<PAGE>
 
                       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 )
<PAGE>
 
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
<PAGE>
 
                               INDEX TO FORM 10-K

                                 MERISEL, INC.


                                                         
<TABLE>
<CAPTION>
                                                          PAGE REFERENCE
                              PART I

<S>                                                                <C>
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
</TABLE>

                                       3
<PAGE>
 
                                     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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
                                    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.
<TABLE>
<CAPTION>
 
                                        HIGH         LOW
                                      ---------   ---------
<S>                                   <C>         <C>
          FISCAL YEAR 1995
                  First quarter....     8 1/2     3 7/8
                  Second quarter...     7 3/4     4 1/2
                  Third quarter....     8 3/8     5 1/2
                  Fourth quarter...     6 5/8     4 1/8
          FISCAL YEAR 1996
                  First quarter....     5 7/8     2 1/4
                  Second quarter...     5 1/16    2 1/4
                  Third quarter....     3 13/16   1 13/16
                  Fourth quarter...     2 5/16    1 5/8
</TABLE>

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
<PAGE>
 
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                            ------------------------------------------------------------------
                                              1992         1993         1994           1995            1996
                                            ----------  ----------    ----------     ----------     ----------
                                                       (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                        <C>          <C>           <C>            <C>            <C>
INCOME STATEMENT DATA:(1)
Net sales............................      $2,238,715   $3,085,851    $5,018,687     $5,956,967     $5,522,824
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
</TABLE> 

--------------
(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
<PAGE>
 
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
<PAGE>
 
As a result of these asset dispositions, The Company's operations are now
focused exclusively in North America. In 1996, the North American Business
(as defined below) produced approximately $3.4 billion in revenues and the
Former Operations (as defined below) produced approximately $2.1 billion in
revenue.  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.
<TABLE>
<CAPTION>
                                                              (in thousands)

                          North American Business                  Former Operations                     Consolidated Total
                                December 31,                          December 31,                           December 31, 
                    ----------------------------------     ----------------------------------    ----------------------------------
                       1994        1995        1996           1994        1995        1996           1994       1995        1996   
                    ----------  ----------  ----------     ----------  ----------  ----------    ----------  ----------  ----------
<S>                 <C>         <C>         <C>            <C>         <C>         <C>           <C>         <C>         <C> 
Net Sales           $2,876,074  $3,427,821  $3,441,343     $2,142,613  $2,529,146  $2,081,481    $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)
                    ==========  ==========  ==========     ==========  ==========  ==========    ==========  ==========  ==========
</TABLE> 
 
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1996 AND  DECEMBER 31, 1995

The Company's net sales for the North American Business increased 0.4% from
$3,427,821,000 in 1995 to $3,441,343,000 for the year ended December 31, 1996.
This increase resulted from increased sales of 12.4% in Canada offset by a 2.0%
decrease in sales in the United States In the third quarter of 1995, the North
American Business sold approximately $124,000,000 of Microsoft Windows '95
following its launch in August 1995. Excluding the effect of this additional
revenue, net sales would have increased 2.0% in the United States and 14.5% in
Canada. The Canadian sales increase is in line with the growth in the industry
for the markets in which that subsidiary competes. In the United States, the
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
                         MERISEL, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>

                                                                              DECEMBER 31,
                                                                       --------------------------
                                                                          1995           1996
                                                                       ---------        ---------
<S>                                                                    <C>              <C>
                   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
                                                                       ==========       =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       28
<PAGE>
 
                         MERISEL, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNT)

