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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _____________
COMMISSION FILE NUMBER: 0-24244
CHS ELECTRONICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 87-0435376
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
2153 N.W. 86TH AVENUE
MIAMI, FLORIDA 33122
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER: (305) 716-8273
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
NONE NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.001
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates computed by reference to the high and low sales prices in the
Nasdaq National Market on March 26, 1997, was approximately $153,876,780. As of
March 26, 1997, the registrant had outstanding 14,690,010 shares of Common
Stock, par value $0.001.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated herein by this reference is the definitive proxy or
information statement for the 1996 Annual Meeting of Shareholders to be filed by
the Company with the Commission under Regulation 14A or Regulation 14C.
<PAGE>
PART I
ITEM. 1 BUSINESS
GENERAL
CHS Electronics, Inc. ("CHS" or the "Company") is a leading international
distributor of microcomputer related products, networking products and software.
As of March 31, 1997 CHS operates in 30 countries across three regions,
including Western Europe, Eastern Europe and Latin America and services an
active customer base of greater than 66,000 resellers. Most of the products sold
by the Company in a location are manufactured by approximately 35 vendors
including such market leaders as Hewlett-Packard, Seagate, Microsoft, Novell,
IBM, Acer, Creative Labs, 3Com, Canon, Epson and Intel. 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
fourth largest distributor of microcomputer related products in the world, the
second largest in Europe and the largest distributor in Latin 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 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 that the computer 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.
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 decisions necessary to satisfy the particular demands of their
respective markets. As compared to certain competitors which operate under a
more centralized system, the Company believes that its business model of focused
distribution through full service local facilities integrating warehousing,
purchasing, sales, credit and accounting services provides competitive and
operating advantages.
The Company's operating results have increased significantly in the
three-year period ended December 31, 1996, with net sales increasing from $359
million in 1994 to $1.855 billion in 1996 and operating earnings increasing from
$3.4 million in 1994 to $28.9 million in 1996.
The world headquarters of the Company is located at 2153 N.W. 86th
Avenue, Miami, Florida 33122, where its telephone number is (305) 716-8273.
RECENT DEVELOPMENTS
On October 4, 1996, the Company completed the acquisition of the assets
and the assumption of the liabilities of the distribution businesses of Merisel,
Inc. ("Merisel") in Austria, France, Germany, Great Britain and Switzerland,
including Merisel's European Distribution Center in The Netherlands. The Company
also acquired Merisel's export operations serving Latin America from Miami,
Florida and a distribution business in Mexico. The purchase price, as
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adjusted, was approximately $148 million and was funded through cash of $30
million, factoring proceeds of $55 million and $63 million in asset
securitization borrowings.
On March 20, 1997, the Company completed its acquisition of the operations
of Frank & Walter Computer GmbH ("F&W"), the fourth largest computer distributor
in Germany, for 2.2 million unregistered shares of the Company's common stock.
The Company intends to combine the operations of F&W, a privately held company
based in Brunschwaig, which had 1996 sales of $686 million, with its operation
in Germany, which had 1996 sales (including the sales on a pro forma basis of
the German operations recently acquired from Merisel) of $606 million. Carsten
Frank, the founder of F&W, will also become a CHS executive vice president
responsible for Europe.
F&W has approximately 10,000 active dealers and is one of the largest
distributors of Western Digital and Seagate products in the world. The company,
which employs about 400 and operates principally within Germany, is focused on
distribution to smaller dealers in central Germany. CHS operations in Germany
employ 350, have approximately 4,600 active dealers in Germany and have focused
on distribution to medium and large resellers in the north and south of the
country.
INDUSTRY
Historically, there have been two types of companies within the
microcomputer products industry: those that sell directly to the end-user
("resellers") and those that sell to resellers ("distributors"). Distributors
generally purchase a wide range of products in bulk directly from manufacturers
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 distribution. The large number and diversity of resellers make
it cost efficient for vendors to outsource to distributors some portion of their
distribution, credit, inventory, marketing and customer support requirements.
Similarly, due to the large number of microcomputer product manufacturers,
resellers often cannot efficiently establish direct purchasing relationships
with each vendor and instead rely on distributors, such as the Company, to
satisfy a significant portion of their product, financing, marketing and
technical support needs.
The Western European, Eastern European and South American markets are each
highly fragmented. Different languages, cultures and technological factors
require both local management teams and products which meet the requirements of
the specific area. Localization requires separate manuals, approvals of safety
factors by local authorities, microcode which permit the generation of
characters in local languages, appropriate electrical connectors and proper
voltage ratings. As a result, vendors depend heavily on distributors such as the
Company to meet the 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
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has adopted a strategy of operating a focused distribution model, further
developing international markets and growing through acquisitions.
/bullet/ GROW THROUGH ACQUISITIONS. During the period beginning
January 1, 1994 and ended March 31, 1997, the Company acquired 35
companies, including F&W in Germany and seven from Merisel in Europe
and Latin America. The Company generally seeks acquisition
candidates that have strong entrepreneurial management teams and
experience in the local market and that could benefit from the
economies of scale that the Company provides through its focused
product lines. 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 order to reduce financial risk and incent
operating performance, in many cases the Company structures an
acquisition with an earnout component based on the performance of
the acquired company and generally payable in shares of its Common
Stock one year subsequent to the acquisition. The Company also makes
select acquisitions using cash or stock without such earnout
component. These local distributors 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.
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 and in many cases
substitute the creditworthiness of CHS for that of the local
distributor.
/bullet/ OPERATE A FOCUSED DISTRIBUTION MODEL. The Company's strategy is to
be a focused distributor by dealing in each location with a limited
and 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 personal computers. Additionally, the
Company seeks to be a significant distributor for each of its major
vendors and establish a partnering relationship with them. The
Company believes that this focused strategy enables it to respond
more quickly to customer requests and gives it greater availability
of products, 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 more efficient
inventory management, including greater inventory turns, lower
working capital requirements and fewer stock keeping units ("SKUs").
CHS generally maintains up to 4,000 SKU's per location while
broadline distributors typically carry greater than 15,000 SKU's.
/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
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products and therefore provide significant growth opportunities. The
Company believes that the markets in Western Europe, Eastern Europe
and Latin 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.
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, as of March 31, 1997, of more than 66,000
value-added resellers 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 quarter ended December 31, 1996 (which
includes the Merisel companies), the Company's product mix by category was
printers (28%), personal computers (22%), software (18%), mass storage (10%),
networking (8%), semiconductors (4%) and peripherals and other (10%).
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 broadline distributors and works with
fewer vendors. A Company operation will typically deal with 25 - 35 vendors and
have between 1,000 and 4,000 inventory items in stock as compared to broadline
distributors that may 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 related 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 one percent of the Company's net sales during
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 following year and vary for
each vendor. The Company is not required to make additional product payments if
it fails to achieve its projected sales level for the year, but its product
discounts in the following year may be reduced because of the lower sales
levels.
The Company's agreements with vendors typically provide a form of price
protection specifying that if the list price of a product is reduced by the
vendor, the Company will receive a credit in the amount of the reduction for
each item of the product in inventory.
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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 supplier 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 the amount
of committed working capital related to slow-moving items.
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 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, 1997, the Company distributed
products to approximately 34,000 active resellers in Western Europe, 24,000 in
South America and 8,000 in Eastern Europe.
In order to effectively address individual customs, practices and business
conventions within countries, each subsidiary of the Company maintains general
autonomy with respect to sales, marketing and customer support. 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 December 31, 1996, approximately 46% 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 pickup 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.
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
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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, train
resellers on the supplier's products, their applications, configurations with
other computer products, and installation and support requirements. Generally,
however, vendor warranty service is provided by the vendor. 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 FUNCTION
The Company currently maintains three internal auditors on its staff, two
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. The Company intends to expand its internal
audit staff.
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. Some 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.
EMPLOYEES
At December 31, 1996, the Company employed 2,296 full-time employees, of
whom 252 were located in the United States. Of the total number of employees,
1,053 worked in marketing and sales, 388 worked in warehousing and delivery and
855 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.
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REORGANIZATION
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.
ACQUISITIONS FROM COMTRAD
The Company has grown significantly in the last three years including
acquisitions from Comtrad Holdings, Inc. ("CHI") and Comtrad, Inc. (a
wholly-owned subsidiary of CHI), which collectively beneficially owned
approximately 26% of the Company's outstanding Common Stock as of March 31,
1997 (except as otherwise noted, CHI and Comtrad are collectively referred to
herein as "Comtrad"). Pursuant to the Company's acquisition strategy prior to
April 1996, 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 Company does not intend to use this
strategy in the future. Comtrad has also agreed not to engage in businesses
competitive with the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations"
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.
ITEM 2. PROPERTIES
The corporate headquarters of the Company is 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. This facility is
leased from an unrelated third party for a term expiring in June 1999, at a
present lease rate of $19,045 per month.
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The Company's other facilities are described below:
COUNTRY SQUARE FEET LEASE EXPIRATION
------- ----------- ----------------
Argentina 9,469 *
Austria 6,994 2000
Belgium 46,354 2001-2003
Brazil 16,100 2001
Bulgaria 3,443 1997
Chile 16,140 2005
Colombia 430 *
22,976 1997-2000
Croatia 1,300 2000
Czech Republic 25,469 *
11,029 *1998
Ecuador 5,855 1999
Estonia 11,580 2005
Finland 22,596 1999
France 128,980 1998-2001
Germany 103,208 1997-2010
Hungary 39,565 2006
Latvia 2,873 2002
Lithuania 739 *
Mexico 24,593 1997-2000
The Netherlands** 198,522 2005
Peru 6,133 2000-2001
Poland 28,421 1997
Portugal 12,500 2002
Russia 38,230 2000
Slovakia 4,745 1997
Sweden 11,840 1998
Switzerland 3,000(1) 2001
45,902(2) 1998-2000
United Kingdom 135,207 2003-2016
10,000 *
United States 18,300(3) 1998-2000
101,882(4) 1997-2002
Uruguay 8,608 1999
Venezuela 8,178 1997-2001
- --------------------
* Owned facility
** The Company anticipates that its Helmond warehouse facility will be sold
prior to April 15, 1997.
(1) CHS Finance Facility
(2) CHS Switzerland Facilities
(3) CHS BEK Facility
(4) CHS Latin America Facilities
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.
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ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The following table sets forth for the periods indicated the high and low
closing sales prices of the Company's Common Stock (symbol: CHSE) from January
1, 1995 through April 16, 1995 in the over-the-counter market, from April 17,
1995 through June 6, 1996 on the Nasdaq Small-Cap Market and thereafter on the
Nasdaq National Market. The Company effected a one-for-two reverse stock split
on March 14, 1996. All prices for the period prior to the effective date of the
one-for-two reverse stock split have been adjusted by a factor of two to reflect
the effect of the reverse stock split. Such prices are based on inter-dealer bid
and asked prices, without markup, markdown, commissions, or adjustments and may
not represent actual transactions.
HISTORIC PRICES
FISCAL ----------------------
YEAR PERIOD HIGH LOW
- ------ ------ --------- ----------
1995 First Quarter..................... $ 8-1/2 $ 6
Second Quarter.................... 11-1/4 8
Third Quarter..................... 11-1/2 7
Fourth Quarter.................... 11-1/2 7
1996 First Quarter...................... $ 16-1/2 $ 8
Second Quarter..................... 18-1/2 9-7/8
Third Quarter...................... 14-1/2 10
Fourth Quarter..................... 19-1/2 10-1/4
The last reported sale price of the Common Stock as reported on the Nasdaq
National Market on March 26, 1997 was $18 per share. As of March 26, 1997,
the outstanding Common Stock was held of record by 196 shareholders. The Company
believes that it has in excess of 400 beneficial owners.
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 deems relevant. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth certain financial data for each year in the
five year period ended December 31, 1996. The information presented as of and
for the years ended December 31, 1993, 1994, 1995 and 1996, is derived from the
audited consolidated financial statements of the Company, which statements have
been audited by Grant Thornton LLP, independent public accountants. The
information presented below as of and for the year ended December 31, 1992 is
derived from the audited financial statements of the Predecessor (the German
entity acquired by the Company in December, 1993). 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 herein.
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<TABLE>
<CAPTION>
PREDECESSOR(1) THE COMPANY
-------------- ----------------------------------------------
TWELVE MONTHS ENDED DECEMBER 31,
----------------------------------------------------------------
1992 1993 1994 1995 1996
----------- -------- -------- -------- ----------
RESTATED
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ........................... $ 79,884 $146,408 $359,169 $936,703 $1,855,540
Cost of goods sold .................. 72,706 136,968 333,983 868,716 1,724,432
-------- -------- -------- -------- ----------
Gross profit ........................ 7,178 9,440 25,186 67,987 131,108
Operating expenses .................. 5,100 9,075 21,798 57,188 102,235
-------- -------- -------- -------- ----------
Operating earnings .................. 2,078 365 3,388 10,799 28,873
Interest income ..................... (97) (229) (250) (1,757) (3,199)
Interest expense .................... 363 1,076 2,070 6,454 11,712
-------- -------- -------- -------- ----------
Earnings (loss) before income taxes
and minority interest ............. 1,812 (482) 1,568 6,102 20,360
Income tax expense .................. 656 241 603 1,797 6,086
Minority interest ................... -- -- -- -- 2,108
-------- -------- -------- -------- ----------
Net earnings (loss) ................. 1,156 (723) 965 4,305 12,166
Net earnings (loss) per share ....... N/A (.32) .21 .59 1.16
Weighted average shares outstanding
primary ............................. N/A 2,269 4,693 7,283 10,438
OTHER DATA:
Number of countries ................. 1 2 10 15 28
Inventory turns ..................... 17 23 10 10 10
Days receivable ..................... 32 31 32 35 36
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
----------- --------------------------------------------
AT DECEMBER 31,
----------------------------------------------------------
BALANCE SHEET DATA: 1992 1993 1994 1995 1996
----------- --------- ------- -------- --------
RESTATED RESTATED
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents....... 210 603 8,368 11,171 35,137
Working capital (deficit)....... 662 (1426) 14,004 9,843 31,506
Total assets.................... 16,013 29,058 164,468 265,804 861,949
Notes payable................... 2,988 6,949 15,198 46,438 155,932
Long term debt.................. - - 8,104 8,801 45,327
Shareholders' equity............ 988 1,930 19,870 29,892 104,533
<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.
</FN>
</TABLE>
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ITEM 7. 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 CONTAINED
ELSEWHERE HEREIN.
"FORWARD-LOOKING" INFORMATION
This Form 10-K contains certain "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which represent the Company's expectations of beliefs,
including, but not limited to, statements concerning gross margins and sales of
the Company's products. These statements by their nature involve substantial
risks and uncertainties, certain of which are beyond the Company's control, and
actual results may differ materially depending on a variety of important
factors, including the level of acquisition opportunities available to the
Company and the Company's ability to efficiently price and negotiate such
acquisitions on a favorable basis, the financial condition of the Company's
customers, the failure to properly manage growth and successfully integrate
acquired companies and operations, changes in economic conditions, demand for
the Company's products and changes in competitive environment.
The Company cautions that the factors described above could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
OVERVIEW
The Company's net sales and net earnings have grown substantially during
the past several years, in part due to acquisitions. In 1995 and 1996 the
Company made acquisitions from unrelated parties as shown in the table below,
captioned "CHS Direct Acquisitions," which table indicates the service areas of
the operations acquired and the acquisition date. These acquisitions have been
included in the Company's financial statements from the date the entity was
acquired.
In addition, in March 1996, the Company acquired six entities from
Comtrad, then a majority owner of the Company, which were recorded in a manner
similar to a pooling of interests. Accordingly, these acquisitions have been
included in the Company's financial statements from the date the entity was
acquired by Comtrad. The Company recorded the cost of such acquisitions from
Comtrad at Comtrad's cost basis. The Company recorded goodwill with
14
<PAGE>
respect to these acquisitions if Comtrad recorded goodwill when it purchased the
subject entity, or later, if contingent consideration was paid. Such goodwill is
being amortized over 20 years. As a result of both the CHS direct acquisitions
and the acquisitions from Comtrad, the Company expects the amortization of
goodwill to be approximately $4 million in 1997 as compared to approximately $1
million in 1996. The table below, captioned "CHS Acquisitions from Comtrad,"
sets forth acquisitions from Comtrad in the three years ended December 31, 1996,
the service areas of the operations acquired, the assumed date of the
acquisition by Comtrad (which is the date the results of operations were
initially included in the Company's financial statements) and the Company
acquisition date.
CHS DIRECT ACQUISITIONS
SUBSIDIARY (1) SERVICE AREA CHS ACQUISITION DATE
-------------- ------------ --------------------
CHS Merisel UK UK September 1996
CHS Merisel France France September 1996
CHS Merisel Switzerland Switzerland September 1996
CHS Merisel Germany Germany September 1996
CHS Merisel Austria Austria September 1996
CHS Merisel Latin America Latin America September 1996
CHS Merisel Mexico Mexico September 1996
CHS Ecuador(2) Ecuador June 1996
CHS Russia Russia June 1996
CHS Switzerland Switzerland April 1996
CHS Peru(3) Peru March 1996
CHS Hungary(4) Hungary February 1996
CHS Czechia (84%) Czech Republic October 1995
15
<PAGE>
CHS ACQUISITIONS FROM COMTRAD
COMTRAD ACQUISITION CHS ACQUISITION
SUBSIDIARY(1) SERVICE AREA DATE DATE
------------- ------------ ------------------- ---------------
CHS Croatia Croatia September 1994 March 1996
CHS Romania(5) Romania September 1994 March 1996
CHS Bulgaria Bulgaria September 1994 March 1996
CHS Baltic Lithuania, September 1994 March 1996
Latvia and
Estonia
CHS Slovakia Slovakia January 1994 March 1996
CHS Brazil Brazil November 1994 March 1996
CHS Poland Poland November 1995 December 1995
CHS Sweden Sweden July 1995 December 1995
CHS Finland Finland July 1995 December 1995
CHS Czechia (16%) Czech Republic January 1993 October 1995
CHS BEK South America July 1995 October 1995
CHS Portugal Portugal January 1993 April 1995
CHS England England September 1994 April 1995
CHS France France September 1994 April 1995
CHS Belgium Belgium and September 1994 April 1995
Luxembourg
CHS Promark South America(6) July 1994 July 1994
- --------------------
(1) The names 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 Ecuador.
(3) The Company owns 60% of CHS Peru.
(4) The Company owns 51% of CHS Hungary.
(5) Transferred back to Comtrad as of October 31, 1996 in exchange for a
payment of $523,000 from Comtrad to CHS.
(6) Included operating subsidiaries in Argentina, Chile, Colombia and
Venezuela.
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 Consolidated
Statements of Operations:
16
<PAGE>
YEAR ENDED DECEMBER 31
-------------------------------
1994 1995 1996
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 93.0 92.7 92.9
----- ----- -----
Gross profit 7.0 7.3 7.1
Operating expenses 6.1 6.1 5.5
----- ----- -----
Operating earnings .9 1.2 1.6
Interest income (.1) (.1) (.1)
Interest expense .6 .6 .6
----- ----- -----
Earnings before income taxes .4 .7 1.1
Income tax expense .1 .2 .3
Minority interest -- -- .1
----- ----- -----
Net earnings .3 .5 .7
===== ===== =====
1996 COMPARED TO 1995
NET SALES. Net sales increased $918.8 million, or 98.1%, from $936.7
million in 1995 to $1.855 billion in 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 $640.7 million. Net comparable sales
of subsidiaries consolidated for both 1995 and 1996 grew $278.1 million or
29.7%. This growth is attributed to increased consumer demand for microcomputer
products offered by the Company and the expansion of sales by the Company's
subsidiaries to include a full range of products.
GROSS PROFIT. Gross profit increased $63.1 million, or 92.8% from $68.0
million in 1995 to $131.1 million in 1996 due principally to acquisitions and,
to a lesser extent, internal growth. Gross profit on a comparable basis for
subsidiaries consolidated for both 1995 and 1996 increased $18.3 million or
26.9%. Newly acquired companies contributed $44.8 million of gross profit.
Gross margin decreased from 7.3% in 1995 to 7.1% in 1996. The decrease was
due to lower gross margins from subsidiaries located in Western Europe,
particularly those operations acquired from Merisel, which, as a result of high
volumes of sales in those entities, had a significant impact on the Company's
gross margin as a whole. The Company attributes the decrease in gross margins to
competitive pressures in this region, especially in Germany. The Company's
subsidiaries in Germany had the lowest gross margin rate of all its European
subsidiaries. The Company expects that overall gross margins may continue to
decline in 1997 due to continued competitive pricing pressures, the fact that
the gross margins of the acquired Merisel companies have been generally lower
than that of the Company and will be included in the consolidation for the full
year and the impact of the acquisition of Frank & Walter, which operates in
Germany where gross margins are generally lower. The gross margin of the
combined Merisel companies for the nine months ended September 30, 1996 on a pro
forma basis was 6.9%.
17
<PAGE>
OPERATING EXPENSES. Operating expenses as a percentage of net sales
declined from 6.1% in 1995 to 5.5% in 1996. The decline was due to efficiencies
gained through increased volume and the Company's efforts to control costs. The
reduction was achieved even though a provision of $1.4 million was made for
restructuring costs incurred by CHS (consisting of severance costs for CHS
employees, writeoff of CHS leasehold improvements and lease termination costs of
CHS closed facilities) to implement consolidation in markets in which a CHS
company previously existed and a company was acquired from Merisel. The
operating expense ratio without such charge would have been 5.4% for the year
and 5.0% in the fourth quarter of 1996. The Company believes that this
percentage will continue to decline in 1997 due to the impact of economies of
scale as a result of the Merisel acquisition.
