<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1998
REGISTRATION NO. 333-42387
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5182 54-1865271
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION
ORGANIZATION) NUMBER)
---------------
211 NORTH UNION STREET, #100
ALEXANDRIA, VIRGINIA 22314
(703) 838-5568
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
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, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
STEVEN E. BALLEW, ESQ. MALCOLM I. ROSS, ESQ.
JOSEPH G. CONNOLLY, JR., ESQ. MICHAEL S. NOVINS, ESQ.
HOGAN & HARTSON L.L.P. BAKER & MCKENZIE
555 THIRTEENTH STREET, N.W. 805 THIRD AVENUE
WASHINGTON, D.C. 20004 NEW YORK, NEW YORK 10022
TEL: (202) 637-5600 TEL: (212) 751-5700
FAX: (202) 637-5910 FAX: (212) 759-9133
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
---------------
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. [_]
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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,
check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 SHARE(1) PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(2)................. 2,300,000 $7.00 $16,100,000 $4,749.50
- -----------------------------------------------------------------------------------------
Warrants(3)..................... 200,000 .001 200 .06
- -----------------------------------------------------------------------------------------
Common Stock(4)................. 200,000 9.10 1,820,000 536.90
- -----------------------------------------------------------------------------------------
Total....................... $17,920,200 $5,286.46(5)
- -----------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 300,000 shares of Common Stock subject to the Underwriters' over-
allotment option.
(3) To be issued to the Representatives.
(4) Issuable upon exercise of the warrants to be issued to the
Representatives.
(5) Previously paid.
Pursuant to Rule 416 under the Securities Act of 1933, as amended, there
are also being registered such additional shares as may become issuable
pursuant to the terms of the warrants.
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--DATED JULY 16, 1998
PROSPECTUS
2,000,000 SHARES
LOGO
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
COMMON STOCK
-----------
All of the 2,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), offered hereby are being sold by Central European Distribution
Corporation, a Delaware corporation ("CEDC" or the "Company"). Prior to this
Offering, there has been no public market for the Common Stock. It is currently
estimated that the initial public offering price of the Common Stock will be
between $6.00 and $7.00 per share. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price. The
Company has applied for quotation of the Common Stock on the Nasdaq SmallCap
Market ("Nasdaq") under the symbol "CEDC."
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS
PROSPECTUS.
-----------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................... $ $ $
- --------------------------------------------------------------------------------
Total(3)............................ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Excludes additional compensation to be received by the representatives of
the Underwriters (the "Representatives") in the form of (a) a non-
accountable expense allowance of $300,000 and (b) warrants (the
"Representatives' Warrants") to purchase up to 200,000 shares of Common
Stock. The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $1,225,000, including the Representatives' non-accountable expense
allowance.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 300,000 shares of Common Stock on the same terms and
conditions as the shares of Common Stock offered hereby solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock offered hereby are offered by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to certain other conditions. The Underwriters reserve
the right to withdraw, cancel or modify such offer and to reject orders in
whole or in part. It is expected that delivery of certificates representing the
shares of Common Stock will be made at the offices of Brean Murray & Co., Inc.,
New York, New York, on or about , 1998.
-----------
BREAN MURRAY & CO., INC. FINE EQUITIES, INC.
-----------
The date of this Prospectus is , 1998
<PAGE>
[GRAPHIC DEPICTING BRANDS OF BEVERAGES DISTRIBUTED BY THE COMPANY.]
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.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING, SYNDICATE SHORT COVERING AND PENALTY BID TRANSACTIONS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH
RULE 103 OF REGULATION M. SEE "UNDERWRITING."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................................................. 4
Risk Factors....................................................... 8
The Reorganization................................................. 16
Use of Proceeds.................................................... 17
Dividend Policy.................................................... 17
Capitalization..................................................... 18
Dilution........................................................... 19
Exchange Rate Data................................................. 20
Selected Consolidated Financial Data............................... 21
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 22
Business........................................................... 26
Regulation......................................................... 35
The Republic of Poland............................................. 38
Management......................................................... 39
Certain Transactions............................................... 45
Principal Stockholders............................................. 46
Description of Capital Stock....................................... 47
Shares Eligible for Future Sale.................................... 50
Underwriting....................................................... 51
Legal Matters...................................................... 53
Experts............................................................ 53
Enforceability of Certain Civil Liabilities........................ 53
Available Information.............................................. 54
Index to Consolidated Financial Statements......................... F-1
</TABLE>
----------------
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 BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURI-
TIES 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 UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPEC-
TUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DE-
LIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
3
<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 parent holding company of Carey Agri International Poland
Sp. z o.o. ("Carey Agri") and (ii) assumes no exercise of the Underwriters'
over-allotment option, the Representatives' 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, is 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,
Krakow, Gdynia and Katowice. The Company currently distributes approximately
300 brands in three categories: beer, spirits and wine. The Company imports and
distributes eight international beers, including Guinness, Corona, Miller and
Foster's. 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. In addition
to its distribution agreements with various alcoholic beverage suppliers, the
Company believes that it is currently the only holder of the license needed to
import cigars into Poland. The Company's net sales and net income for the
three-month period ended March 31, 1998 were $9.8 million and $246,000,
respectively, as compared to net sales of $8.0 million and a net loss of $7,000
for the three-month period ended March 31, 1997.
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 Company believes
that it will be able to utilize its distribution network to distribute
additional complementary consumer products throughout Poland.
In 1996, Poland was reportedly the fifth largest consumer of vodka in the
world. The total market for alcohol products in Poland was $2.0 billion in
1996. Traditionally, the population of Poland has primarily consumed domestic
vodka, but in recent years there has been a general shift in the population's
consumption habits from vodka to other types of alcohol that are primarily
imported, such as beer, wine and spirits. The shift in consumption habits in
Poland is a result of: (i) stabilization of the Polish economy, including
increased wages as well as a decrease in the rate of inflation from 250% in
1990 to 14.9% in 1997; (ii) an increase in tourism, which has created a demand
for imported products; (iii) an increase in multinational firms doing business
in Poland, which has brought both capital into the country and new potential
customers for the Company's products; and (iv) increased availability and
decreased prices for imported products.
4
<PAGE>
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
(June 30, 1997 population--approximately 356,000), Lodz (June 30, 1997
population--approximately 815,000) and Bialystok (June 30, 1997 population--
approximately 281,000).
The Company will seek to acquire successful wholesalers which are primarily
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 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 opened for
business in February 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 small number of the more
popular imported products, which are brands often imported by the Company.
There are currently 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 its 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. 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.
5
<PAGE>
THE OFFERING
Common Stock to be Offered by
the Company........................... 2,000,000 shares
Common Stock to be Outstanding After
the Offering(1)....................... 3,780,000 shares
Use of Proceeds....................... The anticipated uses of the net pro-
ceeds from this Offering, in approxi-
mate amounts, are: (i) $2.0 million to
prepay suppliers of alcohol beverages
to secure more favorable purchase
terms; (ii) $1.8 million to retire bank
financing expected to be outstanding on
the date of this Prospectus; (iii) $1.2
million to purchase equipment (vehicles
and computer upgrades); (iv) $0.5 mil-
lion to open nine retail stores; and
(v) $5.2 million for working capital
and general corporate purposes, includ-
ing acquisitions of wholesalers of al-
cohol beverages in Poland and an im-
porter of wine and to add other alco-
holic beverage brands. See "Use of Pro-
ceeds."
Proposed Nasdaq Symbol........... CEDC
- --------
(1) Does not include: (i) 300,000 shares of Common Stock issuable upon exercise
of the Underwriters' over-allotment option; (ii) 200,000 shares of Common
Stock issuable upon exercise of the Representatives' Warrants; and (iii)
750,000 shares of Common Stock reserved for issuance under the Company's
1997 Stock Incentive Plan (the "Plan"), of which options for 82,500 shares
have been granted. See "Management--Executive Compensation" and
"Underwriting."
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data of the
Company as of and for each of the five fiscal years in the period ended
December 31, 1997 and the three months ended March 31, 1997 and 1998. The
income statement data for the years ended December 31, 1995, 1996 and 1997 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 years ended December 31, 1993 and 1994 and the three
months ended March 31, 1997 and 1998 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 March 31, 1998 is as
described in note (2) below. Operating results for interim periods are not
necessarily indicative of the results that may be achieved for the entire
fiscal 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>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $4,313 $6,788 $16,017 $23,942 $40,189 $7,970 $9,798
Cost of goods sold...... 3,157 5,480 13,113 19,850 34,859 6,907 8,280
Sales, general and
administrative
expenses............... 1,559 1,356 2,603 3,569 4,198 926 1,128
------ ------ ------- ------- ------- ------ ------
Operating income
(loss)................. (403) (48) 301 523 1,132 137 390
Interest expense and net
realized and unrealized
foreign currency
transaction losses, net
of other income........ 454 315 106 350 483 123 3
Income (loss) before
income taxes........... (857) (363) 195 173 649 14 387
Net income (loss)....... $ (783) $ (331) $ 75 $ 62 $ 308 $ (7) $ 246
====== ====== ======= ======= ======= ====== ======
Net income (loss) per
common share, basic and
dilutive (1)........... $(0.44) $(0.19) $ 0.04 $ 0.03 $ 0.17 $(0.00) $ 0.14
====== ====== ======= ======= ======= ====== ======
Number of outstanding
shares of Common Stock
(1).................... 1,780 1,780 1,780 1,780 1,780 1,780 1,780
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
ACTUAL AS ADJUSTED (2)
------ ---------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 175 $ 9,401
Working capital (deficit)......................... (539) 10,670
Total assets...................................... 9,111 17,796
Long-term debt and capital lease obligations, less
current portion.................................. 72 5
Stockholders' equity.............................. 592 11,327
</TABLE>
- --------
(1) Gives effect to the 1,780,000 shares issued in the Reorganization. See "The
Reorganization."
(2) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $6.50
per share (the midpoint of the range specified on the front cover of the
Prospectus), after deduction of underwriting discounts and commissions and
estimated offering expenses and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
7
<PAGE>
RISK FACTORS
The securities 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 the Common Stock offered hereby 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, Jeffrey Peterson, its
Vice Chairman and Executive Vice President, and Robert Bohojlo, its Vice
President and Chief Financial Officer who joined the Company on January 1,
1998. 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 purchased 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 his
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 order to manage its growth and expansion. Failure to successfully
hire needed personnel 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 1995, 1996 and 1997 and the three months ended March
31, 1998 constituted approximately $5.1 million, $8.0 million, $8.3 million
and $1.9 million, respectively, or 32%, 33%, 21% and 20%, respectively, of its
net sales. The Company distributes the remainder of the alcoholic beverages in
its portfolio on a nonexclusive basis, and, therefore, the Company enjoys
little competitive advantage with regard to the distribution of these
beverages which are readily available to the Company's competitors at prices
similar to those which the Company pays. Furthermore, most of the Company's
distribution
8
<PAGE>
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 2%, 14%, 39% and 40% of
the Company's net sales during 1995, 1996 and 1997 and the three months ended
March 31, 1998, respectively) and products of United Drinks and Vintners
(which accounted for approximately 20%, 17%, 10% and 10% of the Company's net
sales during 1995, 1996 and 1997 and the three months ended March 31, 1998,
respectively) can be terminated by either party on one month's notice. In
addition, products distributed for United Distiller Finlandia Group ("United
Distillers") (which accounted for approximately 14%, 15%, 15% and 14% of the
Company's net sales during 1995, 1996 and 1997 and the three months ended
March 31, 1998, 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 Growth through 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. In
addition, there can be no assurance that any acquired businesses will be
profitable at the time of their acquisition or will achieve or maintain
profitability levels that justify the investment therein, or that the Company
will be able to realize operating and economic efficiencies following such
acquisitions.
The Company's ability to grow through the acquisition of additional
companies will also be dependent upon the availability of capital to complete
such 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.
Under the Polish Anti-Monopoly Act, acquisitions may be blocked or have
conditions imposed upon them by the Polish Office for Protection of
Competition and Consumers (the "Anti-Monopoly Office") if the Anti-Monopoly
Office determines that the acquisition has a negative impact on the
competitiveness of the Polish market.
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
9
<PAGE>
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 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 commencing 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.
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 greater managerial, financial and other
resources than the Company. See "Business--Competition."
Dependence on Principal Suppliers
United Distillers and United Drinks and Vintners alcoholic beverages
accounted for 15% and 17%, respectively, of net sales in 1996, for 15% and
10%, respectively, of net sales in 1997 and for 14% and 10%, respectively, of
net sales for the three month period ended March 31, 1998. United Distillers
and Guinness are part of the same business enterprise, Guinness plc, which has
recently combined with Grand Met plc, of which United Drinks and Vintners was
a part. The combined company is operating under the name Diageo plc. Alcoholic
beverages purchased from these three companies accounted for 38% of the
Company's net sales in 1996, 29% for 1997 and 28% for the three month period
ended March 31, 1998. The termination of the Company's relationship with any
of these 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, 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 44.7% of the
outstanding Common Stock. In the event that the Underwriters' over-allotment
option is exercised in full, such stockholders will own beneficially in the
aggregate approximately 41.4% of the outstanding Common Stock. Such persons,
if they act together, are expected to be the largest group of Company
stockholders, and, as such, will have a significant impact on the election of
the Company's directors and on the implementation of business strategies. In
addition, such concentration of ownership may have the effect of delaying or
preventing transactions
10
<PAGE>
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. See "Principal Stockholders"
and "Description of Capital Stock."
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. 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 the vote of 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 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 $5.4
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 Capital Stock."
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.
11
<PAGE>
Fluctuations in Quarterly Operating Results
The Company has experienced, and expects to continue to experience,
significant fluctuations in its quarterly operating results. The Company's
future operating results are dependent upon a number of factors including, but
not limited to, the demand for its products, the timing of its sales, the
length of its sales cycle and the timing and development of any competing
businesses or products and legislation.
No Intention to Pay Dividends
Neither CEDC nor Carey Agri has ever declared or paid any dividends on its
Common Stock, and CEDC 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 are
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 operations in compliance with any
licensing and permit requirements. The anticipated import and sale of cigars
by the Company will also be subject to regulation.
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, therefore, 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.
Since the Company expects to sell cigars at its retail stores, it will also be
subject to public concern and governmental regulation over the sale and use of
tobacco products.
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 products
to maintain its profit margins. The effect on the Company's business
operations of such an
12
<PAGE>
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. The anticipated import and sale of cigars by
the Company will also be subject to regulation and taxation. 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, 1998. 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."
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
than those that control a lesser share. 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. The Law on Public Trading in Securities, which
came into force on January 4, 1998, provides for an amendment to the Anti-
Monopoly Act to repeal the exemption from notification of transactions made on
a stock exchange, but such law does not stipulate whether this is applicable
to stock exchanges outside Poland or only those within Poland. There can be no
assurance that the Anti-Monopoly Office will approve any future acquisition by
the Company.
RISKS 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 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
13
<PAGE>
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. 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 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 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,
approximately 18% in 1996 and approximately 15% in 1997. In addition, the
exchange rate for the zloty per U.S. Dollar has stabilized and the rate of
devaluation of the zloty has generally decreased since 1991. While the zloty
exchange rate per U.S. Dollar and rate of devaluation increased in 1997, both
rates have again decreased in 1998. 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; Possible Volatility of Stock Price
Prior to the Offering, there has not been any public market for any of the
Company's securities. Although the Company has applied for quotation of the
Common Stock on Nasdaq, 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.
14
<PAGE>
Subsequent to the Offering, the price for the Common Stock 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, investor
perception of the Company and other comparable companies and general economic
and other conditions.
Immediate and Substantial Dilution
Purchasers of the Common Stock in the Offering will experience immediate and
substantial dilution in net tangible book value per share of Common Stock and
existing stockholders will receive a material increase in the net tangible
book value per share of their shares of Common Stock. Assuming an initial
public offering price of $6.50 per share (the midpoint of the range specified
on the front cover of the Prospectus), the immediate dilution to new investors
will be $3.50 per share (53.8%). See "Dilution."
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 investment grade, interest-bearing 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 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 $1.8 million of
outstanding bank financing, of which approximately $0.2 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."
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 3,780,000 shares of Common Stock outstanding, including
2,000,000 shares of Common Stock offered hereby (without giving effect to
300,000 shares of Common Stock which may be issued upon exercise of the
Underwriters' over-allotment option). The securities 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, executive officers and existing stockholders own
1,780,000 shares of Common Stock, all of which will be eligible for sale under
Rule 144 commencing 90 days after
15
<PAGE>
completion of the Offering. Such persons have agreed with Brean Murray & Co.,
Inc. that they will not, for a 24-month period after the completion of the
Offering, without the prior written consent of Brean Murray & Co., Inc.,
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.
In connection with the Offering, the Representatives have been granted
warrants to purchase 200,000 shares of Common Stock at a purchase price per
share of 130% of the initial public offering price per share. In addition, the
Company has 750,000 shares of Common Stock reserved for issuance under the
Plan, under which options to purchase 82,500 shares have been granted. For the
respective terms of such warrants and options, the holders thereof are given
an opportunity to profit from a rise in the market price of the Common Stock
with a resulting dilution in the interests of other stockholders. Further,
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. While these
warrants and options are outstanding, the Company's ability to obtain
additional financing on favorable terms may be adversely affected. See
"Management--Compensation Plans--1997 Stock Incentive Plan," "Description of
Capital Stock" and "Underwriting."
POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ MARKET
While the Company's Common Stock meets the current Nasdaq listing
requirements and is 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 market makers 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 may be delisted from Nasdaq. In such event, trading, if
any, in the Common Stock 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 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 may be lower than might otherwise be attained.
THE REORGANIZATION
Prior to 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."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby, after deducting the underwriting discounts and
commissions and estimated offering expenses payable by the Company, are
estimated to be approximately $10.7 million ($12.5 million if the
Underwriters' overallotment option is exercised in full), based on an assumed
initial public offering price of $6.50 per share (the midpoint of the range
specified on the front cover of this Prospectus). The anticipated uses of
these net proceeds, in approximate amounts, are as follows:
<TABLE>
<CAPTION>
APPLICATION AMOUNT PERCENTAGE
----------- ----------- ----------
<S> <C> <C>
Prepay suppliers of
alcohol beverages to
secure more
favorable purchase
terms.................... $ 2,000,000 18.7%
Retire bank financing(1).. 1,800,000 16.8
Purchase equipment (vehi-
cles and computer up-
grades).................. 1,200,000 11.2
Open nine retail stores... 500,000 4.7
Working capital and gen-
eral corporate purpos-
es(2).................... 5,200,000 48.6
----------- -----
Total................... $10,700,000 100.0%
=========== =====
</TABLE>
- --------
(1) See notes 4, 6, 13 and 14 in the Notes to Consolidated Financial
Statements for a description of the long-term and short-term bank
financing to be prepaid.
