AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1996
REGISTRATION STATEMENT NO. 333-03864
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
CHS ELECTRONICS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
FLORIDA 5045 65-0263022
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
CLAUDIO OSORIO, PRESIDENT
CHS ELECTRONICS, INC.
2153 N.W. 86TH AVENUE 2153 N.W. 86TH AVENUE
MIAMI, FLORIDA 33122 MIAMI, FLORIDA 33122
(305) 716-8273 (305) 716-8273
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
------------
COPIES OF COMMUNICATIONS TO:
PAUL BERKOWITZ, ESQ. BERNARD JACOBSON, ESQ.
DANIEL REED, ESQ. ROBERT J. GRAMMIG, ESQ.
GREENBERG, TRAURIG, HOFFMAN, HOLLAND & KNIGHT
LIPOFF, ROSEN & QUENTEL, P.A. 701 BRICKELL AVENUE
1221 BRICKELL AVENUE SUITE 3000
MIAMI, FLORIDA 33131 MIAMI, FLORIDA 33131
(305) 579-0500 (305) 374-8500
(FACSIMILE) (305) 579-0717 (FACSIMILE) (305) 789-7799
------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of
this Registration Statement.
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 of 1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
------------
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------
Common Stock, $.001 par value $63,273,000(1)(2) $21,819(3)
Representative's Warrants $100 (4)
Common Stock, $.001 par value(5)(6)
<FN>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
(2) Includes 687,750 additional shares of Common Stock issuable upon exercise
of the Underwriters' over-allotment option.
(3) Such registration fee was paid upon the original filing of the
Registration Statement on April 22, 1996 and Amendment No. 1 on May 9,
1996.
(4) Pursuant to Rule 457(g), no fee is being paid.
<PAGE>
(5) Issuable upon exercise of Representative's warrants.
(6) Pursuant to Rule 416, this Registration Statement also covers such
indeterminate number of shares of Common Stock as may be issuable upon
exercise of the Representative's warrants pursuant to anti-dilution
provisions.
</FN>
</TABLE>
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 OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
CHS ELECTRONICS, INC.
CROSS REFERENCE SHEET
FURNISHED PURSUANT TO ITEM 501(B) OF REGULATION S-K
FORM S-1 ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
- --------------------------------------------------------------------------------------------------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus...... Outside Front Cover Page
2. Inside Front and Outside Back Inside Front Cover Page;
Cover Pages of Prospectus................... Outside Back Cover Page
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Charges...... Prospectus Summary; Risk Factors
4. Use of Proceeds............................... Use of Proceeds
5. Determination of Offering Price............... Underwriting
6. Dilution...................................... *
7. Selling Security Holders...................... Principal and Selling Shareholders
8. Plan of Distribution.......................... Underwriting
9. Description of Securities to be Registered.... Description of Capital Stock;
Dividend Policy
10. Interests of Named Experts and Counsel....... *
11. Information with Respect to the Registrant... Prospectus Summary; Risk Factors; Price Range
of Common Stock; Dividend Policy;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal and Selling Shareholders;
Description of Capital Stock; Shares Eligible
for Future Sale; Consolidated Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ *
<FN>
- --------------
* Not applicable or answer thereto is negative.
</FN>
</TABLE>
<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 JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH JURISDICTION.
SUBJECT TO COMPLETION DATED MAY 29, 1996
4,585,000 SHARES
CHS LOGO
COMMON STOCK
---------------
OF THE 4,585,000 SHARES OF COMMON STOCK OFFERED HEREBY, 3,001,539 ARE
BEING ISSUED AND SOLD BY CHS ELECTRONICS, INC. ("CHS" OR THE "COMPANY") AND
1,583,461 ARE BEING SOLD BY CERTAIN SHAREHOLDERS OF THE COMPANY (THE "SELLING
SHAREHOLDERS"). SEE "PRINCIPAL AND SELLING SHAREHOLDERS." THE COMPANY WILL
NOT RECEIVE ANY PROCEEDS FROM THE SALE OF COMMON STOCK BY THE SELLING
SHAREHOLDERS. SEE "USE OF PROCEEDS" AND "PRINCIPAL AND SELLING SHAREHOLDERS."
THE COMPANY HAS MADE AN APPLICATION TO INCLUDE THE COMMON STOCK FOR
LISTING ON THE NASDAQ NATIONAL MARKET UNDER THE TRADING SYMBOL "CHSE." THE
COMMON STOCK IS CURRENTLY TRADED ON THE NASDAQ SMALL-CAP MARKET UNDER THE
SYMBOL "CHSE." IT IS CURRENTLY ESTIMATED THAT THE INITIAL OFFERING PRICE WILL
BE BETWEEN $10 AND $12. ON MAY 28, 1996, THE LAST REPORTED SALES PRICE OF THE
COMMON STOCK WAS $17. SEE "PRICE RANGE OF COMMON STOCK."
ON MARCH 14, 1996, THE COMPANY REINCORPORATED IN FLORIDA AND THE
OUTSTANDING COMMON STOCK WAS REVERSE SPLIT ON A ONE-FOR-TWO BASIS. EXCEPT AS
OTHERWISE NOTED, ALL SHARE AND PER SHARE INFORMATION IN THIS PROSPECTUS HAS
BEEN ADJUSTED TO REFLECT THE REVERSE SPLIT.
---------------
SEE "RISK FACTORS" ON PAGES 7 THROUGH 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------
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 COMMIS-SION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------
Per Share $ $ $ $
Total(3) $ $ $ $
(1) Does not include additional compensation to the Representative of (a) a
non-accountable expense allowance of $100,000 and (b) Representative's
Warrants entitling the Representative to purchase up to 300,000 shares of
Common Stock (the "Representative's Warrants") for a period of four years
commencing one year from the date of the Prospectus at $ per share
for the first year that the Representative's Warrants are exercisable and
increasing by 7% of the public offering price each year thereafter. In
addition, the Company and the Selling Shareholders have agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses estimated at $700,000, which are payable by CHS.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 687,750 additional shares of Common Stock on the same terms and
conditions as the Common Stock offered hereby solely to cover
over-allotments, if any. If the option is exercised 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 ARE OFFERED BY THE SEVERAL UNDERWRITERS,
SUBJECT TO PRIOR SALE, WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY THEM, AND
SUBJECT TO OTHER CONDITIONS INCLUDING THE RIGHT OF THE UNDERWRITERS TO
WITHDRAW, CANCEL, MODIFY OR REJECT ANY ORDER IN WHOLE OR IN PART. IT IS
EXPECTED THAT DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1996
AT THE OFFICE OF RAYMOND JAMES & ASSOCIATES, INC., ST. PETERSBURG, FLORIDA.
RAYMOND JAMES & ASSOCIATES, INC.
The date of this Prospectus is , 1996
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
FINANCIAL INFORMATION AND SHARE DATA IN THIS PROSPECTUS (I) HAVE BEEN
ADJUSTED TO REFLECT A ONE-FOR-TWO REVERSE STOCK SPLIT OF THE COMPANY'S COMMON
STOCK (THE "COMMON STOCK") ON MARCH 14, 1996, AND (II) ASSUME NO EXERCISE OF
THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE COMPANY
CHS Electronics, Inc. ("CHS" or the "Company") is a leading international
distributor of microcomputer products, networking products and software. CHS
operates in 24 countries across three regions, including Western Europe,
Eastern Europe and South America and services an active customer base of
greater than 24,300 resellers. Products sold by the Company are manufactured
by approximately 35 vendors including Hewlett-Packard, Seagate, Microsoft,
Novell, Acer, Creative Labs, 3Com, Canon, Epson and Intel. The Company
recently was selected by IBM to be one of a limited number of distributors
offering the complete IBM microcomputer product line in Western Europe,
Eastern Europe and South America. The Company is a focused distributor, as
opposed to a broadline distributor, and seeks to represent leading vendors
within specific product categories. CHS believes that it is the sixth largest
distributor of microcomputer products in the world, and the largest
distributor in South America and Eastern Europe. The Company has no
significant sales in the United States.
The large number and diversity of resellers make it cost efficient for
vendors to outsource to wholesale distributors such as the Company some
portion of their distribution, credit, inventory, marketing and customer
support requirements. Similarly, due to the large number of product vendors,
resellers generally cannot efficiently establish direct purchasing
relationships with each vendor and instead rely on distributors to satisfy
their product, financing, marketing and technical support needs. The Company
believes the wholesale distribution industry is consolidating as access to
financial resources and economies of scale become more critical and as
certain vendors limit the number of authorized distributors of their
respective products.
According to International Data Corporation ("IDC"), Western Europe
represents approximately 23% of the worldwide personal computer ("PC")
market. The Company's pan-European presence strategically positions the
Company to take advantage of the consolidation trend in the distribution
industry and increase its market share in Western Europe. Additionally, the
regions in which the Company operates are relatively underpenetrated compared
to the United States. The penetration rate, defined as number of PCs per
person, in Western Europe is 15.3% compared to a penetration rate of 35.8% in
the United States. A significant portion of the Company's sales are in the
emerging markets of Eastern Europe and South America, regions which the
Company believes are underserved relative to the entire industry and offer
substantial growth opportunities. IDC projects PC sales in Eastern Europe
(including the Middle East and Africa) will grow from $3.9 billion in 1995 to
$7.6 billion in 1999, representing a compound annual growth rate of 18.5%.
IDC projects PC sales in South America (including Mexico and Central America)
will grow from $3.5 billion in 1995 to $7.8 billion in 1999, representing a
compound annual growth rate of 22.2%. This compares favorably to a 9.6%
compound annual growth rate projected by IDC for PC sales in the United
States over the same period.
CHS operates under a decentralized structure which delegates to managers
familiar with the customs and needs of a particular country the authority to
make daily operational decisions including those necessary to satisfy the
particular demands of their market. As compared to certain competitors which
operate under a more centralized system, the Company believes that its
business model of focused distribution through locally managed full service
facilities integrating warehousing, purchasing, sales, credit and accounting
services provides competitive cost and operating advantages.
3
<PAGE>
The Company's objective is to strengthen its position as a leading
distributor of microcomputer products in Western Europe, Eastern Europe and
South America. In order to achieve this objective, CHS intends to continue to
implement the following strategies:
/bullet/ OPERATE A FOCUSED DISTRIBUTION MODEL. The Company's strategy is
to be a focused distributor by concentrating on a limited number
of products from a select group of high quality branded vendors
in each major product category, such as Hewlett-Packard for
printers, Microsoft for software, Novell for networking, Seagate
for mass storage and Hewlett-Packard and IBM for PCs.
Additionally, the Company seeks to be a significant distributor
for each of its vendors and establish a partnering relationship
with them. For example, the Company believes that it is one of
the largest distributors of Hewlett-Packard products in Western
Europe and the largest in Eastern Europe and South America. The
Company believes this focused strategy enables it to respond more
quickly to customer requests and gives it greater availability of
products, enhanced access to new products and better pricing. The
Company believes this strategy also enables it to develop greater
expertise in the sale and servicing of the products of these
vendors. The Company believes that its focused distribution model
also results in more effective asset management. Generally,
products from leading vendors are in greater demand, resulting in
higher inventory turns and lower working capital requirements.
Additionally, fewer stock keeping units ("SKUs") result in more
efficient inventory management. CHS currently maintains up to
4,000 SKUs while broadline distributors typically carry greater
than 15,000 SKUs.
/bullet/ FURTHER DEVELOP AND PENETRATE INTERNATIONAL MARKETS. The Company
has focused its activities on the distribution of microcomputer
products in Western Europe and the emerging markets of Eastern
Europe and South America, regions which it believes are
underserved with respect to the distribution of microcomputer
products and therefore provide significant growth opportunities.
The Company believes that the markets in Western Europe, Eastern
Europe and South America are complex due to the diversity of
language, regulatory, technical and other factors and provide
increased opportunities for CHS to add value to its relationships
with its vendors and customers because of the presence of its
knowledgeable local management. The Company attempts to limit its
exposure to declines in any one area or economy by its presence
in a large number of markets.
/bullet/ GROW THROUGH ACQUISITIONS. A major portion of the Company's
growth is attributable to acquisitions and the Company intends to
continue its practice of making targeted purchases of high
quality distributors in selected markets in the future. The
Company typically structures an acquisition with an earnout
component payable in shares of Common Stock one year subsequent
to the acquisition and based on the performance of the acquired
company. These local distributors generally are attracted to
combining with CHS in order to gain personal financial liquidity,
access to key product lines provided by CHS and enhanced vendor
credit facilities. Over the past three years, the Company has
acquired over 20 companies. The Company seeks acquisition
candidates that have strong entrepreneurial management teams and
experience in the local market and that could benefit from the
synergies arising out of the Company's superior product line.
After an acquisition, the new CHS subsidiary adopts the policies
and financial reporting procedures of the Company but operates as
a relatively autonomous business unit, consistent with the
Company's decentralized structure. The Company believes its
acquisition strategy is advantageous to its vendors because,
through their relationship with CHS, vendors gain entry into new
markets with established local distribution companies.
4
<PAGE>
The Company's operating results have increased significantly in the
three-year period ending December 31, 1995, with net sales increasing from
$146.4 million in 1993 to $936.7 million in 1995 and operating earnings
increasing from $365,000 in 1993 to $10.8 million in 1995. Additionally, for
the three months ended March 31, 1996 compared to the three months ended
March 31, 1995, the Company's net sales increased to $303.0 million from
$204.8 million and operating earnings increased to $4.7 million from $2.8
million. On a pro forma basis, assuming all 1995 and 1996 acquisitions were
made on January 1, 1995, the Company's 1995 net sales and operating earnings
would have been $1.1 billion and $15.5 million and the Company's net sales
and operating earnings for the quarter ended March 31, 1996 would have been
$327.0 million and $5.3 million, respectively. See "Summary Consolidated
Financial Data" and "Reincorporation and Acquisitions."
THE OFFERING
Common Stock Offered by the Company................ 3,001,539 shares
Common Stock Offered by the Selling
Shareholders.................................... 1,583,461 shares
Common Stock to be Outstanding after the
Offering(1)..................................... 10,584,073 shares
Use of Proceeds ................................... To provide funds for working
capital and other general
corporate purposes including
acquisitions.
Nasdaq National Market Symbol ..................... CHSE
- --------------
(1) Does not include 1,028,080 shares of Common Stock reserved for issuance
upon exercise of currently outstanding options and additional options
which may be granted under the Company's 1994 Stock Option Plan, other
outstanding options and the Representative's Warrants. See
"Management--Stock Option Plans," "Certain Transactions," and
"Underwriting."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<TABLE>
<CAPTION>
PREDECESSOR(1) THE COMPANY
----------------- -------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------ --------------------------------
1991 1992 1993(2) 1994(2)(3) 1995 1995 1996 1996
------- ------- -------- ---------- ----------------------- -------- -------- ------------
ACTUAL(4) PRO FORMA(5) ACTUAL ACTUAL FRO FORMA(6)
---------- ------------ -------- -------- ------------
(UNAUDITED)
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INCOME STATEMENT DATA:
Net sales ................... $41,644 $79,884 $146,408 $359,169 $936,703 $1,140,130 $204,835 $302,995 $326,946
Gross profit ................ 4,042 7,178 9,440 25,186 67,987 84,714 14,911 22,542 24,818
Operating earnings .......... 428 2,078 365 3,388 10,799 15,459 2,792 4,692 5,302
Earnings (loss) before
income taxes .............. 215 1,812 (482) 1,568 6,102 10,023 2,049 3,366 3,830
Net earnings (loss) ......... 215 1,156 (723) 965 4,305 5,962 1,667 1,988 2,177
Net earnings (loss)
per share
primary ................... N/A N/A (.32) .21 .59 .63 .24 .25 .23
fully diluted ............. N/A N/A (.32) .21 .59 .63 .24 .24 .23
Weighted average
shares outstanding
primary ................... N/A N/A 2,269 4,693 7,283 9,539 6,966 7,862 9,612
fully diluted ............. N/A N/A 2,269 4,693 7,283 9,539 6,966 8,183 9,612
OTHER DATA:
Number of countries ......... 1 1 1 6 17 24 10 23 24
Inventory turns ............. 16 17 23 10 10 12 12 10 10
Days receivable ............. 34 32 31 32 35 31 30 34 34
</TABLE>
AT MARCH 31, 1996
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(7) AS ADJUSTED(8)
------------ ------------- ---------------
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents.. $ 13,000 $ 7,817 $ 37,823
Working capital............ 15,232 13,741 43,747
Total assets............... 281,925 313,199 343,205
Lines of credit............ 52,237 57,272 57,272
Long-term debt............. 13,510 13,510 13,510
Shareholders' equity ...... 31,605 50,860 80,866
- --------------
(1) In December 1993, the Company acquired its operating subsidiary in
Germany. The Predecessor information provided represents the operations
of this acquired company prior to the acquisition and is derived from the
financial statements of the acquired company.
(2) Restated to give effect to the acquisition in 1995 of CHS Portugal and 16%
of CHS Czechia as of January 1, 1993. See "Reincorporation and Acquisitions"
and Note B to the Company's Consolidated Financial Statements.
(3) Restated to give effect to the acquisition in 1995 of CHS England, CHS
France and CHS Belgium as of September 1, 1994, the date Comtrad, Inc.
("Comtrad") acquired these companies. See "Reincorporation and Acquisitions"
and Note B to the Company's Consolidated Financial Statements.
(4) Restated to give effect to the acquisition in 1995 of CHS Finland, CHS
Sweden and CHS BEK as of July 1, 1995, CHS Poland as of November 1, 1995,
and the acquisition in 1996 of CHS Brazil, CHS Slovakia, CHS Baltic, CHS
Bulgaria, CHS Romania and CHS Croatia as of December 31, 1994, the dates
Comtrad or Comtrad Holdings, Inc. acquired these companies. See
"Reincorporation and Acquisitions" and Note B to the Company's Consolidated
Financial Statements.
(5) Gives effect to the acquisition in 1995 of CHS BEK, CHS Czechia, CHS
Finland, CHS Sweden and CHS Poland and in 1996 of CHS Hungary (51%), CHS
Peru (60%) and CHS Switzerland, assuming such transactions had occurred as
of January 1, 1995. See "Reincorporation and Acquisitions" and Note B to the
Company's Consolidated Financial Statements and Pro Forma Condensed
Consolidated Financial Information (Unaudited).
(6) Gives effect to the acquisition in 1996 of CHS Hungary (51%), CHS Peru (60%)
and CHS Switzerland, assuming such transactions had occurred as of January
1, 1996. See "Reincorporation and Acquisitions" and Note B to the Company's
Consolidated Financial Statements and Pro Forma Condensed Consolidated
Financial Information (Unaudited).
(7) Gives pro forma effect to the acquisitions in 1996 of CHS Hungary and CHS
Switzerland, assuming such transactions had occurred as of March 31, 1996.
See "Reincorporation and Acquisitions" and
6
<PAGE>
"Pro Forma Condensed Consolidated Financial Information (Unaudited)."
(8) Adjusted to give effect to the sale of 3,001,539 shares of Common Stock
offered by the Company and the application of the net proceeds therefrom, as
set forth in "Use of Proceeds."
6
<PAGE>
RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE
RISKS DESCRIBED BELOW. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS BEFORE PURCHASING THE SHARES OFFERED HEREBY.
MANAGEMENT OF GROWTH. The Company's significant growth and recent
acquisitions have placed, and are expected to continue to place, substantial
demands on the Company's managerial, operational, financial and other
resources. Further acquisitions will require the Company to continue to
invest in its operations, including its financial and management information
systems, and to retain, motivate and effectively manage its employees. There
can be no assurance that the management skills and systems currently in place
will be adequate to implement its strategy. This could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Strategy."
RELIANCE ON VENDORS. The Company obtains its products from its vendors
under non-exclusive distribution agreements which are subject to renewal
annually and may be canceled by either party on short notice. While the
Company distributes the products of approximately 35 vendors, approximately
90%, 49%, 35% and 36% of its net sales during the years ended December 31,
1993, 1994 and 1995, and the three months ended March 31, 1996 respectively,
were derived from the sale of products supplied by Hewlett-Packard. An
additional 9% of net sales during 1995 were derived from the Company's next
largest supplier, Seagate. The loss of certain of these relationships could
have a material adverse effect on the Company. See "Business--Vendor
Relations."
VARIABILITY OF CUSTOMER REQUIREMENTS; NATURE OF CUSTOMER COMMITMENTS ON
ORDERS. The level and timing of orders placed by the Company's customers vary
due to a number of factors, including customer attempts to manage inventory,
changes in customers' strategies and variations in demand for products. The
Company relies on its estimate of anticipated future volumes when making
commitments regarding the quantities and the mix of products that it intends
to carry in inventory. The Company does not have long term contracts with its
customers and a variety of conditions could cause customers to reduce their
orders. Any significant reduction in customer orders could adversely impact
the Company. See "Business--Products and Customers."
POTENTIAL QUARTERLY FLUCTUATIONS; SEASONALITY OF SALES. The Company may
experience variability in its net sales and net income on a quarterly basis
as a result of many factors, including the condition of the microcomputer
industry in general, shifts in demand for software and hardware products and
industry announcements of new products or upgrades. The Company's planned
operating expenditures are based on sales forecasts. If revenues do not meet
expectations in any given quarter, operating results may be materially
adversely affected. Sales in Europe in the first and fourth quarters of each
year are typically higher than in the second and third quarters. In South
America, sales in the third and fourth quarters of each year are typically
higher than in the first and second quarters. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Seasonality."
POSSIBLE NEED FOR ADDITIONAL CAPITAL. The Company anticipates that its
existing capital resources, including the net proceeds of this offering and
interest income earned thereon, will enable the Company to maintain its
current and planned operations for at least 12 months after completion of the
offering. The Company has grown through both acquisitions and internal
expansion, both of which have resulted in the need for significant amounts of
capital. To maintain historical levels of growth, the Company may need to
seek additional funding through public or private financing, including equity
financing, and may, when attractive sources of capital become available,
elect to obtain capital in anticipation of such needs. Adequate funds for
these purposes may not be available when needed or may not be available on
terms favorable to the Company. If additional funds are raised by issuing
equity securities, dilution to existing shareholders may result. If funding
is insufficient, the Company may be required to delay, reduce the scope of or
eliminate some or all of its expansion programs. As of March 31, 1996, the
Company was not in compliance with certain of the covenants of a July 10,
1995 Credit Agreement providing for a $20
7
<PAGE>
million line of credit, but has received a waiver with respect to the same.
The line of credit is secured by a lien on essentially all of the Company's
assets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
ACQUISITIONS. The Company intends to pursue the acquisition of other
companies, assets or product lines that would complement or expand its
existing business. Acquisitions involve a number of risks that could
adversely affect the Company's operating results, including the diversion of
management's attention, the assimilation of the operations and personnel of
the acquired companies, the amortization of acquired intangible assets and
the potential loss of key employees of the acquired companies. There can be
no assurance that the Company will consummate future acquisitions on
satisfactory terms, that adequate financing will be available on terms
acceptable to the Company, or that any acquired operations will be
successfully integrated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Business--Strategy."
DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent upon its
ability to retain its current personnel and to continue to attract and retain
qualified personnel. The Company is particularly dependent on the services of
its President, Claudio Osorio. The Company does not possess any key-man life
insurance policies with respect to Mr. Osorio or any other officer of the
Company. There is intense competition for qualified personnel, and there can
be no assurance that the Company will be able to continue to attract and
retain the qualified personnel necessary for the development of its business.
Loss of the services of, or failure to recruit, key personnel could be
detrimental to the Company. See "Management--Executive Officers, Directors
and Key Employees" and "Certain Transactions."
COMPETITION; DECLINING GROSS PROFIT MARGINS. The Company's business is
highly competitive. Certain of the Company's competitors have greater
financial, marketing, service and technical support resources than the
Company. There can be no assurance that the Company's resources will be
sufficient to allow the Company to compete effectively in the future.
Continued increases in competition could have a material adverse effect on
the Company's results of operations because of price reductions and potential
loss of market share. Certain of the Company's competitors may sell products
at prices below that charged by the Company. As a result of this price
competition, the Company and its competitors currently are experiencing
downward pressure on gross margins, which the Company expects to continue for
the foreseeable future. The Company expects to offset the impact of declines
in its gross margin by reducing its operating expenses as a percentage of net
sales, although there can be no assurance of the success of this strategy in
future periods. See "Business--Competition."
RISKS ASSOCIATED WITH INTERNATIONAL SALES. Substantially all of the
Company's sales are to customers outside of the United States. Changes in the
value of foreign currencies relative to the United States Dollar could
adversely affect the Company's results of operations and financial position,
and transaction gains and losses could contribute to fluctuations in the
Company's results of operations. When possible, the Company engages in
currency hedging transactions and certain other practices to ameliorate these
risks. There can be no assurance that such efforts will materially reduce the
effects of fluctuations in foreign currency exchange rates on the Company's
results of operations. See "Management's Discussion and Analysis of Results
of Operations--Asset Management" and "Business--Competition."
The Company's existing and planned international operations are subject to
political and economic uncertainties, including among others, inflation,
hyperinflation, risk of renegotiation or modification of existing agreements
or arrangements with governmental authorities, transportation tariffs, export
controls, foreign exchange restrictions which limit the repatriation of
investments and earnings therefrom, changes in taxation, hostilities and
confiscation of property. Changes related to these matters could have a
material adverse effect on the Company's results of operations or financial
condition.
LIMITATION ON DISTRIBUTIONS FROM SUBSIDIARIES. The Company derives all of
its operating income and cash flow from its subsidiaries and relies on
payments from, distributions from, and intercompany
8
<PAGE>
borrowings with, its subsidiaries to generate the funds necessary to meet its
obligations. In certain countries, exchange controls may limit the ability of
the Company's subsidiaries to make payments to the Company which may limit
the repatriation of investments and earnings therefrom. Restrictions in
financing or credit arrangements may also limit such payments. Claims of
creditors of the Company's subsidiaries will generally have priority as to
the assets and cash flow of such subsidiaries over the claims of the Company
or its shareholders.
EFFECTS OF TECHNOLOGICAL CHANGE. The products sold by the Company are
characterized by rapidly changing technology, frequent new product
introductions and evolving industry standards that can render the products
marketed by the Company obsolete or unmarketable in a relatively short period
of time. The Company's future success will depend upon its ability to limit
its exposure to obsolescence in its inventory and to gain access to the
product lines of vendors of new technology. Although the Company attempts to
enter into stock rotation agreements with its vendors permitting the return
of inventory, there can be no assurance that these efforts will be
successful. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Asset Management."
CHANGING METHODS OF MICROCOMPUTER SOFTWARE DISTRIBUTION. In 1995,
approximately 8% of the Company's sales were related to software products.
The manner in which microcomputer software is distributed and sold is
changing and new methods of distribution and sales may emerge or expand.
Software vendors have sold, and may intensify their efforts to sell, their
products directly to end users. From time to time certain vendors have
instituted programs for the direct sale of large order quantities of software
to certain major corporate accounts and these types of programs may continue
to be developed and used by various vendors. In addition, certain major
vendors have implemented programs for master copy distribution (site
licensing) of software. These programs generally grant an organization the
right to make any number of copies of software for distribution within the
organization provided that the organization pays a fee to the vendor for each
copy made. Also, vendors may attempt to increase the volume of software
products distributed electronically via the Internet or through CD-ROM. Any
of these competitive programs, if successful, could have a material adverse
effect on the Company's business and financial results.
SHARE PRICE VOLATILITY. The market for securities of technology companies
historically has been more volatile than the market for stocks in general.
The trading of the Common Stock may be subject to wide fluctuations in
response to quarter-to-quarter variations in operating results, announcement
of acquisitions, vendor additions or cancellations and the availability of
new products. The stock market has from time to time experienced extreme
price and volume fluctuations that have particularly affected the market
price for many high technology companies and that often have been unrelated
to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Common Stock. In
addition, quotations for the Common Stock began in July 1994 and there has
only been a limited public trading market to date. See "Price Range of Common
Stock."
CONCENTRATION OF COMMON STOCK OWNERSHIP AND ANTI-TAKEOVER CONSIDERATIONS.
Following this offering, the Company's directors and executive officers and
certain of their affiliates will beneficially own approximately 40.1% of the
outstanding shares of Common Stock. Accordingly, these shareholders will have
the ability to control the election of the Company's directors and the
outcome of most other matters submitted to a vote of the Company's
shareholders. The Company has the authority to issue 5,000,000 shares of
Preferred Stock in one or more series and to fix the powers, designations,
preferences and relative rights thereof without any further vote or action by
the Company's shareholders. The issuance of Preferred Stock could dilute the
voting power of holders of Common Stock and could have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company's Articles of Incorporation provide that the holders of a majority of
the Preferred Stock, voting separately from the holders of the Common Stock,
must approve certain transactions. These, and certain other provisions of the
Company's Articles of Incorporation and By-laws, as well as Florida law, may
operate in a manner that could discourage or render more difficult a
9
<PAGE>
takeover of the Company or the removal of management or may limit the price
certain investors may be willing to pay in the future for shares of Common
Stock. See "Principal and Selling Shareholders" and "Description of Capital
Stock."
SHARES ELIGIBLE FOR FUTURE SALE. A substantial number of shares of Common
Stock will become available for sale in the public market at prescribed times
following the completion of the offering. The availability for sale or the
sale of substantial amounts of Common Stock in the public market, including
sales pursuant to Rule 144 promulgated under the Securities Act or otherwise,
could adversely affect the market price of the Common Stock. Upon completion
of this offering, the Company will have 10,584,073 shares of Common Stock
outstanding. Of these shares, all of the 4,585,000 shares sold in this
offering will be freely tradeable without restriction or further registration
under the Securities Act. Of the remaining 5,999,073 shares, 5,320,760 shares
are deemed "restricted shares" under Rule 144 in that they were originally
issued and sold by the Company in private transactions in reliance upon
exemptions under the Securities Act. Of those shares, 4,175,300 shares are
held by persons deemed "affiliates" of the Company as such term is defined in
Rule 144 and 1,145,460 shares are held by persons who are not affiliates of
the Company. The restricted shares may not be sold except in compliance with
the registration requirements of the Securities Act or pursuant to an
exemption from registration such as the exemption provided by Rule 144 under
the Securities Act. Of the restricted shares (i) 734 shares held by
non-affiliates are eligible for immediate resale under the provisions of Rule
144(k), and (ii) 377,200 shares held by certain shareholders and 4,651,839
shares held by executive officers, directors and certain other shareholders
are subject to lock-up agreements, that prohibit their resale prior to 90 and
180 days, respectively, from the date of this Prospectus without the prior
consent of Raymond James & Associates, Inc. and thereafter may be sold
subject to the volume limitations of Rule 144. See "Principal and Selling
Shareholders," "Description of Capital Stock" and "Underwriting."
REINCORPORATION AND ACQUISITIONS
In December 1993, CHS commenced its operations as an international
distributor of microcomputer products, networking products and software. On
March 14, 1996, the Company reincorporated from Utah to Florida and
effectuated a one-for-two reverse stock split.
The Company has grown significantly in the last three years, principally
through acquisitions from Comtrad Holdings, Inc. ("CHI") and Comtrad, Inc. (a
wholly-owned subsidiary of CHI), which collectively beneficially own
approximately 74.4% of the Company's outstanding Common Stock (except as
otherwise noted, CHI and Comtrad are collectively for purposes of this
Prospectus, referred to as "Comtrad"). Pursuant to the Company's acquisition
strategy, acquisitions were originally made by Comtrad rather than the
Company. The entities were then operated as subsidiaries of Comtrad until
such time as the Company deemed their operating controls and financial
reporting capabilities consistent with those of the Company. The Company
acquired Comtrad-owned entities after completing its own evaluations (which
for significant acquisitions involved the consideration of a valuation report
prepared by an independent third party), and the affirmative vote of an
independent director of the Company. The acquisitions by the Company from
Comtrad prior to May 1, 1996 are listed below with principal market focus,
dates of acquisition and certain other information. The Company does not
intend to purchase any additional entities from or enter into any new
transactions with Comtrad in the future. Comtrad has also agreed not to
engage in businesses competitive with the Company. See "Certain
Transactions."
The founder, chairman, chief executive officer and controlling shareholder
of Comtrad is Claudio Osorio who is also the founder, Chairman and Chief
Executive Officer of CHS. Under his employment agreement with the Company,
Mr. Osorio is required to devote his full time and attention to the affairs
of CHS. See "Executive Compensation Employment Arrangements."
10
<PAGE>
The following tables indicate certain information regarding acquisitions
made by CHS during the past three years:
CHS ACQUISITIONS FROM COMTRAD
SUBSIDIARY(1) SERVICE AREA CHS ACQUISITION DATE
- --------------------------------------------------------------------------------
CHS Germany Germany December 1993
CHS Promark South America(2) July 1994
CHS Belgium Belgium and Luxembourg April 1995
CHS England(3) England April 1995
CHS France France April 1995
CHS Portugal Portugal April 1995
CHS BEK South America October 1995
CHS Czechia (16%) Czech Republic October 1995
CHS Finland Finland December 1995
CHS Sweden Sweden December 1995
CHS Poland Poland December 1995
CHS Brazil Brazil March 1996
CHS Slovakia Slovakia March 1996
CHS Baltic Lithuania, Latvia and Estonia March 1996
CHS Bulgaria Bulgaria March 1996
CHS Romania Romania March 1996
CHS Croatia Croatia March 1996
- --------------
(1) The names set forth are those by which the Company commonly refers to its
subsidiaries and are not necessarily the legal names of the entities.
(2) In addition to operating through subsidiaries in Argentina, Chile, Colombia,
Peru (60% owned), Uruguay (50% owned) and Venezuela, CHS Promark also sells
directly to customers throughout Central America, South America and the
Caribbean from its location in Miami, Florida.
(3) The Company owns 99.2% of CHS England.
In addition to the acquisitions from Comtrad listed above, the Company has
made the direct (except for CHS Czechia) acquisitions listed below. In each
case the Seller was an unrelated third party and the purchase price was
determined through arms-length negotiations. The Company acquired the 84%
interest in CHS Czechia from Zbynek Kraus who, at the time of the
acquisition, was a minority shareholder of Penrose Trading Co. S.A. which was
then a shareholder of Comtrad and is now a shareholder of the Company and
CHI. See "Certain Transactions" and "Principal and Selling Shareholders." In
each case, the remainder of the ownership interests are held by the parties
from whom the Company purchased its interest.
CHS DIRECT ACQUISITIONS
SUBSIDIARY(1) SERVICE AREA CHS ACQUISITION DATE CONSIDERATION
- --------------------------------------------------------------------------------
CHS Czechia (84%) Czech Republic October 1995 483,000 shares of
CHS Common Stock
CHS Hungary(2) Hungary February 1996 (3)
CHS Peru(4) Peru March 1996 $500,000
CHS Switzerland Switzerland April 1996 (5)
- --------------
(1) The names set forth below are those by which the Company refers to its
subsidiaries and are not necessarily the legal names of the entities.
(2) The Company owns 51% of CHS Hungary.
(3) The consideration will be 51% of the book value of the equity of CHS Hungary
at December 31, 1996 plus 51% of seven times 1996 net earnings.
(4) The Company owns 60% of CHS Peru.
(5) The consideration will be the greater of eight times 1996 net earnings or
$1.7 million.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company (after deducting underwriting discounts
and commissions and estimated offering expenses) from the sale of 3,001,539
shares of Common Stock offered by the Company, assuming a public offering
price of $11 per share, are estimated to be approximately $30.0 million
($37.0 million if the Underwriters' over-allotment option is exercised in
full). The Company will not receive any of the proceeds from the sale of
1,583,461 shares of Common Stock offered hereby by the Selling Shareholders.
The Company expects to use the proceeds for working capital and other
general corporate purposes including acquisitions. While the Company
frequently enters into discussions with the owners of potential acquisition
candidates, the Company is not currently engaged in any discussions for any
material acquisitions and no assurance can be given that any such
acquisitions will be consummated or when additional expansions will occur.
Based upon its currently planned activities, the Company anticipates that the
net proceeds of the offering will be sufficient to meet its capital and
operational requirements for at least 12 months after the completion of the
offering. See "Risk Factors--Possible Need for Additional Capital" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Pending utilization as described above, the net proceeds of this offering
will be invested in short-term, high-grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future, but intends
instead to retain any future earnings for reinvestment in its business. Any
future determination to pay cash dividends will be at the discretion of the
Board of Directors and will be dependent upon the Company's financial
condition, results of operations, capital requirements and such other factors
as the Board of Directors deem relevant.
12
<PAGE>
PRICE RANGE OF COMMON STOCK
The following table sets forth for the periods indicated the high and low
closing sales prices of the Common Stock (symbol: CHSE) through April 16,
1995 in the over-the-counter market and thereafter on the Nasdaq Small-Cap
Market. Such prices are based on inter-dealer bid and asked prices, without
markup, markdown, commissions, or adjustments and may not represent actual
transactions. Due to the inactivity of the Company prior to 1994 and the 1
for 300 reverse split (which substantially reduced the number of shares of
Common Stock held by non-affiliates), quotations for the Common Stock began
in July 1994, and there has only been a limited public trading market for the
Common Stock in the over-the-counter market. The Company effected a
one-for-two reverse stock split on March 14, 1996. Also shown are prices
prior to the effective date of the one-for-two reverse stock split which have
been adjusted to reflect the effect of the reverse stock split.
<TABLE>
<CAPTION>
AS ADJUSTED FOR 1-FOR-2
HISTORIC PRICES REVERSE STOCK SPLIT
---------------------------- -----------------------------
YEAR PERIOD HIGH LOW HIGH LOW
- ---- ------- -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
1994 First Quarter .............................. No Market No Market No Market No Market
Second Quarter ............................. No Market No Market No Market No Market
Third Quarter (from July 25, 1994) ........ 6 1/2 3 13 6
Fourth Quarter ............................. 6 1/2 3 13 6
1995 First Quarter .............................. 4 1/4 3 8 1/2 6
Second Quarter ............................. 5 5/8 4 11 1/4 8
Third Quarter .............................. 5 3/4 3 1/2 11 1/2 7
Fourth Quarter ............................. 5 3/4 3 1/2 11 1/2 7
1996 First Quarter (through March 14, 1996) .... 8 1/4 4 16 1/2 8
First Quarter (from March 15, 1996) ....... N/A N/A 12 10
Second Quarter (through May 28, 1996) ..... N/A N/A 17 1/4 9 7/8
</TABLE>
The last reported sale price of the Common Stock as reported on the Nasdaq
Small-Cap Market on May 28, 1996 was $17 per share. As of May 7, 1996, the
outstanding Common Stock was held of record by 227 shareholders. The Company
believes that there are in excess of 400 beneficial owners of the Common
Stock.
13
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1996, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company after giving pro forma effect to the acquisitions of CHS Hungary and
CHS Switzerland, (iii) pro forma as adjusted to give pro forma effect to the
acquisitions of CHS Hungary and CHS Switzerland and the sale of the shares of
the Common Stock offered hereby at an assumed public offering price of $11
per share. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
----------- --------------- --------------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C>
Lines of credit(1)..................................... $52,237 $57,272 $57,272
======== ======== ========
Long-term debt(1) ..................................... $ 13,510 $ 13,510 $ 13,510
Shareholders' equity:
Preferred Stock, $.001 par value, 5,000,000 shares
authorized; no shares issued and outstanding, pro
forma and pro forma as adjusted .................... -- -- --
Common Stock, $.001 par value, 100,000,000 shares
authorized; 7,582,534 shares issued and outstanding
actual, 9,538,785 pro forma and 12,540,324 pro forma
as adjusted(3) ..................................... 8 10 13
Additional paid-in capital ........................... 25,620 44,873 74,876
Retained earnings .................................... 6,546 6,546 6,546
Foreign currency translation adjustment .............. (569) (569) (569)
-------- -------- --------
Total shareholders' equity .......................... 31,605 50,860 80,866
-------- -------- --------
Total capitalization ................................ $ 45,115 $ 64,370 $ 94,376
======== ======== ========
<FN>
- --------------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note F to the Company's Consolidated Financial
Statements.
(2) Gives pro forma effect to the acquisitions in 1996 of CHS Hungary and CHS
Switzerland, assuming such transactions had occurred as of March 31, 1996.
See "Reincorporation and Acquisitions" and Proforma Condensed Consolidated
Financial Information (Unaudited).
(3) Adjusted to give effect to the sale of 3,001,539 shares of Common Stock
offered by the Company and the application of the net proceeds therefrom, as
set forth in the "Use of Proceeds." See "Use of Proceeds."
</FN>
</TABLE>
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
The following tables set forth certain financial data for each year in the
five year period ended December 31, 1995. The information presented as of and
for the years ended December 31, 1993, 1994 and 1995, is derived from the
audited consolidated financial statements of the Company, which statements
have been audited by Grant Thornton LLP, independent public accountants and
appear elsewhere in this Prospectus. The information presented below as of
and for the years ended December 31, 1991 and 1992 is derived from the
financial statements of the Predecessor (the German entity acquired by the
Company in December 1993). The Selected Consolidated Financial Data for the
three month periods ended March 31, 1995 and 1996 have been derived from the
Company's unaudited consolidated financial statements. In the opinion of
management, all unaudited consolidated financial statements used to derive
the information presented have been prepared on the same basis as the audited
financial statements and include all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results for the
periods presented. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR(1) THE COMPANY
------------------ --------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------- -----------------------------------
1991 1992 1993(2) 1994(2)(3) 1995 1995 1996 1996
------- -------- --------- ---------- ------------------------ --------- ---------- ------------
ACTUAL(4) PRO FORMA(5) ACTUAL ACTUAL FRO FORMA(6)
--------- ------------ --------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Net sales .............$ 41,644 $ 79,884 $ 146,408 $ 359,169 $ 936,703 $ 1,140,130 $ 204,835 $ 302,995 $ 326,946
Cost of goods sold .... 37,602 72,706 136,968 333,983 868,716 1,055,416 189,924 280,453 302,128
Gross profit .......... 4,042 7,178 9,440 25,186 67,987 84,714 14,911 22,542 24,818
Operating expenses .... 3,614 5,100 9,075 21,798 57,188 69,255 12,119 17,850 19,516
Operating earnings .... 428 2,078 365 3,388 10,799 15,459 2,792 4,692 5,302
Interest income ....... (66) (97) (229) (250) (1,757) (1,963) (505) (614) (614)
Interest expense ...... 279 363 1,076 2,070 6,454 7,399 1,248 1,940 2,086
Earnings (loss)
before income
taxes ............... 215 1,812 (482) 1,568 6,102 10,023 2,049 3,366 3,830
Income tax expense .... -- 656 241 603 1,797 3,059 382 1,059 1,185
Minority interest ..... -- -- -- -- -- 1,002 -- 319 468
Net earnings (loss) ...$ 215 $ 1,156 $ (723) $ 965 $ 4,305 $ 5,962 $ 1,667 $ 1,988 2,177
Net earnings (loss)
per share-primary ... N/A N/A $ (.32) $ .21 $ .59 $ .63 $ .24 $ .25 .23
Net earnings (loss)
per share-fully
diluted ............. N/A N/A $ (.32) $ .21 $ .59 $ .63 $ .24 $ .24 $ .23
Weighted average
shares
outstanding-
primary.............. N/A N/A 2,269 4,693 7,283 9,539 6,966 7,862 9,612
Weighted average
shares
outstanding-
fully diluted........ N/A N/A 2,269 4,693 7,283 9,539 6,966 8,183 9,612
OTHER DATA:
Number of
countries........ ... 1 1 1 6 17 24 10 23 24
Inventory turns ....... 16 17 23 10 10 12 12 10 10
Days receivable ....... 34 32 31 32 35 31 30 34 34
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR(1) THE COMPANY
------------------- ---------------------------------------------------------------
AT DECEMBER 31, AT MARCH 31,
--------------------------------------------------------- -------------------------
1991 1992 1993(2) 1994(2)(3) 1995(4) 1996 1996
-------- --------- ---------- ---------- ---------- ---------- ------------
ACTUAL PRO FORMA(7)
---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 383 $ 210 $ 603 $ 8,368 $ 11,171 $ 13,000 $ 7,817
Working capital (deficit) (159) 662 (1,426) 14,004 9,843 15,232 13,741
Total assets .............. 9,770 16,013 29,058 164,468 265,804 281,925 313,199
Lines of credit ........... 2,016 2,988 6,949 15,198 46,438 52,237 57,272
Long-term debt ............ -- -- -- 8,104 8,801 13,510 13,510
Shareholders' equity ..... 179 988 1,930 19,870 29,892 31,605 50,860
<FN>
- --------------
(1) In December 1993, the Company acquired its operating subsidiary in
Germany. The Predecessor information provided represents the operations
of this acquired company prior to the acquisition and is derived from the
financial statements of the acquired company.
(2) Restated to give effect to the acquisition in 1995 of CHS Portugal and 16%
of CHS Czechia as of January 1, 1993. See "Reincorporation and Acquisitions"
and Note B to the Company's Consolidated Financial Statements.
