affect Merisel's ability to modify the
Plan to satisfy the Confirmation requirements of section 1129 of the Bankruptcy
Code.
41
<PAGE>
XXIV. CONCLUSION
MERISEL BELIEVES THAT THE CONFIRMATION OF THE PLAN IS IN THE BEST INTERESTS
OF MERISEL, ITS CREDITORS AND ITS ESTATE. The Plan provides for an equitable
and early distribution to creditors and stockholders, and preserves the going
concern value of Merisel. Merisel believes that any alternative to confir
mation of the Plan, such as liquidation or attempts by another party in interest
to file a plan, could result in significant delays, litigation, and costs, as
well as a reduction in the going concern value of Merisel and a loss of jobs by
many Merisel employees. Moreover, Merisel believes that Merisel's creditors and
stockholders will receive greater and earlier recoveries under the Plan than
those that would be achieved in liquidation. FOR THESE REASONS, MERISEL URGES
YOU TO RETURN YOUR BALLOT AND VOTE TO ACCEPT THE PLAN.
Dated:
-------------------------
1997
------------------,
MERISEL, INC., a Delaware corporation
By:
-------------------------------------
[Name: ]
[Title: ]
PRESENTED BY:
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 South Grand Avenue
Los Angeles, California 90071-3144
(213) 687-5000
919 Third Avenue
New York, New York 10022-3897
(212) 735-3000
- and -
One Rodney Square
Wilmington, Delaware 19899-0636
(302) 651-3000
ATTORNEYS FOR MERISEL, INC.
42
<PAGE>
Exhibit A
(Form of Series A Warrant Agreement)
I-29
<PAGE>
Exhibit B
(Form of Series B Warrant Agreement)
I-30
<PAGE>
Exhibit C
(For of Restated Certificate of Incorporation)
I-31
<PAGE>
Exhibit D
(Form of Bylaws)
I-32
<PAGE>
PART 1. FINANCIAL INFORMATION [/R]
INDEPENDENT AUDITORS' REPORT
Merisel, Inc.:
We have audited the accompanying consolidated balance sheets of Merisel, Inc.
and subsidiaries as of December 31, 1995 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. 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, 1995 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Los Angeles, California
April 14, 1997
F-1
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
---------- --------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 1,378 $ 44,678
Accounts receivable (net of allowances of $24,786 and
$23,684 at December 31, 1995 and 1996, respectively).. 413,057 168,295
Inventories............................................ 561,230 392,557
Prepaid expenses and other current assets.............. 17,919 16,925
Income taxes receivable................................ 35,116 2,183
Deferred income tax benefit............................ 6,657 482
---------- --------
Total current assets................................. 1,035,357 625,120
PROPERTY AND EQUIPMENT, NET.............................. 90,381 61,430
COST IN EXCESS OF NET ASSETS ACQUIRED, NET............... 93,287 41,724
OTHER ASSETS............................................. 11,309 2,765
---------- --------
TOTAL ASSETS......................................... $1,230,334 $731,039
========== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable....................................... $ 621,990 $383,548
Accrued liabilities.................................... 71,483 37,544
Short-term debt........................................ 21,620
Long-term debt--current................................ 35,000 9,084
Subordinated debt--current............................. 4,400 4,400
---------- --------
Total current liabilities............................ 754,493 434,576
LONG-TERM DEBT........................................... 299,271 268,079
SUBORDINATED DEBT........................................ 17,600 13,200
CAPITALIZED LEASE OBLIGATIONS............................ 4,504 187
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 29,863,500 and $30,078,500 at
December 31, 1995 and 1996, respectively.............. 299 301
Additional paid-in capital............................. 141,938 142,300
Retained earnings (accumulated deficit)................ 19,211 (121,164)
Cumulative translation adjustment...................... (6,982) (6,440)
---------- --------
Total stockholders' equity........................... 154,466 14,997
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $1,230,334 $731,039
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES................................... $5,018,687 $5,956,967 $5,522,824
COST OF SALES............................... 4,676,164 5,633,278 5,233,570
---------- ---------- ----------
GROSS PROFIT................................ 342,523 323,689 289,254
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................... 281,796 317,195 295,021
IMPAIRMENT LOSSES........................... 51,383 42,033
RESTRUCTURING CHARGE........................ 9,333
---------- ---------- ----------
OPERATING INCOME (LOSS)..................... 60,727 (54,222) (47,800)
INTEREST EXPENSE............................ 29,024 37,583 37,431
LOSS ON SALE OF EUROPEAN, MEXICAN AND LATIN
AMERICAN OPERATIONS........................ 33,455
OTHER EXPENSE............................... 11,752 13,885 20,150
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES........... 19,951 (105,690) (138,836)
PROVISION (BENEFIT) FOR INCOME TAXES........ 8,341 (21,779) 1,539
---------- ---------- ----------
NET INCOME (LOSS)........................... $ 11,610 $ (83,911) $ (140,375)
========== ========== ==========
NET INCOME (LOSS) PER SHARE................. $ 0.38 $ (2.82) $ (4.68)
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES........... 30,389 29,806 30,001
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS CUMULATIVE
----------------- PAID-IN (ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT TOTAL
---------- ------ ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1993................... 29,604,300 $296 $140,775 $ 91,512 $(8,726) $ 223,857
Exercise of stock
options and other.... 112,300 1 474 475
Cumulative translation
adjustment........... 222 222
Net income............ 11,610 11,610
---------- ---- -------- --------- ------- ---------
BALANCE AT DECEMBER 31,
1994................... 29,716,600 297 141,249 103,122 (8,504) 236,164
Exercise of stock
options and other.... 146,900 2 689 691
Cumulative translation
adjustment........... 1,522 1,522
Net loss.............. (83,911) (83,911)
---------- ---- -------- --------- ------- ---------
BALANCE AT DECEMBER 31,
1995................... 29,863,500 299 141,938 19,211 (6,982) 154,466
Exercise of stock
options and other.... 215,000 2 362 364
Cumulative translation
adjustment........... 542 542
Net loss.............. -- -- -- (140,375) (140,375)
---------- ---- -------- --------- ------- ---------
BALANCE AT DECEMBER 31,
1996................... 30,078,500 $301 $142,300 $(121,164) $(6,440) $ 14,997
========== ==== ======== ========= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
----------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................ $ 11,610 $ (83,911) $ (140,375)
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities:
Depreciation and amortization........... 16,101 20,509 18,789
Provision for doubtful accounts......... 18,851 16,335 17,421
Impairment losses....................... 51,383 42,033
Loss on Sale of European, Mexican and
Latin American businesses.............. 33,455
Deferred income taxes................... (4,973) 5,471 6,175
Changes in assets and liabilities, net
of the effects from acquisitions:
Accounts receivable.................... (152,912) (103,553) 132,480
Inventories............................ (75,314) (43,524) 91,059
Prepaid expenses and other current
assets................................ (6,604) (8,186) (14,612)
Income taxes receivable................ (35,116) 33,470
Accounts payable....................... 94,385 98,756 (179,304)
Accrued liabilities.................... 19,690 23,872 (11,342)
Income taxes payable................... (3,275) (4,422)
----------- --------- -----------
Net cash (used for) provided by
operating activities................. (82,441) (62,386) 29,249
----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment....... (40,163) (49,082) (9,652)
Proceeds from sale of property and
equipment............................... 5,975
Payment of earn out obligation from
ComputerLand acquisition................ (13,409)
Cash proceeds from sale of Australian
business................................ 8,515
Cash proceeds from sale of European,
Mexican and Latin American businesses... 110,379
Acquisitions, net of cash acquired....... (86,343)
Other investing activities............... (767)
----------- --------- -----------
Net cash (used for) provided by
investing activities................. (126,506) (49,082) 101,041
----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of
credit.................................. 1,766,300 937,275 1,448,358
Repayments under revolving line of
credit.................................. (1,742,114) (944,960) (1,466,150)
Net borrowings (repayments) under foreign
bank facilities......................... (13,058) (9,980) (17,742)
Borrowings (repayments) under senior
notes................................... 125,000 (43,195)
Repayment under subordinated debt
agreement............................... (4,400)
Proceeds from sale of accounts
receivable.............................. 75,000 125,320
Proceeds from issuance of common stock... 475 691 364
----------- --------- -----------
Net cash provided by financing
activities........................... 211,603 108,346 (82,765)
----------- --------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH... 863 967 (4,225)
----------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. 3,519 (2,155) 43,300
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................... 14 3,533 1,378
----------- --------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.. $ 3,533 $ 1,378 $ 44,678
=========== ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid (received) during the year for:
Interest (net of interest capitalized of
$1,053 and $3,281 for 1994 and 1995,
respectively. No interest was
capitalized in 1996)................... $ 21,237 $ 27,118 $ 30,456
Income taxes............................ 11,185 10,747 (36,068)
Noncash activities:
Capital lease obligations entered into.. 5,708 187
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 main operating subsidiary, Merisel Americas, Inc. ("Merisel
Americas") and its subsidiaries (the "Operating Company"), the Company markets
products and services throughout North America, and has achieved operational
efficiencies that have made it 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'
product sales and installations.
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") (See Note 12--"Subsequent Events"). EML was sold
as of September 27, 1996 to CHS Electronics, Inc. ("CHS") (See Note 5--
"Dispositions"). Management believes that a substantial portion of operating
losses incurred in 1996 relate to the implementation of its 1996 Business Plan
which focused upon the conservation of cash, the sale of assets, and the
improvement of business processes, particularly in the area of accounts
payable.
The Company has developed and is implementing a business strategy for 1997
(the "1997 Business Strategy") that focuses on profitable North American
revenue growth instead of managing for cash. Under the 1997 Business Strategy,
Merisel intends to concentrate on strengthening and building its sales
infrastructure, improving gross margins, and controlling operating expenses.
Other priorities include continuing efforts to achieve operational excellence,
addressing financial controls and policies by emphasizing margin improvements
and tight expense control, and implementing a strategy focused on the United
States and Canada.
In order to meet its debt obligations in mid-1997 (See Note 9--"Debt").
Merisel is actively pursuing a restructuring plan with the debtholders under
its various financing agreements. Effective April 14, 1997, the Company
entered into an agreement (the "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 Agreement, upon the fulfillment of certain
conditions, holders of the 12.5% Notes would exchange (the "Exchange") their
12.5% Notes for common stock, par value $.01 per share, of the Company (the
"Common Stock"), which would equal 80% of the outstanding shares of Common
Stock immediately after the Exchange. Contemporaneously with the Exchange, the
holders of Common Stock would receive warrants (the "Warrants") to purchase
Common Stock constituting 17.5% of the Common Stock outstanding immediately
after giving effect to the Exchange.
The Exchange is subject to certain conditions including (i) stockholder
approval of an amendment to the Certificate of Incorporation of the Company to
authorize the additional shares of Common Stock, and (ii) consents to
amendments of the $85,208,000 Revolving Credit Agreement ("Revolving Credit
Agreement") and the agreement governing the $56,805,000 principal amount of
the 11.5% Senior Note Purchase Agreement ("11.5% Notes") by 100% of the
lenders under such agreements to extend the maturity of such indebtedness to
January 31, 1999 (the "Extension"), or a refinancing of such indebtedness
prior to October 31, 1997. The Company intends to effectuate the Exchange by
commencing a registered exchange offer which would be conditioned on 100% of
the holders of the 12.5% Notes tendering such notes for Common Stock. If less
than 100% of the holders of the 12.5% Notes tender in the exchange offer,
Merisel, Inc., the parent company, intends to file a "prepackaged" plan of
reorganization under Chapter 11 of the U.S. Bankruptcy Code. Merisel Americas
F-6
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and Merisel Canada (the subsidiaries through which the Company's distribution
business is conducted) 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 such subsidiaries' 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, as no other creditors of the Company or its
operating subsidiaries 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 the other conditions to the Exchange.
In connection with the Extension, the Company has entered into an agreement
in principle with the holders of in excess of 60% of the outstanding principal
amount of the Revolving Credit Agreement and 66 2/3% of the 11.5% Notes,
pursuant to which such holders have agreed, subject to execution of definitive
documentation, to extend the respective maturities to January 31, 1999. In
consideration of such Extension, the Company has agreed to pay certain fees
related to the Extension and, commencing in 1998, additional fees payable
quarterly together with an increase in the interest rate of 0.5% per quarter
for each quarter that the debt remains outstanding. The Company would have the
right to prepay such debt at anytime without penalty. There can be no
assurance that the remaining creditors under the Revolving Credit Agreement
and the 11.5% Notes (all of whom must approve the Extension for it to be
effective) will approve the Extension. In the event that the Extension does
not become effective, the Company believes that, assuming it achieves its 1997
Business Strategy, it will have reasonable prospects for a refinancing of such
indebtedness in the latter half of 1997, particularly if the Exchange is
consummated concurrently with such refinancing.
Effective immediately, and throughout the period the Company is implementing
the Exchange and Extension, in excess of 75% of the holders of the 12.5% Notes
have agreed to waive any default arising from the nonpayment of interest due
in 1997 on the 12.5% Notes, and the required percentage of holders of 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 for such waivers, 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 the Subordinated Notes while
such debt remains outstanding. Accordingly, the Company believes that it will
be able to satisfy all of its material debt obligations under such instruments
in 1997 pending the consummation of the Exchange and the Extension. 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.
At December 31, 1996, the Company had cash and cash equivalents of
approximately $44,700,000. 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 the Revolving Credit Agreement, the 11.5% Notes and the
Subordinated Notes, cash on hand, together with anticipated cash flow in 1997
will be sufficient to meet the Company's liquidity requirements for the next
12 months.
Risks and Uncertainties. The Company believes that the diversity and breadth
of the Company's product and service offerings, customers, and the general
stability of the economies in the markets in which it operates significantly
mitigate the risk that a severe impact will occur in the near term as a result
of changes in its customer base, competition, or composition of its markets.
Although Merisel regularly stocks products and accessories supplied by more
that 500 manufacturers, 60% of the Company's net sales in 1996 (as compared to
63% in 1995, and 56% in 1994) were derived from products supplied by Merisel's
ten largest manufacturers.
F-7
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant estimates include collectibility of accounts receivable,
inventory, deferred income taxes, accounts payable, sales returns and
recoverability of long-term assets.
New Accounting Pronouncement. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted price of the
Company's stock at the date of grant over the amount an employee must pay to
acquire the stock. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." (SFAS 123) encourages, but does not
require companies to record compensation cost for stock-based employee
compensation plans at fair value. Although adoption of SFAS 123 is optional,
pro forma disclosures illustrating the effect on net income and earnings per
share as if the provisions of SFAS 123 had been adopted, are required and are
presented in Note 11 "Employee Stock Options and Benefit Plans".
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 the volume of purchases. The cost of these programs is
partially subsidized by marketing allowances provided by the Company's
manufacturers. The allowances for sales returns and costs of customer
incentive programs are accrued concurrently with the recognition of revenue.
The Company does not have any arrangements with customers whereby it
recognizes revenue from the shipment of any product that is subject to sell-
through arrangements with resellers.
In connection with FAB, the Company collected initial franchise fees, "cost
plus" markups and royalties. Initial franchise fees, were recognized as income
when substantially all services and conditions relating to the sale of the
franchise had been performed or satisfied. "Cost plus" markups, which range
from 1.95% to 3.10%, were charged to franchisees for products purchased from
ComputerLand. These markups, as well as royalties, which range from 0.5% to
5.0% of franchise sales were recognized as such sales occur. Royalty revenues
were $5,812,000 and $10,500,000 in 1996 and 1995 respectively. Franchise
agreements range from one to ten years in length. As of March 28th, 1997 the
Company completed the sale of substantially all of the assets of Merisel FAB.
(See Note 12--"Subsequent Events")
Cash and 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.
The Company capitalizes all direct costs incurred in the construction of
facilities and the development and installation of new computer and warehouse
management systems. Such amounts include the costs of materials and other
direct construction costs, purchased computer hardware and software, outside
programming and consulting fees, direct employee salaries and interest.
F-8
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cost in Excess of Net Assets Acquired. Cost in excess of net assets acquired
resulted from the acquisition in January 1994 of FAB and the acquisition in
1990 of Microamerica, Inc. The cost in excess of net assets acquired from
Microamerica, Inc. is being amortized over a period of 40 years using the
straight line method. The cost in excess of net assets acquired from FAB was
being amortized over an aggregate period of 25 years (see Note 3--
"Acquisitions"). As of March 28, 1997, the Company completed the sale of
substantially all of the assets of Merisel FAB. In connection with such sale,
the cost in excess of net assets acquired related to Merisel FAB will be
written off (see Note 12--"Subsequent Events"). Accumulated amortization was
$12,186,000 and $14,429,000 at December 31, 1995 and 1996 respectively.
The Company reviews the recoverability of intangible assets to determine if
there has been any permanent impairment. This assessment is performed based on
the estimated undiscounted future cash flows from operating activities
compared with the carrying value of intangible assets. If the undiscounted
future cash flows are less than the carrying value, an impairment loss is
recognized, measured by the difference between the carrying value and fair
value of the assets (see Note 4--"Impairment Losses").
Income Taxes. Deferred income taxes represent the amounts which will be paid
or received in future periods based on the tax rates that are expected to be
in effect when the temporary differences are scheduled to reverse.
At December 31, 1995, the cumulative amount of undistributed earnings on
which the Company has not recognized United States income taxes was
approximately $7,000,000, representing primarily earnings in the Company's
Canadian subsidiary. No undistributed foreign earnings remained in the Company
as of December 31, 1996.
Concentration of Credit Risks. Financial instruments which subject the
Company to credit risk consist primarily of cash equivalents, trade accounts
receivable, and forward foreign currency exchange contracts. Concentration of
credit risk with respect to trade accounts receivable are generally
diversified due to the large number of entities comprising the Company's
customer base and their geographic dispersion. The Company performs ongoing
credit evaluations of its customers and maintains an allowance for potential
credit losses, and in certain locations maintains credit insurance as the
Company deems appropriate. The Company diversifies its credit risk with
respect to forward foreign exchange contracts due to the number of
institutions with which it enters into contracts. The Company actively
evaluates the creditworthiness of the financial institutions with which it
conducts business.
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, was less than the
carrying value by approximately $32,300,000 and $60,776,000 as of December 31,
1995 and 1996, 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 at the
above rates is included in a separate component of stockholders' equity
entitled Cumulative Translation Adjustment. In addition, the Company advances
funds in the normal course of business to certain of its foreign subsidiaries
which are not expected to be repaid in the foreseeable future. Translation
adjustments resulting from these advances are also included in Cumulative
Translation Adjustment.
