<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 5182 54-1865271
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
---------------
211 NORTH UNION STREET, #100 UL. LUBELSKA 13
ALEXANDRIA, VIRGINIA 22314 03-802 WARSAW
(703) 838-5568 POLAND
(ADDRESS AND TELEPHONE NUMBER OF (ADDRESS OF PRINCIPAL PLACE OF
PRINCIPAL EXECUTIVE OFFICES) BUSINESS OR INTENDED PRINCIPAL PLACE
OF BUSINESS)
---------------
WILLIAM V. CAREY
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
211 NORTH UNION STREET, #100
ALEXANDRIA, VIRGINIA 22314
(703) 838-5568
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
---------------
COPIES TO:
STEVEN E. BALLEW, ESQ. MALCOLM I. ROSS, ESQ.
JOSEPH G. CONNOLLY, JR., ESQ. BAKER & MCKENZIE
HOGAN & HARTSON L.L.P. 805 THIRD AVENUE
555 THIRTEENTH STREET, N.W. NEW YORK, NEW YORK 10022
WASHINGTON, D.C. 20004 TEL: (212) 751-5700
TEL: (202) 637-5600 FAX: (212) 759-9133
FAX: (202) 637-5910
---------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
---------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the followng box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share.......... 1,322,500(2) $8.50 $11,241,250.00 $3,316.17
- ------------------------------------------------------------------------------------------
Redeemable Warrants...... 1,322,500 0.10 132,250.00 39.01
- ------------------------------------------------------------------------------------------
Common Stock par value,
$.01 per share(3)....... 1,322,500 8.60 11,373,500.00 3,355.18
- ------------------------------------------------------------------------------------------
Unit Purchase
Option(4)............... 115,000 0.0001 11.50 0.01
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Common Stock, par value
$.01 per share(5)....... 115,000 10.20 1,173,000.00 346.04
- ------------------------------------------------------------------------------------------
Nonredeemable
Warrants(5)............. 115,000 0.12 13,800.00 4.07
- ------------------------------------------------------------------------------------------
Common Stock, per value
$.01 per share(6)....... 115,000 8.60 989,000.00 291.76
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Total(7)................ -- 24,922,811.00 $7,352.24
</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 172,500 shares of Common Stock subject to the Underwriters' over-
allotment options, the first 75,000 shares of which will be sold by the
Selling Stockholders.
(3) Issuable upon exercise of the Redeemable Warrants at a price equal to the
offering price of the Common Stock and the Redeemable Warrants.
(4) To be issued to the Underwriters.
(5) Issuable upon exercise of the Underwriters' Unit Purchase Option at a
price equal to 120% of the offering price of the Common Stock and the
Redeemable Warrants.
(6) Issuable upon exercise of the Nonredeemable Warrants underlying the
Underwriters' Unit Purchase Option.
(7) Pursuant to Rule 416, this registration statement also covers such
indeterminable additional shares as may become issuable as a result of any
future anti-dilution adjustments in accordance with the terms of the Unit
Purchase Option and the Warrants as described in the Prospectus.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 16, 1997
PROSPECTUS
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
1,150,000 SHARES OF COMMON STOCK
1,150,000 REDEEMABLE WARRANTS
[LOGO]
The securities offered hereby by Central European Distribution Corporation, a
Delaware corporation (the "Company"), consist of 1,150,000 shares (the
"Shares") of common stock, par value $.01 per share of the Company (the "Common
Stock"), and 1,150,000 redeemable warrants (the "Warrants"), with one Warrant
accompanying each share of Common Stock. The Shares and the Warrants are
immediately separately transferable. Each Warrant entitles the holder to
purchase, at an exercise price of $ (the aggregate initial Share and Warrant
offering price) (subject to adjustment), one share of Common Stock, during the
five year period commencing on the date of this Prospectus. The Warrants are
subject to redemption by the Company commencing one year from the date of this
Prospectus for $.05 per Warrant, on not less than 30 days' written notice,
provided that the sales price of the Common Stock is at least $ (200% of the
initial Share offering price) for 30 consecutive days ending on the day notice
is given.
Prior to this offering (the "Offering"), there has been no public market for
the Company's securities, and there can be no assurance that such a market will
develop. The initial public offering price of the Shares, which is estimated to
be between $7.50 and $8.50, and the Warrants, which is estimated to be $0.10,
and the exercise price and other terms of the Warrants have been determined by
negotiation between the Company and Fine Equities Inc. and SouthWall Capital
Corp. (the "Underwriters") and are not necessarily related to the Company's
assets, book value, financial condition or any other recognized criteria of
value. See "Underwriting." The Company has applied for quotation of the Common
Stock and the Warrants on the Nasdaq SmallCap Market under the symbols "CEDC"
and "CEDCW," respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS
FOR A DISCUSSION OF CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON
STOCK AND THE WARRANTS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share........................... $ $ $
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Per Warrant......................... $ $ $
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Total(3).......................... $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) Does not include additional compensation to be received by the Underwriters
in the form of (i) a non-accountable expense allowance of $ (equal to 3%
of the gross proceeds of the Offering), or $ per share of Common Stock
($ if the over-allotment option is exercised in full), (ii) unit purchase
options (the "Unit Purchase Option") to purchase up to 115,000 Shares and
115,000 Warrants exercisable for a period of four years commencing one year
from the date of this Prospectus at $ (120% of the aggregate initial
Share and Warrant offering price) and (iii) a right of first refusal to act
as underwriter or agent in connection with certain future offerings by the
Company or its principal stockholders. The Company and the Selling
Stockholders (as defined below) have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of approximately $ payable by the
Company, including the Underwriters' non-accountable expense allowance.
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to an additional 97,500 shares of Common Stock and 172,500 Warrants on the
same terms and conditions set forth above, solely to cover over-allotments,
if any. The Selling Stockholders have granted to the Underwriters a 45-day
option to purchase up to an additional 75,000 shares of the Common Stock at
Price to Public less Underwriting Discounts and Commissions for the purpose
of covering over-allotments, if any. If the Underwriters exercise such
options, the first 75,000 shares will be sold by the Selling Stockholders.
If such options are exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to
Selling Stockholders will be $, $ , $ and $ , respectively. See
"Principal and Selling Stockholders" and "Underwriting."
The Shares and Warrants offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation and
modification of the offer without notice to, delivery to and acceptance by the
Underwriters and to certain further conditions. It is expected that delivery of
the certificates representing the Shares and Warrants will be made against
payment therefor at the offices of Fine Equities, Inc., New York, New York, on
or about , 1998.
FINE EQUITIES, INC. SOUTHWALL CAPITAL CORP.
The date of this Prospectus is , 1998
<PAGE>
[GRAPHIC WITH BRAND TRADENAMES AND TRADEMARKS]
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants
and will make available copies of quarterly reports for the first three
quarters of each fiscal year containing unaudited financial information. All
brand names or trademarks appearing in this Prospectus are the property of
their respective holders.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED MAY BE DISCONTINUED AT ANY TIME.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified by, and should be read in conjunction
with, the more detailed information and consolidated financial statements and
notes thereto appearing elsewhere in this Prospectus. Prospective investors
should carefully consider the factors set forth herein under the caption "Risk
Factors" and are urged to read this Prospectus in its entirety. Except as
otherwise noted, all information in this Prospectus (i) reflects the completion
of a reorganization (as defined in "The Reorganization") as of November 28,
1997 whereby Central European Distribution Corporation ("CEDC" or the
"Company") became the new parent holding company of Carey Agri International
Poland Sp. z o.o. ("Carey Agri"), (ii) assumes no exercise of the Underwriters'
over-allotment option, the Unit Purchase Option, the Warrants or options
granted under the Company's 1997 Stock Incentive Plan. As used in this
Prospectus, unless the context otherwise requires, references to the "Company"
means CEDC and its wholly owned subsidiary, Carey Agri. The Company prepares
its consolidated financial statements in accordance with generally accepted
accounting principles in the United States ("U.S. GAAP") in U.S. Dollars. For
the convenience of the reader, amounts in this Prospectus are expressed
principally in U.S. Dollars.
THE COMPANY
The Company, formed in 1990, has become a leading importer and distributor of
alcoholic beverages in Poland. The Company operates the largest nationwide
next-day alcoholic beverage delivery service in Poland through its eight
regional branch offices located in Poland's principal cities, including Warsaw,
Crakow, Gdansk and Katowice. The Company currently distributes approximately
300 products in three categories: beer, spirits and wine. The Company imports
and distributes eight international beers, including Guinness, Corona, Miller
and Foster's, in addition to one domestically-produced beer. The Company
currently distributes approximately 250 spirit products, including leading
international brands of scotch, single malt and other whiskeys, rum, bourbon,
vodkas, tequila, gins, brandy, cognacs, vermouths and specialty spirits, such
as Jim Beam, Johnnie Walker, Ballantines, Smirnoff, Absolut, Finlandia,
Bacardi, Gordon's London Dry and Tanqueray. In addition, the Company imports
and distributes 45 wine products, including Sutter Home, Romanian Classics,
Cinzano Asti, Martini Asti and Moet & Chandon. The Company's net sales for the
nine-month period ended September 30, 1997 were approximately $27.5 million, as
compared to $14.6 million for the nine-month period ended September 30, 1996,
representing an increase of 89%.
The Company distributes its products throughout Poland to approximately 3,000
outlets, including off-trade establishments, such as small businesses and
multi-store retail outlets where alcoholic beverages are not consumed on
premises, and on-trade locations, such as bars, nightclubs, hotels and
restaurants, where such products are consumed on premises.
The principal components of the Company's business strategy are as follows:
EXPAND DISTRIBUTION CAPACITY. The Company plans to increase its distribution
capacity by expanding the number of its branch offices in Poland through the
acquisition of existing wholesalers, particularly in areas where the Company
does not distribute directly. Cities currently under consideration are Lublin
(1996 population--approximately 355,000), Lodz (1996 population--approximately
818,000) and Bialystok (1996 population--approximately 281,000).
The Company will seek to acquire successful wholesalers which are involved in
the vodka distribution business and are among the leading wholesalers in their
region. The Company would then add its higher margin imported brands to
complement and enhance the existing product portfolio. While the Company has
identified potential wholesalers and has conducted exploratory talks about such
acquisitions, it has not reached any definitive agreements regarding the terms
and conditions of any such acquisition, including the purchase price to be paid
to the sellers, and such acquisitions may not
1
<PAGE>
be available to the Company on acceptable terms, if at all. In such case, the
Company would seek to enter these markets with its own branch offices.
INCREASE PRODUCT OFFERINGS. The Company plans to expand its strategic product
offerings in Poland through the acquisition of a high quality wine importer
which offers a wide selection of specialty wines and by entering into new
supplier agreements to import additional products. The Company is in
exploratory talks with such a wine importer, but no definitive agreement has
been reached. The Company began importing Bulgarian red and white varietal
wines in October 1997. The Company is also in exploratory talks with spirit
producers to import additional spirit brands.
ENTER RETAIL MARKET. The Company has implemented its retail business strategy
in Warsaw, where one location has been leased, remodeled and is expected to
open for business in mid-January, 1998. The Company believes that specialty
retail sales of alcoholic beverages in Poland have yet to be developed.
Currently, alcoholic beverages are sold in Poland through grocery stores,
supermarkets, small shops and gas stations. These retail outlets sell, in
general, fast moving items, primarily domestic beer and vodka, as well as a few
of the more popular imported products, which are brands often imported by the
Company. There are few stores that specialize in alcoholic beverages in Warsaw,
a metropolitan area with a population of approximately 2.4 million.
The Company also believes that high quality alcohol retail outlets will
create an additional demand for the Company's current product portfolio,
enhancing sales of products distributed, as well as provide a point of sale
marketing opportunity for the Company's brands. The retail stores will stock
additional products not currently distributed by the Company to complement the
stores' appeal, such as cigars and other items associated with an alcohol
retail outlet. The Company also intends to utilize the retail outlets as a
training tool for its salesmen for product merchandising and promotions. In
addition, the retail establishments will allow the Company's on-trade customers
to have a supply point for immediate purchase at night and on Sundays when the
Company's delivery system does not operate.
----------------
CEDC was incorporated in Delaware in September 1997 to facilitate this
Offering. Its executive offices are located at 211 North Union Street, #100,
Alexandria, Virginia 22314 and its telephone number is (703) 838-5568. The
executive offices of Carey Agri are located at ul. Lubelska 13, 03-802 Warsaw,
Poland and its telephone number is 48-22-618-0577.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered.............. 1,150,000 Shares and 1,150,000 Warrants. Each
Warrant entitles the holder to purchase one
Share, at an exercise price of $ per Share
(the aggregate initial Share and Warrant
offering price), during the five year period
commencing on the date of this Prospectus. The
exercise price of the Warrants is subject to
adjustment and the Warrants are subject to
redemption in certain circumstances. See
"Description of Securities--Warrants."
Common Stock Outstanding........ Prior to this Offering--1,780,000 (1)
After this Offering--2,930,000 (2)
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Use of Proceeds............... Assuming an offering price of $8.00 per share of
Common Stock (the midpoint of the estimated
range specified on the cover page of the
Prospectus) and $0.10 per Warrant, the net
proceeds of the Offering are expected to be
approximately $7.5 million. The Company intends
to use approximately $2.0 million of the net
proceeds to acquire existing wholesalers of
alcoholic beverages, approximately $1.2 million
to increase the number of brands distributed
through the addition of new suppliers and the
acquisition of existing importers and
approximately $0.6 million to open retail
stores. The Company intends to use net proceeds
to retire bank financing (approximately $1.4
million as of November 30, 1997) and $0.9
million to purchase currently leased equipment.
The remaining net proceeds of approximately $1.4
million will be used for general corporate
purposes, including the purchase of computer
upgrades and prepayments to suppliers in order
to receive favorable discounts on both imported
and Polish alcoholic beverages. See "Use of
Proceeds."
Risk Factors.................. This Offering involves a high degree of risk and
immediate substantial dilution and should not be
made by investors who cannot afford the loss of
their entire investment.
Proposed Nasdaq Symbols (3)... Common Stock--CEDC
Warrants--CEDCW
Dividend Policy............... The Company has never declared or paid any cash
dividends on its capital stock. The Company does
not anticipate paying cash dividends in the
foreseeable future.
</TABLE>
- --------
(1) Does not include 400,000 shares of Common Stock reserved for issuance in
connection with the Company's 1997 Stock Incentive Plan (the "Plan"), of
which options for 52,500 shares have been granted. See "Management--
Executive Compensation."
(2) Does not include: (i) 97,500 shares of Common Stock issuable by the Company
upon exercise of the Underwriters' over-allotment option or 172,500 shares
of Common Stock underlying Warrants issuable upon exercise of the
Underwriters' over-allotment option, (ii) 1,150,000 shares of Common Stock
issuable upon exercise of the Warrants offered hereby, (iii) 230,000 shares
of Common Stock issuable upon exercise of the Unit Purchase Option and the
warrants included therein and (iv) 400,000 shares of Common Stock reserved
for issuance under the Plan, of which options for 52,500 shares have been
granted. See "Management--Executive Compensation" and "Underwriting."
(3) There can be no assurance that an active trading market in the Company's
securities will develop or, if developed, will be sustained. See "Risk
Factors--Risks Related to the Offering--Possible Delisting of Securities
from the Nasdaq Market."
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data of the
Company as of and for each of the two fiscal years in the period ended December
31, 1996, and as of and for the nine months ended September 30, 1996 and 1997.
The statement of operations data for the years ended December 31, 1995 and
1996, and the balance sheet data as of December 31, 1995 and 1996 have been
derived from the Company's consolidated financial statements, which were
audited by Ernst & Young Audit Sp. z o.o., independent auditors. The statement
of operations data for the nine months ended September 30, 1996 and 1997, and
the "actual" balance sheet data as of September 30, 1997, are unaudited, but
include, in the opinion of management, all adjustments considered necessary for
a fair presentation of such data. The "as adjusted" balance sheet data as of
September 30, 1997, is as described in note (2) below. The results for the nine
months ended September 30, 1997 are not necessarily indicative of the results
expected for the entire year. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $ 16,017 $ 23,942 $ 14,575 $ 27,499
Cost of goods sold......... 13,113 19,850 11,697 23,759
Sales, general and
administrative expenses... 2,603 3,569 2,581 3,057
Operating income........... 301 523 297 683
Income before income
taxes..................... 195 173 71 334
Net income................. 75 62 6 140
Net income per common
share, primary and fully
diluted (1)............... 0.04 0.03 0.00 0.08
OTHER FINANCIAL DATA:
Bad debt expense to net
sales ratio............... 0.21% 0.08% 0.08% 0.06%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
---------------------- -----------------------------
1995 1996 ACTUAL AS ADJUSTED(2)
---------- ---------- ---------- ------------------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................ $ 339 $ 740 $ 240 $ 6,665
Current assets.............. 3,146 6,889 6,479 12,894
Total assets................ 3,264 7,335 7,165 13,328
Current liabilities......... 3,119 7,006 6,931 5,649
Long-term debt and capital
lease obligations, less
current portion............ 180 303 68 13
Stockholders' equity
(deficit).................. (36) 26 166 7,666
Stockholders' equity
(deficit) per common
share...................... (0.02) 0.01 0.09 2.62
</TABLE>
- --------
(1) Gives effect to the 1,780,000 shares issued in the Reorganization. See "The
Reorganization."
(2) Adjusted to give effect to the receipt of net proceeds of approximately
$7.5 million from the sale of 1,150,000 shares of Common Stock offered
hereby by the Company at the assumed initial public offering price of $8.00
(the midpoint of the estimated range specified on the cover page of this
Prospectus) and 1,150,000 Warrants at $.10 per Warrant and assuming that a
portion of the net proceeds would be used to prepay bank financing
(approximately $1.4 million as of November 30, 1997) and to pay all accrued
public offering costs. See "Use of Proceeds."
4
<PAGE>
RISK FACTORS
The Common Stock and Warrants offered hereby involve a high degree of risk.
Prospective investors should consider carefully all the information contained
in this Prospectus (including the consolidated financial statements and notes
thereto) prior to purchasing Common Stock and Warrants in the Offering and in
particular the factors set forth below under "--Risks Related to the
Company,"""--Risks Related to Regulation," "--Risks Related to Investments in
Poland and Emerging Markets" and "--Risks Related to the Offering."
Prospective investors are cautioned that the statements in this Prospectus
that are not historical facts may be forward-looking in nature and,
accordingly, whether they prove to be accurate is subject to many risks and
uncertainties. The actual results that the Company achieves may differ
materially from any forward-looking statements in this Prospectus. Factors
that could cause or contribute to such differences include, but are not
limited to, those discussed below and those contained elsewhere in this
Prospectus.
RISKS RELATED TO THE COMPANY
Limited Management Resources; Dependence on Key Persons
The Company is relying on a small number of key individuals to implement its
business and operations and, in particular, the services of William V. Carey,
its Chairman, President and Chief Executive Officer, and Jeffrey Peterson, its
Vice Chairman and Executive Vice President. Accordingly, the Company may not
have sufficient managerial resources to successfully manage the increased
business activity envisioned by its business strategy. In addition, the
Company's future success depends in large part on the continued service of
Messrs. Carey and Peterson. Mr. Carey has entered into a three-year employment
agreement with the Company which commences on the closing of this Offering and
which may be terminated by Mr. Carey only for "good reason," which includes
CEDC's failure to perform its obligations under the agreement, or by CEDC for
"cause," as defined, which includes Mr. Carey's willful refusal to follow
written orders or willful engagement in conduct materially injurious to the
Company or continued failure to perform his required duties. The Company has
applied for a $2.5 million key man life insurance policy on the life of Mr.
Carey. Mr. Peterson has entered into a two-year employment agreement with the
Company which commences on the closing of this Offering and which may be
terminated by CEDC, with or without cause, on three months' prior written
notice. Mr. Peterson may terminate the employment agreement only for good
reason. See "Management--Compensation Plans--Employment Agreements."
The management of future growth will require, among other things, continued
development of the Company's financial and management controls and management
information systems, stringent control of costs, increased marketing
activities, ability to attract and retain qualified management personnel and
the training of new personnel. The Company is seeking to hire additional
personnel, in particular a chief financial officer, in order to manage its
growth and expansion. Failure to successfully hire such an officer and to
manage its growth and development would have a material adverse effect on the
Company's business, results of operations and financial condition.
Nonexclusive, Short-Term Supply Contracts
The Company has exclusive rights to distribute in Poland certain alcoholic
beverages which during 1996 and the nine months ended September 30, 1997
constituted approximately $7.6 million and $7.5 million, respectively, or
31.7% and 27.0%, respectively, of its net sales. Furthermore, most of the
Company's distribution agreements have a term of approximately one year,
although many are automatically renewed unless one party gives notice of
termination. Several of such agreements, however, can be terminated by one
party without cause on relatively short notice. For example, the distribution
agreements with respect to domestic vodka (which accounted for approximately
12.9% and 45.4% of the Company's net sales during 1996 and the nine months
ended September 30, 1997, respectively) and products of International Drinks
and Vintners (which accounted for approximately
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17.1% and 11.0% of the Company's net sales during 1996 and the nine months
ended September 30, 1997, respectively) can be terminated by either party on
one month's notice and products distributed for United Distiller Finlandia
Group ("United Distillers") (which accounted for approximately 15.1% and 12.9%
of the Company's net sales during 1996 and the nine months ended September 30,
1997, respectively) can be terminated upon 90 days' notice. The termination of
such agreements could have a material adverse effect on the business and
operations of the Company.
Risks Related to Acquisitions
The Company's growth will depend in large part on its ability to acquire
additional distributors, increase product offerings, manage expansion, control
costs in its operations and consolidate effectively any acquisition into its
existing operations and systems of management and financial controls.
Unforeseen capital and operating expenses, or other difficulties,
complications and delays frequently encountered in connection with the
expansion and integration of acquired operations could inhibit the Company's
growth. The full benefits of a significant acquisition will require the
integration of operational, administrative, finance, sales and marketing
organizations, as well as the coordination of common sales and marketing
efforts and the implementation of appropriate operational, financial and
management systems and controls. This effort will require substantial
attention from the Company's senior management team. The diversion of
management attention required by an acquisition could have an adverse effect
on the net sales and operating results of the Company. There can be no
assurance that the Company will identify suitable acquisition candidates, that
acquisitions will be consummated on acceptable terms or that the Company will
be able to successfully integrate the operations of any acquisition.
The Company's ability to grow through the acquisition of additional
companies will also be dependent upon the availability of capital to complete
the acquisitions. The Company intends to finance acquisitions through a
combination of the proceeds of the Offering, its available cash resources,
bank borrowings and, in appropriate circumstances, the further issuance of
equity and/or debt securities. Acquiring additional companies will have a
significant effect on the Company's financial position, and could cause
substantial fluctuations in the Company's quarterly and yearly operating
results. Also, acquisitions could result in the recording of significant
goodwill and intangible assets on the Company's financial statements, the
amortization of which would reduce reported earnings in subsequent years.
Dependence Upon Retailers
The alcoholic beverages distributed by the Company in Poland have
historically been sold to consumers by independent retailers. Accordingly, the
Company is dependent on its independent retailers for the successful
distribution of its products to the ultimate customer. The Company has no
control over the independent retailers' operations, including such matters as
retail price and marketing. One component of the Company's growth strategy is
to enter the retail market. Implementation of this strategy may be construed
by the Company's existing independent retailers as an effort to compete with
them, which could adversely affect their relationship with the Company and
cause them to decrease or cease their purchases of the Company's products.
Limited Retail Experience
One component of the Company's growth strategy is for the Company to enter
the retail market for sales of alcoholic beverages. The Company has no prior
significant retail experience, and, accordingly, is subject to the numerous
risks of entering a new business. Such risks include, among others,
unanticipated operating problems, lack of experience and significant
competition from existing and new retailers. There can be no assurance that
the Company will be able to conduct retail operations profitably.
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Competition
The brands of beer, spirits and wine distributed by the Company compete with
other brands in each category, including some that the Company distributes.
The Company expects this competition to increase as it adds more brands, as
international drinks and brewery companies expand production and distribution
in Poland, and as domestically produced products are distributed more
efficiently. The Company competes with various regional distributors in all of
its offices. This competition is particularly vigorous with respect to
domestic vodka brands. Further, some of the international drink companies
doing business in Poland, which import their own products but use the Company
on a nonexclusive basis to distribute their products, could develop a
nationwide distribution system, as could existing regional distributors, and
may terminate their distribution arrangements with the Company. In addition,
the international drinks companies with which the Company competes in the
import segment of its business have substantially greater managerial,
financial and other resources than the Company. See "Business--Competition."
Dependence on Principal Suppliers
United Distillers and International Drinks and Vintners alcoholic beverages
accounted for 15.1% and 17.1%, respectively, of net sales in 1996, and for
12.9% and 11.0%, respectively, of net sales during the nine-month period ended
September 30, 1997. United Distillers and Guinness are part of the same
business enterprise, Guinness PLC, which has announced a proposed merger with
International Drinks and Vintners. Alcoholic beverages purchased from these
three companies accounted for 38.3% of the Company's net sales in 1996 and
27.8% during the nine-month period ended September 30, 1997. The termination
of the Company's relationship with any of such entities could have a material
adverse effect on the business and operations of the Company.
Control By Existing Stockholders; Potential Anti-Takeover Provisions
After completion of the Offering, and assuming no exercise of the
Underwriters' over-allotment options, three of the Company's existing
stockholders, William V. Carey, the William V. Carey Stock Trust, and Jeffrey
Peterson, will own beneficially in the aggregate approximately 57.6% of the
outstanding Common Stock. In the event that the Underwriters' over-allotment
options are exercised in full, such stockholders will own beneficially in the
aggregate approximately 53.5% of the outstanding Common Stock. As a result,
these persons, acting together, will be able to elect all of the Company's
directors and otherwise control the Company's operations. In addition, such
concentration of ownership may have the effect of delaying or preventing
transactions involving an actual or potential change in control of the
Company, including transactions in which holders of Common Stock might receive
a premium for their Common Stock over prevailing market prices. (Such
stockholders as well as the estate of William O. Carey are referenced to
herein as the "Selling Stockholders.") See "Principal and Selling
Stockholders" and "Description of Securities."
Certain provisions of CEDC's certificate of incorporation (the "Certificate
of Incorporation") and bylaws (the "Bylaws") and of Delaware law could delay
or make more difficult a merger, tender offer or proxy contest involving CEDC.
These include Section 203 of the Delaware General Corporation Law, which
prohibits a Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years from the date the
person became an interested stockholder unless certain conditions are met. The
Certificate of Incorporation authorizes the issuance of 1.0 million shares of
preferred stock, par value $.01 per share ("Preferred Stock"), on terms which
may be fixed by CEDC's Board of Directors (the "Board of Directors") without
further stockholder action. The terms of any series of Preferred Stock, which
may include, among other things, priority claims to assets and dividends and
special voting rights, could adversely affect the rights of holders of the
Common Stock. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future.
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CEDC has no present plans to issue shares of Preferred Stock. In addition, the
Certificate of Incorporation and Bylaws eliminate the right of stockholders to
act by written consent without a meeting unless such written consent is
unanimous, require advanced stockholder notice to nominate directors and raise
matters at the annual stockholders' meeting, do not provide for cumulative
voting in the election of directors, authorize the removal of directors only
for cause by the affirmative vote of the holders of at least a majority of the
outstanding shares of capital stock, require that at least 10% of the voting
power of the issued and outstanding capital stock request a call of a special
meeting before such a meeting can be called by the stockholders of CEDC, limit
amendments to the Certificate of Incorporation to items that have been first
proposed by the Board of Directors and thereafter approved by the affirmative
vote of the holders of at least a majority (and in certain cases a
supermajority) of the outstanding shares of capital stock and require at least
a majority of the outstanding shares of capital stock for stockholders to
amend the Bylaws. Finally, the acquisition of more than 10% of the outstanding
voting stock of CEDC could require the approval of the Polish Office for
Protection of Competition and Consumers (the "Anti-Monopoly Office"), provided
that the total value of annual sales of the Company and the acquiror in the
calendar year preceding the year of notification exceed 5.0 million ECU
(approximately $5.7 million). See "--Risks Related to Regulation--Competition
Law." All of the foregoing could have the effect of delaying, deferring or
preventing a change in control of the Company and could limit the price that
certain investors might be willing to pay in the future for shares of the
Common Stock. See "Description of Securities."
Holding Company Structure and Restrictions on Payment of Dividends
CEDC is a holding company with limited assets of its own and conducts all of
its business through its subsidiary, Carey Agri. The ability of CEDC to pay
dividends on the Common Stock will be dependent upon either the cash flows and
earnings of Carey Agri and the payments of funds by that subsidiary to CEDC in
the form of repayment of loans, dividends or otherwise or CEDC's ability to
otherwise realize economic benefits from its equity interests in its
subsidiary. Carey Agri has no obligation, contingent or otherwise, to pay
dividends to CEDC. The ability of Carey Agri to make payments to CEDC will be
subject to, among other things, the availability of funds, as well as various
business considerations and legal requirements. See "Dividend Policy."
The transfer of equity interests in Carey Agri may be limited, due in part
to regulatory and contractual restrictions. There can be no assurance of
CEDC's ability to realize economic benefits through the sale of such equity
interests. Accordingly, there can be no assurance that CEDC will receive
dividend payments from its subsidiary, if at all, or other economic benefits
from its equity interest in its subsidiary.
No Intention to Pay Dividends
Neither CEDC nor Carey Agri has ever declared or paid any dividends on its
Common Stock, and the Company does not anticipate paying dividends in the
foreseeable future. See "Dividend Policy."
RISKS RELATED TO REGULATION
Regulation of the Company's Business
The importation and distribution of alcoholic beverages in Poland is subject
to extensive regulation, requiring the Company to receive and renew various
permits and licenses to import, warehouse, transport and sell alcoholic
beverages. These permits and licenses often contain conditions with which the
Company must comply in order to maintain the validity of such permits and
licenses. The Company believes it is operating with all the licenses and
permits material to its business, and the Company is not subject to any
proceeding calling into question its operation in compliance with any
licensing and permit requirements.
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There can be no assurance that the various governmental regulations
applicable to the alcoholic beverage industry will not be changed so as to
impose more stringent requirements on the Company. If the Company were to fail
to be in compliance with applicable governmental regulations or the conditions
of the licenses and permits it receives, such failure could cause the
Company's licenses and permits to be revoked and have a material adverse
effect of the Company's business, results of operation and financial
condition. Further, the applicable Polish governmental authorities, in
particular the Minister of Economy, have articulated only general standards
for issuance, renewal and termination of the licenses and permits which the
Company needs to operate and, thus, such governmental authorities retain
considerable discretionary authority in making such decisions. See
"Regulation."
Possibility of Increased Governmental Regulation
The alcoholic beverage industry has become the subject of considerable
societal and political attention generally in recent years due to increasing
public concern over alcohol-related societal problems, including driving while
intoxicated, underage drinking and health consequences from the abuse of
alcohol. As an outgrowth of these concerns, the possibility exists for further
regulation of the alcoholic beverage industry in Poland. If alcohol
consumption in general were to come into disfavor among consumers in Poland,
the Company's business operations could be materially adversely affected.
Possible Increase in Governmental Taxation
The import and sale of alcoholic beverages is a business that is highly
regulated and subject to taxation in Poland. The Company's operations may be
subject to increased taxation as compared with those of non-alcohol related
businesses. In such case, the Company may have to raise prices on its imported
products to maintain its profit margins. The actual effect on the Company's
business operations of such an increase will depend on the amount of any such
increase, general economic conditions and other factors, but could negatively
impact sales of the products the Company distributes. See "Regulation--Import
of Products" and "--Wholesale Activities."
Customs Duties and Quotas
As a general rule, the import of alcoholic beverages into Poland is subject
to customs duties and the rates of the duties are set for particular types of
products. The Minister of Economy is authorized to establish a schedule of
quotas for alcoholic beverages for which the customs duties are substantially
reduced. Customs quotas for alcoholic beverages are fixed annually, with the
current quotas being applicable through December 31, 1997. There are no public
guidelines on how the Minister of Economy has determined the current quotas or
may determine future quotas. If such quotas were substantially reduced or
eliminated, it would likely have an adverse impact on the Company's business
operations since the retail price of its imported alcoholic beverages would
likely increase. See "Regulation--Customs Duties and Quotas."
Price and Margin Controls
In general, Polish law does not regulate the prices charged or the margins
earned by the Company on its imported liquor products. There are several
sources of price and margin regulation, however, with regard to spirits
produced in Poland, such as the domestic brand vodka distributed by the
Company, which regulations have the effect of limiting the price which the
Company is able to sell domestically produced spirits. See "Regulation--Price
and Margin Controls" and "Business--Product Line--Spirits."
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Competition Law
Competition in Poland is governed by the Anti-Monopoly Act, which
established the Anti-Monopoly Office to regulate monopolistic and other anti-
competitive practices. The current body of Polish anti-monopoly law is not
well-established. As a general rule, companies that obtain control of 40% or
more of their market may face greater scrutiny from the Anti-Monopoly Office.
Additionally, several types of reorganizations, mergers and acquisitions and
undertakings between business entities, including acquisitions of stock, under
circumstances specified in the Anti-Monopoly Act, require prior notification
to the Anti-Monopoly Office. Sanctions for failure to notify include fines
imposed on parties to the transaction and members of their governing bodies.
Pursuant to the current interpretation of the Anti-Monopoly Office,
transactions between non-Polish parties affecting market conditions in Poland
may also require a notification to the Anti-Monopoly Office. According to the
Anti-Monopoly Act, transactions made on a stock exchange do not require
notification, but the Act does not stipulate whether this is applicable to
stock exchanges outside Poland or only to those in Poland. Furthermore, the
proposed draft Law on Public Trading in Securities, currently being debated by
the Polish Parliament, provides for the amendment to the Anti-Monopoly Act to
repeal the exemption of notification of transactions made on a stock exchange.
There can be no assurance that the Anti-Monopoly Office will approve any
future acquisition by the Company.
RISK RELATED TO INVESTMENTS IN POLAND AND EMERGING MARKETS
Political and Economic Environment; Enforcement of Foreign Judgments
Poland has undergone significant political and economic change since 1989.
Political, economic, social and other developments in Poland could in the
future have a material adverse effect on the Company's business and
operations. In particular, changes in laws or regulations (or in the
interpretations of existing laws or regulations), whether caused by changes in
the government of Poland or otherwise, could materially adversely affect the
Company's business and operations. Currently there are no limitations on the
repatriation of profits from Poland, but there can be no assurance that
foreign exchange control restrictions, taxes or limitations will not be
imposed or increased in the future with regard to repatriation of earnings and
investments from Poland. If such exchange control restrictions, taxes or
limitations are imposed, the ability of CEDC to receive dividends or other
payments from Carey Agri, its Polish subsidiary, could be reduced, which may
have a material adverse effect on the Company.
Due to the many formalities required for compliance with the laws in Poland
applicable to the Company's business and operations, the rapid changes that
Polish laws and regulations have undergone in the 1990s, and numerous
uncertainties regarding the interpretation of such laws and regulations, the
Company may from time to time have violated, may be violating and may in the
future violate, the requirements of certain Polish laws, including provisions
of labor, foreign exchange, customs, tax and corporate laws and regulatory
approvals. The Company does not believe that any such violations will have a
material adverse effect upon the Company's business, results of operations or
financial condition, but there can be no assurance that such will be the case.
Poland is generally considered by international investors to be an emerging
market. There can be no assurance that political, economic, social and other
developments in other emerging markets will not have an adverse effect on the
market value and liquidity of the Common Stock and Warrants. In general,
investing in the securities of issuers with substantial operations in markets
such as Poland involves a higher degree of risk than investing in the
securities of issuers with substantial operations in the United States and
other similar jurisdictions.
CEDC is organized under the laws of the State of Delaware. Although
purchasers of the Shares and Warrants will be able to effect service of
process in the United States upon CEDC and may be able to effect service of
process upon its directors, due to the fact that CEDC is primarily a holding
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company which holds all of the outstanding securities of Carey Agri,
substantially all of the assets of the Company are located outside the United
States. As a result, it may not be possible for investors to enforce against
the Company's assets judgments of United States courts predicated upon the
civil liability provisions of United States laws. CEDC has been advised by its
counsel that there is doubt as to the enforceability in Poland, in original
actions or in actions for enforcement of judgments of U.S. courts, of civil
liabilities predicated solely upon the laws of the United States. In addition,
awards of punitive damages in actions brought in the United States or
elsewhere may not be enforceable in Poland.
Inflation; Currency Risk
Since the fall of Communist rule in 1989, Poland has experienced high levels
of inflation and significant fluctuations in the exchange rate for the zloty.
The Polish government has adopted policies that slowed the annual rate of
inflation from approximately 250% in 1990 to approximately 27% in 1995 and to
approximately 18% in 1996. Inflational rates have continued to decrease in
1997. In addition, the exchange rate for the zloty has stabilized and the rate
of devaluation of the zloty has decreased since 1991. However, the zloty
exchange rate and rate of devaluation have increased in 1997. Inflation and
currency exchange fluctuations have had, and may continue to have, an adverse
effect on the financial condition and results of operations of the Company.
Certain of the Company's operating expenses and capital expenditures are,
and are expected to continue to be, denominated in or indexed to U.S. Dollars
or other hard currencies. By contrast, substantially all of the Company's
revenue is denominated in zloty. Any devaluation of the zloty against the U.S.
Dollar that the Company is unable to offset through price adjustments will
require the Company to use a larger portion of its revenue to service its U.S.
Dollar-denominated obligations. While the Company may consider entering into
transactions to hedge the risk of exchange rate fluctuations, it is unlikely
that the Company will be able to obtain hedging arrangements on commercially
satisfactory terms. Accordingly, shifts in currency exchange rates may have an
adverse effect on the ability of the Company to service its U.S. Dollar
denominated obligations and, thus, on the Company's financial condition and
results of operations.
RISKS RELATED TO THE OFFERING
No Public Market for the Securities
Prior to the Offering, there has not been any public market for the shares
of Common Stock or the Warrants. Although the Company intends to seek
quotation of the shares of Common Stock and the Warrants on the Nasdaq
SmallCap Market, there can be no assurance that the Company will be successful
in its efforts, and even if the Company is successful, there can be no
assurance that an active trading market will develop or be sustained after the
Offering.
Arbitrary Determination of Offering Price; Possible Volatility of Stock Price
The initial public offering price of the Common Stock and the Warrants and
the terms of the Warrants will be determined by negotiation between the
Company and the Underwriters and will not necessarily be related to the
Company's asset value, net worth, results of operations or any other criteria
of value and may not be indicative of the prices of the Common Stock and the
Warrants that may prevail in the public market after the Offering. Subsequent
to the Offering, prices for the Common Stock and the Warrants will be
determined by the market and may be influenced by a number of factors,
including the depth and liquidity of the market for the Common Stock and the
Warrants, investor perception of the Company and other comparable companies
and general economic and other conditions.
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Immediate and Substantial Dilution
The initial public offering price is substantially higher than the net
tangible book value of the Company's outstanding Common Stock at September 30,
1997. Purchasers of shares of Common Stock in the Offering will therefore
experience immediate and substantial dilution in net tangible book value per
share, and existing stockholders will receive a material increase in the
tangible book value per share of their shares of Common Stock. Assuming an
initial public offering price of $8.00 per share (the midpoint of the range
specified on the front cover of the Prospectus) and $0.10 per Warrant, the
immediate dilution to new investors would be $5.38 per share. See "Dilution."
Outstanding Warrants and Options
Upon completion of the Offering, the Company will have issued 1,150,000
Warrants and Unit Purchase Options to purchase up to 115,000 shares of Common
Stock and 115,000 Warrants. In addition, the Company has 400,000 shares of
Common Stock reserved for issuance under the Plan, under which options to
purchase 52,500 shares have been granted. Holders of such warrants and options
are likely to exercise them when, in all likelihood, the Company could obtain
additional capital on terms more favorable than those provided by the warrants
and options. Further, while these warrants and options are outstanding, the
Company's ability to obtain additional financing on favorable terms may be
adversely affected. See "Management--1997 Stock Incentive Plan," "Description
of Securities" and "Underwriting."
Underwriters' Possible Ability to Dominate or Influence the Market for the
Company's Securities
A significant amount of the Common Stock and the Warrants offered hereby may
be sold to customers of the Underwriters. This may adversely affect the market
for and liquidity of the Common Stock and the Warrants if additional
broker/dealers do not make a market in the Common Stock and the Warrants.
Although they have no legal obligation to do so, the Underwriters may from
time to time act as a market maker and otherwise effect transactions in the
Common Stock and the Warrants. The Company cannot ensure that other
broker/dealers besides the Underwriters will make a market in the Common Stock
and the Warrants. In the event that other broker/dealers fail to make a market
in the Common Stock and the Warrants, the possibility exists that the market
for, and liquidity of, the Common Stock and the Warrants could be adversely
affected, which in turn could affect stockholders' ability to trade the Common
Stock and the Warrants.
Possible Delisting of Securities from the Nasdaq Market
While the Company's Common Stock and Warrants meet the current Nasdaq
listing requirements and are expected to be initially quoted on the Nasdaq
SmallCap Market, there can be no assurance that the Company will meet the
criteria for continued listing. Continued inclusion on Nasdaq generally
requires that (i) the Company maintain at least $2.0 million in net tangible
assets or $35.0 million in market capitalization or $500,000 in net income (in
the latest fiscal year or two of the last three fiscal years), (ii) the
minimum bid price of the Common Stock be $1.00 per share (iii) there be at
least 500,000 shares in the public float valued at $1,000,000 or more, (iv)
the Common Stock have at least two active markets markers and (v) the Common
Stock be held by at least 300 holders, each with 100 shares or more.
In addition, to maintain its Nasdaq listing, the Company must adopt certain
corporate governance requirements, such as the distribution of annual and
interim reports, have a minimum of two independent directors serving on its
Board of Directors, establish an audit committee with a majority of
independent directors, and hold an annual stockholders' meeting.
If the Company is unable to satisfy Nasdaq's maintenance requirements, the
shares of Common Stock and the Warrants may be delisted from Nasdaq. In such
event, trading, if any, in the Common
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Stock and the Warrants would thereafter be conducted in the over-the-counter
market in the so called "pink sheets" or the National Association of
Securities Dealers' "Electronic Bulletin Board." Consequently, the liquidity
of the Common Stock and the Warrants could be impaired, not only in the number
of shares which could be bought and sold, but also through delays in the
timing of transactions, and reduction in security analysts' and the news
media's coverage, if any, of the Company. As a result, prices for shares of
the Common Stock and the Warrants may be lower than might otherwise be
attained.
Risks of Low-Priced Stock
If the Company's Common Stock and Warrants were delisted from the Nasdaq
SmallCap Market (see previous risk factor), they could become subject to Rule
15g-9 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which imposes additional sales practice requirements on broker-dealers
which sell such securities to persons other than established customers and
"accredited investors" (generally, individuals with net worths in excess of
$1,000,000 or annual income exceeding $200,000, or $300,000 together with
their spouses). For transactions covered by this rule, a broker-dealer must
make a special suitability determination for the purchaser and have received
the purchaser's written consent to the transaction prior to sale.
Consequently, such rule may adversely affect the ability of broker-dealers to
sell the Common Stock and the Warrants and may adversely affect the ability of
purchasers in this Offering to sell any of the Common Stock and the Warrants
acquired hereby in the secondary market.
Securities and Exchange Commission ("SEC") regulations define a "penny
stock" to be any equity security not listed on a national securities exchange
or Nasdaq that has a market price (as therein defined) of less than $5.00 per
share, subject to certain exceptions. For any transaction involving a penny
stock, unless exempt, the rules require delivery, prior to any transaction in
a penny stock, of a disclosure schedule prepared by the SEC relating to the
penny stock market. Disclosure is also required to be made about commissions
payable to both the broker-dealer and the registered representative and
current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's Common Stock and Warrants if such securities are listed on the
Nasdaq SmallCap Market and have certain price and volume information provided
on a current and continuing basis or meet certain minimum net tangible assets
or average revenue criteria. There can be no assurance that the Company's
Common Stock and Warrants will qualify for exemption from these restrictions.
In any event, even if the Company's Common Stock and Warrants were exempt from
such restrictions, it would remain subject to Section 15(b)(6) of the Exchange
Act, which gives the SEC the authority to prohibit any person that is engaged
in unlawful conduct while participating in a distribution of a penny stock
from associating with a broker-dealer or participating in a distribution of a
penny stock, if the SEC finds that such a restriction would be in the public
interest. If the Company's Common Stock and Warrants were subject to the rules
on penny stocks, the market liquidity for the Company's Common Stock and
Warrants could be severely adversely affected.
Broad Discretion Over Use of Proceeds; Unspecified Acquisitions
Because of the variability and number of factors that will determine the
Company's use of proceeds from this Offering, the Company's management will
retain a significant amount of discretion over the application of the net
proceeds. Until the Company utilizes the net proceeds of the Offering, such
funds will be invested in the United States in investment grade securities.
Although the Company currently has no agreements or understandings to enter
into any potential business combination, it does intend to actively seek and
investigate such opportunities as they become available. The
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Company may use a portion of the net proceeds from this Offering to finance
such acquisitions. See "Use of Proceeds."
Use of Proceeds to Benefit Insiders
The Company intends to use net proceeds to prepay outstanding bank financing
(approximately $1.4 million as of November 30, 1997), of which approximately
$0.5 million has been personally guaranteed by Messrs. Carey and Peterson,
each of whom is an executive officer, director and principal stockholder of
the Company. Upon repayment of such indebtedness, each of such persons will be
released from such guarantees. See "Use of Proceeds."
Limited Offering Experience of Underwriters
Fine Equities, Inc. and SouthWall Capital Corp. have been engaged in
business since August 1995 and May 1996, respectively. Prior to this Offering,
Fine Equities, Inc. has acted as an underwriter in one other offering of
securities and has not acted as co-manager in any other offering of
securities, and SouthWall Capital Corp. has only co-managed one other offering
of securities and has acted as an underwriter in several other offerings.
There can be no assurance that the Underwriters' limited offering experience
and small size relative to other broker-dealers will not adversely affect this
Offering or the subsequent development, if any, of a trading market for the
Common Stock and Warrants. See "Underwriting."
Possible Restrictions on Market-Making Activities in the Company's Securities
The Underwriters have advised the Company that they intend to make a market
in the Company's securities. Regulation M promulgated by the SEC under the
Exchange Act may prohibit the Underwriters from engaging in any market making
activities with regard to the Company's securities for the period from nine
business days (or such other applicable period as Regulation M may provide)
prior to any solicitation by the Underwriters of the exercise of Warrants
until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that the Underwriters may
have to receive a fee for the exercise of Warrants following such
solicitation. As a result, the Underwriters may be unable to provide a market
for the Company's securities during certain periods while the Warrants are
exercisable. Any temporary cessation of such market-making activities could
have an adverse effect on the market price of the Company's securities.
Potential Adverse Effect of Redemption of the Warrants
During the four-year period commencing one year from the date of this
Prospectus, the Warrants may be redeemed by the Company at a redemption price
of $.05 per Warrant upon not less than 30 days' notice provided the sales
price of the Common Stock is at least $ (which is 200% of the initial Share
offering price) for 30 consecutive days ending on the date of notice of
redemption. Redemption of the Warrants could force the holders to exercise the
Warrants and pay the exercise price therefor at a time when it may be
disadvantageous for the holders to do so, to sell the Warrants at the then
current market price (which will likely be adversely affected by the impending
redemption of the Warrants) when they might otherwise wish to hold the
Warrants or to accept the redemption price, which, at the time the Warrants
are called for redemption, is likely to be substantially less than the market
value of the Warrants. See "Description of Securities--Warrants."
Current Prospectus and State Registration Required to Exercise Warrants
Holders of the Warrants will only be able to exercise the Warrants if (i) a
current prospectus under the Securities Act of 1933, as amended (the
"Securities Act") relating to the securities underlying the Warrants is then
in effect and (ii) such securities are qualified for sale or exempt from
qualification
14
<PAGE>
under the applicable securities laws of the states in which the various
holders of Warrants reside. Although the Company has undertaken to use its
best efforts to maintain the effectiveness of a current prospectus covering
the securities underlying the Warrants, there can be no assurance that the
Company will be able to do so. There also can be no assurance that exemptions
from the registration or qualification requirements of those states in which
the Company's securities are not currently registered or qualified will be
available at the time a Warrant holder wishes to exercise his or her Warrant.
The value of the Warrants may be greatly reduced if a current prospectus,
covering the securities issuable upon the exercise of the Warrants, is not
kept effective or if such securities are not qualified, or exempt from
qualification, in the states in which the holders of Warrants reside. See
"Description of Securities--Warrants."
Shares Eligible for Future Sale
Future sales of Common Stock by existing stockholders pursuant to Rule 144
("Rule 144") under the Securities Act or otherwise could have an adverse
effect on the price of the Common Stock. Upon completion of the Offering, the
Company will have 2,930,000 shares of Common Stock outstanding, including
1,150,000 shares of Common Stock offered hereby (without giving effect to
97,500 shares of Common Stock which may be issued by the Company upon exercise
of the Underwriters' over-allotment option). The shares of Common Stock and
Warrants offered hereby will be freely tradable without restriction or further
registration under the Securities Act by persons other than "affiliates" of
the Company within the meaning of Rule 144 promulgated under the Securities
Act.
In general, under Rule 144, a person (or persons whose shares are required
to be aggregated) who has been deemed to have beneficially owned shares for at
least one year, including an "affiliate", is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1%
of the then outstanding number of shares of common stock or the average weekly
trading volume in the shares of common stock during the four calendar weeks
preceding the filing of the required notice of such sale. A person (or persons
whose shares are required to be aggregated) who is not deemed to have been an
affiliate of the Company during the three months preceding a sale, and who has
beneficially owned shares within the definition of "restricted securities"
under Rule 144 for at least two years is entitled to sell such shares under
Rule 144(k) without regard to the volume limitation, manner of sale
provisions, notice requirements or public information requirements of Rule
144. Affiliates continue to be subject to such limitations.
The Company's directors and executive officers and principal stockholders do
not own any shares of the Common Stock currently eligible for sale under Rule
144. Further, such persons have agreed with the Underwriters that they will
not, for a 24-month period after the completion of the Offering, without the
prior written consent of the Underwriters, offer, sell, contract to sell, or
otherwise dispose of, any shares of Common Stock or any securities convertible
into, or exchangeable for, shares of Common Stock.
THE REORGANIZATION
Before the Offering, all the holders of the shares of Carey Agri's common
stock and CEDC entered into a contribution agreement dated as of November 28,
1997 (the "Contribution Agreement"). Pursuant to the Contribution Agreement,
the holders of shares of Carey Agri's common stock transferred all their
shares of Carey Agri common stock to CEDC receiving an aggregate of 1,780,000
shares of Common Stock in return (the "Share Exchange"). This transfer was
designed to qualify as a tax-free exchange under section 351 of the Internal
Revenue Code of 1986, as amended (the "Code"). As a result of the Share
Exchange, Carey Agri became a wholly owned subsidiary of CEDC. The Share
Exchange and the resulting corporate structure in which Carey Agri became a
wholly owned subsidiary of CEDC is referred to herein as the "Reorganization."
15
<PAGE>
USE OF PROCEEDS
Assuming an offering price of $8.00 per share of Common Stock (the midpoint
of the estimated range specified on the cover page of the Prospectus) and
$0.10 per Warrant, the net proceeds from the sale of the Common Stock and
Warrants are expected to be approximately $7.5 million (after deducting the
underwriting discounts, the Underwriters' non-accountable expense allowance
and other estimated expenses of the Offering). Of the net proceeds,
approximately $2.0 million is expected to be used by the Company to acquire
existing wholesale distributors of alcoholic beverages, particularly in
markets in Poland where the Company does not distribute directly,
approximately $1.2 million to increase the number of brands distributed by the
addition of new suppliers and the acquisition of existing importers, and
approximately $0.6 million to open retail stores. See "Business--Business
Strategy."
Although the Company currently has no agreements or understandings to enter
any potential business combination, it does intend to actively seek and
investigate such opportunities as they become available. The Company may use a
portion of the net proceeds from this Offering to finance such acquisitions.
The Company also intends to use $1.4 million of the net proceeds to prepay
its expected level of bank financing (approximately $1.4 million as of
November 30, 1997) and $0.9 million to purchase equipment, primarily vehicles.
For the anticipated effects on the Company's operations, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview." The remaining net proceeds of approximately $1.4 million will be
used for general corporate purposes. Such purposes include computer upgrades
for interoffice financial and administrative controls, the purchase of scanner
equipment for warehouse operations, and prepayments to suppliers in order to
receive favorable discounts on both imported and domestic alcoholic beverages.
Because of the variability and number of factors that will determine the
Company's use of proceeds from this Offering, the Company's management will
retain a significant amount of discretion over the application of the net
proceeds. Until the Company utilizes the net proceeds of the Offering, such
funds will be invested in the United States in investment grade securities.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of the Offering based on the current status of its business.
Future events, including changes in competitive conditions, the ability of the
Company to identify appropriate acquisition candidates, the availability of
other financing and funds generated from operations and the status of the
Company's business from time to time, may make changes in the allocation of
the net proceeds of this Offering necessary or desirable.
DIVIDEND POLICY
Neither CEDC nor Carey Agri has ever declared or paid any dividends on its
capital stock. CEDC does not anticipate paying dividends in the foreseeable
future. Future dividends, if any, will be subject to the discretion of CEDC's
Board of Directors and will depend upon, among other things, the results of
CEDC's operations, and CEDC's capital requirements and surplus, general
financial condition, contractual restrictions and such other factors as the
Board of Directors may deem relevant.
In addition, CEDC is a holding company with no business operations of its
own. Therefore, the ability of CEDC to pay dividends will be dependent upon
either the cash flows and earnings of Carey Agri and the payments of funds by
that subsidiary to CEDC. As a Polish limited liability company, Carey Agri is
permitted to declare dividends only once a year from its retained earnings,
computed under Polish Accounting Regulations after the audited financial
statements for that year have been provided to and approved by shareholders
and filed with a court. As of September 30, 1997, Carey Agri had available
$8,000 which could be declared in dividends.
16
<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1997 was
$166,000 or approximately $0.09 per share of Common Stock, as adjusted to
account for the Reorganization. Net tangible book value per share represents
the amount of tangible assets of the Company less the amount of its
liabilities divided by the number of shares of Common Stock outstanding. After
giving effect to the sale by the Company of 1,150,000 of shares of Common
Stock offered hereby at an assumed price of $8.00 per share (the midpoint of
the range specified on the cover page of the Prospectus) and 1,150,000
Warrants at an assumed price of $.10 per Warrant and the application of the
estimated net proceeds therefrom as set forth under "Use of Proceeds," the pro
forma net tangible book value of the Company as of September 30, 1997 would
have been approximately $7,666,000, or $2.62 per share of Common Stock. This
represents an immediate increase in net tangible book value of $2.53 per share
to the existing stockholders and an immediate dilution of $5.38 per share to
persons purchasing shares of Common Stock and Warrants in this Offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common Stock
(the midpoint of the range specified on the cover of the
Prospectus).................................................... $8.00
Net tangible book value per share of Common Stock at
September 30, 1997........................................... $0.09
Increase in net tangible book value per share of Common Stock
attributable to new investors................................ 2.53
-----
Pro forma net tangible book value per share of Common Stock
after the Offering............................................. 2.62
-----
Dilution per share of Common Stock to new investors............. $5.38
=====
</TABLE>
In the event that the Underwriters' over-allotment options are exercised in
full, the pro forma net tangible book value of the Company after the Offering
would be $2.70 per share of Common Stock, the immediate increase in pro forma
net tangible book value of shares of Common Stock owned by the existing
stockholders would be $2.61 per share and the immediate dilution to new
investors would be $5.30 per share.
The following table summarizes the difference between existing stockholders
and new investors with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company and
the average price paid per share of Common Stock based on an assumed initial
public offering price of $8.00 per share (the midpoint of the estimated range
specified on the cover page of the Prospectus).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- --------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders... 1,780,000(1) 61 166,000 2 0.09
New Investors........... 1,150,000 39% $9,200,000 98% $8.00
--------- --- ---------- ---
Total.................. 2,930,000(2) 100% $9,366,000 100%
========= === ========== ===
</TABLE>
- --------
(1) Does not include the sale by the Selling Stockholders of up to 75,000
shares of Common Stock in the Offering as the initial shares sold upon
exercise of the Underwriters' over-allotment option.
(2) Excludes (i) 97,500 shares of Common Stock and 172,500 shares of Common
Stock underlying warrants that the Underwriters have the option to
purchase from the Company to cover over-allotments, if any, (ii) 1,150,000
shares of Common Stock issuable upon the conversion of the Warrants, (iii)
230,000 shares of Common Stock to be issued upon the exercise of the Unit
Purchase Option and the warrants included therein, and (iv) 400,000 shares
of Common Stock reserved of issuance under the Plan, under which options
to purchase 52,500 shares have been granted and are outstanding. See
"Management--1997 Stock Incentive Plan" and "Underwriting."
17
<PAGE>
EXCHANGE RATE DATA
In this Prospectus, references to "U.S. Dollars" or "$" are to the lawful
currency of the United States, and references to "zloty" or "PLN" are to the
lawful currency of the Republic of Poland. The Company prepares its
consolidated financial statements in accordance with U.S. GAAP in U.S.
Dollars. Amounts originally measured in zloty for all periods presented have
been translated into U.S. Dollars in accordance with the methodology set forth
in Statement of Financial Accounting Standards No. 52 ("SFAS No. 52"),
including provisions applicable to companies operating in hyper-inflationary
countries. For the convenience of the reader, this Prospectus contains
conversion of certain zloty amounts into U.S. Dollars which should not be
construed as a representation that such zloty amounts actually represent such
U.S. Dollars amounts or could be, or could have been, converted into U.S.
Dollars at the rates indicated or at any other rate. Unless otherwise stated,
such U.S. Dollar amounts have been derived by converting from zloty to U.S.
Dollars at historic rates of exchange for the applicable periods.
The following table sets forth, for the periods indicated, the noon exchange
rate (expressed in current zloty) quoted by the National Bank of Poland. Such
rates are set forth as zloty per U.S. Dollar. At December 11, 1997, such rate
was PLN 3.54 = $1.00.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Exchange rate at end of period......... 1.58 2.13 2.44 2.47 2.88 2.81 3.42
Average exchange rate during
period (1)............................ 1.39 1.81 2.27 2.42 2.70 2.65 3.21
Highest exchange rate during period.... 1.58 2.13 2.45 2.54 2.88 2.81 3.55
Lowest exchange rate during period..... 1.10 1.58 2.13 2.32 2.47 2.47 2.86
</TABLE>
- --------
(1) The average of the exchange rates on the last day of each month during the
applicable period.
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1997, the capitalization
of the Company and the capitalization of the Company as adjusted for the
Offering (at an assumed initial public offering price of $8.00 per share of
Common Stock (the mid-point of the estimated range as specified on the cover
page of this Prospectus) and $0.10 per Warrant), including application of a
portion of the net proceeds therefrom to prepay bank financing as set forth
under "Use of Proceeds." This table should be read in conjunction with the
consolidated financial statements of the Company, the notes thereto and the
other financial data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------
ADJUSTED AS
HISTORICAL(1) ADJUSTED(2)
------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current maturities.............. $ 55 $ 0
===== =======
Capital lease obligations, less current portion...... 13 13
===== =======
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized; no shares issued and outstanding...... -- --
Common Stock, $.01 par value, 20,000,000 shares au-
thorized; 1,780,000 shares issued and outstanding;
2,930,000 shares to be issued and outstanding (as
adjusted)(2)...................................... 18 29
Additional paid in capital........................... 36 7,410
Warrants to acquire Common Stock..................... -- 115
Retained earnings.................................... 112 112
----- -------
Total stockholders' equity......................... 166 7,666
===== =======
Total capitalization............................... $ 234 $ 7,679
===== =======
</TABLE>
- --------
(1) Adjusted to give effect to the Reorganization. See "The Reorganization."
(2) Excludes (i) 97,500 shares of Common Stock and 172,500 shares of Common
Stock underlying warrants that the Underwriters have the option to
purchase from the Company to cover over-allotments, if any, (ii) 1,150,000
shares of Common Stock issuable upon the conversion of the Warrants, (iii)
230,000 shares of Common Stock to be issued upon the exercise of the Unit
Purchase Option and the Warrants included therein, and (iv) 400,000 shares
of Common Stock reserved of issuance under the Plan, under which options
to purchase 52,500 shares have been granted and are outstanding. See
"Management--1997 Stock Incentive Plan" and "Underwriting."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected consolidated financial data of the
Company as of and for each of the two fiscal years in the period ended
December 31, 1996, and as of and for the nine months ended September 30, 1996
and 1997. The income statement data for the years ended December 31, 1995 and
1996, and the balance sheet data as of December 31, 1995 and 1996 have been
derived from the Company's consolidated financial statements, which were
audited by Ernst & Young Audit Sp. z o.o., independent auditors. The income
statement data for the nine months ended September 30, 1996 and 1997, and the
balance sheet data as of September 30, 1996 and 1997, are unaudited, but
include, in the opinion of management, all adjustments considered necessary
for a fair presentation of such data. The results for the nine months ended
September 30, 1997 are not necessarily indicative of the results expected for
the entire year. The information set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and the consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ----------------------
1995 1996 1996 1997
------------ ------------ --------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $ 16,017 $ 23,942 $ 14,575 $ 27,499
Cost of goods sold...... 13,113 19,850 11,697 23,759
------------ ------------ --------- ---------
Gross profit............ 2,904 4,092 2,878 3,740
Sales, general and
administrative
expenses............... 2,603 3,569 2,581 3,057
------------ ------------ --------- ---------
Operating income........ 301 523 297 683
Non-operating income
(expense)
Interest expense...... (106) (124) (83) (106)
Realized and
unrealized foreign
currency transaction
gains and losses,
net.................. (84) (232) (231) (278)
Other income, net..... 84 6 88 35
------------ ------------ --------- ---------
Income before income
taxes.................. 195 173 71 334
Income taxes............ (120) (111) (65) (194)
------------ ------------ --------- ---------
Net income.............. $ 75 $ 62 $ 6 $ 140
============ ============ ========= =========
Net income per common
share, primary and
fully diluted.......... $ 0.04(1) $ 0.03(1) $ 0.00(1) $ 0.08(1)
============ ============ ========= =========
OTHER FINANCIAL DATA:
Bad debt expense to net
sales ratio............ 0.21% 0.08% 0.08% 0.07%
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------- ----------------------
1995 1996 1996 1997
------------ ------------ --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................... $ 339 $ 740 $ 642 $ 240
Current assets.......... 3,146 6,889 3,857 6,479
Total assets............ 3,264 7,335 4,486 7,165
Current liabilities..... 3,119 7,006 4,323 6,931
Long-term debt and
capital lease
obligations, less
current portion........ 180 303 193 68
Stockholders' equity
(deficit).............. (36) 26 (30) 166
</TABLE>
- --------
(1) Gives effect to the 1,780,000 shares of Common Stock issued in the
Reorganization. See "The Reorganization."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes thereto appearing
elsewhere in this Prospectus.
OVERVIEW
The Company's operating results are generally determined by the volume of
alcoholic beverages that can be sold by the Company through its national
distribution system, the gross profits on such sales, and control of costs.
The Company's bad debt ratio provision as a percentage of sales was 0.21% of
net sales in 1995 and 0.08% in 1996. No significant bad debt expense has been
incurred during the nine months ended September 30, 1996 and 1997.
The following comments regarding variations in operating results should be
read considering the rates of inflation in Poland during the period--1995,
21.6%; 1996, 18.5%; and the nine months ended September 30, 1997, 8.5%--as
well as the devaluation of the Polish zloty compared to the U.S. Dollar, which
was 1.2%, 16.6%, and 18.8% in 1995, 1996 and the nine months ended September
30, 1997, respectively.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net sales increased $12.92 million, or 88.7%, from $14.58 million in 1996 to
$27.50 million in 1997. This increase is mainly due to the continued increase
in sales of vodka produced in Poland, the addition of Seagrams and Allied
Domecq products in January 1997, and increased market penetration by the
existing distribution system resulting in new clients.
Costs of goods sold increased $12.06 million, or 103.1%, from $11.70 million
in 1996 to $23.76 million in 1997. This increase is mainly due to the increase
in net sales noted above. As a percentage of net sales, cost of goods sold
increased 80.3% in 1996 to 86.4% in 1997. The higher cost factor results from
increases in sales of domestically produced vodka, which has a lower gross
profit margin than the imported brands the Company distributes.
Sales, general and administrative expenses increased $476,000, or 18.4%,
from $2.58 million in 1996 to $3.06 million in 1997. This increase is mainly
due to the increase in net sales discussed above. As a percentage of sales,
sales, general, and administrative expenses decreased from 17.7% in 1996 to
11.1% in 1997. Increased sales levels result, to some extent, in improved
utilization of personnel and capacity without a corresponding increase in
sales, general and administrative expense.
Interest expense increased $23,000, or 55.4%, from $83,000 in 1996 to
$106,000 in 1997. This increase reflects the effects of additional short term
credit lines utilized to support the sales volume increases. As a percentage
of sales, interest expense decreased from 0.6% in 1996 to 0.4% in 1997.
Net realized and unrealized foreign currency transaction losses increased
$47,000, or 20.3%, from $231,000 in 1996 to $278,000 in 1997. The increase is
mainly due to the continued strength of the U.S. Dollar versus the Polish
zloty and the larger inventory, which is denominated in foreign currency,
needed to support the increase in sales as discussed above. As a percentage of
sales, realized and unrealized foreign currency transaction losses decreased
from 1.6% in 1996 to 1.0% in 1997.
Other income decreased $53,000 from $88,000 in 1996 to $35,000 in 1997.
Income taxes increased $129,000, or 198.5%, from $65,000 in 1996 to $194,000
in 1997. This increase is mainly due to the increase in income before income
taxes from $71,000 in 1996 to $334,000 in 1997. The effective tax rate was
91.5% in 1996 and 58.1% in 1997. This decrease in
21
<PAGE>
effective tax rates is due mainly to the effect of permanent differences
between financial and taxable income and the higher pre-tax income level. See
notes to the consolidated financial statements for further information on
income taxes.
Net income increased $134,000 from $6,000 in 1996 to net income of $140,000
in 1997. This improvement is a result of the factors discussed above.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales increased $7.92 million, or 49.5%, from $16.02 million in 1995 to
$23.94 million in 1996. This increase is due to several factors including
increasing the portfolio of imported brands offered to existing customers;
opening the eighth branch office in Poznan, thereby gaining a new distribution
territory from March 1996; introducing domestically produced vodka into the
Warsaw, Cracow, and Szczecin offices in October 1996; and further penetration
of local markets by the existing distribution network which resulted in an
approximately 30% increase of the Company's customer base.
