AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1997
REGISTRATION STATEMENT NO. 333-29779
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CHS ELECTRONICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 87-0435376
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
<TABLE>
<S> <C>
CLAUDIO OSORIO
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
CHS ELECTRONICS, INC.
2153 N.W. 86TH AVENUE 2153 N.W. 86TH AVENUE
MIAMI, FLORIDA 33122 MIAMI, FLORIDA 33122
(305) 716-8273 (305) 716-8273
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
---------------
COPIES OF COMMUNICATIONS TO:
PAUL BERKOWITZ, ESQ. BRUCE N. HAWTHORNE, ESQ.
DANIEL REED, ESQ. KING & SPALDING
GREENBERG, TRAURIG, HOFFMAN, 191 PEACHTREE STREET
LIPOFF, ROSEN & QUENTEL, P.A. ATLANTA, GEORGIA 30303-1763
1221 BRICKELL AVENUE (404) 572-4600
MIAMI, FLORIDA 33131 (FACSIMILE) (404) 572-5100
(305) 579-0500
(FACSIMILE) (305) 579-0717
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SHARES AMOUNT AGGREGATE PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED TO BE REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 13,800,000 shares $32.125 $443,325,000 $134,340.91(3)
===========================================================================================================
</TABLE>
(1) Includes 1,800,000 shares of Common Stock issuable upon exercise of the
U.S. Underwriters' and Managers' over-allotment options.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
(3) $89,734.85 of such registration fee was paid upon the original filing of the
Registration Statement on June 20, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
===============================================================================
<PAGE>
EXPLANATORY NOTE
THIS REGISTRATION STATEMENT CONTAINS TWO SEPARATE PROSPECTUSES. THE FIRST
PROSPECTUS RELATES TO A PUBLIC OFFERING OF SHARES OF COMMON STOCK OF CHS
ELECTRONICS, INC. IN THE UNITED STATES AND CANADA (THE "U.S. OFFERING"). THE
SECOND PROSPECTUS RELATES TO A CONCURRENT OFFERING OF COMMON STOCK OUTSIDE THE
UNITED STATES AND CANADA (THE "INTERNATIONAL OFFERING"). THE PROSPECTUSES FOR
THE U.S. OFFERING AND THE INTERNATIONAL OFFERING WILL BE IDENTICAL IN ALL
RESPECTS, OTHER THAN THE FRONT COVER PAGE, THE "CERTAIN UNITED STATES FEDERAL
TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS OF COMMON STOCK" AND
"UNDERWRITING" SECTIONS AND THE BACK COVER PAGE RELATING TO THE INTERNATIONAL
OFFERING. SUCH ALTERNATE PAGES APPEAR IN THIS REGISTRATION STATEMENT
IMMEDIATELY FOLLOWING THE COMPLETE PROSPECTUS FOR THE U.S. OFFERING.
<PAGE>
SUBJECT TO COMPLETION DATED JULY 23, 1997
12,000,000 SHARES
[CHS EXCELLENCE IN DISTRIBUTION GRAPHIC OMITTED]
COMMON STOCK
----------------
ALL OF THE 12,000,000 SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING
ISSUED AND SOLD BY CHS ELECTRONICS, INC. ("CHS" OR THE "COMPANY"). OF THE
12,000,000 SHARES OF COMMON STOCK OFFERED HEREBY, 9,000,000 SHARES ARE BEING
OFFERED IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS (AS DEFINED
HEREIN) (THE "U.S. OFFERING") AND 3,000,000 SHARES ARE BEING OFFERED IN A
CONCURRENT OFFERING OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
MANAGERS (AS DEFINED HEREIN) (THE "INTERNATIONAL OFFERING" AND, TOGETHER WITH
THE U.S. OFFERING, THE "OFFERING"). THE PRICE TO PUBLIC AND THE UNDERWRITING
DISCOUNTS AND COMMISSIONS PER SHARE WILL BE IDENTICAL FOR THE U.S. OFFERING AND
THE INTERNATIONAL OFFERING. SEE "UNDERWRITING."
THE COMMON STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE TRADING
SYMBOL "CHSE." ON JULY 22, 1997, THE LAST REPORTED SALE PRICE OF THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET WAS $32.125 PER SHARE.
----------------
SEE "RISK FACTORS" ON PAGES 7 THROUGH 11 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
=========================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------
Per Share ...... $ $ $
- ---------------------------------------------------------
Total(3) ...... $ $ $
=========================================================
(1) The Company and the selling shareholders (the "Selling Shareholders")
described under "Principal and Selling Shareholders" have agreed to
indemnify the U.S. Underwriters and the International Managers against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $500,000, which are payable by CHS.
(3) The Company and the Selling Shareholders have granted to the U.S.
Underwriters a 30-day option to purchase up to an aggregate of 1,350,000
additional shares of Common Stock, and to the International Managers a
30-day option to purchase up to an aggregate of 450,000 additional shares of
Common Stock, on the same terms and conditions as the Common Stock offered
hereby, solely to cover over-allotments, if any. The Company will not
receive any of the proceeds for the sale of Common Stock by the Selling
Shareholders. If such options are exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively. See "Principal Shareholders"
and "Underwriting."
----------------
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL U.S. UNDERWRITERS,
SUBJECT TO PRIOR SALE, WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY THEM, AND
SUBJECT TO CERTAIN OTHER CONDITIONS INCLUDING THE RIGHT OF THE U.S.
UNDERWRITERS TO WITHDRAW, CANCEL, MODIFY OR REJECT ANY ORDER IN WHOLE OR IN
PART. IT IS EXPECTED THAT DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT
, 1997 AT THE OFFICES OF RAYMOND JAMES & ASSOCIATES, INC., ST.
PETERSBURG, FLORIDA.
----------------
RAYMOND JAMES & ASSOCIATES, INC.
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
CLEARY GULL REILAND & MCDEVITT INC.
The date of this Prospectus is , 1997
<PAGE>
[INSIDE FRONT COVER]
[MAP WITH LOCATIONS]
---------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT AND STABILIZING TRANSACTIONS, THE
PURCHASE OF SUCH SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE SECURITIES
OFFERED HEREBY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
---------------
All amounts in this Prospectus are stated in United States dollars. The
translation from foreign currencies to United States dollars is performed for
balance sheet accounts using exchange rates in effect at the balance sheet date
and for revenue and expense accounts using the average exchange rates during
the period.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
FINANCIAL INFORMATION AND SHARE DATA IN THIS PROSPECTUS (I) HAVE BEEN ADJUSTED
TO REFLECT A ONE-FOR-TWO REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK, PAR
VALUE $.001 PER SHARE (THE "COMMON STOCK"), ON MARCH 14, 1996, AND (II) ASSUME
NO EXERCISE OF THE OVER-ALLOTMENT OPTIONS DESCRIBED UNDER "UNDERWRITING."
THE COMPANY
CHS Electronics, Inc. ("CHS" or the "Company") is a leading international
distributor of microcomputer products, including personal computers,
peripherals, networking products and software. CHS operates in 29 countries
across three regions, including Western Europe, Eastern Europe and Latin
America, and services an active customer base of greater than 66,000 resellers.
Substantially all of the products sold by the Company are manufactured by 35
vendors, including such market leaders as Hewlett-Packard, Microsoft, Seagate,
IBM, Compaq, Western Digital, Intel, 3Com, Canon, Novell, Epson and Creative
Labs. 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 products in the world, the second largest distributor in Europe
and the largest distributor in Latin America and Eastern Europe. The Company
has no significant sales in the United States.
The Company has pursued an aggressive strategy of growth through
acquisitions which, together with growth in its existing business, has enabled
the Company to significantly increase net sales and achieve strong operating
results. Most recently, on June 20, 1997, the Company entered into an agreement
to purchase, for $160 million, Karma International S.A. ("Karma"), a distributor
of personal computer components to over 10,000 customers in Europe, the Middle
East and Asia. Net sales and operating earnings of Karma in 1996 were $700.2
million and $18.5 million, respectively. In the three-year period ended December
31, 1996, net sales of the Company increased from $359.2 million in 1994 to $1.9
billion in 1996 and operating earnings of the Company increased from $3.4
million in 1994 to $28.9 million in 1996. On a pro forma basis, assuming all
1996 acquisitions including the European and Latin American distribution
businesses of Merisel, Inc. ("Merisel") and the 1997 acquisitions of Karma and
Frank & Walter Computer GmbH ("Frank & Walter") were made on January 1, 1996,
the Company's 1996 net sales and operating earnings would have been $4.3 billion
and $60.9 million, respectively.
The large number and diversity of resellers make it cost efficient for
vendors to outsource to distributors such as the Company a 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.
The Company's Pan-European and Pan-Latin American presence strategically
positions the Company to take advantage of the consolidation trend in the
distribution industry. According to International Data Corporation ("IDC"), in
1996, Western Europe represented approximately 24% of the worldwide personal
computer market. Additionally, the regions in which the Company operates are
relatively underpenetrated compared to the United States. The penetration rate
with respect to
3
<PAGE>
computers for 1995 was 18.4% in Western Europe, 2.4% in Eastern Europe and 2.1%
in Latin America as compared to a penetration rate of 36.5% in the United
States. A significant portion of the Company's sales are in the emerging
markets of Eastern Europe and Latin America, regions which the Company believes
are underserved relative to the entire industry and offer substantial growth
opportunities. According to IDC, Latin America is expected to be the most
rapidly growing personal computer market in the world between 1997 and 2001.
IDC projects that personal computer sales in Latin America, Eastern Europe, the
Middle East, the Mediterranean and Africa, referred to by IDC as the "rest of
the world," will grow from $14.9 billion in 1997 to $21.6 billion in 1999,
representing a compound annual growth rate of 20.3%. This rate compares
favorably to a 9.0% compound annual growth rate projected by IDC for personal
computer sales in the United States over the same period.
CHS operates under a decentralized structure under which managers familiar
with the customs and needs of a particular country are delegated 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 structure, the Company believes that its business model of
focused distribution through locally managed full service facilities
integrating warehousing, purchasing, sales, credit and accounting functions
provides competitive and operating advantages.
The Company's objectives are to strengthen its position as a leading
distributor of microcomputer products in Western Europe, Eastern Europe and
Latin America and to expand into new regions including Africa, the Middle East
and Asia. In order to achieve these objectives, CHS intends to continue to
implement the following strategies:
/bullet/ GROW THROUGH ACQUISITIONS. A major portion of the Company's
growth is attributable to acquisitions and the Company intends to continue
its practice of making targeted purchases of high quality distributors in
selected markets. During the period which began January 1, 1994 and ended
March 31, 1997, the Company acquired a total of 34 companies, the most
significant of which were the seven companies from Merisel in Europe and
Latin America and Frank & Walter in Germany. 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. In order to reduce financial risk and enhance 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 Common Stock one year subsequent to the
acquisition. The Company also makes select acquisitions using cash or
stock without an earnout component. These local distributors generally are
attracted to combining with CHS in order to gain personal financial
liquidity, access to key product lines provided by CHS and enhanced vendor
credit facilities. 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 may gain entry into new markets with established local
distribution companies and can substitute the creditworthiness of CHS for
that of the local distributor.
/bullet/ OPERATE A FOCUSED DISTRIBUTION MODEL. The Company's strategy is
to operate as 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, Compaq 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 improved pricing. The Company believes this strategy also
enables it to develop greater expertise in the sale and
4
<PAGE>
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 more efficient inventory management, including
greater inventory turns, lower working capital requirements and fewer
stock keeping units ("SKUs"). CHS generally maintains up to 10,000 SKUs
per location while broadline distributors typically carry greater than
40,000 SKUs.
/bullet/ FURTHER DEVELOP AND PENETRATE INTERNATIONAL MARKETS. The Company
has focused its activities on the distribution of microcomputer products
in Western Europe and the emerging markets of Eastern Europe and Latin
America, regions which it believes are underserved with respect to the
distribution of microcomputer products and therefore provide significant
growth opportunities. The Company believes that the markets in Western
Europe, Eastern Europe and Latin America are complex due to the diversity
of language, regulatory, technical and other factors and provide
attractive opportunities for CHS to add value to its relationships with
its vendors and customers because of the presence of its knowledgeable
local management. Additionally, the Company intends to expand into new
regions including Africa, the Middle East and Asia. The Company attempts
to limit its exposure to declines in any one area or economy by its
presence in a large number of markets.
In December 1993, CHS commenced its operations as an international
distributor of microcomputer products. On March 14, 1996, the Company
reincorporated from Utah to Florida and effectuated a one-for-two reverse stock
split. 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.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company:
U.S. Offering .................................... 9,000,000
International Offering ........................... 3,000,000
----------
Total ............................................. 12,000,000
Common Stock outstanding after the Offering(1) ...... 26,746,914
Use of Proceeds .................................... To provide funds for the cash portion of the
Karma acquisition, amounts due to sellers under
other acquisition agreements, future acquisitions,
working capital to be used principally to take
advantage of discounts for early payment to
vendors and other general corporate purposes.
See "Use of Proceeds."
Nasdaq National Market Symbol ........................ CHSE
</TABLE>
- ----------------
(1) Does not include 3,815,478 shares of Common Stock reserved for issuance
upon exercise of currently outstanding options, additional options which
may be granted under the Company's 1994 Stock Incentive Plan, the
Directors and Officers 1997 Stock Option Plan and 1996 and 1997 Chief
Executive Officer Stock Option Plans (collectively, the "Plans") and
warrants.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OTHER DATA)
<TABLE>
<CAPTION>
PREDECESSOR(1) THE COMPANY
---------------- ---------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1992 1993(2) 1994(2)(3) 1995(4) 1996
---------------- ------------- ------------ ---------- -------------------------
PRO
ACTUAL FORMA(5)
------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ........................ $79,884 $ 146,408 $359,169 $936,703 $1,855,540 $4,279,961
Gross profit ..................... 7,178 9,440 25,186 67,987 131,108 286,047
Operating earnings ............... 2,078 365 3,388 10,799 28,873 60,900
Earnings (loss) before income
taxes and minority interest ...... 1,812 (482) 1,568 6,102 20,360 38,960
Net earnings (loss) ............... 1,156 (723) 965 4,305 12,166 23,214
Net earnings (loss) per share:
primary ........................... N/A $ (.32) $ .21 $ .59 $ 1.16 $ 1.23
fully diluted ..................... N/A (.32) .21 .59 1.16 1.23
Weighted average shares
outstanding:
primary ........................... N/A 2,269 4,693 7,283 10,438 18,868
fully diluted ..................... N/A 2,269 4,693 7,283 10,438 18,868
OTHER DATA:
Number of countries at
period end ........................ 1 2 10 15 28 34
Inventory turns(7) ............... 17 23 10 10 12 10
Days receivable at period end(8) . 32 26 35 33 36 28
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
1996 1997
---------- ----------------------
PRO
ACTUAL FORMA(6)
---------- -----------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ........................ $302,995 $877,103 $1,118,402
Gross profit ..................... 22,542 62,463 76,217
Operating earnings ............... 4,692 14,625 20,249
Earnings (loss) before income
taxes and minority interest ...... 3,366 9,776 14,045
Net earnings (loss) ............... 1,988 6,711 10,141
Net earnings (loss) per share:
primary ........................... $ .25 $ .44 $ .47
fully diluted ..................... .24 .44 $ .47
Weighted average shares
outstanding:
primary ........................... 7,862 15,343 21,527
fully diluted ..................... 8,183 15,423 21,607
OTHER DATA:
Number of countries at
period end ........................ 23 29 35
Inventory turns(7) ............... 10 10 9
Days receivable at period end(8) . 33 34 30
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997
--------------------------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(9) AS ADJUSTED(9)(10)
--------- ---------------- -------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...... $32,699 $ 360,224 $ 286,224
Working capital ............... 37,005 402,730 350,577
Total assets .................. 901,443 1,228,968 1,441,414
Notes payable .................. 172,497 172,497 191,409
Long-term debt .................. 51,017 51,017 51,143
Shareholders' equity ............ 130,439 496,164 564,964
</TABLE>
- ----------------
(1) In December 1993, the Company acquired its operating subsidiary in Germany
(the "Predecessor"). The Predecessor information provided represents the
operations of this acquired company prior to the acquisition and is
derived from the financial statements of the acquired company.
(2) Restated to give effect to the acquisition in 1995 of CHS Portugal and 16%
of CHS Czechia as of January 1, 1993, the date Comtrad, Inc. ("Comtrad")
acquired these companies. Comtrad is the former majority shareholder of
the Company and is currently a principal shareholder. See "Principal
Shareholders" and Note B to the Company's Consolidated Financial
Statements.
(3) Restated to give effect to the acquisition in 1995 of CHS England, CHS
France and CHS Belgium as of September 1, 1994, the date Comtrad acquired
these companies. See Note B to the Company's Consolidated Financial
Statements.
(4) Restated to give effect to the acquisition in 1995 of CHS Finland, CHS
Sweden and CHS BEK as of July 1, 1995, CHS Poland as of November 1, 1995,
and the acquisition in 1996 of CHS Brazil, CHS Slovakia, CHS Baltic, CHS
Bulgaria, CHS Romania and CHS Croatia as of December 31, 1994, the dates
Comtrad or Comtrad Holdings, Inc. ("CHI"), the sole shareholder of
Comtrad, acquired these companies. See Note B to the Company's Consolidated
Financial Statements.
(5) Gives effect to the acquisition in 1996 of CHS Hungary (51% ownership),
CHS Switzerland, CHS Merisel Mexico, CHS Merisel Latin America, CHS
Merisel Austria, CHS Merisel France, CHS Merisel Germany, CHS Merisel
Switzerland, CHS Merisel UK, Frank & Walter and Karma, assuming such
transactions had occurred as of January 1, 1996. See "Recent Developments"
and Note B to the Company's Consolidated Financial Statements and Pro
Forma Condensed Consolidated Financial Statements.
(6) Gives effect to the acquisition of Karma as if such transaction had
occurred as of January 1, 1996. See "Recent Developments" and Pro Forma
Condensed Consolidated Financial Statements.
(7) Calculated by dividing cost of sales by the average of beginning and
ending inventory, except for the year ended December 31, 1996. For the
year ended December 31, 1996, due to the impact of the acquisitions from
Merisel, the cost of sales for the fourth quarter of 1996 was multiplied
by four and divided by the average of the beginning and ending inventory
for the quarter.
(8) Calculated by dividing ending receivables by the average sales per day for
the last quarter for each period.
(9) Adjusted to give effect to the sale of 12,000,000 shares of Common Stock
offered by the Company at an assumed public offering price of $32.125 per
share and the application of net proceeds therefrom, as described under
"Use of Proceeds."
(10) Gives effect to the acquisition of Karma as if it had occurred on March 31,
1997.
6
<PAGE>
RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE
RISKS DESCRIBED BELOW. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS BEFORE PURCHASING THE SHARES OFFERED HEREBY.
THIS PROSPECTUS CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), WHICH REPRESENT THE COMPANY'S EXPECTATIONS OR 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.
ACQUISITIONS
The Company intends to use a significant portion of the net proceeds from
this Offering for the Karma transaction and to continue to pursue the
acquisition of other companies, assets or product lines that the Company
believes would complement or expand its existing business. Acquisitions involve
a number of risks that could adversely affect the Company's operating results,
including (i) the diversion of management's attention; (ii) the assimilation of
the operations and personnel of the acquired companies; (iii) the amortization
of acquired intangible assets; (iv) the assumption of potential liabilities,
disclosed or undisclosed, associated with the businesses acquired, which
liabilities may exceed the amount of indemnification available from the seller;
(v) the risk that the financial and accounting systems utilized by the
businesses acquired will not meet the Company's standards; (vi) the risk that
the businesses acquired will not maintain the quality of services that the
Company has historically provided; (vii) the dilutive effect of the use of the
Company's Common Stock as consideration for acquisitions; and (viii) the
inability to attract and retain qualified local management. There can be no
assurance that the Company will consummate future acquisitions, including the
Karma transaction, on satisfactory terms, if at all, that adequate financing
will be available on terms acceptable to the Company, if at all, or that any
acquired operations will be successfully integrated or that such operations
will ultimately have a positive impact on the Company, its financial condition
or results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Business--Strategy."
MANAGEMENT OF GROWTH
The Company has rapidly expanded its operations in recent years. Since its
public offering in June 1996, the Company has acquired 14 distributors in 12
countries, primarily in Western Europe and Latin America. The Company intends
to continue its acquisition strategy. The Company's significant growth and
recent acquisitions have placed, and are expected to continue to place,
substantial demands on the Company's managerial, operational, financial and
other resources. There can be no assurance that the
7
<PAGE>
Company will be able to successfully integrate the operations and management of
these acquired businesses. Further acquisitions will require the Company to
continue to invest in its operations, including its financial and management
information systems, and to increase its efforts to retain, motivate and
effectively manage its employees, all of which may significantly increase the
Company's operating expenses. There can be no assurance that the management
skills and systems currently in place will be adequate to implement its
strategy. Any failure by the Company to achieve and manage its growth as
planned could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Strategy."
RISKS ASSOCIATED WITH INTERNATIONAL SALES
Substantially all of the Company's sales are to customers outside of the
United States. Approximately 87% of the Company's sales were denominated in
currency other than the United States dollar as of March 31, 1997. Changes in
the value of foreign currencies relative to the United States dollar could
adversely affect the Company's results of operations and financial position,
and transaction gains and losses could contribute to fluctuations in the
Company's results of operations. When possible, the Company engages in currency
hedging transactions and certain other practices to reduce these risks. There
can be no assurance that fluctuations in foreign currency rates will not have a
material adverse effect on the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Asset Management" and "Business--Competition."
The Company's existing and planned international operations are subject to
political and economic uncertainties, including among others, inflation,
hyperinflation, risk of renegotiation or modification of existing agreements or
arrangements with governmental authorities, transportation, tariffs, export
controls, foreign exchange restrictions which limit the repatriation of
investments and earnings therefrom, changes in taxation, governmental
challenges to the Company's tax reduction strategies, hostilities and
confiscation of property. Changes related to these matters could have a
material adverse effect on the Company's business, financial condition and
results of operations.
RELIANCE ON KEY VENDORS
The Company obtains its products from its vendors under non-exclusive
distribution agreements which are subject to renewal annually and may be
canceled by either party on short notice. While the Company distributes the
products of approximately 35 vendors, approximately 49%, 35%, 34% and 26% of
its net sales during the years ended December 31, 1994, 1995, 1996 and the
first quarter of 1997, respectively, were derived from the sale of products
supplied by Hewlett-Packard. An additional 12% of net sales during 1996 and 10%
during the first quarter of 1997 were derived from the Company's next largest
supplier, Microsoft. The loss of these relationships would, and the loss of
certain other relationships could, have a material adverse effect on the
Company. See "Business--Vendor Relations."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent upon its ability to retain its current
personnel and to continue to attract and retain qualified personnel. The
Company is particularly dependent on the services of its Chairman of the Board,
Chief Executive Officer and President, Claudio Osorio. The Company does not
possess any key-man life insurance policies with respect to Mr. Osorio or any
other officer of the Company. There is intense competition for qualified
personnel, and there can be no assurance that the Company will be able to
continue to attract and retain the qualified personnel necessary for the
development of its business. Loss of the services of, or failure to recruit,
key personnel could have a material adverse effect on the Company.
COMPETITION; DECLINING GROSS PROFIT MARGINS
The Company's business is highly competitive. Certain of the Company's
competitors have greater financial, marketing, service and technical support
resources than the Company. There can be no
8
<PAGE>
assurance that the Company's resources will be sufficient to allow the Company
to compete effectively in the future. Continued increases in competition could
have a material adverse effect on the Company's results of operations because
of price reductions and potential loss of market share. Certain of the
Company's competitors may sell products at prices below those charged by the
Company. As a result of this price competition, the Company and its competitors
currently are experiencing downward pressure on gross margins, which the
Company expects to continue for the foreseeable future. The Company intends to
offset the impact of declines in its gross margins by reducing its operating
expenses as a percentage of net sales, although there can be no assurance of
the success of this strategy in future periods. See "Business--Competition."
RELIANCE ON CERTAIN MARKETS
Certain markets within which the Company operates represent a high
percentage of the Company's total operating earnings and net sales. While net
sales in Eastern Europe represented only 11.6% and 9.2% of the Company's total
sales for the year ended December 31, 1996 and the quarter ended March 31,
1997, respectively, operating income related to such sales accounted for 36.1%
and 19.0%, respectively, of the Company's total operating income as a result of
higher margins applicable to sales in Eastern Europe. Additionally, sales in
Germany represented 35% of net sales for the quarter ended March 31, 1997 as a
result of the Frank & Walter and Merisel acquisitions. Decreases in the volume
of sales in such regions or declines in operating margins could have a material
adverse effect on the Company's results of operations or financial condition.
VARIABILITY OF CUSTOMER REQUIREMENTS; NATURE OF CUSTOMER COMMITMENTS ON ORDERS
The level and timing of orders placed by the Company's customers vary due
to a number of factors, including customer attempts to manage inventory,
changes in customers' strategies and variations in demand for products. The
Company relies on its estimate of anticipated future volumes when making
commitments regarding the quantities and the mix of products that it intends to
carry in inventory. The Company does not have long term contracts with its
customers and a variety of conditions could cause customers to reduce their
orders. Any significant reduction in customer orders could adversely impact the
Company. See "Business--Products and Customers."
POTENTIAL QUARTERLY FLUCTUATIONS; SEASONALITY OF SALES
The Company may experience variability in its net sales and net income on
a quarterly basis as a result of many factors, including the condition of the
microcomputer industry in general, shifts in demand for software and hardware
products and industry announcements of new products or upgrades. The Company's
planned operating expenditures are based on sales forecasts. If revenues do not
meet expectations in any given quarter, operating results may be materially
adversely affected. Sales in Europe in the first and fourth quarters of each
year are typically higher than in the second and third quarters. In Latin
America, sales in the third and fourth quarters of each year are typically
higher than in the first and second quarters. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality."
POSSIBLE NEED FOR ADDITIONAL CAPITAL
The Company has grown through both acquisitions and internal expansion,
both of which have resulted in the need for significant amounts of capital. To
maintain historical levels of growth, the Company may need to seek additional
funding through public or private financing and may, when attractive sources of
capital become available, elect to obtain capital in anticipation of such
needs. Adequate funds for these purposes may not be available when needed or
may not be available on terms favorable to the Company. If additional funds are
raised by issuing equity securities, dilution to existing shareholders may
result. If funding is insufficient, the Company may be required to delay,
reduce the scope of or eliminate some or all of its expansion programs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
9
<PAGE>
EFFECTS OF TECHNOLOGICAL CHANGE
The products sold by the Company are characterized by rapidly changing
technology, frequent new product introductions and evolving industry standards
that can render the products marketed by the Company obsolete or unmarketable
in a relatively short period of time. The Company's future success will depend
upon its ability to limit its exposure to obsolescence in its inventory and to
gain access to its vendors' new product lines, as well as product lines of any
additional vendors that release new and desirable technology. Although the
Company attempts to enter into stock rotation agreements with its vendors
permitting the return of inventory, there can be no assurance that these
efforts will be successful. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Asset Management."
CHANGING METHODS OF MICROCOMPUTER PRODUCTS AND SOFTWARE DISTRIBUTION
The methods by which microcomputer products manufacturers distribute their
products to the end-user are constantly changing and alternative strategies are
continually being evaluated. Several major manufacturers have announced that
they are considering distribution strategies whereby distributors such as the
Company may be required to perform more value-added services during the
distribution process. These services could include basic assembly and
configuration of products before distribution to customers. Performing such
activities would require the Company to expand its existing competencies. The
Company has only limited experience in performing services of this type, and
its relationships with its vendors could be adversely affected if it fails to
meet vendors' distribution service requirements. The Company cannot predict
whether or to what extent its vendors will modify their distributor service
requirements.
In the quarter ended March 31, 1997, approximately 14% of the Company's
sales were related to software products. The manner in which microcomputer
software is distributed and sold is changing and new methods of distribution
and sale may emerge or expand. Software vendors have sold, and may intensify
their efforts to sell, their products directly to end-users. From time to time
certain vendors have instituted programs for the direct sale of large order
quantities of software to certain major corporate accounts and these types of
programs may continue to be developed and used by various vendors. In addition,
certain major vendors have implemented programs for master copy distribution
(site licensing) of software. These programs generally grant an organization
the right to make any number of copies of software for distribution within the
organization provided that the organization pays a fee to the vendor for each
copy made. Also, vendors may attempt to increase the volume of software
products distributed electronically via the Internet or through CD-ROM. Any of
these competitive programs, if successful, could have a material adverse effect
on the Company's business, financial condition and results of operations.
SHARE PRICE VOLATILITY
The market for securities of technology companies historically has been
more volatile than the market for stocks in general. The price of the Common
Stock of the Company may be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, announcement of
acquisitions, vendor additions or cancellations and the availability of new
products. In addition, the stock market has from time to time experienced
extreme price and volume fluctuations that have particularly affected the
market price for many high technology companies and that often have been
unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Common Stock. See
"Price Range of Common Stock."
CONCENTRATION OF COMMON STOCK OWNERSHIP AND ANTI-TAKEOVER CONSIDERATIONS
The Company's Board of Directors has the authority to issue 5,000,000
shares of Preferred Stock in one or more series and to fix the powers,
designations, preferences and relative rights thereof without any further vote
or action by the Company's shareholders. The issuance of Preferred Stock could
dilute
10
<PAGE>
the voting power of holders of Common Stock and could have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company's Articles of Incorporation provide that the holders of a majority of
the Preferred Stock, voting separately from the holders of the Common Stock,
must approve certain transactions. These, and certain other provisions of the
Company's Articles of Incorporation and By-laws, as well as Florida law, may
operate in a manner that could discourage or render more difficult a takeover
of the Company or the removal of management or may limit the price certain
investors may be willing to pay in the future for shares of Common Stock. See
"Principal Shareholders" and "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
this Offering, including sales pursuant to Rule 144 promulgated under the
Securities Act or otherwise, or the perception that such sales could occur, may
adversely affect the market price of the Company's Common Stock. Upon
completion of this Offering, the Company will have 26,746,914 shares of Common
Stock outstanding. Of these shares, all of the 12,000,000 shares sold in this
Offering will be freely tradable without restriction or further registration
under the Securities Act. Of the remaining 14,746,914 shares, 6,599,111 shares
are deemed "restricted shares" under Rule 144 in that they were originally
issued and sold by the Company in private transactions in reliance upon
exemptions under the Securities Act. Of those shares, 5,804,105 shares are held
by persons deemed "affiliates" of the Company as such term is defined in Rule
144 and 795,006 shares are held by persons who are not affiliates of the
Company. The restricted shares may not be sold except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption
from registration such as the exemption provided by Rule 144 under the
Securities Act. Of the restricted shares (i) 465,029 shares held by
non-affiliates are eligible for immediate resale under the provisions of Rule
144(k), and (ii) 5,804,105 shares held by executive officers, directors and
certain shareholders are subject to lock-up agreements that prohibit their
resale prior to 90 days from the date of this Prospectus without the prior
consent of Raymond James & Associates, Inc. and thereafter may be sold subject
to the volume limitations and other provisions of Rule 144. See "Description of
Capital Stock" and "Underwriting."
11
<PAGE>
RECENT DEVELOPMENTS
ACQUISITIONS
On June 20, 1997, the Company entered into an agreement to purchase Karma
International S.A., a distributor of personal computer components to over 10,000
customers in Europe, the Middle East and Asia. Karma's product line includes
mass storage products, CPUs, memory chips, motherboards, sound, video and other
cards and monitors. Karma is a focused distributor which carries approximately
500 SKUs from 14 vendors including Quantum, Western Digital, Maxtor, Cyrix and
AMD. These products represent the basic components of a personal computer and
may be used without regard to the specific language, regulatory and technical
factors of individual markets. As a result of the universal nature of these
products, Karma is able to centralize warehousing and ship approximately 75% of
its products from a single facility in Amsterdam, The Netherlands. Karma's
customers are primarily personal computer assemblers, systems integrators and
value-added resellers ("VARs"). The Company believes that Karma's principal
competitive advantages are its low cost operating model and efficient
distribution system. Karma operates in 18 countries through 28 offices in
Europe, the Middle East and Asia.
Karma was organized in July 1990 and, for the twelve months ended December
31, 1996, had net sales of approximately $700.2 million, operating earnings of
$18.5 million and net profits of $15.1 million.
The acquisition of Karma provides the Company entry into the high growth,
emerging markets of Asia and the Middle East and enhances its position as a
leading distributor of mass storage products throughout Europe. The acquisition
of Karma will also provide the Company with additional economies of scale with
regard to purchasing and logistics and enable it to further broaden its
customer base. Upon completion of the acquisition, the Company believes it will
be the largest distributor of mass storage products in the world.
The contract purchase price for Karma is $160 million to be paid by
delivery of (i) $74 million in cash and (ii) $86 million in Common Stock, with
the number of shares determined based upon the average closing price over a
specified period. Karma's existing management will continue to operate Karma as
a subsidiary of CHS. The transaction is expected to be completed in August 1997,
but is subject to a number of conditions including the completion of this
Offering. Upon completion of the acquisition of Karma, one representative of
Karma will immediately be elected to the Board of Directors of CHS with an
additional member to be added in 1998.
On June 4, 1997, the Company announced it had signed definitive agreements
for the purchase of four privately held distribution companies operating in
South America and Eastern Europe: Ameritech Exports, Inc., a Miami-based
distributor of Compaq products throughout South America with 1996 net sales of
$13 million; Ameritech Argentina, S.A., an Argentina-based distributor of
microcomputer products with 1996 net sales of $18 million; CompExpress
Informatica Ltda., one of the largest IBM distributors in Brazil with 1996 net
sales of $51 million; and Atlantis Skupina, a distributor of microcomputer
products in Slovenia with 1996 net sales of $6 million.
On May 15, 1997, the Company exercised an option to acquire Lars Krull
Holding A/S, a distributor of microcomputer products with operations in Denmark,
Norway, Sweden and Ireland. The company is being acquired through an earnout
based on future financial performance payable in a combination of stock and
cash. The net sales for the year ended April 1997 were $43 million. The Company
expects to complete the acquisition in July 1997.
On March 20, 1997, the Company completed its acquisition of the operations
of Frank & Walter, which the Company believes is the fourth largest computer
distributor in Germany with over 10,000 active dealers, for 2,200,000
unregistered shares of Common Stock. As a result of this acquisition, the
Company believes it is the largest distributor of microcomputer products in
Germany. The Company intends to combine the operations of Frank & Walter, based
in Braunschweig, with its operation in Germany. Carsten Frank, the founder of
Frank & Walter, has become a director of CHS and the CHS executive vice
president responsible for the Company's operations in Europe.
The Company has acquired certain other companies in 1997 that individually
or in the aggregate are not deemed to be significant to the operations of the
Company.
On October 4, 1996, the Company completed the acquisition of the assets
and the assumption of the liabilities of the distribution businesses of Merisel
in Austria, France, Germany, Switzerland and the
12
<PAGE>
United Kingdom as well as Merisel's export operations serving Latin America
from Miami, Florida and a distribution business in Mexico. The purchase price,
as adjusted, was approximately $148 million and was funded through cash of $30
million and $118 million of debt assumed or refinanced.
The following table sets forth acquisitions made by the Company since its
public offering in June 1996, the service areas of the operations acquired and
the acquisition date. Except as noted below, these acquisitions have been
included in the Company's financial statements from the date the entity was
acquired.
SUBSIDIARY(1) SERVICE AREA ACQUISITION DATE
- --------------------------------------- ---------------- -----------------
CHS Dinexim Latin America May 1997
CHS Access and Agora Czech Republic May 1997
CHS International High Tech Marketing Africa April 1997
Frank & Walter(2) Germany March 1997
CHS Estonia Estonia January 1997
CHS Merisel Austria Austria September 1996
CHS Merisel France France September 1996
CHS Merisel Germany Germany September 1996
CHS Merisel Switzerland Switzerland September 1996
CHS Merisel UK UK September 1996
CHS Merisel Latin America Latin America September 1996
CHS Merisel Mexico Mexico September 1996
CHS Ecuador(3) Ecuador June 1996
CHS Russia Russia June 1996
- ----------------
(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 results of operations of Frank & Walter have been included as of
January 1, 1997.
(3) The Company owns 51% of CHS Ecuador.
POTENTIAL MERGER TRANSACTION
The Company is currently engaged in discussions with the shareholders of
CHI concerning the possible merger of CHI and its wholly owned subsidiary,
Comtrad, into the Company. Substantially all of the consolidated assets of CHI
and Comtrad are shares of Common Stock (24.4% of the shares outstanding prior
to the Offering). The terms of the merger are still under negotiation and there
can be no assurance that agreement on these or any other terms will be reached.
It is currently contemplated that the shareholders of CHI will receive newly
issued shares of the Company in an aggregate value equal to the difference
between the fair value of the assets of CHI and Comtrad at the time of the
merger and the fair value of the liabilities of CHI and Comtrad assumed by the
Company pursuant to the merger.
The Company believes that the transaction will be in the best interest of
the Company's shareholders as it will reduce the concentration of shareholder
ownership in the Company through the termination of Comtrad and CHI and the
corresponding payment of shares of Common Stock to the prior shareholders of
such entities. Claudio Osorio, the Chairman, Chief Executive Officer and
President of the Company, is the President of Comtrad and CHI. It is currently
contemplated that conditions to the consummation of the merger will include (i)
the receipt by the Company of an opinion from Raymond James & Associates, Inc.,
one of the representatives of the Underwriters, to the effect that the terms of
the merger are fair to the Company from a financial point of view and (ii)
completion by the Company of its tax and general due diligence review. Approval
by the shareholders of the Company will not be required to effectuate the
merger.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company (after deducting underwriting discounts and
commissions and estimated offering expenses) from the sale of 12,000,000 shares
of Common Stock offered by the Company, assuming a public offering price of
$32.125 per share, are estimated to be approximately $365.7 million ($395.9
million if the U.S. Underwriters' and International Managers' over-allotment
options are exercised in full). In the event that the over-allotment option is
exercised, the Company will not receive any portion of the proceeds from the
sale of shares by the Selling Shareholders. See "Principal and Selling
Shareholders."
The Company expects to use $74.0 million of the proceeds of the Offering
for payment of the cash portion of the Karma acquisition. See "Recent
Developments." The balance of the proceeds will be used for payments to sellers
under acquisition agreements ($38.2 million), future acquisitions (approximately
$20 million) and working capital to be used principally to take advantage of
discounts for early payment to vendors. At the present time, the Company has not
entered into binding contracts with respect to certain contemplated acquisitions
and no assurance can be given that any such acquisitions will be consummated or
when additional acquisitions will occur. See "Risk Factors--Possible Need for
Additional Capital" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Pending utilization as described above, the net proceeds of this Offering
will be invested in short- term, high-grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future, but intends instead
to retain any future earnings for reinvestment in its business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors deems relevant.
14
<PAGE>
PRICE RANGE OF COMMON STOCK
The following table sets forth for the periods indicated the high and low
closing 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. Prices for prior periods have been adjusted to reflect the effect of
the reverse stock split.