NET INTEREST EXPENSE. Net interest expense increased $3.8 million or
81.2% from $4.7 million in 1995 to $8.5 million in 1996. The increase is
directly related to the increase in average loan amounts outstanding.
INCOME TAX EXPENSE. Income taxes as a percentage of earnings before income
taxes and minority interest in subsidiaries increased slightly from 29.4% in
1995 to 29.9% in 1996. Management does not believe this change is significant.
The difference between this tax rate and the statutory United States tax rate is
due to the utilization of net operating loss carryforwards and lower foreign tax
rates offset, to some extent, by losses in subsidiaries with no tax benefit and
non-deductible goodwill amortization. The Company expects to have an effective
tax rate lower than the statutory United States tax rate in 1997 principally due
to its ability to use remaining net operating loss carryforwards from certain
subsidiaries and lower foreign tax rates in other subsidiaries.
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.
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
18
<PAGE>
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
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.
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.
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 carry forwards and lower foreign tax rates, offset to some extent
by non-deductible goodwill amortization.
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 1996 and 1995 was $99.1 and
$22.1 million, respectively, due principally to increases in receivables,
inventory and other current assets, offset to some extent by increases in
accounts payable. In both years these changes were reflective of sales increases
and general business growth. Net cash used in investing activities in 1996 and
1995 was $38.5 and $5.5 million, respectively, due principally to acquisitions
in 1996 and, to a lesser extent, to investments in fixed assets. Net cash
provided by financing activities in 1996 and 1995 was $163.3 and $29.9 million,
respectively, due principally in 1996 to proceeds of the public offering, and in
both years to borrowings under new debt agreements and increased borrowings
under other agreements.
On February 5, 1996, CHS Promark entered into a Loan and Security
Agreement, as amended in October 1996, providing for revolving credit advances
and the issuance of letters of credit against eligible accounts receivable and
inventory up to a maximum of $60 million. Amounts outstanding bear interest, at
the election of the borrower, at either a variable market rate
19
<PAGE>
based on the prime rate of the lender or LIBOR. 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 October, 1999 and is secured by a lien on essentially
all of CHS Promark's assets. The agreement contains certain restrictive
covenants, including limitations on transactions with affiliated companies and
employee loans. CHS Promark was in violation of these specific covenants at
December 31, 1996, but waivers for these violations were granted by the
financial institution. The Company has guaranteed this indebtedness.
The Company's subsidiaries typically enter into short-term credit
agreements with financial institutions in their countries of operations. As of
December 31, 1996, the aggregate amount available under these agreements was
$224 million and $154 million was then outstanding. Such agreements are usually
for a term of one year and are secured by the receivables of the borrower. The
weighted average interest rate at December 31, 1996 was 7.3%. The Company
typically guarantees these loans.
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 December 31, 1996, there was no country with
exchange control limitations in which the Company had significant operations.
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 any meaningful
impact on the Company's results of operations in the three year period ended
December 31, 1996, and the Company does not expect that it will have a material
impact in 1997.
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
20
<PAGE>
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 need 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 1994, 1995 and 1996 was .4%, .3% and .2%,
respectively. The Company's credit losses have been minimized by its extensive
credit approval process and 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 payment terms appropriate to the
customs of each country.
CURRENCY RISK MANAGEMENT
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 currencies other than the functional currency are recorded as
expense or income in the subsidiaries and the Company and affect the Statements
of Earnings.
HEDGING. The Company attempts to limit its risk of currency
fluctuations through hedging. In 1996, a significant amount of the purchases of
products by the Company were made in United States dollars and approximately 83%
of Company sales were made in currencies other than the United States dollar.
The most significant currencies in which sales were made were the German mark
(17% of sales), the British pound (12%) and the French franc (13%). At December
31, 1996, approximately $166 million of accounts payable were attributable to
foreign currency liabilities denominated in dollars and approximately 72% of
these liabilities were unhedged.
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. These loans are denominated in the currency of the borrower
or U.S. dollars. Generally, CHS Finance hedges its receivables denominated in
currencies other than its functional currency, the Swiss franc. It attempts to
limit the amount of unhedged receivables to an amount which approximates the
U.S. dollar denominated loans payable by the Company's subsidiaries. In the
fourth quarter of 1996, the Company modified this policy to allow unhedged
receivables, principally in U.S. dollars and German marks, of an amount
approximately equal to its total unhedged liabilities. This modified policy
continued through the first quarter of 1997. The Company intends to review this
policy periodically and may modify it in the future.
21
<PAGE>
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 in 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company appear beginning at
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Company.
The information required regarding the identification of the
Company's directors is incorporated by reference to the information contained in
the Proxy Statement for the 1997 Annual Meeting of Shareholders of the Company.
(b) Executive Officers of the Company.
The executive officers of the Company, as well as certain key
employees, and their ages as of March 1, 1997, are as follows:
NAME AGE POSITION
- ------------------------- -------- ---------------------------------------
Claudio Osorio 37 Chairman of the Board, Chief
Executive Officer and President
Alvin Perlman 70 Executive Vice President - South
American Region and Director
Craig Toll 48 Chief Financial Officer and Treasurer
Antonio Boccalandro 30 Secretary and Director
Pasquale Giordano(1) 49 Chief Operating Officer - Europe Region
Clifford Dyer(1) 59 Chief Operating Officer - South
American Region
- --------------------
(1) Each of these persons is a significant 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 Andre 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.
23
<PAGE>
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 July 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. In 1990 Mr.
Boccalandro became a director of Comtrad and he has also been a director
of Comtrad Holdings, Inc. since June 1994.
PASQUALE GIORDANO has been the Chief Operating Officer - Europe Region
since January 1, 1997. Previously, he was 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. Mr. Giordano
has a Bachelors degree from City College of New York.
CLIFFORD DYER has been the Chief Operating Officer - Latin American Region
since January 1, 1997. From February 1987 until it was acquired by the Company
in October 1996, Mr. Dyer was President of Merisel Latin America, Inc. and was
responsible for all Latin American Operations. He was the founder in 1982 of the
predecessor company to Merisel Latin America, Inc. Prior to 1982, Mr. Dyer was
President of GTE Venezuela and held directorships in various companies.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is incorporated by
reference to the information contained in the Proxy Statement for the 1997
Annual Meeting of Shareholders of the Company.
24
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item is incorporated by
reference to the information contained in the Proxy Statement for the 1997
Annual Meeting of Shareholders of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is incorporated by
reference to the information contained in the Proxy Statement for the 1997
Annual Meeting of Shareholders of the Company.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of this Report.
(1) Financial Statements
See "Item 8. Financial Statements and Supplementary Data"
for Financial Statements included under this Annual Report on Form 10-K.
(2) Financial Statement Schedules
(3) Exhibits:
EXHIBIT DESCRIPTION
- ------- -----------
3.1 Articles of Incorporation (1)
3.2 Bylaws (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)
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 (1)
10.16 Credit Agreement by and between MashreqBank PSC, New York
Branch, as lender and the Company, as borrower, dated July 10,
1995 (1) and Amendment dated as of August 17, 1995 (3)
10.17 Employment Agreement between the Company and Claudio Osorio
dated March 22, 1996 (3)
26
<PAGE>
10.18 Employment Agreement between the Company and Craig Toll dated
March 22, 1996 (3)
10.19 Form of Indemnity Agreement between the Company and each of the
Directors of the Company and Craig Toll (3)
10.20 Noncompetition Agreement dated April 11, 1996 among the Company,
Comtrad, Inc. and Comtrad Holdings, Inc. (3)
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) (3)
10.23 Agreement and Plan of Exchange between the Company and Comtrad
Holdings, Inc. dated October 13, 1995 (CHS BEK) (3)
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) (3)
10.25 Stock Purchase Agreement between the Company and Comtrad Holdings,
Inc. dated December 29, 1995 (CHS Poland) (3)
10.26 Stock purchase agreement between the Company and Comtrad, Inc.
dated December 29, 1995 (CHS Sweden) (3)
10.27 Stock Purchase Agreement between the Company and Comtrad, Inc.
dated December 29, 1995 (CHS Finland) (3)
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, Contrad Holdings,
Inc. and Comtrad, Inc. dated March 27, 1996 (CHS Baltic, CHS
Bulgaria, CHS Romania, CHS Croatia, CHS Brazil and CHS
Slovakia) (3)
10.30 Purchase Agreement dated March 1996 between Zemex Electronics
International and Cosapi Organizacion Empresarial S.A. (CHS
Peru) (3)
10.31 Stock Purchase Agreement dated March 29, 1996 between the Company
and Hugo Wyrsch (CHS Switzerland) (3)
10.32 Loan Agreement dated 29 March 1996 among CHS Finance SA, Singer
and Friedlander Limited and certain banks named in the Agreement
(3)
10.33 Purchase Agreement by and among CHS Electronics, Inc., as Buyer,
and Merisel, Inc. and Merisel Europe, Inc. as Sellers dated as of
August 29, 1996 as amended by First Amendment to Purchase
Agreement dated as of October 4, 1996 (4)
10.34 Second Amendment to Purchase Agreement by and among CHS
Electronics, Inc. as Buyer and Merisel, Inc. and Merisel Europe,
Inc. as Sellers dated as of December 27, 1996 (5)
10.35 Settlement Agreement and Release by and among CHS Electronics,
Inc. as Buyer and Merisel, Inc. and Merisel Europe, Inc. as
Sellers dated February 13, 1997 (5)
27
<PAGE>
10.36 Agreement as of October 31, 1996 between CHS Electronics, Inc. and
Comtrad, Inc. (5)
10.37 Stock Exchange Agreement dated December 19, 1996 between CHS
Electronics, Inc. and Frank & Walter Computer GmbH (5)
21 Subsidiaries of the Company (5)
23.1 Consent of Independent Certified Public Accountants(5)
27.1 Financial Data Schedule(5)
- --------------------
(1) Incorporated herein by this reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
(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 Registration
Statement on Form S-1 (File No. 333-03864).
(4) Incorporated herein by this reference from the Company's Current Report on
Form 8-K filed on October 18, 1996.
(5) Filed herewith.
(b) Reports on Form 8-K
During the last quarter of the period covered by this Report, the Company filed
a current report on Form 8-K, dated October 18, 1996, as amended by Form 8-K/A
dated December 17, 1996, which included information pursuant to Item 2.,
Acquisition or Disposition of Assets, relating to the acquisition of the assets
described in such Report.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, as amended (the "Act"), the registrant has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized.
CHS ELECTRONICS, INC.
By:/s/ CLAUDIO OSORIO
-------------------
Claudio Osorio
President
Dated: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- -----
/S/CLAUDIO OSORIO
- -------------------------- President and Director March 31, 1997
Claudio Osorio (principal executive officer)
/S/ALVIN PERLMAN
- -------------------------- Executive Vice President March 31, 1997
Alvin Perlman and Director
/S/ANTONIO BOCCALANDRO
- -------------------------- Secretary and March 31, 1997
Antonio Boccalandro Director
/S/CRAIG TOLL
- -------------------------- Chief Financial Officer March 31, 1997
Craig Toll and Treasurer (principal
financial officer and
principal accounting officer)
/S/OTTO GERLACH
- --------------------------- Director March 31, 1997
Otto Gerlach
/S/ZBYNEK KRAUS
- --------------------------- Director March 31, 1997
Zbynek Kraus
/S/DONALD D. WINSTEAD
- --------------------------- Director March 31, 1997
Donald D. Winstead
29
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
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
1996, and the related consolidated statements of earnings, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. 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 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, 1996 and 1995, and the consolidated
results of their earnings and their consolidated cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Miami, Florida
March 7, 1997
F-1
<PAGE>
CHS ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
DECEMBER 31
------------------------
1995 1996
---------- --------
ASSETS (Restated)
CURRENT ASSETS:
Cash $ 11,171 $ 35,137
Accounts receivable:
Trade, less allowance for doubtful accounts
of $4,388 in 1995 and $14,830 in 1996 112,501 340,098
Affiliates 843 3,241
-------- --------
113,344 343,339
Inventories 102,159 321,770
Deferred tax asset 456 --
Prepaid expenses 9,824 39,374
-------- --------
Total current assets 236,954 739,620
PROPERTY AND EQUIPMENT, NET 9,126 30,947
COST IN EXCESS OF ASSETS ACQUIRED, NET 17,305 78,780
OTHER ASSETS 2,419 12,602
-------- --------
$265,804 $861,949
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 46,438 $155,932
Accounts payable, trade 165,494 452,569
Accrued liabilities 14,242 44,873
Amounts due to sellers under
acquisition agreements -- 49,200
Income taxes payable 937 5,120
Deferred income taxes -- 420
-------- --------
Total current liabilities 227,111 708,114
LONG TERM DEBT 8,801 45,327
MINORITY INTEREST 3,975
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 7,582,534 shares at
December 31, 1995, and 12,400,384
shares at December 31, 1996 8 12
Additional paid-in capital 24,976 92,850
Retained earnings 4,558 16,724
Cumulative foreign currency
translation adjustment 350 (5,053)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 29,892 104,533
-------- --------
$265,804 $861,949
======== ========
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
YEAR ENDED DECEMBER 31
----------------------------------
1994 1995 1996
-------- -------- ----------
(Restated)
Net sales (including sales to
affiliates of $52,421, $21,063
and $0 in 1994, 1995 and 1996,
respectively) $359,169 $936,703 $1,855,540
Cost of goods sold 333,983 868,716 1,724,432
-------- -------- ----------
Gross profit 25,186 67,987 131,108
Operating expenses 21,798 57,188 102,235
-------- -------- ----------
Operating income 3,388 10,799 28,873
Other (income) expense
Interest income (250) (1,757) (3,199)
Interest expense 2,070 6,454 11,712
-------- -------- ----------
1,820 4,697 8,513
-------- -------- ----------
Earnings before income taxes and
minority interest in subsidiaries 1,568 6,102 20,360
Income taxes 603 1,797 6,086
Minority interest in subsidiaries -- -- 2,108
-------- -------- ----------
Net earnings $ 965 $ 4,305 $ 12,166
======== ======== ==========
Net earnings per common share $ .21 $ .59 $ 1.16
======== ======== ==========
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended December 31, 1996
(In thousands)
CUMULATIVE
FOREIGN
ADDITIONAL RETAINED CURRENCY
COMMON PAID-IN EARNINGS DEFERRED TRANSLATION
STOCK CAPITAL (DEFICIT) COMPENSATION ADJUSTMENT TOTAL
------ ---------- --------- ------------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 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 earnings -- -- 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 six
companies (Note B) -- (6,748) -- -- -- (6,748)
-------- -------- -------- -------- -------- --------
Balance December 31, 1994 as restated 14 19,618 253 (138) 123 19,870
Adjustment 1 for 2 reverse split (7) 7 -- -- -- --
Deferred compensation recognized -- -- -- 138 -- 138
Issuance of common stock in acquisitions 1 5,351 -- -- -- 5,352
Net earnings -- -- 4,305 -- -- 4,305
Foreign currency translation adjustment -- -- -- -- 227 227
-------- -------- -------- -------- -------- --------
Balance at December 31, 1995 8 24,976 4,558 -- 350 29,892
Common stock or other consideration
issued in acquisitions (Note B) -- 16,982 -- -- -- 16,982
Common stock issued in public offering 4 50,610 -- -- -- 50,614
Stock options exercised -- 282 -- -- -- 282
Net earnings -- -- 12,166 -- -- 12,166
Foreign currency translation adjustment -- -- -- -- (5,403) (5,403)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1996 $ 12 $ 92,850 $ 16,724 $ -- $ (5,053) $104,533
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data)
YEAR ENDED DECEMBER 31
-------------------------------
1994 1995 1996
-------- -------- -------
(Restated) (Restated)
Increase in cash and cash equivalents:
Cash flows from operating activities:
Net earnings $ 965 $ 4,305 $ 12,166
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 874 2,456 5,200
Deferred compensation amortized 138 148 1,432
Minority interest in net earnings -- -- 2,108
Changes in assets and liabilities excluding
effects of acquisitions:
Accounts receivable-trade, net (9,242) (37,724) (118,694)
Acounts receivable-affiliates, net (1,022) (12,285) (2,398)
Inventories (18,798) (32,204) (129,357)
Prepaid expenses and other current assets (2,429) (1,742) (22,345)
Accounts payable 36,617 51,818 173,244
Accrued liabilities and income taxes 758 3,175 (20,481)
-------- -------- --------
Net cash provided by (used in)
operating activities: 7,861 (22,053) (99,125)
Cash flows from investing activities:
Purchase of fixed assets (1,728) (6,866) (11,624)
Cash provided from (used in) acquisitions 4,890 1,317 (26,876)
-------- -------- --------
Net cash provided by (used in)
investing activities: 3,162 (5,549) (38,500)
Cash flows from financing activities:
Proceeds from public offering -- -- 50,614
Proceeds from private placement 4,000 -- --
Proceeds from stock options exercised -- -- 282
Payments on notes to affiliate (3,771) -- --
Proceeds from affiliate notes 1,650 -- --
Net borrowing from (repayments to) banks (5,254) 29,855 112,452
-------- -------- --------
Net cash provided by (used in)
financing activities: (3,375) 29,855 163,348
Effect of exchange rate changes on cash 117 550 (1,757)
-------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 7,765 2,803 23,966
Cash at beginning of year 603 8,368 11,171
-------- -------- --------
Cash at end of year $ 8,368 $ 11,171 35,137
======== ======== ========
(continued)
F-5
<PAGE>
CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In thousands, except share data)
YEAR ENDED DECEMBER 31
--------------------------------
1994 1995 1996
---------- ---------- -------
(Restated) (Restated)
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $1,532 $4,944 $10,064
Income Taxes $ 747 $1,753 $ 3,892
Non cash investing and financing activities:
These statements of cash flows do not include non-cash investing and financing
transactions associated with the common stock issued for various acquisitions.
The components of the transactions in each year are as follows:
YEAR ENDED DECEMBER 31
------------------------------
1994 1995 1996
------- ------- -------
Fair value of assets acquired including
cash acquired $92,049 $19,216 $14,691
Less: Common stock or other
consideration issued 26,647 7,152 3,278
------- ------- -------
Liabilities assumed $65,402 $12,064 $11,413
======= ======= =======
In 1996, $13.7 million was credited to additional paid-in capital representing
additional consideration paid by Comtrad under acquisition agreements for
subsidiaries now held by the Company
In 1994 and 1995, a $6.7 million and a $5.2 million, 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-6
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Three Years ended December 31, 1996
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. In December 1993, Comtrad transferred CHS Germany to a publicly held,
inactive Utah corporation which then changed its name to CHS Electronics, Inc.
(the Company). This transaction has been accounted for as a reverse acquisition
so that in all periods prior to 1994, 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. RESTATEMENTS
The 1994 and 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, wholly owned and majority 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 end of the year. Revenues and
expenses of these subsidiaries are translated at the average exchange rate
during the year. The aggregate effect of translating the financial statements of
foreign subsidiaries is included in a separate component of shareholders' equity
entitled cumulative 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 cumulative
foreign currency translation adjustment. 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 earnings.
6. CASH EQUIVALENTS
For the purpose of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
F-7
<PAGE>
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
1% 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 $223
million in receivables at December 31, 1996) 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 removed from the accounts and any gain or loss is
recognized at such time.
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, 1995 and 1996, the cumulative amount
of undistributed earnings on which the Company has not recognized United States
income taxes was approximately $6 million and $13 million, 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.
F-8
<PAGE>
12. COST IN EXCESS OF ASSETS ACQUIRED, NET
The cost in excess of assets acquired is being amortized to earnings over a 20
year period on a straight-line basis. The Company evaluates its goodwill in
accordance with Financial Accounting Standard Board Statement No. 121 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 a subsidiary's goodwill if an impairment is indicated by the difference
between the undiscounted cash flows and the carrying value. All of the Company's
goodwill is identified with the assets acquired and falls under the scope of
SFAS No. 121. Accumulated amortization was $1.2 million and $2.2 million at
December 31, 1995 and 1996, respectively.
13. EARNINGS PER COMMON SHARE
Earnings per share for each year is computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
(common stock options and warrants) outstanding during the year, unless such
inclusion is anti-dilutive. The weighted average number of shares was 4,693,332
in 1994, 7,282,785 in 1995 and 10,438,019 in 1996.
14. STOCK OPTIONS
Options granted under the Company's 1994 Stock Option Plan and Chief Executive
Officer option plan are accounted for under APB Opinion 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES.
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.
NOTE B - ACQUISITIONS
In 1996 the Company acquired eighteen companies in as many countries. The
largest acquisition was of seven companies comprising the European and Latin
American businesses of a competitor, Merisel, Inc. These seven companies were
acquired for cash and debt assumptions. The total consideration paid was
approximately $148 million consisting of $30 million of cash and $118 million
of debt assumed or refinanced. The Company financed the acquisition primarily
through borrowing or factoring at each subsidiary acquired. Approximately $11
million is owed to Merisel at December 31, 1996. The acquisition has been
accounted for as a purchase, effective as of September 30, 1996. Therefore,
operations of these companies are included only in the 1996 fourth quarter. The
cost of the acquisition has been allocated to the assets acquired based on their
fair values. This resulted in approximately $10.5 million of goodwill.