Costs of goods sold increased $6.74 million, or 51.4%, from $13.11 million
in 1995 to $19.85 million in 1996. This increase is mainly due to the
increasing net sales noted above. As a percentage of net sales, costs of goods
sold increased from 81.9% in 1995 to 82.9% in 1996. This small increase is
mainly due to the introduction of Polish vodka in late 1996 which sells at a
lower gross margin than the Company's imported alcohol products.
Sales, general and administrative expense increased 37.1% from $2.60 million
in 1995 to $3.57 million in 1996. This increase was mainly due to an increase
in sales which required additional marketing campaigns, the hiring and
training of additional staff, increased transport capability, and the
restructuring of the office and warehouse facilities in Warsaw to provide
additional room to support the expansion of sales. As a percentage of sales,
sales, general and administrative expenses decreased from 16.3% in 1995 to
14.9% in 1996.
Interest expense increased $18,000, or 17.0%, from $106,000 in 1995 to
$124,000 in 1996. This increase is mainly due to additional short term credits
taken to support the sales growth noted above. As a percentage of sales,
interest expense decreased from 0.7% in 1995 to 0.5% in 1996.
Net realized and unrealized foreign currency transaction losses increased
$148,000, or 176.2%, from $84,000 in 1995 to $232,000 in 1996. This increase
was mainly due to the weakness of the zloty, in which a substantial portion of
the Company's assets are denominated, versus the U.S. Dollar. In 1996, the
zloty depreciated 16.6% versus 1995 when it depreciated to only 1.2%. This
factor resulted in higher losses. As a percentage of sales, realized and
unrealized foreign currency transaction losses increased from 0.5% in 1995 to
1.0% in 1996.
Other income decreased $78,000, or 92.9%, from $84,000 in 1995 to $6,000 in
1996. This decrease is mainly due to a decrease in sales of fixed assets.
Income taxes decreased $9,000, or 7.5%, from $120,000 in 1995 to $111,000 in
1996. This decrease is mainly due to the decrease in income before income
taxes from $195,000 in 1995 to $173,000 in 1996. See the notes to the
consolidated financial statements for further information on income taxes.
Net income decreased $13,000, or 17.3%, from $75,000 in 1995 to $62,000 in
1996. This decrease is a result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and capital
expenditures primarily through cash flow from operations, bank borrowings, and
other short term credit facilities. Cash increased
22
<PAGE>
$344,000 in 1995 versus an increase of $145,000 in 1996 and decreased $500,000
in the first nine months of 1997. Cash flow from operations was $(81,000) in
1995 compared to $32,000 in 1996 and $(324,000) for the nine months ended
September 30, 1997. Operating cash requirements are supplemented primarily by
short-term borrowings. See the consolidated statements of cash flows for a
summary of cash movements.
Bank borrowings totaled approximately $1.2 million on September 30, 1997 and
are expected to increase to approximately $1.4 million at the time of the
Offering. These are expected to be repaid in their entirety from the net
proceeds of this Offering. See "Use of Proceeds." The Company's borrowing
arrangements contain financial covenants and restrictions which are
customarily found in similar arrangements and with which the Company has
substantially complied.
The Company has historically utilized leasing to maintain and increase its
fleet of vehicles, including cars for salesman and delivery trucks. The
Company intends to utilize approximately $900,000 of the net proceeds from the
Offering to purchase vehicles as the leases expire and acquire new vehicles as
needed for the Company's expansion. Currently, leases extend through 1999. The
initial value of equipment currently under capital and operating leases is
approximately $900,000. These leases in zloty normally have an annual interest
factor built into the lease payments of 35-50%. This form of financing is much
more expensive in Poland than traditional bank financing in zloty which
normally costs the Company approximately 20-25% annually. By utilizing the
portion of the proceeds discussed above to purchase vehicles, the Company's
management expects to achieve significant savings in future interest and
operating costs, as compared to continuing the leasing of such vehicles.
The Company anticipates that the estimated net proceeds of the Offering, the
interest earned on the unutilized proceeds of the Offering, together with its
existing capital resources and anticipated cash flow from planned operations
will be adequate to satisfy its anticipated capital and other requirements,
including possible acquisitions for two to three years, depending on the rate
of acquisitions. There can be no assurance, however, that the Company will
sustain profitability or generate sufficient revenues for its future
operations, including possible acquisitions, and it is possible that the
Company may seek additional equity or debt financing in the future.
INFLATION AND CURRENCY EXCHANGE FLUCTUATIONS
Since the fall of Communist rule in 1989, Poland has experienced high levels
of inflation and significant fluctuation in the exchange rate for the zloty.
The Polish government has adopted policies that slowed the annual rate of
inflation from approximately 250% in 1990 to approximately 18% in 1996. In
addition, the exchange rate for the zloty has stabilized and the rate of
devaluation of the zloty has decreased since 1991. However, the zloty exchange
rate and the rate of devaluation have increased in 1997. Inflation and
currency exchange fluctuations have had, and may continue to have, an adverse
effect on the financial condition and results of operations of the Company.
The exchange rate of the zloty to the U.S. dollar is tied by the National
Bank of Poland to a basket of currencies. Due to the depreciation of the zloty
against the U.S. Dollar in 1995, 1996 and through the first three quarters of
1997, the Company incurred realized and unrealized foreign exchange losses.
The Polish currency futures market is not yet fully developed, and the Company
does not have a reasonable and cost efficient way to adequately hedge its
currency exposure, but may do so in the future when it becomes feasible.
SEASONALITY
Gross profits are affected by seasonal and competitive factors. Sales,
general and administrative costs are semi-variable in nature as sales and
distribution expenses are not directly impacted by all volume increases.
Short term credits are arranged on a seasonal basis, historically in the
summer vacation season and the Christmas holiday season in order to accomodate
increased sales during these periods.
23
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BUSINESS
The Company, formed in 1990, has become a leading importer and distributor
of alcoholic beverages in Poland. The Company operates the largest nationwide
next-day alcoholic beverage delivery service in Poland through its eight
regional branch offices located in Poland's principal cities, including
Warsaw, Crakow, Gdansk and Katowice. The Company currently distributes
approximately 300 products in three categories: beer, spirits and wine. The
Company imports and distributes eight international beers, including Guinness,
Corona, Miller and Foster's, in addition to one domestically produced beer.
The Company currently distributes approximately 250 spirit products, including
leading international brands of scotch, single malt and other whiskeys, rum,
bourbon, vodkas, tequila, gins, brandy, cognacs, vermouths and specialty
spirits, such as Jim Beam, Johnnie Walker, Ballantines, Smirnoff, Absolut,
Finlandia, Bacardi, Gordon's London Dry and Tanqueray. In addition, the
Company imports and distributes 45 wine products, including Sutter Home,
Romanian Classics, Cinzano Asti, Martini Asti and Moet & Chandon. The
Company's net sales for the nine-month period ended September 30, 1997 were
approximately $27.5 million, as compared to $14.6 million for the nine-month
period ended September 30, 1996, representing an increase of 88.7%.
The Company distributes its products throughout Poland to approximately
3,000 outlets, including off-trade establishments, such as small businesses
and multi-store retail outlets where alcoholic beverages are not consumed on
premises, and on-trade locations, such as bars, nightclubs, hotels and
restaurants, where such products are consumed.
BUSINESS STRATEGY
The principal components of the Company's business strategy are as follows:
EXPAND DISTRIBUTION CAPACITY. The Company plans to increase its distribution
capacity by expanding the number of its branch offices in Poland through the
acquisition of existing wholesalers, particularly in areas where the Company
does not distribute directly. Cities currently under consideration by the
Company are Lublin (1996 population--approximately 355,000), Lodz (1996
population--approximately 818,000), and Bialystok (1996 population--
approximately 281,000).
The Company will seek to acquire successful wholesalers which are involved
in the vodka distribution business and are among the leading wholesalers in
their region. The Company would then add its higher margin imported brands to
complement and enhance the existing product portfolio. While the Company has
identified potential wholesalers and has conducted exploratory talks about
such acquisitions, it has not reached any definitive agreements regarding the
terms and conditions of any such acquisition, including the purchase price to
be paid to the sellers, and such acquisitions may not be available to the
Company on acceptable terms, if at all. In such case, the Company would seek
to enter these markets with its own branch offices.
INCREASE PRODUCT OFFERINGS. The Company plans to expand its strategic
product offerings in Poland through the acquisition of a high quality wine
importer which offers a wide selection of specialty wines and by entering into
new supplier agreements to import additional products. The Company is in
exploratory talks with such a wine importer, but no definitive agreement has
been reached. The Company began importing Bulgarian red and white varietal
wines in the fall of 1997. The Company is also in exploratory talks to import
additional spirit brands.
ENTER RETAIL MARKET. The Company has implemented its retail business
strategy in Warsaw, where one location has been leased, remodeled and is
expected to open for business in mid-January 1998. The Company believes that
specialty retail sales of alcoholic beverages in Poland have yet to be
developed. Currently alcoholic beverages are sold through grocery stores,
supermarkets, small shops, and gas stations. These retail outlets sell, in
general, fast moving items, primarily domestic beer and vodka, as well as a
few of the more popular selling imported products, which are brands often
24
<PAGE>
imported by the Company. There are few stores that specialize in alcoholic
beverages in Warsaw, a metropolitan area with a population of approximately
2.4 million.
The Company also believes that high quality alcohol retail outlets will
create an additional demand for the Company's current product portfolio,
enhancing sales of products distributed, as well as providing a point of sale
marketing opportunity for the Company's brands. The retail stores will stock
additional products not currently distributed by the Company to complement the
stores' appeal, such as cigars and other items associated with an alcohol
retail outlet. The Company intends to utilize the retail outlets as a training
tool for its salesmen for product merchandising and promotions. An additional
benefit allows the Company's on-trade customers to have a supply point for
immediate purchase at night and on Sundays when the Company's delivery system
does not operate.
HISTORY
CEDC's subsidiary Carey Agri was incorporated as a limited liability company
in July 1990 in Poland. It was founded by William O. Carey, who died in early
1997, and Jeffrey Peterson, the Company's Vice Chairman and Executive Vice
President. Mr. Carey's son, William V. Carey, is the managing director of
Carey Agri and the president and chief executive officer of CEDC. In February
1991, Carey Agri was granted its first import license for Foster's Lager,
which it sold to wholesalers. With this beverage, Carey Agri sought to offer a
desirable product for which it had an exclusive import license to the market
segment of the Polish population who were benefiting from the country's market
transformation. Because of Carey Agri's initial success with Foster's Lager,
for which it still holds the exclusive import license for Poland, it quickly
diversified in 1992 by importing other quality brand beers from Europe and the
United States. Sales during this period were typically in high volume
consignments to other wholesalers.
In 1993, with the acceleration of the privatization of retail outlets in
Poland, Carey Agri began to implement a systematic delivery system in Warsaw
which could deliver alcoholic beverages to retail outlets on a reliable basis.
Carey Agri leased a warehouse, purchased trucks and hired and trained
operational personnel and began to sell directly to convenience shops, small
grocery stores and newly opened pubs. Because of this business experience,
Carey Agri was prepared to take advantage of the opportunity to expand its
import and delivery capacity in Warsaw when a large, foreign-owned supermarket
chain began operations in 1993, creating a significant increase in the demand
for the Company's product line. The Warsaw model of desirable product lines
and dependable prompt delivery of product was duplicated by the Company in
Cracow (1993), Wroclaw (1994), Szczecin (1994), Gdansk (1994), Katowice
(1995), Torun (1995) and Poznan (1996).
PRODUCT LINE
The Company currently offers over 300 alcoholic beverages in three
categories: (a) beer, (b) spirits and (c) wine. Its eight brands of imported
beer accounted for 22.1% of net sales revenues during the year ended December
31, 1996 and 18.3% during the nine months ended September 30, 1997. Brands of
imported spirits and wines it distributed accounted for 29.5% and 12.9%,
respectively, of net sales revenues for the year ended December 31, 1996 and
23.6% and 5.7%, respectively, for the nine month period ended September 30,
1997. Additionally, the Company offered one brand of Polish beer and multiple
brands of Polish vodka, which accounted for 12.5% and 23.0%, respectively, of
net sales revenues during the year ended December 31, 1996 and 7.0% and 45.4%
for the nine months ended September 30, 1997.
The Company has agreements, as described below, with many of the companies
from which it acquires products for sale. Certain products, however, have
never been covered by a written agreement. The Company does not believe that
the absence of such written agreements is likely to result in an adverse
financial effect on the Company because the Company has long-standing
relationships with such suppliers.
25
<PAGE>
Beer
The Company distributes imported beer through each of its regional offices
and domestic beer through two regional offices. Guinness, Budweiser Budvar,
Corona, Foster's Lager, and Kilkenny are sold throughout Poland on an
exclusive basis; Pilsner Urquell and Golden Pheasant on a nonexclusive basis.
The Company does not have a written supply agreement for Miller Genuine Draft.
The one domestic beer brand sold by the Company, Lech, is offered on a
nonexclusive basis, except in Szczecin, where it is offered exclusively by the
Company.
Most of the Company's distribution contracts for beer contain a minimum
purchase requirement and typically permit termination if the Company breaches
its agreements, such as failure to pay within a certain time period or to
properly store and transport the product. Trade credit is extended to the
Company for a period of time after delivery of products. The duration of these
agreements differ. No imported beers accounted for five percent or more of net
sales for the nine months ended September 30, 1997. The agreement regarding
distribution of Guinness Stout, which was entered into on July 31, 1997, has
an initial term through December 31, 1997 for bottled products and through
March 31, 1998 for draft products. After such date the agreement, in relevant
part, may be terminated by either party on 60 days prior written notice.
Pursuant to this agreement, the Company is the exclusive distributor of
products subject to the agreement unless the Company is unable to satisfy
customer demand and except for products sold directly by Guinness affiliates.
The exclusive agreement covering Budweiser Budvar expires on December 31,
1999.
Spirits
The Company distributes all its imported spirit products through each of its
offices, mostly on a nonexclusive basis. The spirit products sold by the
Company include the following:
<TABLE>
<S> <C> <C>
SCOTCH WHISKY: Johnnie Walker, Black, Blue,
Gold and Red Labels Black & White
The Dimple Bell's
Chivas Regal Haig
Ballantines Finest VAT 69
Ballantines Gold Seal Teacher's Highland Cream
J&B Rare Old Smuggler
White Horse 100 Pipers
Whyte and McKay Passport
SINGLE MALT WHISKY: Dalmore Isle of Jura Bruichladdich
Cragganmore Glenkinchie
Dalwhinne Oban
Lagavulan Talisker
Cardhu
RUM: Bacardi Light, Gold and Black Ron Rico, White and Gold
Captain Morgan Malibu
OTHER WHISKEY: Blenders Pride Crown Royal
Seven Crown Black Velvet
Canadian Mist
BOURBON: Jack Daniel's Tennessee Whiskey Forester
Early Times Jim Beam
VODKAS: Smirnoff Absolut Blue
Citron and Kurant Finlandia
Tanqueray Polish Vodkas
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C>
TEQUILA: Jose Cuervo Pepe Lopez
GINS: Gordon's London Dry Beefeater
Tanqueray Gilbey's
BRANDY: Metaxa Sandeman Capa Negra
Raynal Stock
COGNACS: Hennessy Courvoisier
Martell
VERMOUTHS: Stock Blanco, Rosa and Cinzano Blanco, Rosso, Rose,
Extra Dry Martini Bianco, Extra Dry, Americano, Orancio
Rosso, Rose, Extra Dry
SPECIALTY SPIRITS: Bailey's Irish Cream Carolan's Irish Cream
Kahlua Coffee Liqueur Grand Marnier
Creme de Grand Marnier Pimm's Cup
Jagermeister Archer's
Campari Bitter Southern Comfort
Mandarine Napolean
</TABLE>
Only the Company's sales of Polish vodka and alcohol beverages distributed
for United Distillers and International Drinks and Vintners exceeded five
percent of the Company's net sales for the nine months ended September 30,
1997. The Company's non-exclusive contract with United Distillers, currently
covers the products which United Distillers itself imports into Poland,
including Finlandia and Johnnie Walker. The contract with United Distillers
became effective on January 1, 1995 for an unspecified period. Each party,
however, has a right to terminate it with 90 days' prior written notice. The
contract imposes on the Company certain obligations, which if it fails to
satisfy could lead to the contract's immediate termination, provided the
Company did not cure the breach within a period specified by United
Distillers. There are also sales goals and marketing plans to be met by the
Company.
The Company's agreements with various of the state-owned Polish vodka
producers may be terminated by either party without cause on one month's prior
written notice. Products are delivered based on the Company's standard order
forms.
The Company's non-exclusive contract with IDV Poland Sp. z o.o., a Polish
limited liability company ("IDV"), currently covers the products which IDV
itself imports into Poland, including Smirnoff and Bailey's Irish Cream. The
contract with IDV became effective on July 3, 1997 and terminates on December
31, 1997. Each party, however, has a right to terminate it with one month's
prior written notice. The Company agreed also to maintain sufficient stock of
IDV's products to satisfy the client's demand and to deliver to IDV reports on
the sale of IDV's products. There are also marketing goals to be met by the
Company.
Wine
The Company offers two brands of wine on an exclusive basis: the Sutter Home
Wines from the United States and Romanian Classic Wines from Romania. These
wines, which include standard red and white varietals, are offered through all
of the Company's branches. The Company also offers on a non-exclusive basis
the following sparkling wines and champagnes: Cinzano Asti, Gran Cinzano, Gran
Festa, Martini Asti, Martini Brut, Moet & Chandon Dom Perignon, Brut Imperial
and Mumm Cordon Rouge.
Only the Company's sales of Romanian wines exceeded five percent or more of
net sales for the nine months ended September 30, 1997. The Company's
distribution agreement for Romanian bottled wines is for a term ending
December 31, 1997.
27
<PAGE>
SALES AND MARKETING
As an early entrant in the post-Communist market in Poland, the Company has
over six years of experience in introducing, developing and refining
marketing, sales and customer service practices in the diverse and rapidly
developing Polish economy, which it believes is a competitive advantage in the
alcoholic beverage distribution business.
The Company employs approximately 70 salesmen who are assigned to one of its
eight regional offices. Each regional office has a sales manager, who may also
be the branch manager, who meets with the salesmen of that office on a daily
basis to review products and payments before the salesmen begin calling on
customers. The sales force at each office is typically divided into three
categories: (a) vodka accounts, (b) import accounts and (c) key accounts.
Salesmen, who are paid on commission, return to the office later in the day to
process orders so that products can be dispatched the next morning.
DISTRIBUTION SYSTEM
The Company's headquarters are located in Warsaw, the capital of Poland, in
and around which, as of December 31, 1996, 2.4 million people or 6.3% of the
country's population, lived. Sales and service offices are presently located
in seven major regional centers in central, north, south and western Poland
where, as of the same date, another 8.3 million, or 21.5% of the population,
lived. The branch sales and service centers deliver to surrounding cities
covering an additional 6.0 million people or an additional 15.5% of the
population. Thus, the Company reached 43.3% of Poland's population through
direct sales and distribution as of December 31, 1996. Other areas in Poland
are served through arrangements with wholesalers. See "--Business Strategy."
[Graphic on Map of Poland showing regional locations.]
The Company has developed its own centrally controlled, national next-day
distribution system for its alcoholic beverages. The Company believes that it
is the only privately owned business which currently has this capability in
Poland. For imported products, the distribution network begins with a central
bonded warehouse in Warsaw. Products can remain in this warehouse without
customs and other duties being paid until the product is actually needed for
sale. At such point, the product is transferred to the Company's consolidation
warehouse at the same location or shipped directly to one of the regional
office warehouses connected to each of the Company's sales locations outside
of Warsaw. Based on current sales and projections, the branch offices are
provided with deliveries on a weekly or bi-weekly basis so that they are able
to respond to their customers' needs on a next-day basis.
28
<PAGE>
For products which the Company delivers for others who themselves import the
products into Poland, the distribution chain begins at the Company's
consolidation warehouse in Warsaw. From there, the product is delivered to
customers using the same procedures as described above.
Except at peak periods during the summer holidays and other similar times
such as Christmas, all deliveries are made by Company-trained employees using
Company-owned or leased vehicles. During such busy periods, the Company relies
on independent contractors, which are usually small family-run businesses with
which the Company has had relationships for several years.
Customs and Consolidation Warehouses
The Customs and Consolidation Warehouses are a 2,815 square meter leased
facility located near Warsaw. The leases are long term and the monthly rental,
denominated in Polish currency, was approximately $10,000 per month as of
September 30, 1997. Such monthly lease payments aggregated approximately
$12,000 per month in 1996.
Regional Sales Offices and Warehouses
The Company also has entered into leases for each of its seven regional
sales offices and warehouses. The amount of office and warehouse space leased
varies between 278 square meters in Katowice up to 880 square meters in
Szczecin. The monthly lease payments, which are denominated in Polish
currency, vary between approximately $570 and $2,750. Five of the leases can
be terminated by either party on three-month's prior notice; one can be
terminated by either party on two-month's prior notice; the other lease
terminates on December 31, 1998.
Insurance
The Company maintains insurance coverage against fire, flood and other
similar events as well as coverage against theft of money from the Company's
offices or during transportation to a financial institution for deposit.
MARKET FOR PRODUCT LINE
In both 1995 and 1996, and for the nine months ended September 30, 1997
approximately 65% of the Company's total sales were through so-called "off
trade" locations where the alcoholic beverages are not consumed, another 25%
through so-called "on-trade" locations where the alcoholic beverages are
consumed, and the other 10% through other wholesalers.
Off-Trade Market
There are two components of the Company's sales to locations where alcoholic
beverages are not consumed on premises. The most significant in 1995 and 1996
and the nine months ended September 30, 1997 were small, usually Polish-owned
and managed businesses, including small grocery stores. At September 30, 1997,
the Company sold products to approximately 3,000 such business outlets, which
typically stock and sell relatively few alcohol products and wish to have
access to the most popular selling brands. The other components of the off-
trade business in 1995 and 1996 and the nine months ended September 30, 1997
were large supermarket chains, which are typically non-Polish-owned, as well
as smaller multi-store retail outlets operated by major Western energy
companies in connection with the sale of gasoline products. The large
supermarket chains typically offer a wide selection of alcohol products, while
the smaller retail outlets offer a more limited selection.
29
<PAGE>
On-Trade Market
There are three components to the Company's sales to locations where
alcoholic beverages are consumed: sales to (1) bars and nightclubs, (2) hotels
and (3) restaurants. Bars and nightclubs are usually locally managed
businesses, although they may be owned and operated in major cities by a non-
Polish national. Hotels include worldwide chains such as Marriott, Sheraton
and Holiday Inn as well as the major Polish chain, Orbis. Restaurants are
typically up-scale and located in major urban areas. This latter category also
includes one major, United States based pizza chain which operates in Poland.
Wholesale Trade
The Company also sells products throughout Poland through other wholesalers.
There are no written agreements with these wholesalers.
Control of Bad Debts
The Company believes that its close monitoring of customer accounts both at
the relevant regional office and from Warsaw has contributed to its success in
maintaining a low ratio of bad debts to net sales. During the years ended
December 31, 1995 and 1996, bad debt expense as a percentage of net sales was
0.21% and 0.08% of net sales, respectively. No significant bad debt expense
has been incurred during the nine months ended September 30, 1997. Both in
1996 and during the first nine months of 1997, approximately 3.0% of Company
sales were on cash-on-delivery terms, which helps keep bad debt expense lower.
Management believes the proposed acquisition of computer upgrades for
interoffice financial and administrative controls will assist in maintaining a
low ratio of bad debts to net sales as the Company continues to expand. See
"Use of Proceeds."
COMPETITION
The Company, as an early entrant in the post-Communist market in Poland, has
over six years of experience in introducing, developing and refining
marketing, sales and customer service practices in the diverse and rapidly
developing Polish economy, which it believes is a competitive advantage in the
alcoholic beverage distribution business. The Company believes that it is
currently the only privately owned national distributor of an extensive and
diversified alcoholic beverage line in Poland. Some of the international drink
companies doing business in Poland, who import their own products but use the
Company on a nonexclusive basis to distribute their products, could develop
nationwide distribution systems, but have not and the Company believes these
companies will concentrate on expanding their sales organizations. These
entities include United Distillers, Seagrams, IDV, Allied Domecq and Bacardi.
The Company was the largest single distributor in 1996 for IDV and United
Distillers products in Poland.
The Company competes with various regional distributors in all of its
offices. This competition is particularly vigorous with respect to domestic
vodka brands. One of the larger, foreign-owed chain stores also sells directly
to smaller retailers. The Company meets this regional competition, in part,
through offering to customers in the region a single source supply of more
products than its regional competitors typically offer.
The brands of beer, spirits and wine distributed by the Company compete with
other brands in each category, including some the Company itself distributes.
The Company expects this competition to increase as it adds more brands, as
international drinks and brewery companies expand production in Poland and as
the Polish produced products are distributed more efficiently. In addition,
the international drinks companies with which the Company competes in the
import sector of its business have substantially greater managerial, financial
and other resources than does the Company.
30
<PAGE>
EMPLOYEES
The Company had approximately 185 full-time employees as of September 30,
1997. Each employee was employed in Poland and, as required by Polish law, has
a labor agreement with the Company. The Polish Labor Code, which applies to
each of these agreements, requires that certain benefits be provided to
employees, such as the length of vacation time and maternity leave. This law
also restricts the discretion of the Company's management to terminate
employees without cause and requires in most instances a severance payment of
one- to three-months salary. The Company makes required monthly payments of
48% of an employee's salary to the governmental health and pension system and
has established a Social Benefit Fund as required by Polish law, but does not
provide other additional benefit programs. None of the Company's employees are
unionized. The Company believes that its relations with its employees are
good.
LEGAL PROCEEDINGS
The Company is involved in litigation from time to time in the ordinary
course of business. In management's opinion, the litigation in which the
Company is currently involved, individually and in the aggregate, is not
material to the Company's financial condition or results of operations.
31
<PAGE>
REGULATION
The Company's business of importing and distributing alcoholic beverages is
subject to extensive regulation. The Company believes it is operating with all
licenses and permits material to its business. The Company is not subject to
any proceedings calling into question its operation in compliance with any
licensing and permit requirements.
There can be no assurance that the various governmental regulations
applicable to the alcoholic beverage industry will not be changed so as to
impose more stringent requirements on the Company. If the Company were to fail
to be in compliance with applicable governmental regulations or the conditions
of the licenses and permits it receives, such failure could cause the
Company's licenses and permits to be revoked and have a material adverse
effect of the Company's business, results of operations and financial
condition. Further, the applicable Polish governmental authorities, in
particular the Minister of Economy, have articulated only general standards
for issuance, renewal and termination of the licenses and permits which the
Company needs to operate and, thus, such governmental authorities retain
considerable discretionary authority in making such decisions.
IMPORT OF PRODUCTS
Import License
The Company must receive a license from the Minister of Economy to be able
to import all of its current product line except for the beer brands. The
license is issued for one year, and the Company's current license expires on
December 31, 1997. While the Minister of Economy has discretion with regard to
the issuance, renewal and termination of an import license, in practice, the
Company believes, such licenses are issued in the absence of exceptional
circumstances and renewed as long as the licensee has complied with the
conditions of the previous license, which include regular reporting to the
Ministry of Economy.
Import Permits
Additionally, import permits must be obtained for specific consignments of
alcoholic beverages to be imported under the import license as well as under
customs quotas. See "--Customs Duties and Quotas". The Company must obtain
such permits for all its imported alcoholic beverages. The application for a
permit is usually made when products are ordered and specify the product,
amount of product and source country. Permits are issued for three months, and
the Company must demonstrate to appropriate officials that each consignment it
imports is covered by a permit.
Approval of Health Authorities
Local health authorities at the place of import must also be notified of
what alcoholic beverages are being imported into Poland. This notification is
typically given when a particular shipment of products arrives in Poland. In
general, this notice permits the applicable health authorities to determine
that no product is entering the Polish market without having been previously
approved for sale in Poland. See "Wholesale Activities--General Norms."
WHOLESALE ACTIVITIES
The Company must have additional permits from the Minister of Economy and
appropriate health authorities to operate its wholesale distribution business.
Furthermore, it must comply with rules of general applicability with regard to
packaging, labeling and transporting products.
General Permits
The Company is required to have permits for the wholesale trade of each of
its three product lines. The permit with regard to beer is issued for two
years and the current permit expires on March 28, 1999. The permit with regard
to spirits is issued for one year and the current permit expires on
32
<PAGE>
December 31, 1997. The permit for wine is issued for two years and the current
permit expires on March 28, 1999. One of the conditions of these permits is
that the Company sells its products only to those who have appropriate permits
to resell the products. A permit can be revoked or not renewed if the Company
fails to observe laws applicable to its business as an alcohol wholesaler,
fails to follow the requirements of a permit or if it introduces into the
Polish market alcohol products that have not been approved for trade. The
Company must also obtain separate permits for each of its warehouses.
Health Requirements
The Company must obtain the approval of the local health authorities to open
and operate its warehouses. This approval is the basis for obtaining the
permit for wholesale activities. The health authorities are primarily
concerned with sanitation and proper storage of alcoholic beverages,
especially those which must be refrigerated. These authorities can monitor the
Company's compliance with health regulations. Similar regulations apply to the
transport of alcoholic beverages, and the drivers of such transports must
themselves submit health records to appropriate authorities.
General Norms
The Company must comply with a set of rules, usually referred to generally
as "Polish Norms," which constitute legal regulations concerning, as
applicable to the Company, standards according to which alcoholic beverages
are packed, stored, labeled and transported. These norms are established by
the Polish Normalization Committee, composed of specialists. In case of
alcoholic beverages, the committee is composed of academics working with
relevant government ministries and agencies as well as experienced businessmen
working in the alcoholic beverage industry. The Company has received a
certificate after an inspection by the Central Standardization Institute,
which is part of the Ministry of Agriculture, indicating its compliance with
applicable norms as of the date thereof. Such certification also is needed to
import alcoholic beverages. Compliance with these norms also is confirmed by
health authorities when particular shipments of alcoholic beverages arrive in
Poland. See "--Import of Products--Approval of Health Authorities."
CUSTOMS WAREHOUSE
Since the Company operates a customs warehouse, further regulations apply,
and a permit of the President of the Main Customs Office and the approval of
health authorities are required to open and operate such a warehouse. The
applicable health concerns are the same as those discussed under""--Wholesale
Activities" with regard to non-custom warehouses. The Company has received the
needed permit on October 19, 1995 from the President of the Main Customs
Office, which is for an unspecified period of time. The continued
effectiveness of the permit is conditioned on the Company's complying with the
requirements of the permit which are, in general, the proper payment of
customs duties and maintenance of an insurance policy.
CUSTOMS DUTIES AND QUOTAS
As a general rule, the import of alcoholic beverages into Poland is subject
to customs duties and the rates of the duties are set by the Polish government
acting through the Council of Ministers for particular types of products. In
the Company's case, the duties vary by its products lines.
The Minister of Economy is authorized, however, to establish a schedule of
quotas for alcoholic beverages for which the customs duties are substantially
reduced. For example, the basic customs duty on scotch whiskey imported by the
Company is $30.43 per .75 liter bottle, or 328% higher than the $7.11 duty
under the quota in 1996. The difference between the basic custom duties and
the duty under the quota on other spirit products imported by the Company were
only somewhat smaller than the difference on scotch. The difference between
the basic custom duties and the duty under the quota
33
<PAGE>
was considerably smaller for beer and wine products subject to customs duties
and imported by the Company. For example, the average basic duty of $1.86 per
case of beer was approximately 42% higher than the duty under the quota, and
the basic customs duty of $0.15 per .75 liter bottle of wine was 100% higher
than the duty under the quota.
Customs quotas for alcoholic beverages are fixed annually, with the current
quotas being applicable through December 31, 1997. There are no public
guidelines on how the Minister of Economy has determined the current quotas or
may determine future quotas. If such quotas were substantially eliminated, it
would likely have an adverse impact on the Company's business since the retail
price of its imported alcohol products would increase.
To import alcoholic beverages under the quotas, the Company must receive a
permit which is generally valid for three months and specifies what products
and what quality thereof may be imported from what country or group of
companies. It is the Company's practice to apply for this import permit after
concluding a contract for the import of a particular group of products. The
Company has always received the import permits for which it has applied,
although there can be no assurance that it will always do so in the future.
PRICE AND MARGIN CONTROLS
In general, Polish law does not affect either the prices charged or the
margins earned by the Company on its imported liquor products. Provisions of
the tax law provide for a general ban on importing products at "dumping
prices," generally defined as being at prices lower than for similar products
in the country of origin. Fines could be imposed for such activity.
There are several sources of price and margin regulation, however, with
regard to spirits produced in Poland, such as the domestic brand vodka
distributed by the Company. The Treasury Office, which is part of the Ministry
of Finance, may order a reduction in the price of a product it determines to
be "blatantly high." This standard is deemed met if (a) the price of a product
exceeds the price of the same alcoholic beverage in another local jurisdiction
by more than 25% or of a similar alcoholic beverage by 40%, or (b) the price
quoted by the seller is higher than 10% of the price quoted to the same
purchaser by another seller and the former seller cannot justify the higher
price.
The most important restriction on prices is a list of products produced by
the Ministry of Finance which establishes the maximum retail price of such
products. Furthermore, pursuant to a separate decision, this Ministry has
limited the margin between the wholesale purchase price of domestic vodka and
retail purchase price to no more than four percent. While there are some 400
items on the current list of the Ministry of Finance, the only products
distributed by the Company are domestic vodka products.
ADVERTISING BAN
Pursuant to the Alcohol Awareness Law of October 26, 1982, as amended, there
is an absolute ban on direct and indirect advertising of alcoholic beverages
in Poland. The definition of "alcoholic beverage" under such law encompasses
all the Company's products. Promotions at the point of sale and game contests
are often used to limit the law's impact. The agency charged with enforcing
this law has successfully brought numerous cases in the past few years
alleging indirect advertising in the media. The Company has not been involved
in any such proceedings and seeks to comply fully with this law.
REGULATION OF RETAIL SALES
As part of the Company's business strategy, it plans to operate retail
outlets for alcoholic beverages. Polish law will require each such outlet to
have a retail permit to sell the brands expected to be offered to the public.
Typically, such permits are valid for two years and are renewable. The local
health authorities must also approve the sale of alcoholic beverages for each
location.
34
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of CEDC are set forth below. Directors
and executive officers of CEDC are elected to serve until they resign or are
removed, or are otherwise disqualified to serve, or until their successors are
elected and qualified. All directors of CEDC are elected annually at the
annual meeting of stockholders. Executive officers of CEDC generally are
appointed at the board's first meeting after each annual meeting of
stockholders.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
---- --- ------------------------------------
<S> <C> <C>
William V. Carey...................... 33 Chairman, President, Chief Executive
Officer, and Chief Financial
Officer
Jeffrey Peterson...................... 47 Vice Chairman and Executive Vice
President
James T. Grossmann.................... 57 Director
James B. Kelly........................ 56 Director
Jan W. Laskowski...................... 40 Director
Joe M. Richardson..................... 44 Director
</TABLE>
William V. Carey has served as Chairman, President, Chief Executive Officer
and Chief Financial Officer of CEDC since its inception. In 1993, Mr. Carey
instituted and supervised the direct delivery system for Carey Agri's
nationwide expansion. Mr. Carey, a 1987 graduate of the University of Florida,
played briefly on the professional golf circuit before joining the Company.
Mr. Carey is a member of the American Chamber of Commerce in Poland.
Jeffrey Peterson has served as Vice Chairman, Executive Vice President and
director of CEDC since its inception. Mr. Peterson was co-founder of Carey
Agri in 1990, and is a member of the management board of that entity. Prior
thereto, Mr. Peterson contracted with African, Middle Eastern, South American
and Asian governments and companies for the supply of American agricultural
exports and selected agribusiness products, such as livestock, feed
supplements and veterinary supplies. Mr. Peterson has worked with
international banks and United States government entities to facilitate
support for exports from the United States.
James T. Grossmann, a retired United States foreign service officer, has
served as a director of CEDC since its inception. With the United States
Agency for International Development ("U.S.A.I.D."), during the years 1977 to
1996, Mr. Grossmann served in emerging markets in Central Europe, Latin
America, Africa and Asia with a concentration on developing private sector
trading and investment through United States government-sponsored aid
programs. Immediately prior to his retirement in 1996, he managed a $300.0
million mass privatization and capital markets development program that
assisted 14 former state-controlled countries in Central Europe transition to
market economies.
James B. Kelly, a former Deputy Assistant Secretary of Commerce of the
United States specializing in international economic policy, has served as a
director of CEDC since its inception. Mr. Kelly is currently the President of
SynXis Corporation, a software development company, a position he has held
since August 1996. From 1992 to August 1996, Mr. Kelly was the International
Vice-President of BDM International, an international information technology
company with sales in 1996 of over $1.0 billion, where he was in charge of
penetrating foreign technology markets by acquisition, alliance and direct
sales.
Jan W. Laskowski has served as a director of CEDC since its inception. Mr.
Laskowski has lived and worked in Poland since 1991. He is currently the Vice
President and member of the management board of American Bank in Poland
("Amerbank"), a position he has held since 1996, where he is
35
<PAGE>
responsible for business development. Before joining Amerbank, Mr. Laskowski
worked in London for Bank Liechtenstein (UK) Ltd from 1989 to 1991. He began
his career with Credit Suisse, also in London, where he worked for 11 years.
Joe M. Richardson has served as a director of CEDC since its inception.
Since October 1993, Mr. Richardson has served as the Director of Sales and
Marketing Europe of Sutter Home Winery Inc., where he is responsible for
developing and managing the importation, distribution and sales of Sutter Home
Wines within Europe. Prior to joining Sutter Home, Mr. Richardson had 20 years
experience in the wine industry distributing Gallo wine products.
BOARD OF DIRECTORS
The number of directors of the Company shall be such number as from time to
time is fixed by and in the manner provided in the Bylaws and shall be between
two to nine directors as is specified in the Certificate of Incorporation.
Pursuant to the Bylaws, the number of directors within that range is
determined by resolution duly adopted by a majority of the Board of Directors.
The number of directors is currently fixed at six.
The Underwriters have the right for five years from the date of the Offering
to designate a person for election to the Board of Directors. In the event the
Underwriters elect not to exercise this right, then they may designate one
person to attend all meetings of the Board of Directors for such period of
time. Such person will be entitled to receive all notices and other
correspondence as if the person were a member of the Board of Directors and to
be reimbursed for out-of-pocket expenses incurred in connection with
attendance of meetings of the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently has two committees, the Audit Committee and
the Compensation Committee. The Audit Committee, among other things,
recommends the firm to be appointed as independent accountants to audit the
Company's financial statements, discusses the scope and results of the audit
with the independent accountants, reviews with management and the independent
accountants the Company's interim and year-end operating results, considers
the adequacy of the internal accounting controls and audit procedures of the
Company and reviews the non-audit services to be performed by the independent
accountants. The current members of the Audit Committee are Messrs. Kelly and
Laskowski. The Compensation Committee reviews and recommends the compensation
arrangements for management of the Company and administers the Plan. The
current members of the Compensation Committee are Messrs. Laskowski and
Richardson.
DIRECTOR COMPENSATION
Mr. Carey and Mr. Peterson annually receive $10,000 and $5,000,
respectively, for serving as Chairman and Vice-Chairman of the Board of
Directors as well as annual directors' fees of $2,000 (which amount is payable
to each director). Members of the Board of Directors have received grants of
stock options under the stock incentive plan described below. The Company
reimburses directors for out-of-pocket travel expenditures relating to their
service on the Board of Directors.
36
<PAGE>
EXECUTIVE COMPENSATION
The following table shows, for the fiscal year ended December 31, 1996,
compensation awarded or paid by the Company to its Chief Executive Officer
(the highest compensated employee of the Company).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
BONUS AND
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION COMPENSATION(2)
--------------------------- ---- ------- ------------- ---------------
<S> <C> <C> <C> <C>
William V. Carey................... 1996 $60,000 (1) --
Chairman, President, Chief
Executive Officer, and Chief
Financial Officer
</TABLE>
- --------
(1) During 1996, Carey Agri (i) provided Mr. Carey with the free use of an
automobile valued at $35,000, (ii) paid approximately $4,000 for travel
expenses, and (iii) provided an interest free loan of $30,000 which was
used to remodel his home in Warsaw. This loan will be repaid in early
1998. See "Certain Transactions."
(2) For options granted Mr. Carey, which will be effective only upon the
closing of the Offering, see "--Compensation Plans--Employment
Agreements."
COMPENSATION PLANS
Employment Agreements
Mr. Carey, has entered into an employment contract with CEDC, which
commences on the date of the completion of the Offering and ends three years
thereafter. Mr. Carey will be paid an annual base salary at the rate of
$140,000 per year, $76,000 payable by Carey Agri and $64,000 by CEDC. If Mr.
Carey is not elected the Chairman of the Board of Directors in accordance with
the Bylaws, his base salary paid by CEDC will be increased by $10,000. Mr.
Carey's base salary is to be reviewed no less frequently than annually. Mr.
Carey's base salary is to be increased by at least $25,000 one year after the
effective date of his employment agreement and by an additional $25,000 two
years after the effective date thereof and may be increased further at the
discretion of the Board of Directors.
Additionally, as partial consideration for the execution of the employment
agreement, CEDC has granted to Mr. Carey options to purchase 25,000 shares of
the Common Stock, to be exercisable at the initial public offering price. Such
options are granted under the Plan and will vest and become exercisable two
years from the effective date of the employment agreement. For options granted
Mr. Carey, because of his work on the board of directors of the Company and
Carey Agri, see "--1997 Stock Incentive Plan."
Mr. Carey may terminate his employment agreement only for "good reason,"
which includes CEDC's failure to perform its obligations under the agreement.
CEDC may terminate the agreement for "cause" as defined, which includes Mr.
Carey's willful refusal to follow written orders or willful engagement in
conduct materially injurious to CEDC or continued failure to perform his
required duties. If CEDC terminates the agreement for cause or Mr. Carey
terminates it without good reason, Mr. Carey's salary and benefits will be
paid only through the date of termination. If CEDC terminates the employment
agreement other than for cause or if Mr. Carey terminates it for good reason,
CEDC will pay Mr. Carey his salary and benefits through the date of
termination in a single lump sum payment and other amounts or benefits at the
time such amounts would have been due.
Pursuant to the agreement, Mr. Carey has agreed that during the term of
employment, and for a one-year period following a termination of employment,
he will not compete with the Company. The ownership by Mr. Carey of less than
five percent of the outstanding stock of any corporation listed on a national
securities exchange conducting any competitive business shall not be viewed as
competition.
37
<PAGE>
Jeffrey Peterson has entered into an employment contract with CEDC, which
commences on the date of the completion of this Offering and ends two years
thereafter. In the first year of his employment, Mr. Peterson will be paid
$45,000 for serving as the Executive Vice President of CEDC and $48,000 for
serving on the management board of Carey Agri. In the second year, Mr.
Peterson will be paid $39,000 by CEDC and $36,000 by Carey Agri. CEDC may
terminate this agreement, with or without cause, on three months' prior
written notice; Mr. Peterson may terminate only for good reason. For options
granted to Mr. Peterson as a member of the board of directors of CEDC and
Carey Agri, see "--1997 Stock Incentive Plan."
Mr. Grossmann, a director of CEDC and Carey Agri, is paid $4,000 monthly for
his service on Carey Agri's board of directors where he has responsibilities
for assisting Carey Agri to establish supplier relationships for alcohol and
nonalcohol products, such as cigars. For options granted to Mr. Grossmann for
his past work in establishing supplier relationships in Bulgaria, see "--1997
Stock Incentive Plan."
1997 Stock Incentive Plan
CEDC's 1997 Stock Incentive Plan (the "Plan") provides for the grant of
incentive stock options within the meaning of Section 422 of the Code, non-
qualified options, stock appreciation rights, restricted stock and restricted
stock units to directors, executives and other employees of CEDC and any of
its subsidiaries or of any service provider, as defined, whose participation
in the Plan is determined to be in the best interest of the Company. The Plan
authorizes the issuance of up to 400,000 shares of Common Stock (subject to
anti-dilution adjustments in the event of a stock split, recapitalization or
similar transaction). The Board of Directors has the full power and authority
to take all actions and to make all determinations required under the Plan,
but has currently delegated that authority to its Compensation Committee,
which has the authority to interpret the plan and to prescribe, amend, and
rescind rules and regulations relating to the Plan. The Compensation
Committee's interpretations of the Plan and its determinations pursuant to the
Plan will be final and binding on all parties claiming an interest under the
Plan. The Plan was adopted by the Board of Directors on November 27, 1997,
which is the effective date of the Plan, and approved by CEDC's stockholders
in December 1997. The term of the Plan is ten years from its effective date,
and no grants may be made under the plan after that date.
Automatic grants are made to outside directors of CEDC. The initial three
outside members of the board of directors of CEDC were automatically awarded
options to acquire 500 shares of the Common Stock at the initial public
offering price when the Incentive Plan became effective. These options are
immediately exercisable. Outside directors, including the initial outside
directors of CEDC, shall also receive an option to acquire 500 shares upon
their reelection to the Board of Directors.
The option exercise price for incentive stock options granted under the Plan
may not be less than 100% of the fair market value of the Common Stock on the
date of grant of the option. Options may be exercised up to 10 years after
grant, except as otherwise provided in the particular option agreement.
Payment for shares purchased under the Plan shall be made in cash or cash
equivalents. With respect to any participant who owns stock possessing more
than 10% of the voting power of all classes of stock of CEDC, however, the
exercise price of any incentive stock option granted must equal at least 110%
of the fair market value on the grant date and the maximum term of an
incentive stock option must not exceed five years.
The Plan also authorizes the grant of stock appreciation rights whereby the
grantee of a stock option may receive payment from CEDC of an amount equal to
the excess of the fair market value of the shares of Common Stock subject to
the option surrendered over the exercise price of such shares. A particular
award agreement may permit payment by CEDC either in shares of Common Stock,
cash or a combination thereof.
38
<PAGE>
Options granted under the Plan are generally not transferable except that
non-qualified options may, in certain circumstances, be transferred to family
members of the grantee. If any optionee's employment with CEDC or a service
provider terminates by reason of death, options will fully vest and may be
exercised within 24 months after such death. If the optionee's employment
terminates by reason of disability, options will continue to vest and shall be
exercisable to the extent vested for a period of one year after the
termination of employment. If the optionee's employment terminates for any
other reason, options not vested will terminate and vested options held by
such optionee will terminate 90 days after such termination.
The Plan authorizes the grant also of restricted stock or restricted stock
units, which are rights to receive shares of Common Stock in the future. Both
the restricted stock and restricted stock units will be subject to
restrictions and risk of forfeiture. Such restriction may include not only a
period of time of further employment or service to CEDC or Carey Agri or a
service provider but the satisfaction of individual or corporate performance
objectives. Performance objectives may include, among others, the trading
price of the shares of Common Stock, market share, sales, earnings per share,
and return on equity. Unless the particular award agreement states otherwise,
the holders of restricted stock shall have the right to vote such shares of
Common Stock and the right to receive any dividends declared and paid with
respect to such stock, but the holders of restricted stock units shall have no
such rights.
If the grantee's employment with CEDC or Carey Agri or a service provider
terminates by reason of death, all restricted stock and restricted stock units
granted under the Plan shall fully vest. If the grantee's employment
terminates by reason of disability, the grantee's restricted stock or
restricted stock units shall continue to vest for a period of one year. If the
grantee's employment is terminated for any other reason, the restricted stock
or restricted stock units shall be forfeited.
In the event of the dissolution or liquidation of the Company or upon a
merger, consolidation, or reorganization of the Company in which the Company
is not the surviving entity, or upon a sale of substantially all of the assets
of the Company or upon any transaction (including one in which the Company is
the surviving entity) approved by the Board of Directors that results in any
person or entity owning eighty percent or more of the combined voting power of
all classes of securities of CEDC, outstanding restricted stock and restricted
stock units shall vest and all options become immediately exercisable, within
a stated period, unless provision is made in writing in connection with such
transaction for the continuation of the Plan or the assumption or substitution
of such options, restricted stock and restricted stock units.
The Board of Directors may amend, suspend or terminate the Plan with respect
to the shares of Common Stock as to which grants have not been made. However,
CEDC's stockholders must approve any amendment that would cause the Plan not
to comply with the Code.
Stock options for 52,500 of the shares of the Common Stock have been granted
in connection with the Offering. The exercise price of these options is the
initial public offering price. Thus, if the Offering is not consummated, these
options will be null and void. Options covering 500 shares were automatically
granted to each of the three outside members of the Board of Directors. These
options are immediately exercisable. Mr. Carey, Mr. Peterson and Mr. Grossmann
received options covering 2,000, 1,000 and 500 shares, respectively.
Additionally, as members of the board of management of Carey Agri, Messrs.
Carey, Peterson and Grossmann received options covering 5,000, 2,000 and 500
shares, respectively. These options may be exercised one year after the
completion of the Offering. In connection with his employment agreement, Mr.
Carey was granted another option to purchase an additional 25,000 shares.
These options may be exercised two years after the completion of the Offering.
In connection with his past efforts in assisting the Company, Mr. Grossmann
was granted an option to purchase an additional 15,000 shares. Options
covering 12,500 of those shares are immediately exercisable and options
covering the other 2,500 shares are exercisable one year after the completion
of the Offering.
39
<PAGE>
CERTAIN TRANSACTIONS
Carey Agri has a non-interest bearing advance receivable for $24,000
(denominated in Polish zloty without interest) from Mr. Carey at September 30,
1997. It expects to receive repayment of the amount advanced in early 1998.
Carey Agri has entered into a loan agreement in the principal amount of
$205,000 with Amerbank, of which Mr. Laskowski, a director of CEDC, is a vice
president and member of the management board. This loan is used as a revolving
line of credit for certain business purposes. The loan is guaranteed, in part,
by Mr. Carey and Mr. Peterson. The interest rate is LIBOR plus 3.5% and the
maturity date is December 15, 1998. Installments of $17,000 are due monthly
beginning January 15, 1998 with $18,000 due on December 15, 1998. Part of the
proceeds of the Offering will be used to retire this debt. See "Use of
Proceeds."
Carey Agri has entered into another loan agreement and an amendment thereto
with Amerbank in an amount not to exceed $300,000. This secured loan is to be
used to pay certain of the costs of this Offering which have accrued to date.
The interest rate is LIBOR (1 month) plus 2.25%; the last date on which funds
can be drawn down is January 1, 1998; and the loan must be repaid by April 8,
1998. In connection with this loan, Carey Agri agreed to use Amerbank's Poznan
branch for its business activities in Poznan and to transfer, as needed, the
proceeds of this Offering into Poland through its Amerbank accounts.
The Company distributes Sutter Home wines in Poland. Mr. Richardson, a
director of CEDC, is Director of Sales and Marketing Europe of Sutter Home
Winery, Inc. See "Business--Product Line--Wine." The total value of Sutter
Home wines sold by the Company in 1996 and through the first nine months of
1997 was $566,000 and $429,000, respectively.
40
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the outstanding Common Stock as of the date hereof, and as
adjusted to reflect the Offering: (i) by each person who is known by CEDC to
beneficially own more than 5% of the Common Stock; (ii) by the Selling
Stockholders; (iii) by each director of CEDC; (iv) by each of the executive
officers of CEDC; and (v) by all directors and executive officers of CEDC as a
group. Except as otherwise noted, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock shown
as beneficially owned by them. See "Management--Director Compensation"
regarding options granted to each director in connection with this Offering.
See "Management--Executive Compensation" and "--1997 Stock Incentive Plan" for
options granted to Mr. Carey, Mr. Peterson and Mr. Grossmann, as well as all
other directors of the Company.
Following completion of the Offering, Mr. Carey, Mr. Peterson and the Estate
of William O. Carey will beneficially own in the aggregate 60.7% of the
outstanding shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option. As a result, such persons acting together will be able
to elect all of the Company's directors and otherwise control the Company's
operations. See "Risk Factors--Risks Related to the Company--Control By
Existing Stockholders; Potential Anti-Takeover Provisions."
<TABLE>
<CAPTION>
PERCENTAGES OF SHARES BENEFICIALLY OWNED
NAME AND ADDRESS OF SHARES ------------------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE THE OFFERING AFTER THE OFFERING (3)
------------------- ------------------ ------------------- ----------------------
<S> <C> <C> <C>
William V. Carey(1)..... 1,096,480 61.6% 37.4%
1602 Cottagewood Drive
Brandon, FL 33511
William V. Carey Stock
Trust(1)............... 503,740 28.3 17.2
1602 Cottagewood Drive
Brandon, FL 33511
Jeffrey Peterson........ 592,740 33.3 20.2
1707 Waldemere Street
Sarasota, FL 34239
Estate of William O. Ca-
rey(2)................. 90,780 5.1 3.1
1602 Cottagewood Drive
Brandon, FL 33511
James T. Grossmann...... 0 -- --
805 S. Fairfax Street
Alexandria, VA 22314
James B. Kelly.......... 0 -- --
7606 Hamilton Spring
Road
Bethesda, MD 20817
Jan W. Laskowski........ 0 -- --
115 ul. Marcinkowska
00-102 Warsaw, Poland
Joe M. Richardson....... 0 -- --
P.O. Box 22154
Louisville, KY 40252
All Directors and Offi-
cers as a Group (Six
Persons)............... 1,689,220 94.9% 57.6%
</TABLE>
- --------
(1) Includes 592,740 shares beneficially owned by Mr. Carey and 503,740 shares
held in the name of the William V. Carey Stock Trust. Mr. Carey is the
beneficiary of the shares of the Common
41
<PAGE>
Stock held in the William V. Carey Stock Trust, and he will become the sole
owner of these shares and may terminate the trust on December 11, 2005. Mr.
Carey administers the trust, which includes the power to vote the
securities held and make any investment decisions, with one other trustee,
Remy Hermida, 1707 West Reynolds Street, Plant City, Florida 33567. The
trust instrument permits one trustee to delegate any and all power, duties
or discretions to the other trustee, although this action has not been
taken.
(2) Gertrude Carey, the mother of William V. Carey, is the sole personal
representative of the Estate of William O. Carey and has sole investment
authority over the Common Stock in this estate.
(3) If the Underwriters' over-allotment options are exercised in full, the
percentage of shares beneficially owned would be as follows: Mr. Carey
(34.7%), William V. Carey Stock Trust (15.9%), Jeffrey Peterson (18.8%),
Estate of William O. Carey (2.9%) and All Directors and Officers as a
Group (53.5%).
42
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
CEDC's authorized capital stock consists of 20,000,000 shares of Common
Stock and 1,000,000 shares of Preferred Stock. Prior to this Offering, there
were 1,780,000 shares of Common Stock outstanding held of record by four
stockholders and no shares of Preferred Stock outstanding.
The following summary of certain provisions of the Common Stock, Preferred
Stock, the Warrants and the Unit Purchase Option does not purport to be
complete and is subject to, and qualified in its entirety by, the provisions
of CEDC's Certificate of Incorporation, Bylaws, the Warrant Agreement, and the
Unit Purchase Option and by the provisions of applicable law. A copy of the
Certificate of Incorporation, Bylaws, the form of Warrant Agreement and form
of Unit Purchase Option are included as exhibits to the registration statement
of which this Prospectus is a part.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share on all
matters submitted to a vote of stockholders. The Certificate of Incorporation
does not provide for cumulative voting, and accordingly, the holders of a
majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors. The Certificate of Incorporation
provides that whenever there is paid, or declared and set aside for payment to
the holders of the outstanding shares of any class of stock having preference
over the Common Stock as to the payment of dividends, the full amount of
dividends and of sinking fund or retirement fund or other retirement payments,
if any, to which such holders are entitled, then dividends may be paid on the
Common Stock out of any assets legally available therefore, but only when and
as declared by the Board of Directors. The Certificate of Incorporation also
provides that in the event of any liquidation, dissolution or winding up of
CEDC, after there is paid to, or set aside for the holders of any class of
stock having preference over the Common Stock, the full amount to which such
holders are entitled, then the holders of the Common Stock, shall be entitled,
after payment or provision for payment of all debts and liabilities of CEDC,
to receive the remaining assets of CEDC available for distribution, in cash or
in kind. The holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. The rights, privileges, preferences and
priorities of holders of Common Stock will be subject to the rights of the
holders of any shares of any series of Preferred Stock that CEDC may issue in
the future.
WARRANTS
The holder of each Warrant is entitled, upon payment of the exercise price
of $ (the aggregate initial Share and Warrant offering price), to purchase
one share of Common Stock. Unless previously redeemed, the Warrants are
exercisable at any time during the five year period commencing on the date of
this Prospectus, provided that at such time a current prospectus relating the
underlying Common Stock is in effect and the underlying shares of Common Stock
are qualified for sale or exempt from qualification under applicable state
securities laws. The Warrants are subject to redemption, as described below.
Redemption
Commencing one year from the date of this Prospectus, the Warrants, except
for those underlying the Unit Purchase Option, are subject to redemption by
the Company, on not less than 30 days' written notice, at a price of $.05 per
Warrant, provided the sales price of the Common Stock is at least $ (or
200% of the initial Share offering price) for 30 consecutive days prior to the
date on which the notice of redemption is given. Holders of Warrants will
automatically forfeit their rights to purchase the shares of Common Stock
issuable upon exercise of such Warrants unless the Warrants are exercised
43
<PAGE>
before the close of business on the business day immediately prior to the date
set for redemption. All of the outstanding Warrants, except for those
underlying the Unit Purchase Option, must be redeemed if any of that class are
redeemed. A notice of redemption shall be mailed to each of the registered
holders of the Warrants, except for those underlying the Unit Purchase Option,
by first class mail, postage prepaid. The notice of redemption shall specify
the redemption price, the date fixed for redemption, the place where the
Warrant certificates shall be delivered and the redemption price to be paid,
and that the right to exercise the Warrants shall terminate at 5:00 p.m. (New
York City time) on the business day immediately preceding the date fixed for
redemption.
General
The Warrants may be exercised upon surrender of the certificate(s) therefor
on or prior to the earlier of their expiration or the redemption date (as
explained above) at the offices of the Company's warrant agent with the form
of "Election to Purchase" on the reverse side of the certificate(s) filled out
and executed as indicated, accompanied by payment (in the form of certified or
cashier's check payable to the order of the Company) of the full exercise
price for the number of Warrants being exercised.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price in certain events, such as stock
dividends, stock splits, mergers, sale of substantially all of the Company's
assets, and for other extraordinary events in order to enable the holders of
the Warrants to obtain the same or equivalent rights which they would have
obtained if the Warrants had been exercised prior to the event.
The Company is not required to issue fractional shares of Common Stock, and
in lieu thereof will make a cash payment based upon the current market value
of such fractional shares. The holder of a Warrant will not possess any rights
as a stockholder of the Company unless and until he exercises the Warrant.
UNIT PURCHASE OPTION
The Company has agreed to issue to the Underwriters, upon the closing of the
Offering, the Unit Purchase Option to purchase up to 115,000 Shares and
115,000 Warrants. These Shares and Warrants will be identical to the Shares
and Warrants offered hereby except that the Warrants included in the Unit
Purchase Option will not be subject to redemption by the Company. The Unit
Purchase Option cannot be transferred, sold, assigned or hypothecated for one
year, except to any officer or partner of the Underwriters or members of the
selling group. The Unit Purchase Option is exercisable during the four-year
period commencing one year from the date of this Prospectus at an exercise
price of $ per Share and Warrant (120% of the aggregate initial Share and
Warrant offering price), subject to adjustment in certain events to protect
against dilution. The holders of the Unit Purchase Option and underlying
securities have certain demand and piggyback registration rights. The
existence of the Unit Purchase Option and the inability of the Company to
redeem the Warrants included therein may hinder the Company's future financing
or business transactions. See "Underwriting."
PREFERRED STOCK
The Certificate of Incorporation provides that the Board of Directors is
authorized to issue Preferred Stock in series and to fix and state the voting
powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights of
the shares of each such series and the qualifications, limitations and
restrictions thereof. Such action may be taken by the Board of Directors
without stockholder approval. Under the Certificate of Incorporation, each
share of each series of Preferred Stock is to have the same relative rights
as, and be identical in
44
<PAGE>
all respects with, all other shares of the same series. While providing
flexibility in connection with possible financings, acquisitions and other
corporate purposes, the issuance of Preferred Stock, among other things, could
adversely affect the voting power of the holders of Common Stock and, under
certain circumstances, be used as a means of discouraging, delaying or
preventing a change in control of CEDC. There will be no shares of Preferred
Stock outstanding upon completion of the Offering and CEDC has no present plan
to issue shares of its Preferred Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Limitations of Director Liability
Section 102(b)(7) of the Delaware General Corporation Law ("DGCL")
authorizes corporations to limit or eliminate the personal liability of
directors to corporations and their stockholders for monetary damages for
breach of directors' fiduciary duty of care. Although Section 102(b)(7) does
not change the directors' duty of care, it enables corporations to limit
available relief to equitable remedies such as injunction or rescission. The
Certificate of Incorporation limits the liability of directors to the Company
or its stockholders to the fullest extent permitted by Section 102(b)(7).
Specifically, directors of CEDC are not personally liable for monetary damages
to the Company or its stockholders for breach of the director's fiduciary duty
as a director, except for liability: (a) for any breach of the director's duty
of loyalty to the Company or its stockholders; (b) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law; (c) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL; or (d) for any transaction
from which the director derived an improper personal benefit.
Indemnification
To the maximum extent permitted by law, the Bylaws provide for mandatory
indemnification of directors and officers of CEDC against any expense,
liability and loss to which they may become subject, or which they may incur
as a result of being or having been a director or officer of CEDC. In
addition, CEDC must advance or reimburse directors and officers for expenses
incurred by them in connection with indemnifiable claims.
CEDC also maintains directors' and officers' liability insurance.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Certificate of Incorporation and the Bylaws contain, among other things,
certain provisions described below that may reduce the likelihood of a change
in the Board of Directors or voting control of CEDC without the consent of the
Board of Directors. These provisions could have the effect of discouraging,
delaying, or preventing tender offers or takeover attempts that some or a
majority of the stockholders might consider to be in the stockholders' best
interest, including offers or attempts that might result in a premium over the
market price for the Common Stock.
Filling Board Vacancies; Removal
Any vacancy occurring in the Board of Directors, including any vacancy
created by an increase in the number of directors, shall be filled by the vote
of a majority of the directors then in office, whether or not a quorum, and
any director so chosen shall hold office until such director's successor shall
have been elected and qualified. Directors may only be removed with cause by
the affirmative vote of the holders of at least a majority of the outstanding
shares of capital stock then entitled to vote for the election of directors.
45
<PAGE>
Stockholder Action by Unanimous Written Consent
Any action required or permitted to be taken by the stockholders must be
effected at a duly called annual or special meeting of such holders and may
not be effected by any consent in writing by such holders, unless such consent
is unanimous.
Call of Special Meetings
Special meetings of stockholders may be called at any time by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President, and shall be called by the President or the Secretary of CEDC at
the request in writing of stockholders possessing at least 10% of the voting
power of the issued and outstanding capital stock of CEDC entitled to vote
generally in the election of directors. Such a request shall include a
statement of the purpose or purposes of the proposed meeting.
Bylaw Amendments
The stockholders may amend the Bylaws by the affirmative vote of the holders
of at least a majority of the outstanding shares of stock of CEDC entitled to
vote thereon. Directors also may amend the Bylaws by an affirmative vote of at
least a majority of the directors then in office.
Certificate of Incorporation Amendments
Except as set forth in the Certificate of Incorporation or as otherwise
specifically required by law, no amendment of any provision of the Certificate
of Incorporation shall be made unless such amendment has been first proposed
by the Board of Directors upon the affirmative vote of at least a majority of
the directors then in office and thereafter approved by the affirmative vote
of the holders of at least a majority of the outstanding shares of stock of
CEDC entitled to vote thereon; provided however, if such amendment is to the
provisions in the Certificate of Incorporation relating to the authorized
number of shares of Preferred Stock, board authority to issue Preferred Stock,
number of directors, the limitation on directors' liability, amendment of
Bylaws, or consent of stockholder in lieu of meetings, such amendment must be
approved by the affirmative vote of the holders of at least two-thirds of the
outstanding shares of stock entitled to vote thereon.
Stockholder Nominations and Proposals
With certain exceptions, the Bylaws require that stockholders intending to
present nominations for directors or other business for consideration at a
meeting of stockholders must notify CEDC's secretary not less than 60 days,
and not more than 90 days, before the date of the meeting.
Certain Statutory Provisions
Section 203 of the DGCL provides, in general, that a stockholder acquiring
more than 15% of the outstanding voting shares of a corporation subject to the
DGCL (an "Interested Stockholder"), but less than 85% of such shares, may not
engage in certain "Business Combinations" with such corporation for a period
of three years subsequent to the date on which the stockholder became an
Interested Stockholder unless (a) prior to such date the corporation's board
of directors approved either the Business Combination or the transaction in
which the stockholder became an Interested Stockholder or (b) the Business
Combination is approved by the corporation's board of directors and authorized
by a vote of at least two-thirds of the outstanding voting stock of the
corporation not owned by the Interested Stockholder.
Section 203 defines the term "Business Combination" to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which
the Interested Stockholder receives or could
46
<PAGE>
receive a benefit on other than a pro rata basis with other stockholders,
including mergers, certain asset sales, certain issuances of additional shares
to the Interested Stockholder, transactions with the corporation which
increase the proportionate interest of the Interested Stockholder or a
transaction in which the Interested Stockholder receives certain other
benefits.
Pursuant to a Board resolution, the Section 203 limits do not apply to any
"Business Combination" between the Company and either Mr. Carey, Mr. Peterson,
their "affiliates" or their estates.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company.
47
<PAGE>
UNDERWRITING
The Underwriters have agreed, subject to the terms and conditions of the
Underwriting Agreement by and among the Company, the Selling Stockholders and
the Underwriters (the "Underwriting Agreement"), to purchase severally, and
the Company has agreed to sell to the Underwriters severally, the number of
shares of Common Stock and the number of Warrants set forth opposite their
respective names below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES NUMBER OF WARRANTS
------------ ---------------- ------------------
<S> <C> <C>
Fine Equities, Inc..........................
--------- ---------
SouthWall Capital Corp......................
--------- ---------
Total..................................... 1,150,000 1,150,000
========= =========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the shares of
Common Stock and Warrants offered hereby (other than those subject to the
over-allotment options described below) if any such shares are purchased. In
the event of a default by either of the Underwriters, the Underwriting
Agreement provides that, in certain circumstances, the purchase commitments of
the non-defaulting Underwriter may be increased or the Underwriting Agreement
may be terminated.
