-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WRxzkviCqBKVJM9Z0bJ80Bqrk7H9hbXhnBxiqTfc8ZPWVe2+F77FQsCRW+vFEKwQ Ka82gtFOHnA61c+AATEMiw== 0000898430-97-001523.txt : 19970415 0000898430-97-001523.hdr.sgml : 19970415 ACCESSION NUMBER: 0000898430-97-001523 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970414 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERISEL INC /DE/ CENTRAL INDEX KEY: 0000724941 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 954172359 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17156 FILM NUMBER: 97580129 BUSINESS ADDRESS: STREET 1: 200 CONTINENTAL BLVD CITY: EL SEGUNDO STATE: CA ZIP: 90245-0984 BUSINESS PHONE: 3106153080 MAIL ADDRESS: STREET 1: 200 CONTINENTAL BLVD CITY: EL SEGUNDO STATE: CA ZIP: 90245-0984 FORMER COMPANY: FORMER CONFORMED NAME: SOFTSEL COMPUTER PRODUCTS INC DATE OF NAME CHANGE: 19910509 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM __________ TO ____________ COMMISSION FILE NUMBER 0-17156 MERISEL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware - -------------------------------------------------------------------------------- (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 200 Continental Boulevard El Segundo, California - -------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 95-4172359 - -------------------------------------------------------------------------------- (I.R.S. EMPLOYER IDENTIFICATION NO. ) 90245-0948 - -------------------------------------------------------------------------------- (ZIP CODE ) Registrant's telephone number, including area code: (310) 615-3080 -------------- Securities registered pursuant to Section 12(b) of the Act: None. ----- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 Par Value ----------------------------- TITLE OF CLASS Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] As of April 9, 1997, the aggregate market value of voting stock held by non-affiliates of the Registrant based on the last sales price as reported by the Nasdaq National Market System was $57,727,578 (28,863,789 shares at a closing price of $2.00). As of April 9, 1997, the Registrant had 30,078,495 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE None. 2 INDEX TO FORM 10-K MERISEL, INC.
PAGE REFERENCE PART I Item 1. Business............................................. 4 Item 2. Properties........................................... 15 Item 3. Legal Proceedings.................................... 15 Item 4. Submission of Matters to a Vote of Security Holders.. 15 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.......................... 16 Item 6. Selected Financial Data.............................. 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 18 Item 8. Financial Statements and Supplementary Data.......... 28 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................. 52 PART III Item 10. Directors and Executive Officers of the Registrant... 53 Item 11. Executive Compensation............................... 53 Item 12. Security Ownership of Certain Beneficial Owners and Management........................................... 53 Item 13. Certain Relationships and Related Transactions....... 53 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................. 54
3 PART I ITEM 1. BUSINESS. OVERVIEW 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), commercial resellers/dealers, and retailers. The Company also has established the Merisel Open Computing Alliance (MOCA(TM)), a UNIX-based division which primarily supports Sun Microsystems' product sales and installations. At December 31, 1996, Merisel 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, Merisel 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, Merisel sold its Australian operations to Tech Pacific Holdings Ltd. ("Tech Pacific"). On October 4, 1996, Merisel 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, Merisel 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 SYNNEX Information Technologies, Inc. ("Synnex"). The Company is also in the process of selling 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 Comany'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. 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, Merisel is actively pursuing a restructuring plan with the debtholders under its various financing agreements. See "Recent Developments - Debt Restructuring." While the Company believes that it will be able to successfully implement its 1997 Business Strategy and a debt restructuring plan that will enable it to meet all of its financial obligations, there can be no assurance that it will be able to do so. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 4 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. The preceding preliminary financial information 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. SIGNIFICANT EVENTS OF 1996 In February 1996, Merisel engaged Merrill Lynch & Co. to assist the Company in assessing its strategic options in order to maximize shareholder 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, Merisel 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, Merisel 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 recog nized 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, Merisel actively explored all of its strategic options with the assistance of Merrill Lynch & Co. This ultimately led to the Company's sale of EML to CHS. 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 Merisel'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. 5 In connection with the Company's sale of EML, the Company 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, Merisel Europe, Inc. ("Merisel Europe") as borrowers, the Company as guarantor, the lender parties thereto, as designated issuer (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 and Merisel Americas as borrowers, and the Company (the "Senior Note Purchase Agreement") relating to the 11.5% senior notes (the "11.5% Notes") 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 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 Senior Note Purchase Agreement and the Revolving Credit Agreement, the "Operating Company Debt Agreements") relating to the subordinated notes (the "Subordinated Notes"). In addition, such amendments required a waiver of certain provisions of the Indenture, dated October 15, 1994, as amended, between the Company and Bank of New York, as successor Trustee (the "Indenture") relating to the Company's 12.5% senior notes due December 31, 2004 (the "12.5% Notes"). See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." RECENT DEVELOPMENTS Debt Restructuring. In February 1997, along with its emphasis on rebuilding profitable sales growth, Merisel retained Donaldson, Lufkin & Jenrette Securities Corporation as financial advisor to assist it in restructuring its debt to acceptable levels and to create a permanent capital structure to support Merisel's future growth. 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% 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 Warrants would be exercisable for seven years from the date of the Exchange and would be issued in two separately trading tranches of equal size with exercise prices based upon implied aggregate equity values of $215 million and $265 million, respectively. Based upon the number of shares currently outstanding, the exercise prices would be approximately $1.43 and $1.74 per share, respectively. Because of the large number of shares to be issued in the Exchange, the Company may consider a reverse stock split, in which event the number of shares outstanding and the Warrant exercise prices would be adjusted ratably. 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 Revolving Credit Agreement and the agreement governing the 11.5% Notes by 100% of the lenders under such agreements to extend the maturity of the outstanding indebtedness under such agreements 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 6 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, during 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 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. Sale of Merisel FAB. 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. Management Changes. During 1996, the Company made several changes in its senior management. In February 1996, Dwight A. Steffensen was appointed Chief Executive Officer and Chairman of the Board of Directors of the Company. In August 1996, James E. Illson was appointed Chief Financial Officer and Senior Vice President, Finance, of the Company. Also in August 1996, James D. Wittry joined the Company in charge of United States sales as Senior Vice President of Merisel Americas. In February 1997, Robert J. McInerney was appointed President and Chief Operating Officer of the Company responsible for United States and Canadian operations. 7 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 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 Merisel 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 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. 8 Targeting Customer Groups. Merisel serves a variety of reseller channels, which have diverse product, financing and support requirements. Merisel 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. PRODUCTS AND MANUFACTURER SERVICES Merisel distributes more than 25,000 hardware and software products for MS-DOS, Windows NT, OS/2, Macintosh, Apple, and Sun Microsystems/UNIX(R) 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. Merisel 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. Merisel is one of only three distributors in the United States authorized to sell Sun Microsystems products. Merisel 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, Merisel 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. Merisel'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. Merisel 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 Merisel with stock balancing and price protection provisions which partially reduce Merisel'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. 9 Although Merisel 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, Merisel 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 Merisel and inventory receipt-related issues, such as short-shipments identified through the reconciliation process. In order to minimize further supplier account reconciliation losses, Merisel 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. See ''Management's Discussion and Analysis of Financial Condition and Results of Operations--Fourth Quarter Adjustments.'' CUSTOMERS AND CUSTOMER SERVICES In 1996, Merisel sold products and services to more than 45,000 computer resellers worldwide. Merisel'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 Merisel, 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 Merisel's net sales in 1994, 1995 or 1996. Single Source Provider. Merisel offers computer resellers a single source for more than 25,000 competitively priced hardware and software products. By purchasing from Merisel, the reseller only needs to comply with a single set of ordering, billing and product return procedures and may also benefit from attractive volume pricing 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. Merisel 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, Merisel'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 Merisel's North American warehouses. The successful implementation of MILES has 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. 10 Merisel 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. Merisel 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, Merisel also provides a fulfillment service to ship orders directly to resellers' customers to speed delivery and further minimize reseller inventories. Financing Programs. Merisel'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. Merisel offers a number of customer loyalty programs, which provide incentives to resellers to aggregate their purchases through Merisel. Through its customer information services group, Merisel 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. Merisel also publishes the Hot List(R), which ranks Merisel's current best-selling hardware and software products in four different reseller channels. In addition, Merisel's On-Line Literature Library offers 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. Merisel 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." Merisel also provides computer resellers with pre-sale technical support for virtually all product lines. In addition, Merisel's technical support services department provides pre- and post-sale technical support to Merisel's customers, as well as regular product training seminars to Merisel'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 UNIX-based division dedicated primarily to selling and supporting Sun Microsystems and Sun-complementary 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, Merisel's value-added services department, offers telemarketing, educational and merchandising services to resellers and retailers. 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. 11 The Company's sales force is composed of field sales representatives who manage relations with the larger accounts and inside telemarketing sales representatives who receive product orders and answer customer inquiries. When a customer calls Merisel, screen synchronization technology 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 Merisel's inside sales representatives and, in the United States, are entered on Merisel's SalesNet for Windows order entry system, a proprietary local area network created by Merisel 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 Merisel 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. Merisel 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 Merisel 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. 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, Merisel 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. 12 Systems. Merisel has made significant investments in new, advanced computer and warehouse management systems for its North American operations to support sales growth and improve service levels. All of Merisel's nine North American warehouses now utilize 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. See "Prompt Delivery" under "Customers and Customer Services." Merisel is in the process of converting its North American operations to the SAP client/server operating system. SAP is an enterprise-wide system which integrates all functional areas of the business including order entry, inventory management and finance in a real-time environment. The Company began designing the new system in 1993 and converted its Canadian operations from a mainframe to the client/server operating system in August 1995. The new system is designed to provide greater transaction accuracy, flexibility, and custom pricing applications. In the early implementation stages, the Canadian conversion produced results below the Company's expectations. These results added to Merisel's fourth quarter 1995 net operating loss. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Fourth Quarter Adjustments." 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. Merisel 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 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. 13 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 Merisel's competitors have substantially greater financial resources than Merisel. Merisel's principal competitors include large United States-based distributors and aggregators such as Gates/Arrow, Inacom, Ingram Micro, Intelligent Electronics, MicroAge and Tech Data Corporation, as well as regional distributors and franchisors. Merisel also competes with manufacturers that sell directly to computer resellers, sometimes at prices below those charged by Merisel for similar products. The Company believes its broad product offering, product availability, prompt delivery and support services may offset a manufacturer's price advantage. In addition, many manufacturers concentrate their direct sales on large computer resellers because of the relatively high costs associated with dealing with small-volume computer reseller customers. 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. 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, Merisel had approximately 2,000 employees. Merisel believes it has good relations with its employees. ENVIRONMENTAL COMPLIANCE The Company believes that it is in substantial compliance with all environmental laws applicable to it and its operations. 14 ITEM 2. 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. ITEM 3. LEGAL PROCEEDINGS. In June 1994, Merisel and certain of its officers and/or directors were named in putative securities class actions filed in the United States District Court for the Central District of California, consolidated as In re Merisel, Inc. Securities Litigation. Plaintiffs, who are seeking damages in an unspecified amount, purport to represent a class of all persons who purchased Merisel common stock between November 8, 1993 and June 7, 1994 (the "Class Period"). The complaint, as amended and consolidated, alleges that the defendants inflated the market price of Merisel's common stock with material misrepresentations and omissions during the Class Period. Plaintiffs contend that such alleged misrepresentations are actionable under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Following the granting of defendant's first motion to dismiss on December 5, 1994, plaintiffs filed a second consolidated and amended complaint December 22, 1994. On April 3, 1995, Federal District Judge Real dismissed the complaint with prejudice. Plaintiffs filed 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 Merisel; its subsidiary Merisel Asia, Inc. ("Merisel Asia"); Patrick T. Woods, former managing director of Merisel Australia and Michael D. Pickett, former CEO and Chairman of Merisel, in a proceeding captioned Tech Pacific Holdings Limited, v. Merisel, Inc., et. al. In March 1996, Tech Pacific purchased Merisel Australia, Merisel's Australian subsidiary, pursuant to the Share Purchase Agreement dated as of March 7, 1996 between Merisel Asia and Tech Pacific. The claim asserts various breaches of representations and warranties as well as misleading and deceptive conduct under relevant provisions of Australian law with respect to the financial position of Merisel Australia as represented by the disclosure documents. The plaintiffs seek to recover the difference plus costs and expenses associated with the claim. The Company intends to defend itself vigorously against this claim. The Company is involved in certain other legal proceedings arising in the ordinary course of business, none of which is expected to have a material impact on the financial condition or business of Merisel. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On December 18, 1996, the Company held its annual meeting of stockholders (the "Meeting") to elect two Class III directors to the Company's board of directors. Mr. Dwight A. Steffensen and Mr. David L. House were nominated and duly elected as directors. There were 26,973,520 votes for and 542,422 votes withheld with respect to the nomination of Mr. Steffensen. There were 26,967,259 votes for and 548,683 votes withheld with respect to the nomination of Mr. House. There were no other matters submitted for stockholder consideration. 15 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the over-the-counter market and is quoted on the Nasdaq National market under the symbol MSEL. The following table sets forth the quarterly high and low sale prices for the Common Stock as reported by the Nasdaq National Market System.
HIGH LOW --------- --------- 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
On March 27, 1997, the closing sale price for the Company's Common Stock was $2 7/16 per share. As of March 27, 1997, there were 1,261 record holders of the Company's Common Stock. Merisel has never declared or paid any dividends to stockholders. Certain of the Company's debt agreements currently prohibit the payment of dividends by the Company. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.") 16 ITEM 6. SELECTED FINANCIAL DATA.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1992 1993 1994 1995 1996 ---------- ---------- ---------- ---------- ---------- (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.................... 51,383 42,033 Restructuring charge................. 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....... 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) ========== ========== ========== ========== ========== PER SHARE DATA: 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 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
- -------------- (1) Merisel's fiscal year is the 52- or 53-week period ending on the Saturday nearest to December 31. For clarity of presentation throughout this Annual Report on Form 10-K, Merisel has described year-ends presented as if the year ended on December 31. Except for 1992, all fiscal years presented were 52 weeks in duration. The selected financial data 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 FAB from the date such business was acquired on January 31, 1994, through the end of 1996. Subsequent to the periods presented, FAB was sold as of 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." 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 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. FOURTH QUARTER ADJUSTMENTS In the fourth quarter of 1996, the Company recorded an impairment charge of $2,033,000 to adjust the assets of Merisel FAB to their fair value based upon the provisions of a definitive agreement to sell such assets in the first quarter of 1997. The charge is in addition to previous impairment charges recorded in the fourth quarter of 1995 and the third quarter of 1996. In the fourth quarter of 1995, the Company recorded several large adjustments totaling approximately $89,400,000. These items included impairment losses on long-lived assets totaling $51,400,000. Approximately $25,800,000 of the charge resulted from adjustments to trade accounts payable balances. An additional $8,200,000 of the charge was taken due to changes made in estimates to certain asset and liability values. The Company's European distribution center experienced system software start-up problems which created shipping and receiving errors and resulted in an additional charge of $1,500,000. Finally, another $2,500,000 charge was taken to expense start-up costs for the European distribution center. 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. Effective January 1, 1996, the Company sold its Australian operations. In addition, Merisel completed the sale of EML to CHS effective as of September 27, 1996. 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. A loss of $33,455,000, which includes approximately $7,400,000 of direct costs related to the sale, was recorded. 18 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. Because, 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. The following table sets forth the results of operations for the North American Business and for the Former Operations for the fiscal years indicated.
(in thousands) North American Business Former Operations Consolidated Total December 31, December 31, December 31, ---------------------------------- ---------------------------------- ---------------------------------- 1994 1995 1996 1994 1995 1996 1994 1995 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Sales $2,876,074 $3,427,821 $3,441,343 $2,142,613 $2,529,146 $2,081,481 $5,018,687 $5,956,967 $5,522,824 Cost of Sales 2,665,059 3,242,903 3,262,105 2,011,105 2,390,375 1,971,465 4,676,164 5,633,278 5,233,570 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Gross Profit 211,015 184,918 179,238 131,508 138,771 110,016 342,523 323,689 289,254 SG&A 163,278 181,042 193,521 118,518 136,153 101,500 281,796 317,195 295,021 Impairment loss 19,500 31,883 42,033 51,383 42,033 Restructuring charge 5,228 4,105 9,333 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating (loss)Income $ 47,737 $ (20,852) $ (14,283) $ 12,990 $ (33,370) $ (33,517) $ 60,727 $ (54,222) $ (47,800) ========== ========== ========== ========== ========== ========== ========== ========== ==========
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 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. 19 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 is expected to continue in 1997. 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. See "Fourth Quarter Adjustments." 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 quantified above, the Company 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. 20 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. 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. See "Fourth Quarter Adjustments". 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. 21 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 increased 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 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. 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. 22 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. 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 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 December 31, 1996, the total amount outstanding under these facilities was $248,820,000. Fees incurred in connection with the sale of accounts receivable under these three facilities for the years ended December 31, 1996 and December 31, 1995 were $16,029,000 and $10,291,000, respectively, and are recorded as other expense. At December 31, 1996, the Company's subsidiaries, Merisel Americas and 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 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 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 Agreements. 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 is no longer an active entity. 23 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 12.5% Senior 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 Credit Agreement for the Company's third fiscal quarter of 1996, and amendments of such covenants for future periods. At December 31, 1996, Merisel Americas had outstanding an aggregate of $17,600,000 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 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. 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. 24 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 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 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. 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. See Note 12-"Subsequent Events." 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 "Recent Developments" regarding the Company's debt 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 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 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. 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. Inflation. Due to the short-term nature of Merisel's contracts and agreements with customers and vendors, the Company does not believe that inflation had a material impact on its operations. 25 ASSET MANAGEMENT Merisel attempts to manage its inventory position to maintain levels sufficient to achieve high product availability and same-day order fill rates. Inventory levels may vary from period to period, due to factors including increases or decreases in sales levels, Merisel's practice of making large-volume purchases when it deems such purchases to be attractive, and the addition of new manufacturers and products. The Company has negotiated agreements with many of its manufacturers which contain stock balancing and price protection provisions intended to reduce, in part, Merisel's risk of loss due to slow-moving or obsolete inventory or manufacturer price reductions. The Company is not assured that these agreements will succeed in reducing this risk. In the event of a manufacturer price reduction, the Company generally receives a credit for products in inventory. In addition, the Company has the right to return a certain percentage of purchases, subject to certain limitations. Historically, price protection and stock return privileges, as well as the Company's inventory management procedures, have helped to reduce the risk of loss of carrying inventory. Historically, the Company has purchased foreign exchange contracts to minimize foreign exchange transaction gains and losses. While such contracts were temporarily not available to the Company in the latter part of 1996, they were again being purchased as of early 1997. No negative financial impact was experienced during the time the contracts were not being used. 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. 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 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. Our audits also included the financial statement schedule listed at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule 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. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Los Angeles, California April 14, 1997 27 MERISEL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, -------------------------- 1995 1996 --------- --------- ASSETS 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 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY 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 ========== =========
See accompanying notes to consolidated financial statements. 28 MERISEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------- 1994 1995 1996 ---------- ---------- ---------- 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 ========== ========== ==========
See accompanying notes to consolidated financial statements. 29 MERISEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
RETAINED COMMON STOCK ADDITIONAL EARNINGS CUMULATIVE ------------------- PAID-IN (ACCUMULATED TRANSLATION SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT TOTAL ---------- ------ ---------- ------------- ----------- --------- 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 ========== ==== ======== ========= ======= =========
See accompanying notes to consolidated financial statements. 30 MERISEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------------- 1994 1995 1996 ----------- ---------- ----------- 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
See accompanying notes to consolidated financial statements. 31 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. 32 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 $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 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. 33 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. 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. 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. 34 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. 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. 35 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 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. 36 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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"). 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. 37 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 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.
(in thousands except per share data) Twelve Months Ended December 31, 1995 1996 ---------- ---------- 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 ========== ==========
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".) 38 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. 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):
ESTIMATED --------- USEFUL LIFE ----------- (IN YEARS) DECEMBER 31, ------------------- 1995 1996 ------- ------- 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 amortization..................... (51,200) (53,346) ------- -------- Property and equipment, net....... $90,381 $ 61,430 ======== ========
39 MERISEL, INC. AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. INCOME TAXES The components of income (loss) before income taxes consisted of the following (in thousands):
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------------- 1994 1995 1996 ------- ---------- --------- Domestic............................ $23,430 $ (71,884) $(100,139) Foreign............................. (3,479) (33,806) (38,697) ------- --------- --------- Total............................... $19,951 $(105,690) $(138,836) ======= ========= =========
The provision (benefit) for income taxes consisted of the following (in thousands):
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------- 1994 1995 1996 ------- -------- ------- 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 ======= ======== =======
Deferred tax liabilities and assets were comprised of the following (in thousands):
DECEMBER 31, 1995 1996 --------- -------- 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 ========= ========
40 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The major elements contributing to the difference between the federal statutory tax rate and the effective tax rate are as follows:
FOR THE YEARS ENDED ------------------------- DECEMBER 31, ------------------------- 1994 1995 1996 ------ ------ ------ 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% ====== ======= =======
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. 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. 41 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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, 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. 42 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 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. 43 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On January 1, 1997, the Company received notice that Tech Pacific had brought a claim in the Supreme Court of New South Wales, Sydney Registry Commercial Division, against Merisel, its subsidiary Merisel Asia, Inc. ("Merisel Asia"), Patrick T. Woods, former managing director of Merisel Australia and Michael D. Pickett, former CEO and Chairman of Merisel, in a proceeding captioned Tech Pacific Holdings Limited, v. Merisel, Inc., et. al. In March 1996, Tech Pacific purchased Merisel Pty Ltd., Merisel's Australian subsidiary, pursuant to the Share Purchase Agreement dated as of March 7, 1996 between Merisel Asia and Tech Pacific. The claim asserts various breaches of representations and warranties as well as misleading and deceptive conduct under relevant provisions of Australian law with respect to the financial position of Merisel Australia as represented by the disclosure documents. The plaintiffs seek to recover the difference plus costs and expenses associated with the claim. The Company intends to defend itself vigorously against this claim. The Company is involved in certain other legal proceedings arising in the ordinary course of business, none of which 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:
1994 1995 1996 ---------------------------- -------------------------- -------------------------- Wgtd Avg. Wgtd Avg. Wgtd Avg. Shares Exer. Price Shares Exer. Price Shares Exer. Price ------------ ------------- ----------- ------------- ----------- ------------ 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 --------- ---------
44 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table summarizes information about stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable -------------------------------- ----------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Outstanding Life Exercise Exercisable Exercise Exercise Prices at 12/31/96 In Years Price at 12/31/96 Price - ---------------------- ----------- -------- -------- ----------- -------- $ 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 =========== =======
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:
(In thousands, except per share amounts) 1995 1996 --------- --------- 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)
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:
1995 1996 --------- --------- 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%
45 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. 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):
UNITED OTHER STATES CANADA INTERNATIONAL ELIMINATIONS CONSOLIDATED ---------- ------- ------------ ------------ ------------ 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 ========== ======== ========== ======== ==========
46 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):
1995 -------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ----------- ----------- ------------- ------------ 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) 1996 -------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ----------- ----------- ------------- ------------ 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
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. 47 MERISEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SCHEDULE II MERISEL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS DECEMBER 31, 1994, 1995 AND 1996
BALANCE AT CHARGED TO BALANCE AT DECEMBER 31, COSTS AND DECEMBER 31, 1993 EXPENSES DEDUCTIONS 1994 ------------ ------------ ----------- ------------ Accounts receivable--Doubtful accounts.. $16,543,000 $18,851,000 $18,883,000 $16,511,000 Accounts receivable--Other (1).......... 4,263,000 34,694,000 29,909,000 9,048,000 BALANCE AT CHARGED TO BALANCE AT DECEMBER 31, COSTS AND DECEMBER 31, 1994 EXPENSES DEDUCTIONS 1995 ------------ ------------ ----------- ------------ Accounts receivable--Doubtful accounts.. $16,511,000 $16,335,000 $12,647,000 $20,199,000 Accounts receivable--Other (1).......... 9,048,000 23,100,000 27,561,000 4,587,000 BALANCE AT CHARGED TO BALANCE AT DECEMBER 31, COSTS AND DECEMBER 31, 1995 EXPENSES DEDUCTIONS 1996 ------------ ------------ ----------- ------------ Accounts receivable--Doubtful accounts.. $20,199,000 $17,421,000 $17,858,000 $19,762,000 Accounts receivable--Other (1).......... 4,587,000 14,355,000 15,020,000 3,922,000
- --------------- (1) Accounts receivable--Other includes allowances for net sales returns and uncollectible cooperative advertising credits. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 48 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information called for by this item will be filed by amendment to this Form 10-K with the Securities and Exchange Commission on or before April 30, 1997. ITEM 11. EXECUTIVE COMPENSATION. The information called for by this item will be filed by amendment to this Form 10-K with the Securities and Exchange Commission on or before April 30, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information called for by this item will be filed by amendment to this Form 10-K with the Securities and Exchange Commission on or before April 30, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information called for by this item will be filed by amendment to this Form 10-K with the Securities and Exchange Commission on or before April 30, 1997. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) List of documents filed as part of this Report: (1) FINANCIAL STATEMENTS INCLUDED IN ITEM 8: Independent Auditors' Report. Consolidated Balance Sheets at December 31, 1995 and 1996. Consolidated Statements of Operations for each of the three years in the period ended December 31, 1996. Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1996. Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1996. Notes to Consolidated Financial Statements. (2) FINANCIAL STATEMENT SCHEDULES INCLUDED IN ITEM 8: Schedule II--Valuation and Qualifying Accounts. 49 Schedules other than that referred to above have been omitted because they are not applicable or are not required under the instructions contained in Regulation S-X or because the information is included elsewhere in the Consolidated Financial Statements or the Notes thereto. (3) EXHIBITS The exhibits listed on the accompanying Index of Exhibits are filed as part of this Annual Report. (b) The Following Reports on Form 8-K were filed during the quarter ended December 31, 1996: Current Report on Form 8-K, dated October 18, 1996. 50 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. DATE: APRIL 14, 1997 Merisel, Inc. /s/ James E. Illson By /s/ James E. Illson ---------------------------------- James E. Illson Senior Vice President, Finance, Chief Financial Officer and Assistant Secretary PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE - ----------------------------- ------------------------------ --------------- /s/ Dwight A. Steffensen Chairman of the Board of April 14, 1997 - ----------------------------- Directors, and Chief Executive Dwight A. Steffensen Officer (Principal Executive Officer) /s/ James E. Illson Senior Vice April 14, 1997 - ----------------------------- President--Finance, James E. Illson Chief Financial Officer, Assistant Secretary (Principal Financial and Accounting Officer) /s/ Lawrence J. Schoenberg Director April 14, 1997 - ----------------------------- Lawrence J. Schoenberg Director April 14, 1997 - ----------------------------- David L. House /s/ Dr. Arnold Miller Director April 14, 1997 - ----------------------------- Dr. Arnold Miller /s/ Joseph Abrams Director April 14, 1997 - ----------------------------- Joseph Abrams
51 EXHIBIT INDEX 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. 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. 2.7 Settlement Agreement and Release dated February 13, 1997 by and among CHS Electronics, Inc., Merisel, Inc. and Merisel Europe, Inc. 2.8 Asset Purchase Agreement dated January 15, 1997 by and among SYNNEX Information Technologies, Inc., SynFab, Inc. and Merisel FAB, Inc. 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. 3.1 Restated Certificate of Incorporation of Registrant.(1) 3.2 Amendment to Certificate of Incorporation of Registrant dated August 22, 1990.(6) 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 Agreement dated as of October 2, 1996 by and among Merisel Americas, Inc., Merisel Europe, Inc., Merisel, Inc. and the lender parties thereto. (21) 52 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 Purchase 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. 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. 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. 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. 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. 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)* 53 10.6 Incentive Stock Option Agreements between Registrant and Michael D. Pickett dated as of October 1, 1986 and March 4, 1987.(1)* 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, Massachusetts.(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 Corporation, Merisel FAB, Inc. and for purposes of Section 2.2 thereof, the Registrant. Portions of this agreement have been omitted pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.(12) 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 agreement 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) 54 10.23 Amended and Restated Senior Note Purchase Agreement by and among each purchasers named therein and Merisel Americas, Inc., dated as of December 23, 1993 ("Senior Note Purchase Agreement").(13) 10.24 First Amendment, dated as of September 30, 1994 to Senior Note Purchase Agreement, 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 thepurchasers 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 Americas, 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) 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 Canadian 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) 55 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)* 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 Marty Wolf (17)* 10.42 Form of Retention Agreement between Merisel, Inc. and the following: James L. Brill Paul Lemerise John Thompson Tom Reeves 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 Americas, 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 Agreement 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)* 56 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)* 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. * 57 10.66 Employment Agreement between Dwight A. Steffensen and Merisel, Inc. dated February 12, 1997.* 10.67 Amendment to the Company's 1991 Employee Stock Option Plan (as Amended through January 16, 1997. 21 Subsidiaries of the Registrant. 27 Financial Data Schedule for the year Ended December 31, 1995.
