<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1998
REGISTRATION NO. 333-42387
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
ON FORM S-1 TO
FORM SB-2
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 OF
INCORPORATION OR
ORGANIZATION)
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(I.R.S. EMPLOYER
IDENTIFICATION
--------------- 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. [_]l
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
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(2)........... 2,875,000 $9.00 $25,875,000 $7,633.13
- -------------------------------------------------------------------------------------
Warrants(3)............... 250,000 .001 250 .08
- -------------------------------------------------------------------------------------
Common Stock(4) 250,000 10.80 2,700,000 796.50
- -------------------------------------------------------------------------------------
Total.................... $28,572,250 $8,429.71(5)
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 375,000 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) Of which $7,352.24 was 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 SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--DATED APRIL 17, 1998
PROSPECTUS
2,500,000 SHARES
LOGO
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
COMMON STOCK
-----------
All of the 2,500,000 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 $8.00 and $9.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied for quotation of the Common Stock on
the Nasdaq National Market System ("Nasdaq NMS") 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 5 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.
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<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 $ and (b) warrants (the
"Representatives' Warrants") to purchase up to 250,000 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 $ , including the Representatives' non-accountable expense
allowance.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 375,000 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 NMS IN ACCORDANCE
WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED 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.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
The Reorganization....................................................... 13
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Dilution................................................................. 15
Exchange Rate Data....................................................... 16
Capitalization........................................................... 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 23
Regulation............................................................... 31
Management............................................................... 34
Certain Transactions..................................................... 40
Principal Stockholders................................................... 41
Description of Capital Stock............................................. 42
Shares Eligible for Future Sale.......................................... 46
Underwriting............................................................. 47
Legal Matters............................................................ 50
Experts.................................................................. 50
Enforceability of Certain Civil Liabilities.............................. 50
Available Information.................................................... 50
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT 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.
i
<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, Gdansk and Katowice. The Company currently distributes approximately
300 products in three categories: beer, spirits and wine. The Company imports
and distributes eight international beers, including Guinness, Corona, Miller
and Foster's. 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 is currently the only holder of the license needed to import cigars
into Poland. The Company's net sales for 1997 were $40.2 million, as compared
to $23.9 million for 1996, representing an increase of 68%.
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.
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
1
<PAGE>
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 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 to facilitate this
Offering. Its executive offices are located at 211 North Union Street, #100,
Alexandria, Virginia 22314 and its telephone number is (703) 838-5568. The
executive offices of Carey Agri are located at ul. Lubelska 13, 03-802 Warsaw,
Poland and its telephone number is 48-22-618-0577.
THE OFFERING
Common Stock to be Offered by the Company... 2,500,000 shares
Common Stock to be Outstanding After the
Offering (1)................................ 4,280,000 shares
Use of Proceeds............................. The Company intends to use the
net proceeds from this Offering
to (i) construct an office and
warehouse facility; (ii) purchase
equipment; (iii) retire bank
financing; and (iv) for working
capital and general corporate
purposes. See "Use of Proceeds."
2
<PAGE>
Proposed Nasdaq NMS Symbol............. CEDC
- --------
(1) Does not include: (i) 375,000 shares of Common Stock issuable by the
Company upon exercise of the Underwriters' over-allotment option; (ii)
250,000 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."
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data of the
Company as of and for each of the five fiscal years in the period ended
December 31, 1997. The income statement data for the years ended December 31,
1995, 1996 and 1997 and the historical balance sheet data as of December 31,
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 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 December 31, 1997 is as described in note (2) below.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- -------- -------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales.................... $ 4,313 $ 6,788 $ 16,017 $ 23,942 $40,189
Cost of goods sold........... 3,157 5,480 13,113 19,850 34,859
Sales, general and
administrative expenses..... 1,559 1,356 2,603 3,569 4,198
Operating income (loss)...... (403) (48) 301 523 1,132
Interest expense and net
realized and unrealized
foreign currency transaction
losses, net of other
income...................... 454 315 106 350 483
Income (loss) before income
taxes....................... (857) (363) 195 173 649
Net income (loss)............ (783) (331) 75 62 308
Net income (loss) per common
share, basic and
dilutive (1)................ (0.44) (0.19) 0.04 0.03 0.17
Number of outstanding shares
of Common Stock (1)......... 1,780 1,780 1,780 1,780 1,780
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1997
------------ -------------
(IN THOUSANDS)
(AS
(HISTORICAL) ADJUSTED) (2)
<S> <C> <C>
BALANCE SHEET DATA:
Cash........................................... $ 1,053 $18,524(3)
Current Assets................................. 11,641 29,112
Total assets................................... 12,530 29,623
Long-term debt and capital lease obligations,
less current portion.......................... 47 12
Stockholders' equity........................... 334 18,789
</TABLE>
- --------
(1) Gives effect to the 1,780,000 shares issued in the Reorganization. See "The
Reorganization."
(2) Adjusted to give effect to the receipt of net proceeds of approximately
$18.5 million from the sale of Common Stock offered hereby at an assumed
initial public offering price of $8.50 per share (the midpoint of the range
specified on the cover page of this Prospectus) and assuming that a portion
of the net proceeds will be used to prepay bank financing (approximately
$1.2 million as of December 31, 1997) and to pay all accrued public
offering costs. See "Use of Proceeds."
(3) The net proceeds will be invested in investment grade, interest-bearing
securities pending their application.
4
<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 the
employment agreement only for good reason. See "Management--Compensation
Plans--Employment Agreements."
The management of future growth will require, among other things, continued
development of the Company's financial and management controls and management
information systems, stringent control of costs, increased marketing
activities, ability to attract and retain qualified management personnel and
the training of new personnel. The Company is seeking to hire additional
personnel in 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 constituted approximately $4.8
million, $7.6 million and $8.8 million, respectively, or 30.0%, 31.7% and
22.0%, respectively, of its net sales. Furthermore, most of the Company's
distribution agreements have a term of approximately one year, although many
are automatically renewed unless one party gives notice of termination.
Several of such agreements, however, can be terminated by one party without
cause on relatively short notice. For example, the distribution agreements
with respect to domestic vodka (which accounted for approximately 13.6%, 12.9%
and 46.7% of the Company's net sales during 1995, 1996 and 1997, respectively)
and products of
5
<PAGE>
United Drinks and Vintners (which accounted for approximately 18.8%, 17.1% and
14.1% of the Company's net sales during 1995, 1996 and 1997, respectively) can
be terminated by either party on one month's notice and products distributed
for United Distiller Finlandia Group ("United Distillers") (which accounted
for approximately 19.1%, 15.1% and 11.4% of the Company's net sales during
1995, 1996 and 1997, respectively) can be terminated upon 90 days' notice. The
termination of such agreements could have a material adverse effect on the
business and operations of the Company.
Risks Related to 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
the acquisitions. The Company intends to finance acquisitions through a
combination of the proceeds of the Offering, its available cash resources,
bank borrowings and, in appropriate circumstances, the further issuance of
equity and/or debt securities. Acquiring additional companies will have a
significant effect on the Company's financial position, and could cause
substantial fluctuations in the Company's quarterly and yearly operating
results. Also, acquisitions could result in the recording of significant
goodwill and intangible assets on the Company's financial statements, the
amortization of which would reduce reported earnings in subsequent years.
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 judges the acquisition to have 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 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.
6
<PAGE>
Limited Retail Experience
One component of the Company's growth strategy is for the Company to enter
the retail market for sales of alcoholic beverages. The Company has no prior
significant retail experience, and, accordingly, is subject to the numerous
risks of entering a new business. Such risks include, among others,
unanticipated operating problems, lack of experience and significant
competition from existing and new retailers. There can be no assurance that
the Company will be able to conduct retail operations profitably.
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 15.1% and 17.1%, respectively, of net sales in 1996, and for
11.1% and 14.1%, respectively, of net sales in 1997. 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 38.3% of the
Company's net sales in 1996 and 20.1% for 1997. The termination of the
Company's relationship with any of such entities could have a material adverse
effect on the business and operations of the Company.
Control By Existing Stockholders; Potential Anti-Takeover Provisions
After completion of the Offering, 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 39.5% 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 36.3% 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 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
7
<PAGE>
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 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.
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 product, 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 the Company does not anticipate paying dividends in the
foreseeable future. See "Dividend Policy."
8
<PAGE>
RISKS RELATED TO REGULATION
Regulation of the Company's Business
The importation and distribution of alcoholic beverages in Poland is subject
to extensive regulation, requiring the Company to receive and renew various
permits and licenses to import, warehouse, transport and sell alcoholic
beverages. These permits and licenses often contain conditions with which the
Company must comply in order to maintain the validity of such permits and
licenses. The Company believes it is operating with all the licenses and
permits material to its business, and the Company is not subject to any
proceeding calling into question its operation in compliance with any
licensing and permit requirements. 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 operation and financial
condition. Further, the applicable Polish governmental authorities, in
particular the Minister of Economy, have articulated only general standards
for issuance, renewal and termination of the licenses and permits which the
Company needs to operate and, 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 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
9
<PAGE>
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 also
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 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.
10
<PAGE>
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 intends to seek quotation of the
Common Stock on the Nasdaq NMS, 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.
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 tangible book
value per share of their shares of Common Stock. Assuming an
11
<PAGE>
initial public offering price of $8.50 per share of Common Stock (the midpoint
of the range specified on the front cover of the Prospectus), the immediate
dilution to new investors would be $4.11 per share. 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 (approximately $1.2 million as of December 31,
1997), 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 4,280,000 shares of Common Stock outstanding, including
2,500,000 shares of Common Stock offered hereby (without giving effect to
375,000 shares of Common Stock which may be issued by the Company 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 completion of the Offering. Such persons
have agreed with Brean Murray that they will not, for a 24-month period after
the completion of the Offering, without the prior written consent of Brean
Murray, 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.
12
<PAGE>
In connection with the Offering, the Representatives have been granted
warrants to purchase 250,000 shares of Common Stock at a purchase price per
share of 120% 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."
THE REORGANIZATION
Before the Offering, all the holders of the shares of Carey Agri's common
stock and CEDC entered into a contribution agreement dated as of November 28,
1997 (the "Contribution Agreement"). Pursuant to the Contribution Agreement,
the holders of shares of Carey Agri's common stock transferred all their
shares of Carey Agri common stock to CEDC receiving an aggregate of 1,780,000
shares of Common Stock in return (the "Share Exchange"). This transfer was
designed to qualify as a tax-free exchange under section 351 of the Internal
Revenue Code of 1986, as amended (the "Code"). As a result of the Share
Exchange, Carey Agri became a wholly owned subsidiary of CEDC. The Share
Exchange and the resulting corporate structure in which Carey Agri became a
wholly owned subsidiary of CEDC is referred to herein as the "Reorganization."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 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 $18.5 million ($21.4 million if the
Underwriters' overallotment option is exercised in full), based on an assumed
initial public offering price of $8.50 per share of Common Stock (the midpoint
of the range specified on the cover page of this Prospectus).
The Company intends to use the net proceeds from this Offering to (i)
construct an office and warehouse facility; (ii) purchase equipment (vehicles
and computer upgrades); (iii) retire $1.8 million principal amount of bank
financing expected to be outstanding on the date of this Prospectus; and (iv)
for working capital and general corporate purposes.
Although the Company currently has no agreements or understandings to enter
any potential business combination, it does intend to actively seek and
investigate such opportunities as they become available. 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.
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 December 31, 1997, Carey Agri had available
$335,000 which could be declared in dividends.