The Underwriters have advised the Company that they propose initially to
offer the shares of Common Stock and the Warrants to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers who are members of the NASD at such price, less a concession not in
excess of $ per Share, of which a sum not to exceed $ per Share may in
turn be allowed by such dealers to other dealers who are members of the NASD.
After the initial public offering, the public offering price, the concessions
and the allowances may be changed.
The Company has agreed to pay to the Underwriters a non-accountable expense
allowance equal to 3% of the aggregate offering price of the Shares and
Warrants offered hereby (including any shares of Common Stock and Warrants
purchased pursuant to the over-allotment options). The Company has also agreed
to pay all expenses in connection with qualifying the Shares and Warrants
offered hereby for sale under the laws of such states as the Underwriters may
designate, including expenses of counsel retained for such purpose by the
Underwriters.
The Company has granted the Underwriters an option, exercisable within 45
days after the date of this Prospectus, to purchase up to an aggregate of
97,500 additional shares of Common Stock and 172,500 Warrants from the Company
at the initial public offering price per share of Common Stock and Warrants
offered hereby, less underwriting discounts and commissions. The Selling
Stockholders have granted the Underwriters an option, exercisable within 45
days of the date of this Prospectus, to purchase 75,000 shares of the Common
Stock at the initial public offering price per share of Common Stock offered
hereby, less underwriting discounts and commissions. The Underwriters may
exercise such options only to cover over-allotments in the sale of shares of
Common Stock and Warrants that the Underwriters have agreed to purchase. The
initial Shares purchased upon exercising the over-allotment options will be
purchased from the Selling Stockholders. To the extent that the Underwriters
exercise such options, each Underwriter will have a firm commitment, subject
to certain conditions, to purchase the number of option shares proportionate
to its initial commitment.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or contribute to payments the
Underwriters may be required to make in respect thereof.
48
<PAGE>
The Company has agreed to issue and sell, upon the completion of the
Offering, to the Underwriters for nominal consideration the Unit Purchase
Option. The Unit Purchase Option is exercisable at any time during a period of
four years commencing one year from the date of this Prospectus, at a price of
$ (120% of the aggregate initial public offering price of the Shares and
the Warrants). The Company has agreed that, for a period of seven years from
the date of the completion of the Offering, if the Company intends to file a
registration statement or statements for the public sale of securities for
cash (other than Form S-8, S-4 or comparable registration statement), it will
notify all of the holders of the Unit Purchase Option and/or underlying
securities and if so requested it will include therein material to permit a
public offering of the securities underlying said Unit Purchase Option at the
expense of the Company (excluding fees and expenses of the holders' counsel
and any underwriting or selling commissions). In addition, for a period of
five years from the completion of the Offering upon the written demand of any
majority holder, the Company agrees to promptly register the underlying
securities at the expense of such holder. For the life of the Unit Purchase
Option, the holders are given the opportunity to profit from a rise in the
market price of the Common Stock and Warrants, with a resulting dilution in
the interests of other stockholders. Further, the holders may be expected to
exercise the Unit Purchase Option at a time when the Company would in all
likelihood be able to obtain equity capital on terms more favorable than those
provided under the Unit Purchase Option. Any profit realized by the
Underwriters on the sale of the Warrants or Common Stock issuable upon
exercise of such Unit Purchase Option may be deemed additional underwriter
compensation.
The Company also has granted the Underwriters the right of first refusal for
a period of 18 months after the date of this Prospectus for any sale of
securities to be made by the Company or any of its present or future
affiliates or subsidiaries. The Underwriting Agreement also provides that, for
five years following the date of this Prospectus, the Underwriters may
designate a person, reasonably acceptable to the Company, for election to the
Board of Directors. In the event the Underwriters elect not to exercise this
right, then it may designate one person to attend all meetings of the Board of
Directors for a period of five years. Such person would be entitled to attend
all such meetings and to receive all notices and other correspondence and
would be reimbursed for out-of-pocket expenses incurred in connection with
attendance at Board of Directors meetings.
The Underwriters have informed the Company that the Underwriters do not
intend to make sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
The Company and all of the existing stockholders, directors and officers of
CEDC have agreed that, during the period beginning from the closing of this
Offering and continuing to and including the date 24 months thereafter, they
will not offer, sell, contract to sell or otherwise dispose of shares of
Common Stock beneficially owned by them without the prior written consent of
the Underwriters (except for the shares of Common Stock offered in this
Offering and those underlying the Warrants, the Unit Purchase Option and
options issued under the Plan).
Prior to the Offering, there has been no public market for the Common Stock
or the Warrants. The initial public offering price of the Common Stock and the
Warrants and the terms of the Warrants will be determined by negotiation
between the Company and the Underwriters and will not necessarily be related
to the Company's asset value, net worth, results of operation or other
established criteria of value. Among the factors to be considered in
determining the initial public offering price of the Common Stock and the
Warrants and the terms of the Warrants, in addition to prevailing market
conditions, are the earnings and certain other financial and operating
information of the Company in recent periods, the future prospects of the
Company and its industry in general, an assessment of the management of the
Company, the Company's capital structure, the general conditions of the
securities market at the time of the Offering and the market prices of
securities and certain financial and operating information of companies
engaged in activities similar to those of the Company. There can, however, be
no assurance that the prices at which the Common Stock and the Warrants will
sell in the public market
49
<PAGE>
after the Offering will not be lower than the price at which they are sold in
the Offering by the Underwriters.
In connection with the Offering, the Underwriters may purchase and sell the
Common Stock and the Warrants in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Common Stock and
the Warrants, and syndicate short positions involve the sale by the
Underwriters of a greater number of shares of Common Stock and the Warrants
than they are required to purchase from the Company in the Offering. The
Underwriters also may impose a penalty bid, whereby selling concessions
allowed to syndicate members or other broker-dealers in respect of the
securities sold in the Offering for their account may be reclaimed by the
syndicate if such shares of Common Stock and the Warrants are repurchased by
the syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock
and the Warrants, which may be higher than the price that might otherwise
prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected on the Nasdaq
SmallCap Market, in the over-the-counter market or otherwise.
The Company has agreed, in connection with the exercise of Warrants pursuant
to solicitation by the Underwriters, to pay to the Underwriter a fee of 4% of
the Warrant exercise price, a portion of which may be reallowed to any dealer
who is a member of the National Association of Securities Dealers, Inc.
("NASD") who solicited the exercise (which may also be the Underwriters) for
each Warrant exercised, if (i) the market price of the Common Stock of the
Company at the time of exercise is higher than the exercise price of the
Warrants; (ii) the Warrants are not held in any discretionary account; (iii)
disclosure of compensation arrangements was made both at the time of this
Offering and in documents provided to holders of the Warrants at the time of
exercise; (iv) the exercise of the Warrants is solicited by a member of the
NASD as designated in writing on the Warrant Certificate Subscription Form;
and (v) the solicitation of exercise of the Warrants was not in violation of
Regulation M promulgated under the Exchange Act.
Regulation M of the SEC under the Exchange Act may prohibit the Underwriters
from engaging in any market making activities with regard to the Company's
securities for the period from nine business days (or such other applicable
period as Regulation M may provide) prior to any solicitation by the
Underwriters of the exercise of Warrants until the later of the termination of
such solicitation activity or the termination (by waiver or otherwise) of any
right that the Underwriters may have to receive a fee for the exercise of
Warrants following such solicitation. As a result, the Underwriters may be
unable to provide a market for the Company's securities during certain periods
while the Warrants are exercisable.
The Company will not receive any of the proceeds from the sale of the shares
of Common Stock by the Selling Stockholders if the over-allotment option is
exercised. The Company will pay all expenses incident to the offering and sale
of the shares of Common Stock and the Warrants to the public, other than
underwriting discounts and expenses, if any, of counsel and other advisors to
the Selling Stockholders. The Company intends, to the extent practical, to
seek registration or exemption from registration under the securities laws of
the states designated by the Underwriters in which the shares of Common Stock
and the Warrants will be offered and sold. There can be no assurance, however,
that such registrations or exemptions can be obtained.
Fine Equities has been in business since August 1995 and has acted as an
underwriter in one other offering of securities and has not managed any other
offering of securities. SouthWall has been in business since May 1996. Prior
to this Offering, it has only co-managed one other offering of securities and
has acted as an underwriter in several other offerings. There can be no
assurance
50
<PAGE>
that the Underwriters' limited offering experience and small size relative to
other broker-dealers will not adversely affect this Offering or the subsequent
development, if any, of a trading market for the Common Stock and Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 2,930,000 shares of
Common Stock outstanding (assuming no exercise of the Underwriters' over-
allotment option). Of these shares, the 1,150,000 shares of Common Stock sold
in the Offering will be freely transferable and tradable without restriction
or further registration under the Securities Act except for any shares
purchased by any "affiliate", as defined below, of the Company which will be
subject to the resale limitations of Rule 144. All the remaining shares of
Common Stock held by existing stockholders are "restricted" securities within
the meaning of Rule 144 and may only be sold in the public market pursuant to
an effective registration statement under the Securities Act or pursuant to an
applicable exemption from registration, including Rule 144.
Holders of the Warrants offered hereby will be entitled to purchase an
aggregate of 1,150,000 additional shares of Common Stock upon exercise of the
Warrants at any time during the five-year period commencing on the date of
this Prospectus, provided that the Company satisfies certain securities
registration and qualification requirements with respect to the securities
underlying the Warrants. Any and all shares of Common Stock purchased upon
exercise of the Warrants will be freely tradable, provided such registration
requirements are met and except for any shares purchased by any "Affiliate,"
as defined below, of the Company.
Up to 230,000 additional shares of Common Stock may be purchased by the
Underwriters through the exercise of the Unit Purchase Option, and the
warrants included therein. Until five years from the date of this Prospectus,
holders of such securities will have the right, subject to certain conditions,
to require the Company to register all or a portion of such securities at the
Company's expense beginning one year after the date of this Prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has been deemed to have
beneficially owned shares for at least one year, including an "affiliate", is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the then outstanding number of shares of
Common Stock or the average weekly trading volume in the shares of Common
Stock during the four calendar weeks preceding the filing of the required
notice of such sale. Sales under Rule 144 may also be subject to certain
manner of sale provisions, notice requirements and the availability of current
public information about the Company. A person (or persons whose shares are
required to be aggregated) who is not deemed to have been an affiliate of the
Company during the three months preceding a sale, and who has beneficially
owned shares within the definition of "restricted securities" under Rule 144
for at least two years is entitled to sell such shares under Rule 144(k)
without regard to the volume limitation, manner of sale provisions, notice
requirements or public information requirements of Rule 144. Affiliates
continue to be subject to such limitations. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly, through one
or more intermediaries, controls, or is controlled by, or is under common
control with, such issuer.
Upon completion of the Offering, no shares of Common Stock held by the
existing stockholders of the CEDC are currently eligible for sale under Rule
144. CEDC and all of the existing stockholders, directors and officers of CEDC
have agreed that, during the period beginning from the closing of this
Offering and continuing to and including the date 24 months thereafter, they
will not offer, sell, contract to sell or otherwise dispose of shares of
Common Stock beneficially owned by them without the prior written consent of
the Representative (except for the shares of Common Stock offered in this
Offering).
51
<PAGE>
No prediction can be made as to the effect, if any, that future sales of
Common Stock, or the availability of shares of Common Stock for future sale,
will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial numbers of shares of Common Stock, pursuant to a
registration statement, Rule 144 or otherwise, or the perception that such
sales may occur, could adversely affect the prevailing market price of the
Common Stock. In addition, the availability for sale of Warrants or the Unit
Purchase Option could adversely affect prevailing market prices for the Common
Stock.
The Company has reserved 400,000 shares of Common Stock for issuance upon
the exercise of rights outstanding or to be granted pursuant to the Plan. As
of the date hereof, options to purchase 52,500 shares of Common Stock were
outstanding and unexercised. See "Management--Executive Compensation--1997
Stock Incentive Plan."
The Company also has reserved 1,552,500 shares of Common Stock for issuance
upon the exercise of the Warrants, including those issuable upon exercise of
the over-allotment options and upon exercise of the Unit Purchase Option and
the warrants included therein. See "Underwriting."
LEGAL MATTERS
The validity of the Common Stock being offering hereby will be passed upon
for the Company by Hogan & Hartson L.L.P., Washington, D.C., and for the
Underwriters by Baker & McKenzie, New York, New York. Certain matters of
Polish law will be passed upon for the Company by Hogan & Hartson, Warsaw,
Poland and for the Underwriters by Baker & McKenzie, Warsaw, Poland.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and for each of the two years in the period ended December 31, 1996 appearing
in this Prospectus and Registration Statement, have been audited by Ernst &
Young Audit Sp. z o.o., Warsaw, Poland, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of said firm as experts in
accounting and auditing.
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
CEDC is organized under the laws of the State of Delaware. Although
investors in the Common Stock will be able to effect service of process in the
United States upon CEDC and may be able to effect service of process upon its
directors, due to the fact that CEDC is primarily a holding company which
holds stock in Carey Agri in Poland, substantially all of the assets of CEDC
are located outside the United States. As a result, it may not be possible for
investors to enforce against CEDC's assets judgment of United States courts
predicated upon the civil liability provisions of United States laws.
CEDC has been advised by its counsel, Hogan & Hartson L.L.P., that there is
doubt as to the enforceability in Poland, in original actions or in actions
for enforcement of judgments of United States courts, of civil liabilities
predicated solely upon the laws of the United States. In addition, awards of
punitive damages in actions brought in the United States or elsewhere may be
unenforceable in Poland.
52
<PAGE>
AVAILABLE INFORMATION
CEDC has filed with the SEC a registration statement (herein, together with
all amendments, exhibits and schedules thereto, referred to as the
"Registration Statement") under the Securities Act with respect to the Common
Stock and Warrants offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. For further information with respect to
CEDC and the Common Stock and Warrants, reference is hereby made to the
Registration Statement.
As a result of the Offering, CEDC will become subject to the reporting
requirements of the Exchange Act, and in accordance therewith, will file
reports and other information with the SEC. CEDC intends to furnish its
stockholders with annual reports containing financial statements audited by
its independent public accountants. The Registration Statement, including the
exhibits and schedules thereto, and reports and other information filed by the
Company with the SEC can be inspected without charge and copied, upon payment
of prescribed rates, at the public reference facilities maintained by the SEC
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and the Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material and any part
thereof will also be available by mail from the Public Reference Section of
the SEC, at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates, and via the SEC's address on the World Wide Web at http:/www.sec.gov.
53
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at December 31, 1996 and September 30, 1997
(unaudited).............................................................. F-3
Consolidated Statements of Income for the years ended December 31, 1995
and 1996 and the nine months ended September 30, 1996 and 1997 (unau-
dited)................................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1995 and 1996 and the nine months ended September 30,
1997 (unaudited)......................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1995 and 1996 and the nine months ended September 30, 1996 and 1997 (un-
audited)................................................................. F-7
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Central European Distribution Corporation
We have audited the accompanying consolidated balance sheet of Central
European Distribution Corporation as of December 31, 1996 and the related
consolidated statements of income, stockholders' equity, and cash flows for
the years ended December 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Central
European Distribution Corporation at December 31, 1996, and the consolidated
results of its operations and its cash flows for the years ended December 31,
1996 and 1995 in conformity with accounting principles generally accepted in
the United States.
/s/ Ernst & Young Audit Sp. z o.o.
Ernst & Young Audit Sp. z o.o.
Warsaw, Poland
November 28, 1997
F-2
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED BALANCE SHEETS
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash.............................................. 740 240
Accounts receivable, net of allowance for doubtful
accounts of $49,000 and $58,000, respectively.... 4,211 3,744
Inventories....................................... 1,660 2,193
Prepaid expenses and other current assets......... 172 181
Deferred income taxes............................. 106 121
----- -----
Total Current Assets............................ 6,889 6,479
Equipment, net...................................... 442 431
Deferred charges.................................... -- 252
Deferred income taxes............................... 4 3
----- -----
Total Assets...................................... 7,335 7,165
===== =====
</TABLE>
See accompanying notes.
F-3
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable............................ 5,140 4,462
Bank loans and overdraft facilities............... 856 997
Income taxes payable.............................. 6 34
Taxes other than income taxes..................... 720 912
Accrued expenses and deferred income.............. 132 233
Current portion of long-term debt and capital
lease obligations................................ 152 293
----- -----
Total Current Liabilities....................... 7,006 6,931
Long-term debt, less current maturities............. 205 55
Capital lease obligations, less current portion..... 98 13
Stockholders' Equity
Common Stock ($0.01 par value, 20,000,000 shares
authorized, 1,780,000 shares issued and outstand-
ing)............................................. 18 18
Additional paid-in-capital........................ 36 36
Retained earnings (accumulated deficit)........... (28) 112
----- -----
Total Stockholders' Equity...................... 26 166
----- -----
Total Liabilities and Stockholders' Equity...... 7,335 7,165
===== =====
</TABLE>
See accompanying notes.
F-4
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
(EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997
------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................ 16,017 23,942 14,575 27,499
Cost of goods sold....... 13,113 19,850 11,697 23,759
------ ------ ------ ------
Gross profit............. 2,904 4,092 2,878 3,740
Sales, general and
administrative
expenses................ 2,603 3,569 2,581 3,057
------ ------ ------ ------
Operating income......... 301 523 297 683
Non-operating income (ex-
pense)
Interest expense....... (106) (124) (83) (106)
Realized and unrealized
foreign currency
transaction losses,
net................... (84) (232) (231) (278)
Other income, net...... 84 6 88 35
------ ------ ------ ------
Income before income tax-
es...................... 195 173 71 334
Income tax expense....... (120) (111) (65) (194)
------ ------ ------ ------
Net income............... 75 62 6 140
====== ====== ====== ======
Net income per common
share, primary and fully
diluted................. 0.04 0.03 0.00 0.08
====== ====== ====== ======
</TABLE>
See accompanying notes.
F-5
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS
-------------------- ADDITIONAL PAID- (ACCUMULATED
NO. OF SHARES AMOUNT IN-CAPITAL DEFICIT)
------------- ------ ---------------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994
(Note 1)..................... 1,780,000 18 36 (165)
Net income for 1995........... -- -- -- 75
--------- --- --- ----
Balance at December 31, 1995.. 1,780,000 18 36 (90)
Net income for 1996........... -- -- -- 62
--------- --- --- ----
Balance at December 31, 1996.. 1,780,000 18 36 (28)
Net income for the nine months
ended September 30, 1997 (un-
audited)..................... -- -- -- 140
--------- --- --- ----
Balance at September 30, 1997
(unaudited)..................... 1,780,000 18 36 112
========= === === ====
</TABLE>
See accompanying notes.
F-6
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997
------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Operating Activities
Net income.............. 75 62 6 140
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities:
Depreciation and
amortization........... 36 67 49 120
Deferred income taxes
(benefit).............. 6 (18) (32) (14)
Gain on the disposal of
equipment.............. (5) (7) -- (10)
Changes in operating
assets and
liabilities:
Accounts receivable,
net of allowances..... (1,074) (2,633) 69 467
Inventories............ (480) (612) (479) (533)
Trade accounts
payable............... 918 2,915 450 (678)
Income and other
taxes................. 80 613 358 220
Prepayments and other
current assets........ 14 (84) (92) (9)
Accrued expenses and
deferred income....... 349 (271) (147) (27)
------ ------- ------- -------
Net Cash (Used In)
Provided by Operating
Activities........... (81) 32 182 (324)
Investing Activities
Purchases of equipment.. (62) (336) (213) (85)
Proceeds from the
disposal of equipment.. 23 264 90 32
------ ------- ------- -------
Net Cash Used In
Investing
Activities........... (39) (72) (123) (53)
Financing Activities
Borrowings on overdraft
facility............... 8,465 17,531 12,496 12,592
Payment of overdraft
facility............... (8,210) (17,747) (12,461) (12,461)
Payment of capital lease
obligations............ -- (62) (34) (147)
Short-term borrowings... 379 840 337 500
Payment of short-term
borrowings............. (350) (402) (375) (490)
Long-term borrowings.... 200 205 205 7
Payment of long-term
borrowings............. (20) (180) (180) --
Costs paid in connection
with planned public
offering............... -- -- -- (124)
------ ------- ------- -------
Net Cash Provided by
(Used In) Financing
Activities........... 464 185 (12) (123)
------ ------- ------- -------
Net Increase (Decrease)
in Cash................. 344 145 47 (500)
Cash at beginning of
period.................. 251 595 595 740
------ ------- ------- -------
Cash at end of period.... 595 740 642 240
====== ======= ======= =======
</TABLE>
See accompanying notes.
F-7
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Central European Distribution Corporation (CEDC) was organized as a Delaware
Corporation in September 1997 to operate as a holding company through its sole
subsidiary, Carey Agri International--Poland Sp. z o.o. (Carey Agri). CEDC and
Carey Agri are referred to herein as the Company.
CEDC's authorized capital stock consists of 20 million shares of common
stock, $0.01 par value, and 1 million shares of preferred stock, also $0.01
par value. No shares of preferred stock have been issued and its terms and
conditions will be established by the Board of Directors at a later date.
In November 1997, CEDC issued 1,780,000 shares of its common stock to the
former stockholders of Carey Agri in exchange for all the issued and
outstanding shares of Carey Agri. This reorganization resulted in no changes
in relative equity interests among the stockholders and no adjustments of the
underlying net assets of Carey Agri. The new capital structure has been
reported in a manner comparable to a pooling of interests in the accompanying
consolidated financial statements. All share and per share data have been
presented in accordance with the new capital structure.
Carey Agri is a Polish limited liability company with headquarters in
Warsaw, Poland. Carey Agri distributes alcoholic beverages throughout Poland
and all activities are conducted within that country. It currently has
branches in the following Polish cities: Warsaw, Cracow, Szczecin, Gdynia,
Wroclaw, Torun, Siemianowice and Poznan. Pursuant to Polish statutory
requirements, Carey Agri may pay an annual dividend, based on its audited
Polish financial statements, to the extent of its retained earnings as
defined. At December 31, 1996, approximately $8,000 was available for payment
of dividends.
2. ACCOUNTING POLICIES
The significant accounting policies and practices followed by the Company
are as follows:
Basis of Presentation
Since CEDC had no prior operations, the accompanying consolidated financial
statements reflect the activities of Carey Agri.
Carey Agri maintains its books of account and prepares its financial
statements in Polish zloties (PLN) in accordance with Polish statutory
requirements and the Accounting Act of 29 September 1994. The exchange rate
was approximately 3.4 PLN per USD at September 30, 1997.
The accompanying consolidated financial statements include adjustments,
translations, and reclassifications, which are appropriate to present the
Company's consolidated financial statements in accordance with accounting
principles generally accepted in the United States (US GAAP).
The consolidated financial statements (and notes thereto) as at September
30, 1997 and for the nine months ended September 30, 1997 and 1996 are
unaudited, but include in the opinion of management, all adjustments
considered necessary for a fair presentation of such data. The results for the
unaudited interim periods are not necessarily indicative of the results
expected for the entire year.
Foreign Currency Translation and Transactions
As stated above, Carey Agri maintains its books of account in Polish
zloties. The accompanying consolidated financial statements have been prepared
in US Dollars. Transactions and balances not
F-8
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
already measured in US Dollars (primarily Polish zloties) have been remeasured
into US Dollars in accordance with the relevant provisions of US Financial
Accounting Standard (FAS) No. 52 "Foreign Currency Translation" as applied to
entities in highly inflationary economies.
Under FAS No. 52, revenues, costs, capital and non-monetary assets and
liabilities are translated at historical exchange rates prevailing on the
transaction dates. Monetary assets and liabilities are translated at exchange
rates prevailing on the balance sheet date. Exchange gains and losses arising
from remeasurement of monetary assets and liabilities that are not denominated
in US Dollars are credited or charged to operations.
Equipment
Equipment is stated at cost, less accumulated depreciation. Depreciation is
computed by the straight-line method over the following useful lives:
<TABLE>
<CAPTION>
TYPE DEPRECIATION LIFE IN YEARS
---- --------------------------
<S> <C>
Transportation Equipment......................... 6
Beer Dispensing and Other Equipment.............. 2-10
</TABLE>
Equipment under capital lease is depreciated over the shorter of the useful
life or the lease term.
Revenue Recognition
Revenue is recognized when goods are shipped to customers.
Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred. Advertising and
promotion expense was approximately $280,000 and $120,000 in 1996 and 1995,
respectively ($314,000 for the nine months ended September 30, 1997).
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories are comprised primarily of beer, wine, and spirits.
Estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results may differ
from those estimates and such differences may be material to the financial
statements.
Income Taxes
The Company computes and records income taxes in accordance with FAS No.
109.
Effect of New Accounting Standards Not Yet Adopted
In February 1997, the Financial Accounting Standards Board (FASB) issued its
Statement No. 128, "Earnings per Share." Among other provisions, FAS No. 128
simplifies the standards for
F-9
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
computing earnings per share. The standard will be effective for the Company
in the three months ending December 31, 1997. The Company does not expect the
adoption of FAS No. 128 to have a material impact on its financial statements.
In June 1997, the FASB issued its Statement No. 130, "Reporting
Comprehensive Income." This standard will be effective for the Company in the
three months ending March 31, 1998, and it requires the disclosure of
comprehensive income which is defined as all changes in equity during a period
except those resulting from investments by owners and distributions to owners.
Comprehensive income will include net income adjusted by, among other items,
foreign currency translation adjustments. As disclosed in this Note 2, the
Company remeasures transactions and results of its Polish subsidiary in
accordance with FAS No. 52 as applied to entities in highly inflationary
economies. Therefore, exchange gains and losses arising from remeasurement of
these monetary assets and liabilities are credited or charged to net income.
However, if in future periods Poland is considered not to be a highly
inflationary economy, these remeasurements will be recorded as a separate
component of equity and, under FAS No. 130, included as part of comprehensive
income.
In June 1997, the FASB issued its Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The standard will be
effective for the Company in the year ending December 31, 1998, and it
requires, among other provisions, that a public business enterprise report
financial and descriptive information about its reportable operating segments.
The Company does not expect the adoption of FAS No. 131 to have a material
impact on the disclosures contained in its financial statements.
Net Income Per Common Share
Net income per common share is calculated using the average shares
outstanding during the periods (1,780,000 during each of the periods). There
were no common stock equivalents.
3. EQUIPMENT
Equipment, which is presented net of accumulated depreciation in the balance
sheets, consists of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Transportation Equipment.......................... 174 178
Beer Dispensing and Other Equipment............... 433 493
---- ----
607 671
Less accumulated depreciation..................... (165) (240)
---- ----
Equipment, net.................................... 442 431
==== ====
</TABLE>
F-10
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Loan denominated in US Dollars.................... 205 205
Car loan denominated in Polish zloty.............. -- 7
Current portion of these loans.................... -- (157)
--- ----
Long-term portion................................. 205 55
=== ====
</TABLE>
The Company has a revolving credit line with a bank for $205,000 at December
31, 1996 and September 30, 1997. The line can be used for various purposes
such as an overdraft facility, loan for letters of credit, or for loans for
guarantees made by the Company. Currently, the loan is being used for working
capital purposes with annual interest equal to the bank's dollar base rate
(approximately 10% at December 31, 1996 and September 30, 1997). The loan is
collateralized by a bill of exchange and personal guaranties by two officers
and directors of the Company. Maturity was scheduled for March 15, 1997, but
was extended through December 15, 1998 in accordance with an amendment dated
October 14, 1997. The interest rate was changed to the bank's Amerbank LIBOR
rate plus 3.5% (approximately 9.17% at September 30, 1997). Installments of
$17,000 are due monthly beginning January 15, 1998 with $18,000 due on
December 15, 1998. Therefore, the entire $205,000 is due in 1998.
5. LEASE OBLIGATIONS
Certain non-cancelable leases are classified as capital leases, and the
leased assets are included as part of equipment. Other leases are classified
as operating leases and are not capitalized. The depreciation for assets under
capital leases is included in depreciation expense. Details of the capitalized
leased assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Transportation equipment.......................... 88 119
Beer dispensing equipment......................... 252 212
--- ----
340 331
Less accumulated depreciation..................... (60) (142)
--- ----
280 189
=== ====
</TABLE>
F-11
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
At December 31, 1996, the future minimum lease payments under operating and
capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1997....................................................... 242 223
1998....................................................... 198 106
1999....................................................... 54 --
2000....................................................... 54 --
2001....................................................... 54 --
--- ---
Total...................................................... 602 329
===
Less amounts representing interest costs................... (79)
---
Net present value.......................................... 250
Current portion............................................ 152
---
Long-term portion.......................................... 98
===
</TABLE>
Rent expense incurred under operating leases during 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Rent expense....................................................... 301 183
=== ===
</TABLE>
Capitalized leases relate mainly to the leasing of transportation equipment
and beer dispensing equipment. Each of these leases expires in 1997 or 1998.
Under most of these leases, the Company may purchase the equipment at the end
of the lease terms at a price below the expected market value. New capital
leases caused non-cash additions to equipment of $312,000 and $46,000 in the
year ended December 31, 1996 and the nine months ended September 30, 1997,
respectively. These are not reflected in the Consolidated Statements of Cash
Flows.
Operating leases relate mainly to the leasing of the customs warehouse and
the consolidation warehouse in Warsaw, and the 7 regional offices and
warehouses. Monthly rentals range from approximately $570 to $6,000 per month.
The customs and consolidation warehouses' leases expire in September 2001. Six
of the regional office and warehouse leases can be terminated by either party
with two or three months prior notice. The seventh regional office and
warehouse lease expires in December 1998.
6. SHORT-TERM BANK LOANS AND OVERDRAFT FACILITIES
The Company has an overdraft facility (in Polish zloty, shown in approximate
USD equivalent) with a bank (other than the bank referred to in note 4) for
$285,000. At December 31, 1996 and September 30, 1997 the Company used $16,000
and $147,000, respectively, of this amount. Interest is equal to PLN WIBOR
(Warsaw InterBank Rate) plus 3.5% (24% and 28% at December 31, 1996 and
September 30, 1997, respectively). The loan matured on July 14, 1997 and was
extended through July 29, 1998. The loan is collateralized by a blank bill of
exchange, the assignment of receivables from eight of the Company's largest
customers (carrying value of $389,000 at December 31, 1996), and a pledge on
inventory of $350,000.
F-12
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
The Company has two other USD short-term loans with this bank for $350,000
and $240,000 at December 31, 1996 ($350,000 and $0 at September 30, 1997).
Interest on each is at LIBOR (1 month) plus 2.75% (8.3% and 8.4% at December
31, 1996 and September 30, 1997, respectively). The loans are collateralized
by a blank bill of exchange, pledge on inventory of PLN 1,000,000, the
assignment of receivables from eight of the Company's largest customers
(carrying value of $389,000 at December 31, 1996) and the assignment of an
insurance policy on inventory. The $350,000 loan was due on July 29, 1997 but
was extended through July 30, 1998. The $240,000 loan was due in 6 monthly
installments of $40,000 beginning January 31, 1997 and was fully paid in June
1997.
The Company has short-term USD loans with another bank for $250,000 at
December 31, 1996 and $500,000 at September 30, 1997. Interest on the loans is
at LIBOR plus 1.5% (7.0% and 7.2% at December 31, 1996 and September 30, 1997,
respectively). The loan outstanding at December 31, 1996 was paid in March
1997. A new loan for $250,000 was taken at the end of March 1997 and was due
on September 30, 1997. Another $250,000 was borrowed on June 2, 1997 and was
also due on September 30, 1997. The due date for both loans was extended to
December 23, 1997.
The Company's borrowing arrangements (including long-term debt described in
Note 4) contain various financial and nonfinancial covenants and restrictions
which the Company has complied with or have been waived by the lender.
Total interest paid in 1996 and 1995 (and the nine months ended September
30, 1997) is substantially equal to interest expense.
7. DEFERRED CHARGES
Costs incurred in connection with a planned public offering, totaling
$252,000, are included in deferred charges in the September 30, 1997 balance
sheet. The accrued portion of $128,000 at September 30, 1997 is not reflected
in the Consolidated Statements of Cash Flows. If the offering is successful,
this amount and other charges incurred subsequently will be charged to
stockholders' equity. If the offering is not completed, this amount and other
charges incurred subsequently will be charged to expense.
8. FINANCIAL INSTRUMENTS, COMMITMENTS AND CONTINGENT LIABILITIES
Financial Instruments With On-Balance Sheet Risk and Their Fair Values
Financial instruments with on-balance sheet risk include cash, accounts
receivable, certain other current assets, trade accounts payable, bank loans
and overdraft facilities, long-term debt, and other payables. These financial
instruments are shown separately in the consolidated balance sheets and their
carrying values approximate their fair values. This is because all of these
financial instruments have short maturity periods or carry interest at rates
which approximate current market rates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of accounts receivable from Polish companies.
The Company restricts temporary cash investments to financial institutions
with high credit standing. Credit is given to customers only after a thorough
review of their credit worthiness. The Company does not normally require
collateral with respect to credit sales. As of December 31, 1996 or September
30, 1997, the Company had no significant concentrations of credit risk. The
Company has not experienced large credit losses in the past.
F-13
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
Inflation and Currency Risk
Since the fall of Communist rule in 1989, Poland has experienced high levels
of inflation and significant fluctuations in the exchange rate for the zloty.
The Polish government has adopted policies that slowed the annual rate of
inflation from approximately 250% in 1990 to approximately 18% in 1996. In
addition, the exchange rate for the zloty has stabilized and the rate of
devaluation of the zloty has decreased since 1991. However, inflation and
currency exchange fluctuations have had, and may continue to have, an adverse
effect on the financial condition and results of operations of the Company.
A significant portion of the Company's debt obligations and operating
expenses are, and are expected to continue to be, denominated in or indexed to
U.S. Dollars or other non-Polish currency. By contrast, substantially all of
the Company's revenue is denominated in zloty. Any devaluation of the zloty
against the U.S. Dollar or other currencies that the Company is unable to
offset through price adjustments will require the Company to use a larger
portion of its revenue to service its non-zloty denominated obligations. While
the Company may consider entering into transactions to hedge the risk of
exchange rate fluctuations, it is unlikely that the Company will be able to
obtain hedging arrangements on commercially satisfactory terms. Accordingly,
shifts in currency exchange rates may have an adverse effect on the ability of
the Company to service its non-zloty denominated obligations and, thus, on the
Company's financial condition and results of operations.
Supply contracts
The Company has various agreements covering its sources of supply which, in
some cases, may be terminated by either party on relatively short notice. Thus
there is a risk that a significant portion of the Company's supply of products
could be curtailed at any time.
Contingent liabilities
The Company is involved in litigation and has claims against it for matters
arising in the ordinary course of business. In the opinion of management, the
outcome will not have a material adverse effect on the Company.
9. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -----------------
(UNAUDITED)
<S> <C> <C> <C>
Current Polish income tax ex-
pense......................... 114 129 208
Deferred Polish income tax
(credit) expense, net......... 6 (18) (14)
--- --- ---
Total income tax expense..... 120 111 194
=== === ===
</TABLE>
Total Polish income tax payments (or amounts used as settlements against
other statutory liabilities) during 1996 and 1995 were $130,000 and $112,000,
respectively ($165,000 for the nine months ended September 30, 1997).
F-14
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
Total income tax expense varies from expected income tax expense computed at
Polish statutory rates (40% in 1995 and 1996 and 38% in 1997) as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Tax at Polish statutory rate....... 78 69 127
Bad debt expense not expected to be
tax deductible.................... 6 4 7
Effect of foreign currency exchange
rate change on net deferred tax
assets............................ 3 13 25
Permanent differences:
Interest on overdue taxes........ 2 5 4
Non-deductible social taxes...... 5 7 7
Non-deductible depreciation...... 3 4 5
Non-deductible interest paid..... 13 -- --
Certain other non-deductible
expenses........................ 10 9 19
--- --- ---
Income tax expense................. 120 111 194
=== === ===
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Deferred tax liabilities:
Depreciation and other fixed asset basis dif-
ferences..................................... 33 --
Prepaid expenses.............................. 7 --
--- ---
Total deferred tax liabilities.................. 40 --
Deferred tax assets:
Allowance for doubtful accounts receivable.... 19 22
Unrealized foreign exchange losses............ 31 50
Accrued expenses and deferred income.......... 50 40
Capital lease obligations..................... 69 34
--- ---
Total deferred tax assets....................... 169 146
Less valuation allowance........................ (19) (22)
--- ---
Deferred tax assets, net of valuation allow-
ance........................................... 150 124
--- ---
Net deferred tax asset.......................... 110 124
=== ===
Shown as:
Current deferred tax asset.................... 106 121
Long-term deferred tax asset.................. 4 3
--- ---
110 124
=== ===
</TABLE>
F-15
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
Valuation allowances are provided when it is more likely than not that some
or all of the deferred tax assets will not be realized in the future. These
evaluations are based on expected future taxable income and expected reversals
of the various net deductible temporary differences.
The corporate income tax rates in Poland were changed effective January 1,
1997 from 40% in 1995 and 1996 to 38% in 1997, 36% in 1998, 34% in 1999, and
32% in 2000.
The Company's tax liabilities (including corporate income tax, Value Added
Tax, social security, and other taxes) may be subject to examinations by
Polish tax authorities for up to five years from the end of the year the tax
is payable. Because the application of tax laws and regulations to many types
of transactions is susceptible to varying interpretations, amounts reported in
the financial statements could be changed at a later date upon final
determination by the tax authorities.
10. RELATED PARTY TRANSACTIONS
Loan to Officer
The Company has an advance receivable (denominated in PLN without interest)
from its President which has a balance at September 30, 1997 of $24,000.
Bank Borrowing
A director of CEDC is a vice president and member of the management board of
the bank from which the Company has borrowings of $205,000 at September 30,
1997 (Notes 4 and 12).
Supplier of Wine
A director of CEDC is a director of one of the Company's suppliers of wine.
Purchases from this company amounted to approximately $300,000 in 1996.
11. STOCK OPTION PLANS AND WARRANTS
In October 1995, the United States Financial Accounting Standards Board
issued FAS No. 123, "Accounting for Stock-Based Compensation." This standard
defines a fair value based method of accounting for an employee stock option
or similar equity instrument plan. This statement gives entities a choice of
recognizing related compensation expense by adopting the fair value method or
to measure compensation using the intrinsic value approach under Accounting
Principles Board (APB) Opinion No. 25, the former standard. If APB No. 25 is
elected, FAS No. 123 requires supplemental disclosure to show the effects of
using the FAS No. 123 measurement criteria. The Company intends to follow APB
No. 25.
Incentive Plan
In November 1997, the CEDC 1997 Stock Incentive Plan ("Incentive Plan") was
created. This Incentive Plan provides for the grant of stock options, stock
appreciation rights, restricted stock and restricted stock units to directors,
executives, and other employees of CEDC and any of its subsidiaries or of any
service provider. The Incentive Plan authorizes the issuance of up to 400,000
shares of Common Stock (subject to anti-dilution adjustments in the event of a
stock split, recapitalization, or similar transaction). The compensation
committee of the board of directors will administer the Incentive Plan. The
Company has reserved 400,000 shares for future issuance in relation to the
Incentive Plan.
F-16
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
The option exercise price for incentive stock options granted under the
Incentive Plan may not be less than 100% of the fair market value of the
Common Stock on the date of grant of the option. Options may be exercised up
to 10 years after grant, except as otherwise provided in the particular option
agreement. Payment for shares purchased under the Incentive Plan shall be made
in cash or cash equivalents. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of stock of CEDC,
however, the exercise price of any incentive stock option granted must equal
at least 110% of the fair market value on the grant date and the maximum term
of an incentive stock option must not exceed five years.
Options granted under the Incentive Plan are generally not transferable and
may be exercised within a specific number of months, depending on the reason,
after the termination of the optionee's employment.
CEDC'S board of directors may amend the Incentive Plan with respect to
common shares as to which grants have not been made. However, CEDC's
stockholders must approve any amendments in certain situations.
In December 1997, CEDC granted stock options to its executive officers and
members of the Board of Directors for 52,500 shares of Common Stock in
connection with a planned public offering. The exercise price of these options
is the initial public offering price. Thus if the public offering is not
consummated, these options will be null and void.
As indicated above, the Incentive Plan also authorizes the grant of stock
appreciation rights, restricted stock, and restricted stock units. No such
grants or awards have yet been made.
Under APB 25, no expense will be recognized for options granted under the
Incentive Plan as the exercise price is equal to the initial public offering
price.
Unit Purchase Option
In connection with the planned public offering, the Company has agreed to
issue (for a nominal consideration) a Unit Purchase Option for the purchase of
up to 115,000 shares of Common Stock and 115,000 warrants to the underwriters.
The Unit Purchase Option is exercisable at any time during a period of four
years commencing at the beginning of the year after issuance. The exercise
price of the Unit Purchase Option is 120% of the aggregate initial offering
price of shares of Common Stock and the Warrants. The warrants included in the
Unit Purchase Option are exercisable at any time during a period of four years
commencing at the beginning of the year after the date of the public offering.
The exercise price of the warrants included in the Unit Purchase Option is the
initial public offering price.
12. SUBSEQUENT EVENTS
Short-Term Debt
On October 7, 1997 the Company signed with a bank (the same bank discussed
in Note 10) an agreement for a revolving credit line of $200,000. The line is
be used to finance the costs of the planned initial public offering. The loan
is to be paid back in full using the proceeds from the planned initial public
offering by April 8, 1998. The credit line is collateralized by a blank
bill of exchange, a pledge on inventory of PLN 700,000, personal guarantee by
two officers and directors of the Company and the assignment of an insurance
policy on inventory. Interest
F-17
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
on the loan is at LIBOR (1 month) plus 2.25% (7.9% at September 30, 1997). The
amount of borrowings pursuant to the agreement was increased to $300,000 in
December 1997.
On October 27, 1997 the Company has signed an agreement with another bank
for a short-term loan of $100,000. The proceeds of the loan are to be used to
purchase Bulgarian wine. The annual interest rate equals LIBOR (1 month) plus
2.75% (8.4% at September 30, 1997) and the loan is to be repaid in two
installments of $50,000 each due on January 15, 1998 and on February 17, 1998.
The loan is collaterized by a blank bill of exchange.
Long-Term Debt
In October and November 1997, the Company entered into five loan agreements.
These loans were used to purchase four cars and one truck. The loans are
denominated in PLN and in total equaled a USD equivalent of $60,000. The loans
are to be repaid in twenty-four equal installments through late 1999. The
loans have an interest rate equal to WIBOR + 3% (27.9% at September 30, 1997).
These loans are collateralized by blank bills of exchange, the car or truck
financed, and the assignment of an insurance policy on the car or truck
financed.
F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UN-
LAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS
GIVEN IN THIS PROSPECTUS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
The Reorganization....................................................... 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Dilution................................................................. 17
Exchange Rate Data....................................................... 18
Capitalization........................................................... 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 24
Regulation............................................................... 32
Management............................................................... 35
Certain Transactions..................................................... 40
Principal and Selling Stockholders....................................... 41
Description of Securities................................................ 43
Underwriting............................................................. 48
Shares Eligible for Future Sale.......................................... 50
Legal Matters............................................................ 52
Experts.................................................................. 52
Enforceability of Certain Civil Liabilities.............................. 52
Available Information.................................................... 53
Index to Consolidated Financial Statements............................... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIV-
ERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PRO-
SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,150,000 SHARES OF
COMMON STOCK
1,150,000 REDEEMABLE
WARRANTS
CENTRAL EUROPEAN
DISTRIBUTION
CORPORATION
[LOGO]
FINE EQUITIES, INC.
SOUTHWALL CAPITAL CORP.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law ("DGCL"), a
corporation may indemnify its directors, officers, employees and agents and
its former directors, officers, employees and agents and those who serve, at
the corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The DGCL provides,
however, that such person must have acted in good faith and in a manner such
person reasonably believed to be in (or not opposed to) the best interests of
the corporation and, in the case of a criminal action, such person must have
had no reasonable cause to believe his or her conduct was unlawful. In
addition, the DGCL does not permit indemnification in an action or suit by or
in the right of the corporation, where such person has been adjudged liable to
the corporation, unless, and only to the extent that, a court determines that
such person fairly and reasonably is entitled to indemnity for costs the court
deems proper in light of liability adjudication. Indemnity is mandatory to the
extent a claim, issue or matter has been successfully defended.
The Registrant's Certificate of Incorporation and Bylaws provide for the
indemnification of directors and executive officers to the fullest extent
permitted by the DGCL and authorize the indemnification by the Registrant of
other officers, employees and other agents as set forth in the DGCL.
The Underwriting Agreement provides for indemnification by the Underwriters
of the directors, officers and controlling persons of the Company against
certain liabilities, including liabilities under the Securities Act, under
certain circumstances.
Upon completion of the Offering, officers and directors of the Registrant
will be covered by insurance which (with certain exceptions and within certain
limitations) indemnifies them against losses and liabilities arising from any
alleged "wrongful act" including any alleged error or misstatement or
misleading statement, or wrongful act or omission or neglect or breach of
duty.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses payable by the Company in
connection with the distribution of the Common Stock and Warrants hereunder,
not including the Underwriters' non-accountable expense allowance.
<TABLE>
<S> <C>
SEC registration fee.............................................. $7,352.24
NASD filing fee................................................... 2,992.28
Nasdaq Stock Market listing fee................................... *
Accounting fees and expenses...................................... *
Legal fees and expenses........................................... *
Printing and engraving expenses................................... *
Blue Sky fees and expenses........................................ *
Transfer Agent fees and expenses.................................. *
Miscellaneous expenses............................................ *
---------
Total........................................................... $ *
=========
</TABLE>
- --------
* To be furnished by amendment.
The Selling Stockholders will not bear any of the expenses of the Offering.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
All the holders of shares of common stock of Carey Agri International Poland
Sp. z o.o ("Carey Agri") and the Registrant entered into a Contribution
Agreement dated as of November 28, 1997 (the "Contribution Agreement").
Pursuant to the Contribution Agreement, all holders of shares of Carey Agri's
common stock transferred all shares of common stock owned by them to the
Registrant, receiving 1,780,000 shares of the Common Stock in return. All of
these transfers were designed to qualify as a tax-free exchange under section
351 of the Internal Revenue Code of 1986, as amended. These transfers were
made pursuant to Section 4(2) of the Securities Act of 1933, as amended.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
1 --Form of Underwriting Agreement.
2.1 --Contribution Agreement among Central European Distribution
Corporation and William V. Carey, William V. Carey Stock Trust,
Estate of William O. Carey and Jeffrey Peterson dated November 28,
1997.
3.1 --Certificate of Incorporation.
3.2 --Bylaws.
4.1 --Form of Common Stock Certificate.
4.2 --Warrant Agreement and attached form of Warrant.
4.3 --Form of Unit Purchase Option.
*5 --Opinion of Hogan & Hartson L.L.P.
10.1 --1997 Stock Incentive Plan.
10.2 --Distribution contract between Carey Agri and Guinness Brewing
Worldwide Ltd. dated July 31, 1997.
10.3 --Distribution contract between Carey Agri and Pilsner Urquell dated
December 13, 1996.
10.4 --Distribution contract between Carey Agri and United Distillers
Finlandia Group Sp. z o.o dated January 1, 1995.
10.5 --Form of distribution contract with Polmos vodka producers.
10.6 --Distribution contract with IDV Poland Sp. z o.o. dated July 3, 1997.
*10.7 --Distribution contract for Lech beer.
10.8 --Employment agreement with William V. Carey.
10.9 --Employment agreement with Jeffrey Peterson.
10.10 --Form of Selling Shareholders' Power of Attorney.
10.11 --Form of Custody Agreement between Selling Shareholders and
Custodian.
21 --Subsidiaries of the Registrant.
23.1 --Consent of Ernst & Young Audit Sp. z o.o.
*23.2 --Consent of Hogan & Hartson L.L.P. (included in Exhibit 5).
24 --Power of Attorney (included on the signature page in Part II of this
Registration Statement).
27 --Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
II-2
<PAGE>
Commission (the "Commission") such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, each post-
effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement for the securities offered in this
Registration Statement, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(a) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(b) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(c) Include any additional or changed material information on the
plan of distribution.
II-3
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS OF FILING ON FORM SB-2 AND AUTHORIZED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE
CITY OF ALEXANDRIA, COMMONWEALTH OF VIRGINIA, ON THIS 15TH DAY OF DECEMBER
1997.
Central European
Distribution Corporation
/s/ William V. Carey
By: _________________________________
WILLIAM V. CAREY
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS WILLIAM V. CAREY AND JEFFREY PETERSON, JOINTLY
AND SEVERALLY, EACH IN HIS OWN CAPACITY, HIS TRUE AND LAWFUL ATTORNEYS-IN-
FACT, WITH FULL POWER OF SUBSTITUTION, FOR HIM AND HIS NAME, PLACE AND STEAD,
IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-
EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME,
WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH
THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT
AND AGENTS WITH FULL POWER AND AUTHORITY TO DO SO AND PERFORM EACH AND EVERY
ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS
FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY
RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT, OR THEIR SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS, IN THE CAPACITIES
INDICATED BELOW, ON THIS 15TH DAY OF DECEMBER 1997.
SIGNATURE TITLE
/s/ William V. Carey Chairman, President, Chief Executive
- ------------------------------------- Officer and Chief Financial Officer
WILLIAM V. CAREY (Principal executive, financial and
accounting officer)
/s/ Jeffrey peterson Vice Chairman and Executive Vice
- ------------------------------------- President
JEFFREY PETERSON
/s/ James T. Grossmann Director
- -------------------------------------
JAMES T. GROSSMANN
/s/ James B. Kelly Director
- -------------------------------------
JAMES B. KELLY
/s/ Jan W. Laskowski Director
- -------------------------------------
JAN W. LASKOWSKI
/s/ Joe M. Richardson Director
- -------------------------------------
JOE M. RICHARDSON
II-4
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
1,150,000 shares of Common Stock, par value $.01 per share
and
1,150,000 redeemable Common Stock purchase warrants
Underwriting Agreement
[_____], 1998
Fine Equities, Inc.
600 Third Avenue
New York, New York 100165
SouthWall Capital Corp.
110 Wall Street
New York, New York 10005
Dear Sirs:
Central European Distribution Corporation, a Delaware corporation (the
"Company"), proposes to sell to Fine Equities, Inc. and SouthWall Capital Corp.
(hereinafter collectively referred to as the "Underwriters") shares of the
Company's common stock, par value $.01 per share (the "Common Stock") and
redeemable warrants ("Warrants") to purchase such shares to be issued pursuant
to a Warrant Agreement among the Company, the Underwriters and American Stock
Transfer & Trust Company dated _______, 1998 (the "Warrant Agreement"). The
aggregate number of such shares that the Company proposes to sell is 1,150,000
(the "Firm Shares") and the aggregate number of such warrants that the Company
proposes to sell is 1,150,000 (the "Firm Warrants" and together with the Firm
Shares, the "Firm Securities"). The respective amounts of the Firm Securities
to be so purchased by the Underwriters are set forth opposite your respective
names in Schedule I hereto. In addition, the Company and the Selling
Shareholders (as hereinafter defined) propose to sell to the Underwriters, at
the Underwriters' option, an aggregate of up to 172,500 additional shares and a
like number of warrants (the "Option Shares" and "Option Warrants,"
respectively), of which the Company proposes to issue and sell 97,500 Option
Shares and 172,500 Option Warrants and the Selling Shareholders propose to sell
an aggregate of 75,000 Option Shares. Unless the context otherwise indicates:
the Option Shares and the Option Warrants are herein collectively called the
"Option Securities;" the Firm Shares and the Option Shares (to the extent the
aforementioned option is exercised) are herein collectively called the "Shares;"
and the Firm Warrants and the Option Warrants (to the extent the aforementioned
option is exercised) are collectively called the "Warrants."
You have advised the Company that you desire to purchase, severally,
the number of Firm Securities set forth opposite your respective names in
Schedule I hereto, plus your pro rata portion of the Option Securities if you
elect to exercise the aforementioned option in whole or in part. In
consideration of the mutual agreements contained herein and of the interests of
the parties in the transactions contemplated hereby, the parties hereto,
intending to be legally bound, agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(a) A registration statement (File No. 333-_____) on Form SB-2
relating to the public offering of the Shares and Warrants, including a
form of prospectus subject to completion, copies of which have heretofore
been delivered to the Underwriters, has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the rules
<PAGE>
and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with
the Commission under the Act and one or more amendments to such
registration statement may have been so filed. After the execution of this
Agreement, the Company will file with the Commission either (i) if such
registration statement, as it may have been amended, has been declared by
the Commission to be effective under the Act, either (A) if the Company
relies on Rule 434 under the Act, a Term Sheet (as hereinafter defined)
relating to the Shares and Warrants that shall identify the Preliminary
Prospectus (as hereinafter defined) that it supplements containing such
information as is required or permitted by Rules 434, 430A and 424(b) under
the Act or (B) if the Company does not rely on Rule 434 under the Act, a
prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed, in
such registration statement), with such changes or insertions as are
required by Rule 430A under the Act or permitted by Rule 424(b) under the
Act and, in the case of either clause (i)(A) or (i)(B) of this sentence, as
have been provided to and approved by the Underwriters prior to the
execution of this Agreement, or (ii) if such registration statement, as it
may have been amended, has not been declared by the Commission to be
effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Underwriters prior to the execution of
this Agreement.
As used in this Agreement, the term "Registration Statement"
means such registration statement, as amended at the time when it was or is
declared effective, including all financial schedules and exhibits thereto
and including any information omitted therefrom pursuant to Rule 430A under
the Act and including the Prospectus (as hereinafter defined); the term
"Preliminary Prospectus" means each prospectus subject to completion filed
with such registration statement or any amendment thereto (including the
prospectus subject to completion, if any, included in the Registration
Statement or any amendment thereto at the time it was or is declared
effective); the term "Prospectus" means (A) if the Company relies on Rule
434 under the Act, the Term Sheet relating to the Shares and Warrants that
is first filed pursuant to Rule 424(b)(7) under the Act, together with the
Preliminary Prospectus identified therein that such Term Sheet supplements;
(B) if the Company does not rely on Rule 434 under the Act, the prospectus
first filed with the Commission pursuant to Rule 424(b) under the Act or
(C) if the Company does not rely on Rule 434 under the Act and if no
prospectus is required to be filed pursuant to said Rule 424(b), such term
means the prospectus included in the Registration Statement; except that if
such registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and
prior to the Option Closing Date (as defined in Section 3(b) hereof), the
terms "Registration Statement" and "Prospectus" shall mean such
registration statement and prospectus as so amended, and the term
"Prospectus" shall mean the prospectus as so supplemented, or both, as the
case may be; and the term "Term Sheet" means any term sheet that satisfies
the requirements of Rule 434 under the Act. Any reference to the "date" of
a Prospectus that includes a Term Sheet shall mean the date of such Term
Sheet.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the
Registration Statement becomes effective and at all times subsequent
thereto up to and on the Closing Date (as hereinafter defined) or the
Option Closing Date, as the case may be, (i) the Registration Statement and
Prospectus will in all respects conform to the requirements of the Act and
the Rules and Regulations; and (ii) neither the Registration Statement nor
the Prospectus will include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make statements therein not misleading; provided, however, that the Company
makes no representations, warranties or agreements as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of the Underwriters specifically for use in the
preparation thereof. It is understood that the statements set forth in the
Prospectus on page 2 with respect to stabilization, under the heading
"Underwriting" and the identity of counsel to the Underwriters under the
heading "Legal Matters" constitute the only information
-2-
<PAGE>
furnished in writing by or on behalf of the several Underwriters for
inclusion in the Registration Statement and Prospectus, as the case may be.
(c) Each of the Company and Carey Agri International Poland Sp.
z o. o., a corporation organized under the laws of Poland (the
"Subsidiary"), has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority corporate and other to own its
properties and conduct its business as described in the Prospectus and is
duly qualified to do business as a foreign corporation and is in good
standing in all other jurisdictions in which the nature of its business or
the character or location of its properties requires such qualification,
except where failure to so qualify will not materially affect the Company's
or the Subsidiary's business, properties or financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company as of _____, 1997 is as set forth in the Prospectus under
"Capitalization"; the shares of issued and outstanding capital stock of the
Company set forth thereunder have been duly authorized, validly issued and
are fully paid and non-assessable; except as set forth in the Prospectus,
no options, warrants, or other rights to purchase, agreements or other
obligations to issue, or agreements or other rights to convert any
obligation into, any shares of capital stock of the Company have been
granted or entered into by the Company; the capital stock conforms to all
statements relating thereto contained in the Registration Statement and
Prospectus; and neither the filing of the Registration Statement nor the
offering or sale of the Shares and Warrants as contemplated by this
Agreement gives rise to any registration rights or other rights, other than
those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock or other securities of the
Company.
(e) The Shares and Warrants to be issued and sold by the Company
have been duly authorized, and when issued and delivered pursuant to this
Agreement, will be duly authorized, validly issued, fully paid and non-
assessable; the shares of Common Stock issuable upon exercise of the
Warrants have been duly authorized and reserved for issuance upon exercise
of the Warrants and will when issued as contemplated by the instrument
evidencing the Warrants be validly issued, fully paid and non-assessable;
and no preemptive rights of any security holder of the Company exist with
respect to any shares of Common Stock or the issue and sale thereof.
Neither the filing of the Registration Statement nor the offering
or sale of the Shares and Warrants as contemplated in this Agreement gives
rise to any rights, other than those which have been waived or satisfied,
for or relating to the registration of any securities of the Company.
The Warrant Agreement, which will be substantially in the form
filed as an exhibit to the Registration Statement, and Warrants have been
duly authorized; and when the Warrants are delivered and paid for pursuant
to this Agreement, the Warrant Agreement and the Warrants will have been
duly executed and delivered and will constitute the valid and legally
binding obligations of the Company, enforceable in accordance with their
terms.
The shares of Common Stock and warrants (including the shares of
Common Stock issuable upon exercise of such warrants) issuable upon
exercise of the Underwriters' Unit Purchase Option (as defined in Section
13 hereof) have been reserved for issuance upon exercise of the
Underwriters' Unit Purchase Option and, when issued and sold will be duly
authorized, validly issued, fully paid and non-assessable and free of
preemptive rights and no personal liability will attach to the ownership
thereof.
(f) This Agreement and the Underwriters' Unit Purchase Option
have each been duly and validly authorized, executed and delivered by the
Company. The Company has full power and lawful authority to authorize,
issue and sell the Shares and Warrants to be sold by it hereunder on the
terms and conditions set forth herein, and no consent, approval,
authorization or other order of any governmental authority is required in
connection with such authorization, execution and delivery or
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with the authorization, issue and sale of the Shares and Warrants or the
Underwriters' Unit Purchase Option, except such as may be required under
the Act or state securities laws.
(g) The Company does not own, directly or indirectly, any capital
stock or other equity ownership or proprietary interests in any other
corporation, association, trust, partnership, joint venture or other entity
other than the Subsidiary. All of the outstanding shares of capital stock
of the Subsidiary have been duly authorized and validly issued, are fully
paid and nonassessable and free of any preemptive or similar rights, and
are owned by the Company, free and clear of any lien, adverse claim,
security agreement or other encumbrance and have been issued in compliance
with all applicable federal and state securities laws, and no options,
warrants, or other rights to purchase, agreements or other obligations to
issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Subsidiary have been granted or entered into
by the Company or the Subsidiary;
(h) Except as described in the Prospectus, neither the Company
nor the Subsidiary is in violation, breach of default of or under, and
consummation of the transactions herein contemplated and the fulfillment of
the terms of this Agreement will not conflict with, or result in a breach
or violation of, any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the property or assets of the Company or the
Subsidiary pursuant to the terms of any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or the
Subsidiary is a party or by which the Company or the Subsidiary may be
bound or to which any of the property or assets of the Company or the
Subsidiary is subject, nor will such action result in any violation of the
provisions of the articles of incorporation or the by-laws (or other
organizational documents), as amended, of the Company or the Subsidiary, or
any statute or any order, rule or regulation applicable to the Company or
the Subsidiary of any court or of any regulatory authority or other
governmental body having jurisdiction over the Company or the Subsidiary.
(i) Each of the Company and the Subsidiary has good and
marketable title to all properties and assets described in the Prospectus
as owned by it, free and clear of all liens, charges, encumbrances or
restrictions, except for such liens, charges, encumbrances or restrictions
as are not materially significant or important in relation to its
respective business; all of the material leases and subleases under which
the Company or the Subsidiary is the lessor or sublessor of properties or
assets or under which the Company or the Subsidiary hold properties or
assets as lessee or sublessee as described in the Prospectus are in full
force and effect, and, except as described in the Prospectus, neither the
Company nor the Subsidiary is in default in any material respect with
respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone that is adverse to
rights of the Company or the Subsidiary as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or
affecting or questioning the right of either the Company or the Subsidiary
to continued possession of the leased or subleased premises or assets under
any such lease or sublease except as described or referred to in the
Prospectus; and the Company and the Subsidiary own or lease all such
properties described in the Prospectus as are necessary to their operations
as now conducted and, except as otherwise stated in the Prospectus, as
proposed to be conducted as set forth in the Prospectus.
(j) Ernst & Young Audit Sp. z o. o., Warsaw, Poland, who has
given its reports on certain financial statements filed and to be filed
with the Commission as a part of the Registration Statement are with
respect to the Company, independent public accountants as required by the
Act and the Rules and Regulations.
(k) The financial statements, together with related notes, set
forth in the Prospectus (or if the Prospectus is not in existence, the most
recent Preliminary Prospectus) present fairly the financial position and
results of operations and changes in stockholders' equity and cash flow
position
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of the Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. Said
statements and related notes have been prepared in accordance with United
States generally accepted accounting principles applied on a basis which is
consistent during the periods involved. The information set forth under the
captions "Dilution", "Capitalization", and "Selected Financial Data" in the
Prospectus fairly present, on the basis stated in the Prospectus, the
information included therein.
(l) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), neither the
Company nor the Subsidiary has incurred any liabilities or obligations,
direct or contingent, not in the ordinary course of business, or entered
into any transaction not in the ordinary course of business, which is
material to the business of the Company or the Subsidiary, and there has
not been any change in the capital stock of, or any incurrence of short-
term or long-term debt by, the Company or the Subsidiary or any issuance of
options, warrants or other rights to purchase the capital stock of the
Company or the Subsidiary or any adverse change or any development
involving, so far as the Company can now reasonably foresee a prospective
adverse change in the condition (financial or other), net worth, results of
operations, business, key personnel or properties of it which would be
material to the business or financial condition of the Company or the
Subsidiary and neither the Company nor the Subsidiary has become a party
to, and neither the business nor the property of the Company or the
Subsidiary has become the subject of, any material litigation, whether or
not in the ordinary course of business.
(m) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit
or proceeding to which the Company or the Subsidiary is a party before or
by any court or governmental agency or body, which might result in any
material adverse change in the condition (financial or other), business
prospects, net worth, or properties of the Company or the Subsidiary, nor
are there any actions, suits or proceedings related to environmental
matters or related to discrimination on the basis of age, sex, religion or
race, and no labor disputes involving the employees of the Company or the
Subsidiary exist or are imminent which might be expected to adversely
affect the conduct of the business, property or operations or the financial
condition or results of operations of the Company or the Subsidiary.
(n) Except as disclosed in the Prospectus, the Company and the
Subsidiary have filed all necessary income and franchise tax returns with
all federal, state, local and foreign governmental agencies and have paid
all taxes shown as due thereon; and there is no tax deficiency which has
been or to the knowledge of the Company might be asserted against the
Company or the Subsidiary.
(o) The Company and the Subsidiary have sufficient licenses,
permits and other governmental authorizations currently required for the
conduct of their business or the ownership of their properties as described
in the Prospectus and are in all material respects complying therewith. To
the best knowledge of the Company, none of the activities or business of
the Company or the Subsidiary are in violation of, or cause the Company or
the Subsidiary to violate, any law, rule, regulation or order of the United
States, Poland or any state, county or locality, or of any agency or body
of the United States, Poland or of any state, county or locality, the
violation of which would have a material adverse impact upon the condition
(financial or otherwise), business, property, prospective results of
operations, or net worth of the Company or the Subsidiary.
(p) The Company and the Subsidiary own or possess the right to
use all patents, trademarks, trademark registrations, service marks,
service mark registrations, trade names, copyrights, licenses, inventions,
trade secrets and rights described in the Prospectus as being necessary for
the conduct of their respective businesses, and neither the Company nor the
Subsidiary is aware of any claim to the contrary or any challenge by any
other person to the rights of the Company and the Subsidiary with respect
to the foregoing. The Company's and the Subsidiary's businesses as now
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<PAGE>
conducted do not and will not infringe or conflict with in any material
respect, patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses or other intellectual property or franchise right of any
other person. Except as described in the Prospectus, no claim has been made
against the Company or the Subsidiary alleging the infringement by the
Company or the Subsidiary of any patent, trademark, service mark, trade
name, copyright, trade secret, license in or other intellectual property
right or franchise right of any person.
(q) The Company and the Subsidiary are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are customary in the businesses in which they are engaged;
and neither the Company nor the Subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue their respective businesses at a cost that
would not have a material adverse effect upon the condition (financial or
otherwise), business, property, prospective results of operations, or net
worth of the Company or the Subsidiary.
(r) Neither the Company nor the Subsidiary has, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in
violation of law, or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments or contributions
required or allowed by applicable law. The Company's and the Subsidiary's
internal accounting controls and procedures are sufficient to cause the
Company and the Subsidiary to comply in all material respects with the
Foreign Corrupt Practices Act of 1977, as amended.
(s) On the Closing Dates (hereinafter defined), all transfer or
other taxes (including franchise, capital stock or other tax, other than
income taxes, imposed by any jurisdiction), if any, which are required to
be paid in connection with the sale and transfer of the Shares and Warrants
to the Underwriters hereunder will have been fully paid or provided for by
the Company and all laws imposing such taxes will have been fully complied
with.
(t) All contracts and other documents of the Company and the
Subsidiary which are, under the Rules and Regulations, required to be filed
as exhibits to the Registration Statement have been so filed.
(u) Neither the Company nor the Subsidiary has taken nor will
take, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute,
the stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares and Warrants hereby.
(v) Neither the Company nor the Subsidiary has entered into any
agreement pursuant to which any person is entitled, either directly or
indirectly, to compensation from the Company or the Subsidiary for services
as a finder in connection with the proposed public offering.
(w) Except as previously disclosed in writing by the Company to
the Underwriters, no officer, director or stockholder of the Company or the
Subsidiary has any affiliation or association with any member of the
National Association of Securities Dealers, Inc. (the "NASD").