(3) Restated to give effect to the acquisition in 1995 of CHS England, CHS
France and CHS Belgium as of September 1, 1994, the date Comtrad acquired
these companies. See "Reincorporation and Acquisitions" and Note B to the
Company's Consolidated Financial Statements.
(4) Restated to give effect to the acquisition in 1995 of CHS
</FN>
</TABLE>
15
<PAGE>
Finland and CHS Sweden as of May 1, 1995, CHS BEK as of July 1, 1995 and CHS
Poland as of November 1, 1995, and in 1996 the acquisitions of CHS Brazil,
CHS Slovakia, CHS Baltic, CHS Bulgaria, CHS Romania, CHS Croatia as of
December 31, 1994, the dates Comtrad or CHI acquired these companies. See
"Reincorporation and Acquisitions" and Note B to the Company's Consolidated
Financial Statements.
(5) Gives effect to the acquisition in 1995 of CHS BEK, CHS Czechia, CHS
Finland, CHS Sweden and CHS Poland and in 1996 of CHS Hungary (51%), CHS
Peru (60%) and CHS Switzerland, assuming such transactions had occurred as
of January 1, 1995. See "Reincorporation and Acquisitions" and Note B to the
Company's Consolidated Financial Statements and the Proforma Condensed
Consolidated Financial Information (Unaudited).
(6) Gives effect to the acquisition in 1996 of CHS Hungary (51%), CHS Peru (60%)
and CHS Switzerland, assuming such transactions had occurred as of January
1, 1996. See "Reincorporation and Acquisition" and Note B to the Company's
Consolidated Financial Statements and Pro Forma Condensed Consolidated
Financial Information (Unaudited).
(7) Gives pro forma effect to the acquisitions in 1996 of CHS Hungary and CHS
Switzerland, assuming such transactions had occurred as of March 31, 1996.
See "Reincorporation and Acquisitions" and "Pro Forma Condensed Consolidated
Financial Information (Unaudited)."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO AND
THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONTAINED ELSEWHERE HEREIN.
OVERVIEW
The Company's net sales and net earnings have grown substantially during
the past several years, primarily due to acquisitions. Except for the
acquisition of 84% of the entity in the Czech Republic which was owned by a
non-affiliate and was accounted for as a purchase based on the effective date
of the acquisition of October 1, 1995, these acquisitions were generally from
Comtrad and were recorded in a manner similar to a pooling of interests.
Accordingly, these acquisitions have been included in the financial
statements from the date the entity was acquired by Comtrad. The Company
recorded the cost of its acquisitions from Comtrad at Comtrad's cost basis.
The Company recorded goodwill with respect to these acquisitions if Comtrad
recorded goodwill when it purchased the subject entity. Such goodwill is
being amortized over 20 years. The following table sets forth the service
areas of the operations acquired, the date of the acquisition by Comtrad
(which is the date as of which the results of operations were initially
included in the Company's financial statements) and the CHS Acquisition Date.
<TABLE>
<CAPTION>
CHS ACQUISITIONS FROM COMTRAD
COMTRAD CHS
SUBSIDIARY(1) SERVICE AREA ACQUISITION DATE ACQUISITION DATE
- ------------- ------------ ---------------- ----------------
<S> <C> <C> <C>
CHS Germany Germany January 1993 December 1993
CHS Promark South America(3) July 1994 July 1994
CHS Belgium Belgium and Luxembourg September 1994 April 1995
CHS France France September 1994 April 1995
CHS England England September 1994 April 1995
CHS Portugal Portugal January 1993 April 1995
CHS BEK South America July 1995 October 1995
CHS Czechia(2) Czech Republic January 1993 October 1995
CHS Finland Finland July 1995 December 1995
CHS Sweden Sweden July 1995 December 1995
CHS Poland Poland November 1995 December 1995
CHS Brazil Brazil November 1994 March 1996
CHS Slovakia Slovakia January 1994 March 1996
CHS Baltic Lithuania, Lativia and Estonia September 1994 March 1996
CHS Bulgaria Bulgaria September 1994 March 1996
CHS Romania Romania September 1994 March 1996
CHS Croatia Croatia September 1994 March 1996
</TABLE>
CHS DIRECT ACQUISITIONS
CHS
SUBSIDIARY(1) SERVICE AREA ACQUISITION DATE
- ------------- ------------ ----------------
CHS Czechia (84%) Czech Republic October 1995
CHS Hungary(4) Hungary February 1996
CHS Peru(5) Peru March 1996
CHS Switzerland Switzerland April 1996
(1) The names set forth below are those by which the Company refers to its
subsidiaries and are not necessarily the legal names of the entities.
(2) Acquisition of 16% interest
(3) Includes operating subsidiaries in Argentina, Chile, Colombia and Venezuela.
(4) The Company owns 51% of CHS Hungary.
(5) The Company owns 60% of CHS Peru.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, the percentage
of net sales represented by certain items in the Company's historical
Consolidated Statements of Operations and the Pro Forma Condensed
Consolidated Statement of Operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- ------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995 1995 1996 1996
------- ------ ------ --------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales ......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ................ 93.6 93.0 92.7 92.5 92.7 92.6 92.4
----- ----- ----- ----- ----- ----- -----
Gross profit ...................... 6.4 7.0 7.3 7.5 7.3 7.4 7.6
Operating expenses ................ 6.2 6.1 6.1 6.1 5.9 5.9 6.0
----- ----- ----- ----- ----- ----- -----
Operating earnings ................ .2 .9 1.2 1.4 1.4 1.5 1.6
Interest income ................... .2 .1 .1 .1 .2 .2 .2
Interest expense .................. .7 .6 .6 .6 .6 .6 .6
----- ----- ----- ----- ----- ----- -----
Earnings (loss) before income taxes (.3) .4 .7 .9 1.0 1.1 1.2
Income tax expense ................ .2 .2 .2 .3 .2 .3 .4
Minority interest ................. -- -- -- .1 -- .1 .1
----- ----- ----- ----- ----- ----- -----
Net earnings (loss) ............... (.5) .3 .5 .5 .8 .7 .7
===== ===== ===== ===== ===== ===== =====
</TABLE>
FIRST QUARTER 1996 COMPARED TO FIRST QUARTER 1995
NET SALES. Net sales increased $98.2 million, or 47.7%, from $204.8
million in first quarter 1995 to $303.0 million in first quarter 1996 due
principally to acquisitions and to a lesser extent internal growth. Of the
increase in net sales, subsidiaries acquired in late 1995 or 1996 contributed
$66.2 million. Net sales of subsidiaries consolidated for both 1995 and 1996,
grew $32.0 million or 15.6%. Net sales of CHS Germany in the first quarter of
1995 were favorably impacted by a vendor's promotion of one product.
Excluding the results of CHS Germany, net sales in the first quarter of 1996
grew $31.8 million or 20.6% from the comparable period in the prior year.
This growth is attributed to increased consumer demand for microcomputer
products offered by the Company.
GROSS PROFIT. Gross profit increased $7.6 million, or 51.2%, from $14.9
million in first quarter 1995 to $22.5 million in first quarter 1996 due
principally to acquisitions and to a lesser extent internal growth. Gross
profit for subsidiaries included in the consolidation for both 1995 and 1996
increased in proportion to sales. Gross profit from such subsidiaries grew
$2.2 million or 14.4%. Newly acquired companies contributed $5.4 million of
gross profit.
Gross margin increased from 7.3% in first quarter 1995 to 7.4% in first
quarter 1996. The increase was due to higher gross margins from subsidiaries
acquired in late 1995 and 1996. The Company attributes the increase in gross
margin to higher gross margins in the geographical areas of the newly
acquired companies (specifically Finland, Hungary and Sweden, among others).
The Company expects that gross margins may decline in 1996 due to competitive
pricing pressures.
OPERATING EXPENSES. Operating expenses as a percentage of net sales
remained unchanged at 5.9% in the first quarter of 1996 and the first
quarter of 1995.
NET INTEREST EXPENSE. Net interest expense increased $0.6 million, or
78.5%, from $0.7 million in first quarter 1995 to $1.3 million in first
quarter 1996. The increase in interest expense is directly related to the
increase in average loan amounts outstanding.
17
<PAGE>
INCOME TAX EXPENSE. Income taxes as a percentage of earnings before income
taxes increased from 18.6% in first quarter 1995 to 31.5% in first quarter
1996. The increase in the Company's net effective tax rate is attributed to
the utilization of net operating loss carryforwards in first quarter 1995,
especially from CHS England. Such net operating loss carryforwards of CHS
England were totally utilized in 1995. The Company expects to have an
effective tax rate lower than the statutory United States tax rate in 1996
principally due to its ability to use remaining net operating loss
carryforwards from certain subsidiaries. See Note E to the Consolidated
Financial Statements.
1995 COMPARED TO 1994
NET SALES. Net sales increased $577.5 million, or 160.8%, from $359.2
million in 1994 to $936.7 million in 1995 due principally to acquisitions and
to a lesser extent internal growth. Of the increase in net sales,
subsidiaries formed or acquired in 1995 contributed $177.7 million. Net sales
of subsidiaries consolidated for part of 1994 and all of 1995 (CHS Promark,
CHS England, CHS France and CHS Belgium) contributed $352.2 million of the
increase in net sales. Net sales of subsidiaries consolidated for all of 1994
and 1995, which included CHS Germany, CHS Portugal and 16% of CHS Czechia
grew $47.6 million or 26.3%. This growth is attributed to increased consumer
demand for microcomputer products offered by the Company.
Net sales to Comtrad related companies decreased from $52.4 million in
1994 to $21.1 million in 1995 and had a gross profit margin equivalent to
sales to unaffiliated parties for similar products. The Company expects that
there will be minimal sales to affiliates in 1996.
GROSS PROFIT. Gross profit increased $42.8 million, or 169.9%, from $25.2
million in 1994 to $68.0 million in 1995 due principally to acquisitions and
to a lesser extent internal growth. Gross profit for subsidiaries included in
the consolidation for all of 1994 and 1995 did not increase in proportion to
sales as a result of the lowering of prices in Germany in response to
increased competition. Gross profit from such subsidiaries grew $1.7 million
or 17.9%. Gross profit from subsidiaries consolidated for part of 1994 and
all of 1995 grew $28.6 million. Newly acquired companies contributed $12.5
million of gross profit.
Gross margin increased from 7.0% in 1994 to 7.3% in 1995. The increase was
principally due to higher gross margins from subsidiaries consolidated for
part of 1994 and all of 1995. The Company attributes the increase in gross
margin to greater sales of networking and software products which had higher
gross margins than other products offered by the Company. The Company expects
that gross margins may decline in 1996 due to competitive pricing pressures
and the impact of including CHS BEK, a subsidiary primarily selling random
access memory chips with relatively high revenues but margins significantly
below that of the Company's other businesses, for the full year.
OPERATING EXPENSES. Operating expenses as a percentage of net sales
remained unchanged at 6.1% in 1994 and 1995.
NET INTEREST EXPENSE. Net interest expense increased $2.9 million, or
158.1%, from $1.8 million in 1994 to $4.7 million in 1995. The increase in
interest expense is directly related to the increase in average loan amounts
outstanding.
18
<PAGE>
INCOME TAX EXPENSE. Income taxes as a percentage of earnings before income
taxes decreased from 38.5% in 1994 to 29.4% in 1995. The decrease in the
Company's net effective tax rate is attributed to the utilization of net
operating loss carryforwards and lower foreign tax rates, offset to some
extent by non-deductible goodwill amortization. The Company expects to have
an effective tax rate lower than the statutory United States tax rate in 1996
principally due to its ability to use remaining net operating loss
carryforwards. See Note E to the Consolidated Financial Statements.
1994 COMPARED TO 1993
NET SALES. Net sales increased $212.8 million, or 145.3%, from $146.4
million in 1993 to $359.2 million in 1994 due principally to acquisitions and
to a lesser extent internal growth. Subsidiaries formed or acquired in 1994
contributed $178.0 million of the increase in net sales. Net sales of
subsidiaries consolidated for all of 1993 and 1994 (CHS Germany, CHS Portugal
and 16% of CHS Czechia) grew 23.8% and contributed $34.8 million of the
increase in net sales. Such growth is attributed to higher consumer demand
for microcomputer products offered by the Company and the emphasis placed by
the Company on expanding its dealer network in Germany.
Net sales to Comtrad subsidiaries in Eastern Europe increased from $9.6
million in 1993 to $32.5 million in 1994. Such sales had a gross profit
margin equivalent to sales to unaffiliated parties. CHS Promark sales to
affiliates were $19.9 million in 1994. Such sales were generally of
non-inventoried products which were purchased locally based on a specific
order. These sales were made on a cash basis and had a gross margin of
approximately 3%.
GROSS PROFIT. Gross profit increased $15.7 million, or 166.8%, from $9.4
million in 1993 to $25.2 million in 1994, almost entirely due to
acquisitions. Gross profit of subsidiaries included in the consolidation for
all of 1993 and 1994 did not increase in proportion to sales as a result of
the lowering of prices in Germany in response to increased competition. Gross
profit also includes sales to entities owned by Comtrad and CHI. Initially,
such amounts were computed at 2% of sales. In the last quarter of 1994, a
study of the actual handling costs was completed. Based on such study, the
actual cost for the year was 4.5% of sales. As a result, an additional $0.5
million, representing the cumulative effect of the difference between 4.5%
and 2%, was billed to the affiliates and recorded in gross profit.
Gross margin increased from 6.4% in 1993 to 7.0% in 1994. The increase was
entirely due to higher gross margins from subsidiaries acquired or formed in
1994. Such margins were 8.8% versus margins for subsidiaries included in the
consolidation for all of 1993 and 1994 of 5.2%. The Company attributes the
increase in gross margin to greater sales of networking and software products
which had higher gross margins than other products offered by the Company.
OPERATING EXPENSES. Operating expenses as a percentage of net sales
decreased from 6.2% in 1993 to 6.1% in 1994 as a result of efficiencies
gained through increased sales volume and the Company's focus on controlling
costs. In 1993, the Company was charged a management fee by Comtrad in the
amount of 0.7% of net sales. In the fourth quarter of 1994, a study was
performed of the actual costs of the services rendered for the management fee
charged by Comtrad and its affiliates. Based on such study, the Company has
applied for and received credit against such fees in the amount of $0.6
million. Such amount has been reported as a reduction of operating expenses
in 1994.
NET INTEREST EXPENSE. Net interest expense increased $1.0 million, or
114.9%, from $0.8 million in 1993 to $1.8 million in 1994. The increase in
interest expense is directly related to the increase in average loan amounts
outstanding.
INCOME TAX EXPENSE. The income tax expense for 1993 does not bear a
relationship to pretax income consistent with United States statutory tax
rates. In 1993, the provision was higher than expected due to German local
taxes combined with the effect of losses with no tax benefit.
19
<PAGE>
SEASONALITY
The Company may experience variability in its net sales and net income on
a quarterly basis as a result of many factors, including the condition of the
microcomputer industry in general, shifts in demand for software and hardware
products and industry announcements of new products or upgrades. Sales in
Europe in the first and fourth quarters of each year are typically higher
than in the second and third quarters. In South America, sales in the third
and fourth quarters of each year are typically higher than in the first and
second quarters.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities in the quarter ended March 31, 1996
was $8.0 million, due principally to increases in inventory, net of decreases
in accounts receivable and increases in accounts payable, as a result of
increases in net sales. Net cash used in investing activities in the first
quarter of 1996 was $1.6 million, due principally to investments in fixed
assets. Net cash provided by financing activities in the first quarter of
1996 was $11.7 million, due principally to borrowings under new debt
agreements and increased borrowings under other agreements.
Net cash used in operating activities in 1995 was $22.1 million, due
principally to increases in inventory and accounts receivable, net of
increases in accounts payable, as a result of increases in net sales. Net
cash used in investing activities in 1995 was $5.5 million, due principally
to investments in fixed assets which were partially offset by cash balances
of acquired companies. Net cash provided by financing activities in 1995 was
$29.9 million, due principally to borrowings under new debt agreements and
increased borrowings under other agreements.
On July 10, 1995, the Company entered into a credit agreement providing
for a $20 million line of credit. Both the Company and CHS Finance, S.A.
("CHS Finance"), a subsidiary of the Company formed under the laws of
Switzerland, may borrow under this line of credit. Included within the line
of credit was approximately $14.8 million of indebtedness of Comtrad to the
lender which was assumed by the Company. Approximately $7 million of this
indebtedness had previously been loaned by Comtrad to a subsidiary of the
Company. See "Certain Transactions." Each advance under the line is due on
the earlier of demand or 180 days after the advance and bears interest, at
the election of the Company, at either LIBOR plus 2% or the prime rate of the
lender plus 2%. The line matures June 30, 1996 and the Company expects that
it will be renewed. The line is guaranteed by Comtrad and Claudio Osorio, the
Company's Chairman, Chief Executive Officer and President. Comtrad has
pledged certain shares of the Company owned by them to secure the line. The
line is also secured by a lien on essentially all of the Company's assets.
The Company was not in compliance with certain of the covenants of this
agreement as of March 31, 1996, but has received a waiver with respect to the
same.
On February 5, 1996, CHS Promark entered into a Loan and Security
Agreement providing for revolving credit advances and the issuance of letters
of credit against eligible accounts receivable and inventory up to a maximum
of $20 million. Amounts outstanding bear interest, at the election of the
borrower, at the prime rate of the lender plus 1.5% or 3-3/4% above LIBOR;
provided, however, that unless the offering is successfully completed and $3
million of the proceeds are invested in CHS Promark, the interest rates will
increase to prime plus 2.25% and LIBOR plus 4.5% on July 1, 1996. The
agreement limits the ability of CHS Promark to pay dividends to the Company
to 50% of net income after taxes. The agreement matures in February, 1999 and
is secured by a lien on essentially all of CHS Promark's assets. The Company
has guaranteed this indebtedness.
On March 29, 1996, CHS Finance entered into a one year revolving credit
agreement pursuant to which $18 million may be borrowed by certain of the
Company's Western European subsidiaries to finance purchases of
Hewlett-Packard products for which customer orders have been received.
20
<PAGE>
Borrowings under the line may be in British Pounds, German Marks, French
Francs, Belgian Francs or United States Dollars. Amounts borrowed bear
interest at LIBOR plus 1 3/4 %. The Company has guaranteed the indebtedness
of CHS Finance under the agreement. The loan is secured by a lien on the
accounts into which payments from customers for the products financed are
deposited, which accounts must have a minimum balance equal to 30% of the
outstanding indebtedness. In addition, the Company has provided to the bank
an insurance policy protecting it against the risk of the Company's
insolvency.
The Company's principal need for additional cash in 1996 will be for the
purchase of additional inventory to support growth and to take greater
advantage of available cash discounts offered by certain of the Company's
vendors for early payment. The Company is seeking additional cash for this
purpose through its existing bank credit lines and through additional credit
facilities, but management can give no assurance that financing will be
available on terms acceptable to the Company. If for any reason this
financing is not available, it could adversely affect the growth of the
Company.
The Company derives all of its operating income and cash flow from its
subsidiaries and relies on payments from, and intercompany borrowings with,
its subsidiaries to generate the funds necessary to meet its obligations. In
certain countries, exchange controls may limit the ability of the Company's
subsidiaries to make payments to the Company. At March 31, 1996, the only
country with exchange control limitations affecting the Company was
Venezuela. The Company's net investment in Venezuela is $2.8 million.
Restrictions in financing or credit arrangements may also limit such
payments. Claims of creditors of the Company's subsidiaries will generally
have priority as to the assets and cash flow of such subsidiaries over the
claims of the Company or its shareholders.
INFLATION
The Company operates in certain countries that have experienced high rates
of inflation and hyperinflation. However, inflation did not have a material
impact on the Company's results of operations in the three year period ended
December 31, 1995 and the quarter ended March 31, 1996, and the Company does
not expect that it will have a material impact in 1996.
ASSET MANAGEMENT
INVENTORY. The Company's goal is to achieve high inventory turns and
maintain a low number of SKUs and thereby reduce the Company's working
capital requirements and improve return on equity. The Company's strategy to
achieve this goal is to both effectively manage its inventory and achieve
high order fill rates.
To reduce the risk of loss to the Company due to vendor price reductions
and slow moving or obsolete inventory, the Company's contracts with its
vendors generally provide price protection and stock rotation privileges,
subject to certain limitations. Price protection allows the Company to offset
the accounts payable owed to a particular vendor if such vendor reduces the
price of products the Company has purchased within a specified period of time
and which remain in inventory. Stock rotation permits the Company to return
to the vendor for full credit, with an offsetting purchase order for new
products, pre-determined amounts of inventory purchased within a specified
period of time. Such credit is typically used to offset existing invoices due
without incurring re-stocking fees.
ACCOUNTS RECEIVABLE. The Company manages its accounts receivable to
balance the needs of its customers to purchase on credit with its desire to
minimize its credit losses. Bad debt expense as a percentage of the Company's
net sales for the years ended 1993, 1994 and 1995 were 0.1%, 0.4%, 0.3%,
respectively. The Company's credit losses have been minimized by its credit
approval process, the use of credit insurance and factoring by its Western
European subsidiaries. In its sales to customers in South America, the
Company often receives post-dated checks at the time of sale. Customers who
qualify for credit are typically granted net 30-day payment terms.
21
<PAGE>
HEDGING. The Company attempts to limit its risk of currency fluctuations
through hedging where possible. In 1995, although the majority of the
purchases of products by the Company was made in United States Dollars,
approximately 77% of Company sales were made in currencies other than the
United States Dollar, the most significant of which were the German Mark (20%
of sales), the British Pound (14%) and the French Franc (13%). Transfers of
inventories between Miami and South America are denominated in United States
Dollars. At December 31, 1995, approximately $57 million of accounts payable,
or 35% of total accounts payable, were attributable to foreign currency
liabilities denominated in United States Dollars and approximately 50% of
these liabilities were unhedged. CHS Czechia and CHS Poland account
for $10.4 million and $8.5 million of the unhedged accounts, respectively.
The Company believes that these two subsidiaries accounted for a majority of
the unhedged exposure at March 31, 1996.
CHS FINANCE. In March 1995, the Company formed CHS Finance as a finance
company for the Company's distribution activities. CHS Finance engages in
central treasury functions including hedging activities related to foreign
currency for the Company and short term working capital loans to the
Company's subsidiaries to enable them to take advantage of early payment
discounts offered by certain vendors.
Through both hedging activities coordinated by CHS Finance and local
country activities in certain subsidiaries, the Company makes forward
purchases of dollars in an attempt to hedge local European currencies and
reduce exposure to fluctuations in exchange rates. Additionally, in certain
countries in Eastern Europe and South America where it is not practical to
make forward purchases, to minimize exposure to currency devaluations, the
Company has adopted a policy of attempting to match accounts receivable with
accounts payable and to limit holdings of local currencies. Factors which
affect exchange rates are varied and no reliable prediction methods are
available for determining the likely future exchange rates. In general,
countries make an effort to maintain stability in rates for trade purposes.
There can be no assurance that these asset management programs will be
effective in limiting the Company's exposure to these risks.
FUNCTIONAL CURRENCY. The Company's functional currency, as defined by
Statement of Financial Accounting Standards No. 52, is the United States
Dollar. The local currencies of the countries where subsidiaries conduct
operations are considered the functional currencies for such entities. Most
of the Company's subsidiaries use the local currencies as their functional
currency and translate assets and liabilities using the exchange rates in
effect at the balance sheet date and results of operations using the average
exchange rates prevailing during the year. Translation effects are reflected
in the cumulative foreign currency translation adjustment in equity. The
Company's exposure under these translation rules, which is unhedged, may
affect the carrying value of its foreign net assets and therefore its equity
and net tangible book value, but not its net income or cash flow. Exchange
differences arising from transactions and balances in foreign currencies are
recorded as expense or income and affect the Statements of Operations.
22
<PAGE>
BUSINESS
CHS is a leading international distributor of microcomputer products,
networking products and software. CHS operates in 24 countries across three
regions, including Western Europe, Eastern Europe and South America and
services an active customer base of greater than 24,300 resellers. Products
sold by the Company are manufactured by approximately 35 vendors including
Hewlett-Packard, Seagate, Microsoft, Novell, Acer, Creative Labs, 3Com,
Canon, Epson and Intel. The Company recently was selected by IBM to be one of
a limited number of distributors offering the complete IBM microcomputer
product line in Western Europe, Eastern Europe and South America. The Company
is a focused distributor, as opposed to a broadline distributor, and seeks to
represent leading vendors within specific product categories. CHS believes
that it is the sixth largest distributor of microcomputer products in the
world, and the largest distributor in South America and Eastern Europe. The
Company has no significant sales in the United States.
CHS operates under a decentralized structure which delegates to managers
familiar with the customs and needs of a particular country the authority to
make daily operational decisions including those necessary to satisfy the
particular demands of their market. As compared to certain competitors which
operate under a more centralized system, the Company believes that its
business model of focused distribution through locally managed full service
facilities integrating warehousing, purchasing, sales, credit and accounting
services provides competitive cost and operating advantages.
The world headquarters of the Company are located at 2153 N.W. 86th
Avenue, Miami, Florida 33122, where its telephone number is (305) 716-8273.
INDUSTRY
The microcomputer products distribution industry is large and growing,
reflecting both increasing demand worldwide for computer products and the use
of wholesale distribution channels by vendors for the distribution of their
products. Historically, there have been two types of companies within the
industry: those that sell directly to the end-user ("resellers") and those
that sell to resellers ("wholesale distributors"). Wholesale distributors
generally purchase a wide range of products in bulk directly from vendors and
then ship products in smaller quantities to many different types of
resellers, which typically include dealers, value-added resellers ("VARs"),
system integrators, mail order resellers, computer products superstores and
mass merchants.
The Company believes that the microcomputer products industry is
well-suited for wholesale distribution. The large number and diversity of
resellers make it cost efficient for vendors to outsource to wholesale
distributors some portion of their distribution, credit, inventory, marketing
and customer support requirements. Similarly, due to the large number of
microcomputer product vendors, resellers often cannot efficiently establish
direct purchasing relationships with each vendor and instead rely on
wholesale distributors, such as the Company, to satisfy a significant portion
of their product, financing, marketing and technical support needs.
The Company believes the wholesale distribution segment of the
microcomputer products industry will continue to grow. More vendors are using
the wholesale distribution channel as declining hardware prices, coupled with
rising selling costs, make it difficult for vendors to efficiently deal
directly with resellers. The Company believes that resellers are increasingly
relying on wholesale distributors for inventory management and credit rather
than stocking large inventories themselves and maintaining credit lines to
finance resellers' working capital needs. The Company also believes the
wholesale distribution industry is consolidating as access to financial
resources and economies of scale become more critical and as certain vendors
limit the number of authorized distributors of their respective products.
According to International Data Corporation ("IDC"), Western Europe
represents approximately 23% of the worldwide PC market. The Company's
pan-European presence strategically positions the
23
<PAGE>
Company to take advantage of the consolidation trend in the distribution
industry and increase its market share in Western Europe. Additionally, the
regions in which the Company operates are relatively underpenetrated as
compared to the United States. The penetration rate, defined as number of PCs
per person, in Western Europe is 15.3% compared to a penetration rate of
35.8% in the United States. A significant portion of the Company's sales are
in the emerging markets of Eastern Europe and South America, regions which
the Company believes are underserved relative to the entire industry and
offer substantial growth opportunities. IDC projects PC sales in Eastern
Europe (including the Middle East and Africa) will grow from $3.9 billion in
1995 to $7.6 billion in 1999, representing a compound annual growth rate of
18.5%. IDC projects PC sales in South America (including Mexico and Central
America) will grow from $3.5 billion in 1995 to $7.8 billion in 1999,
representing a compound annual growth rate of 22.2%. This compares favorably
to a 9.6% compound annual growth rate projected by IDC for PC sales in the
United States over the same period.
The Western European, Eastern European and South American markets are each
highly fragmented. Different languages, cultures and technological factors
require experienced local management teams and products which meet the
requirements of the specific area. Localization includes customized manuals,
approvals of safety factors by local authorities, microcode which permit the
generation of characters in local languages, and voltage requirements. These
factors require distributors in these markets to carry a variety of different
SKUs to meet the demands. As a result, vendors depend heavily on distributors
such as the Company to meet the differing demands of each locale.
STRATEGY
To achieve its objective of strengthening its position as a leading
distributor of microcomputer products in Western Europe, Eastern Europe and
South America, the Company has adopted a strategy of operating a focused
distribution model, further developing and penetrating international markets
and growing through acquisitions.
OPERATE A FOCUSED DISTRIBUTION MODEL. The Company's strategy is to be a
focused distributor by concentrating on a limited number of products from a
select group of high quality branded vendors in each major product category,
such as Hewlett-Packard for printers, Microsoft for software, Novell for
networking, Seagate for mass storage and Hewlett-Packard and IBM for PCs.
Additionally, the Company seeks to be a significant distributor for each of
its vendors and establish a partnering relationship with them. For example,
the Company believes that it is one of the largest distributors of
Hewlett-Packard products in Western Europe and the largest in Eastern Europe
and South America. The Company believes this focused strategy enables it to
respond more quickly to customer requests and gives it greater availability
of products, enhanced access to new products and better pricing. The Company
believes this strategy also enables it to develop greater expertise in the
sale and servicing of the products of these vendors. The Company believes
that its focused distribution model also results in more effective asset
management. Generally, products from leading vendors are in greater demand,
resulting in higher inventory turns and lower working capital requirements.
Additionally, fewer SKUs result in more efficient inventory management. CHS
currently maintains up to 4,000 SKUs while broadline distributors typically
carry greater than 15,000 SKUs.
FURTHER DEVELOP AND PENETRATE INTERNATIONAL MARKETS. The Company has
focused its activities on the distribution of microcomputer products in
Western Europe and the emerging markets of Eastern Europe and South America,
regions which it believes are underserved with respect to the distribution of
microcomputer products and therefore provide significant growth
opportunities. The Company believes that the markets in Western Europe,
Eastern Europe and South America are complex due to the diversity of
language, regulatory, technical and other factors and provide increased
opportunities for CHS to add value to its relationships with its vendors and
customers because of the presence of its knowledgeable local management. The
Company attempts to limit its exposure to declines in any one area or economy
by its presence in a large number of markets.
24
<PAGE>
GROW THROUGH ACQUISITIONS. A major portion of the Company's growth is
attributable to acquisitions and the Company intends to continue its practice
of making targeted purchases of high quality distributors in selected markets
in the future. In order to reduce financial risk and incentivize operating
performance, the Company typically structures an acquisition with an earnout
component payable in shares of Common Stock one year subsequent to the
acquisition and based on the performance of the acquired company. These local
distributors generally are attracted to combining with CHS in order to gain
personal financial liquidity, access to key product lines provided by CHS and
enhanced vendor credit facilities. Over the past three years, the Company has
acquired over 20 companies. The Company seeks acquisition candidates that
have strong entrepreneurial management teams and experience in the local
market and that could benefit from the synergies arising out of the Company's
superior product line. After an acquisition, the new CHS subsidiary adopts
the policies and financial reporting procedures of the Company but operates
as a relatively autonomous business unit, consistent with the Company's
decentralized structure. The Company believes its acquisition strategy is
advantageous to its vendors because through their relationship with CHS
vendors gain entry into new markets with established local distribution
companies.
PRODUCTS AND CUSTOMERS
The Company's sales consist of microcomputer related hardware and software
products such as local area networks, disk drives, microcomputers and
printers to an active customer base of more than 24,300 VARs and computer
retailers. The Company's products also include components such as random
access memory chips, central processing units and integrated circuit boards.
For the three months ended March 31, 1996, the Company's product mix by
category was printers (25%), mass storage (18%), networking (9%), PCs (11%),
software (10%), semiconductors (9%), multimedia (4%) and peripherals and
other (14%).
The Company purchases its products directly from hardware manufacturers
and software publishers in large quantities and distinguishes itself from
broadline distributors by being a focused distributor. The Company focuses on
a small number of leading vendors in each product category and on a small
number of high volume items of that manufacturer or publisher. As a result
the Company carries fewer individual products than the broadliners and works
with fewer vendors. A Company operation will typically deal with 25 to 35
vendors and have between 1,000 and 4,000 inventory items in stock as compared
to broadliners that typically deal with more than 500 vendors and have over
15,000 products in stock.
The Company's customers typically rely on distributors as their principal
source of microcomputer products and financing. The Company's backlog of
orders is not considered material to an understanding of its business. No
single customer accounted for more than 6% of the Company's net sales during
1995 or the first quarter of 1996.
VENDOR RELATIONS
The Company obtains its products from its vendors under non-exclusive
distribution agreements, which are subject to renewal annually and may be
cancelled by either party on short notice. Under these agreements, the
Company has the right to purchase products at discounts from the list prices.
The amounts of the discounts are determined each year at the time of renewal
on the basis of the projected sales of the Company for the ensuing year and
vary for each vendor. The Company is not required to make additional payments
if it fails to achieve its projected sales level for the year, but in the
following year, these product discounts may be reduced because of such lower
sales levels.
The Company's agreements with most vendors include a form of price
protection specifying that if the list price of a product is reduced by the
vendor, the Company will typically receive a credit in the amount of the
reduction for each item of the product in inventory.
25
<PAGE>
The Company also has stock rotation arrangements with substantially all of
its vendors. Stock rotation permits the Company to return inventory for full
credit in an amount equal to a certain percentage of the Company's purchases
from the vendor over a specific period. In certain cases, the Company must
purchase inventory at least equal in value to that returned. These agreements
permit the Company to maintain higher inventory levels while limiting its
committed working capital to slow-moving items.
Vendors deliver product against purchase orders tendered by the Company.
The Company will often request specific delivery dates in its purchase orders
and lead times for delivery from vendors are typically short. Delivery is,
however, subject to availability, and vendors have no liability to the
Company for failure to meet a delivery date. The Company experiences delivery
delays and inventory shortages from time to time. In the opinion of
management, these delays and shortages are common to other wholesalers of
computer products, in general, and do not have a significant adverse impact
on the Company's operations.
The Company's vendors have increased available credit to the Company
commensurate with its growth. Many of the Company's vendors provide discounts
for prompt payment. Generally, the Company is required to make payment within
14 to 90 days following delivery of products. With some vendors, the Company
can earn a discount for early payment of between 1.5% and 4.0% of the invoice
amount. To the extent sufficient funds are available, the Company attempts to
take advantage of these discounts. The Company believes that after the
completion of this offering it will be better able to utilize such discounts.
Generally, the Company's vendors have the right to terminate the
distribution agreement on short notice to the Company. In some cases, the
Company must be given a reasonable opportunity to cure any violation of the
agreement before it may be terminated. The Company similarly has the right to
terminate its distribution agreements on short notice to the vendor. The
Company is of the opinion that its relationships with its vendors are good,
and has no reason to believe that its current material distribution
agreements will be terminated or not renewed in the foreseeable future.
SALES, MARKETING AND CUSTOMER SUPPORT
SALES. The Company markets its products to resellers, who either package
the Company's products with other computer equipment, or sell the products on
an individual basis to end users. As of March 31, 1996, the Company
distributed products to approximately 12,900 resellers in Western Europe,
7,600 in South America and 3,800 in Eastern Europe.
In order to effectively address the individual customs, practices and
business conventions within countries, each subsidiary of the Company
maintains general autonomy with respect to sales, marketing and distribution.
Oversight and strategic direction is provided by senior management of the
Company.
Each operation maintains a sales staff organized to interface effectively
with its respective customer base. As of March 31, 1996, approximately 43% of
the Company's employees were involved with sales activities.
The Company's customers typically place orders with a sales
representative. Almost all orders are for pick-up or next day delivery. The
Company's computer systems generally allow the salesperson to check customer
credit limits, current inventory levels and pricing.
MARKETING. The Company utilizes a variety of programs to market its
vendors' products, including direct mailings, periodic advertising by
facsimiles, advertisements in industry trade publications, product brochures,
seminars and participation in select trade shows. Marketing programs are
effectuated at the subsidiary level and are designed to build awareness of
the Company, its products and their collective capability. Each operating
subsidiary maintains staff to provide marketing support.
26
<PAGE>
Funds for the Company's advertising budget generally are obtained from
cooperative advertising reimbursements and market development funds provided
by vendors. Cooperative reimbursements typically have represented
approximately 1% to 2% of the dollar amount of products purchased from those
major vendors. Marketing programs designed for cooperative reimbursement are
vendor and product specific and are designed with vendor approval. Market
development funds are provided to create market awareness of vendors'
products. Cooperative advertising reimbursements and market development funds
are recorded in the Company's financial statements as a reduction to selling,
general and administrative expenses.
CUSTOMER SUPPORT. Under several vendor agreements, the Company is required
to maintain a staff of qualified and trained sales, repair, and support
employees who are able to provide information and advice to resellers,
provide warranty repair service and train resellers on the vendor's products,
their applications, configurations with other computer products, and
installation and support requirements. The employees of the Company
fulfilling these functions are required to complete training courses provided
by the vendor.
In addition, the Company supports all products with a full manufacturer's
warranty and maintains an industry standard return policy, similar to that of
its competitors.
INTERNAL AUDIT
The Company maintains two internal auditors on its staff, one for Europe
and one for South America. These auditors report directly to the President
and the Chief Financial Officer of the Company and to the Audit Committee of
the Board of Directors.
COMPETITION
The Company operates in an industry which is characterized by intense
competition based on price, product availability, provision of credit to
customers, delivery time, customer support services, and breadth of product
line. Competitors exist in a variety of forms including direct sales by
vendors, mail order sales, international distributors, and local
distributors. Many of the Company's competitors have greater financial and
administrative resources than the Company. The Company believes availability
of product is a key element of competitiveness and attempts to differentiate
itself from its competition by providing a select number of name brands in
each product line and maintaining a sufficient inventory of select products
to meet demand. The Company enhances its competitive position by providing
responsive customer service through support and employee training programs.
The Company believes that its vendors and their products are respected in the
industry for high quality and performance. Vendor contracts frequently limit
sales of their products to specific geographic areas. Although these
restrictions limit the ability of the Company's subsidiaries to sell outside
of their jurisdictions, competition in the subsidiary's area is also reduced.
As a result of price competition, the Company and its competitors
currently are experiencing downward pressure on gross margins, which the
Company expects to continue for the foreseeable future. The Company expects
to offset the impact of declines in its gross margin by reducing its
operating expenses as a percentage of net sales by limiting the increase in
the fixed component of operating expenses to a percentage which is below the
percentage increase in sales. Additionally, in certain subsidiaries, sales
commissions are based on gross profits which has the effect of reducing
operating expenses as a percentage of sales as gross margin declines. There
can be no assurance of the success of this strategy in future periods.
EMPLOYEES
At March 31, 1996, the Company had 968 full-time employees of whom 103
were located in the United States. Of the total number of employees, 416
worked in marketing and sales, 133 worked in
27
<PAGE>
warehousing and delivery and 419 were employed in other positions, including
administration. Employees in certain countries are represented by labor
councils mandated by government regulations which determine compensation and
benefits. With these exceptions, none of the Company's employees are
represented by unions. Severance costs associated with termination of
employment in many countries are higher than in the United States. There has
been no disruption of operations due to a labor dispute. Management considers
its employee relations to be good.
FACILITIES
The corporate headquarters of the Company are located at 2153 N.W. 86th
Avenue, Miami, Florida, which is also the principal operational facility for
CHS Promark. Approximately 1,200 square feet of this facility is allocated to
the Company's offices and the remaining 32,800 square feet are used as
administrative, service, and warehouse space for CHS Promark.
The Company's other facilities are described below:
LEASE
COUNTRY SQUARE FEET EXPIRATION
- ------- ----------- ----------
Argentina 4,361 *
Belgium 25,016 1998-2003
Brazil 16,100 2001
Bulgaria 1,000 1997
Chile 19,350 2001
Colombia 6,300 1996
Croatia 1,300 2000
Czech Republic 28,525 *
6,135 1998
Finland 5,134 1996
France 47,986 1998-2001
Germany 49,188 2010
Hungary 5,600 2006
Lithuania 1,300 1996
Peru 8,100 2000
Poland 21,097 1997
Portugal 12,500 2002
Romania 4,300 *
Slovakia 1,900 2000
Sweden 11,840 1998
Switzerland 3,000(1) 2001
19,300(2) 1998
United Kingdom 15,600 2016
10,000 *
United States 27,900(3) 1998-2000
Uruguay 5,300 1999
Venezuela 18,275 2000
- --------------
* Owned facility.
(1) CHS Finance facility.
(2) CHS Switzerland facility.
(3) CHS BEK facility.
In each of the countries, the size set forth above includes sales,
administrative and warehousing functions and may be composed of multiple
facilities. The Company considers its existing facilities to be adequate for
its foreseeable needs.
LEGAL PROCEEDINGS
The Company is involved in litigation relating to claims arising out of
its operations in the normal course of business. The Company is not currently
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on the Company.
28
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers and directors of the Company, as well as certain
key employees, and their ages as of May 1, 1996, are as follows:
NAME AGE POSITION
- ----- --- --------
Claudio Osorio 36 Chairman of the Board, Chief Executive Officer and
President
Alvin Perlman 69 Executive Vice President--South American Region and
Director
Craig Toll 48 Chief Financial Officer and Treasurer
Antonio Boccalandro 29 Secretary and Director
Garry Boon(1) 36 Chief Operating Officer--European Region
Pasquale Giordano(1) 46 Chief Operating Officer--South American Region
Zbynek Kraus(1) 43 Vice President--East European Region and Director
Otto Gerlach 69 Director
Donald D. Winstead 58 Director
- --------------
(1) Each of these persons is a key employee, but not an executive officer of
the Company.
CLAUDIO OSORIO (full name--Claudio Eleazar Osorio Rodriguez), the founder
of the Company's current business and operations, has served as the
President, Chief Executive Officer, and a Director of the Company since 1993.
Mr. Osorio has served as president of Comtrad since 1988. Mr. Osorio is an
attorney with a degree from UCAB (Catholic University of Andres Bello),
located in Venezuela. He also holds a Master of Business Administration
degree from IESA, also located in Venezuela. He is a director of Comtrad and
the president and a director of Comtrad Holdings, Inc.
ALVIN PERLMAN has been a Director and the Executive Vice President and
Chief Operating Officer, South American Region, of the Company since 1994. He
has served for the past five years as the chief executive officer of Zemex
Electronics, Inc., d/b/a CHS Promark, and was the sole owner of CHS Promark
prior to its acquisition by the Company in June 1994. Mr. Perlman has also
served as a director of Comtrad Holdings, Inc. since November 1994. Mr.
Perlman has a Bachelor of Science degree from the University of Connecticut.
CRAIG TOLL has been the Chief Financial Officer of the Company since July
1994 and its Treasurer since June 1995. Mr. Toll was self-employed as a
consultant to CHS Promark from April 1994 to June 1994. For over five years
prior to April 1994, Mr. Toll was a partner in the accounting firm of
Deloitte & Touche. Mr. Toll has a Bachelor of Science degree in Economics and
a Master of Science degree in Accounting, both from the Wharton School of the
University of Pennsylvania.
ANTONIO BOCCALANDRO has been a Director and Secretary of the Company since
1993. He was Treasurer of the Company from December 1993 to June 1995. He has
also been employed in various capacities by Comtrad since 1988. Mr.
Boccalandro became a director of Comtrad in 1990 and he has been a director
of Comtrad Holdings, Inc. since June 1994.
GARRY BOON has been the Chief Operating Officer--European Region of the
Company since January 1996. From February 1989 until January 1996, Mr. Boon
was the Managing Director of the United Kingdom operations which were
acquired by the Company. Mr. Boon has a Bachelor of Science degree from
University College London.
29
<PAGE>
PASQUALE GIORDANO has been the Chief Operating Officer--South American
Region of the Company since January 1, 1996. From January 1989, Mr. Giordano
has been the president and chief operating officer of CHS Promark. Prior to
such service, he was a Vice President of CHS Promark in charge of its New
York office. From 1988 until he joined CHS Promark in 1989, Mr. Giordano was
the operating vice president of the electronics division of Caldor, Inc. Mr.
Giordano has a Bachelors degree from City College of New York.
ZBYNEK KRAUS has been a Director since March 1996 and the Vice
President--East European Region of the Company since January 1996. He was an
owner and from 1990 to 1993 the sales director and thereafter the general
manager of the Czech Republic operations which were acquired by the Company.
Mr. Kraus holds a degree in engineering from Chemical University in Pribram
in the Czech Republic.
OTTO GERLACH has been a Director of the Company since August 1994 and is a
principal owner and has served for over five years as the president of Larco,
C.A., a privately-owned wholesale import/ export and manufacturing company
based in Caracas, Venezuela.