(2) A portion of such funds may be used in connection with acquisitions of
wholesalers of alcohol beverages in Poland and an importer of wine and to
add other alcoholic beverage brands.
Although the Company currently has no agreements or understandings to affect
any business combination, it does intend to actively seek and investigate such
opportunities as they become available. 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. Pending such uses, the
net proceeds will be invested in investment grade, interest-bearing
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. If, for example,
attractive acquisitions were to become available on terms favorable to the
Company, funds may be used for those purposes and the construction of the
warehouse facility delayed or even canceled in favor of leasing another
facility.
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, CEDC's capital requirements, surplus, general financial
condition and 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 or 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 March 31, 1998, Carey Agri had available
$335,000 which could be declared in dividends.
17
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31,1998, the actual
capitalization and short-term debt and current maturities of long-term
obligations of the Company and the capitalization as adjusted to give effect
to the sale of the 2,000,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $6.50 per share (the midpoint of the
range specified on the front cover of the Prospectus) and the application of
the net proceeds therefrom. 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>
MARCH 31, 1998
------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt and current maturities of long-term obliga-
tions...................................................... $1,849 $ 66
====== =======
Long-term debt, less current maturities..................... $ 67 $ --
------ -------
Capital lease obligations, less current portion............. 5 5
------ -------
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares autho-
rized; no shares issued and outstanding.................. -- --
Common Stock, $.01 par value, 20,000,000 shares autho-
rized;
issued and outstanding, 1,780,000 shares at December 31,
1997 (3,780,000 shares, as adjusted)(1).................. 18 38
Additional paid-in-capital.................................. 36 10,751
Retained earnings........................................... 526 526
Foreign currency translation adjustment..................... 12 12
------ -------
Total stockholders' equity.............................. 592 11,327
------ -------
Total capitalization.................................... $ 664 $11,398
====== =======
</TABLE>
- --------
(1) Excludes (i) 300,000 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any; (ii) 200,000 shares
of Common Stock issuable upon the exercise of the Representatives'
Warrants; and (iii) 750,000 shares of Common Stock reserved for issuance
under the Plan, under which options to purchase 82,500 shares have been
granted and are outstanding. See "Management--Compensation Plans--1997
Stock Incentive Plan" and "Underwriting."
18
<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1998 was $592,000
or $0.33 per share of Common Stock. Net tangible book value per share
represents the amount of total tangible assets of the Company, less total
liabilities, divided by the number of shares of Common Stock outstanding.
After giving effect to the sale by the Company of 2,000,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $6.50 per
share (the midpoint of the range specified on the front cover of the
Prospectus) and the application of the estimated net proceeds therefrom as set
forth under "Use of Proceeds," the net tangible book value of the Company as
of March 31, 1998 would have been approximately $11.3 million, or $3.00 per
share of Common Stock. This represents an immediate increase in net tangible
book value of $2.67 per share to existing stockholders and an immediate
dilution of $3.50 per share (53.8%) to new investors purchasing Common Stock
in this Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ................. $6.50
Net tangible book value per share at March 31, 1998............ $0.33
Increase per share attributable to new investors............... 2.67
-----
Net tangible book value per share after the Offering............. 3.00
-----
Dilution per share to new investors.............................. $3.50
=====
</TABLE>
The following table summarizes, as of March 31, 1998, 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.
<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 47.1% $ 116,000 0.9% $ 0.09
New Investors........... 2,000,000 52.9 13,000,000 99.1 $ 6.50
--------- ----- ----------- -----
Total.................. 3,780,000(1) 100.0% $13,116,000 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Excludes (i) 300,000 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any; (ii) 200,000 shares
of Common Stock issuable upon the exercise of the Representatives'
Warrants; and (iii) 750,000 shares of Common Stock reserved for issuance
under the Plan, under which options to purchase 82,500 shares have been
granted and are outstanding. See "Management--Compensation Plans--1997
Stock Incentive Plan" and "Underwriting."
19
<PAGE>
EXCHANGE RATE DATA
In this Prospectus, references to "U.S. Dollars" or "$" 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.
Based on inflation data from the International Monetary Fund, Poland is no
longer considered a hyper-inflationary economy. Therefore, the Company ceased
accounting for its Polish activities using provisions applicable to hyper-
inflationary economies on January 1, 1998.
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 July 15, 1998, such rate was
PLN 3.45 = $1.00.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ ---------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Exchange rate at end of period....... 2.13 2.44 2.47 2.88 3.53 3.45
Average exchange rate during
period(1)........................... 1.81 2.27 2.42 2.70 3.28 3.49
Highest exchange rate during period.. 2.13 2.45 2.54 2.88 3.56 3.56
Lowest exchange rate during period... 1.58 2.13 2.32 2.47 2.86 3.42
</TABLE>
- --------
(1) The average of the exchange rates on the last day of each month during the
applicable period.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected consolidated financial data of the
Company as of and for each of the five fiscal years in the period ended
December 31, 1997 and the three months ended March 31, 1997 and 1998. The
income statement data for the years ended December 31, 1995, 1996 and 1997 and
the balance sheet data as of December 31, 1995, 1996 and 1997 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 years ended December 31, 1993 and 1994 and the three
months ended March 31, 1997 and 1998, and the balance sheet data as of
December 31, 1993 and 1994 and March 31, 1998, are unaudited, but include, in
the opinion of management, all adjustments considered necessary for a fair
presentation of such data. Operating results for the interim periods are not
necessarily indicative of the results that may be achieved for the entire
fiscal 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>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- --------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ------- ------- ------- ------ ------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $4,313 $6,788 $16,017 $23,942 $40,189 $7,970 $9,798
Cost of goods sold...... 3,157 5,480 13,113 19,850 34,859 6,907 8,280
------ ------ ------- ------- ------- ------ ------
Gross profit............ 1,156 1,308 2,904 4,092 5,330 1,063 1,518
Sales, general and
administrative
expenses............... 1,559 1,356 2,603 3,569 4,198 926 1,128
------ ------ ------- ------- ------- ------ ------
Operating income
(loss)................. (403) (48) 301 523 1,132 137 390
Non-operating income
(expense)
Interest expense....... (69) (50) (106) (124) (172) (44) (46)
Realized and unrealized
foreign currency
transaction gains
(losses), net......... (372) (118) (84) (232) (326) (104) 31
Other income (expense),
net................... (13) (147) 84 6 15 25 12
------ ------ ------- ------- ------- ------ ------
Income (loss) before in-
come taxes............. (857) (363) 195 173 649 14 387
Income (taxes) credit... 74 32 (120) (111) (341) (21) (141)
------ ------ ------- ------- ------- ------ ------
Net income (loss)....... $ (783) $ (331) $ 75 $ 62 $ 308 $ (7) $ 246
====== ====== ======= ======= ======= ====== ======
Net income (loss) per
common share, basic and
dilutive(1)............ $(0.44) $(0.19) $ 0.04 $ 0.03 $ 0.17 $(0.00) $ 0.14
====== ====== ======= ======= ======= ====== ======
Average number of out-
standing shares of Com-
mon Stock(1)........... 1,780 1,780 1,780 1,780 1,780 1,780 1,780
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------------- --------------
1993 1994 1995 1996 1997 1998
----------- ----------- ------- ------- ------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................... $ 50 $ 251 $ 595 $ 740 $ 1,053 $ 175
Working capital (defi-
cit)................... 115 (221) 27 (117) (508) (539)
Total assets............ 1,430 1,692 3,264 7,335 12,530 9,111
Long-term debt and capi-
tal lease obligations,
less current portion... -- -- 180 303 47 72
Stockholders' equity
(deficit).............. 220 (111) (36) 26 334 592
</TABLE>
- --------
(1) Gives effect to the 1,780,000 shares of Common Stock issued in the
Reorganization. See "The Reorganization."
21
<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 purchases the alcoholic beverages it distributes from producers as
well as other importers and wholesalers. Almost all such purchases are made
with the sellers providing a period of time, generally between 25 and 90 days,
before the purchase price is to be paid by the Company. The Company sells the
alcoholic beverages with a mark-up over its purchase price, which mark up
reflects the market price for such individual product brands in the Polish
market. The Company's bad debt ratio provision as a percentage of net sales
was 0.21% in 1995, 0.08% in 1996, 0.12% in 1997 and 0.11% in the three-month
period ended March 31, 1998.
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 1997, 14.9%--as well as the devaluation of the Polish
zloty compared to the U.S. Dollar, which was 1.2%, 16.6%, and 22.6% in 1995,
1996 and 1997, respectively.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Net sales increased $1.83 million, or 22.9%, from $7.97 million during the
three-month period ended March 31, 1997 to $9.80 million during the three-
month period ended March 31, 1998. This increase was mainly due to the
addition of new products and increased market penetration by the existing
distribution system.
Cost of goods sold increased $1.37 million, or 19.9%, from $6.91 million in
the three-month period ended March 31, 1997 to $8.28 million in the three-
month period ended March 31, 1998 as a result of the factors discussed above.
As a percentage of net sales, cost of goods sold decreased from 86.7% to
84.5%. This decrease was mainly due to price increases for domestic vodka,
which offset the higher portion of vodka sales. Domestic vodka sells at a
lower gross margin than imported alcohol products.
Sales, general and administrative expense increased 21.8% from $0.93 million
in the three-month period ended March 31, 1997 to $1.13 million in the three-
month period ended March 31, 1998. This increase was mainly due to the
expansion of sales noted above. As a percentage of net sales, sales, general
and administrative expenses remained relatively constant (11.6% compared to
11.5%).
Interest expense increased $2,000, or 4.5%, from $44,000 in the three-month
period ended March 31, 1997 to $46,000 in the three-month period ended March
31, 1998. This increase was mainly due to additional short-term credits to
support the sales growth noted above. As a percentage of net sales, interest
expense decreased from 0.6% to 0.5%.
Net realized and unrealized foreign currency transactions resulted in gains
of $31,000 in the three-month period ended March 31, 1998. In the
corresponding three-month period of 1997, net realized and unrealized foreign
currency transactions resulted in losses of $104,000. The gains in the three-
month period ended March 31, 1998 were mainly due to the appreciation of the
zloty.
22
<PAGE>
Income tax expense increased $120,000, from $21,000 in the three months
ended March 1997 to $141,000 in the corresponding period in 1998. This
increase was mainly due to the increase in income before income taxes from
$14,000 to $387,000, respectively.
Net income increased $253,000, from a loss of $7,000 in the three months
ended March 31, 1997 to net income of $246,000 in the three months ended March
31, 1998. This increase is due to the factors noted above.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales increased $16.25 million, or 67.9%, from $23.94 million in 1996 to
$40.19 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 customers.
Costs of goods sold increased $15.01 million, or 75.6%, from $19.85 million
in 1996 to $34.86 million in 1997. This increase was mainly due to the
increase in net sales noted above. As a percentage of net sales, cost of goods
sold increased from 82.9% in 1996 to 86.7% 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 $629,000, or 17.6%,
from $3.57 million in 1996 to $4.20 million in 1997. This increase was mainly
due to the increase in net sales discussed above. As a percentage of sales,
sales, general, and administrative expenses decreased from 14.9% in 1996 to
10.4% 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 $48,000, or 38.7%, from $124,000 in 1996 to
$172,000 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 0.5% in 1996 to 0.4% in 1997.
Net realized and unrealized foreign currency transaction losses increased
$94,000, or 40.5%, from $232,000 in 1996 to $326,000 in 1997. The 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. As a percentage of
sales, net realized and unrealized foreign currency transaction losses
decreased from 1.0% in 1996 to 0.8% in 1997.
Income tax expense increased $230,000, or 207.2%, from $111,000 in 1996 to
$341,000 in 1997. This increase was mainly due to the increase in income
before income taxes from $173,000 in 1996 to $649,000 in 1997. The effective
tax rate was 64.2% in 1996 and 52.5% in 1997. Permanent differences (for items
such as non-deductible interest, taxes and depreciation) between financial and
taxable income normally make up a considerably lower percentage of income
before income taxes when income before income taxes is higher, as it was in
1997. For this reason, the effective tax rate was significantly lower in 1997.
See notes to the consolidated financial statements for further information on
income taxes.
Net income increased $246,000, or 396.8%, from $62,000 in 1996 to $308,000
in 1997. This increase was due to the factors noted 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 was 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
23
<PAGE>
territory from March 1996; introducing domestically produced vodka into the
Warsaw, Krakow 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 was 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 net
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 was 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 only 1.2%. This factor
resulted in higher losses. As a percentage of sales, net 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 was 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 was mainly due to the decrease in income before income taxes from
$195,000 in 1995 to $173,000 in 1996. The effective tax rate was 61.5% in 1995
and 64.2% 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 was 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 $344,000 in 1995 compared
to an increase of $145,000 in 1996 and an increase of $313,000 in 1997. Cash
decreased $878,000 at March 31, 1998 compared to December 31, 1997. Cash flow
used in operations was $81,000 in 1995 compared to cash flow provided from
operations of $32,000 in 1996 and $753,000 for 1997. Cash used by operations
was $1,125,000 in the three-month period ended March 31, 1998 due mainly to
reductions ($4,471,000) of trade payables in the first quarter of 1998.
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 $1.9 million on March 31, 1998 and are
expected to decrease to approximately $1.8 million at the time of the
Offering, which amounts 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 or which have been waived by the lenders.
24
<PAGE>
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 $1,200,000 of the net proceeds from
the Offering to purchase computer upgrades and 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 $600,000. 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 24-30%
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 15% in 1997. In
addition, the exchange rate for the zloty per U.S. Dollar has stabilized and
the rate of devaluation of the zloty has generally decreased since 1991. While
the zloty exchange rate per U.S. Dollar and the rate of devaluation increased
in 1997, both rates have again decreased in 1998. 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 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.
YEAR 2000 COMPLIANCE
The Company does not expect the cost of converting its computer systems to
year 2000 compliance will be material to its financial condition or results of
operations. The Company believes that it will be able to achieve year 2000
compliance by the end of 1999, and does not currently anticipate any
disruption in its operations as the result of any failure by the Company to be
in compliance. The Company does not currently have any information concerning
the year 2000 compliance status of its suppliers and customers.
25
<PAGE>
BUSINESS
The Company, formed in 1990, is 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, Krakow, Gdynia and Katowice. The Company currently distributes
approximately 300 brands in three categories: beer, spirits and wine. The
Company imports and distributes eight international beers, including Guinness,
Corona, Miller and Foster's. 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. In addition to its distribution agreements with various alcoholic
beverage suppliers, the Company believes that it is currently the only holder
of the license needed to import cigars into Poland. The Company's net sales
and net income for the three-month period ended March 31, 1998 were
approximately $9.8 million and $246,000, respectively, as compared to net
sales of $8.0 million and a net loss of $7,000 for the three-month period
ended March 31, 1997.
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. The Company believes that it
will be able to utilize its distribution network to distribute additional
complementary consumer products throughout Poland.
INDUSTRY OVERVIEW
CONSUMPTION. In 1996, Poland was reportedly the fifth largest consumer of
vodka in the world. The total market for alcohol products in Poland was $2.0
billion in 1996. Traditionally, the population of Poland has primarily
consumed domestic vodka, but in recent years there has been a general shift in
the population's consumption habits from vodka to other types of alcohol that
are primarily imported, such as beer, wine and spirits. The shift in
consumption habits in Poland is a result of: (i) stabilization of the Polish
economy, including increased wages as well as a decrease in the rate of
inflation from 250% in 1990 to 14.9% in 1997; (ii) an increase in tourism,
which has created a demand for imported products; (iii) an increase in
multinational firms doing business in Poland, which has brought both capital
into the country and new potential customers for the Company's products; and
(iv) increased availability and decreased prices for imported products.
DISTRIBUTION. Currently, the market for the distribution of alcohol in
Poland is highly fragmented. There are numerous distributors spread throughout
the country, all delivering primarily one type of product (i.e., domestic
vodka). Furthermore, distributors have been located regionally, rather than
nationally due to the difficulties in establishing a nationwide distribution
system, including the capital required to set up such a system. Distributed
alcohol is delivered to both off-trade sites and on-trade sites. Off-trade
sites include Polish-owned and managed businesses such as small grocery stores
as well as major chain stores. On-trade sites include bars, nightclubs, hotels
and restaurants. There has been a trend to consolidate many off-trade sites
which would be classified as "mom and pop" stores as well as a trend toward
expanding major chain stores. The Company believes that it is well positioned
to take advantage of both the trends in consumption and distribution.
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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 (June 30, 1997 population--approximately 356,000), Lodz
(June 30, 1997 population--approximately 815,000) and Bialystok (June 30, 1997
population--approximately 281,000).
The Company will seek to acquire successful wholesalers which are primarily
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 October 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 opened
for business in February 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 small number of the more
popular selling 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 its 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
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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
Krakow (1993), Wroclaw (1994), Szczecin (1994), Gdynia (1994), Katowice
(1995), Torun (1995) and Poznan (1996).
PRODUCT LINE
The Company currently offers over 300 brands of beverages in three
categories: (a) beer; (b) spirits; and (c) wine. Its brands of imported beer
accounted for 22%, 22%, 17% and 17%, respectively, of net sales during the
years ended December 31, 1995, 1996 and 1997 and the three months ended March
31, 1998. Brands of imported spirits and wines it distributed accounted for
38% and 13%, respectively, of net sales revenues for the year ended December
31, 1995, 39% and 13%, respectively, of net sales revenues for the year ended
December 31, 1996, 32% and 7%, respectively, for the year ended December 31,
1997 and 35% and 8%, respectively, for the three-month period ended March 31,
1998. Additionally, the Company offered two brands of Polish beers and
multiple brands of Polish vodka, which accounted for 25% and 2%, respectively,
of net sales revenues during the year ended December 31, 1995, 12% and 14%,
respectively, of net sales revenues during the year ended December 31, 1996
and 5% and 39% for the year ended December 31, 1997. The Company ceased
distribution of Polish beer at the end of 1997. Sales of Polish vodka in the
three months ended March 31, 1998 accounted for 40% of net sales revenues.
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.
Beer
The Company distributes imported beer through each of its regional offices.
Guinness, Budweiser Budvar, Corona, Foster's Lager, Kilkenny, Pilsner Urquell
and Golden Pheasant are sold throughout Poland on an exclusive basis. The
Company does not have a written supply agreement for Miller Genuine Draft.