Foreign Exchange Instruments. The Company's use of derivatives is limited to
the purchase of foreign exchange contracts in order to minimize foreign
exchange transaction gains and losses. The Company purchases forward dollar
contracts to hedge short-term advances to its foreign subsidiary and to hedge
commitments to
F-9
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
acquire inventory for sale and does not use the contracts for trading
purposes. The Company's foreign exchange rate contracts minimize the Company's
exposure to exchange rate movement risk, as any gains or losses on these
contracts are offset by gains and losses on the transactions being hedged. At
December 31, 1995, the Company had approximately $131,000,000 of foreign
exchange contracts outstanding, the carrying value of which does not differ
significantly from their fair value. There were no outstanding foreign
exchange contracts as of December 31, 1996. In 1994 and 1995 there was a net
foreign currency loss of $1,422,000, and $806,000 respectively. These losses
were primarily due to the devaluation of the Mexican Peso. In 1996 the Company
recorded a net foreign currency gain of $161,000 which was also primarily
related to the performance of the Mexican Peso against the United States
dollar. These amounts are recorded as other expense.
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 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 1994, 1995 and 1996 fiscal years were 52
weeks in duration. All quarters presented for 1995 and 1996 were 13 weeks in
duration.
2. RESTRUCTURING CHARGE
During the first six months of 1995, the Company recorded charges of
$9,333,000 associated with resizing and restructuring several of the Company's
operations. The charge consisted of $4,578,000 of severance charges for the
involuntary termination of approximately 240 employees, $2,830,000 for
anticipated warehouse closures in North America and $1,925,000 for the
anticipated consolidation of certain warehouses in Europe. As of December 31,
1995, $4,543,000 of these charges remained in accrued liabilities.
As a result of the Company's sale of EML, the Company's plans regarding the
consolidation of certain warehouses in Europe were no longer necessary. (see
Note 5--"Dispositions") As a result, approximately $1,925,000 of the unused
restructuring charge provided in 1995 was offset against the loss on the sale
of EML. The remaining unused restructuring charge of approximately $2,200,000
was used to offset severance costs associated with corporate downsizing as a
result of the sale of EML. As of December 31, 1996, $481,000 of restructuring
charges remained in accrued liabilities.
3. ACQUISITIONS
On January 31, 1994, the Company, through its wholly-owned subsidiary,
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
$80,200,000 in cash at closing for the acquired assets and $2,100,000 of
direct acquisition costs. In addition, the Company paid Vanstar a negotiated
settlement of $13,400,000 in earn out obligations under the original purchase
agreement, net of rebates. The acquisition was accounted for as a purchase.
Based on an independent valuation prepared for the company, $96,300,000 of the
purchase price was allocated to intangible assets with an estimated aggregate
life of 25 years. The intangible assets were subsequently written down by
$30,000,000 in the fourth quarter of 1995, $40,000,000 in the third quarter of
1996, and $2,033,000 in the fourth quarter of 1996 (See Note 4--"Impairment
Losses").
F-10
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the ComputerLand Acquisition, Merisel FAB and Vanstar
entered into the Distribution and Services Agreement (the "Service Agreement")
which as extended and amended provided significant distribution and other
support services to Merisel FAB for a contractually agreed upon fee. Also
under the terms of the Services Agreement, Vanstar agreed to provide extended
credit to Merisel FAB (the "Vanstar Payable") which was to be reduced by
scheduled payment amounts. At December 31, 1995 and 1996, $23,500,000 and
$20,000,000, respectively, was outstanding on the Vanstar Payable and is
included in accounts payable. The Vanstar Payable was assumed by, and the
Service Agreement was assigned to, Synnex pursuant to the sale of
substantially all of the assets of Merisel FAB as of March 28, 1997. (See Note
12--"Subsequent Events.")
4. IMPAIRMENT LOSSES
In the quarter ended September 30, 1996, the Company determined that a
portion of the carrying value for certain of its identifiable intangible
assets would not be recovered from their use in future operations.
Accordingly, these assets were written down to their fair values as of
September 30, 1996. An impairment was recognized on the intangible assets of
the Franchise and Aggregation Business (FAB), due to declining sales growth,
margins and earnings, and the resulting negative trend in projected cash
flows. The intangible assets of FAB were acquired in January 1994 (see Note 3)
and had a net book value of $57,600,000 at September 30, 1996, prior to the
write down. Fair value of the intangible assets was measured by discounting
future expected cash flows, which resulted in a required write down of
$40,000,000. In December 1996, the Company recorded an additional $2,033,000
charge to adjust FAB assets to their fair value based on the provisions of a
definitive agreement to sell such assets in the first quarter of 1997. (See
Note 12--"Subsequent Events.") An impairment loss of $30,000,000 associated
with these assets was previously recorded in the fourth quarter of 1995.
The Company undertook the process of converting its North American
operations to new computer operating systems from 1993 through 1995. Such
undertaking was completed in the Canadian subsidiary, for a substantially
higher cost than anticipated. In addition, the Company has decided to delay
the installation of these systems in the United States beyond 1997. As a
result of the cost overruns, the Company's experience in Canada and the
decision to delay installation in the United States, it was determined that
the value of these assets had been impaired, which resulted in a write down at
the end of the fourth quarter of 1995 of $19,500,000 in capitalized costs. The
book value of these capitalized costs was $44,600,000 at December 31, 1995
prior to the write down, and $25,100,000 subsequent to the write down. The
write down was determined by identifying certain cost categories that would be
duplicated with future development efforts and which would not provide value
to the Company.
In March 1996, 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. These net assets, after write down,
totaled $9,900,000 and were classified in the December 31, 1995 consolidated
balance sheet as other current assets. Prior to the $1,900,000 charge, the
Australian subsidiary reported a loss of $6,100,000 for 1995.
5. DISPOSITIONS
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
F-11
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
securitization agreement against which $26,252,000 was outstanding at closing
and (iii) a receivable for $11,000,000, payable in three installments of
$3,000,000, $4,000,000, and $4,000,000, due at various date through 1997.
In addition, effective January 1, 1996 the Company completed the sale of its
Australian Subsidiary ("see Note 4"). Following is summarized pro forma
operating results assuming that the Company had sold EML and its Austrailian
subsidiary as of January 1, 1995.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
----------------------
1995 1996
---------- ----------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net Sales........................................ $4,568,915 $4,462,653
Gross Profit..................................... 228,293 216,032
Net loss......................................... (67,737) (100,052)
========== ==========
Net loss per share............................... $ (2.27) $ (3.33)
========== ==========
Weighted Average Shares Outstanding.............. 29,806 30,001
========== ==========
</TABLE>
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 Australia's unaudited financial statements were also
used in preparing the pro forma balances above.
Effective March 28, 1997, Merisel completed the sale of substantially all of
the assets of Merisel FAB to a wholly owned subsidiary of Synnex. The purchase
price was approximately $31,992,000. (See Note 12-- "Subsequent Events".)
6. SALE OF ACCOUNTS RECEIVABLE
The Company's wholly owned subsidiary, Merisel Americas, sells trade
receivables on an ongoing basis to its wholly owned subsidiary, Merisel
Capital Funding, Inc. ("Merisel Capital Funding"). Pursuant to an agreement
with a securitization Company (the "Receivables Purchase and Servicing
Agreement"), Merisel Capital Funding, in turn, sells such receivables to the
securitization Company on an ongoing basis, which yields proceeds of up to
$300,000,000 at any point in time. Merisel Capital Funding's sole business is
the purchase of trade receivables from Merisel Americas. Merisel Capital
Funding is a separate corporate entity with its own separate creditors, which
upon its liquidation will be entitled to be satisfied out of Merisel Capital
Funding's assets prior to any value in Merisel Capital Funding becoming
available to Merisel Capital Funding's equity holders. This facility expires
in October 2000. In connection with the sale of EML and as a result of the
substantial losses incurred by the Company, Merisel Americas and Merisel
Capital Funding were required to, and did obtain, amendments and waivers with
respect to certain covenants under this facility.
Effective December 15, 1995, Merisel Canada, Inc. ("Merisel Canada") entered
into a receivables purchase agreement with a securitization Company to provide
funding for Merisel's Canadian subsidiary. 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.
F-12
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective October 16, 1995, Merisel U.K. Ltd. ("Merisel U.K.") entered into
a receivables purchase agreement with a securitization Company to provide
funding for Merisel's U.K. subsidiary. This facility, including $26,252,000
outstanding thereunder, was assumed by CHS in connection with the purchase of
EML.
Under these securitization facilities, the receivables are sold at face
value with payment of a portion of the purchase price being deferred. As of
December 31, 1996 the total amount outstanding under these facilities was
$248,820,000. Fees incurred in connection with the sale of accounts receivable
for the years ended December 31, 1994, 1995 and 1996 were $7,151,000,
$10,291,000 and $16,029,000, respectively, and are recorded as other expense.
7. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE ------------------
(IN YEARS) 1995 1996
----------- -------- --------
<S> <C> <C> <C>
Land..................................... $ 9,678 $ 5,818
Building................................. 20 3,880 3,880
Equipment................................ 3 to 7 76,918 65,628
Furniture and fixtures................... 3 to 5 13,777 8,575
Leasehold improvements................... 3 to 20 15,963 9,025
Construction in progress................. 21,365 21,850
-------- --------
Total.................................. 141,581 114,776
Less accumulated depreciation and amorti-
zation.................................. (51,200) (53,346)
-------- --------
Property and equipment, net.............. $ 90,381 $ 61,430
======== ========
</TABLE>
8. INCOME TAXES
The components of income (loss) before income taxes consisted of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995 1996
------- --------- ---------
<S> <C> <C> <C>
Domestic................................... $23,430 $ (71,884) $(100,139)
Foreign.................................... (3,479) (33,806) (38,697)
------- --------- ---------
Total...................................... $19,951 $(105,690) $(138,836)
======= ========= =========
</TABLE>
The provision (benefit) for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995 1996
------- -------- -------
<S> <C> <C> <C>
Current:
Federal..................................... $10,675 $(24,627) $(1,706)
State....................................... 2,429 130 360
Foreign..................................... 210 (2,753) (3,290)
------- -------- -------
Total Current............................... 13,314 (27,250) (4,636)
------- -------- -------
Deferred:
Domestic.................................... (4,325) 7,120 4,659
Foreign..................................... (648) (1,649) 1,516
------- -------- -------
Total deferred.............................. (4,973) 5,471 6,175
------- -------- -------
Total provision (benefit)................... $ 8,341 $(21,779) $ 1,539
======= ======== =======
</TABLE>
F-13
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax liabilities and assets were comprised of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets
Net operating loss.................................. $ 2,350 $ 26,328
Expense accruals.................................... 9,886 11,919
State taxes......................................... 1,056 (372)
Property and goodwill............................... 3,648 10,697
Other, net.......................................... 1,999 2,033
-------- --------
18,939 50,605
Valuation allowances................................ (12,282) (50,123)
-------- --------
Total............................................. $ 6,657 $ 482
======== ========
Net deferred tax asset................................ $ 6,657 $ 482
======== ========
</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,
-------------------
1994 1995 1996
---- ----- -----
<S> <C> <C> <C>
Statutory rate..................................... 35.0% (35.0)% (35.0)%
Increase in U.S. valuation allowance............... 9.3 27.3
State income taxes, less effect of federal
deduction......................................... 4.0 0.1 .2
Foreign income subject to tax at other than
statutory rate.................................... 2.5 3.2
Goodwill amortization.............................. 1.3 0.4 .2
Foreign losses with benefits at less than statutory
rate.............................................. 6.7 0.1 7.2
Utilization of net operating losses of foreign
subsidiary........................................ (5.3) (1.0)
Other.............................................. (2.4) 1.3 2.2
---- ----- -----
Effective tax rate................................. 41.8% (20.6)% 1.1 %
==== ===== =====
</TABLE>
At December 31, 1995 and December 31, 1996, the Company had available net
operating loss carryforwards of $6,671,000 and $77,643,000, respectively which
expire at various dates through December 31, 2011.
9. DEBT
At December 31, 1996, the Company's subsidiaries, Merisel Americas and
Merisel Europe, Inc. ("Merisel Europe") had unsecured senior borrowings, which
as amended, consisted of $56,805,000 of 11.5% notes by Merisel Americas, and a
$85,208,000 Revolving Credit Agreement by Merisel Americas and Merisel Europe,
all of which were outstanding. 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 December 31, 1996 was approximately 10.85%. In the year ended
December 31, 1996, the Company paid a total of $35,000,000 in aggregate
scheduled amortization payments under the 11.5% Notes and Revolving Credit
Agreement. Additionally, 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.
F-14
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As amended, these agreements 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. As amended, the 11.5% Notes and
the Revolving Credit Agreement provide that 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 shall 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 anytime 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. The 11.5% Notes and the
Revolving Credit Agreement are due in full on January 31, 1998. The amendments
also provide that certain tax refunds and asset sale proceeds when 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.
The 11.5% Notes and the Revolving Credit Agreement 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. These agreements also require the Company or certain of its
subsidiaries to maintain certain specified financial ratios. Such financial
ratios include: interest coverage; adjusted tangible net worth; earnings
before interest, taxes, depreciation, amortization and securitization expense;
total debt equivalents to adjusted tangible net worth; inventory turnover;
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, 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 and amendments of such covenants for
future periods.
At December 31, 1996, Merisel Americas had outstanding an aggregate of
$17,600,000 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 four remaining equal annual installments of $4,400,000 which was
due and paid in January 1997, and $4,400,000 due in March 1998, March 1999 and
in March 2000. 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.
On April 14, 1997 the Company obtained the Limited Waiver and Agreement to
Amend from the required number of holders of the 11.5% Notes, the Revolving
Credit Agreement and the Subordinated Notes. Under the Limited Waiver and
Agreement to Amend, the Company obtained certain waivers and consents
necessary to facilitate its debt restructuring. Among other items, the lenders
agreed to waive any default that may arise from the non-payment of interest on
the 12.5% Notes, the commencement of a "prepackaged" plan of reorganization
under Chapter 11 of the U.S. Bankruptcy Code and certain other events of
default and financial covenants. In addition, the lenders have agreed subject
to execution of definitive documentation and certain other conditions, to
extend the maturities of the Revolving Credit Agreement and the 11.5% Notes to
January 31, 1999. (See Note 1--"Liquidity")
At December 31, 1996, Merisel, Inc. had outstanding $125,000,000 principal
amount of the 12.5% Notes. The 12.5% Notes provide for an interest rate of
12.5% payable semiannually. By virtue of being an obligation of Merisel, Inc.,
the 12.5% Notes are effectively subordinated to all liabilities of the
Company's subsidiaries,
F-15
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
including trade payables and are not guaranteed by any of the Company's
operating entities. The Indenture relating to the 12.5% Notes contains 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 with affiliates and certain mergers. Without a
restructuring or refinancing of the Company's debt, the Company may be unable
to make its June 30, 1997 and December 31, 1997 interest payments on the 12.5%
Notes and the additional $40,000,000 and $30,000,000 repayments which would be
due on June 30, 1997 and December 31, 1997, respectively, on the 11.5% Notes
and the Revolving Credit Agreement required before such interest payments can
be made. In addition, the restriction on dividend payments contained in the
11.5% Notes and the Revolving Credit Agreement could limit the ability of the
Company to repay principal and interest on the 12.5% Notes if, and to the
extent that, such limitations prevent cash or other dividends from being paid
to the Company. Further, in the event of a default under the 11.5% Notes and
the Revolving Credit Agreement, payments of principal and interest on the
12.5% Notes are prohibited.
On April 14, 1997, the Company obtained a Limited Waiver and Voting
Agreement from the required number of holders of the 12.5% Notes. Under the
Limited Waiver and Voting Agreement, the holders have agreed to exchange the
12.5% Notes into approximately 80% of the Company's Common Stock. The Company
intends to effect the exchange through an exchange offer requiring the tender
of 100% of the 12.5% Notes. If less than 100% of the note holders tender such
notes, the Company intends to file a "prepacked" plan of reorganization under
Chapter 11 of the U.S. Bankruptcy Code. 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 the other conditions
to the Exchange. In addition, the holders have agreed to waive any defaults
arising from the non-payment of interest due in 1997. (See Note 1--
"Liquidity").
At December 31, 1996, the Company had promissory notes outstanding with an
aggregate balance of $10,150,000. 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.
At December 31, 1995, the Company leased certain warehouse and computer
equipment under long-term leases and has the option to purchase the equipment
for a nominal cost at the termination of the lease. All such leases were
related to EML and were assumed by CHS. At December 31, 1996, the Company's
only capital lease obligations were $187,000 related to FAB's operations.
These obligations were assumed by Synnex as part of the sale of Merisel FAB in
the first quarter of 1997. (See Note 12--"Subsequent Events.")
10. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under noncancellable
operating leases. Future minimum rental payments, under leases that have
initial or remaining noncancellable lease terms in excess of one year are
$8,148,000 in 1997, $6,920,000 in 1998, $6,367,000 in 1999, $4,218,000 in
2000, $3,279,000 in 2001 and $4,717,000 thereafter. Certain of the leases
contain inflation escalation clauses and requirements for the payment of
property taxes, insurance, and maintenance expenses. Rent expense for 1994,
1995 and 1996 was $13,447,000, $14,840,000 and $16,284,000, respectively.
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 November 8, 1993 and June 7, 1994 (the "Class
Period"). The complaint, as amended and consolidated, alleges that the
defendants inflated the
F-16
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Following the granting of defendant's first motion to dismiss on December 5,
1994, plaintiffs filed a second consolidated and amended complaint on December
22, 1994. On April 3, 1995, Federal District Judge Real dismissed the
complaint with prejudice. The plaintiffs have appealed the dismissal. The
parties' appellate briefing to the Ninth Circuit was completed on November 6,
1995. The Ninth Circuit heard oral arguments on June 4, 1996. As of the date
of this report there has been no decision from the Ninth Circuit.
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 the Company, 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 $9.9 million, 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.
The plaintiffs seek to recover specific damages exceeding $8 million as well
as unspecific damages plus interest and costs and expenses associated with the
claim. The Company intends to defend itself vigorously against this 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 is involved in certain other legal proceedings arising in the
ordinary course of business, none of which management expects to have a
material impact on the Company's financial statements.
