The Anatomy of Public Corruption

Showing posts with label ComputerLand. Show all posts
Showing posts with label ComputerLand. Show all posts

The Apple Fraud Fritter Merisel announced the Computerland purchase on February 1, 1994.

The Apple RMA Fraud Fritter and the Inflated Earnings  - a/k/a Shipping Rocks in the Box / Returning Rocks in the never opened box  

Pete Bennett arrived on the scene during early October 1995 under contract to perform services for "Development of Internal Operational Reports Consolidated Financial Reports" 


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United States Court of Appeals,Ninth Circuit.

Norman COOPER;  Barry Roseman, M.D., P.C. Profit Sharing Plan;  Theodore Deconne;  Michael Dennis;  Michael Kessler, on behalf of themselves and a class of all others similarly situated, Plaintiffs-Appellants, v. Michael D. PICKETT;  Merisel, Inc.;  Robert F. Leff;  David Wagman;  James L. Brill;  John J. Connors;  John F. Thompson;  Lehman Brothers;  Robinson-Humphrey Company;  Deloitte & Touche, Defendants-Appellees.

No. 95-55657.

Decided: August 08, 1997

Before:  FLETCHER, BEEZER, and KLEINFELD, Circuit Judges. William S. Lerach,Milberg Weiss Bershad Hynes & Lerach, San Francisco, California, for plaintiffs-appellants. Joseph P. Mascovich, Crosby, Heafey, Roach & May, Oakland, California;  Hugh S. Wilson, Latham & Watkins, Los Angeles, California;  Bruce G. Vanyo, Wilson, Sonsini, Goodrich & Rosati, Palo Alto, California;  Robert A. Meyer, Los Angeles, California, for defendants-appellees.
Norman Cooper, on behalf of a class of shareholders, appeals the district court's dismissal with prejudice of his second amended class action complaint, alleging securities law violations against Merisel, Inc., various Merisel officers and directors, and its accountants and underwriters.   We reverse and remand.
Merisel, Inc. is the largest American publicly held wholesale distributor of computer hardware, software, and services.   Merisel buys computer products in volume from manufacturers and then ships smaller quantities to mail-order houses, computer stores, and other resellers.   In September 1993, Merisel announced that it would acquire the franchise operations of Computerland Corporation, which had numerous retail outlets.   The acquisition gave Merisel the right to distribute IBM, Hewlett-Packard, Compaq, and Apple computers.
Merisel announced the Computerland purchase on February 1, 1994.   On February 27, Merisel announced good year-end results from 1993, and stock analysts issued favorable reports on the company's prospects.   Merisel's stock rose from $14 1/2 in late 1993 to a record high of $22 1/2 on March 24, 1994.
On March 25, 1994, Merisel announced that it had filed a registration statement for a common stock offering, with the object of raising funds to retire debt from the acquisition.   Shortly before the planned offering, however, on May 9, 1994, Merisel announced that although its results for the first quarter of 1994 showed increased revenues, profit margins had fallen.   Merisel's stock fell, and the company cancelled the stock offering.   On June 7, Merisel announced that earnings for the second quarter of 1994 would be significantly below analysts' forecasts, and profit margins continued to decline.   Merisel's stock plummeted from $17 1/2 to $8 per share.
Several plaintiffs immediately filed class actions and an amended consolidated complaint was filed on August 15, 1994.   The defendants moved to dismiss, and the district court dismissed without prejudice on December 19, 1994.   Norman Cooper, on behalf of all persons who purchased Merisel stock between November 8, 1993 through June 7, 1994 (“plaintiffs”), then filed a Second Consolidated and Amended Class Action Complaint (the “complaint”), seeking damages for violations of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934

Reporting Requirements
The required disclosures and forms of disclosure vary depending on the situation and the registrant. In general, under Section 13(a) of the Exchange Act (codified in 15 U.S.C. § 78m), companies with registered publicly held securities and companies of a certain size are called "reporting companies," meaning that they must make periodic disclosures by filing annual reports (called a Form 10-K) and quarterly reports (called a Form 10-Q). Reporting companies must also promptly disclose certain important events (called a Form 8-K). These periodic reports include or incorporate by reference types of information that would help investors decide whether a company's security is a good investment. Information in these reports includes information about the company's officers and directors, the company's line of business, audited financial statements, and the management discussion and analysis section.

The Exchange Act also mandates disclosure at certain crucial points so that investors can make an informed decision before purchasing stock. Sections 14(a)-(c) (codified in 15 U.S.C. § 78n(a)-(c)) govern disclosure during proxy contests, when various parties might solicit an investor's vote on a corporate action or to vote for certain board members. All disclosure materials must be filed with the SEC.