<TABLE>
<CAPTION>
FISCAL YEAR PERIOD HIGH LOW
- ------------- ----------------------------------------------- -------- -------
<S> <C> <C> <C>
1995 First Quarter .............................. $ 8-1/2 $ 6
Second Quarter .............................. 11 8-3/4
Third Quarter .............................. 11-1/2 8
Fourth Quarter .............................. 11-1/2 7-1/2
1996 First Quarter .............................. $16-1/2 $ 8
Second Quarter .............................. 17 10
Third Quarter .............................. 14-1/2 10
Fourth Quarter .............................. 18-3/4 10-3/4
1997 First Quarter .............................. $24 $16
Second Quarter .............................. 26-5/8 17-1/4
Third Quarter (through July 22, 1997) ......... 34 26
</TABLE>
The last reported sale price of the Common Stock as reported on the Nasdaq
National Market on July 22, 1997 was $32.125 per share. As of July 22, 1997, the
outstanding Common Stock was held of record by 197 shareholders. The Company
believes that it has in excess of 400 beneficial owners.
15
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1997 the capitalization of
the Company, and as adjusted to give effect to the sale by the Company of the
12,000,000 shares of the Common Stock offered hereby at an assumed public
offering price of $32.125 per share and the application of the estimated net
proceeds therefrom as described under "Use of Proceeds." This table 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 the notes thereto contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(2) AS ADJUSTED(3)
------------- ---------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable ....................................... $ 172,497 $ 172,497 $ 191,409
========= ========= =========
Long-term debt ....................................... $ 51,017 $ 51,017 $ 51,143
Shareholders' equity:
Preferred Stock, $.001 par value, 5,000,000 shares
authorized;
no shares outstanding .............................. -- -- --
Common Stock, $.001 par value, 100,000,000 shares
authorized; 14,692,760 shares outstanding; 24,692,760
shares outstanding,
as adjusted(1) .................................... 15 27 30
Additional paid-in capital ........................ 120,380 486,093 554,890
Retained earnings .................................... 23,435 23,435 23,435
Foreign currency translation adjustment ............ (13,391) (13,391) (13,391)
--------- --------- ---------
Total shareholders' equity ........................ 130,439 496,164 564,964
--------- --------- ---------
Total capitalization .............................. $ 181,456 $ 547,181 $ 616,107
========= ========= =========
</TABLE>
- ----------------
(1) Does not include 2,532,361 shares of Common Stock reserved for issuance
upon exercise of currently outstanding options, additional options which
may be granted under the Plans and warrants.
(2) Adjusted to give effect to the sale of 12,000,000 shares of Common Stock
offered by the Company at an assumed offering price of $32.125 per share.
(3) Adjusted to give effect to the sale of 12,000,000 shares of Common Stock
offered hereby by the Company at an assumed offering price of $32.125 per
share and the acquisition of Karma as if it had occurred on March 31,
1997.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
The following tables set forth certain financial data for each year in the
five-year period ended December 31, 1996 and for the three-month periods ended
March 31, 1996 and 1997. The information presented as of and for the years
ended December 31, 1992, 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 certified public accountants. The
Selected Consolidated Financial Data for the three-month periods ended March
31, 1996 and 1997 have been derived from the Company's unaudited consolidated
financial statements. In the opinion of management, all unaudited consolidated
financial statements used to derive the information presented have been
prepared on the same basis as the audited financial statements and include all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the results for the periods presented. The pro forma
information presented below has been prepared based upon the historical
financial statements of the Company and the acquired subsidiaries for the
periods stated above. Such pro forma information may not be indicative of the
results that would have occurred if the acquisitions had been consummated on
January 1, 1996, or of the operating results that may be achieved by the
combined companies in the future. The following data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR(1) THE COMPANY
------------------ ----------------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1992 1993(2) 1994(2)(3) 1995(4)
------------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales .............................. $ 79,884 $ 146,408 $ 359,169 $ 936,703
Cost of goods sold ..................... 72,706 136,968 333,983 868,716
Gross profit ........................... 7,178 9,440 25,186 67,987
Operating expenses ..................... 5,100 9,075 21,798 57,188
Operating earnings ..................... 2,078 365 3,388 10,799
Interest income ........................ (97) (229) (250) (1,757)
Interest expense ........................ 363 1,076 2,070 6,454
Earnings (loss) before income taxes and
minority interest ..................... 1,812 (482) 1,568 6,102
Income taxes ........................... 656 241 603 1,797
Minority interest ........................ -- -- -- --
Net earnings (loss) ..................... 1,156 (723) 965 4,305
Net earnings (loss) per share:
primary .............................. N/A (.32) .21 .59
fully diluted ........................ N/A (.32) .21 .59
Weighted average shares outstanding:
primary .............................. N/A 2,269 4,693 7,283
fully diluted ........................ N/A 2,269 4,693 7,283
OTHER DATA:
Number of countries at period end ...... 1 2 10 15
Inventory turns(7) ..................... 17 23 10 10
Days receivable at period end(8) ...... 32 26 35 33
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------------
1996 1996 1997
------------------------------ ------------- ---------------------------
ACTUAL PRO FORMA(5) ACTUAL PRO FORMA(6)
--------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales .............................. $ 1,855,540 $ 4,279,961 $ 302,995 $ 877,103 $1,118,402
Cost of goods sold ..................... 1,724,432 3,993,914 280,453 814,640 1,042,185
Gross profit ........................... 131,108 286,047 22,542 62,463 76,217
Operating expenses ..................... 102,235 225,147 17,850 47,838 55,968
Operating earnings ..................... 28,873 60,900 4,692 14,625 20,249
Interest income ........................ (3,199) (4,166) (614) (1,767) (1,911)
Interest expense ........................ 11,712 26,106 1,940 6,616 8,115
Earnings (loss) before income taxes and
minority interest ..................... 20,360 38,960 3,366 9,776 14,045
Income taxes ........................... 6,086 13,457 1,059 2,641 3,412
Minority interest ........................ 2,108 2,289 319 424 492
Net earnings (loss) ..................... 12,166 23,214 1,988 6,711 10,141
Net earnings (loss) per share:
primary .............................. 1.16 1.23 .25 .44 .47
fully diluted ........................ 1.16 1.23 .24 .44 .47
Weighted average shares outstanding:
primary .............................. 10,438 18,868 7,862 15,343 21,527
fully diluted ........................ 10,438 18,868 8,183 15,423 21,607
OTHER DATA:
Number of countries at period end ...... 28 34 23 29 35
Inventory turns(7) ..................... 12 10 10 10 9
Days receivable at period end(8) ...... 36 28 33 34 30
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR(1) THE COMPANY
---------------- -----------------------------------------------
AT DECEMBER 31,
----------------------------------------------------------------
1992 1993(2) 1994(2)(3) 1995(4) 1996
---------------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...... $ 210 $ 603 $ 8,368 $ 11,171 $ 35,137
Working capital (deficit) ...... 662 (1,426) 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
<CAPTION>
AT MARCH 31, 1997
------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(9)
---------- -------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...... $ 32,699 $ 286,224
Working capital (deficit) ...... 37,005 350,577
Total assets .................. 901,443 1,441,414
Notes payable .................. 172,497 191,409
Long-term debt .................. 51,017 51,143
Shareholders' equity ............ 130,439 564,964
</TABLE>
- ----------------
(1) In December 1993, the Company acquired the Predecessor. The Predecessor
information provided represents the operations of this acquired company
prior to the acquisition and is derived from the financial statements of
the acquired company.
(2) Restated to give effect to the acquisition in 1995 of CHS Portugal and 16%
of CHS Czechia as of January 1, 1993, the date Comtrad acquired these
companies. See Note B to the Company's Consolidated Financial Statements.
(3) Restated to give effect to the acquisition in 1995 of CHS England, CHS
France and CHS Belgium as of September 1, 1994, the date Comtrad acquired
these companies. See Note B to the Company's Consolidated Financial
Statements.
(4) Restated to give effect to the acquisition in 1995 of CHS Finland, CHS
Sweden and CHS BEK as of July 1, 1995, CHS Poland as of November 1, 1995,
and the acquisition in 1996 of CHS Brazil, CHS Slovakia, CHS Baltic, CHS
Bulgaria, CHS Romania and CHS Croatia as of December 31, 1994, the dates
Comtrad or CHI acquired these companies. See Note B to the Company's
Consolidated Financial Statements.
(5) Gives effect to the acquisition in 1996 of CHS Hungary (51% ownership),
CHS Switzerland, CHS Merisel Mexico, CHS Merisel Latin America, CHS
Merisel Austria, CHS Merisel France, CHS Merisel Germany, CHS Merisel
Switzerland, CHS Merisel UK, Frank & Walter, and Karma assuming such
transactions had occurred as of January 1, 1996. See "Recent Developments"
and Note B to the Company's Consolidated Financial Statements and Pro
Forma Condensed Consolidated Financial Statements (unaudited).
(6) Gives effect to the acquisition of Karma assuming said transaction had
occurred as of January 1, 1996.
(7) Calculated by dividing cost of sales by the average of beginning and
ending inventory, except for the year ended December 31, 1996. For the
year ended December 31, 1996, due to the impact of the acquisitions from
Merisel, the cost of sales for the fourth quarter of 1996 was multiplied
by four and divided by the average of the beginning and ending inventory
for such quarter.
(8) Calculated by dividing ending receivables by the average sales per day for
the last quarter for each period.
(9) Adjusted to give effect to the acquisition of Karma and the sale of
12,000,000 shares of Common Stock offered by the Company at an assumed
public offering price of $32.125 per share and the application of net
proceeds therefrom, as if such events had occurred on March 31, 1997, as
described under "Use of Proceeds."
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO AND THE
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) APPEARING
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
CHS distributes microcomputer products, including personal computers,
peripherals, networking products and software, in 29 countries across Western
Europe, Eastern Europe and Latin America. The Company has pursued and expects
to continue to pursue an aggressive strategy of growth through acquisitions of
distributors in these and other regions. Together with growth in its existing
business, such acquisitions have enabled the Company to significantly increase
net sales and achieve strong operating results. In the three-year period ended
December 31, 1996, the Company's net sales increased from $359.2 million in
1994 to $1.9 billion in 1996, and operating earnings increased from $3.4
million in 1994 to $28.9 million in 1996. The Company attributes these
increases in sales to increased consumer demand for the Company's products and,
more recently, to the expansion of the range of products offered. The Company
has experienced reduced gross margins in recent years due to increasing
competition, particularly in Western Europe, and due to the increased portion
of the Company's sales represented by this region after the Company's
acquisition of certain operations of Merisel in October 1996.
The Company derives all of its operating income and cash flow from its
operating subsidiaries, most of which are organized and operated outside the
United States. Generally, the Company purchases its inventory with United
States dollars and sells in other currencies. The Company seeks to limit its
exposure to the risk of currency fluctuations through hedging. See "--Currency
Risk Management."
The following table sets forth acquisitions made by the Company, the
service areas of the operations acquired and the dates as of which the results
of operations of the acquired company were included in the Company's financial
statements.
<TABLE>
<CAPTION>
DATE INCLUDED IN
SUBSIDIARY(1) SERVICE AREA FINANCIAL STATEMENTS
- --------------------------------------- ---------------- ---------------------
<S> <C> <C>
CHS Dinexim Latin America May 1997
CHS Access and Agora Czech Republic May 1997
CHS International High Tech Marketing Africa April 1997
Frank & Walter Germany January 1997
CHS Estonia Estonia January 1997
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 Peru March 1996
CHS Hungary(3) Hungary February 1996
CHS Poland Poland November 1995
CHS Sweden Sweden July 1995
CHS Finland Finland July 1995
CHS BEK Latin America July 1995
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
DATE INCLUDED IN
SUBSIDIARY(1) SERVICE AREA FINANCIAL STATEMENTS
- ----------------- ------------------------------- ---------------------
<S> <C> <C>
CHS Brazil Brazil November 1994
CHS England England September 1994
CHS France France September 1994
CHS Belgium Belgium and Luxembourg September 1994
CHS Croatia Croatia September 1994
CHS Bulgaria Bulgaria September 1994
CHS Baltic Lithuania, Latvia and Estonia September 1994
CHS Promark Latin America(4) July 1994
CHS Slovakia Slovakia January 1994
CHS Czechia (5) Czech Republic January 1993
CHS Portugal Portugal January 1993
CHS Germany Germany January 1993
</TABLE>
- ----------------
(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 51% of CHS Hungary.
(4) Includes operating subsidiaries in Argentina, Chile, Colombia and
Venezuela.
(5) The Company acquired a 16% interest in CHS Czechia in January 1993 and
acquired the remaining 84% in October 1995.
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 Earnings:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------------------- ----------- -----------------------
PRO PRO
ACTUAL FORMA ACTUAL FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ............... 93.0 92.7 92.9 93.3 92.6 92.9 93.2
------- ------- ------- ------- ------- ------- -------
Gross profit ..................... 7.0 7.3 7.1 6.7 7.4 7.1 6.8
Operating expenses ............... 6.1 6.1 5.5 5.3 5.9 5.4 5.0
------- ------- ------- ------- ------- ------- -------
Operating earnings ............... .9 1.2 1.6 1.4 1.5 1.7 1.8
Interest income .................. (.1) (.1) (.1) (.1) (.2) (.2) (.2)
Interest expense .................. .6 .6 .6 .6 .6 .8 .7
------- ------- ------- ------- ------- ------- -------
Earnings before income taxes ...... .4 .7 1.1 .9 1.1 1.1 1.3
Income taxes ..................... .1 .2 .3 .3 .3 .3 .4
Minority interest .................. -- -- .1 .1 .1 -- --
------- ------- ------- ------- ------- ------- -------
Net earnings ..................... .3% .5% .7% .5% .7% .8% .9%
======= ======= ======= ======= ======= ======= =======
</TABLE>
FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996
NET SALES. Net sales increased $574.1 million, or 189.5%, from $303.0
million in the first quarter of 1996 to $877.1 million in the first quarter of
1997 due to acquisitions and, to a lesser extent, internal growth. Of the
increase in net sales, new subsidiaries having no first quarter 1996 operations
contributed $307.4 million. Net sales of subsidiaries consolidated for both 1996
and 1997, excluding operations where CHS companies were integrated with
operations acquired from Merisel, grew from $140.3 million to $184.3 million, or
31.4%. 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. Due to the combined financial
reporting of the Merisel subsidiaries with the CHS subsidiaries, it is not
possible to present comparable growth rates for sales of CHS subsidiaries
consolidated for both 1996 and 1997.
GROSS PROFIT. Gross profit increased $39.9 million, or 177.1%, from $22.5
million in the first quarter of 1996 to $62.5 million in the first quarter of
1997 due principally to acquisitions and, to a lesser
19
<PAGE>
extent, internal growth. Newly acquired companies contributed $22.9 million of
gross profit. Gross profit of subsidiaries consolidated for both 1997 and 1996,
excluding operations where CHS companies were integrated with former Merisel
operations, grew from $11.4 million to $14.8 million, or 30.4%.
Gross margin decreased from 7.4% in the first quarter of 1996 to 7.1% in
the first quarter of 1997. The decrease was due to lower gross margins from
subsidiaries located in Eastern Europe and Latin America. The Company attributes
the decrease in gross margin to competitive pressures in these regions, and the
fact that the gross margin of the former Merisel companies acquired by the
Company in Latin America has been generally lower than that of the Company. The
gross margin was also negatively affected in the first quarter of 1997 by lower
gross margins from subsidiaries in the United Kingdom and France acquired from
Merisel, offset by increased gross margins in German operations. This increase
in gross margins in Germany from those in the first quarter of 1996 is
attributed to the German operation acquired from Merisel, which has a wider
product offering with better margins than the Company's other German operations.
The Company expects that overall gross margins may continue to decline in 1997
due to continued competitive pricing pressures across all regions.
OPERATING EXPENSES. Operating expenses as a percentage of net sales
declined from 5.9% in the first quarter of 1996 to 5.5% in the first quarter of
1997. The decline was due to efficiencies gained through increased volume, the
cost savings of merging operations in the United Kingdom and France, and the
Company's efforts to control costs. Operating expenses for both periods include
the results of foreign currency transactions. Such results were a net gain of
$75,000 and $564,000 in first quarter of 1996 and 1997, respectively.
NET INTEREST EXPENSE. Net interest expense increased $3.5 million or 266%
from $1.3 million in the first quarter of 1996 to $4.8 million in the first
quarter of 1997 due to increased borrowings by the Company to support increased
sales.
INCOME TAXES. Income taxes as a percentage of earnings before income taxes
and minority interest in subsidiaries decreased from 31.5% in the first quarter
of 1996 to 27.0% in the first quarter of 1997. This change is due to lower tax
rates in certain countries, non-taxed income in some countries and the use of
net operating loss carryforwards, 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.
1996 COMPARED TO 1995
NET SALES. Net sales increased $918.8 million, or 98.1%, from $936.7
million in 1995 to $1.9 billion in 1996 due principally to acquisitions and, to
a lesser extent, internal growth. Of the increase in net sales, subsidiaries
not included in both 1995 and 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%. Subsidiaries not included in both 1995 and 1996 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 by 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 margins of all its European
subsidiaries in 1996. The Company expects that overall gross
20
<PAGE>
margin may continue to decline in 1997 due to continued competitive pricing
pressures and 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. In addition, the acquisition of Frank &
Walter, which operates in Germany, where gross margins are generally lower,
will also impact overall gross margin. The gross margin of the combined Merisel
companies for the nine months ended September 30, 1996 was 6.9%.
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 sales 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, write-off 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.
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 TAXES. 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 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 typically have 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.
21
<PAGE>
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 TAXES. Income taxes as a percentage of earnings before income
taxes decreased from 38.5% in 1994 to 29.4% in 1995. The decrease in the
Company's net effective tax rate is attributed to the utilization of net
operating loss carryforwards and lower foreign tax rates, offset to some extent
by non-deductible goodwill amortization.
SEASONALITY
The Company typically experiences 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 Latin 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 of $8.0 million was provided by operating activities in the first
quarter of 1997 as compared to the use of $8.0 million in operating activities
in the first quarter of 1996. In the first quarter of 1997 cash was generated
as a result of decreases in receivables, inventory and other current assets,
offset by decreases in accounts payable. In the first quarter of 1996, cash was
used due principally to increases in inventory and other current assets offset
by increases in accounts payable and other current liabilities. The factors in
1997 are consistent with a seasonal reduction in sales in the first quarter of
1997 compared to the fourth quarter of 1996. Cash of approximately $1.6 million
was used for investing activities in the first quarters of 1997 and 1996 for
fixed asset additions. Cash of $2.8 million was provided in the first quarter
of 1997 due principally to acquisitions. Cash of $9.7 million was used in
financing activities in the first quarter of 1997 and cash of $11.7 million was
provided from financing activities in the first quarter of 1996. The
transactions in both years principally pertained to borrowing or repayments
under financing arrangements.
CHS Promark and one of its subsidiaries (collectively, the "Borrowers") are
parties to a loan and security agreement dated February 5, 1996, as amended,
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 Borrowers, at
either a variable market rate based on the prime rate of the lender or LIBOR.
The agreement limits the ability of the Borrowers 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 the Borrowers' assets. The
agreement contains certain restrictive covenants. CHS Promark was in violation
of certain covenants at December 31, 1996; however, waivers were granted in
March 1997 through June 1997. The Company believes it will be in compliance with
such covenants at June 30, 1997 or will obtain an additional waiver. The Company
has guaranteed such indebtedness.
The Company's subsidiaries typically enter into short-term credit
agreements with financial institutions in their countries of operations. As of
March 31, 1997, the aggregate amount available under these agreements was $201
million and $169 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 March 31, 1997 was 6.7%. The Company
typically guarantees these loans.
The Company's principal need for additional cash in 1997 will be for the
purchase of additional inventory to support growth and to take greater
advantage of available cash discounts offered by certain of the Company's
vendors for early payment. The Company is seeking additional cash for this
purpose through this Offering and its existing bank credit lines and through
additional credit facilities, but there can be no assurance that financing will
be available on terms acceptable to the Company. The unavailability of such
financing could adversely affect the growth of the Company.
22
<PAGE>
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. 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 subsidiaries.
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 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,
predetermined amounts of inventory purchased within a specified period of time.
Such credit is typically used to offset existing invoices due without incurring
re-stocking fees.
ACCOUNTS RECEIVABLE. The Company manages its accounts receivable to
balance the needs of its customers to purchase on credit with its desire to
minimize its credit losses. Bad debt expense as a percentage of the Company's
net sales for the years ended 1994, 1995 and 1996 was 0.4%, 0.3% and 0.2%,
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 Latin 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 period. 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 AND CURRENCY MANAGEMENT ACTIVITIES. The Company attempts to limit
its risk of currency fluctuations through hedging where possible. In the
quarter ended March 31, 1997, a significant amount
23
<PAGE>
of the purchases of products by the Company were made in United States dollars
and approximately 87% 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 (35% of sales), the French franc (10%) and the British
pound (10%). At March 31, 1997, approximately $161 million of accounts payable
were attributable to foreign currency liabilities denominated in currencies
other than the subsidiaries' functional currencies. Of these, $132 million was
denominated in United States dollars and $22 million was denominated in German
marks. Approximately 60% of these liabilities were unhedged. The most
significant unhedged amounts were recorded in Dutch guilders ($22 million),
Czech krona ($14 million) and Colombian pesos ($9 million).
In March 1995, the Company formed CHS Finance, which engages in
centralized 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 functional
currency of the borrowing subsidiary or United States 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 United States 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 United States 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.
Through both hedging activities coordinated by CHS Finance and subsidiary
hedging activities, the Company makes forward purchases of United States
dollars in an attempt to hedge certain European currencies and reduce exposure
to fluctuations in exchange rates. Additionally, in certain countries in
Eastern Europe and in Latin 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. In these countries, the
Company attempts to sell products at the United States dollar equivalent rate.
Factors which affect exchange rates are varied and no reliable prediction
methods are available for definitively determining 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. For financial
reporting purposes, the Company marks to market all of its forward currency
contracts.
24
<PAGE>
BUSINESS
CHS is a leading international distributor of microcomputer products,
including personal computers, peripherals, networking products and software.
CHS operates in 29 countries across three regions, including Western Europe,
Eastern Europe and Latin America, and services an active customer base of
greater than 66,000 resellers. Substantially all of the products sold by the
Company are manufactured by 35 vendors, including such market leaders as
Hewlett-Packard, Microsoft, Seagate, IBM, Compaq, Western Digital, Intel, 3Com,
Canon, Novell, Epson and Creative Labs. 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 products in the world, the second largest
distributor in Europe and the largest distributor in Latin America and Eastern
Europe. The Company has no significant sales in the United States.
The Company has pursued an aggressive strategy of growth through
acquisitions which, together with growth in its existing business, has enabled
the Company to significantly increase net sales and achieve strong operating
results. Most recently, on June 20, 1997, the Company entered into an agreement
to purchase, for $160 million, Karma, a distributor of personal computer
components to over 10,000 customers in Europe, the Middle East and Asia. Net
sales and operating earnings of Karma in 1996 were $700.2 million and $18.5
million, respectively. See "Recent Developments." In the three-year period
ended December 31, 1996, net sales of the Company increased from $359.2 million
in 1994 to $1.9 billion in 1996 and operating earnings of the Company increased
from $3.4 million in 1994 to $28.9 million in 1996. On a pro forma basis,
assuming all 1996 acquisitions including the acquisition of the distribution
businesses of Merisel, and the 1997 acquisitions of Karma and Frank & Walter
were made on January 1, 1996, the Company's 1996 net sales and operating
earnings would have been $4.3 billion and $60.9 million, respectively. See
"Selected Consolidated Financial Data" and Pro Forma Condensed Consolidated
Financial Statements.
CHS operates under a decentralized structure under which managers familiar
with the customs and needs of a particular country are delegated 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 locally managed full service facilities
integrating warehousing, purchasing, sales, credit and accounting services
provides competitive and operating advantages.
INDUSTRY
The microcomputer products distribution industry has grown significantly
in recent years, primarily due to increasing demand worldwide for computer
products and the use of distribution channels by vendors for the distribution
of their products. Historically, there have been two types of companies within
the industry: those that sell directly to the end-user ("resellers") and those
that sell to resellers ("distributors"). Distributors generally purchase a wide
range of products in bulk directly from vendors and then ship products in
smaller quantities to many different types of resellers, which typically
include dealers, 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, such as the
Company, a portion of their distribution, credit, inventory, marketing and
customer support requirements. Similarly, due to the large number of vendors,
resellers generally cannot efficiently establish direct purchasing
relationships with each vendor and instead rely on distributors to satisfy a
significant portion of their product, financing, marketing and technical
support needs.
The Company believes the distribution segment of the microcomputer
products industry will continue to grow. More vendors are using the
distribution channel as declining hardware prices, coupled
25
<PAGE>
with rising selling costs, make it difficult for vendors to efficiently deal
directly with resellers. The Company believes that resellers are increasingly
relying on distributors for inventory management and credit rather than
stocking large inventories themselves and maintaining credit lines to finance
resellers' working capital needs. The Company also believes the 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.
The Company's Pan-European and Pan-Latin American presence strategically
positions the Company to take advantage of the consolidation trend in the
distribution industry. According to IDC, in 1996, Western Europe represented
approximately 24% of the worldwide personal computer market. Additionally, the
regions in which the Company operates are relatively underpenetrated compared
to the United States. The penetration rate with respect to computers for 1995
was 18.4% in Western Europe, 2.4% in Eastern Europe and 2.1% in Latin America
as compared to a penetration rate of 36.5% in the United States. A significant
portion of the Company's sales are in the emerging markets of Eastern Europe
and Latin America, regions which the Company believes are underserved relative
to the entire industry and offer substantial growth opportunities. According to
IDC, Latin America is expected to be the most rapidly growing personal computer
market in the world between 1997 and 2001. IDC projects that personal computer
sales in Latin America, Eastern Europe, the Middle East, the Mediterranean and
Africa, referred to by IDC as the "rest of the world," will grow from $14.9
billion in 1997 to $21.6 billion in 1999, representing a compound annual growth
rate of 20.3%. This compares favorably to a 9.0% compound annual growth rate
projected by IDC for personal computer sales in the United States over the same
period.
The Western European, Eastern European and Latin American markets are each
highly fragmented. Different languages, cultures and technological factors
require experienced local management teams and products which meet the
requirements of the specific area. Requirements that are unique to an area
include customized manuals, approvals of safety factors by local authorities,
microcode which permits the generation of characters in local languages, and
voltage standards. These factors require distributors in these markets to carry
a variety of different SKUs to meet such demands. As a result, vendors depend
heavily on distributors such as the Company to meet the differing demands of
each locale.
STRATEGY
To achieve its objectives of strengthening its position as a leading
distributor of microcomputer products in Western Europe, Eastern Europe and
Latin America and expanding into new regions including Africa, the Middle East
and Asia, the Company has adopted the following strategies:
/bullet/ GROW THROUGH ACQUISITIONS. A major portion of the Company's growth
is attributable to acquisitions and the Company intends to continue its
practice of making targeted purchases of high quality distributors in
selected markets. During the period which began January 1, 1994 and ended
March 31, 1997, the Company acquired a total of 34 companies, the most
significant of which were seven companies from Merisel in Europe and Latin
America and Frank & Walter in Germany. 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. In order to reduce financial risk and enhance 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 Common Stock one year subsequent to the
acquisition. The Company also makes select acquisitions using cash or
stock without an earnout component. These local distributors generally are
attracted to combining with CHS in order to gain personal financial
liquidity, access to key product lines provided by CHS and enhanced vendor
credit facilities. 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
26
<PAGE>
advantageous to its vendors because, through their relationship with CHS,
vendors may gain entry into new markets with established local
distribution companies and can substitute the creditworthiness of CHS for
that of the local distributor.
/bullet/ OPERATE A FOCUSED DISTRIBUTION MODEL. The Company's strategy is to
operate as 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, Compaq 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 improved 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 more efficient inventory management, including greater inventory turns,
lower working capital requirements and fewer SKUs. CHS generally maintains
up to 10,000 SKUs per location while broadline distributors typically
carry greater than 40,000 SKUs.
/bullet/ FURTHER DEVELOP AND PENETRATE INTERNATIONAL MARKETS. The Company
has focused its activities on the distribution of microcomputer products
in Western Europe and the emerging markets of Eastern Europe and Latin
America, regions which it believes are underserved with respect to the
distribution of microcomputer products and therefore provide significant
growth opportunities. The Company believes that the markets in Western
Europe, Eastern Europe and Latin America are complex due to the diversity
of language, regulatory, technical and other factors and provide
attractive opportunities for CHS to add value to its relationships with
its vendors and customers because of the presence of its knowledgeable
local management. Additionally, the Company intends to expand into new
regions including Africa, the Middle East and Asia. 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 hardware and software products such as
local area networks, disk drives, personal computers and printers to an active
customer base, as of March 31, 1997, of more than 66,000 VARs and computer
retailers. The Company's products also include components such as random access
memory chips, central processing units and integrated circuit boards. For the
quarter ended March 31, 1997, the Company's product mix by category was
printers (20%), personal computers (19%), mass storage (15%), software (14%),
peripherals (11%), semiconductors (7%), networking (6%) and other (8%).
The Company purchases its products directly from hardware manufacturers
and software publishers in large quantities. As 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. The Company generally maintains up
to 10,000 SKUs per location while broadline distributors typically carry
greater than 40,000 SKUs.
The Company's customers typically rely on distributors as their principal
source of microcomputer products and financing. The Company's backlog of orders
is not considered material to an understanding of its business. No single
customer accounted for more than two percent of the Company's net sales in the
quarter ended March 31, 1997.
27
<PAGE>
VENDOR RELATIONS
The Company obtains its products from its vendors under non-exclusive
distribution agreements, which are subject to renewal annually and may be
canceled by either party on short notice. 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. While the Company distributes the products of approximately 35 vendors,
approximately 26% of its net sales during the first quarter of 1997 were
derived from the sale of products supplied by Hewlett-Packard. An additional
10% of net sales during the first quarter of 1997 were derived from the
Company's next largest supplier, Microsoft.
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 typically receive a credit in the amount of the
reduction in distributor cost for each item of the product in inventory.
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.
Vendors deliver products against purchase orders tendered by the Company.
The Company will often request specific delivery dates in its purchase orders
and lead times for delivery from vendors are typically short. Delivery is,
however, subject to availability, and vendors have no liability to the Company
for failure to meet a delivery date. The Company experiences delivery delays
and inventory shortages from time to time. In the opinion of management, these
delays and shortages are common to other distributors of microcomputer
products, in general, and do not have a significant adverse impact on the
Company's operations.
The Company's vendors have increased available credit to the Company
commensurate with its growth. Many of the Company's vendors provide discounts
for prompt payment. Generally, the Company is required to make payment within
14 to 90 days following delivery of products. With some vendors, the Company
can earn a discount for early payment of between 1.5% and 3% of the invoice
amount. To the extent sufficient funds are available, the Company attempts to
take advantage of these discounts. The Company believes that after the
completion of this Offering it will be better able to utilize such discounts.
Generally, the Company's vendors have the right to terminate their
respective distribution agreements on short notice to the Company. In some
cases, the Company must be given a reasonable opportunity to cure any violation
of the agreement before it may be terminated. The Company similarly has the
right to terminate its distribution agreements on short notice to the vendor.
The Company is of the opinion that its relationships with its vendors are good,
and has no reason to believe that its current material distribution agreements
will be terminated or not renewed in the foreseeable future.
SALES, MARKETING AND CUSTOMER SUPPORT
In order to effectively address the individual customs, practices and
business conventions within countries, each operating subsidiary of the Company
maintains general autonomy with respect to sales, marketing and customer
support. Oversight and strategic direction are provided by senior management of
the Company.
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
28
<PAGE>
March 31, 1997, the Company distributed products to approximately 43,000 active
resellers in Western Europe, 14,000 in Latin America and 9,000 in Eastern
Europe.
Each operating subsidiary maintains a sales staff organized to interface
effectively with its respective customer base. As of March 31, 1997,
approximately 47% of the Company's employees were involved with sales
activities.
The Company's customers typically place orders with a sales
representative. Almost all orders are for pick-up or next day delivery. The
Company's computer systems generally allow the salesperson to check customer
credit limits, current inventory levels and pricing.
MARKETING. The Company utilizes a variety of programs to market its major
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
advertising reimbursements and market development funds are recorded in the
Company's financial statements as a reduction to selling, general and
administrative expenses.
CUSTOMER SUPPORT. Under several vendor agreements, the Company is
required to maintain a staff of qualified and trained sales, repair, and
support employees who are able to provide information and advice to resellers,
provide warranty repair service and train resellers on the vendor's products,
their applications, configurations with other computer products, and
installation and support requirements. The employees of the Company fulfilling
these functions are required to complete training courses provided by the
vendor.
In addition, the Company supports all products with a full manufacturer's
warranty and maintains an industry standard return policy, similar to that of
its competitors.
INTERNAL AUDIT
The Company currently maintains four internal auditors on its staff, three
for Europe and one for Latin 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 consistent with its growth.
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.
29
<PAGE>
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 March 31, 1997, the Company employed 2,832 full-time employees of whom
245 were located in the United States. Of the total number of employees, 1,334
worked in marketing and sales, 540 worked in warehousing and delivery and 958
were employed in other positions, including administration. Employees in
certain countries are represented by labor councils mandated by government
regulations which determine compensation and benefits. With these exceptions,
none of the Company's employees are represented by unions. Severance costs
associated with termination of employment in many countries are higher than in
the United States. There has been no disruption of operations due to a labor
dispute. Management considers its employee relations to be good.
FACILITIES
The corporate headquarters of the Company 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.
The Company's 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 431 *
32,292 1997-2000
Croatia 1,938 1997
Czech Republic 25,469 *
11,029 1998
Ecuador 5,855 1999
Estonia 11,580 2010
Finland 22,596 1999
France 128,980 1998-2001
Germany 256,676 1998-2010
100,373 *
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 26,684 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
30
<PAGE>
COUNTRY SQUARE FEET LEASE EXPIRATION
- --------------------- ---------------- -----------------
United Kingdom 135,207 2003-2016
10,000 *
United States 18,300(3) 1998-2000
157,367(4) 2002
Uruguay 8,608 1999
Venezuela 8,178 1997-2001
- ----------------
* Owned facility.
** The Company is seeking to sell its Helmond warehouse facility leasehold
interest.
(1) CHS Finance facility.
(2) CHS Switzerland facilities.
(3) CHS BEK facility.
(4) CHS Promark and CHS Merisel 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.
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.
31
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers and directors of the Company, as well as certain
key employees, and their ages as of June 1, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- ----- -------------------------------------------------------------
<S> <C> <C>
Claudio Osorio 37 Chairman of the Board, Chief Executive Officer and President
Alvin Perlman 70 Executive Vice President--Latin American Region and Director
Carsten Frank 34 Executive Vice President--European Region and Director
Craig Toll 49 Chief Financial Officer and Treasurer
Antonio Boccalandro 30 Secretary and Director
Pasquale Giordano(1) 47 Chief Operating Officer--European Region
Clifford Dyer(1) 59 Chief Operating Officer--Latin American Region
Zbynek Kraus 44 Manager of Czech Republic Operation and Director
Otto Gerlach 70 Director
Pierino Lardi 49 Director
Donald D. Winstead 60 Director
</TABLE>
- ----------------
(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. He is a director of Comtrad and
the President and a director of CHI.
ALVIN PERLMAN has been a director and the Executive Vice President--Latin
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 CHI since
November 1994.
CARSTEN FRANK has been a director of the Company since May 1997 and has
been Executive Vice President--European Region of the Company since January
1997. Mr. Frank founded Frank & Walter in 1988 and has served as such company's
Managing Director since its formation. Frank & Walter was acquired by the
Company in March 1997.
CRAIG TOLL has been the Chief Financial Officer of the Company since July
1994 and its Treasurer since June 1995. Mr. Toll was self-employed as a
consultant to CHS Promark from April 1994 to June 1994. For over five years
prior to April 1994, Mr. Toll was a partner in the accounting firm of Deloitte
& Touche.
ANTONIO BOCCALANDRO has been a director and the Secretary of the Company
since 1993. He was Treasurer of the Company from December 1993 to June 1995. He
has also been employed in various capacities by Comtrad since 1988. Mr.
Boccalandro became a director of Comtrad in 1990 and he has been a director of
CHI since June 1994.
PASQUALE GIORDANO has been the Chief Operating Officer--European Region of
the Company since January 1, 1997. From January 1989 through December 31, 1996,
Mr. Giordano was 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 Vice President of the electronics division of Abraham & Strauss, a division
of Federated Department Stores, Inc.
32
<PAGE>
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.
ZBYNEK KRAUS has been a director of the Company since March 1996 and, since
1993, the General Manager of the Company's Czech Republic operation. From
January 1996 to December 31, 1996, Mr. Kraus served as Vice President - East
European Region of the Company. From 1990 to 1993, he was an owner and the sales
director of the Czech Republic operation.
OTTO GERLACH has been a director of the Company since August 1994, and is a
principal owner and has served for over five years as the President of Larco,
C.A., a privately-owned wholesale import/ export and manufacturing company based
in Caracas, Venezuela.
PIERINO LARDI has been a director of the Company since May 1997. Mr. Lardi
has been Chief Executive Officer and President of Banca Commerciale Lugano
since 1995. Mr. Lardi served as Executive Vice President of United Overseas
Bank from 1985 through 1995.
DONALD D. WINSTEAD has been a director of the Company since 1993 and was
self-employed as a business consultant from June 1991 through February 1997.
Since March 1997, Mr. Winstead has been Chairman and Chief Executive Officer
of Puris, Inc. In connection with his consulting activities he served from
October 1993 through June 1997 as the Chief Executive Officer and a director of
Medical Resource Group Inc., a closely held Nevada corporation engaged in the
business of medical equipment leasing and rental. For over three years prior to
June 1991, Mr. Winstead was the Chairman of the Board and Chief Executive
Officer of Netcor Inc., a company engaged in the manufacture and sale of
communications equipment.
The term of office of each director of the Company ends at the next annual
meeting of the Company's shareholders or when his successor is elected and
qualified. Officers of the Company serve at the discretion of the Board of
Directors, subject to the terms of any employment agreements with the Company.
There are no family relationships among any of the Company's executive officers
and directors.
Comtrad and CHI have agreed to vote their shares of Common Stock in favor
of Mr. Frank's election to the Company's Board of Directors at the Company's
pending 1997 Annual Meeting of Shareholders and thereafter.
All of the Company's directors who are not employees of the Company receive
$250 for attendance at each Board of Directors meeting and are reimbursed for
travel expenses incurred to attend such meetings. Directors who are employees of
the Company do not receive separate compensation for their service as directors.
No separate payment is made for attending committee meetings.
The Company has an Audit Committee and a Compensation Committee. The Audit
Committee, composed of Messrs. Gerlach and Winstead, is responsible for
reviewing and making recommendations regarding the Company's employment of
independent auditors, the annual audit of the Company's financial statements
and the Company's internal accounting practices and policies. The Compensation
Committee, composed of Messrs. Gerlach and Winstead, is responsible for making
recommendations to the Board of Directors regarding compensation arrangements
for senior management, recommendations concerning the adoption of any
compensation plans in which management is eligible to participate and grants of
stock options or other benefits under such plans.