<TABLE>
<CAPTION>
                                                                        FOR THE YEARS ENDED DECEMBER 31,
                                                                 ----------------------------------------------
                                                                     1994              1995             1996
                                                                 ----------        ----------        ----------
<S>                                                              <C>               <C>               <C>
NET SALES......................................................  $5,018,687        $5,956,967        $5,522,824
COST OF SALES..................................................   4,676,164         5,633,278         5,233,570
                                                                 ----------        ----------        ----------
GROSS PROFIT...................................................     342,523           323,689           289,254
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES...................     281,796           317,195           295,021
IMPAIRMENT LOSSES..............................................                        51,383            42,033
RESTRUCTURING CHARGE...........................................                         9,333
                                                                 ----------        ----------        ----------
OPERATING INCOME (LOSS)........................................      60,727           (54,222)          (47,800)
INTEREST EXPENSE...............................................      29,024            37,583            37,431
LOSS ON SALE OF EUROPEAN, MEXICAN AND
LATIN AMERICAN OPERATIONS......................................                                          33,455
OTHER EXPENSE..................................................      11,752            13,885            20,150
                                                                 ----------        ----------        ----------
INCOME (LOSS) BEFORE INCOME TAXES..............................      19,951          (105,690)         (138,836)
PROVISION (BENEFIT) FOR INCOME TAXES...........................       8,341           (21,779)            1,539
                                                                 ----------        ----------        ----------
NET INCOME (LOSS)..............................................  $   11,610        $  (83,911)       $ (140,375)
                                                                 ==========        ==========        ==========
NET INCOME (LOSS) PER SHARE....................................  $     0.38        $    (2.82)       $    (4.68)
                                                                 ==========        ==========        ==========
WEIGHTED AVERAGE NUMBER OF SHARES..............................      30,389            29,806            30,001
                                                                 ==========        ==========        ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       29
<PAGE>
 
                         MERISEL, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                       (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                                                          RETAINED
                                                 COMMON STOCK          ADDITIONAL        EARNINGS        CUMULATIVE
                                             -------------------         PAID-IN       (ACCUMULATED     TRANSLATION
                                               SHARES     AMOUNT         CAPITAL          DEFICIT)       ADJUSTMENT      TOTAL
                                             ----------   ------       ----------      -------------    -----------    ---------
<S>                                          <C>          <C>          <C>             <C>              <C>            <C>
BALANCE AT DECEMBER 31, 1993..............   29,604,300     296          140,775            91,512         (8,726)      223,857
  Exercise of stock options and other.....      112,300       1              474                                            475
  Cumulative translation adjustment.......                                                                    222           222
  Net income..............................                                                  11,610                       11,610
                                             ----------    ----         --------         ---------        -------     ---------
BALANCE AT DECEMBER 31, 1994..............   29,716,600     297          141,249           103,122         (8,504)      236,164
  Exercise of stock options and other.....      146,900       2              689                                            691
  Cumulative translation adjustment.......                                                                  1,522         1,522
  Net loss................................                                                 (83,911)                     (83,911)
                                             ----------    ----         --------         ---------        -------     ---------
BALANCE AT DECEMBER 31, 1995..............   29,863,500    $299         $141,938         $  19,211        $(6,982)    $ 154,466
  Exercise of stock options and other.....      215,000       2              362                                            364
  Cumulative translation adjustment.......                                                                    542           542
  Net loss................................            -       -                -          (140,375)                    (140,375)
                                             ----------    ----         --------         ---------        -------     ---------
BALANCE AT DECEMBER 31, 1996..............   30,078,500     301          142,300          (121,164)        (6,440)       14,997
                                             ==========    ====         ========         =========        =======     =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       30
<PAGE>
 