11. EMPLOYEE STOCK OPTIONS AND BENEFIT PLANS
The Company's stock option plans, incentive stock options and nonqualified
stock options may be granted to employees, directors, and consultants. The
plans authorize 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 or the option committee under
the stock option plans, 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. The following summarizes activity in the plans for
the three years ended December 31, 1996:
<TABLE>
<CAPTION>
1994 1995 1996
------------------------ ----------------------- ------------------------
WGTD. AVG. WGTD. AVG. WGTD. AVG.
SHARES EXER. PRICE SHARES EXER. PRICE SHARES EXER. PRICE
---------- ------------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 1,856,140 $ 7.61 1,902,625 $ 9.03 3,191,289 $ 7.30
Granted................. 243,500 18.45 1,680,241 5.91 354,500 2.45
Exercised............... (112,300) 4.23 (112,422) 2.99 (215,000) .67
Canceled................ (84,715) 11.25 (279,155) 12.43 (1,812,444) 7.04
---------- ---------- -----------
Outstanding at end of
year................... 1,902,625 9.03 3,191,289 7.30 1,518,345 7.48
---------- ---------- -----------
Option price range for
Exercised shares....... $2.00-$11.88 $2.20-$6.25 $0.01-$2.20
------------ ----------- -----------
Weighted average fair
value of options
granted during the
year................... $ 3.80 $ 1.61
---------- -----------
</TABLE>
F-17
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING LIFE IN EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/96 YEARS PRICE AT 12/31/96 PRICE
------------------------ ----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 7.7800 to $ 8.4100.... 11,970 4 $ 8.3958 11,970 $ 8.3958
3.0000 to $ 3.0000.... 173,500 5 3.0000 173,500 3.0000
11.3750 to $11.3750.... 182,250 6 11.3750 163,900 11.3750
11.7500 to $11.8750.... 126,500 7 11.8711 95,875 11.8698
15.0000 to $19.8750.... 91,250 8 19.6078 60,250 19.4704
4.5790 to $ 6.3125.... 587,875 9 5.7827 217,750 5.7049
1.8750 to $ 3.7500.... 345,000 10 2.4586 0 0.0000
--------- --- -------- ------- --------
$ 1.8750 to $19.8750.... 1,518,345 723,245
========= =======
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the Company's stock option plans
been determined based on their fair value at the grant date for options
granted in 1995 and 1996 consistent with the provisions of SFAS No. 123, the
Corporation's net loss and loss per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
-------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net Loss--As Reported................................ $(83,911) $(140,375)
Net Loss--Pro Forma.................................. (84,480) (140,994)
Loss Per Share--As Reported.......................... (2.82) (4.68)
Loss Per Share--Pro Forma............................ (2.83) (4.70)
</TABLE>
The fair value of each option granted during 1995 and 1996 is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Expected life............................................... 5.0 5.0
Expected volatility......................................... 72.41% 72.69%
Risk-free interest rate..................................... 6.27% 6.32%
Dividend Yield.............................................. 0.00% 0.00%
</TABLE>
The Company offers a 401(k) savings plan under which all employees who are
21 years of age with at least one year 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 $579,000
and $125,000 to the plan during the years ended December 31, 1994 and 1995,
respectively. The Company did not make any matching contributions on behalf of
its employees in 1996.
F-18
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SUBSEQUENT EVENTS
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 buyer assuming $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. The purchase price is subject to adjustments based upon
Merisel FAB's March 28, 1997 balance sheet. 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 fair market value.
13. SEGMENT INFORMATION
The Company's operations primarily involve a single industry segment--the
wholesale distribution of computer hardware and software products. The
geographic areas in which the Company operates on an ongoing basis are the
United States, and Canada, after taking into account the sale of the Company's
other foreign businesses during 1996. Net sales, operating income (before
interest, other non-operating expenses and income taxes) and identifiable
assets by geographical area were as follows (in thousands):
<TABLE>
<CAPTION>
UNITED OTHER
STATES CANADA INTERNATIONAL ELIMINATIONS CONSOLIDATED
---------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1994:
Net sales............. $3,413,614 $516,616 $1,088,457 $5,018,687
========== ======== ========== ==========
Operating income
(loss)............... $ 52,150 $ 9,871 $ (1,294) $ 60,727
========== ======== ========== ==========
Identifiable assets... $ 715,082 $147,483 $ 337,083 $ (7,778) $1,191,870
========== ======== ========== ======== ==========
1995:
Net sales:
Net sales............. $3,996,346 $572,569 $1,388,052 $5,956,967
========== ======== ========== ==========
Operating loss........ $ (37,825) $ (3,637) $ (12,760) $ (54,222)
========== ======== ========== ==========
Identifiable assets... $ 738,220 $135,482 $ 375,878 $(19,246) $1,230,334
========== ======== ========== ======== ==========
1996:
Net sales:
Net sales............. $3,818,923 $643,730 $1,060,171 $5,522,824
========== ======== ========== ==========
Operating income
(loss)............... $ (44,295) $ (5,406) $ 1,901 $ (47,800)
========== ======== ========== ==========
Identifiable assets... $ 623,707 $126,691 $ 0 $(19,359) $ 731,039
========== ======== ========== ======== ==========
</TABLE>
F-19
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected financial information for the quarterly periods for the fiscal
years ended 1995 and 1996 is presented below (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1995
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales.................... $1,454,894 $1,379,864 $1,544,018 $1,578,191
Gross profit................. 93,223 85,475 89,253 55,738
Net loss..................... (1,789) (4,613) (253) (77,256)
Net loss per share........... (0.06) (0.16) (0.01) (2.59)
<CAPTION>
1996
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales.................... $1,536,589 $1,442,668 $1,393,532 $1,150,035
Gross profit................. 87,223 79,587 57,193 65,251
Net (loss) income............ (13,508) (11,404) (117,138) 1,675
Net (loss) income per share (0.45) (0.38) (3.90) .06
</TABLE>
In the fourth quarter of 1995, the Company recorded certain items which
reduced operating income by approximately $89,400,000. These items included
impairment losses on long-lived assets totaling $51,400,000. The remaining
$38,000,000 represents adjustments to account balances, primarily in accounts
payable. Additional adjustments related to vendor account reconcilations and
customer disputes were taken, which amounted to $2,200,000 in each of the
first two quarters of 1996, and $23,000,000 in the third quarter of 1996.
Additionally, third quarter charges were also recognized for further
impairment of certain long lived assets for $40,000,000 and for the loss on
the sale of certain assets totaling $33,455,000. In the fourth quarter of
1996, net income includes a $2,033,000 charge to adjust Merisel FAB's assets
to their fair value based on the provisions of a definitive agreement to sell
such assets in the first quarter of 1997.
F-20
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 47,930 $ 44,678
Accounts receivable (net of allowances of $23,206 and
$23,684 for 1997 and 1996, respectively)............. 189,376 168,295
Inventories........................................... 358,208 392,557
Prepaid expenses and other current assets............. 17,371 16,925
Income taxes receivable............................... 1,404 2,183
Deferred income tax benefit........................... 482 482
-------- --------
Total current assets................................ 614,771 625,120
PROPERTY AND EQUIPMENT, NET........................... 58,763 61,430
COST IN EXCESS OF NET ASSETS ACQUIRED, NET............ 26,108 41,724
OTHER ASSETS.......................................... 6,378 2,765
-------- --------
TOTAL ASSETS........................................ $706,020 $731,039
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable...................................... $ 367,634 $ 383,548
Accrued liabilities................................... 34,241 37,544
Long-term debt--current............................... 14,984 9,084
Subordinated debt--current............................ 4,400 4,400
--------- ---------
Total current liabilities........................... 421,259 434,576
Long-term debt........................................ 260,147 268,079
Subordinated debt..................................... 8,800 13,200
Capitalized lease obligations......................... 187
--------- ---------
TOTAL LIABILITIES..................................... 690,206 716,042
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
Retained earnings (deficit)........................... (120,034) (121,164)
Cumulative translation adjustment..................... (6,753) (6,440)
--------- ---------
Total stockholders' equity............................ 15,814 14,997
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $ 706,020 $ 731,039
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
NET SALES............................................... $1,113,100 $1,536,589
COST OF SALES........................................... 1,048,124 1,449,366
---------- ----------
GROSS PROFIT............................................ 64,976 87,223
SELLING, GENERAL & ADMINISTRATIVE EXPENSES.............. 51,520 83,136
---------- ----------
OPERATING INCOME........................................ 13,456 4,087
INTEREST EXPENSE........................................ 8,623 9,877
OTHER EXPENSE........................................... 3,530 7,238
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES....................... 1,303 (13,028)
INCOME TAX PROVISION.................................... 173 480
---------- ----------
NET INCOME (LOSS)....................................... $ 1,130 $ (13,508)
========== ==========
NET INCOME (LOSS) PER SHARE............................. $ 0.04 $ (0.45)
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING........... 30,078 29,863
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ 1,130 $ (13,508)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization......................... 3,180 5,759
Provision for doubtful accounts....................... 4,797 4,733
Deferred income taxes................................. 2,862
Changes in assets and liabilities:
Accounts receivable................................... (32,384) (20,834)
Inventories........................................... 34,348 120,778
Prepaid expenses and other assets..................... (4,083) (3,869)
Income taxes receivable............................... 779 1,303
Accounts payable...................................... 6,626 (70,689)
Accrued liabilities................................... (3,816) (5,228)
--------- ---------
Net cash provided by operating activities............... 10,577 21,307
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment...................... (648) (3,438)
Payment of earn out obligation from Computerland
acquisition............................................ (13,409)
Cash proceeds from sale of Australian business.......... 8,515
--------- ---------
Net cash used for investing activities.................. (648) (8,332)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of credit............... 254,208 443,400
Repayments under revolving line of credit............... (255,118) (396,400)
Net (repayments) borrowings under foreign bank
facilities............................................. (514) (20,289)
Proceeds from issuance of promissory notes.............. (607) 11,261
Proceeds from sale of accounts receivable............... 23,721
Repayment under subordinated debt agreement............. (4,400) (4,400)
--------- ---------
Net cash provided by (used for) financing activities.... (6,432) 57,293
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................. (245) (1,858)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS............... 3,252 68,410
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......... 44,678 1,378
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................ $ 47,930 $ 69,788
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<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
main operating subsidiary, Merisel Americas, Inc. ("Merisel Americas") and its
subsidiaries (the "Operating Company"), the Company markets products and
services throughout North America, and has achieved operational efficiencies
that have made it 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 months ended March 31, 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"). Management believes
that a substantial portion of operating losses incurred in 1996 relate to the
implementation of its 1996 Business Plan which focused upon the conservation
of cash, the sale of assets, and the improvement of business processes,
particularly in the area of accounts payable.
The Company has developed and is implementing a business strategy for 1997
(the "1997 Business Strategy") that focuses on profitable North American
revenue growth instead of managing for cash. Under the 1997 Business Strategy,
Merisel intends to concentrate on strengthening and building its sales
infrastructure, improving gross margins, and controlling operating expenses.
Other priorities include continuing efforts to achieve operational excellence,
addressing financial controls and policies by emphasizing margin improvements
and tight expense control, and implementing a strategy focused on the United
States and Canada.
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 an agreement
(the "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
Agreement, upon the fulfillment of certain conditions, holders of the 12.5%
Notes would exchange (the "Exchange") their 12.5% Notes for common stock, par
value $.01 per share, of the Company (the "Common Stock"), which would equal
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.
F-25
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Exchange is subject to certain conditions including (i) stockholder
approval of an amendment to the Certificate of Incorporation of the Company to
authorize the additional shares of Common Stock, and (ii) consents to
amendments of the $84,297,000 principal amount of the Revolving Credit
Agreement ("Revolving Credit Agreement") and the agreement governing the
$56,198,000 principal amount of the 11.5% Senior Note Purchase Agreement
("11.5% Notes") by 100% of the lenders under such agreements to extend the
maturity of such indebtedness to January 31, 1999 (the "Extension"), or a
refinancing of such indebtedness prior to October 31, 1997. The Company
intends to effectuate the Exchange by commencing a registered exchange offer
which would be conditioned on 100% of the holders of the 12.5% Notes tendering
such notes for Common Stock. If less than 100% of the holders of the 12.5%
Notes tender in the exchange offer, Merisel, Inc., the parent company, intends
to file a "prepackaged" plan of reorganization under Chapter 11 of the U.S.
Bankruptcy Code. Merisel Americas and Merisel Canada (the subsidiaries through
which the Company's distribution business is conducted) 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 such subsidiaries' 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, as no
other creditors of the Company or its operating subsidiaries 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 the other conditions to the
Exchange.
In connection with the Extension, the Company has entered into waivers and
an agreement in principle with 100% of the holders of the outstanding
principal amount of the Revolving Credit Agreement and the 11.5% Notes,
pursuant to which such holders have agreed, subject to execution of definitive
documentation, to extend the respective maturities to January 31, 1999. In
consideration of such Extension, the Company has agreed to pay certain fees
related to the Extension and, commencing in 1998, additional fees payable
quarterly together with an increase in the interest rate of 0.5% per quarter
in 1998 and for each quarter that the debt remains outstanding. The Company
would have the right to prepay such debt at anytime without penalty. In the
event that the Extension does not become effective, the Company believes that,
assuming it achieves its 1997 Business Strategy, it will have reasonable
prospects for a refinancing of such indebtedness in the latter half of 1997,
particularly if the Exchange is consummated concurrently with such
refinancing.
Effective immediately, and throughout the period the Company is implementing
the Exchange and Extension, in excess of 75% of the holders of the 12.5% Notes
have agreed to waive any default arising from the nonpayment of interest due
in 1997 on the 12.5% Notes, and 100% of the holders of 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 for such waivers, 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 the Subordinated Notes while such debt
remains outstanding. Accordingly, the Company believes that it will be able to
satisfy all of its material debt obligations under such instruments in 1997
pending the consummation of the Exchange and the Extension. 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.
At March 31, 1997, the Company had cash and cash equivalents of
approximately $47,930,000. 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 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.
F-26
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. NEW ACCOUNTING PRONOUNCEMENT
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.
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 first quarter is the 13 week period
ending on the Saturday nearest to March 31. For simplicity of presentation,
the Company has described the interim periods and year-end period as of March
31, and December 31, respectively.
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 $9,915,000 in the form of repayment of certain
intercompany debt obligations. The Company recognized a $1,915,000 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, payable in three installments of $3,000,000, $4,000,000, and
$4,000,000, of which only the final payment of $4,000,000 remained outstanding
as of March 31, 1997.
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 buyer assuming $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. The purchase price is subject to adjustments based upon
Merisel FAB's March 28, 1997 balance sheet. 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.
F-27
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1997
------------------ ------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
Net Sales.......................... $881,565 $910,923
Gross Profit....................... 51,581 57,299
Net loss........................... (13,887) (1,024)
======== ========
Net loss per share................. $ (0.47) $ (0.03)
======== ========
Weighted Average Shares
Outstanding....................... 29,863 30,078
======== ========
</TABLE>
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 March 31, 1997, the Company's subsidiaries, Merisel Americas and Merisel
Europe, Inc. ("Merisel Europe") had unsecured senior borrowings, which as
amended, consisted of $56,198,000 of 11.5% notes by Merisel Americas, and an
$84,297,000 Revolving Credit Agreement by Merisel Americas and Merisel Europe,
all of which were outstanding. 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 March 31, 1997 was approximately 10.8%. The outstanding balance
under the Company's privately placed subordinated notes was $13,200,000 and
provide for an interest rate of 11.78%. Additionally, At March 31, 1997,
Merisel, Inc. had outstanding $125,000,000 principal amount of the 12.5%
Notes. The 12.5% Notes provide for an interest rate of 12.5% payable
semiannually.
On April 14, 1997, the Company obtained a Limited Waiver and Voting
Agreement from the required number of holders of the 12.5% Notes. Under the
Limited Waiver and Voting Agreement, the holders have agreed to exchange the
12.5% Notes into approximately 80% of the Company's Common Stock. (See Note
1--"Liquidity").
At March 31, 1997, the Company had promissory notes outstanding with an
aggregate balance of $9,635,000. 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.
8. NET LOSS PER SHARE
Net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the related period,
including common stock options when dilutive.
F-28
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) in the quarter ended March 31 for interest and income
taxes was as follows:
<TABLE>
<CAPTION>
1997 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Interest................................................. $9,238 $18,111
Income taxes............................................. $ (593) $(3,547)
</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").
F-29
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation. Article VII of the Company's
Certificate of Incorporation provides that the Company may indemni fy its
officers and directors to the fullest extent permitted by law. Section 145 of
the General Corporation Law of the State of Delaware ("DGCL") provides that a
Delaware corporation has the power to indemnify its officers and directors in
certain circumstances.
Subsection (a) of Section 145 of the DGCL empowers a corpora tion to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation),
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding provided that such director or officer acted in good faith in
a manner reasonably believed to be in or not opposed to the best interests of
the corpora tion, and, with respect to any criminal action or proceeding,
provided that such director or officer had no cause to believe his conduct was
unlawful.
Subsection (b) of the Section 145 empowers a corporation to indemnify
any director or officer, or former director or officer, who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that such person acted in any of the capacities set forth
above, against expenses actually and reasonably incurred in connection with the
defense or settlement of such action or suit provided that such director or
officer acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made in respect of any claim, issue or matter as to which such director
or officer shall have been adjudged to be liable to the corporation unless and
only to the extent that the
<PAGE>
Court of Chancery or the court in which such action was brought shall determine
that despite the adjudication of liability such director or officer is fairly
and reasonably entitled to indemnity for such expenses which the court shall
deem proper.
Section 145 further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceed ing referred to in subsections (a) or (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification provided for by Section 145 shall not
be deemed exclusive of any other rights to which the indemnified party may be
entitled and that the corpora tion shall have power to purchase and maintain
insurance on behalf of a director or officer of the corporation against any
liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not the corporation would have the
power to indemnify him against such liabilities under Section 145.
Article VI of the Company's Certificate of Incorporation currently
provides that each director shall not be personally liable to the Company or its
stockholders for monetary damages 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 stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper benefit.
The Company has entered into indemnity agreements with each of its
directors. The indemnity agreements generally indemnify such persons against
liabilities arising out of their service in their capacities as directors,
officers, employees or agents of the Company. The Company may from time to time
enter into indemnity agreements with additional individuals who become officers
and/or directors of the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
II-2.
<PAGE>
The exhibits to this registration statement are listed in the Exhibit
Index and are incorporated herein by reference.