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. While the sale of Guinness Stout and Budweiser Budvar each
accounted for slightly less than five percent of net sales for the years ended
December 31, 1995 and 1996, no imported beers accounted for five percent or
more of net sales for the year ended December 31, 1997 or the three-month
period ended March 31, 1998. The current agreement regarding distribution of
Guinness Stout, which was entered
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into on November 17, 1997, has an initial term through December 31, 1998.
After such date, the agreement may be terminated by either party on 60 days
prior written notice. The Company is the exclusive distributor of products
subject to the agreement unless it 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, Black & White
Gold and Red Labels Bell's
The Dimple Haig
Chivas Regal VAT 69
Ballantines Finest Teacher's Highland Cream
Ballantines Gold Seal Old Smuggler
J&B Rare Whyte and McKay
White Horse
Single Malt Dalmore Bruichladdich
Whisky: Cragganmore Glenkinchie
Dalwhinne Oban
Lagavulan Talisker
Isle of Jura 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
Tequila: Jose Cuervo Pepe Lopez
Gins: Gordon's London Dry Beefeater
Tanqueray
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 Bailey's Irish Cream Carolan's Irish Cream
Spirits: Kahlua Coffee Liqueur Grand Marnier
Creme de Grand Marnier Pimm's Cup
Jagermeister Archer's
Campari Bitter Southern Comfort
Mandarine Napolean
</TABLE>
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Effective January 1, 1998, the Company was appointed the exclusive dealer in
Poland for JBB (Greater Europe) plc products, which include Whyte and McKay
Scotch Whisky, Dalmore, Isle of Jura and Bruichladdich Single Malt Whisky, Ron
Rico and Malibu Rum and Jim Beam Bourbon. While JBB (Greater Europe) plc has
reserved the right to appoint other dealers and to distribute its products
directly, the Company is currently the only distributor of these alcoholic
beverages in Poland. Under another agreement, the Company is the sole
distributor of Mandarine Napolean in Poland.
Only the Company's sales of Polish vodka and alcohol beverages distributed
for United Distillers and United Drinks and Vintners exceeded five percent of
the Company's net sales for the year ended December 31, 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, unless the Company cures 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 UDV Poland Sp. z o.o., a Polish
limited liability company ("UDV"), currently covers the products which UDV
itself imports into Poland, including Smirnoff and Bailey's Irish Cream. The
contract with UDV became effective on July 3, 1997 and, as amended, terminates
on December 31, 1998. 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 UDV's products to satisfy the client's demand and to
deliver to UDV reports on the sale of UDV'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.
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 50 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.
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DISTRIBUTION SYSTEM
The Company's headquarters are located in Warsaw, the capital of Poland, in
and around which, as of June 30, 1997, 2.4 million people or 6.1% 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 21.3% of the population,
lived. The branch sales and service centers deliver to surrounding cities
covering an additional 6.0 million people or an additional 15.4% of the
population. Thus, the Company reached 42.8% of Poland's population through
direct sales and distribution as of June 30, 1997. Other areas in Poland are
served through arrangements with wholesalers. See "--Business Strategy."
CEDC'S BRANCH NETWORK SYSTEM
[GRAPHIC OF CEDC'S BRANCH NETWORK SYSTEM APPEARS HERE]
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.
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.
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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 $11,200 per month as of
March 31, 1998.
Sales Offices and Warehouses
The Company also has entered into leases for its Warsaw headquarters and
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 $1,300 and $2,200
at the regional offices and is $11,400 per month in Warsaw. The Warsaw lease
can be terminated on six months' prior notice; five of the other leases can be
terminated by either party on three months' prior notice; one can be
terminated by either party on two-month's prior notice; the other lease
terminates on December 31, 1998.
Retail Outlet
The Company has entered into a lease dated August 21, 1997 for its Warsaw
retail outlet. The lease is for an indefinite term and can be terminated by
either party on three months' prior notice. The lessor, however, has waived
its right to terminate the agreement for three years as long as the lessee is
performing its obligations thereunder. Lease payments are currently $1,500 per
month.
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 the year ended December 31, 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 are small,
usually Polish-owned and managed businesses, including small grocery stores.
At March 31, 1998, 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 are 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.
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On-Trade Market
There are three components to the Company's sales to locations where
alcoholic beverages are consumed: sales to (i) bars and nightclubs; (ii)
hotels; and (iii) 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, 1996 and 1997 and the three-month period ended March 31,
1998, bad debt expense as a percentage of net sales was 0.21%, 0.08%, 0.12%
and 0.11% of net sales, respectively. 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, which 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, UDV, Allied Domecq and Bacardi.
The Company was the largest single distributor in 1996 and 1997 for UDV 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 addresses 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 greater managerial, financial and other
resources than does the Company.
EMPLOYEES
The Company had approximately 190 full-time employees as of March 31, 1998.
Each employee was employed in Poland and, as required by Polish law, has a
labor agreement with the Company.
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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.
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<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 operations 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 alcoholic beverages except for the beer and wine brands.
The current license was issued for an unspecified period, effective from
January 1, 1998. While in certain circumstances prescribed by Polish law, the
Minister of Economy has discretion to withdraw the import license or limit its
scope, the Company believes that such license will remain effective as long as
the Company abides by the conditions set forth therein, including, in
particular, regular reporting to the Minister of Economy on the volume of
imports. The Company must also apply each year for a license to import cigars.
The Company has obtained a license which expires on December 31, 1998.
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 except for the beer and
wine brands. The application for a permit is usually made when products are
ordered and must 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.
Similar permits must be obtained for the import of cigars.
Approval of Health Authorities
Local health authorities at the place of import must also be notified of
what alcoholic beverages and cigars 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.
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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 December
31, 1998. 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, as well as cigars. These
authorities can monitor the Company's compliance with health regulations.
Similar regulations apply to the transport of alcoholic beverages and cigars,
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
and cigars are packaged, 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 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 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 and cigars 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 and cigars for which the customs duties are
substantially reduced. For example, the basic
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customs duty on scotch whiskey currently imported by the Company is $24.67 per
.75 liter bottle, or 326% higher than the $5.79 duty under the quota in 1998.
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 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 as well as for cigars are fixed
annually, with the current quotas being applicable through December 31, 1998.
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 since the retail price of some of its imported alcohol
products would increase.
To import alcoholic beverages and cigars 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 continue to 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. Also, 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.
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. The retail permit for the Company's initial retail outlet in Warsaw
is valid from February 25, 1998 through February 24, 2000.
37
<PAGE>
THE REPUBLIC OF POLAND
GENERAL
Poland is located in Central Europe with the Federal Republic of Germany to
its west. The Baltic Sea is to the north; the Czech Republic and Slovakia are
to the south; Ukraine and Belarus are to the east; and Lithuania and part of
Russia are to the northeast. Poland's land mass is approximately 120,725
square miles (approximately the size of New Mexico). The population of Poland
for June 30, 1997, as determined by the Main Statistical Office, was
approximately 38.6 million. While Poland has a heritage of parliamentary
government dating back to the 18th century, the current parliamentary
democracy dates from 1989 when the communist controlled government that had
ruled the country since the end of World War II was replaced in democratic
elections. In 1996, 65.1% of the workforce were in the private sector.
Additionally, 68.2% of registered voters voted in the most recent presidential
elections.
THE ECONOMY
Poland has experienced significant economic growth in recent years. Poland's
gross domestic product grew at annual rates of 5.2%, 7.0% and 5.5% in 1994,
1995 and 1996, respectively, which were the highest growth rates in Europe for
1994 and 1995 and one of the highest in Europe for 1996. In 1996, the gross
domestic product for Poland was $134.4 billion. Industry (food-processing,
mining and manufacturing), trade and agriculture comprised 27.1%, 13.1% and
6.0%, respectively, of the gross domestic product for Poland in 1996. Poland's
trade deficit was $16.6 billion in 1997, with Germany being Poland's major
foreign trade partner, and the United States ranking tenth. In recent years,
the government of Poland has encouraged foreign private investment, which has
risen from approximately $0.1 billion in 1990 to approximately $6.1 billion in
1996. Over 500 American firms currently operate in Poland, including General
Motors Corporation, The Gillette Company, The Procter & Gamble Company and The
Coca-Cola Company. Poland has also significantly reduced its annual rate of
inflation from approximately 250% in 1990 to approximately 15% in 1997. In
part due to these factors, the sovereign credit rating of the country was
upgraded in early 1996 to investment grade by Moody's Investors Service (Baa3)
and Standard & Poor's Corporation (BBB-).
The Company believes that the growth and stability in the economy have led
to recent increases in disposable income levels in Poland, which grew at
average annual rates of 9% and 7% in 1995 and 1996, respectively. Per capita
income in Poland was $3,505 in 1997. As of December 31, 1997, unemployment in
Poland had declined to 10.5%. Furthermore, in certain urban markets where the
Company operates, including Warsaw, Krakow, Wroclaw and Katowice, disposable
income levels are higher and unemployment is lower than the national averages.
38
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of CEDC are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
William V. Carey........... 33 Chairman, President and Chief Executive Officer
Jeffrey Peterson........... 47 Vice Chairman and Executive Vice President
Robert Bohojlo............. 34 Vice President and Chief Financial Officer
James T. Grossmann......... 58 Director
James B. Kelly............. 56 Director
Jan W. Laskowski........... 41 Director
Joe M. Richardson.......... 45 Director
Joseph S. Conti............ 60 Director(1)
</TABLE>
- --------
(1) Mr. Conti has agreed to become a director of the Company upon completion
of the Offering.
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.
WILLIAM V. CAREY has served as Chairman, President and Chief Executive
Officer of CEDC since its inception. Mr. Carey began working for Carey Agri in
1990 and 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 a 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.
ROBERT BOHOJLO joined the Company in January 1998 as Vice President and
Chief Financial Officer. From February 1995 to December 1997, he held a
similar position in Media Express, the publisher of the second largest daily
newspaper in Poland. Prior thereto, he worked with Coopers and Lybrand and ABB
Poland carrying out financial and business consultancy projects. Mr. Bohojlo
is a graduate of the University of Stockholm and obtained his training and
business experience in Sweden and Canada.
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, Central
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
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.
39
<PAGE>
Mr. Kelly is currently the President of SynXis Corporation, a software
development company, a position he has held since August 1996. From July 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 responsible for
business development. Before joining Amerbank in 1991, 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. Carey Agri
has three loans outstanding from Amerbank. See "Certain Transactions."
JOE M. RICHARDSON has served as a director of CEDC since its inception.
Since October 1994, 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. From October 1993 until October 1994, Mr. Richardson
assisted Carey Agri in marketing development. Prior thereto, Mr. Richardson
had 19 years experience in the wine industry distributing Gallo wine products.
The Company distributes Sutter Home Wines in Poland. See "Certain
Transactions."
DESIGNATED DIRECTORS
Each of the Representatives has the right for five years from the date of
the Offering to designate one person for election to the Board of Directors.
In the event that one or both of the Representatives elects not to exercise
this right, then a person may be designated by each of the Representatives 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
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 meetings of
the Board of Directors.
Brean Murray has not designated a person as a member of the Board of
Directors of the Company or to attend meetings of the Board. Fine Equities has
designated Joseph S. Conti to serve as a director of the Company and Mr. Conti
has agreed to so serve, effective immediately following the completion of the
Offering. Since May 1992, Mr. Conti has served as a Consultant and Senior
Advisor to the Polish American Enterprise Fund (the "Fund"), headquartered in
New York City. In this capacity, he is currently Chairman of the Bank Council
of the First Polish American Bank, Chairman of the Board of the Enterprise
Credit Corporation, and a member of the Bank Council of the Rabo-BRP Bank
Polska. These three institutions are all located in Warsaw. Prior to
consulting for the Fund, Mr. Conti worked with Bankers Trust Company for 23
years, retiring in April 1992 as Senior Vice President. Mr. Conti served in a
variety of managerial positions with Bankers Trust Company including seven
months as interim President of AmerBank in Warsaw from September 1991 to March
1992. Mr. Conti holds a Master of Business Administration degree from the
Bernard Baruch College of the City University of New York and a Bachelor of
Science degree, with a major in Management from Fairleigh Dickinson
University.
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
40
<PAGE>
determined by resolution duly adopted by a majority of the Board of Directors.
The number of directors is currently fixed at six. The Board of Directors has
unanimously voted to increase the number of directors to eight immediately
following the completion of the Offering and to name Joseph S. Conti to one of
the newly created vacancies. The remaining vacancy will be filled if Brean
Murray designates a director. Mr. Conti will serve, as do the other directors,
until the next election of directors and until his successor is elected and
qualified, or until his earlier resignation or removal.
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 will 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), commencing on the completion of the Offering. Members of
the Board of Directors have received grants of stock options under the Plan
described below. The Company reimburses directors for out-of-pocket travel
expenditures relating to their service on the Board of Directors.
EXECUTIVE COMPENSATION
The following table shows, for the fiscal year ended December 31, 1997,
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................... 1997 $72,000 (1) --
Chairman, President, Chief
Executive Officer and Chief
Financial Officer(3)
</TABLE>
- --------
(1) During 1997, Carey Agri (i) provided Mr. Carey with the free use of an
automobile valued at $35,000; and (ii) provided an interest free loan of
$24,000 which was used by Mr. Carey to remodel his home in Warsaw. This
loan will be repaid in 1998. See "Certain Transactions."
(2) For options granted to Mr. Carey, which will be effective only upon the
closing of the Offering, see "--Compensation Plans--Employment
Agreements."
(3) Mr. Carey ceased being the Chief Financial Officer of the Company on
January 1, 1998.
41
<PAGE>
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.
Additionally, as partial consideration for the execution of the employment
agreement, CEDC has granted to Mr. Carey options to purchase 25,000 shares of
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.
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."
Robert Bohojlo has entered into an employment agreement with the Company
which commenced on January 1, 1998 and ends three years thereafter. Mr.
Bohojlo will be paid $43,000 annually for serving as Vice President and Chief
Financial Officer of the Company. The Company also has agreed to pay an annual
bonus to Mr. Bohojlo of at least one-twelfth of his annual salary, on terms
and conditions to be agreed. Mr. Bohojlo has entered into a separate contract
with Carey Agri to serve as Chief Financial Officer of that company and will
be paid $10,000 annually by Carey Agri. Mr. Bohojlo will become a director of
Carey Agri in May 1998 and will be paid $10,000 annually in connection
therewith.
Additionally, as partial consideration for the execution of his employment
agreement with the Company, the Company has granted to Mr. Bohojlo options to
purchase 30,000 shares of Common Stock, such options vesting and being
exercisable as follows: (i) options for 5,000 shares to be exercisable at the
initial public offering price and to become exercisable on January 1, 1999;
(ii) options
42
<PAGE>
for 10,000 shares to be exercisable at the average trading price of the Common
Stock for the last five trading days of 1998 and to become exercisable on
January 1, 2000; and (iii) options for 15,000 shares to be exercisable at the
average trading price of the Common Stock for the last five trading days of
1999 and to become exercisable on November 1, 2000. All such options have a
term ending on December 31, 2000.
Mr. Bohojlo's employment agreement may be terminated by CEDC for "cause" as
defined, which includes Mr. Bohojlo's willful refusal to follow written orders
or willful engagement in conduct materially injurious to CEDC or continued
failure to perform his required duties or if his employment agreement with
Carey Agri is terminated.
Mr. Grossmann, a director of CEDC, who will become a director of Carey Agri
in May 1998, will be paid $4,000 monthly for his service on Carey Agri's Board
of Directors where he will have responsibility for assisting Carey Agri in
establishing 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, as amended (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 750,000 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 Common Stock at the initial public offering
price when the 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.
43
<PAGE>
A particular award agreement may permit payment by CEDC either in shares of
Common Stock, cash or a combination thereof.
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 also authorizes the grant 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 82,500 of the shares of the Common Stock have been
granted. 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
employment agreement, Mr. Bohojlo was granted options covering 30,000 shares,
exercisable over specified periods which end on December 31, 2000. See "--
Employment Agreements" for a description of the terms of such options. In
connection with his past
44
<PAGE>
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. The exercise price
of all options granted, except for options covering 25,000 shares granted to
Mr. Bohojlo, is the initial public offering price.
CERTAIN TRANSACTIONS
Carey Agri has a non-interest bearing advance receivable for $24,000
(denominated in Polish zloty without interest) from Mr. Carey at December 31,
1997. It expects to receive repayment of the amount advanced in 1998.
Carey Agri has entered into a loan agreement for 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 structured as a
revolving line of credit to be used by Carey Agri for certain business
purposes. The loan is guaranteed, in part, by Messrs. Carey and Peterson. The
interest rate on such loan 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. Late payments are subject to a
default interest rate of 25% per annum. Part of the proceeds of the Offering
will be used to retire this debt. See "Use of Proceeds."
Carey Agri has entered into a second loan agreement and two amendments
thereto with Amerbank for the principal amount of $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% and the loan must be
repaid by July 8, 1998. Late payments are subject to a default interest rate
of 25% per annum. 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.
In the first quarter of 1998, Carey Agri entered into a third agreement for
a short term loan from Amerbank in the principal amount of $725,000 at an
interest rate equal to the LIBOR plus 2.7%. The loan was initially due in full
on May 21, 1998. The due date, however, has been extended until August 21,
1998.
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 1995, 1996 and 1997 and the three-month
period ended March 31, 1998 was $274,000, $570,000, $801,000 and $209,000,
respectively.
During 1997 the Company wrote off a receivable from an inactive affiliated
company of approximately $4,000.
The Company has adopted a policy which requires (i) that any future loans or
advances (and the forgiveness thereof) to officers, directors or stockholders
beneficially owning five percent or more of the Common Stock must be for a
bona fide business purpose and approved by a majority of the disinterested
directors and (ii) that any future transaction with officers, directors or
stockholders beneficially owning five percent or more of the Common Stock will
be on terms no less favorable to the Company than could be obtained from third
parties.
