-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VOpd9V1/MTQR4zxhLSYLK4RNgD9J4EzGYbJmM9DmdZckvcZA5q5U0hSD3QnR9FN2 hSCBs3BRYo2bLxaj85ZI2Q== 0000928385-98-000769.txt : 19980420 0000928385-98-000769.hdr.sgml : 19980420 ACCESSION NUMBER: 0000928385-98-000769 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19980417 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL EUROPEAN DISTRIBUTION CORP CENTRAL INDEX KEY: 0001046880 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-BEER, WINE & DISTILLED ALCOHOLIC BEVERAGES [5180] IRS NUMBER: 541865271 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-42387 FILM NUMBER: 98596459 BUSINESS ADDRESS: STREET 1: 211 NORTH UNION STREET CITY: ALEXANDRIA STATE: VA ZIP: 22314 MAIL ADDRESS: STREET 1: 211 NORTH UNION STREET CITY: ALEXANDRIA STATE: VA ZIP: 22314 SB-2/A 1 AMENDMENT #1 TO FORM SB-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1998 REGISTRATION NO. 333-42387 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- AMENDMENT NO. 1 ON FORM S-1 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- CENTRAL EUROPEAN DISTRIBUTION CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 5182 54-1865271 (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION --------------- NUMBER) 211 NORTH UNION STREET, #100 ALEXANDRIA, VIRGINIA 22314 (703) 838-5568 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------- WILLIAM V. CAREY CHAIRMAN AND CHIEF EXECUTIVE OFFICER CENTRAL EUROPEAN DISTRIBUTION CORPORATION 211 NORTH UNION STREET, #100 ALEXANDRIA, VIRGINIA 22314 (703) 838-5568 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- COPIES TO: STEVEN E. BALLEW, ESQ. MALCOLM I. ROSS, ESQ. JOSEPH G. CONNOLLY, JR., ESQ. MICHAEL S. NOVINS, ESQ. HOGAN & HARTSON L.L.P. BAKER & MCKENZIE 555 THIRTEENTH STREET, N.W. 805 THIRD AVENUE WASHINGTON, D.C. 20004 NEW YORK, NEW YORK 10022 TEL: (202) 637-5600 TEL: (212) 751-5700 FAX: (202) 637-5910 FAX: (212) 759-9133 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. --------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. [_]l If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [_] --------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM MAXIMUM AGGREGATE TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------------- Common Stock(2)........... 2,875,000 $9.00 $25,875,000 $7,633.13 - ------------------------------------------------------------------------------------- Warrants(3)............... 250,000 .001 250 .08 - ------------------------------------------------------------------------------------- Common Stock(4) 250,000 10.80 2,700,000 796.50 - ------------------------------------------------------------------------------------- Total.................... $28,572,250 $8,429.71(5)
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Estimated solely for purposes of calculating the registration fee. (2) Includes 375,000 shares of Common Stock subject to the Underwriters' over- allotment option. (3) To be issued to the Representatives. (4) Issuable upon exercise of the warrants to be issued to the Representatives. (5) Of which $7,352.24 was previously paid. Pursuant to Rule 416 under the Securities Act of 1933, as amended, there are also being registered such additional shares as may become issuable pursuant to the terms of the warrants. --------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION--DATED APRIL 17, 1998 PROSPECTUS 2,500,000 SHARES LOGO CENTRAL EUROPEAN DISTRIBUTION CORPORATION COMMON STOCK ----------- All of the 2,500,000 shares of common stock, par value $.01 per share (the "Common Stock"), offered hereby are being sold by Central European Distribution Corporation, a Delaware corporation ("CEDC" or the "Company"). Prior to this Offering, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price of the Common Stock will be between $8.00 and $9.00 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Company has applied for quotation of the Common Stock on the Nasdaq National Market System ("Nasdaq NMS") under the symbol "CEDC." ----------- THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
UNDERWRITING DISCOUNTS AND PROCEEDS TO PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) - -------------------------------------------------------------------------------- Per Share........................... $ $ $ - -------------------------------------------------------------------------------- Total(3)............................ $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Excludes additional compensation to be received by the representatives of the Underwriters (the "Representatives") in the form of (a) a non- accountable expense allowance of $ and (b) warrants (the "Representatives' Warrants") to purchase up to 250,000 shares of Common Stock. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses of the Offering payable by the Company estimated at $ , including the Representatives' non-accountable expense allowance. (3) The Company has granted the Underwriters a 30-day option to purchase up to an additional 375,000 shares of Common Stock on the same terms and conditions as the shares of Common Stock offered hereby solely to cover over-allotments, if any. If the Underwriters exercise this option in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock offered hereby are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of certificates representing the shares of Common Stock will be made at the offices of Brean Murray & Co., Inc., New York, New York, on or about , 1998. ----------- BREAN MURRAY & CO., INC. FINE EQUITIES, INC. ----------- The date of this Prospectus is , 1998 [GRAPHIC DEPICTING BRANDS OF BEVERAGES DISTRIBUTED BY THE COMPANY.] The Company intends to furnish its stockholders with annual reports containing financial statements audited by its independent public accountants and will make available copies of quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. All brand names or trademarks appearing in this Prospectus are the property of their respective holders. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING STABILIZING, SYNDICATE SHORT COVERING AND PENALTY BID TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ NMS IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING." NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURI- TIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPEC- TUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM- PLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. ---------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 1 Risk Factors............................................................. 5 The Reorganization....................................................... 13 Use of Proceeds.......................................................... 14 Dividend Policy.......................................................... 14 Dilution................................................................. 15 Exchange Rate Data....................................................... 16 Capitalization........................................................... 17 Selected Consolidated Financial Data..................................... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 19 Business................................................................. 23 Regulation............................................................... 31 Management............................................................... 34 Certain Transactions..................................................... 40 Principal Stockholders................................................... 41 Description of Capital Stock............................................. 42 Shares Eligible for Future Sale.......................................... 46 Underwriting............................................................. 47 Legal Matters............................................................ 50 Experts.................................................................. 50 Enforceability of Certain Civil Liabilities.............................. 50 Available Information.................................................... 50 Index to Consolidated Financial Statements............................... F-1
---------------- UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI- PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DE- LIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT- MENTS OR SUBSCRIPTIONS. i PROSPECTUS SUMMARY The following summary is qualified by, and should be read in conjunction with, the more detailed information and consolidated financial statements and notes thereto appearing elsewhere in this Prospectus. Prospective investors should carefully consider the factors set forth herein under the caption "Risk Factors" and are urged to read this Prospectus in its entirety. Except as otherwise noted, all information in this Prospectus (i) reflects the completion of a reorganization (as defined in "The Reorganization") as of November 28, 1997 whereby Central European Distribution Corporation ("CEDC" or the "Company") became the parent holding company of Carey Agri International Poland Sp. z o.o. ("Carey Agri") and (ii) assumes no exercise of the Underwriters' over-allotment option, the Representatives' Warrants or options granted under the Company's 1997 Stock Incentive Plan. As used in this Prospectus, unless the context otherwise requires, references to the "Company" means CEDC and its wholly owned subsidiary, Carey Agri. The Company prepares its consolidated financial statements in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") in U.S. Dollars. For the convenience of the reader, amounts in this Prospectus are expressed principally in U.S. Dollars. THE COMPANY The Company, formed in 1990, is a leading importer and distributor of alcoholic beverages in Poland. The Company operates the largest nationwide next-day alcoholic beverage delivery service in Poland through its eight regional branch offices located in Poland's principal cities, including Warsaw, Krakow, Gdansk and Katowice. The Company currently distributes approximately 300 products in three categories: beer, spirits and wine. The Company imports and distributes eight international beers, including Guinness, Corona, Miller and Foster's. The Company currently distributes approximately 250 spirit products, including leading international brands of scotch, single malt and other whiskeys, rum, bourbon, vodkas, tequila, gins, brandy, cognacs, vermouths and specialty spirits, such as Jim Beam, Johnnie Walker, Ballantines, Smirnoff, Absolut, Finlandia, Bacardi, Gordon's London Dry and Tanqueray. In addition, the Company imports and distributes 45 wine products, including Sutter Home, Romanian Classics, Cinzano Asti, Martini Asti and Moet & Chandon. In addition to its distribution agreements with various alcoholic beverage suppliers, the Company is currently the only holder of the license needed to import cigars into Poland. The Company's net sales for 1997 were $40.2 million, as compared to $23.9 million for 1996, representing an increase of 68%. The Company distributes its products throughout Poland to approximately 3,000 outlets, including off-trade establishments, such as small businesses and multi-store retail outlets where alcoholic beverages are not consumed on premises, and on-trade locations, such as bars, nightclubs, hotels and restaurants, where such products are consumed on premises. The Company believes that it will be able to utilize its distribution network to distribute additional complementary consumer products throughout Poland. The principal components of the Company's business strategy are as follows: EXPAND DISTRIBUTION CAPACITY. The Company plans to increase its distribution capacity by expanding the number of its branch offices in Poland through the acquisition of existing wholesalers, particularly in areas where the Company does not distribute directly. Cities currently under consideration are Lublin (June 30, 1997 population--approximately 356,000), Lodz (June 30, 1997 population--approximately 815,000) and Bialystok (June 30, 1997 population-- approximately 281,000). The Company will seek to acquire successful wholesalers which are primarily involved in the vodka distribution business and are among the leading wholesalers in their region. The Company would then add its higher margin imported brands to complement and enhance the existing product 1 portfolio. While the Company has identified potential wholesalers and has conducted exploratory talks about such acquisitions, it has not reached any definitive agreements regarding the terms and conditions of any such acquisition, including the purchase price to be paid to the sellers, and such acquisitions may not be available to the Company on acceptable terms, if at all. In such case, the Company would seek to enter these markets with its own branch offices. INCREASE PRODUCT OFFERINGS. The Company plans to expand its strategic product offerings in Poland through the acquisition of a high quality wine importer which offers a wide selection of specialty wines and by entering into new supplier agreements to import additional products. The Company is in exploratory talks with such a wine importer, but no definitive agreement has been reached. The Company began importing Bulgarian red and white varietal wines in October 1997. The Company is also in exploratory talks with spirit producers to import additional spirit brands. ENTER RETAIL MARKET. The Company has implemented its retail business strategy in Warsaw, where one location has been leased, remodeled and opened for business in February 1998. The Company believes that specialty retail sales of alcoholic beverages in Poland have yet to be developed. Currently, alcoholic beverages are sold in Poland through grocery stores, supermarkets, small shops and gas stations. These retail outlets sell, in general, fast moving items, primarily domestic beer and vodka, as well as a small number of the more popular imported products, which are brands often imported by the Company. There are few stores that specialize in alcoholic beverages in Warsaw, a metropolitan area with a population of approximately 2.4 million. The Company also believes that high quality alcohol retail outlets will create an additional demand for its current product portfolio, enhancing sales of products distributed, as well as provide a point of sale marketing opportunity for the Company's brands. The retail stores will stock additional products not currently distributed by the Company to complement the stores' appeal, such as cigars and other items associated with an alcohol retail outlet. The Company also intends to utilize the retail outlets as a training tool for its salesmen for product merchandising and promotions. In addition, the retail establishments will allow the Company's on-trade customers to have a supply point for immediate purchase at night and on Sundays when the Company's delivery system does not operate. CEDC was incorporated in Delaware in September 1997 to facilitate this Offering. Its executive offices are located at 211 North Union Street, #100, Alexandria, Virginia 22314 and its telephone number is (703) 838-5568. The executive offices of Carey Agri are located at ul. Lubelska 13, 03-802 Warsaw, Poland and its telephone number is 48-22-618-0577. THE OFFERING Common Stock to be Offered by the Company... 2,500,000 shares Common Stock to be Outstanding After the Offering (1)................................ 4,280,000 shares Use of Proceeds............................. The Company intends to use the net proceeds from this Offering to (i) construct an office and warehouse facility; (ii) purchase equipment; (iii) retire bank financing; and (iv) for working capital and general corporate purposes. See "Use of Proceeds." 2 Proposed Nasdaq NMS Symbol............. CEDC - -------- (1) Does not include: (i) 375,000 shares of Common Stock issuable by the Company upon exercise of the Underwriters' over-allotment option; (ii) 250,000 shares of Common Stock issuable upon exercise of the Representatives' Warrants; and (iii) 750,000 shares of Common Stock reserved for issuance under the Company's 1997 Stock Incentive Plan (the "Plan"), of which options for 82,500 shares have been granted. See "Management--Executive Compensation" and "Underwriting." 3 SUMMARY CONSOLIDATED FINANCIAL DATA The following table sets forth summary consolidated financial data of the Company as of and for each of the five fiscal years in the period ended December 31, 1997. The income statement data for the years ended December 31, 1995, 1996 and 1997 and the historical balance sheet data as of December 31, 1997 have been derived from the Company's consolidated financial statements, which were audited by Ernst & Young Audit Sp. z o.o., independent auditors. The income statement data for the years ended December 31, 1993 and 1994 are unaudited, but include, in the opinion of management, all adjustments considered necessary for a fair presentation of such data. The "as adjusted" balance sheet data as of December 31, 1997 is as described in note (2) below. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto included elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, ------------------------------------------------- 1993 1994 1995 1996 1997 ----------- ----------- -------- -------- ------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) Net sales.................... $ 4,313 $ 6,788 $ 16,017 $ 23,942 $40,189 Cost of goods sold........... 3,157 5,480 13,113 19,850 34,859 Sales, general and administrative expenses..... 1,559 1,356 2,603 3,569 4,198 Operating income (loss)...... (403) (48) 301 523 1,132 Interest expense and net realized and unrealized foreign currency transaction losses, net of other income...................... 454 315 106 350 483 Income (loss) before income taxes....................... (857) (363) 195 173 649 Net income (loss)............ (783) (331) 75 62 308 Net income (loss) per common share, basic and dilutive (1)................ (0.44) (0.19) 0.04 0.03 0.17 Number of outstanding shares of Common Stock (1)......... 1,780 1,780 1,780 1,780 1,780
DECEMBER 31, -------------------------- 1997 1997 ------------ ------------- (IN THOUSANDS) (AS (HISTORICAL) ADJUSTED) (2) BALANCE SHEET DATA: Cash........................................... $ 1,053 $18,524(3) Current Assets................................. 11,641 29,112 Total assets................................... 12,530 29,623 Long-term debt and capital lease obligations, less current portion.......................... 47 12 Stockholders' equity........................... 334 18,789
- -------- (1) Gives effect to the 1,780,000 shares issued in the Reorganization. See "The Reorganization." (2) Adjusted to give effect to the receipt of net proceeds of approximately $18.5 million from the sale of Common Stock offered hereby at an assumed initial public offering price of $8.50 per share (the midpoint of the range specified on the cover page of this Prospectus) and assuming that a portion of the net proceeds will be used to prepay bank financing (approximately $1.2 million as of December 31, 1997) and to pay all accrued public offering costs. See "Use of Proceeds." (3) The net proceeds will be invested in investment grade, interest-bearing securities pending their application. 4 RISK FACTORS The securities offered hereby involve a high degree of risk. Prospective investors should consider carefully all the information contained in this Prospectus (including the consolidated financial statements and notes thereto) prior to purchasing the Common Stock offered hereby and in particular the factors set forth below under "--Risks Related to the Company," "--Risks Related to Regulation," "--Risks Related to Investments in Poland and Emerging Markets" and "--Risks Related to the Offering." Prospective investors are cautioned that the statements in this Prospectus that are not historical facts may be forward-looking in nature and, accordingly, whether they prove to be accurate is subject to many risks and uncertainties. The actual results that the Company achieves may differ materially from any forward-looking statements in this Prospectus. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and those contained elsewhere in this Prospectus. RISKS RELATED TO THE COMPANY Limited Management Resources; Dependence on Key Persons The Company is relying on a small number of key individuals to implement its business and operations and, in particular, the services of William V. Carey, its Chairman, President and Chief Executive Officer, Jeffrey Peterson, its Vice Chairman and Executive Vice President and Robert Bohojlo, its Vice President and Chief Financial Officer who joined the Company on January 1, 1998. Accordingly, the Company may not have sufficient managerial resources to successfully manage the increased business activity envisioned by its business strategy. In addition, the Company's future success depends in large part on the continued service of Messrs. Carey and Peterson. Mr. Carey has entered into a three-year employment agreement with the Company which commences on the closing of this Offering and which may be terminated by Mr. Carey only for "good reason," which includes CEDC's failure to perform its obligations under the agreement, or by CEDC for "cause," as defined, which includes Mr. Carey's willful refusal to follow written orders or willful engagement in conduct materially injurious to the Company or continued failure to perform his required duties. The Company has purchased a $2.5 million key man life insurance policy on the life of Mr. Carey. Mr. Peterson has entered into a two-year employment agreement with the Company which commences on the closing of this Offering and which may be terminated by CEDC, with or without cause, on three months' prior written notice. Mr. Peterson may terminate the employment agreement only for good reason. See "Management--Compensation Plans--Employment Agreements." The management of future growth will require, among other things, continued development of the Company's financial and management controls and management information systems, stringent control of costs, increased marketing activities, ability to attract and retain qualified management personnel and the training of new personnel. The Company is seeking to hire additional personnel in order to manage its growth and expansion. Failure to successfully hire needed personnel and to manage its growth and development would have a material adverse effect on the Company's business, results of operations and financial condition. Nonexclusive, Short-Term Supply Contracts The Company has exclusive rights to distribute in Poland certain alcoholic beverages which during 1995, 1996 and 1997 constituted approximately $4.8 million, $7.6 million and $8.8 million, respectively, or 30.0%, 31.7% and 22.0%, respectively, of its net sales. Furthermore, most of the Company's distribution agreements have a term of approximately one year, although many are automatically renewed unless one party gives notice of termination. Several of such agreements, however, can be terminated by one party without cause on relatively short notice. For example, the distribution agreements with respect to domestic vodka (which accounted for approximately 13.6%, 12.9% and 46.7% of the Company's net sales during 1995, 1996 and 1997, respectively) and products of 5 United Drinks and Vintners (which accounted for approximately 18.8%, 17.1% and 14.1% of the Company's net sales during 1995, 1996 and 1997, respectively) can be terminated by either party on one month's notice and products distributed for United Distiller Finlandia Group ("United Distillers") (which accounted for approximately 19.1%, 15.1% and 11.4% of the Company's net sales during 1995, 1996 and 1997, respectively) can be terminated upon 90 days' notice. The termination of such agreements could have a material adverse effect on the business and operations of the Company. Risks Related to Growth through Acquisitions The Company's growth will depend in large part on its ability to acquire additional distributors, increase product offerings, manage expansion, control costs in its operations and consolidate effectively any acquisition into its existing operations and systems of management and financial controls. Unforeseen capital and operating expenses, or other difficulties, complications and delays frequently encountered in connection with the expansion and integration of acquired operations could inhibit the Company's growth. The full benefits of a significant acquisition will require the integration of operational, administrative, finance, sales and marketing organizations, as well as the coordination of common sales and marketing efforts and the implementation of appropriate operational, financial and management systems and controls. This effort will require substantial attention from the Company's senior management team. The diversion of management attention required by an acquisition could have an adverse effect on the net sales and operating results of the Company. There can be no assurance that the Company will identify suitable acquisition candidates, that acquisitions will be consummated on acceptable terms or that the Company will be able to successfully integrate the operations of any acquisition. In addition, there can be no assurance that any acquired businesses will be profitable at the time of their acquisition or will achieve or maintain profitability levels that justify the investment therein, or that the Company will be able to realize operating and economic efficiencies following such acquisitions. The Company's ability to grow through the acquisition of additional companies will also be dependent upon the availability of capital to complete the acquisitions. The Company intends to finance acquisitions through a combination of the proceeds of the Offering, its available cash resources, bank borrowings and, in appropriate circumstances, the further issuance of equity and/or debt securities. Acquiring additional companies will have a significant effect on the Company's financial position, and could cause substantial fluctuations in the Company's quarterly and yearly operating results. Also, acquisitions could result in the recording of significant goodwill and intangible assets on the Company's financial statements, the amortization of which would reduce reported earnings in subsequent years. Under the Polish Anti-Monopoly Act, acquisitions may be blocked or have conditions imposed upon them by the Polish Office for Protection of Competition and Consumers (the "Anti-Monopoly Office") if the Anti-Monopoly Office judges the acquisition to have a negative impact on the competitiveness of the Polish market. Dependence Upon Retailers The alcoholic beverages distributed by the Company in Poland have historically been sold to consumers by independent retailers. Accordingly, the Company is dependent on its independent retailers for the successful distribution of its products to the ultimate customer. The Company has no control over the independent retailers' operations, including such matters as retail price and marketing. One component of the Company's growth strategy is to enter the retail market. Implementation of this strategy may be construed by the Company's existing independent retailers as an effort to compete with them, which could adversely affect their relationship with the Company and cause them to decrease or cease their purchases of the Company's products. 6 Limited Retail Experience One component of the Company's growth strategy is for the Company to enter the retail market for sales of alcoholic beverages. The Company has no prior significant retail experience, and, accordingly, is subject to the numerous risks of entering a new business. Such risks include, among others, unanticipated operating problems, lack of experience and significant competition from existing and new retailers. There can be no assurance that the Company will be able to conduct retail operations profitably. Competition The brands of beer, spirits and wine distributed by the Company compete with other brands in each category, including some that the Company distributes. The Company expects this competition to increase as it adds more brands, as international drinks and brewery companies expand production and distribution in Poland, and as domestically produced products are distributed more efficiently. The Company competes with various regional distributors in all of its offices. This competition is particularly vigorous with respect to domestic vodka brands. Further, some of the international drink companies doing business in Poland, which import their own products but use the Company on a nonexclusive basis to distribute their products, could develop a nationwide distribution system, as could existing regional distributors, and may terminate their distribution arrangements with the Company. In addition, the international drinks companies with which the Company competes in the import segment of its business have greater managerial, financial and other resources than the Company. See "Business--Competition." Dependence on Principal Suppliers United Distillers and United Drinks and Vintners alcoholic beverages accounted for 15.1% and 17.1%, respectively, of net sales in 1996, and for 11.1% and 14.1%, respectively, of net sales in 1997. United Distillers and Guinness are part of the same business enterprise, Guinness PLC, which has recently combined with Grand Met PLC, of which United Drinks and Vintners was a part. The combined company is operating under the name Diageo PLC. Alcoholic beverages purchased from these three companies accounted for 38.3% of the Company's net sales in 1996 and 20.1% for 1997. The termination of the Company's relationship with any of such entities could have a material adverse effect on the business and operations of the Company. Control By Existing Stockholders; Potential Anti-Takeover Provisions After completion of the Offering, three of the Company's existing stockholders, William V. Carey, the William V. Carey Stock Trust and Jeffrey Peterson, will own beneficially in the aggregate approximately 39.5% of the outstanding Common Stock. In the event that the Underwriters' over-allotment option is exercised in full, such stockholders will own beneficially in the aggregate approximately 36.3% of the outstanding Common Stock. Such persons, if they act together, are expected to be the largest group of Company stockholders, and, as such, will have a significant impact on the election of the Company's directors and on the implementation of business strategies. In addition, such concentration of ownership may have the effect of delaying or preventing transactions involving an actual or potential change in control of the Company, including transactions in which holders of Common Stock might receive a premium for their Common Stock over prevailing market prices. See "Principal Stockholders" and "Description of Capital Stock." Certain provisions of CEDC's certificate of incorporation (the "Certificate of Incorporation") and bylaws (the "Bylaws") and of Delaware law could delay or make more difficult a merger, tender offer or proxy contest involving CEDC. These include Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years from the date the person became an interested 7 stockholder unless certain conditions are met. The Certificate of Incorporation authorizes the issuance of 1.0 million shares of preferred stock, par value $.01 per share ("Preferred Stock"), on terms which may be fixed by CEDC's Board of Directors (the "Board of Directors") without further stockholder action. The terms of any series of Preferred Stock, which may include, among other things, priority claims to assets and dividends and special voting rights, could adversely affect the rights of holders of the Common Stock. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. CEDC has no present plans to issue shares of Preferred Stock. In addition, the Certificate of Incorporation and Bylaws eliminate the right of stockholders to act by written consent without a meeting unless such written consent is unanimous, require advanced stockholder notice to nominate directors and raise matters at the annual stockholders' meeting, do not provide for cumulative voting in the election of directors, authorize the removal of directors only for cause by the affirmative vote of the holders of at least a majority of the outstanding shares of capital stock, require that at least 10% of the voting power of the issued and outstanding capital stock request a call of a special meeting before such a meeting can be called by the stockholders of CEDC, limit amendments to the Certificate of Incorporation to items that have been first proposed by the Board of Directors and thereafter approved by the affirmative vote of the holders of at least a majority (and in certain cases a supermajority) of the outstanding shares of capital stock and require at least a majority of the outstanding shares of capital stock for stockholders to amend the Bylaws. Finally, the acquisition of more than 10% of the outstanding voting stock of CEDC could require the approval of the Anti-Monopoly Office, provided that the total value of annual sales of the Company and the acquiror in the calendar year preceding the year of notification exceed 5.0 million ECU (approximately $5.4 million). See "-- Risks Related to Regulation--Competition Law." All of the foregoing could have the effect of delaying, deferring or preventing a change in control of the Company and could limit the price that certain investors might be willing to pay in the future for shares of the Common Stock. See "Description of Capital Stock." Holding Company Structure and Restrictions on Payment of Dividends CEDC is a holding company with limited assets of its own and conducts all of its business through its subsidiary, Carey Agri. The ability of CEDC to pay dividends on the Common Stock will be dependent upon either the cash flows and earnings of Carey Agri and the payments of funds by that subsidiary to CEDC in the form of repayment of loans, dividends or otherwise or CEDC's ability to otherwise realize economic benefits from its equity interests in its subsidiary. Carey Agri has no obligation, contingent or otherwise, to pay dividends to CEDC. The ability of Carey Agri to make payments to CEDC will be subject to, among other things, the availability of funds, as well as various business considerations and legal requirements. See "Dividend Policy." The transfer of equity interests in Carey Agri may be limited, due in part to regulatory and contractual restrictions. There can be no assurance of CEDC's ability to realize economic benefits through the sale of such equity interests. Accordingly, there can be no assurance that CEDC will receive dividend payments from its subsidiary, if at all, or other economic benefits from its equity interest in its subsidiary. Fluctuations in Quarterly Operating Results The Company has experienced, and expects to continue to experience, significant fluctuations in its quarterly operating results. The Company's future operating results are dependent upon a number of factors including, but not limited to, the demand for its product, the timing of its sales, the length of its sales cycle and the timing and development of any competing businesses or products and legislation. No Intention to Pay Dividends Neither CEDC nor Carey Agri has ever declared or paid any dividends on its Common Stock, and the Company does not anticipate paying dividends in the foreseeable future. See "Dividend Policy." 