- -------------- * 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. (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 reference. (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. 58 (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. (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 September 30, 1996, and incorporated herein by this reference. 59 EX-2.5 2 AMENDMENT #1 AND WAIVER DATED 11/7/1996 EXHIBIT 2.5 AMENDMENT NO. 1 AND WAIVER TO AMENDED AND RESTATED RECEIVABLES PURCHASE AND SERVICING AGREEMENT AMENDMENT NO. 1 AND WAIVER dated as of November 7, 1996 among Merisel Capital Funding, Inc. (the "Seller"), Redwood Receivables Corporation (the "Purchaser"), General Electric Capital Corporation (the "Operating Agent" and "Collateral Agent") and Merisel Americas, Inc. (the "Servicer"). WHEREAS, the Seller, the Purchaser, the Operating Agent, the Collateral Agent and the Servicer are parties to an Amended and Restated Receivables Purchase and Servicing Agreement dated as of September 27, 1996 (the "Purchase Agreement"). WHEREAS, the parties to the Purchase Agreement desire to amend such Purchase Agreement. WHEREAS, as of the fiscal quarter ended September 28, 1996, the Seller breached certain financial covenants contained in the Purchase Agreement and the Seller and Servicer have requested that the Purchaser, the Operating Agent and the Collateral Agent waive such breaches, subject to the terms and conditions hereof. THE PARTIES AGREE AS FOLLOWS: 1. Definitions. All capitalized terms used herein, unless ----------- otherwise defined, are used as defined in the Purchase Agreement. 2. Amendment to Purchase Agreement. ------------------------------- (a) Section 2.04(d) of the Purchase Agreement is amended by deleting the phrase "Outstanding Balance" which appears in the first sentence thereof and substituting in lieu thereof the phrase "Billed Amount less all payments received from the Obligor with respect thereto". (b) Section 4.02(b) of the Purchase Agreement is amended by adding the phrase "and is able to bring suit or otherwise enforce its remedies through judicial process against each Obligor of a Transferred Receivable" to the end thereof. (c) Section 4.02(l) of the Purchase Agreement is amended by adding the phrase "each Originator and" before the phrase "the Servicer" each time such phrase appears therein. (d) Section 5.01(i) of the Purchase Agreement is amended by (i) adding the phrase "fees and" before the word "disbursements" and (ii) adding the phrase "after October 1, 1996" after the word "disbursements". (e) Section 6.02(c) of the Purchase Agreement is amended by deleting the phrase "and after" and adding the phrase "and any date thereafter" after the term "Facility Termination Date". (f) Section 6.03(c)(ii) of the Purchase Agreement is amended by deleting the reference "6.02(a)(v)" and substituting in lieu thereof "6.02(a)(vi)". (g) Section 6.04(a) of the Purchase Agreement is amended by (i) changing "12:00 p.m." to "1:00 p.m. and adding the phrase "(and if later than 12:00 p.m., the Operating Agent shall notify the Seller and Servicer by 12:00 p.m. of the amounts to be disbursed on such Settlement Date under this Section 6.04(a))" after the term "Settlement Date" the first time such term appears; (ii) deleting the phrase "minus the Margin" in clause (i) (A); and (iii) deleting the text contained in clause (ii) and substituting in lieu thereof the phrase "[INTENTIONALLY OMITTED]". (h) Section 6.05(b)(ii) of the Purchase Agreement is amended by (i) deleting the word "such" the third time it appears therein and substituting in lieu thereof the word "the"; and (ii) adding the phrase "of maturity of the Commercial Paper maintaining such Capital Investment" after the word "date" in the last line therein. (i) Section 6.05(b)(iv)(B) of the Purchase Agreement is amended by deleting the phrase "the balance" 2 and substituting in lieu thereof the phrase "all amounts remaining in the Deferred Purchase Price Sub-Account". (j) Section 6.05(b)(viii) of the Purchase Agreement is amended by deleting the phrase "(c)(i)-(c)(v)" and substituting in lieu thereof the phrase "(c)(i)-(c)(vi)". (k) Section 6.05(c) of the Purchase Agreement is amended by (i) adding the phrase "to the extent not paid pursuant to Section 6.05(b)(v)" to the end of clause (iv)(A) thereof; (ii) adding the phrase "any other amounts," before the first word of clause (iv)(C) thereof; (iii) adding a new clause (v) to read: "(v) to the Collateral Account, an amount equal to (A) accrued and unpaid Daily Yield minus (B) the sum of (i) amounts paid pursuant to Section 6.05(c)(i)(A), (ii) amounts paid pursuant to Section 6.05(c)(ii)(A), and (iii) amounts paid under Section 6.05 (c)(iv)(A) to the extent not paid pursuant to Section 6.05(b)(vi); (iv) redesignating clauses (v) and (vi) as (vi) and (vii), respectively; and (v) changing the reference from "(c)(v)" to "(c)(vi)" in clause (vii) (after redesignation). (l) Section 6.05(d) of the Purchase Agreement is amended by (i) deleting the word "after" which appears as the first word therein and substituting in lieu thereof the word "on"; (ii) adding the phrase "and after any date thereafter" after the term "Facility Termination Date"; and (iii) deleting the word "day" and substituting in lieu thereof the phrase "such date". (m) Section 6.07(a) of the Purchase Agreement is amended by 3 (i) deleting the word "and" the first time it appears therein; and (ii) adding the phrase "and (d)" after the designation "(c)" the first time such designation appears therein. (n) Section 7.06(g) of the Purchase Agreement is amended by deleting the word "are" which appears in the second line therein and substituting in lieu thereof the phrase "were, immediately prior to the transfer to the Purchaser pursuant to this Agreement,". (o) Section 14.06 of the Purchase Agreement is amended by adding a new sentence at the end thereof to read as follows: "Whenever the Seller or the Servicer, as the case may be, is required or permitted to obtain the consent of the Purchaser under this Agreement, such consent shall be obtained only in the form of a prior written consent of the Purchaser. (p) Section 14.07(b) of the Purchase Agreement is amended by deleting the word "exclusive". (q) Exhibit H of the Purchase Agreement is amended by (i) making the following revisions to the table entitled "FINANCIAL COVENANTS": (A) changing the figure "150,000,000" to "100,000,000" and (B) changing the ratio "1.5 to 1" to "1.2 to 1" (ii) adding the phrase "and any write-downs in connection with the sale of any Subsidiaries of the Parent", after the word "adjustments", in the definition "Tangible Net Worth" and (iii) deleting the date "December 28, 1996" which appears in the first line of the last paragraph thereof and substituting in lieu thereof the date "January 3, 1998". 3. Waiver of Purchase Agreement. The Operating Agent, the ---------------------------- Collateral Agent and the Purchaser agree to waive the Termination Event resulting from the breach of the Fixed Charge Coverage Ratio and the Tangible Net Worth covenant contained in Exhibit H of the Purchase Agreement as applicable to the Seller for the fiscal quarter ended September 28, 1996. 4 4. Conditions Precedent. -------------------- (a) The effectiveness of this Amendment No. 1 and Waiver is subject to the conditions precedent that the Collateral Agent, the Operating Agent and the Purchaser shall have received each of the following, in form and substance satisfactory to each such party: (i) an executed copy of Amendment No. 1 to the Amended and Restated Receivables Transfer Agreement (the "Transfer Agreement Amendment") (ii) a certificate of the Secretary of each of the Seller and the Servicer, dated the date of this Amendment No. 1 and Waiver and certifying (A) that attached thereto is a true and complete copy of a resolution of the Board of Directors of the Seller or the Servicer, as the case may be, authorizing the execution, delivery and performance of this Amendment No. 1 and Waiver, the Transfer Agreement Amendment, and all other documents required or necessary to be delivered hereunder and that such resolution has not been modified, rescinded or amended and is in full force and effect, (B) as to the incumbency and specimen signature of each Person's officers executing this Amendment No. 1 and Waiver, the Transfer Agreement Amendment, and all other documents required or necessary to be delivered hereunder and (C) that each of the representations and warranties made by the Seller and the Servicer in this Amendment No. 1 and Waiver and in the Transfer Agreement Amendment is true and correct as of the date hereof. (iii) Such other approvals, opinions or documents as the Collateral Agent or the Operating Agent may reasonably request. 5. Confirmation of Agreement and Loan Documents. Each of the Seller -------------------------------------------- and the Servicer agree that, except for the specific waiver set forth in Section 3 and the specific amendments set forth in Section 2, nothing herein shall be deemed to be a waiver or amendment of any covenant or agreement contained in the Purchase Agreement and each of the other documents executed in connection therewith are ratified and confirmed in all respects and shall remain in full force and effect in accordance with its terms. Each reference in the Purchase Agreement to "this Agreement" and in each of the other documents to be executed in connection 5 therewith to the "Purchase Agreement" shall mean the Purchase Agreement as amended by this Amendment No. 1 and Waiver, and as hereinafter amended or restated. Nothing herein shall obligate the Purchaser, the Operating Agent or the Collateral Agent to enter into any future or waiver or amendment (in each case, whether similar or dissimilar). 6. Seller's and Servicer's Representations and Warranties. Each of ------------------------------------------------------ the Seller and the Servicer represents and warrants that: (a) this Amendment No. 1 and Waiver has been duly authorized, executed and delivered pursuant to its corporation power; (b) this Amendment No. 1 and Waiver constitutes its legal, valid and binding obligation; and (c) after giving effect to the amendments referred to herein, there does not exist any Termination Event. 7. Waiver by the Seller. Each of the Seller and the Servicer hereby -------------------- waives any claim, defense, demand, action or suit of any kind or nature whatsoever against the Purchaser, the Operating Agent and the Collateral Agent arising on or prior to the date hereof in connection with the Purchase Agreement or the transactions contemplated thereunder. 8. Counterparts. Delivery of an executed counterpart of a signature ------------ page to this Amendment No. 1 and Waiver by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment No. 1 and Waiver. This Amendment No. 1 and Waiver may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 9. Governing Law. This Amendment No. 1 and Waiver shall be governed ------------- by, and construed in accordance with, California law. 10. Effective Date of Amendment No. 1 and Waiver. Upon the execution -------------------------------------------- and delivery of this Amendment No. 1 and Waiver by the parties hereto and the satisfaction 6 of the conditions precedent set forth in Section 4 herein, the Purchase Agreement shall be amended by this Amendment No. 1 and Waiver, effective as of the date hereof. IN WITNESS WHEREOF, the Seller, the Collateral Agent, the Operating Agent, the Servicer and the Purchaser have caused this Amendment No. 1 and Waiver to be duly executed by their respective authorized officers as of the date and year first above written. MERISEL CAPITAL FUNDING, INC. as Seller By:/s/ Timothy N. Jenson --------------------------- Title: Vice President & Treasurer Name: Timothy N. Jenson MERISEL AMERICAS, INC. as Servicer By:/s/ Timothy N. Jenson --------------------------- Title: Vice President & Treasurer Name: Timothy N. Jenson GENERAL ELECTRIC CAPITAL CORPORATION as Purchaser By:/s/ Kathryn A. Cassidy --------------------------- Title: Asst. Secretary Name: Kathryn A. Cassidy REDWOOD RECEIVABLES CORPORATION as Purchaser By:/s/ Walter J. Owens --------------------------- Title: Asst. Secretary Name: Walter J. Owens 7 EX-2.6 3 AMENDMENT #1 TO AMENDED AND RESTATED RECEIVABLES EXHIBIT 2.6 AMENDMENT NO. 1 TO AMENDED AND RESTATED RECEIVABLES TRANSFER AGREEMENT AMENDMENT NO. 1 dated as of November 7, 1996 between Merisel Capital Funding, Inc. ("MCF") and Merisel Americas, Inc. (the "Originator"). WHEREAS, MCF and the Originator are parties to an Amended and Restated Receivables Transfer Agreement dated as of September 27, 1996 (the "Transfer Agreement"). WHEREAS, the parties to the Transfer Agreement desire to amend such Transfer Agreement. THE PARTIES AGREE AS FOLLOWS: 1. Definitions. All capitalized terms used herein, unless ----------- otherwise defined, are used as defined in the Transfer Agreement. 2. Amendment to Transfer Agreement. ------------------------------- (a) Section 4.01(a)(xv) of the Transfer Agreement is amended by adding the phrase "tax reports and statements" after the word "returns". (b) Section 4.01(b)(vii) is amended by adding the phrase "allows the holder thereof to bring suit or otherwise enforce its remedies against an Obligor through judicial process," after the word "Receivable" which appears in the first line therein. (c) Section 4.02(f) of the Transfer Agreement is amended by adding the phrase "(notwithstanding the foregoing, this proviso shall not be effective unless the Originator gives prior written notice of any such contest to MCF and its assignees and such non-compliance does not adversely affect their rights in respect of the Transferred Receivables or impair their ability to exercise any of their rights or remedies hereunder)" after the word "Originator" and before the word "except". (d) Section 4.02(h)(i) of the Transfer Agreement is amended by adding the phrase "or its ability to perform its obligations hereunder" after the word "Originator" which appears in the last line therein. (e) Section 4.02(h)(iii) of the Transfer Agreement is amended by adding the phrase "or its ability to perform its obligations hereunder" after the word "Originator" which appears in the last line therein. (f) Section 4.02(h)(iv) of the Transfer Agreement is amended by adding the phrase ", or written threat to commence any proceedings," after the word "proceedings" which appears in the first line therein. (g) Section 4.02(h)(v) of the Transfer Agreement is amended by adding the phrase "or its ability to perform its obligations hereunder" after the word "Originator" which appears in the last line therein. (h) Section 4.02(h)(vi) of the Transfer Agreement is amended by adding the phrase "or its ability to perform its obligations hereunder" after the word "Originator" which appears in the last line therein. (i) Section 6.06(b) of the Transfer Agreement is amended by deleting the word "exclusive". 3. Confirmation of Agreement and Loan Documents. Each of the -------------------------------------------- Originator and MCF agree that, except for the specific amendments set forth in Section 2, nothing herein shall be deemed to be a waiver or amendment of any covenant or agreement contained in the Transfer Agreement and each of the other documents executed in con nection therewith are ratified and confirmed in all respects and shall remain in full force and effect in accordance with its terms. Each reference in the Transfer Agreement to "this Agreement" and in each of the other documents to be executed in connection therewith to the "Transfer Agreement" shall mean the Transfer Agreement as amended by this Amendment No. 1, and as hereinafter amended or restated. 4. Representations and Warranties. Each of the Originator and MCF ------------------------------ represents and warrants that: (a) this Amendment No. 1 has been duly authorized, executed and delivered pursuant to its corporation power; and (b) this Amendment No. 1 constitutes its legal, valid and binding obligation. 2 5. Counterparts. Delivery of an executed counterpart of a signature ------------ page to this Amendment No. 1 by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment No. 1. This Amendment No. 1 may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 6. Governing Law. This Amendment No. 1 shall be governed by, and ------------- construed in accordance with, California law. 7. Effective Date. Upon the execution and delivery of this Amendment -------------- No. 1 by the parties hereto the Transfer Agreement shall be amended by this Amendment No. 1, effective as of the date hereof. IN WITNESS WHEREOF, the Originator and MCF have caused this Amendment No. 1 to be duly executed by their respective authorized officers as of the date and year first above written. MERISEL CAPITAL FUNDING, INC. By:/s/ Timothy N. Jenson --------------------------------- Title: Vice President & Treasurer Name: Timothy N. Jenson MERISEL AMERICAS, INC. By:/s/ Timothy N. Jenson --------------------------------- Title: Vice President & Treasurer Name: Timothy N. Jenson 3 EX-2.7 4 SETTLEMENT AGREEMENT AND RELEASE EXHIBIT 2.7 SETTLEMENT AGREEMENT AND RELEASE THIS SETTLEMENT AGREEMENT AND RELEASE (the "Settlement Agreement") is made on February 13, 1997, by and among CHS Electronics, Inc., a Florida corporation ("CHS"), Merisel, Inc., a Delaware corporation ("Merisel"), and Merisel Europe, Inc., a Delaware corporation ("Merisel Europe" and, together with Merisel, the "Sellers"). Capitalized terms not otherwise defined herein are used as defined in the Purchase Agreement, dated as of August 29, 1996, by and among CHS and the Sellers (the "Purchase Agreement"). WHEREAS, pursuant to the Purchase Agreement CHS acquired all of the issued and outstanding shares of capital stock of certain subsidiaries of the Sellers; and WHEREAS, certain post closing adjustments and indemnification claims have arisen under the Purchase Agreement; and WHEREAS, CHS and the Sellers desire to settle all such claims and finalize all matters relating to the Purchase Agreement pursuant to the terms and conditions hereof except as otherwise specifically provided herein. NOW, THEREFORE, in consideration of the promises and the mutual covenants and agreements set forth herein, it is agreed that: 1. Settlement of Claims. In settlement of all Claims (as defined -------------------- below) relating to the Purchase Agreement, the parties agree as follows: (a) Concurrently with the execution hereof, CHS shall pay an amount equal to $3,000,000, plus accrued interest from February 1, 1997 to the date hereof at a rate of 10% per annum, and set off by the amount owned by Merisel pursuant to paragraphs 3 and 4 of Annex B hereto, by wire transfer of ------- immediately available funds to the following account: Account Name: Merisel Americas, Hdq. Bank: Citibank, N.A. 399 Park Avenue New York, New York 10043 ABA Routing No.: 0210 0008 9 Account No.: 4063 9503 (b) Concurrently with the execution hereof, CHS shall execute, and deliver to the Sellers, a promissory note (the "Note") in form and substance identical to Annex A hereto. ------- (c) CHS and the Sellers acknowledge and agree that the payment to the Sellers pursuant to Paragraph 1(a) and the Note shall be received and accepted by the Sellers in full payment and settlement of all Claims related to the Purchase Agreement, except for the Claims identified on Annex B hereto (the ------- "Excluded Claims"). (d) The amount paid hereunder and pursuant to the Note shall be an adjustment to the Purchase Price paid under the Purchase Agreement, and shall be allocated for tax purposes in accordance with Schedule 1 hereto. ---------- 2. Release. ------- (a) Each of CHS and the Sellers, on behalf of themselves and their respective affiliates, hereby fully release and forever discharge each other and each of their respective affiliates from any and all claims, demands, controver sies, liabilities, damages, debts, obligations, costs, expenses, attorneys' fees or causes of action of any kind or nature (collectively, "Claims"), whether now known or unknown, suspected or unsuspected, in law or in equity as may exist, in connection with, arising from or relating to the Purchase Agreement or the transactions contemplated thereby, including without limitation any and all Claims that may be based on contract, tort or other theories (except for the Excluded Claims). (b) Each of CHS and the Sellers on behalf of themselves and their respective affiliates, hereby waive any and all rights which any of them may have under the provisions of Section 1542 of the Civil Code of the State of California as now worded and as hereafter amended, which section provides in pertinent part: 2 "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." It is understood and agreed that the facts in respect of which this Settlement Agreement is executed may turn out to be other than or different from the facts in that respect now known or believed by each of the parties to be true; and with such understanding and agreement, each of CHS and the Sellers, on behalf of themselves and their respective affiliates, expressly accepts and assumes the risk of facts being other than or different from the assumptions and perceptions as of any date prior to and including the date hereof, and each agrees that this Settlement Agreement shall be in all respects effective and shall not be subject to termination or rescission by reason of any such difference in facts. (c) Each party hereby represents to each other party that, notwithstanding any documentation or facts that may later come to light with respect to the matters in respect of which this Settlement Agreement is executed, it has conducted an adequate investigation into such matters and has reviewed all of the considerations and documentation that may be relevant or that it requested to review in connection with entering into this Settlement Agreement. With respect hereto, no party is relying on any inducements, promises or representations not contained herein. 3. Representations and Warranties. Each party hereby represents and ------------------------------ warrants as follows: (a) It has the legal capacity and all necessary power and authority to execute and deliver this Settlement Agreement and to consummate the transactions contemplated hereby. (b) Assuming this Settlement Agreement has been duly and validly authorized, executed and delivered by the other parties hereto, this Settlement Agreement constitutes a valid and binding agreement of such party, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights generally or by the principles governing the availability of equitable remedies. 3 4. Notices to Parties. All notices and other communications shall be ------------------ effective upon receipt if hand delivered or sent by facsimile transmission and confirmed by United States mail and shall be effective one day after sending by recognized "overnight" delivery service to the addresses stated below, or to such other addresses as to which either party shall have previously notified the other party in writing. Any such notice not contemplated above shall be effective upon receipt. For the purposes of this Paragraph 4, the addresses of the parties shall be as follows: If to the Sellers: ----------------- Merisel, Inc. 200 Continental Boulevard El Segundo, California 90245 Attention: President --------- Fax: (310) 615-1234 With copies to: Skadden, Arps, Slate, Meagher & Flom LLP 300 S. Grand Avenue Los Angeles, California 90071-3144 Attention: Joseph J. Giunta, Esq. --------- Fax: (213) 687-5600 If to CHS: --------- CHS Electronics, Inc. 2153 N.W. 86th Avenue Miami, Florida 33122 Attention: President --------- Fax: (305) 593-0265 With copies to: Greenberg, Traurig, Hoffman Lipoff, Rosen Quentel, P.A. 1221 Brickell Avenue Miami, Florida 33131 Attention: Paul Berkowitz, Esq. --------- Fax: (305) 579-0717 4 5. Complete Agreement. This is the complete agreement between the ------------------ parties with respect to the subject matter hereof and supersedes all prior negotiations and agreements with respect thereto. There are no representations, warranties, covenants, conditions, terms, agreements, promises, understandings, commitments or other arrangements with respect to the subject matter hereof other than those expressly set forth or incorporated herein or made in writing on or after the date of this Settlement Agreement. This Settlement Agreement settles all matters relating to the Purchase Agreement except with respect to the Excluded Claims. Except as expressly provided herein, this Settlement Agreement does not amend or supersede the Purchase Agreement with respect to the Excluded Claims and the Purchase Agreement shall remain in full force and effect. 6. Governing Law; Consent to Jurisdiction. This Settlement -------------------------------------- Agreement is made pursuant to the laws of the State of California; as to any question concerning the Agreement as a whole, it shall be governed by, construed under and enforced in accordance with, the laws of the State of California without regard to its conflict-of-laws principles 7. Expenses. Except as otherwise specifically provided herein, each -------- of the parties hereto shall pay their respective counsel fees, accounting fees and other costs and expenses incurred in connection with the negotiation, making, execution, delivery and performance of this Settlement Agreement. 8. Binding Agreement; Successors. This Settlement Agreement shall ----------------------------- be binding upon, inure to the benefit of and be enforceable by the parties hereto and the respective predecessors, successors, assigns, heirs, legatees, executors, representatives, agents, guardians, custodians, administrators, conserva tors, directors, officers, shareholders, subsidiaries, affiliates and associates of the parties hereto and any other person or persons who may in any fashion claim any interest in the subject matter hereof through any of the parties hereto. 9. Headings. The paragraph headings herein are for reference -------- purposes only and shall not affect in any way the meaning or interpretation of this Settlement Agreement, nor are they deemed to constitute a part of this Settlement Agreement. 10. Counterparts. This Settlement Agreement may be executed in two ------------ or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument, which shall be 5 effective upon the execution hereof by all of the parties hereto. A complete set of counterparts shall be made available to each party hereto. 11. Time of the Essence. Time shall be of the essence of this ------------------- Settlement Agreement and of each and every part thereof. 12. Severability. If any provision of this Settlement Agreement or ------------ the application of any such provision shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof. In lieu of any such invalid, illegal or unenforceable provision, the parties hereto intend that there shall be added as part of this Settlement Agreement a provision as similar in terms to such invalid, illegal or unenforceable provision as may be possible and be valid, legal and enforceable. 13. U.S. Dollars. Unless otherwise specified, all references to "$" ------------ or "dollars" in this Settlement Agreement shall mean U.S. dollars. 14. Attorneys' Fees. In any action or proceeding brought to enforce --------------- any provision of this Settlement Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable and actual attorney's fees in addition to its cost and expense and any other available remedy; provided, that, for the purposes hereof, the Sellers -------- shall be deemed one party and CHS shall be deemed one party. 15. Interpretation. As used herein, "affiliates" of a person shall -------------- mean such person's shareholders, subsidiaries, associates, predecessors and successors, and assigns of any of them, and each and all of such person's directors, officers, employees, agents and representatives, and assigns of any of them. Each party has participated in the drafting and preparation of this Settlement Agreement, and, accordingly, in any construction or interpretation of this Settlement Agreement, the same shall not be construed against any party by reason of the source of drafting. 6 IN WITNESS WHEREOF, the parties have duly executed and delivered this Settlement Agreement on the day and year first above written. MERISEL, INC. By: /s/ Dwight Steffensen ---------------------- Name: Dwight Steffensen Title: Chief Executive Officer MERISEL EUROPE, INC. By: /s/ Dwight Steffensen ---------------------- Name: Dwight Steffensen Title: Chief Executive Officer CHS ELECTRONICS, INC. By: /s/ Claudio Osorio ------------------- Name: Claudio Osorio Title: President 7 Annex A ------- PROMISSORY NOTE $8,000,000.00 February 1, 1997 FOR VALUE RECEIVED, CHS Electronics, Inc., a Florida corporation ("Borrower"), hereby unconditionally promises to pay to the order of Merisel, Inc., a Delaware corporation, and its successors, endorsees, transferees and assigns (collectively, "Lender"), the principal amount of EIGHT MILLION DOLLARS AND NO CENTS ($8,000,000.00) such principal to be due and payable as follows: $4,000,000, plus accrued interest, on March 12, 1997, and $4,000,000, plus accrued interest, on April 11, 1997. Borrower agrees to pay interest on the unpaid principal amount hereof and, to the extent lawful, on any interest payment due but unpaid. Interest shall accrue from the date hereof until this Note is paid in full at a rate equal to 10% per annum, except that upon the occurrence of an Event of Default (as hereinafter defined), all unpaid principal and, to the extent lawful, any interest payment due but unpaid shall accrue interest at a rate of 14% per annum. Borrower may at its option prepay all or any portion of this Note without premium or penalty. Each payment on this Note shall be credited first on interest, and the remainder, if any, on principal, and interest shall thereupon cease to accrue on the principal so credited. If Borrower shall fail to pay when and as required to be paid herein, any amount of principal or interest (an "Event of Default"), the Lender may, by notice, declare the principal amount then outstanding and the accrued interest thereon and all other amounts payable to Lender to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by Borrower. If the payment of principal or interest on this Note shall become due on a Saturday, Sunday or legal holiday under the laws of the State of California, such payment shall be made on the next succeeding business day, and any such A-1 extended time of the payment of principal shall be included in computing interest at the rate this Note bears prior to maturity in connection with such payment. All payments of principal, interest and all other amounts payable in respect of this Note shall be made in lawful money of the United States of America in immediately available funds by wire transfer to the following account: Account Name: Merisel Americas, Hdq. Bank: Citibank, N.A. 399 Park Avenue New York, New York 10043 ABA Routing No.: 0210 0008 9 Account No.: 4063 9503 Lender shall, before disposing of this Note or any part hereof, make a notation hereon of all principal and interest payments previously made hereunder and of the date to which interest hereon has been paid; provided, however, that -------- ------- the failure to correctly make a notation of any payment made on this Note shall not limit or otherwise affect the obligation of Borrower under this Note with respect to any loan evidenced hereby or payments of principal or interest on this Note. THIS NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF. Borrower hereby waives diligence, presentment, protest, demand and notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. Wherever possible each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note and shall be interpreted so as to be effective and valid. The holder of this Note shall have the right at any time to sell, assign, transfer, negotiate or pledge (collectively, "transfer") all or any part of his interest in this Note. A-2 This Note is intended by the parties as a final expression of their agreement and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein, and Lender has made no representations, warranties or covenants that are not located herein or therein. This Note supersedes all prior agreements and understandings between the parties with respect to such subject matter. A-3 IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the day and year first above written. CHS ELECTRONICS, INC. a Florida corporation By: _______________________________ Name: Title: A-4 TRANSACTIONS ON PROMISSORY NOTE Amount of Amount of Outstanding Principal Interest Principal Paid This Paid This Balance Notation Date Date Date This Date Made By ------- --------- ----------- --------- -------- A-5 Annex B ------- EXCLUDED CLAIMS 1. Payment of $42,000 owed by CHS to the Sellers for the provision by the Sellers for the period ending December, 1996 to CHS and/or its affiliates of the use of the CAMBAR System. 2. Payment of amounts due from time to time, by CHS to Merisel Americas, Inc. under the Agreement entered into between Merisel Americas, Inc. and Merisel Latin America, Inc. dated as of October 4, 1996 (the "Fulfillment Agree ment") which Fulfillment Agreement shall continue in full force and effect pursuant to the terms thereof until February 28, 1997, at which time the Fulfillment Agreement shall terminate. 3. Payment of $1,255,660 owed by Merisel Americas, Inc. to CHS for Novell computer products purchased by Merisel Americas, Inc. from an affiliate of CHS, such payment to be made in accordance with the terms and conditions under which the products were originally sold (such amount to be adjusted up to a maximum of $1,350,840 upon CHS providing proof of delivery to Merisel Americas, Inc. of additional product). 4. Payment by Merisel to CHS of $8,494 for notarial services provided. 5. Claims brought in good faith and alleged in reasonable detail under Section 6.4(d) of the Purchase Agreement prior to June 30, 1997, to the extent Damages arising from such claims exceed $5,000,000 (recovery on Damages shall be limited to such excess). In any Claim brought under this paragraph, the prevailing party shall be entitled to attorneys' fees from the losing party. 6. Each party and their respective affiliates shall be required to comply with the duties and obligations set forth in Section 6.11(d) of the Purchase Agreement. 7. Bonuses totaling approximately $150,000 due March 27, 1997 from Merisel to the following persons: Clifford Dyer, Gladys Dyer, Michael Dyer, Dorian Dyer, Elvira Eceto, Ralph Falkenburg, Josephine Jugo, Alexandra Pena, Isaac Menasce, Norman Huszar and Maria Prats. B-1 EX-2.8 5 ASSET PURCHASE AGREEMENT EXHIBIT 2.8 ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into this 15th day of January, 1997, by and among, on the one hand, SYNNEX Information Technologies, Inc., a California corporation ("Synnex"), SynFab, Inc., a California corporation (the "Buyer"), and, on the other hand, Merisel FAB, Inc., a Delaware corporation (the "Seller"), and Merisel, Inc., a Delaware corporation ("Merisel"). RECITALS A. The Seller is a wholly-owned subsidiary of Merisel. B. The Seller is engaged in the business of granting franchises to dealers of microcomputer systems and products located in the Designated Territory (as defined below) and selling, distributing and servicing microcomputer systems and related products and services products to such franchisees and to independent dealers located in the Designated Territory (the "Subject Business"). C. The Buyer is a wholly-owned subsidiary of Synnex and has been organized by Synnex for the purpose of acquiring the Subject Business from the Seller. D. The Seller desires to sell, transfer, convey and assign to the Buyer, and the Buyer desires to purchase and acquire from the Seller, certain assets and rights of the Seller relating to the Subject Business, subject to the assumption by the Buyer of certain obligations and liabilities of the Seller, in accordance with the terms and subject to the conditions set forth in this Agreement. NOW THEREFORE, in consideration of the premises and of the mutual representations, warranties, covenants and agreements hereinafter set forth, the parties hereby agree as follows: ARTICLE I DEFINITIONS; CONSTRUCTION 1.1 DEFINITIONS. For purposes of this Agreement, the following terms ----------- shall have the meanings indicated: (a) "Ad Fund Agreement" shall mean the ComputerLand Corp. Ad Fund Trust Trust Agreement, dated as of May 18, 1983, as amended, relating to the advertising fund established for the benefit of Franchisees. (b) "Aggregation Business" shall mean the sale of products to a specific body of customers under a specified program where the sale of such products is made on special terms and conditions that are sponsored, either directly or indirectly, by the vendor of those products and such terms and conditions are not made available to wholesale distributors that are comparable to Merisel or its affiliates in wholesale distribution contracts. Examples of the Aggregation Businesses are Ingram Alliance and Tech Data Elect. (c) "Assumed Contracts" shall mean the Third Party Reseller Agreements and the Ad Fund Agreement. (d) "Business Day" shall mean a day that is not a Saturday, Sunday or a day on which banking institutions in California are not required to be open. (e) "Copyrights" shall mean all copyrights, copyright registrations and applications, and all copyrighted or copyrightable works owned and/or used by the Seller in connection with the Subject Business. -1- (f) "Datago Agreements" shall mean all Datago agreements between the Seller (or its affiliates) and the Datago Purchasers, as well as all agreements between the Seller (or its affiliates) and any of its Franchisees or former Franchisees relating to the conversion of such Franchisees to Datago Purchasers, including all amendments, addendums and attachments thereto and all collateral or related agreements with respect thereto, a complete list of which Datago Agreements as of the date of this Agreement is included in SCHEDULE 4.1(l). --------------- (g) "Datago Purchasers" shall mean all of the Seller's Datago dealers located in the Designated Territory. (h) "Designated Territory" shall mean the 50 States of the United States of America and the District of Columbia. (i) "Employee Plan" shall mean all present plans, programs, agreements, arrangements and methods of contributions or compensation (including all amendments to and components of the same, such as a trust with respect to a plan) providing any remuneration or benefits, other than current cash compensation, to any current or former employee of the Seller or to any other person who provides regular services to the Seller's business, whether or not such plan or plans, programs, agreements, arrangements and methods of contribution or compensation are subject to the Employees Retirement Income Security Act of 1974, as amended ("ERISA"), and whether or not such plan or plans, programs, agreements, arrangements and methods of contribution or compensation are qualified under the Internal Revenue Code of 1986, as amended. The term Employee Plan includes, but is not limited to, pension, retirement, profit sharing, percentage compensation, stock purchase, stock option, bonus and non-qualified deferred compensation plans. The term Employee Plan also includes, but is not limited to, disability, medical, dental, workers compensation, health insurance, life insurance or other death benefits, incentive, severance plans, vacation benefits and fringe benefits. The term Employee Plan also includes any employee plan that is a multi-employer plan as defined in Section 3(37) of ERISA. (j) "Environmental Laws" shall mean any laws, rules, regulations, orders, treaties, statutes and codes promulgated by any governmental authorities which prohibit, regulate or control any hazardous materials or the transportation, storage, transfer, use or dealing with such materials or which relate to pollution or protection of the environment. (k) "Franchise Agreements" shall mean all franchise agreements, including all amendments, addendums and attachments thereto, and all collateral or related agreements with respect thereto between the Seller and its Franchisees (a complete list of which Franchise Agreements as of the date of this Agreement is included in SCHEDULE 4.1(l)). --------------- (l) "Franchisee" shall mean all ComputerLand franchisees of the Seller. (m) "Guarantees" shall mean the specific guarantees of the Seller under: (i) the letters dated October 6, 1995, and November 10, 1995, between the Seller and Deutsche Financial Services Corporation (formerly ITT Commercial Finance Corporation); and (ii) the CLUB Finance Program Agreement between the Seller and Deutsche Financial Services Corporation dated September 19, 1994. (n) "Intellectual Property" shall mean all proprietary rights and information owned and/or used by the Seller in connection with the Subject Business, including, but not limited to, the Copyrights, Patents, Trademarks and Software Licenses, as well as all other trade secrets, proprietary manufacturing information and know-how, inventions, drawings and designs, customer and vendor lists and the goodwill associated with any of the foregoing. (o) "Material Adverse Effect" shall mean a material adverse effect on the Purchased Assets or on the business, results of operations, financial condition or prospects of the Subject Business, in each case taken as a whole. (p) "Patents" shall mean all patents, patent applications, divisions, continuations and continuations-in-part owned and/or used by the Seller in connection with the Subject Business, including but not limited to those patents set forth on SCHEDULE 1.1(p) (in certain cases solely with respect to, and --------------- for use in, the Designated Territory as specified -2- in SCHEDULE 1.1(p)). -------------- (q) "Retained Businesses" shall mean all of the Seller's businesses other than the Subject Business. (r) "Software Licenses" shall mean all licenses under which the Seller is a licensee of intellectual property rights used in connection with the Subject Business, including rights in and to the computer programs, data files and other software (including object code and source code) set forth in SCHEDULE 1.1(r), --------------- and specifically including, without reservation, all of the Seller's rights to the ILS and POET software. (s) "Third Party Resellers" shall mean, collectively, the Datago Purchasers and the Franchisees. (t) "Third Party Reseller Agreements" shall mean, collectively, the Franchise Agreements and the Datago Agreements in effect on the date of this Agreement, including any written modifications, amendments or waivers with respect thereto. (u) "Trademarks" shall mean all trademarks, trade dress, trademark registrations and applications, trade names, service marks and service mark registrations owned and/or used by the Seller in connection with the Subject Business, including but not limited to the trademarks "ComputerLand" and "Datago" (with respect to, and for use in, the Designated Territory only) as well as the other trademarks, tradenames, service marks and logos set forth on SCHEDULE 1.1(u). - --------------- (v) "Vanstar" shall mean Vanstar Corporation, a Delaware corporation, which previously was known as ComputerLand Corporation. (w) "Vanstar Distribution and Services Agreement" shall mean that certain Distribution and Services Agreement, dated as of January 31, 1994, by and between the Seller and ComputerLand Corporation, which subsequently changed its name to Vanstar. (x) "Vanstar Extended Obligation" shall mean that certain account payable in the original amount of US$20,000,000, payable by the Seller to Vanstar pursuant to the Vanstar Distribution and Services Agreement. (y) "Vanstar Sublease" shall mean that certain Sublease Agreement by and between the Seller and Vanstar, effective as of January 31, 1994. 1.2 DISCLOSURE GENERALLY; AMENDMENT OF SCHEDULES. If, and to the -------------------------------------------- extent that, any information required to be furnished in any section or subsection of the Schedules relating to the representations and warranties set forth in Section 4.1 is set forth in this Agreement, any other section or subsection of such Schedules or any exhibit of annex hereto, such information shall be deemed to be disclosed in the section or subsection of the Schedules which require such disclosure. The inclusion of any information in such Schedules or any part thereof shall not be deemed to be an admission or indication of the materiality thereof of to create a standard of disclosure generally. 