45
<PAGE>
PRINCIPAL 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 each director and
nominee for director of CEDC; (iii) by each of the executive officers of CEDC;
and (iv) by all directors and executive officers of CEDC as a group. All
information in this section is given on the basis of outstanding securities
plus securities deemed outstanding under Rule 13d-3 of the Securities Exchange
Act of 1934, as amended. 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.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGES OF SHARES BENEFICIALLY OWNED
NAME AND ADDRESS OF OF COMMON STOCK ------------------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE THE OFFERING(1) AFTER THE OFFERING
------------------- ------------------ ---------------------- -------------------
<S> <C> <C> <C>
William V. Carey(2)..... 1,096,480 61.6% 29.0%
1602 Cottagewood Drive
Brandon, FL 33511
William V. Carey Stock
Trust(2)............... 503,740 28.3 13.3
1602 Cottagewood Drive
Brandon, FL 33511
Jeffrey Peterson........ 592,740 33.3 15.7
1707 Waldemere Street
Sarasota, FL 34239
Estate of William O. Ca-
rey(3)................. 90,780 5.1 2.4
1602 Cottagewood Drive
Brandon, FL 33511
Joseph S. Conti(4)...... -- -- --
744 Metropolitan Avenue
Staten Island, NY 10301
James T. Grossmann(5)... -- -- --
805 S. Fairfax Street
Alexandria, VA 22314
James B. Kelly(5)....... -- -- --
7606 Hamilton Spring
Road
Bethesda, MD 20817
Jan W. Laskowski(5)..... -- -- --
115 ul. Marcinkowska
00-102 Warsaw, Poland
Joe M. Richardson(5).... -- -- --
P.O. Box 22154
Louisville, KY 40252
Robert Bohojlo.......... -- -- --
25 ul. Fabryczna, m. 15
00-446 Warsaw, Poland
All Directors and Offi-
cers as a Group (Eight
Persons)............... 1,703,220 94.9% 45.1%
</TABLE>
- --------
(1) Based on 1,780,000 shares of Common Stock outstanding as of the date
hereof.
(2) 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 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.
(3) Gertrude Carey, the mother of William V. Carey, is the sole personal
representative of the Estate of William O. Carey and has sole voting and
investment authority over the Common Stock in this estate.
(4) Joseph S. Conti will join the Company's Board of Directors immediately
following the completion of the Offering. See "Management--Designated
Directors." Upon his joining the board, Mr. Conti will automatically be
granted an option, pursuant to the Plan, covering 500 shares of Common
Stock. By its terms, this option will be immediately exercisable.
(5) Under the Plan, Mr. Grossmann has been granted options covering 12,500
shares of Common Stock and Messrs. Kelly, Laskowski and Richardson,
options covering 500 shares of Common Stock. These options may be
exercised only if the Offering is completed, but, by their terms, these
options are then immediately exercisable.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
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, the
Preferred Stock and the Representatives' Warrants 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 and the Warrant Agreement, and
by the provisions of applicable law. A copy of the Certificate of
Incorporation, Bylaws, and the form of Warrant Agreement 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.
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 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
47
<PAGE>
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.
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.
48
<PAGE>
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 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. 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.
REPRESENTATIVES' WARRANTS
In connection with the Offering, the Company has agreed to sell to the
Representatives, for nominal consideration, the Representatives' Warrants to
purchase 200,000 shares of Common Stock (10% of the number of shares offered
hereby). The Representatives' Warrants are exercisable, in whole or in part,
at an exercise price of 130% of the public offering price set forth on the
cover page of this Prospectus or through cashless exercise at any time during
the four-year period commencing one year after the effective date of the
Registration Statement of which this Prospectus is a part. The warrant
agreement pursuant to which the Representatives' Warrants will be issued (the
"Warrant Agreement") will contain provisions providing for adjustment of the
exercise price and the number and type of securities issuable upon exercise of
the Representatives' Warrants should any one or more of certain specified
events occur. The Representatives' Warrants grant to the holders thereof
certain rights of registration for the securities issuable upon exercise of
the Representatives' Warrants.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 3,780,000 shares of
Common Stock outstanding (assuming no exercise of the Underwriters' over-
allotment option). Of these shares, the 2,000,000 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.
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.
Commencing 90 days after completion of the Offering, 1,780,000 shares of
Common Stock owned by the Company's directors, executive officers and existing
stockholders are eligible for sale under Rule 144. Such persons have agreed
that, for a 24-month period after the Closing of this Offering, without the
prior written consent of Brean Murray, they will not offer, sell, contract to
sell or otherwise dispose of shares of Common Stock or any securities
convertible into, or exchangeable for, shares of Common Stock.
The Company has reserved 750,000 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 82,500 shares of Common Stock under
the Plan were outstanding and unexercised. See "Management--Compensation
Plans--1997 Stock Incentive Plan."
The Company also has reserved 200,000 shares of Common Stock for issuance
upon the exercise of the Representatives' Warrants. See "Underwriting."
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.
50
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Brean Murray
& Co., Inc. ("Brean Murray") and Fine Equities, Inc. ("Fine Equities") are
acting as representatives (the "Representatives"), has severally agreed to
purchase from the Company the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Brean Murray & Co., Inc. ..........................................
Fine Equities, Inc. ...............................................
---------
Total.......................................................... 2,000,000
=========
</TABLE>
Upon the terms and subject to the conditions of the Underwriting Agreement,
the Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Common Stock set forth in the table above if
any of the shares of Common Stock are purchased.
The Underwriters propose to offer the Common Stock to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to selected dealers at such public offering price less a concession not to
exceed $ per share. The Underwriters or such dealers may re-allow a
commission to certain other dealers not to exceed $ per share. After the
offering to the public, the offering price, the concession to selected dealers
and the reallowance to other dealers may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 300,000 additional
shares of Common Stock to cover over-allotments, if any, at the public
offering price, less underwriting discounts and commissions, as set forth on
the cover page of this Prospectus. If the Underwriters exercise this option,
then each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase the number of option shares proportionate to such
Underwriter's initial commitment as indicated in the table above. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby.
Prior to this Offering, there has been no public market for the Common
Stock. The offering price of the Common Stock was determined by negotiation
between the Company and the Representatives and is not necessarily related to
the Company's asset value, net worth, results of operations or other
established criteria of value. Among the factors considered in determining the
initial public offering price of the Common Stock, in addition to prevailing
market conditions, were the earnings and certain other financial 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 will sell in the public
market after this Offering will not be lower than the price at which it is
sold in the Offering by the Underwriters.
51
<PAGE>
The Company and all of its existing stockholders, directors and executive
officers have agreed not to sell, issue, distribute or otherwise dispose of
any shares of Common Stock for a period of 12 months and 24 months,
respectively, from the date of this Prospectus, subject to certain limited
exceptions, without the prior written consent of Brean Murray.
The Company has agreed to reimburse the Underwriters for $300,000 of the
Underwriters' non-accountable out-of-pocket expenses (including fees of their
counsel) in connection with the sale of the Common Stock offered hereby. The
Company has also agreed to indemnify the Underwriters or contribute to losses
arising out of certain liabilities that may be incurred in connection with the
Offering, including liabilities that may arise under the Securities Act.
In connection with the Offering, the Company has agreed to sell to the
Representatives, for nominal consideration, the Representatives' Warrants to
purchase 200,000 shares of Common Stock from the Company (10% of the number of
shares offered hereby). The Representatives' Warrants are exercisable, in
whole or in part, at an exercise price of 130% of the public offering price
set forth on the cover page of this Prospectus or through cashless exercise at
any time during the four-year period commencing one year after the date of the
Prospectus. The Warrant Agreement pursuant to which the Representatives'
Warrants will be issued will contain provisions providing for adjustment of
the exercise price and the number and type of securities issuable upon
exercise of the Representatives' Warrants should any one or more of certain
specified events occur. The Representatives' Warrants grant to the holders
thereof certain rights of registration for the securities issuable upon
exercise of the Representatives' Warrants.
The Underwriting Agreement provides that, for five years following the date
of this Prospectus, each of the Representatives may designate one person,
reasonably acceptable to the Company, for election to the Board of Directors.
In the event one or both of the Representatives chooses not to exercise this
right, then a person may be designated by each Representative to attend all
meetings of the Board of Directors for a period of five years; pursuant to
this right, Fine Equities has selected Joseph S. Conti to serve as a director
effective immediately following the completion of the Offering. See
"Management--Directors and Executive Officers." Brean Murray has not yet
designated a person to serve as a member of the Board of Directors of the
Company.
The Underwriters have informed the Company that they do not intend to make
sales to any accounts over which they exercise discretionary authority.
In connection with the Offering, certain Underwriters may engage in passive
market making transactions in the Common Stock on the Nasdaq immediately prior
to the commencement of sales in the Offering, in accordance with Rule 103 of
Regulation M. Passive market making consists of displaying bids on the Nasdaq
limited by the bid prices of independent market makers and purchases limited
by such prices and effected in response to order flow. Net purchases by a
passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the Common Stock during
a specified period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
In connection with the Offering, the Underwriters and selling group members,
if any, may engage in stabilizing, syndicate short covering transactions,
penalty bids or other transactions during the Offering that may stabilize,
maintain or otherwise affect the market price of the Common Stock at a level
above that which might otherwise prevail in the open market. Stabilizing
transactions are bids for and purchases of the Common Stock for the purpose of
preventing or retarding a decline in the market price of the Common Stock to
facilitate the Offering. Syndicate short covering transactions are bids to
52
<PAGE>
purchase and actual purchases of Common Stock on behalf of the Underwriters to
provide them with enough Common Stock to deliver to those purchasing Common
Stock in the Offering. A penalty bid is an arrangement that permits the
Representatives to reclaim a selling concession when the Common Stock
originally sold by the syndicate member is purchased in a syndicate covering
transaction. Such stabilizing, syndicate short covering transactions, penalty
bids and other transactions, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of 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 1997 and for each of the three years in the period ended December 31, 1997
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.
53
<PAGE>
AVAILABLE INFORMATION
CEDC has filed with the SEC a Registration Statement on Form S-1 (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 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
the Company and the Common Stock, reference is hereby made to the Registration
Statement.
As a result of the Offering, CEDC will become subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, 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. 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.
54
<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 1997 and March 31,
1998 (unaudited)........................................................ F-3
Consolidated Statements of Income for the years ended December 31, 1995,
1996 and 1997 and for the three months ended March 31, 1997 and 1998
(unaudited)............................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1995, 1996 and 1997 and for the three months ended
March 31, 1997 and 1998 (unaudited)..................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and for the three months ended March 31, 1997 and
1998 (unaudited)........................................................ F-6
Notes to Consolidated Financial Statements............................... F-7
</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 sheets of Central
European Distribution Corporation as of December 31, 1996 and 1997 and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. 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 of America. 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 1997, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997 in conformity with
accounting principles generally accepted in the United States of America.
Ernst & Young Audit Sp.zo.o
Warsaw, Poland
March 20, 1998
F-2
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED BALANCE SHEETS
AMOUNTS IN COLUMNS EXPRESSED IN THOUSANDS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------- ---------------
1996 1997 1998
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash......................................... $ 740 $ 1,053 $ 175
Accounts receivable, net of allowance for
doubtful accounts of $49,000, $94,000 and
$105,000, respectively...................... 4,211 6,970 4,440
Inventories.................................. 1,660 3,280 3,024
Prepaid expenses and other current assets.... 172 235 171
Deferred income taxes........................ 106 103 98
------ ------- ------
Total Current Assets....................... 6,889 11,641 7,908
Equipment, net................................. 442 503 646
Deferred charges............................... 4 386 557
------ ------- ------
Total Assets................................. $7,335 $12,530 $9,111
====== ======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable....................... $5,140 $ 9,790 $5,319
Bank loans and overdraft facilities.......... 856 925 1,554
Income taxes payable......................... 6 36 127
Taxes other than income taxes................ 720 763 835
Other accrued liabilities.................... 132 286 317
Current portion of long-term debt and capital
lease obligations........................... 152 349 295
------ ------- ------
Total Current Liabilities.................. 7,006 12,149 8,447
Long-term debt, less current maturities........ 205 35 67
Capital lease obligations, less current por-
tion.......................................... 98 12 5
Stockholders' Equity
Preferred Stock ($0.01 par value, 1,000,000
shares
authorized; no shares issued and outstand-
ing)........................................ -- -- --
Common Stock ($0.01 par value, 20,000,000
shares authorized, 1,780,000 shares issued
and outstanding)............................ 18 18 18
Additional paid-in-capital................... 36 36 36
Retained earnings (accumulated deficit)...... (28) 280 526
Foreign currency translation adjustment...... -- -- 12
------ ------- ------
Total Stockholders' Equity................. 26 334 592
------ ------- ------
Total Liabilities and Stockholders' Equi-
ty........................................ $7,335 $12,530 $9,111
====== ======= ======
</TABLE>
See accompanying notes.
F-3
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
AMOUNTS IN COLUMNS EXPRESSED IN THOUSANDS
(EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- -----------------------
1995 1996 1997 1997 1998
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................... $16,017 $23,942 $40,189 $7,970 $9,798
Cost of goods sold.......... 13,113 19,850 34,859 6,907 8,280
------- ------- ------- ------ ------
Gross profit................ 2,904 4,092 5,330 1,063 1,518
Sales, general and
administrative expenses.... 2,603 3,569 4,198 926 1,128
------- ------- ------- ------ ------
Operating income............ 301 523 1,132 137 390
Non-operating income (ex-
pense)
Interest expense.......... (106) (124) (172) (44) (46)
Realized and unrealized
foreign currency
transaction (losses)
gains, net............... (84) (232) (326) (104) 31
Other income, net......... 84 6 15 25 12
------- ------- ------- ------ ------
Income before income taxes.. 195 173 649 14 387
Income tax expense.......... (120) (111) (341) (21) (141)
------- ------- ------- ------ ------
Net income (loss)........... $ 75 $ 62 $ 308 $ (7) $ 246
======= ======= ======= ====== ======
Net income (loss) per common
share, basic and dilutive.. $ 0.04 $ 0.03 $ 0.17 $(0.00) $ 0.14
======= ======= ======= ====== ======
</TABLE>
See accompanying notes.
F-4
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AMOUNTS IN COLUMNS EXPRESSED IN THOUSANDS, EXCEPT FOR SHARES
<TABLE>
<CAPTION>
RETAINED FOREIGN
COMMON STOCK ADDITIONAL EARNINGS CURRENCY
-------------------- PAID-IN- (ACCUMULATED TRANSLATION
NO. OF SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT TOTAL
------------- ------ ---------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994
(Note 1)............... 1,780,000 $18 $36 $(165) $-- $(111)
Net income and
comprehensive income
for 1995............... -- -- -- 75 -- 75
--------- --- --- ----- ---- -----
Balance at December 31,
1995................... 1,780,000 18 36 (90) -- (36)
Net income and
comprehensive income
for 1996............... -- -- -- 62 -- 62
--------- --- --- ----- ---- -----
Balance at December 31
1996................... 1,780,000 18 36 (28) -- 26
Net income and
comprehensive income
for 1997............... -- -- -- 308 -- 308
--------- --- --- ----- ---- -----
Balance at December 31,
1997................... 1,780,000 $18 $36 $ 280 $-- $ 334
========= === === ===== ==== =====
Balance at December 31,
1996 .................. 1,780,000 $18 $36 $ (28) $-- $ 26
Net loss and
comprehensive loss for
the three months ended
March 31, 1997
(unaudited)............ -- -- -- (7) -- (7)
--------- --- --- ----- ---- -----
Balance at March 31,
1997 (unaudited) ...... 1,780,000 $18 $36 $ (35) $-- $ 19
========= === === ===== ==== =====
Balance at December 31,
1997 .................. 1,780,000 $18 $36 $ 280 $-- $ 334
Net income for the three
months ended March 31,
1998 (unaudited)....... -- -- -- 246 -- 246
Foreign currency
translation adjustment
(unaudited)............ -- -- -- -- 12 12
--------- --- --- ----- ---- -----
Comprehensive income for
the three months ended
March 31, 1998
(unaudited)............ -- -- -- 246 12 258
--------- --- --- ----- ---- -----
Balance at March 31,
1998 (unaudited)....... 1,780,000 $18 $36 $ 526 $ 12 $ 592
========= === === ===== ==== =====
</TABLE>
See accompanying notes.
F-5
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMOUNTS IN COLUMNS EXPRESSED IN THOUSANDS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income (loss)............. $ 75 $ 62 $ 308 $ (7) $ 246
Adjustments to reconcile net
income to net cash (used in)
provided by operating
activities:
Depreciation and
amortization................. 36 67 168 49 44
Deferred income taxes
(benefit).................... 6 (18) (1) (18) (3)
Loss (gain) on the disposal
of equipment................. (5) (7) (3) -- 3
Bad debt provision............ 34 19 48 5 11
Changes in operating assets
and liabilities:
Accounts receivable.......... (1,108) (2,652) (2,807) 750 2,519
Inventories.................. (480) (612) (1,620) 47 256
Prepayments and other
current assets.............. 14 (84) (63) 50 64
Trade accounts payable....... 918 2,915 4,650 (1,209) (4,471)
Income and other taxes....... 80 613 73 (531) 163
Other accrued liabilities ... 349 (271) -- 352 43
------- -------- -------- ------- --------
Net Cash (Used In) Provided
by Operating Activities.... (81) 32 753 (512) (1,125)
Investing Activities
Purchases of equipment........ (62) (336) (240) (20) (190)
Proceeds from the disposal of
equipment.................... 23 264 60 -- --
------- -------- -------- ------- --------
Net Cash Used In Investing
Activities................. (39) (72) (180) (20) (190)
Financing Activities
Borrowings on overdraft
facility..................... 8,465 17,531 12,892 7,655 13,431
Payment of overdraft
facility..................... (8,210) (17,747) (12,608) (7,420) (13,252)
Payment of capital lease
obligations.................. -- (62) (183) (29) (42)
Short-term borrowings......... 379 840 600 -- 725
Payment of short-term
borrowings................... (350) (402) (815) (120) (275)
Long-term borrowings.......... 200 205 87 -- 100
Payment of long-term
borrowings................... (20) (180) (9) -- (87)
Costs paid in connection with
planned public offering...... -- -- (224) -- (163)
------- -------- -------- ------- --------
Net Cash Provided by (Used
In) Financing Activities... 464 185 (260) 86 437
------- -------- -------- ------- --------
Net Increase (Decrease) in
Cash.......................... 344 145 313 (446) (878)
Cash at beginning of period.... 251 595 740 740 1,053
------- -------- -------- ------- --------
Cash at end of period.......... $ 595 $ 740 $ 1,053 $ 294 $ 175
======= ======== ======== ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS
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 20.0 million shares of common
stock, $0.01 par value, and 1.0 million shares of preferred stock, $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, Krakow, Szczecin, Gdynia,
Wroclaw, Torun, Katowice 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, 1997, approximately $335,000 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 operations prior to September 1997, the accompanying
consolidated financial statements related to the period to this date reflect
the activities of Carey Agri only.
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 3.5 PLN per USD at December 31, 1997 and 3.45 PLN per USD at
March 31, 1998.