8 RISKS RELATED TO REGULATION Regulation of the Company's Business The importation and distribution of alcoholic beverages in Poland is subject to extensive regulation, requiring the Company to receive and renew various permits and licenses to import, warehouse, transport and sell alcoholic beverages. These permits and licenses often contain conditions with which the Company must comply in order to maintain the validity of such permits and licenses. The Company believes it is operating with all the licenses and permits material to its business, and the Company is not subject to any proceeding calling into question its operation in compliance with any licensing and permit requirements. The anticipated import and sale of cigars by the Company will also be subject to regulation. There can be no assurance that the various governmental regulations applicable to the alcoholic beverage industry will not be changed so as to impose more stringent requirements on the Company. If the Company were to fail to be in compliance with applicable governmental regulations or the conditions of the licenses and permits it receives, such failure could cause the Company's licenses and permits to be revoked and have a material adverse effect of the Company's business, results of operation and financial condition. Further, the applicable Polish governmental authorities, in particular the Minister of Economy, have articulated only general standards for issuance, renewal and termination of the licenses and permits which the Company needs to operate and, therefore, such governmental authorities retain considerable discretionary authority in making such decisions. See "Regulation." Possibility of Increased Governmental Regulation The alcoholic beverage industry has become the subject of considerable societal and political attention generally in recent years due to increasing public concern over alcohol-related societal problems, including driving while intoxicated, underage drinking and health consequences from the abuse of alcohol. As an outgrowth of these concerns, the possibility exists for further regulation of the alcoholic beverage industry in Poland. If alcohol consumption in general were to come into disfavor among consumers in Poland, the Company's business operations could be materially adversely affected. Since the Company expects to sell cigars at its retail stores, it will also be subject to public concern and governmental regulation over the sale and use of tobacco products. Possible Increase in Governmental Taxation The import and sale of alcoholic beverages is a business that is highly regulated and subject to taxation in Poland. The Company's operations may be subject to increased taxation as compared with those of non-alcohol related businesses. In such case, the Company may have to raise prices on its products to maintain its profit margins. The effect on the Company's business operations of such an increase will depend on the amount of any such increase, general economic conditions and other factors, but could negatively impact sales of the products the Company distributes. The anticipated import and sale of cigars by the Company will also be subject to regulation and taxation. See "Regulation--Import of Products" and "--Wholesale Activities." Customs Duties and Quotas As a general rule, the import of alcoholic beverages into Poland is subject to customs duties and the rates of the duties are set for particular types of products. The Minister of Economy is authorized to establish a schedule of quotas for alcoholic beverages for which the customs duties are substantially reduced. Customs quotas for alcoholic beverages are fixed annually, with the current quotas being applicable through December 31, 1998. There are no public guidelines on how the Minister of Economy has determined the current quotas or may determine future quotas. If such quotas were 9 substantially reduced or eliminated, it would likely have an adverse impact on the Company's business operations since the retail price of its imported alcoholic beverages would likely increase. See "Regulation--Customs Duties and Quotas." Competition Law Competition in Poland is governed by the Anti-Monopoly Act, which established the Anti-Monopoly Office to regulate monopolistic and other anti- competitive practices. The current body of Polish anti-monopoly law is not well-established. As a general rule, companies that obtain control of 40% or more of their market may face greater scrutiny from the Anti-Monopoly Office than those that control a lesser share. Additionally, several types of reorganizations, mergers and acquisitions and undertakings between business entities, including acquisitions of stock, under circumstances specified in the Anti-Monopoly Act, require prior notification to the Anti-Monopoly Office. Sanctions for failure to notify include fines imposed on parties to the transaction and members of their governing bodies. Pursuant to the current interpretation of the Anti-Monopoly Office, transactions between non-Polish parties affecting market conditions in Poland may also require a notification to the Anti-Monopoly Office. The Law on Public Trading in Securities, which came into force on January 4, 1998, provides for an amendment to the Anti- Monopoly Act to repeal the exemption from notification of transactions made on a stock exchange, but such law does not stipulate whether this is also applicable to stock exchanges outside Poland or only those within Poland. There can be no assurance that the Anti-Monopoly Office will approve any future acquisition by the Company. RISKS RELATED TO INVESTMENTS IN POLAND AND EMERGING MARKETS Political and Economic Environment; Enforcement of Foreign Judgments Poland has undergone significant political and economic change since 1989. Political, economic, social and other developments in Poland could in the future have a material adverse effect on the Company's business and operations. In particular, changes in laws or regulations (or in the interpretations of existing laws or regulations), whether caused by changes in the government of Poland or otherwise, could materially adversely affect the Company's business and operations. Currently there are no limitations on the repatriation of profits from Poland, but there can be no assurance that foreign exchange control restrictions, taxes or limitations will not be imposed or increased in the future with regard to repatriation of earnings and investments from Poland. If such exchange control restrictions, taxes or limitations are imposed, the ability of CEDC to receive dividends or other payments from Carey Agri could be reduced, which may have a material adverse effect on the Company. Due to the many formalities required for compliance with the laws in Poland applicable to the Company's business and operations, the rapid changes that Polish laws and regulations have undergone in the 1990s, and numerous uncertainties regarding the interpretation of such laws and regulations, the Company may from time to time have violated, may be violating and may in the future violate, the requirements of certain Polish laws, including provisions of labor, foreign exchange, customs, tax and corporate laws and regulatory approvals. The Company does not believe that any such violations will have a material adverse effect upon the Company's business, results of operations or financial condition, but there can be no assurance that such will be the case. Poland is generally considered by international investors to be an emerging market. There can be no assurance that political, economic, social and other developments in other emerging markets will not have an adverse effect on the market value and liquidity of the Common Stock. In general, investing in the securities of issuers with substantial operations in markets such as Poland involves a higher degree of risk than investing in the securities of issuers with substantial operations in the United States and other similar jurisdictions. 10 CEDC is organized under the laws of the State of Delaware. Although purchasers of the Common Stock will be able to effect service of process in the United States upon CEDC and may be able to effect service of process upon its directors, due to the fact that CEDC is primarily a holding company which holds all of the outstanding securities of Carey Agri, substantially all of the assets of the Company are located outside the United States. As a result, it may not be possible for investors to enforce against the Company's assets judgments of United States courts predicated upon the civil liability provisions of United States laws. CEDC has been advised by its counsel that there is doubt as to the enforceability in Poland, in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon the laws of the United States. In addition, awards of punitive damages in actions brought in the United States or elsewhere may not be enforceable in Poland. Inflation; Currency Risk Since the fall of Communist rule in 1989, Poland has experienced high levels of inflation and significant fluctuations in the exchange rate for the zloty. The Polish government has adopted policies that slowed the annual rate of inflation from approximately 250% in 1990 to approximately 27% in 1995, approximately 18% in 1996 and approximately 15% in 1997. In addition, the exchange rate for the zloty per U.S. Dollar has stabilized and the rate of devaluation of the zloty has generally decreased since 1991. While the zloty exchange rate per U.S. Dollar and rate of devaluation increased in 1997, both rates have again decreased in 1998. Inflation and currency exchange fluctuations have had, and may continue to have, an adverse effect on the financial condition and results of operations of the Company. Certain of the Company's operating expenses and capital expenditures are, and are expected to continue to be, denominated in or indexed to U.S. Dollars or other hard currencies. By contrast, substantially all of the Company's revenue is denominated in zloty. Any devaluation of the zloty against the U.S. Dollar that the Company is unable to offset through price adjustments will require the Company to use a larger portion of its revenue to service its U.S. Dollar-denominated obligations. While the Company may consider entering into transactions to hedge the risk of exchange rate fluctuations, it is unlikely that the Company will be able to obtain hedging arrangements on commercially satisfactory terms. Accordingly, shifts in currency exchange rates may have an adverse effect on the ability of the Company to service its U.S. Dollar denominated obligations and, thus, on the Company's financial condition and results of operations. RISKS RELATED TO THE OFFERING No Public Market for the Securities; Possible Volatility of Stock Price Prior to the Offering, there has not been any public market for any of the Company's securities. Although the Company intends to seek quotation of the Common Stock on the Nasdaq NMS, there can be no assurance that the Company will be successful in its efforts, and even if the Company is successful, there can be no assurance that an active trading market will develop or be sustained after the Offering. Subsequent to the Offering, the price for the Common Stock will be determined by the market and may be influenced by a number of factors, including the depth and liquidity of the market for the Common Stock, investor perception of the Company and other comparable companies and general economic and other conditions. Immediate and Substantial Dilution Purchasers of the Common Stock in the Offering will experience immediate and substantial dilution in net tangible book value per share of Common Stock and existing stockholders will receive a material increase in the tangible book value per share of their shares of Common Stock. Assuming an 11 initial public offering price of $8.50 per share of Common Stock (the midpoint of the range specified on the front cover of the Prospectus), the immediate dilution to new investors would be $4.11 per share. See "Dilution." Broad Discretion Over Use of Proceeds; Unspecified Acquisitions Because of the variability and number of factors that will determine the Company's use of proceeds from this Offering, the Company's management will retain a significant amount of discretion over the application of the net proceeds. Until the Company utilizes the net proceeds of the Offering, such funds will be invested in investment grade, interest-bearing securities. Although the Company currently has no agreements or understandings to enter into any potential business combination, it does intend to actively seek and investigate such opportunities as they become available. The Company may use a portion of the net proceeds from this Offering to finance such acquisitions. See "Use of Proceeds." Use of Proceeds to Benefit Insiders The Company intends to use net proceeds to prepay $1.8 million of outstanding bank financing (approximately $1.2 million as of December 31, 1997), of which approximately $0.2 million has been personally guaranteed by Messrs. Carey and Peterson, each of whom is an executive officer, director and principal stockholder of the Company. Upon repayment of such indebtedness, each of such persons will be released from such guarantees. See "Use of Proceeds." Shares Eligible for Future Sale Future sales of Common Stock by existing stockholders pursuant to Rule 144 ("Rule 144") under the Securities Act or otherwise could have an adverse effect on the price of the Common Stock. Upon completion of the Offering, the Company will have 4,280,000 shares of Common Stock outstanding, including 2,500,000 shares of Common Stock offered hereby (without giving effect to 375,000 shares of Common Stock which may be issued by the Company upon exercise of the Underwriters' over-allotment option). The securities offered hereby will be freely tradable without restriction or further registration under the Securities Act by persons other than "affiliates" of the Company within the meaning of Rule 144 promulgated under the Securities Act. In general, under Rule 144, a person (or persons whose shares are required to be aggregated) who has been deemed to have beneficially owned shares for at least one year, including an "affiliate", is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the then-outstanding number of shares of common stock or the average weekly trading volume in the shares of common stock during the four calendar weeks preceding the filing of the required notice of such sale. A person (or persons whose shares are required to be aggregated) who is not deemed to have been an affiliate of the Company during the three months preceding a sale, and who has beneficially owned shares within the definition of "restricted securities" under Rule 144 for at least two years is entitled to sell such shares under Rule 144(k) without regard to the volume limitation, manner of sale provisions, notice requirements or public information requirements of Rule 144. Affiliates continue to be subject to such limitations. The Company's directors, executive officers and existing stockholders own 1,780,000 shares of Common Stock, all of which will be eligible for sale under Rule 144 commencing 90 days after completion of the Offering. Such persons have agreed with Brean Murray that they will not, for a 24-month period after the completion of the Offering, without the prior written consent of Brean Murray, offer, sell, contract to sell, or otherwise dispose of, any shares of Common Stock or any securities convertible into, or exchangeable for, shares of Common Stock. 12 In connection with the Offering, the Representatives have been granted warrants to purchase 250,000 shares of Common Stock at a purchase price per share of 120% of the initial public offering price per share. In addition, the Company has 750,000 shares of Common Stock reserved for issuance under the Plan, under which options to purchase 82,500 shares have been granted. For the respective terms of such warrants and options, the holders thereof are given an opportunity to profit from a rise in the market price of the Common Stock with a resulting dilution in the interests of other stockholders. Further, holders of such warrants and options are likely to exercise them when, in all likelihood, the Company could obtain additional capital on terms more favorable than those provided by the warrants and options. While these warrants and options are outstanding, the Company's ability to obtain additional financing on favorable terms may be adversely affected. See "Management--Compensation Plans--1997 Stock Incentive Plan," "Description of Capital Stock" and "Underwriting." THE REORGANIZATION Before the Offering, all the holders of the shares of Carey Agri's common stock and CEDC entered into a contribution agreement dated as of November 28, 1997 (the "Contribution Agreement"). Pursuant to the Contribution Agreement, the holders of shares of Carey Agri's common stock transferred all their shares of Carey Agri common stock to CEDC receiving an aggregate of 1,780,000 shares of Common Stock in return (the "Share Exchange"). This transfer was designed to qualify as a tax-free exchange under section 351 of the Internal Revenue Code of 1986, as amended (the "Code"). As a result of the Share Exchange, Carey Agri became a wholly owned subsidiary of CEDC. The Share Exchange and the resulting corporate structure in which Carey Agri became a wholly owned subsidiary of CEDC is referred to herein as the "Reorganization." 13 USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,500,000 shares of Common Stock offered hereby, after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company, are estimated to be approximately $18.5 million ($21.4 million if the Underwriters' overallotment option is exercised in full), based on an assumed initial public offering price of $8.50 per share of Common Stock (the midpoint of the range specified on the cover page of this Prospectus). The Company intends to use the net proceeds from this Offering to (i) construct an office and warehouse facility; (ii) purchase equipment (vehicles and computer upgrades); (iii) retire $1.8 million principal amount of bank financing expected to be outstanding on the date of this Prospectus; and (iv) for working capital and general corporate purposes. Although the Company currently has no agreements or understandings to enter any potential business combination, it does intend to actively seek and investigate such opportunities as they become available. Because of the variability and number of factors that will determine the Company's use of proceeds from this Offering, the Company's management will retain a significant amount of discretion over the application of the net proceeds. Pending such uses, the net proceeds will be invested in investment grade, interest-bearing securities. The foregoing represents the Company's best estimate of the allocation of the net proceeds of the Offering based on the current status of its business. Future events, including changes in competitive conditions, the ability of the Company to identify appropriate acquisition candidates, the availability of other financing and funds generated from operations and the status of the Company's business from time to time, may make changes in the allocation of the net proceeds of this Offering necessary or desirable. DIVIDEND POLICY Neither CEDC nor Carey Agri has ever declared or paid any dividends on its capital stock. CEDC does not anticipate paying dividends in the foreseeable future. Future dividends, if any, will be subject to the discretion of CEDC's Board of Directors and will depend upon, among other things, the results of CEDC's operations, CEDC's capital requirements, surplus, general financial condition and contractual restrictions and such other factors as the Board of Directors may deem relevant. In addition, CEDC is a holding company with no business operations of its own. Therefore, the ability of CEDC to pay dividends will be dependent upon either the cash flows and earnings of Carey Agri or the payments of funds by that subsidiary to CEDC. As a Polish limited liability company, Carey Agri is permitted to declare dividends only once a year from its retained earnings, computed under Polish Accounting Regulations after the audited financial statements for that year have been provided to and approved by shareholders and filed with a court. As of December 31, 1997, Carey Agri had available $335,000 which could be declared in dividends. 14 DILUTION The net tangible book value of the Company as of December 31, 1997 was $334,000 or $0.19 per share of Common Stock. Net tangible book value per share represents the amount of total tangible assets of the Company, less total liabilities, divided by the number of shares of Common Stock outstanding. After giving effect to the sale by the Company of 2,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $8.50 per share (the midpoint of the range specified on the cover page of the Prospectus) and the application of the estimated net proceeds therefrom as set forth under "Use of Proceeds," the net tangible book value of the Company as of December 31, 1997 would have been approximately $18.8 million, or $4.39 per share of Common Stock. This represents an immediate increase in net tangible book value of $4.20 per share to existing stockholders and an immediate dilution of $4.11 per share to new investors purchasing Common Stock in this Offering. The following table illustrates this per share dilution: Assumed initial public offering price per share ................. $8.50 Net tangible book value per share at December 31, 1997......... $0.19 Increase per share attributable to new investors............... 4.20 ----- Net tangible book value per share after the Offering............. 4.39 ----- Dilution per share to new investors.............................. $4.11 =====
The following table summarizes, as of December 31, 1997, the difference between existing stockholders and new investors with respect to the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company and the average price paid per share of Common Stock, assuming that the initial public offering price is $8.50 per share (the midpoint of the range specified on the cover page of the Prospectus).
SHARES PURCHASED TOTAL CONSIDERATION ----------------------- ---------------------- AVERAGE PRICE NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE --------- ---------- ----------- ---------- ------------- Existing Stockholders... 1,780,000 42% $ 334,000 1.5% $0.19 New Investors........... 2,500,000 58 21,250,000 98.5 8.50 --------- --- ----------- ---- Total.................. 4,280,000(1) 100% $21,584,000 100% ========= === =========== ====
- -------- (1) Excludes (i) 375,000 shares of Common Stock that the Underwriters have the option to purchase from the Company to cover over-allotments, if any; (ii) 250,000 shares of Common Stock issuable upon the exercise of the Representatives' Warrants; and (iii) 750,000 shares of Common Stock reserved for issuance under the Plan, under which options to purchase 82,500 shares have been granted and are outstanding. See "Management-- Compensation Plans--1997 Stock Incentive Plan" and "Underwriting." 15 EXCHANGE RATE DATA In this Prospectus, references to "U.S. Dollars" or "$" are to the lawful currency of the United States, and references to "zloty" or "PLN" are to the lawful currency of the Republic of Poland. The Company prepares its consolidated financial statements in accordance with U.S. GAAP in U.S. Dollars. Amounts originally measured in zloty for all periods presented have been translated into U.S. Dollars in accordance with the methodology set forth in Statement of Financial Accounting Standards No. 52 ("SFAS No. 52"), including provisions applicable to companies operating in hyper-inflationary countries. For the convenience of the reader, this Prospectus contains conversion of certain zloty amounts into U.S. Dollars which should not be construed as a representation that such zloty amounts actually represent such U.S. Dollars amounts or could be, or could have been, converted into U.S. Dollars at the rates indicated or at any other rate. Unless otherwise stated, such U.S. Dollar amounts have been derived by converting from zloty to U.S. Dollars at historic rates of exchange for the applicable periods. Based on inflation data from the International Monetary Fund, Poland is no longer considered a hyper-inflationary economy. Therefore, the Company ceased accounting for its Polish activities using provisions applicable to hyper- inflationary economies on January 1, 1998. The following table sets forth, for the periods indicated, the noon exchange rate (expressed in current zloty) quoted by the National Bank of Poland. Such rates are set forth as zloty per U.S. Dollar. At April 10, 1998, such rate was PLN 3.42 = $1.00.
YEAR ENDED DECEMBER 31, ------------------------ 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Exchange rate at end of period......................... 2.13 2.44 2.47 2.88 3.53 Average exchange rate during period (1)................ 1.81 2.27 2.42 2.70 3.28 Highest exchange rate during period.................... 2.13 2.45 2.54 2.88 3.56 Lowest exchange rate during period..................... 1.58 2.13 2.32 2.47 2.86
- -------- (1) The average of the exchange rates on the last day of each month during the applicable period. 16 CAPITALIZATION The following table sets forth, as of December 31,1997, the actual capitalization of the Company and the capitalization as adjusted to give effect to the sale of the 2,500,000 shares of Common Stock offered hereby by the Company at an assumed initial public offering price of $8.50 (the midpoint of the range specified on the cover page of the Prospectus) and the application of the net proceeds therefrom. This table should be read in conjunction with the consolidated financial statements of the Company, the notes thereto and the other financial data included elsewhere in this Prospectus.
DECEMBER 31, 1997 ------------------ AS ACTUAL ADJUSTED(1) ------ ----------- (IN THOUSANDS) Long-term debt, less current maturities..................... $ 35 $ 0 ----- ------- Capital lease obligations, less current portion............. 12 12 ----- ------- Stockholders' equity: Preferred Stock, $.01 par value, 1,000,000 shares autho- rized; no shares issued and outstanding.................. -- -- Common Stock, $.01 par value; 20,000,000 shares autho- rized; issued and outstanding, 1,780,000 shares at Decem- ber 31, 1997(4,280,000 shares, as adjusted)(1)........... 18 43 Additional paid-in-capital.................................. 36 18,466 Retained earnings........................................... 280 280 ----- ------- Total stockholders' equity.............................. 334 18,789 ----- ------- Total capitalization.................................... $ 381 $18,801 ===== =======
- -------- (1) Excludes (i) 375,000 shares of Common Stock that the Underwriters have the option to purchase from the Company to cover over-allotments, if any; (ii) 250,000 shares of Common Stock issuable upon the exercise of the Representatives' Warrants; and (iii) 750,000 shares of Common Stock reserved for issuance under the Plan, under which options to purchase 82,500 shares have been granted and are outstanding. See "Management-- Compensation Plans--1997 Stock Incentive Plan" and "Underwriting." 17 SELECTED CONSOLIDATED FINANCIAL DATA The following tables set forth selected consolidated financial data of the Company as of and for each of the five fiscal years in the period ended December 31, 1997. The income statement data for the years ended December 31, 1995, 1996 and 1997 and the balance sheet data as of December 31, 1995, 1996 and 1997 have been derived from the Company's consolidated financial statements, which were audited by Ernst & Young Audit Sp. z o.o., independent auditors. The income statement data for the years ended December 31, 1993 and 1994, and the balance sheet data as of December 31, 1993 and 1994, are unaudited, but include, in the opinion of management, all adjustments considered necessary for a fair presentation of such data. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto included elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, --------------------------------------------------- 1993 1994 1995 1996 1997 ------------ ------------ ------- ------- ------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) INCOME STATEMENT DATA: Net sales................. $4,313 $6,788 $16,017 $23,942 $40,189 Cost of goods sold........ 3,157 5,480 13,113 19,850 34,859 ------ ------ ------- ------- ------- Gross profit.............. 1,156 1,308 2,904 4,092 5,330 Sales, general and administrative expenses.. 1,559 1,356 2,603 3,569 4,198 ------ ------ ------- ------- ------- Operating income (loss)... (403) (48) 301 523 1,132 Non-operating income (expense) Interest expense........ (69) (50) (106) (124) (172) Realized and unrealized foreign currency transaction gains and losses, net............ (372) (118) (84) (232) (326) Other income (expense), net.................... (13) (147) 84 6 15 ------ ------ ------- ------- ------- Income (loss) before income taxes............. (857) (363) 195 173 649 Income (taxes) credit..... 74 32 (120) (111) (341) ------ ------ ------- ------- ------- Net income (loss)......... (783) (331) $ 75 $ 62 $ 308 ====== ====== ======= ======= ======= Net income (loss) per common share, basic and dilutive(1).............. $(0.44) $(0.19) $ 0.04 $ 0.03 $ 0.17 ====== ====== ======= ======= ======= Average number of outstanding shares of Common Stock(1).......... 1,780 1,780 1,780 1,780 1,780 DECEMBER 31, --------------------------------------------------- 1993 1994 1995 1996 1997 ------------ ------------ ------- ------- ------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) BALANCE SHEET DATA: Cash...................... $ 50 $ 251 $ 595 $ 740 $ 1,053 Current assets............ 1,325 1,582 3,146 6,889 11,641 Total assets.............. 1,430 1,692 3,264 7,335 12,530 Current liabilities....... 1,210 1,803 3,119 7,006 12,149 Long-term debt and capital lease obligations, less current portion.......... 0 0 180 303 47 Stockholders' equity (deficit)................ 220 (111) (36) 26 334 Stockholders' equity (deficit) per common share (1)................ 0.12 (0.06) (0.02) 0.01 0.19
- -------- (1) Gives effect to the 1,780,000 shares of Common Stock issued in the Reorganization. See "The Reorganization." 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and the notes thereto appearing elsewhere in this Prospectus. OVERVIEW The Company's operating results are generally determined by the volume of alcoholic beverages that can be sold by the Company through its national distribution system, the gross profits on such sales and control of costs. The Company purchases the alcoholic beverages it distributes from producers as well as other importers and wholesalers. Almost all such purchases are made with the sellers providing a period of time, generally between 25 and 90 days, before the purchase price is to be paid by the Company. The Company sells the alcoholic beverages with a mark-up over its purchase price, which mark up reflects the market price for such individual product brands in the Polish market. The Company's bad debt ratio provision as a percentage of sales was 0.21% of net sales in 1995, 0.08% in 1996 and 0.12% in 1997. The following comments regarding variations in operating results should be read considering the rates of inflation in Poland during the period--1995, 21.6%; 1996, 18.5%; and 1997, 14.9%--as well as the devaluation of the Polish zloty compared to the U.S. Dollar, which was 1.2%, 16.6%, and 22.6% in 1995, 1996 and 1997, respectively. RESULTS OF OPERATIONS Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Net sales increased $16.25 million, or 67.9%, from $23.94 million in 1996 to $40.19 million in 1997. This increase is mainly due to the continued increase in sales of vodka produced in Poland, the addition of Seagrams and Allied Domecq products in January 1997, and increased market penetration by the existing distribution system resulting in new clients. Costs of goods sold increased $15.01 million, or 75.6%, from $19.85 million in 1996 to $34.86 million in 1997. This increase is mainly due to the increase in net sales noted above. As a percentage of net sales, cost of goods sold increased from 82.9% in 1996 to 86.7% in 1997. The higher cost factor results from increases in sales of domestically produced vodka, which has a lower gross profit margin than the imported brands the Company distributes. Sales, general and administrative expenses increased $629,000, or 17.6%, from $3.57 million in 1996 to $4.20 million in 1997. This increase is mainly due to the increase in net sales discussed above. As a percentage of sales, sales, general, and administrative expenses decreased from 14.9% in 1996 to 10.4% in 1997. Increased sales levels result, to some extent, in improved utilization of personnel and capacity without a corresponding increase in sales, general and administrative expense. Interest expense increased $48,000, or 38.7%, from $124,000 in 1996 to $172,000 in 1997. This increase reflects the effects of additional short-term credit lines utilized to support the sales volume increases. As a percentage of sales, interest expense decreased from 0.5% in 1996 to 0.4% in 1997. Net realized and unrealized foreign currency transaction losses increased $94,000, or 40.5%, from $232,000 in 1996 to $326,000 in 1997. The increase was mainly due to the weakness of the zloty, in which a substantial portion of the Company's assets are denominated, versus the U.S. Dollar. As a percentage of sales, realized and unrealized foreign currency transaction losses decreased from 1.0% in 1996 to 0.8% in 1997. 19 Income tax expense increased $230,000, or 207.2%, from $111,000 in 1996 to $341,000 in 1997. This increase is mainly due to the increase in income before income taxes from $173,000 in 1996 to $649,000 in 1997. The effective tax rate was 64.2% in 1996 and 52.5% in 1997. Permanent differences (for items such as non-deductible interest, taxes, and depreciation) between financial and taxable income normally make up a considerably lower percentage of income before income taxes when income before income taxes is higher, as it was in 1997. For this reason, the effective tax rate is significantly lower in 1997. See notes to the consolidated financial statements for further information on income taxes. Net income increased $246,000, or 396.8%, from $62,000 in 1996 to $308,000 in 1997. This increase is due to the factors noted above. Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Net sales increased $7.92 million, or 49.5%, from $16.02 million in 1995 to $23.94 million in 1996. This increase is due to several factors including increasing the portfolio of imported brands offered to existing customers; opening the eighth branch office in Poznan, thereby gaining a new distribution territory from March 1996; introducing domestically produced vodka into the Warsaw, Krakow and Szczecin offices in October 1996; and further penetration of local markets by the existing distribution network which resulted in an approximately 30% increase of the Company's customer base. Costs of goods sold increased $6.74 million, or 51.4%, from $13.11 million in 1995 to $19.85 million in 1996. This increase is mainly due to the increasing net sales noted above. As a percentage of net sales, costs of goods sold increased from 81.9% in 1995 to 82.9% in 1996. This small increase is mainly due to the introduction of Polish vodka in late 1996 which sells at a lower gross margin than the Company's imported alcohol products. Sales, general and administrative expense increased 37.1% from $2.60 million in 1995 to $3.57 million in 1996. This increase was mainly due to an increase in sales which required additional marketing campaigns, the hiring and training of additional staff, increased transport capability and the restructuring of the office and warehouse facilities in Warsaw to provide additional room to support the expansion of sales. As a percentage of net sales, sales, general and administrative expenses decreased from 16.3% in 1995 to 14.9% in 1996. Interest expense increased $18,000, or 17.0%, from $106,000 in 1995 to $124,000 in 1996. This increase is mainly due to additional short-term credits taken to support the sales growth noted above. As a percentage of sales, interest expense decreased from 0.7% in 1995 to 0.5% in 1996. Net realized and unrealized foreign currency transaction losses increased $148,000, or 176.2%, from $84,000 in 1995 to $232,000 in 1996. This increase was mainly due to the weakness of the zloty, in which a substantial portion of the Company's assets are denominated, versus the U.S. Dollar. In 1996, the zloty depreciated 16.6% versus 1995 when it depreciated only 1.2%. This factor resulted in higher losses. As a percentage of sales, realized and unrealized foreign currency transaction losses increased from 0.5% in 1995 to 1.0% in 1996. Other income decreased $78,000, or 92.9%, from $84,000 in 1995 to $6,000 in 1996. This decrease is mainly due to a decrease in sales of fixed assets. Income taxes decreased $9,000, or 7.5%, from $120,000 in 1995 to $111,000 in 1996. This decrease is mainly due to the decrease in income before income taxes from $195,000 in 1995 to $173,000 in 1996. The effective tax rate was 61.5% in 1995 and 64.2% in 1996. See the notes to the consolidated financial statements for further information on income taxes. Net income decreased $13,000, or 17.3%, from $75,000 in 1995 to $62,000 in 1996. This decrease is a result of the factors discussed above. 20 LIQUIDITY AND CAPITAL RESOURCES The Company has historically financed its operations and capital expenditures primarily through cash flow from operations, bank borrowings and other short-term credit facilities. Cash increased $344,000 in 1995 compared to an increase of $145,000 in 1996 and an increase of $313,000 in 1997. Cash flow from operations was $(81,000) in 1995 compared to $32,000 in 1996 and $753,000 for 1997. Operating cash requirements are supplemented primarily by short-term borrowings. See the consolidated statements of cash flows for a summary of cash movements. Bank borrowings totaled approximately $1.2 million on December 31, 1997 and are expected to increase to approximately $1.8 million at the time of the Offering, which amounts are expected to be repaid in their entirety from the net proceeds of this Offering. See "Use of Proceeds." The Company's borrowing arrangements contain financial covenants and restrictions which are customarily found in similar arrangements and with which the Company has substantially complied or which have been waived by the lenders. The Company has historically utilized leasing to maintain and increase its fleet of vehicles, including cars for salesman and delivery trucks. The Company intends to utilize approximately $1,200,000 of the net proceeds from the Offering to purchase vehicles as the leases expire and acquire new vehicles as needed for the Company's expansion. Currently, leases extend through 1999. The initial value of equipment currently under capital and operating leases is approximately $900,000. These leases in zloty normally have an annual interest factor built into the lease payments of 35-50%. This form of financing is much more expensive in Poland than traditional bank financing in zloty which normally costs the Company approximately 25-30% annually. By utilizing the portion of the proceeds discussed above to purchase vehicles, the Company's management expects to achieve significant savings in future interest and operating costs, as compared to continuing the leasing of such vehicles. The Company anticipates that the estimated net proceeds of the Offering, the interest earned on the unutilized proceeds of the Offering, together with its existing capital resources and anticipated cash flow from planned operations will be adequate to satisfy its anticipated capital and other requirements, including possible acquisitions for two to three years, depending on the rate of acquisitions. There can be no assurance, however, that the Company will sustain profitability or generate sufficient revenues for its future operations, including possible acquisitions, and it is possible that the Company may seek additional equity or debt financing in the future. INFLATION AND CURRENCY EXCHANGE FLUCTUATIONS Since the fall of Communist rule in 1989, Poland has experienced high levels of inflation and significant fluctuation in the exchange rate for the zloty. The Polish government has adopted policies that slowed the annual rate of inflation from approximately 250% in 1990 to approximately 15% in 1997. In addition, the exchange rate for the zloty per U.S. Dollar has stabilized and the rate of devaluation of the zloty has generally decreased since 1991. While the zloty exchange rate per U.S. Dollar and the rate of devaluation increased in 1997, both rates have again decreased in 1998. Inflation and currency exchange fluctuations have had, and may continue to have, an adverse effect on the financial condition and results of operations of the Company. The exchange rate of the zloty to the U.S. Dollar is tied by the National Bank of Poland to a basket of currencies. Due to the depreciation of the zloty against the U.S. Dollar in 1995, 1996 and 1997, the Company incurred realized and unrealized foreign exchange losses. The Polish currency futures market is not yet fully developed, and the Company does not have a reasonable and cost efficient way to adequately hedge its currency exposure, but may do so in the future when it becomes feasible. 