In connection with this acquisition, the Company intends to consolidate former
Merisel operations and CHS operations in the 5 countries where each had
operations. Additionally, the Company intends to dispose of the former Merisel
warehouse located in the Netherlands and has entered into a letter of intent to
sell the warehouse. The consolidation of the operations in United Kingdom and
France is complete and the remainder of the consolidations should be completed
in 1997. The Company has accrued approximately $15 million for these activities,
consisting of severence cost-$1 million, lease termination-$4.6 million, loss on
sale in Netherlands warehouse-$6.4 million, writeoff of leasehold improvements
and computer systems-$3 million. Through December 31, 1996, $2 million has been
charged against this reserve, consisting principally of severance costs, lease
termination costs and writeoffs of leasehold improvements.
In June 1996, the Company acquired 100% of an unaffiliated company in Russia for
consideration based on a multiple of that company's net income in 1996. The
acquisition was initially recorded at no consideration, which
F-9
<PAGE>
approximated the value of net assets acquired. Subsequently, the agreement was
modified to measure the value of the Company based 50% on 1996 results and 50%
on 1997 results. The 1996 portion is payable in cash and the 1997 portion is
payable in cash or stock at the seller's option. In 1996, $20.6 million was
recorded as purchase price and goodwill.
In April 1996, the Company acquired 100% of an unaffiliated company in
Switzerland for consideration based on a multiple of the acquired company's 1996
net earnings but not less than $1.7 million. The acquisition was initially
recorded at $1.7 million resulting in no goodwill. Subsequently, the agreement
was modified to base the price on results through September 30, 1996. In the
1996 fourth quarter 183,237 CHS shares were issued and there was an adjustment
to the purchase price based on a revaluation of the assets at date of purchase,
which resulted in goodwill of $870,000.
In March 1996, the Company acquired six companies from Comtrad for a 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 interests. Accordingly, these acquisitions have been included in the
accompanying financial statements from the date acquired by Comtrad. As a
result, financial statements for 1995 have been restated. The companies in
Bulgaria, Croatia, Lithuania and Romania were started by Comtrad in 1993 and
1994 for a minimal investment and have 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% interest
acquired with the remaining cost to be recorded as goodwill when known. The
contingent amount is not known at this time. Comtrad acquired the Brazil company
in November 1994 for Comtrad common shares valued at $762,000. The acquisition
was recorded by the Company as of December 31, 1994 at this value, resulting in
goodwill of $2.5 million. An additional amount of $240,000 was paid by Comtrad
in 1996 to complete its acquisition of this company, which had the effect of
increasing goodwill to $2.75 million.
The combined and separate CHS results of the companies for 1995 are as shown
below (in thousands):
<TABLE>
<CAPTION>
CHS
(AS ORIGINALLY (RESTATED)
PRESENTED) BALTIC BRAZIL BULGARIA CROATIA ROMANIA SLOVAKIA COMBINED
-------------- ------ ------ -------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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>
In February 1996, the Company acquired 51% of an unaffiliated company in Hungary
for consideration based on 51% of the book value of equity at December 31, 1996
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. Based on 1996 results the purchase price was increased to
$17.6 million resulting in goodwill of $15.8 million. As permitted by the
agreement, the sellers have elected to receive the proceeds in cash rather than
stock.
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-10
<PAGE>
<TABLE>
<CAPTION>
CHS COMTRAD OR CHI
COMPANY SERVICE AREA CONSIDERATION ACQUISITION DATE ACQUISITION DATE
- --------------------------------- --------------------------------------------------------------
<S> <C> <C> <C> <C>
CHS England United Kingdom April 1995 September 1994
CHS France France 1,750,000 April 1995 September 1994
CHS Belgium Belgium shares 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 ABC Data 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 earn out agreements. Comtrad's
purchase price for the three companies in the United Kingdom, France and Belgium
consisted of a $7 million 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 consolidated 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 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 approximately $1.75
million, based on the six month results. In 1996 the amount was adjusted to $2.4
million based on the final results resulting in total goodwill of $2.4 million.
Comtrad acquired two companies in Sweden and Finland, for a number of Company
shares owned by Comtrad to be determined by an earn out based on 1996 results.
At December 31,1996 the amount was recorded based on such results, at $11.2
million by charging costs in excess of assets acquired and crediting additional
paid-in capital.
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 earn out based on 1996 results. The value given 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. Costs in excess of assets acquired of $.7 million has been recorded on
this transaction. At December 31, 1996, the earn out amount was recorded based
on 1996 results at $2.2 million which increased goodwill and additional paid-in
capital.
As noted above, terms of several of the acquisitions by Comtrad provided for
contingent consideration. The Company believes such contingent consideration
payments are 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.
F-11
<PAGE>
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.
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 $11.3
million, 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 $8.4 million 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, 1995:
YEAR ENDED DECEMBER 31
------------------------------
(000'S EXCEPT PER SHARE DATA)
1995 1996
---------- ----------
Sales $2,449,861 $2,940,792
Net earnings 1,995 4,317
Net earnings per share $ .25 $ .41
Proforma adjustments have been made to eliminate non-recurring loss in the
operations acquired from Merisel and to add goodwill amortization and interest
expense on the amounts payable to selling stockholders at 7.5%. The proforma
information is not necessarily indicative of the actual results of operation
that would have occurred had the acquisitions taken place on January 1, 1995, or
of results which may occur in the future.
F-12
<PAGE>
NOTE C - ALLOWANCE FOR DOUBTFUL ACCOUNTS
YEAR ENDED DECEMBER 31
---------------------------
(IN THOUSANDS)
1994 1995 1996
------- ------- -------
Allowance for doubtful accounts
Beginning balance $ 546 $3,358 $ 4,388
Provision for bad debt 1,596 3,035 3,412
Write-offs (473) (2,161) (3,775)
Acquired though acquisition 1,689 156 10,805
------ ------ -------
Ending balance $3,358 $4,388 $14,830
====== ====== =======
NOTE D - PROPERTY AND EQUIPMENT
DECEMBER 31
-----------------
(IN THOUSANDS)
1995 1996
------- -------
Land and buildings $ 1,943 $ 3,167
Furniture and fixtures 6,973 15,126
Leasehold improvements 1,790 4,914
Computers and office equipment 2,498 25,000
Vehicles and other 1,992 5,414
------- -------
15,196 53,621
Less accumulated depreciation and amortization 6,070 22,674
------- -------
$ 9,126 $30,947
======= =======
F-13
<PAGE>
NOTE E - INCOME TAXES
The components of earnings before income taxes and minority interest in
subsidiaries consist of the following:
YEAR ENDED DECEMBER 31
---------------------------
(IN THOUSANDS)
1994 1995 1996
------ ------ -------
Domestic $1,258 $ 741 $ 1,361
Foreign 310 5,361 18,999
------ ------ -------
Total $1,568 $6,102 $20,360
====== ====== =======
The provision for income taxes consists of the following:
YEAR ENDED DECEMBER 31
---------------------------
(IN THOUSANDS)
1994 1995 1996
------ ------ ------
Current
U.S Federal $ 776 $ 525 $1,721
U.S. State 122 41 228
Foreign 35 1,357 4,520
----- ------ ------
933 1,923 6,469
----- ------ ------
Deferred
U.S Federal (289) $ 67 (258)
U.S. State (41) 5 (47)
Foreign - (198) (78)
----- ------ ------
(330) (126) (383)
----- ------ ------
Total $ 603 $1,797 $6,086
===== ====== ======
Deferred tax assets (liabilities) are comprised of the following:
DECEMBER 31
--------------------
(IN THOUSANDS)
1995 1996
------- --------
Net operating losses of foreign subsidiaries $ 4,162 $ 11,405
Employee compensation not currently deductible 127 131
Inventory differences 66 (3,009)
Allowances for bad debts 265 1,788
Accruals not currently deductible - 305
Other - (34)
------- --------
4,620 10,586
Valuation allowance (4,164) (11,006)
------- --------
Total $ 456 $ (420)
======= ========
F-14
<PAGE>
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:
YEAR ENDED DECEMBER 31
--------------------------
(IN THOUSANDS)
1994 1995 1996
----- ------ ------
Income taxes at the statutory rate $ 533 $2,070 $6,922
Foreign income subject to tax at other
than statutory rate (53) (212) (1,356)
State or local income taxes, less effect
of federal benefits 53 55 168
Losses without tax benefit 390 613 1,329
Goodwill amortization 108 190 255
Utilizations of net operating losses of
foreign subsidiaries (382) (826) (1,196)
Other (46) (93) (36)
----- ------ ------
Income taxes at the effective tax rate $ 603 $1,797 $6,086
===== ====== ======
At December 31, 1996, the Company has net operating loss carry forwards in
certain foreign jurisdictions that expire as follows:
1998 $9,480,000
1999 6,539,000
2000 1,964,000
No expiration date 14,388,000
NOTE F - NOTES PAYABLE AND LONG TERM DEBT
Several of the Company's subsidiaries have credit lines with local banks
totaling $224 million at December 31, 1996. 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 1996, the maximum and
average amounts outstanding were $172 million and $116 million, respectively.
The weighted average interest rate at December 31, 1996 was 7.3%.
F-15
<PAGE>
The Company's long-term debt consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1995 1996
-------- --------
<S> <C> <C>
CHS Promark has a $60 million revolving credit agreement with a financial
institution. The agreement, which expires October 1999, provides for advances
and letters of credit based upon eligible accounts receivable and inventories.
Interest is at a variable market rate based on the prime rate of the lender or
LIBOR, at CHS Promark's option. All of CHS Promark's assets, including accounts
receivable and inventories totaling $65.5 million at December 31, 1996, are
pledged as collateral. The agreement contains certain restrictive covenants,
including limitations on transactions with affiliated companies and employee
loans. CHS Promark was in violation of these specific covenants at December 31,
1996, but waivers for these violations were granted by the financial institution
in March, 1997. The agreement also limits the ability of CHS Promark to pay
dividends to the Company to 50% of CHS Promark's net income. - $ 34,374
CHS Promark had a $12,000,000 revolving credit agreement with a bank. The
agreement, which was refinanced in February, 1996, included banker's acceptances
and a line of credit. Interest on the advances under the line was at the bank's
base rate for the first 5 months of 1995 and at a penalty rate for the remainder
of 1995. CHS Promark's accounts receivable and inventories were pledged as
collateral. In addition, the credit agreement contained certain restrictive
covenants. $8,004 -
Capitalized leases, collateralized by computer equipment, bearing interest
ranging from 7.4% to 11% with maturities through September, 2002. 628 10,626
Other notes and mortgages on building, interest at 9.5%, with maturities through
2002, collateralized by a building with net book value at December 31, 1996 of
$674,000. 343 2,455
------ --------
Total 8,975 47,455
Less current portion of long-term debt, included in notes payable 174 2,128
------ --------
Total long-term debt $8,801 $ 45,327
====== ========
</TABLE>
F-16
<PAGE>
Scheduled maturities of long-term debt are as follows (in thousands):
Year ending December 31,
1997 2,128
1998 38,225
1999 2,571
2000 2,539
2001 883
NOTE G - CONCENTRATIONS
The Company's operations are substantially all outside the United States. In
1996, the largest amount of sales occurred in Germany, which comprised 17% of
total sales. The Company also had sales of almost 13% 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, Croatia and Bulgaria.
Most of the Company's sales are made in local currencies other than the U.S.
dollar. The largest amounts of sales were in German marks (17%), French francs
(13%) and British pounds (12%). In some countries, certain purchases and the
resulting payables are in currencies (principally the U.S. dollar) different
than the functional currency. Further, certain subsidiaries have loans
receivable or payable denominated in currencies other than their functional
currency. Transaction gains and losses on these receivables and liabilities are
included in the determination of earnings for the relevant periods. In 1994,
1995, and 1996, foreign currency gains were $385,000, $74,000, and $1,559,000,
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, 1996, the face value of foreign exchange forward
contracts against trade payables was $47 million, which approximated the fair
market value of the contracts. At December 31, 1996, accounts payable
denominated in U.S. dollars and German marks were $166 million (principally $120
million in U.S. dollars and $43 million in German marks). The largest unhedged
amounts of trade payables was in subsidiaries in the Netherlands ($43 million),
Czech Republic ($16 million), and Poland ($13 million), and various Latin
American countries ($25 million).
In some countries there are risks of continuing periodic devaluations or of
large devaluations. In these countries, no hedging mechanism exists. The Company
has risks in these countries that such devaluations could cause economic loss
and negatively impact future sales since its product cost would increase in
local terms after such devaluations. 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.
The Company has a major supplier, Hewlett-Packard (HP), whose products accounted
for 49%, 35%, and 34% of sales for 1994, 1995 and 1996, respectively. No other
vendor accounted for more than 10% of sales in any year except in 1996 in which
one vendor was 12%. 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 subsidiary 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 Company 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, 1995 and 1996 were $32 million and $70
million, respectively.
F-17
<PAGE>
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):
YEAR ENDING
DECEMBER 31, BUILDINGS EQUIPMENT VEHICLES AND OTHER TOTAL
- -----------------------------------------------------------------------------
1997 $7,578 $1,256 $2,233 $11,067
1998 5,367 848 1,495 7,710
1999 5,037 497 805 6,339
2000 4,513 242 555 5,310
2001 3,540 33 128 3,701
Subsequent years 16,398 202 - 16,600
Total rental expense was $1,583,000, $2,503,000, and $6,715,000 for the years
ended December 31, 1994, 1995 and 1996, respectively.
Rental expense includes approximately $734,000 annually 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 $5.6 million and $2.8 million, 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. The Company is
subject to a tax audit in Portugal where the tax authorities have preliminarily
found a deficiency of approximately $3 million. The Company believes it has
properly reported its income and paid taxes in Portugal and intends to contest
the proposed adjustments vigorously. The Company has requested a re-audit, which
has been granted, although no specific date is yet scheduled. The Company
expects the ultimate resolution of this matter will not have a material adverse
effect on the Company's financial position or results of operations.
NOTE I - RELATED PARTY TRANSACTIONS
At December 31, 1996 and 1995, the Company carried a receivable from Comtrad in
an amount of $3.2 million and $843,000 respectively. In 1996, this receivable is
in the form of a promissory note which Comtrad has agreed to collateralize with
210,000 shares of CHS owned by Comtrad. The amount is due the earlier of a
public offering of the Company or 60 days after demand. Interest charged to
Comtrad was $162,000, $438,000 and $86,000 in 1994, 1995 and 1996 respectively.
In 1995 the Company owed amounts to Comtrad which were subsequently
extinguished. Interest paid to Comtrad was $117,000 and $126,000 in 1994 and
1995, respectively.
In 1996, the Company purchased a company in Romania from Comtrad for $375,000
(see note B). Subsequently, the Company loaned $800,000 to the subsidiary to
enable it to purchase an office building. In December 1996, the Company sold
this subsidiary back to Comtrad for the original purchase price plus an amount
equal to the losses from April to date of sale ($200,000). No gain was
recognized on the sale, which had the impact of increasing the amount due from
Comtrad by $1.4 million.
During 1993, various management services were provided to CHS Germany by Comtrad
or its affiliates. As compensation for these services, a management charge
aggregating $896,000 was levied. In the fourth quarter of 1994, a study was
performed of the actual costs relating to the services provided by Comtrad and
affiliates. Based
F-18
<PAGE>
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 the past the Company billed Comtrad for
actual costs of salaries, space and other administrative costs it incurred on
Comtrad's behalf. Such amounts were $670,000, $495,000, and $0 in 1994, 1995 and
1996, 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.
Comtrad owned operating subsidiaries in Europe engaged in essentially the same
business as CHS Germany. During 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 in 1994. Handling costs
billed to Comtrad, which are recorded as a reduction in operating costs, were
$900,000, $73,000 and $0 in 1994, 1995 and 1996 respectively.
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, 1995, and
1996, $45,700 and $48,000 and $48,000 respectively 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. Mr. 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, Mr. Perlman sold CHI 30% of the capital stock of each
of the South American subsidiaries for $2.5 million paid in the form of $100,000
in cash and a 7% promissory note in the principal amount of $2.4 million which
has been fully satisfied.
The Company has guaranteed the obligation of CHI to pay to the former owner of
its subsidiary in Poland an earn out amount. Such amount, when known, is to be
paid in Company stock.
NOTE J - COMMON STOCK AND STOCK OPTION PLANS
In June 1996, the Company completed a public offering of common shares in which
the Company sold 4,591,539 shares and selling shareholders sold 1,733,461
shares. The Company shares were sold at $12 per share which raised $50.6 million
for the Company net of expenses and commissions. As part of the offering the
underwriter received warrants entitling the purchase of 300,000 shares of stock
in a 4 year period beginning in June 1997 at a price starting at $13.20 and
increasing each year.
In March 1996, the shareholders approved a reincorporation as a Florida company,
a reverse 1 for 2 stock split and 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. All share information has been restated to reflect the 1 for
2 split. 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-19
<PAGE>
On February 17, 1994, the Company completed a private placement offering of
896,523 shares of its common stock. The stock was sold to unrelated investors at
$4.46 per share. The net proceeds of $3,998,493 were used to partially repay the
$4,000,000 promissory note owed to Comtrad.
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, subsequently extended to June 1997, to purchase all shares of the
Company's common stock and CHI common stock held by Mr. Perlman for $15 million
less any amounts realized by Mr. Perlman on sales of CHS shares he owns. The
current option price is approximately $10 million. For the month of July 1997,
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 million less any amounts
realized by Mr. Perlman on sales of CHS shares he owns , 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 727,097
shares of the Company's common stock held by CHI.
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 and subsequently the shareholders approved the
issuance of an additional 150,000 shares under the plan. In December 1996, the
Board of Directors approved, subject to approval by the Company's shareholders,
the issuance of an additional 600,000 shares under the plan. Certain of the
grants (423,000 at December 31, 1996) 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 and have a life of 10 years.
Vesting periods are generally 25% a year for four years.
In June 1996, the Board of Directors approved, subject to approval by the
Company's shareholders the 1996 Chief Executive Officer Option Plan. The Plan
provides for options covering up to 500,000 shares of CHS stock to be issued to
the CEO upon the approval by the Board of Directors of a qualifying acquisition,
as defined or of any acquisition if recommended by the Compensation Committee
and approved by the Board. A qualifying acquisition is one where greater than
50% of the purchase price is comprised of common stock calculated by an earn out
formula. The options are to be granted at market value and vest based on the
earnings of the acquired company. In 1996, 432,794 options were granted under
this plan.
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. The compensation element of
$280,400 was considered 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.
The Company accounts for its stock options under APB 25. No compensation cost
has been recognized as the exercise price of such options do not exceed the fair
value of the underlying stock at the date of grant. Had compensation cost for
the plan been determined based on the fair value of the options at the grant
dates consistent with the method of Statement of Financial Accounting Standards
123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS 123), the Company's net
earnings per share would have been reduced to the pro forma amounts indicated
below.
1995 1996
---- ----
Net earnings As reported $4,305,000 $12,166,000
Pro forma 4,241,000 11,777,000
Primary earnings per share As reported $ .59 $ 1.16
Pro forma .58 1.13
F-20
<PAGE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996, respectively; dividend yield of 0%
for each year; expected volatility of 70% in each year; risk-free interest rates
of 5.81% in 1995 and 6.06 % in 1996; and expected lives of 4.5 years for each
year.
A summary of the status of the Company's stock option plans as of December 31,
1994, 1995, and 1996, and changes during the years ending on those dates is
presented below.
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- -------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year -- -- 402,005 $ 5.30 564,088 $ 6.90
Granted 422,005 $ 5.34 223,000 9.58 1,055,813 14.63
Exercised -- -- -- -- (41,074) 6.86
Cancelled (20,000) 6.00 (60,917) 6.16 (35,961) 15.42
------- ------- --------- --------
Outstanding at end of year 402,005 5.30 564,088 6.90 1,542,866 12.02
======= ======= ========= ========
Options exercisable at year end -- -- 138,855 $ 4.99 515,628 $ 8.90
Weighted - average fair value of
options granted during the year N/A N/A $ 8.83
</TABLE>
The following information applies to options outstanding at December 31, 1996:
Number outstanding 1,542,866
Range of exercise prices $6.00-18.63
Weighted-average exercise price $12.02
Weighted-average remaining contractual life 9.2 years
F-21
<PAGE>
NOTE K - 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. Net
sales, operating income (before interest and income taxes) and identifiable
assets by geographical area were as follows (in thousands):
<TABLE>
<CAPTION>
WESTERN EASTERN LATIN
EUROPE EUROPE AMERICA ELIMINATIONS CONSOLIDATED
--------- ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
==========
1996
- ----
Net sales $1,063,997 $215,518 $576,025 - $1,855,540
==========
Operating income 9,559 11,440 10,663 - 31,662
Corporate expenses (2,789)
----------
28,873
==========
Identifiable assets 528,568 110,656 207,734 - 846,958
Corporate assets 14,991
----------
$ 861,949
==========
</TABLE>
NOTE L - SUBSEQUENT EVENTS
In December 1996 the Company signed a definitive agreement to purchase Frank &
Walter GmbH, a privately held company in Germany in the same business as the
Company. The agreement is subject to obtaining governmental anti-trust approvals
(which has been done) and certain other provisions. The transaction is expected
to close in March 1997 but be effective January, 1997. The purchase price is 2.2
million unregistered shares of common stock. The transaction is expected to be
accounted for as a purchase. For 1996, Frank & Walter had net sales of $686
million, operating income of $10.8 million and pretax income of $6.3 million
(unaudited information)
In January 1997 the Board of Directors approved, subject to approval by the
Company's shareholders, the Directors and Officers 1997 Stock Option Plan. Under
the plan 600,000 options will be available for grant to senior officers and
directors. All options will be granted at market value and have specific vesting
periods, generally pro rata over 3 years. Through March 1997, 540,000 options
were granted under this plan.