(x) Neither the Company nor the Subsidiary is, nor upon receipt
of the proceeds from the sale of the Shares and Warrants will be, an
"investment company" within the meaning of the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
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<PAGE>
(y) Neither the Company nor the Subsidiary has distributed, nor
will they distribute prior to the First Closing Date (as defined in Section
3(a) hereof), any offering material in connection with the offering and
sale of the Shares and Warrants other than the Preliminary Prospectus,
Prospectus, the Registration Statement or the other materials permitted by
the Act, if any.
(z) There are no business relationships or related-party
transactions of the nature described in Item 404 of Regulation S-B
involving the Company or the Subsidiary and any person described in such
Item that are required to be disclosed in the Prospectus and that have not
been so disclosed.
(aa) The Company and the Subsidiary have complied with all
provisions of Section 517.075 Florida Statutes relating to doing business
with the government of Cuba or with any person or affiliate located in
Cuba.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. Each
of the selling shareholders listed in Schedule II hereto (the "Selling
Shareholders") severally represents and warrants to, and agrees with, each
Underwriter that:
(a) Such Selling Shareholder has duly executed and delivered a
power of attorney (the "Power of Attorney") and custody agreement (the
"Custody Agreement"), in the forms heretofore delivered to the
Underwriters, appointing William V. Carey and Jeffrey Peterson (the
"Attorneys-in-fact"), and either of them, as attorneys-in-fact with
authority to execute and deliver this Agreement on behalf of such Selling
Shareholder and to take certain other actions with respect hereto, and
appointing American Stock Transfer & Trust Company as custodian (the
"Custodian"). The Attorneys-in-fact are authorized to execute, deliver and
perform the Power of Attorney and the Custody Agreement and this Agreement
on behalf of such Selling Shareholder, including, without limitation, the
authority to determine the purchase price to be paid to each Selling
Shareholder by the Underwriters as set forth in Section 3 of this
Agreement. Certificates in negotiable form representing the Option Shares
to be sold by each Selling Shareholder hereunder have been deposited with
the Custodian pursuant to the Custody Agreement for the purpose of delivery
pursuant to this Agreement. Such Selling Shareholder agrees that the
Option Shares represented by the certificates on deposit with the Custodian
are subject to the interests of the Underwriters hereunder, that the
arrangements made for such custody and the appointment of the Attorneys-in-
fact are to that extent irrevocable, and that the obligations of such
Selling Shareholder hereunder shall not be terminated, except as provided
in this Agreement, by any act of such Selling Shareholder, by operation of
law or otherwise, whether by the dissolution, reorganization, death or
incapacity of such Selling Shareholder or the occurrence of any other
event. If any such dissolution, reorganization, death, incapacity or other
such event should occur before the delivery of the Option Shares to be sold
by the affected Selling Shareholder hereunder, the certificates for such
Option Shares shall be delivered by the Custodian in accordance with the
terms and conditions of this Agreement, as if such dissolution,
reorganization, death, incapacity, or other event had not occurred,
regardless of whether or not the Custodian or Attorneys-in-fact shall have
received notice thereof.
(b) Such Selling Shareholder has all requisite right, power and
authority to enter into this Agreement and the Power-of-Attorney and the
Custody Agreement, and to sell, transfer and deliver the Option Shares to
be sold by such Selling Shareholder hereunder, and this Agreement, the
Power-of-Attorney and the Custody Agreement have been duly authorized,
executed and delivered by or on behalf of such Selling Shareholder and
constitute the legal, valid and binding obligations of such Selling
Shareholder enforceable in accordance with their respective terms.
(c) The execution, delivery and performance, and the consummation
of the transactions contemplated hereby and by the Prospectus, the Power-
of-Attorney and the Custody Agreement, and the fulfillment of the terms
hereof, do not and shall not, with or without the giving of notice or lapse
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<PAGE>
of time or both, (i) conflict with any term or provision of such Selling
Shareholder's charter, bylaws or other organic or governing documents, if
applicable, (ii) conflict with or result in a breach or a violation of any
of the terms or provisions of, or constitute a default under, any
indenture, mortgage or other agreements or instrument to which such Selling
Shareholder is a party or by which such Selling Shareholder or any of his,
her or its Option Shares is bound, or (iii) violate any existing,
applicable law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court, domestic or foreign,
having jurisdiction over such Selling Shareholder or any of his, her or its
Option Shares.
(d) All authorizations, approvals and consents necessary for the
valid execution and delivery by such Selling Shareholder of the Power-of-
Attorney and the Custody Agreement, and for the execution and delivery of
this Agreement on behalf of such Selling Shareholder, have been duly given
and received and are in full force and effect, and the sale and delivery of
the Option Shares to be sold by such Selling Shareholder hereunder (other
than, at the time of the execution hereof, the issuance of the order of the
Commission declaring the Registration Statement effective and such
authorization, approvals or consents as may be necessary under the state
securities or blue sky laws and the bylaws, rules and pronouncements of the
NASD, have been obtained and are in full force and effect.
(e) Such Selling Shareholder now is, and on the Closing Date and
any Option Closing Date will be, the lawful owner of the Option Shares to
be sold by such Selling Shareholder pursuant to this Agreement. On the
Closing Date and any Option Closing Date, such Selling Shareholder will
have good and marketable title to such Option Shares, free and clear of all
liens, pledges, encumbrances, security interests, equities, claims or other
restrictions (other than those created under the Power-of-Attorney and the
Custody Agreement). Upon proper delivery of, and payment for, such Option
Shares as provided herein, the Underwriters will acquire good and
marketable title thereto, free and clear of all liens, pledges,
encumbrances, security interests, equities, claims and other restrictions
and defects whatsoever, including any liability for estate or inheritance
taxes, or any liability to or claims of any creditor, devisee, legatee or
beneficiary of such Selling Shareholder.
(f) Such Selling Shareholder is not prompted to sell the Option
Shares to be sold by such Selling Shareholder hereunder by any information
concerning the Company or the Subsidiary that is not set forth in the
Prospectus.
(g) Such Selling Shareholder has examined the Registration
Statement and the Prospectus and the information relating to such Selling
Shareholder set forth therein or otherwise furnished to the Company by such
Selling Shareholder or on such Selling Shareholder's behalf for use in
connection with the preparation of the Registration Statement and the
Prospectus (including, without limiting the generality of the foregoing,
all representations and warranties of such Selling Shareholder in the Power
of Attorney) and, as to such information, neither the Registration
Statement, the Prospectus nor the Power of Attorney contains any untrue or
inaccurate statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
(h) Such Selling Shareholder has not incurred any liability for
any finder's fee or similar payment in connection with the sale of such
Selling Shareholder's Option Shares hereunder.
(i) Such Selling Shareholder has not distributed and will not
distribute any offering material in connection with the offering and sale
of the Shares and Warrants other than the Preliminary Prospectus and the
Prospectus or other material, if any, permitted by the Act and the Rules
and Regulations. Neither such Selling Shareholder nor any affiliate of
such Selling Shareholder has taken or shall take any action designed, or
that might be reasonably expected, to cause or result in
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<PAGE>
stabilization or manipulation of, or to facilitate the sale or resale of,
any shares of the Common Stock or Warrants.
(j) Such Selling Shareholder has no reason to believe that any of
the representations and warranties of the Company set forth in Section 1
above is untrue or inaccurate in any material respect.
3. PURCHASE, SALE AND DELIVERY OF THE SHARES AND WARRANTS.
(a) Subject to the terms and conditions set forth herein, and on
the basis of the representations, warranties and agreements contained
herein, the Company shall sell to the Underwriters, and each such
Underwriter severally, and not jointly, shall purchase from the Company at
a price of $_____ per Share and $.10 per Warrant, less an underwriting
discount of 10% in each case, at the place and time hereinafter specified,
the number of Firm Securities set forth opposite the names of the
Underwriters in Schedule I hereto.
Delivery of the Firm Securities against payment therefor shall
take place at the offices of Fine Equities, Inc., 600 Third Avenue, New
York, New York 10016 (or at such other place as may be designated by
agreement between you and the Company) at 10:00 a.m., New York City time,
on _____, 1998, or at such later time and date as you may designate, such
time and date of payment and delivery for the Firm Securities being herein
called the "First Closing Date."
(b) In addition, subject to the terms end conditions set forth
herein, and on the basis of the representations, warranties and agreements
contained herein, the Company and each Selling Shareholder, severally and
not jointly, hereby grants an option (the "Over-allotment Option") to the
several Underwriters to purchase from the Company and the Selling
Shareholders, respectively, at the price per Share and per Warrant as set
forth in subsection (a) above, all or any part of the respective number of
Option Securities determined as hereinafter provided, aggregating the
number of Option Shares and Option Warrants set forth opposite the names of
the Company and the Selling Shareholders in Schedule II hereto. The Over-
allotment Option may be exercised within 45 days after the effective date
of the Registration Statement upon notice by the Underwriters to the
Company advising as to the amount of Option Shares and/or Option Warrants
as to which the Underwriters are exercising such option, the names and
denominations in which the certificates for such Option Shares and/or
Option Warrants are to be registered and the time and date when such
certificates are to be delivered. Such time and date (hereinafter, the
"Option Closing Date") shall be determined by the Underwriters but shall
not be earlier than four nor later than ten full business days after the
exercise of the Over-allotment Option, nor in any event prior to the First
Closing Date. Delivery of the Option Securities against payment therefor
shall take place at the offices of Fine Equities, Inc., 600 Third Avenue,
New York, New York 10016. The number of Option Shares and/or Option
Warrants to be purchased by each Underwriter, if any, shall bear the same
percentage to the total number of Option Securities being purchased by the
several Underwriters pursuant to this subsection (b) as the respective
numbers of Firm Shares and/or Firm Warrants being purchased by such
Underwriter bears to the respective total numbers thereof, as adjusted, in
each case by the Underwriters in such manner as the Underwriters may deem
appropriate. If the Over-allotment Option is exercised with respect to
fewer than all of the Option Securities, the Option Securities will be sold
in the following order: (i) first, the Option Shares the Selling
Shareholders propose to sell and (ii) second, the Option Shares and Option
Warrants the Company proposes to sell. The Over-allotment Option may be
exercised only to cover over-allotments in the sale by the Underwriters of
Firm Shares and/or Firm Warrants referred to in subsection (a) above. In
the event the Company declares or pays a dividend or distribution on its
Common Stock, whether in the form of cash, shares of Common Stock or any
other consideration, prior to the Option Closing Date, such dividend or
distribution shall also be paid on the Option Securities on the Option
Closing Date.
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<PAGE>
Certificates in negotiable form for the Option Shares to be sold
by each of the Selling Shareholders hereunder have been placed in custody,
for delivery under this Agreement pursuant to the Custody Agreement. Each
Selling Shareholder agrees that the Option Shares represented by the
certificates so held in custody are subject to the interests of the
Underwriters hereunder, that the arrangements made by such Selling
Shareholder for such custody are to that extent irrevocable and that the
obligations of such Selling Shareholder hereunder shall not be terminated
by the act of such Selling Shareholder or by operation of law, whether by
the death or incapacity of such Selling Shareholder or the occurrence of
any other event, except as specifically provided herein or in the Custody
Agreement. If any Selling Shareholder should die or be incapacitated, or if
any other such event should occur, before the delivery of the Option Shares
hereunder, certificates for the Option Shares to be sold by such Selling
Shareholder shall, except as specifically provided herein or in the Custody
Agreement, be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death, incapacity or other event
has not occurred, regardless of whether the Custodian shall have received
notice of such death, incapacity or other event.
(c) The Company and the Selling Shareholders will make the
certificates for the Shares and Warrants to be purchased by the
Underwriters hereunder available to the Underwriters for review at least
two full business days prior to the First Closing Date or the Option
Closing Date (which are collectively referred to herein as the "Closing
Dates"). The certificates shall be in such names and denominations as the
Underwriters may request, at least two full business days prior to the
Closing Dates. Time shall be of the essence and delivery at the time and
place specified in this Agreement is a further condition to the obligations
of each Underwriter.
Definitive certificates in negotiable form for the Firm
Securities to be purchased by the Underwriters hereunder will be delivered
by the Company to the Underwriters against payment of the respective
purchase prices by the several Underwriters, by certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the
Company with regard to the Firm Securities to be purchased from the
Company.
In addition, in the event the Underwriters exercise the Over-
allotment Option for all or any portion of the Option Securities pursuant
to the provisions of subsection (b) above, payment for such Option
Securities shall be made by certified or bank cashier's checks in New York
Clearing House funds, payable to or upon the order of the Company with
regard to the Option Shares and Option Warrants to be purchased from the
Company and to the order of the Custodian for the respective accounts of
the Selling Shareholders with regard to the Option Shares being purchased
from such Selling Shareholders at the offices of Fine Equities, Inc., 600
Third Avenue, New York, New York 10016 (or such other place as may be
designated by agreement between the Underwriters and the Company) at the
time and date of delivery of such Option Securities as required by the
provisions of subsection (b) above, against receipt of the certificates for
such Option Securities by the Underwriters registered in such names and in
such denominations as the Underwriters may request.
It is understood that the several Underwriters propose to offer
the Shares and Warrants (including the Option Securities) to be purchased
hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective as promptly as possible. If
required, the Company will file the Prospectus or any Term Sheet that
constitutes a part thereof and any amendment or supplement thereto with the
Commission in the manner and within the time period required by Rules 434
and 424(b) under the Act. Upon notification from the Commission that the
Registration Statement has become effective, the Company will so
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<PAGE>
advise the Underwriters and will not at any time, whether before or after
the effective date, file the Prospectus, Term Sheet or any amendment to the
Registration Statement or supplement to the Prospectus of which the
Underwriters shall not previously have been advised and furnished with a
copy or to which the Underwriters or the Underwriters' counsel shall have
objected to in writing or which is not in compliance with the Act and the
Rules and Regulations. At any time prior to the later of (A) the completion
by all of the Underwriters of the distribution of the Shares and Warrants
contemplated hereby (but in no event more than nine months after the date
on which the Registration Statement shall have become or been declared
effective) and (B) 25 days after the date on which the Registration
Statement shall have become or been declared effective, the Company will
prepare and file with the Commission, promptly upon the Underwriters'
request, any amendments or supplements to the Registration Statement or
Prospectus which, in the Underwriters' opinion, may be necessary or
advisable in connection with the distribution of the Shares and Warrants.
As soon as the Company is advised thereof, the Company will
advise the Underwriters, and confirm such advice in writing, (i) when the
Registration Statement or any post-effective amendment to the Registration
Statement is filed with the Commission, (ii) of the receipt of any comments
of the Commission, (iii) of the effectiveness of any post-effective
amendment to the Registration Statement, (iv) of the filing of any
supplement to the Prospectus or any amended Prospectus, (v) of any request
made by the Commission for amendment of the Registration Statement or for
supplementing of the Prospectus or for additional information with respect
thereto, (vi) of the issuance by the Commission or any state or regulatory
body of any stop order or other order or threat thereof suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of any Preliminary Prospectus, or (vii) of the
suspension of the qualification of the Shares and Warrants for offering in
any jurisdiction, or of the institution of any proceedings for any of such
purposes. The Company will use its best efforts to prevent the issuance of
any such stop order or of any order preventing or suspending such use, and,
if any such order is issued, to obtain as soon as possible the lifting
thereof.
The Company has caused to be delivered to the Underwriters copies
of each Preliminary Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act.
The Company authorizes the several Underwriters and dealers to use the
Prospectus in connection with the sale of the Shares and Warrants for such
period as in the opinion of counsel to the several Underwriters the use
thereof is required to comply with the applicable provisions of the Act and
the Rules and Regulations. In case of the happening, at any time within
such period as a Prospectus is required under the Act to be delivered in
connection with sales by an underwriter or dealer of any event of which the
Company has knowledge and which materially affects the Company or the
securities of the Company, or which in the opinion of counsel for the
Company or counsel for the Underwriters should be set forth in an amendment
of the Registration Statement or a supplement to the Prospectus in order to
make the statements therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Shares and Warrants or in case it shall be
necessary to amend or supplement the Prospectus to comply with law or with
the Rules and Regulations, the Company shall notify the Underwriters
promptly and forthwith prepare and furnish to the Underwriters copies of
such amended Prospectus or of such supplement to be attached to the
Prospectus, in such quantities as the Underwriters may reasonably request,
in order that the Prospectus, as so amended or supplemented, will not
contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the Prospectus,
in the light of the circumstances under which they are made, not
misleading. The preparation and furnishing of any such amendment or
supplement to the Registration Statement or amended Prospectus or
supplement to be attached to the Prospectus shall be without expense to the
Underwriters, except that in case any Underwriter is required, in
connection with the sale of the Shares and Warrants, to deliver a
Prospectus nine months or more after the effective date of the Registration
Statement, the Company will upon request of and at the expense of such
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Underwriter, amend or supplement the Registration Statement and Prospectus
and furnish the Underwriter with reasonable quantities of prospectuses
complying with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Rules and Regulations
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules and regulations thereunder in connection with the offering
and issuance of the Shares and Warrants.
(b) The Company will use its best efforts to qualify to register
the Shares and Warrants for sale under the securities or "blue sky" laws of
such jurisdictions as the Underwriters may designate and will make such
applications and furnish such information as may be required for that
purpose and to comply with such laws, provided the Company shall not be
required to qualify as a foreign corporation or a dealer in securities or
to execute a general consent of service of process in any jurisdiction in
any action other than one arising out of the offering or sale of the Shares
and Warrants. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriters may
reasonably request.
(c) If the sale of the Shares and Warrants provided for herein is
not consummated for any reason caused by the Company, the Company shall pay
all costs and expenses incident to the performance of the Company's
obligations hereunder, including but not limited to, all of the expenses
itemized in Section 9, including the accountable expenses of the
Underwriters.
(d) The Company will use its best efforts to (i) cause a
Registration Statement on Form 8-A under the Exchange Act to be declared
effective concurrently with the completion of this offering and will notify
the Underwriters in writing immediately upon the effectiveness of such
registration statement, and (ii) if requested by the Underwriters, to
obtain and keep current a listing in the Standard & Poor's or Moody's
Industrial OTC Manual.
(e) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Exchange Act, the Company, at its
expense, will furnish to its stockholders an annual report (including
financial statements audited by independent public accountants), in
reasonable detail, and at its expense will furnish to the Underwriters
during the period ending five (5) years from the date hereof (i) as soon as
practicable after the end of each fiscal year, a balance sheet of the
Company and any of its subsidiaries as at the end of such fiscal year,
together with statements of income, surplus and cash flow of the Company
and any of its subsidiaries for such fiscal year, all in reasonable detail
and accompanied by a copy of the certificate or report thereon of
independent accountants; (ii) as soon as practicable after the end of each
of the first three fiscal quarters of each fiscal year, consolidated
summary financial information of the Company for such quarter in reasonable
detail; (iii) as soon as they are available, a copy of all reports
(financial or other) mailed to security holders; (iv) as soon as they are
available, a copy of all non-confidential reports and financial statements
furnished to or filed with the Commission or any securities exchange or
automated quotation system on which any class of securities of the Company
is listed; and (v) such other information as you may from time to time
reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company
and its subsidiary or subsidiaries are consolidated in reports furnished to
its stockholders generally.
(g) The Company will deliver to the Underwriters at or before the
First Closing Date two signed copies of the Registration Statement,
including all financial statements and exhibits filed therewith, and of all
amendments thereto, and will deliver to the several Underwriters such
number of conformed copies of the Registration Statement, including such
financial statements but without
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exhibits, and of all amendments thereto, as the several Underwriters may
reasonably request. The Company will deliver to the Underwriters or upon
the order of the several Underwriters, from time to time until the
effective date of the Registration Statement, as many copies of any
Preliminary Prospectus filed with the Commission prior to the effective
date of the Registration Statement as such Underwriters may reasonably
request. The Company will deliver to the several Underwriters on the
effective date of the Registration Statement and thereafter for so long as
a Prospectus is required to be delivered under the Act, from time to time,
as many copies of the Prospectus, in final form, or as thereafter amended
or supplemented, as such Underwriters may from time to time reasonably
request. The Company, not later than (i) 5:00 p.m., New York City time, on
the date of determination of the public offering price for the First Shares
and Warrants, if such determination occurred at or prior to 12:00 noon, New
York City time, on such date or (ii) 6:00 p.m., New York City time, on the
business day following the date of determination of such offering price, if
such determination occurred after 12:00 noon, New York City time, on such
date, will deliver to the several Underwriters, without charge, as many
copies of the Prospectus and any amendment or supplement thereto as such
Underwriters may reasonably request for purposes of confirming orders that
are expected to settle on the First Closing Date.
(h) The Company will make generally available to its security
holders and deliver to the Underwriters as soon as it is practicable to do
so but in no event later than 90 days after the end of twelve months after
its current fiscal quarter, an earnings statement (which need not be
audited) covering a period of at least 12 consecutive months beginning
after the effective date of the Registration Statement, which shall satisfy
the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the
Shares and Warrants for the purposes set forth under "Use of Proceeds" in
the Prospectus, and will file such reports with the Commission with respect
to the sale of the Shares and Warrants and the application of the proceeds
therefrom as may be required pursuant to Rule 463 under the Act.
(j) The Company will, promptly upon your request, prepare and
file with the Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other action,
which in the reasonable opinion of counsel to the several Underwriters, may
be reasonably necessary or advisable in connection with the distribution of
the Shares and Warrants, and will use its best efforts to cause the same to
become effective as promptly as possible.
(k) The Company will reserve and keep available that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Underwriters' Unit Purchase Option.
(l) The Company will not, and will deliver to the Underwriters
agreements to the effect that for a period of 24 months from the First
Closing Date (the "Lock-Up Period"), no officer, director or existing
stockholder or optionholder of the Company (such officers, directors and
stockholders being herein referred to as the "Principal Stockholders")
will, directly or indirectly, offer, sell (including any short sale), grant
any option for the sale of, acquire any option to dispose of, transfer,
pledge, assign, hypothecate or otherwise dispose of any securities of the
Company. In order to enforce this covenant, the Company shall impose stop-
transfer instructions with respect to the securities owned by the Principal
Stockholders until the end of such period and an appropriate legend shall
be marked on the face of stock certificates representing all of such
securities.
(m) Subject to subsection (q) of this Section 4, during the
eighteen (18) month period from the effective date of the Registration
Statement (the "Effective Date"), you shall have the right of first refusal
(the "Right of First Refusal") to act as underwriter or agent for any and
all public offerings or private placements of securities of the Company, or
of any successor to or subsidiary of
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<PAGE>
the Company or other entity in which the Company has an equity interest
(herein this paragraph (m) referred to collectively as the "Company"), by
the Company (the "Subsequent Company Offering") or any secondary offering
of the Company's securities by the Principal Stockholders (the "Secondary
Offering"). Accordingly, if during such period the Company intends to make
a Subsequent Company Offering or the Company receives notification from any
of such Principal Stockholders of such holder's intention to make a
Secondary Offering, the Company shall notify you in writing of such
intention and of the proposed terms of the offering. The Company shall
thereafter promptly furnish you with such information concerning the
business, condition and prospects of the Company as you may reasonably
request. If within thirty (30) business days of receipt of such notice of
intention and statement of terms you do not accept in writing such offer to
act as underwriter or agent with respect to such offering upon the terms
proposed and, in the case of a Subsequent Company Offering, the Company has
received your prior written consent to make such offering, the Company and
each of the Principal Stockholders shall be free to negotiate terms with
other underwriters or agents with respect to such offering and to effect
such offering on such proposed terms within six months after the end of
such thirty (30) business day period. Before the Company and/or any of the
Principal Stockholders shall accept any modified proposal from such
underwriter or agent, your preferential right shall be reinstated and the
same procedure with respect to such modified proposal as provided above
shall be adopted. The failure by you to exercise your Right of First
Refusal in any particular instance shall not affect in any way such right
with respect to any other Subsequent Company Offering or Secondary
Offering. By execution and delivery of agreements in form and substance
satisfactory to you, each of the Principal Stockholders agrees to be bound
by the terms of this Section 4(m) concerning any proposed Secondary
Offering.
(n) Prior to completion of this offering, the Company will make
all filings required, including registration under the Exchange Act, to
obtain the listing of the Shares and Warrants on the Nasdaq SmallCap Market
or the American Stock Exchange, and will effect and maintain such listing
for at least seven years from the effective date of the Registration
Statement.
(o) The Company and each of the Selling Shareholders represents
that he or it has not taken and agrees that he or it will not take,
directly or indirectly, any action designed to or which has constituted or
which might reasonably be expected to cause or result in the stabilization
or manipulation of the price of the Shares or the Warrants or to facilitate
the sale or resale of the Shares or the Warrants.
(p) On the Closing Date and simultaneously with the delivery of
the Shares and Warrants, the Company shall execute and deliver to the
Underwriters the Underwriters' Unit Purchase Option. The Underwriters'
Unit Purchase Option will be substantially in the form of the Underwriters'
Unit Purchase Option filed as an exhibit to the Registration Statement.
(q) During the twelve month period commencing on the date of this
Agreement, the Company will not, without the prior written consent of the
Underwriters, grant options to purchase shares of Common Stock at an
exercise price less than the greater of (i) the initial public offering
price of the Shares or (ii) the fair market value of the Common Stock on
the date of grant. During the Lock-Up Period, the Company will not,
without the prior written consent of the Underwriters, grant options to any
current officer of the Company or sell or offer any securities of the
Company, except pursuant to options and warrants outstanding on the date
hereof.
(r) The Company will not, without the prior written consent of
the Underwriters, grant registration rights to any person which are
exercisable sooner than __ months from the First Closing Date.
(s) William V. Carey shall be Chairman of the Board, President
and Chief Executive Officer of the Company on the Closing Dates. The
Company has obtained key person life insurance
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in an amount of not less than $2.5 million on the life of Mr. Carey and
will use its best efforts to maintain such insurance during the three year
period commencing from the First Closing Date. In the event that Mr.
Carey's employment with the Company is terminated prior to such three year
period, the Company will obtain a comparable policy on the life of his
successor for the balance of such three year period. For a period of _____
months from the First Closing Date, the compensation of the executive
officers of the Company shall not be increased from the compensation levels
disclosed in the Prospectus.
(t) So long as any Warrants are outstanding, the Company shall
use its best efforts to cause post-effective amendments to the Registration
Statement to become effective in compliance with the Act and without any
lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be
delivered to each holder of record of a Warrant and to furnish to each
Underwriter and dealer as many copies of each such Prospectus as such
Underwriter or dealer may reasonably request. The Company shall not call
for redemption any of the Warrants unless a registration statement covering
the securities underlying the Warrants has been declared effective by the
Commission and remains current at least until the date fixed for
redemption. In addition, for so long as any Warrant is outstanding, the
Company will promptly notify the Underwriters of any material change in the
business, financial condition or prospects of the Company or any subsidiary
thereof.
(u) Upon the exercise of any Warrant or Warrants after ________,
1999, the Company will pay the Underwriters, a fee of four percent (4%) of
the aggregate exercise price of the Warrants, of which a portion may be
reallowed to the dealer who solicited the exercise (which may also be
either or both of the Underwriters) if (i) the market price of the
Company's Common Stock is greater than the exercise price of the Warrants
on the date of exercise; (ii) the exercise of the Warrant was solicited by
a member of the NASD; (iii) the Warrant is not held in a discretionary
account; (iv) the disclosure of compensation arrangements has been made in
documents provided to customers, both as part of the original offering and
at the time of exercise; and (v) the solicitation of the Warrant was not in
violation of Rule 10b-6 promulgated under the Exchange Act. The Company
agrees not to solicit the exercise of any Warrants other than through the
Underwriters and will not authorized any other dealer to engage in such
solicitation without the prior written consent of the Underwriters.
(v) For a period of five years from the effective date of the
Registration Statement, the Company (i) at its expense, shall cause its
regularly engaged independent certified public accountants to review (but
not audit) the Company's financial statements for each of the first three
fiscal quarters prior to the announcement of quarterly financial
information, the filing of the Company's Quarterly Report on Form 10-QSB
(or 10-Q, as the case may be) and the mailing of quarterly financial
information to stockholders and (ii) shall not change its accounting firm
without the prior written consent of the Underwriters.
(w) For a period of five years from the First Closing Date (i)
the Underwriters shall have the right, but not the obligation, to (a)
designate a director to the Board of Directors of the Company or (b)
designate one person to attend all meetings of the Board of Directors,
which person will be entitled to receive all notices and other
correspondence as if such person were a member of the Board of Directors
and to be reimbursed for out-of-pocket expenses incurred in connection with
attendance of meeting of the Board of Directors, and (ii) the Company shall
engage a public relations firm acceptable to the Underwriters.
5. CONDITIONS OF UNDERWRITERS' OBLIGATION. The obligations of the
several Underwriters to purchase and pay for the Shares and Warrants which they
have respectively agreed to purchase hereunder are subject to the accuracy (as
of the date hereof, and as of the Closing Dates) of and compliance with the
representations and warranties of the Company and the Selling Shareholders set
forth herein, to the performance by the Company and the
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Selling Shareholders of their respective obligations hereunder, and to the
satisfaction (at or prior to the Closing Dates), of each of following
conditions:
(a) The Registration Statement shall have become effective and
the Underwriters shall have received notice thereof not later than 10:00
a.m., New York City time, on the date on which the amendment to the
Registration Statement originally filed with respect to the Shares and
Warrants or to the Registration Statement, as the case may be, containing
information regarding the initial public offering price of the Shares and
Warrants has been filed with the Commission, or such later time and date as
shall have been agreed to by the Underwriters; if required, the Prospectus
or any Term Sheet that constitutes a part thereof and any amendment or
supplement thereto shall have been filed with the Commission in the manner
and within the time period required by Rule 434 and 424(b) under the Act;
on or prior to the Closing Dates, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that or a similar purpose shall have been instituted or
shall be pending or, to the Underwriters' knowledge or to the knowledge of
the Company, shall be contemplated by the Commission; any request on the
part of the Commission for additional information shall have been complied
with to the reasonable satisfaction of counsel to the several Underwriters;
(b) At the First Closing Date, the Underwriters shall have
received the opinion, addressed to the Underwriters, dated as of the First
Closing Date, of Hogan & Hartson LLP, Washington, D.C. and Warsaw, Poland,
counsel for the Company and the Selling Shareholders, in form and substance
satisfactory to counsel for the Underwriters, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with full corporate power and authority to own its
properties and conduct its business as described in the Registration
Statement and Prospectus and is duly qualified or licensed to do
business as a foreign corporation and is in good standing in each
jurisdiction in which the ownership or leasing of its properties or
conduct of its business requires such qualification;
(ii) the Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
Poland, with full corporate power and authority to own its properties
and conduct its business as described in the Registration Statement
and Prospectus and is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction in
which the ownership or leasing of its properties or conduct of its
business requires such qualification; all of the outstanding shares of
capital stock of the Subsidiary have been duly authorized and validly
issued, are fully paid and nonassessable and free of preemptive or
similar rights, and are owned by the Company, free and clear of any
lien, adverse claim, security interest or other encumbrance; no
options, warrants, or other rights to purchase, agreements or other
obligations to issue, or agreements or other rights to convert any
obligation into, any shares of capital stock of the Subsidiary have
been granted or entered into by the Company or the Subsidiary;
(iii) to the best knowledge of such counsel, (A) each of
the Company and the Subsidiary has obtained, or is in the process of
obtaining, all licenses, permits and other governmental authorizations
necessary to the conduct of its business as described in the
Prospectus, (B) such licenses, permits and other governmental
authorizations obtained are in full force and effect, and (C) each of
the Company and the Subsidiary are in all material respects complying
therewith;
(iv) the authorized capitalization of the Company as of
_____,1997 is as set forth under the caption "Capitalization" in the
Prospectus; all shares of the Company's outstanding stock requiring
authorization for issuance by the Company's Board of Directors
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<PAGE>
have been duly authorized and validly issued, are fully paid and non-
assessable and conform to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock have not been
issued in violation of the preemptive rights of any shareholder and
the shareholders of the Company do not have any preemptive rights or
other rights to subscribe for or to purchase, nor are there any
restrictions upon the voting or transfer of any of the shares of
Common Stock; except as set forth in the Prospectus, no options,
warrants, or other rights to purchase, agreements or other obligations
to issue, or agreements or other rights to convert any obligation
into, any shares of capital stock of the Company have been granted or
entered into by the Company; the Common Stock, the Warrants, the
Underwriters' Unit Purchase Option and the Warrant Agreement conform
to the respective descriptions thereof contained in the Prospectus;
the Shares have been, and the shares of Common Stock to be issued upon
exercise of the Warrants and the Underwriters' Unit Purchase Option,
upon issuance in accordance with the terms of such Warrants, the
Warrant Agreement and the Underwriters' Unit Purchase Option, have
been duly authorized and, when issued and delivered, will be duly and
validly issued, fully paid, non-assessable, free of preemptive rights
and no personal liability will attach to the ownership thereof; all
prior sales by the Company of its securities have been made in
compliance with or under exemption from registration under the Act and
applicable state securities laws and no shareholders of the Company
have any rescission rights with respect to securities of the Company;
a sufficient number of shares of Common Stock has been reserved for
issuance upon exercise of the Warrants and the Underwriters' Unit
Purchase Option; and, to the best of such counsel's knowledge, neither
the filing of the Registration Statement nor the offering or sale of
the Shares and Warrants as contemplated by this Agreement gives rise
to any registration rights or other rights, other than those which
have been waived or satisfied, for or relating to the registration of
any shares of Common Stock or other securities of the Company;
(v) this Agreement and the Warrant Agreement have been duly
and validly authorized, executed and delivered by the Company and by
or on behalf of each of the Selling Shareholders, and the
Underwriters' Unit Purchase Option has been duly and validly
authorized, executed and delivered by the Company, and, assuming due
execution by each other party hereto or thereto, each of such
agreements constitutes a legal, valid and binding obligation of the
Company and each of the Selling Shareholders, as the case may be,
enforceable against the Company and each of the Selling Shareholders,
as the case may be, in accordance with their respective terms (except
as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be
limited by applicable law);
(vi) the Powers of Attorney and the Custody Agreements have
been duly and validly executed and delivered by or on behalf of each
of the Selling Shareholders; upon delivery of certificates for the
Option Shares to be sold by the Selling Shareholders under this
Agreement and the payment therefor as contemplated by this Agreement,
valid and marketable title to the Option Shares represented thereby
will have been acquired by the Underwriters, free and clear of all
security interests, liens, encumbrances, claims or equities
whatsoever; and nothing has come to the attention of such counsel
which caused them to believe that any Selling Shareholder does not
have full legal right, power and authority to sell, transfer and
deliver the Option Shares to be sold by him or her or it under this
Agreement;
(vii) the certificates evidencing the shares of Common
Stock are in valid and proper legal form and conform to the
requirements of the General Corporation Law of the State of Delaware;
the Warrants will be exercisable for shares of Common Stock in
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accordance with the terms of the Warrants and at the prices therein
provided for; and the warrants underlying the Underwriters' Unit
Purchase Option will be exercisable for shares of Common Stock in
accordance with the terms of the Underwriters' Unit Purchase Option
and at the prices therein provided for;
(viii) such counsel knows of no pending or threatened legal
or governmental proceedings to which either the Company or the
Subsidiary is a party which could materially adversely affect the
business, property, financial condition or operations of either the
Company or the Subsidiary; or which question the validity of the
Shares, the Warrants, this Agreement, the Warrant Agreement, the
Underwriters' Unit Purchase Option, the Powers of Attorney or the
Custody Agreements, or of any action taken or to be taken by either
the Company or the Subsidiary pursuant to this Agreement, the Warrant
Agreement, the Underwriters' Unit Purchase Option, the Powers of
Attorney or the Custody Agreements; and no such proceedings are known
to such counsel to be contemplated against either the Company or the
Subsidiary; there are no governmental proceedings or regulations
required to be described or referred to in the Registration Statement
which are not so described or referred to;
(viii) to the knowledge of such counsel, neither the
Company nor the Subsidiary has received notice of any claim or
challenge regarding its ownership of or its other rights to or under
any patents, trademarks, service marks, trade names, licenses,
inventions or any other rights described in the Prospectus; to the
knowledge of such counsel, (i) no claim has been made against the
Company or the Subsidiary alleging infringement by the Company or the
Subsidiary of any patent, trademark, service mark, trade name, trade
secret, license in or other intellectual property or franchise right
of any person, (ii) no legal or governmental proceedings are pending
relating to the foregoing and (iii) no such proceedings are currently
threatened by governmental authorities or others;
(ix) Neither the Company nor the Subsidiary is in violation
of or default under, nor will the execution and delivery of this
Agreement, the Warrant Agreement, the Underwriters' Unit Purchase
Option, the Powers of Attorney or the Custody Agreements, and the
incurrence of the obligations herein and therein set forth and the
consummation of the transactions herein or therein contemplated,
result in a breach or violation of, or constitute a default under the
certificate or articles of incorporation or by-laws (or other
organizational documents), in the performance or observance of any
material obligations, agreement, covenant or condition contained in
any bond, debenture, note or other evidence of indebtedness or in any
contract, indenture, mortgage, loan agreement, lease, joint venture or
other agreement or instrument to which the Company or the Subsidiary
is a party or by which the Company's or the Subsidiary's properties
may be bound or in violation of any material order, rule, regulation,
writ, injunction, or decree of any government instrumentality or
court, domestic or foreign;
(x) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been instituted or
are pending before or threatened by, the Commission; the Registration
Statement and the Prospectus (except for the financial statements and
other financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations;
(xi) such counsel has participated in the preparation of the
Registration Statement and the Prospectus and nothing has come to the
attention of such counsel to cause
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such counsel to have reason to believe that the Registration Statement
or any amendment thereto at the time it became effective or as of the
Closing Dates contained any untrue statement of a material fact
required to be stated therein or omitted to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make statements therein,
in light of the circumstances under which they were made, not
misleading (except, in the case of both the Registration Statement and
any amendment thereto and the Prospectus and any supplement thereto,
for the financial statements, notes thereto and other financial
information and schedules contained therein, as to which such counsel
need express no opinion);
(xii) all descriptions in the Registration Statement and
the Prospectus, and any amendment or supplement thereto, of contracts
and other documents are accurate and fairly present the information
required to be shown, and counsel is familiar with all contracts and
other documents referred to in the Registration Statement and the
Prospectus and any such amendment or supplement or exhibit to the
Registration Statement, and such counsel does not know of any
contracts or documents of a character required to be summarized or
described therein or to be filed as exhibits thereto which are not so
summarized, described or filed;
(xiii) no authorization, approval, consent or license of
any governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or
delivery of the Shares or Warrants by the Company, in connection with
the execution, delivery and performance of this Agreement, the Warrant
Agreement, the Powers of Attorney or the Custody Agreements by the
Company or the Subsidiary or in connection with the taking of any
action contemplated herein, or the issuance of the Underwriters' Unit
Purchase Option or the securities underlying the Underwriters' Unit
Purchase Option, other than registrations or qualifications of the
Shares and Warrants under applicable state or foreign securities or
Blue Sky laws and registration under the Act;
(xiv) the statements in the Registration Statement under
the captions "Business", "Use of Proceeds", "Management", and
"Description of Securities" have been reviewed by such counsel and
insofar as they refer to descriptions of agreements, statements of
law, descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
(xv) the Shares and Warrants have been duly authorized for
listing on the Nasdaq SmallCap Market [or] the American Stock
Exchange; and
(xvi) to such counsel's knowledge, there are no business
relationships or related-party transactions of the nature described in
Item 404 of Regulation S-B involving the Company or the Subsidiary and
any person described in such Item that are required to be disclosed in
the Prospectus and which have not been so disclosed.
Such opinions shall also cover such matters incident to the
transactions contemplated hereby as the Underwriters or counsel for the
Underwriters shall reasonably request. In rendering such opinions, such
counsel may rely upon certificates of any officer of the Company or the
Subsidiary or public officials as to matters of fact.
(c) All corporate proceedings and other legal matters relating to
this Agreement, the Warrant Agreement, the Powers of Attorney, the Custody
Agreements, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by Baker & McKenzie, counsel
to the several Underwriters, and you shall have received from such counsel
a signed opinion,
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dated as of the First Closing Date, together with copies thereof for each
of the other Underwriters, with respect to the validity of the issuance of
the Shares and Warrants, the form of the Registration Statement and
Prospectus (other than the financial statements and other financial data
contained therein), the execution of this Agreement and other related
matters as you may reasonably require. The Company, the Subsidiary and the
Selling Shareholders shall have furnished to counsel for the several
Underwriters such documents as it may reasonably request for the purpose of
enabling them to render such opinion.
(d) The Underwriters shall have received a letter prior to the
effective date of the Registration Statement and again on and as of the
First Closing Date from Ernst & Young Audit Sp. z o. o., Warsaw, Poland,
independent public accountants for the Company, substantially in the form
approved by the Underwriters, and including estimates of the Company's
revenues and results of operations for the period ending at the end of the
month immediately preceding the effective date and results of the
comparable period during the prior fiscal year.
(e) At the Closing Dates, (i) the representations and warranties
of the Company contained in this Agreement shall be true and correct with
the same effect as if made on and as of the Closing Dates and the Company
and the Subsidiary shall have performed all of their respective obligations
hereunder and satisfied all the conditions on their part to be satisfied at
or prior to such Closing Date; (ii) the Registration Statement and the
Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the
Act and the Rules and Regulations, and shall in all material respects
conform to the requirements thereof, and neither the Registration Statement
nor the Prospectus nor any amendment or supplement thereto shall contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading; (iii) there shall have been, since the respective dates as
of which information is given, no material adverse change, or any
development involving a prospective material adverse change, in the
business, properties, condition (financial or otherwise), results of
operations, capital stock, long-term or short-term debt or general affairs
of the Company or the Subsidiary from that set forth in the Registration
Statement and the Prospectus, except changes which the Registration
Statement and Prospectus indicate might occur after the effective date of
the Registration Statement, and the Company and each of the Subsidiary
shall not have incurred any material liabilities or entered into any
agreement not in the ordinary course of business other than as referred to
in the Registration Statement and Prospectus; (iv) except as set forth in
the Prospectus, no action, suit or proceeding at law or in equity shall be
pending or threatened against the Company or the Subsidiary which would be
required to be set forth in the Registration Statement, and no proceedings
shall be pending or threatened against the Company or the Subsidiary before
or by any commission, board or administrative agency in the United States,
Poland or elsewhere, wherein an unfavorable decision, ruling or finding
would materially and adversely affect the business, property, condition
(financial or otherwise), results of operations or general affairs of the
Company or the Subsidiary, and (v) the Underwriters shall have received, at
the First Closing Date, a certificate signed by each of the Chief Executive
Officer and the Executive Vice President of the Company, dated as of the
First Closing Date, evidencing compliance with the provisions of this
subsection (e).
(f) Upon exercise of the Over-allotment Option, the obligations
of the several Underwriters to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the
Option Closing Date) to the following additional conditions:
(i) the Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending, or, to the
Underwriters's knowledge or the knowledge of the Company, shall be
contemplated by the Commission, and any reasonable request on the part
of the Commission for additional
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information shall have been complied with to the satisfaction of Baker
& McKenzie, counsel to the several Underwriters;
(ii) at the Option Closing Date, there shall have been
delivered to the Underwriters the signed opinion of Hogan & Hartson
LLP, Washington, D.C., and Warsaw, Poland, counsel for the Company,
dated as of the Option Closing Date, in form and substance
satisfactory to Baker & McKenzie, counsel to the several Underwriters,
together with copies of such opinions for each of the other several
underwriters, which opinion shall be substantially the same in scope
and substance as the opinion furnished to the Underwriters at the
First Closing Date pursuant to Section 5(b) hereof, except that such
opinion, where appropriate, shall cover the Option Securities;
(iii) at the Option Closing Date, there shall have been
delivered to the Underwriters a letter in form and substance
satisfactory to the Underwriters from Ernst & Young Audit Sp. z o. o.,
Warsaw, Poland, dated the Option Closing Date and addressed to the
Underwriters confirming the information in their letter referred to in
Section 5(d) hereof and stating that nothing has come to their
attention during the period from the ending date of their review
referred to in said letter to a date not more than five business days
prior to the Option Closing Date, which would require any change in
said letter if it were required to be dated the Option Closing Date;
(iv) the Underwriters shall have received a certificate
dated the Option Closing Date, from each Selling Shareholder to the
effect that, as of the Option Closing Date: (A) the representations
and warranties made by such Selling Shareholder are true and correct
in all material respects as if made on and as of the Option Closing
Date; and (B) such Selling Shareholder has complied with all of the
obligations and satisfied all of the conditions which are to be
performed or satisfied on his or her or its part at or prior to the
Option Closing Date;
(v) at the Option Closing Date, there shall have been
delivered to the Underwriters a certificate of the Chief Executive
Officer and Executive Vice President of the Company, dated the Option
Closing Date, in form and substance satisfactory to Baker & McKenzie,
counsel to the several Underwriters, substantially the same in scope
and substance as the certificate, furnished to you at the First
Closing Date pursuant to Section 5(e) hereof;
(vi) all proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities
shall be satisfactory in form and substance to the Underwriters, and
the Underwriters and Baker & McKenzie, counsel to the several
Underwriters, shall have been furnished with all such documents,
certificates and opinions as the Underwriters may request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements
of the Company and the Subsidiary or their compliance with any of the
covenants or conditions contained herein.
(g) No action shall have been taken by the Commission or the
NASD, the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal
or agent) in the Shares or the Warrants, and no proceedings for the taking
of such action shall have been instituted or shall be pending, or, to the
knowledge of the Underwriters or the Company, shall be contemplated by the
Commission or the NASD. The Company represents that at the date hereof it
has no knowledge that any such action is in fact contemplated by the
Commission or the NASD. The Company and the Subsidiary shall have advised
the Underwriters of any NASD affiliation of any of their officers,
directors, stockholders or other affiliates.
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(h) If any of the conditions herein provided for in this Section
shall not have been fulfilled as of the date indicated, this Agreement and
all obligations of the several Underwriters under this Agreement may be
canceled at, or at any time prior to, each Closing Date by the
Underwriters. Any such cancellation shall be without liability of the
Underwriters to the Company.
6. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY AND THE SELLING
SHAREHOLDERS. The obligations of the Company and the Selling Shareholders to
sell and deliver the Shares and Warrants in the manner provided in this
Agreement is subject to the condition that at the Closing Dates, no stop orders
suspending the effectiveness of the Registration Statement shall have been
issued under the Act or any proceedings therefor initiated or threatened by the
Commission. If such condition has been satisfied on the First Closing Date, but
is not satisfied after the First Closing Date and prior to the Option Closing
Date, then only the obligation of the Company and the Selling Shareholders to
sell and deliver the Option Securities upon any exercise of the Over-allotment
Option hereof shall be affected.
7. INDEMNIFICATION.
(a) The Company and each Selling Shareholder, severally and not
jointly, shall indemnify and hold harmless each Underwriter, and each
person, if any, who controls any Underwriter within the meaning of the Act,
against any and all losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not
be limited to, all reasonable costs of defense and investigation and all
attorneys' fees), to which such Underwriter or such controlling person may
become subject, under the Act or otherwise, and shall reimburse, as
incurred, such Underwriters and such controlling persons for any legal or
other expenses reasonably incurred in connection with investigating,
defending against or appearing as a third party witness in connection with
any losses, claims, damages or liabilities, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in (i) the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, (ii)
any blue sky application or other document executed by the Company or the
Subsidiary specifically for that purpose or based upon written information
furnished by the Company or the Subsidiary filed in any state or other
jurisdiction in order to qualify any or all of the Shares and Warrants
under the securities laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), or arise
out of or are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, Prospectus, or any
amendment or supplement thereto, or in any Blue Sky Application, a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that neither the Company nor any
Selling Shareholder will be liable in any such case to the extent, but only
to the extent, that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company or the Subsidiary by or on
behalf of the Underwriters specifically for use in the preparation of the
Registration Statement or any such amendment or supplement thereof or any
such Blue Sky Application or any such preliminary Prospectus or the
Prospectus or any such amendment or supplement thereto. Notwithstanding
the foregoing, no Selling Shareholder shall be required to indemnify and
hold harmless any Underwriter until the Underwriters shall have pursued all
remedies, including execution of judgment, reasonably available against the
Company and shall have been unable, after reasonable effort, to execute
such judgment against the Company. The obligations of the Company and the
Selling Shareholders under this Section 7(a) will be in addition to any
liability which the Company or the Selling Shareholders may otherwise have.
(b) Each Underwriter, severally and not jointly, shall indemnify
and hold harmless the Company, each of the directors of the Company, each
nominee (if any) for any director named in the Prospectus, each of the
officers of the Company who have signed the Registration Statement, each
Selling Shareholder and each other person, if any, who controls the Company
or a Selling Shareholder
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<PAGE>
within the meaning of the Act to the same extent as the foregoing
indemnities from the Company and the Selling Shareholders to the several
Underwriters, but only with respect to any loss, claim, damage, liability
or expense resulting from statements or omissions, or alleged statements or
omissions, if any, made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto (i) in
reliance upon and in conformity with written information furnished to the
Company by the Underwriters or by any Underwriter through the Underwriters
expressly for use in the preparation thereof and (ii) relating to the
transactions effected by the Underwriters in connection with the offer and
sale of the Shares and Warrants contemplated hereby. The obligations of
each Underwriter under this Section 7(b) will be in addition to any
liability which the Underwriters may otherwise have.
(c) If any action, inquiry, investigation or proceeding is
brought against any person in respect of which indemnification may be
sought pursuant to Section 7(a) or (b) hereof, such person (hereinafter
called the "indemnified party") shall, promptly after notification of, or
receipt of service of process for, such action, inquiry, investigation or
proceeding, notify in writing the party or parties against whom
indemnification is to be sought (hereinafter called the indemnifying
party") of the institution of such action, inquiry, investigation or
proceeding. The indemnifying party, upon the request of the indemnified
party, shall assume the defense of such action, inquiry, investigation or
proceeding, including, without limitation, the employment of counsel
(reasonably satisfactory to such indemnified party) and payment of
expenses. No indemnification provided for in this Section 7 shall be
available to any indemnified party who shall fail to give such notice if
the indemnifying party does not have knowledge of such action, inquiry,
investigation or proceeding, to the extent that such indemnifying party has
been materially prejudiced by the failure to give such notice, but the
omission to so notify the indemnifying party shall not relieve the
indemnifying party otherwise than under this Section 7. Such indemnified
party or controlling person thereof shall have the right to employ its or
their own counsel in any such case, but the fees and expenses of such
counsel (other than reasonable costs of investigation) shall be at the
expense of such indemnified party unless the employment of such counsel
shall have been authorized in writing by the indemnifying party in
connection with the defense of such action. If such indemnified party is
an Underwriter or a person who controls such Underwriter within the meaning
of the Act, who shall have been advised by counsel that there may be a
conflict between the positions of the indemnifying party or parties and of
the indemnified party or parties or that there may be legal defenses
available to such indemnified party or parties different from or in
addition to those available to the indemnifying party or parties, the
indemnified party or parties shall be entitled to select separate counsel
to conduct the defense to the extent determined by such counsel to be
necessary to protect the interests of the indemnified party or parties, and
the fees and expenses of such counsel shall be borne by the indemnifying
party (it being understood, however, that the indemnifying party shall not,
in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm for all Underwriters and
controlling persons named as parties to such action or actions, which firm
shall be designated in writing by the Underwriters). Expenses covered by
the indemnification in this Section 7 shall be paid by the indemnifying
party as they are incurred by the indemnified party. Anything in this
Section 7 to the contrary notwithstanding, the indemnifying party shall not
be liable for any settlement of any such claim effected without its written
consent, which shall not be unreasonably withheld in light of all factors
of importance to such indemnifying party.
8. CONTRIBUTION.
In order to provide for just and equitable contribution under the Act
in any case in which (i) any Underwriter makes any claim for indemnification
pursuant to Section 7 hereof but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 7 provide for indemnification in such case, or
(ii) contribution under the Act may be
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required on the part of any Underwriter, then the Company and each person who
controls the Company and each of the Selling Shareholders, on the one hand, and
any such Underwriter, on the other hand, shall contribute to the amount paid or
payable as a result of the aggregate losses, claims, damages or liabilities to
which they may be subject (which shall, for all purposes of this Agreement,
include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that all such Underwriters are
responsible pro rata in the aggregate for that portion of such losses, claims,
damages or liabilities represented by the percentage that the underwriting
discount per Unit appearing on the cover page of the Prospectus bears to the
public offering price appearing thereon, and the Company and each of the Selling
Shareholders shall be responsible pro rata for the remaining portion determined
by the proportion that the number of Shares and Warrants sold by the Company
bears to the total number of Shares and Warrants sold hereunder and each Selling
Shareholder is responsible for the percentage of such remaining portion
determined by the proportion that the number of Option Shares being sold by such
Selling Shareholder bears to the total number of [Shares plus Warrants] being
sold hereunder; provided, however, that if such allocation is not permitted by
applicable law, then the relative fault of the Company and the Selling
Shareholders and the Underwriters and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations, shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company, the Subsidiary, the Selling Shareholders or the Underwriters, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company, the Selling
Shareholders and the Underwriters agree (a) that it would not be just and
equitable if the respective obligations of the Company, the Selling Shareholders
and the Underwriters to contribute pursuant to this Section 8 were to be
determined by pro rata or per capita allocation of the aggregate damages (even
if the Underwriters in the aggregate were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the first sentence of this Section 8,
(b) that the contribution of each contributing Underwriter shall not be in
excess of its proportionate share (based on the ratio of the number of Shares
and Warrants purchased by such Underwriter to the number of Shares and Warrants
purchased by all contributing Underwriters) of the portion of such losses,
claims, damages or liabilities for which the Underwriters are responsible, and
(c) no Selling Shareholder shall be required to contribute any amount in excess
of the proceeds of the sale of such Selling Shareholder's Option Shares. No
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. As used in this paragraph, the word
"Company" includes any officer, director, or person who controls the Company
within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then any
Underwriter and each person who controls any Underwriter shall be entitled to
contribution from the Company, its officers, directors and controlling persons
and the Selling Shareholders to the full extent permitted by law. The foregoing
contribution agreement shall in no way affect the contribution liabilities of
any persons having liability under Section 11 of the Act other than the Company,
the Selling Shareholders and the Underwriters. No contribution shall be
requested with regard to the settlement of any matter from any party who did not
consent to such settlement; provided, however, that such consent shall not be
unreasonably withheld in light of all factors of importance to such party.
9. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale
of the Shares and Warrants to the Underwriters is consummated, the Company
will pay all costs and expenses incident to the performance of this
Agreement by the Company including, but not limited to, the fees and
expenses of counsel to the Company and of the Company's accountants; the
costs and expenses incident to the preparation, printing, filing and
distribution under the Act of the Registration Statement (including the
financial statements therein and all amendments and exhibits thereto),
Preliminary Prospectus and the Prospectus, as amended or supplemented, or
the Term Sheet; the fee of the NASD in connection with the filing required
by the NASD relating to the offering of the Shares and Warrants
contemplated hereby; the fees and expenses of investigative reports
regarding the Company, the Subsidiary and certain officers and directors of
the Company; all expenses, including reasonable fees and disbursements of
counsel to the Underwriters, in connection with the qualification of the
Shares and Warrants under the state securities or blue sky laws which the
Underwriters shall designate; the
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cost of printing and furnishing to the several Underwriters copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, the Agreement Among Underwriters, Selling Agreement, Warrant
Agreement, Underwriters' Questionnaire, Underwriters' Power of Attorney and
the Blue Sky Memorandum; any fees relating to the listing of the Shares and
Warrants on the Nasdaq SmallCap Market, American Stock Exchange or any
other securities exchange; the cost of printing the certificates
representing the Shares and Warrants; the fees of the transfer agent
retained in connection with the sale of the Shares and Warrants; the cost
of publication of at least three "tombstones" relating to the public
offering of the Shares and Warrants (at least one of which shall be in
national business newspaper and one of which shall be in a major New York
newspaper) and the cost of preparing at least five hard cover "bound
volumes" relating to such offering in accordance with the Underwriters'
request. The Company shall pay any and all taxes (including any transfer,
franchise, capital stock or other tax imposed by any jurisdiction) on sales
to the Underwriters hereunder. The Company will also pay all costs and
expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus as called for in Section 4(a)
of this Agreement, except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall at
the First Closing Date pay to the Underwriters a non-accountable expense
allowance of $_____, of which $_____ has been paid. In the event the Over-
allotment Option is exercised, the Company shall pay to the Underwriters at
the Option Closing Date an additional amount equal to ___% of the gross
proceeds received upon exercise of such option. In the event the
transactions contemplated hereby are not consummated by reason of any
action by the Underwriters (except if such prevention is based upon a
breach by the Company or any Subsidiary of any covenant, representation or
warranty contained herein or because any other condition to the
Underwriters' obligations hereunder required to be fulfilled by the Company
or the Subsidiary is not fulfilled), the Company shall be liable for only
the amount (not less than $50,000) paid by the Company to the Underwriters
prior to such determination. In the event the transactions contemplated
hereby are not consummated by reason of any action of the Company or the
Subsidiary or because of a breach by the Company or the Subsidiary of any
covenant, representation or warranty herein, the Company shall be liable
for the accountable expenses of the Underwriters, including legal fees, up
to a maximum of $125,000.
(c) No person is entitled either directly or indirectly to
compensation from the Company, from the Underwriters or from any other
person for services as a finder in connection with the proposed offering,
and the Company agrees to indemnify and hold harmless the Underwriters
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to,
all costs of defense and investigation and all attorneys' fees), to which
the Underwriters or such other person may become subject insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the claim of any person (other than an
employee of the party claiming an indemnity) or entity that he or it is
entitled to a finder's fee in connection with the proposed offering by
reason of such person's or entity's influence or prior contact with the
indemnifying party.
10. SUBSTITUTION OF UNDERWRITERS.
If any Underwriter shall for any reason not permitted hereunder cancel
its obligations to purchase the Firm Shares and/or Firm Warrants hereunder, or
shall fail to take up and pay for the number of Firm Shares and/or Firm Warrants
set forth opposite its name in Schedule I hereto upon tender of such Firm Shares
and/or Firm Warrants in accordance with the terms hereof, then:
(a) If the aggregate number of First Shares and/or Firm Warrants
which such Underwriter agreed but failed to purchase does not exceed 10% of
the total number of Firm Shares and Firm Warrants, the other Underwriter
shall be obligated severally, in proportion to its respective
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commitments hereunder, to purchase the Firm Shares and/or Warrants which
such defaulting Underwriter or Underwriters agreed but failed to purchase.
(b) If any Underwriter so defaults and the agreed number of Firm
Shares and/or Warrants with respect to which such default or defaults
occurs is more than 10% of the total number of Firm Shares and Firm
Warrants, the other Underwriter shall have the right to take up and pay for
the Firm Shares and/or Firm Warrants which the defaulting Underwriter
agreed but failed to purchase. If such other Underwriter does not, at the
First Closing Date, take up and pay for the Firm Shares and/or Firm
Warrants which the defaulting Underwriter agreed but failed to purchase,
the time for delivery of the Firm Shares and Firm Warrants shall be
extended to the next business day to allow the other Underwriter the
privilege of substituting within twenty-four hours (including non-business
hours) another Underwriter or Underwriters satisfactory to the Company. If
no such Underwriter or Underwriters shall have been substituted as
aforesaid, within such twenty-four hour period, the time of delivery of the
Firm Shares and Firm Warrants may, at the option of the Company, be again
extended to the next following business day, if necessary, to allow the
Company the privilege of finding within twenty-four hours (including non-
business hours) another Underwriter or Underwriters to purchase the Firm
Shares and/or Firm Warrants which the defaulting Underwriter agreed but
failed to purchase. If it shall be arranged for the other Underwriters or
substituted Underwriters to take up the Firm Shares and/or Firm Warrants of
the defaulting Underwriter as provided in this Section, (i) the Company or
the Underwriters shall have the right to postpone the time of delivery for
a period of not more than seven business days, in order to effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company
agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary and (ii)
the respective numbers of Firm Shares and Firm Warrants to be purchased by
the other Underwriter or substituted Underwriters shall be taken as the
basis of the underwriting obligation for all purposes of this Agreement.
If in the event of a default by one Underwriter and the other
Underwriter shall not take up and pay for all the Firm Shares and Firm
Warrants agreed to be purchased by the defaulting Underwriter or substitute
another Underwriter or Underwriters as aforesaid, or the Company shall not
find or shall not elect to seek another Underwriter or Underwriters for
such Firm Shares and Firm Warrants as aforesaid, then this Agreement shall
terminate.
If, following exercise of the Over-allotment Option, any
Underwriter shall for any reason not permitted hereunder cancel its
obligations to purchase Option Securities at the Option Closing Date, or
shall fail to take up and pay for the number or type of Option Securities,
which it becomes obligated to purchase at the Option Closing Date upon
tender of such Option Securities in accordance with the terms hereof, then
the other Underwriter or substituted Underwriters may take up and pay for
the Option Securities of the defaulting Underwriter in the manner provided
in Section 10(b) hereof. If the other Underwriter or substituted
Underwriters shall not take up and pay for all such Option Securities, the
non-defaulting Underwriter shall be entitled to purchase the number and
type of Option Securities for which there is no default or, at its
election, the Over-allotment Option shall terminate and the exercise
thereof shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any
person substituted for an Underwriter under this Section. In the event of
termination of this Agreement, there shall be no liability on the part of
any nondefaulting Underwriter to the Company, provided that the provisions
of this Section 10 shall not in any event affect the liability of any
defaulting Underwriter to the Company arising out of such default.
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11. EFFECTIVE DATE.
This Agreement shall become effective upon its execution, except that
the Underwriters may, at their option, delay such effectiveness until 11:00
a.m., New York City time on the first full business day following the effective
date of the Registration Statement, or at such earlier time after the effective
date of the Registration Statement as the Underwriters in their discretion shall
first commence the initial public offering by the Underwriters of any of the
Shares and/or Warrants. The time of the initial public offering shall mean the
time of release by the Underwriters of the first newspaper advertisement with
respect to the Shares and Warrants, or the time when the Shares and Warrants are
first generally offered by the Underwriters to dealers by letter or telegram,
whichever shall first occur. This Agreement may be terminated by the
Underwriters at any time before it becomes effective as provided above, except
that Sections 4(c), 7, 8, 9, 14, 15, 16 and 17 shall remain in effect
notwithstanding such termination.
12. TERMINATION.
(a) This Agreement, except for Sections 4(c), 7, 8, 9, 14, 15, 16
and 17 hereof, may be terminated at any time prior to the First Closing
Date, and the Over-allotment Option, if exercised, may be canceled at any
time prior to the Option Closing Date, by the Underwriters if in their
judgment it is impracticable to offer for sale or to enforce contracts made
by the Underwriters for the resale of the Shares and Warrants agreed to be
purchased hereunder by reason of (i) the Company or the Subsidiary having
sustained a material loss, whether or not insured, by reason of fire,
earthquake, flood, accident or other calamity, or from any labor dispute or
court or government action, order or decree; (ii) trading in securities on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq
Stock Market having been suspended or limited; (iii) material governmental
restrictions having been imposed on trading in securities generally (not in
force and effect on the date hereof); (iv) a banking moratorium having been
declared by federal or New York state authorities; (v) an outbreak of
international hostilities or other national or international calamity or
crisis or change in economic or political conditions having occurred; (vi)
a pending or threatened legal or governmental proceeding or action relating
generally to the Company's or the Subsidiary's business, or a notification
having been received by either the Company or the Subsidiary of the threat
of any such proceeding or action, which could materially adversely affect
the Company or the Subsidiary; (vii) except as contemplated by the
Prospectus, the Company or the Subsidiary is merged or consolidated into or
acquired by another company or group or there exists a binding legal
commitment for the foregoing or any other material change of ownership or
control occurs; (viii) the passage by the Congress of the United States,
governmental agency of Poland, or by any state legislative body or federal
or state agency or other domestic or foreign authority of any act, rule or
regulation, measure, or the adoption of any orders, rules or regulations by
any governmental body or any authoritative accounting institute or board,
or any governmental executive, which is reasonably believed likely by the
Underwriters to have a material impact on the business, financial condition
or financial statements of the Company or the market for the securities
offered pursuant to the Prospectus; (ix) any adverse change in the
financial or securities markets beyond normal market fluctuations having
occurred since the date of this Agreement; or (x) any material adverse
change having occurred, since the respective dates of which information is
given in the Registration Statement and Prospectus, in the earnings,
business prospects or general condition of the Company or any of its
Subsidiary, financial or otherwise, whether or not arising in the ordinary
course of business.
(b) If the Underwriters elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 12 or in Section 11, the Company shall be promptly notified by the
Underwriters, by telephone or telegram, confirmed by letter.
13. UNDERWRITERS' UNIT PURCHASE OPTION.
At or before the First Closing Date, the Company will sell to the
Underwriters, or its designees, for a consideration of $11.50, and upon the
terms and conditions set forth in the form of Underwriters' Unit Purchase Option
-27-
<PAGE>
annexed as an exhibit to the Registration Statement, an Underwriters' Unit
Purchase Option (the "Underwriters' Unit Purchase Option") to purchase an
aggregate of 115,000 shares of Common Stock plus 115,000 warrants to purchase
such number of shares of Common Stock. In the event of conflict in the terms of
this Agreement and the Underwriters' Unit Purchase Option, the language of the
Underwriters' Unit Purchase Option shall control.
14. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties
and other statements of the Company or the Selling Shareholders, where
appropriate, and the undertakings set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriters, the Company or any of its officers or
directors or any controlling person or the Selling Shareholders and will survive
delivery of and payment of the Shares and Warrants and the termination of this
Agreement.
15. NOTICE.
Any communications specifically required hereunder to be in writing,
if sent to the Underwriters, will be mailed, delivered and confirmed to them at
Fine Equities, Inc., 600 Third Avenue, New York, New York 10016, and at
SouthWall Capital Corp., 110 Wall Street, New York, New York 10005, with a copy
in each case sent to Baker & McKenzie, 805 Third Avenue, New York, New York
10022, attention: Malcolm I. Ross, Esq., or if sent to the Company, will be
mailed, delivered and confirmed to it at 211 North Union Street, #100,
Alexandria, Virginia 22314, with a copy sent to Hogan & Hartson LLP, Columbia
Square, 555 13th Street, NW, Washington, D.C. 20004, attention: Steven E.
Ballew, Esq.
16. PARTIES IN INTEREST.
The Agreement herein set forth is made solely for the benefit of the
several Underwriters, the Company, the Selling Shareholders, and, to the extent
expressed, the Principal Stockholders, any person controlling the Company or
any of the several Underwriters, and directors of the Company, nominees for
directors (if any) named in the Prospectus, its officers who have signed the
Registration Statement, and their respective executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include any purchaser, as such purchaser, from any of the several
Underwriters of the Shares and Warrants. All of the obligations of the
Underwriters hereunder are several and not joint.