(b) FINANCIAL STATEMENT SCHEDULES
The information required of the Company by Schedule II, Schedule of
Valuation and Qualifying Accounts for the three years ended December 28, 1996 is
incorporated herein by reference to the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the fiscal year ended
December 31, 1996.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the esti
mated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
II-3.
<PAGE>
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termina tion
of the offering.
(b) 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 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
there in, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(d) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration
II-4.
<PAGE>
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.
(e) Insofar as indemnification 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 liabili ties (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 of proceeding) is asserted by such
director, officer or control ling 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 Act and will be governed by the final adjudication of
such issue.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on June 27, 1997.
MERISEL, INC.
/s/ Dwight A. Steffensen
By: _________________________________
Dwight A. Steffensen
Chairman of the Board of Directors,
and Chief Executive Officer
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.
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Dwight A. Steffensen Chairman of the Board of June 27, 1997
____________________________________ Directors, and
Dwight A. Steffensen Chief Executive Officer
(Principal
Executive Officer)
/s/ James E. Illson(1) Senior Vice President-- June 27, 1997
____________________________________ Finance, Chief Financial
James E. Illson Officer, and
Secretary (Principal
Financial
and Accounting Officer)
/s/ Lawrence J. Schoenberg(1) Director June 27, 1997
____________________________________
Lawrence J. Schoenberg
/s/ David L. House(1) Director June 27, 1997
____________________________________
David L. House
/s/ Dr. Arnold Miller(1) Director June 27, 1997
____________________________________
Dr. Arnold Miller
/s/ Joseph Abrams(1) Director June 27, 1997
____________________________________
Joseph Abrams
</TABLE>
- --------
(1) By Dwight A. Steffensen, attorney-in-fact.
II-7
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENTS NUMBER
- ------- ------------------------ ------
2.1 Purchase Agreement dated as of August 29, 1996. (21)
2.2 Amendment 1 to Purchase Agreement dated as of October 4, 1996. (21)
2.3 Amended and Restated Receivables Transfer Agreement dated as of September
27, 1996 by and between Merisel Americas, Inc. and Merisel Capital
Funding, Inc. (21)
2.4 Amended and Restated Receivables and Servicing Agreement dated as of
September 27, 1996, by and between Merisel Capital Funding, Inc., Redwood
Receivables Corporation, Merisel Americas, Inc. and General Electric
Capital Corporation. (21)
2.5 Amendment No. 1 and Waiver to Amended and Restated Receivables Purchase
and Servicing Agreement dated as of November 7, 1996 among Merisel
Capital Funding, Inc., Redwood Receivables Corporation, Merisel Americas,
Inc. Electric and General Capital Corporation. (25)
2.6 Amendment No. 1 and Waiver to Amended and Restated Receivables Transfer
Agreement dated as of November 7, 1996 by and between Merisel Americas,
Inc. and Merisel Capital Funding, Inc. (25)
2.7 Settlement Agreement and Release dated February 13, 1997 by and among CHS
Electronics, Inc., Merisel, Inc. and Merisel Europe, Inc. (25)
2.8 Asset Purchase Agreement dated January 15, 1997 by and among SYNNEX
Informa tion Technologies, Inc., SynFab, Inc. and Merisel FAB, Inc. (25)
2.9 Amendment No. 1 to the Asset Purchase Agreement dated as of March 6, 1997
by and among Merisel, Inc., Merisel FAB,Inc., SYNNEX Information
Technologies, Inc. and ComputerLand Corporation, successor-in-interest to
SynFab, Inc. (25)
3.1 Restated Certificate of Incorporation of Registrant. (1)
3.2 Amendment to Certificate of Incorporation of Registrant dated August 22,
1990. (6)
II-8.
<PAGE>
PAGE
NUMBER
------
3.3 Bylaws, as amended, of Merisel, Inc. (8)
4 Indenture dated October 15, 1994 between the Company and NationsBank of
Texas, N.A., as Trustee, relating to the Company's 12.5% Senior Notes Due
2004, including the form of such Senior Notes attached as Exhibit A
thereto. (14)
4.1 First Amendment to Amended and Restated Revolving Credit Agreement dated
as of June 30, 1996 by and among Merisel Americas, Inc., Merisel Europe,
Inc., Merisel, Inc. and the lender parties thereto. (21)
4.2 Second Amendment and Waiver to Amended and Restated Revolving Credit
Agree ment dated as of October 2, 1996 by and among Merisel Americas,
Inc., Merisel Eu rope, Inc., Merisel, Inc. and the lender parties
thereto. (21)
4.3 Third Amendment to Amended and Restated Subordinated Note Purchase
Agreement dated as of June 30, 1996 by and among Merisel Americas, Inc.
and the Noteholders signatory thereto. (21)
4.4 Fourth Amendment and Waiver to Amended and Restated Subordinated Note Pur
chase Agreement dated as of October 2, 1996 by and among Merisel
Americas, Inc. and the Noteholders signatory thereto. (21)
4.5 Fourth Amendment to Amended and Restated Senior Note Purchase Agreement
dated as of June 30, 1996 by and among Merisel Americas, Inc., Merisel,
Inc. and the Noteholders signatory thereto. (21)
4.6 Fifth Amendment and Waiver to Amended and Restated Senior Note Purchase
Agreement dated as of October 2, 1996 by and among Merisel Americas,
Inc., Merisel, Inc. and the Noteholders signatory thereto. (21)
4.7 Third Amendment and Waiver to Amended and Restated Revolving Credit
Agreement dated as of February 27, 1997 by and among Merisel Americas,
Inc. and the Noteholders signatory thereto. (25)
4.8 Fifth Waiver to Amended and Restated Subordinated Note Purchase Agreement
dated as of February 27, 1997 by and among Merisel Americas, Inc. and the
signatory Noteholders thereto. (25)
II-9.
<PAGE>
PAGE
NUMBER
------
4.9 Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase
Agreement dated February 27, 1997 by and among Merisel Americas, Inc.,
Merisel, Inc. and the Noteholders signatory thereto. (25)
4.10 Form of Limited Waiver and Voting Agreement, dated as of April 11, 1997,
by and among Merisel, Inc. and the holders of the 12 1/2% Senior Notes
due December 31, 2004. (25)
4.11 Form of Limited Waiver and Agreement to Amend dated as of April 14, 1997
by and among Merisel, Inc., Merisel Europe, Inc., and the holders of the
Revolving Credit Agreement and the Senior Note Purchase Agreement. (25)
8.1 Form of Opinion of Skadden,Arps, Slate, Meagher & Flom LLP regarding tax
matters.
10.1 Microamerica Substitute Stock Option Plan of Registrant together with
related forms of Stock Option Agreements. (4)*
10.2 1983 Stock Option Plan of Softsel Computer Products, Inc., as amended,
together with Form of Incentive Stock Option Agreement and Form of
Nonqualified Stock Option Agreement under 1983 Employee Stock Option
Plan. (7)*
10.3 1983 Employee Stock Option Plan of Softsel Computer Products, Inc., as
amended, together with Form of Incentive Stock Option Agreement and Form
of Nonqualified Stock Option Agreement under the 1983 Employee Stock
Option Plan. (7)*
10.4 1991 Employee Stock Option Plan of Merisel, Inc. together with Form of
Incentive Stock Option Agreement and Form of Nonqualified Stock Option
Agreement under the 1991 Employee Stock Option Plan. (8)*
10.5 Merisel, Inc. 1992 Stock Option Plan for Nonemployee Directors. (10)*
10.6 Incentive Stock Option Agreements between Registrant and Michael D.
Pickett dated as of October 1, 1986 and March 4, 1987. (1)*
II-10.
<PAGE>
PAGE
NUMBER
------
10.7 Nonqualified Stock Option Agreement between Registrant and Michael D.
Pickett dated as of December 11, 1987. (1)*
10.8 Amendment to Stock Option Agreements together with Joint Escrow
Instructions between Michael D. Pickett and Registrant dated as of August
11, 1988. (1)*
10.9 Softsel Computer Products, Inc. Executive Deferred Compensation Plan.
(9)*
10.10 Employment Agreement between Registrant and Michael D. Pickett dated as
of August 14, 1992. (11)*
10.11 Merisel, Inc. Amended and Restated 401(k) Retirement Savings Plan. (15)*
10.12 Asset Transfer, Assignment and Assumption Agreement dated as of December
23, 1993 by and between Registrant and Merisel Americas, Inc. (13)
10.13 Asset Transfer, Assignment and Assumption Agreement dated as of December
23, 1993 by and between Registrant and Merisel Europe, Inc. (13)
10.14 Lease between Registrant and Pacifica Holding Company dated April 6,
1989. (2)
10.15 Lease Agreement dated October 27, 1988 by and between Rosewood
Development Corporation and Microamerica, Inc. re: property located in
Marlborough, Massachu setts. (3)
10.16 Lease Agreement dated May 23, 1990 by and between Kilroy-Freehold El
Segundo Company and Softsel/Microamerica, Inc., re: property located in
El Segundo, California. (5)
10.17 Lease Agreement dated October 1991 by and between Koll Hayward Associates
II and Merisel, Inc. (9)
10.18 Asset Purchase Agreement dated January 31, 1994 between ComputerLand
Corpora tion, Merisel FAB, Inc. and for purposes of Section 2.2 thereof,
the Registrant. Por tions of this agreement have been omitted pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended. (12)
II-11.
<PAGE>
PAGE
NUMBER
------
10.19 Guaranty Agreement dated January 31, 1994 between ComputerLand
Corporation and the Registrant. (12)
10.20 Distribution and Services Agreement dated January 31, 1994 between
ComputerLand Corporation and Merisel FAB, Inc. ("Services Agreement").
Portions of this agree ment has been omitted pursuant to Rule 24b-2 of
the Securities Act of 1934, as amended. (12)
10.21 Amendment Number 13 to Services Agreement dated as of January 31, 1996.
Portions of this agreement have been omitted pursuant to Rule 24b-2 of
the Securities Act of 1934, as amended. (19)
10.22 Stock Purchase Agreement dated January 31, 1994 between the Registrant
and ComputerLand Corporation. (12)
10.23 Amended and Restated Senior Note Purchase Agreement by and among each
purchas ers named therein and Merisel Americas, Inc., dated as of
December 23, 1993 ("Se nior Note Purchase Agreement"). (13)
10.24 First Amendment, dated as of September 30, 1994 to Senior Note Purchase
Agree ment, by and among the Noteholders named therein and Merisel
Americas, Inc. (16)
10.25 Form of Second Amendment dated as of June 23, 1995 to Senior Note
Purchase Agreement. (19)
10.26 Amended and Restated Subordinated Note Purchase Agreement by and among
each of the purchasers named therein and Merisel Americas, Inc., dated as
of December 23, 1993 ("Subordinated Note Purchase Agreement"). (13)
10.27 First Amendment, dated as of September 30, 1994, to Subordinated Note
Purchase Agreement, by and among the Noteholders named therein and
Merisel Americas, Inc. (16)
10.28 Revolving Credit Agreement dated as of December 23, 1993 among Merisel
Ameri cas, Inc., Merisel Europe, Inc., the Registrant, the lender parties
thereto, Citicorp USA, Inc., as agent, and Citibank, N.A., as designated
issuer ("Revolving Credit Agreement"). (13)
II-12.
<PAGE>
PAGE
NUMBER
------
10.29 First Amendment, dated as of September 29, 1994, to Revolving Credit
Agreement, by and among Merisel Americas, Inc., Merisel Europe, Inc.,
Merisel, Inc. and the financial institutions named therein. (16)
10.30 Second Amendment, dated as of December 1, 1994, to Revolving Credit
Agreement, by and among Merisel, Americas, Inc., Merisel Europe, Inc.,
Merisel, Inc., and the financial institutions named therein. (15)
10.31 Third Amendment, dated as of February 27, 1995, to Revolving Credit
Agreement, by and among Merisel Americas, Inc., Merisel Europe, Inc.,
Merisel, Inc., and the financial institutions named therein. (15)
10.32 Receivable Transfer Agreement dated as of October 2, 1995 by and between
Merisel Americas, Inc. and Merisel Capital Funding, Inc. (17)
10.33 Receivable Purchase and Servicing Agreement dated as of October 2, 1995
by and among Merisel Capital Funding, Inc., Redwood Receivables
Corporation, Merisel Americas, Inc. and General Electric Capital
Corporation. (17)
10.34 Annex X to Receivable Transfer Agreement and Receivables Purchase and
Servicing Agreement dated as of October 2, 1995. (17)
10.35 Form of Receivables Purchase Agreement between Merisel Canada, Inc. and
Canadi an Master Trust dated as of December 15, 1995. (19)
10.36 Form of Security Agreement between Merisel Properties, Inc. and Heller
Financial, Inc. dated December 29, 1995. (19)
10.37 Deed of Trust, Security Agreement, Assignment of Leases and Rents and
Fixture Filing between Merisel Properties, Inc. and Heller Financial,
Inc. dated December 29, 1995. (19)
10.38 Agreement for the Sale and Purchase of Debts between Deutche Financial
Services (UK) Limited and Merisel (UK) Limited dated October 12, 1995.
(19)
10.39 Form of Agreement between Merisel, Inc. and Michael D. Pickett dated
February 12, 1996. (19)*
II-13.
<PAGE>
PAGE
NUMBER
------
10.40 Share Purchase Agreement between Merisel, Inc. and Merisel Asia, Inc. and
Tech Pacific Holdings Ltd. dated March 7, 1996. (19)
10.41 Form of Employment Agreement between Merisel, Inc. and the following:
James L. Brill, Paul Lemerise, John Thompson, Tom Reeves and Marty Wolf
(17)*
10.42 Form of Retention Agreement between Merisel, Inc. and the following:
James L. Brill, Paul Lemerise, John Thompson, Tom Reeves and Marty Wolf
(17)*
10.43 Third Amendment and Waiver to Amended and Restated Senior Note Purchase
Agreement by and among each of the purchasers named therein and Merisel
Ameri cas, Inc., dated as of April 12, 1996. (21)
10.44 Revolving Credit Agreement among Merisel Americas, Inc., Merisel Europe,
Inc., Merisel , Inc., the lender parties thereto, Citicorp USA, Inc., as
agent, and Citibank, N.A., as designated issuer, as amended and restated
as of April 12, 1996. (21)
10.45 Amendment Number One and Waiver to Receivables Purchase and Servicing
Agree ment among Merisel Capital Funding, Inc., Redwood Receivables
Corporation, Merisel Americas, Inc., and General Electric Capital
Corporation, dated as of April 12, 1996. (21)
10.46 Form of Second Amendment and Waiver to Amended and Restated Subordinated
Note Purchase Agreement among the dated as of April 12, 1996. (21)
10.47 Retention Agreement between Merisel, Inc. and Susan J. Miller-Smith dated
April 22, 1996. (18)*
10.48 Employment Agreement dated February 12, 1996 between Dwight A. Steffensen
and Merisel, Inc. (22)*
10.49 Employment Agreement dated May 2, 1996 between Ronald A. Rittenmeyer and
Merisel, Inc. (22)*
10.50 Employment Agreement dated as of May 15, 1996 between Verilyn Smith and
Merisel, Inc. (22)*
II-14.
<PAGE>
PAGE
NUMBER
------
10.51 Employment Agreement between Merisel, Inc. and James Illson dated August
19, 1996. (23)*
10.52 Severance Agreement between Merisel, Inc. and James Brill dated August
27, 1996. (23)*
10.53 Employment Agreement, dated as of September 5, 1996, between Merisel,
Inc. and James D. Wittry. (24)*
10.54 Letter Agreement dated June 1, 1995 between Merisel Americas, Inc. and
Kristin M. Rogers. (24)*
10.55 Amendment to Letter Agreement dated April 9, 1996 between Merisel
Americas, Inc. and Kristin M. Rogers. (24)*
10.56 Amendment to Letter Agreement dated August 30, 1996 between Merisel
Americas, Inc. and Kristin M. Rogers. (24)*
10.57 Retention Agreement dated April 5, 1996 between Merisel, Inc. and Kelly
M. Martin. (24)*
10.58 Letter Agreement dated June 1, 1995 between Merisel Americas, Inc. and
Archie K. Miller. (24)*
10.59 Amendment to Letter Agreement dated August 28, 1996 between Merisel
Americas, Inc. and Archie K Miller. (24)*
10.60 Retention Agreement dated April 5, 1996 between Merisel, Inc. and Bruce
A. Zeedik. (24)*
10.61 Letter Agreement dated November 29, 1996 between Merisel, Inc. and
Timothy N. Jenson. (24)*
10.62 Amendment to Letter Agreement dated April 9, 1996 between Merisel, Inc.
and Timothy N. Jenson. (24)*
II-15.
<PAGE>
PAGE
NUMBER
------
10.63 Amendment to Letter Agreement dated August 22, 1996 between Merisel, Inc.
and Timothy N. Jenson. (24)*
10.64 Amended and Restated Employment Agreement dated November 6, 1996 between
Susan J. Miller-Smith and Merisel, Inc. (24)*
10.65 Employment Agreement between Robert McInerney and Merisel, Inc. dated
February 3, 1997. (25)*
10.66 Employment Agreement between Dwight A. Steffensen and Merisel, Inc. dated
February 12, 1997. (25)*
10.67 Amendment to the Company's 1991 Employee Stock Option Plan (as Amended
through January 16, 1997). (25)
23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in their
opinions filed as Exhibits 5.1 and 8.1)
23.2 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (included on page II-6 of this Registration Statement)
99.1 Form of Proxy Card.
99.2 Form of Letter of Transmittal.
99.3 Form of Master Ballot for 12.5% Notes.
99.4 Form of Master Ballot for Old Common Stock.
______________________
* Management contract or executive compensation plan or arrangement.
(1) Filed as an exhibit to the Form S-1 Registration Statement of Softsel
Computer Products, Inc., No. 33-23700, and incorporated herein by this
reference.
(2) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1989 of Softsel Computer Products, Inc., and
incorporated herein by this reference.
(3) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended March 31, 1990 of Softsel Computer Products, Inc., and incorporated
herein by this reference.
II-16.
<PAGE>
PAGE
NUMBER
------
(4) Filed as an exhibit to the Form S-8 Registration Statement of Softsel
Computer Products, Inc., No. 33-34296, filed with the Securities and
Exchange Commission on April 12, 1990, and incorporated herein by this
reference.
(5) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990 of Softsel Computer Products, Inc., and incorporated
herein by this refer ence.
(6) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990, and incorporated herein by this reference.