F-22
<PAGE>
NOTE M - SUMMARIZED QUARTERLY FINANCIAL DATA FOR 1995 AND 1996 (unaudited)
(in thousands, except for per share information)
Q1 Q2 Q3 Q4 YEAR
------------------------------------------------------
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 .24 .14 .16 .07 .59
1996
- ----
Net sales $302,995 $316,506 $376,209 $859,830 $1,855,540
Gross profit 22,542 23,764 27,109 57,693 131,108
Net earnings 1,988 1,726 2,325 6,127 12,166
Net earnings per share .25 .21 .19 .48(A) 1.16
(A) Results for the fourth quarter 1996 include a restructuring charge of $1.4
million ($1.1 million or $.11 per share after tax) for costs incurred by the
Company to implement consolidation of its operations with acquired operations
from Merisel.
F-23
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
10.34 Second Amendment to Purchase Agreement by and among CHS
Electronics, Inc. as Buyer and Merisel, Inc. and Merisel Europe,
Inc. as Sellers dated as of December 27, 1996 (5)
10.35 Settlement Agreement and Release by and among CHS Electronics,
Inc. as Buyer and Merisel, Inc. and Merisel Europe, Inc. as
Sellers dated February 13, 1997 (5)
10.36 Agreement as of October 31, 1996 between CHS Electronics, Inc. and
Comtrad, Inc. (5)
10.37 Stock Exchange Agreement dated December 19, 1996 between CHS
Electronics, Inc. and Frank & Walter Computer GmbH (5)
21 Subsidiaries of the Company (5)
23.1 Consent of Independent Certified Public Accountants(5)
27.1 Financial Data Schedule(5)
</TABLE>
EXHIBIT 10.34
SECOND AMENDMENT TO PURCHASE AGREEMENT
THIS IS A SECOND AMENDMENT TO PURCHASE AGREEMENT (the "Amendment")
dated as of December 27, 1996 by and among CHS Electronics, Inc., a Florida
corporation ("Buyer"), and Merisel, Inc., a Delaware corporation ("Merisel"),
and Merisel Europe, Inc., a Delaware corporation ("Europe"). Merisel and Europe
are collectively referred to herein as the "Sellers." All capitalized terms
without definition used in this Amendment shall retain their respective meanings
as specified in the Purchase Agreement (as defined hereafter).
BACKGROUND
Pursuant to the Purchase Agreement (the "Purchase Agreement") dated
August 29, 1996 by and among the Buyer and the Sellers, the Buyer agreed to
purchase and the Sellers agreed to sell the Europe Stock, the Latin America
Stock and the Mexico Stock and the Europe Assets on the terms and subject to the
conditions set forth in such Purchase Agreement. The Purchase Agreement was
amended by a First Amendment to Purchase Agreement dated as of October 4, 1996
(the "First Amendment"). The Buyer and the Sellers have deemed it advisable to
further amend certain terms of the Purchase Agreement, as amended by the First
Amendment, subject to the terms and conditions of this Second Amendment.
TERMS
In consideration of the mutual covenants contained herein and intending
to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I.
1.1. AMENDMENT TO SECTIONS 1.2(C)(I) AND (C)(II). Sections 1.2(c)(i) and
(c)(ii) of the Purchase Agreement are hereby amended in their entirety as
follows:
(c) REGARDING THE CLOSING BALANCE SHEETS. (i) Promptly after the
Closing Date, but in any event no later than 60 days after the Closing Date,
Europe shall prepare and deliver to Buyer, or cause to be prepared and delivered
to Buyer, a combining balance sheet of the European Subsidiaries and Europe
Assets as of the close of business on the Closing Date (the "Europe Closing
Balance Sheet"), together with the draft audit report of Deloitte & Touche, LLP
thereon. The Europe Closing Balance Sheet shall be prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP") applied
consistently with those U.S. GAAP principles applied in the preparation of the
1995 Balance Sheets (as defined in SECTION 2.7) (such accounting principles
being, the "Accounting Principles"), except that the accounts receivable and
inventory on the Europe Closing Balance Sheet will be valued utilizing the
adjustments listed in Exhibit A. In addition, the combining closing balance
sheet will convert foreign currencies to U.S. dollars at the closing exchange
rate published in the Wall Street Journal as of the Closing Date, and the Europe
Closing Balance Sheet will be prior to the application of purchase accounting
and recordation of the transactions contemplated in the Agreement. MIFINCO,
Inc.'s
<PAGE>
investment in shares of Merisel France, Inc. and Mexico will be valued at zero
for the combining Closing Balance Sheet. The report of Deloitte & Touche, LLP
shall state (without qualification as to scope of audit or other matters) that
in their opinion the Europe Closing Balance Sheet presents fairly in all
material respects, the net assets of Europe sold as of the Closing Date, on the
basis of accounting defined in this Agreement and Exhibit A. The Europe Closing
Balance Sheet shall be subject to the review of Grant Thornton L.L.P. The
parties shall allow and cause the European Subsidiaries to allow the parties,
Grant Thornton, L.L.P. and other representatives of the parties full and
complete access to all work papers, books and records and all additional
information used in preparing the Europe Closing Balance Sheet and will make
their and the European Subsidiaries' officers and employees reasonably available
to discuss with the parties and their representatives such papers, books,
records and information. Buyer and its representatives shall be provided
complete access to all work papers and other information used by Deloitte &
Touche, LLP in examining the Europe Closing Balance Sheet which are not
proprietary to Deloitte & Touche, LLP and Sellers and their representatives
shall be provided complete access to all work papers and other information used
by Grant Thornton, L.L.P. in reviewing the Europe Closing Balance Sheet which
are not proprietary to Grant Thornton, LLP. Buyer has notified Sellers of its
disagreement with the draft Europe Closing Balance Sheet. If such disagreement
cannot be resolved by Buyer and Europe (each of which shall use their
"reasonable efforts" to so resolve the claim) prior to January 31, 1997, the
items in dispute shall be submitted to a nationally recognized firm of
independent auditors acceptable to both Buyer and Europe (or, in the absence of
agreement, the auditing firm of KPMG Peat Marwick L.L.P.) (the "Resolution
Accountants"). The sole function of the Resolution Accountants shall be to
select as most accurately reflecting the Europe Closing Balance Sheet, without
adjustment or alteration, the Europe Closing Balance Sheet submitted by Buyer or
the Europe Closing Balance Sheet submitted by Europe as the true Europe Closing
Balance Sheet, and the determination by such independent auditing firm shall be
binding and conclusive upon the parties. If the Resolution Accountants select
the Europe Closing Balance Sheet submitted by Buyer, Europe shall pay the fees
and expenses of the Resolution Accountants; if the Resolution Accountants select
the Europe Closing Balance Sheet submitted by Europe, Buyer shall pay the fees
and expenses of the Resolution Accountants. Europe shall pay the cost of the
fees and expenses of Deloitte & Touche, L.L.P. and Buyer shall pay the cost of
the fees and expenses of Grant Thornton L.L.P. There shall be no adjustment to
the Purchase Price unless and until such adjustment exceeds $250,000 and only to
the extent of that excess of $250,000.
(ii) Promptly after the Closing Date, but in any event no
later than 60 days after the Closing Date, Merisel shall prepare and deliver to
Buyer, or cause to be prepared and delivered to Buyer, a combining balance sheet
of Latin America and Mexico (the "Latin/Mexico Closing Balance Sheet") as of the
close of business on the Closing Date, together with the draft audit report of
Deloitte & Touche, LLP thereon. The Latin/Mexico Closing Balance Sheet shall be
prepared in accordance with U.S. GAAP applied consistently with those U.S. GAAP
principles applied in the preparation of the 1995 Balance Sheets, except that
the Latin/Mexico Closing Balance Sheet will convert Mexican pesos to U.S.
dollars at the closing exchange rate published in the Wall Street Journal as of
the Closing Date and the Latin/Mexico Closing Balance Sheet will be prior to the
application of purchase accounting and recordation of the transactions
-2-
<PAGE>
contemplated in this Agreement (the "Latin American Accounting Principles"). The
report of Deloitte & Touche, L.L.P. shall state (without qualification as to
scope of audit or other matters) that in their opinion the Latin/Mexico Closing
Balance Sheet presents fairly in all material respects, the net assets of Mexico
and Latin America sold as of the Closing Date, on the basis of the Latin
American Accounting Principles defined in this Agreement. The parties shall
allow and cause Latin America and Mexico to allow the parties, Grant Thornton,
L.L.P. and other representatives of the parties, full and complete access to all
work papers, books and records and all additional information used in preparing
the Latin/Mexico Closing Balance Sheet and will make their and will use their
reasonable efforts to make Latin America's and Mexico's officers and employees
available to discuss with the parties and their representatives such papers,
books, records and information. Buyer and all its representatives shall be
provided complete access to all work papers and other information used by
Deloitte & Touche, LLP in auditing the Latin/Mexico Closing Balance Sheet which
are not proprietary to Deloitte & Touche LLP and Sellers and their
representatives should be provided complete access to all work papers and other
information used by Grant Thornton L.L.P. in reviewing the Latin/Mexico Closing
Balance Sheet which are not proprietary to Grant Thornton L.L.P. Buyer has
notified Merisel of its disagreement with the draft Latin/Mexico Closing Balance
Sheet. If such disagreement cannot be resolved by Buyer and Merisel (each of
which shall use their "reasonable efforts" to so resolve the claim) prior to
January 31, 1997, the items in dispute shall be submitted to the Resolution
Accountants. The sole function of the Resolution Accountants shall be to select
as most accurately reflecting the Latin/Mexico Closing Balance Sheet, without
adjustment or alteration, the Latin/Mexico Closing Balance Sheet submitted by
Buyer to the Resolution Accountants, which closing balance sheet reflects the
results of any previous discussions between the parties or the Latin/Mexico
Closing Balance Sheet submitted by Merisel to the Resolution Accountants, which
closing balance sheet reflects the results of any previous discussions between
the parties as the true Latin/Mexico Closing Balance Sheet, and the
determination by such independent auditing firm shall be binding and conclusive
upon the parties. If the Resolution Accountants select the Latin/Mexico Closing
Balance Sheet submitted by Buyer, Merisel shall pay the fees and expenses of the
Resolution Accountants; if the Resolution Accountants select the Latin/Mexico
Closing Balance Sheet submitted by Merisel, Buyer shall pay the fees and
expenses of the Resolution Accountants. Merisel shall pay the cost of the fees
and expenses of Deloitte & Touche, LLP and Buyer shall pay the cost of the fees
and expenses of Grant Thornton L.L.P.
ARTICLE II.
2.1 EFFECT OF AMENDMENT. Except as expressly provided in Article I of this
Amendment, nothing shall affect or be deemed to affect any provisions of the
Purchase Agreement, as amended by the First Amendment, and, except only to the
extent that they may be varied hereby, the Buyer and Sellers hereby ratify and
confirm all of their agreements and obligations contained in the Purchase
Agreement, as amended by the First Amendment and hereby.
-3-
<PAGE>
2.2 COUNTERPARTS. This Second Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
2.3 GOVERNING LAW. This Second Amendment shall be governed by and construed in
accordance with the internal laws of the State of Florida without giving effect
to principles of conflicts of laws.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Amendment to be executed by their duly authorized representatives as of the day
and year first above written.
CHS ELECTRONICS, INC.
By: /S/ CLAUDIO OSORIO
----------------------------------------------------
Claudio Osorio, Chief Executive Officer
MERISEL, INC.
By: /S/ DWIGHT STEFFENSEN
----------------------------------------------------
Dwight Steffensen, Chief Executive Officer
MERISEL EUROPE, INC.
By: /S/ DWIGHT STEFFENSEN
----------------------------------------------------
Dwight Steffensen, Chief Executive Officer
-5-
EXHIBIT 10.35
SETTLEMENT AGREEMENT AND RELEASE
THIS SETTLEMENT AGREEMENT AND RELEASE (the "Settlement Agreement") is made
on February 13, 1997, by and among CHS Electronics, Inc., a Florida corporation
("CHS"), Merisel, Inc., a Delaware corporation ("Merisel"), and Merisel Europe,
Inc., a Delaware corporation ("Merisel Europe" and together with Merisel, the
"Sellers"). Capitalized terms not otherwise defined herein are used as defined
in the Purchase Agreement, dated as of August 29, 1996, by and among CHS and the
Sellers (the "Purchase Agreement").
WHEREAS, pursuant to the Purchase Agreement CHS acquired all of the issued
and outstanding shares of capital stock of certain subsidiaries of the Sellers;
and
WHEREAS, certain post closing adjustments and indemnification claims have
arisen under the Purchase Agreement; and
WHEREAS, CHS and the Sellers desire to settle all such claims and finalize
all matters relating to the Purchase Agreement pursuant to the terms and
conditions hereof except as otherwise specifically provided herein.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements set forth herein, it is agreed that:
1. SETTLEMENT OF CLAIMS. In settlement of all Claims (as defined below)
relating to the Purchase Agreement, the parties agree as follows:
(a) Concurrently with the execution hereof, CHS shall pay an amount
equal to $3,000,000, plus accrued interest from February 1, 1997 to the date
hereof at a rate of 10% per annum, and set off by the amount owed by Merisel
pursuant to paragraphs 3 and 4 of ANNEX B hereto, by wire transfer of
immediately available funds to the following account:
<PAGE>
Account Name: Merisel Americas, Hdq.
Bank: Citibank, N.A.
399 Park Avenue
New York, New York 10043
ABA Routing No.: 0210 0008 9
Account No.: 4063 9503
(b) Concurrently with the execution hereof, CHS shall execute, and
deliver to the Sellers, a promissory note (the "Note") in form and substance
identical to ANNEX A hereto.
(c) CHS and the Sellers acknowledge and agree that the payment to the
Sellers pursuant to Paragraph 1(a) and the Note shall be received and accepted
by the Sellers in full payment and settlement of all Claims related to the
Purchase Agreement, except for the Claims identified on ANNEX B hereto (the
"Excluded Claims").
(d) The amount paid hereunder and pursuant to the Note shall be an
adjustment to the Purchase Price paid under the Purchase Agreement, and shall be
allocated for tax purposes in accordance with SCHEDULE 1 hereto.
2. RELEASE.
(a) Each of CHS and the Sellers, on behalf of themselves and their
respective affiliates, hereby fully release and forever discharge each other
and each of their respective affiliates from any and all claims, demands,
controversies, liabilities, damages, debts, obligations, costs, expenses,
attorneys' fees or causes of action of any kind or nature (collectively,
"Claims"), whether now known or unknown, suspected or unsuspected, in law or in
equity as may exist, in connection with, arising from or relating to the
Purchase Agreement or the transactions contemplated thereby, including without
limitation any and all Claims that may be used on contract, tort or other
theories (except for the Excluded Claims).
(b) Each of CHS and the Sellers on behalf of themselves and their
respective affiliates, hereby waive any and all rights which any of them may
have under the provisions of Section 1542 of the Civil Code of the State of
California as now worded and as hereafter amended, which section provides in
pertinent part:
2
<PAGE>
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
It is understood and agreed that the facts in respect of which this Settlement
Agreement is executed may turn out to be other than or different from the facts
in that respect now known or believed by each of the parties to be true; and
with such understanding and agreement, each of CHS and the Sellers, on behalf of
themselves and their respective affiliates, expressly accepts and assumes the
risk of facts being other than or different from the assumptions and perceptions
as of any date prior to and including the date hereof, and each agrees that this
Settlement Agreement shall be in all respects effective and shall not be subject
to termination or rescission by reason of any such difference in facts.
(c) Each party hereby represents to each other party that,
notwithstanding any documentaiton or facts that may later come to light with
respect to the matters in respect of which this Settlement Agreement is
executed, it has conducted an adequate investigation into such matters and has
reviewed all of the considerations and documentation that may be relevant or
that it requested to review in connection with entering into this Settlement
Agreement. With respect hereto, no party is relying on any inducements, promises
or representations not contained herein.
3. REPRESENTATIONS AND WARRANTIES. Each party hereby represents and
warrants as follows:
(a) It has the legal capacity and all necessary power and authority to
execute and deliver this Settlement Agreement and to consummate the transactions
contemplated hereby.
(b) Assuming this Settlement Agreement has been duly and validly
authorized, executed and delivered by the other parties hereto, this Settlement
Agreement constitutes a valid and binding agreement of such party, enforceable
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting creditors'
rights generally or by the principles governing the availability of equitable
remedies.
3
<PAGE>
4. NOTICES TO PARTIES. All notices and other communications shall be
effective upon receipt if hand delivered or sent by facsimile transmission and
confirmed by United States mail and shall be effective one day after sending by
recognized "overnight" delivery service to the addresses stated below, or to
such other addresses as to which either party shall have previously notified the
other party in writing. Any such notice not contemplated above shall be
effective upon receipt. For the purposes of this Paragraph 4, the addresses of
the parties shall be as follows:
IF TO THE SELLERS:
Merisel, Inc.
200 Continental Boulevard
El Segundo, California 90245
ATTENTION: President
Fax: (310) 615-1234
With copies to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 S. Grand Avenue
Los Angeles, California 90071-3144
ATTENTION: Joseph J. Giunta, Esq.
Fax: (213) 687-5600
IF TO CHS:
CHS Electronics, Inc.
2153 N.W. 86th Avenue
Miami, Florida 33122
ATTENTION: President
Fax (305) 593-0265
With copies to:
Greenberg, Traurig, Hoffman
Lipoff, Rosen Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
ATTENTION: Paul Berkowitz, Esq.
Fax: (305) 579-0717
4
<PAGE>
5. COMPLETE AGREEMENT. This is the complete agreement between the parties
with respect to the subject matter hereof and supersedes all prior negotiations
and agreements with respect thereto. There are no representations, warranties,
covenants, conditions, terms, agreements, promises, understandings, commitments
or other arrangements with respect to the subject matter hereof other than those
expressly set forth or incorporated herein or made in writing on or after the
date of this Settlement Agreement. This Settlement Agreement settles all matters
relating to the Purchase Agreement except with respect to the Excluded Claims.
Except as expressly provided herein, this Settlement Agreement does not amend or
supersede the Purchase Agreement with respect to the Excluded Claims and the
Purchase Agreement shall remain in full force and effect.
6. GOVERNING LAW; CONSENT TO JURISDICTION. This Settlement Agreement is
made pursuant to the laws of the State of California; as to any question
concerning the Agreement as a whole, it shall be governed by, construed under
and enforced in accordance with, the laws of the State of California without
regard to its conflict-of-laws principles.
7. EXPENSES. Except as otherwise specifically provided herein, each of the
parties hereto shall pay their respective counsel fees, accounting fees and
other costs and expenses incurred in connection with the negotiation, making,
execution, delivery and performance of this Settlement Agreement.
8. BINDING AGREEMENT; SUCCESSORS. This Settlement Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties hereto
and the respective predecessors, successors, assigns, heirs, legatees,
executors, representatives, agents, guardians, custodians, administrators,
conservators, directors, officers, shareholders, subsidiaries, affiliates and
associates of the parties hereto and any other person or persons who may in any
fashion claim any interest in the subject matter hereof through any of the
parties hereto.
9. HEADINGS. The paragraph headings herein are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Settlement
Agreement, nor are they deemed to constitute a part of this Settlement
Agreement.
10. COUNTERPARTS. This Settlement Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument, which shall be
5
<PAGE>
effective upon the execution hereof by all of the parties hereto. A complete set
of counterparts shall be made available to each party hereto.
11. TIME OF THE ESSENCE. Time shall be of the essence of this Settlement
Agreement and of each and every part thereof.
12. SEVERABILITY. If any provision of this Settlement Agreement or the
application of any such provision shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof. In lieu of any such invalid, illegal or unenforceable provision, the
parties hereto intend that there shall be added as part of this Settlement
Agreement a provision as similar in terms to such invalid, illegal or
unenforceable provisions as may be possible and be valid, legal and enforceable.
13. U.S. DOLLARS. Unless otherwise specified, all references to "$" or
"dollars" in this Settlement Agreement shall mean U.S. dollars.
14. ATTORNEYS' FEES. In any action or proceeding brought to enforce any
provision of this Settlement Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable and actual attorney's fees in addition to its cost and expense and
any other available remedy; PROVIDED, that, for the purposes hereof, the Sellers
shall be deemed one party and CHS shall be deemed one party.
15. INTERPRETATION. As used herein, "affiliates" of a person shall mean
such person's shareholders, subsidiaries, associates, predecessors and
successors, and assigns of any of them, and each and all of such person's
directors, officers, employees, agents and representatives, and assigns of any
of them. Each party has participated in the drafting and preparation of this
Settlement Agreement, and, accordingly, in any construction or interpretation
of this Settlement Agreement, the same shall not be construed against any party
by reason of the source of drafting.
6
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Settlement Agreement on the day and year first above written.
MERISEL, INC.
By:\s\DWIGHT STEFFENSEN
---------------------------------
Name: Dwight Steffensen
Title: Chief Executive Officer
MERISEL EUROPE, INC.