, and Rule 10b-5 promulgated by the Securities and Exchange Commission (“SEC”).1  The complaint named as defendants Merisel, six of its officers and directors, Merisel's accountants, Deloitte and Touche (“Deloitte”), and Lehman Brothers and Robinson-Humphrey Company, Inc., investment banks which served as co-lead underwriters of Merisel's 1992 public offering and were retained to underwrite the cancelled 1994 offering.   Two individual securities analysts who worked for Lehman Brothers and Robinson-Humphrey were also named.
The complaint alleges that
The ․ defendants falsely presented the Company's current and future business prospects and prolonged the illusion of revenue and earnings growth by making it appear that the Company's revenue and earnings growth was strong and would continue, that it was successfully countering price competition and that its acquisition of Computerland was advantageous to the Company.
Among other purposes, the complaint alleges that the Merisel defendants wished to sell their Merisel stock at inflated prices, and to keep the stock price high so that the planned May 1994 public offering would raise enough money to defray the Computerland debt.   The complaint identifies sales of Merisel stock at the inflated prices by four of the individual Merisel officers.   The investment banks participated so that they would make “millions in fees and discounts” for underwriting the 1994 public offering.
The complaint describes Merisel's “scheme” as follows:  Merisel officers, who communicated regularly with securities analysts, told the analysts that Merisel's business was strong and that the Computerland acquisition in early 1994 would increase Merisel's earnings per share.   The analysts then repeated those representations in their favorable reports.   Merisel then endorsed the reports by distributing them to potential investors, who relied on the favorable reports.   Merisel also faxed an internal forecast of increasing 1994 earnings to a securities analyst.
In their regular conference calls with securities analysts, Merisel's officers predicted that the Computerland acquisition would boost Merisel's 1994 earnings, that demand was strong, and that Merisel's international operations were stabilizing and could be expected to be profitable in 1994.   The analysts echoed these positive assessments in their reports.
The complaint alleges that all these statements were false.   Demand was softening, the profitability of the company's core business was under severe pressure from price-cutters, the European operations were still weak, international operations continued to lose money, and the Computerland acquisition would hurt Merisel's 1994 earnings.   Merisel's 1993 quarterly revenues and earnings were materially overstated, because the company was improperly recognizing revenue on shipments sent to retailers who had no obligation to pay unless they resold the merchandise, shipments sent with an unlimited right to return unsold merchandise, and shipments sent to customers who had not ordered the products.   All these chickens came home to roost in the June 1994 announcement of low second-quarter price margins, and the subsequent dive in the price of Merisel stock.   The stock never recovered from the decline.
According to the complaint, SEC regulations create a duty to disclose the adverse information defendants concealed.   The financial statements Merisel issued for the last two quarters of 1993 and for the first quarter of 1994 were materially false and misleading and “did not fairly present Merisel's financial condition,” because they improperly inflated revenues by recording sales contingent on resale, recognized unsolicited shipments as revenue, and recorded revenue for merchandise that had not been shipped.   This allegedly violated SEC rulings and Generally Accepted Accounting Principles (“GAAP”) on reporting revenue.
The complaint names Deloitte as a defendant because the accounting firm examined and allegedly certified the false and misleading financial statements for 1993 and the first quarter of 1994.   Deloitte personnel were frequently present at Merisel's corporate headquarters and had access to Merisel's internal corporate financial and business information, and therefore allegedly knew of or recklessly disregarded the company's actual business condition.   The complaint states that Deloitte's certification of the financial statements was knowingly false, and Deloitte also deliberately or recklessly did not comply with Generally Accepted Auditing Standards (“GAAS”).   Further, the complaint alleges that stock analysts employed by Lehman Brothers and Robinson-Humphrey, the underwriters, knowingly issued false analysts' reports.
The complaint alleges that all defendants violated Rule 10b-5 when they “directly and indirectly, engaged in and employed acts and a fraudulent scheme to conceal material adverse information” regarding Merisel.   Merisel and its officers were also liable as “controlling persons” under § 20(a).
In late January 1995, Merisel and the other defendants filed a motion to dismiss or, in the alternative, for summary judgment.   The motion included exhibits such as transcripts of Merisel's conference calls with stock analysts, and declarations denying that Merisel circulated analysts' reports or improperly recognized revenue.   Plaintiffs filed an opposition and a motion to compel discovery.   Although Robinson-Humphrey and Lehman Brothers had produced many pages of documents in response to Plaintiffs' discovery requests, Merisel had produced only one-half box of documents.
The district court granted the motion to dismiss with prejudice in April 1995
because [the complaint] fails to meet the pleading standards enunciated in In re GlenFed, Inc., Securities Litigation, 42 F.3d 1541 (9th Cir.1994) (en banc).   The Complaint lacks concise, intelligible allegations sufficient to put the Merisel defendants on notice of their alleged wrongdoing.   The Complaint also fails to plead particularized facts demonstrating that the statements made by the Merisel defendants were false when made.
The court explicitly declined to reach the summary judgment motion, designating its order as granting “the motion to dismiss only.”
I. Jurisdiction
 The complaint names as individual defendants Theodor J. Kundtz, a securities analyst employed by Lehman Brothers, and Robert P. Anastasi, a securities analyst employed by Robinson-Humphrey.   Neither of these two defendants was served, and neither appeared in court.   Plaintiffs agreed with the two analysts to dismiss the claims against them without prejudice, subject to revival based on the outcome of an appeal.   Merisel argues that because the analysts were not included in the district court's grant of dismissal as to “all moving defendants,” the district court's dismissal was not a final judgment subject to appeal under 28 U.S.C. § 1291.
Merisel contends that an “identical conditional dismissal agreement defeated appellate jurisdiction” in Dannenberg v. Software Toolworks, Inc., 16 F.3d 1073 (9th Cir.1994).   In Dannenberg, after the district court granted summary judgment against plaintiffs on all but one cause of action against auditor defendants, the plaintiffs stipulated to dismissal of the auditor defendants, subject to refiling if any part of the partial summary judgment order were reversed on appeal.   The district court approved the stipulation, but the plaintiffs neither sought nor obtained a judgment pursuant to Federal Rule of Civil Procedure 54(b), under which district courts may certify as “final” judgments as to fewer than all claims or parties.   Because the stipulation did not “finalize” the district court's order, this court dismissed the appeal for lack of jurisdiction.  Id. at 1075, 1078.
The agreement in this case is not identical to that in Dannenberg, however, because here the individual stock analyst defendants with whom the plaintiffs stipulated to dismissal were never served.
If an action is dismissed as to all of the defendants who have been served and only unserved defendants remain, the district court's order may be considered final under Section 1291 for the purpose of perfecting an appeal.   In such circumstances there is no reason to assume that there will be any further adjudication of the action.
Patchick v. Kensington Publishing Corp., 743 F.2d 675, 677 (9th Cir.1984) (per curiam) (citations omitted).   Merisel attempts to distinguish Patchick on the ground that its rationale derived from cases involving fictitious defendants.   The unserved defendants in Patchick, however, were not fictitious, and no such distinction is made in other cases applying the Patchick rule.   See, e.g., Trulis v. Barton, 107 F.3d 685, 691 n. 1 (9th Cir.1995) (summary judgment final as to named and served parties regardless of the fact that there were other named defendants who were not served);  Hillis Motors, Inc. v. Hawaii Auto. Dealers' Ass'n, 997 F.2d 581, 584 n. 5 (9th Cir.1993) (citing Patchick, 743 F.2d at 677) (“Two unserved defendants and Doe defendants were named in the complaint.   This does not affect the appealability of the district court's judgment.”).   See also Gomez v. Government of Virgin Islands, 882 F.2d 733, 736 (3d Cir.1989) (finding appellate jurisdiction when judgment did not include named, not fictitious, unserved defendants);  Sider v. Valley Line, 857 F.2d 1043, 1045-46 (5th Cir.1988) (per curiam) (same).
We have jurisdiction.
II. Motion for Summary Judgment
Merisel titled its motion as a “Motion to Dismiss Second Consolidated and Amended Complaint or, in the Alternative, For Summary Judgment,” and attached an appendix of exhibits.   Plaintiffs opposed the motion, and requested a continuance under Federal Rule of Civil Procedure 56(f).   Plaintiffs also filed a motion to compel discovery, and a motion to strike evidence.   When the district court dismissed the complaint, it also denied the motion to strike.   The district court apparently declined to consider the evidence and relied solely on the allegations in the complaint, specifying that it ruled only on the motion to dismiss.