EMPLOYMENT ARRANGEMENTS
The Company has entered into three-year employment agreements with Messrs.
Osorio, Toll and Frank. Mr. Osorio's agreement was effective January 1, 1996,
Mr. Toll's agreement was effective July 1, 1996 and Mr. Frank's agreement was
effective as of January 1, 1997. The agreements for Messrs. Osorio
33
<PAGE>
(as amended), Toll and Frank provide for annual salaries of $750,000, $200,000
and $350,000, respectively, and in the case of Mr. Osorio, requires him to
devote substantially all of his time and attention to the business and affairs
of the Company, and, in the case of Messrs. Toll and Frank, requires them to
devote their full time and attention to the business and affairs of the
Company. Mr. Frank's agreement provides for a minimum bonus of $150,000 per
year. The agreements also provide that upon termination of employment without
"cause" or termination by the executive for "good reason" (which includes a
change of control of the Company), the executive is entitled to receive, in
addition to all accrued or earned but unpaid salary, bonus or benefits, an
amount equal to two and one-half times base salary paid to the executive during
the last full year prior to termination of employment, together with an amount
equal to the bonus paid to the executive in the prior year multiplied by a
fraction, the numerator of which is the number of days elapsed in the then
current year through termination and the denominator of which is 365. The
agreements also provide that the executive will not compete with the Company
during his employment and for two years thereafter unless the Company
terminates the executive without "cause" or the executive terminates his
employment for "good reason."
Under the terms of the Company's employment agreement with Alvin Perlman
dated June 30, 1994, Mr. Perlman is employed as an executive vice president of
the Company, and Chief Executive Officer and Chairman of the Board of CHS
Promark. The term of the agreement is five years. Mr. Perlman receives an
annual salary of $500,000 and other benefits commensurate with his position,
and is entitled to participate in any group or employee benefit or insurance
plans. Upon termination of Mr. Perlman's employment as a result of death or
disability, he (or his estate) receives 50% of his compensation for the balance
of the term of the agreement. Mr. Perlman may terminate the agreement upon a
change in more than 50% of the ownership of CHS Promark in which case he is to
receive his full compensation for the balance of the term of the agreement.
Under the agreement, Mr. Perlman is prohibited from competing with the Company
for two years in the Western Hemisphere after his employment terminates.
34
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the Common Stock as of July 22, 1997 and as adjusted to
reflect the sale of 12,000,000 shares by the Company by (i) each person known by
the Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each director and executive officer of the Company, and (iii) all
executive officers and directors of the Company as a group. Except as otherwise
indicated, the Company believes that all beneficial owners named below have sole
voting and investment power with respect to all shares of Common Stock
beneficially owned by them.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED
----------------------
NUMBER OF SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER(1)(2)(3) BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------------------- -------------------- ---------- ---------
<S> <C> <C> <C>
Claudio Osorio(4)(5) ............... 3,959,385 26.2% 14.6%
Alvin Perlman(4) .................. 3,959,385 26.2% 14.6%
Carsten Frank(5) .................. 2,200,000 14.9% 8.2%
Antonio Boccalandro(6) ............ 938 * *
Otto Gerlach(7) .................. - - -
Zbynek Kraus(8) .................. - - -
Pierino Lardi ..................... - - -
Donald D. Winstead(9) ............ 22,500 * *
Craig Toll(10) .................... 67,500 * *
All officers and directors as a group
(9 persons) ..................... 6,250,323 41.2% 23.0%
Comtrad(4)(11) ..................... 3,959,385 26.2% 14.6%
Merrill Lynch & Co., Inc.(12)........ 1,006,400 6.8% 3.8%
Marsh & McLennan Companies, Inc.(13). 928,423 6.3% 3.5%
</TABLE>
- ----------------
* Less than 1%
(1) The address for each of the executive officers and directors is 2153 N.W.
86th Avenue, Miami, Florida 33122, except for Carsten Frank which is
Hansestrasse 47, 38112 Braunschweig Germany.
(2) Except as noted, all shares are held beneficially and of record.
(3) Under Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or
the power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the
shares (for example, upon exercise of an option) within 60 days of the
date as of which the information is provided. In computing the percentage
ownership of any person, the amount of shares outstanding is deemed to
include the amount of shares beneficially owned by such person (and only
such person) by reason of these acquisition rights. As a result, the
percentage of outstanding shares of any person as shown in this table does
not necessarily reflect the person's actual ownership or voting power with
respect to the number of shares of Common Stock actually outstanding as of
June 16, 1997.
(4) Includes 367,029 shares held of record by Comtrad, a wholly-owned
subsidiary of CHI, 3,169,500 shares held of record by CHI, 47,576 shares
held of record by Penrose Trading Co. S.A. ("Penrose") (a shareholder of
CHI and of which Mr. Osorio has effective control) and currently
exercisable options to purchase 375,280 shares held by Mr. Osorio. Claudio
Osorio and Alvin Perlman together own and control a majority of the issued
and outstanding capital stock of CHI, and Messrs. Osorio and Perlman have
entered into an agreement pursuant to which they have agreed to vote their
shares of CHI common stock together on certain matters submitted to the
shareholders of CHI. Alvin Perlman, CHI and Comtrad have agreed to vote all
shares of the Common Stock they own or control, together on any matter
submitted to the shareholders of the Company. In addition, Messrs. Osorio
and Perlman and CHI are parties to an agreement which grants to Mr. Osorio
and Comtrad, until June 30, 1997, the right to acquire all, but not less
than all, of the shares of Common Stock of the Company and the shares of
Comtrad Common Stock owned by Mr. Perlman. Mr. Perlman may reject all or a
portion of such exercise; provided, however, that any shares as to which
the option exercise is rejected are excluded from a right granted by the
agreement to Mr. Perlman to put the referenced shares to Mr. Osorio. The
put option may be exercised during the period beginning July 1 and ending
July 31, 1997. CHI has guaranteed Mr. Osorio's obligations and has pledged
676,006 shares of Common Stock in connection therewith, which shares are
included in the above aggregate ownership. Subject to the claims of certain
creditors, the holders of CHI Class A common stock (which includes Penrose
Trading Co. S.A.) have a liquidation preference on the 965,000 shares of
Company Common Stock owned by CHI. Further, subject to the claims of
certain creditors and subject to the rights of holders of CHI Class A
common stock, the holders of CHI Class B common stock have a liquidation
preference on 287,500 shares of Company Common Stock held by CHI or any
subsidiary thereof. Based on the foregoing relationships and agreements,
Claudio Osorio, Alvin Perlman, CHI, and Comtrad may be deemed to have
shared voting and investment
35
<PAGE>
control over the above-indicated aggregate number of shares of Common
Stock. Such shares exclude 100,000 shares of Common Stock which Comtrad is
obligated to deliver to the sellers of three entities purchased by Comtrad
and subsequently sold to the Company.
(5) Messrs. Osorio and Frank and Penrose (the "Selling Shareholders") have
granted to the U.S. Underwriters and the International Managers options
exercisable during the 30-day period after the date of this Prospectus to
purchase up to an aggregate of 272,779, 500,000 and 38,465 shares of
Common Stock, respectively, at the same price per share as the Company
receives for the 12,000,000 shares offered hereby. See "Underwrting." Mr.
Osorio will exercise options to the extent that the Underwriters and the
International Managers exercise such over-allotment options. The options to
be exercised by Mr. Osorio have been granted to him pursuant to a plan upon
which the shareholders of the Company will vote at the 1997 Annual Meeting
of Shareholders of the Company to be held on July 31, 1997. If the
over-allotment option is exercised in full, Mr. Osorio will be deemed to
own 3,920,920 shares of Common Stock after the Offering constituting 14.6%
of the shares outstanding, Mr. Frank will own 1,700,000 shares of Common
Stock constituting 6.4% of the shares outstanding and Penrose will own
9,111 shares of Common Stock.
(6) Mr. Boccalandro holds currently exercisable options to purchase 938 shares
of Common Stock. Mr. Boccalandro is a director of CHI, who serves at the
discretion of the controlling shareholders of CHI, Messrs. Osorio and
Perlman. Accordingly, Mr. Boccalandro disclaims any investment or voting
control with respect to the Common Stock owned and controlled by CHI.
(7) Mr. Gerlach owns approximately 11.8% of the outstanding common shares of
CHI and 16.7% of the shares of Class A common stock of CHI which, subject
to the claims of certain creditors, have a liquidation preference on
965,000 shares of Common Stock owned by CHI. Mr. Gerlach disclaims
beneficial ownership of the shares of Common Stock held by CHI and
Comtrad.
(8) Mr. Kraus is a shareholder of Penrose Trading Co. S.A. which is a
shareholder of CHI and the Company. Mr. Kraus disclaims beneficial
ownership of the shares of the Company held by Penrose Trading Co. S.A.
and CHI.
(9) Mr. Winstead is the holder of currently exercisable options to purchase
22,500 shares of Common Stock.
(10) Mr. Toll is the holder of currently exercisable options to purchase a
total of 47,500 shares of Common Stock.
(11) The address for Comtrad and CHI is P.O. Box 660708, Miami Springs, Florida
33266.
(12) The address for Merrill Lynch & Co., Inc. is World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281. The information relating
to the Common Stock is based on a Schedule 13G, dated February 14, 1997.
(13) The address for Marsh & McLennan Companies, Inc. is 1166 Avenue of the
Americas, New York, New York 10036. The information relating to the Common
Stock is based on a Schedule 13G, dated January 27, 1997.
36
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor.
Holders of Common Stock have no preemptive, conversion or other subscription
rights. There are no redemption or sinking fund provisions available to the
Common Stock. In the event of liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of Preferred Stock, if any, then outstanding.
PREFERRED STOCK
The Company is authorized to issue Preferred Stock with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without
shareholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting
power or other rights of the holders of the Company's Common Stock and, in
certain instances, could adversely affect the market price of such stock. In
the event of issuance, the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. No shares of Preferred Stock are outstanding and the
Company has no present intention to issue any shares of its Preferred Stock.
The holders of Common and Preferred Stock vote as a single group on all
matters except the following, which require the affirmative vote of a majority
of the holders of Common Stock and a majority of the holders of Preferred
Stock: (a) any merger or consolidation of the Company with or into any other
corporation except in the case of a merger into the Company of a subsidiary of
the Company 90% or more of which is owned by the Company and which does not
require a vote of shareholders of either corporation pursuant to the laws of
the State of Florida; (b) any share exchange in which a corporation, person or
entity acquires the issued or outstanding shares of stock of the Company
pursuant to a vote of shareholders of the Company; (c) any sale, lease,
exchange or other transfer of all, or substantially all, of the assets of the
Company to any other corporation, person or entity; or (d) any amendment to the
Articles of Incorporation.
REGISTRATION RIGHTS
Under a June 30, 1994 agreement, the Company granted to Comtrad
registration rights with respect to 1,540,000 shares of Common Stock of which
1,150,000 were sold in the Company's offering in June 1996. Comtrad may, until
August 31, 1997, require the Company to file a registration statement with
respect to the remaining shares. Until June 30, 1999, Comtrad may also include
these shares in certain other offerings by the Company. Comtrad has agreed with
Carsten Frank that any exercise by Comtrad of such rights will include a pro
rata number of the shares of Common Stock owned by Mr. Frank. On October 16,
1996, the Company granted Hugo Wyrsch the right to register a certain number of
his shares of Common Stock, the aggregate market value of which is not to
exceed $1 million, in the event the Company proposes to register the sale of
its securities. Such right terminates on March 28, 1998. Further, under the
terms of various other acquisition agreements, the Company may be required to
register additional shares of Common Stock to be issued to sellers of certain
companies upon the determination of the purchase prices for such companies
based on earnout purchase price formulas contained in such agreements. See
"Principal Shareholders" and "Underwriting."
CERTAIN FLORIDA LEGISLATION
The State of Florida has enacted legislation that may deter or frustrate
takeovers of Florida corporations. The Florida Control Share Act generally
provides that shares acquired in excess of certain specified thresholds will
not possess any voting rights unless such voting rights are approved by a
majority of a corporation's disinterested shareholders. The Florida Affiliated
Transactions Act generally requires supermajority approval by disinterested
shareholders of certain specified transactions between
37
<PAGE>
a public corporation and holders of more than 10% of the outstanding voting
shares of the corporation (or their affiliates). Florida law and the Company's
Articles of Incorporation also authorize the Company to indemnify the Company's
directors, officers, employees and agents. In addition, Florida law and the
Company's Articles of Incorporation presently limit the personal liability of
corporate directors for monetary damages, except where the directors (i) breach
their fiduciary duties and (ii) such breach constitutes or includes certain
violations of criminal law, a transaction from which the directors derived an
improper personal benefit, certain unlawful distributions or certain other
reckless, wanton or willful acts or misconduct. The Company may also indemnify
any person who was or is a party to any proceeding by reason of the fact that
he is or was a director, officer, employee or agent of the Company (or is or
was serving at the request of the Company in such a position for another
entity) against liability to be in the best interests of the Company and, with
respect to criminal proceedings, had no reasonable cause to believe his conduct
was unlawful.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.
The existence of authorized but unissued and unreserved shares of Common
Stock and Preferred Stock may enable the Board of Directors to issue shares to
persons friendly to current management which would render more difficult or
discourage an attempt to obtain control of the Company by means of a proxy
contest, tender offer, merger or otherwise, and thereby protect the continuity
of the Company's management.
CERTAIN LIMITATIONS ON SHAREHOLDER ACTIONS
NOTICE PROCEDURES FOR SHAREHOLDER PROPOSALS AT ANNUAL MEETING. The
Articles of Incorporation of the Company establish advance notice procedures
with respect to shareholder proposals to be brought before an annual meeting of
shareholders. These procedures, which are in addition to any other applicable
requirements of law, require that a shareholder must give notice to the Company
not less than 120 days nor more than 180 days prior to the first anniversary of
the date of the notice of annual meeting provided with respect to the previous
year's annual meeting.
AMENDMENTS TO CHARTER. The Articles of Incorporation of the Company
include a provision requiring the affirmative vote of a majority of both the
holders of the Common Stock and the Preferred Stock to amend its Articles of
Incorporation.
SPECIAL MEETINGS OF SHAREHOLDERS. Special meetings of a Florida
corporation's shareholders may be called by its board of directors, by the
persons authorized to do so in its Articles of Incorporation or bylaws or by
the holders of not less than 10% of all votes entitled to be cast on any issue
proposed to be considered at the special meeting, unless a greater percentage,
not to exceed 50%, is required by the articles of incorporation. The Articles
of Incorporation of the Company contain a 50% requirement for the calling of
special meetings by the shareholders.
SHAREHOLDER VOTES ON CERTAIN MATTERS. The holders of the Company's Common
and Preferred Stock vote as a single group on all matters except the following,
which require the affirmative vote of a majority of the holders of the
Company's Common Stock and a majority of the holders of the Company's Preferred
Stock: (a) any merger or consolidation of the Company with or into any other
corporation except in the case of a merger into the Company of a subsidiary of
the Company 90% or more of which is owned by the Company and which does not
require a vote of shareholders of either corporation pursuant to the laws of
the State of Florida; (b) any share exchange in which a corporation, person or
entity acquires the issued or outstanding shares of stock of the Company
pursuant to a vote of shareholders of the Company; (c) any sale, lease,
exchange or other transfer of all, or substantially all, of the assets of the
Company to any other corporation, person or entity; or (d) any amendment to the
Articles of Incorporation of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Interwest
Transfer Company.
38
<PAGE>
UNDERWRITING
The U.S. Underwriters named below, acting through their representatives,
Raymond James & Associates, Inc., Montgomery Securities, J.C. Bradford & Co.
and Cleary Gull Reiland & McDevitt Inc. (the "U.S. Representatives"), have
severally agreed, subject to the terms and conditions of the underwriting
agreement by and among the Company, the Selling Shareholders and the U.S.
Underwriters (the "Underwriting Agreement"), to purchase from the Company
the number of shares of Common Stock set forth opposite their respective
names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- -------------------------------------------- ----------
<S> <C>
Raymond James & Associates, Inc. .........
Montgomery Securities .....................
J.C. Bradford & Co. .....................
Cleary Gull Reiland & McDevitt Inc. ......
---------
Total ................................. 9,000,000
=========
</TABLE>
The Company and the Selling Shareholders have also entered into a
Subscription Agreement (the "Subscription Agreement") with certain underwriters
outside the United States and Canada (the "International Managers"), for whom
Raymond James & Associates, Inc., Montgomery Securities and J.C. Bradford & Co.
are acting as representatives (the "International Representatives"), relating to
the International Offering. The closing of the International Offering is a
condition to the closing of the U.S. Offering and the closing of the U.S.
Offering is a condition to the closing of the International Offering.
The Underwriting Agreement and the Subscription Agreement provide that the
respective obligations of the several U.S. Underwriters and International
Managers to pay for and accept delivery of the shares of Common Stock being sold
pursuant to each such agreement are subject to certain conditions. The U.S.
Underwriters and the International Managers are obligated to purchase all of the
shares being sold pursuant to each such agreement if any are purchased. The
Company and the Selling Shareholders have been advised by the U.S.
Representatives that the U.S. Underwriters propose initially to offer the shares
to the public at the offering price set forth on the cover page of this
Prospectus and to certain selected dealers, including the U.S. Underwriters, at
such price less a concession not in excess of $ per share. The U.S. Underwriters
may allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other dealers. After the Offering, the public offering price,
concession and discount may be changed. The U.S.
39
<PAGE>
Representatives have informed the Company that the U.S. Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The Underwriting Agreement provides for indemnification among the Company,
the Selling Shareholders and the U.S. Underwriters against certain liabilities
in connection with this Offering, including liabilities under the Securities
Act.
The Company, each of its executive officers and directors, the Selling
Shareholders, CHI and Comtrad have agreed not to offer, sell, contract to sell,
announce their intention to sell, pledge or otherwise dispose of, directly or
indirectly, or in the case of the Company, file with the Securities and Exchange
Commission (the "Commission") a registration statement under the Securities Act
relating to, shares of Common Stock, or securities convertible into or
exchangeable or exercisable for shares of Common Stock, without the consent of
Raymond James & Associates, Inc., for a period of 90 days following the closing
of this Offering. This restriction does not apply to certain issuances of Common
Stock by the Company pursuant to its stock option plans. See "Shares Eligible
for Future Sale."
The Company and the Selling Shareholders have granted to the U.S.
Underwriters an option exercisable during the 30-day period after the date of
this Prospectus to purchase up to an aggregate of 1,350,000 additional shares of
Common Stock at the same price per share as the Company receives for the
9,000,000 shares which the U.S. Underwriters have agreed to purchase from the
Company, for the sole purpose of covering over-allotments, if any. To the extent
that the U.S. Underwriters exercise such option, each U.S. Underwriter will be
committed, subject to certain conditions, to purchase a number of the additional
shares of Common Stock proportionate to each U.S. Underwriter's initial
commitment. The Company and the Selling Shareholders have granted the
International Managers a similar option to purchase up to an aggregate of
450,000 additional shares of Common Stock.
The public offering price, the aggregate underwriting discounts and
commissions per share and the per share concession and discount to dealers for
the U.S. Offering and the concurrent International Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and the International
Managers (the "Intersyndicate Agreement") relating to the Offering, changes in
the public offering price, the aggregate underwriting discounts and commissions
per share and the per share concession and discount to dealers will be made on
behalf of the U.S. Underwriters and the International Managers by Raymond James
& Associates, Inc.
Pursuant to the Intersyndicate Agreement, each of the U.S. Underwriters has
agreed that, as part of the U.S. Offering and subject to certain exceptions, it
has not offered or sold, and will not offer or sell, directly or indirectly, any
shares of Common Stock or distribute any prospectus relating to the Common Stock
to any person outside the United States or Canada or to any other dealer who
does not so agree. Each of the International Managers has agreed or will agree
that, as part of the International Offering and subject to certain exceptions,
it has not offered or sold, and will not offer or sell, directly or indirectly,
any shares of Common Stock or distribute any prospectus relating to the Common
Stock to any person in the United States or Canada or to any other dealer who
does not so agree. The foregoing limitations do not apply to stabilization
transactions or to transactions between the U.S. Underwriters and the
International Managers pursuant to the Intersyndicate Agreement. As used herein,
"United States" means the United States of America (including the States and the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction. "Canada" means Canada, its provinces, territories, possessions
and other areas subject to its jurisdiction, and an offer or sale shall be in
the United States or Canada if it is made to (i) an individual resident in the
United States or Canada or (ii) a corporation, partnership, pension,
profit sharing or other trust or other entity (including any such entity acting
as an investment adviser with discretionary authority) whose office most
directly involved with the purchase is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
U.S. Underwriters and the International Managers of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the public offering price, less such amount as may be determined by Raymond
James & Associates, Inc.,
40
<PAGE>
but not exceeding the selling concession applicable to such shares. To the
extent there are sales between the U.S. Underwriters and the International
Managers pursuant to the Intersyndicate Agreement, the number of shares of
Common Stock initially available for sale by the U.S. Underwriters or by the
International Managers may be more or less than the amount appearing on the
cover page of this Prospectus. Neither the U.S. Underwriters nor the
International Managers are obligated to purchase from the other any unsold
shares of Class A Common Stock.
This Prospectus may be used by underwriters and dealers in connection with
sales of shares in the International Offering to persons located in the United
States and Canada, to the extent such sales are permitted by the contractual
limitations on sales described above.
The U.S. and International Representatives, on behalf of the U.S.
Underwriters and the International Managers, may engage in over-allotment,
stabilizing transactions, syndicate covering transactions and penalty bids in
accordance with Regulation M under the Exchange Act. Over-allotment involves
syndicate sales in excess of the offering size, which creates a syndicate short
position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the Common Stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. In "passive" market making, market makers in the
Common Stock who are U.S. Underwriters, International Managers or prospective
underwriters or managers may, subject to certain limitations, make bids for or
purchases of the Common Stock until the time, if any, at which a stabilizing bid
is made. Penalty bids permit the U.S. and International Representatives to
reclaim a selling concession from a syndicate member when shares of Common Stock
originally sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
Common Stock to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on The Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.,
Miami, Florida. The validity of the Common Stock offered hereby will be passed
upon for the Underwriters by King & Spalding, Atlanta, Georgia.
EXPERTS
The financial statements included in this Prospectus have been audited by
Grant Thornton LLP independent certified public accountants, and KPMG Cevdet
Suner Denetim ve Yeminli Mali Musavirlik A.S., independent auditors, as
indicated in their respective reports as listed in the Index to Financial
Statements, and are included herein in reliance upon the authority of said firms
as experts in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company may be inspected and copied (at prescribed
rates) at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the following
regional offices of the Commission: 7 World Trade Center, Suite 1300, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, such reports, proxy statements and other
41
<PAGE>
information can be obtained from the Commission's web site at
http://www.sec.gov. Quotations relating to the Common Stock appear on the
Nasdaq National Market. Such reports, proxy statements and other information
concerning the Company can also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act, with respect to
the shares of Common Stock offered hereby. This Prospectus, which is a part of
the Registration Statement, does not contain all the information set forth in,
or annexed as exhibits to, such Registration Statement, certain portions of
which have been omitted pursuant to rules and regulations of the Commission.
For further information with respect to the Company and the shares of Common
Stock offered hereby, reference is hereby made to such Registration Statement,
including the exhibits thereto. Copies of such Registration Statement,
including exhibits, may be obtained from the aforementioned public reference
facilities of the Commission upon payment of the prescribed fees, or may be
examined without charge at such facilities. Statements contained herein
concerning any document filed as an exhibit are not necessarily complete and,
in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission under the
Exchange Act are incorporated by reference in and made a part of this
Prospectus:
(a) the Company's Annual Report on Form 10-K, as amended, for the year
ended December 31, 1996;
(b) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;
(c) The Company's Current Reports on Form 8-K dated October 4, 1996,
as amended, and April 4, 1997, as amended, respectively;
(d) the Company's Proxy Statement relating to its 1997 Annual Meeting
of Shareholders; and
(e) the description of the Common Stock contained in the Company's
Registration Statement on Form 10 dated May 26, 1994.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of this Offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein, or in any
other subsequently filed document, which also is incorporated or deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. The Company hereby undertakes to
provide, without charge, to each person, including any beneficial owner, to
whom a copy of this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the information incorporated herein by
reference. Exhibits to any of such documents, however, will not be provided
unless such exhibits are specifically incorporated by reference into such
documents. The requests should be addressed to the Company's principal
executive offices: Attn: Secretary, 2153 N.W. 86th Avenue, Miami, Florida
33122, telephone number (305) 716-8273.
42
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
CHS Electronics, Inc.--Pro Forma Financial Information
Basis of Presentation ................................................ F-2
Pro Forma Condensed Consolidated Balance Sheet ..................... F-3
Pro Forma Condensed Consolidated Statement of Earnings ............... F-4
Notes to Pro Forma Condensed Consolidated Financial Statements ...... F-6
CHS Electronics, Inc.--Historical Financial Statements
Report of Independent Certified Public Accountants .................. F-8
Consolidated Balance Sheets ....................................... F-9
Consolidated Statements of Earnings ................................. F-10
Consolidated Statements of Shareholders' Equity ..................... F-11
Consolidated Statements of Cash Flows .............................. F-12
Notes to the Financial Statements ................................. F-14
Karma International S.A. (formerly Bluefin S.A.)
Independent Auditors' Report ....................................... F-32
Consolidated Balance Sheets .......................................... F-33
Consolidated Statements of Income .................................... F-34
Consolidated Statements of Shareholders' Equity ..................... F-35
Consolidated Statements of Cash Flows .............................. F-36
Notes to Consolidated Financial Statements ........................... F-37
F-1
<PAGE>
CHS ELECTRONICS, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The following Pro Forma Condensed Consolidated Balance Sheet as of March
31, 1997 and the Pro Forma Condensed Consolidated Statements of Earnings for
the year ended December 31, 1996 and the three months ended March 31, 1997 give
effect to the acquisition by the Company of an operation in Hungary (CHS
Hungary), effective February 1996, an operation in Switzerland (CHS
Switzerland), effective April 1996, the European, Latin American and Mexican
subsidiaries of Merisel, Inc. (ELM) effective October 1996, and an operation in
Germany effective January 1, 1997 (F&W), and a probable acquisition of the
operations of Karma International S.A. (Karma). Each acquisition has been
accounted for using the purchase method of accounting. The Pro Forma Condensed
Consolidated Balance Sheet as of March 31, 1997 is presented as if the
acquisition of Karma (the only acquisition not already reflected in the
historical financial statements) had taken place on March 31, 1997. The Pro
Forma Condensed Consolidated Statements of Earnings for the year ended December
31, 1996 and for the three months ended March 31, 1997 present the pro forma
results assuming all acquisitions occurred January 1, 1996. A list of the
companies included in each period is shown below.
COMPANIES INCLUDED IN ACQUIRED COMPANIES COLUMN
IN THE PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
- ------------------- -------------------
F&W Karma
ELM
CHS Switzerland
CHS Hungary
Karma
The Pro Forma Condensed Consolidated Financial Statements have been
prepared based upon the historical financial statements of the Company and the
acquired subsidiaries for the periods stated above. Such pro forma statements
may not be indicative of the results that would have occurred if the
acquisitions had been consummated on the indicated dates, or of the operating
results that may be achieved by the combined companies in the future. The Pro
Forma Statements should be read in conjunction with the Company's Consolidated
Financial Statements and the notes thereto.
F-2
<PAGE>
CHS ELECTRONICS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 1997
(In thousands)
<TABLE>
<CAPTION>
CHS ACQUIRED PRO FORMA
HISTORICAL COMPANY ADJUSTMENTS COMBINED
------------ ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash ....................................... $ 32,699 $ -- $ 74,000(b) $ 32,699
(74,000)(a)
Accounts receivable, net .................. 335,599 37,315 372,914
Inventories ................................. 349,246 98,980 448,226
Other current assets ........................ 35,298 28,878 64,176
--------- --------- ------------ -----------
Total current assets ..................... 752,842 165,173 -- 918,015
Property and equipment, net .................. 36,706 2,214 38,920
Costs in excess of assets acquired, net ...... 105,105 117,588(c) 222,693
Other assets ................................. 6,790 1,471 142,800(a) 8,261
(142,800)(c)
--------- --------- ------------ -----------
$ 901,443 $ 168,858 $ 117,588 $ 1,187,889
========= ========= ============ ===========
LIABILITIES
Current Liabilities:
Notes payable .............................. $ 172,497 $ 18,912 $ 191,409
Accounts payable ........................... 434,713 110,980 545,693
Accrued liabilities ........................ 60,365 11,280 71,645
Amounts due to sellers under
acquisition agreements .................. 42,200 -- 42,200
Income taxes payable ........................ 3,577 917 4,494
Deferred taxes .............................. 2,485 1,237 3,722
--------- --------- ------------ -----------
Total current liabilities .................. 715,837 143,326 -- 859,163
Long term debt .............................. 51,017 126 51,143
Minority interest ........................... 4,150 194 4,344
Shareholders' Equity:
Common stock .............................. 15 10,803 3(a) 21
3(b)
(10,803)(c)
Additional paid-in capital .................. 120,380 68,797(a) 263,174
73,997(b)
Retained earnings ........................... 23,435 15,258 (15,258)(c) 23,435
Legal reserve .............................. -- 53 (53)(c) --
Translation adjustment ..................... (13,391) (902) 902(c) (13,391)
--------- --------- ------------ -----------
Total shareholders' equity ............... 130,439 25,212 117,588 273,239
--------- --------- ------------ -----------
$ 901,443 $ 168,858 $ 117,588 $ 1,187,889
========= ========= ============ ===========
</TABLE>
F-3
<PAGE>
CHS ELECTRONICS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
CHS ACQUIRED PRO FORMA
HISTORICAL COMPANIES ADJUSTMENTS COMBINED
------------ ------------ -------------------- -----------
<S> <C> <C> <C> <C>
Net sales .............................. $1,855,540 $2,465,273 $ (40,852)(d) $4,279,961
Cost of sales ........................... 1,724,432 2,310,334 (40,852)(d) 3,993,914
----------- ----------- ------------- -----------
Gross profit ........................... 131,108 154,939 -- 286,047
Operating expenses ..................... 102,235 119,883 7,539(e) 225,147
(1,817)(f)
(2,054)(g)
(639)(h)
----------- ----------- ------------- -----------
Operating income ........................ 28,873 35,056 (3,029) 60,900
Interest expense (income) ............... 8,513 15,162 (1,735)(i) 21,940
----------- ----------- ------------- -----------
Earnings before income taxes
and minority interest .................. 20,360 19,894 (1,294) 38,960
Provision for income taxes ............ 6,086 7,073 298(j) 13,457
----------- ----------- ------------- -----------
Earnings before minority interest ...... 14,274 12,821 (1,592) 25,503
Minority interest ..................... 2,108 48 133(k) 2,289
----------- ----------- ------------- -----------
Net earnings ........................... $ 12,166 $ 12,773 $ (1,725) $ 23,214
=========== =========== ============= ===========
Weighted average number of
common shares outstanding ............... 10,438,019 8,429,873 18,867,892
Net earnings per share .................. $ 1.16 $ 1.23
</TABLE>
F-4
<PAGE>
CHS ELECTRONICS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
CHS ACQUIRED PRO FORMA
HISTORICAL COMPANY ADJUSTMENTS COMBINED
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Net sales .............................. $ 877,103 $ 241,299 $1,118,402
Cost of sales ........................... 814,640 227,545 1,042,185
----------- ---------- ---------- -----------
Gross profit ........................... 62,463 13,754 -- 76,217
Operating expenses ..................... 47,838 6,708 1,422(e) 55,968
----------- ---------- ---------- -----------
Operating income ........................ 14,625 7,046 (1,422) 20,249
Interest expense (income) ............... 4,849 1,355 6,204
----------- ---------- ---------- -----------
Earnings before income taxes
and minority interest .................. 9,776 5,691 (1,422) 14,045
Provision for income taxes ............ 2,641 771 3,412
----------- ---------- ---------- -----------
Earnings before minority interest ...... 7,135 4,920 (1,422) 10,633
Minority interest ..................... 424 68 492
----------- ---------- ---------- -----------
Net earnings ........................... $ 6,711 $ 4,852 $ (1,422) $ 10,141
=========== ========== ========== ===========
Weighted average number of
common shares outstanding ............ 15,343,087 6,184,123 21,527,210
Net earnings per share .................. $ .44 $ .47
</TABLE>
F-5
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
a) In June 1997, the Company signed an agreement to purchase 100% of the stock
of Karma for $74 million in cash and $86 million in shares of unregistered
common stock of the Company. Karma is engaged principally in the
distribution of computer components in 18 countries in Europe, the Middle
East and Asia. For purposes of the Pro Forma Condensed Consolidated Balance
Sheet as of March 31, 1997, the purchase price of Karma is recorded at
$142,800,000. This price consists of the $74 million cash component added
to the discounted value of the unregistered shares to be delivered. The
discount used was 20%, based on the large size and the restricted nature of
the block of shares. Assuming a price of $26.50 per share, the Company
would deliver 3,245,283 shares.
In December 1996, the Company signed an agreement to purchase 100% of the
stock of F&W for 2,200,000 shares of unregistered common stock. F&W is a
distributor of computers and computer products located in Germany.
On October 4, 1996, the Company acquired certain assets as well as 100% of
certain European, Latin American and Mexican subsidiaries of ELM for total
consideration of $147.6 million resulting in goodwill of $10.5 million. The
operations acquired serve the market areas of Austria, France, Germany,
Switzerland, the United Kingdom, Mexico and Latin America. The facilities
acquired are in Austria, France, Germany, Switzerland, the United Kingdom,
Mexico, Miami, Florida and a warehouse in The Netherlands. The business of
ELM is distribution of computers and peripherals in a manner similar to
that of the Company.
In April 1996, the Company acquired 100% of Wyrsch Trading SA (CHS
Switzerland) for 183,237 shares of common stock of the Company, which
resulted in goodwill of $870,000. CHS Switzerland is a distributor of
computers and computer peripherals located in Lucerne, Switzerland.
In January 1996, effective February 1, 1996, the Company acquired 51% of
Kventa KFT. (CHS Hungary) for $17.6 million, resulting in $15.8 million of
goodwill. CHS Hungary is based in Budapest, Hungary and is a distributor
and retailer of products similar to those distributed by the Company.