17. APPLICABLE LAW.
This Agreement will be governed by, and construed in accordance with,
the laws of the State of New York applicable to agreements made and to be
entirely performed within New York.
-28-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the several Underwriters in accordance
with its terms.
Very truly yours,
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
By:
----------------------------------------
Name: William V. Carey
Title: Chairman and Chief Executive Officer
SELLING SHAREHOLDERS
By:
----------------------------------------
Attorney-in-fact
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
FINE EQUITIES, INC.
By:
----------------------------------------
Name:
Title:
SOUTHWALL CAPITAL CORP.
By:
----------------------------------------
Name:
Title:
-29-
<PAGE>
SCHEDULE I
Underwriter Number of Firm Securities to be Purchased
- -------------------------------- -----------------------------------------
Fine Equities, Inc.
SouthWall Capital Corp.
Total Firm Shares
Total Firm Warrants
-30-
<PAGE>
SCHEDULE II
Number of Firm Securities to be Sold
------------------------------------
Central European Distribution Corporation 1,150,000 Firm Shares
1,150,000 Firm Warrants
Number of Option Securities to be Sold
--------------------------------------
Central European Distribution
Corporation 97,500 Option Shares
75,000 Option Warrants
Selling Shareholders:
[__________] [__________]
[__________] [__________]
[__________] [__________]
75,000 Option Shares
--------------------------------------
Total ................................... 172,500 Option Shares
172,500 Option Warrants
======================================
-31-
<PAGE>
Exhibit 2.1
CONTRIBUTION AGREEMENT
AMONG
ESTATE OF WILLIAM O. CAREY
WILLIAM V. CAREY
WILLIAM V. CAREY STOCK TRUST
JEFFREY PETERSON
AND
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
DATED NOVEMBER 28, 1997
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (the "Agreement"), is made as of the 28th day
of November 1997, by and among Estate of William O. Carey ("Carey Estate"), and
William V. Carey ("W. Carey"), resident at 1602 Cottagewood Drive, Brandon,
Florida 33511, William V. Carey Stock Trust, a trust organized under the laws of
Florida ("Carey Trust"), Jeffrey Peterson, resident at 1502 Stonewall Road,
Alexandria, VA 22302 ("J. Peterson") and Central European Distribution
Corporation, a Delaware corporation ("CEDC"). Carey Estate, W. Carey, Carey
Trust and J. Peterson shall hereinafter be referred to as the "Shareholders."
WITNESSETH
WHEREAS, 1,110 shares of common stock, par value 50 Polish zloty per share
(the "Carey Agri Common Stock"), of Carey Agri International Poland Sp. z o.o.,
a Polish limited liability company, ("Carey Agri") have been issued;
WHEREAS, there is no other class of capital stock of Carey Agri issued.
WHEREAS, the only shares of capital stock of Carey Agri which have voting
rights are the shares of Carey Agri Common Stock.
WHEREAS, Carey Estate owns 56 shares of the Carey Agri Common Stock, W.
Carey owns 370 shares of the Carey Agri Common Stock, Carey Trust owns 314
shares of the Carey Agri Common Stock and J. Peterson owns 370 shares of the
Carey Agri Common Stock.
WHEREAS, the Shareholders desire to contribute all of the Carey Agri Common
Stock owned by them to CEDC, upon the terms and conditions and in exchange for
the consideration herein specified in a tax-free exchange qualifying under
Section 351 of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
hereinafter set forth, and of other good and valuable consideration, the
parties, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE CONTRIBUTION
Each of the Shareholders hereby agrees to assign, transfer, and convey
to CEDC at the Closing, hereinafter identified, for the consideration set forth
in accordance with the provisions of Article II, all of the rights, title and
interest in and to the Carey Agri Common Stock owned by such shareholder. At
the Closing, each of the Shareholders shall execute a notice to Carey Agri
informing Carey Agri of the transfer of ownership of the Carey Agri Common Stock
and request Carey Agri to take all steps required under applicable law to
reflect such change of ownership.
ARTICLE II
TERMS OF THE CONTRIBUTION
As consideration for the contribution of shares of Carey Agri Common
Stock to CEDC, the Shareholders shall receive 1,780,000 shares of common stock
par value $0.01 per share (the ("CEDC Common Stock"), of CEDC for all their
shares of Carey Agri Common Stock so contributed.
<PAGE>
ARTICLE III
PARTY AUTHORIZATIONS
Each of the Shareholders represents and warrants to CEDC and each of
the other Shareholders that such Shareholder has obtained, by means in
conformity with all applicable provisions of all applicable laws, the approval
of such Shareholder's execution and delivery of this Agreement and the
performance by such Shareholder of such Shareholder's obligations hereunder.
ARTICLE IV
CLOSING
The actual consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place on the date on which the last of the
parties hereto shall have executed this Agreement (the "Closing Date").
ARTICLE V
OBLIGATIONS AT THE CLOSING
5.1 SHAREHOLDERS' OBLIGATIONS. At the Closing, each of the Shareholders
shall deliver to CEDC:
1. If such Shareholder is not a natural person, a copy of certified
resolutions adopted by the governing body or such other authority of such
Shareholder authorizing or ratifying the execution and delivery of this
Agreement, and the performance by such Shareholder of its obligations hereunder.
2. An executed letter in the form of Exhibit A to Carey Agri
informing Carey Agri of the transfer of the shares of Carey Agri Common Stock
and requesting that Carey Agri take all steps required under applicable law to
reflect such change of ownership.
5.2 CEDC's OBLIGATIONS
1. At the Closing, CEDC shall issue CEDC Common Stock to the
Shareholders listed below in the following amounts:
90,780 shares Carey Estate
592,740 shares W. Carey
503,740 shares Carey Trust
592,740 shares J. Peterson
ARTICLE VI
FURTHER COVENANTS OF THE PARTIES
6.1 FURTHER ASSURANCES WITH RESPECT TO CAREY AGRI COMMON STOCK. The
Shareholders and CEDC agree that, from time to time and without further
consideration, each of them shall execute and deliver such further documents and
take such other action as CEDC may require more effectively to transfer to and
vest in the CEDC all right and interest in the Carey Agri Common Stock.
2
<PAGE>
6.2 FURTHER ASSURANCES WITH RESPECT TO CEDC's COMMON STOCK. The
Shareholders and CEDC agree that, from time to time and without further
consideration, each of them shall execute and deliver such further documents and
take such other action as the Shareholders may require to issue to and vest in
the Shareholders all right and interest in the shares of CEDC Common Stock
referenced in Section 5.2 above.
ARTICLE VII
TAX MATTERS
7.1 TAX FREE TRANSACTION. The Shareholders and CEDC intend that the
transfers described in Articles I and II, above, constitute a tax-free exchange
pursuant to Section 351 of the Internal Revenue Code of 1986, as amended.
7.2 Each of the Shareholders agrees to file with such shareholders'
federal income tax return for the taxable year in which the Closing occurs the
statement required by Treasury Regulations Section 1.351-3(a).
7.3 CEDC agrees to file with its federal income tax return for the taxable
year in which the Closing occurs the statement required by Treasury Regulations
Section 1.351-3(b).
ARTICLE VIII
EFFECTIVENESS AND ASSIGNABILITY OF AGREEMENT
This Agreement shall become effective when executed and delivered by
CEDC and each of the Shareholders, and shall be binding in all respects upon the
respective successors and permitted assigns of each of CEDC and the
Shareholders. No party hereto may assign this Agreement in whole or in part
without first obtaining the written consent of all other parties hereto.
ARTICLE IX
COMPLETENESS OF AGREEMENT
This Agreement and the Exhibit hereto represent the entire agreement
between CEDC and the Shareholders with respect to the subject matter hereof and
supersede all offers, proposals, statements, representations and agreements with
respect to the subject matter hereof. The Exhibit hereto is incorporated herein
by reference, and shall be deemed to be included in any reference to this
Agreement. This Agreement may not be amended except by action of CEDC and each
of the Shareholders hereto set forth in an instrument in writing signed on
behalf of CEDC and each of the Shareholders hereto.
ARTICLE X
CAPTIONS
The captions to the Articles and Sections contained in this Agreement are
for reference only, do not form a substantive part of this Agreement and shall
not restrict nor enlarge any substantive provision of this Agreement.
3
<PAGE>
ARTICLE XI
APPLICABLE LAW
This Agreement, and the Exhibit, and all other documents given in
connection herewith, shall be construed in accordance with the laws of the State
of Delaware, without regard to the principles of conflicts of laws.
ARTICLE XII
CHOICE OF FORUM; VENUE; SERVICE OF PROCESS
Any suit, action, or proceeding among any or all of the parties hereto
relating to this Agreement, to any document, instrument, or agreement delivered
pursuant hereto, referred to herein, or contemplated hereby, or in any other
manner arising out of or relating to the transactions contemplated by or
referenced in this Agreement, shall be commenced and maintained exclusively in
the Court of Chancery of the State of Delaware or, if that Court lacks
jurisdiction over the subject matter, in a state court of competent subject
matter jurisdiction sitting in New Castle County, Delaware. The parties hereto
hereby submit themselves unconditionally and irrevocably to the personal
jurisdiction of such courts. The parties hereto further agree that venue shall
be in New Castle County, Delaware. The parties hereto irrevocably waive any
objection to such personal jurisdiction or venue including, but not limited to,
the objection that any suit, action, or proceeding brought in Delaware, has been
brought in an inconvenient forum. The parties hereto irrevocably agree that
process issuing from such courts may be served on them, either personally or by
certified mail, return receipt requested, at the addresses on the books and
records of the Company; and further irrevocably waive any objection to service
of process made in such manner and at such addresses, including without
limitation any objection that service in such manner and at such addresses is
not authorized by the local or procedural laws of the State of Delaware.
ARTICLE XIII
COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be considered an original but all of which shall constitute but one and
the same Agreement by and among CEDC and the Shareholders.
ARTICLE XIV
NO THIRD PARTY BENEFICIARY
This Agreement is intended to inure to the benefit of CEDC and the
Shareholders only; and no third party shall have any rights, express or implied,
by reason of this Agreement.
ARTICLE XV
UNILATERAL RIGHT TO WAIVE FAILURES OF OTHER PARTIES
15.1 WAIVER. CEDC or any of the Shareholders may:
a. Extend in writing the time for the performance of any of the
obligations herein contained to be performed for the benefit of such entity; and
4
<PAGE>
b. Waive in writing the failure in performance of any of the
conditions herein expressed for its benefit.
15.2 EFFECT OF WAIVER. No such waiver or extension shall be valid unless
in writing and signed by the entity granting the waiver or extension, and no
such waiver or extension shall be construed to excuse or mitigate any subsequent
breach or violation of this Agreement not specifically covered by such waiver.
ARTICLE XVI
SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement shall
not affect the other provisions hereof, and the Agreement shall be construed in
all respects as if such invalid or unenforceable provisions were omitted.
Furthermore, upon the request of CEDC or any of the Shareholders, CEDC and the
Shareholders shall add to this Agreement, in lieu of such invalid or
unenforceable provisions, provisions as similar in terms to such invalid or
unenforceable provisions as may be possible and legal, valid and enforceable.
5
<PAGE>
IN WITNESS WHEREOF, CEDC and the Shareholders have caused this Agreement to
be executed as of the day and year first above written.
CENTRAL EUROPEAN DISTRIBUTION
CORPORATION, a Delaware corporation
By: /s/ William V. Carey
----------------------------------------
Name: William V. Carey
Title: Chairman of the Board, President
and Chief Executive Officer
ESTATE OF WILLIAM O. CAREY
By: /s/ Gertrude E. Carey
----------------------------------------
Name: Gertrude E. Carey
Title: Personal Representative, and not
individually or in any other capacity
William V. Carey, individually
/s/ William V. Carey
-------------------------------------------
WILLIAM V. CAREY STOCK TRUST,
a Florida trust
By: /s/ William V. Carey
----------------------------------------
Name: William V. Carey
Title: Trustee, and not individually or in
any other capacity
By: /s/ Remy Hermida
----------------------------------------
Name: Remy Hermida
Title: Trustee, and not individually or in any
other capacity
Jeffrey Peterson, individually
/s/ Jeffrey Peterson
-------------------------------------------
6
<PAGE>
EXHIBIT A
----------
LETTER TO CAREY AGRI
November __, 1997
Carey Agri International Poland Sp. z o.o.
ul. Lubelska 13
Warsaw
Acting pursuant to Article 187 of the Polish Commercial Code, I, the
undersigned, domiciled at _____________ [insert address], advise Carey Agri
International Poland Sp. z o.o. with its registered office in Warsaw ("Company")
that all the Company shares held by me, i.e., _____________ [state number of
shares*] shares par value PLN 50 each, have been transferred to Central European
Distribution Corporation, a Delaware corporation whose executive offices are
located at 211 North Union Street, # 100, Alexandria, Virginia 22314.
Under Article 188 of the Polish Commercial Code, I hereby direct a
request to the Management Board of the Company to update the Share Registry
appropriately and submit a revised list of shareholders to the appropriate
registration court. Furthermore, I request that the relevant notifications, as
required by law, should be provided to the appropriate authorities.
Very truly yours,
----------------------------
[signatures of stockholders]
* Shares held are as follows:
Estate of William O. Carey 56
William V. Carey 370
William V. Carey Trust 314
Jeffrey Peterson 370
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
ARTICLE 1. NAME
The name of this corporation is Central European Distribution
Corporation (the "Corporation").
ARTICLE 2. REGISTERED OFFICE AND AGENT
The registered office of the Corporation shall be located at 1013
Centre Road, Wilmington, New Castle County, Delaware 19805. The registered
agent of the Corporation at such address shall be Corporation Service Company.
ARTICLE 3. PURPOSE AND POWERS
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law"). The
Corporation shall have all power necessary or convenient to the conduct,
promotion or attainment of such acts and activities.
ARTICLE 4. CAPITAL STOCK
4.1. Authorized Shares
The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 21.0 million of which 20.0 million
shall be Common Stock, having a par value of $.01 per share ("Common Stock"),
and 1.0 million shall be Preferred Stock, having a par value of $.01 per share
("Preferred Stock").
4.2. Common Stock
4.2.1. Relative Rights
The Common Stock shall be subject to all of the rights, privileges,
preferences and priorities of the Preferred Stock as set forth in the
certificate(s) of designations filed to establish the respective series of
Preferred Stock. Each share of Common Stock shall have the same relative rights
as and be identical in all respects to all the other shares of Common Stock.
<PAGE>
4.2.2. Dividends
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of shares of any class of stock having preference over
the Common Stock as to the payment of dividends, the full amount of dividends
and of sinking fund or retirement payments, if any, to which such holders are
respectively entitled in preference to the Common Stock, then dividends may be
paid on the Common Stock and on any class or series of stock entitled to
participate therewith as to dividends, out of any assets legally available for
the payment of dividends thereon, but only when and as declared by the Board of
Directors of the Corporation.
4.2.3. Dissolution, Liquidation, or Winding Up
In the event of any dissolution, liquidation, or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Common Stock,
and holders of any class or series of stock entitled to participate therewith,
in whole or in part, as to the distribution of assets in such event, shall
become entitled to participate in the distribution of any assets of the
Corporation remaining after the Corporation shall have paid, or provided for
payment of, all debts and liabilities of the Corporation and after the
Corporation shall have paid, or set aside for payment, to the holders of any
class of stock having preference over the Common Stock in the event of
dissolution, liquidation or winding up the full preferential amounts (if any) to
which they are entitled.
4.2.4. Voting Rights
Each holder of shares of Common Stock shall be entitled to attend all
special and annual meetings of the stockholders of the Corporation and, to cast
one vote for each share of Common Stock held of record upon any matter or thing
(including, without limitation, the election of one or more directors) properly
considered and acted upon by the stockholders.
4.3. Preferred Stock
The Board of Directors is authorized, subject to limitations
prescribed by the Delaware General Corporation Law and the provisions of this
Certificate of Incorporation, to provide, by resolution or resolutions from time
to time and by filing a certificate(s) pursuant to the Delaware General
Corporation Law, for the issuance of the shares of Preferred Stock in series, to
establish from time to time the number of shares to be included in each such
series, to fix the powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and to fix the qualifications, limitations or restrictions thereof.
-2-
<PAGE>
ARTICLE 5. INCORPORATOR
5.1 The name and mailing address of the incorporator (the
"Incorporator") are Pamela L. Simpson, Corporation Service Company, 1013
Centre Road, Wilmington, Delaware 19805. The powers of the Incorporator
shall terminate upon the filing of this Certificate of Incorporation.
5.2 The powers of the Incorporator shall terminate upon the filing
of this Certificate of Incorporation.
ARTICLE 6. BOARD OF DIRECTORS
6.1. Number and Election
The number of directors of the Corporation shall be not less than two
nor more than nine directors, the exact number of directors to be fixed from
time to time by or in the manner provided in the bylaws of the Corporation. Upon
the filing in the Office of the Secretary of State of Delaware of the
Certificate of Incorporation of the Corporation, the following persons, having
the indicated mailing addresses, shall serve as the initial directors of the
Corporation until the first annual meeting of the stockholders of the
Corporation or until their successors are elected and qualify:
<TABLE>
<CAPTION>
Name Mailing Address
---- ---------------
<S> <C>
William V. Carey 1602 Cottagewood Drive, Brandon, FL 33511
James T. Grossman 805 S. Fairfax Street, Alexandria, VA 22314
James B. Kelly 7606 Hamilton Spring Road, Bethesda, MD 20817
Jan W. Laskowski 115 ul. Marcinkowska, 00102 Warsaw, Poland
Jeffrey Peterson 1502 Stonewall Road, Alexandria, VA 22302
Joe M. Richardson P.O. Box 22154, Louisville, KY 40252
</TABLE>
The terms of all other directors expire at the next annual stockholders' meeting
following their election. Unless and except to the extent that the bylaws of
the Corporation shall otherwise require, the election of directors of the
Corporation need not be by written ballot.
Any vacancy occurring in the Board of Directors, including any vacancy
created by an increase in the number of directors, shall be filled by the vote
of a majority of the directors then in office, whether or not a quorum, or by a
sole remaining director, and any director so chosen shall hold office until the
next
-3-
<PAGE>
election of directors and until such director's successor shall have been
elected and qualified, or until the director's earlier resignation or removal.
No director may be removed except for cause and then only by an affirmative vote
of the holders of at least a majority of the outstanding shares of stock of the
Corporation entitled to vote thereon at a duly constituted meeting of
stockholders called for such purpose. At least 30 days prior to such meeting of
stockholders, written notice shall be sent to the director or directors whose
removal shall be considered at such meeting.
6.2. Management of Business and Affairs of the Corporation
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
6.3. Limitation of Liability
No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this provision shall not eliminate or limit the
liability of a director (a) for any breach of the director's duty of loyalty to
the Corporation or its stockholders; (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (c) under
Section 174 of the Delaware General Corporation Law; or (d) for any transaction
from which the director derived an improper personal benefit. Any repeal or
modification of this Article 6.3 shall be prospective only and shall not
-----------
adversely affect any right or protection of, or any limitation on the liability
of, a director of the Corporation existing at, or arising out of facts or
incidents occurring prior to, the effective date of such repeal or modification.
ARTICLE 7. COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or
-4-
<PAGE>
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
ARTICLE 8. AMENDMENT OF BYLAWS
The Board of Directors or the stockholders may from time to time
adopt, amend or repeal the by-laws of the Corporation. Such action by the Board
of Directors shall require the affirmative vote of at least a majority of the
directors then in office at a duly constituted meeting of the Board of Directors
called for such purpose. Such action by the stockholders shall require the
affirmative vote of the holders of at least a majority of the outstanding shares
of stock of the Corporation entitled to vote thereon at a duly constituted
meeting of stockholders called for such purpose.
ARTICLE 9. RESERVATION OF RIGHT TO AMEND CERTIFICATE
OF INCORPORATION
The Corporation reserves the right at any time, and from time to time,
to amend, alter, change, or repeal any provision contained in this Certificate
of Incorporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences, and privileges of any
nature conferred upon stockholders, directors, or any other persons by and
pursuant to this Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the rights reserved in this Article 9.
---------
ARTICLE 10. STOCKHOLDER MATTERS
10.1. Consent in Lieu of Meeting
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
such holders and may not be effected by any consent in writing by such holders,
unless such consent is unanimous.
10.2. Call of Special Meetings
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the Board of Directors,
the Chairman of the Board or the President of the Corporation, and shall be
called by
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the President or the Secretary of the Corporation at the request in writing of
stockholders possessing at least 10 percent of the voting power of the issued
and outstanding voting stock of the Corporation entitled to vote generally for
the election of directors. Such request shall include a statement of the purpose
or purposes of the proposed meeting.
ARTICLE 11. AMENDMENT OF CERTIFICATE OF INCORPORATION
Except as set forth in this Article 11 or as otherwise specifically
----------
required by law, no amendment of any provision of this Certificate of
Incorporation shall be made unless such amendment has been first proposed by the
Board of Directors of the Corporation upon the affirmative vote of at least a
majority of the directors then in office at a duly constituted meeting of the
Board of Directors called for such purpose and thereafter approved by
stockholders of the Corporation by the affirmative vote of the holders of at
least a majority of the outstanding shares of stock of the Corporation entitled
to vote thereon; provided, however, if such amendment is to the provisions set
forth in this clause of Article 11 or in Articles 4.1 (insofar as relating to
---------- ------------------------------------
the authorized number of shares of Preferred Stock), 4.3, 6.3, 8, or 10 hereof,
- ---------------------------------------------------- ---- --- - --
such amendment must be approved by the affirmative vote of the holders of at
least two-thirds of the outstanding shares of stock of the Corporation entitled
to vote thereon rather than a majority of such shares.
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<PAGE>
IN WITNESS WHEREOF, the undersigned, being the Incorporator
hereinabove named, for the purpose of forming a corporation pursuant to the
Delaware General Corporation Law, hereby certifies that the facts herein above
stated are truly set forth, and accordingly executes this Certificate of
Incorporation this 4th day of September 1997.
CORPORATION SERVICE COMPANY
By: /s/ Pamela L. Simpson
-------------------------------
Pamela L. Simpson, Incorporator
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Exhibit 3.2
BYLAWS
OF
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
1. OFFICES
1.1. Registered Office
The initial registered office of the Corporation shall be in
Wilmington, Delaware, and the initial registered agent in charge thereof shall
be Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805.
1.2. Other Offices
The Corporation may also have offices at such other places, both
within and without the State of Delaware, as the Board of Directors may from
time to time determine or as may be necessary or useful in connection with the
business of the Corporation.
2. MEETINGS OF STOCKHOLDERS
2.1. Place of Meetings
All meetings of the stockholders shall be held at such place as may be
fixed from time to time by the Board of Directors, the Chairman of the Board or
the President.
2.2. Annual Meetings
The Corporation shall hold annual meetings of stockholders, commencing
with the year 1998, on such date and at such time as shall be designated from
time to time by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President, at which stockholders shall elect a Board of
Directors and transact such other business as may properly be brought before the
meeting.
<PAGE>
2.3. Special Meetings
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the Board of Directors,
the Chairman of the Board, the Chief Executive Officer or the President of the
Corporation, and shall be called by the President or the Secretary of the
Corporation at the request in writing of stockholders possessing at least 25
percent of the voting power of the issued and outstanding voting stock of the
Corporation entitled to vote generally for the election of directors. Such
request shall include a statement of the purpose or purposes of the proposed
meeting.
2.4. Notice of Meetings
Notice of any meeting of stockholders, stating the place, date and
hour of the meeting, and (if it is a special meeting) the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting not less than ten nor more than sixty days before the date
of the meeting (except to the extent that such notice is waived or is not
required as provided in the General Corporation Law of the State of Delaware
(the "Delaware General Corporation Law") or these Bylaws). Such notice shall be
given in accordance with, and shall be deemed effective as set forth in, Section
222 (or any successor section) of the Delaware General Corporation Law.
2.5. Waivers of Notice
Whenever the giving of any notice is required by statute, the
Certificate of Incorporation of the Corporation (which shall include any
amendments thereto and shall be hereinafter referred to as so amended as the
"Certificate of Incorporation") or these Bylaws, a waiver thereof, in writing
and delivered to the Corporation, signed by the person or persons entitled to
said notice, whether before or after the event as to which such notice is
required, shall be deemed equivalent to notice. Attendance of a stockholder at
a meeting shall constitute a waiver of notice (a) of such meeting, except when
the stockholder at the beginning of the meeting objects to holding the meeting
or transacting business at the meeting, and (b) (if it is a special meeting) of
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice, unless the stockholder
objects to considering the matter at the beginning of the meeting.
2.6. Business at Special Meetings
Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice (except to the extent that such
notice is
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waived or is not required as provided in the Delaware General Corporation Law or
these Bylaws).
2.7. List of Stockholders
After the record date for a meeting of stockholders has been fixed, at
least ten days before such meeting, the officer who has charge of the stock
ledger of the Corporation shall make a list of all stockholders entitled to vote
at the meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place in the city where the meeting
is to be held, which place is to be specified in the notice of the meeting, or
at the place where the meeting is to be held. Such list shall also, for the
duration of the meeting, be produced and kept open to the examination of any
stockholder who is present at the time and place of the meeting.
2.8. Quorum at Meetings
Stockholders may take action on a matter at a meeting only if a quorum
exists with respect to that matter. Except as otherwise provided by statute or
by the Certificate of Incorporation, the holders of a majority of the shares
entitled to vote at the meeting, and who are present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. Where a separate vote by a class or classes is
required, the holders of a majority of the outstanding shares of such class or
classes, who are present in person or represented by proxy, shall constitute a
quorum entitled to take action on that matter. Once a share is represented for
any purpose at a meeting (other than solely to object (a) to holding the meeting
or transacting business at the meeting, or (b) (if it is a special meeting) to
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice), it is deemed present for
quorum purposes for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is or must be set for the adjourned meeting.
The holders of a majority of the voting shares represented at a meeting, whether
or not a quorum is present, may adjourn such meeting from time to time.
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2.9. Voting and Proxies
Unless otherwise provided in the Delaware General Corporation Law or
in the Corporation's Certificate of Incorporation, and subject to the other
provisions of these Bylaws, each stockholder shall be entitled to one vote on
each matter, in person or by proxy, for each share of the Corporation's capital
stock that has voting power and that is held by such stockholder. No proxy
shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. A duly executed appointment of proxy shall be
irrevocable if the appointment form states that it is irrevocable and if, and
only as long as, it is coupled with an interest sufficient in law to support an
irrevocable power.
2.10. Required Vote
When a quorum is present at any meeting of stockholders, all matters
shall be determined, adopted and approved by the affirmative vote (which need
not be by ballot) of the holders of a majority of the shares present in person
or represented by proxy at the meeting and entitled to vote with respect to the
matter, unless the proposed action is one upon which, by express provision of
statutes or of the Certificate of Incorporation, a different vote is specified
and required, in which case such express provision shall govern and control the
decision of such question. Where a separate vote by a class or classes is
required, the affirmative vote of the holders of a majority of the shares of
such class or classes present in person or represented by proxy at the meeting
shall be the act of such class, unless the proposed action is one upon which, by
express provision of statutes or of the Certificate of Incorporation, a
different vote is specified and required, in which case such express provision
shall govern and control the decision of such question. Notwithstanding the
foregoing, directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors.
2.11. Action Without a Meeting
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
such stockholders and may not be effected by any consent in writing by such
stockholders, unless such consent is unanimous.
2.12. Business at Annual Meeting
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly
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brought before an annual meeting, business must be (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, a stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
60 days and not more than 90 days prior to the meeting; provided, however, that
in the event that less than 75 days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
15th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (a) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the Corporation's stock which are beneficially owned by
the stockholder, and (d) any material interest of the stockholder in such
business. No later than the tenth day following the date of receipt of a
stockholder notice pursuant to this Section 2.12, the Chairman of the Board of
Directors of the Corporation shall, if the facts warrant, determine and notify
in writing the stockholder submitting such notice that such notice was not made
in accordance with the time limits and/or other procedures prescribed by the
Bylaws. If no such notification is mailed to such stockholder within such ten-
day period, such stockholder notice containing a matter of business shall be
deemed to have been made in accordance with the provisions of this Section 2.12.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 2.12.
3. DIRECTORS
3.1. Powers
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, which may exercise all such
powers of the Corporation and do all such lawful acts and things, subject to any
limitation set
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forth in the Certificate of Incorporation or as otherwise may be provided in the
Delaware General Corporation Law. The Board of Directors shall annually elect a
Chairman of the Board from among its members and shall designate, when present,
either the Chairman of the Board or the President to preside at its meetings. If
neither the Chairman of the Board nor the President is present, the Board of
Directors may designate another officer to preside at such meeting. The Chairman
of the Board and the President may be the same person. The Board of Directors
may also annually elect one or more Vice Chairmen from among its members, with
such duties as the Board of Directors shall from time to time prescribe.
3.2. Number and Election
As of the closing of the Corporation's initial public offering of
equity securities under the Securities Act of 1933, as amended, the total number
of directors which shall constitute the entire Board of Directors shall be
six. The term "entire Board of Directors" as used herein shall mean the
total number of directors constituting the entire Board of Directors
irrespective of the number of directors then in office or vacancies.
Thereafter, the total number of directors constituting the entire Board of
Directors shall be determined by resolution of the Board of Directors passed by
the affirmative vote of at least two-thirds of the directors then in office,
provided, that such number shall be consistent with the minimum and maximum
number of directors set forth in the Certificate of Incorporation. Directors
shall be elected at annual meetings of the stockholders, except as provided in
Section 3.3 hereof, and each director elected shall hold office until his
successor is elected and qualified or until his earlier death, resignation or
removal. Directors need not be stockholders.
3.3. Vacancies
Vacancies and newly created directorships resulting from any increase
in the authorized number of directors shall be filled by a majority of the
directors then in office, whether or not a quorum, or by a sole remaining
director. Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by the sole
remaining director so elected. Each director so chosen shall hold office until
the next election, and until such director's successor is elected and qualified,
or until the director's earlier resignation or removal. In the event that one
or more directors resigns from the Board, effective at a future date, a majority
of the directors then in office, including those who have so resigned, shall
have
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power to fill such vacancy or vacancies, the vote thereon to take effect
when such resignation or resignations shall become effective, and each director
so chosen shall hold office until the next election, and until such director's
successor is elected and qualified, or until the director's earlier resignation
or removal.
3.4. Meetings
3.4.1. Regular Meetings
Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board of Directors.
3.4.2. Special Meetings
Special meetings of the Board may be called by the Chairman of the
Board or President on one day's notice to each director, either personally or by
telephone, express delivery service (so that the scheduled delivery date of the
notice is at least one day in advance of the meeting), telegram or facsimile
transmission. The notice need not describe the purpose of a special meeting.
3.4.3. Telephone Meetings
Members of the Board of Directors may participate in a meeting of
the Board by any communication by means of which all participating directors can
simultaneously hear each other during the meeting. A director participating in a
meeting by this means is deemed to be present in person at the meeting.
3.4.4. Action Without Meeting
Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting if the action is taken by all
members of the Board. The action must be evidenced by one or more written
consents describing the action taken, signed by each director, and delivered to
the Corporation for inclusion in the minute book.
3.4.5. Waiver of Notice of Meeting
A director may waive any notice required by statute, the Certificate
of Incorporation or these Bylaws before or after the date and time stated in the
notice. Except as set forth below, the waiver must be in writing, signed by the
director entitled to the notice, and delivered to the Corporation for inclusion
in the minute book. Notwithstanding the foregoing, a director's attendance at
or participation in
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a meeting waives any required notice to the director of the meeting unless the
director at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
3.5. Quorum and Vote at Meetings
At all meetings of the Board, a quorum of the Board of Directors
consists of the presence of a majority of the total number of directors
constituting the entire Board of Directors. The affirmative vote of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute, the Certificate of Incorporation or these Bylaws.
3.6. Committees of Directors
The Board of Directors may by resolution designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. If a member of a committee shall be absent from any
meeting, or disqualified from voting thereat, the remaining member or members
present and not disqualified from voting, whether or not such member or members
constitute a quorum, may, by unanimous vote, appoint another member of the Board
of Directors to act at the meeting in the place of such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation (except that
a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
pursuant to Section 151(a) of the Delaware General Corporation Law, fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of any shares of any series),
adopting an agreement of merger or consolidation pursuant to Sections 251, 252,
257, 258, 263 or 264 of the Delaware General Corporation Law, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution
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of the Corporation or a revocation of a dissolution, or amending the Bylaws; and
unless the resolutions, these Bylaws or the Certificate of Incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend, to authorize the issuance of stock, or to adopt a
certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board
of Directors. Unless otherwise specified in the resolution of the Board of
Directors designating the committee, at all meetings of each such committee of
directors, a majority of the members of the committee shall constitute a quorum
for the transaction of business, and the affirmative vote of a majority of the
members of the committee present at any meeting at which there is a quorum shall
be the act of the committee. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors, when required.
3.7. Compensation of Directors
The Board of Directors shall have the authority to fix the
compensation of directors. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
3.8. Nomination of Directors
Only persons who are nominated in accordance with the procedures set
forth in this Section 3.8 shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with notice procedures set
forth in this Section 3.8. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder notice
shall be delivered to or mailed and received at the principal executive office
of the Corporation not less than 60 days and not more than 90 days prior to the
meeting; provided, however, that in the event that less than 75 days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 15th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
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shares of the Corporation's stock which are beneficially owned by such person,
and (iv) any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including without limitation such person's written
consent to be named in the proxy statement as a nominee and to serving as a
director if elected); and (b) as to the stockholder giving the notice (i) the
name and address, as they appear on the Corporation's books, of such stockholder
and (ii) the class and number of shares of the Corporation's stock which are
beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in the stockholder's notice of nomination which
pertains to the nominee. No later than the tenth day following the date of
receipt of a stockholder nomination submitted pursuant to this Section 3.8, the
Chairman of the Board of Directors of the Corporation shall, if the facts
warrant, determine and notify in writing the stockholder making such nomination
that such nomination was not made in accordance with the time limits and/or
other procedures prescribed by the bylaws. If no such notification is mailed to
such stockholder within such ten-day period, such nomination shall be deemed to
have been made in accordance with the provisions of this Section 3.8. No person
shall be eligible for election as a director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 3.8.
4. OFFICERS
4.1. Positions
The officers of the Corporation shall be a Chairman of the Board, a
President, a Chief Executive Officer, a Chief Financial Officer, a Secretary and
a Treasurer, and such other officers as the Board of Directors from time to time
may appoint, including one or more Vice Chairpersons, a Chief Operating Officer,
Executive Vice Presidents, a General Counsel, Senior Vice Presidents, Vice
Presidents, Assistant Secretaries and Assistant Treasurers. Each such officer
shall exercise such powers and perform such duties as shall be set forth below
and such other powers and duties as from time to time may be specified by the
Board of Directors or by any officer(s) authorized by the Board of Directors to
prescribe the duties of such other officers. Any number of offices may be held
by the same person, except that in no event shall the President and the
Secretary be the same person. Each of the Chairman of the Board, the President
and Chief Executive Officer, the Chief Operating Officer, the Chief Financial
Officer, and/or any Executive Vice President or Senior Vice President may
execute bonds, mortgages and other
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documents under the seal of the Corporation, except where required or permitted
by law to be otherwise executed and except where the authorization therefor
shall be expressly delegated by the Board of Directors to some other officer or
agent of the Corporation.
4.2. Chairman of the Board
The Chairman of the Board shall (when present) preside at all meetings
of the Board of Directors and stockholders and shall ensure that all orders and
resolutions of the Board of Directors are carried into effect. Unless the Board
shall designate a person other than the Chairman as the President and Chief
Executive Officer, the Chairman of the Board shall also be the President and
Chief Executive Officer of the Corporation, and as such shall have overall
executive responsibility and authority for management of the business, affairs
and operations of the Corporation (subject to the authority of the Board of
Directors). As President and Chief Executive Officer, the Chairman of the Board
shall, in general, perform all duties incident to the office of a president and
chief executive officer of a corporation, including those duties customarily
performed by persons holding such offices, and shall perform such other duties
as, from time to time, may be assigned to him or her by the Board of Directors.
4.3. Chief Executive Officer
Subject to the authority of the Board of Directors, the Chief
Executive Officer shall have overall executive responsibility and authority for
management of the business, affairs and operations of the Corporation, and, in
general, shall perform all duties incident to the office of a chief executive
officer of a corporation, including those duties customarily performed by
persons holding such office, and shall perform such other duties as, from time
to time, may be assigned to him or her by the Board of Directors.
4.4. President
The President shall be the chief operating officer of the Corporation
and shall have responsibility and authority for management of the day-to-day
operations of the Corporation, subject to the authority of the Chief Executive
Officer and the Board of Directors and, in general, shall perform all duties
incident to the office of a president of a corporation including those duties
customarily performed by persons holding such office and shall perform such
other duties as, from time to time, may be assigned to him or her by the Board
of Directors.
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4.5. Chief Financial Officer
The Chief Financial Officer of the Corporation shall have general
charge and supervision of the financial affairs of the Corporation, including
budgetary, accounting and statistical methods, and shall approve payment, or
designate others serving under him to approve for payment, all vouchers and
warrants for disbursements of funds, and, in general, shall perform such other
duties as are incident to the office of a chief financial officer of a
corporation, including those duties customarily performed by persons occupying
such office, and shall perform such other duties as, from time to time, may be
assigned to him or her by the Board of Directors, the President or Chief
Executive Officer.
4.6. Chief Operating Officer
The Chief Operating Officer of the Corporation shall have general
charge and supervision of the day to day operations of the Corporation (subject
to the direction of the President and the authority of the Board of Directors),
and, in general, shall perform such other duties as are incident to the office
of a chief operating officer of a corporation, including those duties
customarily performed by persons occupying such office, and shall perform such
other duties as, from time to time, may be assigned to him or her by the Board
of Directors, or the President or Chief Executive Officer.
4.7. General Counsel
The General Counsel of the Corporation shall be responsible for
supervising the legal affairs of the Corporation, and, in general, shall perform
such other duties as are incident to the office of a general counsel of a
corporation, including those duties customarily performed by persons occupying
such office, and shall perform such other duties as, from time to time, may be
assigned to him or her by the Board of Directors, the President or Chief
Executive Officer.
4.8. Vice President
In the absence of the President or in the event of the President's
failure or refusal to act, the Vice President (or in the event there be more
than one Vice President, the Vice Presidents in the order designated, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting shall have all the powers of,
and be subject to all the restrictions upon, the President and Chief Executive
Officer. The Vice President or Vice Presidents, in general, shall perform such
other duties as are incident to the office of a vice president of a corporation,
including those duties customarily
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performed by persons occupying such office, and shall perform such other duties
as, from time to time, may be assigned to him or her or them by the Board of
Directors, the President or Chief Executive Officer. The Board of Directors may
designate one or more Vice Presidents as Executive Vice Presidents or Senior
Vice Presidents.
4.9. Secretary
The Secretary, or an Assistant Secretary, shall attend all meetings of
the Board of Directors and all meetings of the stockholders, and shall record
all the proceedings of the meetings of the stockholders and of the Board of
Directors in a book to be kept for that purpose, and shall perform like duties
for the standing committees, when required. The Secretary shall have custody of
the corporate seal of the Corporation, and the Secretary, or an Assistant
Secretary, shall have authority to affix the same to any instrument requiring
it, and when so affixed it may be attested by the signature of the Secretary or
by the signature of such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by such officer's signature. The Secretary or an
Assistant Secretary may also attest all instruments signed by the President and
Chief Executive Officer, the Chief Operating Officer, the Chief Financial
Officer or any Vice President. The Secretary, or an Assistant Secretary, shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and, in general, shall perform all
duties as are incident to the office of a secretary of a corporation, including
those duties customarily performed by persons occupying such office, and shall
perform such other duties as, from time to time, may be assigned to him or her
by the Board of Directors, the President, Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer or any Executive Vice President.
4.10. Assistant Secretary
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors (or if there shall
have been no such determination, then in the order of their election), shall, in
the absence of the Secretary or in the event of the Secretary's inability or
refusal to act or when requested by the Chairman of the Board, the President and
Chief Executive Officer, the Chief Operating Officer, the Chief Financial
Officer or any Executive Vice President, perform the duties and exercise the
powers of the Secretary, and, in general, shall perform all duties as are
incident to the office of an assistant secretary of a corporation, including
those duties customarily performed by persons holding such office, and shall
perform such other duties as, from time to time, may be assigned to him or her
or them by the Board of Directors, the President, Chief Executive Officer, the
Chief Operating Officer, the Chief Financial Officer, any Executive Vice
President or the Secretary. An
13
<PAGE>
Assistant Secretary may or may not be an officer, as determined by the Board of
Directors.
4.11. Treasurer
The Treasurer shall have responsibility for the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation, and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall also render to the President and Chief Executive
Officer and the Chief Operating Officer, upon request, and to the Board of
Directors at its regular meetings, or when the Board of Directors so requires,
an account of all financial transactions and of the financial condition of the
Corporation and, in general, shall perform such duties as are incident to the
office of a treasurer of a corporation, including those customarily performed by
persons occupying such office, and shall perform all other duties as, from time
to time, may be assigned to him or her by the Board of Directors, the President,
Chief Executive Officer, the Chief Operating Officer, the Chief Financial
Officer or any Executive Vice President.
4.12. Assistant Treasurer
The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors (or if
there shall have been no such determination, then in the order of their
election), shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer, and, in general, shall perform all duties as are
incident to the office of an assistant treasurer of a corporation, including
those duties customarily performed by persons occupying such office, and shall
perform such other duties as, from time to time, may be assigned to him or them
by the Board of Directors, the President, Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer, any Executive Vice President or
by the Treasurer. An Assistant Treasurer may or may not be an officer, as
determined by the Board of Directors.
4.13. Term of Office
The officers of the Corporation shall hold office until their
successors are chosen and qualify or until their earlier resignation or removal.
Any officer may resign at any time upon written notice to the Corporation. Any
officer elected or appointed by the Board of Directors may be removed at any
time, with or without cause, by the affirmative vote of a majority of the
directors constituting the entire Board of Directors.
14
<PAGE>
4.14. Compensation
The compensation of officers of the Corporation shall be fixed by the
Board of Directors or by any officer(s) authorized by the Board of Directors to
prescribe the compensation of such other officers.
4.15. Fidelity Bonds
The Corporation may secure the fidelity of any or all of its officers
or agents by bond or otherwise.
5. CAPITAL STOCK
5.1. Certificates of Stock; Uncertificated Shares
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors may provide by resolution that some or all
of any or all classes or series of the Corporation's stock shall be
uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock represented by certificates, and upon request
every holder of uncertificated shares, shall be entitled to have a certificate
(representing the number of shares registered in certificate form) signed in the
name of the Corporation by the Chairman of the Board, President or any Vice
President, and by the Treasurer, Secretary or any Assistant Treasurer or
Assistant Secretary of the Corporation. Any or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
whose signature or facsimile signature appears on a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
5.2. Lost Certificates
The Board of Directors, Chairman of the Board, President, Chief
Executive Officer, Chief Financial Officer or Secretary may direct a new
certificate of stock to be issued in place of any certificate theretofore issued
by the Corporation and alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming that the certificate
of stock has been lost, stolen or destroyed. When authorizing such issuance of
a new certificate, the Board or any such officer may, as a condition precedent
to the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or such owner's legal representative, to advertise
the same in such manner as the Board or such officer shall require and/or to
give the Corporation a bond or indemnity, in such sum or on
15
<PAGE>
such terms and conditions as the Board or such officer may direct, as indemnity
against any claim that may be made against the Corporation on account of the
certificate alleged to have been lost, stolen or destroyed or on account of the
issuance of such new certificate or uncertificated shares.
5.3. Record Date
5.3.1. Actions by Stockholders
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty days nor less than ten days
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting,
unless the Board of Directors fixes a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than ten days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by the Delaware General Corporation Law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation in the manner prescribed by Section 213(b)
of the Delaware General Corporation Law. If no record date has been fixed by the
Board of Directors and prior action by the Board of Directors is required by the
Delaware General Corporation Law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
16
<PAGE>
5.3.2. Payments
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
5.3.3. Stockholders of Record
The Corporation shall be entitled to recognize the exclusive right
of a person registered on its books as the owner of shares to receive dividends,
to receive notifications, to vote as such owner, and to exercise all the rights
and powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise may be provided by the Delaware General Corporation Law.
6. INDEMNIFICATION
6.1. Authorization of Indemnification
Each person who was or is a party or is threatened to be made a
party to or is involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether
by or in the right of the Corporation or otherwise (a "proceeding"), by reason
of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee,
partner (limited or general) or agent of another corporation or of a
partnership, joint venture, limited liability company, trust or other
enterprise, including service with respect to an employee benefit plan, shall be
(and shall be deemed to have a contractual right to be) indemnified and held
harmless by the Corporation (and any successor to the Corporation by merger or
otherwise) to the fullest extent authorized by, and subject to the conditions
and (except as provided herein) procedures set forth in the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but any such
amendment shall not be deemed to limit or prohibit the rights of indemnification
17
<PAGE>
hereunder for past acts or omissions of any such person insofar as such
amendment limits or prohibits the indemnification rights that said law permitted
the Corporation to provide prior to such amendment), against all expenses,
liabilities and losses (including attorneys' fees, judgments, fines, ERISA taxes
or penalties and amounts paid or to be paid in settlement) reasonably incurred
or suffered by such person in connection therewith; provided, however, that the
--------- -------
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person (except
for a suit or action pursuant to Section 6.2 hereof) only if such proceeding (or
part thereof) was authorized by the Board of Directors of the Corporation.
Persons who are not directors or officers of the Corporation may be similarly
indemnified in respect of such service to the extent authorized at any time by
the Board of Directors of the Corporation. The indemnification conferred in
this Section 6.1 also shall include the right to be paid by the Corporation (and
such successor) the expenses (including attorneys' fees) incurred in the defense
of or other involvement in any such proceeding in advance of its final
disposition; provided, however, that, if and to the extent the Delaware General
--------- -------
Corporation Law requires, the payment of such expenses (including attorneys'
fees) incurred by a director or officer in advance of the final disposition of a
proceeding shall be made only upon delivery to the Corporation of an undertaking
by or on behalf of such director or officer to repay all amounts so paid in
advance if it shall ultimately be determined that such director or officer is
not entitled to be indemnified under this Section 0 or otherwise; and provided
--------
further, that, such expenses incurred by other employees and agents may be so
- -------
paid in advance upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
6.2. Right of Claimant to Bring Action Against the Corporation
If a claim under Section 6.1 is not paid in full by the Corporation
within sixty days after a written claim has been received by the Corporation,
the claimant may at any time thereafter bring an action against the Corporation
to recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense of prosecuting
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed or is otherwise not entitled to indemnification under Section 6.1
but the burden of proving such defense shall be on the Corporation. The failure
of the Corporation (in the manner provided under the Delaware General
Corporation Law) to have made a determination prior to or after the commencement
of such action that indemnification of the claimant is
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<PAGE>
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the Delaware General Corporation Law shall not be a defense
to the action or create a presumption that the claimant has not met the
applicable standard of conduct. Unless otherwise specified in an agreement with
the claimant, an actual determination by the Corporation (in the manner provided
under the Delaware General Corporation Law) after the commencement of such
action that the claimant has not met such applicable standard of conduct shall
not be a defense to the action, but shall create a presumption that the claimant
has not met the applicable standard of conduct.
6.3. Non-exclusivity
The rights to indemnification and advance payment of expenses provided
by Section 6.1 hereof shall not be deemed exclusive of any other rights to which
those seeking indemnification and advance payment of expenses may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
6.4. Survival of Indemnification
The indemnification and advance payment of expenses and rights thereto
provided by, or granted pursuant to, Section 6.1 hereof shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee, partner or agent and shall inure to the
benefit of the personal representatives, heirs, executors and administrators of
such person.
6.5. Insurance
The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, partner (limited or general )or agent of another
corporation or of a partnership, joint venture, limited liability company, trust
or other enterprise, against any liability asserted against such person or
incurred by such person in any such capacity, or arising out of such person's
status as such, and related expenses, whether or not the Corporation would have
the power to indemnify such person against such liability under the provisions
of the Delaware General Corporation Law.
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<PAGE>
7. GENERAL PROVISIONS
7.1. Inspection of Books and Records
Any stockholder, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the right during the
usual hours for business to inspect for any proper purpose the Corporation's
stock ledger, a list of its stockholders, and its other books and records, and
to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent shall be the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing which authorizes the attorney or other agent to
so act on behalf of the stockholder. The demand under oath shall be directed to
the Corporation at its registered office or at its principal place of business.
7.2. Dividends
The Board of Directors may declare dividends upon the capital stock of
the Corporation, subject to the provisions of the Certificate of Incorporation
and the laws of the State of Delaware.
7.3. Reserves
The directors of the Corporation may set apart, out of the funds of
the Corporation available for dividends, a reserve or reserves for any proper
purpose and may abolish any such reserve.
7.4. Execution of Instruments
All checks, drafts or other orders for the payment of money, and
promissory notes of the Corporation shall be signed by such officer or officers
or such other person or persons as the Board of Directors may from time to time
designate.
7.5. Fiscal Year
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
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<PAGE>
7.6. Seal
The corporate seal shall be in such form as the Board of Directors
shall approve. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
7.7. Pronouns
All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, neuter, singular or plural, as the identity of the
person or entity may require.
7.8. Amendments
The Board of Directors or the stockholders may from time to time
adopt, amend or repeal the Bylaws of the Corporation. Such action by the Board
of Directors shall require the affirmative vote of at least a majority of the
directors then in office at a duly constituted meeting of the Board of Directors
called for such purpose. Such action by the stockholders shall require the
affirmative vote of the holders of at least a majority of the outstanding shares
of stock of the Corporation entitled to vote thereon at a duly constituted
meeting of stockholders called for such purpose.
* * * * *
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<PAGE>
EXHIBIT 4.1
NUMBER SHARES
C O INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
See Reverse for
Certain Definitions
20,000,000 SHARES PAR VALUE $.01 EACH
COMMON STOCK
THIS IS TO CERTIFY THAT IS THE OWNER OF
----------------------------------------
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed. Witness, the seal of the Corporation and the signatures of its duly
authorized officers.
Dated
- --------------------------------------- ---------------------------------------
SECRETARY PRESIDENT
<PAGE>
THE FOLLOWING ABBREVIATIONS, WHEN USED IN THE INSCRIPTION ON THE FACE OF
THIS CERTIFICATE, SHALL BE CONSTRUED AS THOUGH THEY WERE WRITTEN OUT IN FULL
ACCORDING TO APPLICABLE LAWS OR REGULATIONS:
<TABLE>
<S> <C> <C>
TEN COM -as tenants in common UNIF GIFT MIN ACT- ......... CUSTODIAN .........
(CUST) (MINOR)
TEN ENT -AS TENANTS BY THE ENTIRETIES UNDER UNIFORM GIFTS TO MINORS
ACT...................................
JT TEN - AS JOINT TENANTS WITH RIGHT OF (STATE)
SURVIVORSHIP AND NOT AS TENANTS
IN COMMON
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THROUGH NOT IN THE ABOVE LIST
</TABLE>
For value received hereby sell, assign and transfer unto
--------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
Attorney
- ---------------------------------------------------------------------
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated 19
------------------------------- --
In presence of
-------------------------------
- -------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this __ th day of _____, 1998, by and among
Central European Distribution Corporation, a Delaware corporation, having its
principal executive office at 211 North Union Street, #100, Alexandria, Virginia
22314 (the "Company"), American Stock Transfer & Trust Company, as Warrant Agent
(the "Warrant Agent"), Fine Equities, Inc., having its principal executive
office at 600 Third Avenue, New York, New York 10016 ("Fine Equities"), and
SouthWall Capital Corp., having its principal executive office at 110 Wall
Street, New York, New York 10005 ("SouthWall" and together with Fine Equities,
the "Underwriters").
W I T N E S S E T H:
WHEREAS, in connection with (i) a public offering (the "Public
Offering") of up to 1,322,500 shares of the Company's common stock, par value
$.01 per share ("Common Stock"), and 1,322,500 redeemable warrants accompanying
the shares of Common Stock, pursuant to an underwriting agreement (the
"Underwriting Agreement") dated ______, 1998 among the Company, certain of the
Company's shareholders and the Underwriters, and (ii) the issuance to the
Underwriters or their designees of Unit Purchase Options to purchase an
aggregate of 115,000 additional shares of Common Stock and 115,000 additional
warrants, to be dated as of _______, 1998 (the "Unit Purchase Options"), the
Company may issue up to 1,437,500 warrants (collectively, the "Warrants"),
subject to the terms and conditions set forth herein; and
WHEREAS, each Warrant initially entitles the Registered Holder
thereof to purchase one share of Common Stock; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the Warrants
and the rights of the Registered Holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in
the distribution of earnings and assets of the Company without limit as to
amount or percentage, which at the date hereof consists of 20,000,000
shares of Common Stock, $.01 par value.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall
be administered, which office is located at the date hereof at 40 Wall
Street, New York, New York 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the warrant certificate
representing such Warrant (the "Warrant Certificate"), with the exercise
form thereon duly executed by the Registered Holder thereof or his attorney
duly authorized in writing, and (b) payment in cash, or by official bank or
certified check made payable to the Company, of an amount in lawful money
of the United States of America equal to the applicable Purchase Price.
<PAGE>
(d) Subject to the provisions of paragraph 2(f) hereof, "Purchase
Price" shall mean the purchase price to be paid upon exercise of each
Warrant in accordance with the terms hereof and, which price shall be
$____, subject to adjustment from time to time pursuant to the provisions
of Section 9 hereof, and subject to the Company's right to reduce the
Purchase Price upon notice to all Registered Holders of Warrants.
(e) "Redemption Price" shall mean the price at which the Company may,
at its option in accordance with the terms hereof, redeem the Warrants,
which price shall be $.05 per Warrant.
(f) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the
Warrant Agent pursuant to Section 6.
(g) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as
such.
(h) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on
______, 2003 or, with respect to Warrants which are outstanding as of the
applicable Redemption Date (as defined in Section 8) and specifically
excluding Warrants issuable upon exercise of the Unit Purchase Options if
the Unit Purchase Options have not been exercised, the Redemption Date,
whichever is earlier; provided that if such date shall in the State of New
York be a holiday or a day on which banks are authorized or required to
close, then 5:00 P.M. (New York time) on the next following day which in
the State of New York is not a holiday or a day on which banks are
authorized or required to close. Upon notice to all Registered Holders,
the Company shall have the right to extend the Warrant Expiration Date.
2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) A Warrant initially shall entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase one share of
Common Stock upon the exercise thereof, in accordance with the terms
hereof, subject to modification and adjustment as provided in Section 9.
(b) The Warrants will be immediately detachable and transferable
separately from the Common Stock.
(c) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting
Agreement shall be executed by the Company and delivered to the Warrant
Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary, the Warrant Certificates
shall be countersigned, issued and delivered by the Warrant Agent as part
of the Units.
(d) From time to time, up to the Warrant Expiration Date, the Transfer
Agent shall countersign and deliver stock certificates in required whole
number denominations representing up to an aggregate of 1,437,500 shares of
Common Stock, subject to adjustment as described herein, upon the exercise
of Warrants in accordance with this Agreement.
(e) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required whole
number denominations to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued upon the exercise of fewer than all Warrants
represented by any Warrant Certificate, to evidence any unexercised
Warrants held by the exercising Registered Holder, (iii) those issued upon
any transfer or exchange pursuant to Section 6; (iv) those issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7; (v) those issued pursuant to the Unit Purchase
Options; and (vi) those issued at the option of the Company, in such form
as may
2
<PAGE>
be approved by its Board of Directors, to reflect any adjustment or change
in the Purchase Price, the number of shares of Common Stock purchasable
upon exercise of the Warrants or the Target Price(s) therefor made pursuant
to Section 9 hereof.
(f) Pursuant to the terms of the Unit Purchase Options, the
Underwriters or their designees may purchase up to 115,000 Units, which
include up to 115,000 Warrants. Notwithstanding anything to the contrary
contained herein, the Warrants underlying the Unit Purchase Options shall
not be subject to redemption by the Company and the purchase price to be
paid upon exercise of each such warrant shall be as set forth in the Unit
Purchase Options.
3. FORM AND EXECUTION OF WARRANT CERTIFICATES
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
stock exchange on which the Warrants may be listed, or to conform to usage
or to the requirements of Section 2. The Warrant Certificates shall be
dated the date of issuance thereof (whether upon initial issuance,
transfer, exchange or in lieu of mutilated, lost, stolen, or destroyed
Warrant Certificates) and issued in registered form. Warrant Certificates
shall be numbered serially with the letter W on Warrants of all
denominations.
(b) Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, President or any Vice President and by its
Secretary, by manual signatures or by facsimile signatures printed thereon,
and shall have imprinted thereon a facsimile of the Company's seal.
Warrant Certificates shall be manually countersigned by the Warrant Agent
and shall not be valid for any purpose unless so countersigned. In case
any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the
Warrant Agent and issue and delivery thereof, such Warrant Certificates may
nevertheless be countersigned by the Warrant Agent, issued and delivered
with the same force and effect as though the person who signed such Warrant
Certificates had not ceased to be an officer of the Company or to hold such
office. After countersignature by the Warrant Agent, Warrant Certificates
shall be delivered by the Warrant Agent to the Registered Holder without
further action by the Company, except as otherwise provided by Section 4(a)
hereof.
4. EXERCISE
(a) Each Warrant may be exercised by the Registered Holder thereof at
any time on or after the date of issuance, but not after the Warrant
Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on
the Exercise Date and the person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the
holder of those securities upon the exercise of the Warrant as of the close
of business on the Exercise Date. As soon as practicable on or after the
Exercise Date, the Warrant Agent shall deposit the proceeds received from
the exercise of a Warrant and shall notify the Company in writing of the
exercise of the Warrants. Promptly following, and in any within five days
after the date of such notice from the Warrant Agent, the Warrant Agent, on
behalf of the Company, shall cause to be issued and delivered by the
Transfer Agent, to the person or persons entitled to receive the same, a
certificate or certificates for the securities deliverable upon such
exercise (plus a Warrant Certificate for any remaining unexercised Warrants
of the Registered Holder), unless prior to the date of issuance of such
certificates the Company shall instruct the Warrant Agent to refrain from
causing such issuance of certificates pending clearance of checks received
in payment of the Purchase Price pursuant to such Warrants.
3
<PAGE>
Notwithstanding the foregoing, in the case of payment made in the form of a
check drawn on an account of either of the Underwriters or such other
investment banks and brokerage houses as the Company shall approve in
writing to the Warrant Agent, certificates shall immediately be issued
without prior notice to the Company or any delay. Upon the exercise of any
Warrant and clearance of the funds received, the Warrant Agent shall
promptly remit the payment received for the Warrant (the "Warrant
Proceeds") to the Company or as the Company may direct in writing.
(b) If, at the Exercise Date in respect of the exercise of any Warrant
after ______, 1999, (i) the market price of the Common Stock is greater
than the then Purchase Price of the Warrant, (ii) the exercise of the
Warrant was solicited by a member of the National Association of Securities
Dealers, Inc. ("NASD") as designated in writing on the Warrant Certificate
Subscription Form, (iii) the Warrant was not held in a discretionary
account, (iv) disclosure of compensation arrangements was made both at the
time of the original offering and at the time of exercise and (v) the
solicitation of the exercise of the Warrant was not in violation of Rule
10b-6 (as such rule or any successor rule may be in effect as of such time
of exercise) promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), then the Warrant Agent, simultaneously with
the distribution of the Warrant Proceeds to the Company shall, on behalf of
the Company, pay from the Warrant Proceeds, a fee of four percent (4%) (the
"Solicitation Fee") of the Purchase Price to the Underwriters (of which a
portion may be reallocated by the Underwriters to the dealer who solicited
the exercise). In the event the Solicitation Fee is not received within
five days of the date on which the Company receives Warrant Proceeds, then
the Solicitation Fee shall begin accruing interest at an annual rate of
prime plus four percent (4%), payable by the Company to the Underwriters at
the time the Underwriters receive the Solicitation Fee. Within five days
after exercise the Warrant Agent shall send to each of the Underwriters a
copy of the reverse side of each Warrant exercised. The Underwriters shall
reimburse the Warrant Agent, upon request, for its reasonable expenses
relating to compliance with this Section 4(b). In addition, the
Underwriters and the Company may, at any time during business hours,
examine the records of the Warrant Agent, including its ledger of original
Warrant Certificates returned to the Warrant Agent upon exercise of the
Warrants. The provisions of this paragraph may not be modified, amended or
deleted without the prior written consent of each of the Underwriters.
(c) In order to enforce the provisions of Section 4(b) above, in the
event there is any dispute or question as to the amount or payment of the
Solicitation Fee, the Warrant Agent is hereby expressly authorized to
withhold payment to the Company of the Warrant Proceeds unless and until
the Company establishes an escrow account for the purpose of depositing the
entire amount of the Solicitation Fee, which amount will be deducted from
the net Warrant Proceeds to be paid to the Company. The funds placed in
the escrow account may not be released to the Company without a written
agreement from each of the Underwriters that the required Solicitation Fee
has been received by the Underwriters.
5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Warrants shall, at the time of delivery, be duly and
validly issued, fully paid, nonassessable and free from all taxes, liens
and charges with respect to the issue thereof, and that upon issuance such
shares shall be listed on each national securities exchange on which the
other shares of outstanding Common Stock of the Company are then listed or
shall be eligible for inclusion in the Nasdaq Stock Market if the other
shares of outstanding Common Stock of the Company are so included.
(b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law
before such securities may be validly issued or delivered upon such
exercise, then the Company
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will in good faith and as expeditiously as reasonably possible, endeavor to
secure such registration or approval. The Company will use its best efforts
to obtain appropriate approvals or registrations under state "blue sky"
securities laws. With respect to any such securities, however, Warrants
may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise or issuance would be
unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance
of Warrants, or the issuance or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock, are to be
delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to
the Warrant Agent the amount of transfer taxes or charges incident thereto,
if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition
the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants,
and the Company will authorize the Transfer Agent to comply with all such
proper requisitions. The Company will file with the Warrant Agent a
statement setting forth the name and address of the Transfer Agent of the
Company for shares of Common Stock issuable upon exercise of the Warrants.
6. EXCHANGE AND REGISTRATION OF TRANSFER.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred, in whole or in part. Warrant Certificates to
be exchanged shall be surrendered to the Warrant Agent at its Corporate
Office and, upon satisfaction of the terms and provisions hereof, the
Company shall execute and the Warrant Agent shall countersign, issue and
deliver in exchange therefor the Warrant Certificate or Certificates which
the Registered Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject
to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its
regular practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the
Warrant Agent shall issue and deliver to the transferee or transferees a
new Warrant Certificate or Certificates representing an equal aggregate
number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription
form on the reverse thereof shall be duly endorsed, or be accompanied by a
written instrument or instruments of transfer and subscription, in form
satisfactory to the Company and the Warrant Agent, duly executed by the
Registered Holder or his attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition,
the Company may require payment by such holder of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection
therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly cancelled by
the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement or resignation as Warrant Agent, or, with the
prior written consent of SouthWall, disposed of or destroyed, at the
direction of the Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by
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anyone other than a duly authorized officer of the Company or the Warrant
Agent) for all purposes and shall not be affected by any notice to the
contrary.
7. LOSS OR MUTILATION.
Upon receipt by the Company and the Warrant Agent of evidence
satisfactory to them of the ownership of and loss, theft, destruction or
mutilation of any Warrant Certificate and (in case of loss, theft or
destruction) of indemnity satisfactory to them, and (in the case of mutilation)
upon surrender and cancellation thereof, the Company shall execute and the
Warrant Agent shall (in the absence of notice to the Company and/or Warrant
Agent that the Warrant Certificate has been acquired by a bona fide purchaser)
countersign and deliver to the Registered Holder in lieu thereof a new Warrant
Certificate of like tenor representing an equal aggregate number of Warrants.
Applicants for a substitute Warrant Certificate shall comply with such other
reasonable regulations and pay such other reasonable charges as the Warrant
Agent may prescribe.
8. REDEMPTION.
(a) Subject to the provisions of paragraph 2(f) hereof, on not less
than thirty (30) days notice given at any time after _____, 1999 (the
"Redemption Notice") to Registered Holders of the Warrants, the Warrants
may be redeemed, at the option of the Company, at a redemption price of
$.05 per Warrant, provided that the Market Price of the Common Stock
receivable upon exercise of such Warrants shall exceed $____ per share with
respect to the Warrants (the "Target Price"), subject to adjustment as set
forth in Section 8(f), below. "Market Price" shall mean (i) the average
closing bid price of the Common Stock, for thirty (30) consecutive business
days ending on the Calculation Date, as reported by Nasdaq, if the Common
Stock is traded on the Nasdaq SmallCap Market, or (ii) the average last
reported sale price of the Common Stock, for thirty (30) consecutive
business days ending on the Calculation Date, as reported by the primary
exchange on which the Common Stock is traded, if the Common Stock is traded
on a national securities exchange, or by Nasdaq, if the Common Stock is
traded on the Nasdaq National Market. For purposes of this Section 8, the
"Calculation Date" shall mean the date of the mailing of the Redemption
Notice. The date fixed for redemption of the Warrants is referred to herein
as the "Redemption Date".
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall
request the Underwriters to mail a Redemption Notice to each of the
Registered Holders of the Warrants to be redeemed, first class, postage
prepaid, not later than the thirtieth day before the date fixed for
redemption, at their last address as shall appear on the records maintained
pursuant to Section 6(b). Any notice mailed in the manner provided herein
shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice.
(c) The Redemption Notice shall specify (i) the Redemption Price, (ii)
the Redemption Date, (iii) the place where the Warrant Certificates shall
be delivered and the redemption price paid, (iv) that the Underwriters will
assist each Registered Holder of a Warrant in connection with the exercise
thereof and (v) that the right to exercise the Warrant shall terminate at
5:00 P.M. (New York time) on the business day immediately preceding the
Redemption Date. No failure to mail such notice nor any defect therein or
in the mailing thereof shall affect the validity of the proceedings for
such redemption except as to a Registered Holder to whom notice was not
mailed or whose notice was defective. An affidavit of the Warrant Agent or
of the Secretary of either of the Underwriters or the Company that notice
of redemption has been mailed shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New
York time) on the business day immediately preceding the Redemption Date.
On and after the Redemption Date, Registered Holders of the Warrants shall
have no further rights except to receive, upon surrender of the Warrant,
the Redemption Price.
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(e) From and after the Redemption Date, the Company shall, at the
place specified in the Redemption Notice, upon presentation and surrender
to the Company by or on behalf of the Registered Holder thereof of one or
more Warrant Certificates evidencing Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such Registered
Holder a sum in cash equal to the Redemption Price of each such Warrant.