Merisel urges us to grant its motion for summary judgment, if we reverse any part of the dismissal with prejudice.   Merisel cites the transcripts, declarations, and other evidence in an effort to disprove the allegations, labelling them falsehoods and the complaint “a canard.”
We decline the invitation, because discovery had not yet taken place when the case was dismissed, a Rule 56(f) motion was pending, and we cannot determine on this record whether there is a genuine issue of material fact.
III. Evidence Submitted by Merisel
 In our review of the dismissal, Merisel urges us to consider some of the documentary evidence it submitted to the district court, including transcripts of the conference calls, declarations, and a faxed copy of internal projections.   Merisel contends that these documents show that the complaint's allegations that Merisel projected earnings during its conference calls with analysts and faxed internal projections to an analyst were “outright falsehoods.”   The evidence can be considered in reviewing the dismissal, argues Merisel, because the documents are referred to or referenced by the complaint.
 In reviewing the district court's dismissal of the complaint we consider only the contents of the complaint, taking as true all the allegations of material fact.  Warshaw v. Xoma Corp., 74 F.3d 955, 957 (9th Cir.1996).   In ruling on a motion to dismiss, a district court generally “may not consider any material beyond the pleadings.”  Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir.1994).
 However, material which is properly submitted as part of the complaint may be considered on a motion to dismiss․
[A] document is not “outside” the complaint if the complaint specifically refers to the document and if its authenticity is not questioned․  [W]hen [the] plaintiff fails to introduce a pertinent document as part of his pleading, [the] defendant may introduce the exhibit as part of his motion attacking the pleading․  [D]ocuments whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss.
Id. at 453-54 (quotations & citations omitted).   Thus, for example, a court ruling on a motion to dismiss may consider the full texts of documents which the complaint quotes only in part.  Fecht v. The Price Co., 70 F.3d 1078, 1080 n. 1 (9th Cir.1995), cert. denied, 517 U.S. 1136, 116 S.Ct. 1422, 134 L.Ed.2d 547 (1996);  In re Stac Electronics Sec. Litig., 89 F.3d 1399, 1405 n. 4 (9th Cir.1996).   Merisel argues that the transcripts and other documentary evidence are “part of the complaint” and therefore can be reviewed in evaluating the district court's dismissal.
In the complaint, plaintiffs make allegations about the conference calls, but do not expressly mention or refer to the transcripts, or even identify their existence.   In fact, the transcripts themselves apparently did not exist at the time plaintiffs filed their complaint;  they first appeared as exhibits to Merisel's motion to dismiss, and they are accompanied by a declaration describing their transcription from tapes.   Further, plaintiffs disputed the authenticity and accuracy of the transcripts in the district court, and objected to their use;  they repeat those objections here.   The transcripts therefore cannot be considered in ruling on the motion to dismiss.
 The same holds true for the declaration submitted by Merisel to explain that the internal projections were faxed not to securities analysts but to the corporate finance department of Robinson-Humphrey.   The declaration “assumes” that the projections attached to it as an exhibit are those referred to in the complaint, and then proceeds to explain that the corporate finance department did not share information with the securities analysts within Robinson-Humphrey.   None of this is “referenced” in the complaint, and plaintiffs objected to these declarations in the district court and on this appeal.
Merisel cites Townsend v. Columbia Operations, 667 F.2d 844 (9th Cir.1982), to support its position but that case was converted by the district court from a motion to dismiss to one for summary judgment because of the need to examine certain documents.  Id. at 848.   The issue therefore was not whether the particular documents could be considered on appeal from an order of dismissal, but rather whether they were properly in the appellate record on an appeal from summary judgment.
In this appeal, we decline to consider any of the documentary evidence filed with the motion to dismiss.
IV. Failure to State a Claim
 The district court's order granting dismissal cites Federal Rule of Civil Procedure 12(b)(6), which authorizes dismissal of a complaint that fails to state a claim on which relief can be granted.   We review de novo the dismissal of a complaint for failure to state a claim.  Warshaw, 74 F.3d at 957.  “We take as true all allegations of material fact stated in the complaint and construe them in the light most favorable to the nonmoving party.”  Id.  “To state a claim under § 10(b) and Rule 10b-5, the shareholders must allege that [the corporation] knowingly or recklessly published an ‘untrue statement of fact’ or omitted to state a material fact ‘necessary to make the statements made, in light of all the circumstances in which they were made, not misleading.’ ”  In re Wells Fargo Sec. Litig., 12 F.3d 922, 926 (9th Cir.1993) (quoting In re Apple Computer Sec. Litig., 886 F.2d 1109, 1113 (9th Cir.1989)).
Merisel advances several reasons why dismissal under Rule 12(b)(6) was appropriate.   Since we conclude that, if proved, many of the allegations of the complaint state causes of action, we need not at this juncture in the case opine on some of the closer questions, such as whether the rosy forecasts were known to be false and are therefore actionable.   These judgments should be made after discovery is complete.
A. Merisel's Liability for Statements of Securities Analysts
 Merisel argues that it is not responsible for the recommendations of securities analysts, even if it provided information on which the analysts' assessments were based.   This argument fails, as we have held that third-party securities analysts' reports, prepared with information provided by defendants, may be a basis for 10b-5 liability.
[I]f defendants intentionally misled securities analysts and the press in order to stave off a Xoma stock sell off, then these third-party reports would be relevant to determine Xoma's securities fraud liability.   The Complaint asserts that Xoma intentionally used these third parties to disseminate false information to the investing public.   If this is true, Xoma cannot escape liability simply because it carried out its alleged fraud through the public statements of third parties.   The Complaint should not have been dismissed under 12(b)(6) without a contextual, “delicate assessment” of the facts presented-including the statements of third-party analysts.
Warshaw, 74 F.3d at 959 (citation omitted).
B. Central Bank
In Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994), the Supreme Court held that there could be no liability under § 10(b) for aiding and abetting securities fraud.   Unless the defendant “commit[ted] a manipulative or deceptive act within the meaning of § 10(b),” the defendant has not violated the securities laws.  Id. at 191, 114 S.Ct. at 1455.
Merisel claims that Central Bank precludes holding it liable for the analysts' statements.   As Warshaw held, this argument is foreclosed.   Merisel is alleged to have made misleading statements to the analysts with the intent that the analysts communicate those statements to the market.   This is not aiding and abetting or secondary liability;  the complaint alleges that Merisel is liable for its own false statements to the analysts.   See In re Software Toolworks Inc. Sec. Litig., 50 F.3d 615, 628 n. 3 (9th Cir.1995) (complaint's allegation of accountant's liability for company's letter to SEC actionable under Central Bank because allegations that accountant participated in drafting letter enough for primary cause of action).
Merisel also argues that plaintiffs cannot allege a “scheme” to defraud, because those are conspiracy allegations foreclosed by Central Bank. After Central Bank, there is no private right of action for “conspiracy” liability under the securities laws.  In re GlenFed, Inc. Sec. Litig., 60 F.3d 591, 592 (9th Cir.1995) (“GlenFed II” ).   The complaint does not allege a conspiracy, however, as a separate cause of action.   Instead, it alleges a “scheme” in which Merisel and the other defendants directly participated, tracking the language of Rule 10b-5(a), which makes it unlawful for any person “[t]o employ any device, scheme, or artifice to defraud.” (emphasis added).
 Central Bank does not preclude liability based on allegations that a group of defendants acted together to violate the securities laws, as long as each defendant committed a manipulative or deceptive act in furtherance of the scheme.
The absence of § 10(b) aiding and abetting liability does not mean that secondary actors in the securities markets are always free from liability under the securities Acts. Any person or entity, including a lawyer, accountant, or bank, who employs a manipulative device or makes a material misstatement (or omission) on which a purchaser or seller of securities relies may be liable as a primary violator under 10b-5, assuming all of the requirements for primary liability under Rule 10b-5 are met.   In any complex securities fraud, moreover, there are likely to be multiple violators;  in this case, for example, respondents named four defendants as primary violators.
Central Bank, 511 U.S. at 191, 114 S.Ct. at 1455 (citation omitted).
Plaintiffs' claims therefore are not barred by Central Bank in that they are asserting that Merisel, through false statements to analysts, and those analysts, by issuing reports based on statements they knew were false, together engaged in a scheme to defraud the shareholders.
V. Necessity of Particularity