By:\s\DWIGHT STEFFENSEN
---------------------------------
Name: Dwight Steffensen
Title: Chief Executive Officer
CHS ELECTRONICS, INC.
By: \s\CLAUDIO OSORIO
---------------------------------
Name: Claudio Osorio
Title: President
7
<PAGE>
ANNEX A
PROMISSORY NOTE
$8,000,000.00 February 1, 1997
FOR VALUE RECEIVED, CHS Electronics, Inc., a Florida corporation
("Borrower"), hereby unconditionally promises to pay to the order of Merisel,
Inc., a Delaware corporation, and its successors, endorsees, transferees and
assigns (collectively, "Lender"), the principal amount of EIGHT MILLION DOLLARS
AND NO CENTS ($8,000,000.00) such principal to be due and payable as follows:
$4,000,000, plus accrued interest, on March 12, 1997, and $4,000,000, plus
accrued interest, on April 11, 1997.
Borrower agrees to pay interest on the unpaid principal amount hereof and,
to the extent lawful, on any interest payment due but unpaid. Interest shall
accrue from the date hereof until this Note is paid in full at a rate equal to
10% per annum, except that upon the occurrence of an Event of Default (as
hereinafter defined), all unpaid principal and, to the extent lawful, any
interest payment due but unpaid shall accrue interest at a rate of 14% per
annum.
Borrower may at its option prepay all or any portion of this Note without
premium or penalty. Each payment on this Note shall be credited first on
interest, and the remainder, if any, on principal, and interest shall thereupon
cease to accrue on the principal so credited.
If Borrower shall fail to pay when and as required to be paid herein, any
amount of principal or interest (an "Event of Default"), the Lender may, by
notice, declare the principal amount then outstanding and the accrued interest
thereon and all other amounts payable to Lender to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by Borrower.
If the payment of principal or interest on this Note shall become due on a
Saturday, Sunday or legal holiday under the laws of the State of California,
such payment shall be made on the next succeeding business day, and any such
A-1
<PAGE>
extended time of the payment of principal shall be included in computing
interest at the rate this Note bears prior to maturity in connection with
such payment.
All payments of principal, interest and all other amounts payable in
respect of this Note shall be made in lawful money of the United States of
America in immediately available funds by wire transfer to the following
account:
Account Name: Merisel Americas, Hdq.
Bank: Citibank, N.A.
399 Park Avenue
New York, New York 10043
ABA Routing No.: 0210 0008 9
Account No.: 4063 9503
Lender shall, before disposing of this Note or any part hereof, make a
notation hereon of all principal and interest payments previously made hereunder
and of the date to which interest hereon has been paid; PROVIDED, HOWEVER, that
the failure to correctly make a notation of any payment made on this Note shall
not limit or otherwise affect the obligation of Borrower under this Note with
respect to any loan evidenced hereby or payments of principal or interest on
this Note.
THIS NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND SHALL BE
GOVERNED BY, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICT OF
LAW PRINCIPLES THEREOF.
Borrower hereby waives diligence, presentment, protest, demand and notice
of every kind and, to the full extent permitted by law, the right to plead any
statue of limitations as a defense to any demand hereunder.
Wherever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note and shall be interpreted so as to be effective and valid.
The holder of this Note shall have the right at any time to sell, assign,
transfer, negotiate or pledge (collectively, "transfer") all or any part of his
interest in this Note.
A-2
<PAGE>
This Note is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein and therein, and Lender has made no representations, warranties
or covenants that are not located herein or therein. This note supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
A-3
<PAGE>
IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the
day and year first above written.
CHS ELECTRONICS, INC.
a Florida corporation
By:
-----------------------------------
Name: Claudio Osorio
Title: President
A-4
<PAGE>
TRANSACTIONS ON
PROMISSORY NOTE
Amount of Amount of Outstanding
Principal Interest Principal
Paid This Paid This Balance Notation
Date Date Date This Date Made By
- ---- ---- ---- --------- -------
A-5
<PAGE>
ANNEX B
EXCLUDED CLAIMS
1. Payment of $42,000 owed by CHS to the Sellers for the provision by the
Sellers for the period ending December, 1996 to CHS and/or its affiliates
of the use of the CAMBAR System.
2. Payment of amounts due from time to time, by CHS to Merisel Americas, Inc.
under the Agreement entered into between Merisel Americas, Inc. and Merisel
Latin America, Inc. dated as of October 4, 1996 (the "Fulfillment
Agreement") which Fulfillment Agreement shall continue in full force and
effect pursuant to the terms thereof until February 28, 1997, at which time
the Fulfillment Agreement shall terminate.
3. Payment of $1,255,660 owed by Merisel Americas, Inc. to CHS for Novell
computer products purchased by Merisel Americas, Inc. from an affiliate of
CHS, such payment to be made in accordance with the terms and conditions
under which the products were originally sold (such amount to be adjusted up
to a maximum of $1,350,840 upon CHS providing proof of delivery to Merisel
Americas, Inc. of additional product).
4. Payment by Merisel to CHS of $8,494 for notarial services provided.
5. Claims brought in good faith and alleged in reasonable detail under Section
6.4(d) of the Purchase Agreement prior to June 30, 1997, to the extent
Damages arising from such claims exceed $5,000,000 (recovery on Damages
shall be limited to such excess). In any Claim brought under this paragraph,
the prevailing party shall be entitled to attorneys' fees from the losing
party.
6. Each party and their respective affiliates shall be required to comply with
the duties and obligations set forth in Section 6.11(d) of the Purchase
Agreement.
7. Bonuses totaling approximately $150,000 due March 27, 1997 from Merisel to
the following persons: Clifford Dyer, Gladys Dyer, Michael Dyer, Dorian
Dyer, Elvira Eceto, Ralph Falkenburg, Josephine Jugo, Alexandria Pena, Isaac
Menasce, Norman Huszar and Maria Prats.
B-1
<PAGE>
MERISEL, INC. SALE TO CHS ELECTRONICS
SUMMARY OF PURCHASE PRICE ALLOCATION
AMOUNTS IN US$
STOCK DEBT OTHER TOTAL
----- ---- ----- -----
Merisel (UK) Limited 1 14,852,081 14,852,082
Securitization 0 0 26,252,175 26,252,175
Merisel France, Inc. 1 19,942,402 19,942,403
MIFINCO, Inc. 1 1
Merisel GmbH 11,836,493 23,222,144 35,058,637
Merisel GesmbH 1 4,431,749 4,431,750
Merisel Netherlands B.V. 1 6,563,930 6,563,931
Europe fixed assets 530,000 530,000
---------- ---------- ---------- -----------
EUROPE 11,836,498 69,012,306 26,782,175 107,630,979
========== ========== ========== ===========
Mexico 12,108,899 0 0 12,108,899
Latin America 8,336,922 19,554,179 27,891,101
---------- ---------- ---------- -----------
LATIN/MEXICO 20,445,821 19,554,179 0 40,000,000
========== ========== ========== ===========
TOTAL 32,282,319 88,566,485 26,782,175 147,630,979
EXHIBIT 10.36
AGREEMENT
THIS AGREEMENT is made as of the 31st day of October, 1996, by and
between CHS ELECTRONICS, INC., a Florida corporation, with its principal office
at 2153 N.W. 86th Avenue, Miami, Florida 33122 ("CHS") and COMTRAD, INC., a
Florida corporation, with its principal office at 3620 N.E. Miami Place, Miami,
Florida 33137 ("Comtrad").
RECITALS:
A. CHS, Comtrad and Comtrad Holdings, Inc. are parties to a Stock
Purchase Agreement dated as of March 27, 1996 (the "Stock Purchase Agreement")
pursuant to which CHS purchased from Comtrad the issued and outstanding shares
of CHS Romania s.r.l., a company formed under the laws of the country of Romania
("Romania").
B. Pursuant to the Stock Purchase Agreement, Comtrad made various
representations and warranties with respect to Romania.
C. Pursuant to Section 5.01 of the Stock Purchase Agreement, the
representations and warranties of Comtrad with respect to Romania survived the
signing and delivery of the Purchase and Sale Agreement for a period of three
years and, pursuant to said Section, Comtrad agreed to indemnify CHS from and
against the entirety of any Adverse Consequences (as said term is defined
therein) that CHS might suffer resulting from a breach of any of the foregoing
representations and warranties.
D. CHS has advised Comtrad of such a breach and has made a claim
for indemnification pursuant to the Purchase and Sale Agreement.
E. The parties desire to resolve any disputes which may have arisen
with respect to said claims.
NOW, THEREFORE, the parties hereto agree as follows:
1. Contemporaneously with the execution of this Agreement, CHS shall
deliver, free and clear of any liens or encumbrances, stock certificates
representing all of the issued and outstanding shares of Romania. Such
certificates shall be accompanied by stock powers duly endorsed in blank.
2. Contemporaneously with the execution of this Agreement, Comtrad
shall pay to CHS the amount of Three Hundred Seventy-Five Thousand Dollars
($375,000) representing the portion of the total purchase price paid by CHS to
Comtrad under the Agreement allocated to the purchase of Romania. In addition,
contemporaneously with the execution of this Agreement, Comtrad shall pay to CHS
the amount of One Hundred Forty-Eight Thousand Dollars ($148,000), said amount
representing the losses incurred by Romania from the date of the Stock Purchase
Agreement through October 31, 1996 (A) increased by the amount of any funds
advanced by loan or investment by CHS to Romania and (B) decreased by the amount
of (i) any
<PAGE>
loans or advances from Romania to CHS and (ii) any dividends or other
distributions with respect to the capital stock.
3. The parties acknowledge that it remains their intent to transfer
ownership of Romania to CHS and Comtrad therefore agrees that it shall use its
best efforts to resolve all matters with respect to which CHS has made claim for
indemnification and that immediately upon resolution of the same, it will notify
CHS. The parties further agree that CHS is hereby granted, until October 31,
1998, the right to purchase all of the issued and outstanding shares of Romania,
free and clear of any claims, charges, equities, liens, security interests and
encumbrances whatsoever, at a price of Three Hundred Seventy-Five Thousand
Dollars ($375,000). Comtrad further agrees that from and after the date of this
Agreement, it shall not convey ownership of any equity interest in Romania to
any person nor shall it grant to any person the right to obtain any such
interest. Comtrad further agrees to cause Romania to maintain its rights and
properties intact, subject only to the right of sale of goods and services in
the ordinary course of business and to the obligation of Comtrad to correct the
matters as to which CHS has made claim for indemnification. Comtrad agrees that
in the event that CHS exercises the option to purchase the shares of Romania,
said transfer will be subject to appropriate documentation including, but not
limited to, the representations and warranties with respect to Romania made in
Article II of the Stock Purchase Agreement updated, mutatis mutandis, through
the date of the purchase.
4. BROKERS. The parties agree that there were no finders or brokers
involved in bringing the parties together or who were instrumental in the
negotiation, execution or consummation of this Agreement. The parties each agree
to indemnify the other against any claim by any person for any commission,
brokerage or finders' fee arising from the transactions contemplated hereby
based on any alleged agreement or understanding between the indemnifying party
and such person, whether express or implied from the actions of the indemnifying
party.
5. GOVERNING LAW. This Agreement shall be governed by, enforced and
construed under and in accordance with the laws of the United States of America
and, with respect to matters of state law, with the laws of Florida.
6. NOTICES. Any notices or other communications required or permitted
hereunder shall be sufficiently given if personally delivered to the party, or
sent to the party by recognized overnight delivery service.
7. ATTORNEYS' FEES. In the event that any party institutes any action
or suit to enforce this Agreement or to secure relief from any default hereunder
or breach hereto, the non-prevailing party shall reimburse the prevailing party
for all costs, including attorneys' fees, incurred by the prevailing party in
connection therewith and in enforcing or collecting any judgment rendered
therein.
8. THIRD PARTY BENEFICIARIES. This Agreement is solely between the
parties hereto and, except as specifically provided, no director, officer,
stockholder, employee, agent, independent contractor, or any other person shall
be deemed to be a third party beneficiary of this Agreement.
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<PAGE>
9. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties relating to the subject matter hereof. This Agreement fully
and completely expresses the agreement of the parties. There are no other
courses of dealing, understandings, agreements, representations, or warranties,
written or oral, except as set forth herein.
10. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
11. AMENDMENT OR WAIVER. Every right and remedy provided herein
shall be cumulative with ever other right and remedy, whether conferred herein,
at law, or inequity, and may be enforced concurrently herewith and no waiver by
any party of the performance of any obligation by the other party shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers hereunto duly authorized, as of the date first above
written.
CHS ELECTRONICS, INC.
By /S/ CRAIG TOLL
--------------------------
COMTRAD, INC.
By /S/ ANTONIO BOCCALANDRO
--------------------------
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EXHIBIT 10.37
STOCK EXCHANGE AGREEMENT
FRANK & WALTER COMPUTER GMBH
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
1. EXCHANGE OF SHARES..................................................2
2. ADDITIONAL AGREEMENTS...............................................3
3. REPRESENTATIONS, COVENANTS AND WARRANTIES OF FRANK..................6
4. REPRESENTATIONS AND WARRANTIES OF CHS..............................14
5. CONDUCT OF BUSINESS PENDING CLOSING................................18
6. CONDITIONS TO OBLIGATIONS OF ALL PARTIES...........................19
7. CONDITIONS TO OBLIGATIONS OF CHS...................................20
8. CONDITIONS TO OBLIGATIONS OF FRANK.................................21
9. INDEMNITY..........................................................22
10. TERMINATION........................................................26
11. MISCELLANEOUS......................................................27
<PAGE>
STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT (the "Agreement") is entered into this
19th day of December, 1996, by and between CHS ELECTRONICS, INC., a Florida
corporation ("CHS"), and MR. CARSTEN FRANK ("Frank").
RECITALS
A. FRANK & WALTER Computer GmbH (the "Company" or "F&W"), a German
limited liability company, is entered in the Register of Companies at the
Braunschweig Local Court under the number HRB 2417. The nominal capital of F&W
is currently DM 17,000,000 (17,000,000 million German marks) (the "F&W
Capital"), divided into eleven shares (the "F&W Shares") with the denominations
set forth in Exhibit "A" hereto. Carsten Frank owns all (100%) of the F&W
Shares.
B. F&W owns interests in the following corporations (each a
"Subsidiary", and collectively the "Subsidiaries"):
- Morse Handels- und Produktions GmbH, entered in the Register
of Companies at the Braunschweig Local Court under HRB 3243
("MHP");
- M&M Marketing and Media GmbH, entered in the Register of
Companies at the Braunschweig Local Court under HRB 3570
("M&M"); and
- Success Management Software GmbH, entered in the Register of
Companies at the Braunschweig Local Court under HRB 2932
("SMS").
F&W owns 100% of the nominal capital of MHP, 80% of the nominal capital of M&M
and 60% of the nominal capital of SMS.
C. F&W has sold its interests in: (i) Micro Computer DOS GmbH, entered
in the Register of Companies at the Bruhl Local Court under HRB 1628 ("MC DOS");
and (ii) Barthels, Kather und Frank, a real estate partnership under the Civil
Code ("BKF"). F&W holds as trustee 50% of the nominal capital of MC DOS. F&W
also holds as trustee a 50% interest in BKF.
D. F&W is engaged in the development, production, acquisition, sales,
and distribution of hardware and software, office equipment, technical equipment
and components of all kinds, plus all related activities, including activities
such as technical and business consultancy services (collectively, the
"Business").
<PAGE>
E. CHS has an authorized capital consisting of 5,000,000 shares of
Preferred Stock, none of which are issued or outstanding and 100,000,000 shares
of Common Stock, par value $.001 per share (the "CHS Common Stock"), 12,174,073
of which were issued and outstanding on June 30, 1996.
F. Frank desires to transfer to CHS all his F&W Shares, in exchange for
shares of CHS Common Stock to be issued by CHS to Frank (the "Share Exchange"),
all on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual premises herein set
forth and certain other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. EXCHANGE OF SHARES.
1.1 SHARE EXCHANGE. With effect as of the Closing Date (as
defined below), and subject to the conditions set forth herein, Frank hereby
sells and transfers to CHS all of the F&W Shares, which CHS shall accept, in
exchange for 2,200,000 shares of CHS Common Stock (the "CHS Shares") to be
issued by CHS to Frank; PROVIDED, HOWEVER, that the number of CHS Shares to be
issued to Frank is subject to adjustment as required to reflect any change in
the CHS Shares by way of stock split, stock dividend, combination,
recapitalization or similar transaction occurring between the date hereof and
the Closing Date. CHS shall issue and deliver the CHS Shares to Frank
simultaneously with the transfer of the F&W Shares. In addition, as additional
consideration for the F&W Shares, CHS shall pay $10,000 in cash to Frank at
Closing.
1.2 TRANSACTIONS AND DOCUMENTS AT CLOSING. At the Closing (as
defined below), in addition to the other actions and deliveries required under
other provisions hereof,(i) CHS shall cause stock certificates representing the
CHS Shares to be duly issued and delivered to Frank; and (ii) the notary
recording this Agreement shall not provide the parties with an official copy
thereof until presentation of the following: (1) a letter from the German
Federal Cartel Office approving the Share Exchange; (2) a letter from the U.S.
Federal Trade Commission acknowledging early termination of the HSR Act (as
defined below) waiting period or a joint letter from the parties acknowledging
expiration thereof; (3) a certificate of Frank acknowledging fulfillment and
satisfaction of the conditions specified in Sections 6 and 8; (4) a certificate
of CHS acknowledging fulfillment and satisfaction of the conditions
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<PAGE>
specified in Sections 6 and 7; and (5) stock certificates representing the CHS
Shares. Upon presentation of items (1) through (5) above, the notary shall: (A)
attach copies of the foregoing documents as exhibits to this recorded Agreement,
which serves as part of the notarial deed; (B) provide the parties with an
official copy of the notarial deed, which shall transfer the F&W Shares to CHS;
and (C) deliver the stock certificates representing the CHS Shares to Frank.
1.3 CLOSING. Upon the satisfaction of the conditions precedent
set forth in Sections 2, 6, 7 and 8 hereof, the Share Exchange and the other
transactions contemplated hereby shall be consummated by the parties to this
Agreement (the "Closing"). The date of Closing is referred to herein as the
"Closing Date." If the Closing is consummated, then all profits earned by F&W,
and all losses incurred by F&W in the ordinary course of business, from and
after January 1, 1997, shall inure to the benefit or detriment of CHS; provided,
nothing contained in this Section 1.3 shall release Frank from his
representations, warranties or covenants hereunder or his obligations to
indemnify CHS under Article 9.
1.4 CAPITAL CONTRIBUTION BY CHS. Immediately after Closing,
CHS shall pay, without right of offset, the sum of DM 8,500,000 to F&W, in cash
(the "CHS Contribution"), as a capital contribution.
2. ADDITIONAL AGREEMENTS.
2.1 MERGER CONTROL.
2.1.1 Notwithstanding anything to the contrary
contained herein, because the Share Exchange is subject to preventative merger
control (prior approval) according to section 24a, paragraph 1, GWB, and the HSR
Act, it shall be a condition precedent to the parties' obligations to complete
the Share Exchange that: (i) the Federal Cartel Office has made an announcement
approving the Share Exchange pursuant to section 24a, paragraph 4, GWB, or that
the planned Share Exchange cannot be prohibited in accordance with section 24a,
paragraph 2, GWB; and (ii) the FTC or Justice Department (as defined below) has
made an early termination of the waiting period or allowed the waiting period to
expire.
2.1.2 The parties shall promptly prepare and file
the appropriate Federal Cartel Office application forms (the "Application").
Each party shall furnish to the other copies of its Application prior to filing,
shall allow the other party reasonable opportunity to comment thereon, and shall
promptly notify the other party of any request by the Federal Cartel Office
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<PAGE>
or other regulatory authority for additional information with respect to such
filings. The parties shall cooperate in responding promptly to any such request.
Such filings shall conform to the requirements of law applicable to the filing
party.
2.1.3 The parties shall promptly prepare and file
with the Federal Trade Commission ("FTC") and with the United States Department
of Justice ("Justice Department"), the Notification and Report Form required
with respect to the transactions contemplated hereby under the provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). The
parties shall each furnish to the other copies of the Notification and Report
Form, and shall each promptly notify the other party to this Agreement of any
request by the FTC or Justice Department for additional information with respect
to such filings. The parties shall cooperate in responding promptly to any such
request. Such filings shall conform to the requirements of the HSR Act and the
rules promulgated thereunder applicable to the filing party.
2.1.4 If there are indications that the Share
Exchange is threatened with prohibition by the aforesaid authorities, the
parties shall immediately contact each other and shall use their best efforts to
remove the items standing in the way of the Share Exchange, so long as such
removal does not adversely affect, or impose conditions on, the business of CHS
or F&W.
2.2 U.S. SECURITIES LAWS.
2.2.1 The issuance of CHS Common Stock to Frank
hereunder shall not be registered under the U.S. Securities Act of 1933 (the
"1933 Act") by reason of the exemption provided by Section 4(2) thereunder; and
such shares may not be further transferred unless such transfer is registered
under applicable securities laws or, in the reasonable opinion of CHS's counsel,
such transfer qualifies for an exemption from such registration. The
certificates evidencing the CHS shares to be transferred to Frank shall be
legended to reflect the foregoing restriction.