1.3 DEFINITION OF "KNOWLEDGE". Where any representation or warranty ------------------------- contained in this Agreement is expressly qualified by reference to the knowledge of the Seller, such term shall mean the knowledge that the persons listed in SCHEDULE 1.3 attached hereto have or should have had as a reasonably prudent - ------------ person under similar circumstances given their respective positions with regard to the operations of the Subject Business. -3- ARTICLE II TRANSFER OF PURCHASED ASSETS; ASSUMPTION OF LIABILITIES 2.1 TRANSFER OF ASSETS. On the terms and subject to the conditions ------------------ of this Agreement, at the Closing (as defined in Section 7.1), the Seller shall sell, transfer, convey and assign to the Buyer, and the Buyer shall purchase and acquire from the Seller, all of the Seller's right, title and interest in, to and under the following (and only the following) assets, properties and rights relating to the Subject Business as the same shall exist immediately prior to the Closing (collectively referred to as the "Purchased Assets"): (a) all of the Seller's right, title and interest in and to the Intellectual Property, including, but not limited to, all of the Seller's right, title and interest under Trademarks, the Patents, the Copyrights and the Software Licenses; (b) all of the Seller's transferable right, title and interest under the Assumed Contracts; (c) all signs in the possession of any of the Franchisees which are owned by the Seller, all forms, labels, catalogs, brochures, art work, photographs and advertising material in the Seller's possession which are owned by the Seller and used in connection with the Subject Business, and all copyrights therein; (d) all training and marketing manuals owned by the Seller and used in the Subject Business and all franchise and Datago operating manuals and all copyrights owned by the Seller therein; (e) all fixed assets and tangible personal property of the Seller relating to the Subject Business (other than inventories), including without limitation, the machinery, equipment, supplies, furniture and other assets set forth on SCHEDULE 2.1(e), which Schedule shall be updated by the parties prior --------------- to the Closing; (f) copies or originals of all information and records of the Seller, whether reduced to writing or in computer form, acquired for, useful in, or in any way related to the Subject Business, including without limitation, customer files, sales and royalty records, accounting records, mailing addresses of and other data relating to the Franchisees and Datago Purchasers, forms, catalogs, brochures, advertising materials, vendor lists and employee records, specifications, schematics, and product manuals; and (g) all assets of the Seller listed on SCHEDULE 2.1(g), including but --------------- not limited to all accounts receivable of the Seller as of the Closing Date relating to the Subject Business (the "Accounts Receivable"), which Schedule shall be updated prior to the Closing in accordance with Section 5.2(f) and which is subject to further adjustment as of the Closing Date in accordance with Section 7.4. 2.2 ASSETS NOT BEING TRANSFERRED. Anything contained in Section 2.1 ---------------------------- to the contrary notwithstanding, no assets, properties or rights (whether real, personal or mixed, tangible or intangible) of the Seller other than the Purchased Assets, are being sold, conveyed and assigned to the Buyer under this Agreement. Without limiting the foregoing, the following are specifically excluded from the Purchased Assets: (a) all cash and cash equivalents of the Subject Business existing prior to the Closing; (b) all rights in and to any claims against any Third Party Resellers or any other third party arising out of or relating to transactions or events occurring prior to the Closing; and (c) the inter-company receivables of the Seller listed on SCHEDULE 2.2(c). - --------------- 2.3 LIABILITIES BEING ASSUMED. On the terms and subject to the ------------------------- conditions of this Agreement, -4- simultaneously with the sale, transfer, conveyance and assignment to the Buyer of the Purchased Assets, the Buyer shall assume, and hereby agrees to perform, pay and satisfy when due, the following liabilities and obligations of the Seller (collectively, the "Assumed Obligations"): (a) all liabilities and obligations under, arising out of or relating to the Assumed Contracts on and after the Closing Date, but expressly excluding any liabilities and obligations arising out of or relating to transactions or events occurring prior to the Closing Date, including, without limitation, any breach or other violation by the Seller of any of the Assumed Contracts occurring prior to the Closing, whether or not any claim for such breach or violation has been asserted at or prior to the Closing; (b) all liabilities and obligations under the Vanstar Extended Obligation; (c) the other specific liabilities of the Seller identified in SCHEDULE 2.3(c) (which may, in the discretion of the Buyer, include the - --------------- Guarantees), which Schedule shall be updated prior to the Closing in accordance with Section 5.2(f) and which is subject to further adjustment as of the Closing Date in accordance with Section 7.4; and (d) those liabilities and obligations of Seller otherwise specifically assumed by the Buyer in this Agreement. 2.4 LIABILITIES NOT BEING ASSUMED. Except for the Assumed ----------------------------- Obligations, the Buyer expressly does not, and shall not, assume or be deemed to assume, under this Agreement or otherwise by reason of the transactions contemplated hereby, any other liabilities, obligations or commitments of the Seller or of the Subject Business of any nature whatsoever, whether known or unknown, fixed or contingent, or accrued or unaccrued, including, without limitation, the inter-company payables of the Seller listed in SCHEDULE 2.4 and ------------ any other liabilities, obligations or commitments relating to the ownership, interest in, use or operation of any of the Purchased Assets or the Subject Business prior to the Closing Date collectively, the "Excluded Obligations"). 2.5 INSTRUMENTS OF CONVEYANCE AND TRANSFER. At the Closing, the -------------------------------------- Seller and the Buyer shall execute and deliver a bill of sale, assignment and assumption agreement substantially in the form attached hereto as Exhibit "A" (the "Bill of Sale, Assignment and Assumption"), a trademark assignment substantially in the form attached hereto as Exhibit "B" (the "Trademark Assignment"), a copyright assignment substantially in the form attached hereto as Exhibit "C" (the "Copyright Assignment"), and a patent assignment substantially in the form attached hereto as Exhibit "D" (the "Patent Assignment"), and the Seller shall execute and deliver such other endorsements, assignments and instruments necessary in order to transfer the Purchased Assets to the Buyer. ARTICLE III PURCHASE PRICE; ALLOCATION 3.1 PURCHASE PRICE. As full payment for the sale, transfer, -------------- conveyance and assignment of the Purchased Assets and the restrictive covenants of each of Merisel and the Seller set forth in Section 8.2 hereof (the "Restrictive Covenants"), Buyer shall assume all of the Assumed Obligations, subject to adjustment as provided in Section 7.5, and shall receive from Merisel certain rebates on merchandise purchased from Merisel by the Franchisees in accordance with the terms of a rebate agreement to be entered into as of the Closing reflecting the terms contained in the Term Sheet attached hereto as Exhibit "E" (the "Rebate Agreement"). 3.2 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be ---------------------------- allocated among the Purchased Assets, the Restrictive Covenants and the Rebate Agreement in accordance with an allocation to be agreed upon by the parties prior to the Closing and attached to the Agreement as SCHEDULE 3.2. Each of ------------ Merisel, the Seller and the Buyer shall -5- prepare their Federal, state and local income tax returns on a basis consistent with such allocation. 3.3 ESCROW ACCOUNT. On of before the Closing Date, Merisel and the -------------- Seller shall deposit into an escrow account at a financial institution acceptable to the parties cash in the aggregate amount of One Million Five Hundred Thousand Dollars ($1,500,000) (the "Escrow Account"). Such Escrow Account shall be subject to the terms and conditions contained in an escrow agreement to be entered into as of the Closing reflecting the terms contained in the Term Sheet attached hereto as Exhibit "F" (the "Escrow Agreement"). -6- ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller hereby -------------------------------------------- represents and warrants to the Buyer as follows: (a) ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER OF THE ----------------------------------------------------------- SELLER. The Seller is a corporation duly organized, validly existing and in - ------ good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate the Purchased Assets and to carry on the Subject Business as now being conducted, to enter into this Agreement, the Bill of Sale, Assignment and Assumption, the Trademark Assignment, the Copyright Assignment, and the Patent Assignment, and all other instruments related to any of the foregoing, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The Seller is duly qualified and in good standing to do business in all jurisdictions in which the failure to be so qualified and in good standing to do business would have a Material Adverse Effect. (b) AUTHORITY. The execution, delivery and performance of this --------- Agreement, the Bill of Sale, Assignment and Assumption, the Trademark Assignment, the Patent Assignment and all other instruments related to any of the foregoing, and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate action on the part of the Seller. This Agreement has been and the Bill of Sale, Assignment and Assumption, the Trademark Assignment, the Copyright Assignment, and the Patent Assignment will be duly and validly executed and delivered by the Seller, and when validly executed and delivered by the Buyer will be valid and binding obligations of the Seller, enforceable in accordance with their respective terms, subject, as to the enforcement of remedies, to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting creditors' rights generally and with respect to the remedy of specific performance, equitable doctrines applicable thereto. Except as set forth on SCHEDULE 4.1(b), neither the execution, delivery or performance --------------- of this Agreement, the Bill of Sale, Assignment and Assumption, and the Patent Assignment or all other instruments related to any of the foregoing, nor the consummation by the Seller of the transactions contemplated hereby and thereby, nor compliance by the Seller with any provision hereof or thereof will (i) conflict with or result in a breach of the Seller's Certificate of Incorporation or By-laws, (ii) violate, conflict with, result (with or without notice or the passage of time, or both) in a breach of or constitute (with or without notice, the passage of time, or both) a default under (or cause or give rise to any right of termination, cancellation, modification, imposition of fees or penalties or acceleration) the terms of any of the Assumed Contracts, which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect, (iii) require any consent, authorization or approval of any third party, including, without limitation, any consent to the assignment of any of the Assumed Contracts, other than those which if not obtained would not have a Material Adverse Effect, (iv) violate any Federal, state, local or foreign law, statute, rule, regulation, order, writ, judgment, injunction, award or decree of any court, administrative agency or governmental body applicable to the Seller, any of the Purchased Assets or the Subject Business, the violation of which would have a Material Adverse Effect or would prohibit consummation of the transactions contemplated hereby, (v) affect any license, permit or other governmental authorization or approval or any other right, privilege, agreement or contract in a manner which could reasonably by expected to have a Material Adverse Effect or (vi) result in or require the creation or imposition of any security interest, judgment, lien, charge, mortgage, conditional sales contract, pledge, claim, license or other encumbrance (collectively, "Claims") upon the Purchased Assets or the Subject Business. (c) NO CONSENT OR APPROVAL REQUIRED. Except with respect to the ------------------------------- filing of the pre-merger notification report under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the expiration of the applicable waiting period thereunder (which waiting period was granted early termination on December 31, 1996), and except as otherwise disclosed on SCHEDULE 4.1(c), no consent, authorization, approval, permit, --------------- license, exemption by or other order of, declaration to or filing with any Federal, state, local or foreign governmental authority is required (i) to be obtained by the Seller in connection with the execution, delivery and performance by the Seller of the transactions contemplated by this Agreement, the Bill of Sale, Assignment and Assumption, the Trademark Assignment, the Copyright Assignment, and the Patent Assignment, other than those which if not obtained -7- or made would not have a Material Adverse Effect or (ii) to prevent the termination, cancellation, modification, amendment or waiver of any right, privilege, license, agreement or contract of the Seller with respect to the Subject Business which, if terminated, canceled, modified, amended or waived, could reasonably be expected to have a Material Adverse Effect. (d) CAPITALIZATION. The authorized capital stock of the Seller is -------------- 1,000 shares of Common Stock, of which 100 shares are issued and outstanding. One hundred percent (100%) of the issues and outstanding shares of capital stock of the Seller is owned and controlled by Merisel. There are no outstanding warrants, options, agreements, convertible or exchangeable securities or other commitments pursuant to which the Seller is or may become obligated to issue, sell, purchase, retire or redeem any shares of capital stock or other securities. (e) FINANCIAL INFORMATION. SCHEDULE 4.1 (e) sets forth (i) the --------------------- ---------------- statements of revenues and operating expenses of the Subject Business for the fiscal years ended December 31, 1995 and 1994, and (ii) balance sheets of the Subject Business at November 23, 1996, June 29, 1996, and March 30, 1996, and income statements for each of the fiscal periods then ended (collectively, the "Financial Statements"). The Financial Statements, including the notes thereto, were prepared in accordance with generally accepted accounting principles consistently applied and present fairly, in all material respects, the revenues and operating expenses of the Subject Business for the periods indicated. (f) TAXES. Except as individually or in the aggregate would not be ----- reasonably expected to constitute a Material Adverse Effect, the Seller (i) has timely filed, or has had timely filed on its behalf, with the appropriate governmental agencies all required tax returns, (ii) is not delinquent in payment of any taxes claimed to be due by any taxing authority other than any taxes being protested in good faith by appropriate proceedings as set forth in SCHEDULE 4.1(f), and (iii) has paid or made on the Financial Statements adequate - --------------- provision or reserves for all taxes payable by it (including, but not limited to, Federal, state and local income, withholding, corporate, excise, real and personal property taxes, social security taxes, and any interest and penalties thereon). Except as set forth in SCHEDULE 4.1(f), the Seller has no knowledge --------------- of any actual or threatened assessment of deficiency or additional tax or other governmental charge, and there are no tax audits currently pending with respect to the Seller, nor, to the knowledge of the Seller, have any audits been proposed either in writing or orally. (g) NO UNDISCLOSED LIABILITIES. The Seller has no undisclosed liabilities or -------------------------- obligations (whether absolute, accrued, contingent or otherwise and whether due or to become due material to the Subject Business (the "Liabilities") that are not reflected in the Financial Statements. Since November 23, 1996, the Seller has not incurred any Liabilities except in the ordinary course of business or as otherwise permitted by this Agreement. (h) EQUITY INVESTMENTS. The Seller does not own, directly or ------------------ indirectly, any capital stock, partnership interest, joint venture interest or other ownership or proprietary interest in any other corporation, association, partnership, joint venture or other entity, including any Franchisee or Datago Purchaser. The Seller does not conduct any part of its business operations through any subsidiaries or through any other entity in which the Seller has an equity investment. (i) TITLE TO AND SUFFICIENCY OF PURCHASED ASSETS. The Seller owns and -------------------------------------------- has good, valid and transferable title to all of the Purchased Assets free and clear of any and all Claims, except for: (i) those Claims set forth on SCHEDULE -------- 4.1(i) and (ii) liens for current taxes not yet due and payable. Except as set - ------ forth in SCHEDULE 4.1(i) and except for (i) corporate, administrative and --------------- support services heretofore provided to the Subject Business by personnel employed by, and utilizing resources of, Merisel as set forth in SCHEDULE -------- 4.1(i), and (ii) compliance by the Buyer with applicable Federal and state franchise laws, including, without limitation, any regulatory filings required to be made by the Buyer in order to offer franchises in the Designated Territory, and assuming that the Buyer hires and has available to it immediately after the Closing the services of the employees of the Subject Business and further assuming that the Buyer assumes the Guarantees, the Purchased Assets are sufficient to permit the Buyer to operate the Subject Business immediately after the Closing in a manner substantially similar to the manner in which it is operated by the Seller immediately prior to the Closing; PROVIDED, HOWEVER, --------- ------- that nothing contained herein shall constitute a representation -8- and warranty by the Seller relating to the operating results of the Buyer in its ownership and management of the Subject Business. (j) REAL PROPERTY. The Seller does not own any real property. All ------------- leases under which the Seller is the lessee of real or personal property are listed on SCHEDULE 4.1(j) hereto and are valid, subsisting and enforceable --------------- leases. (k) ACCOUNTS RECEIVABLE. All of the Accounts Receivable constitute ------------------- legal, valid, binding and enforceable claims arising from bona fide transactions in the ordinary course of business of the Seller and are fully collectible when due without defense, offset or counterclaim, in the aggregate face amounts thereof, subject to the reserve for doubtful accounts reflected in the Financial Statements. (l) CONTRACTS. SCHEDULE 4.1(l) sets forth the following --------- --------------- (collectively, the "Operative Contracts"): (i) each of the Third Party Reseller Agreements; (ii) each supply agreement with any vendor pursuant to which the Seller purchases goods for resale to Third Party Resellers in effect on the date of this Agreement; (iii) each agreement or commitment containing a covenant limiting the freedom of the Seller (with respect to the Subject Business) to compete with any person, firm, corporation, partnership, joint venture or other enterprise or engage in any line of business in effect on the date of this Agreement; (iv) each agreement or commitment of the Seller whereby the Seller has guaranteed any obligations of a third party; and (v) each other contract, commitment or agreement of the Seller of any nature regardless of amount or subject matter in effect on the date of this Agreement (including but not limited to the Ad Fund Agreement and all agreements relating to services or licenses that the Seller provides to Franchisees) which is material to the financial condition, results of operations, properties, assets, liabilities (absolute, accrued, contingent or otherwise) or business of the Seller (with respect to the Subject Business). Except as set forth on SCHEDULE 4.1(l): (i) -------------- the Seller has performed in all material respects all obligations required to be performed by it to date and is not in breach of or default under (nor, to the knowledge of the Seller, is the Seller alleged to be in default, nor has any event occurred which, immediately, or upon the giving of notice or the passage of time or both, would constitute a default) under any Operative Contract where such failure to perform, breach or default, when taken together with all other existing failures to perform, breaches and defaults by the Seller under any Operative Contracts or such other instruments, agreements or contracts, could reasonably be expected to have a Material Adverse Effect; (ii) to the knowledge of the Seller, no other party is in default under any Operative Contract where such default, when taken together with all other defaults by other parties to any Operative Contracts or such other instruments, agreements or contracts, could reasonably be expected to have a Material Adverse Effect; (iii) each Operative Contract is a valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting creditors' rights generally and, with respect to the remedy of specific performance, equitable doctrines applicable thereto; and (iv) the Seller has not previously assigned or transferred any of its right, title or interest in and to any of the Assumed Contracts to any third party. Except as set forth on SCHEDULE 4.1(l), the ---------------- Seller has made available to the Buyer true and complete copies of all Operative Contracts. Each of the Seller and, to the knowledge of the Seller, the Trustee (as defined in the Ad Fund Agreement) has complied in all material respects with their obligations under the Ad Fund Agreement and is not in breach or default under (nor, to the knowledge of Merisel and Seller, is the Seller or the Trustee alleged to be in default under) the Ad Fund Agreement. (m) INTELLECTUAL PROPERTY RIGHTS. The Intellectual Property ---------------------------- constitutes all of the material names, trademarks, tradenames, service marks, logos, copyrights, patents and other intellectual property presently used by the Seller in the Subject Business. Except as set forth on SCHEDULE 4.1(m): (i) the ---------------- Seller has the right to use the Intellectual Property in the conduct of the Subject Business, (ii) the Seller has the right to sell and license to third parties for use in the Designated Territory the Intellectual Property owned by the Seller, to bring actions for the infringement thereof in the Designated Territory; (iii) there is no pending claim against the Seller alleging that any of the Intellectual Property infringes on any intellectual property rights of any party nor, to the knowledge of the Seller, is any such claim threatened; (iii) to the knowledge of the Seller, no party is infringing on the rights of the Seller in the Intellectual Property in the Designated Territory; (iv) the Seller has not granted any license or right to use any Intellectual Property; (v) the Seller has no knowledge of any claim by any other person that such other person is the legal owner of any of the -9- Intellectual Property owned by the Seller; and (vi) each of the Trademarks is in use by the Seller in the Designated Territory. (n) LITIGATION. Except as set forth on SCHEDULE 4.1(n), there are no ---------- -------------- (i) actions, suits, claims, investigations or legal or administrative or arbitration proceedings pending or, to the knowledge of the Seller, threatened, against the Seller with respect to the Subject Business or the Purchased Assets, whether at law or in equity, or before or by any Federal, state, municipal or other governmental authority or (ii) judgments, decrees, injunctions or orders of any court or governmental authority against the Seller which affect the Purchased Assets or the Subject Business. (o) COMPLIANCE; GOVERNMENTAL AUTHORIZATIONS. To the knowledge of the --------------------------------------- Seller, except as set forth on SCHEDULE 4.1(o), the Seller, in its conduct of ---------------- the Subject Business, (i) has complied in all material respects with all applicable Federal, state and local laws, ordinances, regulations, rules, statutes and orders (collectively, "Laws") applicable to its conduct of the Subject Business, the noncompliance with which could reasonably be expected to have a Material Adverse Effect, and (ii) has not received any written notice or complaint from any Federal, state or local governmental authority alleging that the Seller's conduct of the Subject Business is in violation of any Law. (p) BROKERS. Except as set forth on SCHEDULE 4.1(p), neither ------- --------------- Merisel, nor the Seller or any of their respective shareholders, directors, officers, employees or agents has engaged any broker or finder or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated hereby. (q) ABSENCE OF CERTAIN CHANGES. Except as set forth on SCHEDULE -------------------------- -------- 4.1(q), since November 23, 1996, the Seller (solely in respect of the Subject - ------ Business and the Purchased Assets) has not: (i) suffered any changes in its condition (financial or otherwise), business, net worth, assets, properties, operations, obligations or liabilities (fixed or contingent) which, in the aggregate, have had or may be reasonably expected to constitute (whether before or after the Closing Date) a Material Adverse Effect; (ii) suffered any theft, damage, destruction or casualty loss, which materially adversely affects the Subject Business or the Purchased Assets; (iii) sold, leased, transferred or otherwise disposed of any Purchased Asset except in the ordinary course of business, consistent with past practice; (iv) permitted any Purchased Asset to be subject to any Claim the imposition of which could reasonably be expected to have a Material Adverse Effect; (v) entered into, terminated, canceled, modified (in a manner materially adverse to the Seller), relinquished or waived or received notice of, or request for, termination, cancellation, modification, relinquishment or waiver of any substantial right or claim of the Subject Business or any Operative Contract; (vi) been subject to any labor dispute, material work stoppage or threat thereof by or with respect to the employees of the Subject Business; (vii) settled on its own behalf any material action or proceeding; or (viii) made any agreement to take any of the actions described in this Section 4.1(q). (r) PRODUCT WARRANTIES. There are no pending claims against the ------------------ Seller (with respect to the Subject Business) on account of product warranties or with respect to the sale by the Seller of defective or inferior products that would have a Material Adverse Effect, and to the knowledge of the Seller, there are no such threatened claims that could reasonably be expected to have a Material Adverse Effect. -10- (s) FRANCHISE MATTERS. The Seller has previously provided to the ----------------- Buyer a copy of a franchise offering circular currently being used by the Seller to offer and sell franchises, together with all exhibits thereto (the "Offering Circular"). Each of the franchise offering circulars, together with the exhibits thereto, other than the franchise agreements attached as exhibits thereto, used by the Seller in the Designated Territory are substantially similar in all material respects to the Offering Circular. SCHEDULE 4.1(s) sets --------------- forth a true and complete list of all formal filings made by the Seller after December 31, 1995, with any state or Federal regulatory authority with respect to franchising matters. True and complete copies of any formal orders of state or Federal regulatory authorities issued after December 31, 1995, with respect to such filings are attached to SCHEDULE 4.1(s). SCHEDULE 4.1(s) hereof sets --------------- --------------- forth a list of all Third Party Reseller Agreements terminated or not renewed and any notices of such termination or non-renewal received by the Seller during the twelve (12) months ending on the date of this Agreement. (t) EMPLOYMENT MATTERS. SCHEDULE 4.1(t) comprises a list of: (i) all ------------------ Employee Plans made available to employees of the Subject Business by the Seller as of the date hereof: (ii) all employment contracts with directors, officers, employees or consultants to which the Seller is a party or is subject as of the date of this Agreement with respect to the Subject Business, excluding mere offer letters; and (iii) all group insurance programs in effect for employees of the Seller with respect to the Subject Business. The Seller has made available to the Buyer complete and correct copies of all such written obligations and complete summaries of all such oral obligations. The Seller has no union contracts or collective bargaining agreements with, or any other obligations to, employee organizations or groups relating to the Seller's business, nor is the Seller currently engaged in any labor negotiations except in minor grievances not involving any employee organization or group, nor, to the knowledge of the Seller, is the Seller the subject of any union organization affecting its business. There is no pending or, to the knowledge of the Seller, threatened labor dispute, strike or work stoppage affecting the Seller's business. (u) ENVIRONMENTAL COMPLIANCE. Except as individually or in the ------------------------ aggregate would not be reasonably expected to constitute a Material Adverse Effect: (i) to the knowledge of the Seller, the Seller has all permits, licenses and other authorizations which are required under existing Environmental Laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or industrial, hazardous or toxic materials or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or sub-surface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals or industrial, hazardous or toxic materials or wastes; (ii) to the knowledge of the Seller, the Seller has no liability under, has never violated, and is presently in compliance with all Environmental Laws; (iii) the Seller has not generated, manufactured, refined, transported, produced or processed any hazardous material or solid waste, except in compliance with all applicable Environmental Laws; (iv) to the knowledge of the Seller, there are no existing environmental conditions or circumstances with respect to any real property owned or leased by the Seller, whether or not discovered, which could or does result in any damage, loss, cost, expense, claim, demand, or liability to or against the Seller by any third party (including, without limitation, any governmental authority); (v) there is no pending or, to the knowledge of the Seller, threatened civil or criminal litigation, notice of violation or administrative proceeding relating in any way to the Environmental Laws and naming the Seller or the Subject Business; (vi) no lien has been imposed on the Seller by any governmental agency at the U.S. federal, state, local or foreign level in connection with the presence of any hazardous materials; and (vii) to the knowledge of the Seller, there has been no disposal by the Seller, directly or indirectly, of any materials or wastes to, on or in any site currently listed or formally proposed to be listed on the U.S. National Priorities List under Superfund or any site listed or formally proposed to be listed as a major or priority cleanup site under any comparable state law. (v) ACCURACY OF INFORMATION. The statements, representations and ----------------------- warranties contained herein and the information furnished by or on behalf of Merisel and the Seller to the Buyer, its agents or representatives in connection with these transactions or this Agreement (including the information contained in the Schedules attached hereto) did not contain or shall not contain, at the respective times such information is or was delivered, any untrue statement of a material fact, nor did it omit or shall it omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. -11- 4.2 REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer ------------------------------------------- represents and warrants to Merisel and the Seller as follows: (a) ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER OF THE BUYER. ----------------------------------------------------------------- The Buyer is a corporation duly organized, validly existing and in good standing under the laws of California and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted, to enter into this Agreement, the Bill of Sales and Assumption and all other instruments related to any of the foregoing, to perform its obligations hereunder and thereunder and to consummated the transactions contemplated hereby and thereby. (b) AUTHORITY. The execution, delivery and performance of this Agreement, the --------- Bill of Sales and Assumption, and all other instruments related to any of the foregoing, and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action on the part of the Buyer. This Agreement has been and the Bill of Sale, Assignment and Assumption will be duly and validly executed and delivered by the Buyer, and when validly executed and delivered by the Seller will be valid and binding obligations of the Buyer, enforceable in accordance with their respective terms, subject, as to the enforcement of remedies, to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting creditors' rights generally and, with respect to the remedy of specific performance, equitable doctrines applicable thereto. Neither the execution, delivery of performance by the Buyer of this Agreement, the Bill of Sale, Assignment and Assumption or all other instruments related to any of the foregoing, nor the consummation by the Buyer of the transactions contemplated hereby or thereby, nor compliance by the Buyer with any provision hereof or thereof, nor compliance by the Buyer with any provision hereof or thereof will: (i) conflict with or result in a breach of the articles of incorporation or by-laws of the Buyer; (ii) violate, conflict with, result (with or without notice or the passage of time, or both) in breach of or constitute (with our without notice, the passage of time, or both) a default under (or cause or give rise to any right of termination, cancellation or acceleration) under the terms of any material contract or indenture to which the Buyer is a party which could reasonably be expected to impair the ability of the Buyer to consummate the transactions contemplated hereby or perform its obligations hereunder or have a material adverse effect on the business of the Buyer taken as a whole; (iii) require any consent, authorization or approval of any third party, other than those which if not obtained would not have a material adverse effect on the business of the Buyer taken as a whole; (iv) violate any provision of any Federal, state, local or foreign law, statute, rule or regulation or order, writ, judgment, injunction, award or decree of any court, administrative agency or governmental body applicable to the Buyer or would prohibit consummation of the transactions contemplated hereby; or (v) have a material adverse effect on the business of the Buyer taken as a whole. (c) NO CONSENT OR APPROVAL REQUIRED. Except with respect to the ------------------------------- filing of a pre-merger notification report under the HSR Act and expiration of the applicable waiting period (which waiting period was granted early termination on December 31, 1996), no consent, authorization, approval, permit, license, exemption by or other order of, declaration to or filing with any Federal, state or local governmental authority is required (i) to be obtained by the Buyer for the execution, delivery and performance of the transactions contemplated by this Agreement and the Bill of Sale, Assignment and Assumption, other than those which if not obtained would not have a Material Adverse Effect, or (ii) to prevent the termination, cancellation, modification, amendment or waiver of any right, privilege, license, agreement or contract of the Buyer which, if terminated, canceled, modified, amended or waived, could reasonably be expected to have a Material Adverse Effect. (d) BROKERS. Neither the Buyer, nor Synnex nor any of their ------- respective shareholders, directors, officers, employees or agents has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated hereby. ARTICLE V -12- PRE-CLOSING COVENANTS 5.1 GENERAL COVENANTS. During the period from the date of this ----------------- Agreement and continuing until the Closing Date or the earlier termination of this Agreement, each of the parties agrees (except to the extent that the other parties shall otherwise consent in writing) as follows: (a) ASSISTANCE IN CONSUMMATION OF THE AGREEMENT. Each of the parties ------------------------------------------- hereto shall provide all reasonable assistance to, and shall cooperate with, each other to bring about the consummation of the transactions contemplated herein as soon as possible in accordance with the terms and conditions of this Agreement. (b) REGULATORY AND OTHER AUTHORIZATIONS. Each party shall take all ----------------------------------- reasonable actions necessary to comply promptly with all legal requirements which may be imposed on such party with respect to this Agreement and shall promptly cooperate with and furnish information to the other party in connection with any such requirements imposed upon such other party in connection with the Agreement. Each party shall take all reasonable actions to obtain (and to cooperate with the other party in obtaining) any consent, authorization, order or approval of, or any exemption by, any governmental authority or other third party required to be obtained in connection with or contemplated by this Agreement, including, but not limited to the filing of the pre-merger notification report under the HSR Act. (c) COMMUNICATIONS. Neither party shall furnish any communication to -------------- the public relating to the transactions contemplated by this Agreement without the prior approval of the other parties as to the contents thereof. Nothing contained herein shall prevent either party at any time from furnishing any information to any governmental authority or from issuing any release where, in such party's reasonable judgment, it is legally required to do so. (d) CONDITIONS. Each party shall use all commercially reasonable ---------- efforts to cause each of the conditions set forth in Article VI under its control to be fulfilled on or prior to the Closing Date. 5.2 COVENANTS OF MERISEL AND THE SELLER. During the period from the ----------------------------------- date of this Agreement until the Closing Date or the earlier termination of this Agreement, each of Merisel and the Seller agrees (except to the extent that the Buyer shall otherwise consent in writing) as follows: (a) ORDINARY COURSE; MAINTENANCE OF PURCHASED ASSETS. The Seller ------------------------------------------------ shall carry on the Subject Business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent therewith, use all reasonable efforts consistent with past practice and policies to: (i) preserve intact the organizations and assets of the Subject Business; (ii) keep available the services of its present officers and key employees; (iii) preserve its relationship with customers, suppliers, licensors, sales representatives, Franchisees and others having business dealings with the Seller to the end that the Seller's goodwill and ongoing business shall not be materially impaired at the Closing Date; and (iv) maintain the Purchased Assets in customary repair, order and condition, reasonable wear and tear excepted. (b) NO SHOP. Prior to February 28, 1997, neither Merisel nor the Seller shall, ------- nor shall they authorize any of their respective directors, officers, employees or agents or any investment banker, attorney, accountant or other representative retained by them to, solicit or encourage (including by way of furnishing information) any inquiries or the making of any proposal which may reasonably be expected to lead to any "acquisition proposal" nor shall they accept any "acquisition proposal." Each of Merisel and the Seller shall promptly advise the Buyer orally and in writing of any such inquiries or proposals. As used in this paragraph, "acquisition proposal" shall mean any proposal for a merger or other business combination involving the Seller or for the acquisition of a substantial equity interest in the Seller or a substantial portion of the assets of the Seller other than the transactions contemplated by this Agreement. Notwithstanding the foregoing, nothing herein contained shall prevent Merisel, the Seller or any of their respective directors from taking such action as such party reasonably believes to be required by his or her fiduciary duties to the shareholders of Merisel or the Seller, whichever the case may be. -13- (c) SALARIES, BENEFIT PLANS, ETC. Except in the ordinary course of ---------------------------- business and consistent with prior practice, the Seller shall not increase any salaries or other compensation payable to its directors, officers, employees or consultants; provided, that in no event shall the aggregate amount of any such increases in salaries or payment of other compensation to employees or consultants exceed $200,000 in the aggregate on an annualized basis. In addition, except in the ordinary course of business and consistent with prior practice, the Seller shall not hire any additional employees or consultants, nor, except as required by law, shall it adopt or amend in any material respect any collective bargaining agreement or benefit plan or any other agreement with employees. (d) ACCESS TO INFORMATION. Each of Merisel and the Seller shall --------------------- afford to the Buyer and its accountants, legal counsel and other representatives, reasonable access during normal business hours to all of the Seller's properties, books, contracts, commitments and records relating to the Subject Business, and shall furnish promptly to the Buyer all information concerning the Subject Business as the Buyer may reasonably request. The Buyer shall not use such information for purposes other than this Agreement and shall otherwise hold such information in confidence pursuant to the terms of the Confidentiality Agreement dated September 4, 1996, between the Seller and the Buyer, except as required by law. (e) BULK SALES. To the extent the transactions contemplated in this ---------- Agreement are deemed to be subject to compliance with the terms of Division 6 of the California Commercial Code (the "Bulk Sales Act"), the Seller shall be solely responsible for compliance therewith and each of Merisel and the Seller shall indemnify the Buyer from and against any liabilities arising from a failure to comply as provided in Section 10.1(f). (f) UPDATE OF SCHEDULE 2.1(g). At least ten (10) calendar days prior ------------------------- to the Closing Date, the Seller shall prepare and deliver to the Buyer a balance sheet for the Subject Business at December 28, 1996, which shows accounts receivable, accounts payable and fixed assets, and which shall specify any adjustments required thereby to either Schedule 2.1(g) or Schedule 2.3(c). The Seller hereby covenants that such balance sheet shall be prepared in accordance with generally accepted accounting principles consistently applied and shall present fairly, in all material respects, the financial condition of the Subject Business on the date indicated. (g) USE OF NAME. Each of Merisel and the Seller shall sign ----------- such consents and take such other action, in each case conditional upon the Closing, as the Buyer shall reasonably request in order to permit the Buyer to use the name "ComputerLand" and variants thereof in the Designated Territory. Without limiting the generality of the foregoing, each of Merisel and the Seller shall use its best efforts to cause Computerland of San Diego, Inc. to execute and deliver to the Buyer as soon as reasonably practicable hereafter a Certificate of Amendment wherein it changes its corporate name so as to eliminate all reference to the word "Computerland" or variants thereof. 5.3 COVENANT OF SYNNEX AND THE BUYER. During the period from the -------------------------------- date of this Agreement until the Closing Date or the earlier termination of this Agreement, each of Synnex and the Buyer agrees (except to the extent that the Seller shall otherwise consent in writing) to negotiate in good faith with Vanstar to enter into a new distribution agreement. -14- ARTICLE VI CONDITIONS PRECEDENT TO CLOSING 6.