21 SEASONALITY Gross profits are affected by seasonal and competitive factors. Sales, general and administrative costs are semi-variable in nature as sales and distribution expenses are not directly impacted by all volume increases. Short-term credits are arranged on a seasonal basis, historically in the summer vacation season and the Christmas holiday season in order to accomodate increased sales during these periods. YEAR 2000 COMPLIANCE The Company does not expect the cost of converting its computer systems to year 2000 compliance will be material to its financial condition or results of operations. The Company believes that it will be able to achieve year 2000 compliance by the end of 1999, and does not currently anticipate any disruption in its operations as the result of any failure by the Company to be in compliance. The Company does not currently have any information concerning the year 2000 compliance status of its suppliers and customers. 22 BUSINESS The Company, formed in 1990, is a leading importer and distributor of alcoholic beverages in Poland. The Company operates the largest nationwide next-day alcoholic beverage delivery service in Poland through its eight regional branch offices located in Poland's principal cities, including Warsaw, Krakow, Gdansk and Katowice. The Company currently distributes approximately 300 products in three categories: beer, spirits and wine. The Company imports and distributes eight international beers, including Guinness, Corona, Miller and Foster's. The Company currently distributes approximately 250 spirit products, including leading international brands of scotch, single malt and other whiskeys, rum, bourbon, vodkas, tequila, gins, brandy, cognacs, vermouths and specialty spirits, such as Jim Beam, Johnnie Walker, Ballantines, Smirnoff, Absolut, Finlandia, Bacardi, Gordon's London Dry and Tanqueray. In addition, the Company imports and distributes 45 wine products, including Sutter Home, Romanian Classics, Cinzano Asti, Martini Asti and Moet & Chandon. In addition to its distribution agreements with various alcoholic beverage suppliers, the Company is currently the only holder of the license needed to import cigars into Poland. The Company's net sales for 1997 were approximately $40.2 million, as compared to $23.9 million for 1996, representing an increase of 68%. The Company distributes its products throughout Poland to approximately 3,000 outlets, including off-trade establishments, such as small businesses and multi-store retail outlets where alcoholic beverages are not consumed on premises, and on-trade locations, such as bars, nightclubs, hotels and restaurants, where such products are consumed. The Company believes that it will be able to utilize its distribution network to distribute additional complementary consumer products throughout Poland. BUSINESS STRATEGY The principal components of the Company's business strategy are as follows: EXPAND DISTRIBUTION CAPACITY. The Company plans to increase its distribution capacity by expanding the number of its branch offices in Poland through the acquisition of existing wholesalers, particularly in areas where the Company does not distribute directly. Cities currently under consideration by the Company are Lublin (June 30, 1997 population--approximately 356,000), Lodz (June 30, 1997 population--approximately 815,000) and Bialystok (June 30, 1997 population--approximately 281,000). The Company will seek to acquire successful wholesalers which are primarily involved in the vodka distribution business and are among the leading wholesalers in their region. The Company would then add its higher margin imported brands to complement and enhance the existing product portfolio. While the Company has identified potential wholesalers and has conducted exploratory talks about such acquisitions, it has not reached any definitive agreements regarding the terms and conditions of any such acquisition, including the purchase price to be paid to the sellers, and such acquisitions may not be available to the Company on acceptable terms, if at all. In such case, the Company would seek to enter these markets with its own branch offices. INCREASE PRODUCT OFFERINGS. The Company plans to expand its strategic product offerings in Poland through the acquisition of a high quality wine importer which offers a wide selection of specialty wines and by entering into new supplier agreements to import additional products. The Company is in exploratory talks with such a wine importer, but no definitive agreement has been reached. The Company began importing Bulgarian red and white varietal wines in October 1997. The Company is also in exploratory talks to import additional spirit brands. ENTER RETAIL MARKET. The Company has implemented its retail business strategy in Warsaw, where one location has been leased, remodeled and opened for business in February 1998. The Company believes that specialty retail sales of alcoholic beverages in Poland have yet to be developed. Currently alcoholic beverages are sold through grocery stores, supermarkets, small shops and gas stations. These retail outlets sell, in general, fast moving items, primarily domestic beer and 23 vodka, as well as a small number of the more popular selling imported products, which are brands often imported by the Company. There are few stores that specialize in alcoholic beverages in Warsaw, a metropolitan area with a population of approximately 2.4 million. The Company also believes that high quality alcohol retail outlets will create an additional demand for the its current product portfolio, enhancing sales of products distributed, as well as providing a point of sale marketing opportunity for the Company's brands. The retail stores will stock additional products not currently distributed by the Company to complement the stores' appeal, such as cigars and other items associated with an alcohol retail outlet. The Company intends to utilize the retail outlets as a training tool for its salesmen for product merchandising and promotions. An additional benefit allows the Company's on-trade customers to have a supply point for immediate purchase at night and on Sundays when the Company's delivery system does not operate. HISTORY CEDC's subsidiary Carey Agri was incorporated as a limited liability company in July 1990 in Poland. It was founded by William O. Carey, who died in early 1997, and Jeffrey Peterson, the Company's Vice Chairman and Executive Vice President. Mr. Carey's son, William V. Carey, is the managing director of Carey Agri and the President and Chief Executive Officer of CEDC. In February 1991, Carey Agri was granted its first import license for Foster's Lager, which it sold to wholesalers. With this beverage, Carey Agri sought to offer a desirable product for which it had an exclusive import license to the market segment of the Polish population who were benefiting from the country's market transformation. Because of Carey Agri's initial success with Foster's Lager, for which it still holds the exclusive import license for Poland, it quickly diversified in 1992 by importing other quality brand beers from Europe and the United States. Sales during this period were typically in high volume consignments to other wholesalers. In 1993, with the acceleration of the privatization of retail outlets in Poland, Carey Agri began to implement a systematic delivery system in Warsaw which could deliver alcoholic beverages to retail outlets on a reliable basis. Carey Agri leased a warehouse, purchased trucks and hired and trained operational personnel and began to sell directly to convenience shops, small grocery stores and newly opened pubs. Because of this business experience, Carey Agri was prepared to take advantage of the opportunity to expand its import and delivery capacity in Warsaw when a large, foreign-owned supermarket chain began operations in 1993, creating a significant increase in the demand for the Company's product line. The Warsaw model of desirable product lines and dependable prompt delivery of product was duplicated by the Company in Krakow (1993), Wroclaw (1994), Szczecin (1994), Gdansk (1994), Katowice (1995), Torun (1995) and Poznan (1996). PRODUCT LINE The Company currently offers over 300 alcoholic beverages in three categories: (a) beer; (b) spirits; and (c) wine. Its eight brands of imported beer accounted for 22.5%, 22.1% and 16.5%, respectively, of net sales during the years ended December 31, 1995, 1996 and 1997. Brands of imported spirits and wines it distributed accounted for 26.7% and 12.4%, respectively, of net sales revenues for the year ended December 31, 1995, 39.1% and 13.0%, respectively, of net sales revenues for the year ended December 31, 1996 and 24.1% and 7.5%, respectively, for the year ended December 31, 1997. Additionally, the Company offered one brand of Polish beer and multiple brands of Polish vodka, which accounted for 24.8% and 13.6%, respectively, of net sales revenues during the year ended December 31, 1995, 12.8% and 13.0%, respectively, of net sales revenues during the year ended December 31, 1996 and 5.2% and 46.7% for the year ended December 31, 1997. The Company ceased distribution of one brand of Polish beer at the end of 1997. The Company has agreements, as described below, with many of the companies from which it acquires products for sale. Certain products, however, have never been covered by a written 24 agreement. The Company does not believe that the absence of such written agreements is likely to result in an adverse financial effect on the Company because the Company has long-standing relationships with such suppliers. Beer The Company distributes imported beer through each of its regional offices. Guinness, Budweiser Budvar, Corona, Foster's Lager, Kilkenny, Pilsner Urquell and Golden Pheasant are sold throughout Poland on an exclusive basis. The Company does not have a written supply agreement for Miller Genuine Draft. Most of the Company's distribution contracts for beer contain a minimum purchase requirement and typically permit termination if the Company breaches its agreements, such as failure to pay within a certain time period or to properly store and transport the product. Trade credit is extended to the Company for a period of time after delivery of products. The duration of these agreements differ. While the sale of Guinness Stout and Budweiser Budvar each accounted for over five percent of net sales for the years ended December 31, 1995 and 1996, no imported beers accounted for five percent or more of net sales for the year ended December 31, 1997. The current agreement regarding distribution of Guinness Stout, which was entered into on November 17, 1997, has an initial term through December 31, 1998. After such date the agreement, in relevant part, may be terminated by either party on 60 days prior written notice. Pursuant to this agreement, the Company is the exclusive distributor of products subject to the agreement unless the Company is unable to satisfy customer demand and except for products sold directly by Guinness affiliates. The exclusive agreement covering Budweiser Budvar expires on December 31, 1999. Spirits The Company distributes all its imported spirit products through each of its offices, mostly on a nonexclusive basis. The spirit products sold by the Company include the following: Scotch Whisky: Johnnie Walker, Black, Blue, Black & White Gold and Red Labels Bell's The Dimple Haig Chivas Regal VAT 69 Ballantines Finest Teacher's Highland Cream Ballantines Gold Seal Old Smuggler J&B Rare Whyte and McKay White Horse Single Malt Whisky: Dalmore Bruichladdich Cragganmore Glenkinchie Dalwhinne Oban Lagavulan Talisker Isle of Jura Cardhu Rum: Bacardi Light, Gold and Black Ron Rico, White and Gold Captain Morgan Malibu Other Whiskey: Blenders Pride Crown Royal Seven Crown Black Velvet Canadian Mist Bourbon: Jack Daniel's Tennessee Whiskey Forester Early Times Jim Beam
25 Vodkas: Smirnoff Absolut Blue Citron and Kurant Finlandia Tanqueray Polish Vodkas Tequila: Jose Cuervo Pepe Lopez Gins: Gordon's London Dry Beefeater Tanqueray Brandy: Metaxa Sandeman Capa Negra Raynal Stock Cognacs: Hennessy Courvoisier Martell Vermouths: Stock Blanco, Rosa and Cinzano Blanco, Rosso, Rose, Extra Dry Martini Bianco, Extra Dry, Americano, Orancio Rosso, Rose, Extra Dry Specialty Spirits: Bailey's Irish Cream Carolan's Irish Cream Kahlua Coffee Liqueur Grand Marnier Creme de Grand Marnier Pimm's Cup Jagermeister Archer's Campari Bitter Southern Comfort Mandarine Napolean
Effective January 1, 1998, the Company was appointed the exclusive dealer in Poland for JBB (Greater Europe) PLC products, which include Whyte and McKay Scotch Whisky, Dalmore, Isle of Jura and Bruichladdich Single Malt Whisky, Ron Rico and Malibu Rum and Jim Beam Bourbon. While JBB (Greater Europe) PLC has reserved the right to appoint other dealers and to distribute its products directly, the Company is currently the only distributor of these alcoholic beverages in Poland. Under another agreement, the Company is the sole distributor of Mandarine Napolean in Poland. Only the Company's sales of Polish vodka and alcohol beverages distributed for United Distillers and United Drinks and Vintners exceeded five percent of the Company's net sales for the year ended December 31, 1997. The Company's non-exclusive contract with United Distillers currently covers the products which United Distillers itself imports into Poland, including Finlandia and Johnnie Walker. The contract with United Distillers became effective on January 1, 1995 for an unspecified period. Each party, however, has a right to terminate it with 90 days' prior written notice. The contract imposes on the Company certain obligations, which if it fails to satisfy could lead to the contract's immediate termination, provided the Company did not cure the breach within a period specified by United Distillers. There are also sales goals and marketing plans to be met by the Company. The Company's agreements with various of the state-owned Polish vodka producers may be terminated by either party without cause on one month's prior written notice. Products are delivered based on the Company's standard order forms. The Company's non-exclusive contract with UDV Poland Sp. z o.o., a Polish limited liability company ("UDV"), currently covers the products which UDV itself imports into Poland, including Smirnoff and Bailey's Irish Cream. The contract with UDV became effective on July 3, 1997 and, as amended, terminates on December 31, 1998. Each party, however, has a right to terminate it with one month's prior written notice. The Company agreed also to maintain sufficient stock of UDV's products to satisfy the client's demand and to deliver to UDV reports on the sale of UDV's products. There are also marketing goals to be met by the Company. 26 Wine The Company offers two brands of wine on an exclusive basis: the Sutter Home Wines from the United States and Romanian Classic Wines from Romania. These wines, which include standard red and white varietals, are offered through all of the Company's branches. The Company also offers on a non-exclusive basis the following sparkling wines and champagnes: Cinzano Asti, Gran Cinzano, Gran Festa, Martini Asti, Martini Brut, Moet & Chandon Dom Perignon, Brut Imperial and Mumm Cordon Rouge. Only the Company's sales of Romanian wines exceeded five percent or more of net sales for the year ended December 31, 1997. The Company's current distribution agreement for Romanian bottled wines is for a term ending December 31, 1998. SALES AND MARKETING As an early entrant in the post-Communist market in Poland, the Company has over six years of experience in introducing, developing and refining marketing, sales and customer service practices in the diverse and rapidly developing Polish economy, which it believes is a competitive advantage in the alcoholic beverage distribution business. The Company employs approximately 50 salesmen who are assigned to one of its eight regional offices. Each regional office has a sales manager, who may also be the branch manager, who meets with the salesmen of that office on a daily basis to review products and payments before the salesmen begin calling on customers. The sales force at each office is typically divided into three categories: (a) vodka accounts; (b) import accounts; and (c) key accounts. Salesmen, who are paid on commission, return to the office later in the day to process orders so that products can be dispatched the next morning. DISTRIBUTION SYSTEM The Company's headquarters are located in Warsaw, the capital of Poland, in and around which, as of June 30, 1997, 2.4 million people or 6.1% of the country's population, lived. Sales and service offices are presently located in seven major regional centers in central, north, south and western Poland where, as of the same date, another 8.3 million, or 21.3% of the population, lived. The branch sales and service centers deliver to surrounding cities covering an additional 6.0 million people or an additional 15.4% of the population. Thus, the Company reached 42.8% of Poland's population through direct sales and distribution as of June 30, 1997. Other areas in Poland are served through arrangements with wholesalers. See "--Business Strategy." CEDC'S BRANCH NETWORK SYSTEM [ MAP OF CEDC'S BRANCH NETWORK APPEARS HERE ] 27 The Company has developed its own centrally controlled, national next-day distribution system for its alcoholic beverages. The Company believes that it is the only privately owned business which currently has this capability in Poland. For imported products, the distribution network begins with a central bonded warehouse in Warsaw. Products can remain in this warehouse without customs and other duties being paid until the product is actually needed for sale. At such point, the product is transferred to the Company's consolidation warehouse at the same location or shipped directly to one of the regional office warehouses connected to each of the Company's sales locations outside of Warsaw. Based on current sales and projections, the branch offices are provided with deliveries on a weekly or bi-weekly basis so that they are able to respond to their customers' needs on a next-day basis. For products which the Company delivers for others who themselves import the products into Poland, the distribution chain begins at the Company's consolidation warehouse in Warsaw. From there, the product is delivered to customers using the same procedures as described above. Except at peak periods during the summer holidays and other similar times such as Christmas, all deliveries are made by Company-trained employees using Company-owned or leased vehicles. During such busy periods, the Company relies on independent contractors, which are usually small family-run businesses with which the Company has had relationships for several years. Customs and Consolidation Warehouses The Customs and Consolidation Warehouses are a 2,815 square meter leased facility located near Warsaw. The leases are long term and the monthly rental, denominated in Polish currency, was approximately $12,200 per month as of December 31, 1997. Proposed Warehouse/Office Facility The Company intends to use part of the proceeds of the Offering to construct a facility which will combine the current Warsaw warehouses and the Company's Warsaw headquarters. These two structures are currently 15 miles apart. The new facility is expected to be available in approximately two years, at which time the existing leases for office and warehouse space will have terminated or can be sublet with the consent of the lessor. Regional Sales Offices and Warehouses The Company also has entered into leases for each of its seven regional sales offices and warehouses. The amount of office and warehouse space leased varies between 278 square meters in Katowice up to 880 square meters in Szczecin. The monthly lease payments, which are denominated in Polish currency, vary between approximately $570 and $2,750. Five of the leases can be terminated by either party on three-month's prior notice; one can be terminated by either party on two-month's prior notice; the other lease terminates on December 31, 1998. Retail Outlet The Company has entered into a lease dated August 21, 1997 for its Warsaw retail outlet. The lease is for an indefinite term and can be terminated by either party on three months' prior notice. The lessor, however, has waived its right to terminate the agreement for three years as long as the lessee is performing its obligations thereunder. Lease payments are currently $1,500 per month. Insurance The Company maintains insurance coverage against fire, flood and other similar events as well as coverage against theft of money from the Company's offices or during transportation to a financial institution for deposit. 28 MARKET FOR PRODUCT LINE In the year ended December 31, 1997 approximately 65% of the Company's total sales were through so-called "off trade" locations where the alcoholic beverages are not consumed, another 25% through so-called "on-trade" locations where the alcoholic beverages are consumed, and the other 10% through other wholesalers. Off-Trade Market There are two components of the Company's sales to locations where alcoholic beverages are not consumed on premises. The most significant in 1995, 1996 and 1997 were small, usually Polish-owned and managed businesses, including small grocery stores. At December 31, 1997, the Company sold products to approximately 3,000 such business outlets, which typically stock and sell relatively few alcohol products and wish to have access to the most popular selling brands. The other components of the off-trade business in 1995, 1996 and 1997 were large supermarket chains, which are typically non-Polish-owned, as well as smaller multi-store retail outlets operated by major Western energy companies in connection with the sale of gasoline products. The large supermarket chains typically offer a wide selection of alcohol products, while the smaller retail outlets offer a more limited selection. On-Trade Market There are three components to the Company's sales to locations where alcoholic beverages are consumed: sales to (i) bars and nightclubs; (ii) hotels; and (iii) restaurants. Bars and nightclubs are usually locally managed businesses, although they may be owned and operated in major cities by a non- Polish national. Hotels include worldwide chains such as Marriott, Sheraton and Holiday Inn as well as the major Polish chain, Orbis. Restaurants are typically up-scale and located in major urban areas. This latter category also includes one major, United States based pizza chain which operates in Poland. Wholesale Trade The Company also sells products throughout Poland through other wholesalers. There are no written agreements with these wholesalers. Control of Bad Debts The Company believes that its close monitoring of customer accounts both at the relevant regional office and from Warsaw has contributed to its success in maintaining a low ratio of bad debts to net sales. During the years ended December 31, 1995, 1996 and 1997, bad debt expense as a percentage of net sales was 0.21%, 0.08% and 0.12% of net sales, respectively. Management believes the proposed acquisition of computer upgrades for interoffice financial and administrative controls will assist in maintaining a low ratio of bad debts to net sales as the Company continues to expand. See "Use of Proceeds." COMPETITION The Company, as an early entrant in the post-Communist market in Poland, has over six years of experience in introducing, developing and refining marketing, sales and customer service practices in the diverse and rapidly developing Polish economy, which it believes is a competitive advantage in the alcoholic beverage distribution business. The Company believes that it is currently the only privately owned national distributor of an extensive and diversified alcoholic beverage line in Poland. Some of the international drink companies doing business in Poland, who import their own products but use the Company on a nonexclusive basis to distribute their products, could develop nationwide distribution systems, but have not and the Company believes these companies will concentrate on expanding their 29 sales organizations. These entities include United Distillers, Seagrams, UDV, Allied Domecq and Bacardi. The Company was the largest single distributor in 1996 and 1997 for UDV and United Distillers products in Poland. The Company competes with various regional distributors in all of its offices. This competition is particularly vigorous with respect to domestic vodka brands. One of the larger, foreign-owed chain stores also sells directly to smaller retailers. The Company meets this regional competition, in part, through offering to customers in the region a single source supply of more products than its regional competitors typically offer. The brands of beer, spirits and wine distributed by the Company compete with other brands in each category, including some the Company itself distributes. The Company expects this competition to increase as it adds more brands, as international drinks and brewery companies expand production in Poland and as the Polish produced products are distributed more efficiently. In addition, the international drinks companies with which the Company competes in the import sector of its business have greater managerial, financial and other resources than does the Company. EMPLOYEES The Company had approximately 190 full-time employees as of March 31, 1998. Each employee was employed in Poland and, as required by Polish law, has a labor agreement with the Company. The Polish Labor Code, which applies to each of these agreements, requires that certain benefits be provided to employees, such as the length of vacation time and maternity leave. This law also restricts the discretion of the Company's management to terminate employees without cause and requires in most instances a severance payment of one- to three-months salary. The Company makes required monthly payments of 48% of an employee's salary to the governmental health and pension system and has established a Social Benefit Fund as required by Polish law, but does not provide other additional benefit programs. None of the Company's employees are unionized. The Company believes that its relations with its employees are good. LEGAL PROCEEDINGS The Company is involved in litigation from time to time in the ordinary course of business. In management's opinion, the litigation in which the Company is currently involved, individually and in the aggregate, is not material to the Company's financial condition or results of operations. 30 REGULATION The Company's business of importing and distributing alcoholic beverages is subject to extensive regulation. The Company believes it is operating with all licenses and permits material to its business. The Company is not subject to any proceedings calling into question its operation in compliance with any licensing and permit requirements. There can be no assurance that the various governmental regulations applicable to the alcoholic beverage industry will not be changed so as to impose more stringent requirements on the Company. If the Company were to fail to be in compliance with applicable governmental regulations or the conditions of the licenses and permits it receives, such failure could cause the Company's licenses and permits to be revoked and have a material adverse effect of the Company's business, results of operations and financial condition. Further, the applicable Polish governmental authorities, in particular the Minister of Economy, have articulated only general standards for issuance, renewal and termination of the licenses and permits which the Company needs to operate and, thus, such governmental authorities retain considerable discretionary authority in making such decisions. IMPORT OF PRODUCTS Import License The Company must receive a license from the Minister of Economy to be able to import all of its alcoholic beverages except for the beer and wine brands. The current license was issued for an unspecified period, effective from January 1, 1998. While in certain circumstances prescribed by Polish law, the Minister of Economy has discretion to withdraw the import license or limit its scope, the Company believes that such license will remain effective as long as the Company abides by the conditions set forth therein, including, in particular, regular reporting to the Minister of Economy on the volume of imports. The Company must also apply each year for a license to import cigars. The Company has obtained a license which expires on December 31, 1998. Import Permits Additionally, import permits must be obtained for specific consignments of alcoholic beverages to be imported under the import license as well as under customs quotas. See "--Customs Duties and Quotas." The Company must obtain such permits for all its imported alcoholic beverages except for the beer and wine brands. The application for a permit is usually made when products are ordered and specify the product, amount of product and source country. Permits are issued for three months, and the Company must demonstrate to appropriate officials that each consignment it imports is covered by a permit. Similar permits must be obtained for the import of cigars. Approval of Health Authorities Local health authorities at the place of import must also be notified of what alcoholic beverages and cigars are being imported into Poland. This notification is typically given when a particular shipment of products arrives in Poland. In general, this notice permits the applicable health authorities to determine that no product is entering the Polish market without having been previously approved for sale in Poland. See "--Wholesale Activities--General Norms." WHOLESALE ACTIVITIES The Company must have additional permits from the Minister of Economy and appropriate health authorities to operate its wholesale distribution business. Furthermore, it must comply with rules of general applicability with regard to packaging, labeling and transporting products. 31 General Permits The Company is required to have permits for the wholesale trade of each of its three product lines. The permit with regard to beer is issued for two years and the current permit expires on March 28, 1999. The permit with regard to spirits is issued for one year and the current permit expires on December 31, 1998. The permit for wine is issued for two years and the current permit expires on March 28, 1999. One of the conditions of these permits is that the Company sells its products only to those who have appropriate permits to resell the products. A permit can be revoked or not renewed if the Company fails to observe laws applicable to its business as an alcohol wholesaler, fails to follow the requirements of a permit or if it introduces into the Polish market alcohol products that have not been approved for trade. The Company must also obtain separate permits for each of its warehouses. Health Requirements The Company must obtain the approval of the local health authorities to open and operate its warehouses. This approval is the basis for obtaining the permit for wholesale activities. The health authorities are primarily concerned with sanitation and proper storage of alcoholic beverages, especially those which must be refrigerated, as well as cigars. These authorities can monitor the Company's compliance with health regulations. Similar regulations apply to the transport of alcoholic beverages and cigars, and the drivers of such transports must themselves submit health records to appropriate authorities. General Norms The Company must comply with a set of rules, usually referred to generally as "Polish Norms," which constitute legal regulations concerning, as applicable to the Company, standards according to which alcoholic beverages and cigars are packaged, stored, labeled and transported. These norms are established by the Polish Normalization Committee, composed of specialists. In case of alcoholic beverages, the committee is composed of academics working with relevant government ministries and agencies as well as experienced businessmen working in the alcoholic beverage industry. The Company has received a certificate after an inspection by the Central Standardization Institute, which is part of the Ministry of Agriculture, indicating its compliance with applicable norms as of the date thereof. Such certification also is needed to import alcoholic beverages. Compliance with these norms also is confirmed by health authorities when particular shipments of alcoholic beverages arrive in Poland. See "--Import of Products--Approval of Health Authorities." CUSTOMS WAREHOUSE Since the Company operates a customs warehouse, further regulations apply, and a permit of the President of the Main Customs Office and the approval of health authorities are required to open and operate such a warehouse. The applicable health concerns are the same as those discussed under""--Wholesale Activities" with regard to non-custom warehouses. The Company has received the needed permit on October 19, 1995 from the President of the Main Customs Office, which is for an unspecified period of time. The continued effectiveness of the permit is conditioned on the Company's complying with the requirements of the permit which are, in general, the proper payment of customs duties and maintenance of an insurance policy. CUSTOMS DUTIES AND QUOTAS As a general rule, the import of alcoholic beverages and cigars into Poland is subject to customs duties and the rates of the duties are set by the Polish government acting through the Council of Ministers for particular types of products. In the Company's case, the duties vary by its products lines. The Minister of Economy is authorized, however, to establish a schedule of quotas for alcoholic beverages for which the customs duties are substantially reduced. For example, the basic customs 32 duty on scotch whiskey imported by the Company is $24.67 per .75 liter bottle, or 326% higher than the $5.79 duty under the quota in 1998. The difference between the basic custom duties and the duty under the quota on other spirit products imported by the Company were only somewhat smaller than the difference on scotch. The difference between the basic custom duties and the duty under the quota was considerably smaller for beer and wine products subject to customs duties and imported by the Company. For example, the average basic duty of $1.86 per case of beer was approximately 42% higher than the duty under the quota, and the basic customs duty of $0.15 per .75 liter bottle of wine was 100% higher than the duty under the quota. Customs quotas for alcoholic beverages as well as for cigars are fixed annually, with the current quotas being applicable through December 31, 1998. There are no public guidelines on how the Minister of Economy has determined the current quotas or may determine future quotas. If such quotas were substantially reduced or eliminated, it would likely have an adverse impact on the Company's business since the retail price of some of its imported alcohol products would increase. To import alcoholic beverages and cigars under the quotas, the Company must receive a permit which is generally valid for three months and specifies what products and what quality thereof may be imported from what country or group of companies. It is the Company's practice to apply for this import permit after concluding a contract for the import of a particular group of products. The Company has always received the import permits for which it has applied, although there can be no assurance that it will always do so in the future. PRICE AND MARGIN CONTROLS In general, Polish law does not affect either the prices charged or the margins earned by the Company on its imported liquor products. Provisions of the tax law provide for a general ban on importing products at "dumping prices," generally defined as being at prices lower than for similar products in the country of origin. Fines could be imposed for such activity. Also, the Treasury Office, which is part of the Ministry of Finance, may order a reduction in the price of a product it determines to be "blatantly high." This standard is deemed met if (a) the price of a product exceeds the price of the same alcoholic beverage in another local jurisdiction by more than 25% or of a similar alcoholic beverage by 40%, or (b) the price quoted by the seller is higher than 10% of the price quoted to the same purchaser by another seller and the former seller cannot justify the higher price. ADVERTISING BAN Pursuant to the Alcohol Awareness Law of October 26, 1982, as amended, there is an absolute ban on direct and indirect advertising of alcoholic beverages in Poland. The definition of "alcoholic beverage" under such law encompasses all the Company's products. Promotions at the point of sale and game contests are often used to limit the law's impact. The agency charged with enforcing this law has successfully brought numerous cases in the past few years alleging indirect advertising in the media. The Company has not been involved in any such proceedings and seeks to comply fully with this law. REGULATION OF RETAIL SALES As part of the Company's business strategy, it plans to operate retail outlets for alcoholic beverages. Polish law will require each such outlet to have a retail permit to sell the brands expected to be offered to the public. Typically, such permits are valid for two years and are renewable. The local health authorities must also approve the sale of alcoholic beverages for each location. The retail permit for the Company's initial retail outlet in Warsaw is valid from February 25, 1998 through February 24, 2000. 33 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of CEDC are set forth below. Directors and executive officers of CEDC are elected to serve until they resign or are removed, or are otherwise disqualified to serve, or until their successors are elected and qualified. All directors of CEDC are elected annually at the annual meeting of stockholders. Executive officers of CEDC generally are appointed at the board's first meeting after each annual meeting of stockholders.