2.2.2 Frank has received and reviewed copies of
the following disclosure documents (collectively, the "SEC Documents") filed by
CHS with the SEC: (1) Quarterly Report on Form 10-Q for the nine month and
quarterly periods ended September 30, 1996 (the "10-Q Report"); (2) Information
Statements mailed to shareholders in connection with the shareholders meeting
held on June 28, 1996 (the "Information Statement"); (3) Annual Report and 10-K
Report for the year ended December 31, 1995 (the "10-K Report"); and (4)
Prospectus, dated June 7, 1996, relating to the sale of up to
-4-
<PAGE>
5,500,000 shares of CHS Common Stock (the "Prospectus"); and (5) the 8-K Report
and the 8-KA Report filed with the SEC relating to the Merisel Acquisition (as
defined below).
2.3 ACCESS AND INSPECTION, ETC. The parties have allowed and
shall allow each other and their authorized representatives full access during
normal business hours from and after the date hereof and prior to the Closing
Date to all of the properties, books, contracts, commitments and records of F&W
and CHS for the purpose of making such investigations as they may reasonably
request in connection with the transactions contemplated hereby, and shall
furnish CHS and Frank (as appropriate) such information as such party may
reasonably request.
2.4 CONFIDENTIAL TREATMENT OF INFORMATION. From and after the
date hereof, the parties hereto shall and shall cause their representatives to
hold in confidence this Agreement (including the Schedules hereto), all matters
relating hereto and all data and information obtained with respect to the other
parties or their business, and not use this Agreement (including the Schedules
hereto) or such data or information or disclose the same to others (excluding
the parties' lawyers and auditors), except such data or information as is
published or is a matter of public record, or as compelled by legal process. In
the event this Agreement is terminated pursuant to Section 10 hereof, each party
shall promptly return to the other(s) any statements, documents, schedules,
exhibits or other written information obtained from them in connection with this
Agreement, and shall not retain any copies thereof.
2.5 PUBLIC ANNOUNCEMENTS. The parties will consult with each
other before issuing any press releases or otherwise making any public statement
with respect to this Agreement or any of the transactions contemplated hereby
and no party will issue any such press release or make any such public statement
without the prior written consent of the other parties, except as may be
required by law or by the rules and regulations of any governmental authority or
securities exchange.
2.6 EMPLOYMENT AGREEMENT. On the date hereof, but effective
only upon consummation of the Closing, Frank shall enter into an employment
agreement with CHS in the form of Schedule 2.6 hereto (the "Employment
Agreement"). The Employment Agreement will be amended prior to Closing as
necessary to provide Frank pension, disability and death benefits similar to
those provided in his contract with F&W dated March 24, 1994 and listed in
Schedule 3.17. At Closing, the Employment Agreement, as so amended, shall
replace and supersede all existing employment, benefit and similar contracts
between Frank and F&W. So long as Frank's employment
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<PAGE>
under the Employment Agreement has not been terminated, CHS shall not use its
position, as shareholder of F&W, to remove Frank as Geschaftsfuhrer of F&W.
2.7 MC DOS; BKF. Upon payment of the purchase price due to F&W
for MC DOS and BKF, F&W shall transfer any and all of its remaining interest (as
trustee or otherwise) in MC DOS and BKF to the buyer of MC DOS and BKF.
2.8 RELEASE OF FRANK GUARANTEE. CHS shall use its best efforts
to cause the banks listed in Schedule 2.8 to release Frank, at Closing, from his
personal guarantee of the loans payable to such banks. If the banks do not
release Frank as contemplated hereby, and F&W defaults on any of the bank loans
after Closing, CHS shall indemnify Frank for any amounts Frank is required to
pay such banks on account of their loans to F&W.
3. REPRESENTATIONS, COVENANTS AND WARRANTIES OF FRANK.
To induce CHS to enter into this Agreement and to consummate
the Share Exchange, Frank represents and warrants to and covenants with CHS
that:
3.1 ORGANIZATION; COMPLIANCE. F&W and each Subsidiary are
limited liability companies, validly existing and in good standing under the
laws of Germany. F&W and each Subsidiary is: (i) entitled to own or lease its
properties and to carry on its business as and in the places where such business
is now conducted; and (ii) duly licensed in all jurisdictions where the
character of the property owned by it or the nature of the business transacted
by it makes such license necessary. Schedule 3.1 lists all locations where F&W
or any Subsidiary has an office or place of business (the "Branch Locations")
and the nature of the ownership interest in such property (fee, lease, or
other).
3.2 CAPITALIZATION AND RELATED MATTERS.
3.2.1 F&W has a nominal capital consisting of
DM 17,000,000, as described in the recitals of this Agreement (the "F&W
Capital"). All of the F&W Capital, and all of the Subsidiary Capital (defined in
Section 3.3), is fully paid, properly registered and is not subject to any
further payment obligations, and none of the shares of F&W or any Subsidiary was
acquired by Frank or F&W (as the case may be) in violation of the preemptive
rights of any person.
3.2.2 There are not outstanding any securities
convertible into shares, capital of, or ownership interests in, F&W
or any Subsidiary nor any rights to subscribe for or to purchase,
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<PAGE>
or any options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, any such shares, capital or ownership interests. Neither
F&W nor any Subsidiary is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any of its shares or capital.
3.2.3 Frank: (i) owns and will transfer to CHS
at Closing 100% of the shares, capital or other ownership interest in F&W, free
and clear of all claims, liens, options, agreements, usufructuary rights,
restrictions, and encumbrances whatsoever; and (ii) is not a party to any
agreement, understanding or arrangement, direct or indirect (including without
limitation any marriage or pre-nuptial contract), relating to the shares or
capital of, or ownership interests in, F&W, including without limitation,
agreements, understandings or arrangements regarding voting or sale thereof. A
written approval of this Agreement and the transactions contemplated hereby,
signed by Frank's wife, is set forth in Schedule 3.2.
3.3 SUBSIDIARIES. Except as otherwise described in Schedule
3.3, F&W: (i) owns the shares, capital and other ownership interest in each
Subsidiary, in the amounts shown on Schedule 3.3, free and clear of all claims,
liens, options, agreements, restrictions, and encumbrances whatsoever; and (ii)
is not a party to any agreement, understanding or arrangement, direct or
indirect, relating to the shares or capital of, or ownership interests in, any
Subsidiary, including without limitation, agreements, understandings, or
arrangements regarding voting or sale thereof. Except for the Subsidiaries, BKF
and MC DOS, F&W owns: (A) no capital or shares of capital stock of any other
corporation, including any joint stock company, and (B) no other proprietary
interest in any company, partnership, trust or other entity. Schedule 3.3
contains a description of: (x) the nominal capital of each Subsidiary (the
"Subsidiary Capital"); and (y) the business of each Subsidiary.
3.4 EXECUTION; NO INCONSISTENT AGREEMENTS; ETC. This Agreement
is a valid and binding agreement of Frank, enforceable in accordance with its
terms, except as such enforcement may be limited by bankruptcy or similar laws
affecting the enforcement of creditors' rights generally, and the availability
of equitable remedies. Except as described in Schedule 3.4, the execution and
delivery of this Agreement by Frank does not, and the consummation of the
transactions contemplated hereby will not, constitute: (i) a breach or violation
of the articles of association or by-laws (if any) of F&W or any Subsidiary;
(ii) a violation of any law, regulation, judgment, order, License (hereinafter
defined) or
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<PAGE>
decree applicable to Frank, F&W or any Subsidiary; or (iii) a default under any
of the terms, conditions or provisions of (or an act or omission that would give
rise to any right of termination, cancellation or acceleration under) any
material note, bond, mortgage, lease, indenture, agreement or obligation to
which F&W, any Subsidiary, or Frank is a party, pursuant to which F&W or any
Subsidiary otherwise receives benefits, or to which any of the properties of F&W
or any Subsidiary is subject.
3.5 FINANCIAL STATEMENTS.
(a) Frank has delivered to CHS the audited
consolidated Balance Sheets of F&W as of December 31, 1995 and 1994, and the
audited Statements of Income and Cash Flows for the two fiscal years ended
December 31, 1995, in draft form (the "Audited Financial Statements"), the
unaudited Balance Sheet of F&W as of July 31, 1996, and the unaudited Statements
of Income and Cash Flows for the seven months ended July 31, 1996. The Balance
Sheet of F&W as of July 31, 1996 is hereinafter referred to as the "1996 F&W
Balance Sheet". At least 10 days prior to Closing, Frank shall deliver final
Audited Financial Statements, certified by F&W's independent auditors, and such
statements shall not differ materially, in form or substance, from the draft
Audited Financial Statements delivered prior to the date hereof. The financial
statements described in this subsection (a), and any financial statements to be
delivered under subsection (c) below, are referred to collectively as the "F&W
Financial Statements".
(b) Except as described in Schedule 3.5, the
F&W Financial Statements have been and will be prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"), applied on a consistent
basis, and fairly reflect in all material respects the financial condition of
F&W and each Subsidiary as at the dates thereof and the results of the
operations of F&W and each Subsidiary for the periods then ended; except that
the unaudited financial statements are subject to normal year-end adjustments
which are not expected to be material in amount or effect, and do not contain
all the disclosures required by GAAP.
(c) Until Closing, Frank will furnish to CHS
unaudited interim financial statements of F&W and each Subsidiary for each month
subsequent to July 1996, as soon as practicable but in any event within thirty
(30) days after the close of each such month.
3.6 LIABILITIES. Except as disclosed in Schedule 3.6, neither
F&W nor any Subsidiary has any material debt, liability or obligation of any
kind, whether accrued, absolute, contingent or otherwise, except: (i) those
reflected on the 1996 F&W Balance
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<PAGE>
Sheet, including the notes thereto, and (ii) liabilities incurred in the
ordinary course of business since July 31, 1996, none of which have had or will
have a material adverse effect on the financial condition of F&W or such
Subsidiary.
3.7 ABSENCE OF CHANGES. Except as described in Schedule 3.7,
from July 31, 1996 to the date of this Agreement: (i) there has not been any
adverse change in the business, assets, liabilities, results of operation,
prospects or financial condition of F&W or any Subsidiary or in their
relationships with suppliers, customers, employees, lessors or others, other
than changes in the ordinary course of business, none of which, singularly or in
the aggregate, have had or will have a material adverse effect on the business,
properties or financial condition of F&W and its Subsidiaries taken as a whole;
and (ii) the business of F&W and each Subsidiary has been operated in the
ordinary course, consistent with past practice, and in accordance with the
covenants and limitations set forth in Section 5.1, as if such covenants and
limitations had been binding since July 31, 1996.
3.8 TITLE TO PROPERTIES. F&W and each Subsidiary have good and
marketable title to all of their properties and assets, real and personal,
including, but not limited to, those reflected in the 1996 F&W Balance Sheet
(except as since sold or otherwise disposed of in the ordinary course of
business, or as expressly provided for in this Agreement), free and clear of all
encumbrances, liens or charges of any kind or character except: (a) those
securing liabilities of F&W or any Subsidiary incurred in the ordinary course
(with respect to which no material default exists); (b) liens of 1996 real
estate and personal property taxes; and (c) imperfections of title and
encumbrances, if any, which, in the aggregate (i) are not substantial in amount,
(ii) do not detract from the value of the property subject thereto or impair the
operations of F&W or any Subsidiary, and (iii) do not have a material adverse
effect on the business, properties or assets of F&W or any Subsidiary.
3.9 COMPLIANCE WITH LAW. The business and activities of F&W
and each Subsidiary have at all times been conducted in accordance with its
articles of association and any applicable law, regulation, ordinance, order,
License, permit, rule, injunction or other restriction or ruling of any court or
administrative or governmental agency, ministry, or body, except where the
failure to do so would not result in a material adverse effect on F&W and the
Subsidiaries, taken as a whole.
3.10 TAXES. F&W and each Subsidiary have duly filed all
material federal, state, local and foreign tax returns and reports, and all
returns and reports of all other governmental units having
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<PAGE>
jurisdiction with respect to taxes (including, without limitation, income tax or
VAT) imposed on them or on their income, properties, sales, franchises,
operations or employee benefit plans or trusts, all such returns were complete
and accurate when filed, and all taxes and assessments payable by F&W and by
each Subsidiary have been paid to the extent that such taxes have become due.
Except as described in Schedule 3.10, all taxes accrued or payable by F&W and by
each Subsidiary for all periods through July 31, 1996 have been paid in full, or
accrued and reflected in the F&W Financial Statements, whether or not due and
payable and whether or not disputed. F&W and each Subsidiary have withheld
proper and accurate amounts from their employees for all periods in full
compliance with the tax withholding provisions of applicable foreign, federal,
state and local tax law. Except as set forth in Schedule 3.10, there are not now
any examinations of the income tax returns of F&W or any Subsidiary pending, or
to the best of Frank's knowledge, any proposed deficiencies or assessments
against F&W or any Subsidiary of additional taxes of any kind. Frank shall cause
F&W and each Subsidiary to duly and timely prepare and file all returns and
reports (which are due prior to the Closing Date) of all governmental units
having jurisdiction with respect to taxes (including, without limitation, income
tax or VAT) imposed on F&W or any Subsidiary or on their income, properties,
sales, franchises, operations or employee benefit plans or trusts, and all such
returns will be complete and accurate when filed.
3.11 REAL PROPERTIES. The real property owned by F&W and each
of its Subsidiaries (collectively the "Real Property") is listed on Schedule
3.11. Correct legal descriptions of each tract and building comprising the Real
Property have been delivered to CHS. The Real Property is free from any use or
occupancy restrictions, except those imposed by applicable zoning laws,
ordinances and regulations, and from all special taxes or assessments, except
those generally applicable to other properties in the tax districts in which the
Real Property is located. No options have been granted to others to purchase or
rent any interest in the Real Property, or any part thereof. F&W and its
Subsidiaries have the exclusive right of possession of each tract or building
comprising the Real Property. Neither F&W nor any Subsidiary has caused any work
or improvements to be performed upon or made to any of the Real Property for
which there remains outstanding any material payment obligation that would or
might serve as the basis for any lien.
3.12 LEASES OF REAL PROPERTY. All leases pursuant to which F&W
or any Subsidiary is lessee or lessor of any real property (the "F&W Leases")
are listed in Schedule 3.12 and are valid and enforceable in accordance with
their terms; there is not under any of such leases any material default or any
claimed
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material default by F&W or any Subsidiary or any event of default or event which
with notice or lapse of time, or both, would constitute a material default by
F&W or by any Subsidiary and in respect to which F&W or any Subsidiary has not
taken adequate steps to prevent a default on its part from occurring. The copies
of the F&W Leases heretofore furnished to CHS are true, correct and complete,
and such Leases have not been modified in any respect since the date they were
so furnished, and are in full force and effect in accordance with their terms.
F&W and each Subsidiary are lawfully in possession of all real properties of
which they are a lessee.
3.13 CONTINGENCIES. Except as disclosed in Schedule 3.13,
there are no actions, suits, claims or proceedings pending or, to the knowledge
of Frank, threatened against, by or affecting, F&W or any Subsidiary in any
court or before any arbitrator or governmental agency that may have a material
adverse effect on F&W or any Subsidiary or which could materially and adversely
affect the right or ability of Frank to consummate the transactions contemplated
hereby. To the knowledge of Frank, there is no valid basis upon which any such
action, suit, claim or proceeding may be commenced or asserted against F&W or
any Subsidiary.
3.14 MATERIAL CONTRACTS. Schedule 3.14 contains a complete
list of all contracts of F&W and each Subsidiary which involve consideration in
excess of the equivalent of $100,000 or have a term of one year or more. Frank
has delivered to CHS a true, correct and complete copy of each of the written
contracts, and a summary of each oral contract, listed on Schedule 3.14. Except
as disclosed in Schedule 3.14: (i) F&W and each Subsidiary have performed all
material obligations to be performed by it under all such contracts, and is not
in material default thereof, and (ii) no condition exists or has occurred which
with the giving of notice or the lapse of time, or both, would constitute a
material default by F&W or any Subsidiary or accelerate the maturity of, or
otherwise modify, any such contract, and (iii) all such contracts are in full
force and effect. No material default by any other party to any of such
contracts is known or claimed by F&W or any Subsidiary to exist.
3.15 INSURANCE. Schedule 3.15 contains a complete list of all
policies of insurance presently maintained by F&W or any Subsidiary, all of
which are, and will be maintained through the Closing Date, in full force and
effect; and all premiums due thereon have been paid and F&W and each Subsidiary
have not received any notice of cancellation with respect thereto. F&W and each
Subsidiary have heretofore delivered to CHS or its representatives a true,
correct and complete copy of each such insurance policy.
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3.16 EMPLOYMENT AND LABOR MATTERS. Schedule 3.16 lists each
employee of F&W and each Subsidiary whose aggregate compensation (including
commission and bonus) for 1996 is expected to exceed $100,000, and sets forth
the compensation payable to each of them in 1996. Except as set forth in
Schedule 3.16, neither F&W nor any Subsidiary is a party to any collective
bargaining agreement (whether industry wide or on a company level) or agreement
of any kind with any union or labor organization. There has not been any attempt
by any union or other labor organization to organize any of F&W's or any
Subsidiary's employees at any time in the past five (5) years.
3.17 EMPLOYEE BENEFIT MATTERS.
(a) Except as disclosed in Schedule 3.17,
neither F&W nor any Subsidiary provides, nor is it obligated to provide,
directly or indirectly, any benefits for employees other than salaries, sales
commissions and bonuses, including any pension, profit sharing, stock option,
retirement, bonus, hospitalization, insurance, severance, vacation or other
employee benefits (including any housing or social fund contributions) under any
practice, agreement or understanding.
(b) Each employee benefit plan maintained by
or on behalf of F&W or any Subsidiary or any other party (including any
terminated pension plans) which covers or covered any employees or former
employees of F&W or any Subsidiary ("Employee Benefit Plan") is listed in
Schedule 3.17. F&W and each Subsidiary have delivered to CHS true and complete
copies of all such plans and any related documents. With respect to each such
plan: (i) no litigation, administrative or other proceeding or claim is pending,
threatened, or anticipated involving such plan; (ii) there are no outstanding
requests for information by participants or beneficiaries of such plan; and
(iii) such plan has been administered in compliance in all material respects
with all applicable laws and regulations.
(c) F&W and each Subsidiary have timely made
payment in full of all contributions to all of the Employee Benefit Plans which
F&W or any Subsidiary was obligated to make prior to the date hereof; and there
are no contributions declared or payable by F&W or any Subsidiary to any
Employee Benefit Plan which, as of the date hereof, have not been paid in full.
(d) F&W and each Subsidiary have complied
with all obligations with respect to any housing or social funds established by
F&W or any Subsidiary or required by law.
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3.18 POSSESSION OF FRANCHISES, LICENSES, ETC. Except as
described in Schedule 3.18, F&W and each Subsidiary: (i) possess all material
franchises, certificates, licenses, permits and other authorizations
(hereinafter collectively referred to as "Licenses") from governmental
authorities, political subdivisions or regulatory authorities that are necessary
for the ownership, maintenance and operation of its business in the manner
presently conducted; (ii) are not in violation of any provisions thereof; and
(iii) have maintained and amended, as necessary, all material Licenses and duly
completed all filings and notifications in connection therewith.
3.19 ENVIRONMENTAL MATTERS. Except as disclosed in Schedule
3.19: (i) neither F&W nor any Subsidiary is in violation, in any material
respect, of any law, regulation, order, permit, License or decree regulating
emissions into the environment and the proper disposal of materials; (ii) F&W
and each Subsidiary have received all permits and approvals with respect to
emissions into the environment and the proper collection, storage, transport,
distribution or disposal of materials required for the operation of its business
at present operating levels; and (iii) neither F&W nor any Subsidiary is liable
or responsible for any material clean up, fines, liability or expense arising
under any environmental law, regulation or order as a result of the disposal of
wastes or other materials in or on the property of F&W or any Subsidiary
(whether owned or leased), or in or on any other property, including property no
longer owned, leased or used by F&W or any Subsidiary.
3.20 AGREEMENTS AND TRANSACTIONS WITH RELATED PARTIES. Except
as set forth in Schedule 3.20, neither F&W nor any Subsidiary is, or since
December 31, 1994 has been, a party to any contract, loan, agreement, lease or
transaction, or any other commitment, which would be required to be disclosed by
F&W, pursuant to Item 404 of Regulation S-K, promulgated by the SEC (17 C.F.R.
section 229.404) ("Item 404"), assuming F&W were an issuer registered with the
SEC pursuant to Section 12(g) of the Securities Exchange Act of 1934.
3.21 AUTHORITY TO CONDUCT BUSINESS; INTELLECTUAL PROPERTY
RIGHTS. F&W and its Subsidiaries have the means and rights to sell, offer for
sale and use the items and perform the services now being offered for sale,
sold, used or performed by them, without incurring any liability for license
fees or royalties or any claims of infringement of patents, trade secrets,
copyrights, trademark or service mark rights. Except as set forth in Schedule
3.21, neither F&W nor any of its Subsidiaries is a party, either as licensor or
licensee, to any license agreement for any patent, process, trade secret,
software, trademark, service mark, trade name or copyright. All patents,
copyrights,
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trademarks, service marks, trade names, and applications therefor or
registrations thereof, owned or used by F&W and its Subsidiaries, are listed in
Schedule 3.21, and to the extent indicated thereon, have been duly registered
in, filed in or issued by the corresponding agency or office of the Federal
Republic of Germany. F&W and its Subsidiaries have: (i) the exclusive right to
use the name "Frank & Walter" in Germany, (ii) made all filings and publications
required to register and perfect such exclusive right, and (iii) complied with
all applicable laws relating to the filing or registration of "fictitious names"
or trade names.