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS. The obligations of the -------------------------------------- Seller to sell the Purchased Assets, and of the Buyer to purchase the Purchased Assets and assume the Assumed Obligations, are subject to the satisfaction of the following conditions unless waived (to the extent such conditions can be waived) by the Seller or the Buyer, as applicable: (a) GOVERNMENT CONSENTS; AUTHORIZATIONS. All material consents, ----------------------------------- authorizations, orders or approvals of, and filings or registrations with or expiration of waiting periods imposed by, any Federal, state or local governmental body which are required for or in connection with the execution and delivery by the Seller of this Agreement, the Bill of Sale, Assignment and Assumption and the consummation of the transactions contemplated hereby and thereby, and the transfer to the Buyer of the Purchased Assets, shall have been obtained or made. (b) LEGAL ACTION. No temporary restraining order, preliminary ------------ injunction or permanent injunction or other order preventing the consummation of transactions contemplated hereby shall have been issued by any Federal or state court and remain in effect. Each party agrees to use its best efforts to have any such injunction or order lifted. (c) LEGISLATION. No Federal, state or local statute, rule or ----------- regulation or ordinance shall have been enacted which prohibits, restricts or delays the consummation of the transactions contemplated hereby or any of the conditions to the consummation of such transactions. (d) NEW DISTRIBUTION AGREEMENT. The Buyer shall have entered into a -------------------------- new Distribution Agreement with Vanstar in a form acceptable to the Buyer. (e) NEW SUBLEASE AGREEMENT. The Buyer shall have entered into a new ---------------------- Sublease Agreement with Vanstar on terms which are reasonably similar to the terms of the Vanstar Sublease. (f) REBATE AGREEMENT. Merisel and the Buyer (or an affiliate of the ---------------- Buyer) shall have entered into the Rebate Agreement. (g) VANSTAR CONSENT. Written consent to the consummation of the --------------- transactions contemplated herein shall have been obtained from Vanstar. (h) THIRD PARTY CONSENTS. Written consents to the consummation of the -------------------- transactions contemplated herein on terms reasonably satisfactory to the Seller shall have been obtained from the persons listed in SCHEDULE 6.1(h). --------------- 6.2 CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligation of the -------------------------------------- Buyer to purchase the Purchased Assets and assume the Assumed Obligations is subject to the satisfaction of the following conditions unless waived (to the extent such conditions can be waived) by the Buyer: (a) REPRESENTATIONS AND WARRANTIES. The representations and ------------------------------ warranties of the Seller set forth in Section 4.1 shall be true and correct in all material respects as of the Closing Date as though made at and as of the Closing Date, and the Buyer shall have received a certificate from the Seller signed by an authorized officer of the Seller to that effect. (b) PERFORMANCE OF OBLIGATIONS OF THE SELLER. Each of Merisel and the ---------------------------------------- Seller shall have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Closing, and the Buyer shall have received a certificate from the Seller signed by an authorized officer of the Seller to -15- that effect. (c) AUTHORIZATION. All action necessary to authorize the execution, ------------- delivery and performance by the Seller of this Agreement and all ancillary agreements in connection herewith and the consummation by the Seller of the transactions contemplated hereby and thereby shall have been duly and validly taken by the Seller and the Buyer shall have received all such counterpart originals, certified or other copies of such documents as the Buyer may reasonably request. (d) BILL OF SALE, ASSIGNMENT AND ASSUMPTION; CONVEYANCE INSTRUMENTS. --------------------------------------------------------------- The Seller shall have duly executed and delivered to the Buyer the Bill of Sale, Assignment and Assumption, the Trademark Assignment, the Copyright Assignment, the Patent Assignment and such other instruments of conveyance and transfer as shall be reasonably requested by the Buyer to effect the transfer of the Purchased Assets. (e) THIRD PARTY CONSENTS. Written consents to the consummation of the -------------------- transactions contemplated herein on terms reasonably satisfactory to the Buyer shall have been obtained from: (i) the lenders under that certain Credit Agreement, dated April 13, 1995, as amended, and (ii) Rosewood Associates (as landlord of the Pleasanton facility). (f) VENDOR LETTERS. The Buyer shall have received letters in a form -------------- satisfactory to the Buyer from at least five of the following six vendors - Apple Computer, Compaq Computer, Hewlett Packard Company, IBM, NEC and Toshiba - pursuant to which such vendor consents in writing to: (i) the distribution of its products by the Buyer after the Closing on terms and conditions similar to the Seller's current arrangements with Vanstar respective to such vendor; and (ii) continue its then-current relationship and arrangements with the Buyer after the termination of the Vanstar Distribution and Services Agreement. (g) AD FUND AGREEMENT. The Buyer shall have received that portion of ----------------- the corpus of the trust under the Ad Fund Agreement held for the benefit of the Franchisees to the extent of the Seller's interest therein, and a new trustee thereunder, designated by the Buyer, shall have been appointed. (h) TERMINATION OF VANSTAR AGREEMENTS. The Vanstar Sublease and the --------------------------------- Vanstar Distribution and Services Agreement shall have been terminated by mutual agreement of Vanstar and the Seller, and the Seller shall have provided the Buyer with written evidence of same. (i) ESCROW AGREEMENT. Merisel, the Seller and the escrow agent ---------------- thereunder shall have duly executed and delivered to the Buyer the Escrow Agreement. (j) REPURCHASE AGREEMENTS. The Buyer shall have entered into --------------------- repurchase agreements reasonably similar to the form agreement attached hereto as Exhibit "G" (the "Buyer Repurchase Agreements") with each of the finance companies listed on SCHEDULE 6.2(j). --------------- (k) PURCHASE OF VANSTAR EXTENDED OBLIGATION. Synnex shall have --------------------------------------- entered into an agreement to purchase the Vanstar Extended Obligation from the current holder(s) thereof on terms acceptable to the Buyer. 6.3 CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligation of the --------------------------------------- Seller to sell the Purchased Assets to the Buyer is subject to the satisfaction of the following conditions unless waived (to the extent such conditions can be waived) by the Seller: (a) REPRESENTATIONS AND WARRANTIES. The representations and ------------------------------ warranties of the Buyer set forth in Section 4.2 shall be true and correct in all material respects as of the Closing Date as though made at and as of -16- the Closing Date, and the Seller shall have received a certificate from the Buyer signed by an authorized officer of the Buyer to that effect. (b) PERFORMANCE OF OBLIGATIONS OF THE BUYER. Each of Synnex and the --------------------------------------- Buyer shall have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Closing, and the Seller shall have received a certificate from the Buyer signed by an authorized officer of the Buyer to that effect. (c) AUTHORIZATION. All action necessary to authorize the execution, ------------- delivery and performance of this Agreement and the Bill of Sale, Assignment and Assumption by the Buyer and the consummation of the transactions contemplated hereby and thereby shall have been duly and validly taken by the Buyer and the Seller shall have received all such counterpart originals or certified or other copies of such documents as the Seller may reasonably request. (d) BILL OF SALE, ASSIGNMENT AND ASSUMPTION. The Buyer shall have --------------------------------------- duly executed and delivered to the Seller the Bill of Sale, Assignment and Assumption and such other instruments of assumption as shall be reasonably requested by the Seller to effect the assumption by the Buyer of the Assumed Obligations. (e) EMPLOYEES. The Buyer shall have extended offers of employment to --------- all employees of the Seller that are not expressly listed in SCHEDULE 6.3(e) --------------- attached hereto, which Schedule may be updated by the Buyer prior to the Closing (provided that at the Closing the Buyer shall offer employment to substantially all of the Seller's employees), with such employment to be effective as of the Closing Date, on general terms of employment, including base salary, commission, bonus, benefits and similar arrangements, substantially comparable when taken as a whole to those under which each such employee was employed by the Seller immediately prior to the Closing (recognizing that individual differences in specific terms of employment may exist), and which terms shall include a severance package providing that if any employee is terminated by the Buyer without cause within ninety (90) days or more following the Closing Date, such employee shall be entitled to receive a severance payment from the Buyer equal to the amount he or she would have received from the Seller had such employee been terminated without cause by the Seller as of the Closing Date. Such employment by the Buyer, if accepted by the respective employee, shall commence on the first calendar day immediately following the Closing Date. (f) RELEASE. Merisel and the Seller shall have received from Vanstar ------- a release of all of its duties, obligations and liabilities in connection with the Vanstar Distribution Agreement and the Vanstar Sublease, except for those listed in SCHEDULE 6.3(F). --------------- (g) GUARANTEES. The Buyer shall have either (i) assumed the ---------- Guarantees by including them as assumed liabilities in Schedule 2.3(c), or (ii) procured for the Seller from the guaranteed parties releases of all of the Seller's duties, obligations and liabilities under such Guarantees. ARTICLE VII CLOSING; POST-CLOSING ADJUSTMENTS 7.1 CLOSING. Subject to the terms and conditions of this Agreement, ------- the consummation of the transactions contemplated by this Agreement shall take place at a closing (the "Closing") to be held as soon as practicable following the satisfaction or waiver of all of the conditions set forth in Article VI (with the date on which such Closing takes place referred to as the "Closing Date"). The Closing shall be held at the offices of Baker & McKenzie, 660 Hansen Way, Palo Alto, California 94304, or at such other place as the Buyer and the Seller may agree, and shall be deemed effective at 12:01 a.m. on the first calendar day immediately following the Closing Date. Except as otherwise provided herein, the Closing may be conducted by means of exchange of documents via facsimile with original documents to be exchanged by overnight mail. -17- 7.2 POST-CLOSING AUDIT. Promptly following the Closing, the Seller ------------------ shall prepare a balance sheet for the Subject Business as of the Closing Date, which shall be prepared in the form of Schedule 2.1(g) (collectively, the "Closing Balance Sheet"). The Closing Balance Sheet shall also specify the adjustments, if any, to be made to the Accounts Receivable set forth in Schedule 2.1(g) and/or the Assumed Obligations set forth in Schedule 2.3(c) (as each may have been updated in accordance with Section 5.2(f)) determined in accordance with Section 7.4. ). The Seller hereby covenants that the Closing Balance Sheet shall be prepared in accordance with generally accepted accounting principles consistently applied and shall present fairly, in all material respects, the financial condition of the Subject Business on the date indicated. The Seller shall deliver the Closing Balance Sheet to the Buyer promptly upon its completion, but in no event later than twenty-one (21) calendar days after the Closing Date, unless the Closing Date does not coincide with the end of a calendar month, in which case the Seller shall have thirty (30) days from the Closing Date to deliver the Closing Balance Sheet to the Buyer. 7.3 REVIEW BY THE BUYER. ------------------- (a) The Buyer may review, either itself or through its financial advisors, the Closing Balance Sheet and the adjustments to the Purchased Assets or the Assumed Obligations, if any. If the Buyer disputes any matter contained in the Closing Balance Sheet, it shall notify the Seller in writing (the "Dispute Notice") within fifteen (15) calendar days from its receipt thereof. If the Buyer does not provide the Seller with the Dispute Notice within this period, the Closing Balance Sheet shall be deemed to be the "Final Balance Sheet," and the adjustments contained therein to the Purchased Assets or the Assumed Obligations, if any, will be deemed to be the "Final Purchase Price Adjustments" for all purposes of this Agreement. (b) If the Buyer timely delivers to the Seller a Dispute Notice, the Buyer and the Seller shall negotiate in good faith to attempt to resolve the matters disputed. Any matter in the Dispute Notice which is not resolved within fifteen (15) days after the Seller's receipt of the Dispute Notice shall be submitted to an independent big six accounting firm acceptable to each of the parties (the "Independent Accountant") for resolution. Each party shall furnish, at its own expense, such documents and information as the Independent Accountant may request. Each party may also furnish to the Independent Accountant such other information as it deems relevant provided appropriate copies and notification thereof is given to the other party. The fees and expenses of the Independent Accountant shall be shared equally by, on the one hand, Merisel and the Seller and, on the other hand, Synnex and the Buyer. The Independent Accountant shall promptly render its decision on any disputed matters in writing and such decision shall be final and binding. The Closing Balance Sheet and the adjustments to the Purchased Assets or the Assumed Obligations contained therein, as either may be modified by the Independent Accountant, shall be deemed for all purposes of this Agreement to be the "Final Balance Sheet" and the "Final Purchase Price Adjustments," respectively. 7.4 ADJUSTMENT TO ACCOUNTS RECEIVABLE AND/OR ASSUMED OBLIGATIONS. ------------------------------------------------------------ If, in accordance with the Final Balance Sheet, the book value of the Accounts Receivable (after subtracting any reserves for doubtful accounts as of the Closing) is greater than the book value of the Assumed Obligations (not including the Vanstar Extended Obligation), then either Schedule 2.1(g) shall be modified so as to eliminate certain assets of the Seller or Schedule 2.3(c) shall be modified so as to include additional liabilities of the Seller so that the book value of the Accounts Receivable is equal to the book value of the Assumed Obligations (not including the Vanstar Extended Obligation). Conversely, if, in accordance with the Final Balance Sheet, the book value of the Accounts Receivable (after subtracting any reserves for doubtful accounts as of the Closing) is less than the book value of the Assumed Obligations (not including the Vanstar Extended Obligation), then either Schedule 2.1(g) shall be modified so as to include certain additional assets of the Seller or Schedule 2.3(c) shall be modified so as to eliminate certain liabilities of the Seller so that the book value of the Accounts Receivable (after subtracting any reserves for doubtful accounts as of the Closing) is equal to the book value of the Assumed Obligations (not including the Vanstar Extended Obligation). -18- 7.5 ADDITIONAL ASSIGNMENT AND/OR ASSUMPTION BASED ON FINAL ------------------------------------------------------ ADJUSTMENTS. If, based on the Final Balance Sheet, an adjustment is required to - ----------- either Schedule 2.1(g) or Schedule 2.3(c) pursuant to Section 7.4, the parties shall hold a post-Closing (the "Post-Closing") either by mail and telephone or in person at the same location as the Closing, no later than the fifth (5/th/) Business Day after the determination of the Final Balance Sheet. (a) If Schedule 2.1(g) has been modified so as to eliminate certain assets of the Seller or Schedule 2.3(c) has been modified so as to include additional liabilities of the Seller, then the parties shall execute and deliver at the Post-Closing an additional bill of sale, assignment and assumption agreement in the same general form as the Bill of Sale, Assignment and Assumption, pursuant to which the Buyer shall assign back to the Seller those assets eliminated from Schedule 2.1(g) and/or the Buyer shall assume the additional liabilities of the Seller added to Schedule 2.3(c), whichever the case may be. (b) If Schedule 2.1(g) has been modified so as to include certain additional assets of the Seller or Schedule 2.3(c) has been modified so as to eliminate certain liabilities of the Seller, then the parties shall execute and deliver at the Post-Closing an additional bill of sale, assignment and assumption agreement in the same general form as the Bill of Sale, Assignment and Assumption, pursuant to which the Seller shall transfer to the Buyer those assets added to Schedule 2.1(g) and/or the Seller shall assume back from the Buyer the liabilities eliminated from Schedule 2.3(c), whichever the case may be. (c) If, for whatever reason, the adjustments mandated by the Final Balance Sheet can not be effected through the assignment of additional assets and/or the assumption of liabilities in accordance with either Section 7.5(a) or (b), then the party which realized the windfall shall pay to the other party on or before the Post-Closing an amount in cash equal to the difference between the book value of the Accounts Receivable (after subtracting any reserves for doubtful accounts as of the Closing) and the book value of the Assumed Obligations (not including the Vanstar Extended Obligation); provided, however, that if it is determined that the Buyer owes cash to the Seller hereunder, as an alternative to receiving cash the Seller may deduct such amount owed from amounts otherwise payable by the Seller under the Rebate Agreement. ARTICLE VIII POST-CLOSING COVENANTS 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations ------------------------------------------ and warranties of the Seller contained in Section 4.1 and the representations and warranties of the Buyer contained in Section 4.2 shall survive for a period of fifteen (15) months from the Closing Date; provided, however, that (i) the -------- -------- representations and warranties of the Seller contained in Section 4.1(f) relating to tax returns and tax liabilities and the representations and warranties of the Seller contained in Section 4.1(s) relating to franchise matters shall survive until the expiration of the applicable statutes of limitation plus a period of sixty (60) days (each of the foregoing termination dates, a "Survival Date"), and (ii) the limitation on the period for the survival of representations and warranties shall not apply to any fraudulent breach or misrepresentation or to an inaccuracy in any representation which, to the knowledge of the party making the representation, was known to be inaccurate as of the Closing Date. Any representation or warranty which would otherwise terminate after a Survival Date shall survive until the final adjudication or settlement of any claim for the breach thereof if notice of any inaccuracy or breach thereof, including a reasonably detailed description of such alleged inaccuracy or breach, shall have been given in writing to the Seller or the Buyer, as the case may be, on or prior to the Survival Date. 8.2 MERISEL'S AND THE SELLER'S RESTRICTIVE COVENANT. ----------------------------------------------- (a) From the Closing Date until the ninth (9/th/) monthly anniversary of the Closing Date, neither Merisel, nor the Seller, nor any of their respective affiliated or related companies shall, directly or indirectly, engage in -19- the Aggregation Business in the Designated Territory. In addition, from the Closing Date until the thirty-sixth (36/th/) monthly anniversary of the Closing Date, neither Merisel, nor the Seller, nor any of their respective affiliated or related companies shall, directly or indirectly, engage in the business of franchising or licensing of third parties to operate businesses that sell computers, computer components or similar products or services in the Designated Territory. The above notwithstanding, nothing herein contained shall prohibit Merisel from continuing to sell products in connection with the distribution business of Merisel in effect as of the date hereof, including, without limitation, to customers of the Buyer. (b) Each of Merisel and the Seller has carefully considered the nature and extent of the restrictions set forth herein and acknowledges that the same are reasonable with respect to scope, duration and territory. It is the desire and intent of the parties hereto that the provisions of this Section 8.2 be enforced to the fullest extent permissible under the laws and public policies of each jurisdiction in which enforcement thereof is sought. Accordingly, if any provision of this Section 8.2 shall be adjudicated to be invalid or unenforceable, such provision, without any action on the part of the Seller or the Buyer, shall be deemed amended to delete therefrom or to modify provisions thereof so as to restrict (including, without limitation, a reduction in duration, geographical area or prohibited business activities) the portion adjudicated to be invalid or unenforceable, with such deletion or modification to apply only with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made, and such deletion or modification to be made only to the extent necessary to cause the provision as amended to be valid and enforceable. It is further acknowledged that any monetary remedy for any breach of the Seller's covenant set forth in Section 8.2(a) will be inadequate and that the Buyer will be entitled to temporary and permanent injunctive relief against the Seller in addition to any other relief or remedies to which the Buyer may be entitled, without the necessity of proving actual damages. 8.3 BOOKS AND RECORDS. The Seller shall not dispose of any records ----------------- of the Seller relating to the Subject Business during the five-year period commencing with the Closing Date without the Buyer's prior written consent, which consent shall not be unreasonably withheld. Following the expiration of such five-year period, the Seller may dispose of such records at any time following ninety (90) days' prior written notice to the Buyer. During such ninety (90) day period, the Buyer shall have the right, at the Buyer's sole expense, to take possession of all or any part of such records at a time to be agreed upon by the Seller and the Buyer. In addition to the foregoing, the Seller shall provide to the Buyer copies of, and the Buyer shall have the nonexclusive right to use within the Designated Territory, (i) all mailing addresses of and other data relating to the Franchisees and Datago, (ii) all vendor lists relating to the Subject Business and (iii all forms, catalogs, brochures, advertising materials, training and marketing manuals and franchise and Datago operating manuals relating to the Subject Business. 8.4 RENEWALS AND ASSIGNMENTS OF FRANCHISE AGREEMENTS. From and after ------------------------------------------------ the Closing Date, for each Franchisee with whom the Buyer renews or assigns a Franchise Agreement, the Buyer shall cause such Franchisee to enter into a new franchise agreement with the Buyer and to release the Seller from its obligations thereunder as a condition to such renewal or assignment. 8.5 CONFIDENTIALITY MATTERS. ----------------------- (a) At the Closing, the Seller shall assign to the Buyer all of the Seller's respective right, title and interest in any confidentiality agreements to the extent such agreements pertain to the sale of the Subject Business entered into by the Seller in connection with the sale of the Subject Business and, if available, shall deliver to the Buyer the executed originals of such agreements. The Seller shall not amend, modify or supplement, or grant and consent or waiver under or with respect to, and of such confidentiality agreements without the Buyer's prior written consent. (b) From and after the Closing, each of Merisel, the Seller and the Buyer shall maintain the confidentiality of all confidential or proprietary information of the other party, including marketing, advertising, and promotional methods, agreements with vendors, manufacturers, distributors and other suppliers, Franchise Agreements, Datago Agreements, customer lists, pricing policies, financial information, sales volume, inventory procedures and amounts, logistic systems, computer programs (including source code and object code), ideas, concepts, processes, -20- research and development and other information related to the business or customers of such other party (collectively, "Confidential Information"). Neither party shall use (except in connection with this Agreement or the transactions contemplated hereby), transfer, release, publish or disclose, directly or indirectly, any Confidential Information of the other party, without such other party's prior written consent, except as required by law. Confidential Information does not include any information that (i) becomes generally known or available to the public, through no fault of such party, (ii) was known by such party, without any obligation of confidentiality, prior to the date hereof, or (iii) is lawfully obtained by such party after the date hereof from a third party not bound by any obligation of confidentiality to the other party. Each party understands that the other party will not have an adequate remedy at law for a breach or threatened breach by such party of the terms of this Section and therefore agrees that in the event of such a breach or threatened breach, the other party may obtain an injunction or restraining order to enjoin such breach or threatened breach, in addition to any other available remedy. (c) The letter agreement dated September 4, 1996 (the "Confidentiality Agreement") relating to the confidentiality obligations of Synnex, the Seller and Merisel with respect to information obtained by Synnex in connection with the review of the Subject Business shall remain in full force and effect in the event of the termination of this Agreement for any reason whatsoever prior to the Closing. 8.6 POST-CLOSING COOPERATION. Each of Merisel and the Seller shall ------------------------ cooperate with the Buyer and assist, where feasible, to ensure an orderly transfer of the Purchased Assets to the Buyer. Without limiting the generality of the foregoing, each of Merisel and the Seller shall cooperate to achieve a smooth transition to the Buyer of those aspects of the Datago business conducted by Merisel, including without limitation, by providing any phone numbers, order processing systems and salespeople employed in the Datago business. 8.7 NO SOLICITATION OF EMPLOYEES. Except as provided in Article IX, ---------------------------- for a period of one (1) year after the Closing Date, each of Merisel, the Seller and the Buyer shall not solicit the employees of the other. 8.8 FINANCIAL STATEMENTS. After the Closing, at the written request -------------------- of the Buyer, and at the Buyer's expense, each of Merisel and the Seller shall cooperate with the Buyer and its accountants to prepare, modify or provide additional information with respect to any financial statements or schedules relating to the Subject Business. 8.9 FURTHER ASSURANCES. ------------------ (a) Each of Merisel and the Seller shall, at any time and from time to time after the Closing, upon the written request of the Buyer, do, execute, acknowledge and deliver, and cause to be done, executed, acknowledged or delivered, such reasonable further acts, deeds, assignments, transfers, conveyances, or assurances as may be reasonably required for (i) the better transferring, assigning, conveying, granting, assuring and confirming to the Buyer, or for aiding and assisting in the collection of or reducing to possession by the Buyer, the Purchased Assets, and (ii) the fulfillment of the purposes of this Agreement. The Buyer shall, at any time and from time to time following the Closing, at the request of the Seller, execute, acknowledge and deliver, and cause to be done, executed, acknowledged and delivered, such reasonable further acts, deeds, assumptions or assurances as may be reasonably required for (i) the better assuming by the Buyer of the Assumed Obligations, and (ii) the fulfillment of the purposes of this Agreement. (b) Each of Merisel and the Seller shall promptly pay or deliver to the Buyer any amounts or items which shall be received by the Seller following the Closing which constitute Purchased Assets and any moneys, checks or other instruments of payment to which the Buyer is entitled after the Closing under the Assumed Contracts. The Buyer shall promptly pay or deliver to the Seller or, at the option of Merisel, to Merisel any amounts or items which shall be received by the Buyer following the Closing which belong to the Retained Businesses. 8.10 USE OF NAME. From and after the Closing Date, each of Merisel ----------- and the Seller shall sign such consents and take such other action as the Buyer shall reasonably request in order to permit the Buyer to use the name "ComputerLand" and variants thereof in the Designated Territory. From and after the Closing Date, neither Merisel nor -21- the Seller shall use the name "ComputerLand" or any names similar thereto or variants thereof except in connection with a discussion of their historical businesses. ARTICLE IX EMPLOYMENT MATTERS 9.1 OBLIGATIONS OF THE BUYER. ------------------------ (a) Except as set forth in Section 6.3(e), the Buyer shall have no obligation, to offer employment to any of the Seller's employees. In connection herewith, the Buyer acknowledges that the Seller makes no representation that any of its employees will accept the Buyer's offer of employment. In addition, the parties acknowledge and agree that the Buyer shall have no liability with respect to the employment or termination of employment of any of the Seller's employees who are offered employment with the Buyer, but do not accept such offer. (b) In the event the Buyer does offer employment to any of the Seller's employees and such offer is accepted, however, the Buyer shall credit those employees with the full length of their period of service during which he or she was employed by the Seller for purposes of determining their vesting under, eligibility to participate in, and the accrual of benefits under, the employee benefit plans (as such term is defined in Section 3(3) of ERISA) of the Buyer. (c) Except as expressly set forth in Section 9.1(b), the Buyer shall have no liability for accrued wages (including salaries and commissions), severance pay, sick leave or other benefits, or employee plans of any type or nature on account of the Seller's employment of or termination of its employees. Each of Merisel and the Seller shall, jointly and severally, indemnify and hold harmless each of the Buyer and Synnex from and against any liability arising out of any claims for such pay or benefits or any other claims arising from the Seller's employment of or termination of its employees. 9.2 EMPLOYEE PLANS. The Buyer is not assuming any of the Employee -------------- Plans of the Seller, and the Buyer shall have no liability whatsoever to employees of the Seller or to the Seller with respect to accrued or future benefits under any such Employee Plans, whether or not any of such employees are offered employment by, or become employees of, the Buyer, and each of Merisel and the Seller shall defend, indemnify and hold each of Synnex and the Buyer harmless against any claims by the Seller's employees under such Employee Plans, including, but not limited to, claims for severance under the existing Employee Plans by employees of the Seller that accept the Buyer's offer of employment in accordance with Section 6.3(e). 9.3 OBLIGATIONS OF THE SELLER. ------------------------- (a) The Seller shall (i) deliver to the Buyer no later than ten (10) days prior to the Closing a list of all employees of the Seller then employed in conducting the Subject Business, and (ii) be responsible for all liabilities that have accrued with respect to periods ending prior to the Closing Date with respect the employees of the Subject Business. (b) The Seller acknowledges that, from and after the Closing Date, the Buyer shall have the right, subject to the Buyer's obligations set forth in Section 9.1, to make all decisions regarding employment matters based in its sole determination as to the Buyer's business needs and performance of its employees. ARTICLE X INDEMNIFICATION -22- 10.1 INDEMNIFICATION BY MERISEL AND THE SELLER. Subject to the terms ----------------------------------------- and conditions of this Agreement, including Section 10.5, each of Merisel and the Seller (the "Seller Indemnitors"), jointly and severally, shall indemnify and hold harmless the Buyer and its successors and assigns (the "Buyer Indemnitees") from and against any and all losses, damages, costs, obligations, liabilities and expenses (including reasonable attorneys' fees) (collectively, "Losses") incurred by any Buyer Indemnitee as a result of any of the following: (a) the breach of any representation and warranty of Merisel or the Seller set forth in Section 4.1 of this Agreement; (b) the breach of any covenant or agreement required to be performed by Merisel or the Seller under this Agreement, including under any of the agreements attached hereto as Exhibits; (c) any liability arising out of any Excluded Obligation; (d) any liability arising out of the Retained Businesses, including liabilities under any Employee Plan; (e) any brokerage or finders' fees arising out of the transactions contemplated hereby owing or claimed to be owing to any party engaged by the Seller; and (f) any liability arising from the failure to comply with the Bulk Sales Act in connection with the transactions contemplated hereby; (g) any liability arising out of any of the Seller's repurchase agreements with finance companies relating to the sale of products by the Seller prior to the Closing; and (h) liabilities up to a maximum of US$ 200,000 (less the amount of severance payments, if any, actually made by the Seller to those employees listed in Schedule 6.3(e)) for severance pay to employees of the Seller who accept employment with the Buyer that result from the termination by the Buyer of such employees without just cause within the first ninety (90) days following the Closing Date; (i) any severance liabilities payable to Martin Fishman or Donna Straff or any other liabilities arising out of the termination of Martin Fishman or Donna Straff in connection with the Closing of this transaction; provided that such liabilities arise within the first year after the Closing Date; (j) any liability arising out of any activities of the Seller prior to the Closing; (k) any liabilities or penalties relating to the Seller's activities in connection with the offer and sale of franchises and Third Party Reseller Agreements prior to the Closing or its failure to comply with all laws, rules, regulations and ordinances applicable to its dealings with such Third Party Resellers, including without limitation, federal and state antitrust, unfair and deceptive acts and practices and fair competition laws and state franchise or dealership relationship or termination laws (which indemnity expressly shall survive until the expiration of the applicable statutes of limitation relating to foregoing activities); and (l) any other liabilities of the Seller which the Buyer is not specifically assuming, including, without limitation, any liabilities not disclosed to the Buyer in this Agreement or the Exhibits and Schedules hereto. -23- 10.2 INDEMNIFICATION BY SYNNEX AND THE BUYER. Subject to the terms --------------------------------------- and conditions of this Agreement, including Section 10.5, each of Synnex and the Buyer (the "Buyer Indemnitors"), jointly and severally, shall indemnify and hold harmless Merisel and the Seller and their successors and assigns (the "Seller Indemnitees") from and against any and all Losses incurred by any Seller Indemnitee as a result of any of the following: (a) the breach of any representation and warranty of the Buyer set forth in Section 4.2; (b) the breach of any covenant or agreement required to be performed by Synnex or the Buyer under this Agreement, including under any of the agreements attached hereto as Exhibits; (c) any liability arising out of any Assumed Obligation, including any liabilities relating to the Assumed Contracts arising out of activities of the Buyer subsequent to the Closing Date; (d) any brokerage or finders' fees arising out of the transactions contemplated hereby owing or claimed to be owing to any party engaged by the Buyer; (e) any liability arising out of any of the Buyer Repurchase Agreements which relate to the sale of products after the Closing; (f) any severance payments in excess of US $200,000 that are required to be paid by the Seller due to the termination of the employees listed on Schedule 6.3(e); (g) any liabilities arising under the Federal Worker Adjustment and Retraining Notification Act (U.S.C.A. (S)(S) 2101 - 2109) if the number of employees listed on Schedule 6.3(e) plus the number of employees of the Subject Business terminated by the Buyer without cause within the first four months following the Closing Date exceeds fifty (50); and (h) any other liabilities of the Seller which the Buyer is expressly assuming hereunder. 10.3 CALCULATION OF LOSSES. For purposes of Section1 10.1 and 10.2, --------------------- the term "Losses" shall be calculated net of: (i) insurance proceeds actually received; (ii) amounts actually recovered in respect of indemnification claims (other than any indemnification claims arising under Sections 10.1 or 10.2); (iii) tax deductions, credits or other benefits actually received; or (iv) other amounts actually recovered pursuant to a cross-claim or counterclaim arising from or in connection with the circumstances that give rise to such Losses pursuant to a final adjudication. 10.4 INDEMNIFICATION PROCEDURE. For the purposes of this Section ------------------------- 10.4, the term "Indemnitee" shall refer to the person or persons entitled, or claiming to be entitled, to be indemnified pursuant to the provisions of Section 10.1 or 10.2. The term "Indemnitor" shall refer to the person or persons having the obligation to indemnify pursuant to such Section. (a) CLAIMS FOR INDEMNIFICATION. In the event it shall appear that an -------------------------- event giving rise to indemnification hereunder has occurred or is threatened, the Indemnitee shall provide the Indemnitor with prompt written notice thereof, stating that such event has occurred or is threatened, describing such event in reasonable detail the specifying or reasonably estimating the amount of the Losses and the method of computation thereof, all with reasonable particularity and containing a reference to the provision(s) of this Agreement in respect of which such right of indemnification is claimed or arises (the "Notice of Claim"). The Indemnitee shall be deemed to have waived its right to indemnification for any Losses for which notice is not given in a timely manner as set forth herein if and to the extent that the Indemnitor can show that such failure to give timely notice has materially prejudiced the Indemnitor's ability to defend or otherwise respond to such claim. For purposes hereof, any claim for indemnification shall be deemed to have been made as of the date on which the Notice of Claim is delivered to the Indemnitor. -24- (i) In the event the Indemnitor shall in good faith dispute the validity of all or any amount of a claim for indemnification as set forth in the Notice of Claim, the Indemnitor shall, within thirty (30) days of its receipt of the Notice of Claim, execute and deliver to the Indemnitee a notice setting forth with reasonable particularity the grounds and the basis upon which the claim and/or amount of Loss is disputed (the "Dispute Statement"). (ii) In the event the Indemnitor shall not within thirty (30) days of its receipt of the Notice of Claim deliver to the Indemnitee a Dispute Statement or the Indemnitor shall dispute only a portion of the amount set forth in the Notice of Claim, then the amount of the claim described in the Notice of Claim or the portion thereof not disputed shall be deemed to be admitted (the "Admitted Liability") and shall, upon the incurring of such Loss, immediately be due and payable to the Indemnitee by the Indemnitor. (iii) In the event the Indemnitor shall within thirty (30) days of its receipt of the Notice of Claim deliver to the Indemnitee a Dispute Statement, then the portion of the claim described in the Notice of Claim that is disputed by the Indemnitor shall not be due and payable, except in accordance with a final and unappealable decision of a court of competent jurisdiction, or a written agreement by the parties stipulating the amount of the Admitted Liability. (b) NOTICE AND DEFENSE OF THIRD PARTY CLAIMS. If the Indemnitee ---------------------------------------- shall receive notice of any claim by a third party which is or may be subject to indemnification (a "Third Party Claim"), the Indemnitee shall give the Indemnitor prompt written notice of such Third Party Claim and shall permit the Indemnitor, at the Indemnitor's option, to assume the defense of such Third Party Claim or to participate in the defense by counsel of its own choice and at its expense; provided, however, that the Indemnitor shall not have the right to -------- ------- assume the defense of a Third Party Claim if: (i) such Third Party Claim seeks an injunction, restraining order, declaratory relief or other non-monetary relief and such Third Party Claim, if decided adversely, such Third Party Claim would have a material adverse effect on the Indemnitee; or (ii) the named parties to any such Third Party Claim (including any impleaded parties) include both the Indemnitee and the Indemnitor and (x) the Indemnitee shall have been advised by counsel that there are one or more legal of equitable defenses available to it which are different from or additional to those available to the Indemnifying party, and (y) in the reasonable opinion of counsel for the Indemnitee, counsel for the Indemnitor would not be able to adequately represent the interests of the Indemnitee because such interests would materially conflict with those of the Indemnitor and such Third Party Claim, if decided adversely, would have a material adverse effect on the Indemnitee. (i) In the event the Indemnitor exercises its right to assume the defense of a Third Party Claim, the Indemnitor shall not be responsible for any legal or other defense costs subsequently incurred by the Indemnitee in connection with the defense thereof. (ii) Regardless of which party is controlling the defense of a Third Party Claim: (x) the controlling party shall keep the other party fully informed of such Third Party Claim at all stages thereof, (y) the party not controlling the defense of such Third Party Claim shall make available, without charge, to the other party all books and records of such party relating to such Third Party Claim and (z) both parties shall render to each other, without charge, such assistance as is reasonably required in order to ensure the proper and adequate defense of such Third Party Claim. (iii) In the event the Indemnitor exercises its right to assume the defense of a Third Party Claim, the Indemnitor shall not make any settlement of any action, suit or proceeding without the written consent of the Indemnitee, unless the settlement involves only the payment of money by the Indemnitor. In the event the Indemnitor does not exercise, or is precluded from exercising, its right to assume the defense of a Third Party Claim, but acknowledges in writing that at least a portion of such Third Party Claim falls within the Indemnitor's indemnification obligations hereunder, the Indemnitee shall not make any settlement of such action, suit or proceeding without the written consent of the Indemnitor, which consent shall not be unreasonably withheld. 10.5 CLAIMS LIMITATION. Notwithstanding the foregoing provisions of ----------------- this Article X, neither party shall -25- have any liability for any Losses until and unless the cumulative total of such Losses exceeds in the aggregate US$ 100,000,and in no event shall either party be liable under this Article X for any Losses in excess of US$ 8,000,000; provided that: (i) when the aggregate amount of Losses reaches US$ 100,000 the respective indemnitor shall be liable in full for all Losses; and (ii) such limitation shall not apply to claims made by the Buyer Indemnitors so long as any funds remain in the Escrow Account. In addition, the foregoing limitations shall not apply to (i) liabilities for severance payments to employees, and (ii) claims based on any Losses resulting from either party's intentional, willful or reckless misrepresentations or breaches or warranties or agreements made as a part of or contained in this Agreement. ARTICLE XI TERMINATION 11.1 TERMINATION. This Agreement may be terminated at any time prior ----------- to the Closing: (a) by mutual consent of the Seller and the Buyer; (b) by either the Seller or the Buyer if: (i) there has been a material breach of any representation, warranty, covenant or agree ment contained in this Agreement on the part of the other party, and such breach or failure has not been promptly cured; or (ii) the Closing shall not have occurred on or prior to February 28, 1997; provided, however, that the right to terminate this Agreement under this Section 11.1(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur prior to such date. 11.2 EFFECT OF TERMINATION. In the event of termination of this --------------------- Agreement by either the Seller or the Buyer as provided in Section 11.