The district court found that the complaint did not satisfy Federal Rule of Civil Procedure 9(b).   It stated only that the complaint “fails to plead particularized facts demonstrating that the statements made by the Merisel defendants were false when made.”   The order cites In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541 (9th Cir.1994) (en banc) (“GlenFed I” ), which relied on Rule 9(b), and at the hearing on the motion the district court stated:  “The motion to dismiss is granted with prejudice, and see what the court of appeals has to say about GlenFed.”
Federal Rule of Civil Procedure 9(b) requires that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.   Malice, intent, knowledge, and other condition of mind of a person may be averred generally.”   The rule applies to actions brought under the federal securities laws.  GlenFed I, 42 F.3d at 1545.   To satisfy Rule 9(b),
a plaintiff must set forth more than the neutral facts necessary to identify the transaction.   The plaintiff must set forth what is false or misleading about a statement, and why it is false.   In other words, the plaintiff must set forth an explanation as to why the statement or omission complained of was false or misleading.
GlenFed I, 42 F.3d at 1548.
A. Falsity of Statements
 GlenFed I sets out a useful hypothetical for determining whether the complaint alleged a false statement that was both false when uttered and false when the plaintiff-shareholders discovered the truth:
[A] plaintiff might allege that he bought a house from defendant, that defendant assured him that it was in perfect shape, and that in fact the house turned out to be built on landfill, or in a highly irradiated area;  plaintiff could simply set forth these facts (presumably along with time and place), allege scienter in conclusory fashion, and be in compliance with Rule 9(b).  We agree that such a pleading would satisfy the rule.   Since “in perfect shape” and “built on landfill” are at least arguably inconsistent, plaintiff would have set forth the most central “circumstance constituting fraud”-namely, that what defendant said was false.   Notably, the statement would have been just as false when defendant uttered it as when plaintiff discovered the truth.
Id.  Here, the shareholders argue that they have satisfied this test.   The complaint alleges that they purchased stock from Merisel, and that Merisel assured them (through its financial statements, its own positive statements, and optimistic projections mirrored in analysts' reports) that Merisel was in good shape due to its acquisition of Computerland, its reorganization overseas, and its positive sales figures.   In fact, the Computerland acquisition had plunged Merisel deep into debt, its overseas operations continued to lose money, and it was improperly recognizing revenue from shipments of unordered goods and goods shipped on consignment to keep up the appearance of high sales;  as a result, its second quarter earnings for 1994 were disastrously low.   Merisel's stock plummeted in value.   Merisel's assurances took place at specified times during the class period, and the defendants knew they were false.   Merisel's financial house, in other words, was built on a landfill.   Because “falseness is clear from the facts that had existed all along and were later revealed,” id. at 1549, the complaint meets GlenFed I 's requirements on this “skeletal analysis,” Warshaw, 74 F.3d at 960 (setting forth a similar brief analysis).
In Fecht, we applied the rule that a complaint must contain allegations that fraudulent statements were false when made, and found the complaint satisfied Rule 9(b).  70 F.3d at 1083-84.   Applying Fecht 's analysis here, the complaint alleges that the positive statements about the Computerland acquisition were false when made, because in truth the purchase created a debt that Merisel could not support.   To ensure that a stock offering would ease its debt burden, Merisel misrepresented the state of its overseas operations and its overall prospects to stock analysts, who passed that misinformation on to the market.   To keep its annual and quarterly reports positive, Merisel engaged, with Deloitte's help, in deceptive accounting practices.  “For purposes of Rule 9(b), allegations of specific problems undermining a defendant's optimistic claims suffice to explain how the claims are false.”   Id. at 1083.
In addition, the complaint alleges that Merisel decided to cancel the stock offering very shortly after optimistic statements were made (three weeks before June 7).  “This shortness of time is circumstantial evidence that the optimistic statements were false when made.”  Id. The circumstantial evidence mounts with the allegations that the need for the proceeds from a stock offering was great, and that company officials sold their stock at inflated prices while Merisel expressed optimism for the future.   See id. at 1084.
We hold that the complaint adequately alleged the falsity of the statements.
B. Revenue Recognition
 Merisel argues strongly that the claims of improper revenue recognition are too vague to satisfy Rule 9(b).
The complaint alleges that in order to falsify its 1993 third and fourth quarter revenues, Merisel
deliberately shipped excessive amounts of product to several of its accounts․
In many instances, Merisel promised the customer that they would not have to pay for the product unless and until they re-sold it.   In other instances, Merisel actually shipped merchandise that had not been ordered by the customer.   These customers included:  Comp. USA, CompuCom, Corporate Software, SoftMart, Egghead Software, P.C. Connection, Microcenter, Software, Etc.
The complaint further alleges that GAAP required Merisel to defer revenue recognition on these shipments until payment was received, and that Merisel failed to do so, instead reporting them immediately in order to overstate its revenues.   The complaint lists the dollar amounts of overstatements of revenues, net income, and earnings per share for the third and fourth quarters of 1993.   As a result of these overshipments, an unprecedented number of returns in the first quarter of 1994 resulted in a declining profit margin;  Merisel concealed the high return rate and claimed the profit margin problem was due to price-cutting.   Merisel continued this strategy in the first quarter and as a result overstated revenue for the first quarter, also listed as a dollar amount.
 A “company that ‘substantially overstate[s] its revenues by reporting consignment transactions as sales ․ mak[es] false or misleading statements of material fact.’ ”  In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1418 (9th Cir.1994) (quoting Malone v. Microdyne Corp., 26 F.3d 471, 478 (4th Cir.1994)).   Nevertheless, Merisel claims the allegations of overstatement are not specific enough, because “the Complaint does not allege the time, customer, amount, or other circumstances, of a single wrongful transaction of any type.”   Merisel cites DiLeo v. Ernst & Young, 901 F.2d 624 (7th Cir.1990), for the proposition that the failure to plead a specific transaction is fatal.
In DiLeo, the class plaintiff alleged that a bank burdened with a large number of bad loans did not increase its reserves fast enough.   The central allegation was that the defendants, the bank's accountants, knew of this problem before the class members bought the bank's stock.  Id. at 626.   The complaint did not, however, give any examples of problem loans, or provide any concrete examples, other than stating that additional reserves “of at least $600 million” were necessary, and that credit losses were understated by “approximately 4 billion,” while nonperforming loans were “materially understated.”  Id. at 626-27.   Holding that “even a large column of big numbers need not add up to fraud,” the Seventh Circuit affirmed the dismissal of the complaint.  Id. at 627.   The plaintiffs had not pled the “who, what, when, where, and how” that would suggest fraud, rather than a business mistake viewed with the benefit of hindsight.  Id. at 627-28.
In this case, the complaint identified who (eight of Merisel's customers), what (four types of improper revenue recognition), when (last two quarters of 1993 and first quarter of 1994), and where (reported in financial statements).   The complaint alleged that Merisel misled by inflating its revenues by specific amounts, and by falsely claiming that its revenue recognition policy was stricter than it really was (“how”).   This is more than fraud by hindsight, and far more specific than DiLeo 's allegations, which did not specify which customer's loans were problems, what was problematic about them, or how the defendant intentionally misled the stockholders.
It is not fatal to the complaint that it does not describe in detail a single specific transaction (i.e. shipment) in which Merisel transgressed as above, by customer, amount, and precise method.   Comparable precedent does not require greater detail.   In Fecht, we found sufficiently particular allegations that newly opened Price Co. stores had low sales volumes, and that nine named stores (three in particular) were losing money.  70 F.3d at 1083 n. 5 & n. 6.   We did not require a specific number or a precise time frame.   The complaints in GlenFed I and Wells Fargo each alleged “specific problems which they allege undermined defendants' optimistic claims,” rather than “stat [ing] simply that defendants' public statements were false, without explaining how they were false.”  GlenFed I, 42 F.3d at 1551;  Wells Fargo, 12 F.3d at 926-28.   Both cases pointed to specific problem loans.  Id.  Here, the complaint points to specific quarters and specific customers, and provides dollar figures for each quarter.