DONALD D. WINSTEAD has been a Director of the Company since 1993 and has
been self-employed as a business consultant since June 1991. In connection
with his consulting activities he has served since October 1993, as the chief
executive officer and a director of Medical Resource Group Inc., a
closely-held Nevada corporation engaged in the business of medical equipment
leasing and rental. For over three years prior to June 1991, Mr. Winstead was
the chairman of the board and chief executive officer of Netcor Inc., a
company engaged in the manufacture and sale of communications equipment. Mr.
Winstead has a Bachelor of Science degree in Electrical Engineering from Ohio
Northern University.
The term of office of each director of the Company ends at the next annual
meeting of the Company's shareholders or when his successor is elected and
qualified. Officers of the Company serve at the discretion of the Board of
Directors, subject to the terms of any employment agreements with the
Company. See "--Employment Arrangements." There are no family relationships
among any of the Company's executive officers and directors.
All of the Company's directors receive $250 for attendance at each Board
meeting and are reimbursed for travel expenses incurred to attend such
meetings. No separate payment is made for attending committee meetings.
The Company has an Audit Committee and a Compensation Committee. The Audit
Committee is responsible for reviewing and making recommendations regarding
the Company's employment of independent auditors, the annual audit of the
Company's financial statements and the Company's internal accounting
practices and policies. It consists of Messrs. Gerlach and Winstead. The
Compensation Committee, composed of Messrs. Gerlach and Winstead, is
responsible for making recommendations to the Board of Directors regarding
compensation arrangements for senior management, recommendations concerning
the adoption of any compensation plans in which management is eligible to
participate and grants of stock options or other benefits under such plans.
30
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during each of the
three years ended December 31, 1995 to the Company's Chief Executive Officer
and each of the other two executive officers of the Company whose total 1995
salary and bonus exceeded $100,000 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ---------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS(#) COMPENSATION($)
- --------------------------- ---- --------- -------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Claudio Osorio, 1995 $366,402 -0- -0- 139,240
Chief Executive Officer and President 1994 82,126 -0- 56,080 140,200
1993 -0- -0- -0- -0-
Alvin Perlman, 1995 500,000 -0- -0- 1,000
Executive Vice President--South 1994 248,726 -0- -0- -0-
American Region 1993 -0- -0- -0-
Craig Toll, 1995 110,000 -0- -0- -0-
Chief Financial Officer and Treasurer 1994 55,000 -0- 87,500 -0-
1993 -0- -0- -0-
</TABLE>
EMPLOYMENT ARRANGEMENTS
In August 1994, the Board of Directors approved a compensation arrangement
for Claudio Osorio, the Chief Executive Officer and President of the Company,
pursuant to which he was entitled to receive a salary of $219,600 per year,
in addition to stock awards with a total value of $280,400 for the year ended
June 1995. The stock awards may have been made in any one or a combination of
Company stock, stock options, stock appreciation rights, or phantom stock
grants, as determined by agreement between the Compensation Committee and Mr.
Osorio, subject to the approval of the Board of Directors. Mr. Osorio was
also entitled to participate in any group or employee benefit or insurance
plans. In June 1995, the Board of Directors approved a compensation arrangement
for Mr. Osorio with an annualized salary and bonus of $500,000, excluding option
grants, for the year ended June 1996. Mr. Osorio's aforementioned employment
arrangement has been modified as set forth below.
In August 1994, the Board of Directors approved an employment arrangement
for Craig Toll, the Chief Financial Officer of the Company, pursuant to which he
was entitled to receive an annual salary of $110,000 for the year ended June
1995. Mr. Toll was also granted certain options to purchase Common Stock. Mr.
Toll was also entitled to participate in any group or employee benefit or
insurance plans. In June 1995, the Board of Directors approved a compensation
arrangement for Mr. Toll with an annualized salary of $150,000 for the year
ended June 1996.
The Company has entered into three-year employment agreements with Messrs.
Osorio and Toll. Mr. Osorio's agreement was effective January 1, 1996 and Mr.
Toll's agreement will be effective July 1, 1996. The agreements for Messrs.
Osorio and Toll provide for annual salaries of $350,000 and $150,000,
respectively, and require the executives to devote their full time and
attention to the business and affairs of the Company. Mr. Osorio's agreement
also provides for a minimum bonus of $150,000 per year. The agreements also
provide that upon termination of employment by the Company without "cause" or
termination by the executive for "good reason" (which includes a change of
control of the Company), the executive is entitled to receive, in addition to
all accrued or earned but unpaid salary, bonus or benefits, an amount equal to
two and one-half times base salary paid to the executive during the last full
31
<PAGE>
year prior to termination of employment, together with an amount equal to the
bonus paid to the executive in the prior year multiplied by a fraction, the
numerator of which is the number of days elapsed in the then current year
through termination and the denominator of which is 365. The agreements also
provide that the executive will not compete with the Company during his
employment and for two years thereafter unless the Company terminates the
executive without "cause" or the executive terminates his employment for "good
reason."
Under the terms of the Company's employment agreement with Alvin Perlman
dated June 30, 1994, Mr. Perlman is employed as an Executive Vice
President--South American region of the Company, and chief executive officer
and chairman of the board of CHS Promark. The term of the agreement is five
years. Mr. Perlman receives an annual salary of $500,000 and other benefits
commensurate with his position, and is entitled to participate in any group
or employee benefit or insurance plans. Upon termination of Mr. Perlman's
employment as a result of death or disability, he (or his estate) receives
50% of his compensation for the balance of the term of the agreement. Mr.
Perlman may terminate the agreement upon a change in more than 50% of the
ownership of CHS Promark in which case he is to receive his full compensation
for the balance of the term of the agreement. Under the agreement, Mr.
Perlman is prohibited from competing with the Company for two years in the
Western Hemisphere.
On March 22, 1996, the Board of Directors of the Company adopted an
Executive Bonus Plan for 1996 and subsequent years in which Messrs. Osorio
and Perlman currently participate. Under this plan, cash bonuses will be
awarded based on the Company's operations achieving certain established
targets.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during 1995 were Donald D.
Winstead and Otto Gerlach. Neither of these persons has previously served as
an officer or employee of the Company or any of its subsidiaries.
Mr. Winstead provided consulting services to the Company for a fee of
$4,000 per month, which resulted in payments from the Company to Mr. Winstead
of $48,000 in 1995.
Otto Gerlach holds, indirectly, 11.8% of the outstanding Common Shares of
CHI and 16.7% of the shares of Class A common stock of CHI which, subject to
the claims of certain creditors, have a liquidation preference on the 965,000
shares of Company stock owned by Comtrad. In the past, the Company has
engaged in numerous transactions with Comtrad. See "Certain Transactions."
OPTION GRANTS DURING 1995
Of the options to purchase 223,000 shares of Common Stock granted in 1995,
none were granted to any of the Named Executive Officers.
32
<PAGE>
AGGREGATED OPTION EXERCISES IN 1995 AND YEAR END OPTION VALUES
The following table sets forth information with respect to (i) the number
of unexercised options held by the Named Executive Officers as of December
31, 1995 and (ii) the value as of December 31, 1995 of unexercised
in-the-money options. No options were exercised by any of the Named Executive
Officers in 1995.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY
DECEMBER 31, 1995 OPTIONS AT DECEMBER 31, 1995(1)
-------------------------------- --------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------- ----------------- -------------- ---------------
Claudio Osorio 28,040 28,040 $224,320 $224,320
Alvin Perlman -- -- -- --
Craig Toll 43,750 43,750 $131,250 $131,250
(1) Market value of shares covered by in-the-money options on December 31,
1995, less option exercise price. Options are in-the-money if the market
value of the shares covered thereby is greater than the option exercise
price.
STOCK INCENTIVE PLAN
In June 1995, the Company adopted its 1994 Stock Incentive Plan (the "1994
Plan") pursuant to which 497,000 shares of Common Stock were reserved for
issuance upon exercise of options and other incentive awards. The 1994 Plan
provides for the grant of both incentive stock options intended to qualify as
such under Section 422 of the Internal Revenue Code of 1986, as amended, and
nonqualified stock options. The 1994 Plan also provides for restricted stock
awards and stock appreciation rights. The 1994 Plan will terminate in August
2004, unless sooner terminated by the Board of Directors. In November 1995,
the Board approved an amendment, subject to shareholder approval, to the 1994
Plan to increase the number of shares available for grant of options by
175,000 to a total of 672,000. Options to purchase 123,500 of these shares
have been granted. As of December 31, 1995, the Company had outstanding
options to purchase an aggregate of 508,009 shares (of which 110,815 are
exercisable as of December 31, 1995). The exercise price of all options
granted under the 1994 Plan has been at least equal to the fair market value
of the Common Stock on the date of grant. As of December 31, 1995, no options
granted under the 1994 Plan had been exercised. As of May 1, 1996, there were
86,491 shares of Common Stock available for future grants under the 1994
Plan, as amended.
Options granted under the 1994 Plan that would otherwise qualify as
incentive stock options will not be treated as incentive stock options to the
extent that the aggregate fair market of the shares covered by stock options
which are exercisable for the first time by any individual during any
calendar year exceeds $100,000.
Options granted under the 1994 Plan will be exercisable after the period
or periods specified in the option agreement. Options granted under the 1994
Plan are not exercisable after the expiration of ten years from the date of
grant and are not transferable other than by will or by the laws of descent
and distribution. Adjustments in the number of shares subject to options
granted under the 1994 Plan can be made by the Board of Directors or the
appropriate committee in the event of a stock dividend or recapitalization
resulting in a stock split-up, combination or exchange of shares. Under the
1995 Plan, options may become immediately exercisable in the event of a
change in control or approval by shareholders of the Company of a merger,
reorganization, liquidation, dissolution or disposition of all or
substantially all of the assets of the Company.
33
<PAGE>
CERTAIN TRANSACTIONS
The Company acquired many of its subsidiaries from Comtrad. In certain
cases, Comtrad organized the entities which were subsequentially purchased by
the Company. Comtrad has advised the Company that the entities purchased by
it and subsequently sold to the Company were acquired from unrelated parties.
The Company acquired Comtrad-owned entities after completing its own
evaluations (which for significant acquisitions involved the consideration of
a valuation report prepared by an independent third party), and the
affirmative vote of an independent director of the Company. The Company does
not intend to purchase any additional entities from or enter into any new
transactions with Comtrad in the future. Comtrad also loaned funds to and
borrowed funds from the Company during the years in which it was first
developing its European and South American operations. The Company does not
intend to purchase any operations from or enter into any new transactions
with Comtrad in the future, including the borrowing or loaning of funds. As
of March 31, 1996, the Company was not indebted to Comtrad. Comtrad has
advised the Company that it intends to repay all of the indebtedness owed by
it to the Company, approximately $2.5 million, as of March 31, 1996, with the
proceeds from the sale of the shares of Common Stock to be sold by it in this
offering. See "Principal and Selling Shareholders." Comtrad has also agreed
not to engage in businesses competitive with those of the Company.
<TABLE>
<CAPTION>
CHS
CHS PURCHASE COMTRAD COMTRAD
SUBSIDIARY(1) ACQUISITION DATE PRICE(2)(3) ACQUISITION DATE PURCHASE PRICE
- ------------- ---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
CHS Germany December 1993 2,000,000 shares January 1993 $3,200,000
and
$4,000,000
CHS Promark July 1994 2,000,000 shares July 1994 (4)
CHS Belgium April 1995 1,750,000 shares September 1994 (5)
CHS England September 1994
CHS France September 1994
CHS Portugal January 1993 (6)
CHS BEK October 1995 287,500 shares July 1995 (7)
CHS Czechia October 1995 92,000 shares January 1993 $758,000(8)
CHS Finland December 1995 $2,300,000 July 1995 (9)
CHS Sweden December 1995 $2,400,000 July 1995 (10)
CHS Poland December 1995 $2,300,000 November 1995 (11)
CHS Brazil March 1996 $5,300,000 November 1994 52,632 shares
of Comtrad(12)
CHS Slovakia March 1996 $1,000,000 January 1994 (13)
CHS Baltic March 1996 $1,500,000 September 1994 $50,000
CHS Bulgaria
CHS Romania
CHS Croatia
<FN>
- --------------
(1) The names set forth are those by which the Company commonly refers to
its subsidiaries and are not necessarily the legal names of the
entities.
(2) References to "shares" are to shares of Common Stock.
(3) At the time of the acquisition by the Company of CHS Germany and CHS
Promark, the Common Stock was not actively traded, however the Company
believes that the aggregate value of the shares delivered in connection
with the CHS Germany acquisition was $37,000 and with respect to the CHS
Promark acquisition was $12 million. With respect to the acquisitions in
April 1995 (CHS Belgium, CHS England, CHS France and CHS Portugal),
October 1995 (CHS BEK) and October 1995 (CHS Czechia), the aggregate
value of the Common Stock delivered was $17.5 million, $2,587,000 and
$758,000, respectively.
34
<PAGE>
(4) The Company's acquisition of CHS Promark was made through a series of
transactions, the result of which was that Alvin Perlman, the Executive
Vice President--South American Region and a director of the Company, and
who was the sole owner of CHS Promark, received 230,000 shares of
Comtrad, 460,000 shares of CHS Common Stock, a $100,000 payment and a
promissory note from Comtrad in the original principal amount of $2.4
million. Comtrad received 1,540,000 shares of CHS Common Stock. The
Company believes that the aggregate value of the consideration paid by
Comtrad was $11.3 million.
(5) Comtrad delivered 600,000 shares of Common Stock with an aggregate value
of $5,344,000, a $7 million promissory note and cash of $860,000.
(6) Comtrad delivered 23,200 of its shares with an aggregate value of
$800,000.
(7) CHI delivered 1,000 of its Class B shares which, upon liquidation of
CHI, have a preferential claim to 258,750 shares of Common Stock which
at the time of the acquisition had an aggregate value of $2,328,750. Up
to 28,750 additional shares of Common Stock owned by Comtrad may be
subject to this preference based upon an earnout formula.
(8) Represents an investment by Comtrad in exchange for a 16% interest.
(9) Comtrad has agreed to deliver an as yet undetermined number of shares of
Common Stock owned by Comtrad based upon the 1996 financial performance
of CHS Finland.
(10) Comtrad has agreed to deliver an as yet undetermined number of shares of
Common Stock owned by Comtrad based upon the 1996 financial performance
of CHS Sweden.
(11) Comtrad delivered 23,076 of its shares and a promissory note for
$600,000. The Company believes that the aggregate value of the Comtrad
shares was $1.2 million. In addition, Comtrad has agreed to deliver an
as yet undetermined number of shares of Common Stock owned by Comtrad
based upon the 1996 financial performance of CHS Poland.
(12) The Company believes that the aggregate value of the Comtrad shares was
$762,000.
(13) Comtrad purchased 65% of the equity interest for $3,000 and has
purchased the remaining 35% by agreeing to deliver an as yet
undetermined number of shares of Common Stock owned by Comtrad based
upon the 1996 financial performance of CHS Slovakia.
</FN>
</TABLE>
In 1993, Comtrad established a number of operating subsidiaries to market
microcomputer equipment and peripherals throughout Europe. Comtrad used the
name "CHS" in establishing these subsidiaries. Comtrad subsidiaries purchased
products from the Company for resale. These subsidiaries were initially
invoiced at cost plus 2% for goods purchased in 1994, and this pricing was
retroactively adjusted at the end of 1994 to cost plus 4.5% based on a study
of the actual costs conducted in the last quarter of 1994. This resulted in
an increase in gross profit for 1994 of $500,000. Comtrad subsidiaries
accounted for approximately $9,591,000 of the Company's net sales in 1993,
$52,421,000 in 1994 and $36,364,000 in 1995.
In 1994, Comtrad made working capital loans to the Company aggregating
approximately $1.7 million. At December 31, 1994, the Company had a net
payable to Comtrad and its subsidiaries of $4,776,000 and at December 31,
1995, a net receivable from Comtrad of $843,000 (which arose from loans and
the sale of goods). Interest expensed on the payables to Comtrad was $117,000
in 1994 and $126,000 in 1995. Interest charged to Comtrad was $162,000 in
1994 and $438,000 in 1995. At March 31, 1996, the Company had a receivable
from Comtrad of $2,462,000. Subsequent to March 31, 1996, the Company became
contingently liable on an obligation of Comtrad to a third party for an
amount currently estimated to be approximately $1.6 million.
In July 1995, the Company obtained a $20 million line of credit, a portion
of which represented the assumption of an approximately $14.8 million
obligation owed by Comtrad to the same lender. Approximately $7 million of
such obligation had previously been loaned by Comtrad to a subsidiary of the
Company. This $7 million obligation to Comtrad was cancelled as a result of
this transaction. The resulting $7.8 million receivable from Comtrad was
offset against amounts due to Comtrad as a result of the acquisition of
certain entities by the Company from Comtrad, and was recorded as of December
31, 1994.
Management services were provided by Comtrad to the Company, which
resulted in a management fee of $896,000 for 1993. As a result of a study of
the actual costs of the services rendered for the management fee charged, the
Company and Comtrad agreed on a credit to the Company of $579,000
35
<PAGE>
with respect to the 1993 management fee. In 1994, Comtrad provided
administrative and support services in Europe to the Company on an as needed
basis, and was paid $179,000 for such services.
Effective October 27, 1995, the Company acquired CHS Czechia s.r.o., a
limited liability company formed under the laws of the Czech Republic ("CHS
Czechia") from Comtrad and Zbynek Kraus, an individual who was the manager
and principal owner of CHS Czechia prior to its acquisition by Comtrad. Mr.
Kraus became a director of the Company in March 1996. Based upon an
independent valuation of CHS Czechia which placed the value at approximately
$4,800,000, the Company issued 575,000 shares of Common Stock, 483,000 of
which were issued to Mr. Kraus and 92,000 of which were issued to Comtrad.
Pursuant to agreements entered into in January 1993 between Mr. Kraus and
Comtrad, Mr. Kraus contributed the shares of Common Stock received by him to
Penrose Trading Co. S.A. in exchange for an 8.4% interest in Penrose. Mr.
Osorio owns 50.2% of Penrose Trading Co. S.A. which is a shareholder of
Comtrad.
Effective March 1996, the Company guaranteed the obligations of Comtrad
arising under the Stock Purchase Agreement dated October 12, 1995 pursuant to
which Comtrad acquired CHS Poland. Under such agreement, as amended, Comtrad
is obligated to deliver shares of Common Stock as calculated pursuant to an
earnout provision based on the 1996 calendar year earnings of CHS Poland. If
Comtrad fails to deliver such shares, the Company has agreed to do so.
Assuming that CHS Poland's earnings are consistent with current estimates,
Comtrad will be obligated to deliver approximately 125,000 shares of Common
Stock.
Comtrad and Claudio Osorio, the Chairman of the Company, have guaranteed
the obligations of the Company under a $20 million credit agreement. Comtrad
has pledged certain shares of the Company owned by it to secure its guarantee
of repayment of amounts advanced under the line of credit. Comtrad has also
guaranteed the obligation of CHS Promark under a Loan and Security Agreement
providing for borrowings up to $20 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity."
During 1994 and 1995, assets of CHS Germany were pledged to secure a loan
from a third party lender to Comtrad. This loan was repaid by Comtrad in
1995.
Comtrad has guaranteed the Company's obligations to certain vendors.
The Company is party to a separate consulting agreement with Donald D.
Winstead, a director of the Company. Under the terms of the agreement, Mr.
Winstead provides management consulting and related services for a fee of
$4,000 per month. Mr. Winstead received $45,700 under the arrangement in 1994
and $48,000 in 1995.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the Common Stock as of May 8, 1996 and as adjusted to
reflect the sale of 3,001,539 shares by the Company and the sale of 1,583,461
shares by the Selling Shareholders by (i) each person known by the Company to
be the beneficial owner of more than 5% of the outstanding Common Stock, (ii)
each of the Selling Shareholders, (iii) each director of the Company, (iv)
each of the Named Executive Officers, and (v) all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
COMMON STOCK OWNED COMMON STOCK OWNED
BEFORE THE OFFERING AFTER THE OFFERING
NAME OF BENEFICIAL --------------------- SHARES BEING ----------------------
OWNER(1)(2)(3) NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------ --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Claudio Osorio(4)(5) 5,663,340 74.4 0 4,203,340 39.6
Alvin Perlman(4) 5,663,340 74.4 460,000 4,203,340 39.6
Antonio Boccalandro(6) 0 * 0 0 *
Otto Gerlach(7) 0 * 0 0 *
Zbynek Kraus(8) 0 * 0 0 *
Donald D. Winstead(9) 45,000 * 0 45,000 *
Craig Toll(10) 43,750 * 0 43,750 *
All officers and directors as a
group (7 persons) 5,752,090 74.7 460,000 4,292,090 40.1
Comtrad(4)(11) 5,663,340 74.4 1,000,000 4,203,340 39.6
Peter Hammett(12) 56,410 * 56,410 0 0
Jean Jacques Charrier(13) 7,051 * 7,051 0 0
Pierre Delphin(14) 119,872 1.6 60,000 59,872 *
<FN>
- --------------
* Less than 1%
(1) The address for each of the executive officers and directors is 2153
N.W. 86th Avenue, Miami, Florida 33122, except for Alvin Perlman which
is 5771 Bridleway Circle, Boca Raton, Florida 33496.
(2) Except as noted, all shares are held beneficially and of record.
(3) Under Rule 13d-3 of the Securities Exchange Act of 1934, as amended,
certain shares may be deemed to be beneficially owned by more than one
person (if, for example, persons share the power to vote or the power to
dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire
the shares (for example, upon exercise of an option) within 60 days of
the date as of which the information is provided. In computing the
percentage ownership of any person, the amount of shares outstanding is
deemed to include the amount of shares beneficially owned by such person
(and only such person) by reason of these acquisition rights. As a
result, the percentage of outstanding shares of any person as shown in
this table does not necessarily reflect the person's actual ownership or
voting power with respect to the number of shares of Common Stock
actually outstanding as of May 8, 1996.
(4) Includes 2,864,800 shares held of record by Comtrad, a wholly-owned
subsidiary of CHI, 1,827,500 shares held of record by CHI, 460,000
shares held of record by Alvin Perlman, 483,000 shares held of record by
Penrose Trading Co. S.A. (a shareholder of CHI and of which Mr. Osorio
has effective control) and currently exercisable options to purchase
28,040 shares held by Mr. Osorio. Claudio Osorio and Alvin Perlman
together own and control a majority of the issued and outstanding
capital stock of CHI, and Messrs. Osorio and Perlman have entered into
an agreement pursuant to which they have agreed to vote their shares of
CHI common stock together on certain matters submitted to the
shareholders of CHI. Claudio Osorio, Alvin Perlman, CHI and Comtrad are
parties to another agreement, in which they agree to vote all shares of
the Common Stock they own or control, together on any matter submitted
to the shareholders of the Company. In addition, Messrs. Osorio and
Perlman and Comtrad are parties to an agreement which grants to Mr.
Osorio and Comtrad, until December 31, 1996, the right to acquire all,
but not less than all, of the shares of Common Stock and the shares of
Comtrad common stock owned by Mr. Perlman. Mr. Perlman may reject all or
a portion of such exercise; provided, however, that any shares as to
which the option exercise is rejected are excluded from a right granted
by the agreement to Mr. Perlman to put the referenced shares to Mr.
Osorio. The put option may be exercised during the period beginning
January 1 and ending January 31, 1997. Comtrad has guaranteed Mr.
Osorio's obligations and has pledged 1,540,000 shares of Common Stock in
connection therewith, which shares are included in the above aggregate
ownership. Subject to the claims of certain creditors, the holders of
CHI Class A common stock (which includes Penrose Trading Co. S.A.) have
a
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<PAGE>
liquidation preference on the 965,000 shares of Common Stock owned by
Comtrad. Further, subject to the claims of certain creditors and subject
to the rights of holders of CHI Class A common stock, the holders of CHI
Class B common stock have a liquidation preference on 287,500 shares of
Company Common Stock held by CHI or any subsidiary thereof. Based on the
foregoing relationships and agreements, Claudio Osorio, Alvin Perlman,
CHI, and Comtrad may be deemed to have shared voting and investment
control over the above-indicated aggregate number of shares of Common
Stock. Such aggregate number of shares of Common Stock includes
1,985,654 shares pledged to a lender to secure the Company's obligation
under a line of credit and 1,166,667 shares pledged to the former owners
of certain of the Company's subsidiaries to secure the unpaid portion of
the purchase price of the sale of the subsidiaries to Comtrad. Excludes
100,000 shares which Comtrad is obligated to deliver to the sellers of
three entities purchased by Comtrad and subsequently sold to the
Company.
(5) Mr. Osorio is the holder of options to purchase a total of 56,080 shares
of the Common Stock, of which 28,040 vested on December 7, 1995.
(6) Mr. Boccalandro is a director of CHI, who serves at the discretion of
the controlling shareholders of CHI, Messrs. Osorio and Perlman.
Accordingly, Mr. Boccalandro disclaims any investment or voting control
with respect to the Common Stock owned and controlled by CHI.
(7) Mr. Gerlach owns approximately 11.8% of the outstanding common shares of
CHI and 16.7% of the shares of Class A common stock of CHI which,
subject to the claims of certain creditors, have a liquidation
preference on the 965,000 shares of Common Stock owned by Comtrad. Mr.
Gerlach disclaims beneficial ownership of the shares of Common Stock
held by CHI and Comtrad.
(8) Mr. Kraus is a shareholder of Penrose Trading Co. S.A. which is a
shareholder of CHI and the Company. Mr. Kraus disclaims beneficial
ownership of the shares of the Company held by Penrose Trading Co. S.A.
and CHI.
(9) Mr. Winstead is the holder of options to purchase 45,000 shares of
Common Stock.
(10) Mr. Toll is the holder of options to purchase a total of 87,500 shares
of Common Stock. Options to purchase 43,750 shares vested on August 17,
1995. The balance will vest on August 17, 1996, assuming Mr. Toll's
continued employment with the Company.
(11) The address for Comtrad and CHI is 3620 North East Miami Place, Miami,
Florida 33137.
(12) Includes 5,128 shares which Comtrad is obligated to deliver to Mr.
Hammett under an agreement pursuant to which he sold interests in three
entities to Comtrad which entities were subsequently acquired by CHS from
Comtrad.
(13) Includes 641 shares which Comtrad is obligated to deliver to Mr.
Charrier under an agreement pursuant to which he sold interests in three
entities to Comtrad which entities were subsequently acquired by CHS from
Comtrad.
(14) Includes 10,898 shares which Comtrad is obligated to deliver to Mr.
Delphin under an agreement pursuant to which he sold interests in three
entities to Comtrad. Mr. Delphin had an ownership interest in a company
acquired by CHS from Comtrad and was an employee of the Company until
April 1996. He currently serves as a consultant to the Company.
</FN>
</TABLE>
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. Holders of Common Stock have no preemptive, conversion or other
subscription rights. There are no redemption or sinking fund provisions
available to the Common Stock. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to
prior distribution rights of Preferred Stock, if any, then outstanding.
PREFERRED STOCK
The Company is authorized to issue Preferred Stock with such designation,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without
shareholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting
power or other rights of the holders of the Company's Common Stock and, in
certain instances, could adversely affect the market price of such stock. In
the event of issuance, the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change
in control of the Company. The Company has no present intention to issue any
shares of its Preferred Stock.
The holders of Common and Preferred Stock vote as a single group on all
matters except the following, which require the affirmative vote of a
majority of the holders of Common Stock and a majority of the holders of
Preferred Stock: (a) any merger or consolidation of the Company with or into
any other corporation except in the case of a merger into the Company of a
subsidiary of the Company 90% or more of which is owned by the Company and
which does not require a vote of shareholders of either corporation pursuant
to the laws of the State of Florida; (b) any share exchange in which a
corporation, person or entity acquires the issued or outstanding shares of
stock of the Company pursuant to a vote of shareholders of the Company; (c)
any sale, lease, exchange or other transfer of all, or substantially all, of
the assets of the Company to any other corporation, person or entity; or (d)
any amendment to the Articles of Incorporation.
REGISTRATION RIGHTS
Under June 30, 1994 agreements, the Company granted to Comtrad and Alvin
Perlman registration rights with respect to 1,540,000 and 460,000 shares of
Common Stock, respectively. Comtrad and Mr. Perlman may, until August 31,
1997, require the Company to file a registration statement with respect to
these shares. The shares being sold by Comtrad and Mr. Perlman in this
offering are included pursuant to these registration rights. Until June 30,
1999, to the extent it still owns any of these shares, Comtrad may also
include these shares in certain other offerings by the Company. The Company
has further agreed to register certain shares pledged to a lender upon its
demand if there is a default under the loan. See "Principal and Selling
Shareholders" and "Shares Eligible for Future Sales" and "Underwriting."
CERTAIN FLORIDA LEGISLATION
The State of Florida has enacted legislation that may deter or frustrate
takeovers of Florida corporations. The Florida Control Share Act generally
provides that shares acquired in excess of certain specified thresholds will
not possess any voting rights unless such voting rights are approved by a
39
<PAGE>
majority of a corporation's disinterested shareholders. The Florida
Affiliated Transactions Act generally requires supermajority approval by
disinterested shareholders of certain specified transactions between a public
corporation and holders of more than 10% of the outstanding voting shares of
the corporation (or their affiliates). Florida law and the Company's Articles
of Incorporation also authorize the Company to indemnify the Company's
directors, officers, employees and agents. In addition, Florida law and the
Company's Articles of Incorporation presently limit the personal liability of
corporate directors for monetary damages, except where the directors (i)
breach their fiduciary duties and (ii) such breach constitutes or includes
certain violations of criminal law, a transaction from which the directors
derived an improper personal benefit, certain unlawful distributions or
certain other reckless, wanton or willful acts or misconduct. The Company may
also indemnify any person who was or is a party to any proceeding by reason
of the fact that he is or was a director, officer, employee or agent of such
corporation (or is or was serving at the request of such corporation in such
a position for another entity) against liability to be in the best interests
of such corporation and, with respect to criminal proceedings, had no
reasonable cause to believe his conduct was unlawful.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.
The existence of authorized but unissued and unreserved shares of Common
Stock and Preferred Stock may enable the Board of Directors to issue shares
to persons friendly to current management which would render more difficult
or discourage an attempt to obtain control of the Company by means of a proxy
contest, tender offer, merger or otherwise, and thereby protect the
continuity of the Company's management.
CERTAIN LIMITATIONS ON SHAREHOLDER ACTIONS
NOTICE PROCEDURES FOR SHAREHOLDER PROPOSALS AT ANNUAL MEETING. The
Articles of Incorporation of the Company establish advance notice procedures
with respect to shareholder proposals to be brought before an annual meeting
of shareholders. These procedures, which are in addition to any other
applicable requirements of law, require that a shareholder must give notice
to the Company not less than 120 days nor more than 180 days prior to the
first anniversary of the date of the notice of annual meeting provided with
respect to the previous year's annual meeting.
AMENDMENTS TO CHARTER. The Articles of Incorporation of the Company
include a provision requiring the affirmative vote of a majority of both the
holders of the Common Stock and the Preferred Stock to amend its Articles of
Incorporation.
SPECIAL MEETINGS OF SHAREHOLDERS. Special meetings of a Florida
corporation's shareholders may be called by its board of directors, by the
persons authorized to do so in its Articles of Incorporation or bylaws or by
the holders of not less than 10% of all votes entitled to be cast on any
issue proposed to be considered at the special meeting, unless a greater
percentage, not to exceed 50%, is required by the articles of incorporation.
The Articles of Incorporation of the Company contain a 50% requirement for
the calling of special meetings by the shareholders.
SHAREHOLDER VOTES ON CERTAIN MATTERS. The holders of the Common and
Preferred Stock vote as a single group on all matters except the following,
which require the affirmative vote of a majority of the holders of the
Company's Common Stock and a majority of the holders of the Company's
Preferred Stock: (a) any merger or consolidation of the Company with or into
any other corporation except in the
40
<PAGE>
case of a merger into the Company of a subsidiary of the Company 90% or more
of which is owned by the Company and which does not require a vote of
shareholders of either corporation pursuant to the laws of the State of
Florida; (b) any share exchange in which a corporation, person or entity
acquires the issued or outstanding shares of stock of the Company pursuant to
a vote of stockholders of the Company; (c) any sale, lease, exchange or other
transfer of all, or substantially all, of the assets of the Company to any
other corporation, person or entity; or (d) any amendment to the Articles of
Incorporation of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Interwest
Transfer Company.
41
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The Common Stock of the Company is currently included on the Nasdaq
Small-Cap Market under the symbol "CHSE." Sales of substantial amounts of
shares in the public market or their availability for sale could adversely
affect prevailing market prices of the Common Stock and make it more
difficult for the Company to sell equity securities in the future at a time
and price which is deemed appropriate.
Upon completion of this offering, the Company will have 10,584,073 shares
of Common Stock outstanding. Of these shares, all of the 4,585,000 shares
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act. Of the remaining 5,999,073 shares,
5,320,760 shares are deemed "restricted shares" under Rule 144 in that they
were originally issued and sold by the Company in private transactions in
reliance upon exemptions under the Securities Act. Of those shares, 4,175,300
shares are held by persons deemed "affiliates" of the Company as such term is
defined in Rule 144 and 1,145,460 shares are held by persons who are not
affiliates of the Company. The restricted shares may not be sold except in
compliance with the registration requirements of the Securities Act or
pursuant to an exemption from registration, such as the exemption provided by
Rule 144 under the Securities Act. Of the restricted shares (i) 734 shares
held by non-affiliates are eligible for immediate resale under the provisions
of Rule 144(k) and (ii) 377,200 shares held by certain shareholders and
4,651,839 shares held by executive officers, directors and certain other
shareholders are subject to lock-up agreements that prohibit their resale
prior to 90 and 180 days, respectively, from the date of this Prospectus
without the prior consent of Raymond James & Associates, Inc. and thereafter
may be sold subject to the volume limitations of Rule 144.
In general, Rule 144 allows a stockholder (including persons who may be
deemed "affiliates" of the Company under Rule 144) who has beneficially owned
restricted shares for at least two years to sell a number of shares within
any three-month period that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock (105,841 shares after giving effect to
this offering) or (ii) the average weekly trading volume in the Common Stock
during the four calendar weeks immediately preceding such sale. Sales under
Rule 144 are also subject to certain requirements as to the manner and notice
of sale and the availability of public information about the Company. A
stockholder (or stockholder whose shares are aggregated) who is not an
"affiliate" of the Company at any time during the 90 days immediately
preceding a sale, and who has beneficially owned his shares for at least
three years (as computed under Rule 144), is entitled to sell shares under
Rule 144 without regard to the volume and manner of sale limitations
described above. Shares properly sold in reliance upon Rule 144 to persons
who are not "affiliates" are thereafter freely tradable without restriction
or registration under the Securities Act.
Comtrad has the right to demand that the Company file registration
statements with respect to shares owned by it and to include shares owned by
it in registered offerings by the Company. The shares being sold by Comtrad
in this offering are included pursuant to these registration rights. In
addition, the Company has further agreed to register certain shares pledged
to a lender upon its demand if there is a default under the loan. See
"Description of Capital Stock--Registration Rights."
42
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representative, Raymond
James & Associates, Inc. (the "Representative"), has agreed, subject to the
terms and conditions of the underwriting agreement by and among the Company,
the Selling Shareholders and the Underwriters (the "Underwriting Agreement"),
to purchase from the Company and the Selling Shareholders the number of
shares of Common Stock set forth opposite their respective names below:
NUMBER OF
UNDERWRITERS SHARES
- ------------ ----------
Raymond James & Associates, Inc. ...................................
---------
Total ............................................................. 4,585,000
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares offered hereby, if any are purchased. The Company
and the Selling Shareholders have been advised by the Representative that the
Underwriters propose initially to offer the shares to the public at the
offering price set forth on the cover page of this Prospectus and to certain
selected dealers, including the Underwriters, at such price less a concession
not in excess of $ per share. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain other
dealers. The public offering price and concession may be changed after the
initial offering to the public. The Representative has informed the Company
and the Selling Shareholders that the Underwriters do not intend to confirm
sales to any accounts over which they exercise discretionary authority.
The Underwriting Agreement provides for indemnification among the Company,
the Selling Shareholders and the Underwriters against certain liabilities in
connection with this offering, including liabilities under the Securities
Act.
The Company and each of its officers and directors and Comtrad have agreed
not to sell any shares of Common Stock to the public, other than shares
offered hereby, without the consent of Raymond James & Associates, Inc., for
a period of 180 days following the closing of this offering. This restriction
does not apply to certain issuances of Common Stock by the Company pursuant
to its stock option plans. Certain other holders have agreed not to sell any
shares for 90 days following the closing of the offering without such
consent. See "Shares Eligible for Future Sale."
The Company has granted to the Underwriters an option exercisable during a
30-day period after the date of this Prospectus to purchase up to an
aggregate of 687,750 additional shares at the same price per share as the
Company receives for the 3,001,539 shares which the Underwriters have agreed
to purchase from the Company, for the sole purpose of covering
over-allotments, if any. To the extent that the Underwriters exercise such
option, each Underwriter will be committed, subject to certain conditions, to
purchase a number of the additional shares of Common Stock proportionate to
each Underwriter's initial commitment.
The Underwriters and certain selling group members that currently act as
market makers for the Common Stock may engage in "passive market making" in
the Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A
under the Securities Exchange Act of 1934, as amended (the
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<PAGE>
"Exchange Act"). Rule 10b-6A permits, upon the satisfaction of certain
conditions, Underwriters and selling group members participating in a
distribution that are also Nasdaq market makers in the security being
distributed to engage in limited market making transactions during the period
when Rule 10b-6A under the Exchange Act would otherwise prohibit such
activity. In general, under Rule 10b-6A any Underwriter or selling group
member engaged in passive market making in the Common Stock (i) may not
effect transactions in, or display bids for, the Common Stock at a price that
exceeds the highest bid for the Common Stock displayed on Nasdaq by a market
maker that is not participating in the distribution of the Common Stock, (ii)
may not have net daily purchases of the Common Stock that exceed 30% of its
average daily trading volume in the Common Stock for the two full consecutive
calendar months immediately preceding the filing date of the Registration
Statement of which this Prospectus forms a part and (iii) must identify its
bids as bids made by a passive market maker.
The Company has agreed to pay the Representative a nonaccountable expense
allowance of $100,000, none of which has been paid to date. The Company has
also agreed to pay all expenses in connection with qualifying the shares of
Common Stock offered hereby for sale under the laws of such states as the
Underwriters may designate, including expenses of counsel retained for such
purpose by the Underwriters.
The Company has agreed to sell to the Representative and its designees for
an aggregate of $100, warrants (the "Representative's Warrants") to purchase
up to 300,000 shares of Common Stock at an exercise price of $ per share
for the first year that the Representative's Warrants are exercisable and
increasing by 7% of the public offering price of the shares being sold
hereunder each year thereafter during the term of the Representative's
Warrants. The Representative's Warrants may not be transferred for one year
from the date of this Prospectus, except to the officers, employees and
shareholders of the Representative and are exercisable during the four-year
period commencing one year from the date of this Prospectus (the "Warrant
Exercise Term"). During the Warrant Exercise Term, the holders of the
Representative's Warrants are given, at nominal cost, the opportunity to
profit from a rise in the market price of the Common Stock. Any profit
realized by the Representative on the sale of the Representative's Warrants
or the underlying shares of Common Stock may be deemed additional
underwriting compensation.
The foregoing contains a summary of the principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made
to the copy of the Underwriting Agreement that is on file as an exhibit to
the Registration Statement of which this Prospectus is a part.
The Company has applied for the Common Stock to be listed on the Nasdaq
National Market under the symbol CHSE.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company and certain of the Selling Shareholders by Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, P.A., Miami, Florida. Certain legal matters
relating to the offering will be passed upon for the Underwriters by Holland
& Knight, Miami, Florida.
EXPERTS
The financial statements included in this Prospectus have been audited by
Grant Thornton LLP, independent certified public accountants, BDO Binder
A.G., independent public accountants, and Arthur Andersen & Co. Kft.,
independent public accountants, as indicated in their respective reports, as
44
<PAGE>
listed in the Index to Consolidated Financial Statements, and are included
herein in reliance upon the authority of said firms as experts in giving said
reports.
AVAILABLE INFORMATION
A Registration Statement under the Securities Act of 1933 has been filed
with the Securities and Exchange Commission (the "Commission"), Washington,
D.C. 20549, with respect to the Common Stock offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement
and exhibits and schedules thereto, certain portions having been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement and such exhibits and schedules
filed as a part thereof, which may be inspected, without charge, at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at Seven World Trade Center, Suite 1300, New York, New
York 10048 and 500 W. Madison Street, 14th Floor, Chicago, Illinois 60661.
Copies of all or any portion of the Registration Statement may be obtained
from the Public Reference Section of the Commission upon payment of
prescribed fees.
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at, or obtained from, the public
reference facilities maintained by the Commission as specified above. In
addition, the Common Stock of the Company is included in the Nasdaq Small-Cap
Market, and the aforementioned materials may also be inspected at the offices
of the Nasdaq Small-Cap Market at 1735 K Street, N.W., Washington, D.C.
20006.
45
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CHS ELECTRONICS, INC.--PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED):
Basis of Presentation ..................................................... F-2
Pro Forma Condensed Consolidated Balance Sheet ............................ F-3
Pro Forma Condensed Consolidated Statements of Operations ................. F-4
Notes to Pro Forma Condensed Consolidated Financial Statements ........... F-5
CHS ELECTRONICS, INC.--HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants--Grant Thornton LLP ... F-8
Consolidated Balance Sheets ............................................... F-9
Consolidated Statements of Operations ..................................... F-10
Consolidated Statements of Shareholders' Equity ........................... F-11
Consolidated Statements of Cash Flows ..................................... F-12
Notes to Consolidated Financial Statements ................................ F-13
WYRSCH TRADING LTD. (CHS SWITZERLAND)--HISTORICAL FINANCIAL STATEMENTS:
Report of Independent Auditors--BDO Binder AG ............................. F-32
Statements of Income ...................................................... F-33
Balance Sheets ............................................................ F-34
Statements of Shareholders' Equity ........................................ F-36
Statements of Cash Flows .................................................. F-37
Notes to the Financial Statements ......................................... F-38
KVENTA, KFT. (CHS HUNGARY)--HISTORICAL FINANCIAL STATEMENTS:
Report of Independent Public Accountants--Arthur Andersen & Co. .......... F-47
Balance Sheet ............................................................. F-48
Statement of Operations ................................................... F-49
Statement of Quotaholders' Equity ......................................... F-50
Statement of Cash Flows ................................................... F-51
Notes to Financial Statements ............................................. F-52
</TABLE>
F-1
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The following Pro Forma Condensed Consolidated Balance Sheet as of March
31, 1996 and the Pro Forma Condensed Consolidated Statements of Operations
for the year ended December 31, 1995 and the three months ended March 31,
1996 give effect to the acquisition by the Company of five companies during
1995 and three companies subsequent to December 31, 1995. Four of the five
companies acquired during 1995 were acquired from Comtrad. These acquisitions
were transfers between entities under common control and therefore are
accounted for in a manner similar to a pooling of interests. The remaining
four companies were acquired from unrelated parties and are accounted for
using the purchase method of accounting. The Pro Forma Condensed Consolidated
Balance Sheet as of March 31, 1996 is presented as if the acquisition of CHS
Switzerland (the only acquisition not already reflected in the historical
financial statements) had taken place on March 31, 1996. The Pro Forma
Condensed Consolidated Statements of Operations for the year ended December
31, 1995 and the three months ended March 31, 1996 presents the pro forma
results of operations assuming all acquisitions occurred on January 1, 1995.
A list of the companies included in each period is shown below.
COMPANIES INCLUDED IN ACQUIRED COMPANIES COLUMN IN PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
--------------------- -------------------
CHS Hungary CHS Hungary
CHS Peru CHS Peru
CHS Switzerland CHS Switzerland
CHS BEK
CHS Czechia
CHS Finland
CHS Poland
CHS Sweden
The unaudited pro forma condensed consolidated financial statements have
been prepared based upon the historical financial statements of CHS and the
acquired companies for the periods stated above. Such pro forma statements
may not be indicative of the results that would have occurred if the
acquisitions had been consummated on the indicated dates, or of the operating
results that may be achieved by the combined companies in the future. The pro
forma statements should be read in conjunction with the financial statements
and related notes of CHS contained elsewhere herein.