14
<PAGE>
DILUTION
The net tangible book value of the Company as of December 31, 1997 was
$334,000 or $0.19 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 2,500,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $8.50 per
share (the midpoint of the range specified on the cover page 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 December 31, 1997 would have been approximately $18.8 million, or $4.39 per
share of Common Stock. This represents an immediate increase in net tangible
book value of $4.20 per share to existing stockholders and an immediate
dilution of $4.11 per share 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 ................. $8.50
Net tangible book value per share at December 31, 1997......... $0.19
Increase per share attributable to new investors............... 4.20
-----
Net tangible book value per share after the Offering............. 4.39
-----
Dilution per share to new investors.............................. $4.11
=====
</TABLE>
The following table summarizes, as of December 31, 1997, 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,
assuming that the initial public offering price is $8.50 per share (the
midpoint of the range specified on the cover page of the Prospectus).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders... 1,780,000 42% $ 334,000 1.5% $0.19
New Investors........... 2,500,000 58 21,250,000 98.5 8.50
--------- --- ----------- ----
Total.................. 4,280,000(1) 100% $21,584,000 100%
========= === =========== ====
</TABLE>
- --------
(1) Excludes (i) 375,000 shares of Common Stock that the Underwriters have the
option to purchase from the Company to cover over-allotments, if any; (ii)
250,000 shares of Common Stock issuable upon the exercise of the
Representatives' Warrants; and (iii) 750,000 shares of Common Stock
reserved for issuance under the Plan, under which options to purchase
82,500 shares have been granted and are outstanding. See "Management--
Compensation Plans--1997 Stock Incentive Plan" and "Underwriting."
15
<PAGE>
EXCHANGE RATE DATA
In this Prospectus, references to "U.S. Dollars" or "$" 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 April 10, 1998, such rate was
PLN 3.42 = $1.00.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Exchange rate at end of period......................... 2.13 2.44 2.47 2.88 3.53
Average exchange rate during period (1)................ 1.81 2.27 2.42 2.70 3.28
Highest exchange rate during period.................... 2.13 2.45 2.54 2.88 3.56
Lowest exchange rate during period..................... 1.58 2.13 2.32 2.47 2.86
</TABLE>
- --------
(1) The average of the exchange rates on the last day of each month during the
applicable period.
16
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31,1997, the actual
capitalization of the Company and the capitalization as adjusted to give
effect to the sale of the 2,500,000 shares of Common Stock offered hereby by
the Company at an assumed initial public offering price of $8.50 (the midpoint
of the range specified on the cover page 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>
DECEMBER 31, 1997
------------------
AS
ACTUAL ADJUSTED(1)
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current maturities..................... $ 35 $ 0
----- -------
Capital lease obligations, less current portion............. 12 12
----- -------
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 Decem-
ber 31, 1997(4,280,000 shares, as adjusted)(1)........... 18 43
Additional paid-in-capital.................................. 36 18,466
Retained earnings........................................... 280 280
----- -------
Total stockholders' equity.............................. 334 18,789
----- -------
Total capitalization.................................... $ 381 $18,801
===== =======
</TABLE>
- --------
(1) Excludes (i) 375,000 shares of Common Stock that the Underwriters have the
option to purchase from the Company to cover over-allotments, if any; (ii)
250,000 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."
17
<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. 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 balance sheet data as of December 31, 1993 and 1994, are
unaudited, but include, in the opinion of management, all adjustments
considered necessary for a fair presentation of such data. The information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------- ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................. $4,313 $6,788 $16,017 $23,942 $40,189
Cost of goods sold........ 3,157 5,480 13,113 19,850 34,859
------ ------ ------- ------- -------
Gross profit.............. 1,156 1,308 2,904 4,092 5,330
Sales, general and
administrative expenses.. 1,559 1,356 2,603 3,569 4,198
------ ------ ------- ------- -------
Operating income (loss)... (403) (48) 301 523 1,132
Non-operating income
(expense)
Interest expense........ (69) (50) (106) (124) (172)
Realized and unrealized
foreign currency
transaction gains and
losses, net............ (372) (118) (84) (232) (326)
Other income (expense),
net.................... (13) (147) 84 6 15
------ ------ ------- ------- -------
Income (loss) before
income taxes............. (857) (363) 195 173 649
Income (taxes) credit..... 74 32 (120) (111) (341)
------ ------ ------- ------- -------
Net income (loss)......... (783) (331) $ 75 $ 62 $ 308
====== ====== ======= ======= =======
Net income (loss) per
common share, basic and
dilutive(1).............. $(0.44) $(0.19) $ 0.04 $ 0.03 $ 0.17
====== ====== ======= ======= =======
Average number of
outstanding shares of
Common Stock(1).......... 1,780 1,780 1,780 1,780 1,780
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------- ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash...................... $ 50 $ 251 $ 595 $ 740 $ 1,053
Current assets............ 1,325 1,582 3,146 6,889 11,641
Total assets.............. 1,430 1,692 3,264 7,335 12,530
Current liabilities....... 1,210 1,803 3,119 7,006 12,149
Long-term debt and capital
lease obligations, less
current portion.......... 0 0 180 303 47
Stockholders' equity
(deficit)................ 220 (111) (36) 26 334
Stockholders' equity
(deficit) per common
share (1)................ 0.12 (0.06) (0.02) 0.01 0.19
</TABLE>
- --------
(1) Gives effect to the 1,780,000 shares of Common Stock issued in the
Reorganization. See "The Reorganization."
18
<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 sales was
0.21% of net sales in 1995, 0.08% in 1996 and 0.12% in 1997.
The following comments regarding variations in operating results should be
read considering the rates of inflation in Poland during the period--1995,
21.6%; 1996, 18.5%; and 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
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 clients.
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 is 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 is 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, realized and unrealized foreign currency transaction losses decreased
from 1.0% in 1996 to 0.8% in 1997.
19
<PAGE>
Income tax expense increased $230,000, or 207.2%, from $111,000 in 1996 to
$341,000 in 1997. This increase is 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 is 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 is 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 is due to several factors including
increasing the portfolio of imported brands offered to existing customers;
opening the eighth branch office in Poznan, thereby gaining a new distribution
territory from March 1996; introducing domestically produced vodka into the
Warsaw, 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 is mainly due to the
increasing net sales noted above. As a percentage of net sales, costs of goods
sold increased from 81.9% in 1995 to 82.9% in 1996. This small increase is
mainly due to the introduction of Polish vodka in late 1996 which sells at a
lower gross margin than the Company's imported alcohol products.
Sales, general and administrative expense increased 37.1% from $2.60 million
in 1995 to $3.57 million in 1996. This increase was mainly due to an increase
in sales which required additional marketing campaigns, the hiring and
training of additional staff, increased transport capability and the
restructuring of the office and warehouse facilities in Warsaw to provide
additional room to support the expansion of sales. As a percentage of 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 is mainly due to additional short-term credits
taken to support the sales growth noted above. As a percentage of sales,
interest expense decreased from 0.7% in 1995 to 0.5% in 1996.
Net realized and unrealized foreign currency transaction losses increased
$148,000, or 176.2%, from $84,000 in 1995 to $232,000 in 1996. This increase
was mainly due to the weakness of the zloty, in which a substantial portion of
the Company's assets are denominated, versus the U.S. Dollar. In 1996, the
zloty depreciated 16.6% versus 1995 when it depreciated only 1.2%. This factor
resulted in higher losses. As a percentage of sales, realized and unrealized
foreign currency transaction losses increased from 0.5% in 1995 to 1.0% in
1996.
Other income decreased $78,000, or 92.9%, from $84,000 in 1995 to $6,000 in
1996. This decrease is mainly due to a decrease in sales of fixed assets.
Income taxes decreased $9,000, or 7.5%, from $120,000 in 1995 to $111,000 in
1996. This decrease is mainly due to the decrease in income before income
taxes from $195,000 in 1995 to $173,000 in 1996. 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 is a result of the factors discussed above.
20
<PAGE>
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
flow from operations was $(81,000) in 1995 compared to $32,000 in 1996 and
$753,000 for 1997. Operating cash requirements are supplemented primarily by
short-term borrowings. See the consolidated statements of cash flows for a
summary of cash movements.
Bank borrowings totaled approximately $1.2 million on December 31, 1997 and
are expected to increase 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.
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 vehicles as the leases expire and acquire new
vehicles as needed for the Company's expansion. Currently, leases extend
through 1999. The initial value of equipment currently under capital and
operating leases is approximately $900,000. These leases in zloty normally
have an annual interest factor built into the lease payments of 35-50%. This
form of financing is much more expensive in Poland than traditional bank
financing in zloty which normally costs the Company approximately 25-30%
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.
21
<PAGE>
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.
22
<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, Gdansk and Katowice. The Company currently distributes
approximately 300 products in three categories: beer, spirits and wine. The
Company imports and distributes eight international beers, including Guinness,
Corona, Miller and Foster's. 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 is currently the only holder of the license
needed to import cigars into Poland. The Company's net sales for 1997 were
approximately $40.2 million, as compared to $23.9 million for 1996,
representing an increase of 68%.
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.
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
23
<PAGE>
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
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), Gdansk (1994), Katowice
(1995), Torun (1995) and Poznan (1996).
PRODUCT LINE
The Company currently offers over 300 alcoholic beverages in three
categories: (a) beer; (b) spirits; and (c) wine. Its eight brands of imported
beer accounted for 22.5%, 22.1% and 16.5%, respectively, of net sales during
the years ended December 31, 1995, 1996 and 1997. Brands of imported spirits
and wines it distributed accounted for 26.7% and 12.4%, respectively, of net
sales revenues for the year ended December 31, 1995, 39.1% and 13.0%,
respectively, of net sales revenues for the year ended December 31, 1996 and
24.1% and 7.5%, respectively, for the year ended December 31, 1997.
Additionally, the Company offered one brand of Polish beer and multiple brands
of Polish vodka, which accounted for 24.8% and 13.6%, respectively, of net
sales revenues during the year ended December 31, 1995, 12.8% and 13.0%,
respectively, of net sales revenues during the year ended December 31, 1996
and 5.2% and 46.7% for the year ended December 31, 1997. The Company ceased
distribution of one brand of Polish beer at the end of 1997.
The Company has agreements, as described below, with many of the companies
from which it acquires products for sale. Certain products, however, have
never been covered by a written
24
<PAGE>
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 over 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. The current agreement regarding
distribution of Guinness Stout, which was entered into on November 17, 1997,
has an initial term through December 31, 1998. After such date the agreement,
in relevant part, may be terminated by either party on 60 days prior written
notice. Pursuant to this agreement, the Company is the exclusive distributor
of products subject to the agreement unless the Company is unable to satisfy
customer demand and except for products sold directly by Guinness affiliates.
The exclusive agreement covering Budweiser Budvar expires on December 31,
1999.
Spirits
The Company distributes all its imported spirit products through each of its
offices, mostly on a nonexclusive basis. The spirit products sold by the
Company include the following:
<TABLE>
<S> <C> <C>
Scotch Whisky: Johnnie Walker, Black, Blue, 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 Whisky: Dalmore Bruichladdich
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
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C>
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 Spirits: Bailey's Irish Cream Carolan's Irish Cream
Kahlua Coffee Liqueur Grand Marnier
Creme de Grand Marnier Pimm's Cup
Jagermeister Archer's
Campari Bitter Southern Comfort
Mandarine Napolean
</TABLE>
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, provided the Company did not cure the breach
within a period specified by United Distillers. There are also sales goals and
marketing plans to be met by the Company.
The Company's agreements with various of the state-owned Polish vodka
producers may be terminated by either party without cause on one month's prior
written notice. Products are delivered based on the Company's standard order
forms.
The Company's non-exclusive contract with 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.
26
<PAGE>
Wine
The Company offers two brands of wine on an exclusive basis: the Sutter Home
Wines from the United States and Romanian Classic Wines from Romania. These
wines, which include standard red and white varietals, are offered through all
of the Company's branches. The Company also offers on a non-exclusive basis
the following sparkling wines and champagnes: Cinzano Asti, Gran Cinzano, Gran
Festa, Martini Asti, Martini Brut, Moet & Chandon Dom Perignon, Brut Imperial
and Mumm Cordon Rouge.
Only the Company's sales of Romanian wines exceeded five percent or more of
net sales for the year ended December 31, 1997. The Company's current
distribution agreement for Romanian bottled wines is for a term ending
December 31, 1998.
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.
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
[ MAP OF CEDC'S BRANCH NETWORK APPEARS HERE ]
27
<PAGE>
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.