We hold that the complaint meets the particularity requirement of Rule 9(b).   Overall, the complaint “ ‘identifies the circumstances of the alleged fraud so that defendants can prepare an adequate answer.’ ”   Warshaw, 74 F.3d at 960 (quoting Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir.1994), cert. denied, 516 U.S. 810, 116 S.Ct. 58, 133 L.Ed.2d 21 (1995)).   We decline to require that a complaint must allege specific shipments to specific customers at specific times with a specific dollar amount of improperly recognized revenue;  “we cannot make Rule 9(b) carry more weight than it was meant to bear.”  GlenFed I, 42 F.3d at 1554.   If the shareholders cannot prove any specific instances of excessive revenue recognition with specific customers, they will not prevail on that claim at summary judgment or trial.   Because “[w]e do not test the evidence at this stage,” id. at 1550, the complaint should go forward.
VI. Other Defendants
A. Lehman Brothers and Robinson-Humphrey
 Both underwriter defendants argue that the complaint's allegations are not specific enough under Rule 9(b) because they fail to describe why the stock analysts' statements were false when made.   We already have held that the allegations of false statements were sufficiently specific in identifying the conditions at Merisel which made Merisel's optimistic assessments and financial statements false or misleading;  the same specifically alleged conditions make the analysts' statements pass muster under Rule 9(b).
B. Scienter
 The underwriters' real claim, however, is that the complaint was not specific enough in identifying how the analysts they employ knew of the conditions at Merisel that made their statements false or misleading.   The complaint alleges that
[b]ecause of their ․ positions as securities analysts employed by Merisel's investment banker, ․ each of the defendants (a) knew or had access to the material, adverse non-public information about Merisel's adverse financial outlook and then existing business conditions which was not disclosed;  and (b) drafted, reviewed and/or approved the misleading statements, releases, reports and other public representations of and about Merisel.
Quoting Neubronner v. Milken, 6 F.3d 666 (9th Cir.1993), the underwriters insist that the shareholder plaintiffs must plead “specifically what information [the analysts] obtained, when and from whom [they] obtained it, and how [they] used it for [their] own advantage.”  Id. at 672.   They argue that the complaint must allege in detail the basis of Robinson-Humphrey's and Lehman Brothers' knowledge that the statements their analysts made were fraudulent;  how that information filtered from the corporate finance department into the analysts' department;  and what specific information the analysts falsified in preparing their reports.
This amounts to an argument that scienter, not falsity, must be pled with specificity.  GlenFed I is to the contrary.
[W]hen a complaint alleges with particularity the circumstances constituting fraud, as required by [Rule 9(b) ], then generally it will also have set forth facts from which an inference of scienter could be drawn․  If, however, [defendants' argument] is read ․ to mean that Rule 9(b) contains an independent requirement that the complaint allege with particularity facts giving rise to an inference of scienter-which we would take to mean alleging such things as that defendants had read or otherwise knew about particular documents giving rise to an inference that the charged statements were false when made-then we decline to adopt it.
42 F.3d at 1546.   To hold that the shareholders' complaint must explain what specific information the analysts obtained to make them know that their statements were false would ignore Rule 9(b)'s simple statement that “knowledge ․ may be averred generally.” 2
Neubronner does not require more.   As we noted in GlenFed I, the allegations of Rule 10b-5 violations in Neubronner were dismissed not because knowledge was not specifically alleged but because the complaint attributed no false statements to the defendant.  GlenFed I, 42 F.3d at 1546 n. 6 (citing Neubronner, 6 F.3d at 673).   The language that the underwriters quote is from the court's discussion of insider trading, not false statements.   The complaint did not plead any trading at all, nor did it specify what nonpublic information the defendant had to give him an inside edge;  it therefore “offers no specific facts demonstrating wrongdoing which [the defendant] could deny or otherwise controvert.”  Neubronner, 6 F.3d at 672.
Here, unlike in Neubronner, the plaintiffs allege with sufficient specificity false statements by Robinson-Humphrey and Lehman Brothers employees, specify the conditions at Merisel which gave the lie to the analysts' statements, and specify that the investment banks' close relationship with Merisel gave them access to inside information.3  That gives rise to the inference that the analysts knew their reports were false.
 Robinson-Humphrey and Lehman Brothers assert that they followed SEC rules which prevent the sharing of inside information within their companies.   15 U.S.C. § 78o(f) requires registered brokers or dealers to create and enforce “written policies and procedures reasonably designed ․ to prevent the misuse ․ of material, nonpublic information by such broker or dealer or any person associated with such broker or dealer,” and authorizes the SEC to create rules for such policies.   If Robinson-Humphrey and Lehman Brothers have established such policies and followed them in this case, they may raise that as a defense.   The existence of such policies does not, however, preclude plaintiffs from asserting in their complaint that inside information was misused.
C. Optimistic Statements
 The underwriters also contend that some of the alleged false statements are merely optimistic projections, and therefore not misleading.   Robinson-Humphrey, however, made specific forecasts of earnings increases due to the Computerland acquisition, and after the 1994 first-quarter decline in price margins, wrote that Merisel was raising prices in response.   The complaint alleges that Merisel was actually continuing to cut prices.
Lehman Brothers also made specific forecasts.   After the first-quarter decline Lehman also stated that Merisel had begun to raise prices.   These statements are not mere optimism.   Nor were they all forecasts;  both Lehman Brothers and Robinson-Humphrey made statements about current conditions and trends at Merisel.   Although the complaint quotes other analysts who made similar positive statements about Merisel's current status and future prospects, this does not mean that the Lehman Brothers and Robinson-Humphrey analysts' statements are somehow automatically reasonable.   All the analysts wrote optimistic reports based in part on information from Merisel;  only Robinson-Humphrey and Lehman Brothers are alleged to have known better through their access to inside information.
 Even the analysts' optimistic statements can be actionable if not genuinely and reasonably believed, or if the speaker is aware of undisclosed facts that tend seriously to undermine the statement's accuracy.   In re Apple Computer Sec. Litig., 886 F.2d 1109, 1113 (9th Cir.1989).   The complaint alleges that the analysts were aware of undisclosed facts that showed there was no reasonable basis for their forecasts, which they did not genuinely believe.
The allegations against the underwriter defendants also survive the motion to dismiss.
D. Deloitte
 Deloitte, Merisel's accountant in 1992 and 1993, argues that the allegation that it knowingly certified false and misleading financial statements fails to allege any connection between Merisel's allegedly improper accounting practices and any customers, claiming “the mere recitation of the names of some of Merisel's many customers adds nothing to appellants' allegations of fraud.”
The complaint does more than merely recite customer names.   It alleges that Merisel engaged in a variety of improper accounting practices in shipments to customers, and then alleges that “[t]hese customers included:  Comp. USA, CompuCom, Corporate Software, Softmart, Egghead Software, P.C. Connection, MicroCenter, Software, Etc.”   If, as Deloitte implies, this is just a random list of some of Merisel's larger customers, that is a factual issue that cannot be resolved on a motion to dismiss.   Accepting the allegations as true, it appears that each of the named customers received shipments on which Merisel improperly recognized revenue in the second half of 1993 and first quarter of 1994, and Deloitte knowingly certified financial statements including the false revenue figures.
Deloitte also protests that the complaint does not allege specific instances of sales to customers in which revenue was recognized improperly.   As we noted above, that level of specificity is not required.   Finally, Deloitte points out that Merisel disclosed its revenue recognition policy, as quoted in the complaint.   The complaint goes on to allege, however, that the company's actions were contrary to its stated policy.
We hold that the allegations against Deloitte should not have been dismissed.
We reverse the district court's dismissal of the complaint, and remand for further proceedings.
1.   Section 10(b) makes it unlawful “[t]o use or employ, in connection with the purchase or sale of any security ․ any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe.”  15 U.S.C. § 78j(b).  Rule 10b-5, adopted by the SEC in 1942, similarly providesIt shall be unlawful for any person, directly or indirectly, ․(a) To employ any device, scheme, or artifice to defraud,(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.17 CFR § 240.10b-5.Section 20(a) provides:Every person who, directly or indirectly, controls any person liable under any provision of this title or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.15 U.S.C. § 78t(a).
2.   15 U.S.C. § 78u-4(b)(2) now requires that in securities fraud actions “the complaint shall, with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.”   This section does not apply to any action commenced before and pending on December 22, 1995.
3.   If later proceedings demonstrate that plaintiffs' counsel possessed no evidence supporting these allegations at the time the complaint was filed, the district court may consider sanctions under Rule 11.   See California Architectural Bldg. Products, Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1472 (9th Cir.1987).
FLETCHER, Circuit Judge:

How Fred Anderson and William Tauscher saved Apple Computer via Millions in nefarious RMA's - then my relatives were murdered?

How Fred Anderson and William Tauscher saved Apple Computer via Millions in nefarious RMA's - Only their programmer knows for sure. 

During 1995 I endured a man with a gun in my store at 1569  Third Ave Walnut Creek.  Purely by accident I started The Clone Zone by purchasing a roomful of computers from Osborne books.  I was onsite during move/change to larger offices in the Emeryville Area.  

I was only interested in one of the printers sitting on the floor. I asked how much the manger said come back tomorrow.  The room was filled XT, 286's, Monitor and more printers. He said "Make me an offer!", i reviewed check ledger - said $170, he looked at me we've got out of here, so can take everything.  

I had garage sale and promptly made several thousand.  Within a few months leased off street location and was in business. Within three years I was enduring a fraud ring, then encountered a customer demanding a refund.  

You can be sure he was packing a gun.  I called the Walnut Creek Police Department over the gun incident just like the 1988 shooting in my cabinet shop where three assailants broke into my shop on Bliss Ave just months after Safeway Manager Cynthia Kempf was brutally murdered.  

When she was murdered I had contracts with Safeway valued in the millions.  

During 9/11 offices of Don Moats were torched at 1776 Ygnacio Valley Road just down the street from Lawrence Investments.  


Silver Lake Partners buys out Blackhawk Networks while ComputerLand Employee lose their retirement?

Connecting Silver Lake Partners, William Tauscher to 500 La Gonda Way, Developer Sid Corrie, Attorney Daniel Horowitz defending Attorney William McCann then several years later the murder of Pamela Vitale wife of

Horowitz to ComputerLand corporate.   

Pete Bennett former ComputerLand programmer uncovered a spate of dubious RMAs.    

When $250,000 or more of Apple IIe came back in November 1995 by then my reports were proving something was wrong.  That was arround they disassembled the server room put it on my cubicle line where electicsal sparks began  

Bennett developed the Reports friends of former Safeway CEO Steve Burd flipped Bennett's trailer after they blew up his truck and to think I actually know CEO Steve Burd.
Oh Yeah, I forget Mainframe Designs Cabinets & Fixtures built hundreds of their End Caps, Displays, Racks and Stands plus hundreds of Coffee Displays. 

The folks at TPG will have to answer to my Whistleblower Complaints on the truly odd collection of RFPs emanating from companies connected to Richard Blum, William McGlashan, CBRE, Regency Centers, Trammel Crow, Lennar, Catellus.

My story is about witness murders, private equity, mergers and acquisitions linked back to the Matter of Bennett v. Southern Pacific lost in 1989.  It was a winnable wherese as long the witnesses testified.  


ComputerLand - Merisel - Synnex

From late 1995 to March 1996 I was subcontracted to ComputerLand Corporate but in another life my former Cabinet Shop built cabinets and casework for Computerland Stores, Safeway and Contra Costa College District.