F-2
<PAGE>
CHS ELECTRONICS, INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
(in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------------------
CHS ACQUIRED PRO FORMA
HISTORICAL COMPANY ADJUSTMENTS COMBINED
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash ....................... $ 13,000 $ 36 $ (5,219)(a) $ 7,817
Accounts receivable--net .. 113,068 7,087 -- 120,155
Inventories ................ 113,318 7,167 -- 120,485
Deferred tax asset ......... 456 -- -- 456
Other current assets ....... 10,084 1,457 -- 11,541
-------- ------- ----------- --------
Total current assets ..... 249,926 15,747 (5,219) 260,454
PROPERTY AND EQUIPMENT--NET 10,464 606 -- 11,070
COSTS IN EXCESS OF ASSETS
ACQUIRED--NET ............. 17,709 -- 20,140 (b) 37,849
OTHER ASSETS ................ 3,826 -- 22,603 (a) 3,826
(22,603)(b)
-------- ------- ----------- --------
$281,925 $16,353 $ 14,921 $313,199
======== ======= =========== ========
LIABILITIES
CURRENT LIABILITIES
Bank notes payable ......... $ 52,237 $ 5,035 $ -- $ 57,272
Accounts payable ........... 165,322 7,933 -- 173,255
Accrued liabilities ........ 15,818 922 (1,871)(a) 14,869
Income taxes payable ....... 1,317 -- -- 1,317
-------- ------- ----------- --------
Total current liabilities 234,694 13,890 (1,871) 246,713
LONG TERM DEBT .............. 13,510 -- -- 13,510
MINORITY INTEREST ........... 2,116 -- -- 2,116
SHAREHOLDERS' EQUITY
Common stock ............... 8 417 2 (a) 10
(417)(b)
Additional paid-in capital 25,620 928 19,253 (a) 44,873
(928)(b)
Retained earnings .......... 6,546 1,118 (1,118)(b) 6,546
Translation adjustment .... (569) -- -- (569)
-------- ------- ----------- --------
Total shareholders' equity 31,605 2,463 16,792 50,860
-------- ------- ----------- --------
$281,925 $16,353 $ 14,921 $313,199
======== ======= =========== ========
</TABLE>
F-3
<PAGE>
CHS ELECTRONICS, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------
CHS ACQUIRED PRO FORMA
HISTORICAL COMPANIES ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales ............................ $ 936,703 $ 230,194 $(26,767)(c) $1,140,130
Cost of sales ........................ 868,716 213,467 (26,767)(c) 1,055,416
---------- ---------- -------- ----------
Gross profit ......................... 67,987 16,727 -- 84,714
Operating expenses ................... 57,188 11,342 1,187 (d) 69,255
-- -- (462)(e) --
---------- ---------- -------- ----------
Operating income ..................... 10,799 5,385 (725) 15,459
Interest income ...................... (1,757) (206) -- (1,963)
Interest expense ..................... 6,454 945 -- 7,399
---------- ---------- -------- ----------
Earnings before income taxes and
minority interest .................. 6,102 4,646 (725) 10,023
Provision for income taxes ........... 1,797 1,082 180 (e) 3,059
Minority interest .................... -- -- 1,002 (f) 1,002
---------- ---------- -------- ----------
Net earnings ......................... $ 4,305 $ 3,564 $ (1,907) $ 5,962
========== ========== ======== ==========
Net earnings per share--primary ..... $ 0.59 $ 0.63
========== ==========
Net earnings per share--fully diluted $ 0.59 $ 0.63
========== ==========
Weighted average number of common
shares outstanding--primary ........ 7,282,785 2,256,000 9,538,785
Weighted average number of common
shares outstanding--fully diluted .. 7,282,785 2,256,000 9,538,785
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------------
CHS ACQUIRED PRO FORMA
HISTORICAL COMPANIES ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales ............................ $ 302,995 $ 23,951 -- $ 326,946
Cost of sales ........................ 280,453 21,675 -- 302,128
---------- ---------- -------- ----------
Gross profit ......................... 22,542 2,276 -- 24,818
Operating expenses ................... 17,850 1,518 148 (d) 19,516
---------- ---------- -------- ----------
Operating income ..................... 4,692 758 (148) 5,302
Interest income ...................... (614) -- -- (614)
Interest expense ..................... 1,940 146 -- 2,086
---------- ---------- -------- ----------
Earnings before income tax and
minority interest .................. 3,366 612 (148) 3,830
Provision for income taxes............ 1,059 126 1,185
Minority interest .................... 319 -- 149 (f) 468
---------- ---------- -------- ----------
Net earnings ......................... $ 1,988 $ 486 $(297) $ 2,177
========== ========== ======== ==========
Net earnings per share--primary ..... $ 0.25 $ 0.23
========== ==========
Net earnings per share--fully diluted $ 0.24 $ 0.23
========== ==========
Weighted average number of common
shares--primary .................... 7,862,349 1,750,000 9,612,349
Weighted average number of common
shares--fully diluted .............. 8,183,391 1,428,958 9,612,349
</TABLE>
F-4
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) In 1995 the Company acquired 100% ownership of four companies from
Comtrad. It also acquired the remaining 84% ownership of a Czech Republic
company directly from its non affiliated owner in September 1995. All of
these companies are engaged in the distribution of microcomputer
products. The names, consideration and dates of acquisition by CHS of the
companies from Comtrad are shown in the table below. The Pro Forma
Statement of Operations includes the results of their operations and the
operations of the Czech Republic company and other adjustments to present
them from January 1, 1995 as compared to the date that they were included
in the 1995 historical financial statements. The weighted average shares
are adjusted to include the shares issued in connection with these
acquisitions for the entire year. See Note B to the Company's
Consolidated Financial Statements.
CHS
COMPANY CONSIDERATION ACQUISITION DATE
------- -------------- ----------------
CHS BEK 287,500 shares October 1995
CHS Finland $2,300,000 December 1995
CHS Sweden $2,400,000 December 1995
CHS Poland $2,300,000 December 1995
In January 1996, effective February 1, 1996, the Company acquired 51% of
Kventa KFT. (CHS Hungary) for contingent consideration equal to 51% of the
book value of CHS Hungary, measured under U.S. generally accepted
accounting principles ("U.S. GAAP") on December 31, 1996 and 51% of seven
times earnings for the year then ending. CHS Hungary is based in Budapest,
Hungary and is a distributor and retailer of products similar to those
distributed by the Company. In March 1996 the Company acquired 60% of CHS
Peru for consideration of $500,000 paid through forgiveness of debt. CHS
Peru is a distributor of products similar to those distributed by the
Company. These two acquisitions have been recorded in the March 31, 1996
historical financial statements from the date acquired. In April 1996 the
Company acquired 100% of Wyrsch Trading Ltd. (CHS Switzerland) for
contingent consideration equal to eight times net earnings measured under
U.S. GAAP for the year ending December 31, 1996 but not less than $1.7
million. CHS Switzerland is a distributor of computers and computer
peripherals located in Lucerne, Switzerland. These transactions are
accounted for under purchase accounting.
For purposes of the pro forma, the purchase price of CHS Hungary was
derived by adding the 1996 budgeted net earnings of CHS Hungary of
$3,100,000 to the book value of $3,800,000 at December 31, 1995 to obtain
the expected December 31, 1996 book value. The purchase price was then
calculated to be $14,586,000. Per the agreement, the book value portion is
payable in cash and the earnout portion is payable in stock or cash at the
seller's option. For purposes of the pro forma, it was assumed 1,006,000
shares would be issued for the earnout portion at a price of $11 per
share. In the March 31, 1996 pro forma balance sheet the acquisition entry
includes the $1,871,000 recorded in accrued liabilities in the historical
balance sheet.
For purposes of the pro forma, the purchase price of CHS Switzerland was
calculated based on the budgeted 1996 net earnings of $1,236,000. Per the
agreement, $1.7 million is payable in cash with the balance in stock. For
purposes of the pro forma, $11 per share was used as the value of the
stock to be issued resulting in the assumed issuance of 744,000 shares.
F-5
<PAGE>
Therefore, the acquisition entry is (in thousands of dollars):
(DR.) (DR.) (CR.) (CR.)
COMPANY INVESTMENT ACCRUED LIABILITIES CASH EQUITY
- ------- ---------- ------------------- ----- ------
CHS Hungary 12,715 1,871 3,519 11,067
CHS Switzerland 9,888 -- 1,700 8,188
------ ----- ----- ------
22,603 1,871 5,219 19,255
====== ===== ===== ======
(b) To eliminate the investment account, record goodwill of $12,648,000 for
CHS Hungary and $7,523,000 for CHS Switzerland.
(c) To eliminate intercompany sales.
(d) To record amortization of goodwill over a period of 20 years.
Amortization was provided for CHS Hungary, CHS Switzerland, CHS Czechia,
CHS BEK, CHS Peru and CHS Poland based on goodwill of $12,648,000,
$7,523,000, $2,400,000, $1,700,000, $183,000 and $700,000, respectively,
and the period of time during which each company was added to the pro
forma.
(e) To record an adjustment to salary expense to record the salary based on
signed employment agreements. A tax expense at 39% has also been provided
for this item.
(f) To record an adjustment for minority interest for CHS Hungary and CHS
Peru.
(g) Details of the Acquired Companies column in the accompanying Statements
of Operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
CHS CHS CHS CHS CHS CHS CHS CHS
HUNGARY PERU SWITZERLAND BEK CZECHIA FINLAND POLAND SWEDEN TOTAL
------- ------- ------- ------- ------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ........... $21,082 $11,218 $67,349 $69,310 $36,925 $1,954 $20,375 $1,981 $230,194
Cost of sales ....... 17,894 10,252 60,656 68,091 34,973 1,789 17,935 1,877 213,467
------- ------- ------- ------- ------- ------ ------- ------ --------
Gross profit ........ 3,188 966 6,693 1,219 1,952 165 2,440 104 16,727
Operating expenses... 770 685 4,735 1,590 1,145 27 2,251 139 11,342
------- ------- ------ ------- ------ ------- ------- ------- --------
Operating income..... 2,418 281 1,958 (371) 807 138 189 (35) 5,385
Interest income...... (206) -- -- -- -- -- -- (206)
Interest expense..... 116 192 320 16 232 (17) 83 3 945
Earnings before
income taxes....... 2,508 89 1,638 (387) 575 155 106 (38) 4,646
Provision for income
taxes ............. 462 93 334 (122) 227 24 65 (1) 1,082
------- ------- ------ ------- ------ ------- ------- ------- --------
Net earnings ........ 2,046 (4) 1,304 (265) 348 131 41 (37) 3,564
======= ======= ====== ======= ====== ======= ======= ======= ========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------
(IN THOUSANDS)
CHS CHS CHS
HUNGARY PERU SWITZERLAND TOTAL
------- ------------ ------ -------
Net sales ..................... $18,048 $4,001 $1,902 $23,951
Cost of sales ................. 16,449 3,723 1,503 21,675
------- ------ ------ -------
Gross profit .................. 1,599 278 399 2,276
Operating expenses ............ 1,307 160 51 1,518
------- ------ ------ -------
Operating income .............. 292 118 348 758
Interest income ............... -- -- -- --
Interest expense .............. 66 76 4 146
------- ------ ------ -------
Earnings before income taxes
and minority interest ......... 226 42 344 612
Provision for income taxe ..... 50 15 61 126
------- ------ ------ -------
Net earnings .................. $ 476 $ 27 $ 283 $ 486
======= ====== ====== =======
F-6
<PAGE>
(h) FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated into United
States dollars at the exchange rate in effect at the close of the period.
Revenues and expenses of these subsidiaries are translated at the average
exchange rate during the period. For entities in highly inflationary
countries, the U.S. dollar is considered the functional currency and a
combination of current and historical rates are used in translating assets
and liabilities. The related exchange adjustments are included in
operations.
F-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors
CHS Electronics, Inc.
We have audited the accompanying consolidated balance sheets of CHS
Electronics, Inc. and Subsidiaries (the "Company") as of December 31, 1995
and 1994 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CHS
Electronics, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Grant Thornton LLP
Miami, Florida
February 23, 1996
F-8
<PAGE>
CHS ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ------------ -----------
(RESTATED) (RESTATED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash .................................................................. $ 8,368 $ 11,171 $ 13,000
Accounts receivable:
Trade, less allowance for doubtful accounts
of $3,358 in 1994, $4,388 in 1995 and $4,545
in 1996 ............................................................ 68,633 112,501 110,606
Affiliates ........................................................... -- 843 2,462
-------- -------- --------
68,633 113,344 113,068
Inventories, net of obsolescence reserves ............................. 63,427 102,159 113,318
Deferred tax asset .................................................... 330 456 456
Prepaid expenses ...................................................... 5,579 9,824 10,084
-------- -------- --------
Total current assets ................................................ 146,337 236,954 249,926
PROPERTY AND EQUIPMENT, NET ............................................ 2,972 9,126 10,464
COST IN EXCESS OF ASSETS ACQUIRED, NET ................................. 13,142 17,305 17,709
OTHER ASSETS ........................................................... 2,017 2,419 3,826
-------- -------- --------
$164,468 $265,804 $281,925
======== ======== ========
LIABILITIES
CURRENT LIABILITIES
Notes payable ........................................................... $ 15,198 $ 46,438 $ 52,237
Accounts payable--trade ................................................. 102,003 165,494 165,322
Accounts payable to affiliate ........................................... 4,776 -- --
Accrued liabilities ..................................................... 8,934 14,242 15,818
Income taxes payable .................................................... 1,422 937 1,317
--------- -------- ---------
Total current liabilities ............................................. 132,333 227,111 234,694
LONG TERM DEBT (including $1,500 in 1994 due to an
affiliated company) .................................................... 8,104 8,801 13,510
EXCESS OF ASSETS ACQUIRED OVER COST ...................................... 4,161 -- --
MINORITY INTEREST ........................................................ -- -- 2,116
SHAREHOLDERS' EQUITY
Preferred stock, authorized 5,000,000 shares; 0 shares
issued and outstanding ................................................ -- -- --
Common stock, authorized 100,000,000 shares at $.001
par value; issued and outstanding, 6,812,115 shares at
December 31, 1994, 7,582,534 shares at December 31,
1995 and March 31, 1996 ............................................... 14 8 8
Additional paid-in capital .............................................. 19,618 24,976 25,620
Retained earnings ....................................................... 253 4,558 6,546
Deferred compensation ................................................... (138) -- --
Cumulative foreign currency translation adjustment ...................... 123 350 (569)
--------- -------- ---------
19,870 29,892 31,605
--------- -------- ---------
$ 164,468 $265,804 $ 281,925
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- ------------------------
1993 1994 1995 1995 1996
-------- --------- ---------- ---------- --------
(RESTATED) (RESTATED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales (including sales to affiliates
of $9,591, $52,421, $21,063, $15,100
and $0, respectively) ................... $146,408 $359,169 $936,703 $204,835 $302,995
Cost of goods sold ........................ 136,968 333,983 868,716 189,924 280,453
-------- --------- -------- -------- --------
Gross profit .............................. 9,440 25,186 67,987 14,911 22,542
Operating expenses ........................ 9,075 21,798 57,188 12,119 17,850
-------- --------- -------- -------- --------
Operating income .......................... 365 3,388 10,799 2,792 4,692
Other income (expenses)
Interest income .......................... 229 250 1,757 505 614
Interest expense ......................... (1,076) (2,070) (6,454) (1,248) (1,940)
-------- --------- -------- -------- --------
(847) (1,820) (4,697) (743) (1,326)
-------- --------- -------- -------- --------
Earnings (loss) before income taxes and
minority interest ....................... (482) 1,568 6,102 2,049 3,366
Income tax expense ........................ 241 603 1,797 382 1,059
Minority interest in subsidiaries ........ -- -- -- -- 319
-------- --------- -------- -------- --------
Net earnings (loss) ....................... $ (723) $ 965 $ 4,305 $ 1,667 $ 1,988
======== ========= ======== ======== ========
Net earnings (loss) per common
share--primary. ......................... $ (0.32) $ 0.21 $ 0.59 $ 0.24 $ 0.25
======== ========= ======== ======== ========
Net earnings (loss) per common
share--fully diluted .................... $ (0.32) $ 0.21 $ 0.59 $ 0.24 $ 0.24
======== ========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1995
AND THREE MONTHS ENDED MARCH 31, 1996
(in thousands)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL RETAINED CURRENCY
PAID-IN EARNINGS DEFERRED TRANSLATION
COMMON STOCK CAPITAL (DEFICIT) COMPENSATION ADJUSTMENT TOTAL
------------ ---------- --------- ------------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1993 .............. 4 5,626 11 -- (178) 5,463
Capital contribution ................. -- 1,616 -- -- -- 1,616
Reclassification of equity to debt in
connection with acquisition ........ -- (4,000) -- -- -- (4,000)
Issuance of common stock in
acquisition ........................ 2 5 -- -- -- 7
Net loss ............................. -- -- (723) -- -- (723)
Foreign currency translation
adjustment ......................... -- -- -- -- (433) (433)
---- ------- ------ ------ ---- -------
Balance at December 31, 1993 ......... 6 3,247 (712) -- (611) 1,930
Issuance of common stock through
private offering ................... 2 3,998 -- -- -- 4,000
Issuance of common stock in
acquisitions ....................... 6 18,841 -- -- -- 18,847
Issuance of compensatory stock
options ............................ -- 280 -- (280) -- --
Deferred compensation recognized .... -- -- -- 142 -- 142
Net income ........................... -- -- 965 -- -- 965
Foreign currency translation
adjustment ......................... -- -- -- -- 734 734
---- ------- ------ ------ ---- -------
Balance at December 31, 1994, as
previously reported ................ 14 26,366 253 (138) 123 26,618
Adjustment for acquisition of 6
companies (Note B) ................. -- (6,748) -- -- -- (6,748)
---- ------- ------ ------ ---- -------
Balance at December 31, 1994,
as restated ........................ 14 19,618 253 (138) 123 19,870
Adjustment for 1 for 2 reverse split (7) 7 -- -- -- --
Deferred compensation recognized .... -- -- -- 138 -- 138
Issuance of common stock in
acquisitions ....................... 1 5,351 -- -- -- 5,352
Net income ........................... -- -- 4,305 -- -- 4,305
Foreign currency translation
adjustment ......................... -- -- -- -- 227 227
---- ------- ------ ------ ---- -------
Balance at December 31, 1995 ......... 8 24,976 4,558 -- 350 29,892
Net income (unaudited) ............... -- -- 1,988 -- -- 1,988
Additional consideration on
acquisition ........................ -- 644 -- -- -- 644
Foreign currency translation
adjustment (unaudited) ............. -- -- -- -- (919) (919)
---- ------- ------ ------ ---- -------
Balance at March 31, 1996 (unaudited) $ 8 $25,620 $6,546 $ -- $(569) $31,605
==== ======= ====== ====== ===== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE>
CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -----------------------
1993 1994 1995 1995 1996
-------- ---------- ---------- ---------- -----------
(RESTATED) (RESTATED) (RESTATED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net earnings (loss) ............................... $ (723) $ 965 $ 4,305 $ 1,667 $ 1,988
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization .................... 410 874 2,456 603 891
Deferred compensation amortized .................... -- 138 148 69 --
Loss on sale of facility ........................... 26 -- -- -- --
Minority interest .................................. -- -- -- -- 319
Interest expense pushed down from parent,
net of tax ....................................... 105 -- -- -- --
Changes in assets and liabilities excluding
effects of acquisitions:
Accounts receivable--trade, net ................ (4,734) (9,242) (37,724) 685 2,461
Accounts receivable--affiliates, net .............. (3,053) (1,022) (12,285) 3,082 (1,631)
Inventories ....................................... 845 (18,798) (32,204) (52) (11,357)
Prepaid expenses and other assets ................. 932 (2,429) (1,742) (3,734) (4,019)
Accounts payable .................................. 1,199 36,617 51,818 (2,997) 1,821
Accrued liabilities and income taxes .............. 700 758 3,175 1,176 1,545
------- -------- -------- -------- --------
Net cash provided by (used in) operating activities: (4,293) 7,861 (22,053) 499 (7,982)
Cash flows from investing activities:
Purchase of fixed assets .......................... (462) (1,728) (6,866) (539) (1,618)
Proceeds from sale of facilities .................. 6 -- -- -- --
Cash provided from acquisitions ................... 74 4,890 1,317 -- --
------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities: ............................ (382) 3,162 (5,549) (539) (1,618)
Cash flows from financing activities:
Proceeds from private placement ................... -- 4,000 -- -- --
Payment on notes to affiliate ..................... -- (3,771) -- -- --
Proceeds from affiliate notes ..................... 374 1,650 -- 36 --
Net borrowings from (repayments to) banks ......... 3,320 (5,254) 29,855 5,384 11,657
Capital contributed ............................... 1,511 -- -- -- --
Dividends paid .................................... (782) -- -- -- --
------- -------- -------- -------- --------
Net cash provided by (used in) financing activities: 4,423 (3,375) 29,855 5,420 11,657
Effect of exchange rate changes on cash ............. (389) 117 550 512 (228)
------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH ......................... (641) 7,765 2,803 5,892 1,829
------- -------- -------- -------- --------
Cash at beginning of period ......................... 1,244 603 8,368 8,368 11,171
------- -------- -------- -------- --------
Cash at end of period ............................... $ 603 $ 8,368 $ 11,171 $ 14,260 $ 13,000
======= ======== ======== ======== ========
</TABLE>
(CONTINUED)
F-12
<PAGE>
CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- ----------------------
1993 1994 1995 1995 1996
------- ---------- ---------- ---------- --------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest ................................. $906 $1,532 $4,944 $793 $2,154
Income taxes .................................. -- 747 1,753 435 291
</TABLE>
Non cash investing and financing activities:
These statements of cash flows do not include noncash investing and financing
transactions associated with the common stock issued for various
acquisitions. The components of the transactions in each year are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- --------------------
1993 1994 1995 1995 1996
------- ---------- ---------- ---------- -------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Fair value of assets acquired including
cash acquired ........................ $551 $92,049 $19,216 $ -- $7,284
Less: Common stock or other
consideration issued ................. 7 26,647 7,152 -- 2,515
---- ------- ------- ---- ------
Liabilities assumed .................... $544 $65,402 $12,064 $ -- $4,769
==== ======= ======= ==== ======
</TABLE>
In 1994 and 1995, a $6,748,000 and $5,200,000, respectively, reduction in
receivable from affiliate was charged to additional paid-in capital.
Compensatory stock options of $280,000 were issued in 1994.
The accompanying notes are an integral part of these statements.
F-13
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES
1. FORMATION OF BUSINESS
On January 1, 1993, CHS Electronic Publishing Service GmbH, ("CHS
Germany") was acquired by Comtrad, Inc. ("Comtrad"), a U.S. corporation based
in Miami, Florida for $3,200,000. Goodwill arising from this transaction
($2,212,000) has been pushed down to the CHS Germany level as of the date of
acquisition and is reflected in the accompanying financial statements. On
December 8, 1993, Comtrad transferred ownership of CHS Germany to a newly
formed subsidiary of Comtrad for 4,000,000 shares of its common stock and a
$4,000,000 promissory note. Such acquisition was accounted for in a manner
similar to a pooling of interests since it was between entities under common
control. Assets and liabilities were transferred to the subsidiary at their
historical cost. On December 21, 1993, Comtrad exchanged the stock of the
subsidiary for 2,000,000 shares of Safety Technology, Inc., ("STI") (which
represented 96.5% of STI's shares) a publicly held, inactive Utah corporation
with essentially no assets or liabilities. After this exchange STI changed
its name to CHS Electronics, Inc. (the "Company"). This transaction has been
accounted for in the 1993 financial statements as a reverse acquisition so
that CHS Germany is the reporting entity.
2. NATURE OF OPERATIONS
The Company is an international distributor of computer equipment,
peripherals and software. The products are sold, principally to resellers, in
Western Europe, South America and Eastern Europe.
3. RESTATEMENT
The 1994 balance sheet and the 1995 financial statements have been
restated for the effects of companies acquired in a manner similar to a
pooling of interests due to a common control (see note B). All share and per
share information have been restated for a one for two reverse stock split
approved by the shareholders in March 1996.
4. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.
5. FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated into United
States dollars at the exchange rate in effect at the close of the period.
Revenues and expenses of these subsidiaries are translated at the average
exchange rate during the period. The aggregate effect of translating the
financial statements of foreign subsidiaries is included in a separate
component of shareholders' equity entitled foreign currency translation
adjustment. In the normal course of business, the Company advances funds to
certain of its foreign subsidiaries, which are not expected to be repaid in
the foreseeable future. Translation adjustments resulting from these advances
are included in foreign currency translation adjustment. For entities in
highly inflationary countries, the U.S. dollar is
F-14
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
considered the functional currency and a combination of current and
historical rates are used in translating assets and liabilities. The related
exchange adjustments are included in operations.
6. CASH EQUIVALENTS
For the purpose of the Statement of Cash Flows, the Company considers all
highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents.
7. CONCENTRATION OF CREDIT RISK
The Company's credit risk on trade receivables is diversified over a wide
geographic area and many customers. The largest customer accounts for less
than 6% of sales. The Company performs ongoing credit evaluations of its
customers. In South America, the Company obtains guarantees from its
customers in some cases. The Company uses credit insurance in several
locations (covering $59 million in receivables at December 31, 1995) and
factoring without recourse in other locations to mitigate risk and provides
for estimated credit losses at time of sale.
8. INVENTORIES
Inventories, consisting of finished products, are stated at the lower of
cost or market, with cost being determined principally by current replacement
cost, which approximates the first-in first-out method.
9. DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives. Leasehold improvements are amortized over the lives of
respective leases or the service lives of the improvements whichever is
shorter.
The straight-line and accelerated methods of depreciation are followed for
financial reporting purposes. The useful lives are as follows:
YEARS
-----
Buildings ..................... 30-50
Leasehold improvements ........ 3-7
Computer equipment ............ 2-5
Office equipment and furniture 3-10
Expenditures for renewals and improvements that significantly extend the
useful life of an asset are capitalized. The costs of software used in
business operations are capitalized and amortized over their expected useful
lives. Expenditures for maintenance and repairs are charged to operations
when incurred. When assets are sold or retired, the cost of the asset and the
related accumulated depreciation are eliminated from the accounts and any
gain or loss is recognized at such time.
F-15
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
10. INCOME TAXES
The Company utilizes the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES. Under the liability
method specified by SFAS 109, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities as measured by the current enacted tax rates
which will be in effect when these differences reverse. Deferred tax expense
is the result of changes in deferred tax assets and liabilities.
The Company intends to invest the undistributed earnings of its foreign
subsidiaries indefinitely. At December 31, 1994 and 1995, the cumulative
amount of undistributed earnings on which the Company has not recognized
United States income taxes was approximately $1,418,000 and $6,015,000,
respectively. However, it is anticipated that United States income taxes on
such amounts would be partially offset by available foreign income tax
credits.
11. REVENUE RECOGNITION
The Company recognizes sales upon shipment, as there is no significant
post-sale obligation and collectibility is reasonably assured. Income from
vendor rebates, discounts, and cooperative advertising is recognized when
earned, as a reduction of the cost of inventory sold or as a reduction of
operating expenses.
12. COST IN EXCESS OF ASSETS ACQUIRED, NET
The cost in excess of assets acquired is being amortized to operations
over a 20 year period on a straight-line basis. The Company evaluates its
goodwill annually to determine potential impairment by comparing the carrying
value to undiscounted future cash flows of the related assets. The Company
modifies or adjusts the value of the subsidiary's goodwill if an impairment
is indicated by the difference between the undiscounted cash flows and the
carrying value. Accumulated amortization was $431,000 and $1,187,000 at
December 31, 1994 and 1995, respectively. In March 1995, the Financial
Accounting Standards Board issued Statement No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
All of the Company's goodwill is identified with the assets acquired and
falls under the scope of SFAS 121. This Statement will have no impact on the
Company's results of operations or financial position upon adoption in
January 1996.
13. EARNINGS PER COMMON SHARE
Earnings per share for 1994 and 1995 is computed by dividing net income by
the weighted average number of shares of common stock and common stock
equivalents (common stock options) outstanding during the year, unless such
inclusion is antidilutive. The weighted average number of shares was
4,693,332 in 1994, 7,282,785 in 1995, 6,966,120 and 7,862,349 in the three
month periods ended March 31, 1995 and 1996, respectively. Earnings per
common share for the year ended December 31, 1993 is computed using the total
shares outstanding of the Company at December 31, 1993 (2,269,000 shares).
The weighted average number of shares (8,183,391 shares) used in the
computation of fully
F-16
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
diluted earnings per share for the quarter ended March 31, 1996 assumes the
contingent shares related to the acquisition of 51% of a company in Hungary
were issued based on the acquisition formula applied to the earnings of the
acquired company in the interim period.
14. STOCK OPTIONS
Options granted under the Company's 1994 Stock Option Plan are accounted
for under APB Opinion 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES AND
RELATED INTERPRETATIONS. In October 1995, the Financial Accounting Standards
Board issued Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS
123), which will require additional proforma disclosures for companies that
will continue to account for employee stock options under the intrinsic value
method specified in APB 25. The Company plans to continue to apply APB 25 and
the only effect of adopting SFAS 123 in 1996 will be the new disclosure
requirement.
15. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reported period.
Actual results could differ from those estimates.
16. INTERIM FINANCIAL INFORMATION
The financial statements at March 31, 1996 and for the three month periods
ended March 31, 1995 and 1996 are unaudited and prepared on the same basis as
the audited consolidated financial statements included herein. In the opinion
of management, such interim financial statements included all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the results for such periods. The results of operations for the three months
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the full year or any other interim period.
NOTE B--ACQUISITIONS
In 1995, the Company acquired nine companies in as many countries. Eight
of these were acquired from Comtrad Holdings, Inc. (CHI) or Comtrad (a wholly
owned subsidiary of CHI) and have been accounted for as an exchange between
entities under common control in a manner similar to a pooling of interests.
Accordingly, these acquisitions have been included in the accompanying
financial statements from the date acquired by Comtrad or CHI. The
acquisition of the company in the Czech Republic was partially (16%) from
Comtrad and partially from an individual. The portion from Comtrad was valued
at Comtrad's basis of $758,000. The portion purchased from the unrelated
individual has been accounted for as a purchase. Results of the remaining 84%
of the Czech Republic company have been included in the accompanying
financial statements from October 1, 1995. Information about the pooled
acquisitions is shown below:
F-17
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE B--ACQUISITIONS--(CONTINUED)
<TABLE>
<CAPTION>
CHS COMTRAD OR CHI
COMPANY SERVICE AREA CONSIDERATION ACQUISITION DATE ACQUISITION DATE
- ------- ---------------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
CHS England England 1,750,000 April 1995 September 1994
CHS France France shares April 1995 September 1994
CHS Belgium Belgium and Luxembourg April 1995 September 1994
CHS Portugal Portugal April 1995 January 1993
CHS BEK South America 287,500 shares October 1995 July 1995
CHS Czechia (16%) Czech Republic 92,000 shares October 1995 January 1993
CHS Finland Finland $2,300,000 December 1995 July 1995
CHS Sweden Sweden $2,400,000 December 1995 July 1995
CHS Poland Poland $2,300,000 December 1995 November 1995
</TABLE>
In these transactions, assets and liabilities were transferred to the
Company at Comtrad's or CHI's original cost basis. In several of these
transactions Comtrad's cost is subject to adjustment from earnout agreements.
Comtrad's purchase price for the three companies in the United Kingdom,
France and Belgium consisted of a $7,000,000 note and an amount determined by
an earn out based on 1994 and 1995 earnings. In accounting for this
transaction initially, after reducing fixed assets to zero, there was an
excess of net assets acquired over cost ($4,161,000 at December 31, 1994). In
May 1995, the acquisition agreement was modified to reduce to 100,000 the
maximum number of additional Company shares that could become due to such
sellers based on 1995 operating results, in return for Comtrad's payment to
the sellers of $794,000 and 500,000 shares of Company stock owned by Comtrad.
The 100,000 additional shares were issued by Comtrad in early 1996. The value
of this additional purchase price ($5,344,000), less what had previously been
recorded as a liability for the 1994 earn out ($617,000), has been recorded
in the accompanying balance sheet as an increase in additional paid in
capital, a reduction of the excess of net assets acquired over cost to zero
and restoration of a portion of fixed assets. In 1995, $975,000 of
depreciation which would have applied to fixed assets reduced to zero was not
incurred.
As consideration for the acquisition of the company in Portugal, Comtrad
delivered common stock valued at $800,000. The acquisition was recorded at
this value, resulting in goodwill of $450,000.
As consideration for the acquisition of CHS BEK, CHI delivered CHI class B
common shares which have preference rights in liquidation to a specified
number of Company shares held by CHI depending on a one year earn out. As of
December 31, 1995, the acquisition was recorded at CHI's basis of $1,747,000,
based on the six month results. This amount is subject to change based on the
final earnout amount. The goodwill recorded at December 31, 1995 was $1.7
million, which is being amortized over a 20 year life. In April 1996 the
number of the preference shares were further defined to be between 258,750
and 287,500 based on 1996 results. Accordingly, additional consideration of
$644,000 was recorded as additional paid-in capital and goodwill in the three
months ended March 31, 1996.
In Comtrad's acquisition of two companies in Sweden and Finland, Comtrad's
consideration was a number of Company shares to be determined by an earnout
based on 1996 results. Accordingly, the
F-18
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE B--ACQUISITIONS--(CONTINUED)
contingent amount has not been recorded as it is not determinable beyond a
reasonable doubt. The acquisition has been recorded by the Company as a
charge to additional paid-in capital until the value of the consideration can
be determined.
In consideration for the acquisition of the company in Poland, CHI
delivered shares of its stock, a $600,000 note and an unknown number of
Company shares to be determined by an earnout based on 1996 results. The
contingent amount has not been recorded as it is not determinable beyond a
reasonable doubt. The value given to date by CHI was determined to be $1.8
million and the difference of $500,000 between that amount and the price paid
by the Company has been charged to additional paid-in capital. Goodwill of
$.7 million has been recorded on this transaction, which will be amortized
over 20 years.
In March 1996, the Company acquired six companies from Comtrad or CHI for
the reduction of indebtedness of $7.8 million. These acquisitions have been
accounted for as an exchange between entities under common control in a
manner similar to a pooling of interest. Accordingly, these acquisitions have
been included in the accompanying financial statements from the date acquired
by Comtrad or CHI.
Companies in Bulgaria, Croatia, Lithuania and Romania were started by
Comtrad in 1993 and 1994 for a minimal investment and have had insignificant
operations. They are treated as if Comtrad acquired them on December 31,
1994. Sixty five percent of a company in Slovakia was acquired in early 1994
for a minimal investment and 1994 results were insignificant. The remaining
35% was acquired by Comtrad for a contingent payment in CHS shares to be
based on 1996 results. This acquisition has been recorded as of December 31,
1994 based on the cost of the 65% with the remaining cost to be recorded as
goodwill when known. The acquisition in Brazil was in November 1994 for CHI
common shares valued at $762,000. The acquisition was recorded as of December
31, 1994 at this value, resulting in goodwill of $2,508,000.
Combined and separate results of the companies for 1995 are shown below
(in thousands):
<TABLE>
<CAPTION>
(AS ORIGINALLY
PRESENTED) (RESTATED)
CHS BALTIC BRAZIL BULGARIA CROATIA ROMANIA SLOVAKIA COMBINED
-------------- ------ ------ -------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995
Sales ................ $862,324 2,610 45,934 4,236 4,820 3,592 13,187 $936,703
Net earnings (loss)... 4,743 63 (147) (25) (100) (152) (77) 4,305
</TABLE>
As noted above, terms of several of the acquisitions by Comtrad provided
for contingent consideration. The Company believes such contingent
consideration, when paid, will be additional purchase price. The Company's
conclusion is based on the terms of each agreement, which provide that the
contingent consideration is not dependent on the continued employment of
sellers, is based on a multiple of earnings over a short time period, is the
major portion of the purchase price and is in addition to fair compensation
paid to the former owner through salary and bonus.
The Company acquired 84% of the Czech Republic company from an individual
by issuing 483,000 shares which were valued at their market value of
$3,246,000. This produced goodwill of $2.4 million which is being amortized
over 20 years.
F-19
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE B--ACQUISITIONS--(CONTINUED)
On June 30, 1994, the Company entered into a Plan of Acquisition ("Plan"),
with Comtrad, CHI, and Alvin Perlman ("Perlman"), the sole shareholder of CHS
Promark and the owner of the minority interests in certain subsidiaries.
Under the terms of the Plan, the Company acquired from CHI 77% of the capital
stock of CHS Promark and 30% of the outstanding capital of three companies
operating in Argentina, Chile and Colombia (the South American subsidiaries)
in exchange for 1,540,000 shares of the Company's common stock. In a
simultaneous transaction, the Company acquired the remaining 23% of the stock
of CHS Promark (which owned the remaining 70% of the South American
subsidiaries) from Perlman in exchange for 460,000 shares of the Company's
common stock. In July 1994, CHS Promark acquired the Venezuelan operations of
Comtrad for nominal consideration. The exchange between the Company and CHI
has been accounted for as an exchange between entities under common control
with CHI's cost basis in the acquired assets being pushed down to the
Company. The exchange between the Company and Perlman for the remaining 23%
interest in CHS Promark has been accounted for by the Company as a purchase.
The Company recorded a total investment of $11,300,000, which was the fair
market value of CHS Promark as determined by an independent appraisal. The
excess of the cost over the fair value of the net assets acquired was
approximately $8,364,000 and is being amortized over 20 years.
The following represents the unaudited pro forma results of operations
assuming all of these acquisitions had taken place on January 1, 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995
-------- ----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Net sales ................................ $699,371 $1,067,248
Net earnings ............................. 1,242 4,643
Net earnings per share ................... $ .16 $ .60
</TABLE>
The amounts above include adjustments of goodwill amortization, salary
adjustments to reflect new compensation agreements and income taxes on CHS
Promark, which was a Subchapter S corporation.
The pro forma information is not necessarily indicative of the actual
results of operation that would have occurred had the acquisitions taken
place on January 1, 1994, or of results which may occur in the future.
In February 1996, the Company acquired 51% of an unaffiliated company in
Hungary for consideration based on the acquired company's results in 1996.
The consideration is 51% of the book value of equity plus a multiple of 51%
of 1996 net earnings. Based on a history of profitable operations, the
acquisition was initially recorded at 51% of the book value on January 31,
1996. Adjustments to purchase price will be made when the amount of
contingent consideration is known.
F-20
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE C--VALUATION ACCOUNTS
Changes in certain valuation accounts are shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Allowance for doubtful accounts
Beginning balance ....................... $298 $ 546 $ 3,358
Provision for bad debt .................. 213 1,596 3,035
Write-offs .............................. -- (473) (2,161)
Acquired through acquisition ............ 35 1,689 156
---- ------- -------
Ending balance .......................... $546 $ 3,358 $ 4,388
==== ======= =======
Reserve for inventory obsolescence
Beginning balance ....................... $-- $ 48 $ 1,362
Provision for obsolescence .............. -- 386 1,128
Write-downs ............................. -- (150) (919)
Acquired through acquisition ............ 48 1,078 185
---- ------- -------
Ending balance .......................... $ 48 $ 1,362 $ 1,756
==== ======= =======
</TABLE>
NOTE D--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land and buildings ..................................... $ 106 $ 1,943
Furniture and fixtures ................................. 842 6,973
Leasehold improvements ................................. 695 1,790
Computers and office equipment ......................... 2,465 2,498
Vehicles and other ..................................... 304 1,992
------- -------
4,412 15,196
Less accumulated depreciation and amortization ......... 1,440 6,070
------- -------
$ 2,972 $ 9,126
======= =======
</TABLE>
F-21
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE E--INCOME TAXES
The components of income before income taxes consist of the following:
YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
------ ------ -------
(IN THOUSANDS)
Domestic .................... (80) $1,258 $ 741
Foreign ..................... (402) 310 5,361
----- ------ ------
Total ....................... $(482) $1,568 $6,102
===== ====== ======
The provision for income taxes consists of the following:
YEAR ENDED DECEMBER 31,
------------------------------------------
1993 1994 1995
------- -------- --------
(IN THOUSANDS)
Current
U.S. Federal ................. $-- $ 776 $ 525
U.S. State ................... -- 122 41
Foreign ...................... 241 35 1,357
----- ------- -------
241 933 1,923
----- ------- -------
Deferred
U.S. Federal ................. -- (289) 67
U.S. State ................... -- (41) 5
Foreign ...................... -- -- (198)
----- ------- -------
-- (330) (126)
----- ------- -------
$ 241 $ 603 $ 1,797
===== ======= =======
Deferred tax assets are comprised of the following at:
DECEMBER 31,
--------------------
1994 1995
------- -------
(IN THOUSANDS)
Deferred tax assets
Net operating losses of foreign subsidiaries ........ $ 4,777 $ 4,162
Employee compensation not currently deductible ...... 158 127
Inventory differences ............................... 51 66
Allowance for bad debts ............................. 121 265
------- -------
3,344 2,857
Valuation allowance ................................. (4,777) (4,162)
------- -------
Total ............................................. $ 330 $ 456
======= =======
The major elements contributing to the difference between taxes at the
U.S. federal statutory tax rate and the effective tax rate are as follows:
F-22
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE E--INCOME TAXES--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory rate ............................................. $(164) $ 533 $2,070
Foreign income subject to tax at other than statutory rate 6 (53) (212)
State or local income taxes, less effect of federal
benefits ................................................. 94 53 55
Losses without tax benefit ................................. 275 390 613
Goodwill amortization ...................................... 38 108 190
Utilization of net operating losses of foreign subsidiaries -- (382) (826)
Other ...................................................... (8) (46) (93)
----- ----- ------
Effective tax rate ......................................... $ 241 $ 603 $1,797
===== ===== ======
</TABLE>
At December 31, 1995, the Company has net operating loss carry forwards in
certain foreign jurisdictions that expire as follows:
1998 ................. $2,533,000
1999 ................. 185,000
2000 ................. 846,000
No expiration date.... 3,811,000
As disclosed in Note I, CHS Germany paid an administrative fee of .7% of
net sales ($896,000) to its affiliate, Comtrad, during 1993. CHS Germany had
deducted this fee in arriving at its taxable income. Although management of
CHS Germany considers the charges levied to approximate those under normal
commercial arrangements, they could be challenged by the German Fiscal
Authorities. Should any challenge be successful, CHS Germany would be liable
for additional tax on the disallowed portion of the deduction. The Company is
not indemnified against any such eventuality. In 1994, the Company conducted
a study to help determine the probable deductibility of such amounts. Based
on such study, a credit of $579,000 was issued by Comtrad in 1994. Management
believes that any potential liability to the Company arising from this matter
would not have a material adverse effect upon the results of operations or
financial condition of the Company. In September 1994, the German Fiscal
Authorities completed an audit of years up to fiscal 1992. No significant
liabilities resulted from the audit.
NOTE F--NOTES PAYABLE AND LONG TERM DEBT
Several of the Company's subsidiaries have credit lines with local banks
totaling $56,000,000 at December 31, 1995. Generally, borrowings under such
lines are collateralized by receivables or inventory. The lines are
principally of one year duration and are renewable by the banks. In 1995, the
maximum and average amounts outstanding were $56,000,000 and $46,000,000,
respectively. The 1995 average and year end interest rates on a weighted
basis were 8.87% and 8.36%, respectively.
Included in the lines above is a $20 million credit line with a bank of
which $19,848,000 was outstanding at December 31, 1995. The debt is
guaranteed by Comtrad, CHI and the Company's chairman. Certain shares of the
Company held by Comtrad and CHI are also pledged under the guarantee. The
line is also collateralized by essentially all of the Company's assets.
During 1995, the
F-23
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE F--NOTES PAYABLE AND LONG TERM DEBT--(CONTINUED)
Company was in violation of certain covenants relating principally to
obtaining bank approval for certain transactions. Such approval has been
received as has a waiver of such violations.
CHS Promark's new revolving credit agreement provides that the interest
rates will increase .75% if $3 million is not invested into CHS Promark by
July 1996. The agreement also limits the ability of CHS Promark to pay
dividends to the Company to 50% of CHS Promark's net income.
The Company's long-term debt consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- ----------
1994 1995 1996
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving credit agreement, due February 1999, providing for advances and
letter of credit based upon eligible accounts receivable and inventory up to a
maximum of $20 million. Interest at Prime plus 1.5% or LIBOR plus 3.75% at
borrower's option. CHS Promark's assets, including accounts receivable and
inventory of $25,683,000 pledged as collateral ............................... $-- $-- $12,641
CHS Promark had a $12,000,000 revolving credit agreement with a bank. The
agreement, which was refinanced on February 5, 1996, included banker's
acceptances and a line of credit. Interest on the advances under the line was
at the bank's base rate plus 1.5% for the first 5 months of 1995 and at a
penalty rate of base plus 4.5% for the remainder of 1995 (13.25% at December
31, 1995) and for the banker's acceptances, interest rates were determined at
the time of borrowing. CHS Promark's accounts receivable and inventories
($22,544,000 at December 31, 1995) were pledged as collateral. One million
dollars of the loan was guaranteed by an officer of CHS Electronics, Inc.