(7) Filed as an exhibit to the Form S-8 Registration Statement of Softsel
Computer Products, Inc., No. 33-35648, filed with the Securities and
Exchange Commission on June 29, 1990, and incorporated herein by this
reference.
(8) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1991, and incorporated herein by this reference.
(9) Filed as an exhibit to the Form S-3 Registration Statement of Merisel,
Inc., No. 33-45696, filed with the Securities and Exchange Commission on
February 14, 1992 and incorporated herein by this reference.
(10) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1992, and incorporated herein by this reference.
(11) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1992 of Merisel, Inc., and incorporated herein by
this reference.
(12) Filed as an exhibit to the Current Report on Form 8-K dated February 14,
1994, as amended on March 24, 1994 and October 4, 1994, and incorporated
herein by this reference.
(13) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1993, and incorporated herein by this reference.
(14) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994, and incorporated herein by this reference.
II-17.
<PAGE>
PAGE
NUMBER
------
(15) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1994, and incorporated herein by this reference.
(16) Filed as an exhibit to the Form S-3 Registration Statement of the
Registrant, No. 33-55195, filed with the Securities and Exchange
Commission on August 23, 1994, and incorporated herein by this reference.
(17) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995, and incorporated herein by this reference.
(18) Filed as an exhibit to Amendment No. 1 to the Annual Report on Form 10-
K/A for the year ended December 31, 1995, and incorporated herein by this
reference.
(19) Filed as an exhibit to Amendment No. 2 to the Annual Report on Form 10-
K/A for the year ended December 31, 1995, and incorporated herein by this
reference.
(20) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, and incorporated herein by this reference.
(21) Filed as an exhibit to the Current Report on Form 8-K dated April 17,
1996, and incorporated herein by this reference.
(22) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and incorporated herein by this reference.
(23) Filed as an exhibit to the Current Report on Form 8-K dated October 18,
1996, and incorporated herein by this reference.
(24) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and incorporated herein by this reference.
II-18.
<PAGE>
PAGE
NUMBER
------
(25) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by this reference.
II-19.
<PAGE>
EXHIBIT 99.2
LETTER OF TRANSMITTAL
TO TENDER
12 1/2% SENIOR NOTES DUE , 2004
OF
MERISEL, INC.
PURSUANT TO THE
EXCHANGE RESTRUCTURING PROSPECTUS DATED [________________], 1997
================================================================
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON [ ], 1997, UNLESS EXTENDED (AS SUCH DATE MAY BE
EXTENDED, THE "EXPIRATION DATE").
================================================================
The Depositary for the Exchange Offer is:
[NAME OF DEPOSITORY]
By Mail: By Facsimile Transmission: By Hand
or Overnight Courier:
[____________] (xxx) xxx-xxxx [___________]
[____________] [___________]
[____________]
Confirm by Telephone:
[____________] (xxx) xxx-xxxx [___________]
[____________] [___________]
[____________]
For information contact the
Information Agent:
[NAME OF INFORMATION AGENT]
[___________]
[___________]
(800) xxx-xxx (toll-free)
or
(212) xxx-xxxx (collect)
<PAGE>
Delivery of this instrument to an address other than as set forth
above or transmission of instructions via a facsimile number other than the ones
listed above will not constitute a valid delivery.
The undersigned acknowledges receipt of the Exchange Restructuring
Prospectus dated [ ], 1997, (the "Exchange Restructuring
Prospectus") of Merisel, Inc. (the "Company"), relating to the offer of the
Company, upon the terms and subject to the conditions set forth in the Exchange
Restructuring Prospectus, this Letter of Transmittal and the instructions hereto
(which together constitute the "Exchange Offer"), to issue 192.5 shares
(adjusted to reflect the one-for-five reverse stock split described herein) of
common stock, par value $.05 per share (the "New Common Stock"), of the Company
for each $1,000 principal amount of 12 1/2% Senior Notes due 2004 (the "12.5%
Notes") (together with all accrued and unpaid interest) which is validly
tendered and not withdrawn. Each exchanging holder of 12.5% Notes (each a
"Noteholder") is required to elect to exchange the entire principal amount (plus
accrued but unpaid interest through [ ], 1997) of all 12.5% Notes
tendered by such Noteholder pursuant to this Letter of Transmittal for shares of
New Common Stock to be received in exchange therefor. Capitalized terms used in
this Letter of Transmittal but not defined herein have the meanings given
thereto in the Exchange Restructuring Prospectus.
PLEASE READ THE ENTIRE LETTER
OF TRANSMITTAL CAREFULLY BEFORE
COMPLETING ANY BOX BELOW
This Letter of Transmittal is to be used (i) if certificates representing
12.5% Notes are to be physically delivered herewith, (ii) if delivery of 12.5%
Notes is to be made by book-entry transfer to the account maintained by the
Depositary at The Depository Trust Company ("DTC") or the Philadelphia
Securities Depository Trust Company ("PHILADEP") each a "Book-Entry Transfer
Facility" and collectively, the Book-Entry Transfer Facilities") pursuant to the
procedures set forth in "TENDERING AND VOTING PROCEDURES" in Part A to the
Exchange Restructuring Prospectus or III or if is to be made according to the
DTC Automated Tender Offer Program ("ATOP") pursuant to the procedures set forth
in "TENDERING AND VOTING PROCEDURES" in Part A to the Exchange Restructuring
Prospectus. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY.
THERE IS NO PROCEDURE FOR TENDERING BY GRARANTEED DELIVERY. TENDERS BY
GUARANTEED DELIVERY WILL NOT BE ACCEPTED.
noteholders who wish to tender their 12.5% Notes must, at a minimum,
complete columns (1) through (3) in the table below and sign in the appropriate
box below. If those columns are completed, the Noteholder will be deemed to
have tendered all 12.5% Notes listed in the box.
2
<PAGE>
List below the 12.5% Notes to which ths Letter of Transmittal relates. If
the space provided is inadequate, list the certificate numbers and principal
amounts on a separately executed schedule and affix the schedule to this Letter
of Transmittal. Tenders of 12.5% Notes will be accepted only in principal
amounts equal to $1,000 or integral multiples thereof.
DESCRIPTION OF 12.5% NOTES
<TABLE>
<CAPTION>
===================================================================================================
(1) Certificate(s) Tendered
(Attach additional list if necessary)
Name(s) and Address(es) of Registered Holder(s)
(Please fill in, if blank)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
(2) (3)
Aggregate
Certificate Principal
Number(s)* Amount
- ---------------------------------------------------------------------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
Total:
- ---------------------------------------------------------------------------------------------------
[_] CHECK HERE IF THE 12.5% NOTES HAVE BEEN HELD FOR 18 MONTHS
OR MORE.
* Need not be completed by Noteholders tendering by book-entry transfer.
** Unless othewise specified, it will be assumed that the entire aggregate
principal amount represented by the 12.5% Notes described above is being
tendered. See Instruction 2.
If you are not the record holder of your 12.5% Notes, you must either
have the 12.5% Notes registered in your name or obtain a consent from the
record holder of such 12.5% Notes to tender them.
===================================================================================================
</TABLE>
The names and addresses of the registered Noteholders should be printed, if
not already printed above, exactly as they appear on the 12.5% Notes tendered
hereby. The certificate numbers and the aggregate principal amount of 12.5%
Notes that the undersigned wishes to tender should be indicated in the
appropriate boxes.
METHOD OF DELIVERY
<TABLE>
<CAPTION>
===================================================================================================
<S> <C>
[_] CHECK HERE IF CERTIFICATES FOR TENDERED 12.5% NOTES ARE ENCLOSED HEREWITH.
[_] CHECK HERE IF TENDERED 12.5% NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
(INCLUDING THROUGH ATOP) MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY
WITH A BOOK-ENTRY TRANSFER FACILITY SPECIFIED BELOW AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
[_] DTC [_] PHILADEP (check one)
Account Number: _____________
Transaction Code Number: ________________
===================================================================================================
</TABLE>
THERE IS NO PROCEDURE FOR TENDERING BY GUARANTEED DELIVERY.
TENDERS BY GUARANTEED DELIVERY WILL NOT BE ACCEPTED.
3
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW:
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to Merisel, Inc. (the "Company"), upon the
terms and subject to the conditions set forth in the Exchange Restructuring
Prospectus dated [ ], 1997 (the "Exchange Restructuring Prospectus"), receipt of
which is hereby acknowledged, and in accordance with this Letter of Transmittal
and the instructions hereto (which together constitute the "Exchange Offer"),
the principal amount of 12 1/2% Senior Notes due 2004 (the "12.5% Notes")
indicated in the table above entitled "DESCRIPTION OF 12.5% NOTES."
Subject to, and effective upon the acceptance for exchange of the 12.5%
Notes tendered herewith in accordance with the terms and subject to the
conditions of the Exchange Offer, the undersigned hereby sells, assigns and
transfers to or upon the order of the Company all right, title and interest in
and to all the 12.5% Notes that are being tendered hereby, and appoints the
Depositary the true and lawful agent and attorney-in-fact of the undersigned
(with full knowledge that the Depositary also acts as the agent of the Company)
with respect to such 12.5% Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest) to
(a) deliver certificates for such 12.5% Notes or transfer ownership of such
12.5% Notes on the account books maintained by DTC or PHILADEP, together, in any
such case, with all accompanying evidences of transfer and authenticity, to or
upon the order of the Company, (b) present such 12.5% Notes for transfer of
ownership on the books of the register and (c) receive all benefits and
otherwise exercise all rights of beneficial ownership of such 12.5% Notes, all
in accordance with the terms of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED ACCEPTS
THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER, HAS FULL POWER AND AUTHORITY TO
TENDER, SELL, ASSIGN AND TRANSFER THE 12.5% NOTES TENDERED HEREBY AND THAT WHEN
SUCH TENDERED 12.5% NOTES ARE ACCEPTED FOR EXCHANGE BY THE COMPANY, THE COMPANY
WILL ACQUIRE GOOD AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS,
RESTRICTIONS, CHARGES AND ENCUMBRANCES AND NOT SUBJECT TO ANY ADVERSE CLAIM OR
RIGHT. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL
DOCUMENTS DEEMED BY THE DEPOSITARY OR THE COMPANY TO BE NECESSARY OR DESIRABLE
TO COMPLETE THE SALE, ASSIGNMENT AND TRANSFER OF THE 12.5% NOTES HEREBY
TENDERED. THE UNDERSIGNED HEREBY FOREVER WAIVES ALL RIGHTS TO RECEIVE ANY
PAYMENTS NOT HERETOFORE PAID WITH RESPECT TO ACCRUED BUT UNPAID INTEREST ON SUCH
12.5% NOTES TENDERED PURSUANT HERETO, WHETHER DUE BEFORE OR AFTER THE DATE
HEREOF. SUCH WAIVER SHALL NOT BE DEEMED TO BE EFFECTIVE IF SUCH SECURITIES ARE
NOT ACCEPTED FOR EXCHANGE PURSUANT TO THE EXCHANGE OFFER.
All authority herein conferred or agreed to be conferred shall not be
affected by and survive the death or incapacity of the undersigned, and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, trustees in bankruptcy, personal and legal
representatives, successors and assigns of the undersigned. Tenders of 12.5%
Notes may be withdrawn, subject to the procedures described in Part A to the
Exchange Restructuring Prospectus, at any time before they are accepted for
exchange by the Company. The Company shall be deemed to have accepted for
exchange, and to have exchanged, all validly tendered 12.5% Notes in the
Exchange Offer if, when and as of the time that the Company gives oral or
written notice thereof to the Depositary.
The undersigned understands that tenders of 12.5% Notes pursuant to any one
of the procedures described under "TENDERING AND VOTING PROCEDURES" in Part A to
the Exchange Restructuring Prospectus and in the instructions hereto and
acceptance of such 12.5% Notes by the Company for exchange will constitute a
binding agreement between the undersigned and the Company in accordance with the
terms and subject to the conditions of the Exchange Offer.
4
<PAGE>
The undersigned recognizes that, under certain circumstances set forth in
the Exchange Restructuring Prospectus, the Company may not be required to accept
for exchange any of the 12.5% Notes tendered. 12.5% Notes not accepted for
exchange or withdrawn will be returned to the undersigned at the address set
forth above unless otherwise indicated under "SPECIAL DELIVERY INSTRUCTIONS"
below.
The undersigned understands that the delivery and surrender of any 12.5%
Notes is not effective, and the risk of loss of the 12.5% Notes does not pass to
the Depositary, until receipt by the Depositary of this Letter of Transmittal,
or a manually signed facsimile hereof, properly completed and duly executed,
together with all accompanying evidences of authority and any other required
documents in form satisfactory to the Company. All questions as to form of all
documents and the validity (including time of receipt) and acceptance of tenders
and withdrawals of 12.5% Notes will be determined by the Company, in its sole
discretion, which determination shall be final and binding.
Unless otherwise indicated under "SPECIAL ISSUANCE INSTRUCTIONS" or "SPECIAL
DELIVERY INSTRUCTIONS" below, the Depositary will deliver the New Common Stock
to the undersigned at the address set forth above. The undersigned understands
that Noteholders who tender 12.5% Notes by book entry transfer ("Book-Entry
Holders") may request that any 12.5% Notes not exchanged be returned by
crediting the account maintained by DTC or PHILADEP as such Book-Entry Holders
may designate by making an appropriate entry under the box entitled "SPECIAL
ISSUANCE INSTRUCTIONS" below. The undersigned recognizes that the Company has
no obligation pursuant to "SPECIAL ISSUANCE INSTRUCTIONS" to transfer any 12.5%
Notes from the name of the registered holder thereof if the Company does not
accept for exchange any of such 12.5% Notes.
5
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF 12.5%
NOTES" AVOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE
TENDERED ALL THEIR 12.5% NOTES, WAIVED CERTAIN RIGHTS AND MADE CERTAIN
REPRESENTATIONS, AS DECRIBED HEREIN AND IN PART A TO THE EXCHANGE RESTRUCTURING
PROSPECTUS. IF THE UNDERSIGNED IS NOT THE REGISTERED HOLDER OF THE 12.5% NOTES
TENDERED PURSUANT HERETO, THE UNDERSIGNED MUST EITHER HAVE THE 12.5% NOTES
REGISTERED IN THE UNDERSIGNED'S NAME OR HAVE THE REGISTERED HOLDER SIGN A VALID
PROXY.
- --------------------------------------------------------------------------------
IMPORTANT
PLEASE SIGN HERE
AND COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9
(To be completed by all tendering Noteholders regardless of whether
12.5% Notes are being physically delivered herewith)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Signature(s) of Holder(s)
Area Code and Telephone Number:
This Letter of Transmittal must be signed by the Registered Holder(s) of
12.5% Notes as their name(s) appear(s) on the certificates for the 12.5% Notes
or, if tendered by a participant or participants in one of the Book-Entry
Transfer Facilities, exactly as such participant's or participants' name(s)
appear(s) on a security position listing as the owners of 12.5% Notes, or by a
person or persons authorized to become a Registered Holder or Registered
Holders, by endorsement of any documents transmitted herewith. If the signature
is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, please set forth
your full title. See Instruction 3.
Name(s):
------------------------------------------------------------
------------------------------------------------------------
Please Type or Print
Capacity:
------------------------------------------------------------
Address:
------------------------------------------------------------
(Including Zip Code)
Area Code and
Telephone No.
------------------------------------------------------------
Tax Identification
Number
------------------------------------------------------------
(Also complete Substitute Form W-9 below)
Dated:
------------------------------------------------------------
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:
-------------------------------------------------
(Authorized Signature)
-------------------------------------------------
(Title)
-------------------------------------------------
(Name of Firm)
Dated:
----------------------------------------- --------, -----------
- ----------------------------------------------------------------------------
6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: [ ]
-----------------------
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT TIN
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW -----------------------
(Social Security Number
Department of or Employer
the Treasury Identification Number)
----------------------------------------------------------------------------------------
PART 2--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING PLEASE WRITE "EXEMPT" HERE
(SEE INSTRUCTIONS)
----------------------------------------------------------------------
----------------------------------------------------------------------------------------
PART 3--CERTIFICATION UNDER PENALTIES OF PERJURY, I CERTIFY THAT (1) The number shown on
Payor's Request for this form is my correct TIN (or I am waiting for a number to be issued to me), and (2)
Taxpayer Identification I am not subject to backup withholding because: (a) I am exempt from backup withholding,
Number ("TIN") (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am
and Certification subject to backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject to backup
withholding.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS
DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACK-UP WITHHOLDING.
SIGNATURE DATE
------------------------- ---------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
You must cross out item (2) of Part 3 above if you have been notified by the IRS
that you are currently subject to backup withholding because of underreporting
interest or dividends on your tax return, and you have not been notified by the
IRS that you are no longer subject to backup withholding.
7
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4 and 5) (See Instructions 4 and 5)
========================================================================================================================
<S> <C>
To be completed ONLY if certificates for New To be completed ONLY if Certificates for New
Common Stock are to be issued in the name of, Common Stock are to be sent to someone other
or paid to, someone other than the person who than the person who submits this Letter of
submits this Letter of Transmittal or issued to an Transmittal or to an address other than that
address different from that shown in the box shown in the box entitled "DESCRIPTION OF 12.5%
entitled "DESCRIPTION OF 12.5% NOTES" NOTES" above in this Letter of Transmittal.
above in this Letter of Transmittal or if 12.5%
Notes are to be returned by credit to an account Mail to:
maintained by DTC or PHILADEP. -------
Name
---------------------------------------
Issue to: (Please Print)
- --------
Address
------------------------------------
Name
---------------------------------------
(Please Print) -------------------------------------------
Address
------------------------------------ -------------------------------------------
(Include Zip Code)
- -------------------------------------------
- -------------------------------------------
(Include Zip Code)
- -------------------------------------------------- --------------------------------------------------
(Taxpayer Identification or Social Security Number) (Taxpayer Identification or Social Security Number)
(Also Complete Substitute Form W-9) (Also Complete Substitute Form W-9)
Credit unexchanged 12.5% Notes tendered by
- ------------------------------------------
book-entry transfer to the:
- --------------------------
[_] DTC or [_] PHILADEP (check one)
account set forth below:
- -------------------------------
(DTC or PHILADEP Account Number)
========================================================================================================================
</TABLE>
8
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED
FOR" IN PART 1 OF THE SUBSTITUTE FORM W-9
- ------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I CERTIFY UNDER PENALTY OF PERJURY THAT A TAXPAYER IDENTIFICATION NUMBER HAS NOT
BEEN ISSUED TO ME, AND THAT I MAILED OR DELIVERED AN APPLICATION TO RECEIVE A
TAXPAYER IDENTIFICATION NUMBER TO THE APPROPRIATE INTERNAL REVENUE SERVICE
CENTER OR SOCIAL SECURITY ADMINISTRATION OFFICE (OR I INTEND TO MAIL OR DELIVER
AN APPLICATION IN THE NEAR FUTURE). I UNDERSTAND THAT IF I DO NOT PROVIDE A
TAXPAYER IDENTIFICATION NUMBER TO THE PAYOR WITHIN 60 DAYS, THE PAYOR IS
REQUIRED TO WITHHOLD 31 PERCENT OF ALL CASH PAYMENTS MADE TO ME THEREAFTER UNTIL
I PROVIDE A NUMBER.