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of any party hereto, or their respective officers or directors, except (a) as set forth in Sections 8.5, 8.7 and 12.1, and (b) to the extent that such termination results from fraud or the willful breach by a party hereto of any of its representations, warranties, covenants or agreements set forth in this Agreement, in which case nothing herein shall relieve either party from liability for such breach. ARTICLE XII MISCELLANEOUS 12.1 EXPENSES; TRANSFER TAXES, ETC.. Except as set forth in Section ------------------------------ 7.3(b) or this Section 12.1 or otherwise in this Agreement, all fees, costs and expenses incurred by any party to this Agreement in connection with, relating to or arising out of the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, attorneys', accountants' and other professional fees and expenses, shall be borne by such party; provided, however, that (i) all Governmental fees -------- ------- incurred in connection with seeking pre-closing regulatory approvals and all expenses required by the Seller's sale and assignment of the Purchased Assets, including all costs incurred with respect to seeking clearance under the HSR Act, shall be borne by the Seller, and (ii) all sales and similar taxes imposed upon the transfer of personal property shall be borne by the Buyer. 12.2 ENTIRE AGREEMENT. This Agreement (including the Schedules and ---------------- Exhibits attached hereto), the Bill of Sale, Assignment and Assumption, the Trademark Assignment, the Copyright Assignment, the Patent Assignment, the Escrow Agreement and the Rebate Agreement contain the entire agreement among the parties hereto with respect to -26- the transactions contemplated hereby and supersedes all prior agreements or understandings between the parties with respect thereto; provided, however, that -------- ------- the provisions of the Confidentiality Agreement shall remain in full force and effect to the extent not inconsistent herewith. 12.3 DESCRIPTIVE HEADINGS. Descriptive headings are for convenience -------------------- only and shall not control or affect the meaning or construction of any provisions of this Agreement. 12.4 NOTICES. All notices or other communications which are required ------- or permitted hereunder shall be in writing and sufficient if (a) delivered personally or sent by facsimile, (b) sent by nationally-recognized overnight courier, or (c) sent by certified mail, postage prepaid, return receipt requested, addressed as follows or to such other address as the party to whom notice is to be given may have furnished to each other party in writing in accordance herewith: If to Synnex: SYNNEX Information Technologies, Inc. 3797 Spinnaker Court Fremont, CA 94538 Attention: President Facsimile No.: (510) 668-3602 If to the Buyer: ComputerLand Corporation 5964 West Las Positas Boulevard Pleasanton, California 94588-8575 Attention: President Facsimile No.: (510) 467-6000 with a copy to: Baker & McKenzie 660 Hansen Way Palo Alto, California 94304 Attention: Michael J. Madda, Esq. Facsimile No.: (415) 856-9299 If to the Seller or Merisel: Merisel, Inc. 200 Continental Boulevard El Segundo, California 90245 Attention: President Facsimile No.: (310) 615-1234 -27- with a copy to: Skadden, Arps, Slate, Meagher and Flom LLP 300 South Grand Avenue Los Angeles, California 90071-3144 Attention: Joseph J. Giunta, Esq. Facsimile No.: (213) 687-5600 Any such communication shall be deemed to have been given (i) when delivered if personally delivered or sent by facsimile (with electronic confirmation of receipt), (ii) on the Business Day after dispatch if sent by nationally- recognized, overnight courier, and (iii) three (3) Business Days following the posted date, if sent by mail. 12.5 COUNTERPARTS. This Agreement may be executed in any number of ------------ counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 12.6 GOVERNING LAW. This agreement shall be governed by and construed ------------- in accordance with the laws of the State of California applicable to contracts made an performed wholly therein. 12.7 BENEFITS OF AGREEMENT. The terms and provisions of this --------------------- Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. 12.8 PRONOUNS. As used herein, all pronouns shall include the -------- masculine, feminine, neuter, singular, and plural therefor whenever the context and facts require such construction and the word "person" includes a corporation or other entity or association as well a natural person. 12.9 SEVERABILITY. Any provision of this Agreement which is invalid ------------ or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidation or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. If any provision is held to be invalid or unenforceable, such provision shall be construed by the appropriate judicial body by limiting or reducing it to the minimum extent necessary to make it legally enforceable. 12.10 AUTHORIZATION. Effective as of the Closing Date, the Seller ------------- appoints the Buyer its attorney-in-fact solely to open all mail addressed to the locations of the facilities of the Subject Business. The Buyer shall promptly send to the Seller all mail not relating to the Purchased Assets or the Subject Business, except personal mail of any employee or former employee of the Subject Business. 12.11 AMENDMENT, MODIFICATION AND WAIVER. This Agreement shall not ---------------------------------- be amended, modified, supplemented or otherwise altered except pursuant to an instrument in writing signed by each of the parties hereto. The failure by any party hereto to comply with any obligation, covenant, agreement or condition contained herein may be expressly waived in writing by the party or parties hereto adversely affected by such failure, but such waiver or failure shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. The delay in pursuing any remedy or on insisting upon full performance for any; breach or failure of any covenant, condition or promise shall not prevent a party from later pursuing any remedies or insisting upon full performance for the same or any similar breach or failure. [Remainder of page intentionally left blank] -28- IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf as of the date first above written. "BUYER" "SELLER" SYNFAB, INC. MERISEL FAB, INC. By: /s/ ROBERT T. HUANG By: /s/ DWIGHT A. STEFFENSEN Name: Robert T. Huang Name: Dwight A. Steffensen Title: Title: Chairman SYNNEX INFORMATION TECHNOLOGIES, INC. MERISEL, INC. By: /s/ ROBERT T. HUANG By: /s/ DWIGHT A. STEFFENSEN Name: Robert T. Huang Name: Dwight A. Steffensen Title: Chief Executive Officer Title: Chairman & CEO LIST OF EXHIBITS: - ----------------- Exhibit "A": Bill of Sale, Assignment and Assumption Exhibit "B": Trademark Assignment Exhibit "C": Copyright Assignment Exhibit "D": Patent Assignment Exhibit "E": Term Sheet for Rebate Agreement Exhibit "F": Term Sheet for Escrow Agreement Exhibit "G": Model Buyer Repurchase Agreement -29- EX-2.9 6 AMENDMENT #1 TO ASSET PURCHASE AGREEMENT EXHIBIT 2.9 AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT THIS AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT (the "Amendment"), dated as of March 6, 1997, is entered into by and among Merisel, Inc., a Delaware corporation ("Merisel"), Merisel FAB, Inc., a Delaware corporation ("FAB"), SYNNEX Information Technologies, Inc., a California corporation ("Synnex") and ComputerLand Corporation, a California corporation and successor- in-interest to SynFab, Inc., a California corporation ("ComputerLand"). Capitalized terms used, but not otherwise defined herein, shall have the respective meanings ascribed to them in the Asset Purchase Agreement, dated as of January 15, 1997 by and among Merisel, FAB, Synnex and ComputerLand (the "Asset Purchase Agreement"). WHEREAS, the parties hereto have previously entered into the Asset Purchase Agreement; and WHEREAS, the parties hereto desire to amend certain provisions of the Asset Purchase Agreement and agree on certain matters relating to the Asset Purchase Agreement. NOW, THEREFORE, in consideration of the foregoing, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Termination Date. Section 11.1(b)(ii) of the Asset Purchase ---------------- ------------------- Agreement is hereby amended by deleting "February 28, 1997" and placing "March 14, 1997 in lieu thereof. 2. No Shop. Section 5.2(b) of the Asset Purchase Agreement is ------- -------------- hereby amended by deleting "February 28, 1997" and placing "March 14, 1997" in lieu thereof. 3. Material Adverse Effect. Section 4.1(q) of the Asset Purchase ----------------------- -------------- Agreement is hereby amended by inserting after "Schedule 4.1(q)" the following: "or has been disclosed to or has otherwise been discovered by Synnex on or before March 6, 1997" in lieu thereof. 4. Vanstar Term Sheet. Section 6.3 of the Asset Purchase Agreement ------------------ ----------- is hereby amended by inserting the following as paragraph (h) thereof: "(h) Vanstar Term Sheet. On March 7, 1997, Synnex shall deliver to ------------------ Merisel a term sheet executed by Synnex and Vanstar setting forth all of the material terms of the proposed Distribution Agreement and Sublease Agreement (including the release referred to in paragraph (f) above)." 5. Provision of Services. Article VIII of the Asset Purchase --------------------- Agreement is hereby amended by inserting the following as Section 8.11: ------------ "8.11 Provision of Services. During the month of March, Merisel --------------------- shall perform, for the benefit of ComputerLand, sales support services substantially similar to and in doing so employ the same degree of care as those currently provided to the Seller. Merisel shall bear the costs of the provision of such services other than those costs that were traditionally reimbursed by the Seller, such reimbursable expenses to include, but not be limited to those items set forth on Exhibit A hereto (collectively, the "Reimbursable Expenses"). Merisel --------- shall give prompt notice of the incurrance of Reimbursable Expenses to ComputerLand, and ComputerLand shall reimburse Merisel for the Reimbursable Expenses by no later than thirty days after receiving any such notice. 6. Access to Employees. Article VII of the Asset Purchase Agreement ------------------- is hereby further amended by inserting the following as Section 8.12: ------------ "8.12 Access to Employees. Within three days of the Closing, Merisel ------------------- shall provide to Synnex a list of members of the Mersiel sales staff selected by Merisel (the "Employees"). Until March 31, 1997, Merisel shall allow Buyer to interview the Employees at reasonable times during normal business hours and upon 24 hours prior, written notice. Merisel shall allow Synnex to hire up to six Employees. The foregoing notwithstanding, Synnex and CompterLand shall not direct or instruct the employees of Merisel regarding the services provided pursuant to Section 8.11 hereof." ------------ 7. Indemnification. Section 10.2 of the Asset Purchase Agreement is --------------- ------------ hereby amended by inserting the following as paragraph (i) thereof: "(i) any liabilities which arise to third parties, Synnex or the Buyer in the course of Merisel's performance of its obligations under 2 Section 8.11 hereof, unless such liabilities arise due to Merisel's ------------ negligence or failure to maintain its historic standard of care in the performance of its obligations thereunder." 8. Waiver. Each of the Buyer and Synnex hereby unconditionally ------ waive the conditions to Closing located in Section 6.1(h), and Section 6.2(a) (except as such section relates to Section 4.1(q), as amended, and Sections 4.1(a), (b) and (i)), (b), (c), (e), (f), (j) and (k). 9. Governing Law. This Amendment and the legal relations among the ------------- parties hereto shall be governed by and construed and enforced in accordance with the laws of the State of California, without regard to its principles of conflicts of law. 10. Entire Agreement. This Amendment, together with the Asset ---------------- Purchase Agreement, including the exhibits and schedules attached thereto, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, letters of intent, negotiations and discussions, whether oral or written, of the parties, and there are no warranties, representations or other agreements, express or implied, made to either party by the other party in connection with the subject matter hereof except as specifically set forth herein or in the documents delivered pursuant hereto or in connection herewith. 11. Asset Purchase Agreement in Full Force. Except as expressly -------------------------------------- modified hereby, the Asset Purchase Agreement remains in full force and effect. 12. Successors and Assigns; Third Parties. All of the rights, ------------------------------------- duties, benefits, liabilities and obligations of the parties shall inure to the benefit of, and be binding upon, their respective successors, assigns, heirs and legal representa tives. Except as specifically set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person or entity, other than the parties hereto and their successors or permitted assigns, any rights or remedies under or by reason of this Amendment. 13. Counterparts. This Amendment may be executed in as many ------------ counterparts as may be deemed necessary and convenient, and by the different parties hereto on separate counterparts each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same in strument. 3 14. Headings. The Section headings of this Amendment are for -------- convenience of reference only and shall not be deemed to modify, explain, restrict, alter or affect the meaning or interpretation of any provision hereof. 15. Construction. This Amendment shall not be construed more ------------ strictly against one party hereto than against any other party hereto merely by virtue of the fact that it may have been prepared by counsel for one of the parties. 4 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. MERISEL, INC. a Delaware corporation By: /s/ Dwight Steffensen ---------------------- Dwight Steffensen Chairman of the Board, President and Chief Executive Officer MERISEL FAB, INC. a California corporation By: /s/ Dwight Steffensen ---------------------- Dwight Steffensen Chairman of the Board SYNNEX INFORMATION TECHNOLOGIES, INC. a California corporation By: /s/ Robert Huang ----------------- Name: Robert Huang Title: President COMPUTERLAND CORPORATION a California corporation By: /s/ Robert Huang ----------------- Name: Robert Huang Title: President 5 EX-4.7 7 THIRD AMENDMENT AND WAIVER DATED 2/27/1997 EXHIBIT 4.7 THIRD AMENDMENT AND WAIVER TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT Dated as of February 27, 1997 This Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement (this "Amendment") is dated as of February 27, 1997 by and among Merisel Americas, Inc., a Delaware Corporation ("Merisel Americas"), Merisel Europe, Inc., a Delaware corporation ("Merisel Europe") (Merisel Americas and Merisel Europe each referred to herein individually as a "Borrower" and collectively as the "Borrowers"), Merisel, Inc., a Delaware corporation ("Merisel Parent"), as guarantor and the Lenders signatory hereto, and is made with reference to that certain Amended and Restated Revolving Credit Agreement dated as of April 12, 1996 and amended as of June 30, 1996 and October 2, 1996 (the "Existing Agreement") by and among Merisel Americas, Merisel Europe, Merisel Parent, as guarantor, and the Lenders (as defined therein). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Existing Agreement. RECITAL The parties hereto have agreed to modify the Existing Agreement as hereinafter set forth in accordance with Section 11.01 of the Existing Agreement. IN CONSIDERATION of the mutual promises and convenants set forth herein, the parties hereto agree as follows: Section 1. Waivers. (a) Effective as of the Effective Time (as ------- defined in Section 3 of this Amendment), the undersigned Lenders hereby consent to the (i) sale (the "FAB Sale") by Merisel Parent and Merisel FAB, Inc., a Delaware corporation ("Merisel FAB"), on or before March 31, 1997, of substantially all of the assets of Merisel FAB to SynFab, Inc. (the "Buyer"), pursuant to that certain Asset Purchase Agreement dated as of January 15, 1997 (the "FAB Asset Purchase Agreement") by and among Merisel, Merisel FAB, the Buyer and SYNNEX Information Technologies, Inc., the principal terms of which FAB Asset Purchase Agreement are described in the term sheet attached as Exhibit A hereto and (ii) the merger of Merisel FAB with and into Merisel Parent, at any time following the consummation, if any, of the FAB Sale in accordance with the immediately preceding clause (i). (b) Effective as of the Effective Time, the Lenders hereby waive the provisions of Section 7.02 (m) of the Existing Agreement to the extent necessary to permit the amendment and waivers of the Subordinated Notes, Subordinated Note Purchase Agreement, Senior Notes and Senior Note Purchase Agreement contemplated by clauses (ii) and (iii) of Section 3 hereof. Section 2. Amendments to the Existing Agreement. The following ------------------------------------ amendments to the Existing Agreement shall become effective at the Effective Time. (I) Section 1.01 is hereby amended by inserting the following in the appropriate alphabetical order: "Consolidated Payables" has the meaning given to such term in Section --------------------- 7.01 (k) hereof. "FAB Sale" has the meaning given to such term in the Third Amendment -------- and Waiver to Amended and Restated Revolving Credit Agreement dated as of February ___, 1997 by and among the Borrowers, Merisel Parent and the Lenders signatory thereto. 1 (II) Section 7.01 (j) is hereby deleted in its entirety and replaced with the following: "(j) Maintenance of Inventory Turnover Ratio. Maintain, for each --------------------------------------- period indicated below, the ratio of the Consolidated aggregate cost of sales of Merisel Parent at the end of such period multiplied by four to ------------- (ii) the Average Consolidated Net Inventory of Merisel Parent, of not less than the correlative ratio indicated below:
Minimum Permitted Period Inventory Turnover ------ ------------------ Fourth Quarter of 1996 9.00 First Quarter of 1997 9.00 Second Quarter of 1997 9.00 Third Quarter of 1997 9.00 Fourth Quarter of 1997 9.00
; provided that following the consummation of the FAB Sale, and solely for -------- the purpose of determining compliance with this Section 7.01 (j), there shall be added to Consolidated cost of sales of Merisel Parent (prior to multiplying the same by four) at the end of each fiscal period in Column A below, the corresponding projected amount of cost of sales of Merisel FAB ("FAB Cost of Sales") in Column B below (to the extent that such FAB Cost of Sales are not already included in the calculation of Consolidated cost of sales of Merisel Parent at the end of such period):
Column A Column B -------- -------- First Quarter of 1997 $254,200,000 Second Quarter of 1997 $256,900,000 Third Quarter of 1997 $246,800,000 Fourth Quarter of 1997 $256,900,000"
(III) Section 7.01 (k) is hereby deleted in its entirety and replaced with the following: "(k) Minimum Ratio of Accounts Payable to Inventory. Maintain, for ---------------------------------------------- each period indicated below, the ratio of the Consolidated amount of accounts payable of Merisel Parent ("Consolidated Payables") on the last day of such period to the Consolidated amount of inventory of Merisel Parent on the last day of such period, of not less than the correlative ratio indicated below (the "A/P Inventory Ratio"):
Minimum Period Permitted Ratio ------ --------------- Fourth Quarter of 1996 0.90:1.00 First Quarter of 1997 0.90:1.00 Second Quarter of 1997 0.90:1.00 Third Quarter of 1997 0.90:1.00 Fourth Quarter of 1997 0.90:1.00
; provided that Merisel Parent shall maintain an A/P Inventory Ratio equal -------- to or greater than 1.00:1.00 for one out of each two consecutive periods indicated above; provided, further, that following the consummation of the -------- ------- FAB Sale, and solely for the purpose of determining 2 compliance with this Section 7.01 (k), there shall be added to Consolidated Payables at the end of each fiscal period in Column A below, the corresponding projected amount of accounts payable of Merisel FAB ("FAB Payables") in Column B below (to the extent that such FAB Payables are not already included in the calculation of Consolidated Payables at the end of such period):
Column A Column B -------- -------- First Quarter of 1997 $44,500,000 Second Quarter of 1997 $45,000,000 Third Quarter of 1997 $44,400,000 Fourth Quarter of 1997 $45,300,000"
(IV) Section 7.01 (l) is hereby deleted in its entirety and replaced with the following: "(l) Minimum Accounts Payable. Maintain, on the last day of each ------------------------ period indicated below, the Consolidated Payables of not less than the correlative amount indicated below:
Period Amount ------ ------ Fourth Quarter of 1996 $380,000,000 First Quarter of 1997 $345,500,000 Second Quarter of 1997 $345,000,000 Third Quarter of 1997 $345,600,000 Fourth Quarter of 1997 $454,700,000"
(V) Section 11.11 (a) (iv) is hereby deleted in its entirety and replaced with the following: "(iv) the amount of Revolving Facility Commitments of the assigning Lender being assigned pursuant to each such assignment shall be not less than the lesser of (x) Five Million Dollars ($5,000,000) and (y) the amount of such assigning Lender's Revolving Facility Commitments immediately prior to giving effect to such assignment." (VI) The October 2, 1996 Letter Agreement among the Borrowers, Merisel Parent and the Lenders is hereby amended by deleting "$360,000,000" on the second page thereof and substituting "$315,000,000". Section 3. Conditions to the Effective Time. The Waiver, amendments -------------------------------- and agreements set forth herein shall become effective (the time of such effectiveness, the "Effective Time") upon the satisfaction of all the following conditions: (i) this Amendment shall have been executed and delivered by the Majority Lenders, the Borrowers and Merisel Parent; (ii) the Borrowers, Merisel Parent and the Required Noteholders (as defined in the Senior Note Purchase Agreement) shall have executed and delivered the Sixth Amendment and Waiver to the Senior Note Purchase Agreement, which shall be in form and substance acceptable to the Majority Lenders; 3 (iii) the Borrowers, Merisel Parent and certain holders of the Subordinated Notes shall have executed and delivered the Fifth Waiver to the Subordinated Note Purchase Agreement, which shall be in form and substance acceptable to the Majority Lenders; (iv) The FAB Sale contemplated by the FAB Asset Purchase Agreement shall have been consummated contemporaneously herewith; (v) all the representations and warranties made by the Borrowers and Merisel Parent in Section 4 shall be true and correct in all material respects as of the Effective Time; (vi) the delivery by Merisel Canada of a Consent and Acknowledgment in the form of Annex A hereto; (vii) the delivery by the Borrowers and Merisel Parent to the Lenders (or to the Agent with sufficient originally executed copies, where appropriate, for the each Lender) of (x) certified resolutions of their respective Boards of Directors approving and authorizing the execution, delivery and performance of this Amendment, (y) signature and incumbency certificates of the officers executing this Amendment and (z) executed copies of this Amendment, and (viii) all corporate and other proceedings required to be taken in connection with the transactions contemplated hereby shall have been taken. Section 4. Representations and Warranties of Borrowers and Merisel ------------------------------------------------------- Parent. In order to induce the Lenders to enter into this Amendment and to - ------ grant the Waiver with respect to the Existing Agreement, the Borrowers and Merisel Parent represent and warrant to each Lender that the following statements are true, correct and complete: (a) Corporate Power and Authority. Each Borrower and Merisel Parent ----------------------------- has all requisite corporate power and authority to enter into this Agreement and to carry out the transactions contemplated by, and perform its respective obligations under, the Existing Agreement as amended by this Amendment (the "Amended Agreement"). (b) Authorization of Agreements. The execution and delivery of this --------------------------- Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action by each Borrower and Merisel Parent. (c) No Conflict. The execution and delivery by each Borrower and ----------- Merisel Parent of this Amendment and the performance by each Borrower and Merisel Parent of the Amended Agreement do not and shall not (i) violate any provision of law, rule or regulation applicable to the Borrowers, Merisel Parent or any of their respective Subsidiaries, or the Certificate of Incorporation or bylaws of the each Borrower, Merisel Parent or any of their respective Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of the Borrowers, Merisel Parent or any of their respective Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of their properties or assets, or (iv) require any approval of stockholders or any approval or consent of any Person under any contractual obligation of the Borrowers, Merisel Parent or any of their respective Subsidiaries, other than those that have been obtained. (d) Governmental Consents. The execution and delivery by the --------------------- Borrowers and Merisel Parent and the performance by the Borrowers and Merisel Parent of the Amended Agreement do not and shall not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Federal, state or other governmental authority or regulatory body. 4 (e) Binding Obligation. This Amendment and the Amended Agreement are ------------------ the legally valid and binding obligation of the Borrowers and Merisel Parent, enforceable against each of them in accordance with their terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar law relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. (f) Incorporation of Representations and Warranties from Existing ------------------------------------------------------------- Agreement. The representations and warranties contained in Article VI of the - --------- Existing Agreement are and shall be true, correct and complete in all material respects on and as of the Effective Time to the same extent as though made on and as of that date, except to the extent that such representations and warranties specifically relate to an earlier date, in which case they are true, correct and complete in all material respects as of such earlier date. (g) Absence of Default. After giving effect to this Amendment, no ------------------ event has occurred and is continuing or shall result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default, or an event that with the passage of time, the giving of notice or both would constitute an Event of Default. Section 5. Miscellaneous. ------------- (a) On and after the Effective Time, each reference in the Existing Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of like import referring to the Existing Agreement, and each reference in the other Loan Documents to the "Revolving Credit Agreement", "thereunder", "thereof", or words of like import referring to the Existing Agreement shall mean and be a reference to the Existing Agreement as amended by this Amendment. (b) Except as specifically waived by this Amendment, the Existing Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (c) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Agent or any Lender under, the Existing Agreement or any of the Loan Documents. (d) This Amendment may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts taken together shall constitute one and the same instrument. (e) Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. (f) Notwithstanding anything to the contrary herein, if the Effective Time does not occur on or before March 31, 1997, this Amendment shall be of no force or effect, and the Existing Agreement shall remain in full force and effect as if this Amendment had not been executed or delivered by any party hereto. (g) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. 5 Annex A CONSENT AND ACKNOWLEDGMENT The undersigned hereby consents to the terms of the Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement dated as of February 27, 1997 (the "Amendment") with respect to the Amended and Restated Revolving Credit Agreement dated as April 12, 1996 and amended as of June 30, 1996 and October 2, 1996 (the "Credit Agreement") among Merisel Americas, Inc. and Merisel Europe, Inc. as Borrowers, Merisel, Inc. as Guarantor and the Lenders party thereto, and hereby confirms and agrees that each Loan Document executed by the undersigned pursuant to and as defined in the Credit Agreement is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that, on and after the effective date of the Amendment, each reference in each such Loan Document to "the Credit Agreement, " "thereunder," "thereof," "therein" or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by the Amendment. MERISEL CANADA, INC. By: /S/ TIMOTHY N. JENSON --------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer Dated: As of February ____, 1997 6 Revolving Credit Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. THE BORROWERS MERISEL AMERICAS, INC. By:/S/ TIMOTHY N. JENSON --------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL EUROPE, INC. By:/S/ TIMOTHY N. JENSON --------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer THE PARENT GUARANTOR MERISEL, INC. By:/S/ TIMOTHY N. JENSON --------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer LENDERS ------- Name of Lender: The Long-Term Credit Bank of Japan, Ltd. Los Angeles Agency By: /S/ NOTOKASU UEMETSU -------------------- Name: Notokasu Uemetsu Title: Deputy General Manager 7 Revolving Credit Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. THE BORROWERS MERISEL AMERICAS, INC. By: /S/ ------------------------------ Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL EUROPE, INC. By: /S/ ------------------------------ Name: Timothy N. Jenson Title: Vice President & Treasurer THE PARENT GUARANTOR MERISEL, INC. By: /S/ ------------------------------ Name: Timothy N. Jenson Title: Vice President & Treasurer LENDERS ------- Name of Lender: Goldman Sachs Credit Partners L.P. By: /S/ ------------------------------ Name: Title: 8 Revolving Credit Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. THE BORROWERS MERISEL AMERICAS, INC. By: /S/ ------------------------------ Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL EUROPE, INC. By:/S/ ------------------------------ Name: Timothy N. Jenson Title: Vice President & Treasurer THE PARENT GUARANTOR MERISEL, INC. By:/S/ ------------------------------ Name: Timothy N. Jenson Title: Vice President & Treasurer LENDERS ------- Name of Lender: Lazard Freres & Co. LU By:/S/DAVID L. TASHJIAN ---------------------------- Name: David L. Tashjian Title: Managing Director 9 Revolving Credit Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. THE BORROWERS MERISEL AMERICAS, INC. By: /S/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL EUROPE, INC. By: /S/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer THE PARENT GUARANTOR MERISEL, INC. By: /S/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer LENDERS ------- Name of Lender: By: /S/ -------------------------------- Name: Title: 10 Revolving Credit Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. THE BORROWERS MERISEL AMERICAS, INC. By: /S/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL EUROPE, INC. By: /S/ ------------------------------------ Name: Timothy N. Jenson Title: Vice President & Treasurer THE PARENT GUARANTOR MERISEL, INC. By: /S/ ----------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer LENDERS ------- Name of Lender: Cargill Financial Services Corp. By: /S/ ------------------------------------ Name: Title: Vice President 11 Revolving Credit Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. THE BORROWERS MERISEL AMERICAS, INC. By: /S/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL EUROPE, INC. By: /S/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer THE PARENT GUARANTOR MERISEL, INC. By: /S/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer LENDERS ------- Name of Lender: By: /S/ STUART BROWN -------------------------------- Name: Stuart Brown Title: Authorized Agent 12 Revolving Credit Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. THE BORROWERS MERISEL AMERICAS, INC. By: /S/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL EUROPE, INC. By: /S/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer THE PARENT GUARANTOR MERISEL, INC. By: /S/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer LENDERS ------- Name of Lender: Franklin Mutual Advisors By: /S/ JEFF ALTMAN -------------------------------- Name: Jeff Altman Title: Vice President 13 Revolving Credit Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. THE BORROWERS MERISEL AMERICAS, INC. By: /S/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL EUROPE, INC. By: /S/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer THE PARENT GUARANTOR MERISEL, INC. By: /S/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer LENDERS ------- Name of Lender: Farallum Merisel Investors, LLC By: /S/ -------------------------------- Name: Title: Managing Member 14 Revolving Credit Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. THE BORROWERS MERISEL AMERICAS, INC. By: /s/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL EUROPE, INC. By: /s/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer THE PARENT GUARANTOR MERISEL, INC. By: /s/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer LENDERS ------- Name of Lender: Bear, Steams & Co., Inc. By: /S/ GREGORY A. HARVEY -------------------------------- Name: Gregory A. Harvey Title: Sr. Managing Director 15 Revolving Credit Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. THE BORROWERS MERISEL AMERICAS, INC. By: /S/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL EUROPE, INC. By: /S/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer THE PARENT GUARANTOR MERISEL, INC. By: /S/ --------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer LENDERS ------- Name of Lender: Oppenheimer Co., Inc. By: /S/ NANCY WILSON BROTHERS -------------------------------- Name: Nancy Wilson Brothers Title: Sr. Vice President 16 EX-4.8 8 FIFTH WAIVER TO AMENDED & RESTATED DATED 2/27/97 EXHIBIT 4.8 FIFTH WAIVER TO AMENDED AND RESTATED SUBORDINATED NOTE PURCHASE AGREEMENT Dated as of February 27, 1997 This Fifth Waiver to Amended and Restated Subordinated Note Purchase Agreement (this "Waiver") is dated as of February 27, 1997 by and among Merisel Americas, Inc., a Delaware corporation ("Merisel Americas"), and the Noteholders signatory hereto, and is made with reference to that certain Amended and Restated Subordinated Note Purchase Agreement dated as of December 23, 1993 and amended as of September 30, 1994, April 12, 1996, June 30, 1996 and October 2, 1996 (the "Existing Agreement") by and among Merisel Americas and the Noteholders signatory thereto. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Existing Agreement. RECITAL The parties hereto have agreed to modify the Existing Agreement as hereinafter set forth in accordance with Section 14.4 of the Existing Agreement. IN CONSIDERATION of the mutual promises and covenants set forth herein, the parties hereto agree as follows: 1. Waivers and Consent. (a) Effective as of the Effec tive Time (as ------------------- defined in Section 2 of this Waiver), the undersigned Noteholders hereby consent to (i) the sale (the "FAB Sale") by Merisel, Inc. and Merisel FAB, Inc., a Delaware corporation ("Merisel FAB"), on or before March 31, 1997, of substantially all of the assets of Merisel FAB to SynFab, Inc. (the "Buyer"), pursuant to that certain Asset Purchase Agreement dated as of January 15, 1997 (the "FAB Asset Purchase Agreement") by and among Merisel, Merisel FAB, the Buyer and SYNNEX Information Technologies, Inc., the principal terms of which FAB Asset Purchase Agreement are described in the term sheet attached as Exhibit A hereto and (ii) the merger of Merisel FAB with and into Merisel, Inc., at any time following the consummation, if any, of the FAB Sale in accordance with the immediately preceding clause (i). (a) Effective as of the Effective Time, the Noteholders hereby waive the provisions of Section 9.10 of the Existing Agreement to the extent necessary to permit the amendment and waivers of the Revolving Credit Agreement, Senior Notes and Senior Note Purchase Agreement contemplated by clauses (ii) and (iii) of Section 2 hereof and hereby agree to the extent that any covenants or other provisions of the Senior Note Agreement are incorporated by reference into Section 9.10 of the Existing Agreement, the Noteholders hereby consent to such amendments and waivers to such incorporated covenants and other provisions. 2. Conditions to the Effective Time. The Waiver and agreements set -------------------------------- forth herein shall become effective (the time of such effectiveness, the "Effective Time") upon the satisfaction of all the following conditions: (i) this Waiver shall have been executed and delivered by the holders of at least 66-2/3% in aggregate unpaid principal amount of the Notes (the "Requisite Holders") and Merisel Americas; (ii) Merisel Americas, Merisel Europe, Merisel Inc. and the Majority Lenders (as defined in the Revolving Credit Agreement) shall have executed and delivered the Third Amendment and Waiver to the Revolving Credit Agreement, which shall be in form and substance acceptable to the Requisite Noteholders; (iii) Merisel Americas, Merisel Europe, Merisel Inc. and the Required Noteholders (as defined in the Senior Note Purchase Agreement) shall have executed and delivered the Sixth Amendment and Waiver to the Senior Note Purchase Agreement, which shall be in form and substance acceptable to the Requisite Holders; (iv) the FAB Sale contemplated by the FAB Asset Purchase Agreement shall have been consummated contemporaneously herewith; (v) all the representations and warranties made by Merisel Americas in Section 3 shall be true and correct in all material respects as of the Effective Time; (vi) the delivery by Merisel Americas to the Noteholders of (x) certified resolutions of its Board of Directors approving and authorizing the execution, delivery and performance of this Waiver, (y) signature and incumbency certificates of the officers executing this Waiver and (z) executed copies of this Waiver; and (vii) all corporate and other proceedings required to be taken in connection with the transactions contemplated hereby shall have been taken. Section 3. Representations and Warranties of Merisel Americas. In -------------------------------------------------- order to induce the Noteholders to enter into this Waiver and to grant the Waiver with respect to the Existing Agreement, Merisel Americas represents and warrants to each of the Noteholders that the following statements are true, correct and complete: (a) Corporate Power and Authority. Merisel Americas has all requisite ----------------------------- corporate power and authority to enter into this 2 Agreement and to carry out the transactions contemplated by, and perform its obligations under, the Existing Agreement as modified by this Waiver (the "Amended Agreement"). (b) Authorization of Agreements. The execution and delivery of this --------------------------- Agreement and the performance of the Amended Agreement have been duly authorized by all necessary corporate action by Merisel Americas. (c) No Conflict. The execution and delivery by Merisel Americas of ----------- this Waiver and the performance by Merisel Americas of the Amended Agreement do not and shall not (i) violate any provision of law, rule or regulation applicable to Merisel Americas or any of its Subsidiaries, the Certificate of Incorporation or bylaws of Merisel Americas or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of Merisel Americas or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of their properties or assets, or (iv) require any approval of stockholders or any approval or consent of any Person under any contractual obligation of the Merisel Americas or any of its Subsidiaries, other than those that have been obtained. (d) Governmental Consents. The execution and delivery by Merisel --------------------- Americas and the performance by Merisel Americas of the Amended Agreement do not and shall not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Federal, state or other governmental authority or regulatory body. (e) Binding Obligation. This Waiver and the Amended Agreement are the ------------------ legally valid and binding obligation of Merisel Americas, enforceable against it in accordance with their terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar law relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. (f) Incorporation of Representations and Warranties from Existing ------------------------------------------------------------- Agreement. The representations and warranties contained in Article 2 of the - --------- Existing Agreement are and shall be true, correct and complete in all material respects on and as of the Effective Time to the same extent as though made on and as of that date, except to the extent that such representations and warranties specifically relate to an earlier date, in which case they are true, correct and complete in all material respects as of such earlier date. 3 (g) Absence of Default. After giving effect to this Waiver, no event ------------------ has occurred and is continuing or shall result from the consummation of the transactions contemplated by this Waiver that would constitute an Event of Default, or an event that with the passage of time, the giving of notice or both would constitute an Event of Default. 4. Miscellaneous. ------------- (a) On and after the Effective Time, each reference in the Existing Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of like import referring to the Existing Agreement, and each reference in the Notes to the "Note Purchase Agreement", "thereunder", "thereof", or words of like import referring to the Existing Agreement shall mean and be a reference to the Existing Agreement as modified by this Waiver. (b) Except as specifically waived by this Waiver, the Existing Agreement and the Notes shall remain in full force and effect and are hereby ratified and confirmed. (c) The execution, delivery and performance of this Waiver shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of any Noteholder under, the Existing Agreement or any of the Notes. (d) This Waiver may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts taken together shall constitute one and the same instrument. (e) Section headings in this Waiver are included herein for convenience of reference only and shall not constitute a part of this Waiver for any other purpose or be given any substantive effect. (f) Notwithstanding anything to the contrary herein, if the Effective Time does not occur on or before March 31, 1997, this Waiver shall be of no force or effect, and the Existing Agreement shall remain in full force and effect as if this Waiver had not been executed or delivered by any party hereto. (g) THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. 4 SUBORDINATED NOTE PURCHASE AGREEMENT ------------------------------------ Signature Page -------------- IN WITNESS WHEREOF, the parties hereto have caused this Fifth Waiver to Amended and Restated Subordinated Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By:/s/ Timothy N. Jenson ------------------------------------ Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Noteholder: /s/ ----------------------- By: --------------------------- Title: S-1 EX-4.9 9 SIXTH AMENDMENT AND WAIVER DATED 2/27/97 EXHIBIT 4.9 SIXTH AMENDMENT AND WAIVER TO AMENDED AND RESTATED SENIOR NOTE PURCHASE AGREEMENT Dated as of February 27, 1997 This Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement (this "Amendment") is dated as of February 27, 1997 by and among Merisel Americans, Inc., a Delaware Corporation ("the Company"), Merisel, Inc., a Delaware Corporation ("Merisel, Inc."), as guarantor and the noteholders signatory hereto, and is made with reference to that certain Amended and Restated Senior Note Purchase Agreement dated as of December 23, 1993 by and among the Company and the original Purchasers of the Notes referred to therein, and amended as of September 30, 1994, June 23, 1995, April 12, 1996, June 30 1996 and October 2, 1996 (the "Existing Agreement") by and among the Company and the Noteholders referred to therein. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Existing Agreement. RECITAL The parties hereto have agreed to modify the Existing Agreement as hereinafter set forth in accordance with Section 8.1 of the Existing Agreement. IN CONSIDERATION of the mutual promises and convenants set forth herein, the parties hereto agree as follows: Section 1. Waivers. (a) Effective as of the Effective Time (as ------- defined in Section 4 of this Amendment), the undersigned Noteholders hereby consent to the (i) sale (the "FAB Sale") by Merisel, Inc. and Merisel FAB, Inc., a Delaware corporation ("Merisel FAB"), on or before March 31, 1997, of substantially all of the assets of Merisel FAB to SynFab, Inc. dated as of January 15, 1997 (the "FAB Asset Purchase Agreement") by and among Merisel, Merisel FAB, the Buyer and SYNNEX Information Technologies, Inc., the principal terms of which FAB Asset Purchase Agreement are described in the term sheet attached as Exhibit A hereto and (ii) merger of Merisel FAB with and into Merisel Inc., at any time following the consummation, if any, of the FAB Sale in accordance with the immediately preceding clause (i). (b) Effective as of the Effective Time, the Noteholders hereby waive the provisions of Section 6.23 of the Existing Agreement to the extent necessary to permit the amendment and waivers of the Subordinated Notes and Subordinated Note Purchase Agreement contemplated by clause (iii) of Section 4 hereof. Section 2. Amendments to the Existing Agreement. The following ------------------------------------ amendments to the Existing Agreement shall become effective at the Effective Time. (I) The Existing Agreement is hereby amended by adding the following appropriate alphabetical order in Section 2.1: "Consolidated Payables" has the meaning given to such term in Section ---------------------- 6.31 hereof. "FAB Sale" has meaning given to such term in the Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement dated as of February 27, 1997 by and among the Company, Merisel, Inc. and the Noteholders party thereto. (II) The Existing Agreement is hereby amended by deleting Section 6.30 and inserting in its place the following: "6.30 Maintenance of Inventory Turnover Ratio. For each period --------------------------------------- indicated below, the ration of (i) the consolidated aggregate cost of sales of Merisel, Inc. at the end of such period multiplied by four to (ii) the ------------- Average Consolidated Net Inventory of Merisel, Inc. shall be not less than the correlative ratio indicated below:
Minimum Permitted Period Inventory Turnover ------ ------------------ Fourth Quarter of 1996 9.00 First Quarter of 1997 9.00 Second Quarter of 1997 9.00 Third Quarter of 1997 9.00 Fourth Quarter of 1997 9.00
; provided that following the consummation of the FAB Sale, and solely for the purpose of determining compliance with this Section 6.30, there shall be added to Consolidated cost of sales of Merisel, Inc. at the end of each fiscal period in Column A below, the corresponding projected amount of cost or sales of Merisel FAB ("FAB Cost of Sales") in Column B below (to the extent that such FAB Cost of Sales are not already included in the calculation of Consolidated cost of sales of Merisel, Inc. at the end of such period):
Column A Column B -------- -------- First Quarter of 1997 $254,200,000 Second Quarter of 1997 $256,900,000 Third Quarter of 1997 $246,800,000 Fourth Quarter of 1997 $256,900,000
(III) The Existing Agreement is hereby amended by deleting Section 6.31 and inserting in its place the following: "6.31 Minimum Ratio of Accounts Payable to Inventory. For each period ---------------------------------------------- indicated below, the ratio of the Consolidated amount of accounts payable of Merisel, Inc. ("Consolidated Payables") on the last day of such period to the Consolidated amount of inventory of Merisel, Inc. on the last day of such period shall be not less than the correlative ratio indicated below (the "A/P Inventory Ratio"):
Minimum Period Permitted Ratio ------ --------------- Fourth Quarter of 1996 0.90:1.00 First Quarter of 1997 0.90:1.00 Second Quarter of 1997 0.90:1.00 Third Quarter of 1997 0.90:1.00 Fourth Quarter of 1997 0.90:1.00
; provided that Merisel, Inc. shall maintain an A/P Inventory Ratio equal -------- to or greater than 1.00:1.00 for one out of each two consecutive periods indicated above; provided further, that following the consummation of the ---------------- FAB Sale, and solely for the purpose of determining compliance with this Section 6.31, there shall be added to Consolidated Payables at the end of each fiscal period in Column A below, the corresponding projected amount of accounts payable of Merisel FAB ("FAB Payables") in Column B below (to the extent that such FAB Payables are not already included in the calculation of Consolidated Payables at the end of such period):
Column A Column B -------- -------- First Quarter of 1997 $44,500,000 Second Quarter of 1997 $45,000,000 Third Quarter of 1997 $44,400,000 Fourth Quarter of 1997 $45,500,000"
(IV) The Existing Agreement is hereby amended by deleting Section 6.37 and inserting in its place the following: "6.37 Minimum Accounts Payable. On the last day of each period ------------------------ indicated below, the Consolidated Payables shall be not less than the correlative amount indicated below:
Period Amount ------ ------ Fourth Quarter of 1996 $380,000,000 First Quarter of 1997 $345,500,000 Second Quarter of 1997 $345,000,000 Third Quarter of 1997 $345,600,000 Fourth Quarter of 1997 $454,700,000"
(V) The October 2, 1996 Letter Agreement among the Company, Merisel, Inc. and the Noteholders is hereby amended by deleting "$360,000,000 on the second page thereof and substituting $315,000,000 therefor. Section 3. Reaffirmation of Parent Guaranty. By its signature below, -------------------------------- Merisel, Inc. (i) consents to the amendment of the Existing Agreement by this Amendment, (ii) acknowledges and reaffirms its obligations owing under the Parent Guaranty and (iii) agrees that the Parent Guaranty is and shall remain in full force and effect. Section 4. Conditions to the Effective Time. The Waiver, amendments -------------------------------- and agreements set forth herein shall become effective (the time of such effectiveness, the "Effective Time") upon the satisfaction of all the following conditions: (i) this Amendment shall have been executed and delivered by the Required Noteholders, the Company and Merisel, Inc.; (ii) the Company, Merisel Europe, Merisel, Inc. and the Majority Lenders (as defined in the Revolving Credit Agreement) shall have executed and delivered the Third Amendment and Waiver to the Revolving Credit Agreement, which shall be in form and substance acceptable to the Required Noteholders; (iii) the Company, Merisel Europe, Merisel, Inc. and certain holders of the Subordinated Notes shall have executed and delivered the Fifth Waiver to the Subordinated Note Purchase Agreement, which shall be in form and substance acceptable to the Required Noteholders; (iv) The FAB Sale contemplated by the FAB Asset Purchase Agreement shall have been consummated contemporaneously herewith; (v) all the representations and warranties made by the Company and Merisel, Inc. in Section 5 shall be true and correct in all material respects as of the Effective Time; (vi) the delivery by Merisel Canada of a Consent and Acknowledgment in the form of Annex A hereto; (vii) the delivery by Merisel Europe of a Consent and Acknowledgment in the form of Annex D hereto; (viii) the delivery by the Company and Merisel, Inc. to the Noteholders of (x) certified resolutions of their respective Boards of Directors approving and authorizing the execution, delivery and performance of this Amendment, (y) signature and incumbency certificates of the officers executing this Amendment and (z) executed copies of this Amendment; and (ix) all corporate and other proceedings required to be taken in connection with the transactions contemplated hereby shall have been taken. Section 5. Representations and Warranties of the Company and Merisel, ---------------------------------------------------------- Inc. In order to induce the Noteholders to enter into this Amendment and to - --- grant the Waiver with respect to the Existing Agreement, the Company and Merisel, Inc. represent and warrant to each Noteholder that the following statements are true, correct and complete: (a) Corporate Power and Authority. Each of the Company and Merisel, ----------------------------- Inc. has all requisite corporate power and authority to enter into this Agreement and to carry out the transactions contemplated by, and perform its respective obligations under, the Existing Agreement as amended by this Amendment (the "Amended Agreement"). (b) Authorization of Agreements. The execution and delivery of this --------------------------- agreement and the performance of the Amended Agreement have been duly authorized by all necessary corporate action by the Company and Merisel, Inc. (c) No Conflict. The execution and delivery by the Company and ----------- Merisel, Inc. of this Amendment and the performance by the Company and Merisel, Inc. of the Amended Agreement do not and shall not (i) violate any provision of law, rule or regulation applicable to the Company, Merisel, Inc. or any of their respective Subsidiaries, or the Certificate of Incorporation or bylaws of the Company, Merisel, Inc. or any of their respective Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of the company, Merisel, Inc. or any of their respective Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of their properties or assets, or (iv) require any approval of stockholders or any approval or consent of any Person under any contractual obligation of the Company, Merisel, Inc. or any of their respective Subsidiaries, other than those that have been obtained. (d) Governmental Consents. The execution and delivery by the Company --------------------- and Merisel, Inc. and the performance by the Company and Merisel, Inc. of the Amended Agreement do not and shall not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Federal, state or other governmental authority or regulatory body. (e) Binding Obligation. This Amendment and the Amended Agreement are ------------------ the legally valid and binding obligation of the Company and Merisel, Inc., enforceable against each of them in accordance with their terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar law relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. (f) Incorporation of Representations and Warranties from Existing ------------------------------------------------------------- Agreement. The representations and warranties contained in Section 5 of the - --------- Existing Agreement are and shall be true, correct and complete in all material respects on and as of the Effective Time to the same extent as though made on and as of that date, except to the extent that such representations and warranties specifically relate to an earlier date, in which case they are true, correct and complete in all material respects as of such earlier date. (g) Absence of Default. After giving effect to this Amendment, no ------------------ event has occurred and is continuing or shall result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default, or an event that with the passage of time, the giving of notice or both would constitute an Event of Default. Section 6. Miscellaneous ------------- (h) On and after the Effective Time, each reference in the Existing Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of like import referring to the Existing Agreement, and each reference in the Notes and the other documents referred to in the Existing Agreement to the "Note Purchase Agreement", "thereunder", "thereof", or words of like import referring to the Existing Agreement shall mean and be a reference to the Existing Agreement as amended by this Amendment. (i) Except as specifically waived by this Amendment, the Existing Agreement, the Notes and the other documents referred to in the Existing Agreement shall remain in full force and effect and are hereby ratified and confirmed. (j) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision, of, or operate as a waiver of any right, power or remedy of the Agent or any Lender under, the Existing Agreement, the Notes or any of the documents referred to in the Existing Agreement. (k) This Amendment may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts taken together shall constitute one and the same instrument. (l) Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. (m) Notwithstanding anything to the contrary herein, if the Effective Time does not occur on or before March 31, 1997, this Amendment shall be of no force or effect, and the Existing Agreement shall remain in full force and effect as if this Amendment had not been executed or delivered by any party hereto. (n) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /S/ TIMOTHY N. JENSON ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /S/ TIMOTHY N. JENSON ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: _________________________ By: _____________________________________ Title Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------------ Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------------ Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: The German Fund for Non-Profit Organizations By: /s/ STUART BROWN ------------------------------------------- Name: Stuart Brown Title: Authorized Agent Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: Restart Partners V, LP By: /s/ STUART BROWN -------------------------------------- Name: Stuart Brown Title: Authorized Agent Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: Restart Partners IV, LP By: /s/ STUART BROWN -------------------------------------- Name: Stuart Brown Title: Authorized Agent Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: Restart Partners III, LP By: /s/ STUART BROWN -------------------------------------- Name: Stuart Brown Title: Authorized Agent Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: Restart Partners, II, LP By: /s/ STUART BROWN -------------------------------------- Name: Stuart Brown Title: Authorized Agent Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: Restart Partners I, LP By: /s/ STUART BROWN ------------------------------------- Name: Stuart Brown Title: Authorized Agent Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: By: /s/ STUART BROWN -------------------------------------- Name: Stuart Brown Title: Authorized Agent Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: The Varde Fund III - A, L.P. By: /s/ GEORGE HICKS ------------------------------------------ Name: George G. Hicks Title: Vice President Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: CoMac International, N.V. By: /s/ ------------------------------------- Name: Title: Director Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: CoMac Partners, L.P. By: /s/ ------------------------------------- Name: Title: General Partner Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: York Capital /York Investment Co. By: /s/ ------------------------------------- Name: Title: Sr. Vice President Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: Daystar Partners LLC By: /s/ ------------------------------------ Name: Title: Managing Director Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: Daystar Partners LLC By: /s/ ------------------------------------- Name: Title: Managing Director Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: Moira A. Corey By: /s/ MOIRA A. COREY ------------------------------------- Name: Title: Bank of America Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: Swiss Bank Corp. By: /s/ ------------------------------------- Name: Title: Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ----------------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ----------------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: Ameritas Life Insurance Corp. by Americas Investment Advisors By: /s/ PATRICK J. HENRY ------------------------------------------------ Name: Patrick J. Henry Title: Vice President - Fixed Income Securities Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: Harris Partner L.P. By: /s/ -------------------------------------- Name: Title: M.D. Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: Bear Stearns & Co., Inc. By: /s/ -------------------------------------- Name: Title: Managing Director Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: Hare & Co. as Nom. for BT Holdings (NY) Inc. By: /s/ -------------------------------------- Name: Title: Vice President Senior Note Purchase Agreement Signature Page IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MERISEL AMERICAS, INC. By: /s/ ----------------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer MERISEL, INC. By: /s/ ----------------------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer NOTEHOLDERS ----------- Name of Holder: PPM America Special Investments Fund, L.P. By: /s/ ------------------------------------------------ Name: Title: Managing Director Annex A CONSENT AND ACKNOWLEDGMENT The undersigned hereby consents to the terms of the Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement dated as of February 27, 1997 (the "Amendment") with respect to the Amended and Restated Senior Note Purchase Agreement dated as of December 23, 1993 and amended as of September 30, 1994, June 23, 1995, April 12, 1996, June 30, 1996 and October 2, 1996 (the "Note Purchase Agreement") among Merisel Americas, Inc., Merisel, Inc. as Guarantor and the Noteholders party thereto, and hereby confirms and agrees that each document executed by t he undersigned pursuant to and as defined in the Note Purchase Agreement is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that, on and after the effective date of the Amendment, each reference in each such document to "the Note Purchase Agreement, " "thereunder," "thereof," "therein" or words of like import referring tot he Note Purchase Agreement shall mean and be a reference to the Note Purchase Agreement as amended by the Amendment. MERISEL CANADA, INC. By: /s/ TIMOTHY N. JENSON ----------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer Dated: As of February ____, 1997 Annex B CONSENT AND ACKNOWLEDGMENT The undersigned hereby consents to the terms of the Sixth Amendment and Waiver to Amended and Restated Senior Note Purchase Agreement dated as of February 27, 1997 (the "Amendment") with respect to the Amended and Restated Senior Note Purchase Agreement dated as of December 23, 1993 and amended as of September 30, 1994, June 23, 1995, April 12, 1996, June 30, 1996 and October 2, 1996 (the "Note Purchase Agreement") among Merisel Americas, Inc., Merisel, Inc. as Guarantor and the Noteholders party thereto, and hereby confirms and agrees that each document executed by the undersigned pursuant to and as defined in the Note Purchase Agreement is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that, on and after the effective date of the Amendment, each reference in each such document to "the Note Purchase Agreement," "thereunder," "thereof," "therein," or words of like import referring to the Note Purchase Agreement shall mean and be a reference to the Note Purchase Agreement as amended by the Amendment. MERISEL EUROPE, INC. By: /s/ TIMOTHY N. JENSON ----------------------------------- Name: Timothy N. Jenson Title: Vice President & Treasurer Dated: As of February ____, 1997 EX-4.10 10 FORM OF LIMITED WAIVER AND VOTING AGREEMENT EXHIBIT 4.10 LIMITED WAIVER AND VOTING AGREEMENT This Limited Waiver and Voting Agreement (the "Agreement"), dated as of April 11, 1997, by and among Merisel, Inc. ("Merisel") and the undersigned holders (each, a "Consenting Noteholder") of Merisel's 12 1/2% Senior Notes due December 31, 2004 (the "Notes"), issued under an indenture dated October 15, 1994 between Merisel and the Bank of New York, as successor to NationsBank of Texas, N.A., as Trustee (the "Indenture"). WITNESSETH: WHEREAS, Merisel and the Consenting Noteholders desire to implement a financial restructuring on the terms set forth on Appendix I hereto (the "Financial Restructuring"); WHEREAS, in order to implement the Financial Restructuring, Merisel has agreed to undertake an exchange offer and consent solicitation (the "Exchange Offer" or "Exchange Offer/Consent Solicitation") of the holders of the Notes (together with the Consenting Noteholders, the "Noteholders") or to file a prepackaged Chapter 11 Plan of Reorganization (the "Prepackaged Plan") in proceedings (the "Chapter 11 Proceedings") under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"), in each case on terms consistent with the terms of the Financial Restructuring; and WHEREAS, in order to facilitate the implementation of the Financial Restructuring, each of the Consenting Noteholders is prepared, on the terms and subject to the conditions of this Agreement, to waive its right to receive the interest payments due on June 30, 1997 and December 31, 1997 in respect of the Notes held by it and to tender such Notes into the Exchange Offer and/or to vote its claims in respect of such Notes in support of the Prepackaged Plan. NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Merisel and each Consenting Noteholder, hereby agree as follows: 1. Waiver. Effective as of the "Effective Date" (as defined in Section 4 of this Agreement) and so long as no "Agreement Termination Event" (as defined in Section 5 of this Agreement) shall have occurred, each of the Consenting Noteholders hereby agrees (a) to waive (i) its right to receive the interest payments due in respect of its Notes on June 30, 1997 and December 31, 1997 and (ii) any Event of Default (as defined in the Indenture) that may arise from the non-payment thereof (the "Relevant Defaults"), and (b) not (i) to vote its Notes in favor of an acceleration of the maturity of the Notes as a result of the occurrence of the Relevant Defaults or (ii) to direct the Trustee under the Indenture to accelerate the maturity of the Notes as a result of the occurrence of the Relevant Defaults. 2. Exchange and Voting Agreement; Restriction on Transfer. Each of the Consenting Noteholders represents that as of the date hereof it is the beneficial owner of, and/or the investment adviser or manager for the beneficial owners of (with the power to vote and dispose of such Notes on behalf of such beneficial owners) the principal amount of Notes set forth opposite its signature hereto (for each such Consenting Noteholder, the "Relevant Notes"). Effective as of the Effective Date, each of the Consenting Noteholders hereby agrees that, subject to the conditions that (i) the disclosure statement in respect of the Prepackaged Plan or the prospectus or information circular in respect of the Exchange Offer/Consent Solicitation contains information in respect of Merisel's business and operations that is not materially inconsistent with the information heretofore provided by Merisel to the Consenting Noteholders and (ii) the terms of the Exchange Offer or the Prepackaged Plan are no less favorable to the Noteholders than the terms of the Financial Restructuring, it shall (1) timely tender (and, so long as no Agreement Termination Event shall have occurred, not withdraw) the Relevant Notes into the Exchange Offer and (2) timely vote its claims in respect of the Relevant Notes (and, so long as no Agreement Termination Event shall have occurred, not revoke or withdraw such vote) in favor of the Prepackaged Plan. In addition, each of the Consenting Noteholders hereby agrees that, so long as this Agreement has not been terminated, it shall not sell, transfer or assign any of the Relevant Notes, or any voting interest therein, unless such transfer is in compliance with applicable securities laws, the transferee thereof agrees in writing to be bound by all the terms of this Agreement (which writing may include a trade confirmation issued by a broker or dealer, acting as principal or as agent for the transferee, stating that such agreement is a term of such transfer), and the transferor provides Merisel with a copy of such writing, in which event Merisel shall be deemed to have acknowledged that its obligations to the Consenting Noteholders hereunder shall be deemed to constitute obligations in favor of such transferee, and Merisel shall confirm that acknowledgment in writing. In addition, so long as the relief requested in any first day motions filed by Merisel in the Chapter 11 Proceedings does not adversely affect the value of the distributions to the Consenting Noteholders under the Prepackaged Plan and is not otherwise inconsistent with the terms of the Financial Restructuring, the Consenting Noteholders shall, from and after the Effective Date, not object to the entry of orders granting such relief. 3. Merisel Agreements. Merisel hereby agrees (i) promptly after the Effective Date to prepare a draft prospectus or information circular relating to the Exchange Offer/Consent Solicitation; (ii) subject to receipt of any applicable governmental approvals and confirmation from counsel to the Consenting Noteholders that the Consenting Noteholders do not believe that (a) the information contained in such circular in respect of Merisel's business and operations is materially inconsistent with the information provided to such Noteholders or their representatives prior to the date hereof or (b) the terms of such Exchange Offer/Consent Solicitation are inconsistent with the terms of the Financial Restructuring, to commence the Exchange Offer/Consent Solicitation; and (iii) as promptly thereafter as possible, consistent with its obligations under applicable law, to close the Exchange Offer/Consent Solicitation or, in the event that the minimum tender condition stated therein is not satisfied but holders of at least two thirds in principal amount of the Notes and a majority in number of the holders of such Notes shall have tendered their Notes into the Exchange Offer and voted their claims in respect of such Notes in favor of the Prepackaged Plan, to commence chapter 11 proceedings and take all such steps as shall be necessary and desirable to confirm the Prepackaged Plan as promptly as practicable. In addition, as promptly as practicable after the date hereof, Merisel shall solicit proxies from its shareholders in favor of appropriate amendments to its Certificate of Incorporation to provide for a sufficient increase in the number of authorized shares of its common stock to implement the Financial Restructuring. 4. Conditions to the Effective Date. The agreements of the Consenting Noteholders set forth in Sections 1 and 2 herein shall not become effective unless and until the following conditions shall have first been fulfilled (the date on which all such conditions are first fulfilled, the "Effective Date"): (a) Merisel and requisite majorities under each of the Operating Company Debt Agreements (as hereinafter defined) shall have executed and delivered an effective waiver of any default or event of default under the Operating Company Debt Agreements arising out of (i) Merisel's 2 execution, delivery and performance of its obligations under this Agreement; (ii) the commencement of any collection action by any Noteholder that is not a Consenting Noteholder arising out of the occurrence of the Relevant Defaults; and (iii) if applicable, Merisel's failure to obtain an unqualified opinion from its certified public accountants in respect of Merisel's financial statements for the 1996 fiscal year (such defaults, the "Applicable Senior Defaults"); and (b) Merisel's representations and warranties in Section 6 shall be true and correct in all material respects as of the first date on which the conditions set forth in clauses (a) above shall have been satisfied. 5. Termination of Agreement. The waiver set forth in Section 1 of this Agreement as well as all other obligations of the Consenting Noteholders hereunder shall terminate automatically upon the occurrence of any "Agreement Termination Event" (as hereinafter defined), unless the occurrence of such Agreement Termination Event is waived in writing by all of the Consenting Noteholders. If any Agreement Termination Event occurs (and has not been waived) at the time when court permission shall be required for a Consenting Noteholder to change or withdraw (or cause to be changed or withdrawn) its votes in favor of the Prepackaged Plan, Merisel shall not, subject to its fiduciary duties as a debtor in possession, oppose any attempt by such Consenting Noteholder to change or withdraw (or cause to be changed or withdrawn) such votes at such time. Upon the occurrence of an Agreement Termination Event, payments of accrued interest waived by the Consenting Noteholders under Section 1 of this Agreement shall become immediately due and payable in accordance with the terms of the Indenture. An "Agreement Termination Event" shall mean any of the following: (a) On the earliest to occur of (i) the day immediately preceding the first date on which the Exchange Offer/Consent Solicitation could be closed under applicable law and pursuant to its terms and conditions, (ii) the day immediately preceding the last date on which ballots in respect of the Prepackaged Plan may be submitted, and (iii) October 31, 1997 (together with (i) and (ii) above, the "Drop-Dead Date"), (1) Merisel and the other parties to the Operating Company Debt Agreements (as hereinafter defined) shall have failed to have executed and delivered an amendment thereto pursuant to which the maturity of the indebtedness outstanding thereunder shall have been extended to no earlier than January 31, 1999 on terms no more expensive for Merisel than those set forth on Appendix II or (2) Merisel shall have failed to consummate a refinancing of all of the indebtedness outstanding under the Operating Company Debt Agreements on terms and conditions reasonably acceptable to the Consenting Noteholders; (b) The Exchange Offer/Consent Solicitation shall not have been closed and the Notes tendered thereunder accepted for payment on or prior to August 31, 1997 unless such failure is a result of the commencement of the Chapter 11 Proceedings in connection with the filing of the Prepackaged Plan on or prior to such date; (c) In the event that the Chapter 11 Proceedings have been commenced, the Prepackaged Plan shall not have been substantially consummated on or prior to October 31, 1997; (d) Merisel shall have made any change in the terms of the Exchange Offer/Consent Solicitation after the commencement thereof or in the Prepackaged Plan after the commencement of the Chapter 11 Proceedings such that the terms thereof are no longer consistent with the Financial Restructuring, unless such change is previously consented to by all of the 3 Consenting Noteholders; (e) After the Effective Date, there occurs any "Event of Default" as defined under (i) the Revolving Credit Agreement, dated December 23, 1993, as amended and restated as of April 12, 1996, as subsequently amended, between Merisel Americas, Inc. and Merisel Europe Inc. as Borrowers, Merisel, Inc. as Guarantor, the Lenders party thereto and Citicorp USA, Inc. as Agent and NationsBank of Texas, N.A. as Co-Agent (the "Revolving Credit Agreement"), (ii) the Amended and Restated Senior Note Purchase Agreement, dated as of December 23, 1993, as subsequently amended, between the noteholders and Merisel Americas, Inc., relating to $100,000,000 of Amended and Restated 8.58% Senior Notes due June 30, 1997 (the "Senior Note Purchase Agreement"), (iii) the Amended and Restated Receivables Purchase and Servicing Agreement, dated as of September 27, 1996, by and among Merisel Capital Funding, Inc., as Seller, Redwood Receivables Corporation, as Purchaser, Merisel Americas, Inc., as Servicer, and General Electric Capital Corporation, as Operating Agent and Collateral Agent (the "Receivables Purchase and Servicing Agreement") or (iv) the Amended and Restated Subordinated Note Purchase Agreement, dated as of December 23, 1993, as subsequently amended, between the noteholders and Merisel Americas, Inc., relating to $22,000,000 of Amended and Restated 11.28% Subordinated Notes due March 10, 2000 (the "Subordinated Note Purchase Agreement", and together with the Revolving Credit Agreement, the Senior Note Purchase Agreement and the Receivables Purchase and Servicing Agreement, the "Operating Company Debt Agreements"), and such Event of Default has not been cured or waived by the earliest of (1) the tenth day after the occurrence thereof, (2) the Drop-Dead Date, and (3) the date of the acceleration of the maturity of the underlying indebtedness under any of the Operating Company Debt Agreements; (f) Merisel's Certificate of Incorporation shall not have been amended by the requisite affirmative shareholder vote to provide for a sufficient increase in the number of authorized shares of its common stock to implement the Financial Restructuring on or prior to August 31, 1997; or (g) There shall have occurred any material adverse change in the business, assets, operations, or condition (financial or otherwise) of Merisel and its subsidiaries, taken as a whole. Upon the occurrence of any Agreement Termination Event, unless such Agreement Termination Event is waived by each of the Consenting Noteholders, this Agreement shall terminate and no party hereto shall have any continuing liability or obligation to any other party hereunder, except as otherwise provided in Section 15.6. Representations and Warranties of Merisel. In order to induce the Consenting Noteholders to enter into this Agreement, Merisel represents and warrants to each Consenting Noteholder that the following statements are true, correct and complete: (a) Corporate Power and Authority. Merisel has all requisite corporate power and authority to enter into this Agreement and to carry out the transactions contemplated by, and perform its respective obligations under this Agreement; (b) Authorization. The execution and delivery of this Agreement and the performance of its obligations hereunder have been duly authorized by all necessary corporate action by Merisel; 4 (c) No Conflicts. The execution, delivery and performance by Merisel of this Agreement do not and shall not (i) violate any provision of law, rule or regulation applicable to it or any of its subsidiaries or the Certificate of Incorporation or bylaws of Merisel or any of its subsidiaries or (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of Merisel or any of its subsidiaries; (d) Governmental Consents. The execution, delivery and performance by Merisel of this Agreement do not and shall not require any registration or filing with, consent or approval of, or notice to, or other action to, with or by, any Federal, state or other governmental authority or regulatory body, except such filings as may be necessary in connection with the commencement of the Exchange Offer/Consent Solicitation and/or the commencement of a proxy solicitation of Merisel's shareholders or the filing of the Prepackaged Plan; (e) Binding Obligation. This Agreement is the legally valid and binding obligation of Merisel, enforceable against Merisel in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability; and (f) Absence of Default. After giving effect to this Agreement, no event has occurred and is continuing or shall result from the consummation of the transactions contemplated by this Agreement that would constitute an Event of Default under the Indenture or the Operating Company Debt Agreements (except the Applicable Senior Default specified in clause (i) of the definition thereof), or an event that with the passage of time, the giving or notice or both would constitute an Event of Default under the Indenture or the Operating Company Debt Agreements. 7. Further Acquisition of Securities. This Agreement shall in no way be construed to preclude the Consenting Noteholders from acquiring additional Notes of Merisel. However, any such additional Notes so acquired shall automatically be deemed to be Relevant Notes and to be subject to the terms of this Agreement. This Agreement shall in no way be construed to preclude the Consenting Noteholders from acquiring any other securities of Merisel. However, the Consenting Noteholders agree that they will vote (or cause to be voted) any such additional securities in favor of the Prepackaged Plan for so long as this Agreement remains in effect. 8. Amendments. This Agreement may not be modified, amended or supplemented except in writing signed by Merisel and each of the Consenting Noteholders. 9. Disclosure of Individual Holdings. Unless required by applicable law or regulation, Merisel shall not disclose any Consenting Noteholder's holdings of Relevant Notes without the prior written consent of such Consenting Noteholders; and if such announcement or disclosure is so required by law or regulation, Merisel shall afford the Consenting Noteholders a reasonable opportunity to review and comment upon any such announcement or disclosure prior to Merisel's making such announcement or disclosure. The foregoing shall not prohibit Merisel from disclosing the approximate aggregate holdings of Notes by the Consenting Noteholders as a group. 10. Impact of Appointment to Creditors Committee. Notwithstanding anything herein to the contrary, in the event that any Consenting Noteholder is appointed to and serves on a committee of creditors in Merisel's Chapter 11 proceedings, the terms of this Agreement shall not be construed so as to limit such Consenting Noteholder's exercise (in its sole discretion) of its fiduciary 5 duties to any person arising from its service on such committee, and any such exercise (in the sole discretion of such Consenting Noteholder) of such fiduciary duties shall not be deemed to constitute a breach of the terms of this Agreement (but the fact of such service on such committee shall not otherwise affect the continuing validity or enforceability of this Agreement). The foregoing shall not modify or limit the obligations of Consenting Noteholders to vote their Relevant Notes or other Merisel securities or claims beneficially owned by them and to take the other actions set forth in Section 2 hereof. 11. Indemnification Obligations. Merisel agrees that it shall fully indemnify each Consenting Noteholder and its directors, officers, employees, agents, and representatives (including, without limitation, Cleary, Gottlieb, Steen & Hamilton and Chanin and Company) (all the foregoing persons, together with the Consenting Noteholders, the "Indemnitees") against any claims, liabilities, actions, suits, damages, fines, judgments or expenses (including reasonable attorneys' fees), brought or asserted by anyone (other than Merisel or any successor thereto with respect to asserted violations of this Agreement) 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 Financial Restructuring, including the Exchange Offer/Consent Solicitation or the Prepackaged Plan, as the case may be, and the transactions contemplated hereby and thereby; provided, however, that this indemnity shall not extend to any claims asserted by a Consenting Noteholder against any other Indemnitee, and provided, further, that the foregoing indemnification shall not apply to any liabilities arising from the gross negligence or willful 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 Merisel, the Indemnitee shall promptly notify Merisel in writing, and 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) Merisel has agreed to pay the fees and expenses of such counsel, or (b) 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 Merisel, and the Indemnitee believes in the exercise of its business judgment and in the opinion of its legal counsel that the joint representation of Merisel and the Indemnitee will likely result in a conflict of interest (in which case, if the Indemnitee notifies Merisel in writing that it elects to employ separate counsel at the expense of Merisel, Merisel shall not have the right to assume the defense of such action or proceeding on behalf of the Indemnitee). In addition, 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 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. 12. Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to any conflicts of law provision which would require the application of the law of any other jurisdiction. By its execution and delivery of this Agreement, each of the parties hereto hereby irrevocably and unconditionally agrees for itself that any legal action, suit or proceeding against it with respect to any matter under or arising out of or in connection with this Agreement or for recognition or enforcement of any judgment rendered in any such action, suit or proceeding, may be brought in any Federal or 6 State court in the Borough of Manhattan, the City of New York. By execution and delivery of this Agreement, each of the parties hereto hereby irrevocably accepts and submits itself to the nonexclusive jurisdiction of each such court, generally and unconditionally, with respect to any such action, suit or proceeding. Notwithstanding the foregoing consent to New York jurisdiction, upon the commencement of Merisel's Chapter 11 case, each of the parties hereto hereby agrees that the bankruptcy court before which such case is pending shall have exclusive jurisdiction of all matters arising out of or in connection with this Agreement. 13. Specific Performance. It is understood and agreed by each of the parties hereto that money damages would not be a sufficient remedy for any breach of this Agreement by any party (other than a breach by Merisel of Section 14 hereof) and each non-breaching party shall be entitled to specific performance and injunctive or other equitable relief as a remedy of any such breach. 14. Fees and Expenses. Until the occurrence of an Agreement Termination Event, Merisel shall continue to reimburse the Consenting Noteholders for their out of pocket costs and expenses in respect of the fees and expenses of Chanin and Company and Cleary, Gottlieb, Steen & Hamilton in accordance with Merisel's respective agreements with each such firm. In addition, in the event any party brings an action against any other party based upon a breach by such other party of its obligations hereunder, the prevailing party shall be entitled to all reasonable expenses incurred, including reasonable attorneys' and financial advisers' fees in connection with such action. 15. Survival. Notwithstanding the sale of the Relevant Notes in accordance with Section 2 hereof or the termination of the Consenting Noteholders' obligations hereunder in accordance with Section 5 hereof, the agreements and obligations of Merisel in Section 9 and Sections 11 and 14 hereof shall survive such termination and shall continue in full force and effect for the benefit of the Consenting Noteholders in accordance with the terms hereof. 16. Headings. The Headings of the Sections, paragraphs and subsections of this Agreement are inserted for convenience only and shall not affect the interpretation hereof. 17. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of the parties and their respective successors, assigns, heirs, executors, administrators and representatives. The agreements, representations and obligations of the Consenting Noteholders under this Agreement are several and not joint in all respects. 18. Prior Negotiations. This Agreement and Appendix 1 supersede all prior negotiations with respect to the subject matter hereof. 19. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. 20. No Third-Party Beneficiaries. Unless expressly stated herein, this Agreement shall be solely for the benefit of the parties hereto and the Consenting Noteholders who have entered into agreements with Merisel substantially identical to this Agreement and no other person or entity shall be a third-party beneficiary hereof. 7 21. Consideration. It is hereby acknowledged by the parties hereto that no consideration shall be due or paid to the Consenting Noteholders for their agreement to vote in favor of the Exchange Offer/Consent Solicitation or the Prepackaged Plan in accordance with the terms and conditions of this Agreement other than Merisel's agreement to commence the Exchange Offer/Consent Solicitation or file the Prepackaged Plan in accordance with the terms and conditions of this Agreement. 8 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed and delivered by its duly authorized officer as of the date first above written. MERISEL, INC. 9 APPENDIX I SUMMARY OF TERMS AND CONDITIONS The following is intended for discussion and settlement purposes only. MERISEL, INC. 12.5% SENIOR NOTES RESTRUCTURING -------------------------------- DEBT TO EQUITY EXCHANGE: Subject to the terms and conditions hereinafter set forth, the principal amount plus accrued interest to closing date of the Merisel, Inc. 12.5% Senior Notes due 2004 (the "Senior Notes") shall be exchanged for 80% of the fully diluted shares of Merisel, Inc. ("Company") common stock, $0.01 par value (the "Common Stock"). WARRANTS: On the Exchange Date, the Company shall distribute to shareholders of record on the day immediately preceding the Exchange Date two tranches of warrants having the following terms and conditions (the "Warrants"): (i) the Warrants shall be exercisable at any time within the seven year period, commencing on the Exchange Date; (ii) the Warrants shall entitle the holders thereof to purchase, in the aggregate, common stock constituting 17.5% of the shares outstanding after giving effect to the conversion of Senior Notes into common stock; and (iii) the Warrants shall be issued in two tranches of equal size exercisable at equity valuations of $215 million and $265 million, respectively. CORPORATE GOVERNANCE: On the Exchange Date, the Board of Directors of the Company shall be composed of members acceptable to the Ad Hoc Committee of Holders of Merisel, Inc. 12.5% Senior Notes (the "Committee"), and the Company. No financial advisor nor legal advisor will be named to the Board. 1997 CHANGE OF CONTROL: Through December 31, 1997, any sale or agreement to sell or change in control of the Company must be approved by the holders of at least 85% of the then outstanding common stock unless the warrants remain outstanding or are convertible into the acquiror's common stock pursuant to customary anti-dilution provisions. EXHIBIT I PRO FORMA OWNERSHIP Currently 30.1 Million Shares Outstanding We anticipate a reverse split to reduce the total number of shares outstanding after the transaction.