NAME AGE POSITION(S) WITH COMPANY ---- --- ----------------------------------------------- William V. Carey........... 33 Chairman, President and Chief Executive Officer Jeffrey Peterson........... 47 Vice Chairman and Executive Vice President Robert Bohojlo............. 34 Vice President and Chief Financial Officer James T. Grossmann......... 58 Director James B. Kelly............. 56 Director Jan W. Laskowski........... 41 Director Joe M. Richardson.......... 45 Director Joseph S. Conti............ 60 Director(1)
- -------- (1) Mr. Conti has agreed to become a director of the Company upon completion of the Offering. WILLIAM V. CAREY has served as Chairman, President and Chief Executive Officer of CEDC since its inception. Mr. Carey began working for Carey Agri in 1990 and in 1993, Mr. Carey instituted and supervised the direct delivery system for Carey Agri's nationwide expansion. Mr. Carey, a 1987 graduate of the University of Florida, played briefly on the professional golf circuit before joining the Company. Mr. Carey is a member of the American Chamber of Commerce in Poland. JEFFREY PETERSON has served as Vice Chairman, Executive Vice President and director of CEDC since its inception. Mr. Peterson was co-founder of Carey Agri in 1990, and is a member of the management board of that entity. Prior thereto, Mr. Peterson contracted with African, Middle Eastern, South American and Asian governments and companies for the supply of American agricultural exports and selected agribusiness products, such as livestock, feed supplements and veterinary supplies. Mr. Peterson has worked with international banks and United States government entities to facilitate support for exports from the United States. ROBERT BOHOJLO joined the Company in January 1998 as Vice President and Chief Financial Officer. From February 1995 to December 1997, he held a similar position in Media Express, the publisher of the second largest daily newspaper in Poland. Prior thereto, he worked with Coopers and Lybrand and ABB Poland carrying out financial and business consultancy projects. Mr. Bohojlo is a graduate of the University of Stockholm and obtained his training and business experience in Sweden and Canada. JAMES T. GROSSMANN, a retired United States foreign service officer, has served as a director of CEDC since its inception. With the United States Agency for International Development ("U.S.A.I.D."), during the years 1977 to 1996, Mr. Grossmann served in emerging markets in Central Europe, Central America, Africa and Asia with a concentration on developing private sector trading and investment through United States government-sponsored aid programs. Immediately prior to his retirement in 1996, he managed a $300 million mass privatization and capital markets development program that assisted 14 former state-controlled countries in Central Europe transition to market economies. 34 JAMES B. KELLY, a former Deputy Assistant Secretary of Commerce of the United States specializing in international economic policy, has served as a director of CEDC since its inception. Mr. Kelly is currently the President of SynXis Corporation, a software development company, a position he has held since August 1996. From July 1992 to August 1996, Mr. Kelly was the International Vice-President of BDM International, an international information technology company with sales in 1996 of over $1.0 billion, where he was in charge of penetrating foreign technology markets by acquisition, alliance and direct sales. JAN W. LASKOWSKI has served as a director of CEDC since its inception. Mr. Laskowski has lived and worked in Poland since 1991. He is currently the Vice President and member of the management board of American Bank in Poland ("Amerbank"), a position he has held since 1996, where he is responsible for business development. Before joining Amerbank in 1991, Mr. Laskowski worked in London for Bank Liechtenstein (UK) Ltd from 1989 to 1991. He began his career with Credit Suisse, also in London, where he worked for 11 years. Carey Agri has two loans outstanding from Amerbank. See "Certain Transactions." JOE M. RICHARDSON has served as a director of CEDC since its inception. Since October 1994, Mr. Richardson has served as the Director of Sales and Marketing Europe of Sutter Home Winery Inc., where he is responsible for developing and managing the importation, distribution and sales of Sutter Home Wines within Europe. From October 1993 until October 1994, Mr. Richardson assisted Carey Agri in marketing development. Prior thereto, Mr. Richardson had 19 years experience in the wine industry distributing Gallo wine products. The Company distributes Sutter Home Wines in Poland. See "Certain Transactions." DESIGNATED DIRECTORS Each of the Representatives has the right for five years from the date of the Offering to designate one person for election to the Board of Directors. In the event that one or both of the Representatives elects not to exercise this right, then a person may be designated by each of the Representatives to attend all meetings of the Board of Directors for such period of time. Such person will be entitled to receive all notices and other correspondence as if such person were a member of the Board of Directors and to be reimbursed for out-of-pocket expenses incurred in connection with attendance of meetings of the Board of Directors. Brean Murray has not designated a person as a member of the Board of Directors of the Company or to attend meetings of the Board. Fine Equities has designated Joseph S. Conti to serve as a director of the Company and Mr. Conti has agreed to so serve, effective immediately following the completion of the Offering. Since May 1992, Mr. Conti has served as a Consultant and Senior Advisor to the Polish American Enterprise Fund (the "Fund"), headquartered in New York City. In this capacity, he is currently Chairman of the Bank Council of the First Polish American Bank, Chairman of the Board of the Enterprise Credit Corporation, and a member of the Bank Council of the Rabo-BRP Bank Polska. These three institutions are all located in Warsaw. Prior to consulting for the Fund, Mr. Conti worked with Bankers Trust Company for 23 years, retiring in April 1992 as Senior Vice President. Mr. Conti served in a variety of managerial positions with Bankers Trust Company including seven months as interim President of AmerBank in Warsaw from September 1991 to March 1992. Mr. Conti holds a Master of Business Administration degree from the Bernard Baruch College of the City University of New York and a Bachelor of Science degree, with a major in Management from Fairleigh Dickinson University. BOARD OF DIRECTORS The number of directors of the Company shall be such number as from time to time is fixed by and in the manner provided in the Bylaws and shall be between two to nine directors as is specified in 35 the Certificate of Incorporation. Pursuant to the Bylaws, the number of directors within that range is determined by resolution duly adopted by a majority of the Board of Directors. The number of directors is currently fixed at six. The Board of Directors has unanimously voted to increase the number of directors to eight immediately following the completion of the Offering and to name Joseph S. Conti to one of the newly created vacancies. The remaining vacancy will be filled if Brean Murray designates a director. Mr. Conti will serve, as do the other directors, until the next election of directors and until his successor is elected and qualified, or until his earlier resignation or removal. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors currently has two committees, the Audit Committee and the Compensation Committee. The Audit Committee, among other things, recommends the firm to be appointed as independent accountants to audit the Company's financial statements, discusses the scope and results of the audit with the independent accountants, reviews with management and the independent accountants the Company's interim and year-end operating results, considers the adequacy of the internal accounting controls and audit procedures of the Company and reviews the non-audit services to be performed by the independent accountants. The current members of the Audit Committee are Messrs. Kelly and Laskowski. The Compensation Committee reviews and recommends the compensation arrangements for management of the Company and administers the Plan. The current members of the Compensation Committee are Messrs. Laskowski and Richardson. DIRECTOR COMPENSATION Mr. Carey and Mr. Peterson annually receive $10,000 and $5,000, respectively, for serving as Chairman and Vice-Chairman of the Board of Directors as well as annual directors' fees of $2,000 (which amount is payable to each director). Members of the Board of Directors have received grants of stock options under the stock incentive plan described below. The Company reimburses directors for out-of-pocket travel expenditures relating to their service on the Board of Directors. EXECUTIVE COMPENSATION The following table shows, for the fiscal year ended December 31, 1997, compensation awarded or paid by the Company to its Chief Executive Officer (the highest compensated employee of the Company). SUMMARY COMPENSATION TABLE
BONUS AND OTHER ANNUAL ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION COMPENSATION(2) --------------------------- ---- ------- ------------- --------------- William V. Carey................... 1997 $80,000 (1) -- Chairman, President, Chief Executive Officer and Chief Financial Officer(3)
- -------- (1) During 1997, Carey Agri (i) provided Mr. Carey with the free use of an automobile valued at $35,000; (ii) paid approximately $4,000 for travel expenses; and (iii) provided an interest free loan of $24,000 which was used by Mr. Carey to remodel his home in Warsaw. This loan will be repaid in 1998. See "Certain Transactions." (2) For options granted to Mr. Carey, which will be effective only upon the closing of the Offering, see "--Compensation Plans--Employment Agreements." (3) Mr. Carey ceased being the Chief Financial Officer of the Company on January 1, 1998. 36 COMPENSATION PLANS Employment Agreements Mr. Carey, has entered into an employment contract with CEDC, which commences on the date of the completion of the Offering and ends three years thereafter. Mr. Carey will be paid an annual base salary at the rate of $140,000 per year, $76,000 payable by Carey Agri and $64,000 by CEDC. If Mr. Carey is not elected the Chairman of the Board of Directors in accordance with the Bylaws, his base salary paid by CEDC will be increased by $10,000. Mr. Carey's base salary is to be reviewed no less frequently than annually. Additionally, as partial consideration for the execution of the employment agreement, CEDC has granted to Mr. Carey options to purchase 25,000 shares of Common Stock, to be exercisable at the initial public offering price. Such options are granted under the Plan and will vest and become exercisable two years from the effective date of the employment agreement. For options granted Mr. Carey, because of his work on the board of directors of the Company and Carey Agri, see "--1997 Stock Incentive Plan." Mr. Carey may terminate his employment agreement only for "good reason," which includes CEDC's failure to perform its obligations under the agreement. CEDC may terminate the agreement for "cause" as defined, which includes Mr. Carey's willful refusal to follow written orders or willful engagement in conduct materially injurious to CEDC or continued failure to perform his required duties. If CEDC terminates the agreement for cause or Mr. Carey terminates it without good reason, Mr. Carey's salary and benefits will be paid only through the date of termination. If CEDC terminates the employment agreement other than for cause or if Mr. Carey terminates it for good reason, CEDC will pay Mr. Carey his salary and benefits through the date of termination in a single lump sum payment and other amounts or benefits at the time such amounts would have been due. Pursuant to the agreement, Mr. Carey has agreed that during the term of employment, and for a one-year period following a termination of employment, he will not compete with the Company. The ownership by Mr. Carey of less than five percent of the outstanding stock of any corporation listed on a national securities exchange conducting any competitive business shall not be viewed as competition. Jeffrey Peterson has entered into an employment contract with CEDC, which commences on the date of the completion of this Offering and ends two years thereafter. In the first year of his employment, Mr. Peterson will be paid $45,000 for serving as the Executive Vice President of CEDC and $48,000 for serving on the management board of Carey Agri. In the second year, Mr. Peterson will be paid $39,000 by CEDC and $36,000 by Carey Agri. CEDC may terminate this agreement, with or without cause, on three months' prior written notice; Mr. Peterson may terminate only for good reason. For options granted to Mr. Peterson as a member of the board of directors of CEDC and Carey Agri, see "--1997 Stock Incentive Plan." Robert Bohojlo has entered into an employment agreement with the Company which commenced on January 1, 1998 and ends three years thereafter. Mr. Bohojlo will be paid $43,000 annually for serving as Vice President and Chief Financial Officer of the Company. The Company also has agreed to pay an annual bonus of at least one-twelfth of his annual salary, on terms and conditions to be agreed. Mr. Bohojlo has entered into a separate contract with Carey Agri to serve as Chief Financial Officer of that company and will be paid $10,000 annually by Carey Agri. Additionally, as partial consideration for the execution of his employment agreement with the Company, the Company has granted to Mr. Bohojlo options to purchase 30,000 shares of the Common Stock, such options vesting and being exercisable as follows: (i) options for 5,000 shares to be exercisable at the initial public offering price and to become exercisable on January 1, 1999; (ii) options 37 for 10,000 shares to be exercisable at the average trading price of the Common Stock for the last five trading days of 1998 and to become exercisable on January 1, 2000; and (iii) options for 15,000 shares to be exercisable at the average trading price of the Common Stock for the last five trading days of 1999 and to become exercisable on November 1, 2000. All such options have a term ending on December 31, 2000. Mr. Bohojlo's employment agreement may be terminated by CEDC for "cause" as defined, which includes Mr. Bohojlo's willful refusal to follow written orders or willful engagement in conduct materially injurious to CEDC or continued failure to perform his required duties or if his employment agreement with Carey Agri is terminated. Mr. Grossmann, a director of CEDC and Carey Agri, is paid $4,000 monthly for his service on Carey Agri's Board of Directors where he has responsibilities for assisting Carey Agri to establish supplier relationships for alcohol and nonalcohol products, such as cigars. For options granted to Mr. Grossmann for his past work in establishing supplier relationships in Bulgaria, see "--1997 Stock Incentive Plan." 1997 Stock Incentive Plan CEDC's 1997 Stock Incentive Plan, as amended (the "Plan"), provides for the grant of incentive stock options within the meaning of Section 422 of the Code, non-qualified options, stock appreciation rights, restricted stock and restricted stock units to directors, executives and other employees of CEDC and any of its subsidiaries or of any service provider, as defined, whose participation in the Plan is determined to be in the best interest of the Company. The Plan authorizes the issuance of up to 750,000 shares of Common Stock (subject to anti-dilution adjustments in the event of a stock split, recapitalization or similar transaction). The Board of Directors has the full power and authority to take all actions and to make all determinations required under the Plan, but has currently delegated that authority to its Compensation Committee, which has the authority to interpret the Plan and to prescribe, amend and rescind rules and regulations relating to the Plan. The Compensation Committee's interpretations of the Plan and its determinations pursuant to the Plan will be final and binding on all parties claiming an interest under the Plan. The Plan was adopted by the Board of Directors on November 27, 1997, which is the effective date of the Plan, and approved by CEDC's stockholders in December 1997. The term of the Plan is ten years from its effective date, and no grants may be made under the plan after that date. Automatic grants are made to outside directors of CEDC. The initial three outside members of the board of directors of CEDC were automatically awarded options to acquire 500 shares of the Common Stock at the initial public offering price when the Plan became effective. These options are immediately exercisable. Outside directors, including the initial outside directors of CEDC, shall also receive an option to acquire 500 shares upon their reelection to the Board of Directors. The option exercise price for incentive stock options granted under the Plan may not be less than 100% of the fair market value of the Common Stock on the date of grant of the option. Options may be exercised up to 10 years after grant, except as otherwise provided in the particular option agreement. Payment for shares purchased under the Plan shall be made in cash or cash equivalents. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of stock of CEDC, however, the exercise price of any incentive stock option granted must equal at least 110% of the fair market value on the grant date and the maximum term of an incentive stock option must not exceed five years. The Plan also authorizes the grant of stock appreciation rights whereby the grantee of a stock option may receive payment from CEDC of an amount equal to the excess of the fair market value of the shares of Common Stock subject to the option surrendered over the exercise price of such shares. 38 A particular award agreement may permit payment by CEDC either in shares of Common Stock, cash or a combination thereof. Options granted under the Plan are generally not transferable except that non-qualified options may, in certain circumstances, be transferred to family members of the grantee. If any optionee's employment with CEDC or a service provider terminates by reason of death, options will fully vest and may be exercised within 24 months after such death. If the optionee's employment terminates by reason of disability, options will continue to vest and shall be exercisable to the extent vested for a period of one year after the termination of employment. If the optionee's employment terminates for any other reason, options not vested will terminate and vested options held by such optionee will terminate 90 days after such termination. The Plan authorizes the grant also of restricted stock or restricted stock units, which are rights to receive shares of Common Stock in the future. Both the restricted stock and restricted stock units will be subject to restrictions and risk of forfeiture. Such restriction may include not only a period of time of further employment or service to CEDC or Carey Agri or a service provider but the satisfaction of individual or corporate performance objectives. Performance objectives may include, among others, the trading price of the shares of Common Stock, market share, sales, earnings per share and return on equity. Unless the particular award agreement states otherwise, the holders of restricted stock shall have the right to vote such shares of Common Stock and the right to receive any dividends declared and paid with respect to such stock, but the holders of restricted stock units shall have no such rights. If the grantee's employment with CEDC or Carey Agri or a service provider terminates by reason of death, all restricted stock and restricted stock units granted under the Plan shall fully vest. If the grantee's employment terminates by reason of disability, the grantee's restricted stock or restricted stock units shall continue to vest for a period of one year. If the grantee's employment is terminated for any other reason, the restricted stock or restricted stock units shall be forfeited. In the event of the dissolution or liquidation of the Company or upon a merger, consolidation or reorganization of the Company in which the Company is not the surviving entity, or upon a sale of substantially all of the assets of the Company or upon any transaction (including one in which the Company is the surviving entity) approved by the Board of Directors that results in any person or entity owning eighty percent or more of the combined voting power of all classes of securities of CEDC, outstanding restricted stock and restricted stock units shall vest and all options become immediately exercisable, within a stated period, unless provision is made in writing in connection with such transaction for the continuation of the Plan or the assumption or substitution of such options, restricted stock and restricted stock units. The Board of Directors may amend, suspend or terminate the Plan with respect to the shares of Common Stock as to which grants have not been made. However, CEDC's stockholders must approve any amendment that would cause the Plan not to comply with the Code. Stock options for 82,500 of the shares of the Common Stock have been granted in connection with the Offering. Options covering 500 shares were automatically granted to each of the three outside members of the Board of Directors. These options are immediately exercisable. Mr. Carey, Mr. Peterson and Mr. Grossmann received options covering 2,000, 1,000 and 500 shares, respectively. Additionally, as members of the board of management of Carey Agri, Messrs. Carey, Peterson and Grossmann received options covering 5,000, 2,000 and 500 shares, respectively. These options may be exercised one year after the completion of the Offering. In connection with his employment agreement, Mr. Carey was granted another option to purchase an additional 25,000 shares. These options may be exercised two years after the completion of the Offering. In connection with his employment agreement, Mr. Bohojlo was granted options covering 30,000 shares, exercisable over 39 specified periods which end on December 31, 2000. See "--Employment Agreements" for a description of the terms of such options. In connection with his past efforts in assisting the Company, Mr. Grossmann was granted an option to purchase an additional 15,000 shares. Options covering 12,500 of those shares are immediately exercisable and options covering the other 2,500 shares are exercisable one year after the completion of the Offering. The exercise price of all options granted, except for options covering 25,000 shares granted to Mr. Bohojlo, is the initial public offering price. CERTAIN TRANSACTIONS Carey Agri has a non-interest bearing advance receivable for $24,000 (denominated in Polish zloty without interest) from Mr. Carey at December 31, 1997. It expects to receive repayment of the amount advanced in 1998. Carey Agri has entered into a loan agreement for the principal amount of $205,000 with Amerbank, of which Mr. Laskowski, a director of CEDC, is a vice president and member of the management board. This loan is structured as a revolving line of credit to be used by Carey Agri for certain business purposes. The loan is guaranteed, in part, by Messrs. Carey and Peterson. The interest rate on such loan is LIBOR plus 3.5% and the maturity date is December 15, 1998. Installments of $17,000 are due monthly beginning January 15, 1998 with $18,000 due on December 15, 1998. Late payments are subject to a default interest rate of 25% per annum. Part of the proceeds of the Offering will be used to retire this debt. See "Use of Proceeds." Carey Agri has entered into a second loan agreement and two amendments thereto with Amerbank for the principal amount of $300,000. This secured loan is to be used to pay certain of the costs of this Offering which have accrued to date. The interest rate is LIBOR (1 month) plus 2.25% and the loan must be repaid by July 8, 1998. Late payments are subject to a default interest rate of 25% per annum. In connection with this loan, Carey Agri agreed to use Amerbank's Poznan branch for its business activities in Poznan and to transfer, as needed, the proceeds of this Offering into Poland through its Amerbank accounts. In the first quarter of 1998, Carey Agri entered into a third agreement for a short term loan from Amerbank in the principal amount of $725,000 at an interest rate equal to the LIBOR plus 2.7%. The loan is due in full on May 21, 1998. The Company distributes Sutter Home wines in Poland. Mr. Richardson, a director of CEDC, is Director of Sales and Marketing Europe of Sutter Home Winery, Inc. See "Business--Product Line--Wine." The total value of Sutter Home wines sold by the Company in 1995, 1996 and 1997 was $272,000, $566,000 and $786,000, respectively. During 1997 the Company wrote off a receivable from an inactive affiliated company of approximately $4,000. The Company has adopted a policy which requires (i) that any future loans or advances to officers, directors or stockholders beneficially owning five percent or more of the Common Stock must be for a bona fide business purpose and approved by a majority of the disinterested directors and (ii) that any future transaction with officers, directors or stockholders beneficially owning five percent or more of the Common Stock will be on terms no less favorable to the Company than could be obtained from third parties. 40 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the outstanding Common Stock as of the date hereof, and as adjusted to reflect the Offering: (i) by each person who is known by CEDC to beneficially own more than 5% of the Common Stock; (ii) by each director and nominee for director of CEDC; (iii) by each of the executive officers of CEDC; and (iv) by all directors and executive officers of CEDC as a group. Except as otherwise noted, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them.
PERCENTAGES OF SHARES BENEFICIALLY OWNED NAME AND ADDRESS OF SHARES -------------------------------------------------- BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE THE OFFERING AFTER THE OFFERING ------------------- ------------------ -------------------- -------------------- William V. Carey(1)..... 1,096,480 61.6% 25.6% 1602 Cottagewood Drive Brandon, FL 33511 William V. Carey Stock Trust(1)............... 503,740 28.3 11.8 1602 Cottagewood Drive Brandon, FL 33511 Jeffrey Peterson........ 592,740 33.3 13.8 1707 Waldemere Street Sarasota, FL 34239 Estate of William O. Ca- rey(2)................. 90,780 5.1 2.0 1602 Cottagewood Drive Brandon, FL 33511 Joseph S. Conti(3)...... -- -- -- 744 Metropolitan Avenue Staten Island, NY 10301 James T. Grossmann...... -- -- -- 805 S. Fairfax Street Alexandria, VA 22314 James B. Kelly.......... -- -- -- 7606 Hamilton Spring Road Bethesda, MD 20817 Jan W. Laskowski........ -- -- -- 115 ul. Marcinkowska 00-102 Warsaw, Poland Joe M. Richardson....... -- -- -- P.O. Box 22154 Louisville, KY 40252 Robert Bohojlo.......... -- -- -- 25 ul. Fabryczna, m. 15 00-446 Warsaw, Poland All Directors and Offi- cers as a Group (Eight Persons)............... 1,689,220 94.9% 39.5%
- -------- (1) Includes 592,740 shares beneficially owned by Mr. Carey and 503,740 shares held in the name of the William V. Carey Stock Trust. Mr. Carey is the beneficiary of the shares of the Common Stock held in the William V. Carey Stock Trust, and he will become the sole owner of these shares and may terminate the trust on December 11, 2005. Mr. Carey administers the trust, which includes the power to vote the securities held and make any investment decisions, with one other trustee, Remy Hermida, 1707 West Reynolds Street, Plant City, Florida 33567. The trust instrument permits one trustee to delegate any and all power, duties or discretions to the other trustee, although this action has not been taken. (2) Gertrude Carey, the mother of William V. Carey, is the sole personal representative of the Estate of William O. Carey and has sole voting and investment authority over the Common Stock in this estate. (3) Joseph S. Conti will join the Company's Board of Directors immediately following the completion of the Offering. See "Management--Designated Directors." 41 DESCRIPTION OF CAPITAL STOCK GENERAL CEDC's authorized capital stock consists of 20,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock. Prior to this Offering, there were 1,780,000 shares of Common Stock outstanding held of record by four stockholders and no shares of Preferred Stock outstanding. The following summary of certain provisions of the Common Stock, Preferred Stock and the Representatives' Warrants does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of CEDC's Certificate of Incorporation, Bylaws and the Warrant Agreement, and by the provisions of applicable law. A copy of the Certificate of Incorporation, Bylaws, and the form of Warrant Agreement are included as exhibits to the registration statement of which this Prospectus is a part. COMMON STOCK Each holder of Common Stock is entitled to one vote for each share on all matters submitted to a vote of stockholders. The Certificate of Incorporation does not provide for cumulative voting, and accordingly, the holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors. The Certificate of Incorporation provides that whenever there is paid, or declared and set aside for payment to the holders of the outstanding shares of any class of stock having preference over the Common Stock as to the payment of dividends, the full amount of dividends and of sinking fund or retirement fund or other retirement payments, if any, to which such holders are entitled, then dividends may be paid on the Common Stock out of any assets legally available therefore, but only when and as declared by the Board of Directors. The Certificate of Incorporation also provides that in the event of any liquidation, dissolution or winding up of CEDC, after there is paid to, or set aside for the holders of any class of stock having preference over the Common Stock, the full amount to which such holders are entitled, then the holders of the Common Stock, shall be entitled, after payment or provision for payment of all debts and liabilities of CEDC, to receive the remaining assets of CEDC available for distribution, in cash or in kind. The holders of Common Stock have no preemptive, subscription, redemption or conversion rights. The rights, privileges, preferences and priorities of holders of Common Stock will be subject to the rights of the holders of any shares of any series of Preferred Stock that CEDC may issue in the future. WARRANTS In connection with the Offering, the Company has agreed to sell to the Representatives, for nominal consideration, the Representatives' Warrants to purchase 250,000 shares of Common Stock (10% of the number of shares offered hereby). The Representatives' Warrants are exercisable, in whole or in part, at an exercise price of 120% of the public offering price set forth on the cover page of this Prospectus or through cashless exercise at any time during the four-year period commencing one year after the effective date of the Registration Statement of which this Prospectus is a part. The warrant agreement pursuant to which the Representatives' Warrants will be issued (the "Warrant Agreement") will contain provisions providing for adjustment of the exercise price and the number and type of securities issuable upon exercise of the Representatives' Warrants should any one or more of certain specified events occur. The Representatives' Warrants grant to the holders thereof certain rights of registration for the securities issuable upon exercise of the Representatives' Warrants. PREFERRED STOCK The Certificate of Incorporation provides that the Board of Directors is authorized to issue Preferred Stock in series and to fix and state the voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. Such action may 42 be taken by the Board of Directors without stockholder approval. Under the Certificate of Incorporation, each share of each series of Preferred Stock is to have the same relative rights as, and be identical in all respects with, all other shares of the same series. While providing flexibility in connection with possible financings, acquisitions and other corporate purposes, the issuance of Preferred Stock, among other things, could adversely affect the voting power of the holders of Common Stock and, under certain circumstances, be used as a means of discouraging, delaying or preventing a change in control of CEDC. There will be no shares of Preferred Stock outstanding upon completion of the Offering and CEDC has no present plan to issue shares of its Preferred Stock. LIMITATION OF LIABILITY AND INDEMNIFICATION Limitations of Director Liability Section 102(b)(7) of the Delaware General Corporation Law ("DGCL") authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breach of directors' fiduciary duty of care. Although Section 102(b)(7) does not change the directors' duty of care, it enables corporations to limit available relief to equitable remedies such as injunction or rescission. The Certificate of Incorporation limits the liability of directors to the Company or its stockholders to the fullest extent permitted by Section 102(b)(7). Specifically, directors of CEDC are not personally liable for monetary damages to the Company or its stockholders for breach of the director's fiduciary duty as a director, except for liability: (a) for any breach of the director's duty of loyalty to the Company or its stockholders; (b) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (c) for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; or (d) for any transaction from which the director derived an improper personal benefit. Indemnification To the maximum extent permitted by law, the Bylaws provide for mandatory indemnification of directors and officers of CEDC against any expense, liability and loss to which they may become subject, or which they may incur as a result of being or having been a director or officer of CEDC. In addition, CEDC must advance or reimburse directors and officers for expenses incurred by them in connection with indemnifiable claims. CEDC also maintains directors' and officers' liability insurance. CERTAIN ANTI-TAKEOVER PROVISIONS The Certificate of Incorporation and the Bylaws contain, among other things, certain provisions described below that may reduce the likelihood of a change in the Board of Directors or voting control of CEDC without the consent of the Board of Directors. These provisions could have the effect of discouraging, delaying, or preventing tender offers or takeover attempts that some or a majority of the stockholders might consider to be in the stockholders' best interest, including offers or attempts that might result in a premium over the market price for the Common Stock. Filling Board Vacancies; Removal Any vacancy occurring in the Board of Directors, including any vacancy created by an increase in the number of directors, shall be filled by the vote of a majority of the directors then in office, whether or not a quorum, and any director so chosen shall hold office until such director's successor shall have been elected and qualified. Directors may only be removed with cause by the affirmative vote of the holders of at least a majority of the outstanding shares of capital stock then entitled to vote for the election of directors. 43 Stockholder Action by Unanimous Written Consent Any action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders, unless such consent is unanimous. Call of Special Meetings Special meetings of stockholders may be called at any time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President, and shall be called by the President or the Secretary of CEDC at the request in writing of stockholders possessing at least 10% of the voting power of the issued and outstanding capital stock of CEDC entitled to vote generally in the election of directors. Such a request shall include a statement of the purpose or purposes of the proposed meeting. Bylaw Amendments The stockholders may amend the Bylaws by the affirmative vote of the holders of at least a majority of the outstanding shares of stock of CEDC entitled to vote thereon. Directors also may amend the Bylaws by an affirmative vote of at least a majority of the directors then in office. Certificate of Incorporation Amendments Except as set forth in the Certificate of Incorporation or as otherwise specifically required by law, no amendment of any provision of the Certificate of Incorporation shall be made unless such amendment has been first proposed by the Board of Directors upon the affirmative vote of at least a majority of the directors then in office and thereafter approved by the affirmative vote of the holders of at least a majority of the outstanding shares of stock of CEDC entitled to vote thereon; provided however, if such amendment is to the provisions in the Certificate of Incorporation relating to the authorized number of shares of Preferred Stock, board authority to issue Preferred Stock, number of directors, the limitation on directors' liability, amendment of Bylaws or consent of stockholder in lieu of meetings, such amendment must be approved by the affirmative vote of the holders of at least two-thirds of the outstanding shares of stock entitled to vote thereon. Stockholder Nominations and Proposals With certain exceptions, the Bylaws require that stockholders intending to present nominations for directors or other business for consideration at a meeting of stockholders must notify CEDC's secretary not less than 60 days, and not more than 90 days, before the date of the meeting. Certain Statutory Provisions Section 203 of the DGCL provides, in general, that a stockholder acquiring more than 15% of the outstanding voting shares of a corporation subject to the DGCL (an "Interested Stockholder"), but less than 85% of such shares, may not engage in certain "Business Combinations" with such corporation for a period of three years subsequent to the date on which the stockholder became an Interested Stockholder unless (a) prior to such date the corporation's board of directors approved either the Business Combination or the transaction in which the stockholder became an Interested Stockholder or (b) the Business Combination is approved by the corporation's board of directors and authorized by a vote of at least two-thirds of the outstanding voting stock of the corporation not owned by the Interested Stockholder. Section 203 defines the term "Business Combination" to encompass a wide variety of transactions with or caused by an Interested Stockholder in which the Interested Stockholder receives or could receive a benefit on other than a pro rata basis with other stockholders, including mergers, certain 44 asset sales, certain issuances of additional shares to the Interested Stockholder, transactions with the corporation which increase the proportionate interest of the Interested Stockholder or a transaction in which the Interested Stockholder receives certain other benefits. The Section 203 limits do not apply to any "Business Combination" between the Company and either Mr. Carey, Mr. Peterson, their "affiliates" or their estates. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is American Stock Transfer and Trust Company. 45 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offering, the Company will have 4,280,000 shares of Common Stock outstanding (assuming no exercise of the Underwriters' over- allotment option). Of these shares, the 2,500,000 shares of Common Stock sold in the Offering will be freely transferable and tradable without restriction or further registration under the Securities Act except for any shares purchased by any "affiliate", as defined below, of the Company which will be subject to the resale limitations of Rule 144. All the remaining shares of Common Stock held by existing stockholders are "restricted" securities within the meaning of Rule 144 and may only be sold in the public market pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption from registration, including Rule 144. In general, under Rule 144 as currently in effect, a person (or persons whose shares are required to be aggregated) who has been deemed to have beneficially owned shares for at least one year, including an "affiliate", is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the then outstanding number of shares of Common Stock or the average weekly trading volume in the shares of Common Stock during the four calendar weeks preceding the filing of the required notice of such sale. Sales under Rule 144 may also be subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. A person (or persons whose shares are required to be aggregated) who is not deemed to have been an affiliate of the Company during the three months preceding a sale, and who has beneficially owned shares within the definition of "restricted securities" under Rule 144 for at least two years is entitled to sell such shares under Rule 144(k) without regard to the volume limitation, manner of sale provisions, notice requirements or public information requirements of Rule 144. Affiliates continue to be subject to such limitations. As defined in Rule 144, an "affiliate" of an issuer is a person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such issuer. Commencing 90 days after completion of the Offering, 1,780,000 shares of Common Stock owned by the Company's directors, executive officers and existing stockholders are eligible for sale under Rule 144. Such persons have agreed that, for a 24-month period after the Closing of this Offering, without the prior written consent of Brean Murray, they will not offer, sell, contract to sell or otherwise dispose of shares of Common Stock or any securities convertible into, or exchangeable for, shares of Common Stock. The Company has reserved 750,000 shares of Common Stock for issuance upon the exercise of rights outstanding or to be granted pursuant to the Plan. As of the date hereof, options to purchase 82,500 shares of Common Stock under the Plan were outstanding and unexercised. See "Management--Compensation Plans--1997 Stock Incentive Plan." The Company also has reserved 250,000 shares of Common Stock for issuance upon the exercise of the Representatives' Warrants. See "Underwriting." No prediction can be made as to the effect, if any, that future sales of Common Stock, or the availability of shares of Common Stock for future sale, will have on the market price of the Common Stock prevailing from time to time. Sales of substantial numbers of shares of Common Stock, pursuant to a registration statement, Rule 144 or otherwise, or the perception that such sales may occur, could adversely affect the prevailing market price of the Common Stock. 46 UNDERWRITING Subject to the terms and conditions set forth in an underwriting agreement (the "Underwriting Agreement"), the Company has agreed to sell to each of the Underwriters named below, and each of such Underwriters, for whom Brean Murray & Co., Inc. ("Brean Murray") and Fine Equities, Inc. ("Fine Equities") are acting as representatives (the "Representatives"), has severally agreed to purchase from the Company the respective number of shares of Common Stock set forth opposite its name below:
NUMBER OF UNDERWRITERS SHARES ------------ --------- Brean Murray & Co., Inc. ....................................... Fine Equities, Inc. ............................................ --------- Total....................................................... 2,500,000 =========
Upon the terms and subject to the conditions of the Underwriting Agreement, the Company is obligated to sell, and the Underwriters are obligated to purchase, all of the shares of Common Stock set forth in the table above if any of the shares of Common Stock are purchased. The Underwriters propose to offer the Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus, and to selected dealers at such public offering price less a concession not to exceed $ per share. The Underwriters or such dealers may re-allow a commission to certain other dealers not to exceed $ per share. After the offering to the public, the offering price, the concession to selected dealers and the reallowance to other dealers may be changed by the Representatives. The Company has granted to the Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to 375,000 additional shares of Common Stock to cover over-allotments, if any, at the public offering price, less underwriting discounts and commissions, as set forth on the cover page of this Prospectus. If the Underwriters exercise this option, then each of the Underwriters will have a firm commitment, subject to certain conditions, to purchase the number of option shares proportionate to such Underwriter's initial commitment as indicated in the table above. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of the Common Stock offered hereby. Prior to this Offering, there has been no public market for the Common Stock. The offering price of the Common Stock will be determined by negotiation between the Company and the Representatives and will not necessarily be related to the Company's asset value, net worth, results of operations or other established criteria of value. Among the factors to be considered in determining the initial public offering price of the Common Stock, in addition to prevailing market conditions, are the earnings and certain other financial operating information of the Company in recent periods, the future prospects of the Company and its industry in general, an assessment of the management of the Company, the Company's capital structure, the general conditions of the securities market at the time of the Offering and the market prices of securities and certain financial and operating information of companies engaged in activities similar to those of the Company. There can, however, be no assurance that the prices at which the Common Stock will sell in the public market after this Offering will not be lower than the price at which it is sold in the Offering by the Underwriters. 47 The Company and all of its existing stockholders, directors and executive officers have agreed not to sell, issue, distribute or otherwise dispose of any shares of Common Stock for a period of 12 months and 24 months, respectively from the date of this Prospectus, subject to certain limited exceptions, without the prior written consent of Brean Murray. The Company has agreed to reimburse the Underwriters for $300,000 of the Underwriters' non-accountable out-of-pocket expenses (including fees of their counsel) in connection with the sale of the Common Stock offered hereby. The Company has also agreed to indemnify the Underwriters or contribute to losses arising out of certain liabilities that may be incurred in connection with the Offering, including liabilities that may arise under the Securities Act. In connection with the Offering, the Company has agreed to sell to the Representatives, for nominal consideration, the Representatives' Warrants to purchase 250,000 shares of Common Stock from the Company (10% of the number of shares offered hereby). The Representatives' Warrants are exercisable, in whole or in part, at an exercise price of 120% of the public offering price set forth on the cover page of this Prospectus or through cashless exercise at any time during the four-year period commencing one year after the date of the Prospectus. The warrant agreement pursuant to which the Representatives' Warrants will be issued will contain provisions providing for adjustment of the exercise price and the number and type of securities issuable upon exercise of the Representatives' Warrants should any one or more of certain specified events occur. The Representatives' Warrants grant to the holders thereof certain rights of registration for the securities issuable upon exercise of the Representatives' Warrants. The Underwriting Agreement provides that, for five years following the date of this Prospectus, each of the Representatives may designate one person, reasonably acceptable to the Company, for election to the Board of Directors. In the event one or both of the Representatives chooses not to exercise this right, then a person may be designated by each Representative to attend all meetings of the Board of Directors for a period of five years; pursuant to this right, Fine Equities has selected Joseph S. Conti to serve as a director effective immediately following the completion of the Offering. See "'Management--Directors and Executive Officers." Brean Murray has not yet designated a person to serve as a member of the Board of Directors of the Company. The Underwriters have informed the Company that they do not intend to make sales to any accounts over which they exercise discretionary authority. In connection with the Offering, certain Underwriters may engage in passive market making transactions in the Common Stock on the Nasdaq NMS immediately prior to the commencement of sales in the Offering, in accordance with Rule 103 of Regulation M. Passive market making consists of displaying bids on the Nasdaq NMS limited by the bid prices of independent market makers and purchases limited by such prices and effected in response to order flow. Net purchases by a passive market maker on each day are limited to a specified percentage of the passive market maker's average daily trading volume in the Common Stock during a specified period and must be discontinued when such limit is reached. Passive market making may stabilize the market price of the Common Stock at a level above that which might otherwise prevail and, if commenced, may be discontinued at any time. In connection with the Offering, the Underwriters and selling group members, if any, may engage in stabilizing, syndicate short covering transactions, penalty bids or other transactions during the Offering that may stabilize, maintain or otherwise affect the market price of the Common Stock at a level above that which might otherwise prevail in the open market. Stabilizing transactions are bids for and purchases of the Common Stock for the purpose of preventing or retarding a decline in the market price of the Common Stock to facilitate the Offering. Syndicate short covering transactions are bids to 48 purchase and actual purchases of Common Stock on behalf of the Underwriters to provide them with enough Common Stock to deliver to those purchasing Common Stock in the Offering. A penalty bid is an arrangement that permits the Representatives to reclaim a selling concession when the Common Stock originally sold by the syndicate member is purchased in a syndicate covering transaction. Such stabilizing, syndicate short covering transactions, penalty bids and other transactions, if commenced, may be discontinued at any time. 49 LEGAL MATTERS The validity of the shares of Common Stock being offering hereby will be passed upon for the Company by Hogan & Hartson L.L.P., Washington, D.C., and for the Underwriters by Baker & McKenzie, New York, New York. Certain matters of Polish law will be passed upon for the Company by Hogan & Hartson, Warsaw, Poland and for the Underwriters by Baker & McKenzie, Warsaw, Poland. EXPERTS The consolidated financial statements of the Company as of December 31, 1996 and 1997 and for each of the three years in the period ended December 31, 1997 appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young Audit Sp. z o.o., Warsaw, Poland, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of said firm as experts in accounting and auditing. ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES CEDC is organized under the laws of the State of Delaware. Although investors in the Common Stock will be able to effect service of process in the United States upon CEDC and may be able to effect service of process upon its directors, due to the fact that CEDC is primarily a holding company which holds stock in Carey Agri in Poland, substantially all of the assets of CEDC are located outside the United States. As a result, it may not be possible for investors to enforce against CEDC's assets judgment of United States courts predicated upon the civil liability provisions of United States laws. CEDC has been advised by its counsel, Hogan & Hartson L.L.P., that there is doubt as to the enforceability in Poland, in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated solely upon the laws of the United States. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in Poland. AVAILABLE INFORMATION CEDC has filed with the SEC a Registration Statement on Form S-1 (herein, together with all amendments, exhibits and schedules thereto, referred to as the "Registration Statement") under the Securities Act with respect to the Common Stock offered hereby. This Prospectus, which is part of the Registration Statement, does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information with respect to the Company and the Common Stock, reference is hereby made to the Registration Statement. As a result of the Offering, CEDC will become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, will file reports and other information with the SEC. CEDC intends to furnish its stockholders with annual reports containing financial statements audited by its independent public accountants. The Registration Statement, including the exhibits and schedules thereto, and reports and other information filed by the Company with the SEC can be inspected without charge and copied, upon payment of prescribed rates, at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at 7 World Trade Center, 13th Floor, New York, New York 10048 and the Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material and any part thereof will also be available by mail from the Public Reference Section of the SEC, at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates, and via the SEC's address on the World Wide Web at http://www.sec.gov. 50 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors........................................... F-2 Consolidated Balance Sheets at December 31, 1996 and 1997................ F-3 Consolidated Statements of Income for the years ended December 31, 1995, 1996 and 1997........................................................... F-5 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1995, 1996 and 1997.................................. F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997..................................................... F-7 Notes to Consolidated Financial Statements............................... F-8