Advances were based on a percentage of accounts receivable and inventories, as
defined in the agreement. In addition, the credit agreement contained certain
restrictive covenants. CHS Promark was in violation of the ratio of
liabilities to equity covenant for all of 1995. .............................. 6,060 8,004 --
Mortgage on building, interest at 9.5%, due in 2002 with monthly payments of
$5,964 including interest, collateralized by a building with a net book value
at December 31, 1995 of $637,000 ............................................. -- 343 298
Unsecured note to Comtrad bearing interest at 8%, due January 1996 (classified
with affiliate receivables at December 31, 1995) ............................. 1,500 -- --
Unsecured note due in 1997, bearing interest at 11% ............................ -- 276 276
Installment and other notes, collateralized by computer equipment, and
commercial vehicles, bearing interest ranging from 7.4% to 11%, with
maturities through September 1998 ............................................ 614 352 728
------ ------ -------
Total .......................................................................... 8,174 8,975 13,943
Less current portion of long-term debt, included in notes payable ............. 70 174 433
------ ------ -------
Total long-term debt ........................................................... $8,104 $8,801 $13,510
====== ====== =======
Scheduled maturities of long-term debt are as follows (in thousands):
Year Ending December 31,
1996 .......................................................................... 174
1997 .......................................................................... 440
1998 .......................................................................... 105
1999 .......................................................................... 8,059
2000 .......................................................................... 59
</TABLE>
F-24
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE G--CONCENTRATIONS
The Company's markets are substantially all outside the United States. The
largest amount of sales occurred in 1995 in Germany, which comprised 20% of
total sales. The Company also had sales of almost 14% in each of France and
England. While these countries are considered politically stable, there is
risk that economic difficulties in any of these countries could adversely
affect the Company's business.
The Company also has operations in the less politically stable countries
of Venezuela and Colombia. In Venezuela, currency export restrictions have
extremely limited the subsidiary's ability to pay its obligations to its
parent. The Company's investment in this subsidiary is $2.8 million.
Much of the Company's sales are made in local currencies other than the
U.S. dollar. In some countries, certain purchases and the resulting payables
are in dollars. This situation creates a risk in that changes in foreign
exchange rates could produce gains or losses. The current liabilities
denominated in U.S. dollars were $57 million at December 31, 1995.
Transaction gains and losses on these liabilities are included in the
determination of operating results for the relevant periods. In 1993, 1994
and 1995 foreign currency gains (losses) were ($213,000), $385,000 and
$74,000 respectively.
The Company enters into foreign exchange contracts to hedge foreign
currency transactions on a continuing basis for periods consistent with its
committed exposure. The foreign exchange contracts are valued at market and
generally have maturities which do not exceed six months. Gains and losses on
foreign exchange contracts offset losses and gains on assets, liabilities and
transactions being hedged. As a result the Company does not anticipate any
material adverse effect due to exchange rate movements over the short term
period covered by these contracts. At December 31, 1995 the face value of
foreign exchange forward contracts was $29.5 million, which approximated the
fair market value of the contracts. CHS Czechia and CHS Poland accounted for
$10.4 million and $8.5 million of the unhedged amounts at December 31, 1995.
In other countries, there is a risk that high inflation will result in
devaluation of the local currency either periodically or in a large
devaluation. In these countries, no hedging mechanism exists. The Company has
risks in these countries that devaluation could cause economic loss and
negatively impact future sales since the products cost would increase in
local terms after a devaluation. The Company attempts to limit its economic
loss through structural mechanisms of limiting its holdings of local currency
and receivables to the amount of its local currency payables.
NOTE H--LEASE OBLIGATIONS AND OTHER CONTINGENCIES
The Company leases equipment, offices, sales and warehouse space under
non-cancelable leases. The following is a schedule by years of the minimum
rental commitments remaining on leased property and equipment (in thousands):
F-25
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE H--LEASE OBLIGATIONS AND OTHER CONTINGENCIES--(CONTINUED)
YEAR ENDING
DECEMBER 31, BUILDINGS EQUIPMENT AUTOS TOTAL
------------ --------- --------- ----- -------
1996 $2,165 $279 $450 $2,893
1997 2,212 259 238 2,709
1998 1,966 158 88 2,212
1999 1,777 76 9 1,862
2000 1,386 19 -- 1,405
Subsequent Years 8,096 -- -- 8,096
Total rental expense was $1,084,000, $1,583,000 and $2,503,000 for the
years ended December 31, 1993, 1994 and 1995, respectively.
Rental expense includes $64,840 for monthly rent due on a CHS facility in
Germany under a lease agreement dated November 1993 with a term of 17 years.
CHS Germany has the option to purchase the leased property at both the end of
the seventh year of the lease term, and at the end of the lease, for the net
book value of the property as calculated under applicable German tax laws.
The option prices at the end of the seventh and seventeenth year would
approximate $5,911,000 and $2,974,000, respectively. In addition, the lessor
has the right to adjust the minimum rental payments at the end of 1999 if
certain economic conditions prevail.
The Company is involved in litigation relating to claims arising out of
its operations in the normal course of business. The Company is not currently
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on the Company.
NOTE I--RELATED PARTY TRANSACTIONS
On January 1, 1993 CHS Germany was acquired by Comtrad for $3,200,000.
Comtrad subsequently provided additional equity in June 1993 by investing an
additional 2,400,000 DM ($1,511,000). During 1993 only, various management
services, in the areas of reporting, marketing, product development and
training were provided to CHS Germany by Comtrad or its affiliates. As
compensation for these services, a management charge of .7% of net sales was
levied. For the year ended December 31, 1993 this amount aggregated $896,000
and has been reflected as a component of administrative expenses in the
accompanying statements of operations. In the fourth quarter of 1994, a study
was performed of the actual costs relating to the services provided by
Comtrad and affiliates. Based on such study the Company applied for and
received a credit from Comtrad against such fees of $579,000. Such amount has
been recorded as a reduction of administrative expenses in 1994. In each year
the Company billed Comtrad for actual costs of salaries, space and other
administrative costs it incurred on Comtrad's behalf. Such amounts were
$185,000, $670,000 and $495,000 in 1993, 1994 and 1995, respectively. In
1995, Comtrad billed the Company $887,000 for the Company's share of actual
costs incurred by Comtrad for salaries, space and other administrative
expenses for shared employees. In 1996, in conjunction with Comrad's sale to
the Company of its remaining operating companies, it is expected that such
arrangements will cease or be insignificant.
Comtrad owned operating subsidiaries in several countries in Europe. The
subsidiary companies engaged in essentially the same business as CHS Germany.
Comtrad used the recognized "CHS" name
F-26
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE I--RELATED PARTY TR4ANSACTIONS--(CONTINUED)
in the local market place for all of these subsidiaries. During 1993 and the
ten months ended October 31, 1994, certain Comtrad subsidiaries purchased
substantially all of their goods for resale from CHS Germany. These entities
were initially invoiced at cost plus 2% for all goods purchased. This
arrangement was necessary since formal distributorship agreements between the
Comtrad subsidiary companies and the principal supplier of goods,
Hewlett-Packard, had not been finalized. In the last quarter of 1994, a study
of the actual handling costs was completed, which concluded the actual costs
for the year were 4.5% of such sales. As a result an additional $500,000,
representing the cumulative effect of the difference between 4.5% and 2%, was
billed to the affiliates and recorded in gross profit. Handling costs billed
to Comtrad, which are recorded as a reduction in operating costs, were
$183,000, $900,000 and $73,000 in 1993 1994 and 1995, respectively.
At December 31, 1994 and 1995, the Company carried a receivable from
Comtrad and its subsidiaries in an amount of $0 and $843,000, respectively,
and had payables due to Comtrad at December 31, 1994 and 1995 of $4,776,000
and $0, respectively. Interest charged to Comtrad on advances was $162,000 in
1994 and $438,000 in 1995. Interest expensed on the payables to Comtrad was
$117,000 in 1994 and $126,000 in 1995.
A director of the Company serves the Company as a management consultant
under a consulting agreement specifying payments of $4,000 per month. In 1994
and 1995, $45,700 and $48,000 was paid under this agreement.
Immediately prior to the Company's acquisition of CHS Promark, CHI,
Comtrad, the shareholders of Comtrad, the Company and Alvin Perlman entered
into an Agreement and Plan of Exchange ("Exchange Agreement"). Under the
terms of the Exchange Agreement, all of the Comtrad shareholders exchanged
100% of the outstanding Comtrad common stock for 770,000 shares of CHI common
stock and 100,000 shares of CHI class A common stock. Perlman exchanged 77%
of the issued and outstanding capital stock of CHS Promark for 230,000 shares
of CHI common stock. The class A common stock of CHI has no dividend,
liquidation, participation or voting rights, except it is redeemable at the
election of CHI with 1,540,000 shares of the Company's common stock held by
Comtrad and has preference in liquidation over the CHI common stock with
respect to the same 1,540,000 shares. In a related transaction, Perlman sold
CHI 30% of the capital stock of each of the South American subsidiaries for
$2,500,000 paid in the form of $100,000 in cash and a 7% promissory note in
the principal amount of $2,400,000 which has been fully satisfied.
The Company has guaranteed the obligation of CHI to pay to the former
owner of CHS Poland an earnout amount. Such amount, when known, is to be paid
in Company stock.
NOTE J--COMMON STOCK AND STOCK OPTION PLANS
In March 1996, the shareholders approved the authorization of 5,000,000
shares of preferred stock in such class or series and with such rights as
approved by the Board of Directors. A majority vote by the holders of the
preferred stock as well as the holders of common stock is necessary to vote
affirmatively on matters of mergers, sales of substantially all the Company's
assets, exchanges of stock or changes in the articles of incorporation.
F-27
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE J--COMMON STOCK AND STOCK OPTION PLANS--(CONTINUED)
On February 17, 1994, the Company completed a private placement offering
for 896,523 shares of its common stock. The stock was sold to unrelated
investors at an offering price of $4.46 a share. The net proceeds of
$3,998,493 were used to partially repay the $4,000,000 promissory note owed
to Comtrad. Comtrad subsequently loaned the Company $150,000 at 8% interest
for working capital needs, which amount has been paid.
In 1994, Claudio Osorio, CHI, and Alvin Perlman entered into an option
agreement. The option agreement grants to CHI and Mr. Osorio an option until
June 30, 1996 to purchase all shares of the Company's common stock and CHI
common stock held by Mr. Perlman for $15,000,000. For the month of July 1996,
Mr. Perlman has an option to put all shares of the Company's common stock and
the CHI common stock held by him to Mr. Osorio for $15,000,000, and CHI has
guaranteed Mr. Osorio's performance if the put option is exercised. The
payment obligations of CHI under the option agreement, should they arise, are
secured by 1,540,000 shares of the Company's common stock held by CHI. The
exercise of any of these options could result in one party to the option
agreement gaining increased ownership of the Company.
In August 1994, a Stock Incentive Plan was adopted by the Company's Board
of Directors and subsequently approved by the Company's shareholders in June
1995. The maximum number of shares issuable under the Plan was 497,000. In
September 1995, the Board of Directors approved, subject to approval by the
Company's shareholders, the issuance of an additional 175,000 shares under
the plan. Certain of the grants (156,509 at December 31, 1995) are intended
to qualify as incentive stock options and the remaining are non-qualified
options. All options were issued with an exercise price equal to the market
price. Vesting periods are generally 25% a year for four years. No options
were exercisable as of December 31, 1994 and 110,815 options were exercisable
at December 31, 1995.
The following summarizes activity in the Stock Incentive Plan:
NUMBER OPTION EXERCISE PRICE
OF --------------------------
OPTIONS PER SHARE TOTAL
------- ------------ -----------
Outstanding December 31, 1992 and 1993 -- -- --
Granted .............................. 365,925 $ 6.00 $ 2,195,550
Exercised ............................ -- --
Canceled ............................. (20,000) $ 6.00 (120,000)
-------- -----------
Outstanding December 31, 1994 ........ 345,925 $ 6.00 2,075,550
Granted .............................. 223,000 $8.76-$10.00 2,135,500
Exercised ............................ -- --
Canceled ............................. (60,917) $6.00-$ 9.00 (375,249)
-------- -----------
Outstanding December 31, 1995 ........ 508,008 $6.00-$10.00 $ 3,835,801
======== ===========
In December 1994, when the estimated fair value was $6.00, the Board
granted the Company's Chief Executive Officer non-qualified options to
purchase 56,080 shares for which the exercise price is $1.00 per share. The
vesting period is two years and the options expire in ten years. At December
31, 1995, 28,040 of these options are exercisable. The compensation element
of $280,400 is considered
F-28
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE J--COMMON STOCK AND STOCK OPTION PLANS--(CONTINUED)
applicable to this individual's year of service beginning July 1, 1994 and
the full amount has been amortized to compensation expense in the
accompanying financial statements.
In March 1996, the Company granted 77,500 additional options, under the
1994 plan, at an exercise price equal to the market price. No options were
exercised in the three month period ended March 31, 1996.
NOTE K--MAJOR SUPPLIER
The Company has a major supplier, Hewlett-Packard (HP), whose products
accounted for 90%, 49% and 35% of sales for 1993, 1994 and 1995,
respectively. No other vendor accounted for more than 10% of sales in any
year. HP has the right to terminate its distribution agreement with any
Company subsidiary if the subsidiary is unable to cure, within a reasonable
period of time, any violation of the agreement after having received notice
from HP of the violation. Each Company subsidiary has the right to terminate
the HP agreement on 90 days notice. Each Company believes that its
relationship with HP is good, and has no reason to believe that its
distribution arrangement will not be a long-term relationship. No assurance
can be given, however, that HP will renew each subsidiary's agreement at the
time of its annual review or in subsequent years. Management has not
formulated alternative plans of action in the event the HP contracts are
terminated. The amounts outstanding to HP at December 31, 1994 and 1995 were
$8,565,000 and $32,174,000, respectively.
NOTE L--SEGMENT INFORMATION
The Company's operations involve a single industry segment -distribution
of microcomputer equipment and software products. The geographic areas in
which the Company operates are Western Europe, Eastern Europe and Latin
America (excluding Mexico). Net sales, operating income (before interest and
income taxes) and identifiable assets by geographical area were as follows
(in thousands):
F-29
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE J--COMMON STOCK AND STOCK OPTION PLANS--(CONTINUED)
<TABLE>
<CAPTION>
WESTERN EASTERN LATIN
EUROPE EUROPE AMERICA ELIMINATIONS CONSOLIDATED
--------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1993
Net sales ........... $ 144,928 $ 1,480 -- -- $146,408
========
Operating income..... 537 19 -- -- 556
Corporate expenses... (191)
--------
365
========
Identifiable assets.. 28,057 551 -- -- 28,608
========
1994
Net sales ........... $ 287,244 $ 6,559 $ 65,366 -- $359,169
========
Operating income..... 1,809 43 2,004 -- 3,856
Corporate expenses... (468)
--------
3,388
========
Identifiable assets.. 110,457 4,868 49,433 $ (419) 164,339
Corporate assets..... 129
--------
164,468
========
1995
Net sales ........... $ 542,438 $65,320 $328,945 -- $936,703
========
Operating income..... 7,358 252 3,934 -- 11,544
Corporate expenses... (745)
--------
10,799
========
Identifiable assets.. 169,442 33,283 85,409 $(22,677) 265,457
Corporate assets..... 347
--------
265,804
========
</TABLE>
F-30
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED--(CONTINUED)
MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE M--SUMMARIZED QUARTERLY FINANCIAL DATA FOR 1994 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT FOR PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
1995
Net sales .................... $207,419 $172,744 $239,074 $317,466 $936,703
Gross profit ................. 14,910 13,400 17,425 22,252 67,987
Net earnings ................. 1,667 950 1,163 525 4,305
Net earnings per share ....... 0.24 0.14 0.16 0.07 0.59
1994
Net sales .................... $ 41,705 $ 38,938 $100,373 $178,153 $359,169
Gross profit ................. 2,263 2,257 6,994 13,672 25,186
Net earnings (loss) .......... 96 (13) (112) 994 965
Net earnings (loss) per share 0.04 -- (0.02) 0.14 0.21
</TABLE>
Note: Amounts for 1995 have been restated for the effect of acquisitions
accounted for in a manner similar to a pooling of interests.
F-31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Wyrsch Trading Ltd, Littau
We have audited the accompanying balance sheets as of December 31, 1995
and 1994, of Wyrsch Trading Ltd, Littau (as defined in Note 1 to the
financial statements) and the related statements of income, shareholders'
equity and cash flows for the years ended December 31, 1995 and 1994, all
expressed in Swiss Francs. These financial statements are the responsibility
of the company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wyrsch Trading Ltd,
Littau, as of December 31, 1995 and 1994, and the results of their operations
and the changes in shareholders' equity for the years ended December 31, 1995
and 1994, in conformity with accounting principles according to the
Commercial Law of Switzerland, the results of the cash flows for the years
ended December 31, 1995 and 1994, in conformity with accounting principles
generally accepted in the United States.
Accounting principles according to the Commercial Law of Switzerland vary
in certain important respects from accounting principles generally accepted
in the United States. The application of the latter would have affected the
determination of net income expressed in Swiss Francs for the two years ended
December 31, 1995 and 1994, and the determination of the shareholders' equity
also expressed in Swiss Francs as of December 31, 1995 and 1994, to the
extent summarized in Note 2 to the financial statements.
BDO Binder AG
Heinz Vogel
Swiss chartered accountant
ppa. Josef Kiener
Auditor in charge
Swiss chartered accountant
Lucerene, January 26, 1996,
except for the statement of
cash flows and the notes to which
the date is March 8, 1996
F-32
<PAGE>
WYRSCH TRADING LTD, LITTAU
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1995 1994
NOTES SFR. % SFR. %
---------- -------------- ------ -------------- -----
<S> <C> <C> <C> <C> <C>
Operating revenue
Sales
Gross sales ................. 10 78,069,687.16 51,512,250.31
Other operating revenue ... 10 932,472.57 423,089.60
------------- ----- ------------- -----
79,002,159.73 100.3 51,935,339.91 100.4
Deductions on sales
Sales discounts ............ (213,125.62) (0.3) (192,249.32) (0.4)
------------- ----- ------------- -----
78,789,034.11 100.0 51,743,090.59 100.0
Purchases of merchandise ... 2, 11 72,583,667.84 92.1 47,123,705.98 91.1
------------- ----- ------------- -----
Gross profit ................ 6,205,366.27 7.9 4,619,384.61 8.9
------------- ----- ------------- -----
Personnel expenses .......... 12, 13, 26 3,410,942.54 4.3 2,747,865.48 5.3
Selling and marketing
expenses .................. 692,095.84 0.9 805,050.10 1.6
Administrative and other
expenses
Rental costs ............. 276,410.00 203,496.55
Losses on trade accounts
receivable ............... 2, 14 348,228.54 342,654.65
Other administrative and
other expenses ........... 574,908.58 351,218.45
------------- ----- ------------- -----
1,199,547.12 1.5 897,369.65 1.7
------------- ----- ------------- -----
Depreciation ................ 18 293,993.89 0.4 196,217.55 0.4
------------- ----- ------------- -----
Cost and expenses ........... 5,596,579.39 7.1 4,646,502.78 9.0
------------- ----- ------------- -----
Operating profit/loss before
interest/taxes ............ 608,786.88 0.8 (27,118.17) (0.1)
------------- ----- ------------- -----
Financial result
Interest income ............ 0.00 10,093.47
Interest expenses .......... (374,892.48) (300,627.41)
Exchange differences ....... (12,736.72) (9,748.51)
------------- ----- ------------- -----
(387,629.20) (0.5) (300,282.45) (0.6)
------------- ----- ------------- -----
Profit/loss before taxes ... 221,157.68 0.3 (327,400.62) (0.6)
Taxes ....................... 2, 15 (18,962.55) (23,432.85)
------------- ----- ------------- -----
Net profit/net loss ......... 202,195.13 0.3 (350,833.47) (0.7)
</TABLE>
F-33
<PAGE>
WYRSCH TRADING LTD, LITTAU
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
NOTES SFR. % SFR. %
----------- -------------- ------ ------------- -----
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash on hand and in banks
Cash .................................. 9 12,632.55 24,813.90
Postal cheque account ................. 7,310.30 16,869.80
Bank current accounts ................. 14,636.13 1,032.55
------------- ---- ------------- ----
34,578.98 0.2 42,716.25 0.4
------------- ---- ------------- ----
Securities (not marketable) ............ 3 1.00 0.0 1.00 0.0
Trade accounts receivable
Trade accounts receivable ............. 4, 9, 16, 25 10,654,252.29 7,749,529.00
Allowance for doubtful
accounts ............................ 2, 4, 16 (1,088,225.78) (782,566.40)
------------- ---- ------------- ----
9,566,026.51 48.7 6,966,962.60 62.7
------------- ---- ------------- ----
Other accounts receivable
Loan to shareholder ................... 55,065.60 30,144.75
Loan to affiliated company ............ 91,561.11 169,923.90
Accounts receivable for goods returned
to suppliers ........................ 937,645.75 19,926.55
Other accounts receivable ............. 20,490.85 0.00
------------- ---- ------------- ----
1,104,763.31 5.6 219,995.20 2.0
Inventories ............................ 2, 5, 17 7,391,042.78 37.6 2,899,095.18 26.1
------------- ---- ------------- ----
Prepaid expenses and accruals .......... 843,344.10 4.3 541,552.52 4.9
------------- ---- ------------- ----
18,939,756.68 96.4 10,670,322.75 96.1
------------- ---- ------------- ----
Fixed assets
Financial assets
Investment ............................. 6, 18 1.00 1.00
------------- ---- ------------- ----
Tangible assets
Office equipment ...................... 7, 19, 30 417,152.22 291,434.20
EDP equipment ......................... 7, 19, 30 264,274.30 137,769.40
Motor vehicles ........................ 7, 19, 30 29,413.10 5,000.00
------------- ---- ------------- ----
710,839.62 3.6 434,203.60 3.9
------------- ---- ------------- ----
Total assets ........................... 19,650,597.30 100.0 11,104,527.35 100.0
</TABLE>
(CONTINUED ON NEXT PAGE)
F-34
<PAGE>
WYRSCH TRADING LTD, LITTAU
BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
NOTES SFR. % SFR. %
----------------- ------------- ---- ------------- ----
<S> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Trade accounts payable
Suppliers ........................... 8, 9 12,600,940.03 5,969,631.95
------------- ----- ------------- -----
12,600,940.03 64.1 5,969,631.95 53.8
------------- ----- ------------- -----
Other short-term liabilities
Other accounts payable .............. 8 579,533.96 476,353.44
Customer prepayments ................ 0.00 58,819.35
Current bank overdrafts ............. 8, 9, 20, 25 1,790,390.92 1,703,489.75
Short-term bank loans ............... 8, 20, 25 3,000,000.00 2,000,000.00
Other short-term loans .............. 500,000.00 0.00
------------- ----- ------------- -----
5,869,924.88 29.9 4,238,662.54 38.2
------------- ----- ------------- -----
Provisions
Provisions for deferred income
taxes ............................. 8, 15, 23 0.00 0.00
Accrued expenses .................... 8, 12, 22, 28, 30 591,526.52 3.0 510,222.12 4.6
------------- ----- ------------- -----
19,062,391.43 97.0 10,718,516.61 96.5
------------- ----- ------------- -----
Shareholder's equity
Share capital ....................... 23 480,000.00 2.4 480,000.00 4.3
Legal reserves
General legal reserve ............... 23 14,100.00 0.1 14,100.00 0.1
Retained earnings/deficit ........... 94,105.87 0.5 (108,089.26) (1.0)
------------- ----- ------------- -----
588,205.87 3.0 386,010.74 3.5
------------- ----- ------------- -----
Total liabilities and shareholders'
equity ............................ 19,650,597.30 100.0 11,104,527.35 100.0
</TABLE>
F-35
<PAGE>
WYRSCH TRADING LTD, LITTAU
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARE LEGAL RETAINED SHAREHOLDERS'
SFR. CAPITAL RESERVES EARNINGS/DEFICIT EQUITY
- ---- ---------- --------- ---------------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994.... 480,000.00 14,100.00 242,744.21 736,844.21
Net loss 1994 ................ (350,833.47) (350,833.47)
---------- --------- ----------- -----------
Balance at December 31, 1994 480,000.00 14,100.00 (108,089.26) 386,010.74
Net profit 1995 .............. 202,195.13 202,195.13
---------- --------- ----------- -----------
Balance at December 31, 1995.. 480,000.00 14,100.00 94,105.87 588,205.87
</TABLE>
F-36
<PAGE>
WYRSCH TRADING LTD, LITTAU
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1995 1994
NOTES SFR. SFR.
------------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................ 2 1,522,734 (807,103)
Adjustments to reconcile net income to net cash provided
by operating activities:
Change in allowance for doubtful accounts .............. 2, 16 237,621 (63,883)
Allowance for loan to affiliated company ................. 80,000 0
Depreciation ............................................. 19 293,994 196,218
Change in provisions for deferred income taxes .......... 2, 21 372,500 (128,700)
---------- ----------
Subtotal .................................................. 2,506,849 (803,468)
Changes in operating assets and liabilities:
Trade accounts receivable ................................ (2,904,723) (1,430,191)
Loan to shareholder ...................................... (24,921) 110,368
Loan to affiliated company ............................... (1,637) (77,271)
Accounts receivable from goods return to suppliers ...... (917,719) (1,334)
Other accounts receivable ................................ (20,491) 0
Inventories .............................................. 2, 17 (6,141,948) (125,082)
Prepaid expenses and accruals ............................ 2 (301,792) (250,172)
Trade accounts payable ................................... 6,631,308 2,233,264
Other accounts payable ................................... 103,180 194,569
Customer prepayments ..................................... (58,819) 10,676
Accrued expenses ......................................... 12, 22, 26, 28 106,305 (27,557)
---------- ----------
Net cash used in operating activities ..................... (1,024,408) (166,198)
Cash flows from investing activities:
Office equipment .......................................... 7, 19 (217,016) (91,560)
EDP equipment ............................................. 7, 19 (316,994) (158,834)
Motor vehicles ............................................ 7, 19 (36,620) 0
---------- ----------
Net cash used in investing activities ..................... (570,630) (250,394)
Cash flows from financing activities:
Net borrowings under line-of-credit agreement ........... 86,901 408,852
Proceeds from increase of short-term bank loans ......... 1,000,000 0
Proceeds from increase of other short-term loans ........ 500,000 0
---------- ----------
Net cash provided in financing activities ................. 1,586,901 408,852
Cash and cash equivalents:
Net decrease in cash and cash equivalents ................. (8,137) (7,740)
Cash, cash equivalents at the beginning of the year ...... 42,716 50,456
---------- ----------
Cash, cash equivalents at the end of the year ............. 34,579 42,716
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest paid ........................................... 283,132 275,346
Income taxes .............................................. 0 18,829
</TABLE>
F-37
<PAGE>
NOTES TO FINANCIAL STATEMENTS
A. GENERAL INFORMATION ON THE SIGNIFICANT PRINCIPLES OF ACCOUNTING AND
EVALUATION
1 GENERAL PRINCIPLES
The present income statements, balance sheets and statements of
shareholders' equity have been established according to the Commercial Law of
Switzerland. The significant differences to the generally accepted accounting
principles in the United States are explained in notes 2. The statements of
cash flows have been established according to the accounting principles being
generally accepted by the United States.
2 RECONCILIATION OF STATEMENTS OF INCOME AND BALANCE SHEETS 1995 AND 1994
ESTABLISHED ACCORDING TO COMMERCIAL LAW OF SWITZERLAND INTO STATEMENTS OF
INCOME AND BALANCE SHEETS 1995 AND 1994 ESTABLISHED ACCORDING TO
ACCOUNTING PRINCIPLES BEING GENERALLY ACCEPTED BY THE UNITED STATES.
2.1 Reconciliation of statements of income
<TABLE>
<CAPTION>
SFR. 1995 1994
---- ----------- ----------
<S> <C> <C>
Net profit/net loss according to the Commercial Law of
Switzerland ................................................... 202,195 (350,833)
Adjustments:
Increase in excessive allowance for doubtful accounts,
managerial not necessary(Note 14) ............................. 68,039 67,952
Increase/decrease in excessive allowance on inventories,
managerial not necessary(Note 11) ............................. 1,650,000 (652,922)
Dissolution of provisions for transportation damage,
managerial not necessary(Note 11) ............................. (25,000) 0
Change in deferred income taxes(Note 15) ........................ (372,500) 128,700
------------ ------------
1,320,539 (456,270)
------------ ------------
Net income/net loss according to generally accepted accounting
principles in the United States ................................ 1,522,734 (807,103)
============ ===========
</TABLE>
2.2 Reconciliation of balance sheets
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
SFR. 1995 1994
- ---- --------------- ---------------
<S> <C> <C>
Shareholders' equity established according to the
Commercial Law of Switzerland ............................. 588,206 386,011
--------------- ---------------
Adjustments:
On allowance for doubtful accounts Notes(4)(16) ........... 250,420 182,381
On inventories Notes(5)(17) ................................ 2,483,162 833,162
On provisions for transportation damage .................... 0 25,000
Less deferred income taxes on revaluation reserves
(22%)(15) ................................................ (601,400) (228,900)
--------------- ---------------
2,132,182 811,643
--------------- ---------------
Shareholders' equity established according to generally
accepted accounting principles in the United States ....... 2,720,388 1,197,654
=============== ==============
</TABLE>
3 SECURITIES
Securities are evaluated at their market value.
F-38
<PAGE>
4 ACCOUNTS RECEIVABLE
Accounts receivable from goods and services have been evaluated at the
nominal value, and allowance carried out for operational reasons to cover
loss-risks were immediately deducted from nominal value. For tax reasons, the
Commercial Law of Switzerland allows an additional allowance of 5 percent for
remaining accounts receivable after an itemized allowance has already been
deducted. This additional allowance would partly not be permitted under
accounting principles generally accepted in the United States.
5 INVENTORIES
Goods in stock are evaluated at their purchase price or their lower market
price. In any case, they are surely evaluated at a reasonable net sales
value. The purchase price is determined using the first-in/ first-out method.
Goods being low in demand are devaluated and removed from stock. Risks of
obsolescence are covered by sufficient allowance. In addition to the
obsolescence reserve, Swiss Tax Law allows the recognition of an additional
general inventory reserve of up to one third of the effective value of the
goods in stock. This additional general inventory reserve would not be
permitted under accounting principles generally accepted in the United
States.
6 FINANCIAL ASSETS
Financial assets are evaluated at their market value.
7 TANGIBLE ASSETS
Tangible assets are evaluated at their purchase value less accumulated
depreciations. Depreciation is done in a linear way over the period of use
expected. Maintenance, repair and minor servicing work costs are recorded in
the charge side of the statement of income at the moment they arise.
Important servicing work as well as value-increasing investments are
capitalized and depreciated over the period of use estimated.
Tangible assets having been removed from operation or sold or completely
depreciated are entered into the books at book-values drawn from the tangible
assets account together with the respective accumulated depreciations.
Profits and losses arising from decreases in tangible assets are taken into
consideration in the statement of income. The following periods are used to
depreciate the different tangible assets:
Office equipment 8 years
EDP equipment 3 years
Vehicles 3 years
8 LIABILITIES
Liabilities are evaluated at their nominal value.
F-39
<PAGE>
9 CURRENCY EXCHANGE
The currency exchange rate applied on the day the balance sheets are made
out is used to translate assets and liabilities from foreign currencies into
Swiss francs. At the end of the respective financial years the following
exchange rates for foreign currencies were applied:
<TABLE>
<CAPTION>
FOREIGN CURRENCY 1995 1994
- ----------------- ---------- ----------
<S> <C> <C>
DM (per 100) ... 79,4800 85,4500
US$ ............. 1,1375 1,3505
</TABLE>
Gains and losses resulting from foreign currency transactions are included
in the income statement, using the rates at the dates the transactions
occurred.
B. DETAILS ON SIGNIFICANT ITEMS OF THE STATEMENTS OF INCOME
10 GROSS TURNOVER
Geographical classification:
<TABLE>
<CAPTION>
SFR. 1995 % 1994 %
- ----- ------------- -------- ----------- -------
<S> <C> <C> <C> <C>
Switzerland .............. 78,750,168 99.7 51,935,340 100.0
Other European countries.. 251,992 0.3 0 0.0
------------- -------- ------------ -------
Total .................... 79,002,160 100.0 51,935,340 100.0
============= ======== ============= =======
</TABLE>
The whole turnover, at 100 per cent, is achieved with retail traders.
11 PURCHASES OF MERCHANDISE
Purchases of merchandise are made up of goods ordered having been invoiced
in both SFr. and foreign currencies. On payment, the amounts paid in foreign
currencies are immediately recorded in the statement of income after having
been translated by using the exchange rate of the respective day. In the
financial year 1995, purchases in foreign currencies equaled an amount of
SFr. 5,4 Mio. (DM + US$) while SFr. 2,5 Mio. (DM + US$) were recorded in the
year before. The company invests in foreign currencies only for specific
transactions, not for investment purposes.
As a reason of the different accounting principles according to the
Commercial Law of Switzerland and the accounting principles being generally
accepted by the United States, changes of the purchases of merchandise
result:
<TABLE>
<CAPTION>
SFR. 1995 1994
- ---- ------------ ------------
<S> <C> <C>
Purchases of merchandise according to the Commercial
Law of Switzerland ................................... 72,583,668 47,123,706
Change in excessive allowance on inventories,
managerial not necessary ............................. (1,650,000) 652,922
Dissolution of provisions for transportation damage,
managerial not necessary ............................. 25,000 0
-------------- -------------
Purchases of merchandise according to generally
accepted accounting principles in the
United States......................................... 70,958,668 47,776,628
============== ============
</TABLE>
12 PERSONNEL EXPENSES
Personnel expenses of SFr. 3,410,943 were recorded in 1995. In the year
before, these expenses ranked at SFr. 2,747,865. In 1995, provisions of SFr.
20,000 for holiday and overtime allowances have been included. The working
contracts of Wyrsch Trading Ltd do not provide for any separations
allowances.
F-40
<PAGE>
13 PARTICIPATION IN PROFITS
The working contracts of Wyrsch Trading Ltd do not grant any right to
participation in profits. Because of the positive operating results, the
company, of its own free will, granted a non-recurring bonus to its
executives and sales personnel in the financial year 1995:
SFR. 1995 1994
- ---- --------- -------
PARTICIPATION IN PROFITS 86,583 0
14 LOSSES ON TRADE ACCOUNTS RECEIVABLE
As a reason of the different accounting principles according to the
Commercial Law of Switzerland and the accounting principles being generally
accepted by the United States, changes of the losses on trade accounts
receivable result:
<TABLE>
<CAPTION>
SFR. 1995 1994
- ---- ---------- -----------
<S> <C> <C>
Losses on trade accounts receivable according to the
Commercial Law of Switzerland ............................ 348,229 342,655
Change in excessive allowance for doubtful accounts,
managerial not necessary ............................... (68,039) (67,952)
----------- ----------
Losses on trade accounts receivable according to
generally accepted accounting principles in the
United States........................................... 280,190 274,703
=========== ==========
</TABLE>
15 TAXATION
Being a legal entity standing on its own, the company as such is liable to
taxation. It is assessed in Littau/Switzerland.
Since January 1, 1995, the year long period-method for taxation applies to
the company (in contrary to a period of 2 years until end of 1994). As a
consequence of this change, only part of the total loss recorded in 1994,
established according to the rules of Swiss Commercial Law, could be offset
against the profit achieved in 1995. In the financial year 1996 there will be
no more retained loss carrying tax privileges.
In this transition period, tax expenditures shown hereafter covering
current income and capital gains taxes show the real expenditure of both the
financial year 1994 and 1995 with loss having been set off against profit, as
far as having been entitled to by the new assessment method.
From 1996 onwards, income and capital gains taxes arising from business
activity will be charged to the statement of income of the same financial
year. Income taxes and capital gains taxes have not been recorded separately,
since the amount of the capital gains taxes are not material.
The amount of deferred taxes for revaluation reserves was evaluated
according to the so-called "Liability-Method". This method takes both future
tax rates and possible change in laws into consideration. Such changes
therefore will always be directly included in tax evaluation. Deferred taxes
for revaluation reserves have been evaluated at full tax rate (22 per cent).
This evaluation is based on evaluation differences occurring between the
financial statements established according to accounting principles being
generally accepted by the United States and the financial statements
established according to Swiss Commercial and Trade Laws. Such evaluation
differences occur in the fields of goods in stock as well as in the field of
allowances for bad debts. The presently applied Swiss tax laws allow
revaluation reserves of up to 33 1/3 per cent with goods in stock and a
lump-sum value-adjustment of 5 per cent with domestic debtors.
F-41
<PAGE>
Tax expenditures charged to the statements of income are made up as
follows:
<TABLE>
<CAPTION>
SFR. 1995 1994
- ---- ---------- -----------
<S> <C> <C>
Current income taxes to be paid on profits achieved and
capital gains obtained(1) ............................ 18,963 23,433
Fluctuations in deferred taxes for revaluation reserves 372,500 (128,700)
---------- -----------
Total tax expenditures according to generally accepted
accounting principles in the United States............ 391,463 (105,267)
========== ===========
<FN>
- --------------
(1) Result of the statements of income according to the Commercial Law of
Switzerland.
</FN>
</TABLE>
In the balance sheets according to the Commercial Law of Switzerland, the
following tax provisions are foreseen:
<TABLE>
<CAPTION>
SFR. 1995 1994
- ---- ---------- ---------
<S> <C> <C>
Current profit and capital gains taxes becoming due in a short-
term (integrated in accrued expenses)............................ 5,000 0
========== =========
Additional long-term deferred income taxes for revaluation
reserves according to generally accepted accounting
principles in the United States ................................. 601,400 228,900
========== =========
</TABLE>
C. DETAILS ON SIGNIFICANT ITEMS OF THE BALANCE SHEETS
16 ACCOUNTS RECEIVABLE FROM GOODS AND SERVICES PROVIDED
<TABLE>
<CAPTION>
SFR. 1995 1994
- ---- ------------ -----------
<S> <C> <C>
Accounts receivable from goods and services ....................... 10,654,252 7,749,529
Itemized allowance ................................................ (637,471) (454,280)
Compulsory allowance for remaining accounts receivable ........... (200,335) (145,905)
Additional allowance for remaining accounts receivable according
to the Swiss Tax Law ............................................ (250,420) (182,381)
------------- ------------
Total accounts receivable--net value .............................. 9,566,026 6,966,963
============= ===========
</TABLE>
17 INVENTORIES
The stocks are made up as follows:
<TABLE>
<CAPTION>
SFR. 1995 1994
- ---- ------------ -----------
<S> <C> <C>
Merchandise ........................................................ 9,639,232 3,941,558
Spare parts ........................................................ 485,346 30,370
Operational allowance for obsolete goods or goods low in demand ... (250,373) (239,671)
Additional allowance on inventories for tax reasons according to
the Swiss Tax Law ................................................ (2,483,162) (833,162)
------------- ------------
Total stocks ....................................................... 7,391,043 2,899,095
============= ============
</TABLE>
Year-end taking of stocks was carried out with the board of auditors being
present.
18 DETAILS ON FINANCIAL ASSETS
They consist of an equity interest in Swisscomp Ltd, Tampa, Florida, USA.
This company is at 100 per cent an affiliated company of Wyrsch Trading Ltd.
The company is subsequently inactive and presents no value.
F-42
<PAGE>
DECEMBER 31, DECEMBER 31,
US$ 1995 1994
- --- --------------- ---------------
SHARE-CAPITAL SWISSCOMP LTD, TAMPA, FLORIDA 2,000 2,000
19 TANGIBLE ASSETS AND ACCUMULATED DEPRECIATIONS
<TABLE>
<CAPTION>
1995 PURCHASE- ACCUMULATED NET BOOK-VALUES
SFR. VALUES DEPRECIATIONS DECEMBER 31, 1995
- ---- ------------ ---------------- ------------------
<S> <C> <C> <C>
Office equipment.. 730,382 313,230 417,152
EDP equipment..... 571,468 307,194 264,274
Motor vehicles.... 41,620 12,207 29,413
------------ ---------------- ------------------
Total ............ 1,343,470 632,631 710,839
============ ================ ==================
</TABLE>
<TABLE>
<CAPTION>
1994 PURCHASE- ACCUMULATED NET BOOK-VALUES
SFR. VALUES DEPRECIATIONS DECEMBER 31, 1994
- ---- ----------- ---------------- -----------------
<S> <C> <C> <C>
Office equipment.. 513,366 221,932 291,434
EDP equipment..... 396,140 258,371 137,769
Motor vehicles.... 5,000 0 5,000
----------- ---------------- ------------------
Total ............ 914,506 480,303 434,203
=========== ================ ==================
</TABLE>
Depreciations carried out on an annual basis:
SFR. 1995 1994
- ---- ---------- ---------
DEPRECIATIONS.. 293,994 196,218
20 SHORT-TERM LIABILITIES TO BANKS
<TABLE>
<CAPTION>
SFR. 1995 1994
- ---- --------- ---------
<S> <C> <C>
Current bank overdrafts (interest at 5.75% to 7%)... 1,790,391 1,703,490
Short-term bank loans (interest at 5% to 5.63%)..... 3,000,000 2,000,000
--------- ---------
Total liabilities to banks.......................... 4,790,391 3,703,490
========= =========
Total credit line with banks........................ 5,000,000 4,000,000
</TABLE>
21 PROVISIONS FOR DEFERRED INCOME TAXES FOR REVALUATION RESERVES
Please refer to the information given in section 15.
22 ACCRUED EXPENSES
In addition to the usual accrued expenses, there are two provisions
included in this account:
/bullet/ Provisions for both holiday and overtime allowances have
already been referred to in section 12.
/bullet/ Liabilities to personal insurance institutions will be dealt
with later on in section 26.
/bullet/ Provisions for current law-suits will be dealt with later on in
section 28.2.
23 SHAREHOLDERS' EQUITY
The basic share-capital of the company is make up as follows:
480 registered shares--nominal value: SFr. 1,000 = Total SFr. 480,000
Companies in Switzerland are required to appropriate to a legal reserve 5
percent of the profits in local currency for each calendar year until the
legal reserve is equivalent to 20 percent of the aggregate
F-43
<PAGE>
par value of the share capital. In addition, the Swiss companies must
transfer to legal reserve 10 percent of the amount by which any dividend
exceeds 5 percent of the par value of the share capital. This additional
allocation must be made until the legal reserve amounts to 50 percent of the
share capital. Legal reserves are not free for distribution. The legal
reserves are a non distributional portion of equity and do not present
liabilities in any form.
D. FURTHER INFORMATION
24 EMPLOYEES
The number of employees is in line with the full time jobs to be done
within the company. The annual average value is established by basing
calculation on the effective number of personnel employed at the beginning of
each month (twelve-months average).
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
January 1 ............ 40 35
December 31 .......... 48 36
Annual average value.. 43 37
</TABLE>
25 ENCUMBRANCE OF ASSETS TO SECURE OWN LIABILITIES (DEPOSITED ASSETS):
<TABLE>
<CAPTION>
SFR. DECEMBER 31, 1995 DECEMBER 31, 1994
- ----- ------------------ ------------------
<S> <C> <C>
Accounts receivable assigned to Schweizerische
Kreditanstalt (SKA), Emmenbrucke, to secure own
bank liabilities ............................... 10,654,252 7,749,529
------------------ -----------------
</TABLE>
26 LIABILITIES TO PERSONAL INSURANCE INSTITUTIONS
The company does not have its own pension fund. Personal insurance is
taken care of by a group insurance with Waadt Versicherungen at Lausanne. It
is up to the insurance company to cover the minimal standards set up by the
legislator.
27 EVENTS HAVING OCCURRED AFTER THE DAY THE BALANCE SHEETS HAD BEEN MADE OUT
Please see details given in section 28.2, Scotoni v. Wyrsch Trading Ltd.
No other events that might seriously affect both income and financial
situation have been reported up to the day the balance sheets were made out
(March 8, 1996).
28 PENDING TAX MATTERS AND LEGAL SUITS
28.1 Tax matters
The company has been fully assessed up to the financial year 1994. This
assessment is legally binding. At the time being, no tax matters, such as
appeals or proceedings are pending.
28.2 Legal suits'
On December 31, 1995 two affairs were pending:
Scotoni v. Wyrsch Trading Ltd.
At the end of June 1993, Mrs. Patricia Scotoni, the former manager of the
Geneva office was removed from office with immediate effect. That measure
could be substantiated by many reasons. To the opinion of the company's
lawyers, Mrs. Scotoni wouldn't stand many chances in case she
F-44
<PAGE>
instituted proceedings against the company. Unfortunately this opinion
proved wrong. The court's verdict was in favor of Mrs. Scotoni and
substantiated by quite strange reasons: Being employees of the company,
the witnesses were said to be credible. The company then decided to lodge
an appeal.
In its 1995-statements, the company therefore built up provisions of SFr.