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 $12,200 per month as of
December 31, 1997.
Proposed Warehouse/Office Facility
The Company intends to use part of the proceeds of the Offering to construct
a facility which will combine the current Warsaw warehouses and the Company's
Warsaw headquarters. These two structures are currently 15 miles apart. The
new facility is expected to be available in approximately two years, at which
time the existing leases for office and warehouse space will have terminated
or can be sublet with the consent of the lessor.
Regional Sales Offices and Warehouses
The Company also has entered into leases for each of its seven regional
sales offices and warehouses. The amount of office and warehouse space leased
varies between 278 square meters in Katowice up to 880 square meters in
Szczecin. The monthly lease payments, which are denominated in Polish
currency, vary between approximately $570 and $2,750. Five of the leases can
be terminated by either party on three-month's prior notice; one can be
terminated by either party on two-month's prior notice; the other lease
terminates on December 31, 1998.
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.
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<PAGE>
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 in 1995, 1996 and
1997 were small, usually Polish-owned and managed businesses, including small
grocery stores. At December 31, 1997, the Company sold products to
approximately 3,000 such business outlets, which typically stock and sell
relatively few alcohol products and wish to have access to the most popular
selling brands. The other components of the off-trade business in 1995, 1996
and 1997 were large supermarket chains, which are typically non-Polish-owned,
as well as smaller multi-store retail outlets operated by major Western energy
companies in connection with the sale of gasoline products. The large
supermarket chains typically offer a wide selection of alcohol products, while
the smaller retail outlets offer a more limited selection.
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, bad debt expense as a percentage of net
sales was 0.21%, 0.08% and 0.12% 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, who import their own products but use the
Company on a nonexclusive basis to distribute their products, could develop
nationwide distribution systems, but have not and the Company believes these
companies will concentrate on expanding their
29
<PAGE>
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 meets this regional competition, in part,
through offering to customers in the region a single source supply of more
products than its regional competitors typically offer.
The brands of beer, spirits and wine distributed by the Company compete with
other brands in each category, including some the Company itself distributes.
The Company expects this competition to increase as it adds more brands, as
international drinks and brewery companies expand production in Poland and as
the Polish produced products are distributed more efficiently. In addition,
the international drinks companies with which the Company competes in the
import sector of its business have 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. 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.
30
<PAGE>
REGULATION
The Company's business of importing and distributing alcoholic beverages is
subject to extensive regulation. The Company believes it is operating with all
licenses and permits material to its business. The Company is not subject to
any proceedings calling into question its operation in compliance with any
licensing and permit requirements.
There can be no assurance that the various governmental regulations
applicable to the alcoholic beverage industry will not be changed so as to
impose more stringent requirements on the Company. If the Company were to fail
to be in compliance with applicable governmental regulations or the conditions
of the licenses and permits it receives, such failure could cause the
Company's licenses and permits to be revoked and have a material adverse
effect of the Company's business, results of operations and financial
condition. Further, the applicable Polish governmental authorities, in
particular the Minister of Economy, have articulated only general standards
for issuance, renewal and termination of the licenses and permits which the
Company needs to operate and, thus, such governmental authorities retain
considerable discretionary authority in making such decisions.
IMPORT OF PRODUCTS
Import License
The Company must receive a license from the Minister of Economy to be able
to import all of its 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 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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<PAGE>
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 has
received a certificate after an inspection by the Central Standardization
Institute, which is part of the Ministry of Agriculture, indicating its
compliance with applicable norms as of the date thereof. Such certification
also is needed to import alcoholic beverages. Compliance with these norms also
is confirmed by health authorities when particular shipments of alcoholic
beverages arrive in Poland. See "--Import of Products--Approval of Health
Authorities."
CUSTOMS WAREHOUSE
Since the Company operates a customs warehouse, further regulations apply,
and a permit of the President of the Main Customs Office and the approval of
health authorities are required to open and operate such a warehouse. The
applicable health concerns are the same as those discussed under""--Wholesale
Activities" with regard to non-custom warehouses. The Company has received the
needed permit on October 19, 1995 from the President of the Main Customs
Office, which is for an unspecified period of time. The continued
effectiveness of the permit is conditioned on the Company's complying with the
requirements of the permit which are, in general, the proper payment of
customs duties and maintenance of an insurance policy.
CUSTOMS DUTIES AND QUOTAS
As a general rule, the import of alcoholic beverages 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 for which the customs duties are substantially
reduced. For example, the basic customs
32
<PAGE>
duty on scotch whiskey 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 always do so in the future.
PRICE AND MARGIN CONTROLS
In general, Polish law does not affect either the prices charged or the
margins earned by the Company on its imported liquor products. Provisions of
the tax law provide for a general ban on importing products at "dumping
prices," generally defined as being at prices lower than for similar products
in the country of origin. Fines could be imposed for such activity. 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.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of CEDC are set forth below. Directors
and executive officers of CEDC are elected to serve until they resign or are
removed, or are otherwise disqualified to serve, or until their successors are
elected and qualified. All directors of CEDC are elected annually at the
annual meeting of stockholders. Executive officers of CEDC generally are
appointed at the board's first meeting after each annual meeting of
stockholders.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
---- --- -----------------------------------------------
<S> <C> <C>
William V. Carey........... 33 Chairman, President 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.
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 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.
34
<PAGE>
JAMES B. KELLY, a former Deputy Assistant Secretary of Commerce of the
United States specializing in international economic policy, has served as a
director of CEDC since its inception. Mr. Kelly is currently the President of
SynXis Corporation, a software development company, a position he has held
since August 1996. From 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 two 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
35
<PAGE>
the Certificate of Incorporation. Pursuant to the Bylaws, the number of
directors within that range is determined by resolution duly adopted by a
majority of the Board of Directors. The number of directors is currently fixed
at six. The 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 receive $10,000 and $5,000,
respectively, for serving as Chairman and Vice-Chairman of the Board of
Directors as well as annual directors' fees of $2,000 (which amount is payable
to each director). Members of the Board of Directors have received grants of
stock options under the stock incentive plan described below. The Company
reimburses directors for out-of-pocket travel expenditures relating to their
service on the Board of Directors.
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 $80,000 (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; (ii) paid approximately $4,000 for travel
expenses; and (iii) 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.
36
<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 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.
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 the 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
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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 and Carey Agri, is paid $4,000 monthly for
his service on Carey Agri's Board of Directors where he has responsibilities
for assisting Carey Agri to establish supplier relationships for alcohol and
nonalcohol products, such as cigars. For options granted to Mr. Grossmann for
his past work in establishing supplier relationships in Bulgaria, see "--1997
Stock Incentive Plan."
1997 Stock Incentive Plan
CEDC's 1997 Stock Incentive Plan, 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 the 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.
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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 authorizes the grant also of restricted stock or restricted stock
units, which are rights to receive shares of Common Stock in the future. Both
the restricted stock and restricted stock units will be subject to
restrictions and risk of forfeiture. Such restriction may include not only a
period of time of further employment or service to CEDC or Carey Agri or a
service provider but the satisfaction of individual or corporate performance
objectives. Performance objectives may include, among others, the trading
price of the shares of Common Stock, market share, sales, earnings per share
and return on equity. Unless the particular award agreement states otherwise,
the holders of restricted stock shall have the right to vote such shares of
Common Stock and the right to receive any dividends declared and paid with
respect to such stock, but the holders of restricted stock units shall have no
such rights.
If the grantee's employment with CEDC or Carey Agri or a service provider
terminates by reason of death, all restricted stock and restricted stock units
granted under the Plan shall fully vest. If the grantee's employment
terminates by reason of disability, the grantee's restricted stock or
restricted stock units shall continue to vest for a period of one year. If the
grantee's employment is terminated for any other reason, the restricted stock
or restricted stock units shall be forfeited.
In the event of the dissolution or liquidation of the Company or upon a
merger, consolidation or reorganization of the Company in which the Company is
not the surviving entity, or upon a sale of substantially all of the assets of
the Company or upon any transaction (including one in which the Company is the
surviving entity) approved by the Board of Directors that results in any
person or entity owning eighty percent or more of the combined voting power of
all classes of securities of CEDC, outstanding restricted stock and restricted
stock units shall vest and all options become immediately exercisable, within
a stated period, unless provision is made in writing in connection with such
transaction for the continuation of the Plan or the assumption or substitution
of such options, restricted stock and restricted stock units.
The Board of Directors may amend, suspend or terminate the Plan with respect
to the shares of Common Stock as to which grants have not been made. However,
CEDC's stockholders must approve any amendment that would cause the Plan not
to comply with the Code.
Stock options for 82,500 of the shares of the Common Stock have been granted
in connection with the Offering. 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
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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 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 is due in full on May 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 was $272,000, $566,000
and $786,000, 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 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.
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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. 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>
PERCENTAGES OF SHARES BENEFICIALLY OWNED
NAME AND ADDRESS OF SHARES --------------------------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE THE OFFERING AFTER THE OFFERING
------------------- ------------------ -------------------- --------------------
<S> <C> <C> <C>
William V. Carey(1)..... 1,096,480 61.6% 25.6%
1602 Cottagewood Drive
Brandon, FL 33511
William V. Carey Stock
Trust(1)............... 503,740 28.3 11.8
1602 Cottagewood Drive
Brandon, FL 33511
Jeffrey Peterson........ 592,740 33.3 13.8
1707 Waldemere Street
Sarasota, FL 34239
Estate of William O. Ca-
rey(2)................. 90,780 5.1 2.0
1602 Cottagewood Drive
Brandon, FL 33511
Joseph S. Conti(3)...... -- -- --
744 Metropolitan Avenue
Staten Island, NY 10301
James T. Grossmann...... -- -- --
805 S. Fairfax Street
Alexandria, VA 22314
James B. Kelly.......... -- -- --
7606 Hamilton Spring
Road
Bethesda, MD 20817
Jan W. Laskowski........ -- -- --
115 ul. Marcinkowska
00-102 Warsaw, Poland
Joe M. Richardson....... -- -- --
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)............... 1,689,220 94.9% 39.5%
</TABLE>
- --------
(1) Includes 592,740 shares beneficially owned by Mr. Carey and 503,740 shares
held in the name of the William V. Carey Stock Trust. Mr. Carey is the
beneficiary of the shares of the Common Stock held in the William V. Carey
Stock Trust, and he will become the sole owner of these shares and may
terminate the trust on December 11, 2005. Mr. Carey administers the trust,
which includes the power to vote the securities held and make any
investment decisions, with one other trustee, Remy Hermida, 1707 West
Reynolds Street, Plant City, Florida 33567. The trust instrument permits
one trustee to delegate any and all power, duties or discretions to the
other trustee, although this action has not been taken.
(2) Gertrude Carey, the mother of William V. Carey, is the sole personal
representative of the Estate of William O. Carey and has sole voting and
investment authority over the Common Stock in this estate.
(3) Joseph S. Conti will join the Company's Board of Directors immediately
following the completion of the Offering. See "Management--Designated
Directors."
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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, 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.
WARRANTS
In connection with the Offering, the Company has agreed to sell to the
Representatives, for nominal consideration, the Representatives' Warrants to
purchase 250,000 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 120% 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.
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
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<PAGE>
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 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.
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Stockholder Action by Unanimous Written Consent
Any action required or permitted to be taken by the stockholders must be
effected at a duly called annual or special meeting of such holders and may
not be effected by any consent in writing by such holders, unless such consent
is unanimous.
Call of Special Meetings
Special meetings of stockholders may be called at any time by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President, and shall be called by the President or the Secretary of CEDC at
the request in writing of stockholders possessing at least 10% of the voting
power of the issued and outstanding capital stock of CEDC entitled to vote
generally in the election of directors. Such a request shall include a
statement of the purpose or purposes of the proposed meeting.
Bylaw Amendments
The stockholders may amend the Bylaws by the affirmative vote of the holders
of at least a majority of the outstanding shares of stock of CEDC entitled to
vote thereon. Directors also may amend the Bylaws by an affirmative vote of at
least a majority of the directors then in office.