OWNERSHIP AT CLOSING AT $215 MILLION AT $265 MILLION --------- ---------- --------------- --------------- 12.5% Senior Noteholders 120.3 shares 120.3 shares 120.3 shares Percent Ownership 80.0% 73.6% 68.1% Existing Shareholder Shares 30.1 shares 30.1 shares 30.1 shares Tranche 1 Warrants 0 shares 13.2 shares 13.2 shares Tranche 2 Warrants 0 shares 0 shares 13.2 shares ------------ --------------- --------------- Total to Existing Shareholders 30.1 shares 43.2 shares 56.4 shares Percent Ownership 20.0% 26.4% 31.9% Total Shares Outstanding 150.4 shares 163.5 shares 176.7 shares
APPENDIX II RESTRUCTURING PROPOSAL - SENIOR DEBT TERMS Issuer: No change. Instrument: No change. Principal Amount: No change. Interest Rate: No change in 1997, increasing 1/2% per quarter commencing January 31, 1998 and each quarter thereafter. Amortization: No change (except that the Issuer will make reasonable efforts to apply for tax carryback refunds, and all such tax refunds received will be applied to amortize senior debt). Maturity Date: January 31, 1999. Optional Redemption: Redeemable at any time at par plus accrued interest. Modification Fee (in cash): On Signing and Receipt of 67% Approval: 1.50% At Closing: 2.00% On January 31, 1998: 0.25% On April 30, 1998: 0.50% On July 31, 1998: 0.75% RESTRUCTURING PROPOSAL - SUBORDINATED NOTES TERMS Issuer: No change. Security: No change. Principal Amount: No change. Interest Rate: No change in 1997, increasing 1/2% per quarter commencing January 31, 1998 and continuing for the three quarters thereafter. Amortization: No change. Maturity Date: The earlier of (i) no change or (ii) within 90 days after repayment in full of the senior debt. Optional Redemption: No change. Modification Fee: None. OPERATING COMPANY DEBT COVENANTS CHANGES IN CONJUNCTION WITH EXTENSION ($ in thousands)
CURRENT PROPOSED COVENANT TEST TEST 1 Minimum Required Accounts Payable Q1 1997 $345,000 $300,000 Q2 1997 345,000 300,000 Q3 1997 345,000 330,000 Q4 1997 500,000 350,000 Q1 1998 330,000 Q2 1998 360,000 Q3 1998 410,000 Q4 1998 410,000 2 Accounts Payable to Inventory 0.9x 0.9x Eliminate covenant of 1:1 every two quarters 3 EBITSDA Cumulative -------- Q1 1997 $ 11,000 $ 10,000 Q2 1997 12,400 20,000 Q3 1997 14,560 33,000 Q4 1997 19,280 50,000 Last Twelve Months ------------------ Q1 1998 NA $ 56,000 Q2 1998 NA 60,000 Q3 1998 NA 64,000 Q4 1998 NA 68,000 4 EBITSDA/(I+S) Q1 1997 0.83x NA Until restructuring completed Q2 1997 0.89 NA Q3 1997 1.13 1.30x Q4 1997 1.44 2.00 Q1 1998 NA 1.30x Q2 1998 NA 1.60 Q3 1998 NA 1.60 Q4 1998 NA 2.00
OPERATING COMPANY DEBT COVENANTS CHANGES IN CONJUNCTION WITH EXTENSION ($ in thousands)
CURRENT PROPOSED COVENANT TEST TEST 5 Capital Expenditures Cumulative ---------- Q1 1997 $ 4,000 Q2 1997 7,000 Q3 1997 11,000 Q4 1997 13,000 $ 18,000 Unused amount carried forward Q1 1998 NA Q2 1998 NA Q3 1998 NA Q4 1998 NA $ 27,000 6 Inventory Turnover 9.0x 8.0x 7 Minimum Unsecured Inventory $315,000 Q1 1997 $250,000 Q2 1997 250,000 Q3 1997 250,000 Q4 1997 300,000 Q1 1998 $250,000 Q2 1998 250,000 Q3 1998 300,000 Q4 1998 350,000 8 Audit Opinion Clean Opinion 1996 -- Waived 1997 -- Clean Opinion
OPERATING COMPANY DEBT COVENANTS CHANGES IN CONJUNCTION WITH EXTENSION ($ in thousands) COVENANT 9 Ability to participate in Compaq's Flexpaq program (Requires pledging of Compaq inventory) 10 Lien covenant modified to permit capital leases up to $5.0 million for purchases on credit versus cash for systems (e.g. SAP); computer equipment; copiers, etc. 11 Debt covenant needs to be modified to permit the promissory note or capital lease associated with the lease financing 12 Requirement to provide standard reports subject to further discussion with the Noteholders 13 Subject to Noteholder decision the Company will pay for financial advisors up to $150,000 per year for routine monitoring unless the Company is in default. The Company will continue to pay reasonable legal fees and expenses as required by the Revolving Credit Agreement and the Senior Note Purchase Agreement. 14 Eliminate requirement in Canadian guaranty to maintain $20.0 million in inter-company loan balance between Merisel Americas and Merisel Canada 15 Remove European and FAB debt covenants and references in the agreements EX-4.11 11 FORM OF LIMITED WAIVER AND VOTING AGREEMENT DATED 4/14/97 EXHIBIT 4.11 LIMITED WAIVER AND AGREEMENT TO AMEND This Limited Waiver and Agreement to Amend (this "Agreement"), dated as of April 14, 1997, is entered into by and among (i) Merisel, Inc. ("Merisel"), (ii) Merisel Americas, Inc. ("Merisel Americas"), (iii) Merisel Europe, Inc. ("Merisel Europe"), (iv) the undersigned holders (each a "Consenting Lender") of loans (the "Loans") made pursuant to the Revolving Credit Agreement, dated December 23, 1993, as amended and restated as of April 12, 1996 and as subsequently amended (the "Revolving Credit Agreement"), between Merisel Americas and Merisel Europe as Borrowers, Merisel as Guarantor, the lenders party thereto and Citicorp USA, Inc. as Agent and NationsBank of Texas, N.A. as Co-Agent, (v) the undersigned holders (each a "Consenting Senior Noteholder") of the senior notes (the "Senior Notes") issued pursuant to the Amended and Restated Senior Note Purchase Agreement, dated as of December 23, 1993 and as subsequently amended (the "Senior Note Purchase Agreement"), between the noteholders party thereto and Merisel Americas, and (vi) the undersigned holders (each a "Consenting Subordinated Noteholder") of the subordinated notes (the "Subordinated Notes") issued pursuant to the Amended and Restated Subordinated Note Purchase Agreement, dated as of December 23, 1993 and as subsequently amended (the "Subordinated Note Purchase Agreement"), between the noteholders party thereto and Merisel Americas. The capitalized terms used herein have the meanings ascribed to them in this Agreement. WITNESSETH: WHEREAS, Merisel, Merisel Americas and Merisel Europe (collectively, the "Merisel Entities") and the Consenting Lenders, the Consenting Senior Noteholders and the Consenting Subordinated Noteholders (collectively, the "Consenting Noteholders") desire to implement a financial restructuring on the terms set forth on Appendix I hereto (the "Financial Restructuring"); WHEREAS, in order to implement the Financial Restructuring, the Merisel Entities and the Consenting Noteholders have agreed to effect certain amendments to the Revolving Credit Agreement, the Senior Note Purchase Agreement and the Subordinated Note Purchase Agreement (collectively, the "Debt Agreements"), in each case on terms set forth on Appendix I; and WHEREAS, in order to facilitate the implementation of the Financial Restructuring, each of the Consenting Noteholders is prepared, on the terms and subject to the conditions of this Agreement, to waive certain defaults that may occur under the Debt Agreements, to consent to the financial restructuring of Merisel described in Appendix II (the "Parent Financial Restructuring") and to execute amendments (the "Amendments") to the applicable Debt Agree ments, which Amendments shall be in form and substance reasonably acceptable to the Consenting Noteholders. NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Merisel Entities and the Consenting Noteholders hereby agree as follows: 1. Waiver and Consent. Effective as of the "Effective Date" (as defined in Section 4 of this Agreement) and so long as no "Agreement Termination Event" (as defined in Section 5 of this Agreement) shall have occurred, each of the Consenting Noteholders hereby agrees (a) to waive any default or Event of Default (as defined in the applicable Debt Agreement) that may arise from (i) the non-payment of interest in respect of the 12-1/2% Senior Notes due December 31, 2004 (the "Parent Notes") issued by Merisel under an indenture dated October 15, 1994 (the "Indenture"), including any exercise of remedies in respect of any such non-payment, (ii) the receipt by Merisel of a report from its certified public accountants on its consolidated financial statements for the 1996 fiscal year that is qualified or that expresses doubts about the ability of Merisel or its subsidiaries to continue as a going concern, (iii) the commencement of a case under Title 11 of the United States Code (the "Chapter 11 Proceedings") in which Merisel is named as the debtor in connection with a prepackaged Chapter 11 Plan of Reorganization (the "Prepackaged Plan") on terms consistent with the Parent Financial Restructuring, (iv) an exchange offer and consent solicitation (the "Exchange Offer/Consent Solicitation") of the holders of the Parent Notes on terms consistent with the Parent Financial Restructuring 2 (v) any failure to comply with the provisions of Sections 7.01(h) through (l) and 7.02(i) of the Revolving Credit Agreement, Section 6.25, 6.29 through 6.32 and 6.37 of the Senior Note Purchase Agreement and Section 9.10 of the Subordinated Note Purchase Agreement (to the extent that such Section 9.10 incorporates by reference the foregoing sections from the Senior Note Purchase Agreement, provided that a failure to comply -------- is not waived to the extent that there is a failure with such provisions as proposed to be modified as set forth on Appendix I, (vi) failure to maintain at least $315,000,000 of accounts payable to flooring companies or sellers of inventory that are not secured by any lien, provided that at least $250,000,000 of such accounts payable shall be -------- maintained not secured by any lien, (vii) participation in Compaq's Flexpaq program, pursuant to which liens shall be granted to Compaq solely on inventory sold by Compaq to the Merisel Entities on terms previously disclosed to the Consenting Noteholders, (viii) incurrence of capital leases in an aggregate amount not in excess of $5,000,000 and liens related to such leases, (ix) failure to report preliminary financial information and weekly and monthly cash balances, provided that the information otherwise required -------- in such reports shall be included in regular monthly financial reports, (x) reduction below $20,000,000 of the intercompany loan balance maintained between Merisel Americas and Merisel Canada, Inc., (xi) any provision in the Debt Agreements that is in default solely because such provision pertains to Merisel Europe or Merisel FAB, Inc. or (xii) any default not otherwise specifically referred to herein under the Parent Notes so long as the maturity of the Parent Notes has not been accelerated. (the Events of Default described in the foregoing clauses (i) through (xii) being referred to collectively as the "Relevant Defaults") and (b) not (i) to vote the 3 Loans, Senior Notes or Subordinated Notes (collectively, the "Debt"), as the case may be, in favor of an acceleration of the maturity of such Debt as a result of the occurrence of the Relevant Defaults or (ii) to direct any agent or trustee, as the case may be, to accelerate the Debt or to take any other action as a result of the occurrence of the Relevant Defaults. The Consenting Noteholders hereby consent to the transactions described in Appendix II. 2. Agreement to Amend; Restriction on Transfer. Each of the Consenting Noteholders represents that as of the date hereof it is the beneficial owner of, and/or the investment adviser or manager for the beneficial owners of (with the power to vote and dispose of such Debt on behalf of such beneficial owners) the principal amount of Debt set forth opposite its signature hereto (for each such Consenting Noteholder, the "Relevant Debt"). Effective as of the Effective Date, each of the Consenting Noteholders hereby agrees that, subject to the conditions that (i) the disclosure statement in respect of the Prepackaged Plan or the prospectus or information circular in respect of the Exchange Of fer/Consent Solicitation contains no information in respect of the Merisel Entities' business and operations that is materially inconsistent with the information heretofore provided by Merisel to the Consenting Noteholders and (ii) the terms of the applicable Amendment are no less favorable to the Consenting Noteholder than the terms of the Financial Restructuring, it shall timely execute and deliver in respect of the Relevant Debt (and, so long as no Agreement Termination Event shall have occurred, not revoke or withdraw) the applicable Amendment, 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 the Loans and all Senior Notes, respectively, and (ii) none of the Amendments shall become effective unless the Exchange Of fer/Consent Solicitation is closed on or prior to August 31, 1997 or the Prepackaged Plan has been substantially consummated on or prior to October 31, 1997. In addition, each of the Consenting Noteholders hereby agrees that, so long as this Agreement has not been terminated, it shall not sell, transfer or assign any of the Relevant Debt, or any voting interest therein, unless such transfer is compli ance with applicable securities laws and the transferee thereof agrees in writing to be bound by all the terms of this Agreement (which writing may include a trade confirmation issued by a broker or dealer, acting as principal or as agent for the transferee, stating that such agreement is a term of such transfer), and the transferor provides Merisel with a copy of such writing,in which event the applicable Merisel Entities shall be deemed to have acknowledged that its obligations to the Consenting Noteholders hereunder shall be deemed to constitute 4 obligations in favor of such transferee, and the Merisel Entities shall confirm that acknowledgment in writing. 3. Merisel Agreements. Merisel hereby agrees (i) promptly after the Effective Date to prepare and circulate drafts of the Amendments, (ii) subject to confirmation from counsel to the Consenting Noteholders that the Consenting Noteholders have not advised counsel that (a) the information contained in the prospectus or information circular relating to the Exchange Offer/Consent Solicitation or the disclosure statement with respect to the Prepackaged Plan in respect of Merisel's business and operations is materially inconsistent with the information provided to such Consenting Noteholders or their representatives prior to the date hereof or (b) the terms of such Exchange Offer/Consent Solicitation or such Prepackaged Plan are inconsistent with the terms of the Financial Restructuring, to execute final versions of the Amendments and (iii) to use its best efforts to cause all the conditions precedent to the effectiveness of the Amendments to be satisfied or waived at or prior to the time of the consummation of the Exchange Offer/Consent Solicitation or the Prepackaged Plan, as the case may be. The Merisel Entities agree to pay a fee, on or after the Effective Date, to each holder of a Loan or a Senior Note that executes and delivers a copy of this Agreement prior the earliest to occur of (1) to the closing of the Exchange Offer/Consent Solicitation, (2) the substantial consummation of the Prepackaged Plan or (3) the occurrence of an Agreement Termination Event, the amount of such fee to be equal to 1-1/2% of the outstanding principal amount of such holder's Loan or Senior Note, as the case may be. Such fee shall be paid only once with respect to each Loan and each Senior Note. Holders of Loans and Senior Notes that execute copies of this Agreement (i) on or before the Effective Date shall be paid such fee when this Agreement becomes effective on the Effective Date or (ii) after the Effective Date shall be paid such fee no later than five Business Days following such execution and delivery. In the event that the Loans and/or Senior Notes are paid in full prior to the effectiveness of the applicable Amendment, the relevant Consenting Noteholder will be entitled to receive at such time and the Merisel Entities will pay, the unpaid portion, if any, of the aggregate 3.5% modification fee in respect of their respective Loans and/or Senior Notes as described in Appendix I as being due at or prior to the effectiveness of such Amendment. For the purpose of this Section 3, a "Business Day" is any day other than Saturday, Sunday or 5 any other day on which on which banks in New York City are permitted or required to be closed. The Merisel Entities agree that, if the Loans and the Senior Notes are paid in full prior to the final stated maturity thereof, the Subordinated Notes shall be paid in full within 90 days after the last payment by the Merisel Entities to the holders of the Loans and/or the Senior Notes. 4. Conditions to the Effective Date. The agreements of the Consenting Noteholders set forth in Sections 1 and 2 herein shall not become effective unless and until the following conditions shall have first been fulfilled (the date on which all such conditions are first fulfilled, the "Effective Date"): (a) The Merisel Entities and the holders of at least 60% of the outstanding principal amount of the Loans, at least 66-2/3% of the outstanding principal amount of the Senior Notes and at least 66-2/3% of the outstanding principal amount of the Subordinated Notes shall have executed and delivered this Agreement. (b) Merisel and holders of at least 76% of the outstanding principal amount of the Parent Notes shall have executed and delivered an agreement, in the form attached hereto as Appendix II, to (i) waive their right to receive the interest payments due on June 30, 1997 and December 31, 1997 in respect of the Parent Notes held by them and to tender such Parent Notes into the Exchange Offer/Consent Solicitation and/or vote their claims in respect of such Parent Notes in support of the Prepackaged Plan. (c) The representations and warranties of the Merisel Entities in Section 6 shall be true and correct in all material respects as of the first date on which the condition set forth in clause (a) above shall have been satisfied. 5. Termination of Agreement. The waiver set forth in Section 1 of this Agreements as well as all other obligations of the Consenting Noteholders hereunder shall terminate automatically upon the occurrence of any "Agreement Termination Event" (as hereinafter defined), unless the occurrence of such Agreement Termination Event is waived in writing by all of the Consenting Noteholders. An "Agreement Termination Event" shall mean any of the following: (a) the Exchange Offer/Consent Solicitation shall not have been closed and the Parent Notes tendered thereunder accepted for 6 payment, and the Amendments shall not have become effective pursuant to the terms of the Financial Restructuring, on or prior to August 31, 1997 unless such failure is a result of the commence ment of the Chapter 11 Proceedings in connection with the filing of the Prepackaged Plan on or prior to such date; (b) in the event that the Chapter 11 Proceedings have been commenced, the Prepackaged Plan shall not have been substantially consummated, and the Amendments shall not have become effective pursuant to their terms, on or prior to October 31, 1997; (c) Merisel shall have made any change in the terms of the Exchange Offer/Consent Solicitation after the commencement thereof or in the Prepackaged Plan after the commencement of the Chapter 11 Proceedings such that the terms thereof are no longer consistent with the Parent Financial Restructuring, unless such change is previously consented to by all of the Consenting Noteholders; (d) after the Effective Date, there occurs any "Event of Default" (other than a Relevant Default) as defined under (i) the Revolving Credit Agreement, (ii) the Senior Note Purchase Agreement, (iii) the Amended and Restated Receivables Purchase and Servicing Agreement, dated as of September 27, 1996, by and among Merisel Capital Funding, Inc., as Seller, Redwood Receivables Corporation, as Purchaser, Merisel Americas, Inc., as Servicer, and General Electric Capital Corporation, as Operating Agent and Collateral Agent or (iv) the Subordinated Note Purchase Agreement, and, in any such case, (a) such Event of Default has not been cured or waived within 10 days or (b) the indebtedness that is the subject of such Event of Default has been accelerated; (e) if required to effectuate the Parent Financial Restructuring, Merisel's Certificate of Incorporation shall not have been amended to provide for a sufficient increase in the number of authorized shares of its common stock to implement the Financial Restructuring on or prior to August 31, 1997; 7 (f) there shall have occurred any material adverse change in the business, assets, operations or condition (financial or otherwise) of Merisel and its subsidiaries, taken as a whole; or (g) there shall have occurred a material breach of any representation, warranty, covenant or agreement of the Merisel Entities contained in this Agreement. Upon the occurrence of any Agreement Termination Event, unless such Agreement Termination Event is waived by each of the Consenting Noteholders, this Agreement shall terminate and no party hereto shall have any continuing liability or obligation to any other party hereunder, except as otherwise provided in Section 13. 6. Representations and Warranties of the Merisel Entities. In order to induce the Consenting Noteholders to enter into this Agreement, each Merisel Entity represents and warrants to each Consenting Noteholder that the following statements are true, correct and complete: (a) Corporate Power and Authority. Such Merisel Entity has all requisite corporate power and authority to enter into this Agreement and to carry out the transactions contemplated by, and perform its respective obligations under this Agreement; (b) Authorization. The execution and deliver of this Agreement and the performance of its obligations hereunder have been duly authorized by all necessary corporate action by such Merisel Entity; (c) No Conflicts. The execution, delivery and performance by such Merisel Entity of this Agreement do not and shall not (i) violate any provision of law, rule or regulation applicable to it or any of its subsidiaries or the Certificate of Incorporation or bylaws of such Merisel Entity or any of its subsidiaries or (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of such Merisel Entity or any of its subsidiaries; (d) Governmental Consents. The execution, delivery and performance by such Merisel Entity of this Agreement do not and 8 shall not require any registration or filing with, consent or approval of, or notice to, or other action to, with or by, any Federal, state or other governmental authority or regulatory body, except such filings as may be necessary in connection with the commencement of the Exchange Offer/Consent Solicitation and/or the commencement of a proxy solicitation of Merisel's shareholders or the filing of the Prepackaged Plan; (e) Binding Obligation. This Agreement is the legally valid and binding obligation of such Merisel Entity, enforceable against such Merisel Entity in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability; and (f) Absence of Default. After giving effect to this Agreement, no event has occurred and is continuing or shall result from the consummation of the transactions contemplated by this Agreement that would constitute an Event of Default under the Indenture or the Debt Agreements, or an event that with the passage of time, the giving or notice or both would constitute an Event of Default under the Indenture or the Debt Agreements. 7. Further Acquisition of Securities. This Agreement shall in no way be construed to preclude the Consenting Noteholders from acquiring additional Debt of the Merisel Entities. However, any such additional Debt so acquired shall automatically be deemed to be Relevant Debt and to be subject to the terms of this Agreement. This Agreement shall in no way be construed to preclude the Consenting Noteholders from acquiring any other securities of Merisel. However, the Consenting Noteholders agree that they will vote (or cause to be voted) any such additional securities in favor of the Financial Restructuring for so long as this Agreement remains in effect. 8. Amendments. This Agreement may not be modified, amended or supplemented except in writing signed by the Merisel Entities and each of the Consenting Noteholders. 9. Disclosure of Individual Holdings. Unless required by applicable law or regulation, the Merisel Entities shall not disclose any Consent- 9 ing Noteholder's holdings of Relevant Debt without the prior written consent of such Consenting Noteholder; and if such announcement or disclosure is so required by law or regulation, the Merisel Entities shall afford such Consenting Noteholder a reasonable opportunity to review and comment upon any such announcement or disclosure prior to Merisel's making such announcement or disclosure. The foregoing shall not prohibit the Merisel Entities from disclosing the approximate aggregate holdings of Debt by the Consenting Noteholders as a group. 10. Indemnification Obligations. Each of the Merisel Entities agrees that it shall fully indemnify each Consenting Noteholder and its directors, officers, employees, agents, and representatives (including, without limitation, Price Waterhouse LLP and Wachtell, Lipton, Rosen & Katz) (all the foregoing persons, together with the Consenting Noteholders, the "Indemnitees") against any claims, liabilities, actions, suits, damages, fines, judgments or expenses (including reasonable attorney's fees), brought or asserted by anyone (other than any Merisel Entity or any successor thereto with respect to asserted violations of this Agreement) 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 Financial Restructuring, and the transactions contemplated hereby and thereby; provided, however, that this indemnity shall not extend to any claims asserted by a Consenting Noteholder against any other Indemnitee, and provided, further, that the foregoing indemnification shall not apply to any liabilities arising from the gross negligence or willful 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 any Merisel Entity, the Indemnitee shall promptly notify such Merisel Entity in writing, and such Merisel Entity 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) any Merisel Entity has agreed to pay the fees and expenses of such counsel, or (b) the Merisel Entities 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 a Merisel Entity, and the Indemnitee believes in the exercise of its business judgment and in the opinion of its legal counsel that the joint representation of 10 such Merisel Entity and the Indemnitee will likely result in a conflict of interest (in which case, if the Indemnitee notifies such Merisel Entity in writing that it elects to employ separate counsel at the expense of such Merisel Entity, such Merisel Entity shall not have the right to assume the defense of such action or proceeding on behalf of the Indemnitee). In addition, a Merisel Entity 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 such Merisel Entity, 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. 11. Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California, without regard to any conflicts of law provision which would require the application of the law of any other jurisdiction. By its execution and delivery of this Agreement, each of the parties hereto hereby irrevocably and unconditionally agrees for itself that any legal action, suit or proceeding against it with respect to any matter under or arising out of or in connection with this Agreement or for recognition or enforcement of any judgment rendered in any such action, suit or proceeding, may be brought in any Federal or State court in California. By execution and delivery of this Agreement, each of the parties hereto hereby irrevocably accepts and submits itself to the nonexclusive jurisdiction of each such court, generally and unconditionally, with respect to any such action, suit or proceeding. 12. Specific Performance. It is understood and agreed by each of the parties hereto that money damages would not be a sufficient remedy for any breach of this Agreement by any party and each non-breaching party shall be entitled to specific performance and injunctive or other equitable relief as a remedy of any such breach. 13. Survival. Notwithstanding the sale of the Relevant Debt in accordance with Section 2 hereof or the termination of the Consenting Noteholders' obligations hereunder in accordance with Section 5 hereof, the agreements and obligations of the Merisel Entities in Section 9 and Sections 10 and 12 hereof shall survive such termination and shall continue in full force and effect for the benefit of the Consenting Noteholders in accordance with the terms hereof. 11 14. Headings. The headings of the Sections, paragraphs and subsections of this Agreement are inserted for convenience only and shall not affect the interpretation hereof. 15. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of the parties and their respective successors, assigns, heirs, executors, administrators and representatives. The agreements, representations and obligations of the Consenting Noteholders under this Agreement are several and not joint in all respects. 16. Prior Negotiations. This Agreement and Appendix I supersede all prior negotiations with respect to the subject matter hereof. 17. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. 18. No Third-Party Beneficiaries. Unless expressly stated herein, this Agreement shall be solely for the benefit of the parties hereto and the Consenting Noteholders who have entered into agreements with the Merisel Entities substantially identical to this Agreement and no other person or entity shall be a third-party beneficiary hereof. 19. Fees and Expenses. Until the occurrence of an Agreement Termination Event, the Merisel Entities shall continue to reimburse the Consent ing Noteholders for their out of pocket costs and expenses in respect of the fees and expenses of counsel to the holders of the Loans and the Senior Notes and counsel to the holders of the Subordinated Notes, as provided in the Revolving Credit Agreement and the Senior Note Purchase Agreement and the Subordinated Note Purchase Agreement. In addition, in the event any party brings an action against any other party based upon a breach by such other party of its obligations hereunder, the prevailing party shall be entitled to all reasonable expenses incurred, including reasonable attorney's fees in connection with such action. 20. Amendment to Revolving Credit Agreement. The following amendment to the Revolving Credit Agreement shall become effective at the Effective Date: Section 11.11(a)(iv) is hereby deleted in its entirety and replaced with the following: "(iv) the amount of Revolving Facility Commitments of the assigning Lender being assigned to an assignee (the "Assigned Amount") shall not be less than the lesser (the "Minimum Threshold") of (x) Five Million Dollars ($5,000,000) and (y) the amount of such assigning Lenders' Revolving Commitments immediately prior to giving effect to such assignment; provided that the Assigned Amount may be less than the Minimum Threshold if the aggregate of all Assigned Amounts being assigned at substantially the same time to such assignee by such assigning Lender and other assigning Lenders. Plus Revolving Facility commitments already held such assignee, exceeds $5,000,000." 12 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed and delivered by its duly authorized officer as of the date first above written. MERISEL, INC. 13 APPENDIX I RESTRUCTURING PROPOSAL - SENIOR DEBT TERMS Issuer: No change. Instrument: No change. Principal Amount: No change. Interest Rate: No change in 1997, increasing 1/2% per quarter commencing January 31, 1998 and each quarter thereafter. Amortization: No change (except that the Issuer will make reasonable efforts to apply for tax carryback refunds, and all such tax refunds received will be applied to amortize senior debt). Maturity Date: January 31, 1999. Optional Redemption: Redeemable at any time at par plus accrued interest. Modification Fee (in cash): On Signing and Receipt of 67% Approval: 1.50% At Closing: 2.00% On January 31, 1998: 0.25% On April 30, 1998: 0.50% On July 31, 1998: 0.75% RESTRUCTURING PROPOSAL - SUBORDINATED NOTES TERMS Issuer: No change. Security: No change. Principal Amount: No change. Interest Rate: No change in 1997, increasing 1/2% per quarter commencing January 31, 1998 and continuing for the three quarters thereafter. Amortization: No change. Maturity Date: The earlier of (i) no change or (ii) within 90 days after repayment in full of the senior debt. Optional Redemption: No change. Modification Fee: None. OPERATING COMPANY DEBT COVENANTS CHANGES IN CONJUNCTION WITH EXTENSION ($ in thousands)
CURRENT PROPOSED COVENANT TEST TEST 1 Minimum Required Accounts Payable Q1 1997 $345,000 $300,000 Q2 1997 345,000 300,000 Q3 1997 345,000 330,000 Q4 1997 500,000 350,000 Q1 1998 330,000 Q2 1998 360,000 Q3 1998 410,000 Q4 1998 410,000 2 Accounts Payable to Inventory 0.9x 0.9x Eliminate covenant of 1:1 every two quarters 3 EBITSDA Cumulative ---------- Q1 1997 $ 11,000 $ 10,000 Q2 1997 12,400 20,000 Q3 1997 14,560 33,000 Q4 1997 19,280 50,000 Last Twelve Months ------------------ Q1 1998 NA $ 56,000 Q2 1998 NA 60,000 Q3 1998 NA 64,000 Q4 1998 NA 68,000 4 EBITSDA/(I+S) Q1 1997 0.83x NA Until restructuring completed Q2 1997 0.89 NA Q3 1997 1.13 1.30x Q4 1997 1.44 2.00 Q1 1998 NA 1.30x Q2 1998 NA 1.60 Q3 1998 NA 1.60 Q4 1998 NA 2.00
OPERATING COMPANY DEBT COVENANTS CHANGES IN CONJUNCTION WITH EXTENSION ($ in thousands)
CURRENT PROPOSED COVENANT TEST TEST 5 Capital Expenditures Cumulative -------- Q1 1997 $ 4,000 Q2 1997 7,000 Q3 1997 11,000 Q4 1997 13,000 $ 18,000 Unused amount carried forward Q1 1998 NA Q2 1998 NA Q3 1998 NA Q4 1998 NA $ 27,000 6 Inventory Turnover 9.0x 8.0x 7 Minimum Unsecured Inventory $315,000 Q1 1997 $250,000 Q2 1997 250,000 Q3 1997 250,000 Q4 1997 300,000 Q1 1998 $250,000 Q2 1998 250,000 Q3 1998 300,000 Q4 1998 350,000 8 Audit Opinion Clean Opinion 1996 -- Waived 1997 -- Clean Opinion
OPERATING COMPANY DEBT COVENANTS CHANGES IN CONJUNCTION WITH EXTENSION ($ in thousands) COVENANT 9 Ability to participate in Compaq's Flexpaq program (Requires pledging of Compaq inventory) 10 Lien covenant modified to permit capital leases up to $5.0 million for purchases on credit versus cash for systems (e.g. SAP); computer equipment; copiers, etc. 11 Debt covenant needs to be modified to permit the promissory note or capital lease associated with the lease financing. 12 Requirement to provide standard reports subject to further discussion with the Noteholders 13 Subject to Noteholder decision the Company will pay for financial advisors up to $150,000 per year for routine monitoring unless the Company is in default. The Company will continue to pay reasonable legal fees and expenses as required by the Revolving Credit Agreement and the Senior Note Purchase Agreement. 14 Eliminate requirement in Canadian guaranty to maintain $20.0 million in inter-company loan balance between Merisel Americas and Merisel Canada. 15 Remove European and FAB debt covenants and references in the agreements. APPENDIX II FILED SEPARATELY EX-10.65 12 EMPLOYMENT AGREEMENT EXHIBIT 10.65 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 3rd day of February, 1997, by and between Merisel, Inc., a Delaware Corporation (the "Company"), and Robert J. McInerney ("Executive"). RECITALS -------- The Company and Executive desire to set forth the terms and conditions governing Executive's employment by the Company. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto have agreed as follows: 1. Term of Employment. ------------------ The Company shall employ Executive as its President and Chief Operating Officer and Executive agrees to be so employed by the Company under the terms and conditions of this Agreement commencing as of February 3, 1997 (the "Effective Date") and ending on the earlier of (i) the third anniversary of the Effective Date, or (ii) termination of Executive's employment pursuant to this Agreement (the period commencing on the Effective Date and ending on the third anniversary thereof is hereinafter referred to as the "Employment Term"), subject to renewal for additional periods as may be mutually agreed by the Company and Executive. The original term and any renewal terms of this Agreement may be sooner terminated as provided herein. 2. Scope of Duties. --------------- Executive shall undertake and assume the responsibility of performing for and on behalf of the Company those duties as shall be consistent with the position of the President and Chief Operating Officer. Executive shall report to the Chief Executive Officer of the Company. Executive covenants and agrees that at all times during the term of this Agreement he shall devote his substantially full-time and best efforts to the execution of his duties pursuant hereto. 3. Compensation. ------------ As compensation for services rendered pursuant to this Agreement, the Company shall pay to Executive, in installments customary with the Company's standard payroll periods, base annual compensation of $300,000 during the Employment Term, provided, however, that the Board of Directors ("Board") may, in its sole discretion, increase such base annual compensation as merited by the performance of Executive. The Company shall deduct from all payments paid to Executive under this Agreement any required amounts for social security, federal and state income tax withholding, federal or state unemployment insurance contributions, and state disability insurance or any other required taxes. 4. Bonus, Expenses, Reimbursements and Additional Benefits. ------------------------------------------------------- In addition to the compensation to be paid to Executive pursuant to Section 3, the Company shall pay, reimburse or otherwise confer the following items of benefit to Executive: 4.1 During the Employment Term, Executive shall be eligible to receive an annual bonus of $200,000 (the "Bonus Amount"), which may be paid in quarterly installments based on the Company's financial performance for such quarter measured against its consolidated business plan for such period. One quarter of the Bonus Amount shall be guaranteed to Executive for the first fiscal quarter of 1997, provided, however, that such bonus payable with respect to the first fiscal quarter of 1997 shall be reduced on a prorata basis based on the number of days within the period commencing on the first day of the first fiscal quarter of 1997 and ending on the Effective Date of this Agreement. In addition, one quarter of the Bonus Amount shall be guaranteed to Executive for the second fiscal quarter of 1997. 4.2 The Company shall pay Executive a monthly car allowance of $1600. 4.3 The Company shall pay Executive for the dues at one country club of Executive's choice of $425 per month. 4.4 Executive shall be eligible to participate in all benefit programs and plans which may be afforded senior management of the Company and the Company shall make contributions to such plans and arrangements on behalf of Executive as shall be required or consistent with the terms and conditions of said plans; provided, however, that Executive shall be subject to all waiting periods and preexisting conditions of such plans and no waiting periods or preexisting conditions shall be waived. Such plans and programs may include, by way of example, deferred compensation, group insurance benefits, long-term or permanent disability insurance and major medical coverage. 4.5 Executive shall be entitled, during the Employment Term, to vacation time with compensation and time off with compensation on account of illness or injury, in accordance with the Company's written policies for employees in effect from time to time. 4.6 Effective February 3, 1997 (the "Option Grant Date"), the Board approved a grant to Executive of a non-qualified stock option (the "Option") to purchase 200,000 shares of the Company's Common Stock ("Option Shares") under the Company's 1991 Stock Option Plan. Except as otherwise provided in Section 5.5 below, the Option shall vest monthly at a rate of 50,000 of the Option Shares over a four-year period beginning on the Option Grant Date, with an Option exercise price of $2.00 per share, as more specifically provided in the stock option agreement between the Company and Executive to be entered into concurrently herewith. Except as otherwise provided herein, the terms and conditions of the Option shall be governed by the Company's 1991 Stock Option Plan and by the option agreement evidencing such Option. 2 4.7 During the Employment Term, the Company shall maintain a directors' and officers' liability insurance policy with a carrier having a "Best" rating of not less than A+. In the event that such an insurance policy is not in place, the Executive shall have such rights with respect to the payment of expenses and retention of counsel as are provided in the indemnity agreement to be entered into between the Company and the Executive concurrently herewith (including without limitation paragraphs 6 and 8 thereunder) and as are otherwise provided under the Company's certificate of incorporation and bylaws and applicable law. 5. Termination of Agreement. ------------------------ 5.1 Termination by Either Party. This Agreement may be terminated at --------------------------- any time prior to expiration of the Employment Term by Executive upon sixty (60) days written notice to the Company. If the Company terminates Executive's employment during the period commencing on the Effective Date and ending on the second anniversary of the Effective Date, the Company shall pay Executive all salary and other compensation payable, if any, under Section 4 for the period commencing on the date of such termination of employment and ending on the second anniversary of the Effective Date. From the second anniversary of the Effective Date to the expiration of the Employment Term, the Company may terminate Executive at any time upon sixty (60) days written notice to Executive. Upon any termination (i) by the Company after the second anniversary of the Effective Date or (ii) by Executive, the Company shall promptly pay Executive all salary and other compensation, including amounts payable, if any, under Section 4 and any unused vacation pay, earned by him through the effective date of such termination. Executive shall not be entitled to any severance payment. After any notice of termination is given under this Section 5.1, whether by the Company or Executive, the Company may remove or suspend Executive from performance of his office or of any of his duties hereunder during the period prior to the effective date of termination, provided, that such removal or suspension shall not affect Executive's right to receive compensation and benefits during such period. The Board must approve the termination of Executive's employment under this Section 5.1. 5.2 Termination by Reason of Death or Disability. This Agreement -------------------------------------------- shall be terminated upon the death or, at the Company's option, the disability of Executive. For purposes of this Agreement, the term "disability" shall mean the inability of Executive to perform substantially all of his duties hereunder for any 90 days in a 105 consecutive day period; provided that until such time as the Company elects to terminate this Agreement due to Executive's disability, Executive shall continue to receive from the Company 100% of his compensation and other benefits and distributions by way of compensation, which Executive would otherwise be entitled to receive. Upon the termination of this Agreement due to death or disability of Executive, the Company shall promptly pay Executive or his estate as the case may be, all salary and other compensation, including unused vacation pay, earned by him through the effective date of such termination, less income taxes and other standard employee deductions. All other benefits and payments provided for hereunder shall terminate; provided, that nothing in this Section 5.2 shall be construed to prohibit Executive or his estate, as the case may be, from collecting any insurance proceeds or state disability payments to which he or his estate might otherwise be entitled. 3 5.3 Termination for Cause. This Agreement may be terminated, at the --------------------- Company's option, (i) upon the occurrence of any theft by Executive or conviction for or a plea of nolo contendere by Executive to a felony or any crime involving moral turpitude, (ii) upon the material breach by Executive of any of the provisions of this Agreement, or (iii) upon Executive's misconduct (as defined below). Termination for Cause shall not be deemed to have occurred unless the Board adopts a resolution, at a meeting called and held for that purpose (after reasonable notice to Executive and after allowing Executive and his counsel to be heard before the Board) finding that Executive was guilty of conduct set forth in (i), (ii) or (iii) and specifying the particulars thereof. Notwithstanding any such determination by the Board, Executive may challenge such determination in arbitration pursuant to Section 12. Upon a termination for Cause, which, if contested in arbitration by Executive, is upheld in arbitration, all compensation, benefits and payments provided for hereunder shall terminate, and Executive shall not be entitled to any severance or other payments other than for salary and other compensation (including unused vacation pay) earned by him through the effective date of such termination. "Misconduct" shall mean physical assault, falsification or misrepresentation of facts on Company records, creating or contributing to unsafe working conditions, fraud, dishonesty, willful destruction of Company property or assets or harassment of another employee by Executive. No act, or failure to act, by Executive shall be considered "willful" unless committed without good faith and without a reasonable belief that the act or omission was in the Company's best interest. 5.4 Termination Without Cause. If the Company terminates Executive ------------------------- without Cause at any time other than within one year following a Sale of the Company, then in addition to the amounts due under Section 5.1: (a) The Company shall pay Executive, in equal monthly installments for a period of 12 months following termination, an amount equal to one times the Executive's annual base salary as then in effect plus one times the average of the annual performance bonus received by the Executive over the Employment Term; (b) The Company shall reimburse Executive for the cost of Executive's COBRA payments under the Company's health insurance plans for a period of 18 months following such termination; and (c) Any remaining unvested portion of the Option shall vest. 5.5 Termination Following a Sale of the Company. If the Company ------------------------------------------- terminates Executive without Cause, and other than by reason of death or Disability, within one year following a Sale of the Company, then in addition to the amounts due under Section 5.1: (a) The Company shall pay Executive, in equal monthly installments for a period of 18 months following termination, an amount equal to one a half (1.5) times the Executive's annual base salary as then in effect plus one and a half (1.5) times the average of the annual performance bonus received by the Executive over the Employment Term; 4 (b) The Company shall reimburse Executive for the cost of Executive's COBRA payments under the Company's health insurance plans for a period of 18 months following such termination; and (c) Any remaining unvested portion of the Option shall vest. A "Sale of the Company" shall be deemed to occur if (i) any person, corporation, partnership, trust, association, enterprise or group shall become the beneficial owner, directly or indirectly, of outstanding capital stock of the Company possessing at least 50% of the voting power (for the election of directors) of the outstanding capital stock of the Company, or (ii) there shall be a sale of all or substantially all of the Company's assets or the Company shall merge or consolidate with another corporation and the stockholders of the Company immediately prior to such transaction do not own, immediately after such transaction, stock of the purchasing or surviving corporation in the transaction (or of the parent corporation of the purchasing or surviving corporation) possessing more than 50% of the voting power (for the election of directors) of the outstanding capital stock of that corporation, which ownership shall be measured without regard to any stock ownership of the purchasing, surviving or parent corporation by the stockholders of the Company before the transaction. It is expressly understood that, for purposes of the definition of "Sale of the Company," the holders of indebtedness of the Company or its subsidiaries shall not be deemed to constitute a "group" solely by virtue of their roles as debt holders or by exercising their rights with respect thereto. 5.6 Voluntary Resignation by Executive. In the event Executive ---------------------------------- voluntarily resigns prior to the expiration of the Employment Term, then, at the time the resignation is effective, all benefits and payments provided for hereunder shall terminate, and, without limiting the foregoing, Executive shall not be entitled to any severance payment other than amounts due under Section 5.1. 