50,000 to cover the costs of this case. According to the verdict of the
Local Industrial Court of Geneva, Wyrsch Trading would have to pay a total
amount of SFr. 69,421 to Mrs. Scotoni (salaries + interests). The Board of
Directors of Wyrsch Trading Ltd does not at all agree with this verdict.
The company is now considering lodging an appeal with Swiss Federal Court.
An appeal against the pending verdict would have to be lodged until March
20, 1996 at the latest.
The company estimates that the additional lawyers fees in this matter will
not exceed SFr. 25,000. Since lawyers fees are not expected to be
material, no provision for such fees has been recorded in the financial
statements.
Interconnection AG v. Wyrsch Trading Ltd
On August 24, 1994 Wyrsch Trading Ltd signed a contract for AST products
with Interconnection AG, Zug. This contract once effective, AST, from
January 1, 1995 took over payment to Interconnection AG, as agreed on in
the document stated before. In April 1995, a contract was signed between
AST and Interconnection AG for this so called "help-line". AST had missed
to clearly stipulate in that contract that the previous one with Wyrsch
Trading Ltd would come to a term once a new agreement between AST and
Interconnection AG signed. Throughout July 1995 this seemed to be quite
clear to all parties. But once Interconnection AG had got into serious
trouble with the whole operation, they started to insist both contracts be
fulfilled.
Wyrsch Trading Ltd is involved in this matter because of an error
committed by AST. There will probably be no way to avoid this case be
dealt with in court. All the same, Wyrsch Ltd is still hoping an amicable
arrangement be achieved.
AST agrees Wyrsch Trading Ltd will have to be reimbursed in case the
verdict said Wyrsch Trading Ltd was to pay any damages whatsoever.
Nevertheless, reserves of SFr. 100,000 to cover this case were built up.
They are shown in the 1995 balance sheets. They will surely be sufficient
to cover all costs including both fees for lawyers, costs of the
proceedings and possible contribution in case an amicable arrangement
could be achieved.
There are no other cases pending. Those stated above are the only ones the
company had to face up with since its foundation in 1988.
29 COMMITMENTS TO TAKE DELIVERY AND SUPPLYING CONTRACTS
There are several distribution contracts (AST, Microsoft, Hewlett Packard,
Ozalid, CalComp etc.) showing the usual term of one year. These contracts are
renegotiated every year or exceptionally renewed by tacit agreement. No
commitments to take delivery are included in the distribution contracts
referred to.
F-45
<PAGE>
E. ADDITIONAL NOTES ACCORDING TO THE COMMERCIAL LAW OF SWITZERLAND
30 LEASING LIABILITIES NOT SHOW IN THE BALANCE SHEETS (NOT MATERIAL)
SFR. DECEMBER 31, 1995 DECEMBER 31, 1994
- ---- ----------------- -----------------
LEASING LIABILITIES 107,617 84,262
31 FIRE INSURANCE VALUES OF FIXED ASSETS
SFR. DECEMBER 31, 1995 DECEMBER 31, 1994
- ---- ----------------- -----------------
FIRE INSURANCE VALUES OF FIXED ASSETS 850,000 600,000
F-46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
SEE BASIS OF PRESENTATION (NOTE 1)
To the Management of CHS Electronics, Inc.:
We have audited the accompanying balance sheet of Kventa Kft. (a Hungarian
limited liability company) (the "Company") as of December 31, 1995, and the
related statements of operations, quotaholders' equity and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kventa Kft. as of
December 31, 1995, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN & Co. Kft.
Budapest, Hungary,
April 1, 1996.
F-47
<PAGE>
KVENTA KFT.
BALANCE SHEET
DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS OF HUF)
<TABLE>
<CAPTION>
NOTE
-------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash ............................................................ 4 23,551
Bank deposits ................................................... 4 141,351
Trade receivables, less allowance for doubtful accounts of 5,276. 354,017
Other receivables ............................................... 5 68,114
Inventories ..................................................... 155,662
Prepayments for inventories ..................................... 21,893
Shares .......................................................... 13 57,081
----------
TOTAL CURRENT ASSETS ............................................. 821,669
----------
LONG-TERM ASSETS
Intangibles ..................................................... 6 5,168
Property, plant and equipment--net .............................. 7 20,169
Investments ..................................................... 8 5,800
Long-term loans ................................................. 1,609
Other assets .................................................... 5,011
----------
TOTAL LONG-TERM ASSETS ........................................... 37,757
----------
TOTAL ASSETS ..................................................... 859,426
==========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable ................................................ 190,943
Short-term loans ................................................ 4,230
Income taxes payable ............................................ 9 59,314
Payable for shares .............................................. 13 81,961
Other short-term liabilities .................................... 10 46,543
----------
TOTAL CURRENT LIABILITIES ........................................ 382,991
----------
QUOTAHOLDERS' EQUITY
Issued quotas ................................................... 1,000
Retained earnings ............................................... 475,435
----------
TOTAL QUOTAHOLDERS' EQUITY ....................................... 476,435
----------
TOTAL LIABILITIES AND QUOTAHOLDERS' EQUITY ....................... 859,426
==========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-48
<PAGE>
KVENTA KFT.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS OF HUF)
<TABLE>
<CAPTION>
NOTE 1995
------- ------------
<S> <C> <C>
Domestic revenues ......................... 2,450,058
Export revenues ........................... 178,665
------------
GROSS REVENUES ............................ 2,628,723
COST OF GOODS SOLD ........................ 2,231,126
------------
GROSS PROFIT .............................. 397,597
Selling, general & administrative expense.. 54,711
------------
OPERATING PROFIT .......................... 342,886
------------
OTHER INCOME (EXPENSES)
Other expenditures ........................ 12 (70,114)
Interest expense .......................... (14,484)
Interest income ........................... 25,690
Other income .............................. 11 28,869
------------
Total other income (expense) .............. (30,039)
------------
EARNINGS BEFORE INCOME TAXES .............. 312,847
------------
Income tax expense ........................ 9 57,626
------------
NET EARNINGS .............................. 255,221
============
</TABLE>
The accompanying notes are an integral part of this statement.
F-49
<PAGE>
KVENTA KFT.
STATEMENT OF QUOTAHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS OF HUF)
<TABLE>
<CAPTION>
ISSUED RETAINED
QUOTAS EARNINGS TOTAL
--------- ----------- ----------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994,
as previously presented .... 1,000 224,027 225,027
Prior period adjustment ..... -- (3,813) (3,813)
--------- ----------- ----------
BALANCE AS RESTATED .......... 1,000 220,214 221,214
Net earnings ................ 0 255,221 255,221
Dividends declared .......... 0 0 0
--------- ----------- ----------
BALANCE AT DECEMBER 31, 1995 1,000 475,435 476,435
========= =========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-50
<PAGE>
KVENTA KFT.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS OF HUF)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings .................................... 255,221
Adjustments to reconcile net earnings to net
cash
provided by operating activities:
Depreciation and amortization ............... 3,055
Provisions:
Receivables ................................... 5,276
Accrued interest .............................. 7,514
Other provisions .............................. 21,823
Changes in assets and liabilities:
Trade receivables .............................. (163,284)
Other receivables .............................. 9,088
Prepayments .................................... (6,893)
Inventories .................................... (74,215)
Other assets ................................... (12,002)
Accounts payable ............................... 64,482
Other liabilities .............................. 36,704
Other .......................................... (906)
------------
Net cash provided by operating activities ....... 145,863
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of fixed assets ........................... 5,045
Purchase of shares .............................. (57,081)
------------
Net cash used in investing activities ............ (52,036)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in loans granted ....................... (1,609)
------------
Net cash used in financing activities ............ (1,609)
------------
INCREASE IN CASH ................................. 92,218
CASH AT JANUARY 1, 1995 .......................... 72,684
------------
CASH AT DECEMBER 31, 1995 ........................ 164,902
============
</TABLE>
The accompanying notes are an integral part of this statement.
F-51
<PAGE>
KVENTA KFT.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
(ALL AMOUNTS IN THOUSANDS OF HUF, UNLESS OTHERWISE INDICATED)
1. BASIS OF PRESENTATION
The books and records of Kventa Kft. (the "Company") are maintained in
accordance with Law XVIII of 1991 on Accounting, as amended (the "Law"), and
with generally accepted accounting principles in Hungary. Such principles
differ from generally accepted accounting principles ("GAAP") in the United
States. The accompanying financial statements reflect certain adjustments not
recorded on the Company's books to present these statements in accordance
with generally accepted accounting principles of the United States. These
adjustments and their effect on income for the year ended December 31, 1995,
and retained earnings at that date are set forth below. The financial
statements are presented in the functional currency of the Company, the
Hungarian Forint ("HUF").
Earnings before income taxes before adjustment ........... 331,769
Write off of certain past due accrued interest ........... (7,514)
Additional provisions against receivables ................. (4,000)
Net effect of additional expenses for salaries ........... (3,408)
Other provisions .......................................... (4,000)
-----------
Total adjustments ......................................... (18,922)
-----------
Earnings before income taxes in accordance with US GAAP .. 312,847
===========
Total retained earnings before adjustment ................. 496,482
===========
Effect of above adjustments on earnings before income
taxes ................................................... (18,922)
Additional write off of accrued interest related to 1994 . (3,813)
Creation of deferred tax asset (Note 9) ................... 1,688
-----------
Total retained earnings in accordance with US GAAP ....... 475,435
===========
2. OPERATIONS
The Company is based in Budapest, Hungary, and is engaged in the
distribution of computers and computer peripherals, accessories and systems
integration. The Company has more than 600 dealers and resellers located
throughout Hungary. Its main customers include state and local
government-owned institutions, banks, insurance companies and other
educational institutions.
The Company was established on February 8, 1990, with an issued capital of
HUF 1 million. The Company was established by four individuals.
3. SIGNIFICANT ACCOUNTING POLICIES
The books and records of the Company are maintained in accordance with the
Law and generally accepted accounting principles in Hungary. A summary of the
significant accounting policies of the Company and the method and procedures
of evaluation are described below, together with the changes in the
accounting policies during the year.
F-52
<PAGE>
KVENTA KFT.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995--(CONTINUED)
(ALL AMOUNTS IN THOUSANDS OF HUF, UNLESS OTHERWISE INDICATED)
3. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
3.1. Rental rights
Rental rights are depreciated over 6 years and softwares over 3 years.
Rental rights represent payments made by the Company to the local Hungarian
government to secure the rights to rent property.
3.2. Property, plant and equipment--net
Purchased tangible fixed assets are stated at acquisition cost less
accumulated depreciation. Tangible fixed assets with a purchase price below
20 are fully depreciated when put into use. Depreciation is calculated on a
straight line basis over the estimated useful life of the related asset. The
estimated useful lives are as follows:
<TABLE>
<CAPTION>
YEARS
----------
<S> <C>
Buildings ..... 50
Computers ..... 3
Machinery ..... 7
Vehicles ...... 5
</TABLE>
3.3. Investments
Investments are stated at the lower of cost or net realizable value. The
Company has not recognized any equity in earnings of affiliates in which the
Company owns over 20%. (See Note 8.)
3.4. Inventories
Inventories purchased are stated at the lower of weighted average cost or
market value. Obsolete and slow moving inventories identified by management
have been written down to their net realizable value in the relevant period.
3.5. Revenue Recognition
The Company recognizes sales upon shipment, as there is no significant
post-sale obligation and collectibility is reasonably assured.
3.5. Income taxes
Adjustments have been made to the accompanying financial statements in
order to reflect the computation of income taxes in accordance with the
liability method employed in the United States. Under the liability method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities as
measured by the current enacted tax rates which will be in effect when these
differences reverse. Deferred tax benefits are the result of changes in
deferred tax assets and liabilities.
3.6. Statement of cash flows
Interest and income taxes paid by the Company in cash during 1995 were 467
and 52,209, respectively.
F-53
<PAGE>
KVENTA KFT.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995--(CONTINUED)
(ALL AMOUNTS IN THOUSANDS OF HUF, UNLESS OTHERWISE INDICATED)
4. CASH AND BANK DEPOSITS
As of December 31, 1995, the Company's cash and bank balances are
summarized as follows:
Cash on hand ....................... 23,551
Cash at bank (in HUF) .............. 128,510
Cash at bank (in foreign currency) 12,841
----------
Total .............................. 164,902
==========
Included in cash at bank (in HUF) above is 40,000 which was paid by the
Company as a deposit to enable the Company to defer the payment of customs
duties.
5. OTHER RECEIVABLES
Other receivables as of December 31, 1995, are summarized as follows:
Loans granted ........................... 38,059
Reclaimable VAT paid for imported goods 25,161
Other receivables ....................... 4,894
---------
Total ................................... 68,114
=========
Included in loans granted above are loans to related parties. These loans
include a 14,500 loan to Muker 94 Kft., a loan for the amount of 14,950 to
Kventa Trade and a loan for 2,385 to Kventa Invest Kft. All of these loans
were granted with a market rate of interest. All of these loans have been
extended past the contract date. All accrued interest related to these loans
has been written off in the 1995 statement of operations.
6. INTANGIBLES
The following is a summary of the movements in intangible fixed assets
during the year ended December 31, 1995.
<TABLE>
<CAPTION>
RENTAL RIGHTS SOFTWARES TOTAL
---------------- ------------ ---------
<S> <C> <C> <C>
GROSS VALUE:
Opening balances as of January 1, 1995.... 10,000 520 10,520
Additions ................................ 0 49 49
---------------- ------------ ---------
Closing balance as of December 31, 1995... 10,000 569 10,569
---------------- ------------ ---------
ACCUMULATED AMORTIZATION:
Opening balances as of January 1, 1995 ... 3,300 433 3,733
Additions ................................ 1,580 88 1,668
---------------- ------------ ---------
Closing balances as of December 31, 1995.. 4,880 521 5,401
---------------- ------------ ---------
NET VALUE as of December 31, 1995 ........ 5,120 48 5,168
================ ============ =========
</TABLE>
F-54
<PAGE>
KVENTA KFT.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995--(CONTINUED)
(ALL AMOUNTS IN THOUSANDS OF HUF, UNLESS OTHERWISE INDICATED)
7. PROPERTY, PLANT AND EQUIPMENT--NET
The following is a summary of the movements in property, plant and
equipment during the year ended December 31, 1995.
<TABLE>
<CAPTION>
TECHNICAL
EQUIPMENT,
LAND AND MACHINERY
BUILDINGS AND OTHER VEHICLES TOTAL
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
GROSS VALUE:
Opening balances as of January 1, 1995 .. 22,580 5,559 1,731 29,870
Additions ................................ 6,342 1,479 1,670 9,491
Disposals and other decreases ............ (13,842) 0 (694) (14,536)
------------ ------------- ----------- -----------
Closing balances as of December 31, 1995 15,080 7,038 2,707 24,825
============ ============= =========== ===========
ACCUMULATED DEPRECIATION:
Opening balances as of January 1, 1995 .. 157 2,926 450 3,533
Annual depreciation ...................... 408 626 353 1,387
Disposals and other decreases ............ 0 0 (264) (264)
------------ ------------- ----------- -----------
Closing balances as of December 31, 1995 565 3,552 539 4,656
------------ ------------- ----------- -----------
NET VALUE as of December 31, 1995 ....... 14,515 3,486 2,168 20,169
============ ============= =========== ===========
</TABLE>
8. INVESTMENTS
As of December 31, 1995, the Company's investments are summarized as
follows:
<TABLE>
<CAPTION>
%
OWNERSHIP AMOUNT
------------ ---------
<S> <C> <C>
Karaj Kft. ......... 50% 3,900
Kventa Invest Kft. 90% 900
Muker 94 Kft. ...... 90% 900
Pirmex Kft. ........ 10% 100
---------
Total .............. 5,800
=========
</TABLE>
As a part of the agreement noted in footnote 14, the Company has agreed to
dispose of all investments by the closing date of the transaction noted in
that same footnote. Management of the Company does not expect to incur a
significant gain or loss on these transactions. These entities are therefore
not consolidated given the temporary control.
F-55
<PAGE>
KVENTA KFT.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995--(CONTINUED)
(ALL AMOUNTS IN THOUSANDS OF HUF, UNLESS OTHERWISE INDICATED)
9. INCOME TAX EXPENSE
The provision (benefit) for income taxes consists of the following at
December 31, 1995:
Current expense... 59,314
Deferred benefit (1,688)
----------
Total expense..... 57,626
==========
The total net deferred tax asset is comprised of the following:
Receivable write offs .............. 720
Accrued interest income write offs 1,352
Other .............................. (384)
--------
Total .............................. 1,688
========
The Company is subject to periodic tax inspections conducted on behalf of
the Hungarian Government. These inspections could result in the Company
incurring a liability as a result of assessments made by the taxing
authorities. No such liability for assessments has been recorded in the
accompanying financial statements as the Company has not undergone a recent
inspection.
10. DIVIDENDS
No dividend has been declared by the Company related to 1995. A dividend
payable of 32,000 is included in Other Short-Term Liabilities in the
accompanying balance sheet as of December 31, 1995, and relates to the
dividends declared from 1992, 1993 and 1994 profits. Of this amount, 2,000
relates to 1992, 10,000 relates to 1993 and 20,000 relates to 1994.
Management has determined that the 2,000 will not be paid, and thus will be
capitalized as equity in 1996, the 10,000 will be paid in 1996. Management is
uncertain at this time as to the ultimate disposition of the remaining
20,000.
11. OTHER INCOME
Other income for the year ended December 31, 1995, consisted of the
following:
Foreign exchange gains ........... 14,509
Late payment interest received .. 2,460
Release of prior year provisions 525
Other ............................ 11,375
---------
Total ............................ 28,869
=========
F-56
<PAGE>
KVENTA KFT.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995--(CONTINUED)
(ALL AMOUNTS IN THOUSANDS OF HUF, UNLESS OTHERWISE INDICATED)
12. OTHER EXPENDITURES
Other expenditures for the year ended December 31, 1995, consisted of the
following:
Statistical fee ....... 27,044
Loan write offs ....... 15,497
Foreign exchange loss 7,019
Receivable writeoffs... 5,276
Local taxes ........... 4,711
Other ................. 10,567
---------
Total ................. 70,114
=========
13. INVESTMENT IN ELZETT
In 1995, the Company and other entities in a consortium entered into an
agreement with the State Privatization Agency which allowed the Company to
purchase a 35% ownership interest in ELZETT Rt. for 106,000. ELZETT was a
previously 100% state-owned enterprise which produced various parts including
metal locks for doors. 57,081 was paid by the Company in December of 1995,
with the agreement being at that time that the rest of the shares would be
purchased in 1996 with the proceeds from the receipt of an "E loan" received
from a financial institution in the amount of 49,000. This E loan, which is a
special type of loan guaranteed by the government, will not become an
obligation of Kventa, but of ELZETT. Thus, no liability related to the
repayment of this loan will be recorded on the books of Kventa. Due to the
transaction entered into and described in Note 14 below, the Company was
required to dispose of all non operating investments, including the ownership
in ELZETT.
This disposal of ELZETT will be effected with the transfer of the entire
amount of shares to the members of the consortium in the fashion described
below. Prior to this transaction, members of the consortium had purchased a
bond issued by the Company for the amount of 50,000. This was purchased in
1994. As of December 31, 1995, the bond was still outstanding, as was accrued
interest related to the bond of 19,945 related to 1994 and 12,016 related to
1995. Thus, in total, the Company owed those who had purchased the bond a
total of 81,961, which had not yet been paid to the purchasers of the bond.
Upon receipt of the E loan and completion of purchase of the shares of
ELZETT, the entire amount of the shares will be transferred to the purchasers
of the bond to satisfy Kventa's obligations of principal and interest related
to the bond. No gain related to this transaction was recorded in the
accompanying statements.
14. SUBSEQUENT EVENT
In accordance with a purchase agreement dated January 31, 1996, (the
"Agreement") the Company entered into a transaction with CHS Electronics
("CHS"), a public company headquartered in Miami, Florida which calls for CHS
to purchase 51% of the quotas of the Company. The agreement calls for the
Company to dispose of all investments owned by the Company before the closing
date, as defined in the Agreement. Management of the Company does not expect
to incur any significant losses on the disposal of such shares.
F-57
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER TO SELL IS NOT AUTHORIZED, OR IN WHICH
THE PERSON IS NOT AUTHORIZED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary ...................... 3
Risk Factors ............................ 7
Reincorporation and Acquisitions ....... 10
Use of Proceeds ......................... 12
Dividend Policy ......................... 12
Price Range of Common Stock ............. 13
Capitalization .......................... 14
Selected Consolidated Financial Data ... 15
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ............... 16
Business ................................ 23
Management .............................. 29
Certain Transactions .................... 34
Principal and Selling Shareholders ..... 37
Description of Capital Stock ............ 39
Shares Eligible for Future Sale ........ 42
Underwriting ............................ 43
Legal Matters ........................... 44
Experts ................................. 44
Available Information ................... 45
Index to Consolidated Financial
Statements .............................. F-1
</TABLE>
================================================================================
================================================================================
4,585,000 SHARES
CHS LOGO
COMMON STOCK
----------
PROSPECTUS
----------
RAYMOND JAMES &
ASSOCIATES, INC.
, 1996
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that expenses payable by it in connection with the
offering described in this registration statement (other than underwriting
discounts and commissions) will be as follows:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee ................... $ 21,819
NASD filing fee ....................................................... 6,828
Nasdaq National Market listing fee .................................... 43,960
Printing expenses ..................................................... 110,000
Accounting fees and expenses .......................................... 100,000
Legal fees and expenses ............................................... 175,000
Fees and expenses (including legal fees) for qualifications under
state
securities laws ..................................................... 12,500
Registrar and Transfer Agent's fees and expenses ...................... 1,000
Non-accountable expense allowance...................................... 100,000
Miscellaneous ......................................................... 128,893
----------
Total ................................................................ $700,000
==========
</TABLE>
All amounts except the Securities and Exchange Commission registration
fee, the NASD filing fee and the Nasdaq National Market listing fee are
estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under Florida law to indemnify its directors and
officers to the extent provided in such statute. The Articles provide that
the Company shall indemnify its directors to the fullest extent permitted by
law either now or hereafter. The Company has also entered into an agreement
with each of its directors and executive officers wherein it has agreed to
indemnify each of them to the fullest extent permitted by law.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being
sought, nor is the Company aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify the
directors, officers and controlling persons of the Company against certain
civil liabilities that may be incurred in connection with this offering,
including certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On February 17, 1994, the Company issued 896,523 shares of Common Stock at
$4.46 per share for an aggregate offering price of $3,998,500. Such shares
were issued pursuant to Regulation S.
In December 1993, the Company issued 2,000,000 shares of Common Stock
along with a promissory note bearing an interest rate of 5% per annum and in
the principal amount of $4 million to
II-1
<PAGE>
Comtrad, Inc. in exchange for all of the issued and outstanding capital stock
of CHS Electronic Publishing Service GmbH. Such shares were issued in
accordance with the exemption set forth in Section 4(2) of the Securities
Act, as a transaction not involving a public offering. No commission or
discounts were given in said issuance.
In July 1994, the Company issued (i) 1,540,000 shares of Common Stock to
Comtrad Holdings, Inc. in exchange for 77% of the issued and outstanding
capital stock of Zemex Electronics International, Inc. ("Zemex") and (ii)
460,000 shares of Common Stock to Alvin Perlman in exchange for the remaining
23% of the issued and outstanding capital stock of Zemex. Such shares were
issued in accordance with the exemption set forth in Section 4(2) of the
Securities Act, as a transaction not involving a public offering. No
commissions or discounts were given in said issuance.
In April 1995, the Company issued an aggregate of 1,750,000 shares of
Common Stock to Comtrad, Inc. for substantially all of the issued and
outstanding capital stock of CHS CPU, Next Portugal--Informatica E
Telecomunicacaos, Omnilogic N.V. and Omnilogic France S.A. Such shares were
issued in accordance with the exemption set forth in Section 4(2) of the
Securities Act, as a transaction not involving a public offering. No
commissions or discounts were given in said issuance.
In October 1995, the Company issued 287,500 shares of Common Stock to
Comtrad Holdings, Inc. for all of the issued and outstanding capital stock of
B.E.K. International, Inc. Such shares were issued in accordance with the
exemption set forth in Section 4(2) of the Securities Act, as a transaction
not involving a public offering. No commissions or discounts were given in
said issuance.
In October 1995, the Company issued (i) 483,000 shares of Common Stock to
Zbynek Kraus for 84% of the issued and outstanding capital stock of CHS
Czechia s.r.o. and (ii) 92,000 shares of Common Stock to Comtrad, Inc. for
16% of the issued and outstanding capital stock of CHS Czechia s.r.o. Such
shares were issued in accordance with the exemption set forth in Section 4(2)
of the Securities Act, as a transaction not involving a public offering. No
commissions or discounts were given in said issuance.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT DESCRIPTION
- ------- -----------
1.1 Form of Underwriting Agreement(1)
3.1 Articles of Incorporation of the Company(4)
3.2 Bylaws of the Company(4)
4.1 Form of Common Stock Certificate(4)
4.2 Form of Representative's Warrant(1)
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to the validity of
the Common Stock being registered(1)
10.1 Plan of Acquisition dated June 30, 1994(2)
10.2 Form of Registration Agreement(2)
10.3 Agreement and Plan of Exchange dated June 30, 1994(2)
10.4 Purchase and Sale Agreement dated June 30, 1994(2)
10.5 Repurchase Option Agreement dated June 30, 1994(2)
10.6 Stockholders Agreements dated June 30, 1994(2)
10.7 Employment Agreement for Alvin Perlman(2)
10.8 Notes Payable to Comtrad, Inc., dated May 23, November 14, and December 29, 1994(2)
II-2
<PAGE>
EXHIBIT DESCRIPTION
- ------- -----------
10.9 Revolving Credit Agreement with The First National Bank of Boston, dated March 1, 1993, as
amended(2)
10.10 Reseller Agreement with Hewlett Packard dated March 1, 1994(2)
10.11 Reseller Agreement with Hewlett Packard dated November 1, 1994(2)
10.12 Stock Incentive Plan(2)
10.13 Lease for Miami, Florida Facility dated June 29, 1993(2)
10.14 Real Estate Leasing Contract for Nenndorf, Germany Facility dated November 12, 1994(2)
10.15 Loan and Security Agreement by and between Congress Financial Corporation (Florida), as
Lender and Zemex Electronics International, Inc. as Borrower, dated February 5, 1996
together with the guarantee thereof by the Company(3)
10.16 Credit Agreement by and between Mashreqbank PSC, New York Branch, as lender and the
Company, as borrower, dated July 10, 1995(3)
10.17 Employment Agreement between the Company and Claudio Osorio dated March 22, 1996(4)
10.18 Employment Agreement between the Company and Craig Toll dated March 22, 1996(4)
10.19 Form of Indemnity Agreement between the Company and each of the Directors of the Company
and Craig Toll(4)
10.20 Noncompetition Agreement dated April 11, 1996 among the Company, Comtrad, Inc. and Comtrad
Holdings, Inc.(4)
10.21 Purchase and Sale Agreement between Comtrad, Inc. and the Company dated December 8, 1993
(CHS Germany)(2)
10.22 Agreement and Plan of Exchange between the Company and Comtrad, Inc. dated April 25, 1995
(CHS Belgium, CHS England, CHS France and CHS Portugal)(4)
10.23 Agreement and Plan of Exchange between the Company and Comtrad Holdings, Inc. dated October
13, 1995 (CHS BEK)(4)
10.24 Agreement and Plan of Exchange between the Company, CHS Czechia s.r.o., Comtrad, Inc. and
Zbynek Kraus dated October 27, 1995 (CHS Czechia)(4)
10.25 Stock Purchase Agreement between the Company and Comtrad Holdings, Inc. dated December 29,
1995 (CHS Poland)(4)
10.26 Stock Purchase Agreement between the Company and Comtrad, Inc. dated December 29, 1995 (CHS
Sweden)(4)
10.27 Stock Purchase Agreement between the Company and Comtrad, Inc. dated December 29, 1995 (CHS
Finland)(4)
10.28 Purchase Agreement dated January 31, 1996 between the Company and Comtrad Holdings, Inc.
and the individual persons comprising the "KVENTA QUOTAHOLDERS" (CHS Hungary)(4)
10.29 Stock Purchase Agreement between the Company, Comtrad Holdings, Inc. and Comtrad, Inc.
dated March 27, 1996 (CHS Baltic, CHS Bulgaria, CHS Romania, CHS Croatia, CHS Brazil and
CHS Slovakia)(4)
10.30 Purchase Agreement dated March 1996 between Zemex Electronics International and Cosapi
Organizacion Empresarial S.A. (CHS Peru)(4)
10.31 Stock Purchase Agreement dated March 29, 1996 between the Company and Hugo Wyrsch (CHS
Switzerland)(4)
10.32 Loan Agreement dated 29 March 1996 among CHS Finance SA, Singer and Friedlander Limited and
certain banks named in the Agreement(4)
11 Statement re Computation of per share earnings(4)
II-3
<PAGE>
EXHIBIT DESCRIPTION
- ------- -----------
22 Subsidiaries of the Company(3)
23.2 Consent of Grant Thornton LLP(1)
23.3 Consent of BDO Binder A.G.(1)
23.4 Consent of Arthur Andersen & Co. Kft.(1)
24.1 Power of Attorney(4)
<FN>
- --------------
(1) Filed herewith.
(2) Incorporated herein by this reference from the Company's registration
statement on Form 10 filed with the Securities and Exchange Commission on
May 26, 1994 and the amendments thereto filed on August 1, 1994,
September 9, 1994, December 2, 1994 and January 12, 1995.
(3) Incorporated herein by this reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
(4) Previously filed.
</FN>
</TABLE>
(b) Financial Statement Schedules:
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned 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.
(b) 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 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.
(c) The undersigned registrant hereby 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 a
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 the
registration statement as of the time it was declared 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 therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes:
II-4
<PAGE>
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Amendment No. 2 to Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Miami, State of Florida, on May 29, 1996.
CHS ELECTRONICS, INC.
By: /s/ CLAUDIO OSORIO*
--------------------------
Claudio Osorio
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ CLAUDIO OSORIO* President and Director May 29, 1996
------------------------ (principal executive officer)
Claudio Osorio
/s/ ALVIN PERLMAN* Executive Vice President May 29, 1996
------------------------ and Director
Alvin Perlman
/s/ ANTONIO BOCCALANDRO Secretary and May 29, 1996
------------------------ Director
Antonio Boccalandro
/s/ CRAIG TOLL Chief Financial Officer and Treasurer May 29, 1996
----------------------- (principal financial officer and
Craig Toll principal accounting officer)
/s/ OTTO GERLACH* Director May 29, 1996
-----------------------
Otto Gerlach
/s/ DONALD D. WINSTEAD* Director May 29, 1996
-----------------------
Donald D. Winstead
/s/ ZBYNEK KRAUS* Director May 29, 1996
-----------------------
Zbynek Kraus
*By: /s/ CRAIG TOLL May 29, 1996
----------------------
Craig Toll
Attorney-In-Fact
</TABLE>
II-6
EXHIBIT 1.1
CHS ELECTRONICS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
June ____, 1996
RAYMOND JAMES & ASSOCIATES, INC.,
as representative of the several
underwriters (the "Representative"),
880 Carillon Parkway
St. Petersburg, Florida 33716
Dear Sirs:
Subject to the terms and conditions stated herein (i) CHS ELECTRONICS,
INC., a Florida corporation (the "Company") proposes to issue and sell to the
Underwriters named in SCHEDULE I (the "Underwriters") an aggregate of 3,001,539
shares (the "Company Firm Shares") of the Company's authorized common stock, par
value $.001 per share ("Common Stock"), and (ii) certain shareholders of the
Company named in SCHEDULE II hereto (the "Selling Shareholders") propose to sell
to the Underwriters an aggregate of 1,583,461 shares of Common Stock in the
respective amounts set forth opposite their names in SCHEDULE II hereto
("Shareholder Firm Shares" and together with the Company Firm Shares the "Firm
Shares"). Furthermore, at the election of the Underwriters and subject to the
terms and conditions stated herein, the Company proposes to sell to the
Underwriters an aggregate of 687,750 shares of Common Stock (the "Optional
Shares"). The Firm Shares and the Optional Shares that the Underwriters elect to
purchase pursuant to Section 2 hereof are collectively called the "Shares.
1. REPRESENTATIONS AND WARRANTIES
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PRINCIPAL SELLING SHAREHOLDERS. The Company and the Principal Selling
Shareholders (as hereinafter defined) hereby jointly and severally represent and
warrant to, and agree with, each of the Underwriters that:
(i) A registration statement on Form S-1 (File No.
333-03864) with respect to the Shares, including a prospectus
subject to completion, has been filed by the Company with the
Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (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 (A) if such registration statement, as it
may have been amended, has become effective under the Act and
information has been omitted therefrom in accordance with Rule
430A 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 or permitted by Rule 424(b) under the Act and as have
been provided to and approved by the Underwriters, or (B) if such
registration statement, as it may have been amended, has not
become effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which
amendment has been provided to and approved by the Underwriters
prior to the execution of this Agreement. As used in this
Agreement, the term "Registration Statement" means such
registration statement, as amended at the time when it was or is
declared effective, including all financial statement schedules
and exhibits thereto and including any information omitted
therefrom pursuant to Rule 430A under the Act and included in the
Prospectus (as hereinafter defined);
<PAGE>
the term "Preliminary Prospectus" means each prospectus subject
to completion included in such registration statement or any
amendment or post-effective amendment thereto (including the
prospectus subject to completion, if any, included in the
Registration Statement at the time it was or is declared
effective); and the term "Prospectus" means the prospectus first
filed with the Commission pursuant to Rule 424(b) under the Act
or, if no prospectus is required to be so filed, such term means
the prospectus included in the Registration Statement. For
purposes of the following representations and warranties, to the
extent reference is made to the Prospectus and at the relevant
time the Prospectus is not yet in existence, such reference shall
be deemed to be to the most recent Preliminary Prospectus.
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued and no proceeding for that
purpose has been instituted or threatened by the Commission or
the securities authority of any state or other jurisdiction. If
the Registration Statement has become effective under the Act, no
stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued and no proceeding
for that purpose has been instituted or, to the knowledge of the
Company or the Selling Shareholders, threatened or contemplated
by the Commission or the securities authority of any state or
other jurisdiction.
(iii) When any Preliminary Prospectus was filed with the
Commission it (A) contained all statements required to be stated
therein in accordance with, and complied in all material respects
with the requirements of, the Act and the rules and regulations
of the Commission thereunder, and (B) did not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
When the Registration Statement or any amendment thereto was or
is declared effective, and at each Time of Delivery (as
hereinafter defined), it (A) contained or will contain all
statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the
requirements of, the Act and the rules and regulations of the
Commission thereunder, and (B) did not or will not include any
untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading.
When the Prospectus or any amendment or supplement thereto is
filed with the Commission pursuant to Rule 424(b) (or, if the
Prospectus or such amendment or supplement is not required to be
so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus
was or is declared effective) and at each Time of Delivery, the
Prospectus, as amended or supplemented at any such time, (A)
contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the rules
and regulations of the Commission thereunder, and (B) did not or
will not include any untrue statement of a material fact or omit
to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading. The foregoing provisions of this
paragraph (iii) do not apply to statements or omissions made in
any Preliminary Prospectus, the Registration Statement or any
amendment thereto or the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with
written information furnished to the Company by any of the
Underwriters specifically for use therein.
(iv) The descriptions in the Registration Statement and
the Prospectus of statutes, legal and governmental proceedings or
contracts and other documents are accurate and fairly present the
information required to be shown; and there are no statutes or
legal or governmental proceedings required to be described in the
Registration Statement or the Prospectus that are not described
as required and no contracts or documents of a character that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration
Statement that are not described and filed as required.
2
<PAGE>
(v) The Company and each of its subsidiaries has been duly
incorporated or organized, as the case may be, is validly
existing as a corporation or other legal entity, is in good
standing under the laws of its jurisdiction of incorporation or
organization and has full power and authority (corporate and
other) to own or lease its properties and conduct its business as
described in the Prospectus. The Company has full power and
authority (corporate and other) to enter into this Agreement and
to perform its obligations hereunder. The Company and each of its
subsidiaries is duly qualified to transact business as a foreign
corporation or other legal entity and is in good standing under
the laws of each other jurisdiction in which it owns or leases
properties, or conducts any business, so as to require such
qualification, except where the failure, to so qualify would not
have a material adverse effect on the financial position, results
of operations or business of the Company (a "Material Adverse
Effect").
(vi) The Company's authorized, issued and outstanding
capital stock is as set forth in the Prospectus under the caption
"Capitalization." All of the issued shares of capital stock of
the Company and each of its subsidiaries which is a corporation
and all of the Company's ownership interests of every subsidiary
which is not a corporation have been duly authorized and validly
issued, are fully paid for and are not subject to any claim for
payment by the issuing corporation or other such entity. The
Common Stock conforms to the description of the Common Stock
contained in the Prospectus. None of the issued shares of capital
stock of the Company and each of its subsidiaries which is a
corporation has been issued or is owned or held in violation of
any preemptive rights of shareholders, and no person or entity
has any preemptive or other rights to subscribe for any of the
Shares.
(vii) The Company does not own, directly or indirectly,
any capital stock or other equity securities of any other
corporation or any ownership interest in any partnership, joint
venture or other entity or association other than those listed on
Exhibit 22 to the Registration Statement. The Company owns 100%
of the issued and outstanding capital stock of each of its
subsidiaries listed on such Exhibit 22, except for the
subsidiaries (A) organized under the laws of England, Hungary,
Peru and Uruguay, as to each of which it owns 99.2%, 51%, 60% and
50%, respectively, of the issued and outstanding capital stock or
other type of ownership interest, as the case may be, and (B)
organized under the laws of Belgium, France and Portugal as to
each of which it owns approximately 99.997% of the issued and
outstanding capital stock or other type of ownership interest, as
the case may be.
(viii) Except as disclosed in the Prospectus, there are no
outstanding (A) securities or obligations of the Company
convertible into or exchangeable for any capital stock of the
Company, (B) warrants, rights or options to subscribe for or
purchase from the Company any such capital stock or any such
convertible or exchangeable securities or obligations, or (C)
obligations of the Company to issue any shares of capital stock,
any such convertible or exchangeable securities or obligations,
or any such warrants, rights or options.
(ix) Since the date of the most recent audited financial
statements included in the Prospectus, neither the Company nor
any of its subsidiaries has sustained any material loss or
interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree,
otherwise than as disclosed in or contemplated by the Prospectus.
(x) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (A) the
Company has not incurred any liabilities or obligations, direct
or contingent, or entered into any transactions, not in the
ordinary course of business, that are material to the Company,
(B) the Company has not purchased any of its outstanding capital
stock or declared, paid or otherwise made any dividend or
distribution of any kind on its capital
3
<PAGE>
stock, (C) there has not been any change in the capital stock, or
any material increase or decrease in the long-term debt or
short-term debt of the Company, and (D) there has not been any
material adverse change, or any development involving a
prospective material adverse change, in or affecting the
financial position, results of operations or business of the
Company, in each case other than as disclosed in or contemplated
by the Prospectus.
(xi) The Shares to be issued and sold by the Company have
been duly authorized and, when issued and delivered against
payment therefor as provided herein, will be validly issued and
fully paid and nonassessable and will conform to the description
of the Common Stock contained in the Prospectus and the
certificates evidencing the Shares will comply with all
applicable requirements of Florida law.
(xii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and
any person granting such person the right to require the Company
to file a registration statement under the Act with respect to
any securities of the Company owned or to be owned by such person
or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement
(unless any such right has been exercised or effectively waived)
or any securities being registered pursuant to any other
registration statement filed by the Company under the Act.
(xiii) All offers and sales of the Company's capital stock
prior to the date hereof were at all relevant times duly
registered under the Act or exempt from the registration
requirements of the Act and were duly registered or the subject
of an available exemption from the registration requirements of
the applicable state securities or blue sky laws, and the Company
has taken all actions reasonably necessary for it to assure that
such exemptions from registration would continue to be operative
during all applicable periods of time required by law.
(xiv) The Company and each of its subsidiaries is not, nor
with the giving of notice or passage of time or both would be, in
violation of its Articles of Incorporation or other organic
document or Bylaws or other self-regulatory rules or in default
under any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which the Company or
any of its subsidiaries is a party or to which any of their
respective properties or assets is subject, which default would
have a Material Adverse Effect.
(xv) The issue and sale of the Shares to be issued and
sold by the Company and the performance of this Agreement and the
consummation of the transactions herein contemplated will not
conflict with, or (with or without the giving of notice or the
passage of time or both) result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which the Company or any of its
subsidiaries is a party or to which its properties or assets is
subject, nor will such action conflict with or violate any
provision of the Articles of Incorporation or Bylaws of the
Company or any statute, rule or regulation or any order, judgment
or decree of any court or governmental agency or body having
jurisdiction over the Company or any of its properties or assets.
(xvi) The Company and each of its subsidiaries has good title to
all personal property owned by it free and clear of all liens,
security interests, pledges, charges, encumbrances, mortgages and
defects, except such as are disclosed in the Prospectus or such
as do not materially and adversely affect the value of such
property and do not interfere with the use made or proposed to be
made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company
is held under valid, subsisting and enforceable leases, with such
exceptions as are disclosed in the Prospectus or are not material
and do not interfere
4
<PAGE>
with the use made or proposed to be made of such property and
buildings by the Company. The Company does not own any real
property, except as described in the Prospectus.
(xvii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing
with, any court or governmental agency or body is required for
the sale of the Shares or the consummation of the transactions
contemplated by this Agreement, except the registration of the
Shares under the Act (which, if the Registration Statement is not
effective as of the time of execution hereof, shall be obtained
as provided in this Agreement) and such as may be required under
state securities or blue sky laws in connection with the offer,
sale and distribution of the Shares by the Underwriters.
(xviii) Other than as disclosed in the Prospectus, there
is no litigation, arbitration, claim, proceeding (formal or
informal) or investigation pending or, to the knowledge of the
Company or the Selling Shareholders, threatened (or any basis
therefor) in which the Company is a party or of which any of its
properties or assets is the subject which, if determined
adversely to the Company, would individually or in the aggregate
have a Material Adverse Effect. The Company is not in violation
of, or in default with respect to, any statute, rule, regulation,
order, judgment or decree, except as described in the Prospectus
or such as do not and will not individually or in the aggregate
have a Material Adverse Effect, and the Company is not required
to take any action in order to avoid any such violation or
default.
(xix) Grant Thornton, LLP, which has audited certain
financial statements of the Company for the fiscal years ended
December 31, 1993, 1994, and 1995, and BDO Binder AG, and Arthur
Andersen, LLP which have audited the financial statements of
certain subsidiaries of the Company are, and were at all times
during the periods covered by their reports included in the
Registration Statement and the Prospectus, independent public
accountants as required by the Act and the rules and regulations
of the Commission thereunder.
(xx) The financial statements and schedules (including the
related notes) of the Company included in the Registration
Statement, the Prospectus or any Preliminary Prospectus were
prepared in accordance with generally accepted accounting
principles consistently applied (or, if not consistently applied,
as applied on the basis stated in such financial statements and
schedules or the related notes thereto) throughout the periods
involved and fairly present the financial position and results of
operations of the company, at the dates and for the periods
presented. The selected financial data set forth under the
caption "Selected Consolidated Financial Data" in the Prospectus
fairly present, on the basis stated in the Prospectus, the
information included therein.
(xxi) This Agreement has been duly authorized, executed
and delivered by the Company and the Selling Shareholders.
(xxii) None of the Company, any of its subsidiaries, any
of the Selling Shareholders or, to the knowledge of the Company
or the Principal Selling Shareholders, their respective officers,
directors or Affiliates, as that term is defined under the Act
and the Rules and Regulations of the Commission promulgated
thereunder (the "Rules and Regulations") has (A) taken, directly
or indirectly, any action designed to cause or result in, or that
has constituted or might reasonably be expected to constitute,
the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares or (B)
since the filing of the Registration Statement (1) sold, bid for,
purchased or paid anyone any compensation for soliciting
purchases of, the Shares or (2) paid or agreed to pay to any
person any compensation for soliciting another to purchase any
other securities of the Company.
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(xxiii) The Company has obtained for the benefit of the
Company and the Underwriters from each of its directors,
executive officers, all Selling Shareholders and certain other
shareholders of the Company a written agreement (a "Lockup
Letter") that for a period of 180 days from the date of the
Prospectus with respect to all Principal Selling Shareholders so
named on SCHEDULE II hereto (the "Principal Selling
Shareholders") all officers, directors, and certain other
shareholders; and (ii) for a period of 90 days from the date of
the Prospectus with respect to all Non-principal Selling
Shareholders so named in SCHEDULE II hereto (the "Non-principal
Selling Shareholders"), such Non-Principal Selling Shareholders,
will not, without the prior written consent of the Representative
on behalf of the Underwriters, offer, pledge, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of
(or announce any offer, pledge, sale, grant of an option to
purchase or other disposition), directly or indirectly, any
shares of Common Stock or securities convertible into, or
exercisable or exchangeable for, shares of Common Stock.