F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Central European Distribution Corporation We have audited the accompanying consolidated balance sheets of Central European Distribution Corporation as of December 31, 1997 and 1996 and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Central European Distribution Corporation at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with accounting principles generally accepted in the United States of America. /s/ Ernst & Young Audit Sp. zo.o. Warsaw, Poland March 20, 1998, F-2 CENTRAL EUROPEAN DISTRIBUTION CORPORATION CONSOLIDATED BALANCE SHEETS AMOUNTS IN COLUMNS EXPRESSED IN THOUSANDS OF US DOLLARS
DECEMBER 31, DECEMBER 31, 1996 1997 ------------ ------------ ASSETS Current Assets Cash............................................... 740 1,053 Accounts receivable, net of allowance for doubtful accounts of $49,000 and $94,000, respectively..... 4,211 6,970 Inventories........................................ 1,660 3,280 Prepaid expenses and other current assets.......... 172 235 Deferred income taxes.............................. 106 103 ----- ------ Total Current Assets............................. 6,889 11,641 Equipment, net....................................... 442 503 Deferred charges..................................... 4 386 ----- ------ Total Assets....................................... 7,335 12,530 ===== ======
See accompanying notes. F-3 CENTRAL EUROPEAN DISTRIBUTION CORPORATION CONSOLIDATED BALANCE SHEETS--(CONTINUED) AMOUNTS IN COLUMNS EXPRESSED IN THOUSANDS OF US DOLLARS
DECEMBER 31, DECEMBER 31, 1996 1997 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Trade accounts payable............................. 5,140 9,790 Bank loans and overdraft facilities................ 856 925 Income taxes payable............................... 6 36 Taxes other than income taxes...................... 720 763 Other accrued liabilities.......................... 132 286 Current portion of long-term debt and capital lease obligations....................................... 152 349 ----- ------ Total Current Liabilities........................ 7,006 12,149 Long-term debt, less current maturities.............. 205 35 Capital lease obligations, less current portion...... 98 12 Stockholders' Equity Preferred Stock ($0.01 par value, 1,000,000 shares authorized; no shares issued and outstanding)..... -- -- Common Stock ($0.01 par value, 20,000,000 shares authorized, 1,780,000 shares issued and outstand- ing).............................................. 18 18 Additional paid-in-capital......................... 36 36 Retained earnings (accumulated deficit)............ (28) 280 ----- ------ Total Stockholders' Equity....................... 26 334 ----- ------ Total Liabilities and Stockholders' Equity....... 7,335 12,530 ===== ======
See accompanying notes. F-4 CENTRAL EUROPEAN DISTRIBUTION CORPORATION CONSOLIDATED STATEMENTS OF INCOME AMOUNTS IN COLUMNS EXPRESSED IN THOUSANDS OF US DOLLARS (EXCEPT PER SHARE DATA)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1996 1997 ------------ ------------ ------------ Net sales............................... 16,017 23,942 40,189 Cost of goods sold...................... 13,113 19,850 34,859 ------ ------ ------ Gross profit............................ 2,904 4,092 5,330 Sales, general and administrative expenses............................... 2,603 3,569 4,198 ------ ------ ------ Operating income........................ 301 523 1,132 Non-operating income (expense) Interest expense...................... (106) (124) (172) Realized and unrealized foreign currency transaction losses, net..... (84) (232) (326) Other income, net..................... 84 6 15 ------ ------ ------ Income before income taxes.............. 195 173 649 Income tax expense...................... (120) (111) (341) ------ ------ ------ Net income.............................. 75 62 308 ====== ====== ====== Net income per common share, basic and dilutive............................... 0.04 0.03 0.17 ====== ====== ======
See accompanying notes. F-5 CENTRAL EUROPEAN DISTRIBUTION CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AMOUNTS IN COLUMNS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT FOR SHARES
RETAINED COMMON STOCK EARNINGS -------------------- ADDITIONAL PAID- (ACCUMULATED NO. OF SHARES AMOUNT IN-CAPITAL DEFICIT) ------------- ------ ---------------- ------------ Balance at December 31, 1994 (Note 1).................. 1,780,000 18 36 (165) Net income for 1995........ -- -- -- 75 --------- --- --- ---- Balance at December 31, 1995...................... 1,780,000 18 36 (90) Net income for 1996........ -- -- -- 62 --------- --- --- ---- Balance at December 31 1996...................... 1,780,000 18 36 (28) Net income for 1997........ -- -- -- 308 --------- --- --- ---- Balance at December 31, 1997...................... 1,780,000 18 36 280 ========= === === ====
See accompanying notes. F-6 CENTRAL EUROPEAN DISTRIBUTION CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS AMOUNTS IN COLUMNS EXPRESSED IN THOUSANDS OF US DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1996 1997 ------------ ------------ ------------ Operating Activities Net income............................. 75 62 308 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization.......... 36 67 168 Deferred income taxes (benefit)........ 6 (18) (1) Gain on the disposal of equipment...... (5) (7) (3) Bad debt provision..................... 34 19 48 Changes in operating assets and liabilities: Accounts receivable................... (1,108) (2,652) (2,807) Inventories........................... (480) (612) (1,620) Prepayments and other current assets............................... 14 (84) (63) Trade accounts payable................ 918 2,915 4,650 Income and other taxes................ 80 613 73 Other accrued liabilities ............ 349 (271) 0 ------ ------- ------- Net Cash (Used In) Provided by Operating Activities................ (81) 32 753 Investing Activities Purchases of equipment................. (62) (336) (240) Proceeds from the disposal of equipment............................. 23 264 60 ------ ------- ------- Net Cash Used In Investing Activities.......................... (39) (72) (180) Financing Activities Borrowings on overdraft facility....... 8,465 17,531 12,892 Payment of overdraft facility.......... (8,210) (17,747) (12,608) Payment of capital lease obligations... -- (62) (183) Short-term borrowings.................. 379 840 600 Payment of short-term borrowings....... (350) (402) (815) Long-term borrowings................... 200 205 87 Payment of long-term borrowings........ (20) (180) (9) Costs paid in connection with planned public offering....................... -- -- (224) ------ ------- ------- Net Cash Provided by (Used In) Financing Activities................ 464 185 (260) ------ ------- ------- Net Increase in Cash.................... 344 145 313 Cash at beginning of period............. 251 595 740 ------ ------- ------- Cash at end of period................... 595 740 1,053 ====== ======= =======
See accompanying notes. F-7 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS 1. ORGANIZATION AND DESCRIPTION OF BUSINESS Central European Distribution Corporation (CEDC) was organized as a Delaware Corporation in September 1997 to operate as a holding company through its sole subsidiary, Carey Agri International Poland Sp. z o.o. (Carey Agri). CEDC and Carey Agri are referred to herein as the Company. CEDC's authorized capital stock consists of 20.0 million shares of common stock, $0.01 par value, and 1.0 million shares of preferred stock, also $0.01 par value. No shares of preferred stock have been issued and its terms and conditions will be established by the Board of Directors at a later date. In November 1997, CEDC issued 1,780,000 shares of its common stock to the former stockholders of Carey Agri in exchange for all the issued and outstanding shares of Carey Agri. This reorganization resulted in no changes in relative equity interests among the stockholders and no adjustments of the underlying net assets of Carey Agri. The new capital structure has been reported in a manner comparable to a pooling of interests in the accompanying consolidated financial statements. All share and per share data have been presented in accordance with the new capital structure. Carey Agri is a Polish limited liability company with headquarters in Warsaw, Poland. Carey Agri distributes alcoholic beverages throughout Poland and all activities are conducted within that country. It currently has branches in the following Polish cities: Warsaw, Krakow, Szczecin, Gdynia, Wroclaw, Torun, Siemianowice and Poznan. Pursuant to Polish statutory requirements, Carey Agri may pay an annual dividend, based on its audited Polish financial statements, to the extent of its retained earnings as defined. At December 31, 1997, approximately $335,000 was available for payment of dividends. 2. ACCOUNTING POLICIES The significant accounting policies and practices followed by the Company are as follows: Basis of Presentation Since CEDC had no operations prior to September 1997, the accompanying consolidated financial statements related to the period to this date reflect the activities of Carey Agri only. Carey Agri maintains its books of account and prepares its financial statements in Polish zloties (PLN) in accordance with Polish statutory requirements and the Accounting Act of 29 September 1994. The exchange rate was approximately 3.5 PLN per USD at December 31, 1997. The accompanying consolidated financial statements include adjustments, translations, and reclassifications, which are appropriate to present the Company's consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (US GAAP). Foreign Currency Translation and Transactions As stated above, Carey Agri maintains its books of account in Polish zloties. The accompanying consolidated financial statements have been prepared in US Dollars. Transactions and balances not already measured in US Dollars (primarily Polish zloties) have been remeasured into US Dollars in accordance with the relevant provisions of US Financial Accounting Standard (FAS) No. 52 "Foreign Currency Translation" as applied to entities in highly inflationary economies. F-8 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS Under FAS No. 52, revenues, costs, capital and non-monetary assets and liabilities are translated at historical exchange rates prevailing on the transaction dates. Monetary assets and liabilities are translated at exchange rates prevailing on the balance sheet date. Exchange gains and losses arising from remeasurement of monetary assets and liabilities that are not denominated in US Dollars are credited or charged to operations. Effective January 1, 1998, the Company will no longer consider Poland to be a hyper-inflationary economy. Therefore, the Company will cease accounting for its Polish activities using provisions applicable to hyper-inflationary economies on January 1, 1998. See the discussion below regarding the effect of this change on comprehensive income. Equipment Equipment is stated at cost, less accumulated depreciation. Depreciation is computed by the straight-line method over the following useful lives:
TYPE DEPRECIATION LIFE IN YEARS ---- -------------------------- Transportation Equipment......................... 6 Beer Dispensing and Other Equipment.............. 2-10
Equipment under capital lease is depreciated over the shorter of the useful life or the lease term. Revenue Recognition Revenue is recognized when goods are shipped to customers. Advertising and Promotion Costs Advertising and promotion costs are expensed as incurred. Advertising and promotion expense not reimbursed by suppliers was approximately $120,000, $280,000 and $85,000 in 1995, 1996 and 1997, respectively. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. Cost includes customs duty and transportation costs. Inventories are comprised primarily of beer, wine, and spirits. Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates and such differences may be material to the financial statements. Income Taxes The Company computes and records income taxes in accordance with FAS No. 109. F-9 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS Effect of New Accounting Standards Not Yet Adopted In June 1997, the Financial Accounting Standards Board (FASB) issued its Statement No. 130, "Reporting Comprehensive Income." This standard will be effective for the Company in the three months ending March 31, 1998, and it requires the disclosure of comprehensive income which is defined as all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income will include net income adjusted by, among other items, foreign currency translation adjustments. As disclosed in this Note 2, the Company remeasures transactions and results of its Polish subsidiary in accordance with FAS No. 52 as applied to entities in highly inflationary economies. Therefore, exchange gains and losses arising from remeasurement of these monetary assets and liabilities are credited or charged to net income. However, in 1998 since Poland will not be considered a highly inflationary economy, these remeasurements will be recorded as a separate component of equity and, under FAS No. 130, included as part of comprehensive income. In June 1997, the FASB issued its Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." The standard will be effective for the Company in the year ending December 31, 1998, and it requires, among other provisions, that a public business enterprise report financial and descriptive information about its reportable operating segments. The Company does not expect the adoption of FAS No. 131 to have a material impact on the disclosures contained in its financial statements. Net Income Per Common Share Net income per common share is calculated under the provisions of FAS No. 128, "Earnings per Share". The average number of shares outstanding was 1,780,000 during each of the periods. The stock options and warrants discussed in Note 11 were not included in the computation of diluted earnings per common share as the Company believes the exercise price would be greater than or equal to the average market price of the common shares and, therefore, the effect would be antidilutive. 3. EQUIPMENT Equipment, presented net of accumulated depreciation in the balance sheets, consists of:
DECEMBER 31, DECEMBER 31, 1996 1997 ------------ ------------ Transportation Equipment........................... 174 259 Beer Dispensing and Other Equipment................ 433 523 ---- ---- 607 782 Less accumulated depreciation...................... (165) (279) ---- ---- Equipment, net..................................... 442 503 ==== ====
F-10 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS 4. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, DECEMBER 31, 1996 1997 ------------ ------------ Loan denominated in US Dollars..................... 205 205 Loans denominated in Polish zloty.................. -- 78 Current portion of these loans..................... -- (248) --- ---- Long-term portion.................................. 205 35 === ====
The Company has a revolving credit line with a bank for $205,000 at December 31, 1996 and 1997. The line can be used for various purposes such as an overdraft facility, loan for letters of credit, or for loans for guarantees made by the Company. Currently, the loan is being used for working capital purposes with annual interest equal to the bank's dollar base rate (approximately 10% at December 31, 1996 and 1997). The loan is collateralized by a bill of exchange and personal guaranties by two officers and directors of the Company. Maturity was scheduled for March 15, 1997, but was extended through December 15, 1998 in accordance with an amendment dated October 14, 1997. The interest rate was changed to the bank's Amerbank LIBOR rate plus 3.5% (approximately 9.5% at December 31, 1997). Late payments are subject to a default interest rate of 25% per annum. Installments of $17,000 are due monthly beginning January 15, 1998 with $18,000 due on December 15, 1998. Therefore, the entire $205,000 is due in 1998. The Company has seven loans which were used to purchase five cars, one truck and one fork-lift. The loans are denominated in Polish zloty and have an interest rate equal to WIBOR (Warsaw Inter-Bank Rate) plus 3% (29.1% at December 31, 1997). The loans are repayable in twenty-four equal monthly installments through late 1999. These loans are collateralized by blank bills of exchange, the equipment financed (net book value of $83,000 at December 31, 1997) and the assignment of an insurance policy on the equipment financed. 5. LEASE OBLIGATIONS Certain non-cancelable leases are classified as capital leases, and the leased assets are included as part of equipment. Other leases are classified as operating leases and are not capitalized. The depreciation for assets under capital leases is included in depreciation expense. Details of the capitalized leased assets are as follows:
DECEMBER 31, DECEMBER 31, 1996 1997 ------------ ------------ Transportation equipment........................... 88 121 Beer dispensing equipment.......................... 252 206 --- ---- 340 327 Less accumulated depreciation...................... (60) (168) --- ---- 280 159 === ====
F-11 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS At December 31, 1997, the future minimum lease payments under operating and capital leases are as follows:
OPERATING CAPITAL LEASES LEASES --------- ------- 1998....................................................... 435 159 1999....................................................... 131 14 2000....................................................... 96 -- 2001....................................................... 62 -- --- --- Total...................................................... 724 173 === Less amounts representing interest costs................... (60) --- Net present value.......................................... 113 Current portion............................................ 101 --- Long-term portion.......................................... 12 ===
Rent expense incurred under operating leases during 1995, 1996 and 1997 was as follows:
1995 1996 1997 ---- ---- ---- Rent expense.................................................. 183 301 583 === === ===
Capitalized leases relate mainly to the leasing of transportation equipment and beer dispensing equipment. Each of these leases expire in 1998 or 1999. Under most of these leases, the Company may purchase the equipment at the end of the lease terms at a price below the expected market value. New capital leases caused non-cash additions to equipment of $28,000, $312,000 and $46,000 in the years ended December 31, 1995, 1996 and 1997, respectively. These are not reflected in the Consolidated Statements of Cash Flows. Operating leases relate mainly to the leasing of the customs warehouse and the consolidation warehouse in Warsaw, the seven regional offices and warehouses, and the retail shop in Warsaw. Monthly rentals range from approximately $570 to $11,000 per month. The customs and consolidation warehouses' leases expire in September 2001. Six of the regional office and warehouse leases can be terminated by either party with two or three months prior notice. The seventh regional office and warehouse lease expires in December 1998. The retail shop lease has no stated expiration date, but can be terminated by either party with three months prior notice. The lessor has waived this right to terminate the agreement until August 2000 providing the Company performs its obligations under the lease. 6. SHORT-TERM BANK LOANS AND OVERDRAFT FACILITIES The Company has an overdraft facility (in Polish zloty, shown in approximate USD equivalent) with a bank (other than the bank referred to in note 4) for $285,000. At December 31, 1996 and 1997 the Company used $16,000 and $0, respectively, of this amount. Interest is equal to PLN WIBOR plus 3.5% (24% and 29.6% at December 31, 1996 and 1997, respectively). The loan matured on July 14, 1997 and was extended through July 29, 1998. The loan is collateralized by a blank bill of exchange, the assignment of receivables from seven of the Company's largest customers (carrying value of $590,000 at December 31, 1997), and a pledge on inventory of $350,000. F-12 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS The Company has two other USD short-term loans with this bank for $350,000 and $240,000 at December 31, 1996 and $350,000 and $0 at December 31, 1997. Interest on each is at LIBOR (1 month) plus 2.75% (8.3% and 8.75% at December 31, 1996 and 1997, respectively). Late payments are subject to a default interest rate 1.5 times the nominal rate of interest. The loans are collateralized by a blank bill of exchange, pledge on inventory of PLN 1,000,000, the assignment of receivables from seven of the Company's largest customers (carrying value of $590,000 at December 31, 1997) and the assignment of an insurance policy on inventory. The $350,000 loan was due on July 29, 1997 but was extended through July 30, 1998. The $240,000 loan was fully paid by June 1997. The Company has short-term USD loans with another bank for $250,000 and $175,000 at December 31, 1996 and 1997, respectively. Interest on the loans is at LIBOR plus 1.5% (7.0% and 7.3% at December 31, 1996 and 1997, respectively). The loan outstanding at December 31, 1996 was paid in March 1997. The loan outstanding at December 31, 1997 was paid in January 1998. On October 7, 1997 the Company signed with a bank (the same bank discussed in Note 10) an agreement for a U.S. Dollar revolving credit line of $200,000. The line is to be used to finance the costs of the planned initial public offering. The loan is to be paid back in full using the proceeds from the planned initial public offering by July 8, 1998. The credit line is collateralized by a blank bill of exchange, a pledge on inventory of PLN 700,000, and the assignment of an insurance policy on inventory. Interest on the loan is at LIBOR (1 month) plus 2.25% (8.25% at December 31, 1997). The amount of borrowings pursuant to the agreement was increased to $300,000 in December 1997. Late payments are subject to a default rate of 25% per annum. On October 27, 1997 the Company signed an agreement with another bank for a short-term loan of $100,000. The proceeds of the loan were used to purchase Bulgarian wine. The annual interest rate equals LIBOR (1 month) plus 2.75% (8.75% at December 31, 1997). The loan is collaterized by a blank bill of exchange. The entire debt was paid in the first quarter of 1998. The Company's borrowing arrangements (including long-term debt described in Note 4) contain various financial and nonfinancial covenants and restrictions which the Company has complied with or have been waived by the lenders. Total interest paid in 1995, 1996 and 1997 is substantially equal to interest expense. The weighted average interest rate for short-term bank loans and overdraft facilities outstanding was 7.91% and 8.31% for U.S. Dollar denominated debt at December 31, 1996 and 1997, respectively, and 24.0% for Polish zloty denominated debt at December 31, 1996. There were no Polish zloty, short- term loan and overdraft facilities outstanding at December 31, 1997. 7. DEFERRED CHARGES Costs incurred in connection with a planned public offering, totaling $378,000, are included in deferred charges in the December 31, 1997 balance sheet. The accrued portion of $154,000 at December 31, 1997 is not reflected in the Consolidated Statements of Cash Flows. If the offering is successful, this amount and other charges incurred subsequently will be charged to stockholders' equity. If the offering is not completed, this amount and other charges incurred subsequently will be charged to expense. F-13 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS 8. FINANCIAL INSTRUMENTS, COMMITMENTS AND CONTINGENT LIABILITIES Financial Instruments With On-Balance Sheet Risk and Their Fair Values Financial instruments with on-balance sheet risk include cash, accounts receivable, certain other current assets, trade accounts payable, bank loans and overdraft facilities, long-term debt, and other payables. These financial instruments are shown separately in the consolidated balance sheets and their carrying values approximate their fair values. This is because all of these financial instruments have short maturity periods or carry interest at rates which approximate current market rates. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivable from Polish companies. The Company restricts temporary cash investments to financial institutions with high credit standing. Credit is given to customers only after a thorough review of their credit worthiness. The Company does not normally require collateral with respect to credit sales. As of December 31, 1996 and 1997, the Company had no significant concentrations of credit risk. The Company has not experienced large credit losses in the past. Inflation and Currency Risk Since the fall of Communist rule in 1989, Poland has experienced high levels of inflation and significant fluctuations in the exchange rate for the zloty. The Polish government has adopted policies that slowed the annual rate of inflation from approximately 250% in 1990 to approximately 18% in 1996 and 14% in 1997. In addition, the exchange rate for the zloty has stabilized and the rate of devaluation of the zloty has decreased since 1991. However, inflation and currency exchange fluctuations have had, and may continue to have, an adverse effect on the financial condition and results of operations of the Company. A significant portion of the Company's debt obligations and operating expenses are, and are expected to continue to be, denominated in or indexed to U.S. Dollars or other non-Polish currency. By contrast, substantially all of the Company's revenue is denominated in zloty. Any devaluation of the zloty against the U.S. Dollar or other currencies that the Company is unable to offset through price adjustments will require the Company to use a larger portion of its revenue to service its non-zloty denominated obligations. While the Company may consider entering into transactions to hedge the risk of exchange rate fluctuations, it is unlikely that the Company will be able to obtain hedging arrangements on commercially satisfactory terms. Accordingly, shifts in currency exchange rates may have an adverse effect on the ability of the Company to service its non-zloty denominated obligations and, thus, on the Company's financial condition and results of operations. Supply contracts The Company has various agreements covering its sources of supply which, in some cases, may be terminated by either party on relatively short notice. Thus there is a risk that a significant portion of the Company's supply of products could be curtailed at any time. Contingent liabilities The Company is involved in litigation and has claims against it for matters arising in the ordinary course of business. In the opinion of management, the outcome will not have a material adverse effect on the Company. F-14 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS 9. INCOME TAXES Income tax expense consists of the following:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1996 1997 ------------ ------------ ------------ Current Polish income tax expense... 114 129 342 Deferred Polish income tax (credit) expense, net....................... 6 (18) (1) --- --- --- Total income tax expense.......... 120 111 341 === === ===
Total Polish income tax payments (or amounts used as settlements against other statutory liabilities) during 1995, 1996 and 1997 were $112,000, $130,000 and $295,000 respectively. Total income tax expense varies from expected income tax expense computed at Polish statutory rates (40% in 1995 and 1996 and 38% in 1997) as follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1996 1997 ------------ ------------ ------------ Tax at Polish statutory rate........ 78 69 247 Bad debt expense not expected to be tax deductible..................... 6 4 15 Effect of foreign currency exchange rate change on net deferred tax as- sets............................... 3 13 23 Permanent differences: Interest on overdue taxes......... 2 5 8 Non-deductible social taxes....... 5 7 11 Non-deductible depreciation....... 3 4 7 Non-deductible interest paid...... 13 -- -- Other non-deductible expenses......................... 10 9 30 --- --- --- Income tax expense.................. 120 111 341 === === ===
F-15 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS Significant components of the Company's deferred tax liabilities and assets are as follows:
DECEMBER 31, DECEMBER 31, 1996 1997 ------------ ------------ Deferred tax liabilities: Depreciation and other fixed asset basis differences................................... 33 -- Prepaid expenses............................... 7 -- --- --- Total deferred tax liabilities................... 40 -- Deferred tax assets: Allowance for doubtful accounts receivable..... 19 23 Depreciation and other fixed asset basis differences................................... -- 8 Unrealized foreign exchange losses............. 31 53 Accrued expenses and deferred income........... 50 27 Capital lease obligations...................... 69 23 CEDC operating loss carryforward benefit....... -- 10 --- --- Total deferred tax assets........................ 169 144 Less valuation allowance......................... (19) (33) --- --- Deferred tax assets, net of valuation allowance.. 150 111 --- --- Net deferred tax asset........................... 110 111 === === Shown as: Current deferred tax asset..................... 106 103 Long-term deferred tax asset (included in deferred charges)............................. 4 8 --- --- 110 111 === ===
Valuation allowances are provided when it is more likely than not that some or all of the deferred tax assets will not be realized in the future. These evaluations are based on expected future taxable income and expected reversals of the various net deductible temporary differences. Management intends that the undistributed earnings from the Polish subsidiary of $335,000 will be permanently reinvested. Therefore, no deferred taxes have been created for these earnings. If the earnings were distributed in the form of a dividend or otherwise, a portion would be subject to both U.S. income taxes and Polish withholding taxes, less an adjustment for foreign tax credits. The Company estimates the deferred tax liability to be approximately $20,000 based on the undistributed earnings of Carey Agri at December 31, 1997. This amount would, in part, be available to reduce some portion of U.S. tax liability from foreign source income. Determination of the actual amount of U.S. income tax liability that would be incurred is complex and subject to various factors existing at the time of any distribution of foreign earnings to CEDC. The corporate income tax rates in Poland were changed effective January 1, 1997 from 40% in 1995 and 1996 to 38% in 1997, 36% in 1998, 34% in 1999, and 32% in 2000. Carey Agri's tax liabilities (including corporate income tax, Value Added Tax, social security, and other taxes) may be subject to examinations by Polish tax authorities for up to five years from the end of the year the tax is payable. CEDC's US federal income tax returns will also be subject to examination by US tax authorities. Because the application of tax laws and regulations to many types F-16 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determination by the tax authorities. 10. RELATED PARTY TRANSACTIONS Loan to Officer The Company has an advance receivable (denominated in PLN without interest) from its President which has a balance at December 31, 1997 of $24,000. Bank Borrowing A director of CEDC is a vice president and member of the management board of the bank from which the Company has borrowings of $505,000 at December 31, 1997 (Notes 4, 6 and 12). Supplier of Wine A director of CEDC is a director of one of the Company's suppliers of wine. Purchases from this company amounted to approximately $185,000, $300,000 and $570,000 in 1995, 1996 and 1997, respectively. Receivable from Affiliate During 1997, the Company wrote off a receivable of approximately $4,000 from an affiliated company. 11. STOCK OPTION PLANS AND WARRANTS In October 1995, the United States Financial Accounting Standards Board issued FAS No. 123, "Accounting for Stock-Based Compensation." This standard defines a fair value based method of accounting for an employee stock option or similar equity instrument plan. This statement gives entities a choice of recognizing related compensation expense by adopting the fair value method or to measure compensation using the intrinsic value approach under Accounting Principles Board (APB) Opinion No. 25, the former standard. If APB No. 25 is elected, FAS No. 123 requires supplemental disclosure to show the effects of using the FAS No. 123 measurement criteria. The Company has elected to follow APB No. 25. Incentive Plan In November 1997, the CEDC 1997 Stock Incentive Plan ("Incentive Plan") was created. This Incentive Plan provides for the grant of stock options, stock appreciation rights, restricted stock and restricted stock units to directors, executives, and other employees of CEDC and any of its subsidiaries or of any service provider. The Incentive Plan authorizes the issuance of up to 400,000 shares of Common Stock (subject to anti-dilution adjustments in the event of a stock split, recapitalization, or similar transaction). The compensation committee of the board of directors will administer the Incentive Plan. The Company has reserved 400,000 shares for future issuance in relation to the Incentive Plan. The Company plans to increase the number of shares the Incentive Plan is authorized to issue, and the reserved shares for future issuance, to 750,000 in May 1998. The option exercise price for incentive stock options granted under the Incentive Plan may not be less than 100% of the fair market value of the Common Stock on the date of grant of the option. Options may be exercised up to 10 years after grant, except as otherwise provided in the particular F-17 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS option agreement. Payment for shares purchased under the Incentive Plan shall be made in cash or cash equivalents. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of stock of CEDC, however, the exercise price of any incentive stock option granted must equal at least 110% of the fair market value on the grant date and the maximum term of an incentive stock option must not exceed five years. Options granted under the Incentive Plan are generally not transferable and may be exercised within a specific number of months, depending on the reason, after the termination of the optionee's employment. CEDC'S board of directors may amend the Incentive Plan with respect to common shares as to which grants have not been made. However, CEDC's stockholders must approve any amendments in certain situations. CEDC has granted stock options to its executive officers and members of the Board of Directors for 82,500 shares of Common Stock in connection with a planned public offering. If the public offering is not consummated, these options will be null and void. The exercise price for 57,500 of these options is the initial public offering price. The exercise price of 10,000 options will be the average trading price of Common Stock for the last five trading days of 1998. The exercise price of 15,000 options will be the average trading price of Common Stock for the last five trading days of 1999. As indicated above, the Incentive Plan also authorizes the grant of stock appreciation rights, restricted stock, and restricted stock units. No such grants or awards have yet been made. Under APB 25, no expense has been recognized for options granted under the Incentive Plan as the exercise price is equal to the initial public offering price. For purposes of pro-forma information regarding net income and earnings per share as required by FAS No. 123, the Company has estimated the fair market value of the stock underlying these options to be approximately 50% of the planned public offering price due to various uncertainties as of the time of grant. This is less than the present value of the expected exercise price. Therefore, the fair value of the options granted in 1997 as of the grant date has been estimated to be minimal under the provisions of FAS No. 123. Warrants In connection with the planned public offering, the Company has agreed to sell to the Representatives or their designees (for a nominal consideration) warrants to purchase 250,000 shares of Common Stock from the Company. The warrants are exercisable at any time during a period of four years commencing one year from the date of this Prospectus. The exercise price of the warrants is 120% of the initial public offering price. F-18 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) AMOUNTS IN TABLES EXPRESSED IN THOUSANDS OF US DOLLARS 12. ALLOWANCE FOR DOUBTFUL ACCOUNTS Changes in the allowance for doubtful accounts during each of the three years in the period ended December 31, 1997 were as follows;
YEAR ENDED DECEMBER 31, ------------------------- 1995 1996 1997 ------- ------- ------- Balance, beginning of year........................... 60 36 49 Provision for bad debts.............................. 34 19 48 Charge-offs, net of recoveries....................... (58) (6) (3) ------- ------- ------- Balance, end of year................................. 36 49 94 ======= ======= =======
13. SUBSEQUENT EVENTS Long-Term Debt In the first quarter of 1998, the Company entered into an additional loan agreement. This loan was used to purchase two cars, two trucks and some warehouse equipment. The loan is denominated in PLN and equaled a USD equivalent of approximately $100,000. The loan is to be repaid in twenty-four equal installments through January 2000. The loan has an interest rate equal to WIBOR + 3% (29.5% in January 1998 ). This loan is collateralized by blank bills of exchange, the equipment financed, and the assignment of an insurance policy on the equipment financed. Short-Term Bank Loan In the first quarter of 1998, the Company entered into a short-term bank loan with the bank mentioned in Note 10 for $725,000 at an interest rate equal to LIBOR + 2.7% (8.45% in March 1998). The loan is due in full on May 21, 1998. These loans are collateralized by blank bills of exchange, the equipment financed and the assignment of an insurance policy on the equipment financed. F-19 LOGO PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following are the estimated expenses payable by the Company in connection with the distribution of the Common Stock hereunder, not including the Representatives' non-accountable expense allowance. SEC registration fee.............................................. $9,853.53 NASD filing fee................................................... 3,357.23 Nasdaq National Market System listing fee......................... * Accounting fees and expenses...................................... * Legal fees and expenses........................................... * Printing and engraving expenses................................... * Transfer Agent fees and expenses.................................. 3,500.00 Miscellaneous expenses............................................ * --------- Total........................................................... $ * =========
- -------- * To be furnished by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Under Section 145 of the Delaware General Corporation Law ("DGCL"), a corporation may indemnify its directors, officers, employees and agents and its former directors, officers, employees and agents and those who serve, at the corporation's request, in such capacities with another enterprise, against expenses (including attorneys' fees), as well as judgments, fines and settlements in nonderivative lawsuits, actually and reasonably incurred in connection with the defense of any action, suit or proceeding in which they or any of them were or are made parties or are threatened to be made parties by reason of their serving or having served in such capacity. The DGCL provides, however, that such person must have acted in good faith and in a manner such person reasonably believed to be in (or not opposed to) the best interests of the corporation and, in the case of a criminal action, such person must have had no reasonable cause to believe his or her conduct was unlawful. In addition, the DGCL does not permit indemnification in an action or suit by or in the right of the corporation, where such person has been adjudged liable to the corporation, unless, and only to the extent that, a court determines that such person fairly and reasonably is entitled to indemnity for costs the court deems proper in light of liability adjudication. Indemnity is mandatory to the extent a claim, issue or matter has been successfully defended. The Registrant's Certificate of Incorporation and Bylaws provide for the indemnification of directors and executive officers to the fullest extent permitted by the DGCL and authorize the indemnification by the Registrant of other officers, employees and other agents as set forth in the DGCL. The Underwriting Agreement provides for indemnification by the Underwriters of the directors, officers and controlling persons of the Company against certain liabilities, including liabilities under the Securities Act, under certain circumstances. Upon completion of the Offering, officers and directors of the Registrant will be covered by insurance which (with certain exceptions and within certain limitations) indemnifies them against losses and liabilities arising from any alleged "wrongful act" including any alleged error or misstatement or misleading statement, or wrongful act or omission or neglect or breach of duty. II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES All the holders of shares of common stock of Carey Agri International Poland Sp. z o.o ("Carey Agri") and the Registrant entered into a Contribution Agreement dated as of November 28, 1997 (the "Contribution Agreement"). Pursuant to the Contribution Agreement, all holders of shares of Carey Agri's common stock transferred all shares of common stock owned by them to the Registrant, receiving 1,780,000 shares of the Common Stock in return. All of these transfers were designed to qualify as a tax-free exchange under section 351 of the Internal Revenue Code of 1986, as amended. These transfers were made pursuant to Section 4(2) of the Securities Act of 1933, as amended. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NUMBER EXHIBIT DESCRIPTION --------- ------------------- 1 --Form of Underwriting Agreement. **2.1 --Contribution Agreement among Central European Distribution Corporation and William V. Carey, William V. Carey Stock Trust, Estate of William O. Carey and Jeffrey Peterson dated November 28, 1997. **3.1 --Certificate of Incorporation. **3.2 --Bylaws. **4.1 --Form of Common Stock Certificate. 4.2 --Form of Warrant Agreement and attached form of Representatives' Warrant. *5 --Opinion of Hogan & Hartson L.L.P. **10.1 --1997 Stock Incentive Plan. *10.1(a) --Amendment to 1997 Stock Incentive Plan **10.2 --Distribution contract between Carey Agri and Guinness Brewing Worldwide Ltd. dated July 31, 1997. **10.3 --Distribution contract between Carey Agri and Pilsner Urquell dated December 13, 1996. **10.4 --Distribution contract between Carey Agri and United Distillers Finlandia Group Sp. z o.o dated January 1, 1995. **10.5 --Form of distribution contract with Polmos vodka producers. **10.6 --Distribution contract with UDV Poland Sp. z o.o. dated July 3, 1997. 10.6(a) --Amendment, undated, to the distribution contract with UDV Poland Sp. z o.o dated July 3, 1997. 10.7 --Distribution contract between Carey Agri and Guinness Brewing Worldwide Ltd. dated November 17, 1997. 10.8 --Contract with Vinexport Trading Company Ltd. dated December 31, 1997. **10.9 --Employment agreement with William V. Carey. **10.10 --Employment agreement with Jeffrey Peterson. 10.11 --Employment agreement between Robert Bohojlo and the Company. 10.12 --Employment agreement between Robert Bohojlo and Carey Agri. **21 --Subsidiaries of the Registrant. 23.1 --Consent of Ernst & Young Audit Sp. z o.o. *23.2 --Consent of Hogan & Hartson L.L.P. (included in Exhibit 5). 23.3 --Consent of Joseph S. Conti. **24 --Power of Attorney (included on the signature page in Part II of this Registration Statement). 27 --Financial Data Schedule.