6. Disclosure of Information. ------------------------- Executive acknowledges that in connection with and as a result of his employment pursuant to this Agreement, he shall make use of, acquire and add to Confidential Information (as defined below). Except as required in connection with his obligations hereunder, Executive shall not, in any manner, disclose or use any Confidential Information, including Confidential Information received from the Company or others either before, during or after his employment with the Company or received before during or after the term of this Agreement, except upon the prior written consent of the Company. Executive acknowledges that such Confidential Information of the Company will include matters conceived or developed by Executive, as well as matters learned by Executive from employees of the Company. Any Confidential Information that Executive has, shall prepare or shall have prepared, used, use or come into contact with shall be and remain the Company's sole property and shall not be removed from the Company's premises without its prior written consent, and shall be returned upon termination of this Agreement. Executive will not, except as the Company may otherwise consent or direct in writing, sell, use, lecture, or publish any Confidential Information or other proprietary information 5 of the Company or authorize anyone else to do those things at any time either during or subsequent to this Agreement. For purposes of this Agreement, the term "Confidential Information" means either: (A) information concerning the financial condition of the Company or its subsidiaries that is not generally available to the public; or (B) trade secrets as defined in California Civil Code Section 3426.1. In the event that Executive is requested or required (by deposition, interrogatories, requests for information or documents in legal proceedings, subpoena, civil investigative demand or other similar process) to disclose any Confidential Information, Executive shall provide the Company with prompt written notice of any such request or requirement so that the Company may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. If, in the absence of a protective order or other remedy or the receipt of a waiver by the Company, Executive is nonetheless, legally compelled to disclose Confidential Information to any tribunal or else stand liable for contempt or suffer other censure of penalty, Executive may, without liability hereunder disclose to such tribunal only that portion of the Confidential Information which Executive is legally required to disclose, provided that Executive exercises his best efforts to preserve the confidentiality of the Confidential Information, including, without limitation, by cooperating with the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information by such tribunal. 7. Employee's Covenants. -------------------- 7.1 During the term of this Agreement, Executive shall (i) observe and conform to the policies and directions promulgated by the Chief Executive Officer, act at the instruction of the Chief Executive Officer and report exclusively to the Chief Executive Officer, (ii) exercise and perform faithfully to the best of his ability on behalf of the Company the powers and duties reasonably required by the Chief Executive Officer; and (iii) devote his substantially full time and effort to the business affairs of the Company and its subsidiaries. 7.2 Executive agrees that during the term of this Agreement and, in the event Executive's employment with the Company terminates pursuant to Section 5.3, Section 5.4 or Section 5.6 hereof during the term of this Agreement, for a period of eighteen (18) months following such termination (provided that if Executive is terminated pursuant to Section 5.4, Executive shall be subject to the obligations hereunder for such period of time as Executive is paid pursuant to such Section 5.4) Executive will not directly or indirectly (i) engage in a "Restricted Business" (as defined herein), (ii) own or control any debt equity or other interest in a Restricted Business (except as a passive investor of less than 5% of the capital stock or publicly traded notes or debentures of a publicly-held company), (iii) act as director, officer, manager, employee, participant or consultant to a Restricted Business, or (iv) be obligated to or connected in any advisory business enterprise or ownership capacity with a Restricted Business. For purposes of this Agreement, a "Restricted Business" shall mean any of Tech Data Corp., Ingram Micro, Inc., Computer 2000 AG (C2000), Intelligent Electronics, Inc., MicroAge, Inc., Inacom Corp., Compucom, Entex Information Services, Inc., Vanstar Corp., SYNNEX Information Technologies, Inc., Arrow Electronics, Incorporated or any other wholesale distributor of micro computer products or with any subsidiary, division or successor of any of them or with any entity 6 that acquires, whether by acquisition, merger or otherwise, any significant amount of the assets or substantial part of any of the business of any of them. Executive further agrees that during the term of this Agreement and, in the event Executive's employment with the Company terminates during the term of this Agreement, for a period of eighteen months following such termination, Executive shall not, on behalf of any business enterprise other than the Company and its subsidiaries, solicit the employment of or hire any person that is or was employed by the Company or any of its subsidiaries at any time on or after January 1, 1997. 7.3 In the event of any material breach by Executive of any of the restrictions contained in this Agreement (including, without limitation, those set forth in Sections 6, 7, and 8), the Company shall have no further obligation to compensate Executive hereunder and Executive acknowledges that the harm to the Company cannot be reasonably or adequately compensated in damages in any action at law. Accordingly, Executive agrees that, upon any violation of such restrictions, the Company shall be entitled to seek preliminary and permanent injunctive relief in addition to any other remedy, without the necessity of proving actual damages. 7.4 Executive represents and warrants to the Company that (i) his employment with the Company as contemplated herein does not and will not conflict with, violate or cause a breach of any agreement, contract or instrument to which Executive is a party, (ii) he is not a party to or obligated under any agreement, contract or instrument that will in any way impair his ability to devote his substantially full-time and best efforts to the execution of his duties pursuant hereto, and (iii) he will not engage in any business or other activity that materially interferes with his ability to devote his substantially full-time and best efforts to the execution of his duties pursuant hereto. 7.5 As an independent covenant hereunder, to the extent permitted by law, Employer and Executive represent and warrant to the other that they will not challenge the validity or enforceability of any of the provisions of Section 7 of this Agreement. 8. Return of Work Product. ---------------------- Upon termination of this Agreement, or at the request of the Company, Executive agrees to deliver to the Company any and all materials, whether printed, written or otherwise obtained or prepared by Executive and pertaining to the business of the Company or as otherwise acquired by Executive in the performance of this Agreement, and it is further agreed by the parties that all such materials shall be the sole property of the Company. 9. Agreement Binding Upon Successors and Assigns. --------------------------------------------- 9.1 All of the terms and provisions of this Agreement shall bind and inure to the benefit of the parties hereto. Because this Agreement is personal and indivisible in nature, Executive may not assign or transfer this Agreement without the Company's written consent. The Company may, with Executive's written consent, assign or transfer its rights or obligations 7 to any successor corporation or affiliate or in connection with any merger, business combination or sale of all or substantially all of the Company's assets. 9.2 The Company will require any successor (whether direct or indirect, by purchase, merger consolidation or otherwise) to all or substantially all of the business and assets of the Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it whether or not such succession had taken place . 10. No Waiver. --------- The waiver of a breach of any provision of this Agreement by any party shall not operate or be construed as a waiver of any subsequent breach or violation thereof by the other party. 11. Notices. ------- All notices and communications provided for hereunder shall be in writing and shall be mailed or delivered to the business or residence address of the respective parties hereinafter provided or to such other address as either party shall designate in writing to the other. Any notice to the Company hereunder shall be sent to the attention of the Chief Executive Officer of the Company. 12. Arbitration. ----------- Any claim, dispute or controversy including, without limitation, all employment disputes, harassment or discrimination in violation of state or federal law, between the Company and Executive arising out of this Agreement, the interpretation, validity or enforceability of this Agreement or the alleged breach thereof shall, on written request of either party served on the other be submitted to binding arbitration by the American Arbitration Association in Los Angeles, California, under its National Rules for the Resolution of Employment Disputes then in effect, in accordance with the rules and regulations of that Association. Within ten days after demanding arbitration, the party filing such demand shall provide the adverse party with the names and addresses of all witnesses, and true and exact copies of all documents proposed to be utilized in the arbitration. Within twenty days thereafter, the respondent in the arbitration shall provide the claimant with a list of the names and addresses of all witnesses intended to be called by respondent, and copies of all documents intended to be utilized in the arbitration by the respondent. Each party to the arbitration shall have the right, within fifteen days after the receipt of the list of witness, and documents, to either interview informally, or to take formal depositions of any witnesses so identified. Any dispute with regards to discovery shall be settled by the arbitrator. The arbitration shall be conducted on a date set by the arbitrator, which shall not be later than sixty days after the filing of the demand for arbitration, and a decision shall be rendered by the arbitrator, within ten days after the conclusion of hearings. All hearings shall 8 be conducted, on successive days, if the hearing is not capable of being terminated on the first day. Any determination rendered by the arbitrator, shall be a proper application of the law of the State of California, and shall be consistent with any judicial decisions, rules, regulations, or statutes in the same venue in which the arbitration is conducted. A judgment may be entered on the arbitrator's award, in any court in the State of California and in any federal court, provided appropriate diversity jurisdiction exists. Notwithstanding anything to the contrary herein, the award may be set aside only on the grounds permitted under the laws of the State of California or the Federal Arbitration Act. The arbitrator's fee and all costs of the arbitration, shall initially be shared equally by the parties, but the arbitrator shall have the right to determine, as part of its decision who shall bear the entire cost of such arbitration, including the attorney's fees for the successful party. 13. Counterparts. ------------ This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement. 14. Amendments. ---------- No modifications, extensions, or waiver of any provisions hereof or release of any right hereunder shall be valid, unless the same is in writing. 15. Governing Law. ------------- This Agreement shall be governed by and interpreted in accordance with the laws of the State of California. 16. Severability. ------------ Any provision hereof prohibited by or unlawful or unenforceable under any applicable law of any jurisdiction shall as to such jurisdiction be ineffective without affecting any other provision of this Agreement. To the full extent, however, that the provisions of such applicable law may be waived, they are hereby waived, to the end that this Agreement be deemed to be a valid and binding agreement enforceable in accordance with its terms. However, if any provision, or any part thereof, is held to be unenforceable because of the scope or duration of such provision, Executive of the Company agree that the court making such determination shall have the power to reduce the scope, duration and/or area of such provisions in order to make such provision enforceable to the fullest extent permitted by law, and/or to delete specific words and phrases ("blue-penciling"), and in its reduced or blue-penciled from such provision shall then be enforceable and shall be enforced. 17. Entire Agreement. ---------------- 9 This Agreement and all other written agreements/documents evidencing matters referred to herein, including but not limited to any indemnification agreement with the Company, contains the entire agreement of the parties with respect to the terms and conditions of the employment of Executive by the Company during the Employment Term, and this Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Executive by the Company. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement will be valid or binding. Executive acknowledges that he was represented by counsel in connection with the negotiating and drafting of this Agreement. Executive acknowledges that he has not relied upon information or advice provided by the Company, except as set forth herein and that he is voluntarily entering into this Agreement and that he understands that all terms and provisions of this Agreement are binding upon him, and are not mere recitals. 10 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, effective as of the date hereinabove provided. MERISEL, INC., a Delaware corporation (the "Company") Address: Merisel, Inc. By /s/ DWIGHT A. STEFFENSEN 200 Continental Blvd. ------------------------------- El Segundo, CA 90245 Dwight A. Steffensen Chief Executive Officer Address: By /s/ ROBERT J. MCINERNEY ------------------------------- Robert J. McInerney (Executive) 11 EX-10.66 13 EMPLOYMENT AGREEMENT EXHIBIT 10.66 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 12th day of February, 1997, by and between Merisel, Inc., a Delaware Corporation (the "Company"), and Dwight A. Steffensen, an individual ("Executive"). RECITALS -------- WHEREAS, the Company and Executive are party to an Employment Agreement, dated as of February 12, 1996 (the "Original Employment Agreement"), pursuant to which the Company retained Executive to serve as its Chief Executive Officer for an initial term of one year; and WHEREAS, the Company and Executive desire to set forth the terms and conditions governing the renewal of Executive's employment by the Company. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto have agreed as follows: 1. Term of Employment. ------------------ The Company shall employ Executive as its Chief Executive Officer and Executive agrees to be so employed by the Company under the terms and conditions of this Agreement commencing as of February 12, 1997 (the "Effective Date") and ending on the earlier of (i) the third anniversary of the Effective Date, or (ii) termination of Executive's employment pursuant to this Agreement (the period commencing on the Effective Date and ending on the third anniversary thereof is hereinafter referred to as the "Employment Term"), subject to renewal for additional periods as may be mutually agreed by the Company and Executive. The original term and any renewal terms of this Agreement may be sooner terminated as provided herein. 2. Scope of Duties. --------------- Executive shall undertake and assume the responsibility of performing for and on behalf of the Company those duties as shall be consistent with the position of the Chief Executive Officer. Executive covenants and agrees that at all times during the term of this Agreement he shall devote his substantially full-time and best efforts to the execution of his duties pursuant hereto, and the Company acknowledges Executive's obligations as specifically provided in Section 9.5 herein. Executive currently serves as a member of the Company's Board of Directors (the "Board") and will serve as Chairman of the Board during the Employment Term without additional compensation. 3. Compensation. ------------ As compensation for services rendered pursuant to this Agreement, the Company shall pay to Executive, in installments customary with the Company's standard payroll periods, base annual compensation of $505,000 during the Employment Term, provided, however, that the Board may, in its sole discretion, increase such base annual compensation as merited by the performance of Executive. The Company shall deduct from all payments paid to Executive under this Agreement any required amounts for social security, federal and state income tax withholding, federal or state unemployment insurance contributions, and state disability insurance or any other required taxes. 4. Stock Appreciation Rights. ------------------------- 4.1 Under the Original Employment Agreement, the Company granted Executive a stock appreciation right (the "SAR") covering 500,000 hypothetical shares of the Company's Common Stock ("SAR Shares"). The SAR was granted effective April 25, 1996 (the "Grant Date"), with an SAR exercise price equal to $2.8125 per share, and entitles Executive to receive a cash payment or payments equal to the Distributable Amount (defined below) upon a Distribution Date (defined below). 4.2 As of February 12, 1997, the SAR was vested as to 24.3/48th of the SAR shares. Except as otherwise provided in Section 4.3 below, the SAR shall continue to vest monthly at a rate of 1/48th of the SAR Shares on each monthly anniversary of the Effective Date while Executive remains an employee of the Company. 4.3 In the event of a Sale of the Company (as defined in Section 7.4 below), the SAR shall become fully vested. 4.4 "Distributable Amount" means, with respect to the vested portion of the SAR, the excess of the fair market value of the Company's Common Stock on the Distribution Date (defined below) over the exercise price applicable to such portion. For this purpose, fair market value shall be based on the Nasdaq National Market closing price of the Company's Common Stock for the most recent trading day preceding the Distribution Date. 4.5 "Distribution Date" means any one or more of the following: (i) 30 days following termination of Executive's employment with the Company for any reason, (ii) the sale of the Company, (iii) each anniversary of the Effective Date from and after February 12, 1998 or (iv) 60 days following written notice by Executive to the Company. 5. Stock Option Grant. ------------------ Commencing on February 12, 1997, and on each Distribution Date thereafter, subject to the availability of Options under the Merisel, Inc. 1991 Employee Stock Option Plan or other comparable Company stock option plan, and compliance with all applicable laws and 2 stock exchange regulations, at Executive's election the vested portion of the SAR may be converted into an option to purchase that number of shares of Company Common Stock equal to the number of shares subject to such vested portion of the SAR at an exercise price equal to the exercise price applicable to such SAR, which option shall be on substantially the same terms and conditions as are set forth in the Merisel, Inc. 1991 Employee Stock Option Plan. Any determination regarding the availability of Options under the Merisel, Inc. 1991 Employee Stock Option Plan or other comparable Company stock option plan, as the case man be, or compliance with applicable laws and stock exchange regulations shall be made by the Option Committee in its sole and absolute discretion. 6. Bonus, Expenses, Reimbursements and Additional Benefits. ------------------------------------------------------- In addition to the compensation to be paid to Executive pursuant to Section 3, the Company shall pay, reimburse or otherwise confer the following items of benefit to Executive: 6.1 During each of the first four quarters of the Employment Term beginning with the quarter beginning January 1, 1997, Executive shall be eligible to receive a bonus based on the Company's financial performance for such quarter. For each such quarter, if any, in which the Company's actual financial performance equals or exceeds targeted levels as reflected in the Board-approved operating plan, Executive shall earn a minimum bonus of $75,750 for performance at targeted levels, increasing to a maximum bonus of $126,250 in the event the Company has net income for such quarter, provided, however, that in the first quarter of 1997 the minimum bonus of $75,750 for such quarter shall be paid to Executive when the Company has net income for any subsequent quarter (regardless of whether this Agreement may be terminated prior to such subsequent determination). Notwithstanding the foregoing, no bonus shall be payable for any quarter in which (i) the Company's actual financial performance is less than targeted levels, (ii) the Company has made an assignment for the benefit of its creditors, or (iii) a petition has been filed under Section 301 or 303 of the Bankruptcy Code by or against the Company and the bankruptcy case commenced thereby remains pending, except that the filing of such a petition will not preclude Executive's eligibility for a bonus with respect to any quarter if (x) the petition is dismissed within 45 days after its filing, or (y) the petition has been filed under chapter 11 of the Bankruptcy Code in connection with the restructuring of the Company's indebtedness that is effected under a prearranged or prepacked reorganization plan whose substan tive terms are acceptable to the Company (a "Prearranged Bankruptcy"). Any bonus to which Executive is entitled will be paid no later than 15 days after the last day of such quarter or 15 days after the day on which his eligibility for such bonus has been determined. If, at any time during a quarter, Executive's employment terminates for any reason other than by the Company for Cause or by Executive voluntarily, then Executive shall be entitled to a pro-rata portion of the minimum target bonus amount for the performance period in which such termination occurs. 6.2 Subject to Section 11 below, in the event of a Sale of the Company (as defined in Section 7.4 below) during the Employment Term, Executive shall be eligible to receive, and the Company shall pay, a bonus of $790,000 in a lump sum at the consummation of the Sale of the Company, provided, however, that unless the Board approves on each 3 anniversary of the Effective Date Executive's continuing right to receive such bonus, Executive's right to receive such bonus shall expire twelve months following such anniversary of the Effective Date. 6.3 The Company shall pay Executive a monthly car allowance of $1,600. 6.4 The Company shall pay (or Executive shall be entitled to reimbursement) for business-related first class or business class air travel expenses. 6.5 The Company shall pay Executive for the dues at one country club of Executive's choice of $425 per month. 6.6 The Company agrees to provide Executive with, or to reimburse Executive for, legal, financial planning and accounting services not to exceed $15,000 per year. The Company shall provide Executive with or reimburse Executive an additional amount for legal fees of up to $5,000 in connection with the negotiation of this Agreement; provided that nothing herein shall preclude Executive from applying any fees in excess of the $5,000 amount relating to the negotiation of this Agreement to the amount provided in the prior sentence. Executive shall be reimbursed for incidental business expenses, including home facsimile machine and car phone, consistent with the Company's policy for senior executives. 6.7 Company shall provide Executive with term life insurance coverage, $1 million face value, at no cost to Executive. In addition, Executive shall be eligible to participate in all other benefit programs and plans which may be afforded senior management of the Company and the Company shall make contributions to such plans and arrangements on behalf of Executive as shall be required or consistent with the terms and conditions of said plans. Such plans and programs may include, by way of example, deferred compensation, group insurance benefits, long-term or permanent disability insurance and major medical coverage. 6.8 Executive shall be entitled, during the Employment Term, to vacation time with compensation and time off with compensation on account of illness or injury, in accordance with the Company's written policies for employees in effect from time to time. 7. Termination of Agreement. ------------------------ 7.1 This Agreement may be terminated prior to expiration of the Employment Term by either party upon 60 days written notice to the other party. Upon any termination under this Section 7.1, the Company shall promptly pay Executive all salary and other compensation, including amounts payable, if any, under Section 4 and any unused vacation pay, earned by him through the effective date of such termination. 4 In the event the Agreement is terminated by Executive, then, at the time the termination is effective, all benefits and payments provided for hereunder shall terminate, and, without limiting the foregoing, Executive shall not be entitled to any severance payment. In the event this Agreement is terminated during the Employment Term by the Company other than for Cause, the Company shall continue to pay Executive his annual base salary set forth in Section 3 for the remainder of the Employment Term. In addition, and notwithstanding anything herein to the contrary, if such termination occurs at a time when any negotiations for a Sale of the Company have already occurred with any party, then Executive shall remain eligible to receive and will receive at the time of the Sale the benefits described in Sections 4.3, 6.2 and 9.3, as applicable (provided that the Distributable Amount (as defined in Section 4.4) in such event shall be determined at the time of the Sale), subject to consummation of any such Sale with the third party or any affiliate of the third party, but only if the Sale is consummated within twelve (12) months of such termination. After any notice of termination is given under this Section 7.1, whether by the Company or Executive, the Company may remove or suspend Executive from performance of his office or of any of his duties hereunder during the period prior to the effective date of termination, provided, that such removal or suspension shall not affect Executive's right to receive compensation and benefits during such period. The Board must approve the termination of Executive's employment under this Section 7.1. 7.2 Termination for Death or Disability. This Agreement shall be ----------------------------------- terminated upon the death or, at the Company's option, the disability of Executive. For purposes of this Agreement, the term "disability" shall mean the inability of Executive to perform substantially all of his duties hereunder for any 90 days in a 105 consecutive day period; provided that until such time as the Company elects to terminate this Agreement due to Executive's disability, Executive shall continue to receive from the Company 100% of his compensation and other benefits and distributions by way of compensation, as determined pursuant to Sections 3 and 6, which Executive would otherwise be entitled to receive. Upon the termination of this Agreement due to death or disability of Executive, the Company shall promptly pay Executive or his estate as the case may be, all salary and other compensation, including unused vacation pay, earned by him through the effective date of such termination, less income taxes and other standard employee deductions. In addition, the Company shall pay Executive or his estate, as the case may be, one times his annual base salary set forth in Section 3 reduced (but not below zero) by any Company-provided benefits payable as a result of such death or disability. All other benefits and payments provided for hereunder shall terminate; provided, that nothing in this Section 7.2 shall be construed to prohibit Executive or his estate, as the case may be, from collecting any insurance proceeds or state disability payments to which he or his estate might otherwise be entitled. Nothing herein shall operate to preclude Executive or his estate, as the case may be, from receiving any death or disability benefits that are otherwise payable. 7.3 Termination for Cause. This Agreement may be terminated, at the --------------------- Company's option, (i) upon the occurrence of any theft by Executive or conviction for or a plea of nolo 5 contendere by Executive to a felony or any crime involving moral turpitude, (ii) upon the material breach by Executive of any of the provisions of this Agreement, (iii) upon Executive's misconduct (as defined below). Termination for Cause shall not be deemed to have occurred unless the Board adopts a resolution, at a meeting called and held for that purpose (after reasonable notice to Executive and after allowing Executive and his counsel to be heard before the Board) finding that Executive was guilty of conduct set forth in (i), (ii) or (iii) and specifying the particulars thereof. Notwithstanding any such determination by the Board, Executive may challenge such determination in arbitration pursuant to Section 15. Upon a termination for Cause, which, if contested in arbitration by Executive, is upheld in arbitration, all compensation, benefits and payments provided for hereunder shall terminate, and Executive shall not be entitled to any severance or other payments other than for salary and other compensation (including unused vacation pay) earned by him through the effective date of such termination. "Misconduct" shall mean physical assault, falsification or misrepresentation of facts on Company records, creating or contributing to unsafe working conditions, fraud, dishonesty, willful destruction of Company property or assets or harassment of another employee by Executive. No act, or failure to act, by Executive shall be considered "willful" unless committed without good faith and without a reasonable belief that the act or omission was in the Company's best interest. 7.4 A "Sale of the Company" shall be deemed to occur if (i) any person, corporation, partnership, trust, association, enterprise or group shall become the beneficial owner, directly or indirectly, of outstanding capital stock of the Company possessing at least 50% of the voting power (for the election of directors) of the outstanding capital stock of the Company, or (ii) there shall be a sale of all or substantially all of the Company's assets or the Company shall merge or consolidate with another corporation and the stockholders of the Company immediately prior to such transaction do not own, immediately after such transaction, stock of the purchasing or surviving corporation in the transaction (or of the parent corporation of the purchasing or surviving corporation) possessing more than 50% of the voting power (for the election of directors) of the outstanding capital stock of that corporation, which ownership shall be measured without regard to any stock ownership of the purchasing, surviving or parent corporation by the stockholders of the Company before the transaction; provided, however, that the Company shall have no obligation to enter into any such Sale of the Company; and provided further that the decision to proceed with any such Sale of the Company shall be determined by the Board in its sole discretion and the bonus described in Section 6.2 shall not become payable unless a majority of the non-employee members of the Board shall approve such Sale of the Company. It is expressly understood that, for purposes of the definition of "Sale of the Company," the holders of the Company's currently outstanding public notes shall not be deemed to constitute a "group" solely by virtue of their roles as debt holders or by exercising their rights with respect thereto. 8. Disclosure of Information. ------------------------- Executive acknowledges that in connection with and as a result of his employment pursuant to this Agreement, he shall make use of, acquire and add to Confidential Information (as defined below). Except as required in connection with his obligations hereunder, Executive shall not, in any manner, disclose or use any Confidential Information, including Confidential 6 Information received from the Company or others either before, during or after his employment with the Company or received before during or after the term of this Agreement, except upon the prior written consent of the Company. Executive acknowledges that such Confidential Information of the Company will include matters conceived or developed by Executive, as well as matters learned by Executive from employees of the Company. Any Confidential Information that Executive has, shall prepare or shall have prepared, used, use or come into contact with shall be and remain the Company's sole property and shall not be removed from the Company's premises without its prior written consent, and shall be returned upon termination of this Agreement. Executive will not, except as the Company may otherwise consent or direct in writing, sell, use, lecture, or publish any Confidential Information or other proprietary information of the Company or authorize anyone else to do those things at any time either during or subsequent to this Agreement. For purposes of this Agreement, the term "Confidential Information" means either: (A) information concerning the financial condition of the Company or its subsidiaries that is not generally available to the public; or (B) trade secrets as defined in California Civil Code Section 3426.1. In the event that Executive is requested or required (by deposition, interrogatories, requests for information or documents in legal proceedings, subpoena, civil investigative demand or other similar process) to disclose any Confidential Information, Executive shall provide the Company with prompt written notice of any such request or requirement so that the Company may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. If, in the absence of a protective order or other remedy or the receipt of a waiver by the Company, Executive is nonetheless, legally compelled to disclose Confidential Information to any tribunal or else stand liable for contempt or suffer other censure of penalty, Executive may, without liability hereunder disclose to such tribunal only that portion of the Confidential Information which Executive is legally required to disclose, provided that Executive exercises his best efforts to preserve the confidentiality of the Confidential Information, including, without limitation, by cooperating with the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information by such tribunal. 9. Employee's Covenants. -------------------- 9.1 During the term of this Agreement, Executive shall (i) observe and conform to the policies and directions promulgated by the Board, act at the instruction of the Board and report exclusively to the Board and/or any committees thereof; (ii) exercise and perform faithfully to the best of his ability on behalf of the Company the powers and duties reasonably required by the Board; and (iii) devote his substantially full time and effort to the business affairs of the Company and its subsidiaries. 9.2 Executive agrees that during the term of this Agreement and, in the event of a Sale of the Company during the term of this Agreement, for a period of three (3) years following such Sale, Executive will not directly or indirectly (i) engage in a "Restricted Business" (as defined herein), (ii) own or control any debt equity or other interest in a Restricted Business (except as a passive investor of less than 5% of the capital stock or publicly traded notes or 7 debentures of a publicly-held company), (iii) act as director, officer, manager, employee, participant or consultant to a Restricted Business, or (iv) be obligated to or connected in any advisory business enterprise or ownership capacity with a Restricted Business. For purposes of this Agreement, a "Restricted Business" shall mean any of Tech Data Corp., Ingram Micro, Inc., Computer 2000 AG (C2000), Intelligent Electronics, Inc., MicroAge, Inc., Inacom Corp., Compucom, Entex Information Services, Inc., Vanstar Corp., SYNNEX Information Technolo gies, Inc., Arrow Electronics, Incorporated or any other wholesale distributor of micro computer products or with any subsidiary, division or successor of any of them or with any entity that acquires, whether by acquisition, merger or otherwise, any significant amount of the assets or substantial part of any of the business of any of them. Executive further agrees that during the term of this Agreement and, in the event of a Sale of the Company during the term of this Agreement, for a period of three (3) years following such Sale, Executive shall not, on behalf of any business enterprise other than the Company and its subsidiaries, solicit the employment of or hire any person that is or was employed by the Company or any of its subsidiaries at any time on or after January 1, 1997. 9.3 As consideration for Executive's covenants contained in Section 9.2 in the event of a Sale of the Company, the Company shall pay Executive $1,010,000. Such payment shall be paid in a lump sum at the consummation of the Sale of the Company. 9.4 In the event of any material breach by Executive of any of the restrictions contained in this Agreement (including, without limitation, those set forth in Sections 8, 9, and 10), the Company shall have no further obligation to compensate Executive hereunder and Executive acknowledges that the harm to the Company cannot be reasonably or adequately compensated in damages in any action at law. Accordingly, Executive agrees that, upon any violation of such restrictions, the Company shall be entitled to seek preliminary and permanent injunctive relief in addition to any other remedy, without the necessity of proving actual damages. 9.5 Executive represents and warrants to the Company that (i) his employment with the Company as contemplated herein does not and will not conflict with, violate or cause a breach of any agreement, contract or instrument to which Executive is a party including, but not limited to, any agreement with Bergen Brunswig Corporation ("BBC"), (ii) he is not a party to or obligated under any agreement, contract or instrument that will in any way impair his ability to devote his substantially full-time and best efforts to the execution of his duties pursuant hereto including, but not limited to, any agreement with BBC, and (iii) he will not engage in any business or other activity that materially interferes with his ability to devote his substantially full-time and best efforts to the execution of his duties pursuant hereto including, but not limited to, any agreement with BBC. Executive has made the Company aware of the existence of his current agreement with BBC (the "BBC Agreement") pursuant to which he has agreed, among other things, (i) to remain available to provide certain consulting services to BBC, (ii) not to induce or solicit or participate in or assist in any way in the solicitation of any BBC employee to cease employment with BBC, (iii) not to be involved in any transaction or proposed transaction involving the acquisition or potential acquisition of BBC or any affiliate of BBC, (iv) to refrain from entering into certain business relationships with the companies listed on the attached 8 Exhibit A, and (v) to maintain the confidentiality of such BBC Agreement. Executive agrees that any such obligation to render consulting services shall not materially interfere with his obligations to the Company hereunder. The Company acknowledges Executive's obligations to BBC as described above, and agrees to conduct itself so as to avoid Executive's breach of his obligations to BBC as described above. 9.6 As an independent covenant hereunder, to the extent permitted by law, Employer and Executive represent and warrant to the other that they will not challenge the validity or enforceability of any of the provisions of Section 9 of this Agreement. 10. Return of Work Product. ---------------------- Upon termination of this Agreement, or at the request of the Company, Executive agrees to deliver to the Company any and all materials, whether printed, written or otherwise obtained or prepared by Executive and pertaining to the business of the Company or as otherwise acquired by Executive in the performance of this Agreement, and it is further agreed by the parties that all such materials shall be the sole property of the Company. 11. Section 280G Payments. --------------------- In the event it shall be determined that any payment by the Company to or for the benefit of Executive hereunder, whether paid or payable but determined without regard to any additional payments required under this Section 11 ("Payments"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (the "Excise Tax"), then Executive shall be entitled to receive an additional payment from the Company (a "Reimbursement Payment") in an amount equal to seventy-five percent (75%) of the Excise Tax paid or payable with respect to the Payments, plus an additional payment from the Company in such an amount that after the payment of all taxes (including, without limitation, any interest and penalties on such taxes and the Excise Tax) on the Reimbursement Payment, Executive shall retain an amount equal to the Reimbursement Payment. For example, if the Excise Tax attributable to Payments is $100,000, then Executive shall be entitled to a Reimbursement Payment of $75,000 plus an additional payment intended to reimburse the Executive for taxes attributable to the Reimburse ment Payment and related payments such that Executive receives $75,000 net of all taxes. Notwithstanding the foregoing, Executive's obligation to pay Excise Tax shall not exceed $200,000, and the Company's obligation to pay the Reimbursement Payment shall be increased as necessary to observe this limit. All determinations required to be made under this Section shall be made by the Company's outside auditor at the time of the Sale of the Company, or any other nationally recognized accounting firm reasonably acceptable to the Company and Executive (the "Accounting Firm"). The Company shall cause the Accounting Firm to provide detailed supporting calculations of its determinations to the Company and Executive. Notice must be given to the Accounting Firm within fifteen (15) business days after an Event entitling Executive to a payment under this Agreement. All fees and expenses of the Accounting Firm shall be borne solely by the Company. For purposes of making the calculations required by this Section 11, the Accounting Firm may make reasonable assumptions and approximations concerning applicable 9 taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code, provided that the Accounting Firm's determinations must be made with substantial authority (within the meaning of Section 6662 of the Internal Revenue Code). 12. Agreement Binding Upon Successors and Assigns. --------------------------------------------- 12.1 All of the terms and provisions of this Agreement shall bind and inure to the benefit of the parties hereto. Because this Agreement is personal and indivisible in nature, Executive may not assign or transfer this Agreement without the Company's written consent. The Company may, with Executive's written consent, assign or transfer its rights or obligations to any successor corporation or affiliate or in connection with any merger, business combination or sale of all or substantially all of the Company's assets. 12.2 The Company will require any successor (whether direct or indirect, by purchase, merger consolidation or otherwise) to all or substantially all of the business and assets of the Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it whether or not such succession had taken place. 13. No Waiver. --------- The waiver of a breach of any provision of this Agreement by any party shall not operate or be construed as a waiver of any subsequent breach or violation thereof by the other party. 14. Notices. ------- All notices and communications provided for hereunder shall be in writing and shall be mailed or delivered to the business or residence address of the respective parties hereinafter provided or to such other address as either party shall designate in writing to the other. Any notice to the Company hereunder shall be sent to the attention of the President of the Company. 15. Arbitration. ----------- Any claim, dispute or controversy between the Company and Executive arising out of this Agreement, the interpretation, validity or enforceability of this Agreement or the alleged breach thereof shall, on written request of either party served on the other, be submitted to binding arbitration by the American Arbitration Association in Los Angeles, California, in accordance with the rules and regulations of that Association, as the exclusive remedy for such controversy. The arbitrator selected by the parties shall conduct a full hearing at which both parties shall be entitled to present evidence, examine and cross-examine witnesses and be 10 represented by counsel. The arbitrator shall issue a written decision which shall be final and conclusive upon the parties. The arbitrator's fee and the cost of the arbitration shall be shared equally by the parties. Controversies covered by this arbitration provision include, but not limited to, claims of harassment or discrimination in violation of state or federal law. 16. Counterparts. ------------ This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement. 17. Amendments. ---------- No modifications, extensions, or waiver of any provisions hereof or release of any right hereunder shall be valid, unless the same is in writing and consented to by all parties hereto. 18. Governing Law. ------------- This Agreement shall be governed by and interpreted in accordance with the laws of the State of California. 19. Severability. ------------ Any provision hereof prohibited by or unlawful or unenforceable under any applicable law of any jurisdiction shall as to such jurisdiction be ineffective without affecting any other provision of this Agreement. To the full extent, however, that the provisions of such applicable law may be waived, they are hereby waived, to the end that this Agreement be deemed to be a valid and binding agreement enforceable in accordance with its terms. However, if any provision, or any part thereof, is held to be unenforceable because of the scope or duration of such provision, Executive of the Company agree that the court making such determination shall have the power to reduce the scope, duration and/or area of such provisions in order to make such provision enforceable to the fullest extent permitted by law, and/or to delete specific words and phrases ("blue-penciling"), and in its reduced or blue-penciled from such provision shall then be enforceable and shall be enforced. 20. Entire Agreement. ---------------- This Agreement and all other written agreements/documents evidencing matters referred to herein, including but not limited to any indemnification agreement with the Company, contains the entire agreement of the parties with respect to the terms and conditions of the employment of Executive by the Company during the Employment Term, and this Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Executive by the Company. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, 11 have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement will be valid or binding. Executive acknowledges that he was represented by counsel in connection with the negotiating and drafting of this Agreement. Executive acknowledges that he has not relied upon information or advice provided by the Company, except as set forth herein and that he is voluntarily entering into this Agreement and that he understands that all terms and provisions of this Agreement are binding upon him, and are not mere recitals. 12 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, effective as of the date hereinabove provided. MERISEL, INC., a Delaware corporation (the "Company") Address: Merisel, Inc. By /s/ Joseph Abrams 200 Continental Blvd. --------------------------- El Segundo, CA 90245 Joseph Abrams, Director And By /s/ James E. Illson -------------------------- James E. Illson Senior Vice President and Chief Financial Officer Address: 308 Ocean Ave. By /s/ Dwight A. Steffensen Seal Beach, CA 90740 ----------------------------- Dwight A. Steffensen ("Executive") EXHIBIT A --------- AmeriSource Corporation, a Delaware corporation Baxter International, Inc., a Delaware corporation Bindley Western Industries, Inc., an Indiana corporation Cardinal Health, Inc., an Ohio corporation Fisher Scientific International, Inc., a Delaware corporation FoxMeyer Corporation, a Delaware corporation General Medical Corporation VA, a Virginia corporation McKesson Corporation, New, a Delaware corporation Owens & Minor, Inc., New, a Virginia corporation 14 EX-10.67 14 AMENDMENT TO THE MERISEL 1991 EMPLOYEE STOCK PLAN EXHIBIT 10.67 AMENDMENT TO THE MERISEL, INC. 1991 EMPLOYEE STOCK OPTION PLAN (As Amended) The Merisel, Inc. 1991 Employee Stock Option Plan (the "Plan") shall be amended as follows, effective on the 16th day of January, 1997: 1. Section 10 of the Plan shall be amended by adding the following sentence, immediately succeeding the second sentence of Section 10: Upon any reorganization, merger or consolidation in which the Company is the surviving corporation, the Option Committee may, in its sole and absolute discretion, provide that each outstanding Option granted on or after January 16, 1997, shall be treated in the same manner and be subject to the same terms and conditions as could be the case if the Company were not the surviving corporation. IN WITNESS WHEREOF, this Instrument of amendment is executed this 16th day of January, 1997. MERISEL, INC. By:/s/ DWIGHT A. STEFFENSEN ------------------------- Name: Dwight A. Steffensen Title: Chairman and CEO EX-21 15 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT ------------------------------ JURISDICTION OF NAME INCORPORATION - ---- --------------- Merisel Canada, Inc. ............................ Canada MIFINCO, Inc. ................................... Delaware Softsel Foreign Sales Corporation ............... U.S. Virgin Islands Merisel Americas, Inc. .......................... Delaware Merisel Europe, Inc. ............................ Delaware Merisel FAB, Inc. ............................... Delaware Merisel Asia, Inc. .............................. Delaware Merisel Information Services, Inc. .............. Delaware Merisel Licensing, Inc. ......................... Delaware Merisel Properties, Inc. ........................ Delaware Merisel Capital Funding, Inc. ................... Delaware EX-27 16 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS FOR MERISEL, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 44,678 0 191,979 23,684 392,557 625,120 114,776 53,346 731,039 434,576 281,466 0 0 301 14,696 731,039 5,522,824 5,522,824 5,233,570 5,233,570 295,021 42,033 37,431 (138,836) 1,539 (140,375) 0 0 0 (140,375) (4.68) (4.68)
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