(xxiv) Neither the Company nor any of its subsidiaries,
nor, to the knowledge of the Company or any of its subsidiaries,
any other director, officer, agent, employee, Affiliate or other
person associated with or acting on behalf of the Company or any
of its subsidiaries has, directly or indirectly, used any
corporate funds for unlawful contributions, gifts, entertainment
or other unlawful expenses relating to political activity, or
established or maintained any unlawful or unrecorded funds in
violation of Section 30A of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); made any unlawful payment to
foreign or domestic government officials or employees or to
foreign or domestic political parties or campaigns from corporate
funds; violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended; or made any bribe, rebate, payoff,
influence payment kickback or other payment unlawful under the
laws of the United States or any foreign jurisdiction.
(xxv) The Company and each of its subsidiaries are in
compliance in all material respects with all foreign, federal,
state, and local laws, treaties, ordinances, rules, and
regulations and Executive Orders (collectively, "Laws"), and the
Company and each of its subsidiaries has all licenses, permits
and authorizations necessary to operate under all Laws, except
where the failure to have such license, permit or authorization
would not (individually or in the aggregate with respect to all
such failures) have a Material Adverse Effect and are in
compliance in all material respects with all terms and conditions
of such licenses, permits and authorizations; neither the Company
nor any of its subsidiaries has authorized, conducted or has
knowledge of the generation, transportation, storage, use,
treatment, disposal or release of any hazardous substance,
hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, petroleum product, natural
gas, liquefied gas or synthetic gas defined or regulated under
any environmental law; and there is no pending or, to the
knowledge of the Company and each of its subsidiaries, threatened
claim, litigation or any administrative agency proceeding, nor
has the Company or any of its subsidiaries received any written
or oral notice from any governmental entity or third party, that
without limiting the generality of the foregoing: (A) alleges a
violation of any Laws by the Company or any of its subsidiaries;
(B) alleges the Company or any of its subsidiaries is a liable
party under the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. /section/ 9602 ET SEQ.
or any state superfund law; (C) alleges possible contamination of
the environment by the Company or any of its subsidiaries; or (D)
alleges any violation of any export control Laws or Executive
Orders issued pursuant to such Laws by the Company or any of its
subsidiaries.
(xxvi) The Company owns or has the right to use all
patents, patent applications, trademarks, trademark applications,
trade names, service marks, copyrights, franchises, trade
secrets, proprietary or other confidential information and
intangible properties and assets
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(collectively, "Intellectual Property Rights") necessary to
conduct its business as presently conducted and as described in
the Prospectus, and as the Prospectus indicates the Company
proposes to conduct as business, except where the failure to own
or have such rights would not have a Material Adverse Effect; and
to the knowledge of the Company, the Company has not infringed
and is not infringing, and the Company has not received notice of
infringement with respect to, asserted Intellectual Property
Rights of others and there is no infringement by others of
Intellectual Property Rights of the Company, in either case which
might result in a Material Adverse Effect.
(xxvii) The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in
such amounts as management of the Company deems prudent and in
the best interests of the Company and its shareholders; and the
Company has no 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 its business at a comparable cost,
except as disclosed in the Prospectus.
(xxviii) The Company and each of its subsidiaries makes
and keeps accurate books and records reflecting its assets and
maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as
necessary to permit preparation of the Company's financial
statements in accordance with generally accepted accounting
principles and to maintain accountability for the assets of the
Company, (C) access to the assets of the Company is permitted
only in accordance with management's authorization, and (D) the
recorded accountability for assets of the Company is compared
with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxix) The Company and each of its subsidiaries has filed
all foreign, federal, state and local tax returns that are
required to be filed by it and has paid all taxes shown as due on
such returns as well as all other taxes, assessments and
governmental charges that are due and payable; and no deficiency
with respect to any such return has been assessed or, to the
knowledge of the Company, proposed which might result in a
Material Adverse Effect.
(xxx) The Company is not, will not become as a result of
the transactions contemplated hereby, and does not intend to
conduct its business in a manner that would cause it to become,
an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company
Act of 1940.
(xxxi) The Company and each of its affiliates, as that
term is defined in Section 517.021(l), Florida Statutes, has
complied with all provisions of Section 517.075, Florida
Statutes, relating to doing business with the Government of Cuba
and certain other persons and entities.
(xxxii) All employee benefit plans (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") established, maintained or contributed to by
the Company comply in all material respects with the requirements
of ERISA and no employee pension benefit plan (as defined in
Section 3(2) of ERISA) has incurred or assumed an "accumulated
funding deficiency" within the meaning of Section 302 of ERISA or
has incurred or assumed any material liability (other than for
the payment of premiums) to the Pension Benefit Guaranty
Corporation;
(xxxiii) The Shares have been duly included for trading,
subject to notice of issuance, on the Nasdaq National Market;
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<PAGE>
(xxxiv) Except where such failures to comply or violations
would not in the aggregate have a Material Adverse Effect on the
Company, (i) the Company has complied with the Immigration Reform
and Control Act of 1986 and all Regulations promulgated
thereunder ("IRCA") with respect to the completion and
maintenance of Forms I-9, Employment Eligibility Verification
Forms, for all of its current employees and reverification of the
employment status of any and all employees whose employment
authorization documents indicated a limited period of employment
authorization; (ii) with respect to all former employees who left
the Company's employment within three years prior to the date
hereof, the Company has complied with IRCA with respect to the
maintenance of Forms I-9 for at least three years or for one year
beyond the date of termination, whichever is later; (iii) the
Company has had no immigration violations and has employed only
individuals authorized to work in the United States and has never
been the subject of any inspection or investigation relating to
its compliance with or violation of IRCA; and (iv) it has not
been warned, fined or otherwise penalized by reason of any
failure to comply with IRCA, and no such proceeding is pending or
threatened.
(B) REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS.
Each Selling Shareholder severally and not jointly represents and
warrants to, and agrees with, each of the several Underwriters
and the Company that:
(i) Such Selling Shareholder has full right, power and
authority to enter into this Agreement, the Custody Agreement and
Power of Attorney (as hereinafter defined) and to sell, assign,
transfer and deliver to the Underwriters the Shares to be sold by
such Selling Shareholder hereunder, as the case may be; and the
execution and delivery of this Agreement and Custody Agreement
and Power of Attorney have been duly authorized by all necessary
action of such Selling Shareholder.
(ii) Such Selling Shareholder has duly executed and
delivered this Agreement, the Custody Agreement and Power of
Attorney.
(iii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing
with, any court or governmental agency or body is required for
the sale of the Shares to be sold by such Selling Shareholder or
the consummation of the transactions contemplated by this
Agreement, the Power of Attorney or the Custody Agreement, except
the registration of such Shares under the Act (which, if the
Registration Statement is not effective as of the time of
execution hereof, shall be obtained as provided in this
Agreement) and such as may be required under state securities or
blue sky laws in connection with the offer, sale and distribution
of such Shares by the Underwriters.
(iv) The sale of the Shareholder Firm Shares to be sold
by such Selling Shareholder and the performance of this
Agreement, and the Custody Agreement and Power of Attorney and
the consummation of the transactions herein and therein
contemplated will not conflict with, or (with or without the
giving of notice or the passage of time or both) result in a
breach of violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to
which such Selling Shareholder is a party or to which any of
their respective properties or assets is subject, or any statute,
rule or regulation or any order, judgment or decree of any court
or governmental agency or body having jurisdiction over such
Selling Shareholder or any of such Selling Shareholder's
properties or assets.
(v) Such Selling Shareholder has, and immediately prior to
each Time of Delivery (as defined in Section 4 hereof), such
Selling Shareholder will have, good and valid title to the
8
<PAGE>
Shares to be sold by such Selling Shareholder hereunder, as the
case may be, free and clear of all liens, security interests,
pledges, charges, encumbrances, defects, shareholders'
agreements, voting trusts, equities or claims of any nature
whatsoever; and, upon delivery of such Shares against payment
therefor as provided herein, good and valid title to such Shares,
as the case may be, free and clear of all liens, security
interests, pledges, charges, encumbrances, defects, shareholders'
agreements, voting trusts, equities or claims of any nature
whatsoever arising under or through such selling Shareholder,
will pass to the several Underwriters.
(vi) Such Selling Shareholder has not (A) taken, directly
or indirectly any action designed to cause or result in, or that
has constituted or might reasonably be expected to constitute,
the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Firm Shares
or (B) since the filing of the Registration Statement (1) sold,
bid for, purchased or paid anyone any compensation for soliciting
purchases of, the Firm Shares or (2) paid or agreed to pay to any
person any compensation for soliciting another to purchase any
other securities of the Company.
(vii) To the extent any statements or omissions have been
made in any Preliminary Prospectus, the Registration Statement or
any amendments thereto or the Prospectus or any amendments or
supplement thereto in reliance upon and in conformity with
written information furnished to the Company by the Selling
Shareholder specifically for use therein, such statements or
omissions conform in all material respects to the requirements of
the Act and the Rules and Regulations of the Commission
promulgated thereunder and did not include any untrue statement
of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(viii) Certificates in negotiable form representing all of
the Shareholder Firm Shares to be sold by each Selling
Shareholder have been placed in custody under a Custody Agreement
and Power of Attorney, in the form heretofore approved by the
Underwriters, duly executed and delivered by such Selling
Shareholder to Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A., as custodian (the "Custodian"), and that pursuant
to such Custody Agreement and Power of Attorney such Selling
Shareholder has duly appointed the persons indicated in SCHEDULE
II hereto as such Selling Shareholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this
Agreement on behalf of such Selling Shareholder, to determine the
purchase price to be paid by the Underwriters to the Selling
Shareholders as provided in Section 2 hereof, to authorize the
delivery of the Shareholder Firm Shares to be sold by such
Selling Shareholder hereunder, as the case may be, and otherwise
to act on behalf of such Selling Shareholder in connection with
the transactions contemplated by this Agreement and the Custody
Agreement and Power of Attorney.
(ix) The Shareholder Firm Shares held in custody for such
Selling Shareholder by the Custodian are subject to the interests
of the Underwriters hereunder, and the arrangements made by such
Selling Shareholder for such custody, and the appointment by such
Selling Shareholder of the Attorneys- in-Fact, are irrevocable;
the obligations of such Selling Shareholder hereunder shall not
be terminated by operation of law, whether by the death or
incapacity of any individual Selling Shareholder.
2. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
herein set forth, (a) the Company agrees to sell to each of the Underwriters,
and each of the Underwriters agrees, severally and not jointly, to purchase from
the Company, at a purchase price of $______ per share, the number of the Company
Firm Shares set forth opposite the name of each Underwriter on SCHEDULE I, (b)
the Selling Shareholders severally and not jointly, agree to sell to the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase
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<PAGE>
from the Selling Shareholders, at the purchase price per share set forth in
clause (a) of this Section 2, the number of Shareholder Firm Shares set forth
opposite the names of each Underwriter on SCHEDULE I hereto.
The Company hereby grants to the Underwriters the right to purchase at
their election in whole or in part up to 687,750 Optional Shares at the purchase
price per share set forth in clause (a) in the paragraph above for the sole
purpose of covering over-allotments in the sale of Firm Shares. If the option
granted hereby is exercised in part, then the respective number of Optional
Shares to be purchased by each of the Underwriters shall be determined by
multiplying the total number of Optional Shares as to which such election shall
have been exercised by the Underwriters by a fraction, the numerator of which is
the maximum number of Optional Shares such Underwriter is entitled to purchase
as set forth opposite the name of such Underwriter in SCHEDULE I hereto and the
denominator of which is the maximum number of Optional Shares that all
Underwriters are entitled to purchase hereunder (with the resulting number to be
adjusted by the Underwriters so as to eliminate fractional shares). Any such
election to purchase Optional Shares may be exercised by written notice from the
Underwriters to the Company, given within a period of 30 calendar days after the
date of this Agreement and setting forth the aggregate number of Optional Shares
to be purchased and the date on which such Optional Shares are to be delivered,
as determined by the Underwriters but in no event earlier than the First Time of
Delivery or, unless the Underwriters and the Company otherwise agree, to furnish
or cause to be furnished to the Underwriters the certificates, letters and
opinions, and to satisfy all conditions, set forth in Section 7 hereof at the
Subsequent Time of Delivery.
3. OFFERING BY THE UNDERWRITERS. Upon the authorization by the
Underwriters of the release of the Shares, the several Underwriters propose to
offer the Shares for sale upon the terms and conditions disclosed in the
Prospectus.
4. DELIVERY OF SHARES; CLOSING. Certificates in definitive form for the
Shares to be purchased by each Underwriter hereunder, and in such denominations
and registered in such names as Raymond James & Associates, Inc. may request
upon at least 48 hours prior notice to the Company, shall be delivered by or on
behalf of the Company and the Selling Shareholders to the Underwriters for the
account of such Underwriter, against payment by such Underwriter on its behalf
as provided herein. Payment shall be made (i) with respect to the purchase price
for the Company Firm Shares and any Optional Shares purchased from the Company
if any Optional Shares are purchased hereunder, to the Company by official bank
check or checks payable to the order of the Company, in next day available funds
against delivery of the certificates for the Company Firm Shares or Optional
Shares purchased from the Company, as the case may be, and (ii) with respect to
the purchase price for Shareholder Firm Shares to the Custodian by official bank
check or checks payable to the order of the Custodian, in next day available
funds against delivery of the certificates for the Shareholder Firm Shares
purchased from Selling Shareholders. The closing of the sale and purchase of the
Shares shall be held at the offices of Raymond James & Associates, Inc., 880
Carillon Parkway, St. Petersburg, Florida 33716 (the "Representative's Office"),
or at such location in Miami, Florida as the Representative may designate ,
except that physical delivery of certificates for the Shares shall be made at
the direction of the Underwriters either at the Representative's Office or at
the office of Interwest Transfer Company, 1981 East 4800 South, Suite 100, Salt
Lake City, Utah 84117 (the "Interwest Office"), or shall be made to The
Depository Trust Company ("DTC"), 55 Water Street, New York, New York 10041, for
the account of the Underwriters or for such other accounts as the Underwriters
shall specify to DTC. The time and date of such delivery and payment shall be,
with respect to the Firm Shares, at 10:00 a.m., eastern time, on the third full
business day after this Agreement is executed or at such other time and date as
the Underwriters and the Company and the Attorneys-in-Fact, on behalf of the
Selling Shareholders, may agree upon in writing, and, with respect to the
Optional Shares, 10:00 a.m., eastern time, on the date specified by the
Underwriters in the written notice given by the Underwriters of the
Underwriters' election to purchase all or part of such Optional Shares, or at
such other time and date as the Underwriters, the Company and the
Attorneys-in-Fact, on behalf of the Selling Shareholders, may agree upon in
writing. Such time and date for delivery of the Firm Shares is herein called the
"First Time of Delivery," and such time and date for delivery of any Optional
Shares, if not the First Time of Delivery, is herein called a "Subsequent Time
of Delivery," and each such time and date for delivery is herein called a "Time
of Delivery." The Company will make certificates for the Shares available for
checking and packaging at least 24 hours
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prior to each Time of Delivery at the office of the Interwest Office or the
office of DTC in New York, New York or at such other location in New York, New
York specified by the Underwriters in writing at least 48 hours prior to such
Time of Delivery.
5. COVENANTS.
(A) COVENANTS OF THE COMPANY. The Company covenants and agrees
with each of the Underwriters:
(i) If the Registration Statement has been declared
effective prior to the execution and delivery of this Agreement,
the Company will file the Prospectus with the Commission pursuant
to and in accordance with subparagraph (1) (or, if applicable and
if consented to by the Underwriters, subparagraph (4)) of Rule
424(b) not later than the earlier of (A) the second business day
following the execution and delivery of this Agreement or (B) the
fifth business day after the date on which the Registration
Statement is declared effective. The Company will advise the
Underwriters promptly of any such filing pursuant to Rule 424(b).
(ii) The Company will not file with the Commission the
Prospectus or the amendment referred to in the second sentence of
Section 1(a)(i) hereof, any amendment or supplement to the
Prospectus or any amendment to the Registration Statement unless
the Underwriters have received a reasonable period of time to
review any such proposed amendment or supplement and consented to
the filing thereof, such consent not to be unreasonably delayed
or withheld. The Company will use its best efforts to cause any
such amendment to the Registration Statement to be declared
effective as promptly as possible. Upon the reasonable request of
the Underwriters or counsel for the Underwriters, the Company
will promptly prepare and file with the Commission, in accordance
with the rules and regulations of the Commission, any amendments
to the Registration Statement or amendments or supplements to the
Prospectus that may be necessary or advisable in connection with
the distribution of the Shares by the several Underwriters and
will use its best efforts to cause any such amendment to the
Registration Statement to be declared effective as promptly as
possible. If required, the Company will file any amendment or
supplement to the Prospectus with the Commission in the manner
and within the time period required by Rule 424(b) under the Act.
The Company will advise the Underwriters, promptly after
receiving notice thereof, of the time when the Registration
Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement
thereto has been filed and will provide evidence to the
Underwriters of each such filing or effectiveness.
(iii) The Company will advise the Underwriters promptly
after receiving notice or obtaining knowledge of (A) the issuance
by the Commission of any stop order suspending the effectiveness
of the Registration Statement or any part thereof or any order
preventing or suspending the use of any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, (B) the
suspension of the qualification of the Shares for offer or sale
in any jurisdiction or of the initiation or threatening of any
proceeding for any such purpose, or (C) any request made by the
Commission or any securities authority of any other jurisdiction
for amending the Registration Statement, for amending or
supplementing the Prospectus or for additional information. The
Company will use its best efforts to prevent the issuance of any
such stop order and, if any such stop order is issued, to obtain
the withdrawal thereof as promptly as possible.
(iv) If the delivery of a prospectus relating to the
Shares is required under the Act at any time prior to the
expiration of nine months after the date of the Prospectus and if
at such time any events have occurred as a result of which the
Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material
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<PAGE>
fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading,
or if for any reason it is necessary during such same period to
amend or supplement the Prospectus to comply with the Act or the
rules and regulations thereunder, the Company will promptly
notify the Underwriters and upon their request (but at the
Company's expense) prepare and file with the Commission an
amendment or supplement to the Prospectus that corrects such
statement or omission or effects such compliance and will furnish
without charge to each Underwriter and to any dealer in
securities as many copies of such amended or supplemented
Prospectus as the Underwriters may from time to time reasonably
request. If the delivery of a prospectus relating to the Shares
is required under the Act at any time nine months or more after
the date of the Prospectus, upon request of the Underwriters but
at the expense of the Underwriters, the Company will prepare and
deliver to the Underwriters as many copies as the Underwriters
may request of an amended or supplemented Prospectus complying
with Section 10(a)(3) of the Act. Neither the Underwriters'
consent to, nor the Underwriters' delivery of, any such amendment
or supplement shall constitute a waiver of any of the conditions
set forth in Section 7.
(v) The Company promptly from time to time will take such
action as the Underwriters may reasonably request to qualify the
Shares for offering and sale under the securities or blue sky
laws of such jurisdictions as the Underwriters may request and
will continue such qualification in effect for as long as may be
necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction.
(vi) The Company will promptly provide the Representative,
without charge, (A) two manually executed copies of the
Registration Statement as originally filed with the Commission
and of each amendment thereto, (B) for each other Underwriter a
conformed copy of the Registration Statement as originally filed
and of each amendment thereto, without exhibits, and (C) so long
as a prospectus relating to the Shares is required to be
delivered under the Act, as many copies of each Preliminary
Prospectus or the Prospectus or any amendment or supplement
thereto as the Underwriters may reasonably request.
(vii) As soon as practicable, but in any event not later
than the last day of the fifteenth month after the effective date
of the Registration Statement, the Company will make generally
available to its security holders an earnings statement of the
Company covering a period of at least 12 months beginning after
the effective date of the Registration Statement (which need not
be audited) conforming with Section 11(a) of the Act and Rule 158
thereunder.
(viii) During the period beginning from the date hereof
and continuing to and including the date 180 days after the date
of the Prospectus, the Company will not, without the prior
written consent of the Underwriters, offer, pledge, issue, sell,
contract to sell, grant any option for the sale of, or otherwise
dispose of (or announce any offer, pledge, sale, grant of an
option to purchase or other disposition), directly or indirectly,
any shares of Common Stock or securities convertible into,
exercisable or exchangeable for, shares of Common Stock, except
(a) as provided in Sections 2 and 11 hereof and except for the
issuance of Common Stock upon the exercise of stock options or
warrants outstanding on the date of this Agreement to the extent
that such stock options or warrants were issued pursuant to plans
or agreements which are disclosed in the Prospectus, (b) the
grant of options to employees or directors under existing stock
option plans, (c) shares of Common Stock, securities convertible
into, exercisable or exchangeable for, or any other rights to
receive shares of Common Stock issued as full or partial
consideration for the acquisition of interests in business
entities in connection with the expansion of the Company's
business, or (d) as otherwise disclosed or contemplated by the
Prospectus.
(ix) During a period of five years from the effective date
of the Registration Statement, the Company will furnish to the
Underwriters, without charge, (A) copies of all reports or other
communications (financial or other) furnished to shareholders
generally, (B) as soon as
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they are available, copies of any reports and financial
statements furnished to or filed with the Commission or the
National Association of Securities Dealers, Inc. or any national
securities exchange or quotation service upon which trading in
shares of the Common Stock is listed or reported, and (C) such
additional information concerning the business and financial
condition of the Company as the Underwriters may reasonably
request subject to appropriate confidentiality provisions with
respect to material non-public information.
(x) The Company will not (A) take, directly or indirectly,
prior to the termination of the underwriting syndicate
contemplated by this Agreement, any action designed to cause or
to result in, or that might reasonably be expected to constitute,
the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of any of the
Shares, (B) sell, bid for, purchase or pay anyone any
compensation for soliciting purchases of, the Shares, or (C) pay
or agree to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.
(xi) The Company will apply the net proceeds from the
offering in the manner set forth under "Use of Proceeds" in the
Prospectus.
(xii) The Company will cause the Shares to be duly
included for trading on the Nasdaq National Market at each Time
of Delivery and maintain such status on the Nasdaq National
Market or be listed on a national securities exchange, on a
continuous basis for at least three years from the date hereof.
(xiii) If at any time during the period beginning on the
date the Registration Statement becomes effective and ending on
the later of (A) the date 25 days after such effective date (or
if the Underwriter's option granted pursuant to Section 2 hereof
has not been exercised by such date, then 30 days after such
effective date) or (B) the date that is the earlier of (1) the
date on which the Company first files with the Commission a
Quarterly Report on Form 10-Q after such effective date and (2)
the date on which the Company first issues a quarterly financial
report to shareholders after such effective date, any rumor,
publication or event relating to or affecting the Company shall
occur as a result of which in the reasonable opinion of the
Underwriters the market price of the Common Stock has been or is
likely to be materially affected (regardless of whether such
rumor, publication or event necessitates an amendment of or
supplement to the Prospectus), the Company will, after written
notice from the Underwriters advising the Company to the effect
set forth above, forthwith prepare, consult with the Underwriters
concerning the substance of, and consult with Company counsel to
determine whether or not it is advisable, under the
circumstances, to disseminate a press release or other public
statement, reasonably satisfactory to the Underwriters,
responding to or commenting on such rumor, publication or event.
(B) COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling
Shareholder severally covenants and agrees with each of the Underwriters and the
Company that:
(i) During the period beginning from the date hereof and
continuing to and including (x) with respect to the Principal
Selling Shareholders the date 180 days after the date of the
Prospectus, and (y) with respect to the Non-principal Selling
Shareholders the date 90 days after the date of the Prospectus,
such Selling Shareholder will not, without the prior written
consent of the Underwriters, offer, pledge, issue, sell, contract
to sell, grant any option for the sale. of, or otherwise dispose
of (or announce any offer, pledge, sale, grant of an option to
purchase or other disposition), directly or indirectly, any
shares of Common Stock or securities convertible into,
exercisable or exchangeable for, shares of Common Stock.
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(ii) Such Selling Shareholder will not (A) take, directly
or indirectly, prior to the termination of the underwriting
syndicate contemplated by this Agreement, any action designed to
cause or to result in, or that might reasonably be expected to
constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any
of the Shares, (B) sell, bid for, purchase or pay anyone any
compensation for soliciting purchases of, the Shares or (C) pay
to or agree to pay any person any compensation for soliciting
another to purchase any other securities of the Company.
(iii) In order to document the Underwriters' compliance
with the reporting and withholding provisions of the Internal
Revenue Code of 1986, as amended, with respect to the
transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to the Underwriters prior to or at
the First Time of Delivery a properly completed and executed
United States Treasury Department Form W-9 (or other applicable
form or statement specified by Treasury Department regulations in
lieu thereof).
6. EXPENSES. The Company and each of the Selling Shareholders will pay
all costs and expenses incident to the performance of their respective
obligations under this Agreement, (in such proportion as may have been or may be
agreed upon among them or, in the absence of such agreement, in proportion to
the number of Firm Shares sold by each of them) whether or not the transactions
contemplated hereby are consummated or this Agreement is terminated pursuant to
Section 10 hereof, including, without limitation, all costs and expenses
incident to (i) the fees, disbursements and expenses of the Company's counsel
and accountants in connection with the registration of the Shares under the Act
and all other expenses in connection with the preparation, printing and, if
applicable, filing of the Registration Statement (including all amendments
thereto), any Preliminary Prospectus, the Prospectus and any amendments and
supplements thereto, and any blue sky memoranda; (ii) the delivery of copies of
the foregoing documents and this Agreement to the Underwriters; (iii) the filing
fees of the Commission and the National Association of Securities Dealers, Inc.
relating to the Shares; (iv) the preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Shares, including transfer
agent's and registrar's fees; (v) the qualification of the Shares for offering
and sale under state securities and blue sky laws, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters relating
thereto; (vi) any listing of the Shares on the Nasdaq National Market and (vii)
any expenses for travel, lodging and meals incurred by the Company and any of
its officers, directors and employees in connection with any meetings with
prospective investors in the Shares. In addition, each Selling Shareholder will
pay (unless the Company agrees to make such payment) all costs and expenses
incident to (i) the fees, disbursements and expenses of any special counsel
retained by such Selling Shareholder, (ii) such Selling Shareholder's pro rata
share of the fees and expenses of the Attorneys-in-Fact and the Custodian, and
(iii) the sale and delivery of the Shares to be sold by such Selling Shareholder
to the Underwriters hereunder. In addition, at the time of the execution of this
Agreement, the Company shall pay $100,000 to the Representative, as a
non-accountable expense allowance, by delivery of a certified or cashiers'
check. It is understood, however, that, except as provided in this Section,
Section 8 and Section 10 hereof, the Underwriters will pay all of their own
costs and expenses, including the fees of their counsel, stock transfer taxes on
resale of any of the Shares by them, and any advertising expenses relating to
the offer and sale of the Shares.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The several obligations
of the Underwriters hereunder to purchase and pay for the Shares to be delivered
at each Time of Delivery shall be subject, in their discretion, to the accuracy
of the representations and warranties of the Company and the Selling
Shareholders contained herein as of the date hereof and as of such Time of
Delivery, to the accuracy of the statements of Company officers made pursuant to
the provisions hereof, to the performance by the Company and the Selling
Shareholders of their respective covenants and agreements hereunder, and to the
following additional conditions precedent:
(a) If the registration statement as amended to date has not
become effective prior to the execution of this Agreement, such registration
statement shall have been declared effective not later than 11:00 a.m.,
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Eastern time, on the date of this Agreement or such later date and/or time as
shall have been consented to by the Underwriters in writing. If required, the
Prospectus and any amendment or supplement thereto shall have been filed with
the Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing and in accordance with Section 5(a) of this
Agreement; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceedings for that
purpose shall have been instituted, threatened or, to the knowledge of the
Company and the Underwriters, contemplated by the Commission; and all requests
for additional information on the part of the Commission shall have been
complied with to the reasonable satisfaction of the Underwriters.
(b) Holland & Knight, counsel for the Underwriters, shall have
furnished to the Underwriters such opinion or opinions, dated such Time of
Delivery, with respect to the incorporation of the Company, the validity of the
Firm Shares or Optional Shares, as the case may be, being delivered at such Time
of Delivery, the Registration Statement, the Prospectus, and other related
matters as the Underwriters may reasonably request which opinion the
Underwriters shall use their best efforts to cause said firm to furnish, and the
Company shall have furnished to such counsel such documents as such counsel or
the Underwriters request prior to such Time of Delivery for the purpose of
enabling them to pass upon such matters.
(c) The Underwriters shall have received an opinion, dated at
each Time of Delivery, of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A., to the effect that:
(i) The Company and each of its subsidiaries has been duly
organized, is validly existing under the laws of its jurisdiction
of organization and has the power and authority to own or lease
its properties and conduct its business as described in the
Registration Statement and the Prospectus and the Company has the
power and authority to enter into this Agreement and perform its
obligations hereunder. The Company and each of its subsidiaries
is duly qualified to transact business under the laws of each
jurisdiction in which it owns or leases property, or conducts any
business, so as to require such qualification, except where the
failure to so qualify would not have a Material Adverse Effect.
(ii) The Company's authorized, issued and outstanding
capital stock is set forth in the Prospectus. All of the issued
shares of Common Stock of the Company (including the Shares to be
sold by the Selling Shareholders) have been duly authorized and
validly issued, are fully paid and nonassessable and conform to
the description of the Common Stock contained in the Prospectus.
None of the issued shares of capital stock of the Company has
been issued or is owned or held in violation of any preemptive
rights of shareholders, and no person or entity (including any
holder of outstanding shares of capital stock of the Company) has
any statutory preemptive or, to the knowledge of such counsel,
other rights to subscribe for any of the Shares.
(iii) The Company has no subsidiaries other than those
listed on Exhibit 22 to the Registration Statement and, to the
knowledge of such counsel, does not have any ownership interest
in any partnership, joint venture or other entity or association.
The Company owns 100% of the issued and outstanding capital stock
of each of its subsidiaries listed on such Exhibit 22, except for
the subsidiaries (A) organized under the laws of England,
Hungary, Peru and Uruguay, as to each of which it owns 99.2%,
51%, 60% and 50% respectively, of the issued and outstanding
capital stock or other type of ownership interest, as the case
may be, and (B) organized under the laws of Belgium, France and
Portugal as to each of which it owns approximately 99.997% of the
issued and outstanding capital stock or other type of ownership
interest, as the case may be.
(iv) Except as disclosed in the Prospectus, to the
knowledge of such counsel there are no outstanding (A) securities
or obligations of the Company convertible into or exchangeable
for any capital stock of the Company, (B) warrants, rights or
options to subscribe for or purchase
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from the Company any such capital stock or any such convertible
or exchangeable securities or obligations, or (C) obligations of
the Company to issue any shares of capital stock, any such
convertible or exchangeable securities or obligations, or any
such warrants, rights or options.
(v) The Shares to be issued and sold by the Company have
been duly authorized and, when issued and delivered against
payment therefor as provided herein, will be validly issued and
fully paid and nonassessable and will conform to the description
of the Common Stock contained in the Prospectus, and the
certificates evidencing the Shares will comply with all
applicable requirements of Florida law.
(vi) Except as disclosed in the Prospectus, to the
knowledge of such counsel there are no contracts, agreements or
understandings between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Act with respect to any securities of the
Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to the Registration Statement (or any such right has
been effectively exercised or waived) or in any securities being
registered pursuant to any other registration statement filed by
the Company under the Act.
(vii) All offers and sales of the Company's capital stock
prior to the date hereof were at all relevant times duly
registered under the Act or exempt from the registration
requirements of the Act and were duly registered or qualified or
were the subject of an available exemption from the registration
or qualification requirements of the applicable state securities
or blue sky laws (or are not required to be so registered or
qualified because such requirement to register or qualify is
barred by an applicable statute of limitations with respect to
any failure to so register or qualify).
(viii) The Company is not, nor with the giving of notice
or passage of time or both, will it be in violation of its
Articles of Incorporation or Bylaws or in default under any
material indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument known to such counsel to
which the Company is a party or to which any of its properties or
assets is subject.
(ix) The issue and sale of the Shares being issued at such
Time of Delivery and the performance of this Agreement and the
consummation of the transactions herein contemplated will not
conflict with, or (with or without the giving of notice or the
passage of time or both) result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any
material indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument known to such counsel to
which the Company is party or to which any of its properties or
assets is subject, nor will such action conflict with or violate
any provision of the Articles of Incorporation or Bylaws of the
Company or any statute, rule or regulation or, to the extent
known to such counsel, any order, judgment or decree of any court
or governmental agency or body known having jurisdiction over the
Company or any of its properties or assets.
(x) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing
with, any court or governmental agency or body is required for
the issue and sale of the Shares or the consummation of the
transactions contemplated by this Agreement, except the
registration of the Shares under the Act and such as may be
required under state securities or blue sky laws in connection
with the offer, sale and distribution of the Shares by the
Underwriters.
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(xi) To such counsel's knowledge, and other than as
disclosed in or contemplated by the Prospectus, (A) there is no
litigation, arbitration, claim, proceeding (formal or informal)
or investigation pending or threatened (or any basis therefor) in
which the Company or any of its subsidiaries is a party or of
which any of its properties or assets is the subject which, if
determined adversely to the Company or any of its subsidiaries
would individually or in the aggregate have a Material Adverse
Effect; and (B) neither the Company nor any of its subsidiaries
is in violation of, or in default with respect to, any foreign or
domestic statute, rule, regulation, order, judgment or decree,
including, without limitation, the Foreign Corrupt Practices Act
of 1977, as amended, or any export control Laws or Executive
Orders issued pursuant to those Laws nor is the Company or any of
its subsidiaries required to take any action in order to avoid
any such violation or default in any case where such violations
or defaults would individually or in the aggregate have a
Material Adverse Effect.
(xii) This Agreement has been duly authorized, executed
and delivered by the Company.
(xiii) The Registration Statement and the Prospectus and
each amendment or supplement thereto (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion), as of their respective
effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and
Regulations thereunder. The descriptions in the Registration
Statement and the Prospectus of statutes and legal and
governmental proceedings or contracts and other documents are
accurate and fairly present the information required to be shown;
and such counsel does not know of any statutes or legal or
governmental proceedings required to be described in the
Registration Statement or Prospectus that are not described as
required or of any contracts or documents of a character required
to be described in the Registration Statement or Prospectus or to
be filed as exhibits to the Registration Statement which are not
described and filed as required.
(xiv) The Registration Statement is effective under the
Act, any required filing of the Prospectus pursuant to Rule
424(b) has been made in the manner and within the time period
required by Rule 424(b); and no stop order suspending the
effectiveness of the Registration Statement or any part thereof
has been issued and, to such counsel's knowledge, no proceedings
for that purpose have been instituted or threatened or are
contemplated by the Commission.
(xv) The Company is not, and will not be as a result of
the consummation of the transactions contemplated by this
Agreement, an "investment company," or a company "controlled" by
an "investment company," within the meaning of the Investment
Company Act of 1940.
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on warranties,
representations and certificates of responsible officers of the Company and
public officials and, as to matters involving the application of laws of any
jurisdiction other than Florida or the United States, to the extent satisfactory
in form and scope to counsel for the Underwriters, upon the opinion of local
counsel reasonably satisfactory to counsel for the Underwriters, provided that
such counsel states such counsel believes that the Underwriters are justified in
relying upon such opinion and copies of such opinion are delivered to the
Underwriters and counsel for the Underwriters.
In addition, such counsel shall state that (i) based solely upon
a letter from The Nasdaq Stock Market Inc. to the Company attached to such
counsel's opinion, the Firm Shares, the outstanding shares, and the Optional
Shares have been duly included for trading on the Nasdaq National Market upon
issuance of the Shares and (ii) such counsel has participated in conferences
with officers and other representatives of the Company and the Underwriters and
their counsel during which the contents of the Registration Statement and the
Prospectus and
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related matters were discussed and reviewed, and, although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus, on the basis of the information that such counsel
developed in the course of the performance of the services referred to above,
considered in the light of such counsel's understanding of the applicable law,
that nothing came to their attention that caused them to believe that the
Registration Statement or the Prospectus (other than the financial statements
and schedules and the other financial and statistical data therein, as to which
such counsel need express no belief), on such effective date, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(d) The Underwriters shall have received an opinion, dated such
Time of Delivery of Greenberg Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.,
counsel to the Selling Shareholders, such opinion to be in form and substance
reasonably satisfactory to the Underwriters and to counsel to the Underwriters,
to the effect:
(i) A Custody Agreement and Power of Attorney has been
duly executed and delivered by each Selling Shareholder, which is
irrevocable and enforceable against such Selling Shareholder in
accordance with its terms subject, as to enforcement, to
applicable bankruptcy, insolvency, reorganization and moratorium
laws and other laws relating to or affecting the enforcement of
creditors' rights generally and to general equitable principles
and except as the enforceability of rights to indemnity and
contribution under this Agreement may be limited under applicable
securities laws or the public policy underlying such laws.
(ii) This Agreement has been duly executed and delivered
by or on behalf of such Selling Shareholder; the sale of the
Shares to be sold by such Selling Shareholder at such Time of
Delivery and the performance of this Agreement, the Custody
Agreement and Power of Attorney and the consummation of the
transactions herein and therein contemplated will not conflict
with, or (with or without the giving of notice or the passage of
time or both) result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any material
indenture, mortgage, deed of trust, loan agreement, lease or
other amendment or instrument known to such counsel to which such
Selling Shareholder is a party or to which any of its properties
or assets is subject, nor will such action conflict with or
violate any provision of any statute, rule or regulation or any
order, judgment or decree of any court or governmental agency or
body known to such counsel having jurisdiction over such Selling
Shareholder or any of such Selling Shareholder's properties or
assets.
(iii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing
with, any court or governmental agency or body is required for
the issue and sale of the Shares being sold by such Selling
Shareholder or the consummation of the transactions contemplated
by this Agreement, the Custody Agreement and Power of Attorney,
except the registration of such Shares under the Act and such as
may be required under state securities or blue sky laws in
connection with the offer, sale and distribution of such Shares
by the Underwriters.
(iv) Delivery of certificates for the Shares by such
Selling Shareholders pursuant to the terms hereof will pass valid
and marketable title thereto to each Underwriter that purchased
Shares for value in good faith and without notice of any adverse
claim with respect thereto within the meaning of the Uniform
Commercial Code as in effect in Florida, free and clear of all
liens, security interests, pledges, charges, encumbrances,
defects, stockholders' agreements, voting trusts, equities or
claims of any nature whatsoever arising under or through the
Selling Shareholder.
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(e) The Underwriters shall have received from each of Grant
Thornton, LLP, BDO Binder, AG and Arthur Andersen, LLP, letters dated the date
hereof (or, if the Registration Statement has been declared effective prior to
the execution and delivery of this Agreement, dated such effective date and the
date of this Agreement) and each Time of Delivery, in form and substance
satisfactory to the Underwriters, to the effect set forth in Annex I hereto. In
the event that the letters referred to in this Section 7(e) set forth any
changes, decreases or increases in the items specified in clause (iii) of Annex
I, it shall be a further condition to the obligations of the Underwriters that
(i) such letters shall be accompanied by a written explanation by the Company as
to the significance thereof, unless the Underwriters deem such explanation
unnecessary, and (ii) such changes, decreases or increases do not, in the sole
business judgment of the Underwriters, make it impracticable or inadvisable to
proceed with the purchase, sale and delivery of the Shares being delivered at
such Time of Delivery as contemplated by the Registration Statement, as amended
as of the date of such letter.
(f) Since the date of the latest audited financial statements
included in the Prospectus, the Company shall not have sustained (i) any loss or
interference with its business from fire, explosion, flood, hurricane or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as disclosed in or
contemplated by the Prospectus, or (ii) any change, or any development involving
a prospective change (including without limitation a change in management or
control of the Company), in or affecting the position (financial or otherwise),
results of operations, net worth or business prospects of the Company, otherwise
than as disclosed in or contemplated by the Prospectus, the effect of which, in
either such case, is in the sole business judgment of the Underwriters so
material and adverse as to make it impracticable or inadvisable to proceed with
the purchase, sale and delivery of the Shares being delivered at such Time of
Delivery as contemplated by the Registration Statement, as amended as of the
date hereof.
(g) Subsequent to the date hereof there shall not have occurred
any of the following: (i) any suspension or limitation in trading in securities
generally on the New York or American Stock Exchanges, or The Nasdaq National
Market or any setting of minimum prices for trading on such exchanges or Market
or trading in the Common Stock shall have been suspended by the Commission or
The Nasdaq Stock Market; (ii) a moratorium on commercial banking activities in
New York or Florida declared by either federal or state authorities; or (iii)
any outbreak or escalation of hostilities involving the United States,
declaration by the United States of a national emergency or war or any other
national or international calamity, emergency, crisis or change in political,
financial or economic condition or other material event, if the effect of any
such event specified in this clause (iii) in the sole business judgment of the
Underwriters makes it impractical or inadvisable to proceed with the purchase,
sale and delivery of the Shares to be delivered at such Time of Delivery as
contemplated by the Registration Statement, as amended as of the date hereof,
and this Agreement.
(h) The Company shall have furnished to the Underwriters at such
Time of Delivery certificates of officers of the Company and certificates of the
Attorney-in-Fact for the Selling Shareholders, reasonably satisfactory to the
Underwriters, as to the accuracy in all material respects of the representations
and warranties of the Company and such Selling Shareholders herein at and as of
such Time of Delivery, as to the performance by the Company and such Selling
Shareholders of all of their respective obligations hereunder to be performed at
or prior to such Time of Delivery, and as to such other matters as the
Underwriters may reasonably request, and the Company shall have furnished or
caused to be furnished certificates as to the matters set forth in subsections
(a) and (f) of this Section 7, and as to such other matters as the Underwriters
may reasonably request.
(i) The Shares shall have been approved for trading upon notice
of issuance on The Nasdaq National Market.
(j) The Lockup Letters shall have been delivered to the
Underwriters and the Company shall have noted the restrictions contained in such
Lockup Letters on the books and records of the Company relating to stock
transfers and on any certificates representing shares of Common Stock held by
such persons.
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8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Principal Selling Shareholders jointly
and severally agree to indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon: (i) any untrue statement or alleged untrue statement made
by the Company in Section l(a) of this Agreement; (ii) any untrue statement or
alleged untrue statement of any material fact contained in (A) the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or (B) any application or other
document, or any amendment or supplement thereto, executed by the Company or
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify the Shares under the securities or blue sky
laws thereof or filed with the Commission or any securities association or
securities exchange (each an "Application"); or (iii) the omission or alleged
omission to state in the Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or any Application a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating, defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any Amendment thereto,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto or any Application in reliance upon and in conformity with written
information furnished to the Company by any Underwriter expressly for use
therein. The obligations of the Company and the Principal Selling Shareholders
to indemnify the Underwriters (and any controlling person of each Underwriter)
pursuant to this Agreement is subject to the condition that, insofar as such
losses, claims, damages, liabilities or expenses relate to any such untrue
statement, alleged untrue statement, omission or alleged omission made in a
Preliminary Prospectus that is corrected in the Prospectus, such indemnity
agreement shall not inure to the benefit of any Underwriter from whom the person
asserting such losses, liabilities, claims, damages or expenses purchased the
Shares in the Offering, if (i) such Underwriter failed to deliver a copy of the
Prospectus to such person at or prior to the time delivery of the Prospectus is
required by the Act, unless such failure was due to the failure by the Company
to provide copies of the Prospectus to such Underwriter; and (ii) the delivery
of such Prospectus to such person would have constituted a complete defense to
the losses, claims, damages, liabilities or expenses asserted by such person.