Certificate of Incorporation Amendments
Except as set forth in the Certificate of Incorporation or as otherwise
specifically required by law, no amendment of any provision of the Certificate
of Incorporation shall be made unless such amendment has been first proposed
by the Board of Directors upon the affirmative vote of at least a majority of
the directors then in office and thereafter approved by the affirmative vote
of the holders of at least a majority of the outstanding shares of stock of
CEDC entitled to vote thereon; provided however, if such amendment is to the
provisions in the Certificate of Incorporation relating to the authorized
number of shares of Preferred Stock, board authority to issue Preferred Stock,
number of directors, the limitation on directors' liability, amendment of
Bylaws or consent of stockholder in lieu of meetings, such amendment must be
approved by the affirmative vote of the holders of at least two-thirds of the
outstanding shares of stock entitled to vote thereon.
Stockholder Nominations and Proposals
With certain exceptions, the Bylaws require that stockholders intending to
present nominations for directors or other business for consideration at a
meeting of stockholders must notify CEDC's secretary not less than 60 days,
and not more than 90 days, before the date of the meeting.
Certain Statutory Provisions
Section 203 of the DGCL provides, in general, that a stockholder acquiring
more than 15% of the outstanding voting shares of a corporation subject to the
DGCL (an "Interested Stockholder"), but less than 85% of such shares, may not
engage in certain "Business Combinations" with such corporation for a period
of three years subsequent to the date on which the stockholder became an
Interested Stockholder unless (a) prior to such date the corporation's board
of directors approved either the Business Combination or the transaction in
which the stockholder became an Interested Stockholder or (b) the Business
Combination is approved by the corporation's board of directors and authorized
by a vote of at least two-thirds of the outstanding voting stock of the
corporation not owned by the Interested Stockholder.
Section 203 defines the term "Business Combination" to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which
the Interested Stockholder receives or could receive a benefit on other than a
pro rata basis with other stockholders, including mergers, certain
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<PAGE>
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.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 4,280,000 shares of
Common Stock outstanding (assuming no exercise of the Underwriters' over-
allotment option). Of these shares, the 2,500,000 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 250,000 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.
46
<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....................................................... 2,500,000
=========
</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 375,000 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 will be determined by
negotiation between the Company and the Representatives and will not
necessarily be related to the Company's asset value, net worth, results of
operations or other established criteria of value. Among the factors to be
considered in determining the initial public offering price of the Common
Stock, in addition to prevailing market conditions, are 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.
47
<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 250,000 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 120% 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 NMS 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 NMS 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
48
<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.
49
<PAGE>
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.
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.
50
<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................ F-3
Consolidated Statements of Income for the years ended December 31, 1995,
1996 and 1997........................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1995, 1996 and 1997.................................. F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997..................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Central European Distribution Corporation
We have audited the accompanying consolidated balance sheets of Central
European Distribution Corporation as of December 31, 1997 and 1996 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, 1997 and 1996, 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.
/s/ 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 OF US DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash............................................... 740 1,053
Accounts receivable, net of allowance for doubtful
accounts of $49,000 and $94,000, respectively..... 4,211 6,970
Inventories........................................ 1,660 3,280
Prepaid expenses and other current assets.......... 172 235
Deferred income taxes.............................. 106 103
----- ------
Total Current Assets............................. 6,889 11,641
Equipment, net....................................... 442 503
Deferred charges..................................... 4 386
----- ------
Total Assets....................................... 7,335 12,530
===== ======
</TABLE>
See accompanying notes.
F-3
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
AMOUNTS IN COLUMNS EXPRESSED IN THOUSANDS OF US DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable............................. 5,140 9,790
Bank loans and overdraft facilities................ 856 925
Income taxes payable............................... 6 36
Taxes other than income taxes...................... 720 763
Other accrued liabilities.......................... 132 286
Current portion of long-term debt and capital lease
obligations....................................... 152 349
----- ------
Total Current Liabilities........................ 7,006 12,149
Long-term debt, less current maturities.............. 205 35
Capital lease obligations, less current portion...... 98 12
Stockholders' Equity
Preferred Stock ($0.01 par value, 1,000,000 shares
authorized; no shares issued and outstanding)..... -- --
Common Stock ($0.01 par value, 20,000,000 shares
authorized, 1,780,000 shares issued and outstand-
ing).............................................. 18 18
Additional paid-in-capital......................... 36 36
Retained earnings (accumulated deficit)............ (28) 280
----- ------
Total Stockholders' Equity....................... 26 334
----- ------
Total Liabilities and Stockholders' Equity....... 7,335 12,530
===== ======
</TABLE>
See accompanying notes.
F-4
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
AMOUNTS IN COLUMNS EXPRESSED IN THOUSANDS OF US DOLLARS
(EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................... 16,017 23,942 40,189
Cost of goods sold...................... 13,113 19,850 34,859
------ ------ ------
Gross profit............................ 2,904 4,092 5,330
Sales, general and administrative
expenses............................... 2,603 3,569 4,198
------ ------ ------
Operating income........................ 301 523 1,132
Non-operating income (expense)
Interest expense...................... (106) (124) (172)
Realized and unrealized foreign
currency transaction losses, net..... (84) (232) (326)
Other income, net..................... 84 6 15
------ ------ ------
Income before income taxes.............. 195 173 649
Income tax expense...................... (120) (111) (341)
------ ------ ------
Net income.............................. 75 62 308
====== ====== ======
Net income per common share, basic and
dilutive............................... 0.04 0.03 0.17
====== ====== ======
</TABLE>
See accompanying notes.
F-5
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AMOUNTS IN COLUMNS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT FOR SHARES
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS
-------------------- ADDITIONAL PAID- (ACCUMULATED
NO. OF SHARES AMOUNT IN-CAPITAL DEFICIT)
------------- ------ ---------------- ------------
<S> <C> <C> <C> <C>
Balance at December 31,
1994
(Note 1).................. 1,780,000 18 36 (165)
Net income for 1995........ -- -- -- 75
--------- --- --- ----
Balance at December 31,
1995...................... 1,780,000 18 36 (90)
Net income for 1996........ -- -- -- 62
--------- --- --- ----
Balance at December 31
1996...................... 1,780,000 18 36 (28)
Net income for 1997........ -- -- -- 308
--------- --- --- ----
Balance at December 31,
1997...................... 1,780,000 18 36 280
========= === === ====
</TABLE>
See accompanying notes.
F-6
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMOUNTS IN COLUMNS EXPRESSED IN THOUSANDS OF US DOLLARS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating Activities
Net income............................. 75 62 308
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Depreciation and amortization.......... 36 67 168
Deferred income taxes (benefit)........ 6 (18) (1)
Gain on the disposal of equipment...... (5) (7) (3)
Bad debt provision..................... 34 19 48
Changes in operating assets and
liabilities:
Accounts receivable................... (1,108) (2,652) (2,807)
Inventories........................... (480) (612) (1,620)
Prepayments and other current
assets............................... 14 (84) (63)
Trade accounts payable................ 918 2,915 4,650
Income and other taxes................ 80 613 73
Other accrued liabilities ............ 349 (271) 0
------ ------- -------
Net Cash (Used In) Provided by
Operating Activities................ (81) 32 753
Investing Activities
Purchases of equipment................. (62) (336) (240)
Proceeds from the disposal of
equipment............................. 23 264 60
------ ------- -------
Net Cash Used In Investing
Activities.......................... (39) (72) (180)
Financing Activities
Borrowings on overdraft facility....... 8,465 17,531 12,892
Payment of overdraft facility.......... (8,210) (17,747) (12,608)
Payment of capital lease obligations... -- (62) (183)
Short-term borrowings.................. 379 840 600
Payment of short-term borrowings....... (350) (402) (815)
Long-term borrowings................... 200 205 87
Payment of long-term borrowings........ (20) (180) (9)
Costs paid in connection with planned
public offering....................... -- -- (224)
------ ------- -------
Net Cash Provided by (Used In)
Financing Activities................ 464 185 (260)
------ ------- -------
Net Increase in Cash.................... 344 145 313
Cash at beginning of period............. 251 595 740
------ ------- -------
Cash at end of period................... 595 740 1,053
====== ======= =======
</TABLE>
See accompanying notes.
F-7
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Central European Distribution Corporation (CEDC) was organized as a Delaware
Corporation in September 1997 to operate as a holding company through its sole
subsidiary, Carey Agri International Poland Sp. z o.o. (Carey Agri). CEDC and
Carey Agri are referred to herein as the Company.
CEDC's authorized capital stock consists of 20.0 million shares of common
stock, $0.01 par value, and 1.0 million shares of preferred stock, also $0.01
par value. No shares of preferred stock have been issued and its terms and
conditions will be established by the Board of Directors at a later date.
In November 1997, CEDC issued 1,780,000 shares of its common stock to the
former stockholders of Carey Agri in exchange for all the issued and
outstanding shares of Carey Agri. This reorganization resulted in no changes
in relative equity interests among the stockholders and no adjustments of the
underlying net assets of Carey Agri. The new capital structure has been
reported in a manner comparable to a pooling of interests in the accompanying
consolidated financial statements. All share and per share data have been
presented in accordance with the new capital structure.
Carey Agri is a Polish limited liability company with headquarters in
Warsaw, Poland. Carey Agri distributes alcoholic beverages throughout Poland
and all activities are conducted within that country. It currently has
branches in the following Polish cities: Warsaw, Krakow, Szczecin, Gdynia,
Wroclaw, Torun, Siemianowice and Poznan. Pursuant to Polish statutory
requirements, Carey Agri may pay an annual dividend, based on its audited
Polish financial statements, to the extent of its retained earnings as
defined. At December 31, 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.
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).
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.
F-8
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
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 will no longer consider Poland to be
a hyper-inflationary economy. Therefore, the Company will cease 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.
Income Taxes
The Company computes and records income taxes in accordance with FAS No.
109.
F-9
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
Effect of New Accounting Standards Not Yet Adopted
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 will include net
income adjusted by, among other items, foreign currency translation
adjustments. As disclosed in this Note 2, the Company remeasures transactions
and results of its Polish subsidiary in accordance with FAS No. 52 as applied
to entities in highly inflationary economies. Therefore, exchange gains and
losses arising from remeasurement of these monetary assets and liabilities are
credited or charged to net income. However, in 1998 since Poland will not be
considered a highly inflationary economy, these remeasurements will be
recorded as a separate component of equity and, under FAS No. 130, included as
part of comprehensive income.
In June 1997, the FASB issued its Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The standard will be
effective for the Company in the year ending December 31, 1998, and it
requires, among other provisions, that a public business enterprise report
financial and descriptive information about its reportable operating segments.
The Company does not expect the adoption of FAS No. 131 to have a material
impact on the disclosures contained in its financial statements.
Net Income Per Common Share
Net income per common share is calculated 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, 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-10
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 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, 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-11
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
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-12
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
The Company has two other USD short-term loans with this bank for $350,000
and $240,000 at December 31, 1996 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 Note 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 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. 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-13
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
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-14
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
9. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current Polish income tax expense... 114 129 342
Deferred Polish income tax (credit)
expense, net....................... 6 (18) (1)
--- --- ---
Total income tax expense.......... 120 111 341
=== === ===
</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 and 38% in 1997) as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Tax at Polish statutory rate........ 78 69 247
Bad debt expense not expected to be
tax deductible..................... 6 4 15
Effect of foreign currency exchange
rate change on net deferred tax as-
sets............................... 3 13 23
Permanent differences:
Interest on overdue taxes......... 2 5 8
Non-deductible social taxes....... 5 7 11
Non-deductible depreciation....... 3 4 7
Non-deductible interest paid...... 13 -- --
Other non-deductible
expenses......................... 10 9 30
--- --- ---
Income tax expense.................. 120 111 341
=== === ===
</TABLE>
F-15
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 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-16
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
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 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 (Notes 4, 6 and 12).
Supplier of Wine
A director of CEDC is a director of one of the Company's suppliers of wine.