From and after the Redemption Date and upon the deposit or setting aside by
the Company of a sum sufficient to redeem all the Warrants called for
redemption, such Warrants shall expire and become void and all rights
hereunder and under the Warrant Certificates, except the right to receive
payment of the Redemption Price, shall cease.
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the
Target Prices shall be proportionally adjusted by the ratio which the total
number of shares of Common Stock outstanding immediately prior to such
event bears to the total number of shares of Common Stock to be outstanding
immediately after such event.
9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON STOCK OR
WARRANTS.
(a) Subject to the exceptions referred to in Section 9(g) below, in
the event the Company shall, at any time or from time to time after the
date hereof, sell any shares of Common Stock for a consideration per share
less than the Market Price of the Common Stock (as defined in Section 8,
except that for purposes of Section 9, the Calculation Date shall mean the
date of the sale or other transaction referred to in this Section 9) on the
date of the sale or issue any shares of Common Stock as a stock dividend to
the holders of Common Stock, or subdivide or combine the outstanding shares
of Common Stock into a greater or lesser number of shares (any such sale,
issuance, subdivision or combination being herein called a "Change of
Shares"), then, and thereafter upon each further Change of Shares, the
Purchase Price in effect immediately prior to such Change of Shares shall
be changed to a price (including any applicable fraction of a cent)
determined by multiplying the Purchase Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined as provided in
subsection 9(f)(vi) below) for the issuance of such additional shares would
purchase at the Market Price and the denominator of which shall be the sum
of the number of shares of Common Stock outstanding immediately after the
issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this Section 9,
the total number of shares of Common Stock purchasable upon the exercise of
each Warrant, shall (subject to the provisions contained in Section 9(b)
hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such
adjustment multiplied by a fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately
after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the
exercise of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such
adjustment of the number of Warrants shall become that number of Warrants
(calculated to the nearest tenth) determined by multiplying the number one
by a fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such adjustment and the denominator of which shall be
the Purchase Price in effect immediately after such adjustment. Upon each
adjustment of the number of Warrants pursuant to this Section 9, the
Company shall, as promptly as practicable, cause to be distributed to each
Registered Holder of Warrant Certificates on the date of such adjustment
Warrant Certificates evidencing, subject to Section 10 hereof, the number
of additional Warrants to which such Holder shall be entitled as a result
of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution
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and replacement for the Warrant Certificates held by him prior to the date
of adjustment (and upon surrender thereof, if required by the Company) new
Warrant Certificates evidencing the number of Warrants to which such Holder
shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common
Stock), or in case of any sale or conveyance to another corporation of the
property of the Company as, or substantially as, an entirety (other than a
sale/leaseback, mortgage or other financing transaction), the Company shall
cause effective provision to be made so that each holder of a Warrant then
outstanding shall have the right thereafter, by exercising such Warrant, to
purchase the kind and number of shares of stock or other securities or
property (including cash) receivable upon such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance
by a holder of the number of shares of Common Stock that might have been
purchased upon exercise of such Warrant immediately prior to such
reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 9. The Company shall not effect
any such consolidation, merger or sale unless prior to or simultaneously
with the consummation thereof the successor (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing
assets or other appropriate corporation or entity shall assume, by written
instrument executed and delivered to the Warrant Agent, the obligation to
deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations of the Company under this
Agreement. The foregoing provisions shall similarly apply to successive
reclassifications, capital reorganizations and other changes of outstanding
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(e) hereof, continue to express the
Purchase Price per share, the number of shares purchasable thereunder and
the Redemption Price therefor as the Purchase Price per share, and the
number of shares purchasable and the Redemption Price therefor were
expressed in the Warrant Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or the Secretary of the Company
setting forth: (i) the Purchase Price as so adjusted, (ii) the number of
shares of Common Stock purchasable upon exercise of each Warrant after such
adjustment and, if the Company shall have elected to adjust the number of
Warrants, the number of Warrants to which the Registered Holder of each
Warrant shall then be entitled, and the adjustment in Redemption Price
resulting therefrom, and (iii) a brief statement of the facts accounting
for such adjustment. The Company will promptly file such certificate with
the Warrant Agent and cause a brief summary thereof to be sent by ordinary
first class mail to SouthWall and to each Registered Holder of Warrants at
his last address as it shall appear on the registry books of the Warrant
Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder
to whom the Company failed to mail such notice, or except as to the holder
whose notice was defective. The affidavit of an officer of the Warrant
Agent or the Secretary of the Company that such notice has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (i) to (vi) shall also be applicable:
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(i) The number of shares of Common Stock outstanding at any given
time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury
shares or the distribution of any such treasury shares shall not be
considered a Change of Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.05 in
the Purchase Price; provided that any adjustments which by reason of this
clause (ii) are not required to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment
which, together with any adjustment(s) so carried forward, shall require an
increase or decrease of at least $.05 in the Purchase Price then in effect
hereunder.
(iii) In case of (A) the sale by the Company for cash (or as
a component of a unit being sold for cash) of any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common Stock
or any securities convertible into or exchangeable for Common Stock without
the payment of any further consideration other than cash, if any (such
securities convertible, exercisable or exchangeable into Common Stock being
herein called "Convertible Securities"), or (B) the issuance by the
Company, without the receipt by the Company of any consideration therefor,
of any rights or warrants to subscribe for or purchase, or any options for
the purchase of, Common Stock or Convertible Securities, in each case, if
(and only if) the consideration payable to the Company upon the exercise of
such rights, warrants or options shall consist of cash, whether or not such
rights, warrants or options, or the right to convert or exchange such
Convertible Securities, are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such rights,
warrants or options or upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the minimum aggregate consideration
payable to the Company upon the exercise of such rights, warrants or
options, plus the consideration, if any, received by the Company for the
issuance or sale of such rights, warrants or options, plus, in the case of
such Convertible Securities, the minimum aggregate amount of additional
consideration, other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum number of shares
of Common Stock issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible Securities
issuable upon the exercise of such rights, warrants or options) is less
than the Market Price of the Common Stock on the date of the issuance or
sale of such rights, warrants or options, then the total maximum number of
shares of Common Stock issuable upon the exercise of such rights, warrants
or options or upon the conversion or exchange of such Convertible
Securities (as of the date of the issuance or sale of such rights, warrants
or options) shall be deemed to be outstanding shares of Common Stock for
purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(iv) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which
Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration,
if any, other than such Convertible Securities, payable upon the conversion
or exchange thereof, by (y) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of such Convertible
Securities) is less than the Market Price of the Common Stock on the date
of the sale of such Convertible Securities, then the total maximum number
of shares of Common Stock issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of such Convertible
Securities) shall be deemed to be outstanding shares of Common Stock for
purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
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(v) In case the Company shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in (iii) or (iv)
above or any other securities of the Company convertible, exchangeable or
exercisable for shares of Common Stock, for any reason other than an event
that would require adjustment to prevent dilution, so that the
consideration per share received by the Company after such modification is
less than the Market Price on the date prior to such modification, the
Purchase Price to be in effect after such modification shall be determined
by multiplying the Purchase Price in effect immediately prior to such event
by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding on the date prior to the modification plus the
number of shares of Common Stock which the aggregate consideration
receivable by the Company for the securities affected by the modification
would purchase at the Market Price and of which the denominator shall be
the number of shares of Common Stock outstanding on such date plus the
number of shares of Common Stock to be issued upon conversion, exchange or
exercise of the modified securities at the modified rate. Such adjustment
shall become effective as of the date upon which such modification shall
take effect. On the expiration of any such right, warrant or option or the
termination of any such right to convert or exchange any such Convertible
Securities referred to in sub-paragraph (iii) or (iv) above, the Purchase
Price then in effect hereunder shall forthwith be readjusted to such
Purchase Price as would have obtained (A) had the adjustments made upon the
issuance or sale of such rights, warrants, options or Convertible
Securities been made upon the basis of the issuance of only the number of
shares of Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such rights, warrants
or options or upon the conversion or exchange of such Convertible
Securities and (B) had adjustments been made on the basis of the Purchase
Price as adjusted under clause (A) for all transactions (which would have
affected such adjusted Purchase Price) made after the issuance or sale of
such rights, warrants, options or Convertible Securities.
(vi) In case of the sale for cash of any shares of Common Stock,
any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefore shall be
deemed to be the gross sales price therefor without deducting therefrom any
expense paid or incurred by the Company or any underwriting discounts or
commissions or concessions paid or allowed by the Company in connection
therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each
Warrant will be made, however,
(i) upon the exercise of any of the options presently outstanding
under the Company's 1997 Stock Option Plan (the "Plan") for officers,
directors and certain other key personnel of the Company; or
(ii) upon the issuance or exercise of any other securities which
may hereafter be granted or exercised under the Plan; or
(iii) upon the sale or exercise of the Warrants,
including without limitation the sale or exercise of any of the Warrants
comprising the Unit Purchase Options or upon any sale or exercise of the
Unit Purchase Options; or
(iv) upon the sale of any shares of Common Stock or Convertible
Securities in a firm commitment underwritten public offering, including,
without limitation, shares sold upon the exercise of any overallotment
option granted to the underwriters in connection with such offering; or
(v) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe for or
purchase, or any options for the purchase of,
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Common Stock or Convertible Securities, whether or not such rights,
warrants or options were outstanding on the date of the original sale of
the Warrants or were thereafter issued or sold; or
(vi) upon the issuance or sale of Common Stock upon conversion or
exchange of any Convertible Securities, whether or not any adjustment in
the Purchase Price was made or required to be made upon the issuance or
sale of such Convertible Securities and whether or not such Convertible
Securities were outstanding on the date of the original sale of the
Warrants or were thereafter issued or sold.
(h) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date of the original
issue of the Units and shall also include any capital stock of any class of
the Company thereafter authorized which shall not be limited to a fixed sum
or percentage in respect of the rights of the holders thereof to
participate in dividends and in the distribution of assets upon the
voluntary liquidation, dissolution or winding up of the Company; provided,
however, that the shares issuable upon exercise of the Warrants shall
include only shares of such class designated in the Company's Certificate
of Incorporation as Common Stock on the date of the Public Offering or (i),
in the case of any reclassification, change, consolidation, merger, sale or
conveyance of the character referred to in Section 9(c) hereof, the stock,
securities or property provided for in such section or (ii), in the case of
any reclassification or change in the outstanding shares of Common Stock
issuable upon exercise of the Warrants as a result of a subdivision or
combination or consisting of a change in par value, or from par value to no
par value, or from no par value to par value, such shares of Common Stock
as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 9, or as to the
amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board
of Directors of the Company.
(j) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered
Holder as of the record date for such transaction of the Warrants then
outstanding, the rights, warrants or options to which each Registered
Holder would have been entitled if, on the record date used to determine
the stockholders entitled to the rights, warrants or options being granted
by the Company, the Registered Holder were the holder of record of the
number of whole shares of Common Stock then issuable upon exercise of his
Warrants. Such grant by the Company to the holders of the Warrants shall be
in lieu of any adjustment which otherwise might be called for pursuant to
this Section 9.
10. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the
Company nevertheless shall not be required to issue fractions of shares,
upon exercise of the Warrants or otherwise, or to distribute certificates
that evidence fractional shares. With respect to any fraction of a share
called for upon the exercise of any Warrant, the Company shall pay to the
Holder an amount in cash equal to such fraction multiplied by the current
market value of such fractional share, determined as follows:
(i) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or is
traded on the Nasdaq National Market, the current market value shall be the
last reported sale price of the Common Stock on such exchange or market on
the last business day prior to the date of exercise of this Warrant or if
no such sale is made on such day, the average of the closing bid and asked
prices for such day on such exchange or market; or
11
<PAGE>
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges on a national securities exchange or is not traded on
the Nasdaq National Market, the current market value shall be the mean of
the last reported bid and asked prices reported by the Nasdaq SmallCap
Market or, if not traded thereon, by the National Quotation Bureau, Inc. on
the last business day prior to the date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported,
the current market value shall be an amount determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS.
Except as provided herein, no holder of Warrants shall, as such, be
entitled to vote or to receive dividends or be deemed the holder of Common Stock
that may at any time be issuable upon exercise of such Warrants for any purpose
whatsoever, nor shall anything contained herein be construed to confer upon the
holder of Warrants, as such, any of the rights of a stockholder of the Company
or any right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issue or reclassification
of stock, change of par value or change of stock to no par value, consolidation,
merger or conveyance or otherwise), or to receive notice of meetings, or to
receive dividends or subscription rights, until such holder shall have exercised
such Warrants and been issued shares of Common Stock in accordance with the
provisions hereof.
12. RIGHTS OF ACTION.
All rights of action with respect to this Agreement are vested in the
respective Registered Holders of the Warrants, and any Registered Holder of a
Warrant, without consent of the Warrant Agent or of the holder of any other
Warrant, may, in his own behalf and for his own benefit, enforce against the
Company his right to exercise his Warrants for the purchase of shares of Common
Stock in the manner provided in the Warrant Certificate and this Agreement.
13. AGREEMENT OF WARRANT HOLDERS.
Every holder of a Warrant, by his acceptance thereof, consents and
agrees with the Company, the Warrant Agent and every other holder of a Warrant
that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney
duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant
Agent, duly endorsed or accompanied by a proper instrument of transfer
satisfactory to the Warrant Agent and the Company in their sole discretion,
together with payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected
by any notice or knowledge to the contrary, except as otherwise expressly
provided in Section 7 hereof.
14. CANCELLATION OF WARRANT CERTIFICATES.
If the Company shall purchase or acquire any Warrant or Warrants, the
Warrant Certificate or Warrant Certificates evidencing the same shall thereupon
be delivered to the Warrant Agent and cancelled by it and retired. The Warrant
Agent shall also cancel the Warrant Certificate or Warrant Certificates
following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer or exchange.
12
<PAGE>
15. CONCERNING THE WARRANT AGENT.
The Warrant Agent acts hereunder as agent and in a ministerial
capacity for the Company, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder be deemed to make any
representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not be (i) liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) responsible for any failure on the part of the Company to comply with any
of its covenants and obligations contained in this Agreement or in any Warrant
Certificate, or (iii) liable for any act or omission in connection with this
Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, President, any Vice President, or its Secretary
(unless other evidence in respect thereof is herein specifically prescribed).
The Warrant Agent shall not be liable for any action taken, suffered or omitted
by it in accordance with such notice, statement, instruction, request,
direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses and liabilities, including judgments, costs
and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of its duties and powers hereunder except losses, expenses and
liabilities arising as a result of the Warrant Agent's negligence or wilful
misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving 30
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability
of the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company that is a registered
transfer agent under the Exchange Act. After acceptance in writing of such
appointment by the new warrant agent is received by the Company, such new
warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense
13
<PAGE>
of the Company and shall be legally and validly executed and delivered by the
resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning Warrant
Agent and shall forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged or any corporation resulting from any consolidation
to which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
16. MODIFICATION OF AGREEMENT
Subject to the provisions of Section 4(b), the parties hereto and the
Company may by supplemental agreement make any changes or corrections in this
Agreement (i) that they shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; (ii) to reflect an increase in the number of Warrants which
are to be governed by this Agreement resulting from a subsequent public offering
of Company securities which includes Warrants having the same terms and
conditions as the Warrants, respectively, originally covered by or subsequently
added to this Agreement under this Section 16; or (iii) that they may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of Warrant Certificates; provided, however, that this Agreement shall
not otherwise be modified, supplemented or altered in any respect except with
the consent in writing of the Registered Holders of Warrant Certificates
representing not less than 50% of the Warrants then outstanding; and provided,
further, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, or the Purchase Price therefor, or the
acceleration of the Warrant Expiration Date, shall be made without the consent
in writing of the Registered Holder of the Warrant Certificate representing such
Warrant, other than such changes as are specifically prescribed by this
Agreement as originally executed or are made in compliance with applicable law.
17. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first class registered or certified mail, postage prepaid as follows: if
to the Registered Holder of a Warrant Certificate, at the address of such holder
as shown on the registry books maintained by the Warrant Agent; if to the
Company, at 211 North Union Street, #100, Alexandria, Virginia 22314, or at such
other address as may have been furnished to the Warrant Agent in writing by the
Company, with a copy to Hogan & Hartson LLP, Columbia Square, 555 13th Street,
NW, Washington, D.C. 20004, attention: Steven E. Ballew, Esq.; if to the Warrant
Agent, at its Corporate Office; and if to Fine Equities, at Fine Equities, Inc.,
600 Third Avenue, New York, New York 10016 or if to SouthWall, at SouthWall
Capital Corp., 110 Wall Street, New York, New York 10005, with a copy in each
case to Baker & McKenzie, 805 Third Avenue, New York, New York 10022, attention:
Malcolm I. Ross, Esq.
18. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without reference to principles of conflict
of laws.
14
<PAGE>
19. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns, and the
Registered Holders from time to time of Warrant Certificates. Nothing in this
Agreement is intended or shall be construed to confer upon any other person any
right, remedy or claim, in equity or at law, or to impose upon any other person
any duty, liability or obligation.
20. TERMINATION.
This Agreement shall terminate at the close of business on the earlier
of the Warrant Expiration Date or the date upon which all Warrants (including
the Warrants issuable upon exercise of the UPOs) have been exercised, except
that the Warrant Agent shall account to the Company for cash held by it and the
provisions of Section 15 hereof shall survive such termination.
21. COUNTERPARTS.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
By:
-----------------------------------
Name: William V. Carey
Title: Chairman of the Board, President and
Chief Executive Officer
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:
-----------------------------------
Name:
Title:
FINE EQUITIES, INC.
By:
-----------------------------------
Name:
Title:
SOUTHWALL CAPITAL CORP.
By:
-----------------------------------
Name:
Title:
16
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W _____ Warrants
VOID AFTER _______, 2003
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
This certifies that FOR VALUE RECEIVED _____________ or registered
assigns (the "Registered Holder") is the owner of the number of Warrants
("Warrants") specified above. Each Warrant represented hereby initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Warrant Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of common stock, par value $.01
per share ("Common Stock"), of Central European Distribution Corporation, a
Delaware corporation (the "Company") at any time prior to the Expiration Date
(as hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of American Stock Transfer & Trust Company as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of $____
(the "Purchase Price") in lawful money of the United States of America in cash
or by official bank or certified check made payable to Central European
Distribution Corporation.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated _____, 1998,
by and among the Company, the Warrant Agent, Fine Equities, Inc. and SouthWall
Capital Corp.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
_____, 2003 or such earlier date as the Warrants shall be redeemed. If such date
shall in the State of New York be a holiday or a day on which banks are
authorized to close, then the Expiration Date shall mean 5:00 P.M. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of the Warrants represented hereby unless a registration
statement under the Securities Act of 1933, as amended, with respect to such
securities is effective. The Company has covenanted and agreed that it will
file a registration statement and will use its best efforts to cause the same to
become effective and to keep such registration statement current while any of
the Warrants are outstanding. The Warrants represented hereby shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
17
<PAGE>
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. At any time prior to the Expiration Date, upon due
presentment with a $___ transfer fee per certificate in addition to any tax or
other governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
The Warrants represented hereby may be redeemed at the option of the
Company, at a redemption price of $.05 per Warrant at any time after _____,
1999, provided that the Market Price (as defined in the Warrant Agreement) for
the Common Stock shall exceed $____ per share. Notice of redemption shall be
given not later than the thirtieth day before the date fixed for redemption, all
as provided in the Warrant Agreement. On and after the date fixed for
redemption, the Registered Holder shall have no rights with respect to the
Warrants represented hereby except to receive the $.05 per Warrant upon
surrender of this Warrant Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of four percent (4%) of the
Purchase Price upon certain conditions as specified in the Warrant Agreement
upon the exercise of the Warrants represented hereby.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without reference to
principles of conflict of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
18
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile, by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
Dated: By:
-----------------------------------------
By:
-----------------------------------------
[seal]
Countersigned:
- ----------------------------------------
as Warrant Agent
By:
-------------------------------------
Authorized Officer
19
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $___ PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise_________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
-------------------------------
-------------------------------
-------------------------------
-------------------------------
[please print or type name and address]
and be delivered to
-------------------------------
-------------------------------
-------------------------------
-------------------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
20
<PAGE>
The undersigned represents that the exercise of the Warrants evidenced
hereby was solicited by a member of the National Association of Securities
Dealers, Inc. If not solicited by an NASD member, please write "unsolicited" in
the space below. Unless otherwise indicated by listing the name of another NASD
member firm, it will be assumed that the exercise was solicited by Fine
Equities, Inc.
------------------------------------
(Name of NASD Member)
Dated: X
-----------------------------
-----------------------------
-----------------------------
Address
-----------------------------
Taxpayer Identification Number
-----------------------------
Signature Guaranteed
-----------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
21
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _____________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
-----------------------------
-----------------------------
-----------------------------
-----------------------------
[please print or type name and address]
______ of the Warrants represented by this Warrant Certificate, and hereby
irrevocably constitutes and appoints _____________ Attorney to transfer this
Warrant Certificate on the books of the Company, with full power of substitution
in the premises.
Dated: X
------------------ ----------------------------------
Signature Guaranteed
----------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
22
<PAGE>
Option to Purchase
115,000 Units
Central European Distribution Corporation
Unit Purchase Option
Dated: ______, 1998 .
THIS CERTIFIES THAT ________________ (herein sometimes called the
"Holder") is entitled to purchase from Central European Distribution
Corporation, a Delaware corporation (hereinafter called the "Company"), at the
prices and during the periods as hereinafter specified, up to one hundred
fifteen thousand (115,000) Units ("Units"), each Unit consisting of one share of
the Company's common stock, $.01 par value, as now constituted ("Common Stock"),
and one warrant ("Warrants"). Each Warrant is exercisable to purchase one share
of Common Stock at an exercise price of $____ from ______, 1998 to ______, 2003.
The Units have been registered under a Registration Statement on Form
SB-2 (File No. 333-______) declared effective by the Securities and Exchange
Commission on _____ 1998 (the "Registration Statement"). This Option, together
with options of like tenor, constituting in the aggregate options (the
"Options") to purchase 115,000 Units, subject to adjustment in accordance with
Section 8 of this Option (the "Option Units"), was originally issued pursuant to
an underwriting agreement among the Company, certain shareholders of the
Company, Fine Equities, Inc. and SouthWall Capital Corp. as underwriters (the
"Underwriters") in connection with a public offering (the "Offering") of
1,150,000 shares of Common Stock and 1,150,000 redeemable warrants
(collectively, the "Public Securities") through the Underwriters, in
consideration of $11.50 received for the Options.
Except as specifically otherwise provided herein, the Common Stock and
the Warrants issued pursuant to the option herein granted (the "Option") shall
bear the same terms and conditions as described under the caption "Description
of Securities" in the Registration Statement, and the Warrants shall be governed
by the terms of the Warrant Agreement dated as of ________, 1998, executed in
connection with such public offering (the "Warrant Agreement"), except that (i)
the holder shall have registration rights under the Securities Act of 1933, as
amended (the "Act"), for the Option, the Common Stock and the Warrants included
in the Option Units, and the shares of Common Stock underlying the Warrants, as
more fully described in Section 6 of this Option and (ii) the Warrants issuable
upon exercise of the Option will not be subject to redemption by the Company.
The Company will list the Common Stock underlying this Option and, at the
Holder's request the Warrants, on the Nasdaq SmallCap Market or such other
exchange or market as the Common Stock or warrants included in the Public
Securities (the "Public Warrants") may then be listed or quoted. In the event
of any extension of the expiration date or reduction of the exercise price of
the Public Warrants, the same changes to the Warrants included in the Option
Units shall be simultaneously effected.
1. The rights represented by this Option shall be exercised at the prices,
subject to adjustment in accordance with Section 8 of this Option ("the
"Exercise Price"), and during the periods as follows:
(a) During the period from ______, 1998 to ______, 1999 inclusive, the
Holder shall have no right to purchase any Option Units hereunder, except that
in the event of any merger, consolidation or sale of all or substantially all
the capital stock or assets of the Company or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of another corporation into the Company) subsequent
to ______, 1999, the Holder shall have the right to exercise this Option and the
Warrants included herein at such time and receive the kind and amount of shares
of stock and other securities and property (including cash) which a holder of
the number of shares of Common Stock underlying this Option and the Warrants
included in this Option would have owned or been entitled to receive had this
Option been exercised immediately prior thereto.
<PAGE>
(b) Between ______, 1999 and ______, 2003 inclusive, the Holder shall
have the option to purchase Option Units hereunder at a price of $____ per Unit.
For purposes of the adjustments under Section 8 hereof, the Per Share Exercise
Price shall be deemed to be $_____, subject to further adjustment as provided in
such Section 8.
(c) After _________, 2003 the Holder shall have no right to purchase
any Units hereunder.
2. (a) The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); and (ii) payment to the
Company of the exercise price then in effect for the number of Option Units
specified in the above-mentioned purchase form together with applicable stock
transfer taxes, if any. This Option shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the close of
business on the date this Option is surrendered and payment is made in
accordance with the foregoing provisions of this Section 2, and the person or
persons in whose name or names the certificates for shares of Common Stock and
Warrants shall be issuable upon such exercise shall become the holder or holders
of record of such Common Stock and Warrants at that time and date. The
certificates for the Common Stock and Warrants so purchased shall be delivered
to the Holder as soon as practicable but not later than ten (10) days after the
rights represented by this Option shall have been so exercised.
(b) At any time during the period above specified, during which this
Option may be exercised, the Holder may, at its option, exchange this Option, in
whole or in part (an "Option Exchange"), into the number of Option Units
determined in accordance with this Section (b), by surrendering this Option at
the principal office of the Company or at the office of its stock transfer
agent, accompanied by a notice stating such Holder's intent to effect such
exchange, the number of Option Units into which this Option is to be exchanged
and the date on which the Holder requests that such Option Exchange occur (the
"Notice of Exchange"). The Option Exchange shall take place on the date
specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares of Common Stock and Warrants issuable upon such Option Exchange and, if
applicable, a new Option of like tenor evidencing the balance of the Option
Units remaining subject to this Option, shall be issued as of the Exchange Date
and delivered to the Holder within seven (7) days following the Exchange Date.
In connection with any Option Exchange, this Option shall represent the right to
subscribe for and acquire the number of Option Units (rounded to the next
highest integer) equal to (x) the number of Option Units specified by the Holder
in its Notice of Exchange up to the maximum number of Option Units subject to
this option (the "Total Number") less (y) the number of Option Units equal to
the quotient obtained by dividing (A) the product of the Total Number and the
existing Exercise Price by (B) the Fair Market Value. "Fair Market Value" shall
mean first, if there is a trading market as indicated in Subsection (i) below
for the Units, such Fair Market Value of the Units and if there is no such
trading market in the Units, then Fair Market Value shall have the meaning
indicated in Subsections (ii) through (v) below for the aggregate value of all
shares of Common Stock and Warrants which comprise a Unit:
(i) If the Units are listed on a national securities exchange or
listed or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value shall be the average of the last reported sale prices or the
average of the means of the last reported bid and asked prices, respectively, of
the Units on such exchange or market for the twenty (20) business days ending on
the last business day prior to the Exchange Date; or
(ii) If the Common Stock or Warrants are listed on a national
securities exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value shall be the average of the last reported sale
prices or the average of the means of the last reported bid and asked prices,
respectively, of Common Stock or Warrants, respectively, on such exchange or
market for the twenty (20) business days ending on the last business day prior
to the Exchange Date; or
-2-
<PAGE>
(iii) If the Common Stock or Warrants are not so listed or
admitted to unlisted trading privileges, the Fair Market Value shall be the
average of the means of the last reported bid and asked prices of the Common
Stock or Warrants, respectively, for the twenty (20) business days ending on the
last business day prior to the Exchange Date; or
(iv) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the Fair Market
Value shall be an amount, not less than book value thereof as at the end of the
most recent fiscal year of the Company ending prior to the Exchange Date,
determined in such reasonable manner as may be prescribed by the Board of
Directors of the Company; or
(v) If the Warrants are not so listed or admitted to unlisted
trading privileges, and bid and asked prices are not so reported for Warrants,
then Fair Market Value for the Warrants shall be an amount equal to the
difference between (x) the Fair Market Value of the shares of Common Stock and
Warrants which may be received upon the exercise of the Warrants, as determined
herein, and (y) the Warrant Exercise Price.
3. Neither this Option nor the underlying securities shall be
transferred, sold, assigned, or hypothecated for a period of one year commencing
on the effective date of the Registration Statement except that they may be
transferred to successors of the Holder, and may be assigned in whole or in part
to any person who is an officer of the Holder, any member participating in the
selling group relating to the Offering or any officer of such selling group
member. Any such assignment shall be effected by the Holder (i) executing the
form of assignment at the end hereof and (ii) surrendering this Option for
cancellation at the office or agency of the Company referred to in Section 2
hereof, accompanied by a certificate (signed by an officer of the Holder if the
Holder is a corporation), stating that each transferee is a permitted transferee
under this Section 3 hereof; whereupon the Company shall issue, in the name or
names specified by the Holder (including the Holder) a new Option or Options of
like tenor and representing in the aggregate rights to purchase the same number
of Option Units as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock
which may be issued as part of the Option Units purchased hereunder and the
Common Stock which may be issued upon exercise of the Warrants will, upon
issuance, be duly and validly issued, fully paid and nonassessable and no
personal liability will attach to the holder thereof. The Company further
covenants and agrees that during the periods within which this Option may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
this Option and that it will have authorized and reserved a sufficient number of
shares of Common Stock for issuance upon exercise of the Warrants included in
the Option Units.
5. This Option shall not entitle the Holder to any voting rights or any
other rights, or subject to the Holder to any liabilities, as a stockholder of
the Company.
6. (a) The Company shall advise the Holder or its transferee, whether the
Holder holds the Option or has exercised the Option and holds Option Units or
any of the securities underlying the Option Units, by written notice at least
four weeks prior to the filing of any post-effective amendment to the
Registration Statement or of any new registration statement or post-effective
amendment thereto under the Act covering any securities of the Company, for its
own account or for the account of others, and will for a period of seven years
from the effective date of the Registration Statement, upon the request of the
Holder, include in any such post-effective amendment or registration statement,
such information as may be required to permit a public offering of the Option,
all or any of the Option Units, the Common Stock or Warrants included in the
Option Units or the Common Stock issuable upon the exercise of the Warrants (the
"Registrable Securities").
(b) If any 50% holder (as defined below) shall give notice to the
Company at any time to the effect that such holder desires to register under
the Act this Option, the Option Units or any of the underlying securities
contained in the Option Units under such circumstances that a public
distribution (within the meaning of the Act) of any such securities will be
involved then the Company will promptly, but no later than two weeks after
receipt of such notice,
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<PAGE>
file a post-effective amendment to the current Registration Statement or a new
registration statement on Form S-1 or such other form as the 50% holder requests
pursuant to the Act, to the end that the Option, the Option Units and/or any of
the securities underlying the Option Units may be publicly sold under the Act as
promptly as practicable thereafter and the Company will use its best efforts to
cause such registration to become and remain effective (including the taking of
such steps as are necessary to obtain the removal of any stop order); provided,
that such 50% holder shall furnish the Company with appropriate information in
connection therewith as the Company may reasonably request in writing. The 50%
holder may, at its option, request the filing of a post-effective amendment to
the current Registration Statement or a new registration statement under the Act
on one occasion during the four year period beginning one year from the
effective date of the Registration Statement. The 50% holder may, at its option
request the registration of the Option and/or any of the securities underlying
the Option in a registration statement made by the Company as contemplated by
Section 6(a) or in connection with a request made pursuant to this Section 6(b)
prior to acquisition of the Option Units issuable upon exercise of the Option
and even though the 50% holder has not given notice of exercise of the Option.
The 50% holder may, at its option, request such post-effective amendment or new
registration statement during the described period with respect to the Option,
the Option Units as a unit, or separately as to the Common Stock and/or Warrants
included in the Option Units and/or the Common Stock issuable upon the exercise
of the Warrants, and such registration rights may be exercised by the 50% holder
prior to or subsequent to the exercise of the Option.
Within ten (10) days after receiving any such notice pursuant to this
Section 6(b), the Company shall give notice to the other holders of the Options,
advising that the Company is proceeding with such post-effective amendment or
registration statement and offering to include therein the securities underlying
the Options of the other holders, provided that they shall furnish the Company
with such appropriate information (relating to the intentions of such holders)
in connection therewith as the Company shall reasonably request in writing. In
the event the registration statement is not filed within the period specified
herein and in the event the registration statement is not declared effective
under the Act prior to _______, 2003, then, at the holders' request, the Company
shall purchase the Options from the holder for a per option price equal to the
difference between (i) the Fair Market Value of the Common Stock on the date of
notice multiplied by the number of shares of Common Stock issuable upon exercise
of the Option and the underlying Warrants and (ii) the average per share
purchase price of the Option and each share of Common Stock underlying the
Option. All costs and expenses of the first such post-effective amendment or
new registration statement under this paragraph 6(b) shall be borne by the
Company, except that the holders shall bear the fees of their own counsel and
any underwriting discounts or commissions applicable to any of the securities
sold by them. If the Company determines to include securities to be sold by it
in any registration statement originally requested pursuant to this Section
6(b), such registration shall instead be deemed to have been a registration
under Section 6(a) and not under this Section 6(b).
The Company will maintain such registration statement or post-
effective amendment current under the Act for a period of at least six months
(and for up to an additional three months if requested by the Holder) from the
effective date thereof.
(c) The term "50% holder" as used in this Section 6 shall mean the
holder of at least 50% of the Common Stock and the Warrants underlying the
Options (considered in the aggregate) and shall include any owner or combination
of owners of such securities, which ownership shall be calculated by determining
the number of shares of Common Stock held by such owner or owners as well as the
number of shares then issuable upon exercise of the Warrants.
(d) Whenever pursuant to Section 6 a registration statement relating
to any Registrable Securities is filed under the Act, amended or supplemented,
the Company shall (i) supply prospectuses and such other documents as the Holder
may request in order to facilitate the public sale or other disposition of the
Registrable Securities, (ii) use its best efforts to register and qualify any of
the Registrable Securities for sale in such states as such Holder designates,
(iii) furnish indemnification in the manner provided in Section 7 hereof, (iv)
notify each Holder of Registrable Securities at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, contains an untrue statement of a
material fact or omits to state a material fact required to
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<PAGE>
be stated therein or necessary to make the statements therein not misleading
and, at the request of any such Holder, prepare and furnish to such Holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not included an
untrue statement of a material fact or omit to state material fact required to
be stated therein or necessary to make the statements therein not misleading and
(v) do any and all other acts and things which may be necessary or desirable to
enable such Holders to consummate the public sale or other disposition of the
Registrable Securities. The Holder shall furnish appropriate information in
connection therewith and indemnification as set forth in Section 7.
(e) The Company shall not permit the inclusion of any securities other
than the Registrable Securities to be included in any registration statement
filed pursuant to Section 6(b) hereof without the prior written consent of the
50% holder.
(f) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (or, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) if such registration
includes an underwritten public offering, a "cold comfort" letter dated the
effective date of such registration statement and dated the date of the closing
under the underwriting agreement signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(g) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and to
the managing underwriter copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonable necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to non-
confidential books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times as any such Holder shall
reasonably request.
7. (a) Whenever pursuant to Section 6 a registration statement relating
to the Registrable Securities is filed under the Act, amended or supplemented,
the Company will indemnify and hold harmless each holder of the Registrable
Securities covered by such registration statement, amendment or supplement (such
holder being hereinafter called the "Distributing Holder"), and each person, if
any, who controls (within the meaning of the Act) the Distributing Holder, and
each underwriter (within the meaning of the Act) of such securities and each
person, if any, who controls (within the meaning of the Act) any such
underwriter, against any losses, claims, damages or liabilities, joint or
several, to which the Distributing Holder, any such controlling person or any
such underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any amendment or
supplement thereto, or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse the Distributing Holder
and each such controlling person and underwriter for any legal or other expenses
reasonably incurred by the Distributing Holder or such controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of
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<PAGE>
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, said preliminary
prospectus, said final prospectus or said amendment or supplement in reliance
upon and in conformity with written information furnished by such Distributing
Holder specifically for use in the preparation thereof.
(b) If requested by the Company prior to the filing of any registration
statement covering the Registrable Securities, each Distributing Holder will
agree, severally but not jointly, to indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in said registration
statement, said preliminary prospectus, said final prospectus or said amendment
or supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder specifically for use in the preparation
thereof; except that the maximum amount which may be recovered from the
Distributing Holder pursuant to this Section 7 or otherwise shall be limited to
the amount of net proceeds received by the Distributing Holder from the sale of
the Registrable Securities.
(c) Promptly after receipt by an indemnified party under this Section 7
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this Section 7.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8. In addition to the provisions of Section 1(a) of this Option, the
Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of the Options shall be subject to adjustment from
time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action. Such adjustment shall be made successively whenever any
event listed above shall occur.
(b) Whenever the Exercise Price payable upon exercise of each Option is
adjusted pursuant to Subsection (a) above, (i) the number of shares of Common
Stock included in an Option Unit shall simultaneously be adjusted by multiplying
the number of shares of Common Stock included in such Option Unit immediately
prior to such
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<PAGE>
adjustment by the Exercise Price in effect immediately prior to such adjustment
and dividing the product so obtained by the Exercise Price, as adjusted and
(ii) the number of shares of Common Stock or other securities issuable upon
exercise of the Warrants included in the Option Units and the exercise price of
such Warrants shall be adjusted in accordance with the applicable terms of the
Warrant Agreement.
(c) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents ($0.05)
in such price; provided, however, that any adjustments which by reason of this
Subsection (c)(i) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section 8 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Section
8 to the contrary notwithstanding, the Company shall be entitled, but shall not
be required, to make such changes in the Exercise Price, in addition to those
required by this Section 8, as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of Common Stock,
or any subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax liability to the
holders of Common Stock or securities convertible into Common Stock (including
Warrants issuable upon exercise of this Option).
(d) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly but no later than 10 days after any request for such an
adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Option Units issuable upon exercise of each Option
and, if requested, information describing the transactions giving rise to such
adjustments, to be mailed to the Holders, at the address set forth herein, and
shall cause a certified copy thereof to be mailed to its transfer agent, if any.
The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 8, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
(e) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder of this Option thereafter shall
become entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Option shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in Subsections (a) to (d), inclusive above.
(f) In case any event shall occur as to which the other provisions of
this Section 8 or Section 1(a) hereof are not strictly applicable but as to
which the failure to make any adjustment would not fairly protect the purchase
rights represented by this Option in accordance with the essential intent and
principles hereof then, in each such case, the Holders of Options representing
the right to purchase a majority of the Option Units may appoint a firm of
independent public accountants reasonably acceptable to the Company, which shall
give their opinion as to the adjustment, if any, on a basis consistent with the
essential intent and principles established herein, necessary to preserve the
purchase rights represented by the Options. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the Holder of this Option and shall
make the adjustments described therein. The fees and expenses of such
independent public accountants shall be borne by the Company.
9. This Agreement shall be governed by and in accordance with the laws of
the State of New York, without giving effect to the principles of conflicts of
law thereof.
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IN WITNESS WHEREOF, Central European Distribution Corporation has
caused this Option to be signed by its duly authorized officers under its
corporate seal, and this Option to be dated __________, 1998.
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
By:
------------------------------------------------------
William V. Carey, Chairman and Chief Executive Officer
(Corporate Seal)
Attest:
- ------------------------------
Jeffrey Peterson, Secretary
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<PAGE>
PURCHASE FORM
(To be signed only upon exercise of the Option)
The undersigned, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder, Units of Central European Distribution Corporation, each
Unit consisting of one share of $.01 par value Common Stock and one Warrant to
purchase one share of Common Stock and herewith makes payment of $___ therefor.
Dated: __________
INSTRUCTIONS FOR REGISTRATION OF STOCK AND WARRANTS
Name
---------------------------------------
(Please type or print in block letters)
Address
-----------------------------------
Signature
----------------------------------
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<PAGE>
OPTION EXCHANGE
The undersigned, pursuant to the provisions of the foregoing Option,
hereby elects to exchange its Option for ________Units of Central European
Distribution Corporation, each Unit consisting of one share of $.01 par value
Common Stock and one Warrant to purchase one share of Common Stock, pursuant to
the Option Exchange provisions of the Option.
Dated:
--------------
-------------------------------------------------
Print Name
-------------------------------------------------
Address
-------------------------------------------------
Signature
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<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto the right to purchase Units represented by the foregoing Option
to the extent of ______ Units , and appoints __________ attorney to transfer
such rights on the books of Central European Distribution Corporation, with full
power of substitution in the premises.
Dated:
------------------
-----------------------------------
By:
--------------------------------
--------------------------------
Address
In the presence of:
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EXHIBIT 10.1
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
1997 STOCK INCENTIVE PLAN
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<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
1997 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
Page
----
1. PURPOSE...................................................................1
2. DEFINITIONS...............................................................1
3. ADMINISTRATION OF THE PLAN................................................4
4. STOCK SUBJECT TO THE PLAN.................................................5
5. EFFECTIVE DATE AND TERM OF THE PLAN.......................................6
6. DISCRETIONARY GRANTS......................................................6
7. GRANTS TO OUTSIDE DIRECTORS...............................................6
8. LIMITATIONS ON GRANTS.....................................................7
9. AWARD AGREEMENT...........................................................7
10. OPTION PRICE.............................................................7
11. VESTING, TERM AND EXERCISE OF OPTIONS....................................8
12. STOCK APPRECIATION RIGHTS (SARS).........................................10
13. TRANSFERABILITY OF OPTIONS...............................................12
14. RESTRICTED STOCK.........................................................12
15. PARACHUTE LIMITATIONS....................................................15
16. REQUIREMENTS OF LAW......................................................16
17. AMENDMENT AND TERMINATION OF THE PLAN....................................17
18. EFFECT OF CHANGES IN CAPITALIZATION......................................17
19. DISCLAIMER OF RIGHTS.....................................................19
20. NONEXCLUSIVITY OF THE PLAN...............................................19
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21. WITHHOLDING TAXES........................................................20
22. CAPTIONS.................................................................20
23. OTHER PROVISIONS.........................................................20
24. NUMBER AND GENDER........................................................20
25. SEVERABILITY.............................................................21
26. GOVERNING LAW............................................................21
ii
<PAGE>
Exhibit 10.1
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
1997 STOCK INCENTIVE PLAN
Central European Distribution Corporation, a Delaware corporation (the
"Company"), sets forth herein the terms of its 1997 Stock Incentive Plan (the
"Plan") as follows:
1. PURPOSE
The Plan is intended to enhance the Company's ability to attract and retain
highly qualified officers, key employees, outside directors, and other persons
to advance the interests of the Company by providing such persons with stronger
incentives to continue to serve the Company and its affiliates (as defined
herein) and to expend maximum effort to improve the business results and
earnings of the Company. The Plan is intended to accomplish this objective by
providing to eligible persons an opportunity to acquire or increase a direct
proprietary interest in the operations and future success of the Company. To
this end, the Plan provides for the grant of stock options, stock appreciation
rights, restricted stock and restricted stock units in accordance with the terms
hereof. Stock options granted under the Plan may be non-qualified stock options
or incentive stock options, as provided herein, except that stock options
granted to outside directors shall in all cases be non-qualified stock options.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including Award
Agreements), the following definitions shall apply:
2.1 "affiliate" of, or person "affiliated" with, a person means any company
or other trade or business that controls, is controlled by or is under common
control with such person within the meaning of Rule 405 of Regulation C under
the 1933 Act (as defined herein).
2.2 "Award Agreement" means the stock option agreement, stock appreciation
rights agreement, restricted stock agreement, restricted stock unit agreement or
other written agreement between the Company and a Grantee that evidences and
sets out the terms and conditions of a Grant.
2.3 "Benefit Arrangement" shall have the meaning set forth in Section 15
hereof.
2.4 "Board" means the Board of Directors of the Company.
<PAGE>
2.5 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended.
2.6 "Committee" means a Committee of, and designated from time to time by
resolution of, the Board, which shall consist of no fewer than two members of
the Board, none of whom shall be an officer or other salaried employee of the
Company or any affiliate, and each of whom shall qualify in all respects as a
"non-employee director" within the meaning of Rule 16b-3 under the Exchange Act
or any successor rule or regulation. Commencing on the Effective Date, and
until such time as the Board shall determine otherwise, the Committee shall be
the Compensation Committee of the Board.
2.7 "Company" means Central European Distribution Corporation.
2.8 "Effective Date" means November 27, 1997, the date on which the Plan
was adopted by the Board.
2.9 "Exchange Act" means the Securities Exchange Act of 1934, as now in
effect or as hereafter amended.
2.10 "Fair Market Value" means the value of a share of Stock, determined as
follows: if on the Grant Date or other determination date the Stock is listed
on an established national or regional stock exchange, is admitted to quotation
on a Nasdaq market, or is publicly traded on an established securities market,
the Fair Market Value of a share of Stock shall be the closing price of the
Stock on such exchange or in such market (the highest such closing price if
there is more than one such exchange or market) on the Grant Date or such other
determination date (or if there is no such reported closing price, the Fair
Market Value shall be the mean between the highest bid and lowest asked prices
or between the high and low sale prices on such trading day) or, if no sale of
Stock is reported for such trading day, on the next preceding day on which any
sale shall have been reported. If the Stock is not listed on such an exchange,
quoted on such system or traded on such a market, Fair Market Value shall be the
value of the Stock as determined by the Committee in good faith.
2.11 "Grant" means an award of an Option, Stock Appreciation Rights,
Restricted Stock or Restricted Stock Units under the Plan.
2.12 "Grant Date" means (a) for Grants other than Grants to Outside
Directors, the later of (i) the date as of which the Committee approves the
Grant or (ii) the date as of which the Grantee and the Company or Service
Provider enter into the relationship resulting in the Grantee's becoming
eligible to receive a Grant, and (b) for Grants to Outside Directors, the date
on which such Grant is made in accordance with Section 7 hereof.
2
<PAGE>
2.13 "Grantee" means a person who receives or holds an Option, Stock
Appreciation Rights, Restricted Stock or Restricted Stock Units under the Plan.
2.14 "Incentive Stock Option" means an "incentive stock option" within the
meaning of Section 422 of the Code, or the corresponding provision of any
subsequently enacted tax statute, as amended from time to time.
2.15 "Option" means an option to purchase one or more shares of Stock
pursuant to the Plan.
2.16 "Option Period" means the period during which Options may be exercised
as set forth in Section 11 hereof.
2.17 "Option Price" means the purchase price for each share of Stock subject
to an Option or Stock Appreciation Rights.
2.18 "Other Agreement" shall have the meaning set forth in Section 15
hereof.
2.19 "Outside Director" means a member of the Board who is not an officer or
employee of the Company.
2.20 "Plan" means the Central European Distribution Corporation 1997 Stock
Incentive Plan.
2.21 "Reporting Person" means a person who is required to file reports under
Section 16(a) of the Exchange Act.
2.22 "Restricted Period" means the period during which Restricted Stock or
Restricted Stock Units are subject to restrictions or conditions pursuant to
Section 14.2 hereof.
2.23 "Restricted Stock" means shares of Stock, awarded to a Grantee pursuant
to Section 14 hereof, that are subject to restrictions and to a risk of
forfeiture.
2.24 "Restricted Stock Unit" means a unit awarded to a Grantee pursuant to
Section 14 hereof, which represents a conditional right to receive a share of
Stock in the future, and which is subject to restrictions and to a risk of
forfeiture.
2.25 "Securities Act" means the Securities Act of 1933, as now in effect or
as hereafter amended.
2.26 "Service Provider" means a consultant or adviser to the Company, a
manager of the Company's properties or affairs, or other similar service
provider or
3
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affiliate of the Company, and employees of any of the foregoing, as such persons
may be designated from time to time by the Committee pursuant to Section 6
hereof.
2.27 "Stock" means the common stock, par value $0.01 per share, of the
Company.
2.28 "Stock Appreciation Right" means a right granted pursuant to Section 15
hereof to receive a payment by the Company of an amount equal to the excess of
the fair market value of the shares of Stock subject to such Grant, or portion
thereof, so surrendered over the Option Price of such shares.
2.28 "Subsidiary" means any "subsidiary corporation" of the Company within
the meaning of Section 425(f) of the Code.
2.29 "Termination Date" shall be the date upon which an Option shall
terminate or expire, as set forth in Section 11.2 hereof.
3. ADMINISTRATION OF THE PLAN
3.1 General. The Plan shall be administered by the Board, which shall
-------
have the full power and authority to take all actions and to make all
determinations required or provided for under the Plan, any Option granted or
any Award Agreement entered into hereunder. The Board shall have full power and
authority to take all such other actions and determinations not inconsistent
with the specific terms and provisions of the Plan, which the Board deems to be
necessary or appropriate to the administration of the Plan, any Option granted
hereunder or any Award Agreement entered into hereunder. The Board's
interpretation and construction of any provision of the Plan, any Option granted
hereunder or any Award Agreement entered into hereunder shall be final, binding
and conclusive.
3.2 Committee. The Board, in its sole discretion, may provide that
---------
the role of the Committee shall be limited to making recommendations to the
Board concerning any determinations to be made and actions to be taken by the
Board pursuant to or with respect to the Plan, or the Board may delegate to the
Committee such powers and authorities related to the administration of the Plan,
as set forth in Section 3.1 above, as the Board shall determine, consistent with
the Certificate of Incorporation and By-laws of the Corporation and applicable
law. In the event that the Plan or any Option granted or Award Agreement
entered into hereunder provides for any action to be taken by or determination
to be made by the Board, such action may be taken by or such determination may
be made by the Committee if the power and authority to do so has been delegated
to the Committee by the Board as provided for in this Section. Unless otherwise
expressly determined by the Board, any such action or determination by the
Committee shall be final and conclusive.
4
<PAGE>
3.3 Discretionary Grants. Subject to Section 3.4 hereof and to the other
--------------------
terms and conditions of the Plan, the Committee shall have full and final
authority to designate Grantees, (i) to determine the type or types of Grant to
be made to a Grantee, (ii) to determine the number of shares of Stock to be
subject to a Grant, (iii) to establish the terms and conditions of each Grant
(including, but not limited to, the exercise price of any Option, the nature and
duration of any restriction or condition (or provision for lapse thereof)
relating to the vesting, exercise, transfer, or forfeiture of a Grant or the
shares of Stock subject thereto, and any terms or conditions that may be
necessary to qualify Options as Incentive Stock Options), (iv) to prescribe the
form of each Award Agreement evidencing a Grant, and (v) to amend, modify, or
supplement the terms of any outstanding Grant. Such authority specifically
includes the authority, in order to effectuate the purposes of the Plan but
without amending the Plan, to modify Grants to eligible individuals who are
foreign nationals or are individuals who are employed outside the United States
to recognize differences in local law, tax policy, or custom. As a condition to
any subsequent Grant, the Committee shall have the right, at its discretion, to
require Grantees to return to the Company Grants previously awarded under the
Plan. Subject to the terms and conditions of the Plan, any such new Grant shall
be upon such terms and conditions as are specified by the Committee at the time
the new Grant is made.
3.4 Grants to Outside Directors. With respect to Grants of Options to
----------------------------
Outside Directors pursuant to Section 7 hereof, the Committee's responsibilities
under the Plan shall be limited to taking all legal actions necessary to
document the Options so granted, to interpret the Award Agreements evidencing
such Options, to maintain appropriate records and reports regarding such
Options, and to take all acts authorized by this Plan or otherwise reasonably
necessary to effect the purposes hereof.
3.5 No Liability. No member of the Board or of the Committee shall be
------------
liable for any action or determination made in good faith with respect to the
Plan or any Grant or Award Agreement.
3.6 Applicability of Rule 16b-3. Those provisions of the Plan that make
---------------------------
express reference to Rule 16b-3 under the Exchange Act shall apply only to
Reporting Persons.
4. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 17 hereof, the number of shares
of Stock available for issuance under the Plan shall be 400,000. Stock issued
or to be issued under the Plan shall be authorized but unissued shares. If any
shares covered by a Grant are not purchased or are forfeited, or if a Grant
otherwise terminates without delivery of any Stock subject thereto, then the
number of shares of Stock counted against the aggregate number of shares
available under the Plan with
5
<PAGE>
respect to such Grant shall, to the extent of any such forfeiture or
termination, again be available for making Grants under the Plan.
5. EFFECTIVE DATE AND TERM OF THE PLAN
5.1 Effective Date. The Plan shall be effective as of the Effective Date,
--------------
subject to approval of the Plan within one year of the Effective Date, by a
majority of the votes cast on the proposal at a meeting of shareholders,
provided that the total votes cast represent a majority of all shares entitled
to vote. Upon approval of the Plan by the shareholders of the Company as set
forth above, all Grants made under the Plan on or after the Effective Date shall
be fully effective as if the shareholders of the Company had approved the Plan
on the Effective Date. If the shareholders fail to approve the Plan within one
year after the Effective Date, any Grants made hereunder shall be null and void
and of no effect.
5.2 Term. The Plan shall terminate on the tenth anniversary of the
----
Effective Date.
6. DISCRETIONARY GRANTS
6.1 Company or Subsidiary Employees. Grants (including Grants of Incentive
-------------------------------
Stock Options) may be made under the Plan to any employee of the Company or of
any Subsidiary, including any such employee who is an officer or director of the
Company or of any Subsidiary, as the Committee shall determine and designate
from time to time.
6.2 Service Providers. Grants may be made under the Plan to any Service
-----------------
Provider whose participation in the Plan is determined by the Committee to be in
the best interests of the Company and is so designated by the Committee;
provided, however, that Grants to Service Providers who are not employees of the
- --------
Company or of any Subsidiary shall not be Incentive Stock Options.
6.3 Successive Grants. An eligible person may receive more than one Grant,
-----------------
subject to such restrictions as are provided herein.
7. GRANTS TO OUTSIDE DIRECTORS
7.1 Initial Grants of Options. Each Outside Director who is initially
-------------------------
elected to the Board on or after the Effective Date shall, upon the date of his
or her initial election by the Board or the shareholders of the Company,
automatically be awarded a Grant of an Option, which shall not be an Incentive
Stock Option, to purchase 500 shares of Stock (which amount shall be subject to
adjustment as provided in Section 17 hereof).
7.2 Subsequent Grants of Options. Immediately following each Annual
----------------------------
Meeting of Shareholders of the Company held after the Effective Date, each
Outside
6
<PAGE>
Director then duly elected and serving (other than an Outside Director
initially elected to the Board at such Annual Meeting of Shareholders) shall
automatically be awarded a Grant of an Option, which shall not be an Incentive
Stock Option, to purchase 500 shares of Stock (which amount shall be subject to
adjustment as provided in Section 17 hereof); provided, however, that no Outside
-----------------
Director shall be eligible to receive a Grant of Options under this Section 7.2
unless such person attended, in person or by telephone, at least seventy-five
percent of the meetings held by the Board during the immediately preceding
calendar year (or such portion thereof during which the Outside Director served
on the Board).
8. LIMITATIONS ON GRANTS
8.1 Limitation on Shares of Stock Subject to Grants. The maximum number of
------------------------------------------------
shares of Stock subject to Options that can be awarded under the Plan to any
person eligible for a Grant under Section 6 hereof is 60,000 per year. The
maximum number of shares of Restricted Stock that can be awarded under the Plan
(including for this purpose any shares of Stock represented by Restricted Stock
Units) to any person eligible for a Grant under Section 6 hereof is 60,000 per
year.
8.2 Limitations on Incentive Stock Options. An Option shall constitute an
---------------------------------------
Incentive Stock Option only (i) if the Grantee of such Option is an employee of
the Company or any Subsidiary of the Company; (ii) to the extent specifically
provided in the related Award Agreement; and (iii) to the extent that the
aggregate Fair Market Value (determined at the time the Option is granted) of
the shares of Stock with respect to which all Incentive Stock Options held by
such Grantee become exercisable for the first time during any calendar year
(under the Plan and all other plans of the Grantee's employer and its
affiliates) does not exceed $100,000. This limitation shall be applied by
taking Options into account in the order in which they were granted.
9. AWARD AGREEMENT
Each Grant pursuant to the Plan shall be evidenced by an Award Agreement, to
be executed by the Company and by the Grantee, in such form or forms as the
Committee shall from time to time determine. Award Agreements granted from time
to time or at the same time need not contain similar provisions but shall be
consistent with the terms of the Plan. Each Award Agreement evidencing a Grant
of Options shall specify whether such Options are intended to be non-qualified
stock options or Incentive Stock Options.
10. OPTION PRICE
The Option Price of each Option shall be fixed by the Committee and stated
in the Award Agreement evidencing such Option. The Option Price shall be the
aggregate Fair Market Value on the Grant Date of the shares of Stock subject to
the Option; provided, however, that in the event that a Grantee would otherwise
-------- -------
be ineligible to receive an Incentive Stock Option by reason of the provisions
of Sections
7
<PAGE>
422(b)(6) and 424(d) of the Code (relating to ownership of more than ten
percent of the Company's outstanding Stock), the Option Price of an Option
granted to such Grantee that is intended to be an Incentive Stock Option shall
be not less than the greater of the par value of a share of Stock or 110 percent
of the Fair Market Value of a share of Stock on the Grant Date. In no case
shall the Option Price of any Option be less than the par value of a share of
Stock.
11. VESTING, TERM AND EXERCISE OF OPTIONS
11.1 Vesting and Option Period. Each Option granted under the Plan shall
-------------------------
be exercisable, in whole or in part, at any time and from time to time over a
period commencing on or after the Grant Date and ending upon the expiration or
termination of the Option, as the Committee shall determine and set forth in the
Award Agreement relating to such Option; provided, however, that each Option
-------- -------
granted to an Outside Director shall be exercisable, in whole or in part, at any
time and from time to time over the period commencing on the Grant Date and
ending upon the expiration or termination of the Option. Without limiting the
foregoing, the Committee, subject to the terms and conditions of the Plan, may
in its sole discretion provide that an Option granted to persons other than
Outside Directors may not be exercised in whole or in part for a stated period
or periods of time during which such Option is outstanding. For purposes of
this Section 11.1, fractional numbers of shares of Stock subject to an Option
shall be rounded down to the next nearest whole number. The period during which
any Option shall be exercisable in accordance with the foregoing schedule shall
constitute the "Option Period" with respect to such Option.
11.2 Term. Each Option granted under the Plan shall terminate, and all
----
rights to purchase shares of Stock thereunder shall cease, upon the expiration
of ten years from the date such Option is granted, or, with respect to Options
granted to persons other than Outside Directors, under such circumstances and on
such date prior thereto as is set forth in the Plan or as may be fixed by the
Committee and stated in the Award Agreement relating to such Option (the
"Termination Date"); provided, however, that in the event that the Grantee would
-------- -------
otherwise be ineligible to receive an Incentive Stock Option by reason of the
provisions of Sections 422(b)(6) and 424(d) of the Code (relating to ownership
of more than ten percent of the outstanding Stock), an Option granted to such
Grantee that is intended to be an Incentive Stock Option shall not be
exercisable after the expiration of five years from its Grant Date.
11.3 Acceleration. Any limitation on the exercise of an Option contained in
------------
any Award Agreement may be rescinded, modified or waived by the Committee, in
its sole discretion, at any time and from time to time after the Grant Date of
such Option, so as to accelerate the time at which the Option may be exercised.
Notwithstanding any other provision of the Plan, no Option shall be exercisable
in whole or in part prior to the date the Plan is approved by the shareholders
of the Company as provided in Section 5.1 hereof.
8
<PAGE>
11.4 Termination of Employment or Other Relationship. Upon the termination
-----------------------------------------------
(i) of the employment of a Grantee with the Company or a Service Provider, (ii)
of a Service Provider's relationship with the Company, or (iii) of an Outside
Director's service to the Company, other than, in the case of individuals, by
reason of death or "permanent and total disability" (within the meaning of
Section 22(e)(3) of the Code), any Option or portion thereof held by such
Grantee that has not vested in accordance with the provisions of Section 11.1
hereof shall terminate immediately, and any Option or portion thereof that has
vested in accordance with the provisions of Section 11.1 hereof but has not been
exercised shall terminate at the close of business on the ninetieth day
following the Grantee's termination of service, employment, or other
relationship, unless the Committee, in its discretion, extends the period during
which the Option may be exercised (which period may not be extended beyond the
original term of the Option). Upon termination of an Option or portion thereof,
the Grantee shall have no further right to purchase shares of Stock pursuant to
such Option or portion thereof. Whether a leave of absence or leave on military
or government service shall constitute a termination of employment for purposes
of the Plan shall be determined by the Committee, which determination shall be
final and conclusive. For purposes of the Plan, a termination of employment,
service or other relationship shall not be deemed to occur if the Grantee is
immediately thereafter employed with an affiliate of the Company or any other
Service Provider, or is engaged as a Service Provider or an Outside Director of
the Company. Whether a termination of a Service Provider's or an Outside
Director's relationship with the Company shall have occurred shall be determined
by the Committee, which determination shall be final and conclusive.
11.5 Rights in the Event of Death. If a Grantee dies while employed by the
----------------------------
Company or a Service Provider, or while serving as a Service Provider or an
Outside Director, all Options granted to such Grantee shall fully vest on the
date of death, and the executors or administrators or legatees or distributees
of such Grantee's estate shall have the right, at any time within two years
after the date of such Grantee's death (or such longer period as the Committee,
in its discretion, may determine prior to the expiration of such one-year
period) and prior to termination of the Option pursuant to Section 11.2 above,
to exercise any Option held by such Grantee at the date of such Grantee's death.
11.6 Rights in the Event of Disability. If a Grantee terminates employment
---------------------------------
with the Company or a Service Provider, or (if the Grantee is a Service Provider
who is an individual or is an Outside Director) ceases to provide services to
the Company, in either case by reason of the "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code) of such Grantee, such
Grantee's Options shall continue to vest, and shall be exercisable to the extent
that they are vested, for a period of one year after such termination of
employment or service (or such longer period as the Committee, in its
discretion, may determine prior to the expiration of such one-year period),
subject to earlier termination of the Option as provided in Section 11.2
9
<PAGE>
above. Whether a termination of employment or service is to be considered by
reason of "permanent and total disability" for purposes of the Plan shall be
determined by the Committee, which determination shall be final and conclusive.
11.7 Limitations on Exercise of Option. Notwithstanding any other provision
---------------------------------
of the Plan, in no event may any Option be exercised, in whole or in part, prior
to the date the Plan is approved by the shareholders of the Company as provided
herein, or after ten years following the date upon which the Option is granted,
or after the occurrence of an event referred to in Section 17 hereof which
results in termination of the Option.
11.8 Method of Exercise. An Option that is exercisable may be exercised by
------------------
the Grantee's delivery to the Company of written notice of exercise on any
business day, at the Company's principal office, addressed to the attention of
the Committee. Such notice shall specify the number of shares of Stock with
respect to which the Option is being exercised and shall be accompanied by
payment in full of the Option Price of the shares for which the Option is being
exercised. The minimum number of shares of Stock with respect to which an
Option may be exercised, in whole or in part, at any time shall be the lesser of
(i) 100 shares or such lesser number set forth in the applicable Award Agreement
and (ii) the maximum number of shares available for purchase under the Option at
the time of exercise. Payment of the Option Price for the shares purchased
pursuant to the exercise of an Option shall be made in cash or in cash
equivalents. An attempt to exercise any Option granted hereunder other than as
set forth above shall be invalid and of no force and effect. Unless otherwise
stated in the applicable Award Agreement, an individual holding or exercising an
Option shall have none of the rights of a shareholder (for example, the right to
receive cash or dividend payments or distributions attributable to the subject
shares of Stock or to direct the voting of the subject shares of Stock ) until
the shares of Stock covered thereby are fully paid and issued to him. Except as
provided in Section 18 hereof, no adjustment shall be made for dividends,
distributions or other rights for which the record date is prior to the date of
such issuance.
11.9 Delivery of Stock Certificates. Promptly after the exercise of an
------------------------------
Option by a Grantee and the payment in full of the Option Price, such Grantee
shall be entitled to the issuance of a stock certificate or certificates
evidencing his or her ownership of the shares of Stock subject to the Option.
12. STOCK APPRECIATION RIGHTS (SARS)
12.1 In General. Subject to the terms and conditions of the Plan, the
----------
Committee may, in its sole and absolute discretion, grant to a Grantee rights to
receive payment by the Company of an amount equal to the excess of the fair
market value of the shares of Stock subject to such Award Agreement, or portion
thereof, so surrendered (determined in the manner described in Section 2.10
above as of the date the SARs are exercised) over the Option Price of such
shares.
10
<PAGE>
Such payment may be made, as determined by the Committee in accordance with
Sections 12.4 and 12.5 below and set forth in the Award Agreement, either
in shares of Stock or in cash or in any combination thereof. All SARs shall be
evidenced by provisions in an Award Agreement, which provisions shall comply
with and be subject to the terms and conditions set forth in this Section 12.
12.2 Grant. Each SAR shall relate to a specific number of shares of Stock.
-----
The number of SARs held by a Grantee shall be reduced by the number of SARs
exercised for Stock or cash under the provisions of the Award Agreement.
12.3 Exercise. SARs that are exercisable hereunder and under the Award
--------
Agreement may be exercised by delivering to the Company on any business day, at
its principal office, addressed to the attention of the Committee, written
notice of exercise, which notice shall specify the number of SARs being
exercised. The date upon which such written notice is received by the Company
shall be the exercise date of the SARs. Except to the extent that SARs are
exercised for cash as provided in Section 12.5 below, the individual exercising
SARs shall receive, without payment therefor to the Company, the number of
shares of Stock determined under Section 12.4 below. Promptly after the
exercise of SARs, the individual exercising the SARs shall be entitled to the
issuance of a Stock certificate or certificates evidencing ownership of such
shares. An individual holding or exercising SARs shall have none of the rights
of a shareholder with respect to any shares of Stock covered by the SARs until
shares of Stock are issued to him or her, and, except as provided in Section 19
below, no adjustment shall be made for dividends or other rights for which the
record date is prior to the date of such issuance.
12.4 Number of Shares of Stock. The number of shares of Stock which shall
-------------------------
be issued pursuant to the exercise of SARs shall be determined by dividing (i)
the total number of SARs being exercised, multiplied by the amount by which the
fair market value (determined in the manner described in Section 2.10 above) of
a share of Stock on the exercise date exceeds the Option Price of the shares of
Stock subject to the Award Agreement by (ii) the fair market value (determined
in the manner described in Section 2.10 above) of a share of Stock on the
exercise date of the SARs; provided, however, that no fractional share shall be
-------- -------
issued on exercise of SARs, and that cash shall be paid by the Company to the
individual exercising SARs in lieu of any such fractional share.