- ------------------------------------ ---------------------------------
SIGNATURE DATE
- ------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31 PERCENT OF ANY CASH PAYMENTS. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-
9 FOR ADDITIONAL DETAILS.
9
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. This Letter of
Transmittal is to be used (i) if certificates representing 12.5% Notes are to be
physically delivered to the Depositary herewith, (ii) if delivery of 12.5%
Notes is to be made by book-entry transfer to the Depositary's account at a
Book-Entry Transfer Facility pursuant to the procedures set forth in "TENDERING
AND VOTING PROCEDURES" in Part A tothe Exchange Restructuring Prospectus or
(iii) if tender of 12.5% Notes is to be made according to ATOP pursuant to the
procedures set forth in "TENDERING AND VOTING PROCEDURES" in Part A to the
Exchange Restructuring Prospectus.
In order to validly tender 12.5% Notes pursuant to the Exchange Offer,
certificats for all physically dellivered 12.5% Notes, or confirmation of
book-entry transfer into the Depositary's account at a Book-Entry Facility of
12.5% Notes tendered electronically, as well as a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) with any signature
guarantees, and any other documents required by this Letter of Transmittal, must
be received by the Depositary at one of its addresses set forth herein on or
prior to the Expiration Date of the Exchange Offer. THERE IS NO PROCEDURE FOR
TENDERING BY GUARANTEED DELIVERY. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY
TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
The method of delivery of this letter of transmittal, certificates for
12.5% notes and any other required documents including delivery through a Book-
Entry Transfer Facility and any acceptance or Agent's Message transmitted
through ATOP, is at the election and risk of the tendering noteholder, and
except as otherwise provided below, the delivery will be deemed made when
actually received by the depositary. If 12.5% notes are sent by mail, then
registered mail, with return receipt requested, properly insured, is
recommended, and sufficient time should be allowed to assure timely delivery. No
documents should be sent to the Company, the Information Agent, the Trustee or
the transfer agent for the New Common Stock.
If the person signing this Letter of Transmittal is not the registered
Noteholder of the securities tendered hereby, then such person must either have
the securities tendered hereby registered in such person's name or obtain from
the registered Noteholder and submit to the Depositary a valid proxy.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, withdrawal and revocation of tendered 12.5% Notes will be
resolved by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders and withdrawals
of 12.5% Notes that are not in proper form or the acceptance or which would, in
the opinion of the Company or counsel for the Company, be unlawful. The Company
also reserves the absolute right, in its sole discretion, to waive any defect or
irregularity in any tender as to particular 12.5% Notes, whether or not similar
defects or irregularities are waived in the case of other 12.5% Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) will be final and
binding. Unless waived, any irregularities in connection with tenders and
withdrawals of 12.5% Notes must be cured within such time as the Company shall
determine. None of the Company, the Depositary the Trustee or any other person
shall be under any duty to give notification of defects in such tenders,
withdrawals, deliveries or revocations or shall incur any liability for failure
to give such notification. Tenders, withdrawals and deliveries of 12.5% Notes
will not be deemed to have been made until such irregularities have been cured
or waived. Any 12.5% Notes received by the Depositary that are not properly
tendered or delivered, and as to which the irregularities have not been cured or
waived, will be returned by the Depositary to the tendering Noteholder(s),
unless otherwise provided in this Letter of Transmittal, as soon as practicable
following the Expiration Date.
10
<PAGE>
None of the Company, the Depositary, the Information Agent or any other
person shall be obligated to give notification of defects or irregularities in
any tender, or shall incur any liability for failure to give any such
notification.
No alternative, conditional or contingent tenders will be accepted.
2. PARTIAL TENDERS; WITHDRAWALS. Tenders of 12.5% Notes will be accepted
only in principal amounts of $1,000 and integral multiples thereof. The entire
principal amount of all 12.5% Notes delivered to the Depositary will be deemed
to have been tendered unless otherwise specified.
Tenders of 12.5% Notes may be withdrawn, subject to the procedures
described in Part A to the Exchange Restructuring Prospectus and below, at any
time before they are accepted for exchange by the Company. To be effective, a
written telegraphic or facsimile transmission notice of withdrawal of tender
must (a) be timely received by the Depositary at one of its addresses specified
on the front of this Letter of Transmittal before such 12.5% Notes are accepted
for exchange by the Company, (b) specify the name of the person who tendered
the 12.5% Notes to be withdrawn, (c) contain a description of the 12.5% Notes to
be withdrawn, the certificate numbers shown on the particular certificates
evidencing such 12.5% Notes (unless the 12.5% Notes were tendered by book-entry
transfer) and the aggregate principal amount represented by such 12.5% Notes and
(d) be signed by such Noteholder in the same manner as the original signature on
this Letter of Transmittal (including any required signature guarantees), or be
accompanied by documents of transfer sufficient to have the Trustee register
the transfer of such 12.5% Notes into the name of the person withdrawing 12.5%
Notes. The signature(s) on the notice of withdrawal must be guaranteed by an
Eligible Institution unless such 12.5% Notes have been tendered (a) by a
registered Noteholder who has not completed the boxes on the Letter of
Transmittal entitled "SPECIAL ISSUANCE INSTRUCTIONS" or "SPECIAL DELIVERY
INSTRUCTIONS" or (b) of the account of an Eligible Institution. If the 12.5%
Notes to be withdrawn have been delivered or otherwise identified to the
Depositary, a properly completed and signed notice of withdrawal shall be
effective immediately upon receipt thereof, even if physical release is not yet
effected.
Any record holder of 12.5% Notes may submit two or more Letters of
Transmittal covering all or a portion of such 12.5% Notes owned by such
Noteholder provided that such Noteholder submits with the Letters of Transmittal
a certification satisfactory to the Exchange Agent that such Noteholder holds
such 12.5% Notes as nominee for two or more beneficial owners.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL, BOND POWERS, AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered holder(s) of the 12.5% Notes tendered hereby, the signature
must correspond with the name(s) as written on the face of the certificate(s)
without alteration, enlargement or any change whatsoever. If this Letter of
Transmittal is signed by a participant in one of the Book-Entry Transfer
Facilities whose name is shown as the owner of the 12.5% Notes tendered hereby,
the signature must correspond with the name shown on the security position
listing as the owner of the 12.5% Notes.
If any of the 12.5% Notes tendered hereby are registered in the names of
two or more holders, all such holders must sign this Letter of Transmittal. If
any tendered 12.5% Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal and any other required documents as there are different
names in which certificates are registered.
11
<PAGE>
If tendered 12.5% Notes are registered in the name of a person other than
the person signing this Letter of Transmittal, the tendered 12.5% Notes must be
endorsed or accompanied by appropriate bond powers, signed by the registered
Noteholder or Noteholders of the 12.5% Notes transmitted hereby or separate bond
powers are required, with signatures guaranteed in either case.
If this Letter of Transmittal or any certificates or bond powers, stock
powers or [proxies] are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, agents officers of corporations or others acting
in a fiduciary or representative capacity, such persons should so indicate when
signing and proper evidence, satisfactory to the Company of their authority so
to act must be submitted.
Endorsements on certificates of 12.5% Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by participant
in the Security Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchange Medallioin Program (each of
the foregoing being referred to as an "Eligible Institution") unless (i) the
12.5% Notes are tendered by the registered Noteholder(s) which term, for
purposes of this Letter of Transmittal, shall include any participant in DTC or
PHILADEP whose name appears on a security position listing as the owner of 12.5%
Notes, who has not completed the box entitled "SPECIAL ISSUANCE INSTRUCTIONS" or
"SPECIAL DELIVERY INSTRUCTIONS" on this Letter of Transmittal, or (ii) the Notes
are being tendered for the account of an Eligible Institution.
4. SPECIAL INSURANCE AND DELIVERY INSTRUCTIONS. Tendering holders of
12.5% Notes should indicate, in the applicable box, the name and address to
which the certificates representing shares of New Common Stock are to be issued
or sent, if different from the name and address of the person submitting this
Letter of Transmittal. In the case of issuance in a different name, the tax
identification number of the person named must also be indicated and a
Substitute Form W-9 for such recipient must be completed. See Instruction 5.
If no such instructions are given, such 12.5% Notes not exchanged will be
returned to the name and address of the person signing this Letter of
Transmittal or, at the Company's option, by crediting the account at DTC or
PHILADEP designated above in the box entitled "SPECIAL ISSUANCE INSTRUCTIONS."
5. TAXPAYER IDENTIFICATION NUMBER AND BACKUP WITHHOLDING. Federal income
tax law generally requires that each Noteholder must provide the Depositary (as
"Payor") with such Noteholder's correct Taxpayer Identification Number ("TIN"),
which, in the case of a Noteholder who is an individual, is such Noteholder's
social security number. If the Depositary is not provided with the correct TIN
or an adequate basis for an exemption, such Noteholder may be subject to a $50
penalty imposed by the Internal Revenue Service and backup withholding in an
amount equal to 31% of the gross proceeds of any cash payments received
hereunder. If withholding results in an overpayment of taxes, a refund may be
obtained.
To prevent backup withholding, each surrendering Noteholder must provide
such Noteholder's correct TIN by completing the "Substitute Form W-9" set forth
herein, certifying that the TIN provided is correct (or that such Noteholder is
awaiting a TIN) and
12
<PAGE>
that (i) the Noteholder is exempt from backup withholding, (ii) the Noteholder
has not been notified by the Internal Revenue Service that such Noteholder is
subject to backup withholding as a result of a failure to report all interest or
dividends, or (iii) the Internal Revenue Service has notified the Noteholder
that such Noteholder is no longer subject to backup withholding.
If the Noteholder does not have a TIN, such Noteholder should consult the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 (the "W-9 Guidelines") for instructions on applying for a
TIN, write "Applied For" in the space for the TIN in Part 1 of the Substitute
Form W-9, and sign and date the Substitute Form W-9 and the Certificate of
Awaiting Taxpayer Identification Number set forth herein. If the Noteholder
does not provide such Noteholder's TIN to the Payor within 60 days, backup
withholding will begin and continue until such Noteholder furnishes such
Noteholder's TIN to the Depositary. Note: Writing "Applied For" on the form
means that the Noteholder has already applied for a TIN or that such Noteholder
intends to apply for one in the near future.
If certificates representing shares of New Common Stock are to be held in
more than one name or are not in the name of the actual owner, consult the W-9
Guidelines for information on which TIN to report.
Exempt Noteholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. To prevent possible erroneous backup withholding, an exempt
Noteholder should write "Exempt" in Part 2 of Substitute Form W-9. See the W-9
Guidelines for additional instructions. In order for a nonresident alien or
foreign entity to qualify as exempt, such person must submit a completed Form W-
8, "Certificate of Foreign Status," signed under penalty of perjury, attesting
to such exempt status. Such form may be obtained from the Payor.
6. TRANSFER TAXES. The Company will pay or cause to be paid all transfer
taxes applicable to the exchange of the 12.5% Notes pursuant to the Exchange
Offer, except in the case of deliveries of New Common Stock that are to be made
to persons other than the registered Noteholder.
7. WAIVER OF CONDITIONS. The conditions of the Exchange Offer may be
amended or waived by the Company, in whole or in part, at any time and from time
to time in the Company's sole dicretion, in the case of any 12.5% Notes
tendered.
The Company (or the Depositary, if delegated such authority) reserves the
right to waive any irregularities or defects in the tender of any of the 12.5%
Notes, any irregularities or defects in this Letter of Transmittal or any other
condition set forth herein. Neither the Company nor the Depositary is under any
duty to give notification of any defects in any Letter of Transmittal, defects
in other required documents or failure to comply with any other conditions set
forth herein and shall not incur any liability for failure to give such
notification. Any and all Letters of Transmittal and any other required
documents not in proper form are subject to rejection.
8. MUTILATED, LOST, STOLEN OR DESTROYED 12.5% NOTES. Any Noteholder whose
12.5% Notes have been mutilated, lost, stolen or destroyed should contact
Trustee at the address indicated below: [ .]
--------------
13
<PAGE>
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Question relating to the
procedures for tendering 12.5% Notes and requests for assistance may be directed
to the Information Agent, at the address set forth below. Additional copies of
the Exchange Restructuring Prospectus, this Letter of Transmittal and the W-9
Guidelines may be obtained from the Information Agent at the address set forth
below or from your broker, dealer, commercial bank, trust company or other
nominee.
10. INADEQUATE SPACE. If the space provided herein is inadequate, the
12.5% Note Certificate number(s) and/or the number of shares of 12.5% Notes
should be listed on a separate signed schedule attached hereto.
11. CORRECTION OR CHANGE IN NAME. For a correction of names or for a
change in names which in either case does not involve a change of ownership,
proceed as follows: (i) for a change in name, by marriage, etc., the
surrendered certificate(s) should be endorsed, e.g., "Mary Doe, now by marriage
Mrs. Mary Jones," with the signature guaranteed (see Instruction 3); and (ii)
for a correction in name, the surrendered certificate(s) should be endorsed,
e.g., "James E. Brown, incorrectly inscribed as J.E. Brown," with the signature
guaranteed (see Instruction 3).
12. MISCELLANEOUS. The terms and conditions of the Exchange Offer are
incorporated ed herein by reference in their entirety and are deemed to form a
part of the terms and conditions of this Letter of Transmittal.
Question and requests for assistance or additional copies of the Exchange
Restructuring Prospectus and this Letter of Transmittal or other exchange offer
materials may be directed to the Information Agent listed below.
[NAME OF INFORMATION AGENT]
[_______________]
[_______________]
(800) xxx-xxxx (toll-free)
or
(xxx) xxx-xxxx (collect)
14
<PAGE>
UNITED STATES BANKRUPTCY COURT
_______ DISTRICT OF __________
)
In re ) CASE NO. [ ]
) Chapter 11
MERISEL, INC., )
200 Continental Blvd. )
El Segundo, California 90245 )
) MASTER BALLOT FOR PLAN OF
Employer ID No. 95-4172359 ) REORGANIZATION OF MERISEL, INC.
) (12.5% SENIOR NOTES DUE 2004 -- CLASS 4)
Debtor. )
___________________________________)
THIS BALLOT IS FOR BROKERS, PROXY INTERMEDIARIES OR OTHER NOMINEES
OF BENEFICIAL OWNERS OF THE 12.5% SENIOR NOTES DUE 2004
The Plan of Reorganization of Merisel, Inc., dated _________, 1997
(the "Plan"), can be confirmed by the Bankruptcy Court and thereby made binding
on beneficial owners if it is accepted by the holders of at least two-thirds in
dollar amount and one-half in number of Class 4 12.5% Senior Promissory Notes
Due 2004 ("12.5% Notes") voting on the Plan. In the event the requisite
acceptances are not obtained, the Bankruptcy Court may nevertheless confirm the
Plan if it finds that the Plan accords fair and equitable treatment to the class
or classes rejecting it and otherwise satisfies the requirements of 11 U.S.C.
(S) 1129(b).
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY.
THE VOTING DEADLINE IS 5:00 P.M., EASTERN TIME, ______ __, 1997
BALLOTS MUST BE RECEIVED BY THE VOTING AGENT BY THE DEADLINE.
--------
IF YOU HOLD FOR BENEFICIAL HOLDERS THROUGH ANOTHER NOMINEE
(see Instructions), PLEASE ALLOW SUFFICIENT ADDITIONAL TIME
FOR PROCESSING OF YOUR VOTE BY THE NOMINEE.
TO HAVE THE VOTE OF YOUR BENEFICIAL OWNERS COUNT, YOU MUST COMPLETE AND RETURN
------------------------------------------------------------------------------
THIS BALLOT SO THAT IT IS ACTUALLY RECEIVED NOT LATER THAN THE VOTING DEADLINE
- ------------------------------------------------------------------------------
BY THE BANK OF NEW YORK AT THE FOLLOWING ADDRESS: 101 BARCLAY STREET - 7E,
---------------------------------------------------------------------------
NEW YORK, NEW YORK 10286 (ATTN: REORGANIZATION DEPARTMENT, GEORGE JOHNSON).
----------------------------------------------------------------------------
<PAGE>
MASTER BALLOT FOR 12.5% NOTES INTERESTS -- CLASS 4
PLEASE MAKE SURE YOU PROVIDE ALL INFORMATION REQUESTED
ITEM 1. AGGREGATE FACE AMOUNT OF 12.5% NOTES AS TO WHICH VOTES ARE CAST.
The undersigned certifies that it is the registered owner as of
_________, 1997, of $ _________________ aggregate face amount
of 12.5% Notes, for which voting instructions have been received
from beneficial owners for whom the undersigned owns 12.5%
Notes in its name (the "Beneficial Owners") as listed in Item 3 below:
ITEM 2. CLASS 4 12.5% NOTES VOTE ON PLAN -- AGGREGATE FACE AMOUNT OF 12.5%
NOTES.
As instructed by the Beneficial Owners of the aggregate face amount of 12.5%
Notes set forth in Item 1 above, the undersigned transmits the following votes
of such Beneficial Owners in respect of their 12.5% Notes.
To ACCEPT (vote FOR) the Plan, the
following Aggregate Face Amount of
12.5% Notes....................................... $____________
To REJECT (vote AGAINST) the Plan,
the following Aggregate Face Amount
of 12.5% Notes.................................... $_____________
ITEM 3. CERTIFICATIONS. The undersigned certifies that:
(a) the Beneficial Owners of 12.5% Notes, as identified by their
respective customer account numbers or the respective sequence numbers on the
attached "Aggregate Face Amount of 12.5% Notes," have delivered to the
undersigned Ballots casting votes (indicate the aggregate face amount of
12.5% Notes for each respective account under the appropriate column).