- -------- * To be filed by amendment. ** Previously filed. II-2 ITEM 17. UNDERTAKINGS The Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission (the "Commission") such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby further undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time the Commission declared it effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered in this Registration Statement, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ALEXANDRIA, COMMONWEALTH OF VIRGINIA, ON THIS 17TH DAY OF APRIL 1998. Central European Distribution Corporation By: /s/ William V. Carey --------------------------------- WILLIAM V. CAREY CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS WILLIAM V. CAREY AND JEFFREY PETERSON, JOINTLY AND SEVERALLY, EACH IN HIS OWN CAPACITY, HIS TRUE AND LAWFUL ATTORNEYS-IN- FACT, WITH FULL POWER OF SUBSTITUTION, FOR HIM AND HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST- EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS WITH FULL POWER AND AUTHORITY TO DO SO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT, OR THEIR SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF. IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS, IN THE CAPACITIES INDICATED BELOW, ON THIS 17TH DAY OF APRIL 1998. SIGNATURE TITLE /s/ William V. Carey Chairman, President and Chief - ------------------------------------- Executive Officer (Principal WILLIAM V. CAREY executive officer) /s/ Jeffrey Peterson Vice Chairman and Executive Vice - ------------------------------------- President JEFFREY PETERSON /s/ Robert Bohojlo Vice President and Chief Financial - ------------------------------------- Officer (Principal financial and ROBERT BOHOJLO accounting officer) /s/ James T. Grossmann Director - ------------------------------------- JAMES T. GROSSMANN /s/ James B. Kelly Director - ------------------------------------- JAMES B. KELLY /s/ Jan W. Laskowski Director - ------------------------------------- JAN W. LASKOWSKI /s/ Joe M. Richardson Director - ------------------------------------- JOE M. RICHARDSON II-4 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT DESCRIPTION --------- ------------------- 1 --Form of Underwriting Agreement. **2.1 --Contribution Agreement among Central European Distribution Corporation and William V. Carey, William V. Carey Stock Trust, Estate of William O. Carey and Jeffrey Peterson dated November 28, 1997. **3.1 --Certificate of Incorporation. **3.2 --Bylaws. **4.1 --Form of Common Stock Certificate. 4.2 --Form of Warrant Agreement and attached form of Representatives' Warrant. *5 --Opinion of Hogan & Hartson L.L.P. **10.1 --1997 Stock Incentive Plan. *10.1(a) --Amendment to 1997 Stock Incentive Plan **10.2 --Distribution contract between Carey Agri and Guinness Brewing Worldwide Ltd. dated July 31, 1997. **10.3 --Distribution contract between Carey Agri and Pilsner Urquell dated December 13, 1996. **10.4 --Distribution contract between Carey Agri and United Distillers Finlandia Group Sp. z o.o dated January 1, 1995. **10.5 --Form of distribution contract with Polmos vodka producers. **10.6 --Distribution contract with UDV Poland Sp. z o.o. dated July 3, 1997. 10.6(a) --Amendment, undated, to the distribution contract with UDV Poland Sp. z o.o dated July 3, 1997. 10.7 --Distribution contract between Carey Agri and Guinness Brewing Worldwide Ltd. dated November 17, 1997. 10.8 --Contract with Vinexport Trading Company Ltd. dated December 31, 1997. **10.9 --Employment agreement with William V. Carey. **10.10 --Employment agreement with Jeffrey Peterson. 10.11 --Employment agreement between Robert Bohojlo and the Company. 10.12 --Employment agreement between Robert Bohojlo and Carey Agri. **21 --Subsidiaries of the Registrant. 23.1 --Consent of Ernst & Young Audit Sp. z o.o. *23.2 --Consent of Hogan & Hartson L.L.P. (included in Exhibit 5). 23.3 --Consent of Joseph S. Conti. **24 --Power of Attorney (included on the signature page in Part II of this Registration Statement). 27 --Financial Data Schedule.
- -------- * To be filed by amendment. ** Previously filed. EX-1 2 UNDERWRITING AGREEMENT EXHIBIT 1 CENTRAL EUROPEAN DISTRIBUTION CORPORATION 2,500,000 shares of Common Stock Underwriting Agreement _____, 1998 Brean Murray & Co., Inc. Fine Equities, Inc. As Representatives of the Several Underwriters listed on Schedule I hereto % Brean Murray & Co., Inc. 570 Lexington Avenue New York, New York 10022 Ladies and Gentlemen: Central European Distribution Corporation, a Delaware corporation (the "Company"), proposes to issue and sell to Brean Murray & Co., Inc. ("Brean Murray"), Fine Equities, Inc. ("Fine Equities") and each of the underwriters named in Schedule I hereto (collectively, the "Underwriters") for whom Brean Murray and Fine Equities are acting as representatives (in such capacity, Brean Murray and Fine Equities shall hereinafter be referred to as "you" or the "Representatives"), an aggregate of 2,500,000 shares (the "Firm Shares") of the Company's common stock, par value $.01 per share (the "Common Stock"). The respective amounts of the Firm Shares to be so purchased by the several Underwriters are set forth opposite their names in Schedule I hereto. In addition, the Company proposes to grant to the several Underwriters (or, at the Representatives' option, to the Representatives individually) the option to purchase an aggregate of up to 375,000 additional shares of Common Stock (the "Option Shares"). Unless the context otherwise indicates, the Firm Shares and the Options Shares are hereinafter collectively referred to as the "Shares." You have advised the Company that you and the other Underwriters desire to purchase, severally, the number of Firm Shares set forth opposite their respective names in Schedule I hereto, plus their pro rata portion of the Option Shares if you elect to exercise the aforementioned option in whole or in part for the accounts of the several Underwriters, and that you have been authorized by the Underwriters to execute this Agreement on their behalf. In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto, intending to be legally bound, agree as follows: 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to, and agrees with, each of the Underwriters that: (a) A registration statement (File No. 333-_____) on Form S-1 relating to the public offering of the Shares, including a form of prospectus subject to completion, copies of which have heretofore been delivered to you, has been prepared by the Company in conformity in all material respects with the requirements of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder, and has been filed with the Commission under the Act and one or more amendments to such registration statement may have been so filed. After the execution of this Agreement, the Company will file with the Commission either (i) if such registration statement, as it may have been amended, has been declared by the Commission to be effective under the Act, a prospectus in the form most recently included in an amendment to such registration statement (or, if no such amendment shall have been filed, in such registration statement), with such changes or insertions as are required by Rule 430A under the Act or permitted by Rule 424(b) and Rule 462(b) under the Act and as have been provided to and approved by the Representatives prior to the execution of this Agreement, or (ii) if such registration statement, as it may have been amended, has not been declared by the Commission to be effective under the Act, an amendment to such registration statement, including a form of prospectus, a copy of which amendment has been furnished to and approved by the Representatives prior to the execution of this Agreement. As used in this Agreement, the term "Registration Statement" means such registration statement, as amended at the time, including any such amendment pursuant to Rule 462(b), when it was or is declared effective, including all financial schedules and exhibits thereto and including any information omitted therefrom pursuant to Rule 430A under the Act and including the Prospectus (as hereinafter defined); the term "Preliminary Prospectus" means each prospectus subject to completion filed with such registration statement or any amendment thereto (including the prospectus subject to completion, if any, included in the Registration Statement or any amendment thereto at the time it was or is declared effective); the term "Prospectus" means (A) the prospectus first filed with the Commission pursuant to Rule 424(b) and Rule 462(b) (as applicable) under the Act or (B) if no prospectus is required to be filed pursuant to said Rule 424(b) and Rule 462(b), such term means the prospectus included in the Registration Statement; except that if such registration statement or prospectus is amended or such prospectus is supplemented, after the effective date of such registration statement and prior to the Option Closing Date (as defined in Section 3(b) hereof), the terms "Registration Statement" and "Prospectus" shall mean such registration statement and prospectus as so amended, and the term "Prospectus" shall mean the prospectus as so supplemented, or both, as the case may be; and the term "Term Sheet" means any term sheet that satisfies the requirements of Rule 434 under the Act. Any reference to the "date" of a Prospectus that includes a Term Sheet shall mean the date of such Term Sheet. (b) The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus. At the time the Registration Statement becomes effective and at all times subsequent thereto up to and on the Closing Date (as hereinafter defined) or the Option Closing Date, as the case may be, (i) the Registration Statement and Prospectus will in all material respects conform to the requirements of the Act and the Rules and Regulations; and (ii) neither the Registration Statement nor the Prospectus will include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make statements therein not misleading; provided, however, that the Company makes no representations, warranties or agreements as to information contained in or omitted from the Registration Statement or Prospectus in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of the Underwriters specifically for use in the preparation thereof. It is understood that the statements set forth in the Prospectus on page 2 with respect to stabilization, under the heading "Underwriting" and the identity of counsel to the Underwriters under the heading "Legal Matters" constitute the only information furnished in writing by or on behalf of the several Underwriters for inclusion in the Registration Statement and Prospectus, as the case may be. (c) Each of the Company and Carey Agri International Poland Sp. z o. o., a corporation organized under the laws of Poland (the "Subsidiary"), has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with full corporate power and authority to own its properties and conduct its business as described in the Prospectus and is duly qualified to do business as a foreign corporation and is in good standing in all other jurisdictions in which the nature of its business or the character or location of its properties requires such qualification, except where failure to so qualify will not materially adversely affect the Company's or the Subsidiary's business, properties or financial condition. (d) The authorized, issued and outstanding capital stock of the Company as of December 31, 1997 is as set forth in the Prospectus under "Capitalization"; the shares of issued and outstanding capital stock of the Company set forth thereunder have been duly authorized, validly issued and are fully paid and non-assessable; except as set forth in the Prospectus, no options, warrants, or other rights to purchase, agreements or other obligations to issue, or agreements or other rights to convert any obligation -2- into, any shares of capital stock of the Company have been granted or entered into by the Company; the capital stock conforms in all material respects to all statements relating thereto contained in the Registration Statement and Prospectus; and neither the filing of the Registration Statement nor the offering or sale of the Shares as contemplated by this Agreement gives rise to any registration rights or other rights, other than those which have been waived or satisfied, for or relating to the registration of any shares of Common Stock or other securities of the Company. (e) The Shares to be issued and sold by the Company have been duly authorized, and when issued and delivered against payment therefor pursuant to this Agreement, will be duly authorized, validly issued, fully paid and non-assessable; and no preemptive rights of any security holder of the Company exist with respect to any shares of Common Stock or the issue and sale thereof. The shares of Common Stock issuable upon exercise of the Representatives' Warrants (as defined in Section 13 hereof) have been duly authorized and reserved for issuance upon exercise of the Representatives' Warrants and, when issued and delivered against payment therefor pursuant to the terms and conditions set forth in a Warrant Agreement among the Company and the Representatives (the "Warrant Agreement"), will be validly issued, fully paid and non- assessable and free of preemptive rights and the holders thereof will not be subject to personal liability solely by reason of being such holders. The Warrant Agreement, which will be substantially in the form filed as an exhibit to the Registration Statement, has been duly authorized; and when the Representatives' Warrants are delivered and paid for pursuant to the Warrant Agreement, the Representatives' Warrants will have been duly executed and delivered and will constitute the valid and legally binding obligations of the Company, enforceable in accordance with their terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable). (f) This Agreement and the Warrant Agreement have each been duly and validly authorized, executed and delivered by the Company. The Company has full power and lawful authority to authorize, issue and sell the Shares to be sold by it hereunder on the terms and conditions set forth herein, and no consent, approval, authorization or other order of any governmental authority is required in connection with such authorization, execution and delivery or with the authorization, issue and sale of the Shares or the Representatives' Warrants, except such as may be required under the Act or state securities laws. (g) The Company does not own, directly or indirectly, any capital stock or other equity ownership or proprietary interests in any other corporation, association, trust, partnership, joint venture or other entity other than the Subsidiary. All of the outstanding shares of capital stock of the Subsidiary have been duly authorized and validly issued, are fully paid and nonassessable and free of any preemptive or similar rights, and are owned by the Company, free and clear of any lien, adverse claim, security agreement or other encumbrance and have been issued in compliance with all applicable federal and state securities laws, and no options, warrants, or other rights to purchase, agreements or other obligations to issue, or agreements or other rights to convert any obligation into, any shares of capital stock of the Subsidiary have been granted or entered into by the Company or the Subsidiary; (h) Except as described in the Prospectus, neither the Company nor the Subsidiary is in violation, breach or default of or under, and consummation of the transactions herein contemplated and the fulfillment of the terms of this Agreement will not conflict with, or result in a breach or violation of, any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property or assets of the Company or the Subsidiary pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or the Subsidiary is a party or by which the Company or the Subsidiary -3- may be bound or to which any of the property or assets of the Company or the Subsidiary is subject, nor will such action result in any violation of the provisions of the articles of incorporation or the by-laws (or other organizational documents), as amended, of the Company or the Subsidiary, or any statute or any order, rule or regulation applicable to the Company or the Subsidiary of any court or of any regulatory authority or other governmental body having jurisdiction over the Company or the Subsidiary, except where such violation, breach, default or conflict would not have a material adverse effect on the business, operations and financial condition of the Company and the Subsidiary, taken as a whole (a "Material Adverse Effect"). (i) Each of the Company and the Subsidiary has good and marketable title to all properties and assets described in the Prospectus as owned by it, free and clear of all liens, charges, encumbrances or restrictions, except for such liens, charges, encumbrances or restrictions which could not reasonably be expected to have a Material Adverse Effect; all of the material leases and subleases under which the Company or the Subsidiary is the lessor or sublessor of properties or assets or under which the Company or the Subsidiary hold properties or assets as lessee or sublessee as described in the Prospectus are in full force and effect, and, except as described in the Prospectus, neither the Company nor the Subsidiary is in default with respect to any of the terms or provisions of any of such leases or subleases, except where such default could not reasonably be expected to have a Material Adverse Effect, and no claim has been asserted by anyone that is adverse to rights of the Company or the Subsidiary as lessor, sublessor, lessee or sublessee under any of the leases or subleases mentioned above, or affecting or questioning the right of either the Company or the Subsidiary to continued possession of the leased or subleased premises or assets under any such lease or sublease except as described or referred to in the Prospectus and except for such claims that could not reasonably be expected to have a Material Adverse Effect; and the Company and the Subsidiary own or lease all such properties described in the Prospectus as are necessary to their operations as now conducted and, except as otherwise stated in the Prospectus, as proposed to be conducted as set forth in the Prospectus. (j) Ernst & Young Audit Sp. z o. o., Warsaw, Poland, who has given its reports on certain financial statements filed and to be filed with the Commission as a part of the Registration Statement are, to the Company's knowledge, with respect to the Company, independent public accountants as required by the Act and the Rules and Regulations. (k) The financial statements, together with related notes, set forth in the Prospectus (or if the Prospectus is not in existence, the most recent Preliminary Prospectus) present fairly in all material respects the financial position and results of operations and changes in stockholders' equity and cash flow position of the Company on the basis stated in the Registration Statement, at the respective dates and for the respective periods to which they apply. Said statements and related notes have been prepared in accordance with United States generally accepted accounting principles (except as disclosed in the notes to such financial statements) applied on a basis which is consistent during the periods involved. The information set forth under the captions "Dilution", "Capitalization", and "Selected Financial Data" in the Prospectus fairly present in all material respects, on the basis stated in the Prospectus, the information included therein. (l) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), neither the Company nor the Subsidiary has incurred any liabilities or obligations, direct or contingent, or entered into any transaction, which is material to the business of the Company or the Subsidiary (considered as one enterprise), and there has not been any change in the capital stock of, or any incurrence of short-term or long-term debt by, the Company and the Subsidiary or any issuance of options, warrants or other rights to purchase the capital stock of the Company or the Subsidiary or any material adverse change or any development involving, or so far as the Company can now reasonably foresee a prospective adverse change in the condition (financial or other), net worth, results of operations, business, key personnel or properties of it which would be material to the business or financial condition -4- of the Company and the Subsidiary (considered as one enterprise) and neither the Company nor the Subsidiary has become a party to, and neither the business nor the property of the Company or the Subsidiary has become the subject of, any litigation, which could reasonably be considered to have a Material Adverse Effect. (m) Except as set forth in the Prospectus, there is not now pending or, to the knowledge of the Company, threatened, any action, suit or proceeding to which the Company or the Subsidiary is a party before or by any court or governmental agency or body, which might result in any material adverse change in the condition (financial or other), business prospects, net worth, or properties of the Company or the Subsidiary, nor are there any actions, suits or proceedings related to environmental matters or related to discrimination on the basis of age, sex, religion or race, and no labor disputes involving the employees of the Company or the Subsidiary exist or are imminent which might be expected to have a Material Adverse Effect. (n) Except as disclosed in the Prospectus, the Company and the Subsidiary have filed all necessary income and franchise tax returns (or extensions relating thereto) with all federal, state, local and foreign governmental agencies and have paid all taxes shown as due thereon; and there is no tax deficiency which has been or to the knowledge of the Company might reasonably be expected to be asserted against the Company or the Subsidiary. (o) The Company and the Subsidiary have sufficient licenses, permits and other governmental authorizations currently required for the conduct of their business or the ownership of their properties as described in the Prospectus and are complying therewith, except where failure to have or comply with such licenses, permits or other governmental authorizations could not reasonably be expected to have a Material Adverse Effect. To the knowledge of the Company, none of the activities or business of the Company or the Subsidiary are in violation of, or cause the Company or the Subsidiary to violate, any law, rule, regulation or order of the United States, Poland or any state, county or locality, or of any agency or body of the United States, Poland or of any state, county or locality, the violation of which would have a Material Adverse Effect. (p) The Subsidiary owns or possesses the right to use all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and rights necessary for the conduct of the Company's and the Subsidiary's business (considered as one enterprise), and neither the Company nor the Subsidiary is aware of any claim to the contrary or any challenge by any other person to the rights of the Company and the Subsidiary with respect to the foregoing. To the best of the Company's knowledge, the Company's and the Subsidiary's businesses as now conducted do not and will not infringe or conflict with, in any material respect, patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses or other intellectual property or franchise right of any other person. Except as described in the Prospectus, no claim has been made against the Company or the Subsidiary alleging the infringement by the Company or the Subsidiary of any patent, trademark, service mark, trade name, copyright, trade secret, license in or other intellectual property right or franchise right of any person. (q) The Company and the Subsidiary are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are customary in the businesses in which they are engaged; and neither the Company nor the Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue their respective businesses at a cost that would not have a Material Adverse Effect. (r) Neither the Company nor the Subsidiary has, directly or indirectly, at any time (i) made any contributions to any candidate for political office, or failed to disclose fully any such contribution in violation of law, or (ii) made any payment to any state, federal or foreign governmental officer or official, -5- or other person charged with similar public or quasi-public duties, other than payments or contributions required or allowed by applicable law. The Company's and the Subsidiary's internal accounting controls and procedures are sufficient to cause the Company and the Subsidiary to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended. (s) On the Closing Dates (hereinafter defined), all transfer or other taxes (including franchise, capital stock or other tax, other than income taxes, imposed by any jurisdiction), if any, which are required to be paid in connection with the sale and transfer of the Shares to the several Underwriters hereunder will have been fully paid or provided for by the Company and all laws imposing such taxes will have been fully complied with. (t) All contracts and other documents of the Company and the Subsidiary which are, under the Rules and Regulations, required to be filed as exhibits to the Registration Statement have been so filed. (u) Neither the Company nor the Subsidiary has taken or will take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares hereby. (v) Neither the Company nor the Subsidiary has entered into any agreement pursuant to which any person is entitled, either directly or indirectly, to compensation from the Company or the Subsidiary for services as a finder in connection with the proposed public offering. (w) Except as previously disclosed in writing by the Company to the Representatives, to the best of the Company's knowledge, after due inquiry, no officer, director or stockholder of the Company or the Subsidiary has any affiliation or association with any member of the National Association of Securities Dealers, Inc. (the "NASD"). (x) Neither the Company nor the Subsidiary is, nor upon receipt of the proceeds from the sale of the Shares will be, an "investment company" within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder. (y) Neither the Company nor the Subsidiary has distributed, nor will they distribute prior to the First Closing Date (as defined in Section 3(a) hereof), any offering material in connection with the offering and sale of the Shares other than the Preliminary Prospectus, Prospectus, the Registration Statement or the other materials permitted by the Act, if any. (z) There are no business relationships or related-party transactions of the nature described in Item 404 of Regulation S-B involving the Company or the Subsidiary and any person described in such Item that are required to be disclosed in the Prospectus and that have not been so disclosed. (aa) The Company and the Subsidiary have complied with all provisions of Section 517.075 Florida Statutes relating to doing business with the government of Cuba or with any person or affiliate located in Cuba. 2. INTENTIONALLY LEFT BLANK. 3. PURCHASE, SALE AND DELIVERY OF THE SHARES. (a) Subject to the terms and conditions set forth herein, and on the basis of the representations, warranties and agreements contained herein, the Company shall sell to the Underwriters, -6- and each such Underwriter severally, and not jointly, shall purchase from the Company at a price of $_____ per Share, at the place and time hereinafter specified, the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto. Delivery of the Firm Shares against payment therefor shall take place at the offices of Brean Murray & Co., Inc., 570 Lexington Avenue, New York, New York 10022 (or at such other place as may be designated by agreement between you and the Company) at 10:00 a.m., New York City time, on _____, 1998, or at such later time and date as you may reasonably designate, such time and date of payment and delivery for the Firm Shares being herein called the "First Closing Date." (b) In addition, subject to the terms end conditions set forth herein, and on the basis of the representations, warranties and agreements contained herein, the Company hereby grants an option (the "Over-allotment Option") to the several Underwriters (or, at the Representatives' option, to the Representatives individually) to purchase from the Company at the price per Share as set forth in subsection (a) above, all or any part of the respective number of Option Shares determined as hereinafter provided. The Over-allotment Option may be exercised within 30 days after the effective date of the Registration Statement upon notice by the Representatives to the Company advising as to the amount of Option Shares as to which such option is being exercised, the names and denominations in which the certificates for such Option Shares are to be registered and the time and date when such certificates are to be delivered. Such time and date (hereinafter, the "Option Closing Date") shall be reasonably determined by the Representatives but shall not be earlier than two nor later than five full business days after the exercise of the Over- allotment Option, nor in any event prior to the First Closing Date. Delivery of the Option Shares against payment therefor shall take place at the offices of Brean Murray & Co., Inc., 570 Lexington Avenue, New York, New York 10022. The number of Option Shares to be purchased by each Underwriter, if any, shall bear the same percentage to the total number of Option Shares being purchased by the several Underwriters pursuant to this subsection (b) as the respective numbers of Firm Shares being purchased by such Underwriter bears to the respective total numbers thereof, as adjusted, in each case by the Representatives in such manner as the Representatives may deem appropriate. The Over-allotment Option may be exercised only to cover over-allotments in the sale by the Underwriters of Firm Shares referred to in subsection (a) above. In the event the Company declares or pays a dividend or distribution on its Common Stock, whether in the form of cash, shares of Common Stock or any other consideration, prior to the Option Closing Date, such dividend or distribution shall also be paid on the Option Shares on the Option Closing Date. (c) The Company will make the certificates for the Shares to be purchased by the several Underwriters hereunder available to you for review at least two full business days prior to the First Closing Date or the Option Closing Date (which are collectively referred to herein as the "Closing Dates"). The certificates shall be in such names and denominations as you may request, at least two full business days prior to the Closing Dates. Time shall be of the essence and delivery at the time and place specified in this Agreement is a further condition to the obligations of each Underwriter. Definitive certificates in negotiable form for the Firm Shares to be purchased by the Underwriters hereunder will be delivered by the Company to you for the accounts of the several Underwriters against payment of the respective purchase prices by the several Underwriters, by certified or bank cashier's checks in New York Clearing House funds, payable to the order of the Company with regard to the Firm Shares to be purchased from the Company. In addition, in the event the Underwriters (or the Representatives, individually) exercise the Over-allotment Option for all or any portion of the Option Shares pursuant to the provisions of subsection (b) above, payment for such Option Shares shall be made by certified or bank cashier's checks in New York Clearing House funds payable to or upon the order of the Company at the offices of Brean Murray & Co., Inc., 570 Lexington Avenue, New York, New York 10022 (or such other place as may be designated by agreement between the Representatives and the Company) at the time and date of delivery of such Option Shares as required by the provisions of subsection (b) above, against receipt of the -7- certificates for such Option Shares by the Representatives for the respective accounts of the several Underwriters registered in such names and in such denominations as the Representatives may request. It is understood that you, individually and not as Representatives of the several Underwriters, may (but shall not be obligated to) make any and all payments required pursuant to this Section 3 on behalf of any Underwriter or Underwriters whose check or checks shall not have been received by the Representatives at the time of delivery of the Shares to be purchased by such Underwriter or Underwriters. Any such payment by you shall not relieve any such Underwriter or Underwriters of any of its or their obligations hereunder. It is also understood that you individually rather than all of the Underwriters may (but shall not be obligated to) purchase the Option Shares referred to in subsection (b) of this Section 3, but only to cover overallotments. It is understood that the several Underwriters propose to offer the Shares (including the Option Shares) to be purchased hereunder to the public upon the terms and conditions set forth in the Registration Statement, after the Registration Statement becomes effective. 4. COVENANTS OF THE COMPANY. The Company covenants and agrees with the several Underwriters that: (a) The Company will use its best efforts to cause the Registration Statement to become effective as promptly as possible. If required, the Company will file the Prospectus or any Term Sheet that constitutes a part thereof and any amendment or supplement thereto with the Commission in the manner and within the time period required by Rules 434 and 424(b) under the Act. Upon notification from the Commission that the Registration Statement has become effective, the Company will so advise the Representatives and will not at any time, whether before or after the effective date, file the Prospectus, Term Sheet or any amendment to the Registration Statement or supplement to the Prospectus of which the Representatives shall not previously have been advised and furnished with a copy or to which the Representatives or their counsel shall have reasonably objected to in writing or which is not in compliance with the Act and the Rules and Regulations. At any time prior to the later of (A) the completion by all of the Underwriters of the distribution of the Shares contemplated hereby (but in no event more than nine months after the date on which the Registration Statement shall have become or been declared effective) and (B) 25 days after the date on which the Registration Statement shall have become or been declared effective, the Company will prepare and file with the Commission, promptly upon the Representatives' request, any amendments or supplements to the Registration Statement or Prospectus which, in the Representatives' opinion, may be necessary or advisable in connection with the distribution of the Shares. As soon as the Company is advised thereof, the Company will advise the Representatives, and confirm such advice in writing, (i) when the Registration Statement or any post-effective amendment to the Registration Statement is filed with the Commission, (ii) of the receipt of any comments of the Commission, (iii) of the effectiveness of any post-effective amendment to the Registration Statement, (iv) of the filing of any supplement to the Prospectus or any amended Prospectus, (v) of any request made by the Commission for amendment of the Registration Statement or for supplementing of the Prospectus or for additional information with respect thereto, (vi) of the issuance by the Commission or any state or regulatory body of any stop order or other order or threat thereof suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of any Preliminary Prospectus, or (vii) of the suspension of the qualification of the Shares for offering in any jurisdiction, or of the institution of any proceedings for any of such purposes. The Company will use its best efforts to prevent the issuance of any such stop order or of any order preventing or suspending such use, and, if any such order is issued, to obtain as soon as possible the lifting thereof. The Company has caused to be delivered to the Representatives copies of each Preliminary Prospectus, and the Company has consented and hereby consents to the use of such copies for the -8- purposes permitted by the Act. The Company authorizes the several Underwriters and dealers to use the Prospectus in connection with the sale of the Shares for such period as in the opinion of counsel to the several Underwriters the use thereof is required to comply with the applicable provisions of the Act and the Rules and Regulations. In case of the happening, at any time within such period as a Prospectus is required under the Act to be delivered in connection with sales by an underwriter or dealer of any event of which the Company has knowledge and which materially affects the Company or the securities of the Company, or which in the opinion of counsel for the Company should be set forth in an amendment of the Registration Statement or a supplement to the Prospectus in order to make the statements therein not then misleading, in light of the circumstances existing at the time the Prospectus is required to be delivered to a purchaser of the Shares or in case it shall be necessary to amend or supplement the Prospectus to comply with federal or state securities laws or with the Rules and Regulations, the Company shall notify the Representatives promptly and forthwith prepare and furnish to the Representatives copies of such amended Prospectus or of such supplement to be attached to the Prospectus, in such quantities as the Representatives may reasonably request, in order that the Prospectus, as so amended or supplemented, will not contain any untrue statement of a material fact or omit to state any material facts necessary in order to make the statements in the Prospectus, in the light of the circumstances under which they are made, not misleading. The preparation and furnishing of any such amendment or supplement to the Registration Statement or amended Prospectus or supplement to be attached to the Prospectus shall be without expense to the Underwriters, except that in case any Underwriter is required, in connection with the sale of the Shares, to deliver a Prospectus nine months or more after the effective date of the Registration Statement, the Company will upon request of and at the expense of such Underwriter, amend or supplement the Registration Statement and Prospectus and furnish the Underwriter with reasonable quantities of prospectuses complying with Section 10(a)(3) of the Act. The Company will comply with the Act, the Rules and Regulations and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder in connection with the offering and issuance of the Shares. (b) The Company will furnish such proper information as may be required and otherwise cooperate in qualifying the Shares for offering and sale under the securities or "blue sky" laws relating to the offering for sale in such jurisdictions as the Representatives may designate, provided that the Company shall not be required to qualify as a foreign corporation or dealer in securities or to execute a general consent of service of process in any jurisdiction in any action other than one arising out of the offering or sale of the Shares. The Company will, from time to time, prepare and file such statements and reports as are or may be required to continue such qualification in effect for so long a period as the Representatives may reasonably request. (c) If the sale of the Shares provided for herein is not consummated for any reason caused by the Company, the Company shall pay all costs and expenses incident to the performance of the Company's obligations hereunder, including but not limited to, all of the expenses itemized in Section 9, including the accountable expenses of the Representatives. (d) The Company will use its best efforts to (i) cause a Registration Statement on Form 8-A under the Exchange Act to be declared effective concurrently with the completion of this offering and will notify the Representatives in writing immediately upon the effectiveness of such registration statement, and (ii) if requested by the Representatives, to obtain and keep current a listing in the Standard & Poor's or Moody's Industrial OTC Manual. (e) For so long as the Company is a reporting company under either Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense, will furnish to its stockholders an annual report (including financial statements audited by independent public accountants), in reasonable detail, and at its expense will furnish to the Representatives during the period ending five (5) years from the date hereof (i) as soon as practicable after the end of each fiscal year, a balance sheet of the Company and any of its -9- subsidiaries as at the end of such fiscal year, together with statements of income, surplus and cash flow of the Company and any of its subsidiaries for such fiscal year, all in reasonable detail and accompanied by a copy of the certificate or report thereon of independent accountants; (ii) as soon as practicable after the end of each of the first three fiscal quarters of each fiscal year, consolidated summary financial information of the Company for such quarter in reasonable detail; (iii) as soon as they are available, a copy of all reports (financial or other) mailed to security holders; (iv) as soon as they are available, a copy of all non-confidential reports and financial statements furnished to or filed with the Commission or any securities exchange or automated quotation system on which any class of securities of the Company is listed; and (v) such other information as the Representatives may from time to time reasonably request. (f) In the event the Company has an active subsidiary or subsidiaries, such financial statements referred to in subsection (e) above will be on a consolidated basis to the extent the accounts of the Company and its subsidiary or subsidiaries are consolidated in reports furnished to its stockholders generally. (g) The Company will deliver to the Representatives at or before the First Closing Date two signed copies of the Registration Statement, including all financial statements and exhibits filed therewith, and of all amendments thereto, and will deliver to the several Underwriters such number of conformed copies of the Registration Statement, including such financial statements but without exhibits, and of all amendments thereto, as the several Underwriters may reasonably request. The Company will deliver to the Underwriters or upon the order of the several Underwriters, from time to time until the effective date of the Registration Statement, as many copies of any Preliminary Prospectus filed with the Commission prior to the effective date of the Registration Statement as such Underwriters may reasonably request. The Company will deliver to the several Underwriters on the effective date of the Registration Statement and thereafter for so long as a Prospectus is required to be delivered under the Act, from time to time, as many copies of the Prospectus, in final form, or as thereafter amended or supplemented, as such Underwriters may from time to time reasonably request. The Company, not later than 6:00 p.m., New York City time, on the business day following the date the Registration Statement is declared effective, will deliver to the several Underwriters, without charge, as many copies of the Prospectus and any amendment or supplement thereto as such Underwriters may reasonably request for purposes of confirming orders that are expected to settle on the First Closing Date. (h) The Company will make generally