11
<PAGE>
12.5 Exercise of SARs for Cash. The Committee shall have sole discretion to
-------------------------
determine whether, and shall set forth in the Award Agreement the circumstances
under which, payment in respect of SARs granted to any Grantee shall be made in
shares of Stock, or in cash, or in a combination thereof. Promptly after the
exercise of an SAR for cash, the individual exercising the SAR shall receive in
respect of said SAR an amount of money equal to the difference between the fair
market value (determined in the manner described in Section 2.10 above) of a
share of Stock on the exercise date and the Option Price.
12.6 Limitations. SARs shall be exercisable at such times and under such
-----------
terms and conditions as the Committee, in its sole and absolute discretion,
shall determine and set forth in the Award Agreements; provided, however, that
-------- -------
an SAR may be exercised only at such times and by such individuals as the Award
Agreement provides; and provided, further, that an SAR may be exercised only at
-------- -------
such times as the fair market value (determined in the manner described in
Section 2.10 above) of a share of Stock on the exercise date exceeds the Option
Price. Adjustments in the number, kind, or Option Price of shares of Stock for
which Awards are granted pursuant to Section 19 below shall be made as necessary
to the related SARs held by each Grantee. Any amendment, suspension or
termination of the Plan pursuant to Section 18 below shall be deemed an
amendment, suspension or termination of SARs to the same extent.
13. TRANSFERABILITY OF OPTIONS
During the lifetime of an Optionee, only such Optionee (or, in the event of
legal incapacity or incompetency, the guardian or legal representative of the
Optionee) may exercise the Option, except as otherwise specifically permitted by
this Section 13. No Option shall be assignable or transferable other than by
will or in accordance with the laws of descent and distribution; provided,
--------
however, to the extent permitted under the applicable Award Agreement, and to
- -------
the extent the transfer is in compliance with any applicable restrictions on
transfers, an Optionee may transfer a non-qualified stock option to a family
member of the Optionee (defined as an individual who is related to the Optionee
by blood or adoption), to a trust established and maintained for the benefit of
the Optionee or a family member of the Optionee (as determined under applicable
state law and the Code) or to a partnership in which family members are the only
partners, provided that (x) there may be no consideration for any such transfer,
and (y) subsequent transfers of transferred Options are prohibited except those
in accordance with this Section 13 or by will or the laws of descent and
distribution.
14. RESTRICTED STOCK
14.1 Grant of Restricted Stock or Restricted Stock Units. The Committee may
---------------------------------------------------
from time to time grant Restricted Stock or Restricted Stock Units to persons
eligible
12
<PAGE>
to receive such Grants as set forth in Section 6 hereof, subject to such
restrictions, conditions and other terms as the Committee may determine.
14.2 Restrictions. At the time a Grant of Restricted Stock or Restricted
------------
Stock Units is made, the Committee shall establish a period of time (the
"Restricted Period") applicable to such Restricted Stock or Restricted Stock
Units. Each Grant of Restricted Stock or Restricted Stock Units may be subject
to a different Restricted Period. The Committee may, in its sole discretion, at
the time a Grant of Restricted Stock or Restricted Stock Units is made,
prescribe restrictions in addition to or other than the expiration of the
Restricted Period, including the satisfaction of corporate or individual
performance objectives, which may be applicable to all or any portion of the
Restricted Stock or Restricted Stock Units. Such performance objectives shall
be established in writing by the Committee prior to the ninetieth day of the
year in which the Grant is made and while the outcome is substantially
uncertain. Performance objectives shall be based on Stock price, market share,
sales, earnings per share, return on equity or costs. Performance objectives
may include positive results, maintaining the status quo or limiting economic
losses. The Committee also may, in its sole discretion, shorten or terminate
the Restricted Period or waive any other restrictions applicable to all or a
portion of the Restricted Stock or Restricted Stock Units. Neither Restricted
Stock nor Restricted Stock Units may be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of during the Restricted Period or prior to the
satisfaction of any other restrictions prescribed by the Committee with respect
to such Restricted Stock or Restricted Stock Units.
14.3 Restricted Stock Certificates. The Company shall issue, in the name of
-----------------------------
each Grantee to whom Restricted Stock has been granted, stock certificates
representing the total number of shares of Restricted Stock granted to the
Grantee, as soon as reasonably practicable after the Grant Date. The Secretary
of the Company shall hold such certificates for the Grantee's benefit until such
time as the Restricted Stock is forfeited to the Company, or the restrictions
lapse.
14.4 Rights of Holders of Restricted Stock. Unless the Committee otherwise
-------------------------------------
provides in an Award Agreement, holders of Restricted Stock shall have the right
to vote such Stock and the right to receive any dividends declared or paid with
respect to such Stock. The Committee may provide that any dividends paid on
Restricted Stock must be reinvested in shares of Stock, which may or may not be
subject to the same vesting conditions and restrictions applicable to such
Restricted Stock. All distributions, if any, received by a Grantee with respect
to Restricted Stock as a result of any stock split, stock dividend, combination
of shares, or other similar transaction shall be subject to the restrictions
applicable to the original Grant.
14.5 Rights of Holders of Restricted Stock Units. Unless the Committee
-------------------------------------------
otherwise provides in an Award Agreement, holders of Restricted Stock Units
shall have no rights as stockholders of the Company. The Committee may provide
in an Award Agreement evidencing a Grant of Restricted Stock Units that the
holder of
13
<PAGE>
such Restricted Stock Units shall be entitled to receive, upon the Company's
payment of a cash dividend on its outstanding Stock, a cash payment for each
Restricted Stock Unit held equal to the per-share dividend paid on the Stock.
Such Award Agreement may also provide that such cash payment will be deemed
reinvested in additional Restricted Stock Units at a price per unit equal to the
Fair Market Value of a share of Stock on the date that such dividend is paid.
14.6 Termination of Employment or Other Relationship. Upon the termination
-----------------------------------------------
of the employment of a Grantee with the Company or a Service Provider, or of a
Service Provider's relationship with the Company, in either case other than, in
the case of individuals, by reason of death or "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code), any Restricted Stock or
Restricted Stock Units held by such Grantee that has not vested, or with respect
to which all applicable restrictions and conditions have not lapsed, shall
immediately be deemed forfeited, unless the Committee, in its discretion,
determines otherwise. Upon forfeiture of Restricted Stock or Restricted Stock
Units, the Grantee shall have no further rights with respect to such Grant,
including but not limited to any right to vote Restricted Stock or any right to
receive dividends with respect to shares of Restricted Stock or Restricted Stock
Units. Whether a leave of absence or leave on military or government service
shall constitute a termination of employment for purposes of the Plan shall be
determined by the Committee, which determination shall be final and conclusive.
For purposes of the Plan, a termination of employment, service or other
relationship shall not be deemed to occur if the Grantee is immediately
thereafter employed with the Company or any other Service Provider, or is
engaged as a Service Provider. Whether a termination of a Service Provider's
relationship with the Company shall have occurred shall be determined by the
Committee, which determination shall be final and conclusive.
14.7 Rights in the Event of Death. If a Grantee dies while employed by the
----------------------------
Company or a Service Provider or while serving as a Service Provider, all
Restricted Stock or Restricted Stock Units granted to such Grantee shall fully
vest on the date of death, and the shares of Stock represented thereby shall be
deliverable in accordance with the terms of the Plan to the executors,
administrators, legatees or distributees of the Grantee's estate.
14.8 Rights in the Event of Disability. If a Grantee terminates employment
---------------------------------
with the Company or a Service Provider, or (if the Grantee is a Service Provider
who is an individual) ceases to provide services to the Company, in either case
by reason of the "permanent and total disability" (within the meaning of Section
22(e)(3) of the Code) of such Grantee, such Grantee's Restricted Stock or
Restricted Stock Units shall continue to vest in accordance with the applicable
Award Agreement for a period of one year after such termination of employment or
service (or such longer period as the Committee, in its discretion, may
determine prior to the expiration of such one-year period), subject to the
earlier forfeiture of such Restricted Stock or Restricted Stock Units in
accordance with the terms of the applicable Award
14
<PAGE>
Agreement. Whether a termination of employment or service is to be considered by
reason of "permanent and total disability" for purposes of the Plan shall be
determined by the Committee, which determination shall be final and conclusive.
14.9 Delivery of Stock and Payment Therefor. Upon the expiration or
--------------------------------------
termination of the Restricted Period and the satisfaction of any other
conditions prescribed by the Committee, the restrictions applicable to shares of
Restricted Stock or Restricted Stock Units shall lapse, and, upon payment by the
Grantee to the Company, in cash or by check, of the aggregate par value of the
shares of Stock represented by such Restricted Stock or Restricted Stock Units,
a stock certificate for such shares shall be delivered, free of all such
restrictions, to the Grantee or the Grantee's beneficiary or estate, as the case
may be.
15. PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other agreement,
contract, or understanding heretofore or hereafter entered into by a Grantee
with the Company or any Subsidiary, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (an "Other Agreement"), and notwithstanding any
formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Grantee (including groups or classes of
participants or beneficiaries of which the Grantee is a member), whether or not
such compensation is deferred, is in cash, or is in the form of a benefit to or
for the Grantee (a "Benefit Arrangement"), if the Grantee is a "disqualified
individual," as defined in Section 280G(c) of the Code, any Option, Restricted
Stock or Restricted Stock Unit held by that Grantee and any right to receive any
payment or other benefit under this Plan shall not become exercisable or vested
(i) to the extent that such right to exercise, vesting, payment, or benefit,
taking into account all other rights, payments, or benefits to or for the
Grantee under this Plan, all Other Agreements, and all Benefit Arrangements,
would cause any payment or benefit to the Grantee under this Plan to be
considered a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code as then in effect (a "Parachute Payment") and (ii) if, as a result of
---
receiving a Parachute Payment, the aggregate after-tax amounts received by the
Grantee from the Company under this Plan, all Other Agreements, and all Benefit
Arrangements would be less than the maximum after-tax amount that could be
received by the Grantee without causing any such payment or benefit to be
considered a Parachute Payment. In the event that the receipt of any such right
to exercise, vesting, payment, or benefit under this Plan, in conjunction with
all other rights, payments, or benefits to or for the Grantee under any Other
Agreement or any Benefit Arrangement would cause the Grantee to be considered to
have received a Parachute Payment under this Plan that would have the effect of
decreasing the after-tax amount received by the Grantee as described in clause
(ii) of the preceding sentence, then the Grantee shall have the right, in the
Grantee's sole discretion, to designate those rights, payments, or benefits
under this Plan, any Other Agreements, and any Benefit Arrangements that should
be reduced
15
<PAGE>
or eliminated so as to avoid having the payment or benefit to the Grantee under
this Plan be deemed to be a Parachute Payment.
16. REQUIREMENTS OF LAW
16.1 General. The Company shall not be required to sell or issue any shares
-------
of Stock under any Grant if the sale or issuance of such shares would constitute
a violation by the Grantee, any other individual exercising an Option, or the
Company of any provision of any law or regulation of any governmental authority,
including without limitation any United States federal or state securities laws
or regulations. If at any time the Company shall determine, in its discretion,
that the listing, registration or qualification of any shares subject to a
Grant upon any securities exchange or under any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the issuance or
purchase of shares hereunder, no shares of Stock may be issued or sold to the
Grantee or any other individual exercising an Option pursuant to such Grant
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Company,
and any delay caused thereby shall in no way affect the date of termination of
the Grant. Specifically, in connection with the Securities Act, upon the
exercise of any Option or the delivery of any shares of Restricted Stock or
Stock underlying Restricted Stock Units, unless a registration statement under
such Act is in effect with respect to the shares of Stock covered by such Grant,
the Company shall not be required to sell or issue such shares unless the
Committee has received evidence satisfactory to it that the Grantee or any other
individual exercising an Option may acquire such shares pursuant to an
exemption from registration under the Securities Act. Any determination in this
connection by the Committee shall be final, binding, and conclusive. The
Company may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Securities Act. The Company shall not be
obligated to take any affirmative action in order to cause the exercise of an
Option or the issuance of shares of Stock pursuant to the Plan to comply with
any law or regulation of any governmental authority. As to any jurisdiction
that expressly imposes the requirement that an Option shall not be exercisable
until the shares of Stock covered by such Option are registered or are exempt
from registration, the exercise of such Option (under circumstances in which the
laws of such jurisdiction apply) shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an exemption.
16.2 Rule 16b-3. It is the intent of the Company that Grants pursuant to
----------
the Plan and the exercise of Options granted hereunder will qualify for the
exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any
provision of the Plan or action by the Committee does not comply with the
requirements of Rule 16b-3, it shall be deemed inoperative to the extent
permitted by law and deemed advisable by the Committee, and shall not affect the
validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the
Board may exercise its discretion to modify
16
<PAGE>
this Plan in any respect necessary to satisfy the requirements of, or to take
advantage of any features of, the revised exemption or its replacement.
17. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend, or
terminate the Plan as to any shares of Stock as to which Grants have not been
made; provided, however, that the Board shall not, without approval of the
-------- -------
Company's shareholders, amend the Plan such that it does not comply with the
Code. The Company may retain the right in an Award Agreement to cause a
forfeiture of the gain realized by a Grantee on account of the Grantee taking
actions in "competition with the Company," as defined in the applicable Award
Agreement. Furthermore, the Company may annul a Grant if the Grantee is an
employee of the Company or an affiliate and is terminated "for cause" as defined
in the applicable Award Agreement. Except as permitted under this Section 17 or
Section 18 hereof, no amendment, suspension, or termination of the Plan shall,
without the consent of the Grantee, alter or impair rights or obligations under
any Grant theretofore awarded under the Plan.
18. EFFECT OF CHANGES IN CAPITALIZATION
18.1 Changes in Stock. If the number of outstanding shares of Stock is
----------------
increased or decreased or the shares of Stock are changed into or exchanged for
a different number or kind of shares or other securities of the Company on
account of any recapitalization, reclassification, stock split, reverse split,
combination of shares, exchange of shares, stock dividend or other distribution
payable in capital stock, or other increase or decrease in such shares effected
without receipt of consideration by the Company occurring after the Effective
Date, the number and kinds of shares for which Grants of Options, Restricted
Stock and Restricted Stock Units may be made under the Plan shall be adjusted
proportionately and accordingly by the Company. In addition, the number and
kind of shares for which Grants are outstanding shall be adjusted
proportionately and accordingly so that the proportionate interest of the
Grantee immediately following such event shall, to the extent practicable, be
the same as immediately before such event. Any such adjustment in outstanding
Options shall not change the aggregate Option Price payable with respect to
shares that are subject to the unexercised portion of the Option outstanding but
shall include a corresponding proportionate adjustment in the Option Price per
share.
18.2 Reorganization in Which the Company Is the Surviving Entity and in
------------------------------------------------------------------
Which No Change of Control Occurs. Subject to Section 18.3 hereof, if the
- ---------------------------------
Company shall be the surviving entity in any reorganization, merger, or
consolidation of the Company with one or more other entities, any Option
theretofore granted pursuant to the Plan shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to such
Option would have been entitled immediately following such reorganization,
merger, or consolidation, with a corresponding proportionate adjustment of the
Option Price per share so that the aggregate Option
17
<PAGE>
Price thereafter shall be the same as the aggregate Option Price of the shares
remaining subject to the Option immediately prior to such reorganization,
merger, or consolidation. Subject to any contrary language in an Award Agreement
evidencing a Grant of Restricted Stock, any restrictions applicable to such
Restricted Stock shall apply as well to any replacement shares received by the
Grantee as a result of the reorganization, merger or consolidation.
18.3 Dissolutions, Sale of Assets, Etc. Upon the dissolution or
---------------------------------
liquidation of the Company or upon a merger, consolidation, or reorganization of
the Company with one or more other entities in which the Company is not the
surviving entity, or upon a sale of substantially all of the assets of the
Company to another entity, or upon any transaction (including, without
limitation, a merger or reorganization in which the Company is the surviving
entity) that results in any person or entity (or person or entities acting as a
group or otherwise in concert) owning eighty percent or more of the combined
voting power of all classes of securities of the Company, (i) all outstanding
shares of Restricted Stock and Restricted Stock Units shall be deemed to have
vested, and all restrictions and conditions applicable to such shares of
Restricted Stock and Restricted Stock Units shall be deemed to have lapsed,
immediately prior to the occurrence of such event, and (ii) all Options
outstanding hereunder shall become immediately exercisable for a period of
fifteen days immediately prior to the scheduled consummation of the event,
except to the extent provision is made in writing in connection with such
transaction for the continuation of the Plan or the assumption of such Options,
Restricted Stock and Restricted Stock Units theretofore granted, or for the
substitution for such Options, Restricted Stock and Restricted Stock Units of
new options, restricted stock and restricted stock units covering the stock of a
successor Company, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kinds of shares or units and exercise prices,
in which event the Plan and Options, Restricted Stock and Restricted Stock Units
theretofore granted shall continue in the manner and under the terms so
provided. Any exercise of an Option during such fifteen-day period shall be
conditioned upon the consummation of the event and shall be effective only
immediately before the consummation of the event. Upon consummation of any such
event, the Plan and all outstanding but unexercised Options shall terminate,
except to the extent the Plan is continued or of the assumption of or
substitution for such Options theretofore granted. The Committee shall send
written notice of an event that will result in such a termination to all
individuals who hold Options not later than the time at which the Company gives
notice thereof to its shareholders.
18.4 Adjustments. Adjustments under this Section 18 related to shares of
-----------
Stock or securities of the Company shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. No
fractional shares or other securities shall be issued pursuant to any such
adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole share.
18
<PAGE>
18.5 No Limitations on Company. The making of Grants pursuant to the Plan
-------------------------
shall not affect or limit in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations, or changes of its capital or
business structure or to merge, consolidate, dissolve, or liquidate, or to sell
or transfer all or any part of its business or assets.
19. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Grant or Award Agreement shall be
construed to confer upon any individual the right to remain in the employ or
service of the Company or any affiliate, or to interfere in any way with any
contractual or other right or authority of the Company or any Service Provider
either to increase or decrease the compensation or other payments to any
individual at any time, or to terminate any employment or other relationship
between any individual and the Company or a Service Provider. No provision in
the Plan or in any Grant awarded or Award. Agreement entered into pursuant to
the Plan shall be construed to confer upon any individual the right to remain in
the service of the Company as a director (including as an Outside Director), or
shall interfere with or restrict in any way the rights of the Company's
shareholders to remove any director pursuant to the provisions of the Delaware
General Corporation Law, as from time to time amended. In addition,
notwithstanding anything contained in the Plan to the contrary, unless otherwise
stated in the applicable Award Agreement, no Grant awarded under the Plan shall
be affected by any change of duties or position of the Optionee (including a
transfer to or from the Company or a Service Provider), so long as such Grantee
continues to be a director, officer, consultant, employee, or independent
contractor (as the case may be) of the Company or a Service Provider. The
obligation of the Company to pay any benefits pursuant to this Plan shall be
interpreted as a contractual obligation to pay only those amounts described
herein, in the manner and under the conditions prescribed herein. The Plan
shall in no way be interpreted to require the Company to transfer any amounts to
a third party trustee or otherwise hold any amounts in trust or escrow for
payment to any participant or beneficiary under the terms of the Plan. No
Grantee shall have any of the rights of a shareholder with respect to the shares
of Stock subject to an Option except to the extent the certificates for such
shares of Stock shall have been issued upon the exercise of the Option.
20. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
shareholders of the Company for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or particular individuals) as the Board in its discretion determines
desirable, including, without limitation, the granting of stock options
otherwise than under the Plan.
19
<PAGE>
21. WITHHOLDING TAXES
The Company, a Subsidiary or a Service Provider, as the case may be, shall
have the right to deduct from payments of any kind otherwise due to a Grantee
any taxes of any kind required by applicable law to be withheld with respect to
the vesting of or other lapse of restrictions applicable to Restricted Stock or
Restricted Stock Units or upon the issuance of any shares of Stock upon the
exercise of an Option. At the time of such vesting, lapse, or exercise, the
Grantee shall pay to the Company, the Subsidiary or the Service Provider, as the
case may be, any amount that the Company, the Subsidiary or the Service Provider
may reasonably determine to be necessary to satisfy such withholding obligation.
Subject to the prior approval of the Company, the Subsidiary or the Service
Provider, which may be withheld by the Company, the Subsidiary or the Service
Provider, as the case may be, in its sole discretion, the Grantee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company, the
Subsidiary or the Service Provider to withhold shares of Stock otherwise
issuable pursuant to the Grantee or (ii) by delivering to the Company, the
Subsidiary or the Service Provider shares of Stock already owned by the Grantee.
The shares of Stock so delivered or withheld shall have an aggregate Fair Market
Value equal to such withholding obligations. The Fair Market Value of the
shares of Stock used to satisfy such withholding obligation shall be determined
by the Company, the Subsidiary or the Service Provider as of the date that the
amount of tax to be withheld is to be determined. A Grantee who has made an
election pursuant to this Section 21 may satisfy his or her withholding
obligation only with shares of Stock that are not subject to any repurchase,
forfeiture, unfulfilled vesting, or other similar requirements.
22. CAPTIONS
The use of captions in this Plan or any Award Agreement is for the
convenience of reference only and shall not affect the meaning of any provision
of the Plan or such Award Agreement.
23. OTHER PROVISIONS
Each Grant awarded under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Committee,
in its sole discretion.
24. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall include the
plural form, the masculine gender shall include the feminine gender, etc., as
the context requires.
20
<PAGE>
25. SEVERABILITY
If any provision of the Plan or any Award Agreement shall be determined to
be illegal or unenforceable by any court of law in any jurisdiction, the
remaining provisions hereof and thereof shall be severable and enforceable in
accordance with their terms, and all provisions shall remain enforceable in any
other jurisdiction.
26. GOVERNING LAW
The validity and construction of this Plan and the instruments evidencing
the Grants awarded hereunder shall be governed by the laws of the State of
Delaware.
* * *
The Plan was duly adopted and approved by the Board of Directors of the
Company as of the 27th day of November, 1997.
/s/ Jeffrey Peterson
----------------------------------------
Secretary of the Company
The Plan was duly approved by the shareholders of the Company on the
27th day of November, 1997.
/s/ Jeffrey Peterson
----------------------------------------
Secretary of the Company
21
<PAGE>
Exhibit 10.2
GUINNESS BREWING WORLDWIDE LTD.
31st July, 1997
Carey Agri International Poland Sp. z o. o.
ul (Pounds)ubelska 13
03-802 Warszawa
POLAND
Attention: Mr. Bill Carey By post and by facsimile
Fax no. 0048-22-6180238
Dear Sirs,
POLISH DISTRIBUTION ARRANGEMENTS
--------------------------------
Guinness Brewing Worldwide Ltd ("GBW") hereby offers to Carey Agri International
Poland Sp. z o.o. ("Carey Agri") exclusive distribution in Poland on the
following basis:
1. Products
The Guinness products to be imported, distributed and sold by Carey Agri ("the
Products") will be as follows:
(i) draught and bottled GUINNESS ES71 Stout;
(ii) GUINNESS Foreign Extra Stout;
(iii) Canned Draught GUINNESS;
(iv) draught and bottled KILKENNY Irish Beer;
(v) draught CASHEL'S Cider; and
(vii) such other beverages as may be agreed between the parties in writing
from time to time.
2. Term and Termination
2.1 The initial term of this arrangement will be:
(i) in relation to draught product - nine (9) months from 1st July, 1997
until 31st March, 1998; and
(ii) in relation to all packaged products - six (6) months from 1st July,
1997 until 31st December, 1997,
provided that the arrangement will continue thereafter unless and until
terminated by either party upon 60 days written notice (such notice to expire on
or at any time after 31st March, 1998 in the case of draught
<PAGE>
Products, or on or at any time after 31st December, 1997 in the case of packaged
Products.).
2.2 Either party will be entitled to terminate this arrangement with immediate
effect by written notice to the other if that other party commits any breach of
the terms of this arrangement which is not remedied within 30 days after the
receipt of written notice giving particulars of the breach and requiring it to
be remedied.
3. Terms of Sale
3.1 The Products will be supplied by GBW to Carey Agri on the Guinness Terms &
Conditions of Sale for the time being in force ("the Guinness Terms"). A copy
of the current Guinness Terms is attached to this letter as Annexure "A". Any
changes to the Guinness Terms will be communicated to Carey Agri from time to
time.
3.2 The Guinness Terms will apply to the exclusion of all other terms and
conditions of sale whether implied by law or otherwise.
4. Carey Agri's Obligations
At all times during the term of this arrangement Carey Agri will:
(i) use its best endeavours to develop the market for and promote
the sales of the Products in Poland;
(ii) not manufacture or distribute any stout, ale or cider which in the
reasonable opinion of Guinness competes with the Products in Poland;
(iii) refrain from any marketing or distribution activities outside Poland
in relation to the Products;
(iv) maintain sufficient stocks of the Products to meet demand in Poland;
(v) only import and distribute the Products or allow them to be
distributed in good and unadulterated condition; and
(vi) provide GBW with a monthly written report in a form acceptable to
GBW within 10 working days after each month end.
2
<PAGE>
5. GBW's Obligations
At all times during the term of this arrangement GBW will:
(i) refrain from selling or supplying the Products to any customer or
person in Poland other than Carey Agri, unless Carey Agri cannot
satisfy demand for the Products from customers in Poland (provided
that GBW will retain the right to supply the Products direct to any
GBW affiliate in Poland which owns and operates retail premises); and
(ii) be solely responsible for the formulae and specifications according
to which the Products are brewed.
6. Proper Law
This arrangement will be governed by the laws of England and the parties agree
to submit to the non-exclusive jurisdiction of the English Courts.
***
If you wish to accept this offer, would you kindly sign and return the attached
acknowledgment copy of this letter.
Yours faithfully,
GUINNESS BREWING WORLDWIDE LIMITED
[illegible signature]
- ---------------------------------
(Authorised signatory)
3
<PAGE>
ON CONFIRMATION COPY ONLY:
Acknowledged and agreed for and on behalf of
CAREY AGRI INTERNATIONAL POLAND Sp. z o. o.
by:
[illegible signature]
-----------------------------
(Authorised signatory)
Name:
-------------------
Date:
-------------------
4
<PAGE>
Exhibit 10.3
Contract for Sale of beer or other Products No.: PL 002160096/96/0002
concluded between:
1) CAREY AGRI - International Poland, ul. Lubelska 13, 03-802 Warszawa, Poland
(hereinafter referred to as the "Buyer")
and 2) PLZENSKY PRAZDROJ, a.s. (PILSNER URQUELL a.s.), U Prazdroje 7, 304 97
Plzeu Czech Republic (hyereinafter referred to as the "Seller")
Preamble
- --------
Whereas, the Buyer is engaged in the import, distribution, sale and marketing of
beverages in the Territory as hereinafter defined,
Whereas, the Seller wishes to increase volumes and quality of sales of Products
in the Territory as hereinafter defined,
Whereas, the Buyer is able and wishes to extend the sales, look for and find new
gaps in the Territory's market for Products with his import and distribution
services and contracts,
Whereas, both parties are prepared and willing to use their best commercial
endeavours to fulfill the aforementioned targets,
the two parties have agreed as follows:
Purpose of the Contract
- -----------------------
This contract is concluded with the aim to settle the conditions under which the
individual contracts of sale and purchase shall be concluded between the parties
within the duration hereof and under which the further commercial cooperation
between the parties or the parties' activities concerning the Products shall
occur.
1. Definitions and Interpretations
- -----------------------------------
"The Products" means Pilsner Urquell beer.
"The Territory" means all existing trade sectors of POLAND. For the avoidance
of doubt the Territory does not include any overseas territories
<PAGE>
and/or duty free market which shall be subject to an individual agreement of the
parties;
"The Trade Marks" means those marks, trade marks, trade names, appellations of
origin, designs or other means of identification used in connection with the
production, advertising promotion, sale and distribution of the Products;
"Contractual Year" means the period between Commencement Date and 31.12.1997;
"Writing" includes cable, telex, facsimile transmission or comparable means of
communication;
<TABLE>
<CAPTION>
2. The Products and their prices
- ---------------------------------
<S> <C> <C> <C> <C>
Pilsner Urquell 12% pale Carton 20 Euro- bottles 0,50L USD 6,8_
Pilsner Urquell 12% pale Carton 20 ALE- bottles 0,50L USD 7,00
Pilsner Urquell 12% pale Carton 24 bottles 0,33L USD 6,5_
Pilsner Urquell 12% pale Carton 24 bottles 0,33L, 6 Pack USD 7,88
Pilsner Urquell 12% pale Carton 24 bottles 0,33L, 4 Pack USD 7,88
Pilsner Urquell 12% pale Carton 12 bottles 0,66L USD 5,67
Pilsner Urquell 12% pale Carton 24 cans 0,33L USD 6,41
Pilsner Urquell 12% pale Carton 24 cans 0,50L USD 8,90
Pilsner Urquell 12% pale KEG casks 100L USD 36,00
Pallet (Size Euro) USD 10,00
</TABLE>
The prices are valid since 1st April 1997.
The prices are constructed upon EX WORKS Plzen (Incoterms 1990) basis. The
prices can be altered by the Seller in accordance with economic changes, price
changes in the beer market or changes in the sphere of raw materials, energy
etc. Such alteration comes into force 15 days after the date of Buyer's coming
into attention of such notice of price alteration.
The price of the transport with 22 tons truck: Plzen - Pruzkow 1.000, - USD
-"- izo truck: Plzen - Pruzkow 1.300, - USD
3. Quantity
- ------------
The Buyer undertakes to buy the following minimum quantity of the contractual
goods in the first contractual year: 10.000 hl.
-2-
<PAGE>
The minimum quantity for the following contractual years shall be subject to
negotiations at least 2 months prior to the last day of any calendar year.
In case no agreement is reached the minimum quantity shall be increased for each
subsequent Contractual Year by 5% of the minimum quantity valid in the previous
Contractual Year.
4. Quality
- -----------
The guarantee period: - bottled
and canned 12% beer Products ------ 6 months
- bottled and canned 10% beer Products ------ 3 months
- draft beer 12%----------------------------- 3 months
from the date of production under condition and only in that case, that the
Products will be stored by the Buyer and its customers in a regular way. The
Products must be stored at a dark place protected against sunlight. The
Products must not be exposed to bigger changes of temperature. Storage
temperature is within the interval between +4 to +20 Celsius grade.
5. Returnable package
- ----------------------
1. The Buyer grants the Seller returning of empty package (i.e. KEG casks) as
soon as possible in the same state, quality and quantity not later than 4 months
from the time of delivery.
2. The Buyer and the Seller will keep the balance of the package and will
balance the quantity of the package at the Buyer's side twice a year, i.e. 28th
February and 15th September. When finding the balance of the package not
balanced from the Buyer's side, the Seller is entitled to require returning the
package within 30 days. In case the Buyer does not meet this time limit, the
Buyer is obliged to pay the value of the package within next 15 days.
6. Terms of payment
- --------------------
The payment for the deliveries shall be performed by the Buyer according to the
invoice issued by the Seller 60 days after the date of issue to the bank of the
Seller: Ceskoslovenska obehodni banka, pobocka (branch) Plzen, account no. 042
41 0301 0300.
The moment of the payment means the date of bank transfer.
-3-
<PAGE>
7. Other Buyer's obligations
- -----------------------------
Buyer shall during the continuance of this Contract:
a) notify the Seller, forthwith upon coming to its attention in relation to the
Products:
. of any fact, matter or event that involves potential liability of the Seller
to any third Territory
. of any complaint arising in the Territory whether or not such complaint
could give rise to a liability of the Seller
. of any infringement, threatened infringement or other improper or wrongful
use in the Territory of any Seller's trade marks, trade names, copyright or
other intellectual property and/or any of their parts and shall use its best
endeavour to protect and guard the Seller's rights;
b) provide the Seller with a report of the state of the market for the Products
in the Territory every six months.
8. Purchase orders
- -------------------
Purchase orders shall be sent in writing and served to the Seller not later than
on Tuesday every week so that the Products could be dispatched in the following
week.
Any order for the delivery of the Products shall be performed in accordance with
this Contract and is a separate contract of sale and purchase after the order is
confirmed or the Products are dispatched by the Seller.
9. Trade marks
- ---------------
. Buyer shall distribute the Products in the Territory only under the Trade
Marks, in packaging and under the name and description previously approved
by Pilsner Urquell a.s. in written and under no other trade marks, names
and descriptions. Buyer shall not alter or allow the Trade Marks to be
altered and acknowledges Pilsner Urquell a.s. the proprietor of the Trade
Marks in the Territory.
. Buyer shall perform at its own cost after appropriate consultation with the
Seller an efficient marketing and advertising support for the Products with
the aim to increase demand for the Products in the Territory. Buyer shall
promote and/or advertise the Products exclusively in the form and manner
previously agreed by the Seller in
-4-
<PAGE>
writing. (This includes also visit cards, inscriptions on the cards etc.
which contain the Seller's Trade Marks.)
10. Time of delivery
- ---------------------
The delivery time (the date of the dispatch from the Seller's brewery) is in the
period within 7 days after the date of receiving the payment of the contract
price for the Products. The Products will be delivered upon EX WORKS Plzen
(Incoterms 1990).
The Seller shall assert the respective delivery basis on the proforma-invoice.
11. Territory
- --------------
The deliveries of the Products are allowed and destined for the consumption only
in the Territory. Re-export in prohibited, unless the legislation states
otherwise. The Buyer shall secure that his customers shall not re-sell the
Products outside the Territory. In case re-export is performed the Buyer shall
pay to the Seller the penalty in the amount of USD 10.000, - for each case of
any re-export delivery.
12. Confidentiality
- --------------------
At no time the parties shall communicate to any third party any confidential
trade or company matters which without prejudice to the foreign generality shall
include inter-alia, know-how, processes, ingredients, equipment and prices, and
other information coming to their attention in consequence of their having
entered into this Contract. This obligation shall continue after the
termination of this Contract without limit in point of time.
13. Waiver
- -----------
Neither party may assign its rights or obligations under this Contract except on
the basis of the other's prior written consent.
15. Prior agreements
- ---------------------
This Contract represents the entire agreement between the parties and supersedes
any prior agreements or understandings relating to the same subject, whether
written or oral.
16. Severance
- --------------
Should any provision of this Contract be discovered or declared by both parties
or by any competent authority to be legally void or unenforceable,
-5-
<PAGE>
then that provision shall be severed from all other provisions of this Contract,
which other provisions shall continue in force unaffected. Such severed
provision shall be replaced by the legal provision closest by its contents to
the purpose that the parties wanted to reach, or the parties shall conduct
negotiations in good faith with a view to reaching a new legal, valid and
enforceable provision containing the closest understanding to that severed
provision.
17. Duration
- -------------
This Contract is valid from the date of subscription and its validity will
expire on 31.12.1997. Before the date of expiry of this Contract either party
may terminate the Contract forthwith by written notice in the event that:
. the other party commits substantial (material) breach of any of its
obligations hereunder and/or fails to remedy such breach within 30 days of
written notice specifying the breach and requiring it to be remedied if the
breach or fault is capable of remedy (for the avoidance of doubt breach of
any of the obligations herein are considered as substantial/material
breach), or
. the other suffers any receivership, bankruptcy or liquidation of itself or
any of its assets or subsidiaries or enters into composition or arrangement
with its creditors or ceases to carry on its business, or
. the other party is at the rate of more than 50% acquired by or merges with
another firm or company or group and the party at its reasonable discretion
considers the acquisition of such equity interests. Any notice given
hereunder must be given within 6 months of the respective party's coming
into attention of such fact.
18. Amendments
- ---------------
All modifications of and amendments to the Contract must be performed in the
written form and accepted and undersigned by both parties, otherwise they are
void.
19. Choice of Law and Arbitration
- ----------------------------------
This Contract and any contract for sale and purchase made hereunder shall be
governed by and construed in accordance with the laws of Czech Republic. Any
dispute arising out of or in connection with this Contract, which cannot be
settled by conciliation, shall be referred to and finally resolved by the Court
of Arbitration attached to The Economic Chamber
-6-
<PAGE>
of Czech Republic and The Agricultural Chamber of Czech Republic in Prague.
13.12.96
- ------------------------------ ------------------------------------
Place and Date Place and Date
Carey Agri International-Poland Pilsner Urquell, a.s.
Sp. Z.O.O. Marketing and Export Department
03-802 Warszawa, ul. Lubelska 13
tel 6185025, 6180577,
6186017 fax 6180238
/s/ William Carey
Dyrektor Zarzadu
CAREY POLAND Sp. Z.O.O. [illegible signature]
- ------------------------------ ------------------------------------
In the name and on behalf In the name and on behalf
of of
the Buyer the Seller
-7-
<PAGE>
Exhibit 10.4
AGREEMENT
This Agreement, hereinafter referred to as the "Agreement", is entered into on
January 1, 1995, in Warsaw by and between:
United Distillers Finlandia Group Sp. z o.o., with its seat in Warsaw,
represented by Maxwell Johnston, General Director, Central Europe, hereinafter
referred to as the "Firm";
and,
Carey Agri-International, with its seat in Warsaw, represented by Bill Carey,
hereinafter referred to as the "Wholesaler."
WHEREAS, the Firm sells the Products also in the Territory, as set forth in
Section 1 of this Agreement; and,
WHEREAS, the Firm seeks to increase its volume of sale in Poland in a controlled
and secured way; and,
WHEREAS, the Wholesaler has a well-developed commercial network and also
considerable experience in the liquor trade,
SO, the parties to this Agreement have decided the following:
Agreed Terminology
(S) 1
1. Throughout the Agreement, the following terms shall have the following
meaning:
1.1. "Products" shall mean the products placed on the Price List which are
available (F.C.A.) in the Firm's Warehouse in Warsaw for sale by the Firm
to the Wholesaler at prices inclusive of customs and importation fees;
1.2. "Territory" shall mean the territory of the Republic of Poland
serviced by the Wholesaler's commercial network; and,
1.3 "Parties" shall mean either the Firm, the Wholesaler or both, as the
context requires.
<PAGE>
Object of the Agreement
(S) 2
1. With effect from January 1, 1995 the Firm appoints the Wholesaler as an
"Authorized Wholesaler of UNITED DISTILLERS' Products" hereinafter referred to
as "An Authorized Wholesaler" for the Products in the Territory. The Wholesaler
can use this term or its abbreviations in its commercial and promotional
activities solely while it possesses this status and for Products sold within
the Territory.
2. The Wholesaler will be An Authorized Wholesaler for a period of unlimited
period.
3. The Firm can also grant the status of "An Authorized Wholesaler of United
Distillers' Products" to other economic entities which sell the Products within
the Territory.
An Authorized Wholesaler
(S) 3
During the period of being An Authorized Wholesaler, the Wholesaler agrees to
the following:
1. Not to purchase products which are the same as the Products but sold by
third persons competing with the Firm;
2. To make all efforts and take all necessary organizational and legal actions
for promotional purposes to increase the sale of the Products within the
Territory;
3. To comply with the Firm's belief that it is essential to develop joint
annual Marketing plans in co-operation with each Authorized Wholesaler in order
to properly promote the Firm's Products. Accordingly:
a. The Wholesaler shall agree a joint Sales Plan with the Firm within no
more than six weeks after the Execution Date; and,
b. If agreement on a joint Sales Plan cannot be reached, the Firm shall
have the right, at its sole discretion, to terminate the Agreement.
4. To maintain sufficient stocks of the Products to satisfy the Wholesaler's
clients' current and anticipated demand for the Products;
5. To drain and deliver to the Firm reports ("Wholesaler Depletion Report")
including information on the sale of the Products:
2
<PAGE>
a. These reports will be drafted according to a sample provided by the
Firm; and,
b. These reports will be delivered within the period of time prescribed
by the Firm, but which will not exceed one month;
6. To deliver to the Firm for its review and approval at least two copies of
all advertising materials about the Products prior to their distribution;
7 To deliver written estimates on the anticipated and planned sales volume of
the respective Products within the Territory, during the period of four
consecutive quarters, at least three months before the commencement of each
calendar quarter (each such estimate containing an update of the estimates
previously made);
8. Not to use sales methods for or promotion and advertising of the Products
which might harm the Firm's good name or the trademarks of the respective
Products.
Firm's Intellectual Property Protection
(S) 4
1. None of tile provisions of this Agreement can be understood to mean or
construed as the basis for transferring to the Wholesaler any trademark rights,
product names, advertising slogans or copyrights related to the Products and
belonging to the Firm.
2. The Wholesaler shall also be liable in relation to the Firm for any third
party's violation of the Firm's rights mentioned in Point 1 and other rights to
the protection of its intellectual property during and in connection
specifically with the promotion and sale of the Products by the Wholesaler.
Liabilities and Remedies
(S) 5
I. If the Wholesaler fails to observe or to perform the provisions of this
Agreement, the Firm shall have the right to:
1. Deliver a written notice to the Wholesaler requiring it to stop its breaching
activities and remedy its failure, including stopping the Wholesaler making
public statements with specified contents and in a specified manner, and/or
set a term for the Wholesaler for taking these actions;
3
<PAGE>
2. If the Wholesaler fails to provide injunctive relief or to remedy its failure
within the term specified by the Firm, the Firm shall have the right to
terminate the Agreement immediately and to withdraw the status of an
"Authorized Wholesaler" from the Wholesaler;
3. If a violation of this Agreement causes damage to the Firm or to a third
Party and/or violation of the Firm's or a third person's personal rights, the
Firm may also require the Wholesaler to remedy such violation, compensate
sustained losses and make an appropriate statement; and,
Miscellaneous
(S) 6
1. This Agreement is entered into for unlimited period with 90 days notice.
2. Each Party has the right to terminate this Agreement with 90 days notice by
written notice sent to the other Party via registered mail letter, confirmed by
a subsequent letter sent by fax on the same day as the date of the registered
mail letter.
3. If this Agreement is terminated or any Party withdraws from it, the
Wholesaler shall immediately cease using the phrase "Carey Agri-Intentional is
an Authorized Wholesaler of United Distiller's Products" and similar phrases.
The Wholesaler shall also, at its own cost, withdraw from public circulation all
materials, announcements, advertising or information programs, including
information and slogans or graphic signs whose contents could suggest that the
Wholesaler is "An Authorized Wholesaler."
4. The Firm reserves the right to change the prices for Products during the
period of this Agreement with 14 days unless the change is caused as a result of
circumstances outside of the Firm's control.
5. Both Parties declare that they have all necessary licenses for trading of
spirit beverages. The Wholesaler agrees to provide the Firm with a valid copy
of their wholesalers' spirit license.
Trading Terms
(S) 7
1. The Wholesaler agrees to make payments to the Firm within 30 days from the
invoice date, i.e. from the collection date of the Products from the Firm's
warehouse. The payments will be done on the Firm's bank account.
4
<PAGE>
2. Late payments may result charging the Wholesaler with penalty interest rate
by the Firm according to the official interest rates.
3. The Wholesaler is authorized to 10% discount on net selling prices placed
in Price List for imported products.
4. The Wholesaler agrees to provide the Firm with the following documents
every six months:
a. confirmation from the Tax Office regarding tax payment status
b. bank opinion including credit information, if any.
Arbitration and Choice of Law
(S) 8
1. Any disputes arising out of the execution of this Agreement which cannot be
resolved amicably by the Parties shall be resolved through arbitration. The
place of the arbitration shall be in Warsaw, Poland, at the Arbitration Court of
the National Chamber of Commerce. The procedures of the Arbitration Court shall
apply and the language of the proceedings shall be Polish. The decision of the
Arbitration Court shall be final and binding for the Parties.
2. In matters not regulated by this Agreement, the provisions of the Polish
Civil Code and the provisions of the Polish Commercial Law shall apply.
3. This Agreement has been made in Polish, in two identical copies, one for
each Party, and has been duly read and duly executed by the Parties' authorized
representatives.
For: United Distillers Group Sp. z o.o. For: Carey Agri-International:
By: /s/ William Carey
Dyrektor Zarzadu
By: /s/ Maxwell Johnston CAREY POLAND Sp. Z.O.O.
------------------------------ ------------------------------
Name: Maxwell Johnston Name: Bill Carey
Title: General Director, Central Europe Title: CAREY AGRI INTERNATIONAL-POLAND
Sp. z.o.o.
Warszawa, Al. Solidarnosci 117
tel. 620 52 25, 24 62 09
620 57 45, fax 620 58 53
5
<PAGE>
Certified translation from the Polish language
================================================================================
Exhibit 10.5
The document consists of four pages.
AGREEMENT
concluded on September 16th, 1996, by and between Przedsiebiorstwo Przemyslu
Spirytusowego "POLMOS" in Bialystok, ul. Elewatorska 20, hereinafter called
"the Seller", represented by:
1. Deputy Manager of the Enterprise - Jan Malachowski
2. Deputy Commercial Manager - Henryk Wnorowski
and
"CAREY AGRI INTERNATIONAL POLAND" Ltd.
03-802 Warsaw
ul. Lubelska 13
hereinafter called "the Purchaser", represented by:
1. Willian Vernon Carey.
2. (no name written)
3. (no name written)
(S) 1
The subject of the Agreement includes sales of spirit products by the Seller to
the Purchaser, as well as a resale of returnable packagings by the Purchaser to
the Seller.
<PAGE>
Certified translation from the Polish language
================================================================================
(S) 2
The presentation of the following documents by the Purchaser is a condition for
initiating the co-operation:
. a set of documents required by the Seller, specified in details in the
Enclosure to the Agreement;
. a proper security for liabilities for the benefit of the Seller for the
obtained spirit goods.
(S) 3
Detailed orders for spirit goods shall be submitted by the Purchaser by
telephone or in writing to the Marketing and Sales Department of the Seller.
(S) 4
1. The Seller shall undertake the obligation to supply to the Purchaser spirit
goods at his own cost and in quantities and assortment agreed upon with the
Purchaser.
2. The Purchaser shall be obliged to ensure a return load for the truck -
returnable packagings (bottles with transporters).
3. The value of returned packagings shall be included into the oldest overdue
invoices.
(S) 5
2
<PAGE>
Certified translation from the Polish language
================================================================================
1. Returnable packagings shall be collected by the truck supplying spirit goods
on its way back. The cost of the transportation of the return trip with
packagings shall be covered by the Seller.
2. The following bottles and plastic boxes only after spirit goods shall be
subject to returns:
. "sztarser" bottles 0.5 1, 0.25 1, 0.75 1;
. "Polonez" bottles 0.5 1;
. "Katowki" bottles 0.5 1;
. plastic boxes for monopoly bottles 0.5 and 0.25 1;
. plastic boxes for monopoly bottles a' 0.751, "for water" with the
inscription: "POLISH SPAS".
3. The bottles should be supplied in plastic boxes adjusted to their sizes and
segregated according to their types. There cannot be put bottles of various
sizes in one box. Supplies not meeting these requirements shall not be
accepted.
4. Resold packagings should meet the following quality requirements:
. the bottles should be clean, whole, without dents, foreign scents, remnants
of taps, rings,
. they cannot be bottles filled previously with oil and chemical products;
. plastic boxes should be clean, without dents, and cracks.
5. A quality receipt of the bottles and boxes shall take place in the warehouse
of the Seller. Bottles and boxes not meeting requirements
3
<PAGE>
Certified translation from the Polish language
================================================================================
according to items 2, 3, 4 shall be deposited in the Seller's warehouse,
which the Purchaser shall be informed about. The deposit shall be collected
within 1 month. Otherwise it shall be liquidated, without any payment for the
bottles, and glass breakage.
6. Prices of returnable packagings shall be determined by the Seller. The
Seller shall inform the Purchaser about every change in the prices in
separate letters.
(S) 6
Spirit goods shall be invoiced according to the producer's prices.
(S) 7
The date of realising the Agreement shall be considered to be the date of
transferring spirit goods to the carrier or to an authorised representative of
the Purchaser in the case of a collection by the Purchaser's own transportation
means.
(S) 8
1. The transfer of goods to the Purchaser shall take place against a VAT
invoice.
2. In the case of noticing any discrepancies between the supplied goods and the
contents of the invoice during the deloading, the Purchaser shall make a
protocol at the presence of the carrier and shall send it by registered mail to
the Seller.
4
<PAGE>
Certified translation from the Polish language
================================================================================
3. In the case of a glass breakage noticed during the deloading, the carrier
shall make a protocol on damages at the presence of the Purchaser. The
settlement of the transportation loss shall take place between the Purchaser and
the carrier.
Thus the Purchaser shall be obliged to complete necessary documents, i.e. the
original copy of the damage protocol, the waybill, and bill/note issued for the
carrier and specifying the calculated damage, as well as to send them
immediately to the address of the carrier mentioned in the damage protocol.
(S) 9
The Seller shall be obliged to accept returns of faulty goods noticed during
their transfer to the Purchaser. The returns shall refer only to originally
closed products with damaged excise bands, or without them, as well as products
with undamaged excise bands, but possessing the following defects:
1. products with damaged label bands, or without them;
2. products with impurities or with a changed colour of the liquid;
3. bottles with factory damaged taps;
4. bottles with leaks of the liquid along seams (joints of two opposite halves
of the bottles);
5. empty bottles and not completely filled ones, originally closed with
untouched excise bands.
5
<PAGE>
Certified translation from the Polish language
================================================================================
Returns of faulty goods shall take place during the return transportation or
during the subsequent supply on the basis of an outcome protocol of the
Purchaser. The protocol should specify the number of the VAT invoice on the
basis of which the products were supplied, the name, content, and quality of
faulty products, as well as their fault.
(S) 10
1. The payment of the due sum for spirit goods should take place within the
deadline indicated in the VAT invoice into the account of PPS "POLMOS" in
Bialystok in:
. Bank Inicjatyw Gospodarczych S.A., Division in Bialystok, ul. Szosa
Polnocno-Obwodowa 5; No. of the account: 420404-01889001-2511-1;
or in:
. Polski Bank Inwestycyjny S.A., Division in Bialystok, ul. Warszawska 14,
No. of the account: 708010-148018-2511 from the Purchaser's account in:
. Bank Rozwoju Exportu S.A., Division in Warsaw, No. of the account 40002-
282953-2511-1.
2. Payments due to realised purchases of spirit goods shall be "automatically
added" to the oldest overdue invoices, unless they are realised by means of
remittance documents printed by the Seller.
6
<PAGE>
Certified translation from the Polish language
================================================================================
3. The fact of not paying or a late paying of the due sums by the Purchaser
shall empower the Seller to suspend further supplies of spirit goods without
bearing the responsibility for not realising the Agreement.
4. An unpuctual payment of invoices by the Purchaser shall
5. result in his burden with statutory interests calculated by the Seller.
(S) 11
1. The Purchaser shall be obliged to inform the Seller about decisions and
facts that have an influence upon his financial situation and to make available
an access to documents, reports, and information rendering the economic and
financial situation to a Seller's employee.
2. The Purchaser shall undertake the obligation to immediately inform the
Seller about every change in the surname, address, name, and head office of the
company, as well as about all changes in his legal status.
(S) 12
In all cases not regulated by the present Agreement there shall be applied
provisions of the Civil Code.
(S) 13
1. The present Agreement has been concluded for an unlimited period of time
with a one-month-long notice period for every party.
2. The present Agreement shall be immediately terminated in the case documents
empowering the Purchaser to realise purchases of spirit goods
7
<PAGE>
Certified translation from the Polish language
================================================================================
become invalid, as well as in the case when the Seller is informed about an
insolvency of the Purchaser.
(S) 14
Disputes resulting from the present Agreement shall be solved by the Economic
Court in Bialystok.
(S) 15
The present Agreement has been made in two equal copies, one copy for every
party. The present Agreement shall be valid since September 16th, 1996.
Seller:
Partially illegible rectangular seal: "... of the Commercial Manager. Henryk
Wnorowski" (-) illegible signature
Rectangular seal: "Director. Jan Malachowski" (-) illegible signature
Rectangular seal: "Polmos. Przedsiebiorstowo Przemyslu Spirytusowego in
Bialystok. 15-950 Bialystok, ul. (illegible name of the street and number of
the building".
Purchaser:
Rectangular seal: "William Carey. President of the Board of Directors Carey I.
Poland Sp. z o.o." (-) illegible signature
Rectangular seal: "Carey Agri International-Poland Sp. z o.o. 03-802 Warszawa,
ul. Lubelska 13, tel. 618-50-25, 618-05-77, 618-60-17, fax 618-02-38.
8
<PAGE>
Certified translation from the Polish language
================================================================================
REPERTORY NO. 125/97
I, Monika Ewa Rybak-Ruiz M.A., the undersigned Court-commissioned Sworn
Translator and Interpreter in Warsaw, do hereby certify the conformity of this
present translation with the original of the document written in Polish.
Collected: net fee: PLN 125.20
VAT (22%): PLN 27.54
Gross sum: PLN 152.74
Warsaw, September 19th, 1997
Monika Rybak Ruiz
TLUMACZ PRZYSIEGLY
jezyka angielskiego
ul. Filmowa 56a, 04-929 Warszawa
tel./fax 12-49-37
tel. kom. 0-90-22-00-17
9
<PAGE>
Certified translation from the Polish language
================================================================================
Exhibit 10.6
The document consists of four pages.
DISTRIBUTION AGREEMENT
hereinafter called "The Agreement", concluded in Warsaw on July 3rd, 1997, by
and between:
1. IDV Poland Sp. z o.o., based in Warsaw at 16, Woloska Street, represented
by Marek Rozycki, General Manager, hereinafter called "the Company",
and
"CAREY AGRI INTERNATIONAL POLAND" Ltd.
based in Warsaw, 13, Lubelska Steet, represented by William V. Carey,
hereinafter called "the Distributor".
IDV Poland, a company functioning in the Polish market since 1993, owner of
world-class alcohol beverages, as well as a Distributor of alcohol beverages,
shall undertake a co-operation aimed at strengthening the position of IDV
products in the Polish market, with mutual benefits for both Parties. For the
purpose of realise the said Agreement, the Parties decided the following:
I. Agreed terms
1. PRODUCTS - they are products placed in the price-list of the Company,
available from the Company's warehouse in Warsaw, and sold by the Company to the
Distributor at prices containing customs fees and other
<PAGE>
Certified translation from the Polish language
================================================================================
importation fees. The price-list containing prices valid on the day of the
supply of the goods shall be valid.
2. THE PARTIES - they are the Company and the Distributor, or one of these
subjects.
3. THE TERRITORY - it is the territory of the Republic of Poland serviced by a
commercial network of the Distributor.
II. Subject of the Agreement
1. The Company grants the right to use the name of Authorised Distributor of
Products of IDV Poland as of July 3rd, 1997.
2. The status of the Authorised Distributor shall be valid only during the
validity of the present Agreement.
3. IDV Company may also grant the status of the Authorised Distributor to other
subjects selling Products within the Territory. The Distributor shall not be
entitled to any claims towards the Company in such a case.
4. There shall not be determined a close regionalisation of the territory for
activities of the Distributor.
III. Liabilities of the Distributor
During the validity of the Agreement, the Distributor shall be obliged to:
1. purchase the Products only in the Company's warehouse;
2
<PAGE>
Certified translation from the Polish language
================================================================================
2. making all necessary steps aimed at increasing sales of Products within the
Territory covered by the Distributor according to the distribution system of
Products by the Company;
3. conductance of joint promotional and marketing activities, at a close
co-operation with the Company and according to the marketing policy of the
Company. All activities of this type have to be previously accepted by the
Company;
4. maintaining the stock of Products within a level allowing us to satisfy the
current and predicted level of sales;
5. supplying current reports on sales of the Products, warehouse stock, and
predicted purchases at every request of the Company;
6. not undertaking any activities that could threaten the good image of the
Company and its brands.
IV. Protection of the Intellectual Properties of the Company
1. No provision of the present Agreement can be a basis to transfer to the
Distributor any rights for trademarks, names of products, advertisement slogans,
or copyright connected with the Products, which are covered by an exclusive
right of the Company.
2. The Distributor shall be obliged to keep secret information and documents
obtained in any way from the Company. A usage, disclosure, or transfer of
information and/or documents constituting the Company secrets, shall constitute
a basis of an immediate
3
<PAGE>
Certified translation from the Polish language
================================================================================
termination of the co-operation and a presentation of respective claims aimed at
a satisfaction for the occurred losses.
4
<PAGE>
Certified translation from the Polish language
================================================================================
V. General provisions
1. The present Agreement shall be concluded for the period of time till
December 31, 1997. The Agreement can be prolonged for subsequent periods at
a consent of both Parties.
2. The parties shall be entitled to a withdrawal from the Agreement at any
time against a written notification of the other Party by means of a
registered letter, whose sending shall be confirmed by fax sent on the same
day in which the registered letter is sent. There shall be agreed a one-
month-long notice period. The Distributor shall lose all his rights of an
Authorized Distributor of IDVP in the moment of terminating the Agreement.
VI. Procedures
1. In the moment of signing the Agreement, the Distributor shall be obliged to
present the following documents to the Company;
- - permission to conduct economic activities;
- - permission of the Ministry of Industry and Trade to conduct whole-sales of
spirit articles;
- - certificate of the Fiscal Office about not possessing any overdue fiscal
liabilities;
- - a decision on granting the NIP number and a statement on the VAT status;
- - current opinion of the mother bank.
5
<PAGE>
Certified translation from the Polish language
================================================================================
2. The Distributor shall be obliged to effect due payments for the Company
within 28 days after the respective invoice is issued, into the bank account of
the Company.
3. The fact of not realising the payment or a delay in its realisation shall
authorised the Company to burden the Distributor delay interests according to
statutory interest rates valid in Poland.
4. The Company shall receive an in blanco bill of exchange from the Distributor
with a bill of exchange declaration as a form of a security in the case the
Distributor does not fulfil his payment liabilities.
5. The Company shall specify the minimal value of the order.
6. The ownership title for the Products shall be transferred into the
Distributor in the moment of a written confirmation of a receipt of the goods by
the Distributor. He shall be responsible for possible damages or faults in
Products since that moment.
VI. Applicable law and Arbitration
1. The present Agreement is an agreement valid for both Parties and it
overrides all previous agreements reached between the Parties.
2. All disputes resulting from its application, which cannot be solved in an
amicable way by the Parties, shall be solved by means of an arbitration. The
Arbitration Court in Warsaw at the National Chamber of Commerce shall be
competent in the field of the said arbitration. Judgements of the Arbitration
Court shall be treated as final and binding for the Parties.
6
<PAGE>
Certified translation from the Polish language
================================================================================
3. In cases not regulated by the present Agreement there shall be applied
provisions of the Civil Code and the Polish Economic Law.
4. The present Agreement has been made in two equal copies, one copy for every
party and legally signed by authorised representatives of both Parties.
IDV Poland Sp. z o.o.
A rectangular seal: "IDV Poland Sp. z o.o. Marek Rozycki General Manager" (-)
illegible signature
A rectangular seal: "IDV Poland Sp. z o.o. ul, Woloska 16, 02-675 Warsaw, tel.
640-92-00, fax. 640-92-01"
Distributor:
A rectangular seal: "William Carey. President of the Board of Directors Carey
Poland Sp. z o.o." (-) illegible signature
A rectangular seal: "Carey Agri International-Poland Sp. z o.o. 03-802 Warszawa,
ul. Lubelska 13, tel. 618-50-25, 618-05-77, 618-60-17, fax 618-02-38.
<PAGE>
Certified translation from the Polish language
================================================================================
REPERTORY NO. 126/97
I, Monika Ewa Rybak-Ruiz M.A., the undersigned Court-commissioned Sworn
Translator and Interpreter in Warsaw, do hereby certify the conformity of this
present translation with the original of the document written in Polish.
Collected: net fee: PLN 93.90
VAT (22%): PLN 20.66
Gross sum: PLN 114.56
Warsaw, September 19th, 1997
Monika Rybak Ruiz
TLUMACZ PRZYSIEGLY
jezyka angielskiego
ul. Filmowa 56a, 04-929 Warszawa
tel./fax 12-49-37
tel. kom. 0-90-22-00-17
8
<PAGE>
Exhibit 10.8
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of this ___
day of _________, 1997, by and between Central European Distribution
Corporation, Inc., a Delaware corporation (the "Company"), and William V. Carey
(the "Executive").
WHEREAS, the Company desires to employ the Executive, and the
Executive desires to be employed by the Company, on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, the parties hereto
agree as follows:
1. Employment. On the terms and conditions set forth in this
----------
Agreement, the Company agrees to employ the Executive and the Executive agrees
to be employed by the Company for the term set forth in Section 2 hereof and in
the position and with the duties set forth in Section 3 hereof.
2. Term. The employment of the Executive by the Company as provided
----
in Section 1 hereof shall commence on the date of the first closing of the
initial public offering of common stock, par value $.01 per share (the "Common
Stock"), of the Company and end three (3 ) years thereafter (the "Expiration
Date").
3. Position and Duties. The Executive shall serve as President and
-------------------
chief executive officer of the Company as well as the president and chief
executive officer of the Company's subsidiary, Carey-Agri International Sp. z
o.o (the "Subsidiary") with such duties and responsibilities as the board of
directors of the Company (the "Board") may from time to time determine and
assign to the Executive. In this later position, Employee will have the titles
of chairman of the management board and managing director of the Subsidiary.
The Executive shall devote the Executive's reasonable best efforts and
substantially full business time to the performance of the Executive's duties
and the advancement of the business and affairs of the Company and the
Subsidiary. Executive acknowledges that it is the intent of the Company that
his primary responsibilities shall be in connection with the business of the
Subsidiary.
4. Place of Performance. In connection with the Executive's
--------------------
employment by the Company, the Executive shall be based at the principal
executive office of the Subsidiary, which the Company retains the right to
change in its discretion, or such other place as the Company and the Executive
mutually agree, except for required travel on Company business.
<PAGE>
5. Compensation.
------------
5(a). Base Salary. The Executive shall be paid an annual
-----------
base salary (the "Base Salary") at the rate of $140,000 per year, $76,000
payable by the Subsidiary (of which amount $38,000 shall be paid for his
services as chairman of the management board and $38,000 as the managing
director of the Subsidiary) and $64,000 by the Company. If the Executive is not
elected chairman of the board of directors of the Company in accordance with the
by-laws of the Company, his Base Salary paid by the Company shall be increased
by $10,000. The Base Salary shall be reviewed no less frequently than annually.
The Base Salary shall be increased no less than $25,000 one year after the
effective date of this Agreement and by another $25,000 two years after the
effective date of this Agreement and may be increased further at the discretion
of the Board. If the Executive's Base Salary is increased, the increased amount
shall be the Base Salary for the remainder of the employment term hereunder,
except that the Company may reduce the Executive's Base Salary at any time as
part of a general salary reduction applied to all employees of the Company with
annual salaries in excess of $60,000 (the "Senior Executive Group") in which
case the Executive's reduced Base Salary shall be the Base Salary for the
remainder of the employment term hereunder. Any such reduction in the
Executive's Base Salary shall be no more than the lesser of the median
percentage salary reduction applied to the Senior Executive Group or 20%. The
Base Salary shall be payable biweekly or in such other installments as shall be
consistent with the Company's payroll procedures.
5(b). Stock Options. As part of the consideration for
-------------
entering into this Agreement and performing services hereunder, the Company
grants to the Executive stock options for 25,000 shares of the Common Stock to
be exercisable at the selling price to the public in the Company's initial
public offering. Such options are granted under the Company's 1997 Stock
Incentive Plan, and shall vest and become exercisable two years from the
effective date of this Agreement. This grant shall be documented in a stock
option agreement to be provided to the Executive by the Company.
5(c). Other Benefits. The Executive shall be entitled to
--------------
receive disability salary continuation and life insurance coverage in accordance
with policies in effect for senior executives of the Company. The Executive
also shall be entitled to participate in such plans and to receive such bonuses,
incentive compensation and fringe benefits as may be granted or established by
the Company from time to time, including the use of an automobile. Nothing
contained in this Agreement shall prevent the Company from changing carriers or
from affecting modifications in insurance coverage for the Executive.
5(d). Vacation; Holidays. The Executive shall be entitled to
------------------
all public holidays observed by the Subsidiary and vacation days in accordance
with
2
<PAGE>
the applicable vacation policies for senior executives of the Company, which
shall be taken at a reasonable time or times.
5(e). Withholding Taxes and Other Deductions. To the extent
--------------------------------------
required by law, the Company and the Subsidiary shall withhold from any payments
due Executive under this Agreement any applicable federal, state or local taxes
and such other deductions as are prescribed by law or Company or Subsidiary
policy.
6. Expenses. The Company and the Subsidiary shall reimburse
--------
the Executive for all reasonable expenses incurred by the Executive (in
accordance with the policies and procedures in effect for senior executives of
the Company and the Subsidiary) in connection with the Executive's services
under this Agreement. The Executive shall account to the Company or the
Subsidiary, as the case may be, for such expenses in accordance with policies
and procedures established by the Company or the Subsidiary.
7. Confidential Information.
------------------------
7(a). The Executive covenants and agrees that the Executive
will not ever, without the prior written consent of the Board or a person
authorized by the Board, publish or disclose to any unaffiliated third party or
use for the Executive's personal benefit or advantage any confidential
information with respect to any of the Company's or Subsidiary's products,
services, subscribers, suppliers, marketing techniques, methods or future plans
disclosed to the Executive as a result of the Executive's employment with the
Company, to the extent such information has heretofore remained confidential
(except for unauthorized disclosures) and except as otherwise ordered by a court
of competent jurisdiction.
7(b). The Executive acknowledges that the restrictions
contained in Section 7(a) hereof are reasonable and necessary, in view of the
nature of the Company's business, in order to protect the legitimate interests
of the Company, and that any violation thereof would result in irreparable
injury to the Company. Therefore, the Executive agrees that in the event of a
breach or threatened breach by the Executive of the provisions of Section 7(a)
hereof, the Company shall be entitled to obtain from any court of competent
jurisdiction, preliminary or permanent injunctive relief restraining the
Executive from disclosing or using any such confidential information. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including,
without limitation, recovery of damages from the Executive.
7(c). The Executive shall deliver promptly to the Company on
termination of employment, or at any other time the Company may so request, all
confidential memoranda, notes, records, reports and other documents (and all
copies
3
<PAGE>
thereof) relating to the Company's and its affiliates' businesses which the
Executive obtained while employed by, or otherwise serving or acting on behalf
of, the Company or which the Executive may then possess or have under his or her
control.
8. Non-Competition.
---------------
8(a). Non-Competition. The Executive covenants and agrees that
---------------
the Executive will not, during the Executive's employment hereunder and for a
period of one (1) year thereafter (to the extent permitted by law), at any time
and in any state or other jurisdiction in which the Company or Subsidiary is
engaged or has reasonably firm plans to engage in business, (i) compete with the
Company or Subsidiary on behalf of the Executive or any third party; (ii)
participate as a director, agent, representative, stockholder or partner or have
any direct or indirect financial interest in any enterprise which engages in the
alcohol product distribution business or any other business in which the Company
or Subsidiary is engaged; or (iii) participate as an employee or officer in any
enterprise in which the Executive's responsibility relates to the alcohol
product distribution business or any other business in which the Company or
Subsidiary is engaged. The ownership by the Executive of less than five percent
(5%) of the outstanding stock of any corporation listed on a national securities
exchange conducting any such business shall not be deemed a violation of this
Section 8(a).