Purchases from this company amounted to approximately $185,000, $300,000 and
$570,000 in 1995, 1996 and 1997, 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-17
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
option agreement. Payment for shares purchased under the Incentive Plan shall
be made in cash or cash equivalents. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of stock of
CEDC, however, the exercise price of any incentive stock option granted must
equal at least 110% of the fair market value on the grant date and the maximum
term of an incentive stock option must not exceed five years.
Options granted under the Incentive Plan are generally not transferable and
may be exercised within a specific number of months, depending on the reason,
after the termination of the optionee's employment.
CEDC'S board of directors may amend the Incentive Plan with respect to
common shares as to which grants have not been made. However, CEDC's
stockholders must approve any amendments in certain situations.
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 a nominal consideration)
warrants to purchase 250,000 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 this Prospectus. The exercise price of the warrants
is 120% of the initial public offering price.
F-18
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS
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 some
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 + 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 + 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.
F-19
<PAGE>
LOGO
<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.............................................. $9,853.53
NASD filing fee................................................... 3,357.23
Nasdaq National Market System listing fee......................... *
Accounting fees and expenses...................................... *
Legal fees and expenses........................................... *
Printing and engraving expenses................................... *
Transfer Agent fees and expenses.................................. 3,500.00
Miscellaneous expenses............................................ *
---------
Total........................................................... $ *
=========
</TABLE>
- --------
* To be furnished by amendment.
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.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
All the holders of shares of common stock of Carey Agri International Poland
Sp. z o.o ("Carey Agri") and the Registrant entered into a Contribution
Agreement dated as of November 28, 1997 (the "Contribution Agreement").
Pursuant to the Contribution Agreement, all holders of shares of Carey Agri's
common stock transferred all shares of common stock owned by them to the
Registrant, receiving 1,780,000 shares of the Common Stock in return. All of
these transfers were designed to qualify as a tax-free exchange under section
351 of the Internal Revenue Code of 1986, as amended. These transfers were
made pursuant to Section 4(2) of the Securities Act of 1933, as amended.
ITEM 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.
**10.10 --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>
- --------
* To be filed by amendment.
** 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 REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ALEXANDRIA,
COMMONWEALTH OF VIRGINIA, ON THIS 17TH DAY OF APRIL 1998.
Central European
Distribution Corporation
By: /s/ William V. Carey
---------------------------------
WILLIAM V. CAREY
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS WILLIAM V. CAREY AND JEFFREY PETERSON, JOINTLY
AND SEVERALLY, EACH IN HIS OWN CAPACITY, HIS TRUE AND LAWFUL ATTORNEYS-IN-
FACT, WITH FULL POWER OF SUBSTITUTION, FOR HIM AND HIS NAME, PLACE AND STEAD,
IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-
EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME,
WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH
THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT
AND AGENTS WITH FULL POWER AND AUTHORITY TO DO SO AND PERFORM EACH AND EVERY
ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS
FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY
RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT, OR THEIR SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS, IN THE CAPACITIES
INDICATED BELOW, ON THIS 17TH DAY OF APRIL 1998.
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)
/s/ James T. Grossmann Director
- -------------------------------------
JAMES T. GROSSMANN
/s/ James B. Kelly Director
- -------------------------------------
JAMES B. KELLY
/s/ Jan W. Laskowski Director
- -------------------------------------
JAN W. LASKOWSKI
/s/ Joe M. Richardson Director
- -------------------------------------
JOE M. RICHARDSON
II-4
<PAGE>
EXHIBIT INDEX
<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.
**10.10 --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>
- --------
* To be filed by amendment.
** Previously filed.
<PAGE>
EXHIBIT 1
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
2,500,000 shares of Common Stock
Underwriting Agreement
_____, 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 2,500,000 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 375,000 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-_____) 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 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
<PAGE>
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 corporation organized under the laws of Poland (the
"Subsidiary"), has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own its
properties and conduct its business as described in the Prospectus and
is duly qualified to do business as a foreign corporation and is in
good standing in all other jurisdictions in which the nature of its
business or the character or location of its properties requires such
qualification, except where failure to so qualify will not materially
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 December 31, 1997 is as set forth in the Prospectus
under "Capitalization"; the shares of issued and outstanding capital
stock of the Company set forth thereunder have been duly authorized,
validly issued and are fully paid and non-assessable; except as set
forth in the Prospectus, no options, warrants, or other rights to
purchase, agreements or other obligations to issue, or agreements or
other rights to convert any obligation
-2-
<PAGE>
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 in connection with
such authorization, execution and delivery or 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 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
-3-
<PAGE>
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 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, or 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
-4-
<PAGE>
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 imminent
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 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
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,
-5-
<PAGE>
or other person charged with similar public or quasi-public duties,
other than payments or contributions required or allowed by applicable
law. The Company's and the Subsidiary's internal accounting controls
and procedures are sufficient to cause the Company and the Subsidiary
to comply in all material respects with the Foreign Corrupt Practices
Act of 1977, as amended.
(s) On the Closing Dates (hereinafter defined), all transfer or
other taxes (including franchise, capital stock or other tax, other
than income taxes, imposed by any jurisdiction), if any, which are
required to be paid in connection with the sale and transfer of the
Shares 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.
(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-B
involving the Company or the Subsidiary and any person described in
such Item that are required to be disclosed in the Prospectus and that
have not been so disclosed.
(aa) The Company and the Subsidiary have complied with all
provisions of Section 517.075 Florida Statutes relating to doing
business with the government of Cuba or with any person or affiliate
located in Cuba.
2. 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,
-6-
<PAGE>
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 _____, 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 end 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 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 certified or bank cashier's checks in New York Clearing House
funds, payable to the order of the Company 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
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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 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 Representatives' opinion, may be necessary
or advisable 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
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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 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
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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.
(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, 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
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<PAGE>
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.
(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 National Market, and
will effect and use its best efforts to maintain such listing (or
listing on the New York Stock Exchange) 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.
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<PAGE>
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:
(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 revenues and results
of operations for the period ending at the end of the month
immediately preceding the effective date and results of the comparable
period during the prior fiscal year.
(e) At the Closing Dates, (i) the representations and warranties
of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of the Closing Dates and the
Company and the Subsidiary shall have performed all of their
respective obligations hereunder and satisfied all the conditions on
their part to be satisfied at or prior to such Closing Date; (ii) the
Registration Statement and the Prospectus and any amendments or
supplements thereto shall contain all statements which are required to
be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the
requirements thereof, and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto shall contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading; (iii) there shall have been, since the
respective
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dates as of which information is given, no material adverse change, or
any development involving a prospective material adverse change, in
the business, properties, condition (financial or otherwise), results
of operations, capital stock, long-term or short-term debt or general
affairs of the Company or the Subsidiary from that set forth in the
Registration Statement and the Prospectus, except changes which the
Registration Statement and Prospectus indicate might occur after the
effective date of the Registration Statement, and the Company and each
of the Subsidiary shall not have incurred any material liabilities or
entered into any agreement not in the ordinary course of business
other than as referred to in the Registration Statement and
Prospectus; (iv) except as set forth in the Prospectus, no action,
suit or proceeding at law or in equity shall be pending or, 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 &
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McKenzie, counsel to the several Underwriters, substantially the
same in scope and substance as the certificate, furnished to you
at the First Closing Date pursuant to Section 5(e) hereof;
(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 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;
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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 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.
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<PAGE>
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.
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,
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<PAGE>
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 National 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.
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
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<PAGE>
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 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.
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<PAGE>
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 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 $250, 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 250,000 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.
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<PAGE>
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.
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 2,500,000
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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 ______ , 1998
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of ____, 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 250,000
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 $250. 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"). 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 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.
<PAGE>
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 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 ______, 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 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
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<PAGE>
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.
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.
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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 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
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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 distributes 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 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
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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 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.
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(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 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
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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-_____ as filed with the
Securities and Exchange Commission on April __, 1998 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 24 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 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
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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 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
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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).
(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
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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 Shares, 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 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:
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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.
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.
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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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SCHEDULE I
NAME OF UNDERWRITER NUMBER OF WARRANTS
- ------------------- ------------------
Brean Murray & Co., Inc.
Fine Equities, Inc. __________________
TOTAL 250,000
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EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W _____ Warrants
VOID AFTER _______, 2002
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 _____, 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.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on _____,
2002. If such date shall in the State of New York be a holiday or a day on which
banks are authorized to close, then
-i-
<PAGE>
the Expiration Date shall mean 5:00 P.M. (New York time) the next following day
which in the State of New York is not a holiday or a day on which banks are
authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of the Warrants represented hereby unless a registration statement
under the Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. The Warrants represented hereby shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
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 10.6(a)
H&H Translation
- ---------------
AMENDMENT
to the distribution agreement entered into in Warsaw, on July 3, 1997, by and
between UDV Poland Sp.z o.o. and Carey Agri International.
I.
Para. 1 Point V shall be amended to read: This agreement is concluded for the
period of one year, starting from January 1, 1998.
II.
All the other terms and conditions thereof remain in force.
III.
The Amendment has been executed in two identical copies, one for each of the
parties.
CAREY AGRI INT. POLAND SP.Z O.O. U.D.V. POLAND SP.Z O.O.
DISTRIBUTOR
William Carey Marek Rozycki
[SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE]
PRESIDENT OF DIRECTOR GENERAL
THE MANAGEMENT BOARD
<PAGE>
EXHIBIT 10.7
[LETTERHEAD OF GUINNESS BREWING WORLDWIDE APPEARS HERE]
17th November, 1997
Carey Agri International Poland Sp.zo.o.
ul Lubelska 13
03-802 Warszawa
POLAND
Attention: Mr. Bill Carey By post and by facsimile
Fax no. 0048-22-6180238
Dear Sirs,
POLISH DISTRIBUTION ARRANGEMENTS
--------------------------------
Guinness Brewing Worldwide Ltd ("GBW") hereby offers to Carey Agri International
Poland Sp.zo.o. ("Carey Agri") exclusive distribution rights in Poland on the
following basis:
1. Products
The Guinness products to be imported, distributed and sold by Carey Agri ("the
Products") will be as follows:
(i) draught and bottled GUINNESS ES71 Stout;
(ii) GUINNESS Foreign Extra Stout;
(iii) Canned Draught GUINNESS;
(iv) draught and bottled KILKENNY Irish Beer;
(v) draught CASHEL'S Cider; and
(vii) such other beverages as may be agreed between the parties in writing
from time to time.
2. Term and Termination
2.1 The initial term of this arrangement will be eight (8) months from 1st
November, 1997 until 30th June, 1998, provided that the arrangement will
continue thereafter unless and until terminated by either party upon 60 days
written notice (such notice to expire on or at any time after 1st July, 1998).
2.2 Either party will be entitled to terminate this arrangement with immediate
effect by written notice to the other if that other party commits any breach of
the
<PAGE>
Page 2 of 3
terms of this arrangement which is not remedied within 30 days after the receipt
of written notice giving particulars of the breach and requiring it to be
remedied.
2.3 For the avoidance of doubt, this arrangement supersedes the letter from
Guinness to Carey Agri dated 31st July, 1997, and the parties hereby agree that
the said letter will have no further force or effect save in relation to any
accrued rights of either party thereunder.
3. Terms of Sale
3.1 The Products will be supplied by GBW to Carey Agri on the Guinness Terms &
Conditions of Sale for the time being in force ("the Guinness Terms"). A copy
of the current Guinness Terms has been supplied to Carey Agri. Any changes to
the Guinness Terms will be communicated to Carey Agri from time to time.
3.2 The Guinness terms will apply to the exclusion of all other terms and
conditions of sale whether implied by law or otherwise.
4. Carey Agri's Obligations
At all times during the term of this arrangement Carey Agri will:
(i) use its best endeavours to develop the market for and promote the
sales of the Products in Poland;
(ii) not manufacture or distribute any stout, ale or cider which in the
reasonable opinion of Guinness competes with the Products in Poland;
(iii) refrain from any marketing or distribution activities outside Poland
in relation to the Products;
(iv) maintain sufficient stocks of the Products to meet demand in Poland;
(v) only import and distribute the Products or allow them to be
distributed in good and unadulterated condition; and
(vi) provide GBW with a monthly written report in a form acceptable to GBW
within 10 working days after each month end.