(b) it has either attached a copy of the "Certificate of Multiple
Ownership" accompanying the Beneficial Owner Ballots or transcribed the
information contained in those Certificates onto the attached "Certificate of
Multiple Beneficial Ownership," if any.
(c) each Beneficial Owner of 12.5% Notes whose votes are being
transmitted by this Master Ballot has been provided with a copy of the
Disclosure Statement, the Plan, and related solicitation materials.
(d) it is the registered or record holder of the 12.5% Notes to
which this Master Ballot pertains and/or has full power and authority to vote
to accept or reject the Plan.
2
<PAGE>
AGGREGATE FACE AMOUT OF 12.5% NOTES
-----------------------------------
<TABLE>
<CAPTION>
Customer Name and/or Ac-
count Number for Each Benefi- To Accept (For) the Plan To Reject (Against) the
cial Owner of 12.5% Notes of Reorganization Plan of Reorganization
------------------------------ ------------------------ -----------------------
<S> <C> <C>
(1)
------------------------------ ------------------------ -----------------------
(2)
------------------------------ ------------------------ -----------------------
(3)
------------------------------ ------------------------ -----------------------
(4)
------------------------------ ------------------------ -----------------------
(5)
------------------------------ ------------------------ -----------------------
(6)
------------------------------ ------------------------ -----------------------
(7)
------------------------------ ------------------------ -----------------------
(8)
------------------------------ ------------------------ -----------------------
(9)
------------------------------ ------------------------ -----------------------
(10)
------------------------------ ------------------------ -----------------------
</TABLE>
3
<PAGE>
CERTIFICATE OF MULTIPLE BENEFICIAL OWNERSHIP
--------------------------------------------
<TABLE>
<CAPTION>
Your Customer
name and/or ac- Name of regis- Face amount of
count number for Account Number tered holder or Class 4 Amount of other
each Beneficial of other nominee of 12.5% Notes held Class 4 claims
Owner account other account and voted held and voted
<S> <C> <C> <C> <C>
(1) $ $
- ----------------- -------------- --------------- ---------------- ----------------
(2) $ $
- ----------------- -------------- --------------- ---------------- ----------------
(3) $ $
- ----------------- -------------- --------------- ---------------- ----------------
(4) $ $
- ----------------- -------------- --------------- ---------------- ----------------
(5) $ $
- ----------------- -------------- --------------- ---------------- ----------------
</TABLE>
4
<PAGE>
Name of Record or Registered Holder:
- ----------------------------------------
By:
----------------------------------------------
(Signature)
Printed Name: Title:
-------------------------------- -----------------------------
Address:
------------------------------------------------------------------------
Telephone: ( )
------------------------------
Social Security or Federal Tax I.D. No.
----------------------------------------
Dated:
----------------------------------
5
<PAGE>
INSTRUCTIONS FOR COMPLETING THE BALLOT
Merisel, Inc. is soliciting votes of beneficial holders of 12.5% Notes
on its Plan of Reorganization, dated _________, 1997 (the "Plan"), referred to
in the Disclosure Statement dated _________, 1997 (the "Disclosure Statement").
The capitalized terms used herein and in the Master Ballot and not otherwise
defined herein shall have the meaning ascribed to them in the Plan.
TO COMPLETE THE MASTER BALLOT PROPERLY, TAKE THE FOLLOWING STEPS:
ITEM 1: AGGREGATE FACE AMOUNT OF 12.5% NOTES. Provide the
information required by Item 1.
ITEM 2: VOTE. Indicate the aggregate face amount of 12.5% Notes held
by Beneficial Owners who accepted the Plan and the aggregate face amount of
12.5% Notes held by Beneficial Owners who rejected the Plan.
Beneficial owners may not split their vote on the Plan with respect to
their 12.5% Notes. Thus, if you have received a Ballot with respect to any
12.5% Notes that has been voted both "accept" and "reject," or have received two
Ballots from the same Beneficial Owners that are marked differently, the votes
may not be counted, and you should provide a separate tabulation of those
Ballots.
ITEM 3: CERTIFICATIONS.
(a) Item 3(a) requests information on a separate sheet for each
individual Beneficial Owner for whom you hold the 12.5% Notes in your name. You
may use the form provided or may attach your own form if it contains the
required information. If you are unable to disclose the identity of such
Beneficial Owners, please use the customer account number assigned by you to
each such Beneficial Owner or, if no such customer account number exists, please
use the sequential numbers provided (making sure to retain a separate list of
each Beneficial Owner and his or her assigned sequential number).
(b) Item 3(b) requests information for any of your Beneficial Owners
who submitted a "Certificate of Multiple Ownership." You may use the form
provided or may attach your own form if it contains the required information.
(c) Read Items 3(c) and 3(d) carefully.
If you are both the record holder and Beneficial Owner of any 12.5%
---
Notes and you wish to vote such 12.5% Notes, you may not use this Master Ballot
to vote. You must return a Beneficial Owner Ballot for the 12.5% Notes that you
wish to vote.
6
<PAGE>
SIGNATURE. Sign and date the Master Ballot. If you are completing this
Master Ballot on behalf of another entity, state your title with such entity.
Provide your name and mailing address.
MAILING INSTRUCTIONS. Please contact the Voting Agent in order to
arrange for delivery of the completed Beneficial Owner Ballots and the completed
Master Ballot to its offices. You may either:
(i) deliver the Beneficial Owner Ballot to each Beneficial
Owner for whom you hold 12.5% Notes, and take any action required to
enable each such Beneficial Owner to timely vote his or her 12.5%
Notes to accept or reject the Plan; or
(ii) prevalidate the Beneficial Wwner Ballot contained in the
solicitation package (by signing that ballot and by indicating on that
ballot the record holder of the 12.5% Notes voted, the number of
shares, and the appropriate account numbers through which the
beneficial owner's holdings are derived) and then forward the
solicitation package to the beneficial owner of the 12.5% Notes for
voting so that the beneficial owner may return the completed
Beneficial Owner Ballot directly to the Voting Agent in the return
envelope provided in the information Package. With regard to any
Beneficial Owner Ballots returned to you, you must (1) execute the
Master Ballot so as to reflect the voting instructions given to you in
the Beneficial Owner Ballots by the Beneficial Owners for whom you
hold 12.5% Notes and (2) forward such Master Ballots to the Voting
Agent.
The Ballot must be RECEIVED by the Voting Agent by the VOTING
--------
DEADLINE, WHICH IS __________, 1997.
DO NOT FAX YOUR BALLOT TO THE VOTING AGENT.
FAXED BALLOTS WILL NOT BE COUNTED.
NO FEES OR COMMISSIONS OR OTHER REMUNERATION WILL BE PAYABLE to any
broker, dealer or other person for soliciting Ballots accepting the Plan. We
will, however, upon request, reimburse you for customer mailing and handling
expenses incurred by you in forwarding the Beneficial Owner Ballots and other
enclosed materials to your clients.
QUESTIONS. IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT OR
THE VOTING PROCEDURES, OR IF YOU NEED ADDITIONAL COPIES OF THE MASTER BALLOT,
THE BENEFICIAL OWNER BALLOT OR OTHER ENCLOSED MATERIALS, or if you believe that
you have received the wrong Ballot, please contact The Bank of New York (Attn:
Reorganization Department, George Johnson), as Voting Agent, at (212) 815-4997.
THE MASTER BALLOT IS NOT A LETTER OF TRANSMITTAL AND MAY NOT BE USED
---
FOR ANY PURPOSE OTHER THAN TO CAST VOTES TO ACCEPT OR REJECT THE PLAN. Holders
should not surrender, at this
---
7
<PAGE>
time, certificates representing their securities, and Merisel will not accept
---
delivery of any such certificates surrendered together with this Master Ballot.
Surrender of securities for exchange may only be made by you, and will only be
accepted pursuant to a letter of transmittal which will be furnished to you by
Merisel following confirmation of the Plan by the Bankruptcy Court.
NOTHING CONTAINED IN THIS BALLOT, THE INSTRUCTIONS, OR THE ENCLOSED
DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS AN AGENT FOR MERISEL OR
THE VOTING AGENT OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR
MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE PLAN, EXCEPT
FOR THE STATEMENTS CONTAINED IN THE DOCUMENTS ENCLOSED HEREWITH.
8
<PAGE>
UNITED STATES BANKRUPTCY COURT
_______ DISTRICT OF __________
)
In re ) CASE NO. [ ]
) Chapter 11
MERISEL, INC., )
200 Continental Blvd. )
El Segundo, California 90245 )
) MASTER BALLOT FOR PLAN OF
Employer ID No. 95-4172359 ) REORGANIZATION OF MERISEL, INC.
) (OLD COMMON STOCK INTERESTS -- CLASS 6)
Debtor. )
__________________________________)
THIS BALLOT IS FOR BROKERS, PROXY INTERMEDIARIES OR OTHER NOMINEES
OF BENEFICIAL OWNERS OF THE OLD COMMON STOCK OF MERISEL, INC.
The Plan of Reorganization of Merisel, Inc., dated _________, 1997
(the "Plan"), can be confirmed by the Bankruptcy Court and thereby made binding
on beneficial owners if it is accepted by the holders of at least two-thirds of
the number of shares of Class 6 Old Common Stock ("Common Stock") voting on the
Plan. In the event the requisite acceptances are not obtained, the Bankruptcy
Court may nevertheless confirm the Plan if it finds that the Plan accords fair
and equitable treatment to the class or classes rejecting it and otherwise
satisfies the requirements of 11 U.S.C. (S) 1129(b).
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY.
THE VOTING DEADLINE IS 5:00 P.M., EASTERN TIME, ______ __, 1997
BALLOTS MUST BE RECEIVED BY THE VOTING AGENT BY THE DEADLINE.
--------
IF YOU HOLD FOR BENEFICIAL HOLDERS THROUGH ANOTHER NOMINEE
(see Instructions), PLEASE ALLOW SUFFICIENT ADDITIONAL TIME
FOR PROCESSING OF YOUR VOTE BY THE NOMINEE.
TO HAVE THE VOTE OF YOUR BENEFICIAL OWNERS COUNT,
-------------------------------------------------
YOU MUST COMPLETE AND RETURN THIS BALLOT SO THAT IT IS ACTUALLY RECEIVED NOT
----------------------------------------------------------------------------
LATER THAN THE VOTING DEADLINE BY U.S. STOCK TRANSFER CORP. AT THE FOLLOWING
----------------------------------------------------------------------------
ADDRESS: 1745 GARDENA AVENUE, SUITE 200, GLENDALE, CALIFORNIA 91204.
---------------------------------------------------------------------
<PAGE>
MASTER BALLOT FOR COMMON STOCK INTERESTS -- CLASS 6
PLEASE MAKE SURE YOU PROVIDE ALL INFORMATION REQUESTED
ITEM 1. AGGREGATE NUMBER OF SHARES OF COMMON STOCK AS TO WHICH VOTES ARE CAST.
The undersigned certifies that it is the registered owner as of _________,
1997, of the following number of shares of Common Stock, for which voting
instructions have been received from beneficial owners for whom the undersigned
owns Common Stock in its name (the "Beneficial Owners") as listed in Item 3
below: ________ shares
ITEM 2. CLASS 6 COMMON STOCK VOTE ON PLAN -- AGGREGATE NUMBER OF SHARES OF
COMMON STOCK. As instructed by the Beneficial Owners of the aggregate number of
shares of Common Stock set forth in Item 1 above, the undersigned transmits the
following votes of such Beneficial Owners in respect of their Common Stock:
To ACCEPT (vote FOR) the Plan, the
following Aggregate Number of Shares
of Common Stock.............................................. ______________
To REJECT (vote AGAINST) the Plan,
the following Aggregate Number of
Shares of Common Stock....................................... ______________
ITEM 3. CERTIFICATIONS. The undersigned certifies that:
(a) the Beneficial Owners of Common Stock, as identified by their
respective customer account numbers or the respective sequence numbers on the
attached "Aggregate Number of Shares of Common Stock," have delivered to the
undersigned Ballots casting votes (indicate the aggregate number of shares of
Common Stock for each respective account under the appropriate column).
(b) it has either attached a copy of the "Certificate of Multiple
Ownership" accompanying the Beneficial Owner Ballots or transcribed the
information contained in those Certificates onto the attached "Certificate of
Multiple Beneficial Ownership," if any.
(c) each Beneficial Owner of Common Stock whose votes are being
transmitted by this Master Ballot has been provided with a copy of the
Disclosure Statement, the Plan, and related solicitation materials.
(d) it is the registered or record holder of the Common Stock to
which this Master Ballot pertains and/or has full power and authority to vote
to accept or reject the Plan.
2
<PAGE>
Name of Record Holder of Common Stock: __________________________________
By:
---------------------------------------
(Signature of Stockholder or
Authorized Agent)
Printed Name:___________________________ Title: ________________________________
Address:________________________________________________________________________
Telephone: (_________)__________________________________________________________
Social Security or Federal Tax I.D. No.________________________________________
Dated: _____________________________________________________________
3
<PAGE>
INSTRUCTIONS FOR COMPLETING THE BALLOT
Merisel, Inc. is soliciting votes of beneficial holders of Common
Stock on its Plan of Reorganization, dated _________, 1997 (the "Plan"),
referred to in the Disclosure Statement dated _________, 1997 (the "Disclosure
Statement"). The capitalized terms used herein and in the Master Ballot and not
otherwise defined herein shall have the meaning ascribed to them in the Plan.
TO COMPLETE THE MASTER BALLOT PROPERLY, TAKE THE FOLLOWING STEPS:
ITEM 1: NUMBER OF SHARES. Provide the information required by
Item 1.
ITEM 2: VOTE. Indicate the number of shares held by Beneficial
Owners who accepted the Plan and the number of shares held by Beneficial Owners
who rejected the Plan.
Beneficial owners may not split their vote on the Plan with respect to
their Common Stock. Thus, if you have received a Ballot with respect to any
Common Stock that has been voted both "accept" and "reject," or have received
two Ballots from the same Beneficial Owners that are marked differently, the
votes may not be counted, and you should provide a separate tabulation of those
Ballots.
ITEM 3: CERTIFICATIONS.
(a) Item 3(a) requests information on a separate sheet for each
individual Beneficial Owner for whom you hold the Common Stock in your name.
You may use the form provided or may attach your own form if it contains the
required information. If you are unable to disclose the identity of such
Beneficial Owners, please use the customer account number assigned by you to
each such Beneficial Owner or, if no such customer account number exists, please
use the sequential numbers provided (making sure to retain a separate list of
each Beneficial Owner and his or her assigned sequential number).
(b) Item 3(b) requests information for any of your Beneficial Owners
who submitted a "Certificate of Multiple Ownership." You may use the form
provided or may attach your own form if it contains the required information.
(c) Read Items 3(c) and 3(d) carefully.
If you are both the record holder and Beneficial Owner of any Common
---
Stock and you wish to vote such Common Stock, you may not use this Master Ballot
to vote those shares. You must return a Beneficial Owner Ballot for the Common
Stock that you wish to vote.
4
<PAGE>
SIGNATURE. Sign and date the Master Ballot. If you are completing
this Master Ballot on behalf of another entity, state your title with such
entity. Provide your name and mailing address.
MAILING INSTRUCTIONS. Please contact the Voting Agent in order to
arrange for delivery of the completed Beneficial Owner Ballots and the completed
Master Ballot to its offices. You may either:
(i) deliver the Beneficial Owner Ballot to each Beneficial Owner
for whom you hold Common Stock, and take any action required to enable each
such Beneficial Owner to timely vote his or her Common Stock to accept or
reject the Plan; or
(ii) prevalidate the beneficial owner ballot contained in the
information Package (by signing that ballot and by indicating on that ballot
the record holder of the Common Stock voted, the number of shares, and the
appropriate account numbers through which the beneficial owner's holdings are
derived) and then forward the Information Package to the beneficial owner of
the Common Stock for voting so that the beneficial owner may return the
completed beneficial owner ballot directly to the Voting Agent in the return
envelope provided in the information Package. With regard to any Beneficial
Owner Ballots returned to you, you must (1) execute the Master Ballot so as
to reflect the voting instructions given to you in the Beneficial Owner
Ballots by the Beneficial Owners for whom you hold Common Stock and (2)
forward such Master Ballots to the Voting Agent.
The Ballot must be RECEIVED by the Voting Agent by the VOTING
--------
DEADLINE, WHICH IS __________, 1997.
DO NOT FAX YOUR BALLOT TO THE VOTING AGENT.
FAXED BALLOTS WILL NOT BE COUNTED.
NO FEES OR COMMISSIONS OR OTHER REMUNERATION WILL BE PAYABLE to any
broker, dealer or other person for soliciting Ballots accepting the Plan. We
will, however, upon request, reimburse you for customer mailing and handling
expenses incurred by you in forwarding the Beneficial Owner Ballots and other
enclosed materials to your clients.
QUESTIONS. IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT OR
THE VOTING PROCEDURES, OR IF YOU NEED ADDITIONAL COPIES OF THE MASTER BALLOT,
THE BENEFICIAL OWNER BALLOT OR OTHER ENCLOSED MATERIALS, or if you believe that
you have received the wrong Ballot, please contact U.S. Stock Transfer Corp., as
Voting Agent, at (818) 502-1404.
THE MASTER BALLOT IS NOT A LETTER OF TRANSMITTAL AND MAY NOT BE USED
---
FOR ANY PURPOSE OTHER THAN TO CAST VOTES TO ACCEPT OR REJECT THE PLAN. Holders
should not surrender, at this time, certificates representing their securities,
---
and Merisel will not accept delivery of any such
---
5
<PAGE>
certificates surrendered together with this Master Ballot. Surrender of
securities for exchange may only be made by you, and will only be accepted
pursuant to a letter of transmittal which will be furnished to you by Merisel
following confirmation of the Plan by the Bankruptcy Court.
NOTHING CONTAINED IN THIS BALLOT, THE INSTRUCTIONS, OR THE ENCLOSED
DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS AN AGENT FOR MERISEL OR
THE VOTING AGENT OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR
MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE PLAN, EXCEPT
FOR THE STATEMENTS CONTAINED IN THE DOCUMENTS ENCLOSED HEREWITH.