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 of America (US GAAP).
The consolidated condensed financial statements (and notes thereto) as at
March 31, 1998 and for the three months ended March 31, 1997 and 1998 are
unaudited, but include, in the opinion of management, all adjustments
considered necessary (all of a normal recurring nature) for a fair
presentation of such data. The results of the unaudited interim periods are
not necessarily indicative of the results expected for the entire year.
F-7
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS
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 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.
Effective January 1, 1998, the Company no longer considers Poland to be a
hyper-inflationary economy. Therefore, the Company has ceased accounting for
its Polish activities using provisions applicable to hyper-inflationary
economies on January 1, 1998. See the discussion below regarding the effect of
this change on comprehensive income.
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 not reimbursed by suppliers was approximately $120,000,
$280,000 and $85,000 in 1995, 1996 and 1997, respectively.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Cost includes customs duty and transportation costs. 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.
F-8
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS
Income Taxes
The Company computes and records income taxes in accordance with FAS No.
109.
Effect of New Accounting Standards
In June 1997, the Financial Accounting Standards Board (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 includes net income
adjusted by, among other items, foreign currency translation adjustments. As
disclosed in this Note 2, until January 1, 1998, 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, in 1998 since
Poland is no longer considered a highly inflationary economy, these
remeasurements are 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 under the provisions of FAS No.
128, "Earnings per Share". The average number of shares outstanding was
1,780,000 during each of the periods. The stock options and warrants discussed
in Note 11 were not included in the computation of diluted earnings per common
share as the Company believes the exercise price would be greater than or
equal to the average market price of the common shares and, therefore, the
effect would be antidilutive.
3. EQUIPMENT
Equipment, presented net of accumulated depreciation in the balance sheets,
consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ ------
<S> <C> <C>
Transportation Equipment..................................... $ 174 $ 259
Beer Dispensing and Other Equipment.......................... 433 523
------ ------
607 782
Less accumulated depreciation................................ (165) (279)
------ ------
Equipment, net............................................... $ 442 $ 503
====== ======
</TABLE>
F-9
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
------------
<S> <C> <C>
Loan denominated in US Dollars................................. $ 205 $ 205
Loans denominated in Polish zloty.............................. -- 78
Current portion of these loans................................. -- (248)
----- ------
Long-term portion.............................................. $ 205 $ 35
===== ======
</TABLE>
The Company has a revolving credit line with a bank for $205,000 at December
31, 1996 and 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 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 9.5% at December 31, 1997). Late payments are subject to a
default interest rate of 25% per annum. 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.
The Company has seven loans which were used to purchase five cars, one truck
and one fork-lift. The loans are denominated in Polish zloty and have an
interest rate equal to WIBOR (Warsaw Inter-Bank Rate) plus 3% (29.1% at
December 31, 1997). The loans are repayable in twenty-four equal monthly
installments through late 1999. These loans are collateralized by blank bills
of exchange, the equipment financed (net book value of $83,000 at December 31,
1997) and the assignment of an insurance policy on the equipment financed.
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,
-------------
1996 1997
------ ------
<S> <C> <C>
Transportation equipment...................................... $ 88 $ 121
Beer dispensing equipment..................................... 252 206
----- ------
340 327
Less accumulated depreciation................................. (60) (168)
----- ------
$ 280 $ 159
===== ======
</TABLE>
F-10
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS
At December 31, 1997, the future minimum lease payments under operating and
capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1998....................................................... $435 $159
1999....................................................... 131 14
2000....................................................... 96 --
2001....................................................... 62 --
---- ----
Total...................................................... $724 173
====
Less amounts representing interest costs................... (60)
----
Net present value.......................................... 113
Current portion............................................ 101
----
Long-term portion.......................................... $ 12
====
</TABLE>
Rent expense incurred under operating leases during 1995, 1996 and 1997 was
as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Rent expense.................................................. $183 $301 $583
==== ==== ====
</TABLE>
Capitalized leases relate mainly to the leasing of transportation equipment
and beer dispensing equipment. Each of these leases expire in 1998 or 1999.
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 $28,000, $312,000 and $46,000
in the years ended December 31, 1995, 1996 and 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, the seven regional offices and
warehouses, and the retail shop in Warsaw. Monthly rentals range from
approximately $570 to $11,000 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. The retail shop lease has no stated expiration date, but can be
terminated by either party with three months prior notice. The lessor has
waived this right to terminate the agreement until August 2000 providing the
Company performs its obligations under the lease.
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 1997 the Company used $16,000 and $0,
respectively, of this amount. Interest is equal to PLN WIBOR plus 3.5% (24%
and 29.6% at December 31, 1996 and 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
seven of the Company's largest customers (carrying value of $590,000 at
December 31, 1997) and a pledge on inventory of $350,000.
F-11
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS
The Company has two other USD short-term loans with this bank for $350,000
and $240,000 at December 31, 1996 and $350,000 and $0 at December 31, 1997.
Interest on each is at LIBOR (1 month) plus 2.75% (8.3% and 8.75% at December
31, 1996 and 1997, respectively). Late payments are subject to a default
interest rate 1.5 times the nominal rate of interest. The loans are
collateralized by a blank bill of exchange, pledge on inventory of PLN
1,000,000, the assignment of receivables from seven of the Company's largest
customers (carrying value of $590,000 at December 31, 1997) 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 fully paid
by June 1997.
The Company has short-term USD loans with another bank for $250,000 and
$175,000 at December 31, 1996 and 1997, respectively. Interest on the loans is
at LIBOR plus 1.5% (7.0% and 7.3% at December 31, 1996 and 1997,
respectively). The loan outstanding at December 31, 1996 was paid in March
1997. The loan outstanding at December 31, 1997 was paid in January 1998.
On October 7, 1997 the Company signed with a bank (the same bank discussed
in Notes 4 and 10) an agreement for a U.S. Dollar revolving credit line of
$200,000. The line is to 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 July 8, 1998. The credit
line is collateralized by a blank bill of exchange, a pledge on inventory of
PLN 700,000 and the assignment of an insurance policy on inventory. Interest
on the loan is at LIBOR (1 month) plus 2.25% (8.25% at December 31, 1997). The
amount of borrowings pursuant to the agreement was increased to $300,000 in
December 1997. Late payments are subject to a default rate of 25% per annum.
On October 27, 1997 the Company signed an agreement with another bank for a
short-term loan of $100,000. The proceeds of the loan were used to purchase
Bulgarian wine. The annual interest rate equals LIBOR (1 month) plus 2.75%
(8.75% at December 31, 1997). The loan is collaterized by a blank bill of
exchange. The entire debt was paid in the first quarter of 1998.
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 which have been waived by the lenders.
Total interest paid in 1995, 1996 and 1997 is substantially equal to
interest expense.
The weighted average interest rate for short-term bank loans and overdraft
facilities outstanding was 7.91% and 8.31% for U.S. Dollar denominated debt at
December 31, 1996 and 1997, respectively, and 24.0% for Polish zloty
denominated debt at December 31, 1996. There were no Polish zloty, short- term
loan and overdraft facilities outstanding at December 31, 1997.
7. DEFERRED CHARGES
Costs incurred in connection with a planned public offering, totaling
$378,000, are included in deferred charges in the December 31, 1997 balance
sheet ($541,000 (unaudited) at March 31, 1998). The accrued portion of
$154,000 at December 31, 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.
F-12
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS
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 and 1997, the
Company had no significant concentrations of credit risk. The Company has not
experienced large credit losses in the past.
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 and 14%
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, 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.
F-13
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS
9. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------- -----------------------
1995 1996 1997 1997 1998
---- ---- ---- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current Polish income tax expense.... $114 $129 $342 $39 $144
Deferred Polish income tax (credit)
expense, net........................ 6 (18) (1) (18) (3)
---- ---- ---- --- ----
Total income tax expense........... $120 $111 $341 $21 $141
==== ==== ==== === ====
</TABLE>
Total Polish income tax payments (or amounts used as settlements against
other statutory liabilities) during 1995, 1996 and 1997 were $112,000, $130,000
and $295,000 respectively.
Total income tax expense varies from expected income tax expense computed at
Polish statutory rates (40% in 1995 and 1996, 38% in 1997 and 36% in 1998) as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -----------------------
1995 1996 1997 1997 1998
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tax at Polish statutory rate... $ 78 $ 69 $ 247 $ 5 $139
Bad debt expense not expected
to be tax deductible.......... 6 4 15 2 2
Reduction in deferred tax asset
valuation allowance........... -- -- -- -- (15)
Effect of foreign currency
exchange rate change on net
deferred tax assets........... 3 13 23 6 (1)
Permanent differences:
Interest on overdue taxes.... 2 5 8 2 2
Non-deductible social taxes.. 5 7 11 3 6
Non-deductible depreciation.. 3 4 7 1 2
Non-deductible interest
paid........................ 13 -- -- -- --
Other non-deductible
expenses.................... 10 9 30 2 6
------- ------- ------- --- ----
Income tax expense............. $ 120 $ 111 $ 341 $21 $141
======= ======= ======= === ====
</TABLE>
F-14
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ ------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and other fixed asset basis differences.......... $ 33 $ --
Prepaid expenses.............................................. 7 --
------ ------
Total deferred tax liabilities.................................. 40 --
Deferred tax assets:
Allowance for doubtful accounts receivable.................... 19 23
Depreciation and other fixed asset basis differences.......... -- 8
Unrealized foreign exchange losses............................ 31 53
Accrued expenses and deferred income.......................... 50 27
Capital lease obligations..................................... 69 23
CEDC operating loss carryforward benefit...................... -- 10
------ ------
Total deferred tax assets....................................... 169 144
Less valuation allowance........................................ (19) (33)
------ ------
Deferred tax assets, net of valuation allowance................. 150 111
------ ------
Net deferred tax asset.......................................... $110 $111
====== ======
Shown as:
Current deferred tax asset.................................... $ 106 $ 103
Long-term deferred tax asset (included in deferred charges)... 4 8
------ ------
$110 $111
====== ======
</TABLE>
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.
Management intends that the undistributed earnings from the Polish
subsidiary of $335,000 will be permanently reinvested. Therefore, no deferred
taxes have been created for these earnings. If the earnings were distributed
in the form of a dividend or otherwise, a portion would be subject to both
U.S. income taxes and Polish withholding taxes, less an adjustment for foreign
tax credits. The Company estimates the deferred tax liability to be
approximately $20,000 based on the undistributed earnings of Carey Agri at
December 31, 1997. This amount would, in part, be available to reduce some
portion of U.S. tax liability from foreign source income. Determination of the
actual amount of U.S. income tax liability that would be incurred is complex
and subject to various factors existing at the time of any distribution of
foreign earnings to CEDC.
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.
Carey Agri'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. CEDC's US federal income tax returns will also be subject to
examination by US tax authorities. Because the application of tax laws and
regulations to many types
F-15
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS
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 December 31, 1997 and March 31, 1998
(unaudited) 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 $505,000 at December 31,
1997 and $1,179,000 (unaudited) at March 31, 1998 (Notes 4, 6 and 13).
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 $185,000, $300,000 and
$570,000 in 1995, 1996 and 1997, respectively ($101,000 and $158,000 in the
three months ended March 31, 1997 and 1998, respectively).
Receivable from Affiliate
During 1997, the Company wrote off a receivable of approximately $4,000 from
an affiliated company.
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 has elected 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. The Company plans to increase the number of shares the
Incentive Plan is authorized to issue, and the reserved shares for future
issuance, to 750,000 in May 1998.
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
F-16
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS
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 amendments in certain situations.
CEDC has granted stock options to its executive officers and members of the
Board of Directors for 82,500 shares of Common Stock in connection with a
planned public offering. If the public offering is not consummated, these
options will be null and void. The exercise price for 57,500 of these options
is the initial public offering price. The exercise price of 10,000 options
will be the average trading price of Common Stock for the last five trading
days of 1998. The exercise price of 15,000 options will be the average trading
price of Common Stock for the last five trading days of 1999.
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 has been recognized for options granted under the
Incentive Plan as the exercise price is equal to the initial public offering
price. For purposes of pro forma information regarding net income and earnings
per share as required by FAS No. 123, the Company has estimated the fair
market value of the stock underlying these options to be approximately 50% of
the planned public offering price due to various uncertainties as of the time
of grant. This is less than the present value of the expected exercise price.
Therefore, the fair value of the options granted in 1997 as of the grant date
has been estimated to be minimal under the provisions of FAS No. 123.
Warrants
In connection with the planned public offering, the Company has agreed to
sell to the Representatives or their designees (for nominal consideration)
warrants to purchase 200,000 shares of Common Stock from the Company. The
warrants are exercisable at any time during a period of four years commencing
one year from the date of the final prospectus used in the Company's initial
public offering. The exercise price of the warrants is 130% of the initial
public offering price.
F-17
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS
12. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Changes in the allowance for doubtful accounts during each of the three
years in the period ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year........................ $ 60 $ 36 $ 49
Provision for bad debts........................... 34 19 48
Charge-offs, net of recoveries.................... (58) (6) (3)
-------- ------- -------
Balance, end of year.............................. $ 36 $ 49 $ 94
======== ======= =======
</TABLE>
13. SUBSEQUENT EVENTS
Long-Term Debt
In the first quarter of 1998, the Company entered into an additional loan
agreement. This loan was used to purchase two cars, two trucks and warehouse
equipment. The loan is denominated in PLN and equaled a USD equivalent of
approximately $100,000. The loan is to be repaid in twenty-four equal
installments through January 2000. The loan has an interest rate equal to
WIBOR plus 3% (29.5% in January 1998 ). This loan is collateralized by blank
bills of exchange, the equipment financed and the assignment of an insurance
policy on the equipment financed.
Short-Term Bank Loan
In the first quarter of 1998, the Company entered into a short-term bank
loan with the bank mentioned in Note 10 for $725,000 at an interest rate equal
to LIBOR plus 2.7% (8.45% in March 1998). The loan is due in full on May 21,
1998. These loans are collateralized by blank bills of exchange, the equipment
financed and the assignment of an insurance policy on the equipment financed.
14. SUBSEQUENT EVENTS AFTER DATE OF AUDITORS' REPORT (UNAUDITED)
In May 1998, the due date of the loan of $725,000 mentioned above was
extended to August 21, 1998.
In July 1998, the due date of the loan of $300,000 mentioned in Note 6 was
extended to October 10, 1998.
F-18
<PAGE>
[LOGO OF CENTRAL EUROPEAN DISTRIBUTION CORPORATION APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. 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 hereunder, not including
the Representatives' non-accountable expense allowance.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 5,286
NASD filing fee.................................................... 2,292
Nasdaq SmallCap Market listing fee................................. 9,280
Accounting fees and expenses....................................... 200,000
Legal fees and expenses............................................ 375,000
Printing and engraving expenses.................................... 140,000
Transfer Agent fees and expenses................................... 3,500
Miscellaneous expenses............................................. 189,642
--------
Total............................................................ $925,000
========
</TABLE>
ITEM 14. 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 15. RECENT SALES OF UNREGISTERED SECURITIES
All of 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
II-1
<PAGE>
"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 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
--------- -------------------
<S> <C>
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 --Form of Warrant Agreement and attached form of Representatives'
Warrant.
5 --Opinion of Hogan & Hartson L.L.P.
**10.1 --1997 Stock Incentive Plan.
**10.1(a) --Amendment to 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 UDV Poland Sp. z o.o. dated July 3,
1997.
**10.6(a) --Amendment, undated, to the distribution contract with UDV Poland
Sp. z o.o dated July 3, 1997.
**10.7 --Distribution contract between Carey Agri and Guinness Brewing
Worldwide Ltd. dated November 17, 1997.
**10.8 --Contract with Vinexport Trading Company Ltd. dated December 31,
1997.
**10.9 --Employment agreement with William V. Carey.
**10.9(a) --Amendment to Employment Agreement with William V. Carey.
**10.10 --Employment agreement with Jeffrey Peterson.
**10.11 --Employment agreement between Robert Bohojlo and the Company.
**10.12 --Employment agreement between Robert Bohojlo and Carey Agri.
**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).
**23.3 --Consent of Joseph S. Conti.
**24 --Power of Attorney (included on the signature page in Part II of
this Registration Statement).
**27 --Financial Data Schedule.
</TABLE>
- --------
** Previously filed.
II-2
<PAGE>
ITEM 17. 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 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 the purpose of 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 relating to 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.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ALEXANDRIA,
COMMONWEALTH OF VIRGINIA, ON THIS 16TH DAY OF JULY 1998.
Central European
Distribution Corporation
By: /s/ William V. Carey
---------------------------------
WILLIAM V. CAREY
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
AMENDED REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS, IN THE
CAPACITIES INDICATED BELOW, ON THIS 16TH DAY OF JULY 1998.
<TABLE>
<S> <C>
SIGNATURE TITLE
/s/ William V. Carey Chairman, President and Chief
- ------------------------------------- Executive Officer (Principal
WILLIAM V. CAREY executive officer)
/s/ Jeffrey Peterson Vice Chairman and Executive Vice
- ------------------------------------- President
JEFFREY PETERSON
/s/ Robert Bohojlo Vice President and Chief Financial
- ------------------------------------- Officer (Principal financial and
ROBERT BOHOJLO accounting officer)
* Director
- -------------------------------------
JAMES T. GROSSMANN
* Director
- -------------------------------------
JAMES B. KELLY
* Director
- -------------------------------------
JAN W. LASKOWSKI
* Director
- -------------------------------------
JOE M. RICHARDSON
*By: /s/ Jeffrey Peterson
--------------------------------
JEFFREY PETERSON
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<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 --Form of Warrant Agreement and attached form of Representatives'
Warrant.
5 --Opinion of Hogan & Hartson L.L.P.
**10.1 --1997 Stock Incentive Plan.
**10.1(a) --Amendment to 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 UDV Poland Sp. z o.o. dated July 3,
1997.
**10.6(a) --Amendment, undated, to the distribution contract with UDV Poland
Sp. z o.o dated July 3, 1997.
**10.7 --Distribution contract between Carey Agri and Guinness Brewing
Worldwide Ltd. dated November 17, 1997.
**10.8 --Contract with Vinexport Trading Company Ltd. dated December 31,
1997.
**10.9 --Employment agreement with William V. Carey.
**10.9(a) --Amendment to Employment Agreement with William V. Carey.
**10.10 --Employment agreement with Jeffrey Peterson.
**10.11 --Employment agreement between Robert Bohojlo and the Company.
**10.12 --Employment agreement between Robert Bohojlo and Carey Agri.
**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).
**23.3 --Consent of Joseph S. Conti.
**24 --Power of Attorney (included on the signature page in Part II of
this Registration Statement).