There is distinctly unique about Steve Burd's connection to Hillside Covenant Church where their youth director breached my laptop in 2011 and several weeks my car was deliberately totaled in Lafayette CA but Chief Christanson  refused to investigate.  Several months later I handed documents to Chief Bryden about Gary Vinson Collins who is now dead. 

In 1995 I revealed my reports to ComputerLand Management where it was clear as day they we're losing or had lost millions.  The losses were the classic "Rocks in the Box" where returns were arriving after being stalled at VanStar distribution. 

Long after Merisel bought the rights to distribution the losses tallied up to millions.  I remember arguing with one long term employee who later was in tears.  When Merisel's stock tanked she lost everything that she invested in the closed ended investment model. 

More later. 

Proc-Type: 2001,MIC-CLEAR

0000724941-97-000005.txt : 19970416
0000724941-97-000005.hdr.sgml : 19970416
ACCESSION NUMBER:  0000724941-97-000005
ITEM INFORMATION:  Acquisition or disposition of assets
FILED AS OF DATE:  19970415


  CENTRAL INDEX KEY:   0000724941
  IRS NUMBER:    954172359

  SEC ACT:  1934 Act
  SEC FILE NUMBER: 000-17156
  FILM NUMBER:  97580987

  ZIP:   90245-0984
  BUSINESS PHONE:  3106153080

  ZIP:   90245-0984



                     Washington, D.C. 20549
                            FORM 8-K
                         CURRENT REPORT
               Pursuant to Section 13 or 15(d) of
               the Securities Exchange Act of 1934

                 Date of Report: April 14, 1997

                          MERISEL, INC.
     (Exact name of registrant as specified in its charter)
Delaware                           0-17156               95-4172359
(State or other jurisdiction     (Commission File      (I.R.S. Employer
 of incorporation or              Number)               Identification Number)

                    200 Continental Boulevard
                   El Segundo, CA  90245-0984
            (Address of principal executive offices)
                           (Zip code)
                         (310)  615-3080
      (Registrant's telephone number, including area code)



Item 2.  Acquisition or Disposition of Assets

On March 31, 1997, Merisel, Inc., a Delaware corporation (the
("Company") completed the sale of substantially all of the assets
of its wholly-owned subsidiary Merisel FAB, Inc., a Delaware
corporation ("Merisel FAB"),to ComputerLand Corporation
(ComputerLand), a wholly-owned subsidiary of SYNNEX Information
Technologies, Inc., a California corporation  ("Synnex"). Merisel
FAB operates the Company's Franchise and Aggregation
Business ("FAB").  The sale was effective as of March 28, 1997,
pursuant to a Purchase Agreement (the"Purchase Agreement") dated
January 15, 1997, as amended, among the Company, Merisel FAB, 
Computerland and Synnex.

The sale price, computed based upon the February 21,
1997 balance sheet of Merisel FAB was approximately $31,992,000
consisting of ComputerLand assuming $11,992,000 of trade
payables and accrued liabilities and a $20,000,000 extended
payable due to a third party.  As part 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 value.

For additional information see the  March 31, 1997 press release 
of Merisel, Inc.,a copy of which is attached hereto as an exhibit.

Item 7.   Financial Statements and Exhibits

(a)  Financial Statements of Business Acquired.
     Not Applicable
(b)  Pro Forma Financial Information

The Following unaudited pro forma financial statements are filed
with this report:
    Pro Forma Condensed Consolidated Balance 
     Sheet as of December 31, 1996................................. Page 4
    Pro Forma Condensed Consolidated Statements of Earnings:
     Year Ended December 31,1996................................... Page 5
     Year Ended December 31,1995................................... Page 6
    Notes to Unaudited Pro Forma Condensed Consolidated
     Financial Statements....................................... Pages 7-8

     The unaudited Pro Forma Condensed Consolidated Balance Sheet
of the Company as of December 31, 1996 reflects the financial
position of  the Company after giving effect to the disposition
of substantially all of FAB as discussed in Item 2 and assumes
the disposition took place on December 31, 1996.  The Pro Forma
Condensed Consolidated Statements of operations for the years
ended December 31, 1995 and December 31, 1996 assume that the
disposition occurred on January 1, 1995 and January 1, 1996, respectively
and are based on the operations of the Company for the years
ended December 31, 1995 and December 31, 1996.
     The unaudited pro forma condensed consolidated financial
statements presented herein are shown for illustrative purposes
only and are not necessarily indicative of the future financial
position or future results of operations of the Company, or of
the financial position or results of operations of the Company
that would have actually occurred had the transaction occurred as
of the date or for the periods presented.
     The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the historical
financial statements and related notes of the Company.

 (c) Exhibits

           2.1 Purchase Agreement dated as of  January 15, 1997
               by and among Merisel, Inc., Merisel FAB., Inc., Syn
               Fab, Inc., and Synnex Information Technologies, Inc.(1)

           2.2 Amendment No. 1 to Asset Purchase Agreement dated
               as of March 6, 1997. (1)

          99.1 Press release of Merisel, Inc. Dated
               March 31, 1997.
- -----------------
     (1)  Incorporated herein by reference to the Annual Report
          on Form 10-K of the Company for the annual period ended
          December 28, 1996.