3.22 INVENTORIES. The products, materials, supplies and parts
held by F&W and the Subsidiaries for their use or for sale to customers are
properly reflected and accounted for on the F&W Financial Statements in
accordance with GAAP.
3.23 RECEIVABLES. All notes receivable and accounts
receivable shown on the F&W Financial Statements are properly reflected and
accounted for in accordance with GAAP.
3.24 NET BOOK VALUE. The net book value of F&W, determined as
provided herein ("Net Book Value"), was no less than negative DM 10,700,000 as
of July 31, 1996, and shall be no less than such amount as of the Closing Date.
For purposes of this Agreement, "Net Book Value" means the net book value of F&W
determined in accordance with GAAP, but reduced by: (i) DM 8,500,000; and (ii)
any value shown on the books or financial statements of F&W for (A) F&W's
interest in MC DOS, BKF, or any non-cash proceeds received or to be received
from the sale thereof, (B) the deferred tax asset shown on the F&W Financial
Statements, and (C) any goodwill shown on the F&W Financial Statements. In
addition, Net Book Value shall be computed prior to giving effect to the CHS
Contribution.
3.25 FULL DISCLOSURE. No representation or warranty of Frank
contained in this Agreement, and none of the statements or information
concerning F&W or any Subsidiary contained in this Agreement, the Exhibits or
the Schedules, or in any other schedule, certificate or document provided to CHS
by or on behalf of F&W or Frank contains or will contain any untrue statement of
a material fact nor will such representations, warranties, covenants or
statements taken as a whole omit a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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4. REPRESENTATIONS AND WARRANTIES OF CHS.
To induce Frank to enter into this Agreement and to consummate
the transactions contemplated hereby, CHS represents and warrants to and
covenants with Frank as follows:
4.1 ORGANIZATION. CHS is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida with its
principal office in Miami, Florida. CHS and each of its subsidiaries is entitled
to own or lease its properties and to carry on its business as and in the places
where such business is now conducted, and CHS and each of its subsidiaries is
duly licensed and qualified in all jurisdictions where the character of the
property owned by it or the nature of the business transacted by it makes such
license or qualification necessary, except where such failure would not result
in a material adverse effect on CHS or its subsidiaries.
4.2 CAPITALIZATION AND RELATED MATTERS.
4.2.1 CHS has authorized capital stock
consisting of: (i) 5,000,000 shares of Preferred Stock, none of which are issued
or outstanding; and (ii) 100,000,000 shares of common stock, $.001 par value per
share, of which 12,174,073 common shares were issued and outstanding as of June
30, 1996. The CHS Shares to be issued to Frank will be, as of the Closing Date,
duly and validly authorized and issued, and fully paid and non-assessable, and
will be issued to Frank free of all encumbrances, claims and liens whatsoever.
No shares of CHS Common Stock are held as treasury stock.
4.2.2 Except as disclosed in the SEC Documents,
there are not outstanding any securities convertible into capital stock of CHS,
or any of its subsidiaries, or any rights to subscribe for or to purchase, or
any options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, any such capital stock, except for employee stock options
issued in the ordinary course of business since June 6, 1996. Neither CHS nor
any of its subsidiaries is subject to any obligation (contingent or otherwise)
to repurchase or otherwise acquire or retire any of its shares or capital.
4.3 EXECUTION; NO INCONSISTENT AGREEMENTS; ETC. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized and approved by CHS,
and this Agreement is a valid and binding agreement of CHS, enforceable against
CHS in accordance with its terms, except as such enforcement may be limited by
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bankruptcy or similar laws affecting the enforcement of creditors' rights
generally, and the availability of equitable remedies. The execution and
delivery of this Agreement by CHS does not, and the consummation of the
transactions contemplated hereby will not, constitute: (i) a breach or violation
of the charter or by-laws of CHS; (ii) a violation of any law, regulation,
judgment, order, license, or decree applicable to CHS or any of its
subsidiaries; or (iii) a default under any of the terms, conditions or
provisions of (or an act or omission that would give rise to any right of
termination, cancellation or acceleration under) any material note, bond,
mortgage, lease, indenture, agreement or obligation to which CHS or any of its
subsidiaries is a party, pursuant to which any of them otherwise receive
benefits, or by which any of their properties may be bound.
4.4 FINANCIAL STATEMENTS. CHS has delivered to Seller the
consolidated audited Balance Sheets of CHS as at December 31, 1995 and 1994, the
unaudited Balance Sheet of CHS as at September 30, 1996, the consolidated
audited Statements of Income and Cash Flows for the two fiscal years ended
December 31, 1995, and the unaudited consolidated statements of Income and Cash
Flows for the nine months ended September 30, 1996 (collectively, the "CHS
Financial Statements"). The CHS Financial Statements have been prepared in
accordance with GAAP, applied on a consistent basis, and fairly reflect in all
material respects the consolidated financial condition of CHS and its
subsidiaries as at the dates thereof and the consolidated results of CHS's
operations for the periods then ended; except that the unaudited financial
statements are subject to normal year-end adjustments which are not expected to
be material in amount or effect, and do not contain all the disclosures required
by GAAP.
4.5 SEC DOCUMENTS. The SEC Documents were timely filed with
the SEC, and on the dates filed (or the effective date, in the case of the
Prospectus): (i) complied in all material respects with the requirements of the
1933 Act and the Securities and Exchange Act of 1934 (the "1934 Act") and the
rules promulgated thereunder; and (ii) did not contain any untrue statement of a
material fact or omit a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
4.6 LIABILITIES. Neither CHS nor any of its subsidiaries has
any material debt, liability or obligation of any kind, whether accrued,
absolute, contingent or otherwise, except (i) those reflected on the CHS
Financial Statements, including the notes thereto; (ii) liabilities incurred in
the ordinary course of business since September 30, 1996, none of which have had
or will have a material adverse effect on the financial condition of CHS
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and its subsidiaries taken as a whole; and (iii) liabilities arising in
connection with CHS' acquisition of the European and Latin American business of
Merisel, Inc. (the "Merisel Acquisition") .
4.7 CONTINGENCIES. There are no actions, suits, claims or
proceedings pending or, to the knowledge of CHS' management, threatened against,
by or affecting CHS or any of its subsidiaries in any court or before any
arbitrator or governmental agency which could have a material adverse effect on
CHS and its subsidiaries taken as a whole or which could materially and
adversely affect the right or ability of CHS to consummate the transactions
contemplated hereby.
4.8 FULL DISCLOSURE. No representation or warranty of CHS
contained in this Agreement, and none of the statements or information
concerning CHS contained in this Agreement, the Exhibits or the Schedules, or in
any other certificate, schedule or document provided to Frank by or on behalf of
CHS, contains or will contain any untrue statement of a material fact nor will
such representations, warranties, covenants or statements taken as a whole omit
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.9 ABSENCE OF CHANGES. Except as described in the SEC
Documents, from September 30, 1996 to the date of this Agreement, the business
of CHS and each Subsidiary has been operated in the ordinary course, consistent
with past practice, and there has not been any adverse change in the business,
assets, liabilities, results of operation, prospects or financial condition of
CHS or any of its subsidiaries or in their relationships with suppliers,
customers, employees, lessors or others, other than: (i) changes in the ordinary
course of business, none of which, singularly or in the aggregate, have had or
will have a material adverse effect on the business, properties or financial
condition of CHS and its subsidiaries taken as a whole; and (ii) changes in
connection with the Merisel Acquisition.
4.10 ENVIRONMENTAL MATTERS. Except as disclosed in the SEC
Documents: (i) neither CHS nor any of its subsidiaries is in violation, in any
material respect, of any law, regulation, order, permit, License or decree
regulating emissions into the environment and the proper disposal of
materials;(ii) CHS and its subsidiaries have received all permits and approvals
with respect to emissions into the environment and the proper collection,
storage, transport, distribution or disposal of materials required for the
operation of its business at present operating levels; and (iii) neither CHS nor
any of its subsidiaries is liable or responsible for any material
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clean up, fines, liability or expense arising under any environmental law,
regulation or order as a result of the disposal of wastes or other materials in
or on the property of CHS or any of its subsidiaries (whether owned or leased),
or in or on any other property, including property no longer owned, leased or
used by CHS or any of its subsidiaries.
4.11 TAXES. CHS and each of its subsidiaries have duly filed
all material federal, state, local and foreign tax returns and reports, and all
returns and reports of all other governmental units having jurisdiction with
respect to taxes (including, without limitation, income tax or VAT) imposed on
them or on their income, properties, sales, franchises, operations or employee
benefit plans or trusts, all such returns were complete and accurate when filed,
and all taxes and assessments payable by CHS and by each of its subsidiaries
have been paid to the extent that such taxes have become due. All taxes accrued
or payable by CHS and by each of its subsidiaries for all periods through
September 30, 1996 have been paid in full, or accrued and reflected in the CHS
Financial Statements, whether or not due and payable and whether or not
disputed. CHS and each of its subsidiaries have withheld proper and accurate
amounts from their employees or all periods in full compliance with the tax
withholding provisions of applicable foreign, federal, state and local tax law.
There are not now any examinations of the income tax returns of CHS or any of
its subsidiaries pending, or to the best of CHS' knowledge any proposed
deficiencies or assessments against CHS or any of its subsidiaries of additional
taxes of any kind. CHS shall cause itself and each of its subsidiaries to duly
and timely prepare and file all returns and reports (which are due prior to the
Closing Date) of all governmental units having jurisdiction with respect to
taxes (including, without limitation, income tax or VAT) imposed on CHS or any
of its subsidiaries or on their income, properties, sales, franchises,
operations or employee benefit plans or trusts, and all such returns will be
complete and accurate when filed.
4.12 AGREEMENTS AND TRANSACTIONS WITH RELATED PARTIES. Except
as set forth in Schedule 4.12, neither CHS nor any of its subsidiaries is, or
since December 31, 1994 has been, a party to any contract, loan, agreement,
lease or transaction, or any other commitment, which is required to be disclosed
pursuant to Item 404 and which has not been disclosed in the Prospectus.
5. CONDUCT OF BUSINESS PENDING CLOSING.
Frank covenants and agrees that between the date hereof and
the Closing Date:
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5.1 BUSINESS IN THE ORDINARY COURSE. The business of F&W and
each Subsidiary shall be conducted only in the ordinary course, without the
creation of any additional indebtedness for borrowed money, provided that F&W
and each Subsidiary may continue to draw on its existing lines of credit in a
manner consistent with its past practice. Without limiting the generality of the
foregoing:
(a) Frank shall use his best efforts to
preserve F&W's and each Subsidiary's business organization, to keep available
the services of F&W's and each Subsidiary's employees, to preserve the goodwill
of the suppliers, customers and others having business relations with F&W and
any Subsidiary after the Closing Date on terms satisfactory to CHS; and
(b) Neither F&W nor any Subsidiary shall
pledge, sell or otherwise transfer any of its assets, except for sales of
inventory in the ordinary course of business.
5.2 NO MATERIAL CHANGES. Neither F&W nor any Subsidiary shall
materially alter any of its organization, capitalization, or financial
structure, practices or operations. Without limiting the generality of the
foregoing:
(a) No change shall be made in the articles
of association or by-laws (if any) of F&W or any Subsidiary;
(b) No change shall be made in the capital
of F&W or any Subsidiary or the number of shares of F&W or any Subsidiary;
(c) Neither F&W nor any Subsidiary shall
issue or grant any right or option to purchase or otherwise acquire any of its
capital, stock or shares or other securities;
(d) No dividend or other distribution or
payment shall be declared or made with respect to any of the capital, stock or
shares of F&W or any Subsidiary, and neither F&W nor any Subsidiary shall,
directly or indirectly, redeem, purchase or otherwise acquire any of its
respective capital, stock or shares; and
(e) No change shall be made affecting the
banking arrangements of F&W or any Subsidiary, except as set forth in Sections
7.5 and 2.8.
5.3 COMPENSATION. No increase shall be made in the
compensation or employee benefits payable or to become payable to any director,
officer, employee or agent of F&W or any Subsidiary, and no bonus or
profit-share payment or other arrangement (whether
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current or deferred) shall be made to or with any such director, officer,
employee or agent, except in the ordinary course of business and consistent with
prior practices.
6. CONDITIONS TO OBLIGATIONS OF ALL PARTIES.
The obligations of the parties to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, on or before the
Closing, of each of the following conditions; any or all of which may be waived
in whole or in part by the joint agreement of CHS and Frank:
6.1 ABSENCE OF ACTIONS. No action or proceeding shall have
been brought or threatened before any court or administrative agency to prevent
the consummation or to seek damages in a material amount by reason of the
transactions contemplated hereby, and no governmental authority shall have
asserted that the within transactions (or any other pending transaction
involving CHS or any of its subsidiaries, Frank, F&W or any Subsidiary when
considered in light of the effect of the within transactions) shall constitute a
violation of law or give rise to material liability on the part of Frank, F&W,
CHS or any of their subsidiaries.
6.2 CONSENTS. The parties shall have received from any
suppliers, lessors, lenders, lien holders or governmental authorities (including
U.S. antitrust and German competition law authorities), bodies or agencies
having jurisdiction over the transactions contemplated by this Agreement, or any
part hereof, such consents, authorizations and approvals as are necessary for
the consummation hereof, including the consents listed on Schedule 6.2.
7. CONDITIONS TO OBLIGATIONS OF CHS.
All obligations of CHS to consummate the transactions
contemplated by this Agreement are subject to the fulfillment and satisfaction
of each and every of the following conditions on or prior to the Closing, any or
all of which may be waived in whole or in part by CHS:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Frank contained in this Agreement and in any certificate,
instrument, schedule, agreement or other writing delivered by or on behalf of
Frank in connection with the transactions contemplated by this Agreement shall
be true, correct and complete in all material respects as of the date when made
and shall be deemed to be made again at and as of the Closing Date and shall be
true, correct and complete at and as of such time in all material respects.
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7.2 COMPLIANCE WITH AGREEMENTS AND CONDITIONS. Frank shall
have performed and complied with all material agreements and conditions required
by this Agreement to be performed or complied with by him prior to or on the
Closing Date.
7.3 ABSENCE OF MATERIAL ADVERSE CHANGES. No material adverse
change in the financial condition, operations, activities or business of F&W and
its Subsidiaries, taken as a whole, shall have occurred, no substantial part of
the assets of F&W and its Subsidiaries, taken as a whole, not substantially
covered by insurance shall have been destroyed due to fire or other casualty,
and no event shall have occurred which has had or will have a material adverse
effect on the business, prospects, properties or financial condition of F&W and
its Subsidiaries taken as a whole.
7.4 CERTIFICATE OF FRANK. Frank shall have executed and
delivered, or caused to be executed and delivered, to CHS one or more
certificates, dated the Closing Date, certifying in such detail as CHS may
reasonably request to the fulfillment and satisfaction of the conditions
specified in this Section 7 as well as Section 6.
7.5 CREDIT ARRANGEMENTS. The financial institutions listed on
Schedule 7.5 shall have: (i) approved the Stock Exchange contemplated hereby;
and (ii) agreed to maintain F&W's loans, lines of credit and credit arrangements
(collectively "Loans") in effect after Closing, without any change thereto
which, in CHS' reasonable opinion, would be material and adverse to F&W or CHS;
provided, however, that a requirement that CHS guarantee such Loans shall not be
considered a material adverse change for purposes of this subsection.
8. CONDITIONS TO OBLIGATIONS OF FRANK.
All of the obligations of Frank to consummate the transactions
contemplated by this Agreement are subject to the fulfillment and satisfaction
of each and every of the following conditions on or prior to the Closing, any or
all of which may be waived in whole or in part, by Frank:
8.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in this Agreement and in any certificate, instrument,
schedule, agreement or other writing delivered by or on behalf of CHS in
connection with the transactions contemplated by this Agreement shall be true,
correct and complete in all material respects when made and shall be deemed to
be made again at and as of the Closing Date and shall be true,
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correct and complete at and as of such time in all material respects.
8.2 COMPLIANCE WITH AGREEMENTS AND CONDITIONS. CHS shall have
performed and complied with all material agreements and conditions required by
this Agreement to be performed or complied with by it prior to or on the Closing
Date.
8.3 ABSENCE OF MATERIAL ADVERSE CHANGES. No material adverse
change in the financial condition, operations, activities or business of CHS and
its subsidiaries, taken as a whole, shall have occurred, no substantial part of
the assets of CHS and its subsidiaries, taken as a whole, shall have been
destroyed due to fire or other casualty, and no event shall have occurred which
has had, or will have a material adverse effect on the business, properties or
financial condition of CHS and its subsidiaries, taken as a whole.
8.4 CERTIFICATE. CHS shall have delivered to Frank a
certificate, executed by an executive officer and dated the Closing Date,
certifying in such detail as counsel for Frank may reasonably request to the
fulfillment and satisfaction of the conditions specified in this Section 8 as
well as Section 6.
8.5 COMTRAD AGREEMENT. On the date hereof, but effective as of
the Closing Date, Comtrad, Inc. and Comtrad Holdings, Inc. (collectively
"Comtrad") shall enter into an agreement with Frank, in the form of Schedule
8.5, under the terms of which Comtrad will agree to: (i) vote all their shares
in CHS to elect Frank to CHS' Board of Directors, in accordance with the terms
of such agreement; and (ii) cause certain of Frank's CHS Shares to be registered
under the 1933 Act, if and when Comtrad's Common Stock is registered, and on the
same terms.
9. INDEMNITY.
9.1 INDEMNIFICATION BY FRANK. Subject to Section 9.5, Frank
(the "Indemnitor") shall defend, indemnify and hold harmless CHS, its direct and
indirect parent corporations, subsidiaries (including F&W, after Closing) and
affiliates, their officers, directors, employees and agents (collectively, the
"Indemnitees") against and in respect of any and all loss, damage, liability,
cost and expense, including reasonable attorneys' fees and amounts paid in
settlement (collectively, "Indemnified Losses"), suffered or incurred by any
Indemnitee by reason of, or arising out of:
(1) any misrepresentation, breach of
warranty or breach or nonfulfillment of any agreement of Frank contained in this
Agreement or in any certificate, schedule, instrument or
-22-
<PAGE>
document delivered to CHS by or on behalf of Frank or F&W or any Subsidiary
pursuant to the provisions of this Agreement; and
(2) any obligations and liabilities of MC
DOS or BKF, of any nature whatsoever (including tax liability, penalties and
interest), whether accrued, absolute, contingent or otherwise; and
(3) any liabilities of F&W or any Subsidiary
of any nature whatsoever (including tax liability, penalties and interest),
whether accrued, absolute, contingent or otherwise, arising or occurring between
the date hereof and the Closing Date, except for liabilities arising in the
ordinary course of business, none of which shall have a material adverse effect
on F&W and its Subsidiaries taken as a whole.
9.2 INDEMNIFICATION BY CHS. Subject to Section 9.5, CHS (the
"Indemnitor") shall defend, indemnify and hold harmless Frank and his successors
(collectively, the "Indemnitees") against and in respect of any and all
Indemnified Losses, suffered or incurred by any Indemnitee by reason of or
arising out of:
(1) any misrepresentation, breach of
warranty, or breach or non-fulfillment of any material agreement of CHS
contained in this Agreement or in any certificate, schedule, instrument or
document delivered by CHS to Frank pursuant to the provisions of this Agreement;
and
(2) any liabilities of CHS or any subsidiary
of any nature whatsoever (including tax liability, penalties and interest),
whether accrued, absolute, contingent or otherwise, arising or occurring between
the date hereof and the Closing Date, except for: (i) liabilities arising in the
ordinary course of business, none of which shall have a material adverse effect
on CHS and its subsidiaries taken as a whole; and (ii) liabilities arising in
connection with the Merisel Acquisition.
9.3 DEFENSE OF CLAIMS.
(a) Should any claim or action by a third
party arise after the Closing Date for which an Indemnitor is liable under the
terms of this Agreement, the Indemnitee shall notify Indemnitor within ten (10)
days after such claim or action arises and is known to Indemnitee, and shall
give the Indemnitor a reasonable opportunity to participate in any proceedings
and to settle or defend any such claim or action. The expenses of all
proceedings, contests or lawsuits with respect to such claims or actions shall
be borne by the Indemnitor. If the Indemnitor wishes to assume the defense of
such claim or action, the Indemnitor shall
-23-
<PAGE>
give written notice to the Indemnitees within ten (10) days after notice from
the Indemnitees of such claim or action, and the Indemnitor shall thereafter
assume the defense of any such claim or action, through counsel reasonably
satisfactory to the Indemnitees, provided that Indemnitees may participate in
such defense at their own expense.
(b) If the Indemnitor shall not assume the
defense of, or if after so assuming it shall fail to defend, any such claim or
action, the Indemnitees may defend against any such claim or action in such
manner as they may deem appropriate and the Indemnitees may settle such claim or
action on such terms as they may deem appropriate but subject to the
Indemnitor's approval, such approval not to be unreasonably withheld; provided,
however, that any such settlement shall be deemed approved by the Indemnitor if
the Indemnitor fails to object thereto, by written notice to the Indemnitees,
within fifteen (15) days after the Indemnitor's receipt of a written summary of
such settlement. The Indemnitor shall promptly reimburse the Indemnitees for the
amount of all expenses, legal and otherwise, incurred by the Indemnitees in
connection with the defense and settlement of such claim or action.