**27 --Financial Data Schedule.
</TABLE>
- --------
** Previously filed.
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
2,000,000 shares of Common Stock
Underwriting Agreement
July__, 1998
Brean Murray & Co., Inc.
Fine Equities, Inc.
As Representatives of the
Several Underwriters listed on Schedule I hereto
Brean Murray & Co., Inc.
570 Lexington Avenue
New York, New York 10022
Ladies and Gentlemen:
Central European Distribution Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell to Brean Murray & Co., Inc. ("Brean
Murray"), Fine Equities, Inc. ("Fine Equities") and each of the underwriters
named in Schedule I hereto (collectively, the "Underwriters") for whom Brean
Murray and Fine Equities are acting as representatives (in such capacity, Brean
Murray and Fine Equities shall hereinafter be referred to as "you" or the
"Representatives"), an aggregate of 2,000,000 shares (the "Firm Shares") of the
Company's common stock, par value $.01 per share (the "Common Stock"). The
respective amounts of the Firm Shares to be so purchased by the several
Underwriters are set forth opposite their names in Schedule I hereto. In
addition, the Company proposes to grant to the several Underwriters (or, at the
Representatives' option, to the Representatives individually) the option to
purchase an aggregate of up to 300,000 additional shares of Common Stock (the
"Option Shares"). Unless the context otherwise indicates, the Firm Shares and
the Options Shares are hereinafter collectively referred to as the "Shares."
You have advised the Company that you and the other Underwriters
desire to purchase, severally, the number of Firm Shares set forth opposite
their respective names in Schedule I hereto, plus their pro rata portion of the
Option Shares if you elect to exercise the aforementioned option in whole or in
part for the accounts of the several Underwriters, and that you have been
authorized by the Underwriters to execute this Agreement on their behalf. 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. 333-42387) on Form S-1
relating to the public offering of the Shares, including a form of
prospectus subject to completion, copies of which have heretofore been
delivered to you, has been prepared by the Company in conformity in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules 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
<PAGE>
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) and Rule 462(b) under the Act and as have been provided to and
approved by the Representatives 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
Representatives 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, including any
such amendment pursuant to Rule 462(b), 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) the prospectus first filed with
the Commission pursuant to Rule 424(b) and Rule 462(b) (as applicable)
under the Act or (B) if no prospectus is required to be filed pursuant to
said Rule 424(b) and Rule 462(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 material 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 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 limited liability company organized under the laws of Poland (the
"Subsidiary"), has been duly incorporated and is validly existing as a
corporation or limited liability company, as the case may be, in good
standing under the laws of the jurisdiction of its incorporation, with full
corporate power and authority to own its properties and conduct its
business as described in the Prospectus
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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
adversely 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 March 31, 1998 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 in all
material respects 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 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 to be issued and sold by the Company have been
duly authorized, and when issued and delivered against payment therefor
pursuant to this Agreement, will be duly authorized, 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.
The shares of Common Stock issuable upon exercise of the
Representatives' Warrants (as defined in Section 13 hereof) have been duly
authorized and reserved for issuance upon exercise of the Representatives'
Warrants and, when issued and delivered against payment therefor pursuant
to the terms and conditions set forth in a Warrant Agreement among the
Company and the Representatives (the "Warrant Agreement"), will be validly
issued, fully paid and non-assessable and free of preemptive rights and the
holders thereof will not be subject to personal liability solely by reason
of being such holders.
The Warrant Agreement, which will be substantially in the form
filed as an exhibit to the Registration Statement, has been duly
authorized; and when the Representatives' Warrants are delivered and paid
for pursuant to the Warrant Agreement, the Representatives' 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 (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).
(f) This Agreement and the Warrant Agreement 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
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 of the Company in connection with the authorization,
issue and sale of the Shares or the Representatives' Warrants, 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
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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 or 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,
except where such violation, breach, default or conflict would not have a
material adverse effect on the business, operations and financial condition
of the Company and the Subsidiary, taken as a whole (a "Material Adverse
Effect").
(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
which could not reasonably be expected to have a Material Adverse Effect;
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 with respect to any of the terms or provisions of
any of such leases or subleases, except where such default could not
reasonably be expected to have a Material Adverse Effect, 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 except for such
claims that could not reasonably be expected to have a Material Adverse
Effect; 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, to the
Company's knowledge, 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 in all material respects the
financial position and results of operations and changes in stockholders'
equity and cash flow position 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
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related notes have been prepared in accordance with United States generally
accepted accounting principles (except as disclosed in the notes to such
financial statements) 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 in all material respects, 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, or entered into any transaction, which is material to
the business of the Company or the Subsidiary (considered as one
enterprise), 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 and the
Subsidiary or any issuance of options, warrants or other rights to purchase
the capital stock of the Company or the Subsidiary or any material 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 and the Subsidiary (considered as one
enterprise) 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 litigation, which could
reasonably be considered to have a Material Adverse Effect.
(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 threatened which might be expected to have a
Material Adverse Effect.
(n) Except as disclosed in the Prospectus, the Company and the
Subsidiary have filed all necessary income and franchise tax returns (or
extensions relating thereto) 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 or the Subsidiary might reasonably be expected to 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 complying therewith, except where failure to have
or comply with such licenses, permits or other governmental authorizations
could not reasonably be expected to have a Material Adverse Effect. To the
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 Effect.
(p) The Subsidiary owns or possesses the right to use all
patents, trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets
and rights necessary for the conduct of the Company's and the Subsidiary's
business (considered as one enterprise), 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
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Company and the Subsidiary with respect to the foregoing. To the best of
the Company's knowledge, the Company's and the Subsidiary's businesses as
now 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.
(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 by the Company in connection with the sale and transfer of the
Shares to the several 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 or 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 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 Representatives, to the best of the Company's knowledge, after due
inquiry, 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 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 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-K
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. INTENTIONALLY LEFT BLANK.
3. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(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, at the place and time hereinafter specified,
the number of Firm Shares set forth opposite the name of such Underwriter
in Schedule I hereto.
Delivery of the Firm Shares against payment therefor shall take
place at the offices of Brean Murray & Co., Inc., 570 Lexington Avenue, New
York, New York 10022 (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 July __, 1998, or at such later time and date as you may reasonably
designate, such time and date of payment and delivery for the Firm Shares
being herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions set forth
herein, and on the basis of the representations, warranties and agreements
contained herein, the Company hereby grants an option (the "Over-allotment
Option") to the several Underwriters (or, at the Representatives' option,
to the Representatives individually) to purchase from the Company at the
price per Share as set forth in subsection (a) above, all or any part of
the respective number of Option Shares determined as hereinafter provided.
The Over-allotment Option may be exercised within 30 days after the
effective date of the Registration Statement upon notice by the
Representatives to the Company advising as to the amount of Option Shares
as to which such option is being exercised, the names and denominations in
which the certificates for such Option Shares 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 reasonably
determined by the Representatives but shall not be earlier than two nor
later than five 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 Shares against payment therefor shall take place at the offices of
Brean Murray & Co., Inc., 570 Lexington Avenue, New York, New York 10022.
The number of Option Shares to be purchased by each Underwriter, if any,
shall bear the same percentage to the total number of Option Shares being
purchased by the several Underwriters pursuant to this subsection (b) as
the respective numbers of Firm Shares being purchased by such Underwriter
bears to the respective total numbers thereof, as adjusted, in each case by
the Representatives in such manner as the Representatives may deem
appropriate. The Over-allotment Option may be exercised only to cover
over-allotments in the
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sale by the Underwriters of Firm Shares 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 Shares on the Option Closing
Date.
(c) The Company will make the certificates for the Shares to be
purchased by the several Underwriters hereunder available to you 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 you 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 Shares to
be purchased by the Underwriters hereunder will be delivered by the Company
to you for the accounts of the several Underwriters against payment of the
respective purchase prices by the several Underwriters by wire transfer of
immediately available funds to the Company's account at __________, ABA No.
_______, Account No. _______ with regard to the Firm Shares to be purchased
from the Company.
In addition, in the event the Underwriters (or the
Representatives, individually) exercise the Over-allotment Option for all
or any portion of the Option Shares pursuant to the provisions of
subsection (b) above, payment for such Option Shares 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 at the offices of Brean Murray & Co.,
Inc., 570 Lexington Avenue, New York, New York 10022 (or such other place
as may be designated by agreement between the Representatives and the
Company) at the time and date of delivery of such Option Shares as required
by the provisions of subsection (b) above, against receipt of the
certificates for such Option Shares by the Representatives for the
respective accounts of the several Underwriters registered in such names
and in such denominations as the Representatives may request.
It is understood that you, individually and not as
Representatives of the several Underwriters, may (but shall not be
obligated to) make any and all payments required pursuant to this Section 3
on behalf of any Underwriter or Underwriters whose check or checks shall
not have been received by the Representatives at the time of delivery of
the Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of
any of its or their obligations hereunder. It is also understood that you
individually rather than all of the Underwriters may (but shall not be
obligated to) purchase the Option Shares referred to in subsection (b) of
this Section 3, but only to cover overallotments.
It is understood that the several Underwriters propose to offer
the Shares (including the Option Shares) 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
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<PAGE>
effective, the Company will so advise the Representatives 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 Representatives shall not previously have been
advised and furnished with a copy or to which the Representatives or their
counsel shall have reasonably 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 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
Representatives' request, any amendments or supplements to the Registration
Statement or Prospectus which, in the opinion of counsel to the
Representatives, is necessary under the Act in connection with the
distribution of the Shares.
As soon as the Company is advised thereof, the Company will
advise the Representatives, 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 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 Representatives
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 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 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 or in case it shall
be necessary to amend or supplement the Prospectus to comply with federal
or state securities laws or with the Rules and Regulations, the Company
shall notify the Representatives promptly and forthwith prepare and furnish
to the Representatives copies of such amended Prospectus or of such
supplement to be attached to the Prospectus, in such quantities as the
Representatives 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, to deliver a
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<PAGE>
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
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.
(b) The Company will furnish such proper information as may be
required and otherwise cooperate in qualifying the Shares for offering and
sale under the securities or "blue sky" laws relating to the offering for
sale in such jurisdictions as the Representatives may designate, provided
that the Company shall not be required to qualify as a foreign corporation
or 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. 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
Representatives may reasonably request.
(c) If the sale of the Shares 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 Representatives.
(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 Representatives in writing immediately upon the effectiveness of such
registration statement, and (ii) if requested by the Representatives, 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 Representatives
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 the Representatives 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.
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<PAGE>
(g) The Company will deliver to the Representatives 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 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 6:00
p.m., New York City time, on the business day following the date the
Registration Statement is declared effective, 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 Representatives 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 for the purposes set forth under "Use of Proceeds" in the
Prospectus.
(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 Baker & McKenzie, counsel to the several
Underwriters, may be reasonably necessary or advisable in connection with
the distribution of the Shares, 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 shares of Common Stock which are
issuable upon exercise of the Representatives' Warrants.
(l) The Company will not for a period of 12 months from the First
Closing Date, and will deliver to the Representatives 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 without
the prior written consent of Brean Murray. 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.
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(m) 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 on the Nasdaq SmallCap Market, and will
effect and use its best efforts to maintain such listing (or listing on the
New York Stock Exchange or Nasdaq National Market) for at least five years
from the effective date of the Registration Statement.
(n) The Company represents that 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
to facilitate the sale or resale of the Shares.
(o) On the Closing Date and simultaneously with the delivery of
the Representatives' Warrants, the Company shall execute and deliver to you
the Warrant Agreement. The Warrant Agreement will be substantially in the
form of the Warrant Agreement filed as an exhibit to the Registration
Statement.
(p) During the twelve month period commencing on the date of this
Agreement, the Company will not, without the prior written consent of Brean
Murray, grant options to purchase shares of Common Stock at an exercise
price less than the fair market value of the Common Stock on the date of
grant or sell or offer any securities of the Company.
(q) 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 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.
(r) 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 read (but not
review or 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-Q and
the mailing of quarterly financial information to stockholders and (ii)
shall not change its accounting firm (other than to an accounting firm of
national standing) without the prior written consent of the
Representatives.
(s) For a period of five years from the First Closing Date (i)
each of the Representatives shall have the right, but not the obligation,
to (a) designate one director to the Board of Directors of the Company or
(b) designate one person to attend all meetings of the Board of Directors,
which persons will be entitled to receive all notices and other
correspondence as if such persons were members 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 reasonably acceptable to the
Representatives.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares 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 set forth herein, to the
performance by the Company of its obligations hereunder, and to the satisfaction
(at or prior to the Closing Dates), of each of following conditions:
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(a) The Registration Statement shall have become effective and
the Representatives 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 or to
the Registration Statement, as the case may be, containing information
regarding the initial public offering price of the Shares has been filed
with the Commission, or such later time and date as shall have been agreed
to by the Representatives; 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 Representatives' 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 Baker & McKenzie, counsel to the several Underwriters;
(b) At the First Closing Date, the Representatives 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, substantially in the form attached hereto as
Annex A.
(c) All corporate proceedings and other legal matters relating to
this Agreement, the Warrant Agreement, 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, 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,
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, and the Subsidiary shall have furnished to such
counsel for the several Underwriters such documents as they may reasonably
request for the purpose of enabling them to render such opinion.
(d) You 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 you, and
including estimates of the Company's unaudited revenues and results of
operations for the period ending at the end of the month immediately
preceding the effective date, if available, 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
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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, to the knowledge of the Company,
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, to the knowledge of the Company, 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 be reasonably likely to
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 Representatives shall have
received, at the First Closing Date, a certificate signed by each of the
Chief Executive Officer and the Chief Financial Officer 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 (or, at their option, the Representatives
individually) to purchase and pay for the Option Shares 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 your 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 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 Representatives 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 Representatives at the
First Closing Date pursuant to Section 5(b) hereof, except that such
opinion, where appropriate, shall cover the Option Shares;
(iii) at the Option Closing Date, there shall have been
delivered to the Representatives a letter in form and substance
satisfactory to the Representatives 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) at the Option Closing Date, there shall have been
delivered to the Representatives a certificate of the Chief Executive
Officer and Chief Financial Officer 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
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<PAGE>
and substance as the certificate, furnished to you at the First
Closing Date pursuant to Section 5(e) hereof;
(v) all proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Shares
shall be satisfactory in form and substance to the Representatives,
and the Representatives and Baker & McKenzie, counsel to the several
Underwriters, shall have been furnished with all such documents,
certificates and opinions as the Representatives 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, and no proceedings for the taking of such action
shall have been instituted or shall be pending, or, to the knowledge of the
Representatives or the Company, shall be contemplated by the Commission or
the NASD. The Company and the Representatives represent that at the date
hereof they have 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 Representatives of any NASD affiliation of any of their
officers, directors, stockholders or other affiliates.
(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
Representatives. Any such cancellation shall be without liability of the
Underwriters to the Company.
6. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation of
the Company to sell and deliver the Shares 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 to sell and deliver the Option
Shares upon any exercise of the Over-allotment Option hereof shall be affected.
7. INDEMNIFICATION.
(a) The Company 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
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<PAGE>
jurisdiction in order to qualify any or all of the Shares 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 the Company will not 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. The obligations of the Company under this Section
7(a) will be in addition to any liability which the Company 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, and
each other person, if any, who controls the Company within the meaning of
the Act to the same extent as the foregoing indemnity from the Company 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 you or by any Underwriter through you 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 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
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
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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 indemnified
parties). 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 indemnified party 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 required on the part of any
Underwriter, then the Company and each person who controls the Company, 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
discounts per Share appearing on the cover page of the Prospectus bears to the
public offering prices appearing thereon, and the Company shall be responsible
pro rata for the remaining portion determined by the proportion that the number
of Shares sold by the Company bears to the total number of Shares sold
hereunder; provided, however, that if such allocation is not permitted by
applicable law, then the relative fault of the Company 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 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 and the Underwriters agree (a) that it would not be just and equitable
if the respective obligations of the Company 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, and (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 purchased by such Underwriter to the
number of Shares purchased by all contributing Underwriters) of the portion of
such losses, claims, damages or liabilities for which the Underwriters are
responsible. 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 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
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.
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9. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale
of the Shares 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 contemplated hereby; all expenses, including
reasonable fees and disbursements of counsel to the Underwriters, in
connection with the qualification of the Shares under the state securities
or blue sky laws which the Representatives shall designate; the 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 on
the Nasdaq SmallCap Market or any other securities exchange; the cost of
printing the certificates representing the Shares; the fees of the transfer
agent retained in connection with the sale of the Shares; the cost of
publication of at least three "tombstones" relating to the public offering
of the Shares (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 Representatives' 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 Representatives, in their individual
rather than representative capacity, a non-accountable expense allowance of
$300,000. 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 of the Underwriters' actual out-of-
pocket expenses. 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
actual out-of-pocket expenses of the Representatives, including legal fees.
(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.
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10. SUBSTITUTION OF UNDERWRITERS.
If any Underwriter shall for any reason not permitted hereunder cancel
its obligations to purchase the Firm Shares hereunder, or shall fail to take up
and pay for the number of Firm Shares set forth opposite its name in Schedule I
hereto upon tender of such Firm Shares in accordance with the terms hereof,
then:
(a) If the aggregate number of Firm Shares which such Underwriter
or Underwriters agreed but failed to purchase does not exceed 10% of the
total number of Firm Shares, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to
purchase the Firm Shares which such defaulting Underwriter or Underwriters
agreed but failed to purchase.
(b) If any Underwriter or Underwriters so default and the agreed
number of Firm Shares with respect to which such default or defaults occurs
is more than 10% of the total number of Firm Shares, the remaining
Underwriters shall have the right to take up and pay for (in such
proportion as may be agreed upon among them) the Firm Shares which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If
such remaining Underwriters do not, at the First Closing Date, take up and
pay for the Firm Shares which the defaulting Underwriter or Underwriters
agreed but failed to purchase, the time for delivery of the Firm Shares
shall be extended to the next business day to allow the several
Underwriters 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 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 which the defaulting Underwriter or Underwriters
agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted Underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section, (i) the
Company or the Representatives 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 to be purchased by
the remaining Underwriters 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 or more Underwriters and the
remaining Underwriters shall not take up and pay for all the Firm Shares
agreed to be purchased by the defaulting Underwriters 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 as aforesaid, then this Agreement shall terminate.