6
<PAGE>
AGGREGATE NUMBER OF SHARES OF COMMON STOCK
------------------------------------------
Customer Name and/or Ac-
count Number for Each Benefi- To Accept (For) the Plan To Reject (Against) the
cial Owner of Common Stock of Reorganization Plan of Reorganization
- ----------------------------- ------------------------ -----------------------
(1)_________________________ ________________________ _______________________
(2)_________________________ ________________________ _______________________
(3)_________________________ ________________________ _______________________
(4)_________________________ ________________________ _______________________
(5)_________________________ ________________________ _______________________
(6)_________________________ ________________________ _______________________
(7)_________________________ ________________________ _______________________
(8)_________________________ ________________________ _______________________
(9)_________________________ ________________________ _______________________
(10)_________________________ ________________________ _______________________
7
<PAGE>
CERTIFICATE OF MULTIPLE BENEFICIAL OWNERSHIP
--------------------------------------------
Your Customer
name and/or ac- Name of regis-
count number for tered Number of
each Beneficial Account Number holder or nominee Common Stock
Owner of other account of other account Shares
(1)________________ ________________ _________________ _________________
(2)________________ ________________ _________________ _________________
(3)________________ ________________ _________________ _________________
(4)________________ ________________ _________________ _________________
(5)________________ ________________ _________________ _________________
8
<PAGE>
UNITED STATES BANKRUPTCY COURT
_______ DISTRICT OF __________
)
In re ) CASE NO. [ ]
) Chapter 11
MERISEL, INC., )
200 Continental Blvd. )
El Segundo, California 90245 )
) BENEFICIAL OWNER BALLOT FOR
Employer ID No. 95-4172359 ) PLAN OF REORGANIZATION OF
) MERISEL, INC.
Debtor. ) (12.5% SENIOR NOTES DUE 2004 -- CLASS 4)
____________________________________)
THIS BALLOT IS FOR BENEFICIAL OWNERS OF THE 12.5% SENIOR NOTES DUE 2004.
The Plan of Reorganization of Merisel, Inc., dated _________, 1997
(the "Plan"), can be confirmed by the Bankruptcy Court and thereby made binding
on you if it is accepted by the holders of at least two-thirds in dollar amount
and more than one-half in number of Class 4 12.5% Senior Promissory Notes Due
2004 ("12.5% Notes") voting on the Plan. In the event the requisite acceptances
are not obtained, the Bankruptcy Court may nevertheless confirm the Plan if it
finds that the Plan accords fair and equitable treatment to the class or classes
rejecting it and otherwise satisfies the requirements of 11 U.S.C. (S) 1129(b).
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY.
THE VOTING DEADLINE IS 5:00 P.M., EASTERN TIME, ______ __, 1997
IF YOU HOLD IN STREET NAME (see Instructions), PLEASE ALLOW SUFFICIENT
ADDITIONAL TIME FOR PROCESSING OF YOUR VOTE
BY YOUR BANK OR BROKER, OR ITS AGENT.
TO HAVE YOUR VOTE COUNT, YOU MUST COMPLETE AND RETURN THIS BALLOT SO THAT IT IS
- -------------------------------------------------------------------------------
RECEIVED NOT LATER THAN THE VOTING DEADLINE BY THE BANK OF NEW YORK AT THE
- --------------------------------------------------------------------------
FOLLOWING ADDRESS:
- ------------------
101 BARCLAY STREET - 7E, NEW YORK, NEW YORK 10286
-------------------------------------------------
(ATTN: REORGANIZATION DEPARTMENT, GEORGE JOHNSON).
---------------------------------------------------
<PAGE>
YOU SHOULD NOT SUBMIT 12.5% NOTES WITH THIS BALLOT
---
BALLOT FOR 12.5% NOTES (CLASS 4)
PLEASE MAKE SURE YOU HAVE PROVIDED
ALL INFORMATION REQUESTED BY THIS BALLOT
ITEM 1. AGGREGATE FACE AMOUNT OF 12.5% NOTES
I certify that as of ___________, 1997, I am the beneficial owner (or
authorized signatory for a beneficial owner) of the following aggregate
face amount of 12.5% Notes: $____________________ face amount
ITEM 2. CLASS 4 12.5% NOTES CLAIM VOTE ON PLAN. (PLEASE CHECK ONLY ONE BOX).
[_] ACCEPT (vote FOR) the Plan.
------
[_] REJECT (vote AGAINST) the Plan.
------
ITEM 3. I certify that I am either:
(a) the beneficial owner and record owner of the 12.5% Notes to
which this Ballot pertains; or
(b) the beneficial owner of the 12.5% Notes to which this Ballot
pertains and authorize and instruct the record owner of, or
other nominee with respect to, the 12.5% Notes to which this
Ballot pertains, to (i) execute a Master Ballot reflecting this
Ballot and (ii) deliver the Master Ballot to the Voting Agent.
Name of Beneficial Holder of 12.5% Notes: _____________________________________
By:_____________________________________________
(Signature of Noteholder or Authorized Agent)
Printed Name:_________________________________ Title:__________________________
Address:________________________________________________________________________
Telephone: (______)___________________________
Social Security or Federal Tax I.D. No. ________________________________________
Dated: _______________________________________
2
<PAGE>
INSTRUCTIONS FOR COMPLETING THE BALLOT
Merisel, Inc. is soliciting your vote on its Plan of Reorganization,
dated ___________, 1997 (the "Plan"), referred to in the Disclosure Statement,
dated ___________, 1997. Please review the Plan and Disclosure Statement before
you vote. The capitalized terms used in the Ballot and these Instructions and
not defined in the Instructions have the meaning ascribed to them in the Plan.
This Ballot is being sent to beneficial owners of 12.5% Notes, whether
they hold in the name of a broker, bank or other nominee or intermediary as the
record owner (in "street name") or in their own names as the record owner. You
may receive multiple mailings containing Ballots, especially if you own 12.5%
Notes in more than one record name.
If you receive more than one Ballot and you own in more than one
record name, then you should vote each Ballot that you receive for the 12.5%
Notes only for the notes covered by that Ballot, and you must complete and
attach the "Certificate Of Multiple Ownership," which is enclosed with this
Ballot or provide the same information on your own form.
TO COMPLETE THE BALLOT PROPERLY, TAKE THE FOLLOWING STEPS:
You must provide all of the information required by this Ballot.
Failure to do so may result in the disqualification of your vote.
ITEM 1: AGGREGATE FACE AMOUNT OF 12.5% NOTES. Make sure that the
information required by Item 1 has been inserted; if you do not know the
aggregate face amount of 12.5% Notes that you own, please contact The Bank of
New York, 101 Barclay Street - 7E, New York, New York 10286 (Attn:
Regorganization Department, George Johnson), as Voting Agent, at (212) 815-4997,
or your broker or your nominee.
ITEM 2: VOTE. Cast your vote either to accept or reject the Plan by
checking the proper box in Item 2 for the 12.5% Notes held by you.
Beneficial owners may not split their vote on the Plan with respect to
their 12.5% Notes. Thus, if you are submitting a vote with respect to any 12.5%
Notes that you beneficially own, you must vote all of your 12.5% Notes in the
same way (i.e., all "accept" or all "reject"). See "Multiple Mailings," above.
----
ITEM 3: CERTIFICATION. Please read Item 3 before signing.
SIGNATURE. Sign and date your Ballot. Provide your name and mailing
address only (i) if different from the printed address that appears on the
----
Ballot, or (ii) if no preprinted address appears on the Ballot.
3
<PAGE>
If you are completing this Ballot on behalf of another entity,
indicate your relationship with that entity and the capacity in which you are
signing.
An authorized signatory of an eligible beneficial owner may execute
this Ballot, but must provide the name and address of the beneficial owner on
this Ballot and may be required to submit evidence to the Bankruptcy Court
showing the signatory's authorization to vote on behalf of the beneficial owner.
Authorized signatories voting on behalf of more than one beneficial owner must
----
complete a separate Ballot for each beneficial owner and the Certificate
Regarding Multiple Ownership.
PLEASE MAIL YOUR BALLOT PROMPTLY!
MAILING INSTRUCTIONS. The Ballot should be returned by mail in the
pre-addressed envelope provided with the Ballot so that it will be received by
--------
the Voting Agent at the address below on the VOTING DEADLINE, WHICH IS
__________, 1997.
If you are the record owner of the 12.5% Notes, you should return the
Ballot to the Voting Agent, THE BANK OF NEW YORK, 101 BARCLAY STREET - 7E, NEW
YORK, NEW YORK 10286 (ATTN: REGORGANIZATION DEPARTMENT, GEORGE JOHNSON). The
ballot may also be sent by overnight courier or hand delivery to The Bank of New
York, 101 Barclay Street, Corporate Trust Services Window, Ground Level, New
York, New York 10286 (Attn: Regorganization Department, George Johnson).
If you own the 12.5% Notes in street name (see above), you should
return the Ballot to the broker, bank, or other nominee that sent you the
ballot.
DO NOT FAX YOUR BALLOT TO THE VOTING AGENT.
FAXED BALLOTS WILL NOT BE COUNTED.
THE BALLOT IS NOT A LETTER OF TRANSMITTAL AND MAY NOT BE USED FOR ANY PURPOSE
--- ---
OTHER THAN TO CAST VOTES TO ACCEPT OR REJECT THE PLAN.
Holders should not surrender, at this time, certificates representing
---
their securities. Merisel will not accept delivery of any certificates
surrendered with this Ballot. Surrender of securities for exchange may only be
made and will only be accepted pursuant to a letter of transmittal which will be
furnished to you following confirmation of the Plan by the Bankruptcy Court.
QUESTIONS. IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT OR THE
VOTING PROCEDURES or if you believe that you have received the wrong Ballot,
please contact The Bank of New York (Attn: Reorganization Department, George
Johnson), as Voting Agent, at (212) 815-4997, or your broker, bank or other
nominee immediately.
4
<PAGE>
CERTIFICATE OF MULTIPLE OWNERSHIP
---------------------------------
I certify that the information specified in the following table covers
all other 12.5% Notes for which I have submitted additional ballots (please use
additional sheets of paper if necessary):
Name of Registered Face Amount
Account Number Holder of Nominee of 12.5% Notes
---------------------- ------------------ -----------------
1.____________________ __________________ $________________
2.____________________ __________________ $________________
3.____________________ __________________ $________________
5
<PAGE>
UNITED STATES BANKRUPTCY COURT
_______ DISTRICT OF __________
)
In re ) CASE NO. [ ]
) Chapter 11
MERISEL, INC., )
200 Continental Blvd. )
El Segundo, California 90245 )
) BENEFICIAL OWNER BALLOT FOR PLAN OF
Employer ID No. 95-4172359 ) REORGANIZATION OF MERISEL, INC.
) (OLD COMMON STOCK INTERESTS -- CLASS 6)
Debtor. )
___________________________________)
THIS BALLOT IS FOR BENEFICIAL OWNERS OF THE OLD COMMON STOCK OF MERISEL, INC.
The Plan of Reorganization of Merisel, Inc., dated _________, 1997
(the "Plan"), can be confirmed by the Bankruptcy Court and thereby made binding
on you if it is accepted by the holders of at least two-thirds of the number of
shares of Class 6 Old Common Stock ("Common Stock") voting on the Plan. In the
event the requisite acceptances are not obtained, the Bankruptcy Court may
nevertheless confirm the Plan if it finds that the Plan accords fair and
equitable treatment to the class or classes rejecting it and otherwise satisfies
the requirements of 11 U.S.C. (S) 1129(b).
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY.
THE VOTING DEADLINE IS 5:00 P.M., EASTERN TIME, ______ __, 1997
IF YOU HOLD IN STREET NAME (see Instructions), PLEASE ALLOW SUFFICIENT
ADDITIONAL TIME FOR PROCESSING OF YOUR VOTE
BY YOUR BANK OR BROKER, OR ITS AGENT.
TO HAVE YOUR VOTE COUNT, YOU MUST COMPLETE AND RETURN THIS BALLOT SO THAT IT IS
- -------------------------------------------------------------------------------
RECEIVED NOT LATER THAN THE VOTING DEADLINE BY U.S. STOCK TRANSFER CORP. AT
---------------------------------------------------------------------------
THE FOLLOWING ADDRESS: 1745 GARDENA AVENUE, SUITE 200, GLENDALE, CALIFORNIA
----------------------------------------------------------------------------
91204
-----
YOU SHOULD NOT SUBMIT COMMON STOCK WITH THIS BALLOT
---
<PAGE>
BALLOT FOR OLD COMMON STOCK (CLASS 6)
PLEASE MAKE SURE YOU HAVE PROVIDED
ALL INFORMATION REQUESTED BY THIS BALLOT
ITEM 1. AGGREGATE NUMBER OF SHARES OF COMMON STOCK
I certify that as of ___________, 1997, I am the beneficial owner (or
authorized signatory for a ________ shares beneficial owner) of the
following number shares of Common Stock: ___________ shares
ITEM 2. CLASS 6 COMMON STOCK INTEREST VOTE ON PLAN. (PLEASE CHECK ONLY ONE
BOX).
I: [_] ACCEPT (vote FOR) the Plan.
------
[_] REJECT (vote AGAINST) the Plan.
------
ITEM 3. I certify that I am either:
(a) the beneficial owner and record owner of the Common Stock to which
this Ballot pertains; or
(b) the beneficial owner of the Common Stock to which this Ballot pertains
and authorize and instruct the record owner of, or other nominee with
respect to, the Common Stock to which this Ballot pertains, to (i)
execute a Master Ballot reflecting this Ballot and (ii) deliver the
Master Ballot to the Voting Agent.
Name of Beneficial Holder of Common Stock:
------------------------------------
By:
------------------------------------
(Signature of Stockholder or
Authorized Agent)
Printed Name: Title:
---------------------------------- --------------------------
Address:
------------------------------------------------------------------------
Telephone: ( )
-------------------------------------
Social Security or Federal Tax I.D. No.
-----------------------------------------
Dated:
----------------------------------------
2
<PAGE>
INSTRUCTIONS FOR COMPLETING THE BALLOT
Merisel, Inc. is soliciting your vote on its Plan of Reorganization,
dated ___________, 1997 (the "Plan"), referred to in the Disclosure Statement,
dated ___________, 1997. Please review the Plan and Disclosure Statement before
you vote. The capitalized terms used in the Ballot and these Instructions and
not defined in the Instructions have the meaning ascribed to them in the Plan.
This Ballot is being sent to beneficial owners of Common Stock,
whether they hold in the name of a broker, bank or other nominee or intermediary
as the record owner (in "street name") or in their own names as the record
owner. You may receive multiple mailings containing Ballots, especially if you
own Common Stock in more than one record name.
If you receive more than one Ballot and you own in more than one
record name, then you should vote each Ballot that you receive for the Common
Stock only for the shares covered by that Ballot, and you must complete and
attach the "Certificate Of Multiple Ownership," which is enclosed with this
Ballot or provide the same information on your own form.
TO COMPLETE THE BALLOT PROPERLY, TAKE THE FOLLOWING STEPS:
You must provide all of the information required by this Ballot.
Failure to do so may result in the disqualification of your vote.
ITEM 1: NUMBER OF SHARES. Make sure that the information required by
Item 1 has been inserted; if you do not know the number of shares of Common
Stock that you own, please contact U.S. Stock Transfer Corp., as Voting Agent,
at (818) 502-1404, or your broker or your nominee.
ITEM 2: VOTE. Cast your vote either to accept or reject the Plan by
checking the proper box in Item 2 for the Common Stock held by you.
Beneficial owners may not split their vote on the Plan with respect to
their Common Stock. Thus, if you are submitting a vote with respect to any
Common Stock that you beneficially own, you must vote all of your Common Stock
in the same way (i.e., all "accept" or all "reject"). See "Multiple Mailings,"
----
above.
ITEM 3: CERTIFICATION. Please read Item 3 before signing.
SIGNATURE. Sign and date your Ballot. Provide your name and mailing
address only (i) if different from the printed address that appears on the
----
Ballot, or (ii) if no preprinted address appears on the Ballot.
3
<PAGE>
If you are completing this Ballot on behalf of another entity,
indicate your relationship with that entity and the capacity in which you are
signing.
An authorized signatory of an eligible beneficial owner may execute
this Ballot, but must provide the name and address of the beneficial owner on
this Ballot and may be required to submit evidence to the Bankruptcy Court
showing the signatory's authorization to vote on behalf of the beneficial owner.
Authorized signatories voting on behalf of more than one beneficial owner must
----
complete a separate Ballot for each beneficial owner and the Certificate
Regarding Multple Ownership.
PLEASE MAIL YOUR BALLOT PROMPTLY!
MAILING INSTRUCTIONS. The Ballot should be returned by mail in the
pre-addressed envelope provided with the Ballot so that it will be received by
--------
the Voting Agent at the address below on the VOTING DEADLINE, WHICH IS
__________, 1997.
If you are the record owner of the Common Stock, you should return the
Ballot to the Voting Agent: U.S. STOCK TRANSFER CORP., 1745 GARDENA AVENUE,
SUITE 200, GLENDALE, CALIFORNIA 91204.
If you own the Common Stock in street name (see above), you should
return the Ballot to the broker, bank, or other nominee that sent you the
ballot.
DO NOT FAX YOUR BALLOT TO THE VOTING AGENT.
FAXED BALLOTS WILL NOT BE COUNTED.
THE BALLOT IS NOT A LETTER OF TRANSMITTAL AND MAY NOT BE USED FOR ANY PURPOSE
--- ---
OTHER THAN TO CAST VOTES TO ACCEPT OR REJECT THE PLAN.
Holders should not surrender, at this time, certificates representing
---
their securities. Merisel will not accept delivery of any certificates
surrendered with this Ballot. Surrender of securities for exchange may only be
made and will only be accepted pursuant to a letter of transmittal which will be
furnished to you following confirmation of the Plan by the Bankruptcy Court.
QUESTIONS. IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT OR THE
VOTING PROCEDURES or if you believe that you have received the wrong Ballot,
please contact U.S. Stock Transfer Corp., 1745 Gardena Avenue, Suite 200,
Glendale, California 91204, as Voting Agent, at (818) 502-1404), or your
broker, bank or other nominee immediately.
4
<PAGE>
CERTIFICATE OF MULTIPLE OWNERSHIP
---------------------------------
I certify that the information specified in the following table covers
all other Common Stock for which I have submitted additional ballots (please use
additional sheets of paper if necessary):
<TABLE>
<CAPTION>
Name of Registered Number of Shares
Account Number Holder of Nominee of Common Stock
- -------------------- ----------------- ---------------
<S> <C> <C>
1.________________ ________________ ______________
2.________________ ________________ ______________
3.________________ ________________ ______________
</TABLE>
5