                         MERISEL, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                           FOR THE YEARS ENDED DECEMBER 31,
                                                                                   -----------------------------------------------
                                                                                       1994                1995             1996
                                                                                   -----------         ----------      -----------
<S>                                                                                <C>                 <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)..............................................................  $    11,610         $ (83,911)      $  (140,375)
  Adjustments to reconcile net income to net cash provided by (used for)
   operating activities:
    Depreciation and amortization................................................       16,101            20,509            18,789
    Provision for doubtful accounts..............................................       18,851            16,335            17,421
    Impairment losses............................................................                         51,383            42,033
    Loss on Sale of European, Mexican and Latin American businesses..............                                           33,455
    Deferred income taxes........................................................       (4,973)            5,471             6,175
    Changes in assets and liabilities, net of the effects from acquisitions:
      Accounts receivable........................................................     (152,912)         (103,553)          132,480
      Inventories................................................................      (75,314)          (43,524)           91,059
      Prepaid expenses and other current assets..................................       (6,604)           (8,186)          (14,612)
      Income taxes receivable....................................................                        (35,116)           33,470
      Accounts payable...........................................................       94,385            98,756          (179,304)
      Accrued liabilities........................................................       19,690            23,872           (11,342)
      Income taxes payable.......................................................       (3,275)           (4,422)
                                                                                   -----------         ---------       -----------
        Net cash (used for) provided by operating activities.....................      (82,441)          (62,386)           29,249
                                                                                   -----------         ---------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment.............................................      (40,163)          (49,082)           (9,652)
  Proceeds from sale of property and equipment...................................                                            5,975
  Payment of earn out obligation from ComputerLand acquisition...................                                          (13,409)
  Cash proceeds from sale of Australian business.................................                                            8,515
  Cash proceeds from sale of European, Mexican and Latin American businesses.....                                          110,379
  Acquisitions, net of cash acquired.............................................      (86,343)
  Other investing activities.....................................................                                             (767)
                                                                                   -----------         ---------       -----------
        Net cash (used for) provided by investing activities.....................     (126,506)          (49,082)          101,041
                                                                                   -----------         ---------       -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings under revolving line of credit......................................    1,766,300           937,275         1,448,358
  Repayments under revolving line of credit......................................   (1,742,114)         (944,960)       (1,466,150)
  Net borrowings (repayments) under foreign bank facilities......................      (13,058)           (9,980)          (17,742)
  Borrowings (repayments) under senior notes.....................................      125,000                             (43,195)
  Repayment under subordinated debt agreement....................................                                           (4,400)
  Proceeds from sale of accounts receivable......................................       75,000           125,320
  Proceeds from issuance of common stock.........................................          475               691               364
                                                                                   -----------         ---------       -----------
        Net cash provided by financing activities................................      211,603           108,346           (82,765)
                                                                                   -----------         ---------       -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..........................................          863               967            (4,225)
                                                                                   -----------         ---------       -----------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS..............................        3,519            (2,155)           43,300
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................................           14             3,533             1,378
                                                                                   -----------         ---------       -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.........................................  $     3,533         $   1,378       $    44,678
                                                                                   ===========         =========       ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
  Cash paid(received) during the year for:
    Interest (net of interest capitalized of $1,053 and $3,281 for 1994
     and 1995, respectively. No interest was capitalized in 1996)................  $    21,237         $  27,118       $    30,456
    Income taxes.................................................................       11,185            10,747           (36,068)
  Noncash activities:
  Capital lease obligations entered into.........................................                          5,708               187
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       31
<PAGE>
 
                         MERISEL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 1994, 1995 AND 1996


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General--Merisel, Inc., a Delaware corporation and a holding company (together
with its subsidiaries, "Merisel" or the "Company"), is a leading distributor of
computer hardware, networking equipment and software products.  Through its main
operating subsidiary, Merisel Americas, Inc. ("Merisel Americas") and its
subsidiaries (the "Operating Company"), the Company markets products and
services throughout North America, and has achieved operational efficiencies
that have made it a valued partner to a broad range of computer resellers,
including value-added resellers (VARs), retailers, and commercial/dealers. The
Company also has established the Merisel Open Computing Alliance (MOCA(TM)),
which primarily supports Sun Microsystems' product sales and installations.

Liquidity - In 1996, the Company incurred a net loss of $140,375,000 which
includes impairment losses of $42,033,000 and a loss on the sale of the
Company's European, Mexican and Latin American Business (such businesses are
referred to herein as "EML") of $33,455,000. The impairment losses were
associated with the intangible assets of the Company's wholly owned subsidiary
Merisel FAB, Inc. ("Merisel FAB") which operated the Company's Franchise and
Aggregation Business ("FAB"). As of March 28, 1997 the Company sold
substantially all of the assets of Merisel FAB to Synnex Information
Technologies, Inc. ("Synnex") (See Note 12 - "Subsequent Events"). EML was sold
as of September 27, 1996 to CHS Electronics, Inc. ("CHS") (See Note 5 -
"Dispositions"). Management believes that a substantial portion of operating
losses incurred in 1996 relate to the implementation of its 1996 Business Plan
which focused upon the conservation of cash, the sale of assets, and the
improvement of business processes, particularly in the area of accounts payable.

The Company has developed and is implementing a business strategy for 1997 (the
"1997 Business Strategy") that focuses on profitable North American revenue
growth instead of managing for cash. Under the 1997 Business Strategy, Merisel
intends to concentrate on strengthening and building its sales infrastructure,
improving gross margins, and controlling operating expenses. Other priorities
include continuing efforts to achieve operational excellence, addressing
financial controls and policies by emphasizing margin improvements and tight
expense control, and implementing a strategy focused on the United States and
Canada.