5. GBW's Obligations
At all times during the terms of this arrangement GBW will:
<PAGE>
Page 3 of 3
(i) refrain from selling or supplying the Products to any customer or
person in Poland other than Carey Agri, unless Carey Agri cannot satisfy
demand for the Products from customers in Poland (provided that GBW will
retain the right to supply the Products direct to any GBW affiliate in
Poland which owns and operates retail premises); and
(ii) be solely responsible for the formulas and specifications according to
which the Products are brewed.
6. Proper Law
This arrangement will be governed by the laws of England and the parties agree
to submit to the non-conclusive jurisdiction of the English Courts.
***
If you wish to accept this offer, would you kindly sign and return the attached
acknowledgment copy of this letter.
Yours
GUINNESS BREWING WORLDWIDE LIMITED
/s/ [SIGNATURE APEARS HERE]
-----------------------------
(Authorized signatory)
ON CONFIRMATION COPY ONLY:
Acknowledged and agreed for and on behalf of
CAREY AGRI INTERNATIONAL POLAND Sp.zo.o
by:
/s/ WILLIAM CAREY
- ------------------------
(Authorized signatory)
Name: William Carey
-----------------
Date: 11/20/97
-----------------
<PAGE>
EXHIBIT 10.8
C O N T R A C T No. 1236
concluded in Bucharest on December 31, 1997.
<TABLE>
<S> <C>
SELLER: VINEXPORT TRADING COMPANY LTD., residing in 78176
BUCHAREST, 10 Grigore Manolescu Street, Sector 1,
ROMANIA, tel. (401) 222.82.84, fax (401) 222.82.83,
represented by Mr. NICOLAE DAVID, Managing Director.
BUYER CAREY AGRI INTERNATIONAL POLAND, SPOLKA Z.o.o.,
residing in 03-802 WARSAW, 13 Lubelska Street,
POLAND, tel. 48.22.6180544, fax 48.22.6180238,
represented by Mr. WILLIAM VERNON CAREY, Managing
Director.
OBJECT: EXPORT OF ROMANIAN BOTTLED WINES TO POLAND IN THE
1998 YEAR.
GOODS, QUANTITIES, ROMANIAN BOTTLED WINES, from which:
ASSORTMENTS, VARIETIES, WHITE WINES = 50.000 cases of 6 bottles x 750 ml.
TYPES: RED WINES = 75.000 cases of 6 bottles x 750 ml.
-----------------------------------------------------
TOTAL = 125.000 cases of 6 bottles x 750 ml.
The quantities per wines varieties (Chardonnay,
Sauvignon Blanc, Riesling, Cabernet Sauvignon,
Merlot, Pinot Noir, Feteasca Neagra, Burgund), wines
types (dry, medium dry) and respectively labels
brands (Romanian Classic, Aura Special Reserve) will
be established, in writing, with the both parties
agreement at the beginning of the year 1998, before
the beginning date of the goods delivery.
LABELS: ROMANIAN CLASSIC and AURA SPECIAL RESERVE brands,
according to the both parties agreement. The alcohol
content specified on the labels shall not differ from
the real alcohol content of the wines with more than
0.5% volume alcohol. Any of the Seller's labels
brands which will be used by the Buyer, shall not
create property rights for the Buyer and the labels
brands will only be used or displayed with the
Seller's licence.
PRICES: The prices will be established, in writing, with the
both parties agreement at the beginning of the year
1998, before the beginning date of the goods
delivery.
</TABLE>
<PAGE>
- -2- CONTRACT 1998-VINEXPORT/CAREY
<TABLE>
<S> <C>
QUALITY ORGANOLEPTIC PROPERTIES:
CONDITIONS: ASPECT: clear
COLOUR: WHITE WINES: white-greenish, yellow-greenish,
straw-yellow, yellow-gold
RED WINES, red-ruby
TASTE/SMELL: characteristic
PHYSICAL-CHEMICAL PROPERTIES:
Alcohol content (% volume at plus 20 degrees C)
- white wines................................ 11-12
- red wines.................................. 12.01-13
Direct reducing sugar content, g/l
- dry wines.................................. 0-4
- medium dry wines........................... 4.01-12
Sugar free extract, g/l, minimum
- white wines................................ 18
- red wines.................................. 20
Total acidity (C4H606), g/l.............................. 4.5-9
Volatile acidity (CH3COOH), g/l, maximum................. 1.0
Total sulphur dioxide (SO2), mg/l, maximum............... 200
Free sulphur dioxide (SO2), mg/l, maximum................ 40
Sorbic acid, mg/l, maximum............................... 200
GUARANTEE 12 (twelve) months from the date of the goods delivery under the condition
TERM OF THE that the goods to be transported, handeled and stored in proper conditions
QUALITY: (temperature between plus 5 and plus 15 degrees Celsius, protection from
sunlight).
BOTTLES Glass bottles of 750 ml., as follows:
Clear RHEIN types bottles for RIESLING wine:
Clear BORDEAUX type bottles for SAUVIGNON BLANC wine
Green BORDEAUX type bottles for CABERNET SAUVIGNON,
MERLOT and FETEASCA NEAGRA wines;
Green BURGUND type bottles for CHARDONNAY, PINOT NOIR
and BURGUND wines.
BOTTLES With cork stoppers of minimum 24 x 38 mm. and shrink
CLOSURE capsules of 31 x 55/60 mm.
PACKING: In corrugated carton cases of 6 bottles x 750 ml.
BANDEROLES: The wines bottles have to have Polish banderoles on.
The Polish banderoles have to be received by the
Seller from the Buyer, by air courier, in good
conditions, with minimum 15 (fifteen) days before the
date of the goods delivery and the Romanian winery
have to glued them over the neck of the bottles.
</TABLE>
<PAGE>
- -3- CONTRACT 1998-VINEXPORT/CAREY
<TABLE>
<CAPTION>
<S> <C>
DELIVERY Successive deliveries, until December 31, 1998.
TERM: The date of the goods delivery is understood as the
date of delivery mentioned in the international truck
way bill (CMR).
The purchase order of the Buyer have to be received
by the Seller, by fax, with minimum 25 (twenty five)
days before the date of the goods delivery.
The purchase order will be valid only after the
receiving by the buyer of the Seller's confirmation,
by fax, that the purchase order can be fulfilled.
The date when the goods will be ready for delivery
will be indicated, by fax, by the Seller to the
Buyer, only after the receiving by the Seller, in
good conditions, of the Polish banderoles.
The Buyer have to inform the Seller with minimum 2
(two) working days before the date of the goods
delivery about the plate number of the truck which
will arrive at the loading place in Romania.
TAKING-OVER: The goods quantitative and qualitative taking-over is
made in Romania at the date of the goods delivery by
the Buyer's representative or authorized agent
(individual or person-at-law) and confirmed by means
of a taking-over document. In such case the Seller
has responsibility for hidden flaws only.
In the absence of the Buyer's representative or
authorized agent in Romania, the Buyer takes over the
goods in Romania, as follows:
- the final quantitative taking-over: on the basis of
the international truck way bill (CMR);
- the qualitative taking-over: on the basis of the
Analyses report issued by the laboratory of the
Romanian Winery.
TRANSPORT: By trucks, proper for the transport of bottled wines,
on the Buyer's expense. The goods have to be
accompanied by the following documents:
- Signed invoice............................ 3 cp.
- International truck way bill (CMR)........ 2 cp.
- EUR 1..................................... 1 cp.
- Analyses Report........................... 2 cp.
- Specification............................. 2 cp.
ADVISING: The Seller will send, by fax, to the Buyer within
maximum 2 (two) working days from the date of the
goods delivery a copy of the invoice.
</TABLE>
<PAGE>
- -4- CONTRACT 1998-VINEXPORT/CAREY
<TABLE>
<CAPTION>
<S> <C>
PAYMENT: DOCUMENTARY COLLECTION through DOCUMENTS AGAINST
ACCEPTANCE BILL at 45 (forty five) days from the date
of the goods delivery mentioned in the international
truck way bill (CMR).
The payment of the goods have to be made by the Buyer
through BANK ROZWOJU EXPORTU S.A., Pl. Bankowy no.2,
00-950 Warszawa, Wydzial Rachunkow Zlotowych i
Walutowych, POLAND, in the favour of the Seller to
ING BANK N.V. BUCHAREST BRANCH, ING BUILDING. Soseaua
Kiseleff No. 13-15, P.O. BOX 2-208, Sector 1,
Bucuresti, phone: 00.40.1.222.16.00, fax:
00.40.1.222.14.01, account number: 010371401.4, Swift
code: INGBROBU, against presentation by the Seller of
the following documents:
- Signed invoice............................ 3 cp.
- International truck way bill (CMR)........ 1 cp.
- Analyses report........................... 1 cp.
All banking charges and commissions at the Buyer's
bank are in the Buyer's account.
All banking charges and commissions at the Seller's
bank are in the Seller's account.
The Seller has the right to stop the deliveries of
the goods and is exempted of responsability
concerning the subsequent deliveries in case that the
Buyer doesn't pay within the above mentioned time the
counter-value of the goods delivered and invoiced by
the Seller.
CLAIMS: Any possible claims can be made by the Buyer only for
quality defects. The claims must be received by the
Seller from the Buyer, by fax, within 20 (twenty)
days from the arrival date of the goods at the place
of destination in Poland (Pruszkow). Any possible
claims for quality defects after expiring of the
above mentioned time can be made by the Buyer only
for hidden flaws and only within the guarantee terms
of the quality and have to be received by the Seller
from the Buyer, by fax, within 15 (fifteen) days from
the date of their finding out. By hidden flaws the
contracting parties understand the quality defects of
the goods which can not be evidenced by an usual
quality control but by laboratory methods only.
</TABLE>
<PAGE>
- -5- CONTRACT 1998-VINEXPORT/CAREY
<TABLE>
<CAPTION>
<S> <C>
For all possible claims for quality defects the Buyer
is obliged to send to the Seller, by air courier,
within maximum 15 (fifteen) days from the
notification date of the claim, samples of the
claimed goods and original Certificate of
Analysis/Decision issued by an authorized Polish
laboratory (STACJA SANITARNO-EPIDEEMIOLOGICZANA) from
which it have to result that the goods are not
according to the contractual quality conditions and
these ones are unsuitable for the human consumption
from sanitary point of view and therefore are not
allowed to be sold on the Polish market. Any
qualitative claims received by the Seller after the
expiry date of the guarantee term of the quality will
be null and void.
FORCE By Force Majeure the contracting parties understand
MAJEURE: the circumstances which appear after the signing of
this contract as a result of some uncommon, unforseen
and unavoidable event, as for example natural
calamities (earthquakes, floods, a.s.o.), fire, war,
civil war, revolution, riots, uprising, civil or
political movements, strikes and/or labour
conflictes, restrictive laws/rules/decisions/ orders
or acts of the legislative and/or administrative
authorities or other similar casualties.
The contracting parties are entirely or partially
exempted of liability as far as the fulfilment of the
contractual obligations isn't possible because of the
Force Majeure.
The contractual party which can not fulfil the
contractual obligations because of the Force Majeure
circumstances has immediately to advise about this
the other contracting party, by fax, and in maximum
30 (thirty) days from their occurance has to notify
the other contracting party by registred letter.
The Force Majeure circumstances have to be confirmed
by a Certificate issued by the Chamber of Commerce or
by any other competent authority from the Seller's or
respectively from the Buyer's country. The same
modality of advising and notification is also applied
for the association of the Force Majeure
circumstances.
If the Force Majeure circumstances last for more than
60 (sixty) days from its notification, the
contracting parties are entitled to cancel the
contract by a registred letter, no formality
whatsoever is considered.
For any delay or non-fulfilment of the contractual
obligations by either contracting party as a result
of the Force Majeure circumstances notified and
justified accordingly, neither of the contracting
parties has the right to make a demand upon the other
contracting party for penalities, interest and
compensation of any possible damages.