8(b). Injunctive Relief. In the event the restrictions against
-----------------
engaging in a competitive activity contained in Section 8(a) hereof shall be
determined by any court of competent jurisdiction to be unenforceable by reason
of their extending for too great a period of time or over too great a
geographical area or by reason of their being too extensive in any other
respect, Section 8(a) hereof shall be interpreted to extend only over the
maximum period of time for which it may be enforceable and over the maximum
geographical area as to which it may be enforceable and to the maximum extent in
all other respects as to which it may be enforceable, all as determined by such
court in such action.
8(c). Non-Solicitation. The Executive covenants and agrees
----------------
that the Executive will not, during the Executive's employment hereunder and for
a period of one (1) year thereafter induce or attempt to induce any employee of
the Company or the Subsidiary to render services for any other person, firm, or
corporation.
9. Termination of Employment.
-------------------------
9(a). Death. The Executive's employment hereunder shall
-----
terminate upon the Executive's death.
9(b). By the Company. The Company may terminate the
--------------
Executive's employment hereunder under the following circumstances:
4
<PAGE>
(i) If the Executive shall have been unable to perform all of
the Executive's duties hereunder by reason of illness, physical or mental
disability or other similar incapacity, which inability shall continue for more
than three (3) consecutive months, the Company may terminate the Executive's
employment hereunder.
(ii) The Company may terminate the Executive's employment
hereunder for "Cause." For purposes of this Agreement, "Cause" shall mean (A)
willful refusal by the Executive to follow a written order of the Chairman of
the Board or the Board of Directors, (B) the Executive's willful engagement in
conduct materially injurious to the Company, (C) dishonesty of a material nature
that relates to the performance of the Executive's duties under this Agreement,
(D) the Executive's conviction for any felony involving moral turpitude, and (E)
the Executive's continued failure to perform his duties under this Agreement
(except due to the Executive's incapacity as a result of physical or mental
illness) to the satisfaction of the Board of Directors of the Company for a
period of at least forty-five (45) consecutive days after written notice is
delivered to the Executive specifically identifying the manner in which the
Executive has failed to perform his duties. In addition, the Company may
terminate the Executive's employment for "Cause" if the normal business
operations of the Company are rendered commercially impractical as a consequence
of an act of God, accident, fire, labor controversy, riot or civil commotion,
act of public enemy, law, enactment, rule, order, or any act of government or
governmental instrumentality, failure of facilities, or other cause of a similar
or dissimilar nature that is not reasonably within the control of the Company or
which the Company could not, by reasonable diligence, have avoided.
9(c). By the Executive. The Executive may terminate the
----------------
Executive's employment hereunder for "Good Reason." For purposes of this
Agreement, "Good Reason" shall mean (i) the Company's failure to perform or
observe any of the material terms or provisions of this Agreement, and the
continued failure of the Company to cure such default within thirty (30) days
after written demand for performance has been given to the Company by the
Executive, which demand shall describe specifically the nature of such alleged
failure to perform or observe such material terms or provisions; or (ii) a
material reduction in the scope of the Executive's responsibilities and duties.
9(d). Notice of Termination. Any termination of the
---------------------
Executive's employment by the Company or the Executive (other than pursuant to
Section 9(a) hereof) shall be communicated by written "Notice of Termination" to
the other party hereto in accordance with Section 11 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon, if
any, and shall set forth in
5
<PAGE>
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
9(e). Date of Termination. For purposes of this Agreement, the
-------------------
"Date of Termination" shall mean (i) if the Executive's employment is terminated
by the Executive's death, the date of the Executive's death; (ii) if the
Executive's employment is terminated pursuant to Section 9(b)(i) hereof, thirty
(30) days after Notice of Termination, provided that the Executive shall not
have returned to the performance of the Executive's duties on a full-time basis
during such 30-day period; (iii) if the Executive's employment is terminated
pursuant to Section 9(b)(ii) or 9(c) hereof, the date specified in the Notice of
Termination; and (iv) if the Executive's employment is terminated for any other
reason, the date on which Notice of Termination is given.
10. Compensation Upon Termination.
-----------------------------
10(a). If the Executive's employment is terminated by the
Executive's death, the Company shall pay to the Executive's estate, or as may be
directed by the legal representatives of such estate, the Executive's full Base
Salary through the Date of Termination and all other unpaid amounts, if any, to
which the Executive is entitled as of the Date of Termination in connection with
any fringe benefits or under any incentive compensation plan or program of the
Company pursuant to Sections 5(b) and (c) hereof, at the time such payments are
due and the Company shall have no further obligations to the Executive under
this Agreement.
10(b). During any period that the Executive fails to perform the
Executive's duties hereunder as a result of incapacity due to physical or mental
illness ("disability period"), the Executive shall continue to receive (i) the
Executive's full Base Salary through the Date of Termination and all other
unpaid amounts, if any, to which the Executive is entitled as of the Date of
Termination in connection with any fringe benefits or under any incentive
compensation plan or program of the Company pursuant to Sections 5(b) and (c)
hereof, at the time such payments are due; provided, that payments so made to
--------
the Executive during the disability period shall be reduced by the sum of the
amounts, if any, payable to the Executive at or prior to the time of any such
payment under disability benefit plans of the Company and which amounts were not
previously applied to reduce any such payment and the Company shall have no
further obligations to the Executive under this Agreement.
10(c). If the Company terminates the Executive's employment for
Cause as provided in Section 9(b)(ii) hereof, the Company shall pay the
Executive the Executive's full Base Salary through the Date of Termination and
all other unpaid amounts, if any, to which Executive is entitled as of the Date
of Termination in connection with any fringe benefits or under any incentive
compensation plan or program of the Company pursuant to Sections 5(b) and (c)
6
<PAGE>
hereof, and the Company shall have no further obligations to the Executive under
this Agreement.
10(d). If the Executive terminates the Executive's employment
other than for Good Reason, the Company shall pay the Executive the Executive's
full Base Salary through the Date of Termination and all other unpaid amounts,
if any, to which Executive is entitled as of the Date of Termination in
connection with any fringe benefits or under any incentive compensation plan or
program of the Company pursuant to Sections 5(b) and 5(c) hereof, and the
Company shall have no further obligations to the Executive under this agreement.
10(e). If the Company terminates the Executive's employment
other than for Cause, disability or death, or the Executive terminates the
Executive's employment for Good Reason as provided in Section 9(c) hereof, the
Company shall pay the Executive (i) the Executive's full Base Salary through the
Date of Termination and all other unpaid amounts, if any, to which the Executive
is entitled as of the Date of Termination in connection with any fringe benefits
or under any incentive compensation plan or program of the Company pursuant to
Sections 5(b) and (c) hereof, at the time such payments are due; and (ii)
subject to Section 10(g), the full Base Salary, bonuses and incentive
compensation that would have been payable to the Executive under Sections 5(a)
and 5(c) from the Date of Termination through the Expiration Date in a single
lump sum payment within five (5) business days of his Date of Termination and
any other amounts or benefits that would have been received under Section 5(c)
hereof, at the time such amounts or benefits would otherwise have been due in
accordance with the Company's normal payroll practices, and the Company shall
have no further obligations to the Executive under this Agreement. For purposes
of Section 10(e)(ii), the Executive will be considered to be entitled to an
annual cash bonus equal to the average dollar bonus earned by the Executive
during the Company's two fiscal years immediately prior to Executive's Date of
Termination.
10(f). Parachute Limitations. Notwithstanding any other
---------------------
provision of this Agreement or of any other agreement, contract or understanding
heretofore or hereafter entered into by the Executive with the Company or any
subsidiary or affiliate thereof, except an agreement, contract or understanding
hereafter entered into that expressly modifies or excludes application of this
Section 10(f) (the "Other Agreements"), and notwithstanding any formal or
informal plan or other arrangement heretofore or hereafter adopted by the
Company (or any subsidiary or affiliate thereof) for the direct or indirect
compensation of the Executive (including groups or classes of participants or
beneficiaries of which the Executive is a member), whether or not such
compensation is deferred, is in cash, or is in the form of a benefit to or for
the Executive (a "Benefit Plan"), if the Executive is a "disqualified
individual" (as defined in Section 280G(c) of the Internal Revenue Code of 1986,
as amended (the "Code")), any right to receive any payment or benefit under this
Agreement shall not become exercisable (i) to the extent that such right
7
<PAGE>
to payment or benefit, taking into account all other rights, payments or
benefits to or for the Executive under this Agreement, all Other Agreements and
all Benefit Plans, would cause any payment or benefit to the Executive under
this Agreement to be considered a "parachute payment" within the meaning of
Section 280G(b)(2) of the Code as then in effect (a "Parachute Payment") and
---
(ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax
amount received by the Executive from the Company under this Agreement, all
Other Agreements and all Benefit Plans would be less than the maximum after-tax
amount that could be received by the Executive without causing any such payment
or benefit to be considered a Parachute Payment. In the event that the receipt
of any such right to payment or benefit under this Agreement, any Other
Agreement or any Benefit Plan would cause the Executive to be considered to have
received a Parachute Payment under this Agreement that would have the effect of
decreasing the after-tax amount received by the Executive as described in clause
(ii) of the preceding sentence, then the Executive shall have the right, in the
Executive's sole discretion, to designate those rights, payments or benefits
under this Agreement, any Other Agreements and any Benefit Plans that should be
reduced or eliminated so as to avoid having the payment or benefit to the
Executive under this Agreement be deemed to be a Parachute Payment.
10(g). Mitigation. The Executive shall not be required to
----------
mitigate amounts payable pursuant to Section 10 hereof by seeking other
employment provided, however, that any sums earned by the Executive pursuant to
-----------------
any subsequent employment shall be offset against any remaining obligation the
Company may have to pay by virtue of termination under this Agreement and,
further provided that, the Company's obligation to continue to provide the
Executive with fringe benefits pursuant to Section 10(e), above, shall cease if
the Executive becomes eligible to participate in fringe benefits substantially
similar to those provided for in this Agreement as a result of the Executive's
employment during the period that the Executive is entitled to such fringe
benefits.
11. Notices. All notices, demands, requests or other communications
-------
required or permitted to be given or made hereunder shall be in writing and
shall be delivered, telecopied or mailed by first class registered or certified
mail, postage prepaid, addressed as follows:
(a) If to the Company:
Central European Distribution Corporation
211 North Union Street, #110
Alexandria, Virginia 22314
Telecopier: 703-683-4707
Attention: William V. Carey
President
8
<PAGE>
(b) If to the Executive:
William V. Carey
1602 Cottagewood Drive
Brandon, Florida 33511
Telecopier: 813-689-5472
or to such other address as may be designated by either party in a notice to the
other. Each notice, demand, request or other communication that shall be given
or made in the manner described above shall be deemed sufficiently given or made
for all purposes at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt, the answer back or the affidavit of
messenger being deemed conclusive evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
12. Severability. The invalidity or unenforceability of any one
------------
or more provisions of this Agreement shall not affect the validity or
enforceability of the other provisions of this Agreement, which shall remain in
full force and effect.
13. Survival. It is the express intention and agreement of the
--------
parties hereto that the provisions of Sections 7 and 8 hereof shall survive the
termination of employment of the Executive. In addition, all obligations of the
Company to make payments hereunder shall survive any termination of this
Agreement on the terms and conditions set forth herein.
14. Assignment. The rights and obligations of the parties to
----------
this Agreement shall not be assignable, except that the rights and obligations
of the Company hereunder shall be assignable in connection with any subsequent
merger, consolidation, sale of all substantially all of the assets of the
Company or similar reorganization of a successor corporation.
15. Binding Effect. Subject to any provisions hereof
--------------
restricting assignment, this Agreement shall be binding upon the parties hereto
and shall inure to the benefit of the parties and their respective heirs,
devisees, executors, administrators, legal representatives, successors and
assigns.
16. Amendment; Waiver. This Agreement shall not be amended,
-----------------
altered or modified except by an instrument in writing duly executed by the
parties hereto. Neither the waiver by either of the parties hereto of a breach
of or a default under any of the provisions of this Agreement, nor the failure
of either of the parties, on one or more occasions, to enforce any of the
provisions of this Agreement or to exercise any right or privilege hereunder,
shall thereafter be construed as a waiver of any subsequent breach or default of
a similar nature, or as a waiver of any such provisions, rights or privileges
hereunder.
9
<PAGE>
17. Headings. Section and subsection headings contained in this
--------
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
18. Governing Law. This Agreement, the rights and obligations
-------------
of the parties hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the laws of the Commonwealth of
Virginia (but not including the choice of law rules thereof).
19. Action of Behalf of the Subsidiary. The Company is
----------------------------------
executing this Agreement also on behalf of its Subsidiary and agrees to cause
the Subsidiary to fulfill its obligations hereunder, though the appointment and
removal, if necessary, of members of the management board of the Subsidiary.
20. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto with respect to the subject matter hereof,
and it supersedes all prior oral or written agreements, commitments or
understandings with respect to the matters provided for herein.
21. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original and all of which shall be
deemed to constitute one and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement,
or have caused this Agreement to be duly executed on their behalf, as of the day
and year first hereinabove written.
CENTRAL EUROPEAN DISTRIBUTION
CORPORATION
By:
--------------------------------
Name: Jeffery Peterson
Title: Vice Chairman
THE EXECUTIVE:
-----------------------------------
William V. Carey
11
<PAGE>
Exhibit 10.9
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of this ___
day of _________, 1997, by and between Central European Distribution
Corporation, Inc., a Delaware corporation (the "Company"), and Jeffrey Peterson
(the "Executive").
WHEREAS, the Company desires to employ the Executive, and the
Executive desires to be employed by the Company, on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, the parties hereto
agree as follows:
1. Employment. On the terms and conditions set forth in this
----------
Agreement, the Company agrees to employ the Executive and the Executive agrees
to be employed by the Company for the term set forth in Section 2 hereof and in
the position and with the duties set forth in Section 3 hereof.
2. Term. The employment of the Executive by the Company as provided
----
in Section 1 hereof shall commence on the date of the first closing of the
initial public offering of common stock, par value $.01 per share (the "Common
Stock"), of the Company and end two (2) years thereafter (the "Expiration
Date").
3. Position and Duties. The Executive shall serve as executive vice-
-------------------
president of the Company as well as a member of the management board of the
Company's subsidiary, Carey Agri International Poland Sp. z o.o (the
"Subsidiary"), with such duties and responsibilities as the board of directors
of the Company (the "Board") may from time to time determine and assign to the
Executive. The Executive shall devote the Executive's reasonable best efforts
and substantial business time to the performance of the Executive's duties and
the advancement of the business and affairs of the Company and the Subsidiary.
Executive acknowledges that it is the intent of the Company that his primary
responsibilities shall be in connection with the business of the Subsidiary.
4. Place of Performance. In connection with the Executive's
--------------------
employment by the Company, the Executive shall be based at the principal
executive office of the Company, which the Company retains the right to change
in
<PAGE>
its discretion, or such other place as the Company and the Executive mutually
agree, except for required travel on Company business.
5. Compensation.
------------
5(a). Salary. During the first year of this agreement, the
------
Executive shall be paid an annual salary at the rate of $93,000, $48,000 payable
by the Subsidiary and $45,000 by the Company. During the second year of this
agreement, the Executive shall be paid an annual salary of $75,000, $39,000
payable by the Subsidiary and $36,000 by the Company. The salary payable
hereunder shall be payable biweekly or in such other installments as shall be
consistent with the Company's payroll procedures.
5(b). Withholding Taxes and Other Deductions. To the extent
--------------------------------------
required by law, the Company and the Subsidiary shall withhold from any payments
due Executive under this Agreement any applicable federal, state or local taxes
and such other deductions as are prescribed by law or Company or Subsidiary
policy.
6. Expenses. The Company and the Subsidiary shall reimburse the
--------
Executive for all reasonable expenses incurred by the Executive (in accordance
with the policies and procedures in effect for senior executives of the Company
and the Subsidiary) in connection with the Executive's services under this
Agreement. The Executive shall account to the Company or the Subsidiary, as the
case may be, for such expenses in accordance with policies and procedures
established by the Company or the Subsidiary.
7. Confidential Information.
------------------------
7(a). The Executive covenants and agrees that the Executive will
not ever, without the prior written consent of the Board or a person authorized
by the Board, publish or disclose to any unaffiliated third party or use for the
Executive's personal benefit or advantage any confidential information with
respect to any of the Company's or Subsidiary's products, services, subscribers,
suppliers, marketing techniques, methods or future plans disclosed to the
Executive as a result of the Executive's employment with the Company, to the
extent such information has heretofore remained confidential (except for
unauthorized disclosures) and except as otherwise ordered by a court of
competent jurisdiction.
7(b). The Executive acknowledges that the restrictions contained
in Section 7(a) hereof are reasonable and necessary, in view of the nature of
the Company's business, in order to protect the legitimate interests of the
Company, and that any violation thereof would result in irreparable injury to
the
2
<PAGE>
Company. Therefore, the Executive agrees that in the event of a breach or
threatened breach by the Executive of the provisions of Section 7(a) hereof, the
Company shall be entitled to obtain from any court of competent jurisdiction,
preliminary or permanent injunctive relief restraining the Executive from
disclosing or using any such confidential information. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
to it for such breach or threatened breach, including, without limitation,
recovery of damages from the Executive.
7(c). The Executive shall deliver promptly to the Company on
termination of employment, or at any other time the Company may so request, all
confidential memoranda, notes, records, reports and other documents (and all
copies thereof) relating to the Company's and its affiliates' businesses which
the Executive obtained while employed by, or otherwise serving or acting on
behalf of, the Company or which the Executive may then possess or have under his
or her control.
8. Non-Competition.
---------------
8(a). Non-Competition. The Executive covenants and agrees that
---------------
the Executive will not, during the Executive's employment hereunder and for a
period of one (1) year thereafter (to the extent permitted by law), at any time
and in any state or other jurisdiction in which the Company or Subsidiary is
engaged or has reasonably firm plans to engage in business, (i) compete with the
Company or Subsidiary on behalf of the Executive or any third party; (ii)
participate as a director, agent, representative, stockholder or partner or have
any direct or indirect financial interest in any enterprise which engages in the
alcohol product distribution business or any other business in which the Company
or Subsidiary is engaged; or (iii) participate as an employee or officer in any
enterprise in which the Executive's responsibility relates to the alcohol
product distribution business or any other business in which the Company or
Subsidiary is engaged. The ownership by the Executive of less than five percent
(5%) of the outstanding stock of any corporation listed on a national securities
exchange conducting any such business shall not be deemed a violation of this
Section 8(a).
8(b). Injunctive Relief. In the event the restrictions against
-----------------
engaging in a competitive activity contained in Section 8(a) hereof shall be
determined by any court of competent jurisdiction to be unenforceable by reason
of their extending for too great a period of time or over too great a
geographical area or by reason of their being too extensive in any other
respect, Section 8(a) hereof shall be interpreted to extend only over the
maximum period of time for which it may be enforceable and over the maximum
geographical area as to which it may be enforceable and to the maximum extent in
all other respects as to which it may be enforceable, all as determined by such
court in such action.
3
<PAGE>
8(c). Non-Solicitation. The Executive covenants and agrees that
----------------
the Executive will not, during the Executive's employment hereunder and for a
period of one (1) year thereafter induce or attempt to induce any employee of
the Company or the Subsidiary to render services for any other person, firm, or
corporation.
9. Termination of Employment.
-------------------------
9(a). Death. The Executive's employment hereunder shall terminate
-----
upon the Executive's death.
9(b). By the Company. The Company may terminate the Executive's
--------------
employment hereunder with or without cause upon three months' prior written
notice.
9(c). By the Executive. The Executive may terminate the
----------------
Executive's employment hereunder for "Good Reason." For purposes of this
Agreement, "Good Reason" shall mean (i) the Company's failure to perform or
observe any of the material terms or provisions of this Agreement, and the
continued failure of the Company to cure such default within thirty (30) days
after written demand for performance has been given to the Company by the
Executive, which demand shall describe specifically the nature of such alleged
failure to perform or observe such material terms or provisions; or (ii) a
material reduction in the scope of the Executive's responsibilities and duties.
9(d). Notice of Termination. Any termination of the Executive's
---------------------
employment by the Company or the Executive (other than pursuant to Section 9(a)
hereof) shall be communicated by written "Notice of Termination" to the other
party hereto in accordance with Section 11 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon, if any, and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
9(e). Date of Termination. For purposes of this Agreement, the
-------------------
"Date of Termination" shall mean (i) if the Executive's employment is terminated
by the Executive's death, the date of the Executive's death; (ii) if the
Executive's employment is terminated pursuant to Section 9(b) hereof, ninety
(90) days after Notice of Termination is received by the Executive; (iii) if the
Executive's employment is terminated pursuant to Section 9(c) hereof, the date
specified in the Notice of Termination; and (iv) if the Executive's employment
is terminated for any other reason, the date on which Notice of Termination is
given.
10. Compensation Upon Termination.
-----------------------------
4
<PAGE>
10(a). If the Executive's employment is terminated by the Executive's
death, the Company shall pay to the Executive's estate, or as may be directed by
the legal representatives of such estate, the Executive's full Base Salary
through the Date of Termination and the Company shall have no further
obligations to the Executive under this Agreement.
10(b). If the Company terminates the Executive's employment as
provided in Section 9(b) hereof, the Company shall pay the Executive the
Executive's full Base Salary through the Date of Termination, and the Company
shall have no further obligations to the Executive under this Agreement.
10(c). If the Executive terminates the Executive's employment other
than for Good Reason, the Company shall pay the Executive the Executive's full
Base Salary through the Date of Termination and the Company shall have no
further obligations to the Executive under this agreement.
10(d). If the Executive terminates the Executive's employment for
Good Reason as provided in Section 9(c) hereof, the Company shall pay the
Executive (i) the Executive's full Base Salary through the Date of Termination
and (ii) subject to Section 10(f), the full Base Salary, that would have been
payable to the Executive under Section 5(a) from the Date of Termination through
the Expiration Date in a single lump sum payment within five (5) business days
of his Date of Termination and the Company shall have no further obligations to
the Executive under this Agreement..
10(e). Parachute Limitations. Notwithstanding any other provision of
---------------------
this Agreement or of any other agreement, contract or understanding heretofore
or hereafter entered into by the Executive with the Company or any subsidiary or
affiliate thereof, except an agreement, contract or understanding hereafter
entered into that expressly modifies or excludes application of this Section
10(f) (the "Other Agreements"), and notwithstanding any formal or informal plan
or other arrangement heretofore or hereafter adopted by the Company (or any
subsidiary or affiliate thereof) for the direct or indirect compensation of the
Executive (including groups or classes of participants or beneficiaries of which
the Executive is a member), whether or not such compensation is deferred, is in
cash, or is in the form of a benefit to or for the Executive (a "Benefit Plan"),
if the Executive is a "disqualified individual" (as defined in Section 280G(c)
of the Internal Revenue Code of 1986, as amended (the "Code")), any right to
receive any payment or benefit under this Agreement shall not become exercisable
(i) to the extent that such right to payment or benefit, taking into account all
other rights, payments or benefits to or for the Executive under this Agreement,
all Other Agreements and all Benefit Plans, would cause any payment or benefit
to the Executive under this Agreement to be considered a "parachute payment"
within the meaning of Section 280G(b)(2) of the Code as then in effect (a
"Parachute Payment") and (ii) if, as a result of receiving a Parachute Payment,
---
the aggregate after-tax amount received by the
5
<PAGE>
Executive from the Company under this Agreement, all Other Agreements and all
Benefit Plans would be less than the maximum after-tax amount that could be
received by the Executive without causing any such payment or benefit to be
considered a Parachute Payment. In the event that the receipt of any such right
to payment or benefit under this Agreement, any Other Agreement or any Benefit
Plan would cause the Executive to be considered to have received a Parachute
Payment under this Agreement that would have the effect of decreasing the after-
tax amount received by the Executive as described in clause (ii) of the
preceding sentence, then the Executive shall have the right, in the Executive's
sole discretion, to designate those rights, payments or benefits under this
Agreement, any Other Agreements and any Benefit Plans that should be reduced or
eliminated so as to avoid having the payment or benefit to the Executive under
this Agreement be deemed to be a Parachute Payment.
10(f). Mitigation. The Executive shall not be required to mitigate
----------
amounts payable pursuant to Section 10 hereof by seeking other employment
provided, however, that any sums earned by the Executive pursuant to any
- -----------------
subsequent employment shall be offset against any remaining obligation the
Company may have to pay by virtue of termination under this Agreement.
11. Notices. All notices, demands, requests or other communications
-------
required or permitted to be given or made hereunder shall be in writing and
shall be delivered, telecopied or mailed by first class registered or certified
mail, postage prepaid, addressed as follows:
(a) If to the Company:
Central European Distribution Corporation
211 North Union Street, #110
Alexandria, Virginia 22314
Telecopier: 703-683-4707
Attention: William V. Carey
President
(b) If to the Executive:
Jeffrey Peterson
1502 Stonewall Road
Alexandria, Virginia 22302
Telecopier: 703-684-7680
or to such other address as may be designated by either party in a notice to the
other. Each notice, demand, request or other communication that shall be given
or
6
<PAGE>
made in the manner described above shall be deemed sufficiently given or made
for all purposes at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt, the answer back or the affidavit of
messenger being deemed conclusive evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
12. Severability. The invalidity or unenforceability of any one or
------------
more provisions of this Agreement shall not affect the validity or
enforceability of the other provisions of this Agreement, which shall remain in
full force and effect.
13. Survival. It is the express intention and agreement of the parties
--------
hereto that the provisions of Sections 7 and 8 hereof shall survive the
termination of employment of the Executive. In addition, all obligations of the
Company to make payments hereunder shall survive any termination of this
Agreement on the terms and conditions set forth herein.
14. Assignment. The rights and obligations of the parties to this
----------
Agreement shall not be assignable, except that the rights and obligations of the
Company hereunder shall be assignable in connection with any subsequent merger,
consolidation, sale of all substantially all of the assets of the Company or
similar reorganization of a successor corporation.
15. Binding Effect. Subject to any provisions hereof restricting
--------------
assignment, this Agreement shall be binding upon the parties hereto and shall
inure to the benefit of the parties and their respective heirs, devisees,
executors, administrators, legal representatives, successors and assigns.
16. Amendment; Waiver. This Agreement shall not be amended, altered or
-----------------
modified except by an instrument in writing duly executed by the parties hereto.
Neither the waiver by either of the parties hereto of a breach of or a default
under any of the provisions of this Agreement, nor the failure of either of the
parties, on one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right or privilege hereunder, shall thereafter be
construed as a waiver of any subsequent breach or default of a similar nature,
or as a waiver of any such provisions, rights or privileges hereunder.
17. Headings. Section and subsection headings contained in this
--------
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
18. Governing Law. This Agreement, the rights and obligations of the
-------------
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the Commonwealth of Virginia
(but not including the choice of law rules thereof).
7
<PAGE>
19. Action of Behalf of the Subsidiary. The Company is executing this
----------------------------------
Agreement also on behalf of its Subsidiary and agrees to cause the Subsidiary to
fulfill its obligations hereunder, though the appointment and removal, if
necessary, of members of the management board of the Subsidiary.
20. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto with respect to the subject matter hereof, and it
supersedes all prior oral or written agreements, commitments or understandings
with respect to the matters provided for herein.
21. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original and all of which shall be
deemed to constitute one and the same instrument.
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement,
or have caused this Agreement to be duly executed on their behalf, as of the day
and year first hereinabove written.
CENTRAL EUROPEAN DISTRIBUTION
CORPORATION
By:
-------------------------------
Name: William V. Carey
Title: President and Chief
Executive Officer
THE EXECUTIVE:
----------------------------------
Jeffery Peterson
9
<PAGE>
Exhibit 10.10
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
COMMON STOCK
SELLING SHAREHOLDER'S POWER OF ATTORNEY
Central European Distribution Corporation
211 North Union Street, #100
Alexandria, Virginia 22314
Attention: William V. Carey, President
Gentlemen:
It is contemplated that the undersigned (being hereinafter sometimes
referred to as the "Selling Shareholder"), along with Central European
Distribution Corporation, a Delaware corporation (the "Company"), and other
shareholders of the Company (such shareholders and the undersigned being
hereinafter sometimes collectively referred to as the "Selling Shareholders")
will offer to sell shares of common stock, par value $.01 per share, of the
Company (the "Common Stock") to Fine Equities, Inc., Southwall Capital Corp. and
certain other underwriters (the "Underwriters") represented by them who may
offer such shares to the public. The undersigned understands that, in connection
with such offering, the Company has filed a Registration Statement
("Registration Statement") on Form SB-2 under the Securities Act of 1933, as
amended (the "Securities Act").
Concurrently with the execution and delivery of this Power of Attorney, the
undersigned is also executing and delivering a Custody Agreement (the "Custody
Agreement") pursuant to which certificates for shares of Common Stock registered
in the name of the undersigned are being deposited with _________ as custodian
(the "Custodian").
1. In connection with the foregoing, the undersigned hereby makes,
constitutes and appoints William V. Carey and _________, and each of them, the
true and lawful attorneys-in-fact of the undersigned (individually, the
"Attorney-in Fact" and collectively, the "Attorneys-in-Fact"), with full power
and authority, in the name of and for and on behalf of the undersigned:
(a) To sell to the Underwriters up to that number of shares of Common
Stock registered in the name of the undersigned as set forth at Instruction
3 at the end of this Power of Attorney (subject to possible reduction as
provided in paragraph l(b) below), at the price per share specified in the
Underwriting Agreement (as defined hereinafter).
(b) To make a pro rata cutback of the number of shares proposed to be
sold by the Selling Shareholder if the aggregate number of such shares
exceeds the number of shares the Underwriters are willing to commit to
purchase from all Selling Shareholders, whereby
<PAGE>
each of the Selling Shareholders will be allowed to sell only that number
of full shares of the Common Stock which is determined by multiplying the
number of shares of Common Stock which each such Selling Shareholder has
proposed to sell, as set forth at said Instruction 3 at the end of this
Power of Attorney, by a fraction, the numerator of which is the number of
shares the Underwriters are willing to commit to purchase from all Selling
Shareholders and the denominator of which is the aggregate number of shares
proposed to be sold by all Selling Shareholders, and to make such other
adjustments and allocations as are necessary and appropriate to facilitate
the offering and to avoid the sale of any fractional shares.
(c) To agree to and determine the purchase price to be paid by the
Underwriters to the Selling Shareholders as provided in Section ___ of the
Underwriting Agreement (as defined hereinafter) and as provided in
paragraph l(a) hereof.
(d) For the purpose of effecting such sale, to execute and deliver an
Underwriting Agreement among the Company, the Selling Shareholders and the
Underwriters (the "Underwriting Agreement") which includes representations
and warranties by the undersigned in substantially the form of the
preliminary copy of the Underwriting Agreement (draft of ________, 1997)
heretofore received by the undersigned containing such terms and conditions
as the Attorneys-in-Fact, or either of them, in their or his sole
discretion, shall determine and, if necessary, a stock power(s) evidencing
the transfer of the shares to be sold by the undersigned in accordance with
the Underwriting Agreement.
(e) To give such orders and instructions to the Custodian consistent
with the terms of the Custody Agreement and the Underwriting Agreement and
with respect to (i) the payment to the Company by the Custodian on behalf
of the undersigned of the proceeds from any sale of the shares being sold
by the undersigned less the Underwriters' discount and commission and the
non-accountable expense allowance to be paid to the Underwriters and (ii)
the return to the undersigned of new certificates representing the number
of shares (if any) of Common Stock represented by certificates deposited
with the Custodian which are in excess of the number of shares to be sold
by the undersigned to the Underwriters or in the event the Underwriting
Agreement is not executed or is terminated pursuant to the terms thereof.
(f) To make, execute, acknowledge and deliver all such other
contracts, stock powers, orders, receipts, notices, instructions,
certificates, letters and other writings, including, without limitation, a
request to the Securities and Exchange Commission that said Registration
Statement be made effective, amendments to the Underwriting Agreement, and
in general, to do all things and to take all actions which the Attorneys-
in-Fact, in their sole discretion, may consider necessary or proper in
connection with, or to carry out, the sale of the shares to the
Underwriters, as fully as could the undersigned if personally present and
acting.
2
<PAGE>
(g) To make, acknowledge, verify and file on behalf of the
undersigned, applications, consents to service of process and such other
undertakings or reports as may be required by law with state commissioners
or officers administering state securities laws.
2. This Power of Attorney and all authority conferred hereby are granted
and conferred subject to and in consideration of the interests of the Company,
the Underwriters and the other Selling Shareholders who may become parties to
the Underwriting Agreement, and, for the purposes of completing the transactions
contemplated by the Underwriting Agreement and this Power of Attorney, this
Power of Attorney and all authority conferred hereby shall be irrevocable until
______ 1998, and shall not be terminated by any act of the undersigned or by
operation of law, whether by the death or incapacity of the undersigned (or
either or any of them) or by the occurrence of any other event or events
(including, without limiting the foregoing, the termination of any trust or
estate for which the undersigned is acting as a fiduciary or fiduciaries), and
if after the execution hereof the undersigned shall die or become incapacitated,
or if any other such event or events shall occur before the completion of the
transactions contemplated by the Underwriting Agreement and this Power of
Attorney, certificates representing the shares of Common Stock registered in the
name of the undersigned shall be delivered by or on behalf of the undersigned in
accordance with the terms and conditions of the Underwriting Agreement and of
the Custody Agreement and actions taken by the Attorneys-in-Fact hereunder shall
be as valid as if such death, incapacity or other event or events had not
occurred regardless of whether or not the Custodian, Attorneys-in-Fact, or any
of them, shall have received notice of such death, incapacity or other event.
3. Each of the Attorneys-in-Fact shall have full power to make and
substitute any attorney-in-fact in his place and stead, and the undersigned
hereby ratifies and confirms all that the Attorneys-in-Fact or their respective
substitutes shall do by virtue of these presents. All actions hereunder may be
taken by each Attorney-in-Fact or his substitutes. The term "Attorney-in-Fact"
as used herein shall include such substitutes.
4. The undersigned hereby represents, warrants and agrees that:
(a) He has full right, power and authority to enter into this Power of
Attorney, the Custody Agreement and the Underwriting Agreement.
(b) He has and, at the time of delivery of any shares on the Option
Closing Date (as such term is defined in the Underwriting Agreement) to the
Underwriters, will have, full right, power and authority to sell, assign,
transfer and deliver the shares to be sold by him pursuant to the
Underwriting Agreement.
(c) He is and, at the time of the delivery of the shares to the
Underwriters on the Option Closing Date (as such term is defined in the
Underwriting Agreement) under the Underwriting Agreement, will be, the
lawful owner of and has, or will then have, valid and unencumbered title to
such shares and, upon delivery of and payment for such shares in
3
<PAGE>
accordance with the terms of the Underwriting Agreement, the several
Underwriters will acquire valid and unencumbered title thereto.
(d) Neither the execution and delivery of the Underwriting Agreement,
the Custody Agreement, this Power of Attorney, the fulfillment of the terms
therein or herein set forth, nor the consummation of the transactions
therein or herein contemplated will conflict with or constitute a breach of
or default under any agreement or other instrument to which he is a party,
by which he is bound, or to which his property or assets is subject, or any
statute, order, rule, regulation, judgment or decree applicable to him or
his property or assets.
(e) The certificates representing the shares to be sold by him under
the Underwriting Agreement are, and on the Option Closing Date (as such
term is defined in the Underwriting Agreement) will be, genuine and valid
and he has no knowledge of any fact which would impair the validity of the
certificates; the shares to be sold by him under the Underwriting Agreement
have been duly and validly authorized and issued and are fully paid and
nonassessable; and upon delivery of such shares and payment therefor
pursuant to the Underwriting Agreement he will convey valid and
unencumbered title to such shares.
(f) He has caused a certificate or certificates for the number of
shares proposed to be sold by him under the Underwriting Agreement to be
delivered to the Custodian named in the Custody Agreement in proper form
for good delivery, with blank stock powers duly executed and signatures
appropriately guaranteed, and has granted the Custodian irrevocable
authority to purchase all requisite stock transfer tax stamps and to hold
such certificate or certificates for good delivery, or for exchange for
other certificates for delivery, pursuant to the provisions of the
Underwriting Agreement, on the Option Closing Date on his behalf, and he
has duly executed and delivered to this Custodian the Custody Agreement and
has duly executed and delivered this Power of Attorney appointing the
respective persons named herein, and each of them, with full power of
substitution, as such Selling Shareholder's Attorneys-in-Fact.
(g) On the Option Closing Date (as such term is defined in the
Underwriting Agreement), all transfer or other taxes (other than income
taxes) which are required to be paid by him in connection with the sale and
transfer to the several Underwriters under the Underwriting Agreement of
the shares to be sold and delivered by him thereunder, will have been fully
paid, or provided for to the satisfaction of the representatives of the
Underwriters, and all laws imposing such taxes will have been fully
complied with.
(h) He has not taken and will not take, directly or indirectly, any
action designed to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the
shares to be sold by him.
4
<PAGE>
(i) All information furnished to the Company by or on behalf of the
undersigned for the use in connection with the preparation of the
Registration Statement, including all information contained in the
Instructions at the end of this Power of Attorney, shall be true and
correct in all material respects and will not omit any material fact
necessary to make such information not misleading.
(j) He has carefully reviewed the preliminary prospectus dated ______,
1997 (the "Preliminary Prospectus") and will carefully review each
amendment thereto upon receipt thereof from the Company and will promptly
advise the Attorneys-in-Fact in writing if:
(i) The name and address of the undersigned is not properly set
forth in the Preliminary Prospectus and the prospectus (the
"Prospectus") contained in the Registration Statement at the time it
becomes effective;
(ii) Except as set forth in the Preliminary Prospectus, (A)
either the undersigned or any of his associates* has an interest
adverse to the Company or any of its subsidiaries* in any pending
legal proceeding, (B) either the undersigned or any of his associates
is a party to any contract with the Company or any of its
subsidiaries, other than a contract which has been disclosed and the
material terms of which have been fully and accurately described in
the Preliminary Prospectus, (C) either the undersigned or any of his
directors, officers or partners has a material relationship* with the
Company or any of its officers or directors, (D) the undersigned has
any information pertaining to underwriting compensation and
arrangements or any dealings with any "underwriter or related
person,"* "member"* of the National Association of Securities Dealers,
Inc. ("NASD") or a "person associated with the member"* and the
Company or any parent, subsidiary or controlling shareholder thereof
since the beginning of the Company's last fiscal year other than
information relating to the proposed Underwriting Agreement; or (E)
the undersigned is a member of the NASD, a person associated with a
member or an underwriter or related person with respect to the
proposed offering.
(iii) He knows of any reason why he cannot represent that (A)
all information furnished to the Company by or on behalf of the
undersigned for use in connection with the Registration Statement or
the Prospectus or any Preliminary Prospectus is true and complete; (B)
each Preliminary Prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto
complied when so filed in all material respects with the Securities
Act and the applicable rules and regulations thereunder; (C) the
Registration Statement and any amendments thereto will comply in all
material respects with the Securities Act and the applicable rules and
regulations thereunder, and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading; and
(D) the Preliminary
5
<PAGE>
Prospectus and Prospectus and any supplements thereto will not contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made not misleading; except that these representations and
warranties do not apply to statements or omissions in the Preliminary
Prospectus and the Prospectus or any amendments or supplements thereto
based upon information furnished to the Company in writing by any of
the Underwriters specifically for use therein;
(iv) He knows of any material adverse information with regard to
the current or prospective operations of the Company or any of its
subsidiaries, which is not disclosed in the Preliminary Prospectus; or
(v) Except as indicated in the Preliminary Prospectus, the
undersigned knows of any arrangements made or to be made by any
person, or of any transaction already affected, (A) to limit or
restrict the sale of the [Shares] or the [Warrants] (as such terms are
defined in the Underwriting Agreement) during the period of the public
distribution; (B) to stabilize the market for the [Shares] or the
[Warrants] (as such terms are defined in the Underwriting Agreement),
or (C) for withholding commissions, or otherwise to hold the
Underwriters or anyone else responsible for the distribution of his
participation.
(k) He will promptly notify the Company in writing of any material
adverse information with regard to the current or prospective operations of
the Company or its subsidiaries of which he learns after the date hereof
and which is not disclosed in the Registration Statement or the most recent
amendment thereto received by the undersigned.
(1) Except as indicated in Instruction 8 below and except as indicated
in a letter signed by the undersigned dated on or about the date hereof,
the principal reason for the proposed sale by the undersigned of his shares
of Common Stock in the proposed public offering is in order to provide
sufficient stock for a broad and orderly public market and to enable the
undersigned to obtain greater liquidity.
(m) Except as indicated in Instruction 9 below, neither the
undersigned, nor to the best of his knowledge, any associate of his, is
affiliated with any firm directly or indirectly engaged in the securities
business as a broker or dealer or underwriter, as an employee acting in any
capacity including that of an officer or registered representative, as a
director or partner, or as an equity investor or debt investor, other than
debt arising as a result of trading activities. [One need not include or
disclose investments in publicly held corporations which in turn have
investments in firms in the securities business if one's investment in the
publicly held corporation is of the same class of security as is publicly
held and does not exceed 5% of such class]
6
<PAGE>
(n) He has not distributed and will not distribute any prospectus or
other offering material in connection with the offering and sale of the
[Shares] and the [Warrants] (as such terms are defined in the Underwriting
Agreement) other than the Preliminary Prospectus and the prospectus or
other material permitted by the Securities Act.
(o) He has read Section [___] [indemnification] of the Underwriting
Agreement and understands that as a Selling Shareholder he agrees pursuant
to that Section to indemnify and hold harmless the Company and the
Underwriters, to the extent provided therein.
(p) The undersigned will notify the Company in writing immediately of
any changes in the foregoing information which should be made as a result
of developments occurring after the date hereof and prior to the Option
Closing Date (as such term is defined in the Underwriting Agreement). The
Attorneys-in-Fact may consider that there has not been any such development
unless advised to the contrary.
5. The Attorneys-in-Fact shall be entitled to act and rely upon any
statement, request, notice or instructions respecting this Power of Attorney
given by the undersigned, not only as to the authorization, validity and
effectiveness thereof, but also as to the truth and acceptability of any
information contained therein; provided, however, that any statement or notice
to the Attorneys-in-Fact with respect to the date of delivery under the
Underwriting Agreement or with respect to the non-effectiveness or termination
of the Underwriting Agreement, or advice that the Underwriting Agreement has not
been executed and delivered, shall have been confirmed in writing to the
Attorneys-in-Fact by the representatives of the Underwriters. It is understood
that the Attorneys-in-Fact assume no responsibility or liability to any person
other than to deal with the certificates deposited with the Custodian and the
proceeds from the sale of securities represented thereby in accordance with the
provisions hereof. The Attorneys-in-Fact (in such capacity) make no
representations with respect to and shall have no responsibility for the
Registration Statement or the Prospectus nor, except as herein expressly
provided, for any aspect of the offering of Units (as such term is defined in
the Underwriting Agreement), and no Attorney-in-Fact shall be liable for any
error of judgment or for any act done or omitted or for any mistake of fact or
law except for his own negligence or bad faith. The undersigned agrees to
indemnify each of the Attorneys-in-Fact for and to hold each of the
Attorneys-in-Fact harmless against any loss, claim, damage, liability or expense
incurred on the part of such Attorney-in-Fact arising out of or in connection
with his acting as Attorney-in-Fact under this Power of Attorney, as well as the
cost and expense of defending against any claim of liability in the premises,
and not due to such Attorney-in-Fact's own negligence or bad faith. The
undersigned agrees that such Attorney-in-Fact may consult with counsel of his
own choice (who may be counsel for the Company) and such Attorney-in-Fact shall
have full and complete authorization and protection for any action taken or
suffered by him hereunder in good faith and in accordance with the opinion of
such counsel.
6. It is understood that the Attorneys-in-Fact shall serve entirely
without compensation.
7
<PAGE>
7. The indemnities, agreements, representations, warranties and other
statements of the undersigned herein shall remain in full force and effect,
regardless of any investigation or statement as to the results thereof, made by
or on behalf of any Underwriter or the Company or any of its officers and
directors or any controlling person, and will survive delivery of and payment
for any shares sold by the undersigned. If the offering at any time is
terminated pursuant to a right given to either the Company or the Underwriters
in the Underwriting Agreement, the Selling Shareholders will have no obligation
to pay any registration expenses, but the obligations of the Selling
Shareholders to indemnify the Company and the Underwriters, as described in
Section 4(o) above, shall remain in effect.
This Power of Attorney shall terminate if the Registration Statement is
withdrawn or if it shall not have become effective on or prior to ______, 1998.
Witness the due execution of the foregoing Power of Attorney as of the date
written below.
INSTRUCTIONS
TO PARTICIPATE IN THE OFFERING, THIS POWER OF ATTORNEY MUST BE RETURNED TO THE
COMPANY DULY COMPLETED BY _____, 1998.
<TABLE>
<CAPTION>
<S> <C>
1. Fill in Date. -------------------------------------------
2. Fill in number of shares of Common
Stock beneficially* owned prior to the
closing of the public offering. -------------------------------------------
3. Fill in number of shares of Common The undersigned agrees to sell up to ____
Stock proposed to be sold. shares of Common Stock of Central European
Distribution Corporation.
4. Sign exactly as name or names appear -------------------------------------------
on stock certificate. If certificate is -------------------------------------------
held in more than one name, all must sign. -------------------------------------------
5. Fill in your address.
-------------------------------------------
6. Have this Power of Attorney notarized
in the appropriate form on the next
page(s).
</TABLE>
8
<PAGE>
7. Return this Power of Attorney, the
Custody Agreement, the stock power(s)
and your stock certificate(s) in the
enclosed envelope.
8. Please specify any reasons (other than
those stated in Section 4(l) above) for
selling your Common Stock:
9. Please specify any exceptions to the
representation contained in Section
4(m) above:
10. Notice to all Selling Shareholders who
are custodians, trustees and/or
guardians: Please enclose copies of all
documentation demonstrating your
authority to enter into and be bound by
this Power of Attorney and the Custody
Agreement (e.g., enclose appropriate
trust agreement, etc.).
_________________
*See Exhibit A attached hereto.
9
<PAGE>
ACKNOWLEDGMENT FOR INDIVIDUAL
STATE OF . . . . . . . . . . . . . . )
) SS.
COUNTY OF . . . . . . . . . . . . . .)
On this __th day of _______ in the year 1997, before me, a Notary Public in
and for the State of __________, personally appeared _________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to this instrument, and acknowledged
that he executed it.
(SEAL)
____________________________________________
Notary Public
State of____________________________________
ACKNOWLEDGMENT FOR ATTORNEY-IN-FACT
STATE OF . . . . . . . . . . . . . . )
) SS.
COUNTY OF . . . . . . . . . . . . . )
On this __th day of _______ in the year 1997, before me, a Notary Public in
and for the State of _______, personally appeared ______________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to this instrument as the attorney-in-
fact of _______________________ , and acknowledged to me that he subscribed the
name of _____________________________ thereto as principal, and his (her) own
name as attorney-in-fact.
(SEAL)
____________________________________________
Notary Public
State of____________________________________
10
<PAGE>
EXHIBIT A
DEFINITIONS
For purpose of the representations made in the Power of Attorney, the
following definitions shall be applicable:
"Associate" means (a) any corporation or organization (other than the
Company or any of its subsidiaries) of which the party executing the Power of
Attorney is an officer, director or partner or of which such party is, directly
or indirectly, the beneficial owner of 5% or more of any class of equity
securities, (b) any trust or other estate in which such party has a substantial
beneficial interest or as to which such party serves as trustee or in a similar
capacity, (c) his spouse, (d) any relative of his spouse or any relative of his
who has the same home as such party or who is a director or officer or key
executive of the Company or any of its subsidiaries, or (e) any partner,
syndicate member or person with whom such party agreed to act in concert with
respect to the acquisition, holding, voting or disposition of shares of the
Company's securities.
"Beneficially" when used in connection with the ownership of securities,
means (a) any interest in a security which entitles a party to any of the rights
or benefits of ownership even though such party may not be the owner of record
or (b) securities owned by such party directly or indirectly, including those
held by him for his own benefit (regardless of how registered) and securities
held by others for his benefit (regardless of how registered), such as by
custodians, brokers, nominees, pledges, etc., and including securities held by
an estate or trust in which such party has an interest as legatee or
beneficiary, securities owned by a partnership or which such party is a partner,
securities held by a personal holding company of which such party is a
stockholder, etc., and securities held in the name of such party's spouse, minor
children and any relative (sharing the same home). A "beneficial owner" of a
security includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise has or shares:
(1) Voting power which includes the power to vote, or to direct the voting
of, such security; and/or
(2) investment power which includes the power of dispose, or to direct the
disposition of such security.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract or otherwise.
"Family Relationship" means any relationship by blood, marriage or
adoption, not more remote than first cousin.
11
<PAGE>
"Material" when used to qualify a requirement for the furnishing of
information as to any subject, limits the information required to those matters
as to which an average prudent investor ought reasonably to be informed before
purchasing [Shares] or [Warrants] (as such terms are defined in the Underwriting
Agreement).
"Material Relationship" has not been defined by the Securities and Exchange
Commission. However, the Commission has indicated that it will probably construe
as a "material relationship" any relationship which tends to prevent arm's-
length bargaining in dealings with a company, whether arising from a close
business connection or family relationship, a relationship of control or
otherwise. It seems prudent, therefore, to consider that a party would have such
a relationship, for example, with any organization of which he is an officer,
director, trustee or partner or in which he owns, directly or indirectly, 10% or
more of the outstanding voting stock, or in which he has some other substantial
interest, and with any person or organization with whom he has, and with whom
any relative or spouse (or any other person or organization as to which he has
any of the foregoing other relationships) has, a contractual relationship.
The NASD defines a "Member" as being either any broker or dealer admitted
to membership in the NASD or any officer or partner of such a member, or the
executive representative of such a member or the substitute for such a
representative.
The NASD defines a "Person Associated with a Member" as being every sole
proprietor, partner, officer, director or branch manager of any member, or any
natural person occupying a similar status or performing similar functions, or
any natural person engaged in the investment banking or securities business who
is directly, or indirectly controlling or controlled by such member (for
example, any employee), whether or not any such person is registered or exempt
from registration with the NASD.
The NASD defines an "Underwriter or a Related Person" with respect to a
proposed offering as being underwriters, underwriter's counsel, financial
consultants and advisors, finders, members of the selling or distribution group,
and any and all other persons associated with or related to any of such persons.
12
<PAGE>
Exhibit 10.11
CUSTODY AGREEMENT BETWEEN SELLING
SHAREHOLDERS AND CUSTODIAN
, 1998
-----
[Name of Custodian]
[Address]
Ladies and Gentlemen:
There are delivered to you herewith one or more certificates, in negotiable
and proper deliverable form (with signatures guaranteed by a national or state
bank or trust company or by a member firm of the New York or American Stock
Exchange and accompanied by a duly executed stock power or powers, in blank,
bearing the signature of the undersigned so guaranteed), representing no less
than the number of issued and outstanding shares of common stock, par value $.01
per share (the "Common Stock") of Central European Distribution Corporation, a
Delaware corporation (the "Company"), set forth below the signature of the
undersigned at the end of this letter. If applicable, the undersigned has also
delivered the following documents with the certificates: if acting as a trustee
or in any other fiduciary or representative capacity, duly certified copies of
each trust agreement, will, letters testamentary or other instrument pursuant to
which the undersigned is authorized to act as a Selling Shareholder (as
hereinafter defined). The undersigned agrees to deliver to the Attorneys-in-Fact
(as hereinafter defined) or to you such additional documentation as the
Attorneys-in-Fact, or any one of them, or the Company, or the Representative (as
hereinafter defined), or you, or any of their or your respective counsel, may
request to effectuate or confirm compliance with any of the provisions hereof or
of the Underwriting Agreement (as hereinafter defined), all of the foregoing to
be in form and substance satisfactory in all respects to the Attorneys-in-Fact
and you. These certificates are to be held by you as Custodian for the account
of the undersigned and are to be disposed of by you in accordance with this
Custody Agreement.
Concurrently with the execution and delivery of this Custody Agreement, the
undersigned has executed a power of attorney (the "Power of Attorney") to
William V. Carey and or their duly designated substitutes
--------
(individually, the "Attorney-in-Fact" and collectively, the "Attorneys-in-
Fact"), authorizing the Attorneys-in-Fact, or any one of them, to sell from the
number of shares represented by the certificate(s) deposited with you hereunder
that number of shares indicated below the signature of the undersigned at the
end of this letter, or such lesser number as the Attorneys-in-Fact, or any one
of them, may determine, and for that purpose to enter into and perform an
underwriting agreement (the "Underwriting Agreement"), among the Company,
certain shareholders of the Company, including the undersigned (collectively,
the "Selling Shareholders"), and (the "Representative"), on behalf
-------------
of itself and as the representative of the other underwriters named in the
Underwriting Agreement (together with the Representative, the "Underwriters").
<PAGE>
You are authorized and directed to hold the certificates deposited with you
hereunder in your custody, and on the Option Closing Date (as defined in the
Underwriting Agreement) you shall (i) take all necessary action to cause the
number of shares which are to be sold by the undersigned on such date to be
transferred on the books of the Company to such names as the Representative
shall have instructed you and to surrender the certificates representing such
shares to , as transfer agent for the Common Stock of the Company, in
-----------
exchange for new certificates for such shares registered in such names and in
such denominations as the Representative shall have instructed you, (ii) upon
the instruction of the Attorneys-in-Fact, or any one of them, deliver such new
certificates to the Representative, for the accounts of the Underwriters,
against payment for such shares as specified in the Underwriting Agreement, and
(iii) give receipt for such payment, deposit the same to your account as
custodian, drain upon such accounts to pay such expenses as you may be
instructed to pay by the Attorneys-in-Fact, or any one of them, and, when
instructed by an Attorney-in-Fact to do so, remit to the undersigned the
balance, after deducting such expenses, of the amount received by you as payment
for such shares. With such remittance you shall also return to the undersigned
new certificates representing the number of shares of Common Stock, if any,
represented by the certificates deposited which are in excess of the number of
shares sold by the undersigned to the Underwriters.
If the Underwriting Agreement shall not be entered into prior to ,
-----
1998, or if it shall be terminated, or shall be prevented from becoming
effective pursuant to the provisions thereof, then, upon the written request of
the undersigned to you or when instructed by the Attorneys-in-Fact, or any one
of them, you are to return to the undersigned the certificates and stock powers
deposited with you hereunder.
Under the terms of the Power of Attorney the authority conferred thereby is
granted, made and conferred subject to and in consideration of the interests of
the Attorneys-in-Fact, the Company, the Underwriters and other Selling
Shareholders and, prior to , 1998, is an agency coupled with an interest
-----
and is therefore irrevocable and not subject to termination by the undersigned
or by operation of law, whether by the death or incapacity of the undersigned,
the termination of any trust or estate, the dissolution or liquidation of any
corporation or partnership or the occurrence of any other event, and the
obligations of the undersigned under the Underwriting Agreement are similarly
not subject to termination and shall remain in full force and effect until such
date. Accordingly, the certificates deposited with you hereunder and this
Custody Agreement and your authority hereunder are subject to the interests of
the Company, the Underwriters, and the other Selling Shareholders, and this
Custody Agreement and your authority hereunder is irrevocable and is not subject
to termination by the undersigned or by operation of law, whether by the death
or incapacity of the undersigned, the termination of any trust or estate, the
dissolution or liquidation of any corporation or partnership or the occurrence
of any other event. If the undersigned should die or become incapacitated, if
any trust or estate should be terminated, if any corporation or partnership
should be dissolved or liquidated, or if any other such event should occur,
before delivery of the shares to be sold by the undersigned under the
Underwriting Agreement, certificates for such shares shall be delivered by you
on behalf of the undersigned in accordance with the terms and conditions of the
Underwriting Agreement and this Custody Agreement, and action taken by you
pursuant to this
2
<PAGE>
Custody Agreement shall be as valid as if such death or incapacity, termination,
dissolution, liquidation or other event had not occurred, regardless of whether
or not either you or either or both of the Attorneys-in-Fact shall have received
notice of such death, incapacity, termination, dissolution, liquidation or other
event.
Until payment of the purchase price for the shares to be sold by the
undersigned to the Underwriters has been made to you pursuant to the
Underwriting Agreement by or for the account of the Underwriters, the
undersigned shall remain the owner of such shares and shall have the right to
vote such shares and all other shares, if any, represented by the certificates
deposited with you hereunder and to receive all dividends and distributions
thereon.
You shall be entitled to act and rely upon any statement, request, notice
or instructions respecting this Custody Agreement given to you by the Attorneys-
in-Fact, or any one of them.
In taking any action required by the Underwriters, you may rely upon a
writing by representatives of .
---------------
It is understood that you assume no responsibility or liability to any
person other than to deal with the certificate(s) deposited with you hereunder
and the proceeds from the sale of all or a portion of the shares represented
thereby in accordance with the provisions of this Custody Agreement, and the
undersigned agrees to indemnify and hold you harmless with respect to anything
done by you in good faith in accordance with the foregoing instructions.
This Custody Agreement constitutes a representation and warranty to the
other Selling Shareholders, the Company, the Attorneys-in-Fact, the
Underwriters, and the counsel of any such person, for purposes of rendering
their opinion to the Underwriters called for by the Underwriting Agreement, for
which purpose this Custody Agreement shall constitute a certificate, that:
1. The undersigned now has, and at the date of delivery of the Common
Stock to be sold by him to the Underwriters pursuant to the terms of the
Underwriting Agreement will have, good and marketable title to such stock, free
and clear of all liens, encumbrances, security interests, community property
rights, restrictions on transfer, equities and claims whatsoever (other than
pursuant to this Custody Agreement and the Underwriting Agreement), and the
undersigned now has and at such date will have full legal right and power and
all authorizations and approvals required by law and will have taken all actions
necessary to sell, transfer and deliver such stock under the Underwriting
Agreement. Upon the delivery of and payment for such stock under the
Underwriting Agreement, the Underwriters will receive good and marketable title
thereto, free and clear of all liens, encumbrances, security interests,
community property rights, restrictions on transfer, equities and adverse claims
whatsoever.
2. The undersigned has, and at all times through the Option Closing Date
under the Underwriting Agreement will have, full legal right and power and all
authorizations and approvals required by law to enter into this Custody
Agreement, the Power of Attorney and the Underwriting
3
<PAGE>
Agreement, and to carry out all the applicable terms and provisions hereof and
thereof, and this Custody Agreement, the Power of Attorney and the Underwriting
Agreement have been (or, upon execution by the Attorneys-in-Fact, or any one of
them, will be) duly executed and delivered and are, and at all times through the
Option Closing Date under the Underwriting Agreement will be, valid and binding
obligations of the undersigned, except as rights to indemnity hereunder may be
limited under applicable law. The consummation of the transactions contemplated
in the Underwriting Agreement will not result in a breach, violation or
contravention of any of the terms and provisions of, or constitute a default
under, any statute, any indenture, mortgage, will, deed of trust, note
agreement, or other agreement or instrument to which the undersigned is a party
or by which the undersigned is bound or to which any of the property of the
undersigned is subject, or any order, writ, injunction, decree, rule or
regulation of any court or governmental agency or body having jurisdiction over
the undersigned or any of the undersigned's properties and no consent, approval,
authorization or order of any court or governmental agency or body is required
for the performance of the Underwriting Agreement by the undersigned, except
such as are to have been obtained under the Securities Act of 1933, as amended,
and such as may be required under state securities laws in connection with the
purchase and distribution of shares by the Underwriters. As of the Option
Closing Date under the Underwriting Agreement, the sale, transfer and delivery
of the shares by the undersigned to the Underwriters is not subject to any right
of first refusal or other contractual restriction.
3. The undersigned has carefully reviewed the representations,
warranties, statements and agreements to be made by the undersigned as a Selling
Shareholder as contained in the Underwriting Agreement, including specifically
the indemnity agreement contained in the Underwriting Agreement, and does hereby
represent, warrant and agree that (a) such representations, warranties,
statements, and agreements insofar as they relate to the undersigned are true
and correct as of the date hereof and will be true and correct at all times
through the Closing Date under the Underwriting Agreement and (b) such
agreements, insofar as they relate to the undersigned, have been complied with
as of the date hereof and will be complied with on and after the Closing Date.
4. The undersigned has received a copy of a Registration Statement,
including a Preliminary Prospectus, for the offer and sale of 1,150,000 shares
of Common Stock and 1,150,000 redeemable warrants (the "Warrants") accompanying
each share of Common Stock (not including the shares and shares which may be
sold pursuant to the Underwriters' over-allotment option). To the best of the
undersigned's knowledge after reasonable investigation, there is no untrue
statement of a material fact included in the Registration Statement nor is there
an omission from the Registration Statement of any material fact required to be
stated therein or necessary to make the statements therein not misleading. The
undersigned will promptly notify the Attorneys-in-Fact of any facts coming to
his attention which would cause the preceding sentence not to be true.
5. The undersigned has not taken and will not take, directly or
indirectly, any action designed to or which has constituted or which might in
the future reasonably be expected to cause or result in stabilization or
manipulation of the price of the Company's Common Stock or the Warrants.
4
<PAGE>
6. The undersigned is 18 years of age or older, is of sound mind and is
not presently adjudged to be incompetent or otherwise to lack the capacity to
contract. No legal guardian has been appointed for the undersigned.
The foregoing representations, warranties and agreements, as well as those
contained in the Directors', Officers' and Selling Shareholders' Questionnaire
completed by the undersigned and submitted to the Company and those contained in
the Underwriting Agreement, are made for the benefit of, and may be relied upon
by, the other Selling Shareholders, the Custodian, the Attorneys-in-Fact, the
Company, the Underwriters, and the representatives, agents and counsel of any
such person.
This Custody Agreement shall be governed by the laws of the State of New
York, without regard to the conflict of law principles thereof.
Please acknowledge your acceptance hereof as Custodian, and receipt of the
certificates deposited with you hereunder, by executing and returning to the
undersigned the enclosed copy hereof.
Dated: , 1998
--------
Very truly yours,
<TABLE>
<S> <C>
-------------------------------------------
-------------------------------------------
Signature(s)
*To be signed in exactly the same manner as
the shares are registered.
-------------------------------------------
-------------------------------------------
(Note: The signature(s) must be guaranteed by
a bank or trust company having an office or a
correspondent in New York City or by a broker
which is a member firm of the New York or
American Stock Exchanges.)
Number of shares of Common Stock Maximum number of shares of Common Stock
represented by certificate(s) deposited to be sold to Underwriters pursuant to the
Power of Attorney:
shares shares
- ---------- ---------
</TABLE>
5
<PAGE>
I am the spouse of . On behalf of myself, my heirs and legatees,
----------
I hereby join in and consent to the terms of the foregoing Custody Agreement and
agree to the sale of the shares of the Common Stock of Central European
Distribution Corporation registered in the name of my spouse or otherwise
registered, which my spouse proposes to sell pursuant to the Underwriting
Agreement (as defined therein).
Dated: , 1998
----------
--------------------------------
(Signature of Spouse)
6
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of Common Number of Shares to be Sold from
Stock Represented by Each Certificates If Less Than all Shares
Stock Certificate Numbers Certificate Represented Thereby Are to be Sold*
<S> <C> <C>
- -------------------------- ----------------------------- ------------------------------------
- -------------------------- ----------------------------- ------------------------------------
- -------------------------- ----------------------------- ------------------------------------
- -------------------------- ----------------------------- ------------------------------------
- -------------------------- ----------------------------- ------------------------------------
TOTAL NUMBER OF SHARES TO BE SOLD ------------------------------------
</TABLE>
- --------------------------
* If no indication is made, selection to be at the Custodian's discretion.
The total for this column must equal the maximum number of shares of
Common Stock to be sold to the Underwriters, as indicated in the table
on page [__].
7
<PAGE>
CUSTODIAN'S ACKNOWLEDGE AND RECEIPT
[___________], as Custodian, acknowledges acceptance of the duties of
Custodian under the foregoing Custody Agreement and receipt of the certificates
referred to therein.
Dated: , 1998
------
[__________________]
By:
--------------------------
Name:
Title:
8
<PAGE>
PAYMENT INSTRUCTIONS
Please choose one of the methods of payment described below and provide the
requested information as indicated.
1. Direct deposit to a [ ] account:
----- ---------
Branch and Account Number:
------------------------------------------------
- --------------------------------------------------------------------------------
2. Wire funds to the following bank (you must contact your
-----
bank to make sure they can accept wire transfers and to obtain any other
information they may require as to accepting wire transfers):
Account Name:
--------------------------------------------------------------
Bank:
----------------------------------------------------------------------
Account Number:
------------------------------------------------------------
3. Cashier's check to be mailed or otherwise delivered in
-----
my name to:
Central European Distribution Corporation for the delivery
-----
to me
----- Directly to me at the following address:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
9
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Name Jurisdiction of Organization
- ---- ----------------------------
Carey Agri International Poland Sp. z o.o. Poland
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated November 28, 1997, in the Registration Statement
(Form SB-2) and related Prospectus of Central European Distribution
Corporation for the registration of 2,875,000 shares of its common stock and
various related warrants.
Warsaw, Poland Ernst & Young Audit Sp. z o.o.
December 16, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
"THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF CENTRAL EUROPEAN DISTRIBUTION CORPORATION
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS."
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 740 240
<SECURITIES> 0 0
<RECEIVABLES> 4,260 3,802
<ALLOWANCES> 49 58
<INVENTORY> 1,660 2,193
<CURRENT-ASSETS> 6,889 6,479
<PP&E> 607 671
<DEPRECIATION> 165 240
<TOTAL-ASSETS> 7,335 7,165
<CURRENT-LIABILITIES> 7,006 6,931
<BONDS> 0 0
0 0
0 0
<COMMON> 18 18
<OTHER-SE> 8 148
<TOTAL-LIABILITY-AND-EQUITY> 7,335 7,165
<SALES> 23,942 27,499<F1>
<TOTAL-REVENUES> 23,942 27,499
<CGS> 19,850 23,759
<TOTAL-COSTS> 19,850 23,759
<OTHER-EXPENSES> 3,919 3,406
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 124 106
<INCOME-PRETAX> 173 334
<INCOME-TAX> 111 194<F2>
<INCOME-CONTINUING> 62 140
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 62 140
<EPS-PRIMARY> 0.03 0.08
<EPS-DILUTED> 0.03 0.08
<FN>
<F1>All sales took place in the country of Poland.
<F2>All income taxes are for the country of Poland.
</FN>
</TABLE>