In order to meet its debt obligations in mid-1997 (See Note 9 - "Debt"). Merisel
is actively pursuing a restructuring plan with the debtholders under its various
financing agreements. Effective April 14, 1997, the Company entered into an
agreement (the "Agreement") with holders of more than 75% of the outstanding
principal amount of its 12.5% Senior Notes ("12.5% Notes") Pursuant to the terms
of the Agreement, upon the fulfillment of certain conditions, holders of the
12.5% Notes would exchange (the "Exchange") their 12.5% Notes for common stock,
par value $.01 per share, of the Company (the "Common Stock"), which would equal
80% of the outstanding shares of Common Stock immediately after the Exchange.
Contemporaneously with the Exchange, the holders of Common Stock would receive
warrants (the "Warrants") to purchase Common Stock constituting 17.5% of the
Common Stock outstanding immediately after giving effect to the Exchange.

                                       32
<PAGE>
 
                         MERISEL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Exchange is subject to certain conditions including (i) stockholder approval
of an amendment to the Certificate of Incorporation of the Company to authorize
the additional shares of Common Stock, and (ii) consents to amendments of the
$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
<PAGE>
 
                         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
<PAGE>
 
                         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
<PAGE>
 
                         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
<PAGE>
 
                         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
<PAGE>
 
                         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.
<TABLE>
<CAPTION>
                                               (in thousands except per share data)   
                                                  Twelve Months Ended December 31,    
                                                 1995                         1996    
                                              ----------                   ---------- 
      <S>                                    <C>                          <C>  
      Net Sales                               $4,568,915                   $4,462,653 
      Gross Profit                               228,293                      216,032 
      Net loss                                   (67,737)                    (100,052)
                                              ==========                   ==========
      Net loss per share                      $    (2.27)                  $    (3.33)
                                              ==========                   ==========
      Weighted Average Shares                     
       Outstanding                                29,806                       30,001               
                                              ==========                   ==========
</TABLE> 

EML is not an incorporated entity for which historical financial statements were
prepared. The historical balances used in preparing the above pro forma balances
represent combined balances obtained from the separate unaudited financial
statements for the individual entities comprising EML. The pro forma results
include adjustments for general and administrative expenses that would not have
been eliminated due to the sale of EML. The pro forma adjustments also include
adjustments for amortization of intangible assets and for interest expense on
debt repaid with a portion of the proceeds from the sale, net of the effect of
an interest rate increase resulting from the renegotiation of certain debt
agreements as a result of the sale. Historical balances obtained from
Australia's unaudited financial statements were also used in preparing the
pro forma balances above.

Effective March 28, 1997, Merisel completed the sale of substantially all of the
assets of Merisel FAB to a wholly owned subsidiary of Synnex.  The purchase
price was approximately $31,992,000.  (See Note 12-"Subsequent Events".)

                                       38
<PAGE>
 
                         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):
<TABLE>
<CAPTION>
 
                                          ESTIMATED                               
                                          ---------                               
                                         USEFUL LIFE                             
                                         -----------                              
                                          (IN YEARS)                              
                                                            DECEMBER 31,          
                                                        -------------------       
                                                         1995         1996        
                                                        -------     -------       
     <S>                                 <C>           <C>         <C>            
      Land..............................                $ 9,678    $  5,818       
      Building..........................       20         3,880       3,880       
      Equipment.........................   3 to 7        76,918      65,628       
      Furniture and fixtures............   3 to 5        13,777       8,575       
      Leasehold improvements............  3 to 20        15,963       9,025       
      Construction in progress..........                 21,365      21,850       
                                                        -------    --------       
      Total.............................                141,581     114,776   
      Less accumulated depreciation and                                            
       amortization.....................                (51,200)    (53,346)   
                                                        -------    --------  
      Property and equipment, net.......                $90,381    $ 61,430   
                                                        ========   ========   
</TABLE>

                                       39
<PAGE>
 
                        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):

<TABLE>
<CAPTION>
                                                  FOR THE YEARS ENDED DECEMBER 31,
                                            --------------------------------------------
                                             1994               1995               1996
                                            -------          ----------         ---------
<S>                                        <C>              <C>                <C>
     Domestic............................   $23,430          $  (71,884)        $(100,139)
                                            