Force Majeure circumstances shall not release either
contracting party from its liability to make payments
for the goods delivered before the Force Majeure
occurance.
</TABLE>
<PAGE>
- -6- CONTRACT 1998-VINEXPORT/CAREY
<TABLE>
<CAPTION>
<S> <C>
OBLIGATIONS, The Seller is obliged to deliver the goods according
LITIGAITONS: to the conditions of this contract and the Buyer is
obliged to take-over the goods according to the
conditions of this contract and to pay them at the
established and invoiced prices.
The non-fulfilment or the faulty performance of the
contractual stipulations has as effect the payment by
the guilty contracting party to the other contracting
party the resulted losses.
All litigations resulted from this contract or in
connection with it are to be settled by amiable way.
If this is not possible, the contracting parties have
to admit the award by the Arbitration commission
under the Chamber of Commerce and Industry of
Romania, in Bucharest which will arbitrate the
litigations according to its own legal procedures.
The award passed by the Arbitration Commission under
the Chamber of Commerce and Industry of Romania, in
Bucharest will be final and binding upon both
contracting parties.
The contracting parties agree that this contract
should abide by the Romanian law and undertake to
enforce without any delay the award passed by the
Arbitration Commission under the Chamber of Commerce
and Industry of Romania, in Bucharest.
MISCELLANEOUS: The Buyer can not reexport to other countries the
goods which make the object of this contract without
the Seller's previous written agreement. The buyer
can not buy the wines, assortments/varieties/types
which make the object of this contract directly from
the Romanian wineries which produce these ones. The
stipulations of this contract can be amended, in
writing, before or during its carrying on, only with
the agreement of both contracting parties.
None of the contracting parties can assign and/or
transfer the contract in whole or in part to another
third party, without the previous written agreement
of the other contracting party.
The negotiations and correspondence prior to the date
of signing of this contract and contrary to its
stipulations are null and void.
VALIDITY OF THE CONTRACT: Until December 31, 1998.
This contract containing 6 (six) pages has been
concluded in 2 (two) copies, equally valid, one of
each for every contracting party and comes into force
beginning with the date of its signing by the both
contracting parties.
</TABLE>
<PAGE>
- -7- CONTRACT 1998-VINEXPORT/CAREY
SELLER BUYER:
VINEXPORT TRADING COMPANY LTD. CAREY AGRI INTERNATIONAL POLAND
BUCHAREST, ROMANIA WARSAW, POLAND
MANAGING DIRECTOR MANAGING DIRECTOR
NICOLAE DAVID WILLIAM VERNON CAREY
Dyrektor Zarazdu
CAREY POLAND Sp. z o.o.
/s/ NICOLAE DAVID /s/ WILLIAM CAREY
Place and date of signing Place and date of signing
by the Seller by the Buyer:
BUCHAREST, DECEMBER 31,
1997
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of this 1st
day of January, 1998 by and between Central European Distribution Corporation,
Inc., a Delaware corporation (the "Company"), and Robert Bohojlo (the
"Executive").
WHEREAS, the Company desires to employ the Executive, and the
Executive desires to be employed by the Company, on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, the parties hereto
agree as follows:
1. Employment. On the terms and conditions set forth in this
----------
Agreement, the Company agrees to employ the Executive and the Executive agrees
to be employed by the Company for the term set forth in Section 2 hereof and in
the position and with the duties set forth in Section 3 hereof.
2. Term. The employment of the Executive by the Company as provided
----
in Section 1 hereof shall commence on the date hereof and end three (3) years
thereafter (the "Expiration Date").
3. Position and Duties. The Executive shall serve as vice president
-------------------
and chief financial officer of the Company as well as the chief financial
officer of the Company's subsidiary, Carey Agri International Sp. z o.o (the
"Subsidiary") with such duties and responsibilities as the board of directors of
the Company (the "Board") or the Chief Executive Officer of the Company may from
time to time determine and assign to the Executive. The Executive shall devote
the Executive's reasonable best efforts and substantially full business time to
the performance of the Executive's duties and the advancement of the business
and affairs of the Company and the Subsidiary.
4. Place of Performance. In connection with the Executive's
--------------------
employment by the Company, the Executive shall be based at the principal
executive office of the Subsidiary, which the Company retains the right to
change in its discretion, or such other place as the Company and the Executive
mutually agree, except for required travel on Company business.
5. Compensation.
------------
5(a). Salary. The Executive shall be paid an annual base salary
------
(the "Salary") at the rate of $43,000 per year.
<PAGE>
5(b). Stock Options. As part of the consideration for entering
-------------
into this Agreement and performing services hereunder, the Company grants to the
Executive stock options for 30,000 shares of its common stock, par value $.01
per share (the "Common Stock") to vest and be exercisable as follows: (i)
options for 5,000 shares to be exercisable at the selling price to the public in
the Company's initial public offering and to become exercisable on January 1,
1999; (ii) options 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 are granted under the Company's 1997 Stock Incentive Plan and are
contingent upon the successful completion of the Company's initial public
offering and the approval of the shareholders of the Company of the 1997 Stock
Incentive Plan. All such options shall have a term ending on but including
December 31, 2000. This grant shall be documented in a stock option agreement
to be provided to the Executive by the Company.
5(c). Bonus. The Executive shall be paid on terms and
conditions to be agreed to in a separate agreement an annual bonus equal to at
least one-twelfth of the Salary.
5(d). Withholding Taxes and Other Deductions. To the extent
--------------------------------------
required by law, the Company and the Subsidiary shall withhold from any payments
due Executive under this Agreement any applicable federal, state or local taxes
and such other deductions as are prescribed by law or Company or Subsidiary
policy.
6. Expenses. The Company and the Subsidiary shall reimburse the
--------
Executive for all reasonable expenses incurred by the Executive (in accordance
with the policies and procedures in effect for senior executives of the Company
and the Subsidiary) in connection with the Executive's services under this
Agreement. The Executive shall account to the Company or the Subsidiary, as the
case may be, for such expenses in accordance with policies and procedures
established by the Company or the Subsidiary.
7. Confidential Information.
------------------------
7(a). The Executive covenants and agrees that the Executive will
not ever, without the prior written consent of the Board or a person authorized
by the Board, publish or disclose to any unaffiliated third party or use for the
Executive's personal benefit or advantage any confidential information with
respect to any of the Company's or Subsidiary's products, services, subscribers,
suppliers, marketing techniques, methods or future plans disclosed to the
Executive as a result of the Executive's employment with the Company, to the
extent such information has
2
<PAGE>
heretofore remained confidential (except for unauthorized disclosures) and
except as otherwise ordered by a court of competent jurisdiction.
7(b). The Executive acknowledges that the restrictions contained
in Section 7(a) hereof are reasonable and necessary, in view of the nature of
the Company's business, in order to protect the legitimate interests of the
Company, and that any violation thereof would result in irreparable injury to
the Company. Therefore, the Executive agrees that in the event of a breach or
threatened breach by the Executive of the provisions of Section 7(a) hereof, the
Company shall be entitled to obtain from any court of competent jurisdiction,
preliminary or permanent injunctive relief restraining the Executive from
disclosing or using any such confidential information. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
to it for such breach or threatened breach, including, without limitation,
recovery of damages from the Executive.
7(c). The Executive shall deliver promptly to the Company on
termination of employment, or at any other time the Company may so request, all
confidential memoranda, notes, records, reports and other documents (and all
copies thereof) relating to the Company's and its affiliates' businesses which
the Executive obtained while employed by, or otherwise serving or acting on
behalf of, the Company or which the Executive may then possess or have under his
or her control.
8. Non-Competition.
---------------
8(a). Non-Competition. The Executive covenants and agrees that
---------------
the Executive will not, during the Executive's employment hereunder and for a
period of one (1) year thereafter (to the extent permitted by law), at any time
and in any state or other jurisdiction in which the Company or Subsidiary is
engaged or has reasonably firm plans to engage in business, (i) compete with the
Company or Subsidiary on behalf of the Executive or any third party; (ii)
participate as a director, agent, representative, stockholder or partner or have
any direct or indirect financial interest in any enterprise which engages in the
alcohol product distribution business or any other business in which the Company
or Subsidiary is engaged; or (iii) participate as an employee or officer in any
enterprise in which the Executive's responsibility relates to the alcohol
product distribution business or any other business in which the Company or
Subsidiary is engaged. The ownership by the Executive of less than five percent
(5%) of the outstanding stock of any corporation listed on a national securities
exchange conducting any such business shall not be deemed a violation of this
Section 8(a).
8(b). Injunctive Relief. In the event the restrictions against
-----------------
engaging in a competitive activity contained in Section 8(a) hereof shall be
determined by any court of competent jurisdiction to be unenforceable by reason
of their extending for too great a period of time or over too great a
geographical area or by reason of their being too extensive in any other
respect, Section 8(a) hereof shall be interpreted to extend only over the
maximum period of time for which it may be enforceable and over the maximum
geographical area as to which it may be enforceable and to the maximum
3
<PAGE>
extent in all other respects as to which it may be enforceable, all as
determined by such court in such action.
8(c). Non-Solicitation. The Executive covenants and agrees that
-----------------
the Executive will not, during the Executive's employment hereunder and for a
period of one (1) year thereafter induce or attempt to induce any employee of
the Company or the Subsidiary to render services for any other person, firm, or
corporation.
9. Termination of Employment.
-------------------------
9(a). Death. The Executive's employment hereunder shall
-----
terminate upon the Executive's death.
9(b). By the Company. The Company may terminate the Executive's
--------------
employment hereunder under the following circumstances:
(i) If the Executive shall have been unable to perform all of
the Executive's duties hereunder by reason of illness, physical or mental
disability or other similar incapacity, which inability shall continue for more
than three (3) consecutive months, the Company may terminate the Executive's
employment hereunder.
(ii) The Company may terminate the Executive's employment
hereunder for "Cause." For purposes of this Agreement, "Cause" shall mean (A)
willful refusal by the Executive to follow a written order of the Chairman of
the Board or the Board of Directors, (B) the Executive's willful engagement in
conduct materially injurious to the Company, (C) dishonesty of a material nature
that relates to the performance of the Executive's duties under this Agreement,
(D) the Executive's conviction for any felony involving moral turpitude, (E) the
Executive's continued failure to perform his duties under this Agreement (except
due to the Executive's incapacity as a result of physical or mental illness) to
the satisfaction of the Board of Directors of the Company for a period of at
least forty-five (45) consecutive days after written notice is delivered to the
Executive specifically identifying the manner in which the Executive has failed
to perform his duties, and (F) termination of the Executive's employment
agreement with the Subsidiary. In addition, the Company may terminate the
Executive's employment for "Cause" if the normal business operations of the
Company are rendered commercially impractical as a consequence of an act of God,
accident, fire, labor controversy, riot or civil commotion, act of public enemy,
law, enactment, rule, order, or any act of government or governmental
instrumentality, failure of facilities, or other cause of a similar or
dissimilar nature that is not reasonably within the control of the Company or
which the Company could not, by reasonable diligence, have avoided.
9(c). By the Executive. The Executive may terminate the
----------------
Executive's employment hereunder for "Good Reason." For purposes of this
Agreement, "Good Reason" shall mean (i) the Company's failure to perform or
observe any of the material terms or provisions of this Agreement, and the
continued failure of the Company to cure such default within thirty (30) days
after written demand for
4
<PAGE>
performance has been given to the Company by the Executive, which demand shall
describe specifically the nature of such alleged failure to perform or observe
such material terms or provisions; or (ii) a material reduction in the scope of
the Executive's responsibilities and duties.