All these transactions have been accounted for under the purchase method
of accounting.
b) To record the issuance and sale of 2,938,840 of the 10,000,000 shares of
common stock of the Company offered hereby at an assumed offering price of
$26.50 per share (net proceeds at $25.18 per share) to raise the cash
consideration to be paid in connection with the acquisition of Karma.
c) To eliminate the investment account and Karma equity accounts and to record
goodwill of $117,588,000 for Karma. For purposes of the Pro Forma Condensed
Consolidated Balance Sheet as of March 31, 1997, the goodwill was computed
by subtracting from the $142.8 million estimated purchase price of the
Karma acquisition the fair value of the net assets acquired of $25,212,000.
d) To eliminate intercompany sales between the Company and F&W.
e) To record amortization of goodwill over a period of 20 years. Amortization
was provided for F&W, ELM, CHS Switzerland, CHS Hungary and Karma based on
goodwill of $27,618,000, $10,523,000, $870,000, $15,827,000 and
$113,740,000, respectively, for the period of time each company was added
to the Pro Forma Condensed Consolidated Statements of Earnings for the year
ended
F-6
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--(CONTINUED)
December 31, 1996 and for the three months ended March 31, 1997. For
purposes of the Pro Forma Condensed Consolidated Statements of Earnings for
the year ended December 31, 1996 and for the three months ended March 31,
1997, the goodwill of Karma was computed based on the difference between
the estimated purchase price of $142,800,000 and the estimated fair value
of net assets to be acquired as of the projected closing date of the
transaction.
f) To eliminate operating costs of ELM European headquarters personnel no
longer employed by the Company after the acquisition. The European
headquarters was not purchased in the acquisition.
g) To eliminate Merisel corporate overhead charged to ELM. The Company has
recorded all of its overhead and does not anticipate hiring additional
staff to manage ELM.
h) To eliminate the cost of the computer system that ELM rented from Merisel in
excess of the cost of running the system currently.
i) To reduce interest expense from the rates charged by Merisel on the
intercompany debt to the interest rates being incurred on the debt that
replaced the intercompany debt.
j) To adjust tax benefit based on the above adjustments based on the 1996
blended rate for the European subsidiaries of ELM.
k) To record an adjustment for minority interest of CHS Hungary.
l) Details of the Acquired Companies column in the accompanying Statement of
Earnings for the year ended December 31, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
CHS CHS
F&W ELM SWITZERLAND HUNGARY KARMA COMBINED
---------- --------------- ------------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales .................. $686,115 $ 1,059,912 $17,196 $1,847 $700,203 $2,465,273
Cost of sales ............... 638,318 986,549 15,675 1,461 668,331 2,310,334
--------- ----------- -------- ------- --------- -----------
Gross profit ............... 47,797 73,363 1,521 386 31,872 154,939
Operating expenses ......... 36,890 68,351 1,240 49 13,353 119,883
--------- ----------- -------- ------- --------- -----------
Operating income ............ 10,907 5,012 281 337 18,519 35,056
Interest expense (income) ... 4,591 9,577 65 5 924 15,162
--------- ----------- -------- ------- --------- -----------
Earnings (loss) before income
taxes and minority interest 6,316 (4,565) 216 332 17,595 19,894
Provision for income taxes ... 2,807 1,690 47 59 2,470 7,073
--------- ----------- -------- ------- --------- -----------
Earnings before minority
interest .................. 3,509 (6,255) 169 273 15,125 12,821
Minority interest ............ -- -- -- -- 48 48
--------- ----------- -------- ------- --------- -----------
Net earnings (loss) ......... $ 3,509 $ (6,255) $ 169 $ 273 $ 15,077 $ 12,773
========= =========== ======== ======= ========= ===========
</TABLE>
F-7
<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 operations 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-8
<PAGE>
CHS ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 MARCH 31,
1995 1996 1997
------------- ------------- ------------
(RESTATED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ...................................................... $ 11,171 $ 35,137 $ 32,699
Accounts receivable:
Trade, less allowance for doubtful accounts of
$4,388 in 1995, $14,830 in 1996 and $15,465 in 1997 ...... 112,501 340,098 331,580
Affiliates ................................................ 843 3,241 4,019
--------- --------- ---------
113,344 343,339 335,599
Inventories ................................................ 102,159 321,770 349,246
Deferred tax asset .......................................... 456 -- --
Prepaid expenses .......................................... 9,824 39,374 35,298
--------- --------- ---------
Total current assets ....................................... 236,954 739,620 752,842
PROPERTY AND EQUIPMENT, NET ................................. 9,126 30,947 36,706
COST IN EXCESS OF ASSETS ACQUIRED, NET ..................... 17,305 78,780 105,105
OTHER ASSETS ................................................ 2,419 12,602 6,790
--------- --------- ---------
$265,804 $ 861,949 $ 901,443
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable ............................................. $ 46,438 $ 155,932 $ 172,497
Accounts payable, trade .................................... 165,494 452,569 434,713
Accrued liabilities ....................................... 14,242 44,873 60,365
Amounts due to sellers under acquisition agreements ......... -- 49,200 42,200
Income taxes payable ....................................... 937 5,120 3,577
Deferred income taxes ....................................... -- 420 2,485
--------- --------- ---------
Total current liabilities ................................. 227,111 708,114 715,837
LONG TERM DEBT ............................................. 8,801 45,327 51,017
MINORITY INTEREST .......................................... -- 3,975 4,150
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 in 1995, 12,400,384 shares
in 1996 and 14,692,760 in 1997 ........................... 8 12 15
Additional paid-in capital ................................. 24,976 92,850 120,380
Retained earnings .......................................... 4,558 16,724 23,435
Cumulative foreign currency translation adjustment ......... 350 (5,053) (13,391)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY ................................. 29,892 104,533 130,439
--------- --------- ---------
$265,804 $ 861,949 $ 901,443
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE>
CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
------------- ------------- --------------- ------------- -------------
(RESTATED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales (including sales to
affiliates of $52,421, $21,063,
$0, $0, and $0, respectively)............... $ 359,169 $ 936,703 $ 1,855,540 $ 302,995 $ 877,103
Cost of goods sold ........................ 333,983 868,716 1,724,432 280,453 814,640
--------- --------- ----------- --------- ---------
Gross profit .............................. 25,186 67,987 131,108 22,542 62,463
Operating expenses ........................ 21,798 57,188 102,235 17,850 47,838
--------- --------- ----------- --------- ---------
Operating income ........................... 3,388 10,799 28,873 4,692 14,625
Other (income) expense:
Interest income ........................... (250) (1,757) (3,199) (614) (1,767)
Interest expense ........................... 2,070 6,454 11,712 1,940 6,616
--------- --------- ----------- --------- ---------
1,820 4,697 8,513 1,326 4,849
--------- --------- ----------- --------- ---------
Earnings before income taxes and
minority interest in subsidiaries ......... 1,568 6,102 20,360 3,366 9,776
Income taxes .............................. 603 1,797 6,086 1,059 2,641
Minority interest in subsidiaries ......... -- -- 2,108 319 424
--------- --------- ----------- --------- ---------
Net earnings .............................. $ 965 $ 4,305 $ 12,166 $ 1,988 $ 6,711
========= ========= =========== ========= =========
Net earnings per common share-primary ...... $ .21 $ .59 $ 1.16 $ .25 $ .44
========= ========= =========== ========= =========
Net earnings per common
share-fully diluted ........................ $ .21 $ .59 $ 1.16 $ .24 $ .44
========= ========= =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended December 31, 1996
and Three Months Ended March 31, 1997
(In thousands)
<TABLE>
<CAPTION>
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 at December 31, 1994,
as restated ........................... 14 19,618 253 (138) 123 19,870
Adjustment for 1 for 2 reverse split . (7) 7 -- -- -- --
Deferred compensation recognized . -- -- -- 138 -- 138
Issuance of common stock
in acquisitions ........................ 1 5,351 -- -- -- 5,352
Net 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
Stock options exercised
(unaudited) ........................... 1 604 -- -- -- 605
Common stock issued
in acquisitions (unaudited) ............ 2 26,926 -- -- -- 26,928
Net earnings (unaudited) .................. -- -- 6,711 -- -- 6,711
Foreign currency translation
adjustment (unaudited) .................. -- -- -- -- (8,338) (8,338)
----- -------- ------- -------- --------- --------
Balance at March 31, 1997
(unaudited) ........................... $ 15 $120,380 $23,435 $ -- $ (13,391) $130,439
===== ======== ======= ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE>
CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ -------------- ------------ -----------
(RESTATED) (RESTATED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase (decrease) in cash and cash
equivalents:
Cash flows from operating activities:
Net earnings .................................... $ 965 $ 4,305 $ 12,166 $ 1,988 $ 6,711
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization .................. 874 2,456 6,632 891 3,658
Deferred compensation amortized ............... 138 148 -- -- --
Minority interest in net earnings ............... -- -- 2,108 319 424
Changes in assets and liabilities
excluding effects of acquisitions:
Accounts receivable-trade, net ............... (9,242) (37,724) (118,694) 2,461 48,531
Accounts receivable-affiliates, net ............ (1,022) (12,285) (2,398) (1,631) (778)
Inventories .................................... (18,798) (32,204) (129,357) (11,357) 17,155
Prepaid expenses and other
current assets .............................. (2,429) (1,742) (22,345) (4,019) 23,305
Accounts payable .............................. 36,617 51,818 173,244 1,821 (94,381)
Accrued liabilities and income taxes ......... 758 3,175 (20,481) 1,545 3,420
-------- --------- ---------- -------- --------
Net cash provided by (used in)
operating activities: ........................ 7,861 (22,053) (99,125) (7,982) 8,045
Cash flows from investing activities:
Purchase of fixed assets ..................... (1,728) (6,866) (11,624) (1,618) (1,658)
Cash provided from (used in)
acquisitions ................................. 4,890 1,317 (26,876) -- 2,800
-------- --------- ---------- -------- --------
Net cash provided by (used in)
investing activities: ........................ 3,162 (5,549) (38,500) (1,618) 1,142
Cash flows from financing activities:
Proceeds from public offering .................. -- -- 50,614 -- --
Proceeds from private placement ............... 4,000 -- -- -- --
Proceeds from stock options exercised ......... -- -- 282 -- 605
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 11,657 (10,317)
-------- --------- ---------- -------- --------
Net cash provided by (used in)
financing activities: ........................ (3,375) 29,855 163,348 11,657 (9,712)
Effect of exchange rate changes on cash ......... 117 550 (1,757) (228) (1,913)
-------- --------- ---------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .............................. 7,765 2,803 23,966 1,829 (2,438)
Cash and cash equivalents at beginning of
period .......................................... 603 8,368 11,171 11,171 35,137
-------- --------- ---------- -------- --------
Cash and cash equivalents at end of period ...... $ 8,368 $ 11,171 $ 35,137 $ 13,000 $ 32,699
======== ========= ========== ======== ========
</TABLE>
F-12
<PAGE>
CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--CONTINUED
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ------------------
1994 1995 1996 1996 1997
------------ ------------ --------- -------- -------
(RESTATED) (RESTATED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ....................................... $1,532 $4,944 $10,064 $2,154 $7,251
Income taxes .................................... $ 747 $1,753 $ 3,892 $ 291 $3,231
</TABLE>
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Fair value of assets acquired including
cash acquired ....................................... $92,049 $19,216 $14,691 $7,284 $131,498
Less: Common stock or other consideration issued ...... 26,647 7,152 3,278 2,515 26,928
-------- -------- -------- ------- ---------
Liabilities assumed .................................... $65,402 $12,064 $11,413 $4,769 $104,570
======== ======== ======== ======= =========
</TABLE>
In 1996, $13.7 million was credited to additional paid-in capital representing
additional consideration paid by Comtrad, Inc. (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-13
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES
1. Formation of Business
On January 1, 1993, CHS Electronic Publishing Service GmbH, (CHS Germany)
was acquired by Comtrad, 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, Latin 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 United States 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-14
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
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 Latin 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:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Buildings ........................... 30-50
Leasehold improvements ............ 3-7
Computer equipment .................. 2-5
Office equipment and furniture ...... 3-10
</TABLE>
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.
F-15
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
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.
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 SFAS 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 for primary
earnings per share was 4,693,332 in 1994, 7,282,785 in 1995, 10,438,019 in 1996
and 7,862,349 and 15,343,087 for the three-month periods ended March 31, 1996
and 1997, respectively. The weighted average number of shares used in the
computation of fully diluted earnings per share was 8,183,391 and 15,423,433
for the three-month periods ended March 31, 1996 and 1997, respectively.
14. STOCK OPTIONS
Options granted under the Company's 1994 Stock Option Plan and 1996 Chief
Executive Officer Stock Option Plan are accounted for under APB Opinion 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. As to grants requiring shareholder
approval, the Company considers the date of grant to be the date of action by
the Board of Directors when, on such date, shareholder approval is deemed to
be perfunctory.
F-16
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
15. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reported period. Actual results could
differ from those estimates.
16. INTERIM FINANCIAL INFORMATION
The financial statements at March 31, 1997 and for the quarters ended
March 31, 1996 and 1997 are unaudited and prepared on the same basis as the
audited consolidated financial statements included herein. In the opinion of
management, such interim financial statements included all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the results for such periods. The results of operations for the quarter ended
March 31, 1997 are not necessarily indicative of the results to be expected for
the full year or any other interim period.
17. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share", and
SFAS No. 129, "Disclosure of Information about Capital Structure."
SFAS No. 128 simplifies the earnings per share ("EPS") calculations
required by Accounting Principles Board ("APB") Opinion No. 15, and related
interpretations, by replacing the presentation of primary EPS with a
presentation of basic EPS. SFAS No. 128 requires dual presentation of basic and
diluted EPS by entities with complex capital structures. Basic EPS includes no
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution of securities that could share in
the earnings of an entity, similar to the fully diluted EPS of APB Opinion No.
15. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. When adopted, SFAS No. 128 will require restatement of all
prior-period EPS data presented. The Company has not sufficiently analyzed SFAS
No. 128 to determine what effect SFAS No. 128 will have on its historical
reported EPS amounts.
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. 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,
F-17
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE B--ACQUISITIONS--(CONTINUED)
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 five 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 the 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 of the warehouse in The Netherlands-$6.4
million and write-offs 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
write-offs 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
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 the 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
F-18
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE B--ACQUISITIONS--(CONTINUED)
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
PRESENTED) COMBINED
COMBINED BALTIC BRAZIL BULGARIA CROATIA ROMANIA SLOVAKIA (RESTATED)
------------ -------- ------------ ---------- --------- --------- ---------- -----------
<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:
<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 Latin America 287,500 shares October 1995 July 1995
CHS Czechia (16%) Czech Republic 92,000 shares October 1995 January 1993
CHS Finland Finland $2,300,000 December 1995 July 1995
CHS Sweden Sweden $2,400,000 December 1995 July 1995
CHS Poland Poland $2,300,000 December 1995 November 1995
</TABLE>
F-19
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE B--ACQUISITIONS--(CONTINUED)
In these transactions, assets and liabilities were transferred to the
Company at Comtrad's or CHI's original cost basis. In several of these
transactions Comtrad's cost is subject to adjustment from earnout agreements.
Comtrad's purchase price for the three companies in the United Kingdom, France
and Belgium consisted of a $7 million note and an amount determined by an
earnout 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 earnout ($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 earnout. 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 earnout 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 earnout 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 earnout 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-20
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE B--ACQUISITIONS--(CONTINUED)
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996
------------ -----------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C>
Sales ........................ $2,449,861 $2,940,792
Net earnings ............... 1,995 4,317
Net earnings per share ...... $ .25 .41
</TABLE>
Pro forma adjustments have been made to eliminate a non-recurring loss in
the operations acquired from Merisel and to add goodwill amortization and
interest expense on the amounts payable to selling shareholders at 7.5%. The
pro forma information is not necessarily indicative of the actual results of
operations that would have occurred had the acquisitions taken place on January
1, 1995, or of results which may occur in the future.
F-21
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE C--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
---------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
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 through acquisition ...... 1,689 156 10,805
------ -------- --------
Ending balance ..................... $3,358 $ 4,388 $ 14,830
====== ======== ========
</TABLE>
NOTE D--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
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
======= ========
</TABLE>
NOTE E--INCOME TAXES
The components of earnings before income taxes and minority interest in
subsidiaries consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic ...... $1,258 $ 741 $ 1,361
Foreign ...... 310 5,361 18,999
------- ------- --------
Total ......... $1,568 $6,102 $20,360
======= ======= ========
</TABLE>
F-22
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE E--INCOME TAXES--(CONTINUED)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
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
====== ====== =======
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
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)
======== ========
</TABLE>
F-23
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE E--INCOME TAXES--(CONTINUED)
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
--------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
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
===== ======= ========
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards in
certain foreign jurisdictions that expire as follows:
<TABLE>
<S> <C>
1998 .................. $9,480,000
1999 .................. 6,539,000
2000 .................. 1,964,000
No expiration date ...... 14,388,000
</TABLE>
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-24
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE F--NOTES PAYABLE AND LONG TERM DEBT--(CONTINUED)
The Company's long-term debt consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1995 1996 1997
-------- --------- ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <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 through June 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 $40,898
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 9,961
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 3,671
------- -------- --------
Total ............................................................... 8,975 47,455 54,530
Less current portion of long-term debt, included in notes payable ... 174 2,128 3,513
------- -------- --------
Total long-term debt ................................................ $8,801 $45,327 $51,017
======= ======== ========
Scheduled maturities of long-term debt are as follows (in thousands):
Year ending December 31, 1997 ....................................... $2,128
1998 ............................................................... 3,851
1999 ............................................................... 36,945
2000 ............................................................... 2,539
2001 ...............................................................
883
</TABLE>
F-25
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
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 England and
France. 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 Croatia, Bulgaria and Venezuela.
Most of the Company's sales are made in local currencies other than the
United States 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 United States dollars and German marks
were $166 million (principally $120 million in United States dollars and $43
million in German marks). The largest unhedged amounts of trade payables were
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
F-26
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
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.
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):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, BUILDINGS EQUIPMENT VEHICLES AND OTHER TOTAL
- --------------------------- ----------- ----------- -------------------- --------
<S> <C> <C> <C> <C>
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
</TABLE>
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, 1995 and 1996, the Company carried receivables from
Comtrad in an amount of $843,000 and $3.2 million 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
F-27
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE I--RELATED PARTY TRANSACTIONS--(CONTINUED)
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 its affiliates. Based on such study the Company applied for and received a
credit from Comtrad against such fees of $579,000. Such amount has been
recorded as a reduction of administrative expenses in 1994. In 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, HP 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
F-28
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE I--RELATED PARTY TRANSACTIONS--(CONTINUED)
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 earnout 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 one-for-two 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 one-for-two 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.
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
F-29
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE J--COMMON STOCK AND STOCK OPTION PLANS--(CONTINUED)
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 to be paid by delivery of a
number of shares 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 SFAS 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, the Company's net earnings per share would have been reduced to
the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C> <C>
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
</TABLE>
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 grant year.
F-30
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE J--COMMON STOCK AND STOCK OPTION PLANS--(CONTINUED)
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:
<TABLE>
<S> <C>
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
</TABLE>
F-31
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
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>
F-32
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE L--SUBSEQUENT EVENTS
In December 1996 the Company signed a definitive agreement to purchase
F&W, 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 obtained) 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, F&W 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.
NOTE M--SUMMARIZED QUARTERLY FINANCIAL DATA FOR 1995 AND 1996 (unaudited)
(IN THOUSANDS, EXCEPT FOR PER SHARE INFORMATION)
<TABLE>
<CAPTION>
Q1 Q2 Q3 Q4 YEAR
---------- ---------- ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
1995
Net sales .................. $207,419 $172,744 $239,074 $ 317,466 $ 936,703
Gross profit ............... 14,910 13,400 17,425 22,252 67,987
Net earnings ............... 1,667 950 1,163 525 4,305
Net earnings per share ...... .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
</TABLE>
- ----------------
(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-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Karma International S.A.
We have audited the accompanying consolidated balance sheets of Karma
International S.A. (formerly Bluefin S.A.) and its subsidiaries (the Company)
as of December 31, 1995 and 1996, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Karma
International S.A. (formerly Bluefin S.A.) and its subsidiaries as of December
31, 1995 and 1996, and the results of their operations and their cash flows for
the years then ended in accordance with accounting principles generally
accepted in the United States.
KPMG Cevdet Suner Denetim ve
Yeminli Mali Musavirlik A.S.
Istanbul, Turkey
April 16, 1997
F-34
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
--------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents (Note 4) .................................... $ 6,684 $ 9,600
Trade receivables, net (Note 5) ................................. 6,450 26,148
Due from related parties (Notes 3 and 6) ........................ 6,278 8,926
Inventories, net (Notes 3 and 7) ................................. 35,551 88,579
Other current assets (Note 8) .................................... 3,338 5,832
Deferred tax assets (Notes 3 and 12) ........................... 111 204
-------- ---------
Total current assets .......................................... 58,412 139,289
Property and equipment, net (Notes 3 and 9) ..................... 511 1,694
Intangible and other long term assets, net ........................ 16 975
-------- ---------
Total assets ................................................ $58,939 $ 141,958
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings (Note 10) ............................................. $ 5,828 $ 7,925
Trade payables (Note 11) ....................................... 40,125 92,396
Due to related parties (Notes 3 and 6) ........................... 2,689 6,229
Taxes payable (Notes 3 and 12) ................................. 456 1,306
Other current liabilities (Note 13) .............................. 3,550 11,582
Deferred tax liabilities (Notes 3 and 12) ........................ 12 1,159
-------- ---------
Total current liabilities .................................... 52,660 120,597
Long term liabilities ............................................. -- 103
Minority interest (Note 3) ....................................... 386 144
-------- ---------
Total liabilities ............................................. 53,046 120,844
Shareholders' equity:
Common stock, $10 par value, authorized 20,000,000 shares;
issued and outstanding 1,080,288 shares in 1996 (Note 14) ...... 5,136 10,803
Legal reserve ................................................... -- 9
Accumulated translation adjustment (Note 3) ..................... 49 (148)
Retained earnings ................................................ 708 10,450
-------- ---------
Total shareholders' equity .................................... 5,893 21,114
COMMITMENTS AND CONTINGENCIES (Note 15)
Total liabilities and shareholders' equity .................. $58,939 $ 141,958
======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-35
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Net sales (Note 3) .......................................... $ 287,663 $ 700,203
Cost of goods sold (Note 3) ................................. (275,104) (668,397)
---------- ----------
Gross profit ............................................. 12,559 31,806
Selling, general and administrative expenses (Note 3) ......... (5,275) (13,353)
---------- ----------
7,284 18,453
Interest income ............................................. 117 967
Interest expense ............................................. (942) (1,891)
Other (expense) income, net ................................... (175) 66
---------- ----------
Income before taxes on income and minority interest ...... 6,284 17,595
Taxes on income (Notes 3 and 12) .............................. (405) (2,470)
---------- ----------
Income before minority interest ........................... 5,879 15,125
Minority interest (Note 3) .................................... (77) (48)
---------- ----------
Net income ................................................ $ 5,802 $ 15,077
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-36
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
EARNINGS/ ACCUMULATED TOTAL
COMMON LEGAL (ACCUMULATED TRANSLATION SHAREHOLDERS'
STOCK RESERVE LOSSES) ADJUSTMENT EQUITY/(DEFICIT)
--------- --------- -------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994 ............ $ 64 $-- $ (164) $ 35 $ (65)
Capital share transactions (Note 14) ... 142 142
Translation adjustments (net of tax $5) 14 14
Net income .............................. 5,802 5,802
Transfer to share capital (Note 14) ... 4,930 (4,930) --
------- -------- -------
BALANCES AT DECEMBER 31, 1995 ............ 5,136 -- 708 49 5,893
Transfer to legal reserve ............... 9 (9) --
Capital share transactions (Note 14) ... 113 113
Effect of disposition of operations
(Note 14) .............................. (19) 278 259
Translation adjustments (net of tax $41) (197) (197)
Net income .............................. 15,077 15,077
Transfer to share capital (Note 14) ... 5,573 (5,573) --
Other ................................. (31) (31)
-------- -------
BALANCES AT DECEMBER 31, 1996 ............ $10,803 $ 9 $10,450 $ (148) $21,114
======= ==== ======== ====== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-37
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
----------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ................................................... $ 5,802 $ 15,077
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ................................................ 42 118
Amortization ................................................ -- 107
Provision for inventories .................................... 319 1,086
Provision for doubtful receivables ........................... 5 8
Provision for deferred taxes ................................. (40) 1,095
Changes in assets and liabilities:
Trade receivables .......................................... 1,742 (19,706)
Due from related parties .................................... (2,491) (2,648)
Inventories ................................................ (29,630) (54,114)
Other current assets ....................................... (2,366) (2,494)
Trade payables ............................................. 20,828 52,271
Due to related parties ....................................... 1,437 3,540
Taxes payable ................................................ 370 850
Other current liabilities .................................... 3,039 8,032
Other, net ................................................... (12) (735)
-------- ---------
Net cash (used in) provided by operating activities ...... (955) 2,487
INVESTING ACTIVITIES:
Additions to property and equipment ........................ (359) (1,301)
-------- ---------
Net cash used in investing activities ..................... (359) (1,301)
FINANCING ACTIVITIES:
Capital share transactions ................................. 142 113
Proceeds from issuance of short-term debt .................. 5,828 8,025
Payment of short-term debt ................................. (332) (5,928)
Change in minority interest ................................. 386 (242)
-------- ---------
Net cash provided by financing activities ............... 6,024 1,968
EXCHANGE RATE EFFECT ON CASH, GROSS ........................... 19 (238)
-------- ---------
Net increase in cash and equivalents ........................ 4,729 2,916
Cash and equivalents at the beginning of period ............... 1,955 6,684
-------- ---------
Cash and equivalents at the end of period ..................... $ 6,684 $ 9,600
======== =========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid ................................................ $ 940 $ 885
Taxes on income paid ....................................... 88 219
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-38
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)
1. DESCRIPTION OF BUSINESS:
Karma International S.A. ("Karma International"--the Parent company) was
incorporated in Luxembourg in 1996, formerly Bluefin S.A. which was
incorporated on July 27, 1990. The consolidated financial statements of Karma
International include the results of operations and financial position of its
wholly owned subsidiaries, majority owned subsidiaries and entities under
common control of Karma International and/or the controlling shareholders (Note
14) which are part of a shareholders' agreement whereby the controlling
shareholders reached an agreement to contribute their capital in subsidiaries
to Karma International AG in 1995 and consequently to Karma International S.A.
in 1996. Accordingly, in 1996, the shares of Karma International AG, Karma
Components AG, Carre & Ribeiro Informatica Lda, Karma Denmark Aps and Karma
Italia Srl were contributed by the controlling shareholders of Karma
International. The consolidated financial statements as of and for the year
ended December 31, 1995 have been restated to account for the entities under
common control "as if" a pooling of interest had occurred.
The following companies' (subsidiaries) results of operations and
financial position have been included in the consolidated financial statements
based upon the relative percentage below which represent the earliest period
for which such entities were under common control of Karma International and/or
the controlling shareholders.
<TABLE>
<CAPTION>
OWNERSHIP
-----------------
COMPANIES 1995 1996
- -------------------------------------------------------------- ------ --------
<S> <C> <C>
Carre & Ribeiro Informatica Lda, Portugal ............... 75% 75%
Karma Benelux BV, the Netherlands ........................ 100% 100%
Karma Components AG, Switzerland ........................ 75% 95%
Karma Components SA, Spain(1) ........................... -- 100%
Karma Computer GmbH, Germany(1) ........................... -- 100%
Karma Czech a.s., Czech Republic(1) ..................... -- 75%
Karma Denmark ApS, Denmark .............................. 75% 75%
Karma International AG, Switzerland ..................... 95% 100%
Karma Italia Srl, Italy ................................. 75% 75%
Karma Polska International Group Limited, Poland(1) ...... -- 75%
Karma Sarl, France ....................................... 100% 100%
Karma UK Limited, United Kingdom ........................ 100% 100%
Riverrise Trading Limited, Ireland(2) ..................... 100% --
</TABLE>
- ----------------
(1) Company began operations in 1996.
(2) Company's operations disposed of in 1996. (Note 14)
F-39
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)--(CONTINUED)
1. DESCRIPTION OF BUSINESS:--(CONTINUED)
Karma International and its subsidiaries (the Company) operates in a single
industry trading computer components. In principle, the Company purchases
components from international suppliers and sells them in the local markets. The
companies other than the Parent company and Karma International AG are mostly
engaged in marketing and selling the products in their respective local markets.
The Company's principal operations are outside of Luxembourg and are conducted
by subsidiaries located in various countries in Europe. The subsidiaries are the
approved distributors of various international companies in computer hardware,
software, networking and data communication markets. The Company has entered
into agreements with suppliers and manufacturers of these products. These
agreements provide, among other things, that the Company obtains favourable
pricing based on certain committed levels of purchases, that the Company is
price protected in the event the vendor reduces its prices and that goods can be
returned to the vendor within a period of three months effective from the date
when such goods become unsaleable due to technological reasons. The agreements
are generally renegotiated annually and are subject to termination by the vendor
or the Company with thirty to ninety days notice. Although the Company believes
it maintains satisfactory relations with these vendors, the discontinuance,
termination or non-renewal of certain of these agreements could adversely affect
the Company's business.
In 1996, the shareholders agreed to transfer their ownership interests in
Oktabit Hellas A.E. (Greece) and Karma Donanim Yazilim A.S. (Turkey), which are
wholly owned by the controlling shareholders, to the Company. The share
transfer procedures have not been finalized as of December 31, 1996. Therefore,
such companies were not included in the accompanying consolidated financial
statements. Had the transfer procedures been completed and had these companies
been included in the accompanying consolidated financial statements as of and
for the years ended December 31, 1995 and 1996, total assets; total revenues
and net income would be higher by $8,095 and $12,404; $5,565 and $31,864, and
$295 and $304 in 1995 and 1996, respectively.
2. Adjustments and Reclassifications to Statutory Books of Accounts:
Karma International and the subsidiaries maintain their books of accounts
and prepare their statutory financial statements in their local currencies and
in accordance with local commercial practice and tax regulations applicable in
the countries where they are resident. The accompanying consolidated financial
statements are based on these statutory records with adjustments and
reclassifications for the purpose of fair presentation in accordance with
accounting principles generally accepted in the United States.
3. Summary of Significant Accounting Policies:
The major accounting policies followed in the preparation of the
consolidated financial statements referred to above are set out below:
(A) REVENUE AND EXPENSE RECOGNITION--
Revenues are recognized at the time the goods are shipped. Cost of goods
sold include material costs only. Selling, general and administrative costs are
charged to expense as incurred. Income from vendor rebates and discounts are
recognized when earned, as a reduction of the cost of goods sold or as a
reduction of operating expenses.
F-40
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)--(CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
(B) PRINCIPLES OF CONSOLIDATION--
The consolidated financial statements of Karma International include the
results of operations and financial position of its wholly owned subsidiaries,
majority owned subsidiaries and entities under common control of Karma
International and/or the controlling shareholders (Note 14) which are part of a
shareholders' agreement whereby the controlling shareholders reached an
agreement to contribute their capital in subsidiaries to Karma International AG
in 1995 and consequently to Karma International S.A. in 1996. Accordingly, in
1996, the shares of Karma International AG, Karma Components AG, Carre &
Ribeiro Informatica Lda, Karma Denmark Aps and Karma Italia Srl have been
contributed by the controlling shareholders into Karma International. The
consolidated financial statements as of and for the year ended December 31,
1995 have been restated to account for the entities under common control "as
if" a pooling of interest had occurred.
The major principles of consolidation are as follows:
/bullet/ All significant intercompany balances and transactions have been
eliminated in consolidation.
/bullet/ Minority interest in the net assets and net income of the
consolidated companies are separately classified in the consolidated
balance sheets and consolidated statements of income.
(C) PRINCIPLES OF TRANSLATION OF THE FINANCIAL STATEMENTS INTO U.S. DOLLARS--
The subsidiaries record transactions in their local currencies which
represent their operating currencies. Transactions denominated in currencies
other than local currencies are recorded at the exchange rates ruling at the
date of the transactions. Assets and liabilities denominated in currencies
other than local currencies are converted into the local currencies at the
exchange rates ruling at balance sheet date. Resulting exchange differences are
recognized in the income for the period.
Financial statements of the subsidiaries have been translated into U.S.
dollars, the reporting currency of the Parent company. Accordingly, balance
sheet items are translated at the year-end exchange rates while statement of
income items are translated at average rates during the year. All foreign
exchange adjustments resulting from translation of the financial statements
into U.S. dollars are included in a separate section of shareholders' equity
titled `Accumulated translation adjustment'.
(D) PROPERTY AND EQUIPMENT--
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method based on the estimated useful lives of the assets.
F-41
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)--(CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
Depreciation rates used are as follows:
<TABLE>
<CAPTION>
%
--------
<S> <C>
Buildings .............................. 2
Motor vehicles ........................ 12 -25
Furnitures, fixture and equipment ...... 15 -33
Leasehold improvements .................. 20
</TABLE>
The costs of ordinary maintenance and repairs are charged to expense as
incurred.
When assets are otherwise disposed of, the costs and the related
accumulated depreciation are removed from the accounts and resulting gain or
loss is reflected in net income.
(E) INVENTORIES--
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in first-out method.
(F) INCOME TAXES--
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(G) RELATED PARTY TRANSACTIONS--
For the purpose of the accompanying consolidated financial statements,
shareholders and all companies in which there is direct or indirect ownership
by the shareholders of the consolidated companies are considered as related
parties.
(H) USE OF ESTIMATES--
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles in the United States.
Actual results could differ from those estimates. Significant estimates and
assumptions include the amounts reflected as allowance for doubtful
receivables, allowance for inventories, amounts due from vendors under
incentive programs and deferred tax assets.
F-42
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)--(CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
(I) IMPAIRMENT OF LONG-LIVED ASSETS--
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of, on January 1, 1996.
Adoption of this statement did not have a material impact on the Company's
consolidated financial position, results of operations, or liquidity.
(J) TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES--
In June 1996, the Financial Accounting Standards Board issued SFAS No.
125, Accounting for Transfers and Servicing of Financial Assets and
extinguishments of Liabilities. SFAS No. 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996 and is to be applied prospectively. This statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. Management of the Company does not expect that adoption
of SFAS No. 125 will have a material impact on the Company's consolidated
financial position, results of operations, or liquidity.
(K) EARNINGS PER SHARE--
In 1996, the Financial Accounting Standards Board issued SFAS No. 128,
which is effective for periods ending after December 15, 1997. The Company has
not been required to calculate earnings per share amounts. However, the
adoption of this standard would not have an effect on the Company's earnings
per share amounts as the Company has no common stock equivalents.
4. Cash and Equivalents:
At December 31, the breakdown of cash and equivalents is as follows:
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Cash ........................ $6,662 $9,581
Cash equivalents ......... 22 19
------- -------
Cash and equivalents ...... $6,684 $9,600
======= =======
</TABLE>
5. Trade Receivables, net:
At December 31, trade receivables consisted of receivables maturing within
one year and are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Accounts receivable .............................. $ 6,558 $ 26,264
Less: Allowance for doubtful receivables ...... (108) (116)
------- --------
$ 6,450 $ 26,148
======= ========
</TABLE>
F-43
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)--(CONTINUED)
5. TRADE RECEIVABLES, NET:--(CONTINUED)
Allowance for doubtful receivables:
<TABLE>
<CAPTION>
1995 1996
------ -----
<S> <C> <C>
Beginning balance ............... $103 $108
Provision for bad debt ...... 5 8
----- -----
Ending balance ............... $108 $116
===== =====
</TABLE>
6. Due From/To Related Parties:
(a) At December 31, due from related parties comprised of following
balances:
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Karma Donanim Yazilim A.S. ...... $ 197 $7,266
Distribution Karma, Dubai ...... -- 1,161
Riverrise Trading Ltd ......... -- 303
Joaquim Ribeiro ............... -- 193
Mehmet Betil .................. 2,079 --
Umur Serter ..................... 1,989 --
Alvi Mazon ..................... 189 --
Bernd Karre ..................... 334 --
Oktabit Hellas A.E. ............ 768 --
Others ........................ 722 3
------- -------
$6,278 $8,926
======= =======
</TABLE>
(b) At December 31, due to related parties comprised of following
balances:
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Eurocom Computer Systems GmbH, Germany ...... $2,048 $4,104
Bernd Karre .............................. -- 1,040
Privest SAH, Luxembourg .................. 420 440
Oktabit Hellas A.E. ........................ -- 312
Others .................................... 221 333
------- -------
$2,689 $6,229
======= =======
</TABLE>
At December 31, 1996, $4,388 of the balance with Karma Donanim Yazilim
A.S. resulted from ordinary trading activities. Remaining $2,878 represents a
loan given to this company. Balances with Distribution Karma, Riverrise Trading
Ltd, Eurocom Computer Systeme GmbH and Oktabit Hellas A.E. resulted from
ordinary trading activities. At December 31, 1996, Distribution Karma was
acting as an agent of Karma International AG.
F-44
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)--(CONTINUED)
7. Inventories:
At December 31, inventories comprised:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Finished goods ........................ $ 35,959 $ 89,708
Less: Allowance for inventories ...... (408) (1,129)
-------- --------
$ 35,551 $ 88,579
======== ========
</TABLE>
At December 31, 1996, inventories amounting to $904 were pledged as
guarantees against borrowings obtained from Rabobank (Note 10).
As of December 31, 1996, inventories were insured to the extent of
$83,000.
8. Other Current Assets:
At December 31, 1995 and 1996, other current assets consist principally of
price protection and receivables from returned goods.
9. Property and Equipment:
Property and equipment at December 31, consist of the following:
<TABLE>
<CAPTION>
USEFUL LIVES 1995 1996
-------------- ---------- ----------
<S> <C> <C> <C>
Buildings ................................. 50 years $ 78 $ 450
Motor vehicles ........................... 4-8 years 92 218
Furnitures, fixture and equipment ...... 3-7 years 452 1,249
Leasehold improvements .................. 5 years -- 6
------ ------
Property and equipment at cost ...... 622 1,923
Less: Accumulated depreciation ......... (111) (229)
------ ------
$ 511 $1,694
====== ======
</TABLE>
At December 31, 1996, buildings at cost $423 were pledged as guarantees
against borrowings obtained from Barclay Bank plc (Note 10).
F-45
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)--(CONTINUED)
10. Borrowings:
At December 31, the balance consists of borrowings from financial
institutions as follows:
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Yapi Kredi Dankasi A.S., Germany ...... -- $2,879
Rabobank B.A., Den Haag ............ -- 716
Credit Lyonnais Finance Ltd ......... -- 2,031
Barclay Bank plc ..................... -- 951
Rabobank B.A., Den Haag ............ -- 150
Rabobank B.A., Den Haag ............ -- 38
BB Aval .............................. $2,700 --
Union de Banques Suisse ............ 964 --
Union de Banques Suisse ............ 480 --
National West ........................ 804 --
Lombard .............................. 473 --
Contrade Private Bank Limited ...... 137 --
Others .............................. 270 1,160
------- -------
$5,828 $7,925
======= =======
</TABLE>
Several of the Company's subsidiaries have credit lines with local banks
totalling $12,942 at December 31, 1996. Generally, borrowings under such lines
are collateralized by receivables, bank letters of guarantee, inventory or
property. The lines are principally of one year duration and are renewable by
the banks. In 1996, the average amounts outstanding were $6,877. The weighted
average interest rate at December 31, 1996 was approximately 8.5%.
At December 31, 1996, the following collaterals were provided to financial
institutions against approved lines of credit:
<TABLE>
<CAPTION>
TYPE OF COLLATERAL AMOUNT
--------------------------------- -------
<S> <C> <C>
Rabobank B.A., Den Haag ............ Bank letters of guarantee $ 500
Rabobank B.A., Den Haag ......... Pledge on inventories $ 904
Barclay Bank plc .................. Mortgage on buildings $ 423
Credit Lyonnais Finance Ltd ...... Assignment on trade receivables $2,031
</TABLE>
11. Trade Payables:
At December 31, trade payables consist principally of international vendor
balances mainly resulting from purchase transactions.
F-46
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)--(CONTINUED)
12. Taxes on Income:
Taxes on income is only attributable to income from continuing operations
and consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- ---------- ------
<S> <C> <C> <C>
Year ended December 31, 1995:
Foreign taxes ......... $ 445 $ (40) $ 405
Year ended December 31, 1996:
Foreign taxes ......... 1,375 1,095 2,470
</TABLE>
Taxes on income attributable to income from continuing operations was $405
and $2,470 for the years ended December 31, 1995 and 1996, respectively, and
differed from the amounts computed by applying the federal income tax rate of
9.8 percent of Switzerland, where the main subsidiary (Karma International AG)
has its operations, to pretax income from continuing operations as a result of
the following:
<TABLE>
<CAPTION>
1995 1996
---------- -------
<S> <C> <C>
Computed "expected" tax expense ..................... $ 632 $1,707
(Reduction) increase in income taxes resulting from:
Foreign income subject to tax at other rates ...... (264) 255
State and other income taxes ..................... 37 508
------ -------
$ 405 $2,470
====== =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and 1996 are presented below:
<TABLE>
<CAPTION>
1995 1996
---------- -------------
<S> <C> <C>
Deferred tax assets:
Accounts and other receivable principally due to
allowance for doubtful accounts .................................... $ 27 $ 81
Inventory differences ................................................ 54 140
Net operating loss carryforwards ....................................... 40 158
Accumulated translation adjustment .................................... 2 67
Other .................................................................. -- 57
----- --------
Total gross deferred tax assets .......................................... 123 503
Less valuation allowances ............................................. (2) (10)
----- --------
Net deferred tax assets ................................................ 121 493
Deferred tax liabilities:
Property and equipment, principally due to differences in depreciation (3) (8)
Deferral of taxes, due to incentives per Swiss tax regulation applied on
inventory amounts ................................................... -- (1,343)
Accumulated translation adjustment .................................... (17) (33)
Other .................................................................. (2) (64)
----- --------
Total deferred tax liabilities .......................................... (22) (1,448)
----- --------
Net deferred tax asset (liability) ....................................... $ 99 $ (955)
===== ========
</TABLE>
F-47
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)--(CONTINUED)
12. TAXES ON INCOME:--(CONTINUED)
Management believes that it is more likely than not that the Company will
realize the net deferred tax assets.
13. Other Current Liabilities:
At December 31, other current liabilities consist of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
VAT payable ..................... $2,408 $ 6,259
Advances from customers ...... 249 2,380
Accrued expenses ............ 14 835
Withholding taxes ............ 40 528
Others ........................ 839 1,580
------- --------
$3,550 $11,582
======= ========
</TABLE>
14. Common Stock:
At December 31, 1996, the Company's common stock consists of 1,080,288
shares par value of $10.00 each.
At December 31, 1996, the breakdown of common stock by shareholders
(controlling shareholders) is as follows:
<TABLE>
<CAPTION>
AMOUNT %
--------- ------
<S> <C> <C>
Bren Canmutlu ............... $ 1,620 15.0
Ofer Magen ............... 1,620 15.0
Mehmet Betil ............ 1,611 14.9
Bernd Karre ............... 1,611 14.9
Alvi Mazon ............... 1,611 14.9
Umur Serter ............... 1,611 14.9
Ron Golan ............... 540 5.0
Antonis Papaioannou ...... 540 5.0
Privest SAH ............... 39 0.4
-------- ------
$10,803 100.0
======== ======
</TABLE>
As explained in Note 1, the consolidated financial statements as of and
for the year ended December 31, 1995 have been restated to account for the
entities under common control "as if" a pooling of interest had occurred.