available to its security holders and deliver to the Representatives as soon as it is practicable to do so but in no event later than 90 days after the end of twelve months after its current fiscal quarter, an earnings statement (which need not be audited) covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement, which shall satisfy the requirements of Section 11(a) of the Act. (i) The Company will apply the net proceeds from the sale of the Shares for the purposes set forth under "Use of Proceeds" in the Prospectus. (j) The Company will, promptly upon your request, prepare and file with the Commission any amendments or supplements to the Registration Statement, Preliminary Prospectus or Prospectus and take any other action, which in the reasonable opinion of Baker & McKenzie, counsel to the several Underwriters, may be reasonably necessary or advisable in connection with the distribution of the Shares, and will use its best efforts to cause the same to become effective as promptly as possible. (k) The Company will reserve and keep available that maximum number of its authorized but unissued shares of Common Stock which are issuable upon exercise of the Representatives' Warrants. (l) The Company will not, and will deliver to the Representatives agreements to the effect that for a period of 24 months from the First Closing Date (the "Lock-Up Period"), no officer, director or existing stockholder or optionholder of the Company (such officers, directors and stockholders being -10- herein referred to as the "Principal Stockholders") will, directly or indirectly, offer, sell (including any short sale), grant any option for the sale of, acquire any option to dispose of, transfer, pledge, assign, hypothecate or otherwise dispose of any securities of the Company without the prior written consent of Brean Murray. In order to enforce this covenant, the Company shall impose stop-transfer instructions with respect to the securities owned by the Principal Stockholders until the end of such period and an appropriate legend shall be marked on the face of stock certificates representing all of such securities. (m) Prior to completion of this offering, the Company will make all filings required, including registration under the Exchange Act, to obtain the listing of the Shares on the Nasdaq National Market, and will effect and use its best efforts to maintain such listing (or listing on the New York Stock Exchange) for at least five years from the effective date of the Registration Statement. (n) The Company represents that it has not taken and agrees that he or it will not take, directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result in the stabilization or manipulation of the price of the Shares or to facilitate the sale or resale of the Shares. (o) On the Closing Date and simultaneously with the delivery of the Representatives' Warrants, the Company shall execute and deliver to you the Warrant Agreement. The Warrant Agreement will be substantially in the form of the Warrant Agreement filed as an exhibit to the Registration Statement. (p) During the twelve month period commencing on the date of this Agreement, the Company will not, without the prior written consent of Brean Murray, grant options to purchase shares of Common Stock at an exercise price less than the fair market value of the Common Stock on the date of grant or sell or offer any securities of the Company. (q) William V. Carey shall be Chairman of the Board, President and Chief Executive Officer of the Company on the Closing Dates. The Company has obtained key person life insurance in an amount of not less than $2.5 million on the life of Mr. Carey and will use its best efforts to maintain such insurance during the three year period commencing from the First Closing Date. In the event that Mr. Carey's employment with the Company is terminated prior to such three year period, the Company will obtain a comparable policy on the life of his successor for the balance of such three year period. (r) For a period of five years from the effective date of the Registration Statement, the Company (i) at its expense, shall cause its regularly engaged independent certified public accountants to read (but not review or audit) the Company's financial statements for each of the first three fiscal quarters prior to the announcement of quarterly financial information, the filing of the Company's Quarterly Report on Form 10-Q and the mailing of quarterly financial information to stockholders and (ii) shall not change its accounting firm (other than to an accounting firm of national standing) without the prior written consent of the Representatives. (s) For a period of five years from the First Closing Date (i) each of the Representatives shall have the right, but not the obligation, to (a) designate one director to the Board of Directors of the Company or (b) designate one person to attend all meetings of the Board of Directors, which persons will be entitled to receive all notices and other correspondence as if such persons were members of the Board of Directors and to be reimbursed for out-of-pocket expenses incurred in connection with attendance of meeting of the Board of Directors, and (ii) the Company shall engage a public relations firm reasonably acceptable to the Representatives. -11- 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several Underwriters to purchase and pay for the Shares which they have respectively agreed to purchase hereunder are subject to the accuracy (as of the date hereof, and as of the Closing Dates) of and compliance with the representations and warranties of the Company set forth herein, to the performance by the Company of its obligations hereunder, and to the satisfaction (at or prior to the Closing Dates), of each of following conditions: (a) The Registration Statement shall have become effective and the Representatives shall have received notice thereof not later than 10:00 a.m., New York City time, on the date on which the amendment to the Registration Statement originally filed with respect to the Shares or to the Registration Statement, as the case may be, containing information regarding the initial public offering price of the Shares has been filed with the Commission, or such later time and date as shall have been agreed to by the Representatives; if required, the Prospectus or any Term Sheet that constitutes a part thereof and any amendment or supplement thereto shall have been filed with the Commission in the manner and within the time period required by Rule 434 and 424(b) under the Act; on or prior to the Closing Dates, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that or a similar purpose shall have been instituted or shall be pending or, to the Representatives' knowledge or to the knowledge of the Company, shall be contemplated by the Commission; any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of Baker & McKenzie, counsel to the several Underwriters; (b) At the First Closing Date, the Representatives shall have received the opinion, addressed to the Underwriters, dated as of the First Closing Date, of Hogan & Hartson LLP, Washington, D.C. and Warsaw, Poland, counsel for the Company, substantially in the form attached hereto as Annex A. (c) All corporate proceedings and other legal matters relating to this Agreement, the Warrant Agreement, the Registration Statement, the Prospectus and other related matters shall be satisfactory to or approved by Baker & McKenzie, counsel to the several Underwriters, and you shall have received from such counsel a signed opinion, dated as of the First Closing Date, together with copies thereof for each of the other Underwriters, with respect to the validity of the issuance of the Shares, the form of the Registration Statement and Prospectus (other than the financial statements and other financial data contained therein), the execution of this Agreement and other related matters as you may reasonably require. The Company, and the Subsidiary shall have furnished to such counsel for the several Underwriters such documents as they may reasonably request for the purpose of enabling them to render such opinion. (d) You shall have received a letter prior to the effective date of the Registration Statement and again on and as of the First Closing Date from Ernst & Young Audit Sp. z o. o., Warsaw, Poland, independent public accountants for the Company, substantially in the form approved by you, and including estimates of the Company's revenues and results of operations for the period ending at the end of the month immediately preceding the effective date and results of the comparable period during the prior fiscal year. (e) At the Closing Dates, (i) the representations and warranties of the Company contained in this Agreement shall be true and correct with the same effect as if made on and as of the Closing Dates and the Company and the Subsidiary shall have performed all of their respective obligations hereunder and satisfied all the conditions on their part to be satisfied at or prior to such Closing Date; (ii) the Registration Statement and the Prospectus and any amendments or supplements thereto shall contain all statements which are required to be stated therein in accordance with the Act and the Rules and Regulations, and shall in all material respects conform to the requirements thereof, and neither the Registration Statement nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (iii) there shall have been, since the respective -12- dates as of which information is given, no material adverse change, or any development involving a prospective material adverse change, in the business, properties, condition (financial or otherwise), results of operations, capital stock, long-term or short-term debt or general affairs of the Company or the Subsidiary from that set forth in the Registration Statement and the Prospectus, except changes which the Registration Statement and Prospectus indicate might occur after the effective date of the Registration Statement, and the Company and each of the Subsidiary shall not have incurred any material liabilities or entered into any agreement not in the ordinary course of business other than as referred to in the Registration Statement and Prospectus; (iv) except as set forth in the Prospectus, no action, suit or proceeding at law or in equity shall be pending or, to the knowledge of the Company, threatened against the Company or the Subsidiary which would be required to be set forth in the Registration Statement, and no proceedings shall be pending or, to the knowledge of the Company, threatened against the Company or the Subsidiary before or by any commission, board or administrative agency in the United States, Poland or elsewhere, wherein an unfavorable decision, ruling or finding would be reasonably likely to materially and adversely affect the business, property, condition (financial or otherwise), results of operations or general affairs of the Company or the Subsidiary, and (v) the Representatives shall have received, at the First Closing Date, a certificate signed by each of the Chief Executive Officer and the Chief Financial Officer of the Company, dated as of the First Closing Date, evidencing compliance with the provisions of this subsection (e). (f) Upon exercise of the Over-allotment Option, the obligations of the several Underwriters (or, at their option, the Representatives individually) to purchase and pay for the Option Shares referred to therein will be subject (as of the date hereof and as of the Option Closing Date) to the following additional conditions: (i) the Registration Statement shall remain effective at the Option Closing Date, and no stop order suspending the effectiveness thereof shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending, or, to your knowledge or the knowledge of the Company, shall be contemplated by the Commission, and any reasonable request on the part of the Commission for additional information shall have been complied with to the satisfaction of Baker & McKenzie, counsel to the several Underwriters; (ii) at the Option Closing Date, there shall have been delivered to the Representatives the signed opinion of Hogan & Hartson LLP, Washington, D.C., and Warsaw, Poland, counsel for the Company, dated as of the Option Closing Date, in form and substance satisfactory to Baker & McKenzie, counsel to the several Underwriters, together with copies of such opinions for each of the other several Underwriters, which opinion shall be substantially the same in scope and substance as the opinion furnished to the Representatives at the First Closing Date pursuant to Section 5(b) hereof, except that such opinion, where appropriate, shall cover the Option Shares; (iii) at the Option Closing Date, there shall have been delivered to the Representatives a letter in form and substance satisfactory to the Representatives from Ernst & Young Audit Sp. z o. o., Warsaw, Poland, dated the Option Closing Date and addressed to the Underwriters confirming the information in their letter referred to in Section 5(d) hereof and stating that nothing has come to their attention during the period from the ending date of their review referred to in said letter to a date not more than five business days prior to the Option Closing Date, which would require any change in said letter if it were required to be dated the Option Closing Date; (iv) at the Option Closing Date, there shall have been delivered to the Representatives a certificate of the Chief Executive Officer and Chief Financial Officer of the Company, dated the Option Closing Date, in form and substance satisfactory to Baker & -13- McKenzie, counsel to the several Underwriters, substantially the same in scope and substance as the certificate, furnished to you at the First Closing Date pursuant to Section 5(e) hereof; (v) all proceedings taken at or prior to the Option Closing Date in connection with the sale and issuance of the Option Shares shall be satisfactory in form and substance to the Representatives, and the Representatives and Baker & McKenzie, counsel to the several Underwriters, shall have been furnished with all such documents, certificates and opinions as the Representatives may request in connection with this transaction in order to evidence the accuracy and completeness of any of the representations, warranties or statements of the Company and the Subsidiary or their compliance with any of the covenants or conditions contained herein. (g) No action shall have been taken by the Commission or the NASD, the effect of which would make it improper, at any time prior to the Closing Date, for members of the NASD to execute transactions (as principal or agent) in the Shares, and no proceedings for the taking of such action shall have been instituted or shall be pending, or, to the knowledge of the Representatives or the Company, shall be contemplated by the Commission or the NASD. The Company and the Representatives represent that at the date hereof they have no knowledge that any such action is in fact contemplated by the Commission or the NASD. The Company and the Subsidiary shall have advised the Representatives of any NASD affiliation of any of their officers, directors, stockholders or other affiliates. (h) If any of the conditions herein provided for in this Section shall not have been fulfilled as of the date indicated, this Agreement and all obligations of the several Underwriters under this Agreement may be canceled at, or at any time prior to, each Closing Date by the Representatives. Any such cancellation shall be without liability of the Underwriters to the Company. 6. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation of the Company to sell and deliver the Shares in the manner provided in this Agreement is subject to the condition that at the Closing Dates, no stop orders suspending the effectiveness of the Registration Statement shall have been issued under the Act or any proceedings therefor initiated or threatened by the Commission. If such condition has been satisfied on the First Closing Date, but is not satisfied after the First Closing Date and prior to the Option Closing Date, then only the obligation of the Company to sell and deliver the Option Shares upon any exercise of the Over-allotment Option hereof shall be affected. 7. INDEMNIFICATION. (a) The Company shall indemnify and hold harmless each Underwriter, and each person, if any, who controls any Underwriter within the meaning of the Act, against any and all losses, claims, damages or liabilities, joint or several (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all attorneys' fees), to which such Underwriter or such controlling person may become subject, under the Act or otherwise, and shall reimburse, as incurred, such Underwriters and such controlling persons for any legal or other expenses reasonably incurred in connection with investigating, defending against or appearing as a third party witness in connection with any losses, claims, damages or liabilities, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in (i) the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, (ii) any blue sky application or other document executed by the Company or the Subsidiary specifically for that purpose or based upon written information furnished by the Company or the Subsidiary filed in any state or other jurisdiction in order to qualify any or all of the Shares under the securities laws thereof (any such application, document or information being hereinafter called a "Blue Sky Application"), or arise out of or are based upon the omission or alleged omission to state in the Registration Statement, any Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or in any Blue Sky Application, a material fact required to be stated therein or necessary to make the statements therein not misleading; -14- provided, however, that the Company will not be liable in any such case to the extent, but only to the extent, that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company or the Subsidiary by or on behalf of the Underwriters specifically for use in the preparation of the Registration Statement or any such amendment or supplement thereof or any such Blue Sky Application or any such preliminary Prospectus or the Prospectus or any such amendment or supplement thereto. The obligations of the Company under this Section 7(a) will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter, severally and not jointly, shall indemnify and hold harmless the Company, each of the directors of the Company, each nominee (if any) for any director named in the Prospectus, each of the officers of the Company who have signed the Registration Statement, and each other person, if any, who controls the Company within the meaning of the Act to the same extent as the foregoing indemnity from the Company to the several Underwriters, but only with respect to any loss, claim, damage, liability or expense resulting from statements or omissions, or alleged statements or omissions, if any, made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto (i) in reliance upon and in conformity with written information furnished to the Company by you or by any Underwriter through you expressly for use in the preparation thereof and (ii) relating to the transactions effected by the Underwriters in connection with the offer and sale of the Shares contemplated hereby. The obligations of each Underwriter under this Section 7(b) will be in addition to any liability which the Underwriters may otherwise have. (c) If any action, inquiry, investigation or proceeding is brought against any person in respect of which indemnification may be sought pursuant to Section 7(a) or (b) hereof, such person (hereinafter called the "indemnified party") shall, promptly after notification of, or receipt of service of process for, such action, inquiry, investigation or proceeding, notify in writing the party or parties against whom indemnification is to be sought (hereinafter called the indemnifying party") of the institution of such action, inquiry, investigation or proceeding. The indemnifying party, upon the request of the indemnified party, shall assume the defense of such action, inquiry, investigation or proceeding, including, without limitation, the employment of counsel (reasonably satisfactory to such indemnified party) and payment of expenses. No indemnification provided for in this Section 7 shall be available to any indemnified party who shall fail to give such notice if the indemnifying party does not have knowledge of such action, inquiry, investigation or proceeding, to the extent that such indemnifying party has been materially prejudiced by the failure to give such notice, but the omission to so notify the indemnifying party shall not relieve the indemnifying party otherwise than under this Section 7. Such indemnified party or controlling person thereof shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel (other than reasonable costs of investigation) shall be at the expense of such indemnified party unless the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such action. If such indemnified party shall have been advised by counsel that there may be a conflict between the positions of the indemnifying party or parties and of the indemnified party or parties or that there may be legal defenses available to such indemnified party or parties different from or in addition to those available to the indemnifying party or parties, the indemnified party or parties shall be entitled to select separate counsel to conduct the defense to the extent determined by such counsel to be necessary to protect the interests of the indemnified party or parties, and the fees and expenses of such counsel shall be borne by the indemnifying party (it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm for all indemnified parties). Expenses covered by the indemnification in this Section 7 shall be paid by the indemnifying party as they are incurred by the indemnified party. Anything in this Section 7 to the contrary notwithstanding, the indemnifying party shall not be liable for any settlement of any such claim effected without its written consent, which shall not be unreasonably withheld in light of all factors of importance to such indemnifying party. -15- 8. CONTRIBUTION. In order to provide for just and equitable contribution under the Act in any case in which (i) any indemnified party makes any claim for indemnification pursuant to Section 7 hereof but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that the express provisions of Section 7 provide for indemnification in such case, or (ii) contribution under the Act may be required on the part of any Underwriter, then the Company and each person who controls the Company, on the one hand, and any such Underwriter, on the other hand, shall contribute to the amount paid or payable as a result of the aggregate losses, claims, damages or liabilities to which they may be subject (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees) in either such case (after contribution from others) in such proportions that all such Underwriters are responsible pro rata in the aggregate for that portion of such losses, claims, damages or liabilities represented by the percentage that the underwriting discounts per Share appearing on the cover page of the Prospectus bears to the public offering prices appearing thereon, and the Company shall be responsible pro rata for the remaining portion determined by the proportion that the number of Shares sold by the Company bears to the total number of Shares sold hereunder; provided, however, that if such allocation is not permitted by applicable law, then the relative fault of the Company and the Underwriters and controlling persons, in the aggregate, in connection with the statements or omissions which resulted in such damages and other relevant equitable considerations, shall also be considered. The relative fault shall be determined by reference to, among other things, whether in the case of an untrue statement of a material fact or the omission to state a material fact, such statement or omission relates to information supplied by the Company, the Subsidiary or the Underwriters, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Underwriters agree (a) that it would not be just and equitable if the respective obligations of the Company and the Underwriters to contribute pursuant to this Section 8 were to be determined by pro rata or per capita allocation of the aggregate damages (even if the Underwriters in the aggregate were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the first sentence of this Section 8, and (b) that the contribution of each contributing Underwriter shall not be in excess of its proportionate share (based on the ratio of the number of Shares purchased by such Underwriter to the number of Shares purchased by all contributing Underwriters) of the portion of such losses, claims, damages or liabilities for which the Underwriters are responsible. No person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. As used in this paragraph, the word "Company" includes any officer, director, or person who controls the Company within the meaning of Section 15 of the Act. If the full amount of the contribution specified in this paragraph is not permitted by law, then any Underwriter and each person who controls any Underwriter shall be entitled to contribution from the Company, its officers, directors and controlling persons to the full extent permitted by law. The foregoing contribution agreement shall in no way affect the contribution liabilities of any persons having liability under Section 11 of the Act other than the Company and the Underwriters. No contribution shall be requested with regard to the settlement of any matter from any party who did not consent to such settlement; provided, however, that such consent shall not be unreasonably withheld in light of all factors of importance to such party. 9. COSTS AND EXPENSES. (a) Whether or not this Agreement becomes effective or the sale of the Shares to the Underwriters is consummated, the Company will pay all costs and expenses incident to the performance of this Agreement by the Company including, but not limited to, the fees and expenses of counsel to the Company and of the Company's accountants; the costs and expenses incident to the preparation, printing, filing and distribution under the Act of the Registration Statement (including the financial statements therein and all amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as amended or supplemented, or the Term Sheet; the fee of the NASD in connection with the filing required by the NASD relating to the offering of the Shares contemplated hereby; all expenses, including reasonable fees and disbursements of counsel to the Underwriters, in connection with the qualification of the Shares under the state securities or blue sky laws which the Representatives shall designate; the cost of printing and furnishing to the several Underwriters copies of the Registration Statement, each Preliminary Prospectus, -16- the Prospectus, this Agreement, the Agreement Among Underwriters, Selling Agreement, Warrant Agreement, Underwriters' Questionnaire, Underwriters' Power of Attorney and the Blue Sky Memorandum; any fees relating to the listing of the Shares on the Nasdaq National Market or any other securities exchange; the cost of printing the certificates representing the Shares; the fees of the transfer agent retained in connection with the sale of the Shares; the cost of publication of at least three "tombstones" relating to the public offering of the Shares (at least one of which shall be in national business newspaper and one of which shall be in a major New York newspaper) and the cost of preparing at least five hard cover "bound volumes" relating to such offering in accordance with the Representatives' request. The Company shall pay any and all taxes (including any transfer, franchise, capital stock or other tax imposed by any jurisdiction) on sales to the Underwriters hereunder. The Company will also pay all costs and expenses incident to the furnishing of any amended Prospectus or of any supplement to be attached to the Prospectus as called for in Section 4(a) of this Agreement, except as otherwise set forth in said Section. (b) In addition to the foregoing expenses, the Company shall at the First Closing Date pay to the Representatives, in their individual rather than representative capacity, a non-accountable expense allowance of $300,000. In the event the transactions contemplated hereby are not consummated by reason of any action by the Underwriters (except if such prevention is based upon a breach by the Company or any Subsidiary of any covenant, representation or warranty contained herein or because any other condition to the Underwriters' obligations hereunder required to be fulfilled by the Company or the Subsidiary is not fulfilled), the Company shall be liable for only the amount of the Underwriters' actual out-of-pocket expenses. In the event the transactions contemplated hereby are not consummated by reason of any action of the Company or the Subsidiary or because of a breach by the Company or the Subsidiary of any covenant, representation or warranty herein, the Company shall be liable for the actual out-of-pocket expenses of the Representatives, including legal fees. (c) No person is entitled either directly or indirectly to compensation from the Company, from the Underwriters or from any other person for services as a finder in connection with the proposed offering, and the Company agrees to indemnify and hold harmless the Underwriters against any losses, claims, damages or liabilities, joint or several (which shall, for all purposes of this Agreement, include, but not be limited to, all costs of defense and investigation and all attorneys' fees), to which the Underwriters or such other person may become subject insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon the claim of any person (other than an employee of the party claiming an indemnity) or entity that he or it is entitled to a finder's fee in connection with the proposed offering by reason of such person's or entity's influence or prior contact with the indemnifying party. 10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter shall for any reason not permitted hereunder cancel its obligations to purchase the Firm Shares hereunder, or shall fail to take up and pay for the number of Firm Shares set forth opposite its name in Schedule I hereto upon tender of such Firm Shares in accordance with the terms hereof, then: (a) If the aggregate number of Firm Shares which such Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of the total number of Firm Shares, the other Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Firm Shares which such defaulting Underwriter or Underwriters agreed but failed to purchase. (b) If any Underwriter or Underwriters so default and the agreed number of Firm Shares with respect to which such default or defaults occurs is more than 10% of the total number of Firm Shares, the remaining Underwriters shall have the right to take up and pay for (in such proportion as may be agreed upon among them) the Firm Shares which the defaulting Underwriter or Underwriters agreed -17- but failed to purchase. If such remaining Underwriters do not, at the First Closing Date, take up and pay for the Firm Shares which the defaulting Underwriter or Underwriters agreed but failed to purchase, the time for delivery of the Firm Shares shall be extended to the next business day to allow the several Underwriters the privilege of substituting within twenty-four hours (including non-business hours) another underwriter or underwriters satisfactory to the Company. If no such underwriter or underwriters shall have been substituted as aforesaid, within such twenty-four hour period, the time of delivery of the Firm Shares may, at the option of the Company, be again extended to the next following business day, if necessary, to allow the Company the privilege of finding within twenty-four hours (including non-business hours) another underwriter or underwriters to purchase the Firm Shares which the defaulting Underwriter or Underwriters agreed but failed to purchase. If it shall be arranged for the remaining Underwriters or substituted Underwriters to take up the Firm Shares of the defaulting Underwriter or Underwriters as provided in this Section, (i) the Company or the Representatives shall have the right to postpone the time of delivery for a period of not more than seven business days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees promptly to file any amendments to the Registration Statement or supplements to the Prospectus which may thereby be made necessary and (ii) the respective numbers of Firm Shares to be purchased by the remaining Underwriters or substituted Underwriters shall be taken as the basis of the underwriting obligation for all purposes of this Agreement. If in the event of a default by one or more Underwriters and the remaining Underwriters shall not take up and pay for all the Firm Shares agreed to be purchased by the defaulting Underwriters or substitute another underwriter or underwriters as aforesaid, or the Company shall not find or shall not elect to seek another underwriter or underwriters for such Firm Shares as aforesaid, then this Agreement shall terminate. If, following exercise of the Over-allotment Option, any Underwriter or Underwriters shall for any reason not permitted hereunder cancel their obligations to purchase Option Shares at the Option Closing Date, or shall fail to take up and pay for the number or type of Option Shares, which they become obligated to purchase at the Option Closing Date upon tender of such Option Shares in accordance with the terms hereof, then the remaining Underwriters or substituted Underwriters may take up and pay for the Option Shares of the defaulting Underwriter or Underwriters in the manner provided in Section 10(b) hereof. If the remaining Underwriters or substituted Underwriters shall not take up and pay for all such Option Shares, the Underwriters shall be entitled to purchase the number and type of Option Shares for which there is no default or, at their election, the Over-allotment Option shall terminate and the exercise thereof shall be of no effect. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. In the event of termination of this Agreement, there shall be no liability on the part of any nondefaulting Underwriter to the Company, provided that the provisions of this Section 10 shall not in any event affect the liability of any defaulting Underwriter to the Company arising out of such default. 11. EFFECTIVE DATE. This Agreement shall become effective upon its execution, except that the Representatives may, at their option, delay such effectiveness until 11:00 a.m., New York City time on the first full business day following the effective date of the Registration Statement, or at such earlier time after the effective date of the Registration Statement as the Representatives in their discretion shall first commence the initial public offering by the Underwriters of any of the Shares. The time of the initial public offering shall mean the time of release by the Representatives of the first newspaper advertisement with respect to the Shares, or the time when the Shares are first generally offered by the Representatives to dealers by letter or telegram, whichever shall first occur. This Agreement may be terminated by the Representatives at any time before it becomes effective as provided above, except that Sections 4(c), 7, 8, 9, 14, 15, 16 and 17 shall remain in effect notwithstanding such termination. -18- 12. TERMINATION. (a) This Agreement, except for Sections 4(c), 7, 8, 9, 14, 15, 16 and 17 hereof, may be terminated at any time prior to the First Closing Date, and the Over-allotment Option, if exercised, may be canceled at any time prior to the Option Closing Date, by you if in your judgment it is impracticable to offer for sale or to enforce contracts made by the Underwriters for the resale of the Shares agreed to be purchased hereunder by reason of (i) the Company or the Subsidiary having sustained a material loss, whether or not insured, by reason of fire, earthquake, flood, accident or other calamity, or from any labor dispute or court or government action, order or decree; (ii) trading in securities on the New York Stock Exchange, the American Stock Exchange or the Nasdaq Stock Market having been suspended or limited; (iii) material governmental restrictions having been imposed on trading in securities generally (not in force and effect on the date hereof); (iv) a banking moratorium having been declared by federal or New York state authorities; (v) an outbreak of international hostilities or other national or international calamity or crisis or change in economic or political conditions having occurred; (vi) a pending or threatened legal or governmental proceeding or action relating generally to the Company's or the Subsidiary's business, or a notification having been received by either the Company or the Subsidiary of the threat of any such proceeding or action, which could materially adversely affect the Company or the Subsidiary; (vii) the Company or the Subsidiary is merged or consolidated into or acquired by another company or group or there exists a binding legal commitment for the foregoing or any other material change of ownership or control occurs; (viii) the passage by the Congress of the United States, any governmental agency of Poland, or by any state legislative body or federal or state agency or other domestic or foreign authority of any act, rule or regulation, measure, or the adoption of any orders, rules or regulations by any governmental body or any authoritative accounting institute or board, or any governmental executive, which is reasonably believed likely by the Representatives to have a material impact on the business, financial condition or financial statements of the Company or the market for the securities offered pursuant to the Prospectus; (ix) any adverse change in the financial or securities markets beyond normal market fluctuations having occurred since the date of this Agreement; or (x) any material adverse change having occurred, since the respective dates of which information is given in the Registration Statement and Prospectus, in the earnings, business prospects or general condition of the Company or any of its Subsidiary, financial or otherwise, whether or not arising in the ordinary course of business. (b) If you elect to prevent this Agreement from becoming effective or to terminate this Agreement as provided in this Section 12 or in Section 11, the Company shall be promptly notified by you, by telephone or telegram, confirmed by letter. 13. REPRESENTATIVES' WARRANTS. At or before the First Closing Date, the Company will sell to the Representatives (for their own account and not as co-Representatives of the several Underwriters), or their designees, for a consideration of $250, and upon the terms and conditions set forth in the form of the Warrant Agreement annexed as an exhibit to the Registration Statement, warrants (the "Representatives' Warrants") to purchase an aggregate of 250,000 Shares. In the event of conflict in the terms of this Agreement and the Warrant Agreement, the language of the Warrant Agreement shall control. 14. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The respective indemnities, agreements, representations, warranties and other statements of the Company and the undertakings set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Underwriters, the Company or any of its officers or directors or any controlling person and will survive delivery of and payment of the Shares and the termination of this Agreement. 15. NOTICE. -19- Any communications specifically required hereunder to be in writing, if sent to the Underwriters, will be mailed, delivered and confirmed to them at Brean Murray & Co., Inc., 570 Lexington Avenue, New York, New York 10022, and at Fine Equities, Inc., 600 Third Avenue, New York, New York 10016, with a copy in each case sent to Baker & McKenzie, 805 Third Avenue, New York, New York 10022, attention: Malcolm I. Ross, Esq., or if sent to the Company, will be mailed, delivered and confirmed to it at 211 North Union Street, #100, Alexandria, Virginia 22314, with a copy sent to Hogan & Hartson LLP, Columbia Square, 555 13th Street, NW, Washington, D.C. 20004, attention: Steven E. Ballew, Esq. 16. PARTIES IN INTEREST. The Agreement herein set forth is made solely for the benefit of the several Underwriters, the Company, and, to the extent expressed, the Principal Stockholders, any person controlling the Company or any of the several Underwriters, and directors of the Company, nominees for directors (if any) named in the Prospectus, its officers who have signed the Registration Statement, and their respective executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include any purchaser, as such purchaser, from any of the several Underwriters of the Shares. All of the obligations of the Underwriters hereunder are several and not joint. 17. APPLICABLE LAW. This Agreement will be governed by, and construed in accordance with, the laws of the State of New York applicable to agreements made and to be entirely performed within New York. If the foregoing is in accordance with your understanding of our agreement, kindly sign and return this agreement, whereupon it will become a binding agreement between the Company and the several Underwriters in accordance with its terms. Very truly yours, CENTRAL EUROPEAN DISTRIBUTION CORPORATION By: ________________________________________ Name: William V. Carey Title: Chairman and Chief Executive Officer The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. Brean Murray & Co., Inc. Fine Equities, Inc. As Representatives of the Several Underwriters listed on Schedule I hereto By: Brean Murray & Co., Inc. By: __________________________________ Name: Title: -20- SCHEDULE I Underwriter Number of Firm Shares to be Purchased - -------------------------------- ------------------------------------------ Brean Murray & Co., Inc. Fine Equities, Inc. Total Shares 2,500,000 -21- EX-4.2 3 WARRANT AGREEMENT Exhibit 4.2 WARRANT AGREEMENT BY AND AMONG CENTRAL EUROPEAN DISTRIBUTION CORPORATION, BREAN MURRAY & CO., INC. AND FINE EQUITIES, INC. DATED AS OF ______ , 1998 WARRANT AGREEMENT WARRANT AGREEMENT dated as of ____, 1998 by and among CENTRAL EUROPEAN DISTRIBUTION CORPORATION, a Delaware corporation (the "Company"), BREAN MURRAY & CO., INC. ("Brean Murray") and FINE EQUITIES, INC. ("Fine Equities" and together with Brean Murray, the "Representatives") (the Company and the Representatives are referred to collectively herein as the "Parties"). The Company proposes to issue to the Representatives warrants as hereinafter described (the "Warrants") to purchase up to an aggregate of 250,000 shares (the "Shares") of common stock, par value $.01 per share, of the Company (the "Common Stock"), subject to adjustment as provided in Section 8 hereof, each Warrant entitling the holder ("Holder") thereof to purchase one Share. All capitalized terms used herein and not otherwise defined herein shall have the same meanings as in that certain underwriting agreement, of even date herewith, by and among the Company and the several underwriters named therein (the "Underwriting Agreement"). NOW, THEREFORE, in consideration of the following promises and mutual agreements and for other good and valuable consideration, the Parties agree as follows: 1. ISSUANCE OF WARRANTS; FORM OF WARRANT. On the Closing Date the Company will issue, sell and deliver the Warrants to the Representatives or their respective bona fide officers for an aggregate price of $250. The Warrants shall be issued to the Representatives or such designees in the amounts set forth on Schedule I hereto. The form of Warrant Certificate and the form of election to purchase Shares to be attached thereto shall be substantially as set forth on Exhibit A hereto. The Warrants shall be executed on behalf of the Company by the manual or facsimile signature of the present or any future President or any Vice President of the Company, under its corporate seal, affixed or in facsimile, and attested by the manual or facsimile signature of the present or any future Secretary or Assistant Secretary of the Company. 