If, following exercise of the Over-allotment Option, any
Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Shares at the Option Closing
Date, or shall fail to take up and pay for the number or type of Option
Shares, which they become obligated to purchase at the Option Closing Date
upon tender of such Option Shares in accordance with the terms hereof, then
the remaining Underwriters or substituted Underwriters may take up and pay
for the Option Shares of the defaulting Underwriter or
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<PAGE>
Underwriters in the manner provided in Section 10(b) hereof. If the
remaining Underwriters or substituted Underwriters shall not take up and
pay for all such Option Shares, the Underwriters shall be entitled to
purchase the number and type of Option Shares for which there is no default
or, at their 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.
11. EFFECTIVE DATE.
This Agreement shall become effective upon its execution, except that
the Representatives 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 Representatives in their discretion
shall first commence the initial public offering by the Underwriters of any of
the Shares. The time of the initial public offering shall mean the time of
release by the Representatives of the first newspaper advertisement with respect
to the Shares, or the time when the Shares are first generally offered by the
Representatives to dealers by letter or telegram, whichever shall first occur.
This Agreement may be terminated by the Representatives 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 you if in your judgment it is
impracticable to offer for sale or to enforce contracts made by the
Underwriters for the resale of the Shares 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) 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, any 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 Representatives 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
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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 you elect 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 you, by telephone
or telegram, confirmed by letter.
13. REPRESENTATIVES' WARRANTS.
At or before the First Closing Date, the Company will sell to the
Representatives (for their own account and not as co-Representatives of the
several Underwriters), or their designees, for a consideration of $200, and upon
the terms and conditions set forth in the form of the Warrant Agreement annexed
as an exhibit to the Registration Statement, warrants (the "Representatives'
Warrants") to purchase an aggregate of 200,000 Shares. In the event of conflict
in the terms of this Agreement and the Warrant Agreement, the language of the
Warrant Agreement shall control.
14. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties
and other statements of the Company 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 and will survive delivery
of and payment of the Shares 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
Brean Murray & Co., Inc., 570 Lexington Avenue, New York, New York 10022, and at
Fine Equities, Inc., 600 Third Avenue, New York, New York 10016, 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, 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. 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.
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<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
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
Brean Murray & Co., Inc.
Fine Equities, Inc.
As Representatives of the Several
Underwriters listed on Schedule I hereto
By: Brean Murray & Co., Inc.
By:
-------------------------------
Name:
Title:
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<PAGE>
SCHEDULE I
Underwriter Number of Firm Shares to be Purchased
Brean Murray & Co., Inc.
Fine Equities, Inc.
Total Shares 2,000,000
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<PAGE>
Exhibit 4.2
WARRANT AGREEMENT
BY AND AMONG
CENTRAL EUROPEAN DISTRIBUTION CORPORATION,
BREAN MURRAY & CO., INC.
AND
FINE EQUITIES, INC.
DATED AS OF JULY __ , 1998
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of July__, 1998 by and among CENTRAL EUROPEAN
DISTRIBUTION CORPORATION, a Delaware corporation (the "Company"), BREAN MURRAY &
CO., INC. ("Brean Murray") and FINE EQUITIES, INC. ("Fine Equities" and together
with Brean Murray, the "Representatives") (the Company and the Representatives
are referred to collectively herein as the "Parties").
The Company proposes to issue to the Representatives warrants as
hereinafter described (the "Warrants") to purchase up to an aggregate of 200,000
shares (the "Shares") of common stock, par value $.01 per share, of the Company
(the "Common Stock"), subject to adjustment as provided in Section 8 hereof,
each Warrant entitling the holder ("Holder") thereof to purchase one Share. All
capitalized terms used herein and not otherwise defined herein shall have the
same meanings as in that certain underwriting agreement, of even date herewith,
by and among the Company and the several underwriters named therein (the
"Underwriting Agreement").
NOW, THEREFORE, in consideration of the following promises and mutual
agreements and for other good and valuable consideration, the Parties agree as
follows:
1. ISSUANCE OF WARRANTS; FORM OF WARRANT. On the Closing Date, the
Company will issue, sell and deliver the Warrants to the Representatives or
their respective bona fide officers for an aggregate price of $200. The
Warrants shall be issued to the Representatives or such designees in the amounts
set forth on Schedule I hereto. The form of Warrant Certificate and the form of
election to purchase Shares to be attached thereto shall be substantially as set
forth on Exhibit A hereto. The Warrants shall be executed on behalf of the
Company by the manual or facsimile signature of the present or any future
President or any Vice President of the Company, under its corporate seal,
affixed or in facsimile, and attested by the manual or facsimile signature of
the present or any future Secretary or Assistant Secretary of the Company.
2. REGISTRATION. The Warrants shall be numbered and shall be registered
in a Warrant register (the "Warrant Register") to be maintained by the Company
or, at the direction of the Company, a warrant agent (a "Warrant Agent"). The
Company shall be entitled to treat the registered holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other person, and shall not be liable for any registration or
transfer of Warrants which are registered or are to be registered in the name of
a fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with such knowledge of such facts that its
participation therein amounts to bad faith. The Warrants shall be registered
initially in the names of the Representatives (in the amounts set forth in
Schedule I hereto) in such denominations as the Representatives may request in
writing from the Company; provided, however, that any Representative may
designate that all or a portion of its Warrants be issued in varying amounts
directly to its bona fide officers and not to such Representative. Such
<PAGE>
designation will only be made by a Representative if it determines that such
issuances would not violate the interpretation of the Board of Governors of the
National Association of Securities Dealers, Inc. (the "NASD"), relating to the
review of corporate financing arrangements.
3. TRANSFER OF WARRANTS. The Warrants will not be sold, transferred,
assigned or hypothecated, in part or in whole, prior to the first anniversary of
the effective date of the Registration Statement, and thereafter only upon
delivery of the Warrant Certificate duly endorsed by the Holder or by its duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. In all cases of transfer by an
attorney, the original power of attorney, duly approved, or an official copy
thereof, duly certified, shall be deposited with the Company. In case of
transfer by executors, administrators, guardians or other legal representatives,
duly authenticated evidence of their authority shall be produced, and may be
required to be deposited with the Company in its discretion. Upon any
registration of transfer, the Company (or at the Company's direction, the
Warrant Agent) shall deliver a new Warrant or Warrants to the persons entitled
thereto. Any of the Warrants may be exchanged at the option of its Holder for
other Warrants of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of Shares upon surrender to the
Company or its duly authorized agent. The Company may require payment of a sum
sufficient to cover all taxes and other governmental charges that may be imposed
in connection with any voluntary transfer, exchange or other disposition of the
Warrants. However, the Company shall have no obligation to cause Warrants to be
transferred on its books to any person, if such transfer would violate the
Securities Act of 1933, as amended (the "Act"), or applicable state securities
laws.
4. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) TERM OF WARRANTS. Each Warrant entitles the registered owner thereof
to purchase one fully paid and nonassessable Share at a purchase price of $____
per Share (as adjusted from time to time pursuant to the provisions hereof, the
"Exercise Price") at any time from the first anniversary of the effective date
of the Registration Statement until 5:00 p.m., New York City time, on July __,
2003 (the "Warrant Expiration Date").
(b) EXERCISE OF WARRANTS. The Exercise Price and the number of Shares
issuable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, pursuant to the provisions of Section 8 of this
Agreement. Subject to the provisions of this Agreement, and in addition to the
right to surrender Warrants without any cash payment as set forth in subsection
(c) below, each Holder shall have the right, which may be exercised as set forth
in such Warrants, to purchase from the Company (and the Company shall issue and
sell to such Holder) the number of fully-paid and nonassessable Shares specified
in such Warrants, upon surrender to the Company, or its duly authorized agent,
of such Warrants, with the form of election to purchase attached thereto duly
completed and signed, with signatures guaranteed by a member firm of a national
securities exchange, a commercial bank (not a savings bank or savings and loan
association) or trust company located in the United States or a member
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<PAGE>
of the NASD and upon payment to the Company of the Exercise Price, as adjusted
in accordance with the provisions of Section 8 of this Agreement, for the number
of Shares in respect of which such Warrants are then exercised. No adjustment
shall be made for any cash dividends payable out of consolidated earnings or
retained earnings on any Shares issuable upon exercise of a Warrant. Upon each
surrender of Warrants and payment of the Exercise Price, the Company shall issue
and cause to be delivered with all reasonable dispatch, but in no event later
than three (3) trading days following such surrender, to or upon the written
order of the Holder of such Warrants and in such name or names as such Holder
may designate, a certificate or certificates for the number of full Shares so
purchased upon the exercise of such Warrants, together with cash, as provided in
Section 9 of this Agreement, in respect of any fractional Shares otherwise
issuable upon such surrender. Such certificate or certificates shall be deemed
to have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such Shares as of the date of the
surrender of Warrants and payment of the Exercise Price as aforesaid; provided,
however, that if, at the date of surrender of such Warrants, the transfer books
for the shares of Common Stock or other class of securities issuable upon the
exercise of such Warrants shall be closed, the certificates for the Shares shall
be issuable as of the date on which such books shall next be opened (whether
before, on or after the Warrant Expiration Date) and until such date the Company
shall be under no duty to deliver any certificate for such Shares; provided,
further, however, that the transfer books of record, unless otherwise required
by law, shall not be closed at any one time for a period longer than twenty (20)
days. The rights of purchase represented by the Warrants shall be exercisable,
at the election of the Holder(s) thereof, either in full or from time to time in
part and, in the event that any Warrant is exercised in respect of less than all
of the Shares issuable upon such exercise at any time prior to the Warrant
Expiration Date, a new Warrant or Warrants will be issued for the remaining
number of Shares specified in the Warrant so surrendered.
(c) PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price may be made
in cash, by wire transfer of immediately available funds or by certified check
or official bank check payable to the order of the Company. In addition and in
lieu of any cash payment, the Holder of any Warrants shall have the right at any
time and from time to time to exercise such Warrants in full or in part by
surrendering any such Warrant in exchange for the number of Shares equal to the
product of (x) the number of shares as to which such Warrant is being exercised
multiplied by (y) a fraction, the numerator of which is the Market Price (as
defined in Section 8(d) below) per Share less the Exercise Price and the
denominator of which is such Market Price.
5. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes, if
any, attributable to the issuance of Shares upon the exercise of Warrants;
provided, however, that the Company shall not be required to pay any taxes
payable in respect of any transfer involved in the issue or delivery of any
certificates for Shares in a name other than that of the Holder of Warrants in
respect of which such Shares are issued.
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<PAGE>
6. MUTILATED OR MISSING WARRANTS. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest, but only
upon receipt of evidence reasonably satisfactory to the Company of such
mutilation, loss, theft or destruction of such Warrant and indemnity, if
requested, reasonably satisfactory to the Company. An applicant for such
substitute Warrants shall also comply with such other reasonable regulations and
pay such other reasonable charges and expenses as the Company may prescribe.
7. RESERVATION OF SHARES, ETC. The Company has reserved, and shall at all
times keep reserved, out of the authorized and unissued Common Stock, a number
of shares sufficient to provide for the exercise of the rights of purchase
represented by the outstanding Warrants. American Stock Transfer and Trust
Company, transfer agent for the Shares (the "Transfer Agent"), and any
subsequent transfer agent for the Company's securities issuable upon the
exercise of the Warrants will be irrevocably authorized and directed at all
times until the Warrant Expiration Date to reserve such number of authorized and
unissued shares as shall be required for such purpose. The Company will keep a
copy of this Agreement on file with the Transfer Agent and with every subsequent
transfer agent for any shares of the Company's securities issuable upon the
exercise of the Warrants. The Company will supply the Transfer Agent or any
subsequent transfer agent with duly executed certificates for such purpose and
will itself provide or make available any cash distributable as provided in
Section 9 of this Agreement. All Warrants surrendered in the exercise of the
rights thereby evidenced shall be canceled, and such canceled Warrants shall
constitute sufficient evidence of the number of Shares that have been issued
upon the exercise of such Warrants. No Shares shall be subject to reservation
in respect of unexercised Warrants after the Warrant Expiration Date.
8. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise Price
and the number and kind of securities issuable upon exercise of each Warrant
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
(a) If the Company (i) declares a dividend on its Common Stock in shares of
Common Stock or makes a distribution in shares of Common Stock, (ii) subdivides
its outstanding shares of Common Stock, (iii) combines its outstanding shares of
Common Shares into a smaller number of shares or (iv) issues by reclassification
of its Common Stock other securities of the Company (including any such
reclassification in connection with a consolidation or merger in which the
Company is the surviving entity), the number of Shares purchasable upon exercise
of each Warrant immediately prior thereto shall be adjusted so that the Holder
of each Warrant shall be entitled to receive the kind and number of Shares or
other securities of the Company which such Holder would have owned or have been
entitled to receive after the happening of any of the events described above,
had such Warrant been exercised immediately prior to the happening of such event
or any record date with respect thereto. Such adjustment shall be made whenever
any of the events listed above shall occur. An adjustment made
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<PAGE>
pursuant to this paragraph (a) shall become effective immediately after the
effective date of such event retroactive to immediately after the record date,
if any, for such event.
(b) If the Company issues rights, options or warrants to all holders of its
Common Stock, without any charge to such holders, entitling them to subscribe
for or to purchase Common Stock at a price per share lower than the then current
Market Price per share at the record date mentioned below (as defined in
paragraph (d) below), the number of Shares thereafter purchasable upon exercise
of each Warrant shall be determined by multiplying the number of Shares
theretofore purchasable upon exercise of each Warrant by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding on such
record date plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the denominator shall be the number of
shares of Common Stock outstanding on such record date plus the number of shares
which the aggregate offering price of the total number of shares of Common Stock
so offered would purchase at the then current Market Price per share. Such
adjustment shall be made whenever such rights, options or warrants are issued,
and shall become effective retroactively to immediately after the record date
for the determination of shareholders entitled to receive such rights, options
or warrants.
(c) If the Company issues without charge to all holders of its Common Stock
shares of stock other than Common Stock or evidences of its indebtedness or
assets (excluding cash dividends payable out of consolidated earnings or
retained earnings and dividends or distributions referred to in paragraph (a)
above) or rights, options or warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of Common Stock
(excluding those referred to in paragraph (b) above), then in each case the
number of Shares thereafter issuable upon the exercise of each Warrant shall be
determined by multiplying the number of Shares theretofore issuable upon the
exercise of each Warrant, by a fraction, of which the numerator shall be the
current Market Price per share (as defined in paragraph (d) below) on the record
date mentioned below in this paragraph (c), and of which the denominator shall
be the current Market Price per share on such record date, less the then fair
value (as determined in good faith by the Board of Directors of the Company,
whose determination shall be conclusive) of the portion of the shares of stock
other than Common Stock or assets or evidences of indebtedness so distributed or
of such subscription rights, options or warrants, or of such convertible or
exchangeable securities applicable to one Share. Such adjustment shall be made
whenever any such distribution is made, and shall become effective on the date
of distribution retroactive to immediately after the record date for the
determination of shareholders entitled to receive such distribution.
(d) For the purpose of any computation under paragraphs (b) and (c) of this
Section 8, the current "Market Price" per share at any date shall be the average
of the per share daily closing prices for Common Stock for fifteen (15)
consecutive trading days commencing twenty (20) trading days before the date of
such computation. The closing price for each day shall be the last reported
sale price regular way or, in case no such reported sale takes place on such
day, the average of the closing bid and asked prices regular way for such day,
in either case
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<PAGE>
on the principal national securities exchange on which shares of Common Stock
are listed or admitted to trading, or if the are not listed or admitted to
trading on any national securities exchange, but are traded in the over-the-
counter market, the closing sale per share of Common Stock or, in case no sale
is publicly reported, the average of the representative closing bid and asked
quotations for shares of Common Stock on the NASDAQ NMS or SmallCap Stock
Markets or any comparable system, or if shares of Common Stock are not listed on
the NASDAQ Stock Market or a comparable system, the closing sale price per share
of the Common Stock or, in case no sale is publicly reported, the average of the
closing bid and asked prices as furnished by two members of the NASD selected
from time to time by the Company for that purpose.
(e) No adjustment in the number of Shares purchasable hereunder shall be
required unless such adjustment would require an increase or decrease of at
least one percent (1%) in the number of Shares purchasable upon the exercise of
each Warrant; provided, however, that any adjustments which by reason of this
paragraph (e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations shall be made to
the nearest one thousandth of a share.
(f) Whenever the number of Shares purchasable upon exercise of each Warrant
is adjusted, as herein provided, the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such adjustment by
a fraction, of which the numerator shall be the number of Shares purchasable
upon the exercise of each Warrant immediately prior to such adjustment, and of
which the denominator shall be the number of shares so purchasable immediately
thereafter.
(g) For the purpose of this Section 8, the term "Common Stock" shall mean
(i) the class of stock designated as the Common Stock of the Company at the date
of this Agreement or (ii) any other class of stock resulting from successive
changes or reclassifications of shares of such class of stock consisting solely
of changes in par value, or from no par value to par value, or from par value to
no par value. If at any time, as a result of an adjustment made pursuant to
paragraph (a) above, the Holders become entitled to purchase any shares of
capital stock of the Company other than Common Stock, thereafter the number of
such other shares so purchasable upon exercise of each Warrant and the Exercise
Price of such shares 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 Shares contained in paragraphs (a) through (f), inclusive, and
paragraphs (h) through (m), inclusive, of this Section 8, and the provisions of
Sections 4, 5, 7 and 10 hereof, with respect to the Shares, shall apply on like
terms to any such other shares.
(h) Upon the expiration of any rights, options, warrants or conversion
rights or exchange privileges, if any thereof have not been exercised, the
Exercise Price and the number of Shares purchasable upon the exercise of each
Warrant shall, upon such expiration, be readjusted and shall thereafter be such
as they would have been had they originally been adjusted (or had the original
adjustment not been required, as the case may be) as if (i) the only Shares so
issued
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<PAGE>
were the Shares, if any, actually issued or sold upon the exercise of such
rights, options, warrants or conversion rights or exchange privileges and (ii)
such Shares, if any were issued or sold for the consideration actually received
by the Company upon such exercise plus the aggregate consideration, if any,
actually received by the Company for the issuance, sale or grant of all of such
rights, options, warrants or conversion rights or exchange privileges whether or
not exercised; provided, however, that no such readjustment shall have the
effect of decreasing the number of shares issuable upon the exercise of each
Warrant or increasing the Exercise Price by an amount in excess of the amount of
the adjustment initially made in respect of the issuance, sale or grant of such
rights, options, warrants or conversion rights or exchange privileges.
(i) The Company may, at its option at any time during the term of the
Warrants, reduce the then current Exercise Price to any amount deemed
appropriate by the Board of Directors of the Company.