Neither the Company nor any of the Principal Selling Shareholders will without
the prior written consent of each Underwriter, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit or
proceeding (or related cause of action or portion thereof) in respect of which
indemnification may be sought hereunder (whether or not such Underwriter is a
party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of such Underwriter from
all liability arising out of such claim, action, suit or proceeding (or related
cause of action or portion thereof). Notwithstanding the provisions of this
Section 8(a), the Underwriters shall not be entitled to indemnity or
contribution from any Principal Selling Shareholder except until and to the
extent that, either (A) at the time indemnity is sought from any of the
Principal Selling Shareholders, the Company is insolvent or subject to
proceedings pending under Title 11 of the United States Code, (B) the
Underwriters have pursued to the fullest practicable extent (as defined below)
indemnity or reimbursement from the Company with respect to such losses, claims,
damages or liabilities pursuant to this Section 8 and such indemnification or
reimbursement has not been provided, or has been provided in an amount less than
the total losses, claims, damages or liabilities to which the Underwriters are
subject and entitled to indemnity hereunder, or (C) the Underwriters have sought
indemnity from the Company and the total amount paid (or agreed to be paid) by
the Company to or on behalf of the Underwriters pursuant to the indemnity and
reimbursement agreements contained in this Section 8 equals or exceeds the
aggregate initial public offering price of the stock sold by the Company to the
Underwriters. The foregoing sentence shall only serve to limit the circumstances
in which indemnity may be sought from the Principal Selling Shareholders and
nothing contained in such sentence shall be deemed to limit or restrict any
amounts otherwise payable by the Company pursuant to this Section 8. For the
purposes of this paragraph, the Underwriters shall be deemed to have pursued
indemnity or reimbursement "to the fullest practicable extent" if a
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final judgment shall have been entered by a court of competent jurisdiction or
if more than twenty-four (24) months shall have elapsed following the filing by
the Underwriters in a court of competent jurisdiction of a complaint against the
Company seeking to enforce the Underwriters' rights under this Section 8,
provided that the Underwriters shall have diligently prosecuted such claim
during the twenty-four month period. Notwithstanding the foregoing provisions of
this Section 8(a), the Underwriters shall not be entitled to indemnity or
contribution from any Principal Selling Shareholder in excess of the net
proceeds of the offering (before deducting expenses) received by such Principal
Selling Shareholder, unless 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 the Registration Statement or any amendment or
supplement thereto, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto or any Application in reliance upon and conformity with
written information furnished to the Company by such Principal Selling
Shareholder expressly for use therein, in which case such limitation of
liability of such Principal Selling Shareholders shall not apply.
(b) Each Non-principal Selling Shareholder, severally but not
jointly, agrees to indemnify and hold harmless the Company and each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
the Company or such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon: (i) any untrue statement or alleged
untrue statement made by such Non-principal Selling Shareholder in Section 1(b)
of this Agreement; or (ii) any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement or any amendment
thereto, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or any Application or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that no such Non-principal
Selling Shareholder shall be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto or any
Application in reliance upon and in conformity with written information
furnished to the Company, by any Underwriter or by any person other than such
Non-principal Selling Shareholder, expressly for use therein. The obligations of
the Non-principal Selling Shareholders to indemnify the Underwriters (or any
controlling person of such Underwriter) pursuant to this indemnity agreement is
subject to the condition that, insofar as such losses, claims, damages,
liabilities or expenses relate to any such untrue statement, alleged untrue
statement, omission or alleged omission made in a Preliminary Prospectus that is
corrected in the Prospectus, such indemnity agreement shall not inure to the
benefit of any Underwriter from whom the person asserting such losses,
liabilities, claims, damages or expenses purchased the Shares in the Offering,
if (i) such Underwriter failed to deliver a copy of the Prospectus to such
person at or prior to the time delivery of the Prospectus is required by the
Act, unless such failure was due to the failure by the Company to provide copies
of the Prospectus to such Underwriter; and (ii) the delivery of such Prospectus
to such person would have constituted a complete defense to the losses, claims,
damages, liabilities or expenses asserted by such person. The Non- principal
Selling Shareholders will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding (or related cause of
action or portion thereof) in respect of which indemnification may be sought
hereunder (whether or not such Underwriter is a party to such claim, action,
suit or proceeding), unless such settlement, compromise or consent includes an
unconditional release of such Underwriter from all liability arising out of such
claim, action, suit or proceeding (or related cause of action or portion
thereof). Notwithstanding the foregoing provisions of this Section 8(b), the
Underwriters shall not be entitled to indemnity or contribution from any
Non-principal Selling Shareholder in excess of the net proceeds of the offering
(before deducting expenses) received by such Non-principal Selling Shareholder,
unless 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 the Registration Statement or any amendment or supplement thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or
any Application in reliance upon and conformity with written information
furnished to the Company by
21
<PAGE>
such Non-principal Selling Shareholder expressly for use therein, in which case
such limitation of liability of such Non-principal Selling Shareholders shall
not apply.
(c) Each Underwriter, severally but not jointly, agrees to
indemnify and hold harmless the Company and each Selling Shareholder and their
directors and officers who sign the Registration Statement and any person who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, against any losses, claims, damages or liabilities to which
the Company or any Selling Shareholder may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement or
any amendment thereto, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or any Application or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter expressly for use therein; and will reimburse the Company and each
Selling Shareholder and their directors and officers who sign the Registration
Statement and any person who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, for any legal or other expenses
reasonably incurred by the Company or such Selling Shareholder and their
directors and officers who sign the Registration Statement and any person who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, in connection with investigating or defending any such
loss, claim, damage, liability or action.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the indemnifying
party in writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party); PROVIDED, HOWEVER, that if the defendants in any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded based upon written advice of counsel that there
may be one or more legal defenses available to it or other indemnified parties
which are different from or additional to those available to the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such action on behalf of such indemnified party and such indemnified party shall
have the right to select separate counsel to defend such action on behalf of
such indemnified party, PROVIDED, FURTHER, HOWEVER, that the Company shall be
liable for the fees and expenses of only one separate firm of attorneys (in
addition to local counsel) for all indemnified parties at any time in connection
with any action, suit or proceeding or in a series of separate but substantially
similar or related actions, suits or proceedings arising out of the same general
allegations and circumstances. After such notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof and
approval by such indemnified party of counsel appointed to defend such action,
the indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
or (ii) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. Nothing in this
Section 8(d) shall preclude an indemnified party from participating at its own
expense in the defense of any such action so assumed by the indemnifying party.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b), (c) or (d) above in respect of any losses, claims, damages
22
<PAGE>
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholders on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Shareholders on the one hand and the
Underwriters on the other in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Shareholders bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Selling
Shareholders on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Selling Shareholders and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (e) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection (e). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (e) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (e), (i) no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, (ii) no Selling
Shareholder shall be required to contribute any amount in excess of the amount
by which the net proceeds received by such Selling Shareholder from the sale of
Shares exceeds the damages which such Selling Shareholder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and (iii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Shareholders
under this Section 8 shall be in addition to any liability which the Company or
such Selling Shareholders may otherwise have and shall extend, upon the same
terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and any Selling
Shareholder and to each person, if any, who controls the Company or any Selling
Shareholder within the meaning of the Act.
9. DEFAULT OF UNDERWRITER.
(a) If any Underwriter defaults in its obligation to purchase
Shares which it has agreed to purchase at a Time of Delivery, the other
Underwriters, in their discretion, may arrange for their purchase of, or for
another party or other parties to purchase, such Shares on the terms contained
herein. If within thirty-six (36) hours after such default by any Underwriter
the Underwriters do not arrange for the purchase of such Shares, the Company and
the Selling Shareholders shall be entitled to a further period of thirty-six
hours within which to procure another party or other parties satisfactory to the
Underwriters to purchase such Shares on such terms. In the event that, within
the respective prescribed periods, the Underwriters notify the Company and the
Selling
23
<PAGE>
Shareholders that they have so arranged for the purchase of such Shares, or the
Company and the Selling Shareholders notify the Underwriters that they have so
arranged for the purchase of such Shares, the Underwriters or the Company and
the Selling Shareholders shall have the right to postpone a Time of Delivery for
a period of not more than seven 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 to file promptly any
amendments to the Registration Statement or the Prospectus that in the opinion
of the Underwriters may thereby be made necessary. The cost of preparing,
printing and filing any such amendments shall be paid for by the Underwriters.
The term "Underwriter" as used in this Agreement shall include any person
substituted under this Section with like effect as if such person had originally
been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by the Underwriters
and the Company and the Selling Shareholders as provided in subsection (a)
above, the aggregate number of such Shares which remains unpurchased does not
exceed one-eleventh of the aggregate number of Shares to be purchased at such
Time of Delivery, then the Company and the Selling Shareholders shall have the
right to require each non-defaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non- defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made, but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
10. TERMINATION.
(a) This Agreement may be terminated with respect to the (i) the
Firm Shares or (ii) any Optional Shares, in the sole discretion of the
Underwriters, by notice to the Company given prior to the First Time of Delivery
or any Subsequent Time of Delivery, respectively, in the event that (i) any
condition to the obligations of the Underwriters set forth in Section 7 hereof
has not been satisfied, or (ii) the Company or the Selling Shareholders shall
have failed, refused or been unable to deliver the Shares or to perform all
obligations and satisfy all conditions on their respective parts to be performed
or satisfied hereunder at or prior to such Time of Delivery, in either case
other than by reason of a default by any of the Underwriters. If this Agreement
is terminated pursuant to this Section 10(a), the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable counsel fees and disbursements) that shall have been reasonably
incurred by them in connection with the proposed purchase and sale of the
Shares. Neither the Company nor any Selling Shareholder shall in any event be
liable to any of the Underwriters for the loss of anticipated profits from the
transactions covered by this Agreement.
(b) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter by the Underwriters and the Company
and the Selling Shareholders as provided in Section 9(a), the aggregate number
of such Shares which remains unpurchased exceeds one-eleventh of the aggregate
number of Shares to be purchased at such Time of Delivery, or if the Company and
the Selling Shareholders shall not exercise the right described in Section 9(b)
to require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to a
Subsequent Time of Delivery, the obligations of the Underwriters to purchase and
of the Company to sell the Optional Shares) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Shareholders, except for the expenses to be borne by the Company, the
Selling Shareholders and the Underwriters as provided in Section 6 hereof and
the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default,
11. WARRANTS. As additional consideration to induce the Representative
to enter into this Agreement, at the First Time of Delivery, the Company shall
sell to the Representative for $100 a warrant to purchase 300,000 shares of its
Common Stock, in substantially the form attached to this Agreement as Annex II.
24
<PAGE>
12. SURVIVAL. The respective indemnities, agreements, representations,
warranties and other statements of the Company, its officers, the Selling
Shareholders and the several Underwriters, as set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation (or any
statement as to the results thereof) made by or on behalf of any Underwriter or
any controlling person referred to in Section 8(f) or the Company, any Selling
Shareholder or any officer or director or controlling person of the Company or
any Selling Shareholder referred to in Section 8(f), and shall survive delivery
of and payment for the Shares. The respective agreements, covenants, indemnities
and other statements set forth in Sections 6 and 8 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
13. NOTICES. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed, delivered by courier or faxed
and confirmed in writing to the Underwriters in care of Raymond James &
Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716,
Attention: John H. Hill, Jr., with a copy to Holland & Knight, 701 Brickell
Avenue, Miami, Florida 33131, Attention Bernard Jacobson, Esq.; and if sent to
the Company or any Selling Shareholder, shall be mailed, delivered by courier or
faxed and confirmed in writing to the Company at 2153 N.W. 86th Avenue, Miami,
Florida 33122, with a copy to Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A. 1221 Brickell Avenue Miami, Florida 33131, Attention Paul
Berkowitz, Esq. Notices sent by mail shall be effective three days after
mailing, but notices otherwise transmitted shall be effective upon receipt.
14. ACTION BY THE UNDERWRITERS. Any action under this Agreement taken
by Raymond James & Associates, Inc. will be binding upon the Underwriters.
15. BINDING EFFECT. This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters, the Company and the Selling
Shareholders and to the extent provided in Sections 8 and 10 hereof, the
officers and directors and controlling persons referred to therein and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Shares from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without giving effect to any
provisions regarding conflicts of laws.
17. COUNTERPARTS. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one of the counterparts hereof, and upon
the acceptance hereof by Raymond James & Associates, Inc., on behalf of each of
the Underwriters, this letter will constitute a binding agreement among the
Underwriters, the Company and the Selling Shareholders. It is understood that
your acceptance of this letter on behalf of each of the Underwriters is pursuant
to the authority set forth in the Master Agreement among Underwriters, a copy of
which
25
<PAGE>
shall be submitted to the Company and the Selling Shareholders for examination,
upon request, but without warranty on the part of the Underwriters as to the
authority of the signers thereof.
Very truly yours,
CHS ELECTRONICS, INC.
By:
--------------------------------------
Title:
------------------------------------
SELLING SHAREHOLDERS LISTED ON
Schedule II
By:
--------------------------------------
Attorney-in-Fact
The foregoing Agreement is hereby
confirmed and accepted as of the
date first written above at
June ___, 1996.
RAYMOND JAMES & ASSOCIATES, INC.
By: Raymond James & Associates, Inc.
By:
---------------------------------
As Representative and on behalf of each
of the Underwriters
26
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
MAXIMUM
NUMBER OF TOTAL NUMBER OF
NUMBER OF SELLING NUMBER OF OPTIONAL SHARES
COMPANY SHAREHOLDER FIRM TO BE PURCHASED
FIRM SHARES FIRM SHARES SHARES TO UPON EXERCISE OF
TO BE TO BE BE OVER-ALLOTMENT
UNDERWRITER PURCHASED PURCHASED PURCHASED OPTION
- ----------- --------- --------- --------- ------
<S> <C> <C> <C> <C>
Raymond James & Associates, Inc.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
NUMBER OF OPTIONAL
TOTAL SHARES TO BE SOLD
NUMBER OF FIRM (MAXIMUM) IF OVER-
SHARES TO BE ALLOTMENT OPTION IS
COMPANY SOLD EXERCISED
- ------- -------------- -------------------
<S> <C> <C>
CHS ELECTRONICS, INC.
SELLING SHAREHOLDERS (1):
Principal Selling Shareholders:
Comtrad, Inc. 1,000,000 0
Alvin Perlman 460,000 0
Non-principal Selling Shareholders:
Peter Hammett 56,410 0
Jean Jacques Charrier 7,051 0
Pierre Delphin 60,000 0
<FN>
(1) Each of the Selling Shareholders has executed and delivered a Custody
Agreement and Power of Attorney appointing Paul Berkowitz and
Craig Toll as Attorneys-in-Fact.
</FN>
</TABLE>
28
<PAGE>
ANNEX I
Pursuant to Section 7(e) of the Underwriting Agreement, Grant Thornton,
LLP, BDO Seidman LLP and Arthur Andersen LLP, shall furnish letters to the
Underwriters to the effect that:
(i) they are independent public accountants with respect to the
Company within the meaning the Act and the applicable published rules
and regulations thereunder;
(ii) in their opinion, the financial statements and schedules
audited by them and included in the Prospectus and the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations thereunder;
(iii) On the basis of limited procedures, not constituting an
audit in accordance with generally accepted auditing standards,
consisting of a reading of the latest available interim financial
statements of the Company, inspection of the minute books of the Company
since the date of the latest audited financial statements included in
the Prospectus, inquiries of officials of the Company responsible for
financial accounting matters and such other inquiries and procedures as
may be specified in such letter, nothing came to their attention that
caused them to believe that:
(A) the unaudited financial statements of the Company
included in the Registration Statement and the Prospectus do not
comply in form in all material respects with the applicable
accounting requirements of the Act and the related published
rules and regulations thereunder or are not in conformity with
generally accepted principles applied on the basis substantially
consistent with that of the audited financial statements included
in the Registration Statement and the Prospectus;
(B) the unaudited amounts for sales, net revenues and
total and per share amounts of net income included in the
Registration Statement and the Prospectus do not agree with the
amounts set forth in the unaudited financial statements for those
same periods or are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent
with that of the corresponding amounts in the audited financial
statements included in the Registration Statement and the
Prospectus;
(C) as of a specified date not more than five days prior
to the date of such letter, there were any changes in the capital
stock (other than the issuance of capital stock upon exercise of
options which were outstanding on the date of the latest balance
sheet included in the Prospectus) or any increase in inventories
or the long-term debt or short-term debt of the Company, or any
decreases in net current assets or net assets or other items
specified by the Underwriters, or any increases in any items
specified by the Underwriters, in each case as compared with
amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter;
(D) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in Clause (A) there were any decreases in net sales
or operating income or the total or per share amounts of net
income or other items specified by the Underwriters, or any
increases in any items specified by the Underwriters, in each
case as compared with the comparable period of the preceding year
and with any other period of corresponding length specified by
the Underwriters, except in each case for increases or decreases
which the Prospectus discloses have occurred or may occur which
are described in such letter; and
29
<PAGE>
(iv) In addition to the audit referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraph (iii) above, they
have carried out certain specified procedures, not constituting an audit in
accordance with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the Underwriters
which are derived from the general accounting records of the Company, included
in the Registration Statement and the Prospectus, or which appear in Part II of,
or in exhibits and schedules to, the Registration Statement specified by the
Underwriters, and have compared certain of such amounts, percentages and
financial information with the accounting records of the Company and have found
them to be in agreement.
References to the Registration Statement and the Prospectus in this
Annex I shall include any amendment or supplement thereto at the date of such
letter.
Pursuant to Section 7(e) of the Underwriting Agreement, Grant Thornton,
LLP, BDO Seidman, LLP, and Arthur Andersen, LLP, shall furnish letters to the
Underwriters to the effect that:
(i) they are independent public accountants with respect
to the Company within the meaning the Act and the applicable
published rules and regulations thereunder;
(ii) in their opinion, the financial statements and
schedules audited by them and included in the Prospectus and the
Registration Statement comply as to form in all material respects
with the applicable accounting requirements of the Act and the
related published rules and regulations thereunder.
30
<PAGE>
ANNEX II
Common Stock Purchase Warrant
31
EXHIBIT 4.2
WARRANT NO. _________ Warrant to Purchase
Void after 5:00 P.M. 300,000 Shares
Eastern Time of Common Stock ($.001
June __, 2001 par value)
COMMON STOCK PURCHASE WARRANT
CHS ELECTRONICS INC.
(One Warrant is required for the purchase of one Share,
subject to adjustment as provided below)
This is to certify that, for value received and subject to the
conditions herein set forth, Raymond James & Associates, Inc., 880 Carillon
Parkway, St. Petersburg, Florida 33716 or its registered assigns, is entitled to
purchase, at any time during the period commencing on June __, 1997 and ending
at 5:00 P.M. Eastern time, June __, 2001 (the "Expiration Date"), such number of
shares of the Common Stock ($ .001 par value) ("Common Stock" or "CHS Shares")
of CHS Electronics, Inc., a Florida corporation ("CHS" or the "Company"), as
shall equal the number of warrants (the "Warrants") evidenced by this
Certificate (such Shares purchasable upon exercise of the Warrants are herein
called the "Warrant Shares"). The purchase price of each Warrant Share shall be
the applicable sum set forth in Section 2, as may be adjusted from time to time
pursuant to the provisions hereof (the "Purchase Price").
The term "Holder" as used herein shall mean Raymond James & Associates,
Inc. and/or its assigns to whom Warrants have been duly transferred. CHS shall
maintain, at its principal office in Miami, a Warrant Register containing the
name and address of each Holder, the number of Warrants registered in the name
of each Holder, the number of the Certificate representing such Warrants, the
date of such Certificate and any other pertinent information.
1. REGISTRATION.
The Warrants and the Warrant Shares have been included in the
Registration Statement filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), File No. 333-03864 (the "Registration Statement"). Until the
Expiration Date, or such earlier time as all of the Warrants have been
exercised, the
<PAGE>
Company shall prepare and cause to be filed and cause to become and remain
effective such amendments or supplements to the Registration Statement and the
Prospectus contained therein, as shall be required under the Act in order to
keep the Warrants and Warrant Shares registered under the Act, in order to
deliver to the Holders, upon exercise of the Warrants, a prospectus meeting the
requirements of Section 10(a)(3) of the Act. In the event it is determined by a
Holder that in order for a Holder to offer and sell Warrant Shares, a
post-effective amendment to the Registration Statement containing an amended or
supplemented Prospectus or another registration statement is required to be
filed, CHS promptly upon receipt of notice from such Holder of its present
intent to exercise Warrants, shall file such post-effective amendment amending
the Registration Statement or file such other registration statement. Either the
post-effective amendment or the new registration statement shall include among
other information, such information as may be necessary for the Holder to offer
and sell Warrant Shares pursuant to the Prospectus or a prospectus contained in
such other registration statement. CHS shall diligently take such action as may
be required to assure that the Registration Statement as amended or the new
registration statement shall promptly become effective. After delivery of such
number of Warrants that are being exercised and the applicable Purchase Price,
CHS shall deliver to the Holder certificates for Warrant Shares and such number
of final Prospectuses as the Holder may require for offer and sale of the
Warrant Shares.
The Company shall obtain and keep effective all permits, consents and
approvals of governmental agencies and authorities, and shall take all action
which may be necessary to maintain the registration of the Warrant Shares under
the Securities and Exchange Act of 1934 (the "Exchange Act") and to qualify the
Warrants and Warrant Shares for sale under the securities laws of such of the
states, territories and possessions of the United States and Canadian Provinces
(the "Blue Sky Laws") as may be necessary to permit the free exercise of the
Warrants, and the issuance, sale, transfer and delivery of the Warrant Shares
and maintain such qualifications during the entire period in which the Warrants
are exercisable.
2. WARRANT YEAR, PURCHASE PRICE.
A "Warrant Year" shall mean the full twelve month period
beginning on June __ and ending at 5:00 P.M. Eastern time on June __ of the next
year. The first Warrant Year shall begin on June __, 1997. There shall only be
four Warrant Years. The final Warrant Year shall end at 5:00 P.M. Eastern time
on June __, 2001.
The Purchase Price per share of the Warrant Shares upon the
exercise hereof, in whole or in part, subject to possible
2
<PAGE>
adjustment as provided in Section 4 hereof, during the first Warrant Year, shall
be 107% of the offering price of the Common Stock established in the Prospectus
contained in the Registration Statement (the "Offering Price"). The Purchase
Price in each succeeding Warrant Year shall be increased by an additional seven
percent (7%) of the Offering Price. Thus, the Purchase Price shall be:
WARRANT YEAR NUMBER PURCHASE PRICE
------------------- --------------
One $____ (107% of Offering Price)
Two $____ (114% of Offering Price)
Three $____ (121% of Offering Price)
Four $____ (128% of Offering Price)
3. EXERCISE OF WARRANT.
In order to exercise this Warrant, in whole or in part, the
Holder shall complete the attached Subscription Form, and deliver to CHS the
Subscription Form, Warrants for the number of Warrant Shares being purchased
and:
(a) cash or a check in an amount equal to the then
aggregate Purchase Price at the CHS Principal office in Miami,
Florida; or
(b) at the election of the Holder, Warrants may be exercised
through a cashless exercise, by the Holder delivering notice of such election to
the Company together with the Warrants being exercised and an additional number
of Warrants constituting payment for such exercise (the "Payment Warrants"). The
cash equivalent of the Payment Warrants required for the exercise shall be
computed by subtracting the Purchase Price of a Warrant Share from the Market
Price of a CHS Share, with the remainder multiplied by the number of Warrants
being exercised. The "Market Price" of a CHS Share shall be the average of the
closing prices of CHS Shares, as reported in the WALL STREET JOURNAL, for the
five trading days immediately preceding the date of the exercise of the
Warrants.
CHS will promptly deliver to the Holder, or to such other person
as the Holder shall specify, certificates representing the number of Warrant
Shares being purchased, in certificates of 100 Warrant Shares each, or in such
other denominations as the Holder may request, registered in the name of the
Holder, or its nominee, and such number of prospectuses meeting the requirements
of Section 10(a)(3) of the Act as specified by the Holder.
3
<PAGE>
4. ADJUSTMENT OF PURCHASE PRICE ANTI-DILUTION PROVISIONS.
The Purchase Price and the number of Warrant Shares shall be
subject to adjustment from time to time as hereinafter provided.
(a) If, prior to the expiration of this Warrant by exercise or by
its terms, CHS shall issue any CHS Shares as a stock dividend or subdivide the
number of outstanding CHS Shares into a greater number of Shares, then in either
of such cases, the Purchase Price shall be proportionately reduced and the
number of Warrant Shares at that time purchasable pursuant to this Warrant shall
be proportionately increased; and, conversely, in the event CHS shall contract
the number of outstanding CHS Shares by combining such Shares into a smaller
number of Shares, then, in such case, the Purchase Price shall be
proportionately increased and the number of Warrant Shares at that time
purchasable pursuant to this Warrant shall be proportionately decreased. The
declaration of a dividend payable in cash on CHS Shares at substantially the
same time as CHS offers to its shareholders a right to purchase new CHS Shares
from the proceeds of such dividend or for an amount substantially equal to the
dividend, shall, for the purpose of this Warrant, be deemed to have been issued
as a Share dividend. Any dividend paid or distributed upon CHS Shares or a class
of securities convertible into CHS Shares shall be treated as a dividend paid on
CHS Shares to the extent that CHS Shares are issuable upon the conversion
thereof.
An adjustment made pursuant to this subparagraph (a) shall become
effective (i) in the case of a dividend, immediately after the opening of
business on the day following the record date for the determination of
shareholders entitled to receive such dividend and (ii) in the case of a
subdivision or contraction, immediately after the time when such subdivision or
contraction, as the case may be, becomes effective.
No adjustment of the Purchase Price, however, shall be made in an
amount less than $.10 per share, and any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which together with any adjustments so carried forward shall amount
to $.10 per share or more.
(b) If, prior to the expiration of any Warrant by exercise or by
its terms, CHS shall be recapitalized by reclassifying its outstanding CHS
Shares into another class, kind, or series of stock or in the event of any other
capital reorganization, or if CHS or a successor corporation shall consolidate
or merge with or convey or transfer all or substantially all of its property and
assets to any other corporation or person, or if shareholders of 50% or more of
CHS
4
<PAGE>
Shares agree to and do accept an offer to acquire outstanding CHS Shares (a
"Tender Offer") then, as a condition of such recapitalization, consolidation,
reorganization, merger, conveyance, transfer, or Tender Offer, lawful and
adequate provision shall be made whereby the Holder shall thereafter have:
(i) the right to receive the consideration
payable to CHS shareholders with respect to
a Tender Offer and the right to purchase,
upon the basis and on the terms and
conditions specified in this Warrant, in
lieu of the CHS Shares theretofore
purchasable upon the exercise of this
Warrant, such shares of stock, securities or
assets as may be issued or payable with
respect to, or in exchange for, the number
of CHS Shares theretofore purchasable upon
the exercise of this Warrant, and in any
such event, the rights of the Holder to an
adjustment in the number of Warrant Shares
purchasable upon the exercise of this
Warrant as hereinbefore provided shall
continue and be preserved in respect of any
stock or other securities which the Holder
becomes entitled to purchase; and
(ii) the right to immediate exercise of any of the
rights described in Section 4(b)(i) and, in
furtherance thereof, the right to immediate
exercise of the Warrants, notwithstanding
that the events giving rise to the rights
described in Section 4(b)(i) occur prior to
the beginning of the First Warrant Year, and
notwithstanding any other terms of this
Warrant.
The provisions of this subparagraph (b) shall similarly apply to
successive recapitalizations, consolidations, mergers, reorganizations,
conveyances, transfers or Tender Offers.
(c) If the Company shall issue any CHS Shares for a consideration
per Share less than the Fair Market Value (subsequently defined) of CHS Shares
(other than Shares issuable pursuant to any Company employee benefit plan or
employment contract to which the Company is a party) then, in each such case,
the Purchase Price shall forthwith be decreased by the amount equal to such Fair
Market Value per share less (x) the sum of (i) the product obtained by
multiplying the number of CHS Shares outstanding immediately prior to such issue
or sale times the Fair Market Value of such CHS Shares in effect immediately
prior to such issue or sale plus (ii) the consideration, if any, received by the
Company upon such issue or
5
<PAGE>
sale, all divided by (y) the number of CHS Shares outstanding immediately after
such issue or sale. "Fair Market Value" shall mean the value determined in
good faith by the Board of Directors of the Company.
In any determination of an adjusted Purchase Price (i) the number
of CHS Shares outstanding at any given time shall exclude CHS Shares in the
treasury of the Company and shall include CHS Shares issuable in respect of
scrip certificates issued in lieu of fractions of CHS Shares for cash, the
consideration received by the Company therefor shall be deemed to be the amount
of cash received by the Company for such CHS Shares, without deduction of the
costs, expenses, fees and commissions incidental to the issue and sale thereof,
and (ii) in the case of the issue of CHS Shares for a consideration other than
cash, the consideration received by the Company therefor shall be deemed to be
the fair value to the Company of such consideration as determined by the Board
of Directors of the Company.
In case of the issuance by the Company of any security that is
convertible into CHS Shares or of any rights, warrants or options to purchase
CHS Shares: (i) the Company shall be deemed to have issued the maximum number of
CHS Shares deliverable upon the exercise of such conversion privileges or rights
or options and (ii) the consideration thereof shall be deemed to be the
consideration received by the Company for such convertible securities or for
such rights or options, as the case may be, without the deduction of the costs,
expenses, fees and commissions incidental to the issue and sale thereof plus:
(a) in the case of such convertible securities, any consideration or adjustment
payment to be received by the Company in connection with such conversion, or (b)
in the case of such rights or options, the minimum price at which CHS Shares are
to be delivered upon the exercise of such rights or options. No further
adjustment of the Purchase Price shall be made as a result of the actual
issuance of the CHS Shares referred to in this paragraph. On the expiration of
such rights or options, or the termination of such privilege to convert, the
Purchase Price and the number of Warrant Shares purchasable upon exercise of the
Warrants shall be readjusted to such Purchase Price and such number of CHS
Shares as would have pertained had the adjustments made upon the issuance of
such rights, options or convertible securities been made upon the basis of the
issuance of only the number of CHS Shares actually delivered upon the exercise
of such rights or options or upon the conversion of such securities.
Whenever the Purchase Price is adjusted as above provided in this
Section 4(c), the number of Warrant Shares purchasable upon exercise of the
Warrants immediately prior to such adjustment shall be increased, effective
simultaneously with such adjustment, to equal the product obtained (calculated
to the nearest full Share) by multiplying such number of CHS Shares by a
fraction, the
6
<PAGE>
numerator of which is the Purchase Price in effect immediately prior to such
adjustment and the denominator of which is the Purchase Price in effect upon
such adjustment which adjusted number of CHS Shares shall thereupon be the
number of Warrant Shares purchasable upon exercise of the Warrants until
adjusted as provided herein.
(d) If:
(i) the Company shall take a record of the holders
of its Common Stock for the purpose of entitling them to
receive a dividend or any other distribution in respect
of the Common Stock (including cash), pursuant to,
without limitation, any spin-off, split-off or
distribution of the Company's assets; or
(ii) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to
subscribe for or purchase any shares of stock of any
class or to receive any other rights; or
(iii) in the event of any classification, reclassification or
other reorganization of the capital stock of the Company,
consolidation or merger of the Company with or into
another corporation, or conveyance of all or
substantially all of the assets of the Company; or
(iv) in the event of the voluntary of involuntary dissolution,
liquidation or winding up of the Company;
then, and in any such case, the Company shall mail to each Holder at least 15
days prior thereto, a notice stating the date or expected date on which a record
is to be taken for the purpose of such dividend, distribution or rights, or the
date on which such classification, reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation, or winding up is to
take place, as the case may be. Such notice shall also specify the date or
expected dates if any is to be fixed, as of which shareholders of Common Stock
of record shall be entitled to participate in said dividend, distribution or
rights, or shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such classification, reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidating or
winding up, as the case may be. The failure to give such notice shall not affect
the validity of any such proceeding or
7
<PAGE>
transaction and shall not affect the right of the Holder to participate in said
dividend, distribution of rights or any such exchange.
(e) If the Company at any time while any Warrant shall remain
unexpired and unexercised shall dissolve, liquidate or wind up its affairs, the
Holder may thereafter receive upon exercise hereof in lieu of each Warrant Share
which it would have been entitled to receive, the same kind and amount of any
securities or assets as may be issuable, distributable or payable upon any such
dissolution, liquidation or winding up with respect to each Share of Common
Stock of the Company.
(f) Whenever the Purchase Price shall be adjusted as required by
the provisions of this Section Four (4), the Company shall forthwith deposit
with its Secretary at its principal office and with its stock transfer agent a
certificate of its Chief Financial Officer showing the adjusted Purchase Price
determined as therein provided, setting forth in reasonable detail the facts
requiring such adjustment, including a statement of the number of additional
Shares of Common Stock, if any, the consideration for such Shares, determined as
in this Section Four (4) provided, and such other facts as shall be necessary to
show the reason for and the manner of computing such adjustment. Each such
certificate shall be made available at all reasonable times for inspection by
the Holder and the Company shall, forthwith after each such adjustment, deliver
a copy of such certificate to the Holder.
(g) No fractional Shares of Common Stock will be issued in
connection with the exercise of any Warrants, but the Company shall pay, in lieu
of such fractional Shares, a cash payment therefor on the basis of the Market
Price on the trading day immediately prior to exercise.
5. SPECIAL AGREEMENTS OF CHS.
CHS covenants and agrees that:
(a) A number of Shares of Common Stock sufficient to provide for
the exercise of all outstanding Warrants upon the basis hereinbefore set forth
shall at all times during the term of the Warrants be reserved for the exercise
thereof, and during the term of the Warrants, it will keep current in filing all
Forms and other reports required to be filed with the Commission pursuant to the
Act and the Exchange Act.
(b) All Warrant Shares issued upon exercise of this Warrant will,
upon issuance and payment of the Purchase Price therefor, be validly issued,
fully paid, non-assessable and free
8
<PAGE>
from all taxes, liens and charges with respect to the issue thereof; and
(c) All original issue taxes payable in respect of the issuance
of Warrant Shares upon the exercise of this Warrant shall be borne by CHS.
6. LIMITATION OF RIGHTS.
This Warrant shall not entitle the Holder to any of the rights of
a shareholder of CHS and shall not entitle such Holder to cash dividends
declared upon CHS Shares unless the Holder hereof shall have exercised this
Warrant prior to the record date fixed by the Board of Directors for the
determination of CHS Shareholders entitled to such dividend or unless other
provisions of this Warrant provide otherwise.
7. RESTRICTIONS ON TRANSFER.
(a) This Warrant shall not be transferable prior to
June __, 1997 except
(i) by operation of law if the Holder is a
corporation; or
(ii) by will or intestate succession in the event
of the death of an individual Holder; or
(iii) to officers, directors, shareholders, or affiliates
of Raymond James & Associates, Inc.
(b) Commencing June __, 1997, this Warrant and any Warrant Shares
may be offered for sale or transfer.
8. EXPENSES.
CHS shall pay all Registration Expenses with respect to keeping
the Warrants and Warrant Shares registered under the Act, the Exchange Act, all
applicable Blue Sky Laws, all expenses with respect to any post-effective
amendment to the Registration Statement, any other registration statement and
the delivery to the holder of prospectuses related to either the former or the
latter, and approval for trading on the Nasdaq National Market or listing on a
national securities exchange.
9. TRANSFEREES.
In the event that any of the Warrants or Warrant Shares shall at
any time be transferred of record by a Holder, other than pursuant to the
Registration Statement or another registration
9
<PAGE>
statement, the rights herein conferred shall extend to, and the obligations
hereunder of the transferor shall be binding upon, the transferee of such
Warrants or Warrant Shares.
10. INDEMNIFICATION.
In the event of any offer by a post-effective amendment or other
registration statement with respect to any Warrant Shares pursuant to the
provisions hereof, CHS agrees to indemnify and hold harmless the Holder selling
such Warrant Shares, each underwriter, if any, of such Shares, and each other
person, if any, who controls such Holder or any such underwriter within the
meaning of the Act, from and against any and all losses, claims, damages or
liabilities (or actions in respect thereof) which arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement under which the Warrant Shares were registered and
offered under the Act or any Prospectus contained therein, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse such Holder, each such underwriter, and each such
controlling person for any legal or any other expenses reasonably incurred by
such Holder, such underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action,
PROVIDED, HOWEVER, that CHS will not be liable in any such case 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 such Registration Statement or such Prospectus in reliance upon, and in
conformity with, information furnished to CHS by such Holder, such underwriter
or such controlling person, specifically for use in preparation thereof.
In the event of any offer by a post-effective amendment or other
registration statement with respect to any Warrant Shares pursuant to the
provisions hereof, and to the extent permitted by applicable law, each Holder
selling such Warrant Shares and each other person, if any, who controls such
Holder within the meaning of the Act, agrees to indemnify and hold harmless CHS,
each person who controls CHS within the meaning of the Act, and each officer and
Director of CHS from and against any losses, claims, damages or liabilities,
joint or several, to which CHS, such controlling person or any such officer or
Director may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in such post-effective amendment or other registration statement
under which such Warrant Shares were offered or any Prospectus contained
therein, or arise out of or are based
10
<PAGE>
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
which untrue statement or alleged untrue statement or omission or alleged
omission was made therein in reliance upon, and in conformity with, information
furnished to CHS by such Holder or such controlling person specifically for use
in connection with the preparation thereof, and will reimburse CHS, each such
controlling person and each such officer or Director for any legal or any other
expenses reasonably incurred by them in connection with investigating, or
defending any such loss, claim, damage, liability or action.
Promptly after receipt by an indemnified party of notice of the
commencement of any action or the assertion of a claim which may be subject to
indemnification hereunder, such indemnified party, if a claim in respect thereof
is to be made against an indemnifying party, will give written notice to such
indemnifying party of the commencement or assertion thereof. Indemnification
provided for under this Section 10 shall not be available to the indemnified
party if it shall fail to give such notice to the indemnifying party (if the
indemnifying party was not aware of the action) to the extent the indemnifying
party was prejudiced by failure to receive such notice, but the omission to give
such notice shall not relieve the indemnifying party from any liability it
otherwise may have to the indemnified party. In case any such action is brought
or such assertion is made against any indemnified party, and it notifies any
indemnifying party of such commencement or assertion, the indemnifying party
will be entitled to participate in and, to the extent that it may wish, jointly
with any other indemnifying party, similarly notified, and to assume the defense
thereof, with counsel satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal expenses subsequently incurred by such
indemnified party, in connection with the defense thereof other than the
reasonable cost of investigation.
11. NOTICES.
All notices and other communications which are required or which
may be given hereunder shall be in writing and shall be delivered by a
recognized courier service or mailed by certified or
2
<PAGE>
registered mail, return receipt requested, postage prepaid, as follows:
If to CHS:
CHS Electronics, Inc.
2153 N.W. 86th Avenue
Miami, Florida 33122
Attention: President
If to any Holder hereof:
at the address appearing in the Company's Warrant
Register or as otherwise provided by the Holder
Except as otherwise specifically provided in this Warrant, all notices and
communications shall be deemed effective upon delivery. CHS and any Holder may
change their address by written notice to that effect given to the other party
in accordance with this Section.
12. SUCCESSORS.
This Warrant shall inure to the benefit of and be binding upon
the Holder, its successors and permitted assigns, and CHS, its successors and
assigns.
13. SECTION HEADINGS.
The section headings contained in this Warrant are for
reference purposes only and shall not affect in any way the
meaning or interpretation of this Warrant.
14. BUSINESS DAY.
Whenever the day for performance of an act, or the beginning or
end of a period of time falls on a Saturday, Sunday or legal holiday in the
State of Florida, such day shall be extended to the next business day. Otherwise
all references to "days" or "dates" shall mean calendar days.
15. APPLICABLE LAW.
This Warrant shall be governed by, construed and enforced in
accordance with the laws of the State of Florida without reference to conflict
of law principles.
12
<PAGE>
16. MISCELLANEOUS.
This Warrant may be amended, supplemented or changed, and any
provision hereof can be waived, discharged or terminated only by written
instrument making specific reference to this Warrant signed by the party against
whom enforcement of any such amendment, supplement, modification or waiver,
discharge or termination is sought. Words importing the singular number shall
mean and include the plural number and vice versa.
17. BINDING UPON HOLDER.
The Holder by the acceptance hereof agrees to be bound by the
provisions hereof and deliver a written acknowledgment to this effect upon
receipt hereof by signing a duplicate of this Warrant at the place indicated.
IN WITNESS WHEREOF, CHS ELECTRONICS, INC. has caused this Warrant to be
executed by its officer thereunto duly authorized on June __, 1996.
CHS ELECTRONICS, INC.
By: /s/ CLAUDIO OSORIO
--------------------------------------
Claudio Osorio, President
ACCEPTED AND AGREED:
RAYMOND JAMES & ASSOCIATES, INC.
By:
-------------------------------
Title:
----------------------------
13
<PAGE>
SUBSCRIPTION FORM
TO BE EXECUTED By THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
TO CHS ELECTRONICS, INC.
The undersigned hereby irrevocably exercises the within Warrant as to
...... Shares of Common Stock of CHS Electronics, Inc. called for thereby.
Please issue all of such Shares and deliver certificates representing such
Shares (together with a new Warrant for the unexercised portion of the within
Warrant, if the within Warrant has been exercised in part only), in accordance
with the instructions given below.
Signature
-------------------------------
14
<PAGE>
INSTRUCTIONS FOR REGISTRATION AND DELIVERY
Name
---------------------------------------------------------------------------
(Please print in block letters)
Address
-------------------------------------------------------------------------
Dated , 19
-------------------- --
15
<PAGE>
FORM OF ASSIGNMENT
(To be signed only upon such assignment)
For value received, the undersigned hereby sells, assigns and
transfers unto _____________________________________________ so much of the
rights represented by the within Warrant to purchase from CHS Electronics, Inc.
__________ Shares of the Common Stock of the Company, to which the within
Warrant relates, and appoints_________________________________________attorney
to transfer such right on the books of CHS Electronics, Inc. with full power of
substitution in the premises.
Dated:
---------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
16
EXHIBIT 5.1
May 29, 1996
CHS Electronics, Inc.
2153 N.W. 86th Avenue
Miami, Florida 33122
Gentlemen:
On May 29, 1996, CHS Electronics, Inc., a Florida corporation (the
"Company"), filed with the Securities and Exchange Commission Amendment No. 2 to
a Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"). Such Registration Statement
relates to the sale of up to 4,585,000 shares (the "Shares") of the Company's
Common Stock, par value $.001 per share (the "Common Stock"), consisting of
3,001,539 shares of Common Stock to be sold by the Company and an additional
1,583,461 shares to be sold by certain shareholders thereof (the "Selling
Shareholders"). We have acted as counsel to the Company in connection with the
preparation and filing of the Registration Statement.
In connection with the Registration Statement, we have examined,
considered and relied upon copies of the following documents (collectively, the
"Documents"): (i) the Company's Articles of Incorporation and Bylaws; (ii)
resolutions of the Company's Board
<PAGE>
of Directors authorizing the offering and the issuance of the Shares to be sold
by the Company and related matters; (iii) the Registration Statement and
exhibits thereto; and (iv) such other documents and instruments that we have
deemed necessary for the expression of the opinions herein contained. In making
the foregoing examinations, we have assumed without investigation the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals, the conformity to authentic original documents of all documents
submitted to us as copies, and the veracity of the Documents. As to various
questions of fact material to the opinion expressed below, we have relied, to
the extent we deemed reasonably appropriate, upon the representations or
certificates of officers and/or directors of the Company and upon documents,
records and instruments furnished to us by the Company, without independently
verifying the accuracy of such certificates, documents, records or instruments.
Based upon the foregoing examination, and subject to the qualifications
set forth below, we are of the opinion that (i) the Shares to be sold by the
Company have been duly and validly authorized, and when issued and delivered in
accordance with the terms of the Underwriting Agreement filed as Exhibit 1.1 to
the Registration Statement, will be validly issued, fully paid and
non-assessable and (ii) the Shares to be sold by the Selling Shareholders
pursuant to the Registration Statement have been duly and validly authorized and
issued and are fully paid and nonassessable.
Although we have acted as counsel to the Company in connection the
preparation and filing of the Registration Statement, our engagement has been
limited to certain matters about which we have been consulted. Consequently,
there exist matters of a legal nature involving the Company in which we have not
been consulted and have not represented the Company. This opinion letter is
limited to the matters stated herein and no opinions may be implied or inferred
beyond the matters expressly stated herein. The opinions expressed herein are
given as of this date, and we assume no obligation to update or supplement our
opinions to reflect any facts or circumstances that may come to our attention or
any change in law that may occur or become effective at a later date.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus comprising a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations promulgated thereunder.
Sincerely,
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL, P.A.
By: /s/ PAUL BERKOWITZ
--------------------------
Paul Berkowitz
EXHIBIT 23.2
We have issued our report dated February 23, 1996, accompanying the financial
statements of CHS Electronics, Inc. contained in Amendment No. 2 to the
Registration Statement (No. 333-03864) and Prospectus. We consent to the use
of the aforementioned report in the Registration Statement and Prospectus,
and the use of our name as it appears under the captions "Experts" and
"Selected Consolidated Financial Data."
/s/ GRANT THORNTON LLP
- ----------------------
Grant Thornton LLP
Miami, Florida
May 29, 1996
EXHIBIT 23.3
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
CHS Electronics, Inc.
Miami, Florida
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated January 26, 1996, except for the
statement of cash flows and the notes to which the date is March 8, 1996,
relating to the financial statements of Wyrsch Trading Ltd., Littau, which is
contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
By: /s/ BDO BINDER AG
-------------------------------
BDO Binder AG
Lucerne, Switzerland
May 8, 1996
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated April 1, 1996, and to the reference to our Firm included under the
caption "Experts" of this registration statement No. 333-03864 and Prospectus.
ARTHUR ANDERSEN & CO. KFT.
Budapest, Hungary,
May 29, 1996.