Therefore, the Company's common stock has been restated accordingly. As of
December 31, the Company's common stock as restated consisted of the following
companies' common stocks:
F-48
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)--(CONTINUED)
14. COMMON STOCK:--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31,
1994 TRANSFERS 1995 TRANSFERS 1996
-------------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Karma International S.A. ......... $ 40 $ -- $ 40 $ 5,573 $ 5,613
Karma International AG ......... -- 4,930 4,930 -- 4,930
Karma Sarl ..................... 202 -- 202 -- 202
Karma UK Limited ............... 200 -- 200 -- 200
Karma Benelux BV ............... 22 -- 22 -- 22
Riverrise Trading Ltd ............ 19 -- 19 -- 19
Capital share transactions ...... -- 142 142 118 260
Effect of disposition
of operations .................. -- -- -- (19) (19)
------ ------- ------ -------- -------
483 5,072 5,555 5,672 11,227
Elimination of investments ...... (419) -- (419) (5) (424)
------ ------- ------ -------- -------
$ 64 $5,072 $5,136 $ 5,667 $10,803
====== ======= ====== ======== =======
</TABLE>
In 1995 and 1996, retained earnings of $4,930 and $5,573, respectively,
have been contributed to Karma International AG and Karma International S.A. and
represent the shareholders' contributed capital balances (common stock at par
value). Capital share transactions represent common stock of entities owned not
only by Karma International S.A. (or Bluefin S.A.), but also by the controlling
shareholders; accordingly, the common stock of such entities are included in the
financial statements. At December 31, 1996, $260 represents the 5 percent share
capital of Karma International AG held by controlling shareholders.
Effect of disposition of operations represents the disposition of common
stock and accumulated losses of Riverrise Trading Limited, a company which was
the principal operating company of the controlling shareholders until September
30, 1995, the date when Karma International AG was established. From this date
on, Karma International AG became the principal operating company of the
controlling shareholders, and accordingly the net assets of Riverrise Trading
Limited was disposed of from the consolidated shareholders' equity in 1996.
15. Commitments and Contingencies:
Guarantees
As of December 31, 1996, the Company is contingently liable in respect of
collaterals given to banks and suppliers, as follows:
<TABLE>
<S> <C>
Accommodation notes ............ $50,000
Bank letters of guarantee ...... 5,716
--------
$55,716
========
</TABLE>
F-49
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
LEASES
The Company and its subsidiaries' lease agreements consist principally of
operating leases. Rent expense for 1996 was $289. The future minimum lease
payments as of December 31, 1996, in the aggregate and for each of the five
succeeding years, is as follows:
<TABLE>
<S> <C>
1997 ...... $312
1998 ...... 241
1999 ...... 82
2000 ...... 77
2001 ...... 59
-----
$771
=====
</TABLE>
LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, or liquidity.
16. Fair Value of Financial Instruments:
The Company's financial instruments consist of cash and equivalents, trade
receivables, borrowings and trade payables. The carrying amounts of these
financial instruments approximate their fair values because of the short
maturity.
17. Related Party Transactions:
For the year ended December 31, 1996, the breakdown of the related party
transaction is as follows:
<TABLE>
<CAPTION>
SALES PURCHASES
---------- ----------
<S> <C> <C>
Eurocom Computer Systeme GmbH ............... $150,273 $22,402
Karma Donanim Yazilim A.S. ............ 35,560 --
Oktabit Hellas A.E. ..................... 13,649 --
Distribution Karma ..................... 3,229 --
Karma Components Limited ............... 2,428 --
Udas Uluslararasi Danismanlik A.S. ...... -- 1,944
Riverrise Trading Ltd. .................. -- 4,602
--------- --------
$205,139 $28,948
========= ========
</TABLE>
In 1995, sales to related parties was $100,127 and purchases from related
parties was $57,753.
In 1996, the Company also purchased property and equipment amounting to
$283 and intangible assets amounting to $4 from Eurocom Computer Systeme GmbH.
18. Concentrations:
The Company's operations are substantially all inside Europe. In 1996, the
largest amount of sales occurred in Germany, which comprised 21% of total
sales. The Company also had sales of almost 15%
F-50
<PAGE>
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)--(CONTINUED)
18. CONCENTRATIONS:--(CONTINUED)
in Benelux countries. While these countries and other countries where the
Company has operations are considered politically stable, there is a risk that
economic difficulties in any of these countries could adversely affect the
Company's business.
59% of the Company's sales are made in local currencies other than U.S.
dollar. The largest amount of sales was in Dutch Guilders (15%). In some
countries, certain purchases and resulting payables are in currencies different
than the functional currency. The Company had sales to Eurocom Computer Systeme
GmbH, a related party, in the amount of $57,541 and $150,273, in 1995 and 1996,
respectively. No other companies represent more than 10% of total sales.
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 relevant periods. In 1995 and 1996, such foreign currency gains
and losses were not material.
The Company has a major supplier, Quantum Peripherals (Europe) SA
(Quantum), whose products accounted for 42% and 39% of sales for 1995 and 1996,
respectively. No other vendor accounted for more than 10% of sales in any year
except in 1995 in which one vendor was 26%. The Company or Quantum have the
right to terminate the distribution agreement without penalty for any reason or
no reason by giving the other party written notice ninety days in advance. The
Company believes that its relationship with Quantum 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 Quantum will renew the
Company'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
Quantum contract is terminated. The amounts outstanding to Quantum at December
31, 1995 and 1996 were $19,340 and $42,378, respectively.
19. Subsequent Event (Unaudited):
In June 1997, the Company signed a definitive agreement with CHS
Electronics, Inc. (CHS) to sell 100% of the common stock to CHS for $160
million to be paid in cash and unregistered shares of CHS common stock.
F-51
<PAGE>
[Small map with CHS locations at the top right corner of the page. Below the map
are the logos of certain CHS vendors and a list of certain CHS vendors.]
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY U.S. UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER TO SELL IS NOT AUTHORIZED, OR IN WHICH THE
PERSON IS NOT AUTHORIZED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF COMPANY SINCE THE DATE HEREOF
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
PAGE
-----
Prospectus Summary ..................... 3
Risk Factors ........................ 7
Recent Developments .................. 12
Use of Proceeds ..................... 14
Dividend Policy ..................... 14
Price Range of Common Stock ......... 15
Capitalization ........................ 16
Selected Consolidated Financial Data.... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ..................... 18
Business .............................. 25
Management ........................... 32
Principal and Selling Shareholders ... 35
Description Of Capital Stock ......... 37
Underwriting ........................ 39
Legal Matters ........................ 41
Experts .............................. 41
Available Information ............... 41
Incorporation of Certain Documents by
Reference ........................ 42
Index to Financial
Statements ........................ F-1
================================================================================
12,000,000 SHARES
[CHS EXCELLENCE IN DISTRIBUTION GRAPHIC OMITTED]
COMMON STOCK
-------------------
P R O S P E C T U S
-------------------
RAYMOND JAMES
& ASSOCIATES, INC.
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
CLEARY GULL
REILAND & MCDEVITT INC.
, 1997
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION DATED JULY 23, 1997
12,000,000 SHARES
[CHS EXCELLENCE IN DISTRIBUTION GRAPHIC OMITTED]
COMMON STOCK
----------------
ALL OF THE 12,000,000 SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING
ISSUED AND SOLD BY CHS ELECTRONICS, INC. ("CHS" OR THE "COMPANY"). OF THE
12,000,000 SHARES OF COMMON STOCK OFFERED HEREBY, 3,000,000 SHARES ARE BEING
OFFERED OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL MANAGERS (AS
DEFINED HEREIN) (THE "INTERNATIONAL OFFERING") AND 9,000,000 SHARES ARE BEING
OFFERED IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS (AS DEFINED
HEREIN) (THE "U.S. OFFERING," AND TOGETHER WITH THE INTERNATIONAL OFFERING, THE
"OFFERING"). THE PRICE TO PUBLIC AND THE UNDERWRITING DISCOUNTS AND COMMISSIONS
PER SHARE WILL BE IDENTICAL FOR THE U.S. OFFERING AND THE INTERNATIONAL
OFFERING. SEE "UNDERWRITING."
THE COMMON STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE TRADING
SYMBOL "CHSE." ON JULY 22, 1997, THE LAST REPORTED SALE PRICE OF THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET WAS $32.125 PER SHARE.
----------------
SEE "RISK FACTORS" ON PAGES 7 THROUGH 11 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
=========================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------
Per Share ...... $ $ $
- ---------------------------------------------------------
Total(3) ...... $ $ $
=========================================================
(1) The Company and the Selling Shareholders (the "Selling Shareholders")
described under "Principal and Selling Shareholders" have agreed to
indemnify the International Managers against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses estimated at $500,000, which are payable by CHS.
(3) The Company and the Selling Shareholders have granted to the International
Managers a 30-day option to purchase up to 450,000 additional shares of
Common Stock, and to the U.S. Underwriters a 30-day option to purchase up to
1,350,000 additional shares of Common Stock, on the same terms and
conditions as the Common Stock offered hereby, solely to cover
over-allotments, if any. The Company will not receive any of the proceeds
from the sales of Common Stock by the Selling Shareholders. If such options
are exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ , respectively. See
"Principal Shareholders" and "Underwriting."
----------------
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL INTERNATIONAL
MANAGERS, SUBJECT TO PRIOR SALE, WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY
THEM, AND SUBJECT TO CERTAIN OTHER CONDITIONS INCLUDING THE RIGHT OF THE
INTERNATIONAL MANAGERS TO WITHDRAW, CANCEL, MODIFY OR REJECT ANY ORDER IN WHOLE
OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT
, 1997 AT THE OFFICES OF RAYMOND JAMES & ASSOCIATES, INC., ST. PETERSBURG,
FLORIDA.
----------------
RAYMOND JAMES & ASSOCIATES, INC.
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
The date of this Prospectus is , 1997
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
The institutions named below (the "International Managers"), acting through
their representatives, Raymond James & Associates, Inc., Montgomery Securities
and J.C. Bradford & Co. (the "International Representatives"), have severally
agreed, subject to the terms and conditions of the subscription agreement by and
among the Company, Selling Shareholders and the International Managers (the
"Subscription Agreement"), to purchase from the Company the number of shares of
Common Stock set forth opposite their respective names below:
NUMBER OF
NAME SHARES
- ----------------------------------------- ----------
Raymond James & Associates, Inc. ......
Montgomery Securities ..................
J.C. Bradford & Co. ..................
---------
Total .............................. 3,000,000
=========
The Company and the Selling Shareholders have also entered into an
underwriting agreement (the "Underwriting Agreement") with certain underwriters
in the United States and Canada (the "U.S. Underwriters") for whom Raymond James
& Associates, Inc., Montgomery Securities, J.C. Bradford & Co. and Cleary Gull
Reiland & McDevitt Inc. are acting as representatives (the "U.S.
Representatives"), relating to the U.S. Offering. The closing of the U.S.
Offering is a condition to the closing of the International Offering and the
closing of the International Offering is a condition to the closing of the U.S.
Offering.
The Subscription Agreement and the Underwriting Agreement provide that the
respective obligations of the several International Managers and U.S.
Underwriters to pay for and accept delivery of the shares of Common Stock being
sold pursuant to each such agreement are subject to certain conditions. The
International Managers and the U.S. Underwriters are obligated to purchase all
of the shares being sold pursuant to each such agreement if any are purchased.
The Company and the Selling Shareholders have been advised by the International
Representatives that the International Managers propose initially to offer the
shares to the public at the offering price set forth on the cover page of this
Prospectus and to certain selected dealers, including the International
Managers, at such price less a concession not in excess of $ per share.
The International Managers may allow, and such
A-2
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
dealers may reallow, a concession not in excess of $ per share to certain
other dealers. After the Offering, the public offering price, concession and
discount may be changed. The International Representatives have informed the
Company that the International Managers do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
The Subscription Agreement provides for indemnification among the Company,
the Selling Shareholders and the International Managers against certain
liabilities in connection with this Offering, including liabilities under the
Securities Act.
The Company, each of its executive officers and directors, the Selling
Shareholders, CHI and Comtrad have agreed not to offer, sell, contract to sell,
announce their intention to sell, pledge or otherwise dispose of, directly or
indirectly, or in the case of the Company, file with the Securities and Exchange
Commission (the "Commission") a registration statement under the Securities Act
relating to, shares of Common Stock, or securities convertible into or
exchangeable or exercisable for shares of Common Stock, without the consent of
Raymond James & Associates, Inc., for a period of 90 days following the closing
of this Offering. This restriction does not apply to certain issuances of Common
Stock by the Company pursuant to its stock option plans. See "Shares Eligible
for Future Sale."
The Company and the Selling Shareholders have granted to the International
Managers an option exercisable during the 30-day period after the date of this
Prospectus to purchase up to an aggregate of 450,000 additional shares of Common
Stock at the same price per share as the Company receives for the 3,000,000
shares which the International Managers have agreed to purchase from the
Company, for the sole purpose of covering over-allotments, if any. To the extent
that the International Managers exercise such option, each International Manager
will be committed, subject to certain conditions, to purchase a number of the
additional shares of Common Stock proportionate to each International Manager's
initial commitment. The Company and the Selling Shareholders have granted the
U.S. Underwriters a similar option to purchase up to an aggregate of 1,350,000
additional shares of Common Stock.
The public offering price, the aggregate underwriting discounts and
commissions per share and the per share concession and discount to dealers for
the International Offering and the concurrent U.S. Offering will be identical.
Pursuant to an Agreement between the International Managers and the U.S.
Underwriters (the "Intersyndicate Agreement") relating to the Offering, changes
in the public offering price, the aggregate underwriting discounts and
commissions per share and the per share concession and discount to dealers will
be made on behalf of the International Managers and the U.S. Underwriters by
Raymond James & Associates, Inc.
Pursuant to the Intersyndicate Agreement, each of the International
Managers has agreed that, as part of the International Offering and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Common Stock or distribute any prospectus
relating to the Common Stock to any person in the United States or Canada or to
any other dealer who does not so agree. Each of the U.S. Underwriters has agreed
or will agree that, as part of the U.S. Offering and subject to certain
exceptions, it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of Common Stock or distribute any prospectus relating to
the Common Stock to any person outside the United States or Canada or to any
other dealer who does not so agree. The foregoing limitations do not apply to
stabilization transactions or to transactions between the International Managers
and the U.S. Underwriters pursuant to the Intersyndicate Agreement. As used
herein, "United States" means the United States of America (including the States
and the District of Columbia), its territories, possessions and other areas
subject to its jurisdiction. "Canada" means Canada, its provinces, territories,
possessions and other areas subject to its jurisdiction, and an offer or sale
shall be in the United States or Canada if it is made to (i) an individual
resident in the United States or Canada or (ii) a corporation, partnership,
pension, profit sharing or other trust or other entity (including any such
entity acting as an investment adviser with discretionary authority) whose
office most directly involved with the purchase is located in the United States
or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
International Managers and the U.S. Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any
A-3
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
shares so sold shall be the public offering price, less such amount as may be
determined by Raymond James & Associates, Inc., but not exceeding the selling
concession applicable to such shares. To the extent there are sales between the
International Managers and the U.S. Underwriters pursuant to the Intersyndicate
Agreement, the number of shares of Common Stock initially available for sale by
the International Managers or by the U.S. Underwriters may be more or less than
the amount appearing on the cover page of this Prospectus. Neither the
International Managers nor the U.S. Underwriters are obligated to purchase from
the other any unsold shares of Common Stock.
This Prospectus may be used by underwriters and dealers in connection with
sales of shares in the U.S. Offering to persons located outside the United
States and Canada, to the extent such sales are permitted by the contractual
limitations on sales described above.
The International and U.S. Representatives, on behalf of the International
Managers and U.S. Underwriters, may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Exchange Act. Over-allotment involves syndicate
sales in excess of the Offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions. In
"passive" market making, market makers in the Common Stock who are International
Managers or U.S. Underwriters or prospective underwriters or managers may,
subject to certain limitations, make bids for or purchases of the Common Stock
until the time, if any, at which a stabilizing bid is made. Penalty bids permit
the International and U.S. Representatives to reclaim a selling concession from
a syndicate member when shares of Common Stock originally sold by such syndicate
member are purchased in a syndicate covering transaction to cover syndicate
short positions. Such stabilizing transactions, syndicate covering transactions
and penalty bids may cause the price of the Common Stock to be higher than it
would otherwise be in the absence of such transactions. These transactions may
be effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of Common
Stock, or the possession, circulation or distribution of this Prospectus or any
other material relating to the Company or shares of Common Stock in any
jurisdiction where action for that purpose is required. Accordingly, the shares
of Common Stock may not be offered or sold, directly or indirectly, and neither
this Prospectus nor any other offering material or advertisements in connection
with the shares of Common Stock may be distributed or published, in or from any
country or jurisdiction except in compliance with any applicable rules and
regulations of any such country or jurisdiction.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
Each International Manager has agreed that: (i) it has not offered or sold
and, prior to the expiration of the period of six months from the closing of
this Offering, will not offer or sell any shares of Common Stock to persons in
the United Kingdom, except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Common Stock in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom
A-4
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
any document received by it in connection with the issuance of Common Stock to
a person who is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exceptions) Order 1996 or is a person to
whom such document may otherwise lawfully be issued or passed on.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS OF COMMON STOCK
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of Common Stock by a "Non-United States Holder" and does not address tax
consequences arising under the laws of any foreign, state or local jurisdiction.
As used herein, a "Non-United States Holder" is a beneficial owner of Common
Stock that, for United States federal income tax purposes, is not (i) a citizen
or resident of the United States, (ii) a corporation, partnership or other
entity created or organized under the laws of the United States or any political
subdivision thereof, (iii) an estate, the income of which is subject to United
States federal income taxation regardless of its source, or (iv) a trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States fiduciaries who have the authority to
control all substantial decisions of such trust.
This discussion is based on provisions of the Internal Revenue Code of
1986, as amended, existing and proposed regulations promulgated thereunder and
administrative and judicial interpretations thereof as of the date hereof, all
of which are subject to change, possibly retroactively. This discussion does not
address all aspects of United States federal income and estate taxation and does
not address foreign, state and local tax consequences that may be relevant to
Non-United States Holders in light of their personal circumstances. Prospective
investors who are Non-United States Holders are urged to consult their tax
advisors regarding the United States federal tax consequences of acquiring,
holding and disposing of the Common Stock, as well as any tax consequences that
may arise under the laws of any foreign, state, local or other taxing
jurisdiction.
DIVIDENDS
Generally, any dividend paid to a Non-United States Holder will be subject
to withholding of United States federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty. If the dividend is
effectively connected with the conduct of a United States trade or business of
the Non-United States Holder, the dividend would be subject to United States
federal income tax on a net income basis (and, with respect to corporate
holders and under certain circumstances, the branch profits tax) and would be
exempt from the 30% withholding tax described above.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above, and, under the current
interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under proposed United
States Treasury regulations, not currently in effect, however, a Non-United
States Holder who wishes to claim the benefit of an applicable treaty rate
would be required to satisfy applicable certification and other requirements.
States withholding tax pursuant to a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund
with the United States Internal Revenue Service.
DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax on any gain recognized upon the sale or other disposition of
Common Stock unless (i) such gain is
A-5
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
effectively connected with the conduct of a United States trade or business of
the Non-United States Holder or (ii) in the case of a Non-United States Holder
who is a non-resident alien individual and holds the Common Stock as a capital
asset, such individual is present in the United States for 183 days or more
days during the taxable year of disposition and certain other requirements are
met. If a Non-United States Holder falls under clause (i) above, the holder
will be subject to tax on the net gain derived from the sale on the same basis
that applies to United States persons generally (and, with respect to corporate
holders and under certain circumstances, the branch profits tax). If an
individual Non-United States Holder falls under clause (ii) above, the holder
generally will be subject to a flat 30% tax on the gain derived from the sale,
which gain may be offset by United States source capital losses.
INFORMATION REPORTING BACKUP WITHHOLDING
The Company must report annually to the United States Internal Revenue
Service and to each Non-United States Holder the amount of dividends paid to
such holder and the amount of any tax withheld. These information reporting
requirements apply regardless of whether withholding is required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-United States
Holder resides under the provisions of an applicable income tax treaty.
United States backup withholding tax generally will not apply to the
payment of (a) dividends on Common Stock to a Non-United States Holder at an
address outside the United States or (b) the proceeds of the sale of Common
Stock to or through the foreign office of broker. In the case of the payment of
proceeds from such a sale of Common Stock through a foreign office of a United
States broker or a foreign broker that has certain types of relationships to
the United States, however, information reporting, but not backup withholding,
is required with respect to the payment unless the broker has documentary
evidence in its files that the owner is a Non-United States Holder and certain
other requirements are met or the holder otherwise establishes an exemption.
The payment of the proceeds from the sale of Common Stock and dividends paid on
Common Stock to or through a United States office of a broker is subject to
information reporting and possible backup withholding at the rate of 31% unless
the owner certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the United States Internal Revenue
Service.
These information reporting and backup withholding rules are under review
by the United States Treasury and their application to holding and disposing of
Common Stock could be changed by future regulations. On April 15, 1996, the
United States Internal Revenue Service issued proposed Treasury regulations
concerning the withholding of tax and reporting for certain amounts paid to
non-resident individuals and foreign corporations. The proposed regulations
would, among other changes, eliminate the presumption under current regulations
with respect to dividends paid to addresses outside the United States. The
proposed Treasury regulations, if adopted in their present form, would be
effective for payments made after December 31, 1997. Prospective purchasers of
Common Stock should consult their tax advisors concerning the potential
application and effect of such Treasury regulations.
FEDERAL ESTATE TAXES
Common Stock held by an individual Non-United States Holder at the time of
death will be included in such holder's gross estate for United States federal
estate tax purposes and may be subject to United States federal estate tax,
unless an applicable tax treaty provides otherwise.
A-6
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY INTERNATIONAL MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER TO SELL IS NOT AUTHORIZED, OR IN WHICH THE PERSON IS NOT
AUTHORIZED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------
TABLE OF CONTENTS
PAGE
-----
Prospectus Summary ..................... 3
Risk Factors ........................ 7
Recent Developments .................. 12
Use of Proceeds ..................... 14
Dividend Policy ..................... 14
Price Range of Common Stock ......... 15
Capitalization ........................ 16
Selected Consolidated Financial Data.... 17
Management's Discussion and Analysis
of Financial Condition and
Results of Operations................ 18
Business .............................. 25
Management ........................... 32
Principal and Selling Shareholders ... 35
Description Of Capital Stock ......... 37
Underwriting ........................ 39
Certain United States Federal Tax
Considerations for Non-United States
Holders of Common Stock.............. 42
Legal Matters ........................ 44
Experts .............................. 44
Available Information ............... 44
Incorporation of Certain Documents by
Reference ........................ 44
Index to Financial
Statements ........................ F-1
================================================================================
12,000,000 SHARES
[CHS EXCELLENCE IN DISTRIBUTION GRAPHIC OMITTED]
COMMON STOCK
-------------------
P R O S P E C T U S
-------------------
RAYMOND JAMES
& ASSOCIATES, INC.
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that expenses payable by it in connection with the
offering described in this registration statement (other than underwriting
discounts and commissions) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ...... $ 89,734.85
NASD filing fee .......................................... 30,500.00
Nasdaq National Market listing fee ........................ 17,500
Printing expenses ....................................... *
Accounting fees and expenses .............................. *
Legal fees and expenses ................................. *
Fees and expenses (including legal fees) for qualifications
under state securities laws ........................... *
Registrar and Transfer Agent's fees and expenses ......... *
Miscellaneous ............................................. *
-----------
Total ................................................... $500,000.00
===========
</TABLE>
- ----------------
* To be provided by amendment.
All amounts except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under Florida law to indemnify its directors and
officers to the extent provided in such statute. The Articles of Incorporation
provide that the Company shall indemnify its directors to the fullest extent
permitted by law either now or hereafter. The Company has also entered into an
agreement with each of its directors and Craig Toll wherein it has agreed to
indemnify each of them to the fullest extent permitted by law.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any officer or director.
Pursuant to the Underwriting Agreement and Subscription Agreement filed as
Exhibit 1.1 and Exhibit 1.2, respectively, to this Registration Statement, the
U.S. Underwriters and the Managers have agreed to indemnify the directors,
officers and controlling persons of the Company against certain civil
liabilities that may be incurred in connection with this offering, including
certain liabilities under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- --------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement(7)
1.2 Form of Subscription Agreement(7)
3.1 Articles of Incorporation of the Company(4)
3.2 Bylaws of the Company(4)
4.1 Form of Common Stock Certificate(4)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<S> <C>
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to the validity of
the Common Stock being registered(7)
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)
10.12 Stock Incentive Plan(2)
10.15 Loan and Security Agreement by and between Congress Financial Corporation (Florida), as
Lender and Zemex Electronics International, Inc. as Borrower, dated February 5, 1996
together with the guarantee thereof by the Company(3)
10.17 Employment Agreement between the Company and Claudio Osorio dated March 22, 1996(4)
10.18 Employment Agreement between the Company and Craig Toll dated March 22, 1996(4)
10.19 Form of Indemnity Agreement between the Company and each of the Directors of the
Company and Craig Toll(4)
10.20 Noncompetition Agreement dated April 11, 1996 among the Company, Comtrad, Inc. and
Comtrad Holdings, Inc.(4)
10.22 Agreement and Plan of Exchange between the Company and Comtrad, Inc. dated April 25,
1995 (CHS Belgium, CHS England, CHS France and CHS Portugal)(4)
10.23 Agreement and Plan of Exchange between the Company and Comtrad Holdings, Inc. dated
October 13, 1995 (CHS BEK)(4).
10.24 Agreement and Plan of Exchange between the Company, CHS Czechia s.r.o., Comtrad, Inc.
and Zbynek Kraus dated October 27, 1995 (CHS Czechia)(4).
10.25 Stock Purchase Agreement between the Company and Comtrad Holdings, Inc. dated
December 29, 1995 (CHS Poland)(4)
10.26 Stock Purchase Agreement between the Company and Comtrad, Inc. dated December 29,
1995 (CHS Sweden)(4)
10.27 Stock Purchase Agreement between the Company and Comtrad, Inc. dated December 29,
1995 (CHS Finland)(4)
10.28 Purchase Agreement dated January 31, 1996 between the Company and Comtrad Holdings,
Inc. and the individual persons comprising the "KVENTA QUOTAHOLDERS" (CHS
Hungary)(4)
10.29 Stock Purchase Agreement between the Company, Comtrad Holdings, Inc. and Comtrad, Inc.
dated March 27, 1996 (CHS Baltic, CHS Bulgaria, CHS Romania, CHS Croatia, CHS Brazil
and CHS Slovakia)(4)
10.30 Stock Purchase Agreement dated March 29, 1996 between the Company and Hugo Wyrsch
(CHS Switzerland)(4)
10.31 Loan Agreement dated 29 March 1996 among CHS Finance SA, Singer and Friedlander
Limited and certain banks named in the Agreement (4)
10.32 Purchase Agreement by and among the Company, 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(5)
10.33 Second Amendment to Purchase Agreement by and among the Company as Buyer and
Merisel, Inc. and Merisel Europe, Inc. as Sellers dated as of December 27, 1996(6)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------
<S> <C>
10.34 Settlement Agreement and Release by and among the Company as Buyer and Merisel, Inc.
and Merisel Europe, Inc. as Sellers dated February 13, 1997(6)
10.35 Agreement as of October 31, 1996 between the Company and Comtrad, Inc. regarding the
sale of CHS Romania(5)
10.36 Stock Exchange Agreement dated December 19, 1996 between the Company and Frank &
Walter Computer GmbH(6)
10.37 Modification of Re-Purchase Option Agreement dated July 1996(8)
10.38 Amendment to Stock Purchase Agreement dated October 16, 1996 between CHS Electronics,
Inc. and Hugo Wyrsch(8)
10.39 Employment Agreement between the Company and Carsten Frank dated December 19,
1996(8)
10.40 First Amendment to Employment Agreement of Claudio Osorio dated May 12, 1997(8)
10.41 Amendment and Joinder to Loan and Security Agreement between Zemex Electronics
International, Inc. and Merisel Latin America, Inc. as Borrowers and Congress Financial
Corporation (Florida) as Lender dated October 4, 1996(8)
10.42 Shareholder Letter Agreement dated December 19, 1996 among Carsten Frank, Comtrad,
Inc. and Comtrad Holdings, Inc.(8)
10.43 Share Exchange Agreement dated June 20, 1997 among the Company and the shareholders of
Karma International S.A.(8)
23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (to be included in its
opinion to be filed as Exhibit 5.1)(7)
23.2 Consent of Grant Thornton LLP(7)
23.3 Consent of Moore Stevens, P.C.(7)
23.4 Consent of Deloitte & Touche LLP(7)
23.5 Consent of KPMG Cevdet Suner Denetim ve Yeminli Mali Musavirlik A.S.(7)
24.1 Reference is made to the Signatures section of this Registration Statement for the Power of
Attorney contained therein(7)
27.1 Financial Data Schedule(7)
27.2 Financial Data Schedule(7)
</TABLE>
- ----------------
(1) To be filed by amendment.
(2) Incorporated herein by this reference from the Company's registration
statement on Form 10 filed with the Securities and Exchange Commission on
May 26, 1994 and the amendments thereto filed on August 1, 1994, September
9, 1994, December 2, 1994 and January 12, 1995.
(3) Incorporated herein by this reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
(4) Incorporated herein by this reference from the Company's Registration
Statement on Form S-1 (File No. 333-03864).
(5) Incorporated herein by this reference from the Company's Current Report on
Form 8-K filed on October 18, 1996.
(6) Incorporated herein by this reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
(7) Filed herewith.
(8) Previously filed.
(b) Financial Statement Schedules:
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a)
II-3
<PAGE>
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
(the "Act"), the registrant has duly caused this Amendment to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Miami, State of Florida, on July 22, 1997.
CHS ELECTRONICS, INC.
By: /s/ CLAUDIO OSORIO
Claudio Osorio
Chairman of the Board,
Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Claudio Osorio and Craig Toll his true
and lawful attorneys-in-fact, each acting alone, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments, including any
post-effective amendments, to this registration statement, and any registration
statement filed pursuant to Rule 462(b) of the Act prepared in connection
therewith, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact or their substitutes,
each acting alone, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- --------------------------------------- --------------
<S> <C> <C>
/s/ CLAUDIO OSORIO Chairman of the Board, Chief July 22, 1997
- ----------------------------- Executive Officer and President
Claudio Osorio (principal executive officer)
/s/ * Executive Vice President July 22, 1997
- ----------------------------- and Director
Alvin Perlman
/s/ * Executive Vice President July 22, 1997
- ------------------------------ and Director
Carsten Frank
/s/ * Secretary and Director July 22, 1997
- ------------------------------
Antonio Boccalandro
/s/ CRAIG TOLL Chief Financial Officer and Treasurer July 22, 1997
- ------------------------------ (principal financial officer and
Craig Toll principal accounting officer)
/s/ * Director July 22, 1997
- ------------------------------
Otto Gerlach
/s/ * Director July 22, 1997
- ------------------------------
Zbynek Kraus
/s/ * Director July 22, 1997
- ------------------------------
Pierino Lardi
/s/ * Director July 22, 1997
- ------------------------------
Donald D. Winstead
</TABLE>
* By: /s/ CRAIG TOLL
------------------------
Craig Toll
Attorney-in-fact
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------- -------------------------------------------------------------------------------- -------------
<S> <C> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Subscription Agreement
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A. as to the validity of the Common Stock being registered
23.2 Consent of Grant Thornton LLP
23.3 Consent of Moore Stevens, P.C.
23.4 Consent of Deloitte & Touche LLP
23.5 Consent of KPMG Cevdet Suner Denetim ve Yeminli Mali Musavirlik A.S.
</TABLE>
EXHIBIT 1.1
K&S DRAFT: 7/23/97
CHS ELECTRONICS, INC.
12,000,000 SHARES
COMMON STOCK
UNDERWRITING AGREEMENT
, 1997
RAYMOND JAMES & ASSOCIATES, INC.
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
CLEARY GULL REILAND & McDEVITT INC.
as Representatives of the several
U.S. Underwriters listed on Schedule I
c/o Raymond James & Associates, Inc.,
880 Carillon Parkway
St. Petersburg, Florida 33716
Dear Sirs:
Subject to the terms and conditions stated herein, CHS ELECTRONICS, INC., a
Florida corporation (the "Company") proposes to issue and sell (the "U.S.
Offering") to the several underwriters named in SCHEDULE I (the "U.S.
Underwriters") an aggregate of 9,000,000 shares (the "U.S. Firm Shares") of the
Company's authorized common stock, par value $.001 per share ("Common Stock").
It is understood that the Company is concurrently entering into a
Subscription Agreement, dated the date hereof (the "Subscription Agreement"),
with Raymond James & Associates, Inc. and the other managers named therein (the
"International Managers") relating to the concurrent offering and sale of
3,000,000 shares of Common Stock (the "International Firm Shares") outside the
United States and Canada (the "International Offering", and together with the
U.S. Offering, the "Offering").
In addition, the Company proposes to issue and sell (i) to the U.S.
Underwriters, at the option of the U.S. Underwriters and subject to the terms
and conditions stated herein, up to an aggregate of 1,350,000 additional shares
of Common Stock (the "U.S. Optional Shares") and (ii) to the International
Managers, at the option of the International Managers and subject to the terms
and conditions stated in the Subscription Agreement, up to an aggregate of
450,000 additional shares of Common Stock (the "International Optional Shares").
<PAGE>
The U.S. Firm Shares and the U.S. Optional Shares are hereinafter called the
"U.S. Shares"; the International Firm Shares and the International Optional
Shares are hereinafter called the "International Shares"; the U.S. Firm Shares
and the International Firm Shares are hereinafter called the "Firm Shares"; the
U.S. Optional Shares and the International Optional Shares are hereinafter
called the "Optional Shares"; and the Firm Shares and the Optional Shares are
hereinafter called the "Shares".
To provide for the coordination of their activities, the U.S. Underwriters
and the International Managers have entered into an Agreement Between U.S.
Underwriters and International Managers which permits them, among other things,
to sell the Shares to each other for purposes of resale.
1. REPRESENTATIONS AND WARRANTIES
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to, and agrees with, each of the U.S. Underwriters that:
(i) A registration statement on Form S-3 (File No. 333-29779)
with respect to the Shares, including prospectuses subject to
completion relating to the U.S. Shares and the International Shares,
respectively, has been filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act of
1933, as amended (the "Act"), and one or more amendments to such
registration statement may have been so filed. After the execution of
this Agreement, the Company will file with the Commission either (A) if
such registration statement, as it may have been amended, has become
effective under the Act and information has been omitted therefrom in
accordance with Rule 430A under the Act, prospectuses relating to the
U.S. Shares and the International Shares in the form most recently
included in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement) with
such changes or insertions as are required by Rule 430A or permitted by
Rule 424(b) under the Act and as have been provided to and approved by
the U.S. Underwriters, or (B) if such registration statement, as it may
have been amended, has not become effective under the Act, an amendment
to such registration statement, including forms of prospectuses
relating to the U.S. Shares and the International Shares, a copy of
which amendment has been provided to and approved by the U.S.
Underwriters prior to the execution of this Agreement. In the case of
(A) above, all of the Shares have been duly registered under the Act.
In the case of (B) above, all of the Shares will be duly registered
under the Act. As used in this Agreement, the term "Registration
Statement" means such registration statement, including all information
incorporated by reference therein, as amended at the time when it was
or is declared effective, together with any registration statement
filed by the Company pursuant to Rule 462(b) of the Act, including all
financial statement schedules and exhibits thereto and including any
information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectuses (as hereinafter defined); the term "U.S.
Preliminary Prospectus"
2
<PAGE>
means such prospectus relating to the U.S. Shares subject to
completion, including all information incorporated by reference
therein, included in such registration statement or any amendment or
post-effective amendment thereto (including the prospectus subject to
completion, if any, included in the Registration Statement); the term
"International Preliminary Prospectus" means such prospectus relating
to the International Shares subject to completion, including all
information incorporated by reference therein, included in such
registration statement or any amendment or post-effective amendment
thereto (including the prospectus subject to completion, if any,
included in the Registration Statement) (such prospectus included by
filing the U.S. Preliminary Prospectus, to which the International
Prospectus is identical except for those pages following the U.S.
Preliminary Prospectus separately captioned "Alternate Page for
International Prospectus"); the term "U.S. Prospectus" means the
prospectus relating to the U.S. Shares, including all information
incorporated by reference therein, first filed with the Commission
pursuant to Rule 424(b) under the Act or, if no prospectus is required
to be so filed, such term means the prospectus relating to the U.S.
Shares included in the Registration Statement; and the term
"International Prospectus" means the prospectus relating to the
International Shares, including all information incorporated by
reference therein, first filed with the Commission pursuant to Rule
424(b) under the Act or, if no prospectus is required to be so filed,
such term means the prospectus relating to the International Shares
included in the Registration Statement. The term "Preliminary
Prospectuses" means the U.S. Preliminary Prospectus and the
International Preliminary Prospectus. The term "Prospectuses" means the
U.S. Prospectus and the International Prospectus.
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued and no proceeding for that
purpose has been instituted or threatened by the Commission or the
securities authority of any state or other jurisdiction. If the
Registration Statement has become effective under the Act, no stop
order suspending the effectiveness of the Registration Statement or any
part thereof has been issued and no proceeding for that purpose has
been instituted or, to the knowledge of the Company, threatened or
contemplated by the Commission or the securities authority of any state
or other jurisdiction.
(iii) When any Preliminary Prospectus was filed with the
Commission, it (A) contained all statements required to be stated
therein in accordance with, and complied in all material respects with
the requirements of, the Act and the rules and regulations of the
Commission thereunder, and (B) did not include any untrue statement of
a material fact or omit to state any material fact necessary in order
to make the statements therein in the light of the circumstances under
which they were made, not misleading. When the Registration Statement
or any amendment thereto was or is declared effective, and at each Time
of Delivery (as hereinafter defined), it (C) contained or will contain
all statements required to be stated therein in accordance with and
complied or will comply in all material respects with the requirements
of, the
3
<PAGE>
Act and the rules and regulations of the Commission thereunder, and (D)
did not or will not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. When any
Prospectus or any amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b) (or, if a Prospectus or such
amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such
amendment or supplement to a Prospectus was or is declared effective)
and at each Time of Delivery, such Prospectus, as amended or
supplemented at any such time, (E) contained or will contain all
statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements
of, the Act and the rules and regulations of the Commission thereunder,
and (F) did not or will not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. Items B, D and F of this paragraph (iii) do
not apply to statements or omissions made in any Preliminary
Prospectus, the Registration Statement or any amendment thereto or any
Prospectus or any amendment or supplement thereto in reliance upon and
in conformity with written information furnished to the Company by any
of the U.S. Underwriters or International Managers specifically for use
therein, it being understood that the only such information is that
listed in the second parenthetical statement in Section 8(b) hereof.