(j) Whenever the number of Shares issuable upon the exercise of each
Warrant or the Exercise Price of such Shares is adjusted, as herein provided,
the Company shall promptly mail by first class-mail, postage prepaid, to each
Holder notice of such adjustment or adjustments. The Company shall retain a firm
of independent public accountants (who may be the regular accountants employed
by the Company) to make any computation required by this Section 8 and shall
cause such accountants to prepare a certificate setting forth the number of
Shares issuable upon the exercise of each Warrant and the Exercise Price of such
Shares after such adjustment, setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by which such
adjustment was made. Such certificate shall be conclusive as to the correctness
of such adjustment and each Holder shall have the right to inspect such
certificate during reasonable business hours.
(k) Except as provided in this Section 8, no adjustment in respect of any
dividends shall be made during the term of a Warrant or upon the exercise of a
Warrant.
(l) If the Company consolidates with or merges into another corporation or
if the Company sells or conveys all or substantially all its property to another
corporation, the Company or such successor or purchasing corporation (or an
affiliate of such successor or purchasing corporation), as the case may be,
agrees that each Holder shall have the right thereafter upon payment of the
Exercise Price in effect immediately prior to such action to purchase upon
exercise of each Warrant the kind and amount of shares and other securities and
property (including cash) which such Holder would have owned or been entitled to
receive after the happening of the consolidation, merger, sale or conveyance had
such Warrant been exercised immediately prior to such action. The provisions of
this paragraph (l) shall apply to successive consolidations, mergers, sales or
conveyances.
(m) Notwithstanding any adjustment in the Exercise Price or the number or
kind of shares purchasable upon the exercise of the Warrants pursuant to this
Agreement, certificates for Warrants issued prior or subsequent to such
adjustment may continue to express
-7-
<PAGE>
the same price and number and kind of shares as are initially issuable pursuant
to this Agreement.
9. FRACTIONAL INTERESTS. The Company shall not be required to issue
fractions of Shares on the exercise of Warrants. If more than one Warrant is
presented for exercise in full at the same time by the same Holder, the number
of Shares issuable upon the exercise thereof shall be computed on the basis of
the aggregate number of Shares issuable on exercise of the Warrants so
presented. If any fraction of a Share would, except for the provisions of this
Section 9, be issuable on the exercise of any Warrant (or specified portions
thereof), the Company shall purchase such fraction for an amount in cash equal
to the same fraction of the current Market Price per share (determined as
provided in Section 8(d) of this Agreement) on the date of exercise.
10. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS. The Company covenants and agrees with the
Representatives and any other or subsequent Holders of the Registrable
Securities (as defined in paragraph (f) of this Section 10) that, upon the
written request of the then Holder(s) of at least a majority of the Warrants or
the Registrable Securities, or both, which were originally issued to the
Representative or its designees, made at any time within the period commencing
one (1) year and ending five (5) years after the Effective Date, the Company
will file as promptly as practicable and, in any event, within 60 days after
receipt of such written request, at its expense (other than the fees of counsel
and sales commissions for such Holders), no more than once, a post-effective
amendment (the "Amendment") to the Company's Registration Statement on Form S-1,
Registration No. 333-42387 as filed with the Securities and Exchange Commission
on December 16, 1997 or a new registration statement on an appropriate form
under the Act, registering or qualifying the Registrable Securities for sale in
accordance with the intended method of sale or other disposition described in
such request. Within fifteen (15) days after receiving any such notice, the
Company shall give notice to the other Holders of the Registrable Securities
advising that the Company is proceeding with such Amendment, registration
statement and offering to include the Registrable Securities of such Holders.
The Company shall not be obligated to any other such Holder unless that other
Holder accepts such offer by notice in writing to the Company within twenty (20)
days thereafter. The Company will use its best efforts, through its officers,
directors, auditors and counsel in all matters necessary or advisable, to file
and cause such Amendment or registration statement to become effective as
promptly as practicable (but in any event within 90 days of the initial filing
of such Amendment or registration statement) and for a period of nine (9) months
thereafter to reflect in the Amendment or registration statement financial
statements which are prepared in accordance with Section 10(a)(3) of the Act and
any facts or events arising that, individually, or in the aggregate, represent a
fundamental or material change in the information set forth in the Amendment or
registration statement to enable any Holders of the Warrants to sell such
Registrable Securities. The Holders may sell the Registrable Securities
pursuant to the Amendment or registration statement without exercising the
Warrants. If any registration pursuant to this paragraph (a) is an
-8-
<PAGE>
underwritten offering, the Holders of a majority of the Registrable Securities
to be included in such registration shall be entitled to select the underwriter
or managing underwriter (in the case of a syndicated offering) of such offering.
(b) PIGGYBACK REGISTRATION RIGHTS. The Company covenants and agrees with
the Representatives and any other Holders or subsequent Holders of the
Registrable Securities that if, at any time within the period commencing one (1)
year and ending five (5) years after the Effective Date, it proposes to file a
registration statement with respect to any class of equity or equity-related
security (other than in connection with an offering to the Company's employees
or in connection with an acquisition, merger or similar transaction) under the
Act in a primary registration on behalf of the Company and/or in a secondary
registration on behalf of holders of such securities and the registration form
to be used may be used for registration of the Registrable Securities, the
Company will give prompt written notice (which, in the case of a registration
statement or notification pursuant to the exercise of demand registration rights
other than those provided in Section 10(a) of this Agreement, shall be within
ten (10) business days after the Company's receipt of notice of such exercise
and, in any event, at least 30 days prior to such filing) to the Holders of
Registrable Securities (regardless whether some of the Holders have theretofore
availed themselves of the right provided in Section 10(a) of this Agreement) at
the addresses appearing on the records of the Company of its intention to file a
registration statement and will offer to include in such registration statement
any of the Registrable Securities, subject to paragraphs (i) and (ii) of this
paragraph (b), such number of Registrable Securities with respect to which the
Company has received written requests for inclusion therein within twenty (20)
days after the giving of notice by the Company. All registrations requested
pursuant to this paragraph (b) are referred to herein as "Piggyback
Registrations". All Piggyback Registrations pursuant to this paragraph (b) will
be made solely at the Company expense.
(i) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration includes an underwritten primary registration for the
Company, and the underwriter(s) for such offering determine in good
faith and advise the Company in writing that in their opinion the
number of Registrable Securities requested to be included in such
registration exceeds the number that can be sold in such offering
without materially adversely affecting the distribution of such
securities by the Company, the Company will include in such
registration (A) first, the securities that the Company proposes to
sell, (B) second, the Registrable Securities requested to be included
in such registration, apportioned pro rata among the Holders of
Registrable Securities and (C) third, securities of the holders of
other securities requesting registration.
(ii) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration consists only of an underwritten secondary registration
for holders of securities of the Company (other than pursuant to
Section 10(a)), and the underwriters for such offering advise the
Company in writing that in their opinion the number of Registrable
Securities requested to be included in such registration
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<PAGE>
exceeds the number which can be sold in such offering without
materially adversely affecting the distribution of such securities by
the Company, the Company will include in such registration (A) first,
the securities requested to be included therein by the holders
requesting such registration and the Registrable Securities requested
to be included in such registration, pro rata among all such holders
on the basis of the number of shares requested to be included by each
such holder and (B) second, other securities requested to be included
in such registration.
Notwithstanding the foregoing, if any such underwriter determines in good
faith and advises the Company in writing that the distribution the Registrable
Securities requested to be included in the registration concurrently with the
securities being registered by the Company would material adversely affect the
distribution of such securities by the Company, then the Holders of such
Registrable Securities shall delay their offering and sale for such period
ending on the earliest of (1) 90 days following the effective date of the
Company's registration statement, (2) the day upon which the underwriting
syndicate, if any, for such offering has been disbanded or, (3) such date as the
Company, managing underwriter and Holders of Registrable Securities otherwise
agree. If such a delay occurs, the Company shall file such supplements, post-
effective amendments and take any other steps necessary to permit such Holders
to make their proposed offering and sale for a period of the later of 180 days
immediately following the end of such delay or the period of time in which the
registration statement is otherwise effective. If any party disapproves of the
terms of any such underwriting, it may elect to withdraw therefrom by written
notice to the Company and the Underwriters.
(c) OTHER REGISTRATION RIGHTS. In addition to the rights above
provided, the Company will cooperate with the then Holders of the Registrable
Securities in preparing and signing any registration statement, in addition to
the registration statements discussed above, required in order to sell or
transfer the Registrable Securities and will supply all information required
therefor, but such additional registration statement shall be at the then
Holders' cost and expense; provided, however, that if the Company elects to
register or qualify additional shares of Common Stock, the cost and expense of
such registration statement will be pro rated between the Company and the
Holders of the Registrable Securities according to the aggregate sales price of
the securities being issued. However, the Company will not be required to file
a registration statement pursuant to this paragraph (c) (i) at a time when the
audited financial statements required to be included therein are not available,
which time shall be limited to the period commencing 45 days after the end of
the Company's last fiscal year and ending 90 days after the end of such fiscal
year, or (ii) within 90 days after completion of a public offering by the
Company of any of its Common Shares or equity-related securities or (iii) if, in
the reasonable opinion of the Company it would adversely impact the Company in
its capital raising plans or otherwise (in which latter case filing may be
delayed no longer than 90 days).
-10-
<PAGE>
(d) ACTION TO BE TAKEN BY THE COMPANY. In connection with the
registration of Registrable Securities in accordance with paragraphs (a), (b) or
(c) of this Section 10, the Company agrees to:
(i) Bear the expenses of any registration or qualification under
paragraphs (a) or (b) of this Section 10, including, but not limited
to, legal, accounting and printing fees; provided, however, that in no
event shall the Company be obligated to pay (A) any fees and
disbursements of special counsel for Holders of Registrable
Securities, or (B) any underwriters' discount or commission in respect
of such Registrable Securities and (C) any stock transfer taxes
attributable to the sale of the Registrable Securities; and
(ii) Use its best efforts to register or qualify the Registrable
Securities for offer or sale under state securities or Blue Sky laws
of such jurisdictions in which the Underwriters or such Holders shall
reasonably request; provided, however, that no qualification shall be
required in any jurisdiction where, as a result thereof, the Company
would be subject to service of general process or to taxation as a
foreign corporation doing business in such jurisdiction to which it is
not then subject, and to do all other acts necessary or advisable to
enable the holders to consummate the proposed sale, transfer or other
disposition of such securities in any jurisdiction.
(e) ACTION TO BE TAKEN BY THE HOLDERS. In connection with the
registration of Registrable Securities in accordance with paragraphs (a), (b) or
(c) of this Section 10, the Company's obligation shall be conditioned as to each
such public offering upon a timely receipt by the Company in writing of:
(i) Information as to the terms of such public offering furnished
by or on behalf of each Holder intending to make a public offering of
such Holder's Registrable Securities; and
(ii) Such other information as the Company may reasonably require
from such Holders, or any underwriter for any of them, for inclusion
in such Registration Statement.
(f) For purposes of this Section 10, (i) the term "Holder" shall
include holders of either the Warrants and/or the Registrable Securities, and
(ii) the term "Registrable Securities" shall mean the Shares, if issued.
11. NOTICES TO HOLDERS.
(a) Nothing in this Agreement or in any Warrants shall be construed as
conferring upon the Holders the right to vote or to receive dividends or to
consent or to receive
-11-
<PAGE>
notice as shareholders in respect of the meetings of shareholders or the
election of directors of the Company or any other matter, or any rights
whatsoever as shareholders of the Company prior to the exercise hereof;
provided, however, that in the event that any meeting of shareholders shall be
called, the Company shall cause a notice thereof to be sent by first-class mail,
postage prepaid, at least twenty (20) days prior to the date fixed as a record
date or the date of closing the transfer books in relation to such meeting, to
each registered Holder of Warrants at such Holder's address appearing on the
Warrant Register.
(b) If the Company intends to make any distribution on its Common
Shares (or other securities which may be issuable in lieu thereof upon the
exercise of Warrants), including, without limitation, any such distribution to
be made in connection with a consolidation or merger in which the Company is the
surviving entity, or to issue subscription rights or warrants to holders of its
Common Shares, the Company shall cause a notice of its intention to make such
distribution to be sent by first-class mail, postage prepaid, at least twenty
(20) days prior to the date fixed as a record date or the date of closing the
transfer books in relation to such distribution, to each registered Holder of
Warrants at such Holder's address appearing on the Warrant Register, but failure
to mail or to receive such notice or any defect therein or in the mailing
thereof shall not affect the validity of any action taken in connection with
such distribution.
12. NOTICES. Any notice pursuant to this Agreement to be given by the
Holder of any Warrant or the holder of any Share to the Company shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed as follows or to such other address as the Company may designate by
notice given in accordance with this Section 12, to the Holders of Warrants or
the holders of Shares:
Central European Distribution Corporation
211 North Union Street, #100
Alexandria, Virginia 22314
Attn.: President
Notices or demands authorized by this Agreement to be given or made by the
Company to or by the Holder of any Warrant or the holder of any Share shall be
sufficiently given or made (except as otherwise provided in this Agreement) if
sent by first-class mail, postage prepaid, addressed to such Holder or such
holder of Shares at the address of such Holder or such holder of Shares as shown
on the Warrant Register or the books of the Company, as the case may be.
13. GOVERNING LAW. This Agreement and each Warrant issued hereunder shall
be governed by and construed in accordance with the substantive laws of the
State of New York. The Company hereby agrees to accept service of process by
notice given to it pursuant to the provisions of Section 12 hereof.
-12-
<PAGE>
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed as of the day, month and year first above written.
CENTRAL EUROPEAN DISTRIBUTION
CORPORATION
By:
-------------------------------------
Its:
BREAN MURRAY & CO., INC.
By:
-------------------------------------
Its:
FINE EQUITIES, INC.
By:
-------------------------------------
Its:
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<PAGE>
SCHEDULE I
NAME OF UNDERWRITER NUMBER OF WARRANTS
- ------------------- ------------------
Brean Murray & Co., Inc.
Fine Equities, Inc.
TOTAL 200,000
-14-
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W ____ Warrants
VOID AFTER JULY __, 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 from the first anniversary of
the Registration Statement (as defined in the Warrant Agreement) until 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 or otherwise as provided in the Warrant Agreement.
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 July __,
1998, by and among the Company, Brean Murray & Co., Inc. and Fine Equities, Inc.
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.
-i-
<PAGE>
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
July __, 2003. 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 if such exercise would
violate the Securities Act of 1933, as amended. The Warrants represented hereby
shall not be exercisable by a Registered Holder in any state where such exercise
would be unlawful.
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.
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.
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.
-ii-
<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
-iii-
<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.
-iv-
<PAGE>
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.
-v-
<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.
-vi-
<PAGE>
EXHIBIT 5
July 16, 1998
Board of Directors
Central European Distribution Corporation
211 North Union Street, #100
Alexandria, Virginia 22314
Dear Gentlemen:
This firm has acted as counsel to Central European
Distribution Corporation (the "Company"), a Delaware corporation, in connection
with its registration statement on Form S-1, as amended (the "Registration
Statement"), of 2,500,000 shares (the "Shares") of common stock, par value $.01
per share, of the Company, all of which shares are to be sold by the Company.
This opinion letter is furnished to you at your request to enable you to fulfill
the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R.(S)
229.601(b)(5), in connection with such registration.
For purposes of this opinion letter, we have examined copies
of the following documents:
1. An executed copy of the Registration Statement on Form
SB-2 (No. 333-42387) as filed with the Securities and
Exchange Commission (the "Commission") on December 16,
1997, Amendment No. 1 thereto on Form S-1 as filed with
the Commission on April 17, 1998, Amendment No. 2
thereto as filed with the Commission on May 19, 1998, and
Amendment No. 3 thereto as filed with the Commission on
July 16, 1998.
2. The proposed form of Underwriting Agreement among the
Company and the several Underwriters to be named therein,
for whom Brean Murray & Co., Inc. and Fine Equities, Inc.
will act as Representatives, filed as Exhibit 1 to the
Registration Statement (the "Underwriting Agreement").
3. The Certificate of Incorporation of the Company, as
certified by the Secretary of State of the State of
Delaware on May 18, 1998 and by the Secretary of the
Company on the date hereof as then being complete,
accurate and in effect.
4. The Bylaws of the Company, as certified by the Secretary
of the Company on the date hereof as then being complete,
accurate and in effect.
5. Resolutions of the Board of Directors of the Company
adopted on January 16, 1998 and May 11, 1998, as
certified by the Secretary of the Company on the date
hereof as then being complete, accurate and in effect
relating to the issuance and sale of the Shares and
arrangements in connection therewith.
<PAGE>
July 16, 1998
Page 2
In our examination of the aforesaid documents, we have assumed the genuineness
of all signatures, the legal capacity of natural persons, the authenticity,
accuracy and completeness of all documents submitted to us as originals, and the
conformity with the original documents of all documents submitted to us as
certified, telecopied, photostatic, or reproduced copies. This opinion letter is
given, and all statements herein are made, in the context of the foregoing.
This opinion letter is based as to matters of law solely on the
General Corporation Law of the State of Delaware. We express no opinion herein
as to any other laws, statutes, regulations or ordinances.
Based upon, subject to and limited by the foregoing, we are of the
opinion that following (i) final action of the Board of Directors of the Company
(or a duly appointed pricing committee thereof) approving the price of the
Shares, (ii) execution and delivery by the Company of the Underwriting
Agreement, (iii) effectiveness of the Registration Statement, (iv) issuance of
the Shares pursuant to the terms of the Underwriting Agreement and (v) receipt
by the Company of the consideration for the Shares specified in the resolutions
of the Board of Directors, the Shares will be validly issued, fully paid and
nonassessable under the General Corporation Law of the State of Delaware.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this opinion letter, and should not be quoted in whole
or in part or otherwise be referred to, nor be filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
We hereby consent to the filing of this opinion letter as Exhibit 5
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus constituting a part of the
Registration Statement. In giving this consent, we do not thereby admit that we
are an "expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hogan & Hartson L.L.P.
Hogan & Hartson L.L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary Consolidated
Financial Data," "Selected Consolidated Financial Data," and "Experts" and to
the use of our report dated March 20, 1998, in Amendment No. 3 on Form S-1 to
the Registration Statement (Form SB-2 No. 333-42387) and related Prospectus of
Central European Distribution Corporation for the registration of 2,500,000
shares of its common stock and 200,000 related warrants.
Warsaw, Poland /s/ Ernst & Young Audit Sp. z o.o.
July 16, 1998