     Foreign.............................    (3,479)            (33,806)          (38,697)
                                            -------           ---------         --------- 
     Total...............................   $19,951           $(105,690)        $(138,836)
                                            =======           =========         =========
</TABLE> 
 

The provision (benefit) for income taxes consisted of the following (in
thousands):

<TABLE> 
<CAPTION> 
 
                                                   FOR THE YEARS ENDED  DECEMBER 31,
                                             ---------------------------------------------
                                              1994                1995              1996
                                             -------            --------           -------
    <S>                                     <C>                <C>                <C>  
     Current:                               
          Federal......................      $10,675            $(24,627)          $(1,706)            
          State........................        2,429                 130               360             

          Foreign......................          210              (2,753)           (3,290)            
                                             -------            --------           -------
          Total Current................       13,314             (27,250)           (4,636)            
                                             -------            --------           -------

     Deferred:                                                                             
          Domestic.....................       (4,325)              7,120             4,659             

          Foreign......................         (648)             (1,649)            1,516             
                                             -------            --------           -------
          Total deferred...............       (4,973)              5,471             6,175             
                                             -------            --------           -------
          Total provision (benefit)....      $ 8,341            $(21,779)          $ 1,539             
                                             =======            ========           =======
</TABLE> 
                                                                  
Deferred tax liabilities and assets were comprised of the following (in
thousands):
 
<TABLE> 
<CAPTION> 
                                                                  DECEMBER 31,
                                                            1995               1996
                                                         ---------           --------
    <S>                                                 <C>                 <C> 
     Deferred tax assets
          Net operating loss.......................      $   2,350           $ 26,328

          Expense accruals.........................          9,886             11,919

          State taxes..............................          1,056               (372)

          Property and goodwill....................          3,648             10,697

          Other, net...............................          1,999              2,033
                                                         ---------           --------
                                                            18,939             50,605
          Valuation allowances.....................        (12,282)           (50,123)
                                                         ---------           --------
             Total.................................      $   6,657           $    482
                                                         =========           ========
     Net deferred tax asset........................      $   6,657           $    482
                                                         =========           ========
</TABLE> 

                                       40
<PAGE>
 
                         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:
<TABLE>
<CAPTION>
                                                                                 FOR THE YEARS ENDED
                                                                              -------------------------
                                                                                     DECEMBER 31,
                                                                              -------------------------
                                                                               1994      1995      1996
                                                                              ------    ------    ------
<S>                                                                          <C>       <C>       <C>
     Statutory rate.......................................................    35.0%     (35.0)%   (35.0)%
     Increase in U.S. valuation allowance.................................                9.3      27.3
     State income taxes, less effect of federal deduction.................     4.0        0.1        .2
     Foreign income subject to tax at other than statutory rate...........     2.5        3.2
     Goodwill amortization................................................     1.3        0.4        .2
     Foreign losses with benefits at less than statutory rate.............     6.7        0.1       7.2
     Utilization of net operating losses of foreign subsidiary............    (5.3)                (1.0)
     Other................................................................    (2.4)       1.3       2.2
                                                                              ------    -------   -------
     Effective tax rate...................................................    41.8%     (20.6)%     1.1%
                                                                              ======    =======   =======
</TABLE>

At December 31, 1995 and December 31, 1996, the Company had available net
operating loss carryforwards of $ 6,671,000 and $ 77,643,000, respectively which
expire at various dates through December 31, 2011.

9. DEBT

At December 31, 1996, the Company's subsidiaries, Merisel Americas and Merisel
Europe, Inc. ("Merisel Europe") had unsecured senior borrowings, which as
amended, consisted of $56,805,000 of 11.5% notes by Merisel Americas, and a
$85,208,000 Revolving Credit Agreement by Merisel Americas and Merisel Europe,
all of which were outstanding. Advances under the Revolving Credit Agreement
bear interest at specific rates based upon market reference rates plus a
specified percentage. The average interest rate for the Revolving Credit
Agreement at December 31, 1996 was approximately 10.85%. In the year ended
December 31, 1996, the Company paid a total of $35,000,000 in aggregate
scheduled amortization payments under the 11.5% Notes and Revolving Credit
Agreement. Additionally, on October 4, 1996, the Company amended the 11.5% Notes
and the Revolving Credit Agreement in connection with the sale of EML and
permanently reduced the outstanding borrowings on the 11.5% Notes and the
Revolving Credit Agreement by $29,000,000 and $43,500,000, respectively. As a
result of the sale of EML, Merisel Europe no longer is an operating entity.