(iv) The descriptions in the Registration Statement and the
Prospectuses of statutes, legal and governmental proceedings and
contracts and other documents are accurate and fairly present the
information required to be shown; and there are no statutes or legal or
governmental proceedings required to be described in the Registration
Statement or the Prospectuses that are not described as required and no
contracts or documents of a character that are required to be described
in the Registration Statement or the Prospectuses or to be filed as
exhibits to the Registration Statement that are not described and filed
as required.
(v) The Company and each of its subsidiaries has been duly
incorporated or organized, as the case may be, is validly existing as a
corporation or other legal entity, is in good standing under the laws
of its jurisdiction of incorporation or organization (with respect to
subsidiaries, only to the extent that such concepts are recognized in
each such subsidiary's jurisdiction of organization) and has full power
and authority (corporate and other) to own or lease its properties and
conduct its business as described in the Prospectus. The Company has
full power and authority (corporate and other) to enter into this
Agreement and to perform its obligations hereunder. The Company and
each of its subsidiaries is duly qualified to transact business as a
foreign corporation or other legal entity and is in good standing under
the laws of each other jurisdiction in which it owns or leases
properties, or conducts any business, so as to require such
qualification (with respect to subsidiaries, only to
4
<PAGE>
the extent that such concepts are recognized in such jurisdictions),
except where the failure to so qualify would not have a material
adverse effect on the financial position, results of operations or
business of the Company (a "Material Adverse Effect").
(vi) The Company's authorized, issued and outstanding capital
stock is as set forth in the Prospectuses under the caption
"Capitalization." All of the issued shares of capital stock of the
Company and each of its subsidiaries which is a corporation and all of
the Company's ownership interests of every subsidiary which is not a
corporation have been duly authorized and validly issued, are fully
paid for and are not subject to any claim for payment by the issuing
corporation or other such entity. The Common Stock conforms to the
description of the Common Stock contained in the Prospectus. None of
the issued shares of capital stock of the Company and each of its
subsidiaries which is a corporation has been issued or is owned or held
in violation of any preemptive rights of shareholders and no person or
entity has any preemptive or other rights to subscribe for any of the
Shares.
(vii) The Company does not own, directly or indirectly, any
capital stock or other equity securities of any other corporation or
any ownership interest in any partnership, joint venture or other
entity or association other than those listed on the inside front cover
of the Prospectuses. The Company owns 100% of the issued and
outstanding capital stock of each of its subsidiaries listed on the
inside front cover of the Prospectuses, free from liens, encumbrances
and defects, except for the subsidiaries (A) organized under the laws
of England, Hungary and Uruguay, as to each of which it owns 99.2%, 51%
and 50%, respectively, of the issued and outstanding capital stock or
other type of ownership interest, as the case may be, and (B) organized
under the laws of Belgium, France and Portugal as to each of which it
owns approximately 99.997% of the issued and outstanding capital stock
or other type of ownership interest, as the case may be.
(viii) Except as disclosed in the Prospectus, there are no
outstanding (A) securities or obligations of the Company convertible
into or exchangeable for any capital stock of the Company, (B)
warrants, rights or options to subscribe for or purchase from the
Company any such capital stock or any such convertible or exchangeable
securities or obligations, or (C) obligations of the Company to issue
any shares of capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or options.
(ix) Since the date of the most recent audited financial
statements included or incorporated by reference in the Prospectus,
neither the Company nor any of its subsidiaries has sustained any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as disclosed in or contemplated by the Prospectus.
5
<PAGE>
(x) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, (A) the Company has not
incurred any liabilities or obligations, direct or contingent, or
entered into any transactions, not in the ordinary course of business,
that are material to the Company, (B) the Company has not purchased any
of its outstanding capital stock or declared, paid or otherwise made
any dividend or distribution of any kind on its capital stock, (C)
there has not been any change in the capital stock, or any material
increase or decrease in the long-term debt or short-term debt of the
Company, and (D) there has not been any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the financial position, results of operations or business of
the Company, in each case other than as disclosed in or contemplated by
the Prospectus.
(xi) The Shares to be issued and sold by the Company have been
duly authorized and, when issued and delivered against payment therefor
as provided herein, will be validly issued and fully paid and
nonassessable and will conform to the description of the Common Stock
contained in the Prospectuses and the certificates evidencing the
Shares will comply with all applicable requirements of Florida law.
(xii) No person or entity has any right, not effectively satisfied
or waived, to require the Company to include any securities with the
Shares registered pursuant to the Registration Statement. No person or
entity has any right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person. Except as described in the
Prospectus, no person or entity has any right to require the Company to
include such securities with securities to be registered pursuant to
any other registration statement filed by the Company under the Act.
(xiii)All offers and sales of the Company's capital stock prior to
the date hereof were at all relevant times duly registered under the
Act or exempt from the registration requirements of the Act and were
duly registered or the subject of an available exemption from the
registration requirements of the applicable state securities or blue
sky laws, and the Company has taken all actions reasonably necessary
for it to assure that such exemptions from registration would continue
to be operative during all applicable periods of time required by law.
(xiv) The Company and each of its subsidiaries is not, nor with
the giving of notice or passage of time or both would be, in violation
of its Articles of Incorporation or other organizational document or
Bylaws or other self-regulatory rules or in default under any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or to which any of their respective properties or assets is
subject, which default would have a Material Adverse Effect.
6
<PAGE>
(xv) The issue and sale of the Shares and the performance by the
Company of all obligations under this Agreement and the Subscription
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with, or (with or without the giving of
notice or the passage of time or both) result in a breach or violation
of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or to which their respective properties or assets are
subject, nor will such action conflict with or violate any provision of
the Articles of Incorporation or Bylaws of the Company or any statute,
rule or regulation or any order, judgment or decree of any court or
governmental agency or body having jurisdiction over the Company or its
subsidiaries or any of their properties or assets.
(xvi) The Company and each of its subsidiaries has good title to
all personal property owned by it free and clear of all liens, security
interests, pledges, charges, encumbrances, mortgages and defects,
except such as are disclosed in the Prospectuses or such as do not
materially and adversely affect the value of such property and do not
interfere with the use or proposed to be made of such property by the
Company and its subsidiaries; and any real property or buildings held
under lease by the Company or its subsidiaries is held under valid,
subsisting and enforceable leases, with such exceptions as are
disclosed in the Prospectuses or are not material and do not interfere
with the use made or proposed to be made of such property and
buildings. The Company and its subsidiaries do not own any real
property, except as described in the Prospectus.
(xvii) No consent, approval, authorization, order or declaration
of or from, or registration, qualification or filing with, any court or
governmental agency or body is required for the sale of the Shares of
the consummation of the transactions contemplated by this Agreement,
except the registration of the Shares under the Act (which, if the
Registration Statement is not effective as of the time of execution
hereof, shall be obtained as provided in this Agreement) and such as
may be required under state securities or blue sky laws in connection
with the offer, sale and distribution of the Shares by the U.S.
Underwriters and the International Managers.
(xviii) Other than as disclosed in the Prospectus, there is no
litigation, arbitration, claim, proceeding (formal or informal) or
investigation pending or, to the knowledge of the Company, threatened
(or any basis therefor) in which the Company or any subsidiary is a
party or of which any of their properties or assets is the subject
which, if determined adversely to the Company or such subsidiary, would
individually or in the aggregate with all other such arbitrations,
claims, proceedings or investigations, have a Material Adverse Effect
or which are otherwise material in the context of the Offering. The
Company and its subsidiaries are not in violation of, or
7
<PAGE>
in default with respect to, any statute, rule, regulation, order,
judgment or decree, except as described in the Prospectuses and except
for such violations and defaults as do not and will not individually or
in the aggregate have a Material Adverse Effect, and the Company is not
required to take any action in order to avoid any such violation or
default.
(xix) Grant Thornton, LLP, which has audited the financial
statements of the Company for the fiscal years ended December 31, 1992,
1993, 1994, 1995 and 1996, and Moore Stephens, P.C. and Deloitte &
Touche, which have audited the financial statements of certain
subsidiaries of the Company are, and were at all times during the
periods covered by their reports included or incorporated by reference
in the Registration Statement and the Prospectuses, independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder.
(xx) The financial statements and schedules (including the related
notes) of the Company included or incorporated by reference in the
Registration Statement, any Prospectus or any Preliminary Prospectus
were prepared in accordance with generally accepted accounting
principles in the United States consistently applied (or, if not
consistently applied, as applied on the basis stated in such financial
statements and schedules of the related notes thereto) throughout the
periods involved and fairly present the financial position and results
of operations of the Company, at the dates and for the periods
presented. The selected financial data set forth under the caption
"Selected Consolidated Financial Data" in the Prospectuses fairly
present, on the basis stated in the Prospectus, the information
included therein. The assumptions used in preparing the pro forma
financial statements included or incorporated by reference in the
Registration Statement, any Preliminary Prospectus and any Prospectus
provide a reasonable basis for presenting the significant effects
directly attributable to the transactions or events described therein,
the related pro forma adjustments give appropriate effect to those
assumptions, and the pro forma columns therein reflect the proper
application of those adjustments to the corresponding historical
financial statement amounts.
(xxi) This Agreement and the Subscription Agreement have been
duly authorized, executed and delivered by the Company.
(xxii) None of the Company or any of its subsidiaries, or to the
knowledge of the Company any of its officers, directors or Affiliates,
as the term is defined under the Act and the Rules and Regulations of
the Commission promulgated thereunder (the "Rules and Regulations") has
(A) taken, directly or indirectly, any action designed to cause or
result in, or that has constituted or might reasonably be expected to
constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares
or (B) since the filing of the Registration Statement (1) sold, bid
for, purchased or paid anyone any compensation
8
<PAGE>
for soliciting purchases of, the Shares or (2) paid or agreed to pay to
any person any compensation for soliciting another to purchase any
other securities of the Company.
(xxiii) The Company has obtained for the benefit of the Company
and the U.S. Underwriters and International Mangers from each of its
directors, officers and certain other shareholders of the Company a
written agreement (a "Lockup Letter") that for 90 days from the date of
the Prospectuses, such persons or entities will not, without the prior
written consent of Raymond James & Associates, Inc., pledge, sell,
contract to sell, grant any option for sale of, or otherwise dispose of
(or announce any offer, pledge, sale, grant of an option to purchase or
other disposition), directly or indirectly, any shares of Common Stock
or securities convertible into, or exercisable or exchangeable for,
share of Common Stock.
(xxiv) Neither the Company nor any of its subsidiaries, nor, to
the knowledge of the Company or any of its subsidiaries, any other
director, officer, agent, employee, Affiliate or other person
associated with or acting on behalf of the Company or any of its
subsidiaries has, directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity, or established or maintained any
unlawful or unrecorded funds in violation of Section 30A of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); made
any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff,
influence payment kickback or other payment unlawful under the laws of
the United States or any foreign jurisdiction.
(xxv) The Company and each of its subsidiaries are in compliance
with all material respects with foreign, federal, state, and local
laws, treaties, ordinances, rules, and regulations and Executive Orders
(collectively, "Laws"). The Company and each of its subsidiaries have
all licenses, permits and authorizations necessary to operate under all
Laws, and have not received notice of proceedings relating to the
revocation or modification of any such license, permit or
authorization, except where the failure to have such license, permit or
authorization would not (individually or in the aggregate with respect
to all such failures) have a Material Adverse Effect. The Company and
each of its subsidiaries are in compliance in all material respects
with all terms and conditions of such licenses, permits and
authorizations. Neither the Company nor any of its subsidiaries has
authorized, conducted or has knowledge of the generation,
transportation, storage, use, treatment, disposal or release of any
hazardous substance, hazardous waste, hazardous material constituents,
toxic substance, pollutant, contaminant, petroleum product, natural
gas, liquefied gas or synthetic gas defined or regulated under any
environmental law; and there is no pending or, to the knowledge of the
Company and each of its subsidiaries, threatened claim, litigation or
any administrative agency proceeding, nor has the Company or any
9
<PAGE>
of its subsidiaries received any written or oral notice from any
governmental entity or third party, that without limiting the
generality of the foregoing; (A) alleges a violation of any Laws by the
Company or any of its subsidiaries; (B) alleges that the Company or any
of its subsidiaries is a liable party under the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. ss.
9602 ET SEQ. or any state superfund law; (C) alleges possible
contamination of the environment by the Company or any of its
subsidiaries; or (D) alleges any violation of any export control Laws
or Executive Orders issued pursuant to such Laws by the Company or any
of its subsidiaries.
(xxvi) The Company owns or has the right to use all patents,
patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, franchises, trade secrets, proprietary or
other confidential information and intangible properties and assets
(collectively, "Intellectual Property Rights") necessary to conduct its
business as presently conducted and as described in the Prospectuses,
and as the Prospectuses indicate the Company proposes to conduct its
business, except where the failure to own or have such rights would not
have a Material Adverse Effect; and to the knowledge of the Company,
the Company has not infringed and is not infringing, and the Company
has not received notice of infringement with respect to, asserted
Intellectual Property Rights of others and there is no infringement by
others of Intellectual Property Rights of the Company, in either case
which might result in a Material Adverse Effect.
(xxvii) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
management of the Company deems prudent and in the best interests of
the Company and its shareholders; and the Company has no reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a comparable cost, except as disclosed in the Prospectus.
(xxvii)The Company and each of its subsidiaries makes and keeps
accurate books and records reflecting its assets and maintains internal
accounting controls which provide reasonable assurance that (A)
transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit
preparation of the Company's financial statements in accordance with
generally accepted accounting principles and to maintain accountability
for the assets of the Company, (C) access to the assets of the Company
is permitted only in accordance with management's authorization, and
(D) the recorded accountability for assets of the Company is compared
with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
10
<PAGE>
(xxix) The Company and each of its subsidiaries has filed all
foreign, federal, state and local tax returns that are required to be
filed by it and has paid all taxes shown as due on such returns as well
as all other taxes, assessments and governmental charges that are due
and payable; and no deficiency with respect to any such return has been
assessed or, to the knowledge of the Company, proposed which might
result in a Material Adverse Effect.
(xxx) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become, an "investment
company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940.
(xxxi) The Company and each of its affiliates, as that term is
defined in Section 517.021(l), Florida Statutes, has complied with all
provisions of Section 517.075, Florida Statutes, relating to doing
business with the Government of Cuba and certain other persons and
entities.
(xxxii) All employee benefit plans (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) established, maintained or contributed to by the Company
comply with all material respects with the requirements of ERISA and no
employee pension benefit plan (as defined in Section 3(2) of ERISA) has
incurred or assumed an "accumulated funding deficiency" within the
meaning of Section 302 of ERISA or has incurred or assumed any material
liability (other than for the payment of premiums) to the Pension
Benefit Guaranty Corporation.
(xxxii) The Shares have been duly included for trading, subject to
notice of issuance, on the Nasdaq National Market.
(xxxiv) Except where such failures to comply or violations would
not in the aggregate have a Material Adverse Effect on the Company, (i)
the Company has complied with the Immigration Reform and Control Act of
1986 and all Regulations promulgated thereunder ("IRCA") with respect
to the completion and maintenance of Forms I-9, Employment Eligibility
Verification Forms, for all of its current employees and reverification
of the employment status of any and all employees whose employment
authorization documents indicated a limited period of employment
authorization; (ii) with respect to all former employees who left the
Company's employment within three years prior to the date hereof, the
Company has complied with IRCA with respect to the maintenance of Forms
I-9 for at least three years or for one year beyond the date of
termination, whichever is later; (iii) the Company has had no
immigration violations and has employed only individuals authorized to
work in the United States and has never been the subject of any
inspection or investigation relating to its compliance with or
violation of IRCA; and (iv) it has not been warned,
11
<PAGE>
fined or otherwise penalized by reason of any failure to comply with
IRCA, and no such proceeding is pending or threatened.
(xxxv) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understanding between the Company and any
person that would give rise to a valid claim against the Company or any
U.S. Underwriter or International Manager for a brokerage commission,
finders' fee or other like payment in connection with the Offering.
(xxxvi) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
might have a Material Adverse Effect.
2. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions herein
set forth, the Company agrees to sell to each of the U.S. Underwriters, and each
of the U.S. Underwriters agrees, severally and not jointly, to purchase from the
Company, at a purchase price of $_____ per share, the number of the Firm Shares
set forth opposite the name of each U.S. Underwriter on SCHEDULE I.
The Company hereby grants to the U.S. Underwriters the right to
purchase at their election in whole or in part up to an aggregate of 1,350,000
U.S. Optional Shares at the purchase price per share set forth in the paragraph
above for the sole purpose of covering over-allotments in the sale of U.S. Firm
Shares. Any such election to purchase Optional Shares may be exercised by a
written notice or notices delivered from time to time by Raymond James &
Associates, Inc. to the Company, given within a period of 30 calendar days after
the date of this Agreement and setting forth the aggregate number of Optional
Shares to be purchased and the date on which such Optional Shares are to be
delivered. The U.S. Optional Shares to be purchased by the U.S. Underwriters on
any such date shall be in the same proportion to all the Optional Shares to be
purchased by the U.S. Underwriters and the International Managers on such date
as the U.S. Firm Shares bear to all the Firm Shares. Such U.S. Optional Shares
shall be purchased for the account of each U.S. Underwriter in the same
proportion as the number of U.S. Firm Shares set forth opposite such U.S.
Underwriter's name bears to the total number of U.S. Firm Shares (with the
resulting number to be adjusted by Raymond James & Associates, Inc. so as to
eliminate fractional shares). No Optional Shares shall be sold or delivered
unless the U.S. Firm Shares and the International Firm Shares previously have
been, or simultaneously are, sold and delivered.
3. OFFERING BY THE U.S. UNDERWRITERS. Upon the authorization by the U.S.
Underwriters of the release of the Shares, the several U.S. Underwriters propose
to offer the Shares for sale upon the terms and conditions disclosed in the U.S.
Prospectus.
4. DELIVERY OF SHARES; CLOSING. Certificates in definitive form for the
U.S. Shares to be purchased by each U.S. Underwriter hereunder, and in such
denominations and registered in such names as Raymond James & Associates, Inc.
may request upon at least 48 hours prior notice to the
12
<PAGE>
Company, shall be delivered by or on behalf of the Company to the U.S.
Underwriters for the account of such U.S. Underwriters, against payment by such
U.S. Underwriter on its behalf as provided herein. Payment shall be made to the
Company in Federal (same day) funds by wire transfer to an account at a bank
acceptable to Raymond James & Associates, Inc. The closing of the sale and
purchase of the U.S. Shares shall be held at the offices of Raymond James &
Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716 (the
"Representatives' Office"), or at such location in Miami, Florida as Raymond
James & Associates, Inc. may designate, except that any physical delivery of
certificates for the Shares shall be made at the direction of the U.S.
Underwriters either at the Representatives' Office or at the office of Interwest
Transfer Company, 1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117
(the "Interwest Office"), or shall be made to The Depository Trust Company
("DTC"), 55 Water Street, New York, New York 10041, for the account of the U.S.
Underwriters or for such other accounts as the U.S. Underwriters shall specify
to DTC. The time and date of such delivery and payment shall be, with respect to
the Firm Shares, at 10:00 a.m., Eastern time, on _______________, 1997 or at
such other time and date as of the U.S. Underwriters and the Company may agree
upon in writing, and, with respect to the U.S. Optional Shares, 10:00 a.m,
Eastern time, on the date specified by the U.S. Underwriters in the written
notice given by Raymond James & Associates, Inc. of the U.S. Underwriters'
election to purchase all or part of such Optional Shares, or at such other time
and date as the U.S. Underwriters and the Company may agree upon in writing.
Such time and date for delivery of the Firm Shares is herein called the "First
Time of Delivery," and such time and date for delivery of any Optional Shares,
if not the First Time of Delivery, is herein called a "Subsequent Time of
Delivery," and each such time and date for delivery is herein called a "Time of
Delivery." The Company will make certificates for the Shares available for
checking and packaging at least 24 hours prior to each Time of Delivery at the
Interwest Office or the office of DTC in New York, New York or at such other
location in New York, New York specified by the U.S. Underwriters in writing at
least 48 hours prior to such Time of Delivery.
For purposes of Rule 15c6-1 under the Securities Exchange Act of
1934, the First Time of Delivery (if later than the otherwise applicable
settlement date) shall be the settlement date for payment of funds and delivery
of securities for all of the Shares sold pursuant to the Offering.
5. COVENANTS. The Company covenants and agrees with each of the U.S.
Underwriters that:
(i) If the Registration Statement has been declared effective
prior to the execution and delivery of this Agreement, the Company will
file the Prospectuses with the Commission pursuant to and in accordance
with subparagraph (1) (or, if applicable and if consented to by Raymond
James & Associates, Inc., subparagraph (4)) of Rule 424(b) not later
than the earlier of (A) the second business day following the execution
and delivery of this Agreement or (B) the fifth business day after the
date on which the Registration Statement is declared effective. The
Company will advise the U.S. Underwriters promptly of any such filing
pursuant to Rule 424(b).
13
<PAGE>
(ii) The Company will not file with the Commission the
Prospectuses or the amendment referred to in the second sentence of
Section 1(a)(i) hereof, any amendment or supplement to the Prospectuses
or any amendment to the Registration Statement unless the U.S.
Underwriters have received a reasonable period of time to review any
such proposed amendment or supplement and consented to the filing
thereof, such consent not be unreasonably delayed or withheld. The
Company will use its best efforts to cause any such amendment to the
Registration Statement to be declared effective as promptly as
possible. Upon the reasonable request of the U.S. Underwriters or
counsel for the U.S. Underwriters, the Company will promptly prepare
and file with the Commission, in accordance with the rules and
regulations of the Commission, any amendments to the Registration
Statement or amendments or supplements to the Prospectuses that may be
necessary or advisable in connection with the distribution of the
Shares by the several U.S. Underwriters and will use its best efforts
to cause any such amendment to the Registration Statement to be
declared effective as promptly as possible. If required, the Company
will file any amendment or supplement to the Prospectuses with the
Commission in the manner and within the time period required by Rule
424(b) under the Act. The Company will advise the U.S. Underwriters,
promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or
declared effective or the Prospectuses or any amendment or supplement
thereto has been filed and will provide evidence to the U.S.
Underwriters of each such filing or effectiveness.
(iii) The Company will advise the U.S. Underwriters promptly after
receiving notice or obtaining knowledge of (A) the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any part thereof or any order preventing or
suspending the use of any Preliminary Prospectus or Prospectus or any
amendment or supplement thereto, (B) the suspension of the
qualification of the Shares for offer or sale in any jurisdiction or of
the initiation or threatening of any proceeding for any such purpose,
or (C) any request made by the Commission or any securities authority
of any other jurisdiction for amending the Registration Statement, for
amending or supplementing a Prospectus or for additional information.
The Company will use its best efforts to prevent the issuance of any
such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(iv) If the delivery of a prospectus relating to the Shares is
required under the Act at any time prior to the expiration of nine
months after the date of the Prospectuses and if at such time any
events have occurred as a result of which the Prospectuses as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading, or if for any reason it is necessary during such
same period to amend or supplement the Prospectuses to comply with the
Act or the rules and regulations
14
<PAGE>
thereunder, the Company will promptly notify the U.S. Underwriters and
upon their request (but at the Company's expense) prepare and file with
the Commission amendments or supplements to the Prospectuses that
correct such statement or omission or effects such compliance and will
furnish without charge to each U.S. Underwriter and to any dealer in
securities as many copies of such amended or supplemented Prospectuses
as the U.S. Underwriters may from time to time reasonably request. If
the delivery of a prospectus relating to the Shares is required under
the Act at any time nine months or more after the date of the
Prospectuses, upon request of the U.S. Underwriters but at the expense
of the U.S. Underwriters, the Company will prepare and deliver to the
U.S. Underwriters as many copies as the U.S. Underwriters may request
of amended or supplemented Prospectuses complying with Section 10(a)(3)
of the Act. Neither the U.S. Underwriters' consent to, nor the U.S.
Underwriters' delivery of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 7.
(v) The Company promptly from time to time will take such action
as the U.S. Underwriters may reasonably request to qualify the Shares
for offering and sale under the securities or blue sky laws of such
jurisdictions as the U.S. Underwriters may request and will continue
such qualification in effect for as long as may be necessary to
complete the distribution of the Shares, provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction.
(vi) The Company will promptly provide each Representative,
without charge, (A) two manually executed copies of the Registration
Statement as originally filed with the Commission and of each amendment
thereto, (B) for each other U.S. Underwriter a conformed copy of the
Registration Statement as originally filed and of each amendment
thereto, without exhibits, and (C) so long as a prospectus relating to
the Shares is required to be delivered under the Act, as many copies of
each Preliminary Prospectus or the Prospectuses or any amendment or
supplement thereto as the U.S. Underwriters may reasonably request.
(vii) As soon as practicable, but in any event not later than the
last day of the fifteenth month after the effective date of the
Registration Statement, the Company will make generally available to
its security holders an earnings statement of the Company covering a
period of at least 12 months beginning after the effective date of the
Registration Statement (which need not be audited) conforming with
Section 11(a) of the Act and Rule 158 thereunder.
(viii) During the period beginning from the date hereof and
continuing to and including the date 90 days after the date of the
Prospectuses, the Company will not, without the prior written consent
of Raymond James & Associates, Inc., offer, pledge, issue, sell,
contract to sell, grant any option for the sale of, or otherwise
15
<PAGE>
dispose of (or announce any offer, pledge, sale, grant of an option to
purchase or other disposition), directly or indirectly, any shares of
Common Stock or securities convertible into, exercisable or
exchangeable for, shares of Common Stock, except (a) as provided in
Sections 2 and 11 hereof and except for the issuance of Common Stock
upon the exercise of stock options or warrants outstanding on the date
of this Agreement to the extent that such stock options or warrants
were issued pursuant to plans or agreements which are disclosed in the
Prospectuses, (b) the grant of options to employees or directors under
existing stock option plans, (c) shares of Common Stock, securities
convertible into, exercisable or exchangeable for, or any other rights
to receive shares of Common Stock issued as full or partial
consideration for the acquisition of interests in business entities in
connection with the expansion of the Company's business, or (d) as
otherwise disclosed or contemplated by the Prospectus. Holders of
shares issued pursuant to item (c) of this subsection shall not be
granted the right to require registration of such shares and shall not
be permitted to sell such shares prior to the expiration of such 90-day
period.
(ix) During a period of five years from the effective date of the
Registration Statement, the Company will furnish to the U.S.
Underwriters, without charge, (A) copies of all reports or other
communications (financial or other) furnished to shareholders
generally, (B) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or the
National Association of Securities Dealers, Inc. or any national
securities exchange or quotation service upon which trading in shares
of the Common Stock is listed or reported, and (C) such additional
information concerning the business and financial condition of the
Company as the U.S. Underwriters may reasonably request subject to
appropriate confidentiality provisions with respect to material
non-public information.
(x) The Company will not (A) take, directly or indirectly, prior
to the termination of the underwriting syndicate contemplated by this
Agreement, any action designed to cause or to result in, or that
reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of any of the Shares, (B) sell, bid for, purchase or pay anyone
any compensation for soliciting purchases of, the Shares, or (C) pay or
agree to pay to any person any compensation for soliciting another to
purchase any other securities of the Company
(xi) The Company will apply the net proceeds from the offering in
the manner set forth under "Use of Proceeds" in the Prospectuses.
(xii) The Company will cause the Shares to be duly included for
trading on the Nasdaq National Market at each Time of Delivery and
maintain such status on
16
<PAGE>
the Nasdaq National Market or be listed on a national securities
exchange, on a continuous basis for at least three years from the
date hereof.
(xiii) If at any time during the period beginning on the date the
Registration Statement becomes effective and ending on the later of (A)
the date 25 days after such effective date (or if the U.S.
Underwriter's option granted pursuant to Section 2 hereof has not been
exercised by such date, then 30 days after such effective date) or (B)
the date that is the earlier of (1) the date on which the Company first
files with the Commission a Quarterly Report on Form 10-Q after such
effective date and (2) the date on which the Company first issues a
quarterly financial report to shareholders after such effective date,
any rumor, publication or event relating to or affecting the Company
shall occur as a result of which in the reasonable opinion of Raymond
James & Associates, Inc. the market price of the Common Stock has been
or is likely to be materially affected (regardless of whether such
rumor, publication or event necessitates an amendment of or supplement
to the Prospectus), the Company will, after written notice from Raymond
James & Associates, Inc. advising the Company to the effect set forth
above, forthwith prepare, consult with the U.S. Underwriters concerning
the substance of, and consult with Company counsel to determine whether
or not is advisable, under the circumstances, to disseminate a press
release or other public statement, reasonably satisfactory to the U.S.
Underwriters, responding to or commenting on such rumor, publication or
event.
6. EXPENSES. The Company will pay all costs and expenses incident to the
performance of its obligations under this Agreement whether or not the
transactions contemplated hereby are consummated or this Agreement is terminated
pursuant to Section 10 hereof, including, without limitation, all costs and
expenses incident to (i) the fees, disbursements and expenses of the Company's
counsel and accountants in connection with the registration of the Shares under
the Act and all other expenses in connection with the preparation, printing and,
if applicable, filing of the Registration Statement (including all amendments
thereto), any Preliminary Prospectus or Prospectus and any amendments and
supplements thereto, and any blue sky memoranda; (ii) the delivery of copies of
the foregoing documents and this Agreement to the U.S. Underwriters; (iii) the
filing fees of the Commission and the National Association of Securities
Dealers, Inc. relating to the Shares; (iv) the preparation, issuance and
delivery to the U.S. Underwriters of any certificates evidencing the Shares,
including transfer agent's and registrar's fees; (v) the qualification of the
Shares for offering and sale under state securities and blue sky laws, including
filing fees and the reasonable fees and disbursements of counsel for the U.S.
Underwriters relating thereto; (vi) any listing of the Shares on the Nasdaq
National Market and (vii) any expense for travel, lodging and meals incurred by
the Company and any of its officers, directors and employees in connection with
any meetings with prospective investors in the Shares. It is understood,
however, that, except as provided in this Section, Section 8 and Section 10
hereof, the U.S. Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes on resale of any of
the Shares by them, and any advertising expenses relating to the offer and sale
of the Shares.
17
<PAGE>
7. CONDITIONS OF THE U.S. UNDERWRITERS' OBLIGATIONS. The several
obligations of the U.S. Underwriters hereunder to purchase and pay for the
Shares to be delivered at each Time of Delivery shall be subject, in their
discretion, to the accuracy of the representations and warranties of the Company
contained herein as of the date hereof and as of such Time of Delivery, to the
accuracy of the statements of Company officers made pursuant to the provisions
hereof, to the performance by the Company of its covenants and agreements
hereunder, and to the following additional conditions precedent:
(a) If the Registration Statement as amended to date has not become
effective prior to the execution of this Agreement, such Registration Statement
shall have been declared effective not later than 11:00 a.m., Eastern time, on
the date of this Agreement or such later date and/or time as shall have been
consented to by Raymond James & Associates, Inc. in writing. If required, the
Prospectuses and any amendment or supplement thereto shall have been filed with
the Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing and in accordance with Section 5(a) of this
Agreement; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceedings for that
purpose shall have been instituted, threatened or, to the knowledge of the
Company and the U.S. Underwriters, contemplated by the Commission; and all
requests for additional information on the part of the Commission shall have
been complied with to the reasonable satisfaction of the U.S. Underwriters.
(b) King & Spalding, counsel for the U.S. Underwriters, shall have
furnished to the U.S. Underwriters such opinion or opinions, dated such Time of
Delivery, with respect to the incorporation of the Company, the validity of the
Shares being delivered at such Time of Delivery, the Registration Statement, the
Prospectuses, and other related matters as the U.S. Underwriters may reasonably
request which opinion the U.S. Underwriters shall use their best efforts to
cause said firm to furnish, and the Company shall have furnished to such counsel
such documents as such counsel or the U.S. Underwriters request prior to such
Time of Delivery for the purpose of enabling them to pass upon such matters.
(c) The U.S. Underwriters shall have received an opinion, dated at each
Time of Delivery, of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.,
counsel to Company, to the effect that:
(i) The Company and each of its subsidiaries has been duly
organized, is validly existing under the laws of its jurisdiction of
organization (with respect to subsidiaries, only to the extent that
such concepts are recognized in each such subsidiary's jurisdiction or
organization) and has the power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement and the Prospectuses and the Company has the power and
authority to enter into this Agreement and perform its obligations
hereunder. The Company and each of its subsidiaries is duly qualified
to transact business under the laws of each jurisdiction in which it
owns or leases property, or conducts any business, so as to require
such
18
<PAGE>
qualification (with respect to subsidiaries, only to the extent that
such concepts are recognized in each such jurisdictions), except where
the failure to so qualify would not have a Material Adverse Effect.
(ii) The Company's authorized, issued and outstanding capital
stock is set forth in the Prospectus. All of the issued shares of
Common Stock of the Company have been duly authorized and validly
issued, are fully paid and nonassessable and conform to the description
of the Common Stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and conform to the
description of the Common Stock contained in the Prospectuses. None of
the issued shares of capital stock of the Company has any statutory
preemptive or, to the knowledge of such counsel, other rights to
subscribe for any of the Shares. All of the ownership interests of each
Significant Subsidiary of the Company have been duly authorized and
validly issued, are fully paid for and are not subject to any claim for
payment by such subsidiary. The Significant Subsidiaries are
CHS-Germany, CHS Netherlands, CHS U.K., CHS France and CHS Promark.
(iii) The Company has no subsidiaries other than those listed on
the iniside front cover of the Prospectuses and, to the knowledge of
such counsel, does not have any ownership interest in any partnership,
joint venture or other entity or association. The Company owns 100% of
the issued and outstanding capital stock of each of its subsidiaries
listed on the inside front cover of the Prospectuses, except for the
subsidiaries (A) organized under the laws of England, Hungary and
Uruguay, as to each of which it owns 99.2%, 51% and 50% respectively,
of the issued and outstanding capital stock or other type of ownership
interest, as the case may be, and (B) organized under the laws of
Belgium, France and Portugal as to each of which it owns approximately
99.997% of the issued and outstanding capital stock or other type of
ownership interest, as the case may be.
(iv) Except as disclosed in the Prospectus, to the knowledge of
such counsel there are no outstanding (A) securities or obligations of
the Company convertible into or exchangeable for any capital stock of
the Company, (B) warrants, rights or options to subscribe for or
purchase from the Company and such capital stock or any such
convertible or exchangeable securities or obligations, or (C)
obligations of the Company to issue any shares of capital stock, any
such convertible or exchangeable securities or obligations, or any such
warrants, rights or options.
(v) The Shares to be issued and sold by the Company have been duly
authorized and, when issued and delivered against payment therefor as
provided herein, will be validly issued and fully paid and
nonassessable and will conform to the description of the Common Stock
contained in the Prospectus, and the certificates evidencing the Shares
will comply with all applicable requirements of Florida law.
19
<PAGE>
(vi) No person or entity has any right, not effectively satisfied
or waived, to require the Company to include any securities with the
Shares registered pursuant to the Registration Statement. No person or
entity has any right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person. Except as described in the
Prospectuses, no person or entity has any right to require the Company
to include such securities with securities to be registered pursuant to
any other registration statement filed by the Company under the Act.
(vii) All offers and sales of the Company's capital stock prior to
the date hereof were at all relevant times duly registered under the
Act or exempt from the registration requirements of the Act and were
duly registered or qualified or were the subject of an available
exemption from the registration or qualification requirements of the
applicable state securities or blue sky laws (or are not required to be
so registered or qualified because such requirement to register or
qualify is barred by an applicable statute of limitations with respect
to any failure to so register or qualify).
(viii) The Company is not, nor with the giving of notice or
passage of time or both, will it be in violation of its Articles of
Incorporation or Bylaws or in default under any material indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument known to such counsel to which the Company is a party or to
which any of its properties or assets is subject.
(ix) The issue and sale of the Shares being issued at such Time of
Delivery and the performance of this Agreement and the consummation of
the transactions herein contemplated will not conflict with, or (with
or without the giving of notice or the passage of time or both) result
in a breach or violation of any of the terms of provisions of, or
constitute a default under, any material indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument known to
such counsel to which the Company is party or to which any of their
properties or assets is subject, nor will such action conflict with or
violate any provision of the Articles of Incorporation or Bylaws of the
Company or any statute, rule or regulation or, to the extent known to
such counsel, any order, judgment or decree of any court or
governmental agency or body known having jurisdiction over the Company
or any of its properties or assets.
(x) No consent, approval, authorization, order or declaration of
or from, or registration, qualification or filing with, any court or
governmental agency or body is required for the issue and sale of the
Shares or the consummation of the transactions contemplated by this
Agreement, except the registration of the Shares under the Act and such
as may be required under state securities or blue sky laws in
20
<PAGE>
connection with the offer, sale and distribution of the Shares by the
U.S. Underwriters.
(xi) To such counsel's knowledge, and other than as disclosed in
or contemplated by the Prospectuses, (A) there is no litigation,
arbitration, claim, proceeding (formal or informal) or investigation
pending or threatened (or any basis therefor) in which the Company or
any of its subsidiaries is a party or of which any of its properties or
assets is the subject which, if determined adversely to the Company or
any of its subsidiaries would individually or in the aggregate have a
Material Adverse Effect; and (B) neither the Company nor any of its
subsidiaries is in violation of, or in default with respect to, any
foreign or domestic statute, rule, regulation, order, judgment or
decree, including, without limitation, the Foreign Corrupt Practices
Act of 1977, as amended, or any export control Laws or Executive Orders
issued pursuant to those Laws nor is the Company or any of its
subsidiaries required to take any action in order to avoid any such
violation or default in any case where such violations or defaults
would individually or in the aggregate have a Material Adverse Effect.
(xii) This Agreement and the Subscription Agreement have been duly
authorized, executed and delivered by the Company.
(xiii) The Registration Statement and the Prospectuses and each
amendment or supplement thereto (other than the financial statements
and related schedules therein, as to which such counsel need express no
opinion), as of their respective effective or issue dates, complied as
to form in all material respects with the requirements of the Act and
the Rules and Regulations thereunder. The Descriptions in the
Registration Statement and the Prospectuses of statutes and legal and
governmental proceedings or contracts and other documents are accurate
and fairly present the information required to be shown; and such
counsel does not know of any statutes or legal or governmental
proceedings required to be described in the Registration Statement or
Prospectuses that are not described in the Registration Statement or
Prospectuses or to be filed as exhibits to the Registration Statement
which are not described and filed as required.
(xiv) The Registration Statement is effective under the Act, any
required filing of the Prospectuses pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b);
and no stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued and, to such counsel's
knowledge, no proceedings for that purpose have been instituted or
threatened or are contemplated by the Commission.
(xv) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an
"investment company," or a
21
<PAGE>
company "controlled" by an "investment company," within the meaning of
the Investment Company Act of 1940.
(xvi) Except as described in the Prospectuses, the Significant
Subsidiaries are not restricted, under the laws of their respective
jurisdictions of organization or by material agreements to which they
are a party, from making payments or distributions to the Company,
except for such restrictions that would not, individually or in the
aggregate, have a Material Adverse Effect.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on warranties, representations
and certificates of responsible officers of the Company and public officials
and, as to matters involving the application of laws of any jurisdiction other
than Florida or the United States, to the extent satisfactory in form and scope
to counsel for the U.S. Underwriters, upon the opinion of local counsel
satisfactory to counsel for the U.S. Underwriters, provided that such counsel
states that such counsel believes that the U.S. Underwriters are justified in
relying upon such opinion and copies of such opinion are delivered to the U.S.