                      MERISEL, INC. AND SUBSIDIARIES
                            (In thousands)
Pro Forma Adjustments Historical 12/31/96 FAB Other Pro Forma Current Assets: Cash & Cash Equivalents $ 44,678 $44,678 Accounts Receivable (net of allowances) 168,295 $6,850(a) 161,445 Inventories 392,557 392,557 Prepaid Expenses 16,925 16,925 Income Taxes Receivable 2,183 2,183 Deferred Income Tax Benefit 482 482 -------- ------- -------- ------- Total current assets 625,120 6,850 618,270 Property and Equipment, Net 61,430 542(a) 60,888 Cost in Excess of Net Assets Acquired 41,724 15,374(b) 26,350 Other Assets 2,765 2,765 -------- -------- -------- ------- Total Assets 731,039 22,766 708,273 -------- -------- -------- ------- -------- -------- -------- ------- Current Liabilities: Accounts Payable $383,548 $25,711(a) $357,837 Accrued Liabilities 37,543 952(a) 4,085(c) 40,676 Short-Term Debt Long-Term Debt-Current 9,084 9,084 Subordinated Debt-Current 4,400 4,400 -------- -------- -------- ------- Total Current Liabilities 434,575 26,663 4,085 411,997 Long-Term Debt 268,079 268,079 Subordinated Debt 13,200 13,200 other Long-term Debt 188 188(a) --------- -------- -------- -------- Total Liabilities 716,042 26,851 4,085 693,276 --------- -------- -------- -------- Total Stockholders' Equity 14,997 (4,085) (4,085) 14,997 Total Liabilities and Stockholders Equity $731,039 $22,766 $708,273 -------- -------- --------- -------- -------- -------- --------- --------
See accompanying notes to unaudited pro forma condensed consolidated financial statements. -4- PRO FORMA FINANCIAL INFORMATION MERISEL, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 (In Thousands, Except Per Share Data)
Pro Forma Adjustments Historical 12/31/96 FAB (a) Other Pro Forma Net Sales $5,522,824 $1,021,310 $4,501,514 Cost of Sales 5,233,570 984,515 4,249,055 ---------- ---------- ---------- ---------- Gross Profit 289,254 36,795 252,459 Selling, General & Administrative Expenses 295,021 33,689 261,332 Impairment Loss 42,033 42,033 ---------- ---------- ---------- ---------- Operating Loss (47,800) (38,927) (8,873) Loss on Sale of European, Mexican and Latin American Operations 33,455 33,455 Interest Expense 37,431 255 37,176 Other Expense 20,150 58 20,092 ---------- ---------- ---------- ---------- Loss Before Income Taxes (138,836) (39,240) (99,596) Income Tax Provision (1,539) (60) (1,479) ---------- ---------- ---------- ---------- Net Loss $(140,375) $(39,300) $(101,075) ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------- Net Loss Per Share $ (4.68) $ (3.37) ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------- Weighted Average Number of Shares Outstanding 30,001 30,001 ----------- ---------- ----------- ----------
See accompanying notes to unaudited pro forma condensed consolidated financial statements. -6- PRO FORMA FINANCIAL INFORMATION MERISEL, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (In Thousands, Except Per Share Data)
Pro Forma Adjustments Historical 12/31/96 FAB (a) Other ProForma Net Sales $5,956,967 $1,141,094 $ $4,815,873 Cost of Sales 5,633,278 1,097,673 4,535,605 ---------- ---------- ---------- ---------- Gross Profit 323,689 43,421 280,268 Selling, General & Administrative Expenses 317,195 41,468 2,986(b) 278,713 Impairment Losses 51,383 30,000 21,383 Restructuring Charge 9,333 9,333 ---------- ---------- ----------- ---------- Operating Loss (54,222) (28,047) (2,986) (29,161) Interest Expense 37,583 4,210 33,373 Other Expense 13,885 137 13,748 ---------- ---------- ---------- ---------- Loss Before Income Taxes (105,690) (32,394) (2,986) (76,282) Income Tax Benefit 21,779 903 20,876 ---------- ---------- ---------- ----------- Net Loss $ (83,911) $ (31,491) $ (2,986) $ (55,406) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Loss Per Share $ (2.82) $ (1.86) ---------- ---------- ---------- ---------- Weighted Average Number of Shares Outstanding 29,806 29,806 ----------- ---------- ----------- ----------
See accompanying notes to unaudited pro forma condensed consolidated financial statements. -7- Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements 1. General The foregoing unaudited pro forma condensed consolidated financial statements illustrate the effect of the sale by the Company of substantially all the assets of Merisel FAB, Inc. to ComputerLand Corporation ("ComputerLand"), a wholly owned subsidiary of SYNNEX Information Technologies, Inc. ("Synnex") pursuant to a Purchase Agreement (the "Purchase Agreement") among the Company, Merisel FAB, Inc., ComputerLand, and Synnex. Merisel FAB operates the Company's Franchise and Aggregation Business ("FAB"). The sales price, if computed at December, 31 1996, would have been $26,850,000 consisting of $6,850,000 of trade payable and accrued liabilites 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 sales price is subject to adjustments based upon the March 28, 1997 balance sheet. Because the Company recorded an impairment charge of $2,033,000 in the quarter ended December 31, 1996 to adjust Merisel FAB's assets to their fair value, the recognition of this sale as of December 31, 1996 would not result in a loss as follows: Purchase price 26,850,000 Book value of FAB Assets purchased (7,392,000) Value of rebates to be paid to buyer (2,000,000) Intangible assets associated with FAB to be written off (15,374,000) Estimated direct and other costs associated with the transaction (2,084,000) ------------ Loss on Sale of FAB 0 ------------ ------------ 2. Pro Forma Balance Sheet Adjustments a)FAB - Represents the historical unaudited December 31, 1996 balances for Merisel FAB for those assets transferred to, and liabilities assumed by ComputerLand. b) Cost in excess of net asset acquired - Amounts relate to Merisel FAB which will be written off as a result of the sale. c) Accrued Liabilities - Represents adjustments to accrue $2,000,000 of rebates extended to Synnex as part of the purchase agreement, and $2,085,000 of direct costs associated with the sale of FAB. 3. Pro Forma Income Statement Adjustments for the Year Ended December 31, 1996 a)FAB - Represents the historical unaudited December 31, 1996 balances for Merisel FAB which are eliminated to reflect the sale of Merisel FAB. 4. Pro Forma Income Statement Adjustments for the Year Ended December 31, 1995 a)FAB - Represents the historical unaudited December 31, 1995 balances for Merisel FAB which are eliminated to reflect the sale of Merisel FAB. b)Selling, General and Administrative Expenses. In 1995 certain corporate costs were allocated by Merisel to Merisel FAB (corporate overhead, administrative expenses, etc.). It is likely that such costs would not have been eliminated due to the sale of FAB, and are therefore added back for the purposes of this pro forma presentation. -7- SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereto duly authorized. MERISEL, INC. Date: April 14, 1997 /S/ JAMES E. ILLSON ---------------------------- James E. Illson, Senior Vice President Finance, and Chief Financial Officer (Duly authorized officer and principal financial officer)
EX-99 2 For Immediate Release Financial Media/Investor Relations: Rivian Bell (310) 615-6812 (310) 615-6868 (800) 686-1910 (24-hour pager) Richard Bernhardt Sr. Manager, Marketing Communications ComputerLand Corporation (510) 467-6097 Merisel Completes Sale of FAB Subsidiary El Segundo, Calif. (March 31, 1997) -- Merisel, Inc. (NASDAQ:MSEL) announced today that, as of March 28, 1997, the company has completed the sale of substantially all of the assets of its wholly owned subsidiary, Merisel FAB, Inc., to ComputerLand Corporation, a wholly owned subsidiary of Synnex Information Technologies, Inc., a Fremont, Calif.-based distributor of microcomputers and communication, networking, peripheral, and storage products. Merisel FAB, Inc. operated the company's ComputerLand Franchise and Datago businesses. Terms of the sale called for the buyer to acquire substantially all of the assets and assume substantially all of the liabilities of Merisel FAB, Inc. The liabilities assumed by the buyer include an extended payable of $20,000,000 due to Vanstar Corporation. In the quarter ended Dec. 31, 1996, Merisel, Inc. recorded an impairment charge of $2,033,000 to adjust Merisel FAB's assets to fair market value. Merisel, Inc. (NASDAQ:MSEL) is a leader in the distribution of computer hardware, software and networking products. Merisel distributes a full line of 25,000 products to more than 45,000 resellers throughout the U.S. and Canada. Additional information can be obtained through the company's World Wide Web site ( or by requesting information by fax at (310) 615-6811. # # #

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