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
<PAGE>
 
                         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
<PAGE>
 
                         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
<PAGE>
 
                         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:

<TABLE>
<CAPTION>
                                         1994                            1995                       1996
                            ----------------------------      --------------------------   --------------------------
                                              Wgtd Avg.                       Wgtd Avg.                   Wgtd Avg.   
                               Shares       Exer. Price         Shares      Exer. Price      Shares       Exer. Price  
                            ------------   -------------      -----------  -------------   -----------   ------------
<S>                         <C>            <C>                <C>          <C>             <C>           <C> 
Outstanding at
   beginning of year        1,856,140      $     7.61          1,902,625    $      9.03      3,191,289     $     7.30
Granted                       243,500           18.45          1,680,241           5.91        354,500           2.45
Exercised                    (112,300)           4.23           (112,422)          2.99       (215,000)           .67
Canceled                      (84,715)          11.25           (279,155)         12.43     (1,812,444)          7.04
                            ---------                          ---------                    ----------
Outstanding at end
   of year                  1,902,625            9.03          3,191,289           7.30      1,518,345           7.48
                            ---------                          ---------                    ----------
Option price range for
  Exercised shares                       $2.00-$11.88                       $2.20-$6.25                   $0.01-$2.20
                                         ------------                       -----------                   -----------
Weighted average fair
   value of options
  granted during the year                                          $3.80                        $1.61
                                                               ---------                    ---------
</TABLE>

                                       44
<PAGE>
 
                         MERISEL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


The following table summarizes  information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
 
                                    Options Outstanding           Options Exercisable
                            --------------------------------    -----------------------
<S>                        <C>           <C>         <C>        <C>           <C>
                                         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
                           ===========                            ======= 
</TABLE>

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the stock option
plans.  Had compensation cost for the Company's stock option plans been
determined based on their fair value at the grant date for options granted in
1995 and 1996 consistent with the provisions of SFAS No. 123, the Corporation's
net loss and loss per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
 
                             (In thousands, except per share amounts)
                                     1995               1996
                                  ---------           ---------
<S>                             <C>                 <C>          
Net Loss - As Reported            $(83,911)          $(140,375)
Net Loss - Pro Forma               (84,480)           (140,994)
 
Loss Per Share - As Reported         (2.82)              (4.68)
Loss Per Share - Pro Forma           (2.83)              (4.70)
</TABLE>

The fair value of each option granted during 1995 and 1996 is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
 
                                   1995                 1996
                                ---------             --------- 
<S>                             <C>                 <C>
Expected life                     5.0                    5.0
Expected volatility              72.41%                 72.69%
Risk-free interest rate           6.27%                  6.32%
Dividend Yield                    0.00%                  0.00%
</TABLE>

                                       45
<PAGE>
 
                         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):
<TABLE>
<CAPTION>
 
                                            UNITED                       OTHER
                                            STATES        CANADA     INTERNATIONAL    ELIMINATIONS    CONSOLIDATED
                                          ----------     -------      ------------    ------------    ------------
<S>                                      <C>            <C>          <C>              <C>             <C>
1994:
            Net sales................     $3,413,614     $516,616       $1,088,457                      $5,018,687
                                          ==========     ========       ==========                      ==========
            Operating income (loss)..     $   52,150     $  9,871       $   (1,294)                     $   60,727
                                          ==========     ========       ==========                      ==========
            Identifiable assets......     $  715,082     $147,483       $  337,083        $ (7,778)     $1,191,870
                                          ==========     ========       ==========        ========      ==========
1995:
Net sales:
            Net sales................     $3,996,346     $572,569       $1,388,052                      $5,956,967
                                          ==========     ========       ==========                      ==========
            Operating loss...........     $  (37,825)    $ (3,637)      $  (12,760)                     $  (54,222)
                                          ==========     ========       ==========                      ==========
            Identifiable assets......     $  738,220     $135,482       $  375,878        $(19,246)     $1,230,334
                                          ==========     ========       ==========        ========      ==========
1996:
Net sales:
            Net sales................     $3,818,923     $643,730       $1,060,171                      $5,522,824
                                          ==========     ========       ==========                      ==========
            Operating income (loss)..     $  (44,295)    $ (5,406)      $    1,901                      $  (47,800)
                                          ==========     ========       ==========                      ========== 
            Identifiable assets......     $  623,707     $126,691       $        0        $(19,359)     $  731,039
                                          ==========     ========       ==========        ========      ========== 
</TABLE>