Underwriters and counsel for the U.S. Underwriters.
In addition, such counsel shall state that (i) based solely upon a
letter from the Nasdaq Stock Market Inc. to the Company attached to such
counsel's opinion, the Firm Shares, the outstanding shares, and the Optional
Shares have been duly included for trading on the Nasdaq National Market upon
issuance of the Shares and (ii) such counsel has participated in conferences
with the officers and other representatives of the Company and the U.S.
Underwriters and their counsel during which the contents of the Registration
Statement and the Prospectuses and related matters were discussed and reviewed,
and, although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectuses, on the basis of the
information that such counsel developed in the course of the performance of the
services referred to above, considered in the light of such counsel's
understanding of the applicable law, that nothing came to their attention that
caused them to believe that (1) the Registration Statement (other than the
financial statements and schedules and the other financial and statistical data
presented or incorporated by reference therein, as to which such counsel need
express no belief), on such effective date, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading, or
that (2) the Prospectuses (other than the financial statements and schedules and
the other financial and statistical data presented or incorporated by reference
therein, as to which such counsel need express no belief), as amended or
supplemented, on the date of filing thereof with the Commission and on the date
of such opinion, contained any untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(d) The U.S. Underwriters shall have received from each of Grant
Thornton, LLP, KMPG Cevdet Suner Denetim ve Yeminli Mali Musavirlik A.S., Moore
Stephens P.C. and Deloitte & Touche, letters dated the date hereof (or, if the
Registration Statement has been declared effective
22
<PAGE>
prior to the execution and delivery of this Agreement, dated such effective date
and the date of this Agreement) and each Time of Delivery in form and substance
satisfactory to the U.S. Underwriters, to the effect set forth in ANNEX I
hereto. In the event that the letters referred to in this Section 7(d) set forth
any changes, decreases or increases in the items specified in clause (vii) of
Annex I, it shall be a further condition to the obligations of the U.S.
Underwriters that (i) such letters shall be accompanied by a written explanation
by the Company as to the significance thereof, unless the U.S. Underwriters deem
such explanation unnecessary, and (ii) such changes, decreases or increases do
not, in the sole business judgment of the U.S. Underwriters, make it
impracticable or inadvisable to proceed with the purchase, sale and delivery of
the Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date of such letter.
(e) Since the date of the latest audited financial statements included
or incorporated by reference in the Prospectuses, the Company shall not have
sustained (i) any loss or interference with its business from fire, explosion,
flood, hurricane or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as disclosed in or contemplated by the Prospectuses, or (ii) any change, or
any development involving a prospective change (including without limitation a
change in management or control of the Company), in or affecting the position
(financial or otherwise), results of operations, net worth or business prospects
of the Company, otherwise than as disclosed in or contemplated by the
Prospectuses, the effect of which, in either such case, is the sole business
judgment of the U.S. Underwriters so material and adverse as to make it
impracticable or inadvisable to proceed with the purchase, sale and delivery of
the Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date hereof.
(f) Subsequent to the date hereof there shall not have occurred any of
the following: (i) any suspension or limitation in trading securities generally
on the New York or American Stock Exchanges, or The Nasdaq National Market or
any setting of minimum prices for trading on such exchanges or Market or trading
in the Common Stock shall have been suspended by the Commission or the Nasdaq
Stock Market; (ii) a moratorium on commercial banking activities in new York or
Florida declared by either federal or state authorities; or (iii) any outbreak
or escalation of hostilities involving the United States, declaration by the
United States of a material emergency or war or any other national or
international calamity, emergency, crisis or change in political, financial or
economic condition or other material event, if the effect of any such event
specified in this clause (iii) in the sole business judgment of the U.S.
Underwriters makes it impractical or inadvisable to proceed with the purchase,
sale and delivery of the Shares to be delivered at such Time of Delivery as
contemplated by the Registration Statement, as amended as of the date hereof,
and this Agreement.
(g) The Company shall have furnished to the U.S. Underwriters at such
Time of Delivery certificates of officers of the Company, reasonably
satisfactory to the U.S. Underwriters, as to the accuracy in all material
respects of the representations and warranties of the Company herein at and as
of such Time of Delivery, as to the performance by the Company of all of its
obligations hereunder to be performed at or prior to such Time of Delivery, and
as to such other matters as the U.S. Underwriters may reasonably request, and
the Company shall have furnished or caused to be
23
<PAGE>
furnished certificates as to the matters set forth in subsections (a) and (e) of
this Section 7, and as to such other matters as the U.S. Underwriters may
reasonably request.
(h) The Shares shall have been approved for trading upon notice of
issuance on The Nasdaq National Market.
(i) The Lockup Letters shall have been delivered to the U.S.
Underwriters and the Company shall have noted the restrictions contained in such
Lockup Letters on the books and records of the Company relating to stock
transfers and on any certificates representing shares of Common Stock held by
such persons.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each U.S.
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such U.S. Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon: (i) any untrue statement or
alleged untrue statement made by the Company in Section 1(a) of this Agreement;
(ii) any untrue statement or alleged untrue statement of any material fact
contained in (A) the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectuses or any amendment or supplement
thereto, or (B) any application or other document, or any amendment or
supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Shares under the securities or blue sky laws thereof or filed with
the Commission or any securities association or securities exchange (each an
"Application"); or (iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectuses or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each U.S. Underwriter for any legal
or other expenses reasonably incurred by such U.S. Underwriter in connection
with investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement or any Amendment thereto, any
Preliminary Prospectus, the Prospectuses or any amendment or supplement thereto
or any Application in reliance upon and in conformity with written information
furnished to the Company by any U.S. Underwriter expressly for use therein. The
obligation of the Company to indemnify the U.S. Underwriters (and any
controlling person of each U.S. Underwriter) pursuant to this Agreement is
subject to the condition that, insofar as such losses, claims, damages,
liabilities or expenses relate to any such untrue statement, alleged untrue
statement, omission or alleged omission made in a Preliminary Prospectus that is
corrected in the U.S. Prospectus, such indemnity agreement shall not inure to
the benefit of any U.S. Underwriter from whom the person asserting such losses,
liabilities, claims, damages or expenses purchased the Shares in the Offering,
if (i) such U.S. Underwriter failed to deliver a copy of the U.S. Prospectus to
such person at or prior to the time
24
<PAGE>
delivery of the U.S. Prospectus is required by the Act, unless such failure was
due to the failure by the Company to provide copies of the U.S. Prospectus to
such U.S. Underwriter; and (ii) the delivery of such U.S. Prospectus to such
person would have constituted a complete defense to the losses, claims, damages,
liabilities or expenses asserted by such person. The Company will not without
the prior written consent of each U.S. Underwriter, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding (or related cause of action or portion thereof) in respect of
which indemnification may be sought hereunder (whether or not such U.S.
Underwriter is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of such U.S.
Underwriter from all liability arising out of such claim, action, suit or
proceeding (or related cause of action or portion thereof).
(b) Each U.S. Underwriter, severally but not jointly, agrees to indemnify
and hold harmless the Company and its directors and officers who sign the
Registration Statement and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any
losses, claims, damages or liabilities to which the Company may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement or any amendment thereto, any Preliminary Prospectus,
the U.S. Prospectus or any amendment or supplement thereto, or any Application
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such U.S. Underwriter expressly for use
therein (it being understood that the only such information furnished by any
U.S. Underwriter is contained in (i) the last paragraph on the cover page of the
U.S. Preliminary Prospectus and the U.S. Prospectus concerning the terms of the
U.S. Offering, (ii) the capitalized legends concerning passive market making and
stabilizing transactions on the inside front covers thereof; and (iii) the
concession and reallowance figures and the information relating to the
Intersyndicate Agreement in the seventh through ninth paragraphs appearing under
the caption "Underwriting" therein); and will reimburse the Company and its
directors and officers who sign the Registration Statement and any person who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, for any legal or other expenses reasonably incurred by the
Company and its directors and officers who sign the Registration Statement and
any person who controls the Company within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, in connection with investigating or defending
any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve if from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall
25
<PAGE>
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to the such indemnified party
(who shall not, except with the consent of the indemnified party, be counsel to
the indemnifying party); PROVIDED, HOWEVER, that if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded based upon written advice of
counsel that there may be one or more legal defenses available to it or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
assume the defense of such action on behalf of such indemnified party and such
indemnified party shall have the right to select separate counsel to defend such
action on behalf of such indemnified party, provided, further, however, that the
Company shall be liable for the fees and expenses of only one separate firm of
attorneys (in addition to local counsel) for all indemnified parties at any time
in connection with any action, suit or proceeding or in a series of separate but
substantially similar or related actions, suits or proceedings arising out of
the same general allegations and circumstances. After such notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and approval by such indemnified party of counsel appointed to
defend such action, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses, other
than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence or (ii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party. Nothing in this Section 8(d) shall preclude an
indemnified party from participating at its own expense in the defense of any
such action so assumed by the indemnifying party.
(d) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the U.S. Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company on the one hand and the U.S.
Underwriters on the other in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the U.S. Underwriters on
the other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the U.S.
Underwriters. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information
26
<PAGE>
supplied by the Company on the one hand or the U.S. Underwriters on the other
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the U.S. Underwriters agree that it would not be just and equitable if
contributions pursuant to this subsection (d) were determined by pro rata
allocation (even if the U.S. Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (d),
(i) no U.S. Underwriter shall be required to contribute any amount in excess of
the amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such U.S. Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission and
(ii) no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The U.S. Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
U.S. Underwriter within the meaning of the Act; and the obligations of the U.S.
Underwriters under this Section 8 shall be in addition to any liability which
the respective U.S. Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company and to
each person, if any, who controls the Company within the meaning of the Act.
9. DEFAULT OF U.S. UNDERWRITER.
(a) If any U.S. Underwriter defaults in its obligation to purchase
Shares which is has agreed to purchase at a Time of Delivery, the other U.S.
Underwriters, in their discretion, may arrange for their purchase of, or for
another party or other parties to purchase, such Shares on the terms contained
herein. If within thirty-six (36) hours after such default by any U.S.
Underwriter the U.S. Underwriters do not arrange for the purchase of such
Shares, the Company shall be entitled to a further period of thirty-six hours
within which to procure another party or other parties satisfactory to the U.S.
Underwriters to purchase such Shares on such terms. In the event that, within
the respective prescribed periods, the U.S. Underwriters notify the Company that
they have so arranged for the purchase of such Shares, or the Company notifies
the U.S. Underwriters that it has so arranged for the purchase of such Shares,
the U.S. Underwriters or the Company shall have the right to postpone a Time of
Delivery for a period of not more than seven days in order to effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees to
file promptly any amendments to the Registration Statement or the Prospectuses
that in the opinion of the U.S. Underwriters may thereby
27
<PAGE>
be made necessary. The cost of preparing, printing and filing any such
amendments shall be paid for by the U.S. Underwriters. The term "U.S.
Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting U.S. Underwriter or U.S. Underwriters by the U.S.
Underwriters and the Company as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of Shares to be purchased at such Time of Delivery, then
the Company shall have the right to require each non-defaulting U.S. Underwriter
to purchase the number of Shares which such U.S. Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting U.S. Underwriter to purchase its pro rata share (based on the
number of Shares which such U.S. Underwriter agreed to purchase hereunder) of
the Shares of such defaulting U.S. Underwriter or U.S. Underwriters for which
such arrangements have not been made, but nothing herein shall relieve a
defaulting U.S. Underwriter from liability for its default.
10. TERMINATION.
(a) This Agreement may be terminated with respect to the (i) the Firm
Shares or (ii) any Optional Shares, in the sole discretion of the U.S.
Underwriters, by notice to the Company given prior to the First Time of Delivery
or any Subsequent Time of Delivery, respectively, in the event that (i) any
condition to the obligations of the U.S. Underwriters set forth in Section 7
hereof has not been satisfied, or (ii) the Company shall have failed, refused or
been unable to deliver the Shares or to perform all obligations and satisfy all
conditions on its part to be performed or satisfied hereunder at or prior to
such Time of Delivery, in either case other than by reason of a default by any
of the U.S. Underwriters. If this Agreement is terminated pursuant to this
Section 10(a), the Company will reimburse the U.S. Underwriters severally upon
demand for all out-of-pocket expenses (including reasonable counsel fees and
disbursements) that shall have been reasonably incurred by them in connection
with the proposed purchase and sale of the Shares). The Company shall not in any
event be liable to any of the U.S. Underwriters for the loss of anticipated
profits from the transactions covered by this Agreement.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting U.S. Underwriter by the U.S. Underwriters and the Company
as provided in Section 9(a), the aggregate number of such Shares which remains
unpurchased exceeds one-eleventh of the aggregate number of Shares to be
purchased at such Time of Delivery, or if the Company shall not exercise the
right described in Section 9(b) to require non-defaulting U.S. Underwriters to
purchase Shares of a defaulting U.S. Underwriters or U.S. Underwriters, then
this Agreement (or, with respect to a Subsequent Time of Delivery, the
obligations of the U.S. Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting U.S. Underwriter or the Company except for the expenses to be
borne by the Company and the U.S. Underwriters as provided in Section 6 hereof
and the indemnity and
28
<PAGE>
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting U.S. Underwriter from liability for its default.
11. SURVIVAL. The respective indemnities, agreements, representations,
warranties and other statements of the Company, its officers and the several
U.S. Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any U.S. Underwriter or any controlling person
referred to in Section 8(f) or the Company or any officer or director or
controlling person of the Company referred to in Section 8(f), and shall survive
delivery of and payment for the Shares. The respective agreements, covenants,
indemnities and other statements set forth in Sections 6 and 8 hereof shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement.
12. NOTICES. All communications hereunder shall be in writing and, if sent
to any of the U.S. Underwriters, shall be mailed, delivered by courier or faxed
and confirmed in writing to the U.S. Underwriters in care of Raymond James &
Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716,
Attention: John H. Hill, Jr., with a copy to King & Spalding, 191 Peachtree
Street, Atlanta, Georgia, Attention Bruce N. Hawthorne, Esq.; and if sent to the
Company, shall be mailed, delivered by courier or faxed and confirmed in writing
to the Company at 2153 N.W. 86th Avenue, Miami, Florida 33122, with a copy to
Greenberg, Traurig, Hoffman, , Lipoff, Rosen & Quentel, P.A. 1221 Brickell
Avenue, Miami, Florida 33131, Attention Paul Berkowitz, Esq. Notices sent by
mail shall be effective three days after mailing, but notices otherwise
transmitted shall be effective upon receipt.
13. ACTION BY THE U.S. UNDERWRITERS. Any action under this Agreement taken
by Raymond James & Associates, Inc. will be binding upon the U.S. Underwriters.
14. BINDING EFFECT. This Agreement shall be binding upon, and insure solely
to the benefit of, the U.S. Underwriters and the Company and to the extent
provided in Sections 8 and 10 hereof, the officers and directors and controlling
persons referred to therein and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any U.S. Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without giving effect to the
choice of law principles of any jurisdiction.
16. COUNTERPARTS. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
29
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us one of the counterparts hereof, and upon the
acceptance hereby by Raymond James & Associates, Inc. on behalf of each of the
U.S. Underwriters, this letter will constitute a binding agreement among the
U.S. Underwriters and the Company. It is understood that your acceptance of this
letter on behalf of each of the U.S. Underwriters is pursuant to the authority
set forth in the Master Agreement among U.S. Underwriters, a copy of which shall
be submitted to the Company for examination, upon request, but without warranty
on the part of the U.S. Underwriters as to the authority of the signers thereof.
Very truly yours,
CHS ELECTRONICS, INC.
By: __________________________
Name:
Title:
The foregoing Agreement is hereby confirmed and accepted as of the date first
written above.
RAYMOND JAMES & ASSOCIATES, INC.
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
CLEARY GULL REILAND & McDEVITT INC.
as Representatives of the several U.S. Underwriters
By: Raymond James & Associates, Inc.
By: ________________________________
Name:
Title:
30
<PAGE>
ANNEX 1
Each comfort letter delivered pursuant to Section 7(d) shall contain statements
to the following effect:
(i) the accountants audited the financial statements included in the
registration statement;
(ii) the accountants are independent certified public accountants within the
meaning of the Securities Act of 1933 (the "Act");
(iii) the audited financials included in the registration statement comply as
to form in all material respects with the accounting requirements of the
Act and the rules and regulations thereunder;
(iv) a listing of the procedures followed for any statements that were not
audited, including interim financial statements (which should include at
a minimum the SAS 71 procedures, reading of the unaudited statements and
corporate minutes, and inquiries of company officials);
(v) for such unaudited statements, (a) a statement (or negative assurance) to
the effect that no modifications need be made for such financial
statements to conform to generally accepted accounting principles and (b)
the statement set forth in (iii) above;
(vi) the procedures followed for periods subsequent to the date of the latest
audited or unaudited financial statements included in the registration
statement (which should include at a minimum a reading of any unaudited
financials prepared by the entity for such subsequent periods, such as
monthly statements, if any, readings of corporate minutes and inquiries
of company officials);
(vii) for such subsequent periods, up until a date 5 or fewer days prior to the
date of the prospectus, a statement or negative assurance that there was
no change in capital stock, decrease in consolidated assets or increase
in debt or stockholders' equity; and
(viii) for financial statements of foreign entities, a statement that the
information presented complies with the requirements as to financial
statements for foreign businesses included in Regulation S-X.
31
<PAGE>
SCHEDULE I
NO. OF
U.S. UNDERWRITER SHARES
---------
Raymond James & Associates, Inc...........................
Montgomery Securities.....................................
J.C. Bradford & Co........................................
Cleary Gull Reiland & McDevitt Inc. .....................
Total............................................... 9,000,000
=========
32
EXHIBIT 1.2
K&S DRAFT: 7/23/97
CHS ELECTRONICS, INC.
12,000,000 SHARES
COMMON STOCK
SUBSCRIPTION AGREEMENT
, 1997
RAYMOND JAMES & ASSOCIATES, INC.
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
as Representatives of the several
International Managers listed on Schedule I
c/o Raymond James & Associates, Inc.,
880 Carillon Parkway
St. Petersburg, Florida 33716
Dear Sirs:
Subject to the terms and conditions stated herein, CHS ELECTRONICS, INC., a
Florida corporation (the "Company") proposes to issue and sell (the
"International Offering") to the several Managers named in SCHEDULE I (the
"International Managers") an aggregate of 3,000,000 shares (the "International
Firm Shares") of the Company's authorized common stock, par value $.001 per
share ("Common Stock").
It is understood that the Company is concurrently entering into an
Underwriting Agreement, dated the date hereof (the "Underwriting Agreement"),
with Raymond James & Associates, Inc. and the other underwriters named therein
(the "U.S. Underwriters") relating to the concurrent offering and sale of
9,000,000 shares of Common Stock (the "U.S. Firm Shares") in the United States
and Canada (the "U.S. Offering", and together with the International Offering,
the "Offering").
In addition, the Company proposes to issue and sell (i) to the U.S.
Underwriters, at the option of the U.S. Underwriters and subject to the terms
and conditions stated in the Underwriting Agreement, up to an aggregate of
1,350,000 additional shares of Common Stock (the "U.S. Optional Shares") and
(ii) to the International Managers, at the option of the International Managers
and subject to the terms and conditions stated herein, up to an aggregate of
450,000 additional shares of Common Stock (the "International Optional Shares").
The U.S. Firm Shares and the U.S. Optional Shares are hereinafter called
the "U.S. Shares"; the International Firm Shares and the International Optional
Shares are hereinafter called the
<PAGE>
"International Shares"; the U.S. Firm Shares and the International Firm Shares
are hereinafter called the "Firm Shares"; the U.S. Optional Shares and the
International Optional Shares are hereinafter called the "Optional Shares"; and
the Firm Shares and the Optional Shares are hereinafter called the "Shares".
To provide for the coordination of their activities, the U.S. Underwriters
and the International Managers have entered into an Agreement Between U.S.
Underwriters and International Managers which permits them, among other things,
to sell the Shares to each other for purposes of resale.
1. REPRESENTATIONS AND WARRANTIES
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to, and agrees with, each of the International Managers
that:
(i) A registration statement on Form S-3 (File No. 333-29779) with
respect to the Shares, including prospectuses subject to completion
relating to the U.S. Shares and the International Shares,
respectively, has been filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act of
1933, as amended (the "Act"), and one or more amendments to such
registration statement may have been so filed. After the execution of
this Agreement, the Company will file with the Commission either (A)
if such registration statement, as it may have been amended, has
become effective under the Act and information has been omitted
therefrom in accordance with Rule 430A under the Act, prospectuses
relating to the U.S. Shares and the International Shares in the form
most recently included in an amendment to such registration statement
(or, if no such amendment shall have been filed, in such registration
statement) with such changes or insertions as are required by Rule
430A or permitted by Rule 424(b) under the Act and as have been
provided to and approved by the International Managers, or (B) if such
registration statement, as it may have been amended, has not become
effective under the Act, an amendment to such registration statement,
including forms of prospectuses relating to the U.S. Shares and the
International Shares, a copy of which amendment has been provided to
and approved by the International Mangers prior to the execution of
this Agreement. In the case of (A) above, all of the Shares have been
duly registered under the Act. In the case of (B) above, all of the
Shares will be duly registered under the Act. As used in this
Agreement, the term "Registration Statement" means such registration
statement, including all information incorporated by reference
therein, as amended at the time when it was or is declared effective,
together with any registration statement filed by the Company pursuant
to Rule 462(b) of the Act, including all financial statement schedules
and exhibits thereto and including any information omitted therefrom
pursuant to Rule 430A under the Act and included in the Prospectuses
(as hereinafter defined); the term "U.S. Preliminary Prospectus" means
such prospectus relating to the U.S. Shares subject to completion,
including all information incorporated by reference therein, included
in such
2
<PAGE>
registration statement or any amendment or post-effective amendment
thereto (including the prospectus subject to completion, if any,
included in the Registration Statement); the term "International
Preliminary Prospectus" means such prospectus relating to the
International Shares subject to completion, including all information
incorporated by reference therein, included in such registration
statement or any amendment or post-effective amendment thereto
(including the prospectus subject to completion, if any, included in
the Registration Statement) (such prospectus included by filing the
U.S. Preliminary Prospectus, to which the International Prospectus is
identical except for those pages following the U.S. Preliminary
Prospectus separately captioned "Alternate Page for International
Prospectus"); the term "U.S. Prospectus" means the prospectus relating
to the U.S. Shares, including all information incorporated by
reference therein, first filed with the Commission pursuant to Rule
424(b) under the Act or, if no prospectus is required to be so filed,
such term means the prospectus relating to the U.S. Shares included in
the Registration Statement; and the term "International Prospectus"
means the prospectus relating to the International Shares, including
all information incorporated by reference therein, first filed with
the Commission pursuant to Rule 424(b) under the Act or, if no
prospectus is required to be so filed, such term means the prospectus
relating to the International Shares included in the Registration
Statement. The term "Preliminary Prospectuses" means the U.S.
Preliminary Prospectus and the International Preliminary Prospectus.
The term "Prospectuses" means the U.S. Prospectus and the
International Prospectus.
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued and no proceeding for that purpose has been
instituted or threatened by the Commission or the securities authority
of any state or other jurisdiction. If the Registration Statement has
become effective under the Act, no stop order suspending the
effectiveness of the Registration Statement or any part thereof has
been issued and no proceeding for that purpose has been instituted or,
to the knowledge of the Company, threatened or contemplated by the
Commission or the securities authority of any state or other
jurisdiction.
(iii) When any Preliminary Prospectus was filed with the
Commission, it (A) contained all statements required to be stated
therein in accordance with, and complied in all material respects with
the requirements of, the Act and the rules and regulations of the
Commission thereunder, and (B) did not include any untrue statement of
a material fact or omit to state any material fact necessary in order
to make the statements therein in the light of the circumstances under
which they were made, not misleading. When the Registration Statement
or any amendment thereto was or is declared effective, and at each
Time of Delivery (as hereinafter defined), it (C) contained or will
contain all statements required to be stated therein in accordance
with and complied or will comply in all material respects with the
requirements of, the Act and the rules and regulations of the
Commission thereunder, and (D) did not or will not include any untrue
statement of a material fact or omit to state any material
3
<PAGE>
fact required to be stated therein or necessary to make the statements
therein not misleading. When any Prospectus or any amendment or
supplement thereto is filed with the Commission pursuant to Rule
424(b) (or, if a Prospectus or such amendment or supplement is not
required to be so filed, when the Registration Statement or the
amendment thereto containing such amendment or supplement to a
Prospectus was or is declared effective) and at each Time of Delivery,
such Prospectus, as amended or supplemented at any such time, (E)
contained or will contain all statements required to be stated therein
in accordance with, and complied or will comply in all material
respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder, and (F) did not or will not
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. Items B, D and F of this paragraph (iii) do not apply to
statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or any Prospectus or
any amendment or supplement thereto in reliance upon and in conformity
with written information furnished to the Company by any of the U.S.
Underwriters or International Managers specifically for use therein,
it being understood that the only such information is that listed in
the second parenthetical statement in Section 8(b) hereof.
(iv) The descriptions in the Registration Statement and the
Prospectuses of statutes, legal and governmental proceedings and
contracts and other documents are accurate and fairly present the
information required to be shown; and there are no statutes or legal
or governmental proceedings required to be described in the
Registration Statement or the Prospectuses that are not described as
required and no contracts or documents of a character that are
required to be described in the Registration Statement or the
Prospectuses or to be filed as exhibits to the Registration Statement
that are not described and filed as required.
(v) The Company and each of its subsidiaries has been duly
incorporated or organized, as the case may be, is validly existing as
a corporation or other legal entity, is in good standing under the
laws of its jurisdiction of incorporation or organization (with
respect to subsidiaries, only to the extent that such concepts are
recognized in each such subsidiary's jurisdiction of organization) and
has full power and authority (corporate and other) to own or lease its
properties and conduct its business as described in the Prospectus.
The Company has full power and authority (corporate and other) to
enter into this Agreement and to perform its obligations hereunder.
The Company and each of its subsidiaries is duly qualified to transact
business as a foreign corporation or other legal entity and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business, so as to require such
qualification (with respect to subsidiaries, only to the extent that
such concepts are recognized in such jurisdictions), except where the
4
<PAGE>
failure to so qualify would not have a material adverse effect on the
financial position, results of operations or business of the Company
(a "Material Adverse Effect").
(vi) The Company's authorized, issued and outstanding capital
stock is as set forth in the Prospectuses under the caption
"Capitalization." All of the issued shares of capital stock of the
Company and each of its subsidiaries which is a corporation and all of
the Company's ownership interests of every subsidiary which is not a
corporation have been duly authorized and validly issued, are fully
paid for and are not subject to any claim for payment by the issuing
corporation or other such entity. The Common Stock conforms to the
description of the Common Stock contained in the Prospectus. None of
the issued shares of capital stock of the Company and each of its
subsidiaries which is a corporation has been issued or is owned or
held in violation of any preemptive rights of shareholders and no
person or entity has any preemptive or other rights to subscribe for
any of the Shares.
(vii) The Company does not own, directly or indirectly, any
capital stock or other equity securities of any other corporation or
any ownership interest in any partnership, joint venture or other
entity or association other than those listed on the inside front
cover of the Prospectuses. The Company owns 100% of the issued and
outstanding capital stock of each of its subsidiaries listed on the
inside front cover of the Prospectuses, free from liens, encumbrances
and defects, except for the subsidiaries (A) organized under the laws
of England, Hungary and Uruguay, as to each of which it owns 99.2%,
51% and 50%, respectively, of the issued and outstanding capital stock
or other type of ownership interest, as the case may be, and (B)
organized under the laws of Belgium, France and Portugal as to each of
which it owns approximately 99.997% of the issued and outstanding
capital stock or other type of ownership interest, as the case may be.
(viii) Except as disclosed in the Prospectus, there are no
outstanding (A) securities or obligations of the Company convertible
into or exchangeable for any capital stock of the Company, (B)
warrants, rights or options to subscribe for or purchase from the
Company any such capital stock or any such convertible or exchangeable
securities or obligations, or (C) obligations of the Company to issue
any shares of capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or options.
(ix) Since the date of the most recent audited financial
statements included or incorporated by reference in the Prospectus,
neither the Company nor any of its subsidiaries has sustained any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as disclosed in or contemplated by the Prospectus.
5
<PAGE>
(x) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, (A) the Company has not
incurred any liabilities or obligations, direct or contingent, or
entered into any transactions, not in the ordinary course of business,
that are material to the Company, (B) the Company has not purchased
any of its outstanding capital stock or declared, paid or otherwise
made any dividend or distribution of any kind on its capital stock,
(C) there has not been any change in the capital stock, or any
material increase or decrease in the long-term debt or short-term debt
of the Company, and (D) there has not been any material adverse
change, or any development involving a prospective material adverse
change, in or affecting the financial position, results of operations
or business of the Company, in each case other than as disclosed in or
contemplated by the Prospectus.
(xi) The Shares to be issued and sold by the Company have been
duly authorized and, when issued and delivered against payment
therefor as provided herein, will be validly issued and fully paid and
nonassessable and will conform to the description of the Common Stock
contained in the Prospectuses and the certificates evidencing the
Shares will comply with all applicable requirements of Florida law.
(xii) No person or entity has any right, not effectively satisfied
or waived, to require the Company to include any securities with the
Shares registered pursuant to the Registration Statement. No person or
entity has any right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person. Except as described in the
Prospectus, no person or entity has any right to require the Company
to include such securities with securities to be registered pursuant
to any other registration statement filed by the Company under the
Act.
(xiii) All offers and sales of the Company's capital stock prior
to the date hereof were at all relevant times duly registered under
the Act or exempt from the registration requirements of the Act and
were duly registered or the subject of an available exemption from the
registration requirements of the applicable state securities or blue
sky laws, and the Company has taken all actions reasonably necessary
for it to assure that such exemptions from registration would continue
to be operative during all applicable periods of time required by law.
(xiv) The Company and each of its subsidiaries is not, nor with
the giving of notice or passage of time or both would be, in violation
of its Articles of Incorporation or other organizational document or
Bylaws or other self-regulatory rules or in default under any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any of its
subsidiaries is a party or to which any of their respective properties
or assets is subject, which default would have a Material Adverse
Effect.
6
<PAGE>
(xv) The issue and sale of the Shares and the performance by the
Company of all obligations under this Agreement and the Underwriting
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with, or (with or without the giving of
notice or the passage of time or both) result in a breach or violation
of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any of its
subsidiaries is a party or to which their respective properties or
assets are subject, nor will such action conflict with or violate any
provision of the Articles of Incorporation or Bylaws of the Company or
any statute, rule or regulation or any order, judgment or decree of
any court or governmental agency or body having jurisdiction over the
Company or its subsidiaries or any of their properties or assets.
(xvi) The Company and each of its subsidiaries has good title to
all personal property owned by it free and clear of all liens,
security interests, pledges, charges, encumbrances, mortgages and
defects, except such as are disclosed in the Prospectuses or such as
do not materially and adversely affect the value of such property and
do not interfere with the use or proposed to be made of such property
by the Company and its subsidiaries; and any real property or
buildings held under lease by the Company or its subsidiaries is held
under valid, subsisting and enforceable leases, with such exceptions
as are disclosed in the Prospectuses or are not material and do not
interfere with the use made or proposed to be made of such property
and buildings. The Company and its subsidiaries do not own any real
property, except as described in the Prospectus.
(xvii) No consent, approval, authorization, order or declaration
of or from, or registration, qualification or filing with, any court
or governmental agency or body is required for the sale of the Shares
of the consummation of the transactions contemplated by this
Agreement, except the registration of the Shares under the Act (which,
if the Registration Statement is not effective as of the time of
execution hereof, shall be obtained as provided in this Agreement) and
such as may be required under state securities or blue sky laws in
connection with the offer, sale and distribution of the Shares by the
U.S. Underwriters and the International Managers.
(xviii) Other than as disclosed in the Prospectus, there is no
litigation, arbitration, claim, proceeding (formal or informal) or
investigation pending or, to the knowledge of the Company, threatened
(or any basis therefor) in which the Company or any subsidiary is a
party or of which any of their properties or assets is the subject
which, if determined adversely to the Company or such subsidiary,
would individually or in the aggregate with all other such
arbitrations, claims, proceedings or investigations, have a Material
Adverse Effect or which are otherwise material in the context of the
Offering. The Company and its subsidiaries are not in violation of, or
in default with respect to, any statute, rule, regulation, order,
judgment or decree,
7
<PAGE>
except as described in the Prospectuses and except for such violations
and defaults as do not and will not individually or in the aggregate
have a Material Adverse Effect, and the Company is not required to
take any action in order to avoid any such violation or default.
(xix) Grant Thornton, LLP, which has audited the financial
statements of the Company for the fiscal years ended December 31,
1992, 1993, 1994, 1995 and 1996, and Moore Stephens, P.C. and Deloitte
& Touche, which have audited the financial statements of certain
subsidiaries of the Company are, and were at all times during the
periods covered by their reports included or incorporated by reference
in the Registration Statement and the Prospectuses, independent public
accountants as required by the Act and the rules and regulations of
the Commission thereunder.
(xx) The financial statements and schedules (including the related
notes) of the Company included or incorporated by reference in the
Registration Statement, any Prospectus or any Preliminary Prospectus
were prepared in accordance with generally accepted accounting
principles in the United States consistently applied (or, if not
consistently applied, as applied on the basis stated in such financial
statements and schedules of the related notes thereto) throughout the
periods involved and fairly present the financial position and results
of operations of the Company, at the dates and for the periods
presented. The selected financial data set forth under the caption
"Selected Consolidated Financial Data" in the Prospectuses fairly
present, on the basis stated in the Prospectus, the information
included therein. The assumptions used in preparing the pro forma
financial statements included or incorporated by reference in the
Registration Statement, any Preliminary Prospectus and any Prospectus
provide a reasonable basis for presenting the significant effects
directly attributable to the transactions or events described therein,
the related pro forma adjustments give appropriate effect to those
assumptions, and the pro forma columns therein reflect the proper
application of those adjustments to the corresponding historical
financial statement amounts.
(xxi) This Agreement and the Underwriting Agreement have been duly
authorized, executed and delivered by the Company.
(xxii) None of the Company or any of its subsidiaries, or to the
knowledge of the Company any of its officers, directors or Affiliates,
as the term is defined under the Act and the Rules and Regulations of
the Commission promulgated thereunder (the "Rules and Regulations")
has (A) taken, directly or indirectly, any action designed to cause or
result in, or that has constituted or might reasonably be expected to
constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares
or (B) since the filing of the Registration Statement (1) sold, bid
for, purchased or paid anyone any compensation
8
<PAGE>
for soliciting purchases of, the Shares or (2) paid or agreed to pay
to any person any compensation for soliciting another to purchase any
other securities of the Company.
(xxiii) The Company has obtained for the benefit of the Company
and the U.S. Underwriters and International Mangers from each of its
directors, officers and certain other shareholders of the Company a
written agreement (a "Lockup Letter") that for 90 days from the date
of the Prospectuses, such persons or entities will not, without the
prior written consent of Raymond James & Associates, Inc., pledge,
sell, contract to sell, grant any option for sale of, or otherwise
dispose of (or announce any offer, pledge, sale, grant of an option to
purchase or other disposition), directly or indirectly, any shares of
Common Stock or securities convertible into, or exercisable or
exchangeable for, share of Common Stock.
(xxiv) Neither the Company nor any of its subsidiaries, nor, to
the knowledge of the Company or any of its subsidiaries, any other
director, officer, agent, employee, Affiliate or other person
associated with or acting on behalf of the Company or any of its
subsidiaries has, directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity, or established or maintained
any unlawful or unrecorded funds in violation of Section 30A of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); made
any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns
from corporate funds; violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff,
influence payment kickback or other payment unlawful under the laws of
the United States or any foreign jurisdiction.
(xxv) The Company and each of its subsidiaries are in compliance
with all material respects with foreign, federal, state, and local
laws, treaties, ordinances, rules, and regulations and Executive
Orders (collectively, "Laws"). The Company and each of its
subsidiaries have all licenses, permits and authorizations necessary
to operate under all Laws, and have not received notice of proceedings
relating to the revocation or modification of any such license, permit
or authorization, except where the failure to have such license,
permit or authorization would not (individually or in the aggregate
with respect to all such failures) have a Material Adverse Effect. The
Company and each of its subsidiaries are in compliance in all material
respects with all terms and conditions of such licenses, permits and
authorizations. Neither the Company nor any of its subsidiaries has
authorized, conducted or has knowledge of the generation,
transportation, storage, use, treatment, disposal or release of any
hazardous substance, hazardous waste, hazardous material constituents,
toxic substance, pollutant, contaminant, petroleum product, natural
gas, liquefied gas or synthetic gas defined or regulated under any
environmental law; and there is no pending or, to the knowledge of the
Company and each of its subsidiaries, threatened claim, litigation or
any administrative agency proceeding, nor has the Company or any
9
<PAGE>
of its subsidiaries received any written or oral notice from any
governmental entity or third party, that without limiting the
generality of the foregoing; (A) alleges a violation of any Laws by
the Company or any of its subsidiaries; (B) alleges that the Company
or any of its subsidiaries is a liable party under the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. ss.
9602 ET SEQ. or any state superfund law; (C) alleges possible
contamination of the environment by the Company or any of its
subsidiaries; or (D) alleges any violation of any export control Laws
or Executive Orders issued pursuant to such Laws by the Company or any
of its subsidiaries.
(xxvi) The Company owns or has the right to use all patents,
patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, franchises, trade secrets, proprietary or
other confidential information and intangible properties and assets
(collectively, "Intellectual Property Rights") necessary to conduct
its business as presently conducted and as described in the
Prospectuses, and as the Prospectuses indicate the Company proposes to
conduct its business, except where the failure to own or have such
rights would not have a Material Adverse Effect; and to the knowledge
of the Company, the Company has not infringed and is not infringing,
and the Company has not received notice of infringement with respect
to, asserted Intellectual Property Rights of others and there is no
infringement by others of Intellectual Property Rights of the Company,
in either case which might result in a Material Adverse Effect.
(xxvii) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
management of the Company deems prudent and in the best interests of
the Company and its shareholders; and the Company has no reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a comparable cost, except as disclosed in the Prospectus.
(xxviii)The Company and each of its subsidiaries makes and keeps
accurate books and records reflecting its assets and maintains
internal accounting controls which provide reasonable assurance that
(A) transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit
preparation of the Company's financial statements in accordance with
generally accepted accounting principles and to maintain
accountability for the assets of the Company, (C) access to the assets
of the Company is permitted only in accordance with management's
authorization, and (D) the recorded accountability for assets of the
Company is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
10
<PAGE>
(xxix) The Company and each of its subsidiaries has filed all
foreign, federal, state and local tax returns that are required to be
filed by it and has paid all taxes shown as due on such returns as
well as all other taxes, assessments and governmental charges that are
due and payable; and no deficiency with respect to any such return has
been assessed or, to the knowledge of the Company, proposed which
might result in a Material Adverse Effect.