(c) If a non-appealable judgment is rendered
against any of the Indemnitees in any action covered by the indemnification
hereunder, or any lien attaches to any of the assets of any of the Indemnitees,
the Indemnitor shall immediately upon such entry or attachment pay such judgment
in full or discharge such lien unless, at the expense and direction of the
Indemnitor, an appeal is taken under which the execution of the judgment or
satisfaction of the lien is stayed. If and when a final judgment is rendered in
any such action, the Indemnitor shall forthwith pay such judgment or discharge
such lien before any of the Indemnitees is compelled to do so.
9.4 WAIVER. The failure of any Indemnitee to give any notice
or to take any action hereunder shall not be deemed a waiver of any of the
rights of such Indemnitee hereunder, except to the extent that Indemnitor is
actually prejudiced by such failure.
9.5 LIMITATIONS ON INDEMNIFICATION. Notwithstanding anything
to the contrary contained in this Agreement, no party shall be responsible
hereunder for any Indemnified Loss unless the Indemnitee shall have provided
such party with written notice containing a reasonable description of the claim,
action or circumstances giving rise to such Indemnified Loss within eighteen
(18) months after the Closing Date (the "Indemnity Notice Period").
9.5.1 CAPS ON LOSSES. Frank's aggregate
liability after Closing for Indemnified Losses shall not exceed DM 2,000,000,
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<PAGE>
and CHS' aggregate liability after Closing for Indemnified Losses shall not
exceed DM 2,000,000.
9.5.2 PAYMENT FOR INDEMNIFIED LOSSES.
(a) All indemnity claims
against either Indemnitor by any Indemnitee after Closing shall be satisfied
promptly after resolution by the delivery to the Indemnitee of CHS Common Stock,
having a value equal to the Indemnified Loss in question. If Frank is prohibited
by U.S. securities law or otherwise from delivering CHS Common Stock to an
Indemnitee, then Frank may satisfy any claims against him by delivery to CHS of
CHS Common Stock, and CHS shall provide to the Indemnitee an equal amount of
consideration in the form of CHS Common Stock or otherwise. For purposes of this
Section 9.5, each share of CHS Common Stock shall be deemed to have a value
equal to the average closing price of one share of CHS Common Stock as reported
by the Nasdaq National Stock Market, computed during the thirty (30) day period
ending on the trading day immediately preceding the date such shares of CHS
Common Stock are delivered to the Indemnitee.
(b) In order to insure that
there are sufficient CHS Shares available to satisfy Indemnified Losses after
Closing, Frank shall not directly or indirectly, at any time during the
Indemnity Notice Period, sell, pledge, or otherwise transfer a number of the CHS
Shares having an aggregate value of DM 2,000,000 (the "Restricted Shares"), and
if an indemnity claim is timely filed during such period, CHS Shares having an
aggregate value equal to the amount of such claim shall remain subject to the
foregoing restriction until such claim is finally resolved. The certificates
evidencing the Restricted Shares shall be legended to reflect the foregoing
restriction. The restrictions imposed herein shall be in addition to any other
resale restrictions under applicable securities laws.
9.5.3 NO CONSEQUENTIAL DAMAGES; CONVERSION. For
purposes of determining the amount of any Indemnified Losses incurred by any
party, (i) no Indemnified Loss shall be deemed to have been sustained by any
party to the extent of any lost profits, or consequential or special damages,
incurred by such party; and (ii) the conversion rate into or from U.S. dollars
shall be at the closing exchange rate published in The Wall Street Journal (U.S.
edition) as of the last business day immediately preceding the date the
Indemnified Loss is paid to the Indemnitee.
10. TERMINATION.
10.1 TERMINATION. This Agreement may be terminated at
any time on or prior to the Closing:
-25-
<PAGE>
(a) By mutual consent of CHS and Frank; or
(b) At the election of CHS if: (i) Frank has
breached or failed to perform or comply with any of its
representations, warranties, covenants or obligations under
this Agreement; or (ii) any of the conditions precedent set
forth in Sections 2, 6 or 7 is not satisfied as and when
required by this Agreement; or (iii) the Closing has not been
consummated within five (5) months from the date hereof; or
(c) At the election of Frank if: (i) CHS has
breached or failed to perform or comply with any of its
representations, warranties, covenants or obligations under
this Agreement; or (ii) any of the conditions precedent set
forth in Sections 2, 6 or 8 is not satisfied as and when
required by this Agreement; or (iii) if the Closing has not
been consummated within five (5) months from the date hereof.
10.2 MANNER AND EFFECT OF TERMINATION. Written notice of any
termination ("Termination Notice") pursuant to this Section 10 shall be given by
the party electing termination of this Agreement ("Terminating Party") to the
other party or parties (collectively, the "Terminated Party"), and such notice
shall state the reason for termination. The party or parties receiving
Termination Notice shall have a period of twenty (20) days after receipt of
Termination Notice to cure the matters giving rise to such termination to the
reasonable satisfaction of the Terminating Party. If the matters giving rise to
termination are not cured as required hereby, this Agreement shall be terminated
effective as of the close of business on the twentieth (20th) day following the
Terminated Party's receipt of Termination Notice. Upon termination of this
Agreement prior to the consummation of the Closing and in accordance with the
terms hereof, this Agreement shall become void and of no effect, and none of the
parties shall have any liability to the others, except that nothing contained
herein shall relieve any party from: (i) its obligations under Sections 2.4 and
2.5; or (ii) liability for its breach of any representation, warranty or
covenant contained herein, or its failure to comply with the terms and
conditions of this Agreement or to perform its obligations hereunder.
-26-
<PAGE>
11. MISCELLANEOUS.
11.1 NOTICES.
(a) All notices, requests, demands, or other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given upon receipt if delivered in person or by
facsimile transmission, or upon the expiration of seven (7) days after the date
sent, if sent by federal express (or similar overnight courier service) to the
parties at the following addresses:
(i) If to Frank:
Mr. Carsten Frank
c/o Frank & Walter Computer GmbH
Hansestrasse 47
38112 Braunschweig
Germany
Telecopier: (49-531) 2118-257
With a copy to:
Baker & McKenzie
One Prudential Plaza
Suite 3500
130 East Randolph Drive
Chicago, Illinois 60601
Attn: Dieter A. Schmitz
Telecopier: (312) 861-2899
and
Dr. H. Busching
Rechtsanwaelte
Schindhelm pp.
Hildesheimer Strasse 9
30169 Hannover
Germany
Telecopier: (49-511) 28-45-299
(ii) If to CHS:
CHS Electronics, Inc.
2153 N.W. 86th Avenue
Miami, FL 33122
Attn: Craig S. Toll, CFO
Telecopier: (305) 593-0265
-27-
<PAGE>
With a copy to:
Shutts & Bowen
1500 Miami Center
201 South Biscayne Boulevard
Miami, FL 33131
Attn: Luis A. de Armas, P.A.
Telecopier: (305) 381-9982
and
Dr. Axel Bosch
Curschmann Rechtsanwalte
Baumwall 7
20459 Hamburg
Germany
Telecopier: (49-40) 36-959-36
(b) Notices may also be given in any other
manner permitted by law, effective upon actual receipt. Any party may change the
address to which notices, requests, demands or other communications to such
party shall be delivered or mailed by giving notice thereof to the other parties
hereto in the manner provided herein.
11.2 EXCLUSIVE REMEDY; SURVIVAL. After Closing, the sole and
exclusive remedy of the parties for misrepresentations, breaches of warranty or
default of any party in the performance of the agreements and obligations of
such party hereunder, or to recover any Indemnified Loss, shall be the
obligations of the parties contained in Section 9. The representations,
warranties, agreements and indemnifications of the parties contained in this
Agreement or in any writing delivered pursuant to the provisions of this
Agreement shall survive any investigation heretofore or hereafter made by the
parties, and the consummation of the transactions contemplated herein and shall
continue in full force and effect after the Closing, subject to the limitations
of Section 9.5.
11.3 ENTIRE AGREEMENT. This Agreement supersedes all prior
discussions and agreements between the parties with respect to the subject
matter hereof, and this Agreement contains the sole and entire agreement among
the parties with respect to the matters covered hereby. All Exhibits and
Schedules hereto shall be deemed a part of this Agreement. If this Agreement is
terminated pursuant to Section 10.1, the other agreements included as Exhibits
also shall terminate. This Agreement shall not be altered or amended except by
an instrument in writing signed by or on behalf of all of the parties hereto.
-28-
<PAGE>
11.4 RULES OF INTERPRETATION. No ambiguity in any provision
hereof shall be construed against a party by reason of the fact it was drafted
by such party or its counsel. For purposes of this Agreement: (i) "herein",
"hereby", "hereunder", "herewith", "hereafter" and "hereinafter" refer to this
Agreement in its entirety, and not to any particular subsection or paragraph;
(ii) all references to a "Section", "Schedule" or "Exhibit" are to a Section of
this Agreement or to an Exhibit or Schedule attached hereto or made a part
hereof; (iii) accounting terms used but not defined shall have the respective
meanings given to them under GAAP; and (iv) the words "include," "includes" and
"including" are deemed to be followed by the phrase "without limitation".
Although this Agreement was executed December 19, 1986, it will be effective on
and as of December 6, 1996, the date the CHS Board of Directors approved the
Agreement.
11.5 GOVERNING LAW. The validity and effect of this Agreement
shall be governed by and construed and enforced in accordance with the laws of
the Federal Republic of Germany, except that matters relating to the issuance,
sale or resale of the CHS Shares shall be governed by the laws of Florida and
the United States. Any dispute, controversy or question of interpretation
arising under, out of, in connection with or in relation to this Agreement or
any amendments hereof, or any breach or default hereunder, shall be submitted
to, and determined and settled by, arbitration, in Hamburg, Federal Republic of
Germany, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, including the International Arbitration Rules. Any
award rendered therein shall be final and binding on the parties thereto, and
judgment may be entered thereon in any court having jurisdiction thereof. Each
of the parties hereby irrevocably submits to the jurisdiction of any arbitration
panel sitting in Hamburg, Federal Republic of Germany, and waives, to the
fullest extent it may effectively do so, the defense of an inconvenient forum to
the maintenance of any arbitration at such location.
11.6 SUCCESSORS AND ASSIGNS; ASSIGNMENT. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, legal representatives, and successors; provided,
however, that no party hereto may assign this Agreement or any rights hereunder,
in whole or in part.
11.7 PARTIAL INVALIDITY AND SEVERABILITY. All rights and
restrictions contained herein may be exercised and shall be applicable and
binding only to the extent that they do not violate any applicable laws and are
intended to be limited to the extent necessary to render this Agreement legal,
valid and enforceable.
-29-
<PAGE>
If any terms of this Agreement shall be held to be illegal, invalid or
unenforceable by a court of competent jurisdiction, it is the intention of the
parties that the remaining terms hereof shall constitute their agreement with
respect to the subject matter hereof and all such remaining terms shall remain
in full force and effect. To the extent legally permissible, any illegal,
invalid or unenforceable provision of this Agreement shall be replaced by a
valid provision which will implement the commercial purpose of the illegal,
invalid or unenforceable provision.
11.8 WAIVER. Any term or condition of this Agreement may be
waived at any time by the party which is entitled to the benefit thereof, but
only if such waiver is evidenced by a writing signed by such party. No failure
on the part of a party hereto to exercise, and no delay in exercising, any
right, power or remedy created hereunder, shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or remedy by any such
party preclude any other future exercise thereof or the exercise of any other
right, power or remedy. No waiver by any party hereto of any breach of or
default in any term or condition of this Agreement shall constitute a waiver of
or assent to any succeeding breach of or default in the same or any other term
or condition hereof.
11.9 HEADINGS. The headings as to contents of particular
paragraphs of this Agreement are inserted for convenience only and shall not be
construed as a part of this Agreement or as a limitation on the scope of any
terms or provisions of this Agreement.
11.10 EXPENSES. Except as otherwise expressly provided herein,
all legal and other costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by CHS or Frank
as each party incurs such expenses. Frank shall pay all income tax, corporation
tax, and similar taxes imposed on Frank in connection with the transactions
contemplated hereby. Frank and CHS shall share equally (i) the costs of having
this Agreement certified by a notary at such place as may be mutually agreed
upon by CHS and Frank, including any later certifications which may become
necessary; and (ii) the government filing fees of complying with any antitrust
law approvals, and the costs of any counsel engaged jointly by the parties to
analyze such approvals or assist the parties therewith. F&W shall not pay or be
charged for any cost incurred by or for the benefit of Frank in connection with
this Agreement or the transactions contemplated hereby: (i) F&W shall pay all
fees and expenses of its auditors in preparing the Financial Statements required
hereby; (ii) Frank shall pay the first $100,000 in professional fees charged by
his legal and financial advisors in
-30-
<PAGE>
connection with this Agreement and the transactions contemplated hereby; and
(iii) F&W shall pay any excess over $100,000 in professional fees charged by
Frank's financial and legal advisors in connection with this Agreement and the
transactions contemplated hereby.
11.11 FINDER'S FEES. CHS represents to Frank that no broker,
agent, finder or other party has been retained by it in connection with the
transactions contemplated hereby and that no other fee or commission has been
agreed by CHS to be paid for or on account of the transactions contemplated
hereby. Frank represents to CHS that no broker, agent, finder or other party has
been retained by Frank or F&W in connection with the transactions contemplated
hereby and that no other fee or commission has been agreed by Frank or F&W to be
paid for or on account of the transactions contemplated hereby.
11.12 GENDER. Where the context requires, the use of the
singular form herein shall include the plural, the use of the plural shall
include the singular, and the use of any gender shall include any and all
genders.
IN WITNESS WHEREOF, the parties have executed this Agreement or caused
this Agreement to be duly executed by their duly authorized officers as of the
date first above written.
CHS ELECTRONICS, INC.
By:/s/ MARC J.P. SCHURTZ
-----------------------
Name: MARC J.P. SCHURTZ
/S/ CARSTEN FRANK
-------------------------------------
CARSTEN FRANK
-31-
<PAGE>
EXHIBIT A - F&W CAPITAL
NOMINAL VALUE OF SHARES
1. DM 1,020,000
2. 30,000
3. 831,600
4. 30,000
5. 188,400
6. 3,548,400
7. 351,600
8. 438,000
9. 1,062,000
10. 1,000,000
11. 8,500,000
-------------
Total DM 17,000,000
-32-
EXHIBIT 21
SUBSIDIARIES OF CHS ELECTRONICS
1. CHS Electronics, Inc., a Nevada corporation ("CHS Nevada") and a
wholly-owned subsidiary of CHS Electronics, Inc., a Florida corporation
("CHS Florida").
2. Zemex Electronics International, Inc., a Connecticut corporation
("Zemex") and a wholly-owned subsidiary of CHS Florida.
3. BEK International, Inc. d.b.a. CHS BEK, a Florida corporation and a
wholly-owned subsidiary of CHS Florida.
4. MIFINCO, Inc., a Delaware corporation ("MIFINCO") and a wholly-owned
subsidiary of CHS Florida.
5. Merisel France, Inc., a Delaware corporation, and a wholly-owned
subsidiary of CHS Florida.
6. CHS Electronics Ges.m.b.H., a limited liability company formed under the
laws of Austria and a wholly-owned subsidiary of CHS Florida.
7. CHS Electronics Benelux N.V., a limited liability company formed under
the laws of Belgium and a wholly-owned subsidiary of CHS Nevada.
8. CHS Bulgaria Ltd, a limited liability company formed under the laws of
Bulgaria and a wholly-owned subsidiary of CHS Nevada.
9. CHS Elektronika d.o.o., a company formed under the laws of Croatia and
a wholly-owned subsidiary of CHS Florida.
10. CHS Czechia s.r.o., a limited liability company formed under the laws of
the Czech Republic and a wholly-owned subsidiary of CHS Nevada.
11. CHS Electronics PLC, a limited liability company formed under the laws of
England and a wholly-owned subsidiary of CHS Nevada.
12. Merisel (U.K.) Limited, a limited liability company formed under the
laws of England ("Merisel (U.K.)") and a wholly-owned subsidiary of CHS
Florida.
13. CHS Electronics Finland OY, a limited liability company formed under the
laws of Finland and a wholly-owned subsidiary of CHS Nevada.
14. CHS France S.A., a limited liability company formed under the laws of
France and a wholly-owned subsidiary of CHS Nevada [6 of 648,000 shares
are held by "nominees"].
<PAGE>
15. Merisel France, SNC, a French partnership, 97% of the capital of which
is owned by Merisel France, Inc. and 3% of which is owned by MIFINCO.
16. CHS Electronics Vertrieb GmbH, a limited liability company formed under
the laws of Germany and a wholly-owned subsidiary of CHS Nevada.
17. CHS Electronic Deutschland GmbH, f/k/a Merisel, GmbH, a limited liability
company formed under the laws of Germany ("CHS Deutschland") and a
wholly-owned subsidiary of CHS Florida.
18. Merisel Factoring GMBH, a German limited liability company and a
wholly-owned subsidiary of CHS Deutschland.
19. CHS Hungary Kft, a limited liability company formed under the laws of
Hungary of which CHS Nevada owns a 51% interest.
20. CHS Baltic, a foreign capital company formed under the laws of Lithuania
and a wholly-owned subsidiary of CHS Nevada.
21. Merisel Netherlands B.V., a private limited liability company organized
and existing under the laws of The Netherlands and a wholly-owned
subsidiary of CHS Florida.
22. ABC Data, Limited, a limited liability company formed under the laws of
Jersey and a wholly-owned subsidiary of CHS Nevada.
23. ABC Data z.o.o., a limited liability company formed under the laws of
Poland and wholly-owned subsidiary of ABC Data, Limited.
24. CHS Next D.S., a limited liability company formed under the laws of the
country of Portugal and a wholly-owned subsidiary of CHS Nevada.*
25. Computer Software and Hardware Ltd., a company formed under the laws of
the Isle of Man and a wholly-owned subsidiary of CHS Florida.
26. Computer Hardware and Software Ltd., a company formed under the laws of
Russia and a wholly-owned subsidiary of CHS Florida.
27. CHS Slovakia SRO, a company formed under the laws of Slovakia and a
wholly-owned subsidiary of CHS Florida.
28. CHS Sweden AB, a limited liability company formed under the laws of Sweden
and a wholly-owned subsidiary of CHS Nevada.
<PAGE>
29. CHS Finance SA, a limited liability company formed under the laws of
Switzerland and a wholly-owned subsidiary of CHS Florida.
30. Wyrsch Trading A.G., a corporation formed under the laws of Switzerland
and a wholly-owned subsidiary of CHS Florida.
31. Merisel Latin America, Inc., a Delaware corporation, and a wholly-owned
subsidiary of Zemex.
32. Merisel Argentina, S.A., a corporation formed under the laws of Argentina
and a wholly-owned subsidiary of Merisel Latin America, Inc.
33. Promark de Argentina SRL, a limited liability partnership formed under
the laws of Argentina, all of the capital of which is owned by Zemex.*
34. Via Brazil & Informatica Ltda, a limited liability company formed under
the laws of Brazil and a wholly-owned subsidiary of Zemex.
35. Comercial Promark Chile LTDA, a limited liability company formed under the
laws of Chile, all of the capital of which is owned by CHS Florida and
Zemex.
36. Infocentro Chile S.A., a corporation formed under the laws of Chile, of
which Comercial Promark Chile LTDA owns a 51% interest.
37. CHS Promark Colombia Ltda., a limited liability company formed under the
laws of Colombia, all of the capital of which is owned by CHS Florida
(25,939 quotas) and Zemex (2,573,604 quotas).*
38. Merisel Mexico, S.A. de C.V., a corporation formed under the laws of
Mexico and a wholly-owned subsidiary of CHS Florida.
39. Merisel Services, S.A. de C.V., a corporation formed under the laws of
Mexico and a wholly-owned subsidiary of Merisel Mexico, S.A. de C.V.
40. CHS Promark Peru S.A., a corporation formed under the laws of Peru of
which Zemex owns a 60% interest.
41. Masimar Sociedad Anonima, a commercial anonymous society organized under
the laws of Uruguay of which Zemex owns a 51% interest.
42. CHS Promark Venezuela C.A., a company formed under the laws of
Venezuela and a wholly-owned subsidiary of Zemex.
- ------------------------
* Except for director's qualifying shares.
We have issued our report dated March 7, 1996, accompanying the consolidated
financial statements included in the Annual Report of CHS Electronics, Inc.
on Form 10-K for the year ended December 31, 1996. We hereby consent to the
incorporation by reference of said report in the Registration Statement of
CHS Electronics, Inc. on Form S-8 (File No. 33-96160, filed August 24, 1995).
GRANT THORNTON LLP
Miami, Florida
March 7, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
12/31/96 consolidated financial statements and is qualified in its entirety
by reference to each financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 35,137
<SECURITIES> 0
<RECEIVABLES> 358,169
<ALLOWANCES> (14,830)
<INVENTORY> 321,770
<CURRENT-ASSETS> 39,374
<PP&E> 53,621
<DEPRECIATION> 22,674
<TOTAL-ASSETS> 861,949
<CURRENT-LIABILITIES> 708,114
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 104,521
<TOTAL-LIABILITY-AND-EQUITY> 861,949
<SALES> 1,855,540
<TOTAL-REVENUES> 1,855,540
<CGS> 1,724,432
<TOTAL-COSTS> 102,235
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,513
<INCOME-PRETAX> 20,360
<INCOME-TAX> 6,086
<INCOME-CONTINUING> 12,166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,166
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.16
</TABLE>