                                       46
<PAGE>
 
                         MERISEL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

14. QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected financial information for the quarterly periods for the fiscal years
ended 1995 and 1996 is presented below (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                     1995
                                           --------------------------------------------------------
                                            MARCH 31       JUNE 30     SEPTEMBER 30    DECEMBER 31
                                           -----------   -----------   -------------   ------------
<S>                                        <C>           <C>           <C>             <C>
             Net sales..................   $1,454,894    $1,379,864      $1,544,018     $1,578,191
             Gross profit...............       93,223        85,475          89,253         55,738
             Net loss...................       (1,789)       (4,613)           (253)       (77,256)
             Net loss per share.........        (0.06)        (0.16)          (0.01)         (2.59)
<CAPTION> 
                                                                     1996
                                           --------------------------------------------------------
                                            MARCH 31       JUNE 30     SEPTEMBER 30    DECEMBER 31
                                           -----------   -----------   -------------   ------------
<S>                                        <C>           <C>           <C>             <C>
             Net sales..................   $1,536,589    $1,442,668      $1,393,532     $1,150,035
             Gross profit...............       87,223        79,587          57,193         65,251
             Net (loss) income..........      (13,508)      (11,404)       (117,138)         1,675
             Net (loss) income per share        (0.45)        (0.38)          (3.90)           .06
</TABLE>

In the  fourth quarter of 1995, the Company recorded certain items which reduced
operating income by approximately $89,400,000.  These items included impairment
losses on long-lived assets totaling $51,400,000.  The remaining $38,000,000
represents adjustments to account balances, primarily in accounts payable.
Additional adjustments related to vendor account reconcilations and customer
disputes were taken, which amounted to $2,200,000 in each of the first two
quarters of 1996, and $23,000,000 in the third quarter of 1996.  Additionally,
third quarter charges were also recognized for further impairment of certain
long lived assets for $40,000,000 and for the loss on the sale of certain assets
totaling $33,455,000. In the fourth quarter of 1996, net income includes a
$2,033,000 charge to adjust Merisel FAB's assets to their fair value based on
the provisions of a definitive agreement to sell such assets in the first
quarter of 1997.

                                       47
<PAGE>
 
                         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
<TABLE>
<CAPTION>
                                            BALANCE AT    CHARGED TO                   BALANCE AT
                                           DECEMBER 31,    COSTS AND                  DECEMBER 31,
                                               1993        EXPENSES     DEDUCTIONS        1994
                                           ------------   ------------  -----------   ------------
<S>                                        <C>            <C>           <C>           <C>
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

<CAPTION> 
 
                                           BALANCE AT     CHARGED TO                  BALANCE AT
                                           DECEMBER 31,    COSTS AND                  DECEMBER 31,
                                               1994        EXPENSES     DEDUCTIONS       1995
                                           ------------   ------------  -----------   ------------
<S>                                        <C>            <C>           <C>           <C>
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

<CAPTION> 
                                           BALANCE AT     CHARGED TO                  BALANCE AT
                                           DECEMBER 31,    COSTS AND                  DECEMBER 31,
                                               1995        EXPENSES     DEDUCTIONS        1996
                                           ------------   ------------  -----------   ------------
<S>                                        <C>            <C>           <C>           <C>
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
</TABLE>
---------------
(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
<PAGE>
 
                                    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
<PAGE>
 
           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
<PAGE>
 
                                   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.
<TABLE>
<CAPTION>
 
          SIGNATURE                         TITLE                      DATE
-----------------------------   ------------------------------    ---------------
<S>                             <C>                               <C>

/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
</TABLE>

                                       51
<PAGE>
 
                                 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
<PAGE>
 
 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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
<TABLE> 
<S>             <C>  
    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.
</TABLE> 

--------------
* 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
<PAGE>
 
(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