(xxx) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become, an "investment
company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940.
(xxxi) The Company and each of its affiliates, as that term is
defined in Section 517.021(l), Florida Statutes, has complied with all
provisions of Section 517.075, Florida Statutes, relating to doing
business with the Government of Cuba and certain other persons and
entities.
(xxxii) All employee benefit plans (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) established, maintained or contributed to by the Company
comply with all material respects with the requirements of ERISA and
no employee pension benefit plan (as defined in Section 3(2) of ERISA)
has incurred or assumed an "accumulated funding deficiency" within the
meaning of Section 302 of ERISA or has incurred or assumed any
material liability (other than for the payment of premiums) to the
Pension Benefit Guaranty Corporation.
(xxxiii)The Shares have been duly included for trading, subject to
notice of issuance, on the Nasdaq National Market.
(xxxiv) Except where such failures to comply or violations would
not in the aggregate have a Material Adverse Effect on the Company,
(i) the Company has complied with the Immigration Reform and Control
Act of 1986 and all Regulations promulgated thereunder ("IRCA") with
respect to the completion and maintenance of Forms I-9, Employment
Eligibility Verification Forms, for all of its current employees and
reverification of the employment status of any and all employees whose
employment authorization documents indicated a limited period of
employment authorization; (ii) with respect to all former employees
who left the Company's employment within three years prior to the date
hereof, the Company has complied with IRCA with respect to the
maintenance of Forms I-9 for at least three years or for one year
beyond the date of termination, whichever is later; (iii) the Company
has had no immigration violations and has employed only individuals
authorized to work in the United States and has never been the subject
of any inspection or investigation relating to its compliance with or
violation of IRCA; and (iv) it has not been warned,
11
<PAGE>
fined or otherwise penalized by reason of any failure to comply with
IRCA, and no such proceeding is pending or threatened.
(xxxv) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understanding between the Company and any
person that would give rise to a valid claim against the Company or
any U.S. Underwriter or International Manager for a brokerage
commission, finders' fee or other like payment in connection with the
Offering.
(xxxvi) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent
that might have a Material Adverse Effect.
(xxxvii) No action has been or, prior to the completion of the
distribution of the Shares, will be taken by the Company in any
jurisdiction outside the United States and Canada that would permit a
public offering of the Shares, or possession or distribution of the
International Prospectus or any amendment or supplement thereto, or
any International Preliminary Prospectus, or any other offering
material, in any country or jurisdiction where action for that purpose
is required.
2. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions herein
set forth, the Company agrees to sell to each of the International Managers, and
each of the Intrenational Managers agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_____ per share, the number
of the Firm Shares set forth opposite the name of each International Manager on
SCHEDULE I.
The Company hereby grants to the International Managers the right to
purchase at their election in whole or in part up to an aggregate of 450,000
International Optional Shares at the purchase price per share set forth in the
paragraph above for the sole purpose of covering over-allotments in the sale of
International Firm Shares. Any such election to purchase Optional Shares may be
exercised by a written notice or notices delivered from time to time by Raymond
James & Associates, Inc. to the Company, given within a period of 30 calendar
days after the date of this Agreement and setting forth the aggregate number of
Optional Shares to be purchased and the date on which such Optional Shares are
to be delivered. The International Optional Shares to be purchased by the
International Managers on any such date shall be in the same proportion to all
the Optional Shares to be purchased by the International Managers and the U.S.
Underwriters on such date as the International Firm Shares bear to all the Firm
Shares. Such International Optional Shares shall be purchased for the account of
each International Manager in the same proportion as the number of International
Firm Shares set forth opposite such International Manager's name bears to the
total number of International Firm Shares (with the resulting number to be
adjusted by Raymond James & Associates, Inc. so as to eliminate fractional
shares). No Optional Shares shall be sold or delivered unless the International
Firm Shares and the U.S. Firm Shares previously have been, or simultaneously
are, sold and delivered.
12
<PAGE>
3. OFFERING BY THE INTERNATIONAL MANAGERS. Upon the authorization by the
International Managers of the release of the Shares, the several International
Managers propose to offer the Shares for sale upon the terms and conditions
disclosed in the International Prospectus.
4. DELIVERY OF SHARES; CLOSING. Certificates in definitive form for the
International Shares to be purchased by each International Manager hereunder,
and in such denominations and registered in such names as Raymond James &
Associates, Inc. may request upon at least 48 hours prior notice to the Company,
shall be delivered by or on behalf of the Company to the International Managers
for the account of such International Managers, against payment by such
International Manager on its behalf as provided herein. Payment shall be made to
the Company in Federal (same day) funds by wire transfer to an account at a bank
acceptable to Raymond James & Associates, Inc. The closing of the sale and
purchase of the International Shares shall be held at the offices of Raymond
James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716
(the "Representative's Office"), or at such location in Miami, Florida as
Raymond James & Associates, Inc. may designate, except that any physical
delivery of certificates for the Shares shall be made at the direction of the
International Managers either at the Representative's Office or at the office of
Interwest Transfer Company, 1981 East 4800 South, Suite 100, Salt Lake City,
Utah 84117 (the "Interwest Office"), or shall be made to The Depository Trust
Company ("DTC"), 55 Water Street, New York, New York 10041, for the account of
the International Managers or for such other accounts as the International
Managers shall specify to DTC. The time and date of such delivery and payment
shall be, with respect to the Firm Shares, at 10:00 a.m., Eastern time, on
_______________, 1997 or at such other time and date as of the International
Managers and the Company may agree upon in writing, and, with respect to the
International Optional Shares, 10:00 a.m, Eastern time, on the date specified by
the International Managers in the written notice given by Raymond James &
Associates, Inc. of the International Managers' election to purchase all or part
of such Optional Shares, or at such other time and date as the International
Managers and the Company may agree upon in writing. Such time and date for
delivery of the Firm Shares is herein called the "First Time of Delivery," and
such time and date for delivery of any Optional Shares, if not the First Time of
Delivery, is herein called a "Subsequent Time of Delivery," and each such time
and date for delivery is herein called a "Time of Delivery." The Company will
make certificates for the Shares available for checking and packaging at least
24 hours prior to each Time of Delivery at the Interwest Office or the office of
DTC in New York, New York or at such other location in New York, New York
specified by the International Managers in writing at least 48 hours prior to
such Time of Delivery.
For purposes of Rule 15c6-1 under the Securities Exchange Act of 1934, the
First Time of Delivery (if later than the otherwise applicable settlement date)
shall be the settlement date for payment of funds and delivery of securities for
all of the Shares sold pursuant to the Offering.
5. COVENANTS. The Company covenants and agrees with each of the
International Managers that:
(i) If the Registration Statement has been declared effective
prior to the execution and delivery of this Agreement, the Company will
file the Prospectuses with
13
<PAGE>
the Commission pursuant to and in accordance with subparagraph (1) (or,
if applicable and if consented to by Raymond James & Associates, Inc.,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this
Agreement or (B) the fifth business day after the date on which the
Registration Statement is declared effective. The Company will advise
the International Managers promptly of any such filing pursuant to Rule
424(b).
(ii) The Company will not file with the Commission the
Prospectuses or the amendment referred to in the second sentence of
Section 1(a)(i) hereof, any amendment or supplement to the Prospectuses
or any amendment to the Registration Statement unless the International
Managers have received a reasonable period of time to review any such
proposed amendment or supplement and consented to the filing thereof,
such consent not be unreasonably delayed or withheld. The Company will
use its best efforts to cause any such amendment to the Registration
Statement to be declared effective as promptly as possible. Upon the
reasonable request of the International Managers or counsel for the
International Managers, the Company will promptly prepare and file with
the Commission, in accordance with the rules and regulations of the
Commission, any amendments to the Registration Statement or amendments
or supplements to the Prospectuses that may be necessary or advisable
in connection with the distribution of the Shares by the several
International Managers and will use its best efforts to cause any such
amendment to the Registration Statement to be declared effective as
promptly as possible. If required, the Company will file any amendment
or supplement to the Prospectuses with the Commission in the manner and
within the time period required by Rule 424(b) under the Act. The
Company will advise the International Managers, promptly after
receiving notice thereof, of the time when the Registration Statement
or any amendment thereto has been filed or declared effective or the
Prospectuses or any amendment or supplement thereto has been filed and
will provide evidence to the International Managers of each such filing
or effectiveness.
(iii) The Company will advise the International Managers promptly
after receiving notice or obtaining knowledge of (A) the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or any part thereof or any order preventing or
suspending the use of any Preliminary Prospectus or Prospectus or any
amendment or supplement thereto, (B) the suspension of the
qualification of the Shares for offer or sale in any jurisdiction or of
the initiation or threatening of any proceeding for any such purpose,
or (C) any request made by the Commission or any securities authority
of any other jurisdiction for amending the Registration Statement, for
amending or supplementing a Prospectus or for additional information.
The Company will use its best efforts to prevent the issuance of any
such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
14
<PAGE>
(iv) If the delivery of a prospectus relating to the Shares is
required under the Act at any time prior to the expiration of nine
months after the date of the Prospectuses and if at such time any
events have occurred as a result of which the Prospectuses as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading, or if for any reason it is necessary during such
same period to amend or supplement the Prospectuses to comply with the
Act or the rules and regulations thereunder, the Company will promptly
notify the International Managers and upon their request (but at the
Company's expense) prepare and file with the Commission amendments or
supplements to the Prospectuses that correct such statement or omission
or effects such compliance and will furnish without charge to each
International Manager and to any dealer in securities as many copies of
such amended or supplemented Prospectuses as the International Managers
may from time to time reasonably request. If the delivery of a
prospectus relating to the Shares is required under the Act at any time
nine months or more after the date of the Prospectuses, upon request of
the International Managers but at the expense of the International
Managers, the Company will prepare and deliver to the International
Managers as many copies as the International Managers may request of
amended or supplemented Prospectuses complying with Section 10(a)(3) of
the Act. Neither the International Managers' consent to, nor the
International Managers' delivery of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section
7.
(v) The Company promptly from time to time will take such action
as the International Managers may reasonably request to qualify the
Shares for offering and sale under the securities laws of such
jurisdictions as the International Managers may request and will
continue such qualification in effect for as long as may be necessary
to complete the distribution of the Shares, provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction.
(vi) The Company will promptly provide each Representative,
without charge, (A) two manually executed copies of the Registration
Statement as originally filed with the Commission and of each amendment
thereto, (B) for each other International Manager a conformed copy of
the Registration Statement as originally filed and of each amendment
thereto, without exhibits, and (C) so long as a prospectus relating to
the Shares is required to be delivered under the Act, as many copies of
each Preliminary Prospectus or the Prospectuses or any amendment or
supplement thereto as the International Managers may reasonably
request.
15
<PAGE>
(vii) As soon as practicable, but in any event not later than the
last day of the fifteenth month after the effective date of the
Registration Statement, the Company will make generally available to
its security holders an earnings statement of the Company covering a
period of at least 12 months beginning after the effective date of the
Registration Statement (which need not be audited) conforming with
Section 11(a) of the Act and Rule 158 thereunder.
(viii) During the period beginning from the date hereof and
continuing to and including the date 90 days after the date of the
Prospectuses, the Company will not, without the prior written consent
of Raymond James & Associates, Inc., offer, pledge, issue, sell,
contract to sell, grant any option for the sale of, or otherwise
dispose of (or announce any offer, pledge, sale, grant of an option to
purchase or other disposition), directly or indirectly, any shares of
Common Stock or securities convertible into, exercisable or
exchangeable for, shares of Common Stock, except (a) as provided in
Sections 2 and 11 hereof and except for the issuance of Common Stock
upon the exercise of stock options or warrants outstanding on the date
of this Agreement to the extent that such stock options or warrants
were issued pursuant to plans or agreements which are disclosed in the
Prospectuses, (b) the grant of options to employees or directors under
existing stock option plans, (c) shares of Common Stock, securities
convertible into, exercisable or exchangeable for, or any other rights
to receive shares of Common Stock issued as full or partial
consideration for the acquisition of interests in business entities in
connection with the expansion of the Company's business, or (d) as
otherwise disclosed or contemplated by the Prospectus. Holders of
shares issued pursuant to item (c) of this subsection shall not be
granted the right to require registration of such shares and shall not
be permitted to sell such shares prior to the expiration of such 90-day
period.
(ix) During a period of five years from the effective date of the
Registration Statement, the Company will furnish to the International
Managers, without charge, (A) copies of all reports or other
communications (financial or other) furnished to shareholders
generally, (B) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or the
National Association of Securities Dealers, Inc. or any national
securities exchange or quotation service upon which trading in shares
of the Common Stock is listed or reported, and (C) such additional
information concerning the business and financial condition of the
Company as the International Managers may reasonably request subject to
appropriate confidentiality provisions with respect to material
non-public information.
(x) The Company will not (A) take, directly or indirectly, prior
to the termination of the underwriting syndicate contemplated by this
Agreement, any action designed to cause or to result in, or that
reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate
16
<PAGE>
the sale or resale of any of the Shares, (B) sell, bid for, purchase or
pay anyone any compensation for soliciting purchases of, the Shares, or
(C) pay or agree to pay to any person any compensation for soliciting
another to purchase any other securities of the Company
(xi) The Company will apply the net proceeds from the offering in
the manner set forth under "Use of Proceeds" in the Prospectuses.
(xii) The Company will cause the Shares to be duly included for
trading on the Nasdaq National Market at each Time of Delivery and
maintain such status on the Nasdaq National Market or be listed on a
national securities exchange, on a continuous basis for at least three
years from the date hereof.
(xiii) If at any time during the period beginning on the date the
Registration Statement becomes effective and ending on the later of (A)
the date 25 days after such effective date (or if the International
Manager's option granted pursuant to Section 2 hereof has not been
exercised by such date, then 30 days after such effective date) or (B)
the date that is the earlier of (1) the date on which the Company first
files with the Commission a Quarterly Report on Form 10-Q after such
effective date and (2) the date on which the Company first issues a
quarterly financial report to shareholders after such effective date,
any rumor, publication or event relating to or affecting the Company
shall occur as a result of which in the reasonable opinion of Raymond
James & Associates, Inc. the market price of the Common Stock has been
or is likely to be materially affected (regardless of whether such
rumor, publication or event necessitates an amendment of or supplement
to the Prospectus), the Company will, after written notice from Raymond
James & Associates, Inc. advising the Company to the effect set forth
above, forthwith prepare, consult with the International Managers
concerning the substance of, and consult with Company counsel to
determine whether or not is advisable, under the circumstances, to
disseminate a press release or other public statement, reasonably
satisfactory to the International Managers, responding to or commenting
on such rumor, publication or event.
6. EXPENSES. The Company will pay all costs and expenses incident to the
performance of its obligations under this Agreement whether or not the
transactions contemplated hereby are consummated or this Agreement is terminated
pursuant to Section 10 hereof, including, without limitation, all costs and
expenses incident to (i) the fees, disbursements and expenses of the Company's
counsel and accountants in connection with the registration of the Shares under
the Act and all other expenses in connection with the preparation, printing and,
if applicable, filing of the Registration Statement (including all amendments
thereto), any Preliminary Prospectus or Prospectus and any amendments and
supplements thereto, and any blue sky memoranda; (ii) the delivery of copies of
the foregoing documents and this Agreement to the International Managers; (iii)
the filing fees of the Commission and the National Association of Securities
Dealers, Inc. relating to the Shares;
17
<PAGE>
(iv) the preparation, issuance and delivery to the International Managers of any
certificates evidencing the Shares, including transfer agent's and registrar's
fees; (v) the qualification of the Shares for offering and sale under the
securities laws of jurisdictions outside the United States, including filing
fees and the reasonable fees and disbursements of counsel for the International
Managers relating thereto; (vi) any listing of the Shares on the Nasdaq National
Market and (vii) any expense for travel, lodging and meals incurred by the
Company and any of its officers, directors and employees in connection with any
meetings with prospective investors in the Shares. It is understood, however,
that, except as provided in this Section, Section 8 and Section 10 hereof, the
International Managers will pay all of their own costs and expenses, including
the fees of their counsel, stock transfer taxes on resale of any of the Shares
by them, and any advertising expenses relating to the offer and sale of the
Shares.
7. CONDITIONS OF THE INTERNATIONAL MANAGERS' OBLIGATIONS. The several
obligations of the International Managers hereunder to purchase and pay for the
Shares to be delivered at each Time of Delivery shall be subject, in their
discretion, to the accuracy of the representations and warranties of the Company
contained herein as of the date hereof and as of such Time of Delivery, to the
accuracy of the statements of Company officers made pursuant to the provisions
hereof, to the performance by the Company of its covenants and agreements
hereunder, and to the following additional conditions precedent:
(a) If the Registration Statement as amended to date has not become
effective prior to the execution of this Agreement, such Registration Statement
shall have been declared effective not later than 11:00 a.m., Eastern time, on
the date of this Agreement or such later date and/or time as shall have been
consented to by Raymond James & Associates, Inc. in writing. If required, the
Prospectuses and any amendment or supplement thereto shall have been filed with
the Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing and in accordance with Section 5(a) of this
Agreement; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceedings for that
purpose shall have been instituted, threatened or, to the knowledge of the
Company and the International Managers, contemplated by the Commission; and all
requests for additional information on the part of the Commission shall have
been complied with to the reasonable satisfaction of the International Managers.
(b) King & Spalding, counsel for the International Managers, shall have
furnished to the International Managers such opinion or opinions, dated such
Time of Delivery, with respect to the incorporation of the Company, the validity
of the Shares being delivered at such Time of Delivery, the Registration
Statement, the Prospectuses, and other related matters as the International
Managers may reasonably request which opinion the International Managers shall
use their best efforts to cause said firm to furnish, and the Company shall have
furnished to such counsel such documents as such counsel or the International
Managers request prior to such Time of Delivery for the purpose of enabling them
to pass upon such matters.
18
<PAGE>
(c) The International Managers shall have received an opinion, dated at
each Time of Delivery, of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A., counsel to Company, to the effect specified in the U.S. Underwriting
Agreement.
(d) The International Managers shall have received from each of Grant
Thornton, LLP, KMPG Cevdet Suner Denetim ve Yeminli Mali Musavirlik A.S., Moore
Stephens P.C. and Deloitte & Touche, letters dated the date hereof (or, if the
Registration Statement has been declared effective prior to the execution and
delivery of this Agreement, dated such effective date and the date of this
Agreement) and each Time of Delivery in form and substance satisfactory to the
International Managers, to the effect set forth in ANNEX I hereto. In the event
that the letters referred to in this Section 7(d) set forth any changes,
decreases or increases in the items specified in clause (vii) of Annex I, it
shall be a further condition to the obligations of the International Managers
that (i) such letters shall be accompanied by a written explanation by the
Company as to the significance thereof, unless the International Managers deem
such explanation unnecessary, and (ii) such changes, decreases or increases do
not, in the sole business judgment of the International Managers, make it
impracticable or inadvisable to proceed with the purchase, sale and delivery of
the Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date of such letter.
(e) Since the date of the latest audited financial statements included
or incorporated by reference in the Prospectuses, the Company shall not have
sustained (i) any loss or interference with its business from fire, explosion,
flood, hurricane or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as disclosed in or contemplated by the Prospectuses, or (ii) any change, or
any development involving a prospective change (including without limitation a
change in management or control of the Company), in or affecting the position
(financial or otherwise), results of operations, net worth or business prospects
of the Company, otherwise than as disclosed in or contemplated by the
Prospectuses, the effect of which, in either such case, is the sole business
judgment of the International Managers so material and adverse as to make it
impracticable or inadvisable to proceed with the purchase, sale and delivery of
the Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date hereof.
(f) Subsequent to the date hereof there shall not have occurred any of
the following: (i) any suspension or limitation in trading securities generally
on the New York or American Stock Exchanges, or The Nasdaq National Market or
any setting of minimum prices for trading on such exchanges or Market or trading
in the Common Stock shall have been suspended by the Commission or the Nasdaq
Stock Market; (ii) a moratorium on commercial banking activities in new York or
Florida declared by either federal or state authorities; or (iii) any outbreak
or escalation of hostilities involving the United States, declaration by the
United States of a material emergency or war or any other national or
international calamity, emergency, crisis or change in political, financial or
economic condition or other material event, if the effect of any such event
specified in this clause (iii) in the sole business judgment of the
International Managers makes it impractical or inadvisable to proceed with the
purchase, sale and delivery of the Shares to be delivered at such Time
19
<PAGE>
of Delivery as contemplated by the Registration Statement, as amended as of the
date hereof, and this Agreement.
(g) The Company shall have furnished to the International Managers at
such Time of Delivery certificates of officers of the Company, reasonably
satisfactory to the International Managers, as to the accuracy in all material
respects of the representations and warranties of the Company herein at and as
of such Time of Delivery, as to the performance by the Company of all of its
obligations hereunder to be performed at or prior to such Time of Delivery, and
as to such other matters as the International Managers may reasonably request,
and the Company shall have furnished or caused to be furnished certificates as
to the matters set forth in subsections (a) and (e) of this Section 7, and as to
such other matters as the International Managers may reasonably request.
(h) The Shares shall have been approved for trading upon notice of
issuance on The Nasdaq National Market.
(i) The Lockup Letters shall have been delivered to the International
Managers and the Company shall have noted the restrictions contained in such
Lockup Letters on the books and records of the Company relating to stock
transfers and on any certificates representing shares of Common Stock held by
such persons.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
International Manager against any losses, claims, damages or liabilities, joint
or several, to which such International Manager may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement made by the Company in Section 1(a) of
this Agreement; (ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectuses or any amendment or
supplement thereto, or (B) any application or other document, or any amendment
or supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Shares under the securities or blue sky laws thereof or filed with
the Commission or any securities association or securities exchange (each an
"Application"); or (iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectuses or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each International Manager for any
legal or other expenses reasonably incurred by such International Manager in
connection with investigating, defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any Amendment thereto,
any Preliminary Prospectus, the Prospectuses or any
20
<PAGE>
amendment or supplement thereto or any Application in reliance upon and in
conformity with written information furnished to the Company by any
International Manager expressly for use therein. The obligation of the Company
to indemnify the International Managers (and any controlling person of each
International Manager) pursuant to this Agreement is subject to the condition
that, insofar as such losses, claims, damages, liabilities or expenses relate to
any such untrue statement, alleged untrue statement, omission or alleged
omission made in a Preliminary Prospectus that is corrected in the International
Prospectus, such indemnity agreement shall not inure to the benefit of any
International Manager from whom the person asserting such losses, liabilities,
claims, damages or expenses purchased the Shares in the Offering, if (i) such
International Manager failed to deliver a copy of the International Prospectus
to such person at or prior to the time delivery of the International Prospectus
is required by the Act, unless such failure was due to the failure by the
Company to provide copies of the International Prospectus to such International
Manager; and (ii) the delivery of such International Prospectus to such person
would have constituted a complete defense to the losses, claims, damages,
liabilities or expenses asserted by such person. The Company will not without
the prior written consent of each International Manager, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding (or related cause of action or portion thereof) in respect of
which indemnification may be sought hereunder (whether or not such International
Manager is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of such
International Manager from all liability arising out of such claim, action, suit
or proceeding (or related cause of action or portion thereof).
(b) Each International Manager, severally but not jointly, agrees to
indemnify and hold harmless the Company and its directors and officers who sign
the Registration Statement and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any
losses, claims, damages or liabilities to which the Company may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement or any amendment thereto, any Preliminary Prospectus,
the International Prospectus or any amendment or supplement thereto, or any
Application or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such International Manager
expressly for use therein (it being understood that the only such information
furnished by any International Manager is contained in (i) the last paragraph on
the cover page of the International Preliminary Prospectus and the International
Prospectus concerning the terms of the International Offering, (ii) the
capitalized legends concerning passive market making and stabilizing
transactions on the inside front covers thereof; and (iii) the concession and
reallowance figures and the information relating to the Intersyndicate Agreement
in the seventh through ninth paragraphs appearing under the caption
"Underwriting" therein); and will reimburse the Company and its directors and
officers who sign the Registration Statement and any person who controls the
Company within the meaning of Section 15
21
<PAGE>
of the Act or Section 20 of the Exchange Act, for any legal or other expenses
reasonably incurred by the Company and its directors and officers who sign the
Registration Statement and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, in
connection with investigating or defending any such loss, claim, damage,
liability or action.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve if from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to the such indemnified party (who shall not, except with
the consent of the indemnified party, be counsel to the indemnifying party);
PROVIDED, HOWEVER, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded based upon written advice of counsel that there may be
one or more legal defenses available to it or other indemnified parties which
are different from or additional to those available to the indemnifying party,
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party and such indemnified party shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party, provided, further, however, that the Company shall be liable
for the fees and expenses of only one separate firm of attorneys (in addition to
local counsel) for all indemnified parties at any time in connection with any
action, suit or proceeding or in a series of separate but substantially similar
or related actions, suits or proceedings arising out of the same general
allegations and circumstances. After such notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof and
approval by such indemnified party of counsel appointed to defend such action,
the indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
or (ii) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. Nothing in this
Section 8(d) shall preclude an indemnified party from participating at its own
expense in the defense of any such action so assumed by the indemnifying party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the International
Managers on the other from the offering of the Shares. If, however, the
allocation
22
<PAGE>
provided by the immediately preceding sentence is not permitted by applicable
law, then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the International Managers on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the International Managers on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the International Managers.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the International Managers on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the International Managers agree that it would not be just and equitable if
contributions pursuant to this subsection (d) were determined by pro rata
allocation (even if the International Managers were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), (i) no International Manager shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such International Manager has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The International Managers' obligations in this subsection
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
International Manager within the meaning of the Act; and the obligations of the
International Managers under this Section 8 shall be in addition to any
liability which the respective International Managers may otherwise have and
shall extend, upon the same terms and conditions, to each officer and director
of the Company and to each person, if any, who controls the Company within the
meaning of the Act.
9. DEFAULT OF INTERNATIONAL MANAGER.
(a) If any International Manager defaults in its obligation to purchase
Shares which is has agreed to purchase at a Time of Delivery, the other
International Managers, in their discretion,
23
<PAGE>
may arrange for their purchase of, or for another party or other parties to
purchase, such Shares on the terms contained herein. If within thirty-six (36)
hours after such default by any International Manager the International Managers
do not arrange for the purchase of such Shares, the Company shall be entitled to
a further period of thirty-six hours within which to procure another party or
other parties satisfactory to the International Managers to purchase such Shares
on such terms. In the event that, within the respective prescribed periods, the
International Managers notify the Company that they have so arranged for the
purchase of such Shares, or the Company notifies the International Managers that
it has so arranged for the purchase of such Shares, the International Managers
or the Company shall have the right to postpone a Time of Delivery for a period
of not more than seven days in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectuses that in the opinion
of the International Managers may thereby be made necessary. The cost of
preparing, printing and filing any such amendments shall be paid for by the
International Managers. The term "International Manager" as used in this
Agreement shall include any person substituted under this Section with like
effect as if such person had originally been a party to this Agreement with
respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting International Manager or International Managers by the
International Managers and the Company as provided in subsection (a) above, the
aggregate number of such Shares which remains unpurchased does not exceed
one-eleventh of the aggregate number of Shares to be purchased at such Time of
Delivery, then the Company shall have the right to require each non-defaulting
International Manager to purchase the number of Shares which such International
Manager agreed to purchase hereunder at such Time of Delivery and, in addition,
to require each non-defaulting International Manager to purchase its pro rata
share (based on the number of Shares which such International Manager agreed to
purchase hereunder) of the Shares of such defaulting International Manager or
International Managers for which such arrangements have not been made, but
nothing herein shall relieve a defaulting International Manager from liability
for its default.
10. TERMINATION.
(a) This Agreement may be terminated with respect to the (i) the Firm
Shares or (ii) any Optional Shares, in the sole discretion of the International
Managers, by notice to the Company given prior to the First Time of Delivery or
any Subsequent Time of Delivery, respectively, in the event that (i) any
condition to the obligations of the International Managers set forth in Section
7 hereof has not been satisfied, or (ii) the Company shall have failed, refused
or been unable to deliver the Shares or to perform all obligations and satisfy
all conditions on its part to be performed or satisfied hereunder at or prior to
such Time of Delivery, in either case other than by reason of a default by any
of the International Managers. If this Agreement is terminated pursuant to this
Section 10(a), the Company will reimburse the International Managers severally
upon demand for all out-of-pocket expenses (including reasonable counsel fees
and disbursements) that shall have been reasonably incurred by them in
connection with the proposed purchase and sale of the Shares). The
24
<PAGE>
Company shall not in any event be liable to any of the International Managers
for the loss of anticipated profits from the transactions covered by this
Agreement.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting International Manager by the International Managers and
the Company as provided in Section 9(a), the aggregate number of such Shares
which remains unpurchased exceeds one-eleventh of the aggregate number of Shares
to be purchased at such Time of Delivery, or if the Company shall not exercise
the right described in Section 9(b) to require non-defaulting International
Managers to purchase Shares of a defaulting International Managers or
International Managers, then this Agreement (or, with respect to a Subsequent
Time of Delivery, the obligations of the International Managers to purchase and
of the Company to sell the Optional Shares) shall thereupon terminate, without
liability on the part of any non-defaulting International Manager or the Company
except for the expenses to be borne by the Company and the International
Managers as provided in Section 6 hereof and the indemnity and contribution
agreements in Section 8 hereof; but nothing herein shall relieve a defaulting
International Manager from liability for its default.
11. SURVIVAL. The respective indemnities, agreements, representations,
warranties and other statements of the Company, its officers and the several
International Managers, as set forth in this Agreement or made by or on behalf
of them, respectively, pursuant to this Agreement, shall remain in full force
and effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any International Manager or any controlling
person referred to in Section 8(f) or the Company or any officer or director or
controlling person of the Company referred to in Section 8(f), and shall survive
delivery of and payment for the Shares. The respective agreements, covenants,
indemnities and other statements set forth in Sections 6 and 8 hereof shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement.
12. NOTICES. All communications hereunder shall be in writing and, if sent
to any of the International Managers, shall be mailed, delivered by courier or
faxed and confirmed in writing to the International Managers in care of Raymond
James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716,
Attention: John H. Hill, Jr., with a copy to King & Spalding, 191 Peachtree
Street, Atlanta, Georgia, Attention Bruce N. Hawthorne, Esq.; and if sent to the
Company, shall be mailed, delivered by courier or faxed and confirmed in writing
to the Company at 2153 N.W. 86th Avenue, Miami, Florida 33122, with a copy to
Greenberg, Traurig, Hoffman, , Lipoff, Rosen & Quentel, P.A. 1221 Brickell
Avenue, Miami, Florida 33131, Attention Paul Berkowitz, Esq. Notices sent by
mail shall be effective three days after mailing, but notices otherwise
transmitted shall be effective upon receipt.
13. ACTION BY THE INTERNATIONAL MANAGERS. Any action under this Agreement
taken by Raymond James & Associates, Inc. will be binding upon the International
Managers.
14. BINDING EFFECT. This Agreement shall be binding upon, and insure solely
to the benefit of, the International Managers and the Company and to the extent
provided in Sections 8 and 10 hereof, the officers and directors and controlling
persons referred to therein and their respective
25
<PAGE>
heirs, executors, administrators, successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. No
purchaser of any of the Shares from any International Manager shall be deemed a
successor or assign by reason merely of such purchase.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without giving effect to the
choice of law principles of any jurisdiction.
16. COUNTERPARTS. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
26
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one of the counterparts hereof, and upon
the acceptance hereby by Raymond James & Associates, Inc. on behalf of each of
the International Managers, this letter will constitute a binding agreement
among the International Managers and the Company. It is understood that your
acceptance of this letter on behalf of each of the International Managers is
pursuant to the authority set forth in the Master Agreement among International
Managers, a copy of which shall be submitted to the Company for examination,
upon request, but without warranty on the part of the International Managers as
to the authority of the signers thereof.
Very truly yours,
CHS ELECTRONICS, INC.
By: __________________________
Name:
Title:
The foregoing Agreement is hereby confirmed and
accepted as of the date first written above.
RAYMOND JAMES & ASSOCIATES, INC.
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
as Representatives of the several International Managers
By: Raymond James & Associates, Inc.
By: ________________________________
Name:
Title:
27
<PAGE>
ANNEX 1
Each comfort letter delivered pursuant to Section 7(d) shall contain statements
to the following effect:
(i) the accountants audited the financial statements included in the
registration statement;
(ii) the accountants are independent certified public accountants within the
meaning of the Securities Act of 1933 (the "Act");
(iii) the audited financials included in the registration statement comply as
to form in all material respects with the accounting requirements of the
Act and the rules and regulations thereunder;
(iv) a listing of the procedures followed for any statements that were not
audited, including interim financial statements (which should include at
a minimum the SAS 71 procedures, reading of the unaudited statements and
corporate minutes, and inquiries of company officials);
(v) for such unaudited statements, (a) a statement (or negative assurance) to
the effect that no modifications need be made for such financial
statements to conform to generally accepted accounting principles and (b)
the statement set forth in (iii) above;
(vi) the procedures followed for periods subsequent to the date of the latest
audited or unaudited financial statements included in the registration
statement (which should include at a minimum a reading of any unaudited
financials prepared by the entity for such subsequent periods, such as
monthly statements, if any, readings of corporate minutes and inquiries
of company officials);
(vii) for such subsequent periods, up until a date 5 or fewer days prior to the
date of the prospectus, a statement or negative assurance that there was
no change in capital stock, decrease in consolidated assets or increase
in debt or stockholders' equity; and
(viii) for financial statements of foreign entities, a statement that the
information presented complies with the requirements as to financial
statements for foreign businesses included in Regulation S-X.
28
<PAGE>
SCHEDULE I
NO. OF
INTERNATIONAL MANAGER SHARES
- --------------------- ------
Raymond James & Associates, Inc........................
Montgomery Securities..................................
J.C. Bradford & Co.....................................
Banco Santander Investments............................
Banque Paribas.........................................
BBV Latinvest Securities Inc...........................
Credit Suisse First Boston.............................
Nordbanken.............................................
Societe Generale.......................................
Total ........................................... 3,000,000
=========
29
EXHIBIT 5.1
July 23, 1997
CHS Electronics, Inc.
2153 N.W. 86th Avenue
Miami, Florida 33122
Gentlemen:
On July 23, 1997, CHS Electronics, Inc., a Florida corporation (the
"Company"), filed with the Securities and Exchange Commission Amendment No. 1 to
a Registration Statement (File No. 333-29779) on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"). Such
Registration Statement relates to the sale of up to 13,800,000 shares (the
"Shares") of the Company's Common Stock, par value $.001 per share (the "Common
Stock") by the Company and certain selling shareholders (the "Selling
Shareholders"). We have acted as counsel to the Company in connection with the
preparation and filing of the Registration Statement.
In connection with the Registration Statement, we have examined,
considered and relied upon copies of the following documents (collectively, the
"Documents"): (i) the Company's Articles of Incorporation and Bylaws; (ii)
resolutions of the Company's Board of Directors authorizing the offering and the
issuance of the Shares to be sold by the Company and related matters; (iii) the
Registration Statement and exhibits thereto; and (iv) such other documents and
instruments that we have deemed necessary for the expression of the opinions
herein contained. In making the foregoing examinations, we have assumed without
investigation the genuineness of all signatures and the authenticity of all
documents submitted to us as originals, the conformity to
<PAGE>
CHS Electronics, Inc.
July 23, 1997
Page 2
authentic original documents of all documents submitted to us as copies, and the
veracity of the Documents. As to various questions of fact material to the
opinion expressed below, we have relied, to the extent we deemed reasonably
appropriate, upon the representations or certificates of officers and/or
directors of the Company and upon documents, records and instruments furnished
to us by the Company, without independently verifying the accuracy of such
certificates, documents, records or instruments.
Based upon the foregoing examination, and subject to the qualifications
set forth below, we are of the opinion that (i) the Shares to be sold by the
Company have been duly and validly authorized, and when issued and delivered in
accordance with the terms of the Underwriting Agreement filed as Exhibit 1.1 to
the Registration Statement, will be validly issued, fully paid and
non-assessable and (ii) the Shares to be sold by the Selling Shareholders
pursuant to the Registration Statement have been duly and validly authorized and
issued and are fully paid and nonassessable.
Although we have acted as counsel to the Company in connection the
preparation and filing of the Registration Statement, our engagement has been
limited to certain matters about which we have been consulted. Consequently,
there exist matters of a legal nature involving the Company in which we have not
been consulted and have not represented the Company. This opinion letter is
limited to the matters stated herein and no opinions may be implied or inferred
beyond the matters expressly stated herein. The opinions expressed herein are
given as of this date, and we assume no obligation to update or supplement our
opinions to reflect any facts or circumstances that may come to our attention or
any change in law that may occur or become effective at a later date.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus comprising a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations promulgated thereunder.
Sincerely,
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL, P.A.
By: /S/ PAUL BERKOWITZ
--------------------------
Paul Berkowitz
EXHIBIT 23.2
We have issued our report dated March 7, 1997, accompanying the financial
statements of CHS Electronics, Inc. contained in this Amendment No. 1 to
Registration Statement and Prospectus on Form S-3. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and the use
of our name as it appears under the captions "Experts" and "Selected
Consolidated Financial Data."
Grant Thornton LLP
Miami, Florida
July 22, 1997
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Amendment No. 1 to the
registration statement of CHS Electronics, Inc. on Form S-3 of our report dated
February 25, 1997, except as to Notes 17 and 18 for which the date is March 20,
1997, on our audit of the consolidated financial statements and financial
statement schedules of Frank and Walter Computer GmbH, as of December 31, 1996,
and for the year then ended, which report is included on Form 8-K/A filed by CHS
Electronics, Inc. on May 14, 1997.
<TABLE>
<S> <C>
Moore Stephens, P.C. Societete-Treuhand GmbH
New York, New York Hannover, Germany
July 22, 1997 July 22, 1997
</TABLE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement of CHS Electronics, Inc. (the Company) on form S-3 of our
report dated December 6, 1996 (relating to the financial statements of Merisel,
Inc.'s European, Latin American and Mexican Subsidiaries not presented
separately herein) appearing in the Company's Report on 8-K dated October 4,
1996 as amended on December 17, 1996 and May 12, 1997 incorporated by reference
in the prospectus, which is part of this registration statement.
Deloitte & Touche LLP
Los Angeles, California
July 22, 1997
EXHIBIT 23.5
The Board of Directors
CHS Electronics, Inc.
We consent to the inclusion of our report dated April 16, 1997, with
respect to the consolidated balance sheets of Karma International S.A. and its
subsidiaries as of December 31, 1995 and 1996, and the related statements of
income, shareholders' equity, and cash flows for each of the years then ended,
which report appears in Amendment No. 1 to the Form S-3 of CHS Electronics, Inc.
dated July 22, 1997 and to the reference to our Firm under the heading Experts
in the prospectus.
KPMG Cevdet Suner Denetim ve
Yeminli Mali Musavirlik A.S.
Istanbul, Turkey
July 22, 1997