9(d). Notice of Termination. Any termination of the Executive's
---------------------
employment by the Company or the Executive (other than pursuant to Section 9(a)
hereof) shall be communicated by written "Notice of Termination" to the other
party hereto in accordance with Section 11 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon, if any, and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
9(e). Date of Termination. For purposes of this Agreement, the
-------------------
"Date of Termination" shall mean (i) if the Executive's employment is terminated
by the Executive's death, the date of the Executive's death; (ii) if the
Executive's employment is terminated pursuant to Section 9(b)(i) hereof, thirty
(30) days after Notice of Termination, provided that the Executive shall not
have returned to the performance of the Executive's duties on a full-time basis
during such 30-day period; (iii) if the Executive's employment is terminated
pursuant to Section 9(b)(ii)(A) - (E) or 9(c) hereof, the date specified in the
Notice of Termination;, if the Executive's employment is terminated pursuant to
Section 9(b)(ii)(F) hereof, the date the Executive's employment agreement with
the Subsidiary is terminated after the required notice provision under Polish
law, and (iv) if the Executive's employment is terminated for any other reason,
the date on which Notice of Termination is given.
10. Compensation Upon Termination.
-----------------------------
10(a). If the Executive's employment is terminated by the
Executive's death, the Company shall pay to the Executive's estate, or as may be
directed by the legal representatives of such estate, the Executive's Salary
through the Date of Termination and the Company shall have no further
obligations to the Executive under this Agreement.
10(b). During any period that the Executive fails to perform the
Executive's duties hereunder as a result of incapacity due to physical or mental
illness ("disability period"), the Executive shall continue to receive (i) the
Executive's Salary through the Date of Termination; provided, that payments so
--------
made to the Executive during the disability period shall be reduced by the sum
of the amounts, if any, payable to the Executive at or prior to the time of any
such payment under disability benefit plans of the Company and which amounts
were not previously applied to reduce any such payment and the Company shall
have no further obligations to the Executive under this Agreement.
5
<PAGE>
10(c). If the Company terminates the Executive's employment for
Cause as provided in Section 9(b)(ii) hereof, the Company shall pay the
Executive the Executive's Salary through the Date of Termination and the Company
shall have no further obligations to the Executive under this Agreement.
10(d). If the Executive terminates the Executive's employment
other than for Good Reason, the Company shall pay the Executive the Executive's
Salary through the Date of Termination and the Company shall have no further
obligations to the Executive under this agreement.
10(e). If the Company terminates the Executive's employment
other than for Cause, disability or death, or the Executive terminates the
Executive's employment for Good Reason as provided in Section 9(c) hereof, the
Company shall pay the Executive the Executive's Salary through the Date of
Termination and the Company shall have no further obligations to the Executive
under this Agreement.
10(f). Parachute Limitations. Notwithstanding any other
---------------------
provision of this Agreement or of any other agreement, contract or understanding
heretofore or hereafter entered into by the Executive with the Company or any
subsidiary or affiliate thereof, except an agreement, contract or understanding
hereafter entered into that expressly modifies or excludes application of this
Section 10(f) (the "Other Agreements"), and notwithstanding any formal or
informal plan or other arrangement heretofore or hereafter adopted by the
Company (or any subsidiary or affiliate thereof) for the direct or indirect
compensation of the Executive (including groups or classes of participants or
beneficiaries of which the Executive is a member), whether or not such
compensation is deferred, is in cash, or is in the form of a benefit to or for
the Executive (a "Benefit Plan"), if the Executive is a "disqualified
individual" (as defined in Section 280G(c) of the Internal Revenue Code of 1986,
as amended (the "Code")), any right to receive any payment or benefit under this
Agreement shall not become exercisable (i) to the extent that such right to
payment or benefit, taking into account all other rights, payments or benefits
to or for the Executive under this Agreement, all Other Agreements and all
Benefit Plans, would cause any payment or benefit to the Executive under this
Agreement to be considered a "parachute payment" within the meaning of Section
280G(b)(2) of the Code as then in effect (a "Parachute Payment") and (ii) if, as
---
a result of receiving a Parachute Payment, the aggregate after-tax amount
received by the Executive from the Company under this Agreement, all Other
Agreements and all Benefit Plans would be less than the maximum after-tax amount
that could be received by the Executive without causing any such payment or
benefit to be considered a Parachute Payment. In the event that the receipt of
any such right to payment or benefit under this Agreement, any Other Agreement
or any Benefit Plan would cause the Executive to be considered to have received
a Parachute Payment under this Agreement that would have the effect of
decreasing the after-tax amount received by the Executive as described in clause
(ii) of the preceding sentence, then the Executive shall have the right, in the
Executive's sole discretion, to designate those rights, payments or benefits
under this Agreement, any Other Agreements and any Benefit
6
<PAGE>
Plans that should be reduced or eliminated so as to avoid having the payment or
benefit to the Executive under this Agreement be deemed to be a Parachute
Payment.
10(g). Mitigation. Any sums earned by the Executive pursuant to
----------
any subsequent employment shall be offset against any remaining obligation the
Company may have to pay by virtue of termination under this Agreement.
11. Notices. All notices, demands, requests or other communications
-------
required or permitted to be given or made hereunder shall be in writing and
shall be delivered, telecopied or mailed by first class registered or certified
mail, postage prepaid, addressed as follows:
(a) If to the Company:
Central European Distribution Corporation
211 North Union Street, #110
Alexandria, Virginia 22314
Telecopier: 703-683-4707
Attention: William V. Carey
President
(b) If to the Executive:
Robert Bohojlo
Fabryczna 25 Street, App. 15
00-446 Warsaw, Poland
Telephone: 621-67-86
or to such other address as may be designated by either party in a notice to the
other. Each notice, demand, request or other communication that shall be given
or made in the manner described above shall be deemed sufficiently given or made
for all purposes at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt, the answer back or the affidavit of
messenger being deemed conclusive evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
12. Severability. The invalidity or unenforceability of any one or
------------
more provisions of this Agreement shall not affect the validity or
enforceability of the other provisions of this Agreement, which shall remain in
full force and effect.
13. Survival. It is the express intention and agreement of the
--------
parties hereto that the provisions of Sections 7 and 8 hereof shall survive the
termination of employment of the Executive. In addition, all obligations of the
Company to make payments hereunder shall survive any termination of this
Agreement on the terms and conditions set forth herein.
7
<PAGE>
14. Assignment. The rights and obligations of the parties to this
----------
Agreement shall not be assignable, except that the rights and obligations of the
Company hereunder shall be assignable in connection with any subsequent
merger, consolidation, sale of all substantially all of the assets of the
Company or similar reorganization of a successor corporation.
15. Binding Effect. Subject to any provisions hereof restricting
--------------
assignment, this Agreement shall be binding upon the parties hereto and shall
inure to the benefit of the parties and their respective heirs, devisees,
executors, administrators, legal representatives, successors and assigns.
16. Amendment; Waiver. This Agreement shall not be amended, altered
-----------------
or modified except by an instrument in writing duly executed by the parties
hereto. Neither the waiver by either of the parties hereto of a breach of or a
default under any of the provisions of this Agreement, nor the failure of either
of the parties, on one or more occasions, to enforce any of the provisions of
this Agreement or to exercise any right or privilege hereunder, shall thereafter
be construed as a waiver of any subsequent breach or default of a similar
nature, or as a waiver of any such provisions, rights or privileges hereunder.
17. Headings. Section and subsection headings contained in this
--------
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
18. Governing Law. This Agreement, the rights and obligations of the
-------------
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the Commonwealth of Virginia
(but not including the choice of law rules thereof).
19. Action of Behalf of the Subsidiary. The Company is executing
----------------------------------
this Agreement also on behalf of its Subsidiary and agrees to cause the
Subsidiary to fulfill its obligations hereunder, though the appointment and
removal, if necessary, of members of the management board of the Subsidiary.
20. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto with respect to the subject matter hereof,
and it supersedes all prior oral or written agreements, commitments or
understandings with respect to the matters provided for herein.
21. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original and all of which shall be
deemed to constitute one and the same instrument.
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement,
or have caused this Agreement to be duly executed on their behalf, as of the day
and year first hereinabove written.
CENTRAL EUROPEAN DISTRIBUTION
CORPORATION
By: /s/ William V. Carey
--------------------------------------------
Name: William V. Carey
Title: President and Chief Executive
Officer
THE EXECUTIVE:
/s/ Robert Bohojlo
-----------------------------------------------
Robert Bohojlo
9
<PAGE>
EXHIBIT 10.12
Employment contract
Concluded on 18.12.97 between Carey Agri International Poland Sp. z o.o.
with its registered seat in Warsaw, ul. Lubelska 13, hereinafter referred to as
the "Employer" represented by William Carey - President
and
Mr. Robert Bohojlo
resident in Warsaw
hereinafter referred to as the "Employee"
(S) 1
The Employer engages the Employee as Chief Finance Officer.
(S) 2
The agreement herewith is signed for 3 years period and can by dissolved by 3
months notice.
(S) 3
The range of duties of the employed party is the following but not limited to:
1. Preparing and presenting the reports regarding the
* P/L;
* balance sheet;
* actual overhead vs. projected overhead;
* profitability ratio's of the company;
2. Cooperation with the Chief Accountant;
3. Cooperation with the controller in analyzing the overhead costs of Warsaw
branch and other branches;
4. Preparation of the GAPP reports on the monthly basis;
5. Cooperation with the Company management;
6. Creation of the internal procedures on finances of the company;
<PAGE>
7. Creation of the internal procedures of reporting.
(S) 4
The employment will start on January 1st, 1998.
(S) 5
During the term of this contract, the Employee will be paid on accordance with
the basis set out below:
1) Monthly net renumeration amounts to the equivalent of 833.33 USD paid in
Polish zlotys.
2) In order to account the monthly renumeration, the average exchange rate
announced by the National Bank of Poland at the day of payment is used.
(S) 6
The Employee will be entitled to use the company car in the class of Ford Mondeo
for business purposes.
(S) 7
The Employee is entitled to annual vacation leave according to the Labour Code
provisions.
(S) 8
All issues not regulated herein shall be determined in accordance with the
Polish Labour Code.
(S) 9
Any modifications of this contract must be made in writing under penalty of
nullity.
(S) 10
The Agreement has been made in two identical copies, one for each Party and in
two language versions; Polish and English, each of which have equal force.
[illegible signature] [illegible signature]
- ------------------------- --------------------------
Employer Employee
2
<PAGE>
Statement
I declare, that I have received a copy of this contract and after acknowledging
its substance, I accept the proposed terms of employment and renumeration.
Simultaneously, I acknowledge the work regulations presently in force within the
firm. I hereby confirm my undertaking to keep confidential all information
relating to my Employer and employment and not to convey them to any third
party.
[illegible signature] [illegible signature]
- ------------------------- --------------------------
Employee Recipient of the Statement
3
<PAGE>
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. 1 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 3,125,000
shares of its common stock and 250,000 related warrants.
Warsaw, Poland /s/ Ernst & Young Audit Sp. z o.o.
April 17, 1998
<PAGE>
Exhibit 23.3
Consent of Future Director
I, Joseph S. Conti, resident at 744 Metropolitan Avenue, Staten Island,
New York 10301, do hereby consent to being named a future director of Central
European Distribution Corporation (the "Company"), effective immediately after
the closing of the Company's initial public offering, in the Company's
registration statement initially filed on Form SB-2 (registration number 333-
42387).
Date: April 15, 1998 /s/ Joseph S. Conti
------------------------------
Joseph S. Conti
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of CEDC for the year ended December 31, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,053
<SECURITIES> 0
<RECEIVABLES> 7,064
<ALLOWANCES> 94
<INVENTORY> 3,280
<CURRENT-ASSETS> 11,641
<PP&E> 782
<DEPRECIATION> 279
<TOTAL-ASSETS> 12,530
<CURRENT-LIABILITIES> 12,149
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> 316
<TOTAL-LIABILITY-AND-EQUITY> 12,530
<SALES> 40,189<F1>
<TOTAL-REVENUES> 40,189
<CGS> 34,859
<TOTAL-COSTS> 34,859
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 48
<INTEREST-EXPENSE> 172
<INCOME-PRETAX> 649
<INCOME-TAX> 341<F2>
<INCOME-CONTINUING> 308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 308
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
<FN>
<F1>All sales are in the country of Poland.
<F2>All income taxes are to the country of Poland.
</FN>
</TABLE>