2. REGISTRATION. The Warrants shall be numbered and shall be registered in a Warrant register (the "Warrant Register"). The Company shall be entitled to treat the registered holder of any Warrant on the Warrant Register as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other person, and shall not be liable for any registration or transfer of Warrants which are registered or are to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration or transfer, or with such knowledge of such facts that its participation therein amounts to bad faith. The Warrants shall be registered initially in the names of the Representatives (in the amounts set forth in Schedule I hereto) in such denominations as the Representatives may request in writing from the Company; provided, however, that any Representative may designate that all or a portion of its Warrants be issued in varying amounts directly to its bona fide officers and not to such Representative. Such designation will only be made by a Representative if it determines that such issuances would not violate the interpretation of the Board of Governors of the National Association of Securities Dealers, Inc. (the "NASD"), relating to the review of corporate financing arrangements. 3. TRANSFER OF WARRANTS. The Warrants will not be sold, transferred, assigned or hypothecated, in part or in whole, prior to the first anniversary of the effective date of the Registration Statement, and thereafter only upon delivery of the Warrant Certificate duly endorsed by the Holder or by its duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or authority to transfer. In all cases of transfer by an attorney, the original power of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited with the Company in its discretion. Upon any registration of transfer, the Company shall deliver a new Warrant or Warrants to the persons entitled thereto. Any of the Warrants may be exchanged at the option of its Holder for other Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of Shares upon surrender to the Company or its duly authorized agent. The Company may require payment of a sum sufficient to cover all taxes and other governmental charges that may be imposed in connection with any voluntary transfer, exchange or other disposition of the Warrants. However, the Company shall have no obligation to cause Warrants to be transferred on its books to any person, if such transfer would violate the Securities Act of 1933, as amended (the "Act"), or applicable state securities laws. 4. TERM OF WARRANTS; EXERCISE OF WARRANTS. (a) TERM OF WARRANTS. Each Warrant entitles the registered owner thereof to purchase one fully paid and nonassessable Share at a purchase price of $____ per Share (as adjusted from time to time pursuant to the provisions hereof, the "Exercise Price") at any time from the first anniversary of the effective date of the Registration Statement until 5:00 p.m., New York City time, on ______, 2003 (the "Warrant Expiration Date"). (b) EXERCISE OF WARRANTS. The Exercise Price and the number of Shares issuable upon the exercise of the Warrants are subject to adjustment upon the occurrence of certain events, pursuant to the provisions of Section 8 of this Agreement. Subject to the provisions of this Agreement, and in addition to the right to surrender Warrants without any cash payment as set forth in subsection (c) below, each Holder shall have the right, which may be exercised as set forth in such Warrants, to purchase from the Company (and the Company shall issue and sell to such Holder) the number of fully-paid and nonassessable Shares specified in such Warrants, upon surrender to the Company, or its duly authorized agent, of such Warrants, with the form of election to purchase attached thereto duly completed and signed, with signatures guaranteed by a member firm of a national securities exchange, a commercial bank (not a savings bank or savings and loan association) or trust company located in the United States or a member of the NASD and upon payment to the Company of the Exercise Price, as adjusted in accordance with the provisions of Section 8 of this Agreement, for the number of Shares in respect of which such Warrants are then exercised. No adjustment shall be made for any cash dividends payable out of consolidated earnings or retained earnings on any Shares issuable upon exercise of a Warrant. Upon each surrender of Warrants and payment of the Exercise Price, the Company shall issue and cause to be delivered with all reasonable dispatch, but in no event later than three (3) trading days following such surrender, to or upon the -2- written order of the Holder of such Warrants and in such name or names as such Holder may designate, a certificate or certificates for the number of full Shares so purchased upon the exercise of such Warrants, together with cash, as provided in Section 9 of this Agreement, in respect of any fractional Shares otherwise issuable upon such surrender. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such Shares as of the date of the surrender of Warrants and payment of the Exercise Price as aforesaid; provided, however, that if, at the date of surrender of such Warrants, the transfer books for the shares of Common Stock or other class of securities issuable upon the exercise of such Warrants shall be closed, the certificates for the Shares shall be issuable as of the date on which such books shall next be opened (whether before, on or after the Warrant Expiration Date) and until such date the Company shall be under no duty to deliver any certificate for such Shares; provided, further, however, that the transfer books of record, unless otherwise required by law, shall not be closed at any one time for a period longer than twenty (20) days. The rights of purchase represented by the Warrants shall be exercisable, at the election of the Holder(s) thereof, either in full or from time to time in part and, in the event that any Warrant is exercised in respect of less than all of the Shares issuable upon such exercise at any time prior to the Warrant Expiration Date, a new Warrant or Warrants will be issued for the remaining number of Shares specified in the Warrant so surrendered. (c) PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price may be made in cash, by wire transfer of immediately available funds or by certified check or official bank check payable to the order of the Company. In addition and in lieu of any cash payment, the Holder of any Warrants shall have the right at any time and from time to time to exercise such Warrants in full or in part by surrendering any such Warrant in exchange for the number of Shares equal to the product of (x) the number of shares as to which such Warrant is being exercised multiplied by (y) a fraction, the numerator of which is the Market Price (as defined in Section 8(d) below) per Share less the Exercise Price and the denominator of which is such Market Price. 5. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes, if any, attributable to the issuance of Shares upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any taxes payable in respect of any transfer involved in the issue or delivery of any certificates for Shares in a name other than that of the Holder of Warrants in respect of which such Shares are issued. 6. MUTILATED OR MISSING WARRANTS. In case any of the Warrants shall be mutilated, lost, stolen or destroyed, the Company shall issue and deliver in exchange and substitution for and upon cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and representing an equivalent right or interest, but only upon receipt of evidence reasonably satisfactory to the Company of such mutilation, loss, theft or destruction of such Warrant and indemnity, if requested, reasonably satisfactory to the Company. An applicant for such substitute Warrants shall also comply with such other reasonable regulations and pay such other reasonable charges and expenses as the Company may prescribe. -3- 7. RESERVATION OF SHARES, ETC. The Company has reserved, and shall at all times keep reserved, out of the authorized and unissued Common Stock, a number of shares sufficient to provide for the exercise of the rights of purchase represented by the outstanding Warrants. American Stock Transfer and Trust Company, transfer agent for the Shares (the "Transfer Agent"), and any subsequent transfer agent for the Company's securities issuable upon the exercise of the Warrants will be irrevocably authorized and directed at all times until the Warrant Expiration Date to reserve such number of authorized and unissued shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Transfer Agent and with every subsequent transfer agent for any shares of the Company's securities issuable upon the exercise of the Warrants. The Company will supply the Transfer Agent or any subsequent transfer agent with duly executed certificates for such purpose and will itself provide or make available any cash distributable as provided in Section 9 of this Agreement. All Warrants surrendered in the exercise of the rights thereby evidenced shall be canceled, and such canceled Warrants shall constitute sufficient evidence of the number of Shares that have been issued upon the exercise of such Warrants. No Shares shall be subject to reservation in respect of unexercised Warrants after the Warrant Expiration Date. 8. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise Price and the number and kind of securities issuable upon exercise of each Warrant shall be subject to adjustment from time to time upon the happening of certain events, as follows: (a) If the Company (i) declares a dividend on its Common Stock in shares of Common Stock or makes a distribution in shares of Common Stock, (ii) subdivides its outstanding shares of Common Stock, (iii) combines its outstanding shares of Common Shares into a smaller number of shares or (iv) issues by reclassification of its Common Stock other securities of the Company (including any such reclassification in connection with a consolidation or merger in which the Company is the surviving entity), the number of Shares purchasable upon exercise of each Warrant immediately prior thereto shall be adjusted so that the Holder of each Warrant shall be entitled to receive the kind and number of Shares or other securities of the Company which such Holder would have owned or have been entitled to receive after the happening of any of the events described above, had such Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto. Such adjustment shall be made whenever any of the events listed above shall occur. An adjustment made pursuant to this paragraph (a) shall become effective immediately after the effective date of such event retroactive to immediately after the record date, if any, for such event. (b) If the Company issues rights, options or warrants to all holders of its Common Stock, without any charge to such holders, entitling them to subscribe for or to purchase Common Stock at a price per share lower than the then current Market Price per share at the record date mentioned below (as defined in paragraph (d) below), the number of Shares thereafter purchasable upon exercise of each Warrant shall be determined by multiplying the number of Shares theretofore purchasable upon exercise of each Warrant by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the -4- number of shares of Common Stock outstanding on such record date plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at the then current Market Price per share. Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective retroactively to immediately after the record date for the determination of shareholders entitled to receive such rights, options or warrants. (c) If the Company distributes to all holders of its Common Stock shares of stock other than Common Stock or evidences of its indebtedness or assets (excluding cash dividends payable out of consolidated earnings or retained earnings and dividends or distributions referred to in paragraph (a) above) or rights, options or warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock (excluding those referred to in paragraph (b) above), then in each case the number of Shares thereafter issuable upon the exercise of each Warrant shall be determined by multiplying the number of Shares theretofore issuable upon the exercise of each Warrant, by a fraction, of which the numerator shall be the current Market Price per share (as defined in paragraph (d) below) on the record date mentioned below in this paragraph (c), and of which the denominator shall be the current Market Price per share on such record date, less the then fair value (as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive) of the portion of the shares of stock other than Common Stock or assets or evidences of indebtedness so distributed or of such subscription rights, options or warrants, or of such convertible or exchangeable securities applicable to one Share. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of distribution retroactive to immediately after the record date for the determination of shareholders entitled to receive such distribution. (d) For the purpose of any computation under paragraphs (b) and (c) of this Section 8, the current "Market Price" per share at any date shall be the average of the per share daily closing prices for Common Stock for fifteen (15) consecutive trading days commencing twenty (20) trading days before the date of such computation. The closing price for each day shall be the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the closing bid and asked prices regular way for such day, in either case on the principal national securities exchange on which shares of Common Stock are listed or admitted to trading, or if the are not listed or admitted to trading on any national securities exchange, but are traded in the over-the- counter market, the closing sale per share of Common Stock or, in case no sale is publicly reported, the average of the representative closing bid and asked quotations for shares of Common Stock on the NASDAQ NMS or SmallCap Stock Markets or any comparable system, or if shares of Common Stock are not listed on the NASDAQ Stock Market or a comparable system, the closing sale price per share of the Common Stock or, in case no sale is publicly reported, the average of the closing bid and asked prices as furnished by two members of the NASD selected from time to time by the Company for that purpose. (e) No adjustment in the number of Shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the -5- number of Shares purchasable upon the exercise of each Warrant; provided, however, that any adjustments which by reason of this paragraph (e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations shall be made to the nearest one thousandth of a share. (f) Whenever the number of Shares purchasable upon exercise of each Warrant is adjusted, as herein provided, the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Shares purchasable upon the exercise of each Warrant immediately prior to such adjustment, and of which the denominator shall be the number of shares so purchasable immediately thereafter. (g) For the purpose of this Section 8, the term "Common Stock" shall mean (i) the class of stock designated as the Common Stock of the Company at the date of this Agreement or (ii) any other class of stock resulting from successive changes or reclassifications of shares of such class of stock consisting solely of changes in par value, or from no par value to par value, or from par value to no par value. If at any time, as a result of an adjustment made pursuant to paragraph (a) above, the Holders become entitled to purchase any shares of capital stock of the Company other than Common Stock, thereafter the number of such other shares so purchasable upon exercise of each Warrant and the Exercise Price of such shares shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Shares contained in paragraphs (a) through (f), inclusive, and paragraphs (h) through (m), inclusive, of this Section 8, and the provisions of Sections 4, 5, 7 and 10 hereof, with respect to the Shares, shall apply on like terms to any such other shares. (h) Upon the expiration of any rights, options, warrants or conversion rights or exchange privileges, if any thereof have not been exercised, the Exercise Price and the number of Shares purchasable upon the exercise of each Warrant shall, upon such expiration, be readjusted and shall thereafter be such as they would have been had they originally been adjusted (or had the original adjustment not been required, as the case may be) as if (i) the only Shares so issued were the Shares, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion rights or exchange privileges and (ii) such Shares, if any were issued or sold for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for the issuance, sale or grant of all of such rights, options, warrants or conversion rights or exchange privileges whether or not exercised; provided, however, that no such readjustment shall have the effect of decreasing the number of shares issuable upon the exercise of each Warrant or increasing the Exercise Price by an amount in excess of the amount of the adjustment initially made in respect of the issuance, sale or grant of such rights, options, warrants or conversion rights or exchange privileges. (i) The Company may, at its option at any time during the term of the Warrants, reduce the then current Exercise Price to any amount deemed appropriate by the Board of Directors of the Company. -6- (j) Whenever the number of Shares issuable upon the exercise of each Warrant or the Exercise Price of such Shares is adjusted, as herein provided, the Company shall promptly mail by first class-mail, postage prepaid, to each Holder notice of such adjustment or adjustments. The Company shall retain a firm of independent public accountants (who may be the regular accountants employed by the Company) to make any computation required by this Section 8 and shall cause such accountants to prepare a certificate setting forth the number of Shares issuable upon the exercise of each Warrant and the Exercise Price of such Shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such certificate shall be conclusive as to the correctness of such adjustment and each Holder shall have the right to inspect such certificate during reasonable business hours. (k) Except as provided in this Section 8, no adjustment in respect of any dividends shall be made during the term of a Warrant or upon the exercise of a Warrant. (l) If the Company consolidates with or merges into another corporation or if the Company sells or conveys all or substantially all its property to another corporation, the Company or such successor or purchasing corporation (or an affiliate of such successor or purchasing corporation), as the case may be, agrees that each Holder shall have the right thereafter upon payment of the Exercise Price in effect immediately prior to such action to purchase upon exercise of each Warrant the kind and amount of shares and other securities and property (including cash) which such Holder would have owned or been entitled to receive after the happening of the consolidation, merger, sale or conveyance had such Warrant been exercised immediately prior to such action. The provisions of this paragraph (l) shall apply to successive consolidations, mergers, sales or conveyances. (m) Notwithstanding any adjustment in the Exercise Price or the number or kind of shares purchasable upon the exercise of the Warrants pursuant to this Agreement, certificates for Warrants issued prior or subsequent to such adjustment may continue to express the same price and number and kind of shares as are initially issuable pursuant to this Agreement. 9. FRACTIONAL INTERESTS. The Company shall not be required to issue fractions of Shares on the exercise of Warrants. If more than one Warrant is presented for exercise in full at the same time by the same Holder, the number of Shares issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Shares issuable on exercise of the Warrants so presented. If any fraction of a Share would, except for the provisions of this Section 9, be issuable on the exercise of any Warrant (or specified portions thereof), the Company shall purchase such fraction for an amount in cash equal to the same fraction of the current Market Price per share (determined as provided in Section 8(d) of this Agreement) on the date of exercise. 10. REGISTRATION RIGHTS. (a) DEMAND REGISTRATION RIGHTS. The Company covenants and agrees with the Representatives and any other or subsequent Holders of the Registrable Securities (as defined in -7- paragraph (f) of this Section 10) that, upon the written request of the then Holder(s) of at least a majority of the Warrants or the Registrable Securities, or both, which were originally issued to the Representative or its designees, made at any time within the period commencing one (1) year and ending five (5) years after the Effective Date, the Company will file as promptly as practicable and, in any event, within 60 days after receipt of such written request, at its expense (other than the fees of counsel and sales commissions for such Holders), no more than once, a post-effective amendment (the "Amendment") to the Company's Registration Statement on Form S-1, Registration No. 333-_____ as filed with the Securities and Exchange Commission on April __, 1998 or a new registration statement on an appropriate form under the Act, registering or qualifying the Registrable Securities for sale in accordance with the intended method of sale or other disposition described in such request. Within fifteen (15) days after receiving any such notice, the Company shall give notice to the other Holders of the Registrable Securities advising that the Company is proceeding with such Amendment, registration statement and offering to include the Registrable Securities of such Holders. The Company shall not be obligated to any other such Holder unless that other Holder accepts such offer by notice in writing to the Company within twenty (20) days thereafter. The Company will use its best efforts, through its officers, directors, auditors and counsel in all matters necessary or advisable, to file and cause such Amendment or registration statement to become effective as promptly as practicable (but in any event within 90 days of the initial filing of such Amendment or registration statement) and for a period of 24 months thereafter to reflect in the Amendment or registration statement financial statements which are prepared in accordance with Section 10(a)(3) of the Act and any facts or events arising that, individually, or in the aggregate, represent a fundamental or material change in the information set forth in the Amendment or registration statement to enable any Holders of the Warrants to sell such Registrable Securities. The Holders may sell the Registrable Securities pursuant to the Amendment or registration statement without exercising the Warrants. If any registration pursuant to this paragraph (a) is an underwritten offering, the Holders of a majority of the Registrable Securities to be included in such registration shall be entitled to select the underwriter or managing underwriter (in the case of a syndicated offering) of such offering. (b) PIGGYBACK REGISTRATION RIGHTS. The Company covenants and agrees with the Representatives and any other Holders or subsequent Holders of the Registrable Securities that if, at any time within the period commencing one (1) year and ending five (5) years after the Effective Date, it proposes to file a registration statement with respect to any class of equity or equity-related security (other than in connection with an offering to the Company's employees or in connection with an acquisition, merger or similar transaction) under the Act in a primary registration on behalf of the Company and/or in a secondary registration on behalf of holders of such securities and the registration form to be used may be used for registration of the Registrable Securities, the Company will give prompt written notice (which, in the case of a registration statement or notification pursuant to the exercise of demand registration rights other than those provided in Section 10(a) of this Agreement, shall be within ten (10) business days after the Company's receipt of notice of such exercise and, in any event, at least 30 days prior to such filing) to the Holders of Registrable Securities (regardless whether some of the Holders have theretofore availed themselves of the right provided in Section 10(a) of this Agreement) at the addresses appearing on the records of the Company of its intention to file a registration statement and will offer to include in such registration statement any of the -8- Registrable Securities, subject to paragraphs (i) and (ii) of this paragraph (b), such number of Registrable Securities with respect to which the Company has received written requests for inclusion therein within twenty (20) days after the giving of notice by the Company. All registrations requested pursuant to this paragraph (b) are referred to herein as "Piggyback Registrations". All Piggyback Registrations pursuant to this paragraph (b) will be made solely at the Company expense. (i) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration includes an underwritten primary registration for the Company, and the underwriter(s) for such offering determine in good faith and advise the Company in writing that in their opinion the number of Registrable Securities requested to be included in such registration exceeds the number that can be sold in such offering without materially adversely affecting the distribution of such securities by the Company, the Company will include in such registration (A) first, the securities that the Company proposes to sell, (B) second, the Registrable Securities requested to be included in such registration, apportioned pro rata among the Holders of Registrable Securities and (C) third, securities of the holders of other securities requesting registration. (ii) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration consists only of an underwritten secondary registration for holders of securities of the Company (other than pursuant to Section 10(a)), and the underwriters for such offering advise the Company in writing that in their opinion the number of Registrable Securities requested to be included in such registration exceeds the number which can be sold in such offering without materially adversely affecting the distribution of such securities by the Company, the Company will include in such registration (A) first, the securities requested to be included therein by the holders requesting such registration and the Registrable Securities requested to be included in such registration, pro rata among all such holders on the basis of the number of shares requested to be included by each such holder and (B) second, other securities requested to be included in such registration. Notwithstanding the foregoing, if any such underwriter determines in good faith and advises the Company in writing that the distribution the Registrable Securities requested to be included in the registration concurrently with the securities being registered by the Company would material adversely affect the distribution of such securities by the Company, then the Holders of such Registrable Securities shall delay their offering and sale for such period ending on the earliest of (1) 90 days following the effective date of the Company's registration statement, (2) the day upon which the underwriting syndicate, if any, for such offering has been disbanded or, (3) such date as the Company, managing underwriter and Holders of Registrable Securities otherwise agree. If such a delay occurs, the Company shall file such supplements, post- effective amendments and take any other steps necessary to permit such Holders to make their proposed offering and sale for a period of the later of 180 days immediately following the end of such delay or the period of time in which the registration statement is otherwise effective. If any party disapproves of the terms of any such -9- underwriting, it may elect to withdraw therefrom by written notice to the Company and the Underwriters. (c) OTHER REGISTRATION RIGHTS. In addition to the rights above provided, the Company will cooperate with the then Holders of the Registrable Securities in preparing and signing any registration statement, in addition to the registration statements discussed above, required in order to sell or transfer the Registrable Securities and will supply all information required therefor, but such additional registration statement shall be at the then Holders' cost and expense; provided, however, that if the Company elects to register or qualify additional shares of Common Stock, the cost and expense of such registration statement will be pro rated between the Company and the Holders of the Registrable Securities according to the aggregate sales price of the securities being issued. However, the Company will not be required to file a registration statement pursuant to this paragraph (c) (i) at a time when the audited financial statements required to be included therein are not available, which time shall be limited to the period commencing 45 days after the end of the Company's last fiscal year and ending 90 days after the end of such fiscal year, or (ii) within 90 days after completion of a public offering by the Company of any of its Common Shares or equity-related securities or (iii) if, in the reasonable opinion of the Company it would adversely impact the Company in its capital raising plans or otherwise (in which latter case filing may be delayed no longer than 90 days). (d) ACTION TO BE TAKEN BY THE COMPANY. In connection with the registration of Registrable Securities in accordance with paragraphs (a), (b) or (c) of this Section 10, the Company agrees to: (i) Bear the expenses of any registration or qualification under paragraphs (a) or (b) of this Section 10, including, but not limited to, legal, accounting and printing fees; provided, however, that in no event shall the Company be obligated to pay (A) any fees and disbursements of special counsel for Holders of Registrable Securities, or (B) any underwriters' discount or commission in respect of such Registrable Securities and (C) any stock transfer taxes attributable to the sale of the Registrable Securities; and (ii) Use its best efforts to register or qualify the Registrable Securities for offer or sale under state securities or Blue Sky laws of such jurisdictions in which the Underwriters or such Holders shall reasonably request; provided, however, that no qualification shall be required in any jurisdiction where, as a result thereof, the Company would be subject to service of general process or to taxation as a foreign corporation doing business in such jurisdiction to which it is not then subject, and to do all other acts necessary or advisable to enable the holders to consummate the proposed sale, transfer or other disposition of such securities in any jurisdiction. (e) ACTION TO BE TAKEN BY THE HOLDERS. In connection with the registration of Registrable Securities in accordance with paragraphs (a), (b) or (c) of this Section 10, the Company's -10- obligation shall be conditioned as to each such public offering upon a timely receipt by the Company in writing of: (i) Information as to the terms of such public offering furnished by or on behalf of each Holder intending to make a public offering of such Holder's Registrable Securities; and (ii) Such other information as the Company may reasonably require from such Holders, or any underwriter for any of them, for inclusion in such Registration Statement. (f) For purposes of this Section 10, (i) the term "Holder" shall include holders of Shares, and (ii) the term "Registrable Securities" shall mean the Shares, if issued. 11. NOTICES TO HOLDERS. (a) Nothing in this Agreement or in any Warrants shall be construed as conferring upon the Holders the right to vote or to receive dividends or to consent or to receive notice as shareholders in respect of the meetings of shareholders or the election of directors of the Company or any other matter, or any rights whatsoever as shareholders of the Company prior to the exercise hereof; provided, however, that in the event that any meeting of shareholders shall be called, the Company shall cause a notice thereof to be sent by first- class mail, postage prepaid, at least twenty (20) days prior to the date fixed as a record date or the date of closing the transfer books in relation to such meeting, to each registered Holder of Warrants at such Holder's address appearing on the Warrant Register. (b) If the Company intends to make any distribution on its Common Shares (or other securities which may be issuable in lieu thereof upon the exercise of Warrants), including, without limitation, any such distribution to be made in connection with a consolidation or merger in which the Company is the surviving entity, or to issue subscription rights or warrants to holders of its Common Shares, the Company shall cause a notice of its intention to make such distribution to be sent by first-class mail, postage prepaid, at least twenty (20) days prior to the date fixed as a record date or the date of closing the transfer books in relation to such distribution, to each registered Holder of Warrants at such Holder's address appearing on the Warrant Register, but failure to mail or to receive such notice or any defect therein or in the mailing thereof shall not affect the validity of any action taken in connection with such distribution. 12. NOTICES. Any notice pursuant to this Agreement to be given by the Holder of any Warrant or the holder of any Share to the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed as follows or to such other address as the Company may designate by notice given in accordance with this Section 12, to the Holders of Warrants or the holders of Shares: -11- Central European Distribution Corporation 211 North Union Street, #100 Alexandria, Virginia 22314 Attn.: President Notices or demands authorized by this Agreement to be given or made by the Company to or by the Holder of any Warrant or the holder of any Share shall be sufficiently given or made (except as otherwise provided in this Agreement) if sent by first-class mail, postage prepaid, addressed to such Holder or such holder of Shares at the address of such Holder or such holder of Shares as shown on the Warrant Register or the books of the Company, as the case may be. 13. GOVERNING LAW. This Agreement and each Warrant issued hereunder shall be governed by and construed in accordance with the substantive laws of the State of New York. The Company hereby agrees to accept service of process by notice given to it pursuant to the provisions of Section 12 hereof. 14. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original; but such counterparts together shall constitute one and the same instrument. -12- IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day, month and year first above written. CENTRAL EUROPEAN DISTRIBUTION CORPORATION By:_______________________________________ Its: BREAN MURRAY & CO., INC. By:_______________________________________ Its: FINE EQUITIES, INC. By:_______________________________________ Its: -13- SCHEDULE I NAME OF UNDERWRITER NUMBER OF WARRANTS - ------------------- ------------------ Brean Murray & Co., Inc. Fine Equities, Inc. __________________ TOTAL 250,000 -14- EXHIBIT A [FORM OF FACE OF WARRANT CERTIFICATE] No. W _____ Warrants VOID AFTER _______, 2002 WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK CENTRAL EUROPEAN DISTRIBUTION CORPORATION This certifies that FOR VALUE RECEIVED _____________ or registered assigns (the "Registered Holder") is the owner of the number of Warrants ("Warrants") specified above. Each Warrant represented hereby initially entitles the Registered Holder to purchase, subject to the terms and conditions set forth in this Warrant Certificate and the Warrant Agreement (as hereinafter defined), one fully paid and nonassessable share of common stock, par value $.01 per share ("Common Stock"), of Central European Distribution Corporation, a Delaware corporation (the "Company"), at any time from the first anniversary of the Registration Statement (as defined in the Warrant Agreement) until the Expiration Date (as hereinafter defined), upon the presentation and surrender of this Warrant Certificate with the Subscription Form on the reverse hereof duly executed, at the corporate office of American Stock Transfer & Trust Company as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of $____ (the "Purchase Price") in lawful money of the United States of America in cash or by official bank or certified check made payable to Central European Distribution Corporation or otherwise as provided in the Warrant Agreement. This Warrant Certificate and each Warrant represented hereby are issued pursuant to and are subject in all respects to the terms and conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated _____, 1998, by and among the Company, Brean Murray & Co., Inc. and Fine Equities, Inc. In the event of certain contingencies provided for in the Warrant Agreement, the Purchase Price and the number of shares of Common Stock subject to purchase upon the exercise of each Warrant represented hereby are subject to modification or adjustment. Each Warrant represented hereby is exercisable at the option of the Registered Holder, but no fractional shares of Common Stock will be issued. In the case of the exercise of less than all the Warrants represented hereby, the Company shall cancel this Warrant Certificate upon the surrender hereof and shall execute and deliver a new Warrant Certificate or Warrant Certificates of like tenor, which the Warrant Agent shall countersign, for the balance of such Warrants. The term "Expiration Date" shall mean 5:00 P.M. (New York time) on _____, 2002. If such date shall in the State of New York be a holiday or a day on which banks are authorized to close, then -i- the Expiration Date shall mean 5:00 P.M. (New York time) the next following day which in the State of New York is not a holiday or a day on which banks are authorized to close. The Company shall not be obligated to deliver any securities pursuant to the exercise of the Warrants represented hereby unless a registration statement under the Securities Act of 1933, as amended, with respect to such securities is effective. The Company has covenanted and agreed that it will file a registration statement and will use its best efforts to cause the same to become effective and to keep such registration statement current while any of the Warrants are outstanding. The Warrants represented hereby shall not be exercisable by a Registered Holder in any state where such exercise would be unlawful. This Warrant Certificate is exchangeable, upon the surrender hereof by the Registered Holder at the corporate office of the Warrant Agent, for a new Warrant Certificate or Warrant Certificates of like tenor representing an equal aggregate number of Warrants, each of such new Warrant Certificates to represent such number of Warrants as shall be designated by such Registered Holder at the time of such surrender. At any time prior to the Expiration Date, upon due presentment with a $___ transfer fee per certificate in addition to any tax or other governmental charge imposed in connection therewith, for registration of transfer of this Warrant Certificate at such office, a new Warrant Certificate or Warrant Certificates representing an equal aggregate number of Warrants will be issued to the transferee in exchange therefor, subject to the limitations provided in the Warrant Agreement. Prior to the exercise of any Warrant represented hereby, the Registered Holder shall not be entitled to any rights of a stockholder of the Company, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided in the Warrant Agreement. Prior to due presentment for registration of transfer hereof, the Company and the Warrant Agent may deem and treat the Registered Holder as the absolute owner hereof and of each Warrant represented hereby (notwithstanding any notations of ownership or writing hereon made by anyone other than a duly authorized officer of the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary. This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of New York without reference to principles of conflict of laws. This Warrant Certificate is not valid unless countersigned by the Warrant Agent. -ii- IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed, manually or in facsimile, by two of its officers thereunto duly authorized and a facsimile of its corporate seal to be imprinted hereon. CENTRAL EUROPEAN DISTRIBUTION CORPORATION Dated: By:________________________________ By:________________________________ [seal] Countersigned: _________________________________ as Warrant Agent By: ______________________________ Authorized Officer -iii- [FORM OF REVERSE OF WARRANT CERTIFICATE] TRANSFER FEE: $___ PER CERTIFICATE ISSUED SUBSCRIPTION FORM To Be Executed by the Registered Holder in Order to Exercise Warrants The undersigned Registered Holder hereby irrevocably elects to exercise________ Warrants represented by this Warrant Certificate, and to purchase the securities issuable upon the exercise of such Warrants, and requests that certificates for such securities shall be issued in the name of PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER _______________________________ _______________________________ _______________________________ _______________________________ [please print or type name and address] and be delivered to _______________________________ _______________________________ _______________________________ _______________________________ [please print or type name and address] and if such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, that a new Warrant Certificate for the balance of such Warrants be registered in the name of, and delivered to, the Registered Holder at the address stated below. -iv- Dated: X__________________________________ ___________________________________ ___________________________________ Address ___________________________________ Taxpayer Identification Number ___________________________________ Signature Guaranteed ___________________________________ THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM. -v- ASSIGNMENT To Be Executed by the Registered Holder in Order to Assign Warrants FOR VALUE RECEIVED, _____________________ hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF TRANSFEREE _______________________________ _______________________________ _______________________________ _______________________________ [please print or type name and address] ______ of the Warrants represented by this Warrant Certificate, and hereby irrevocably constitutes and appoints _____________ Attorney to transfer this Warrant Certificate on the books of the Company, with full power of substitution in the premises. Dated:________________ X______________________________ Signature Guaranteed ______________________________ THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM. -vi- EX-10.6.A 4 AMENDMENT TO DIST. CONTRACT - UDV POLAND EXHIBIT 10.6(a) H&H Translation - --------------- AMENDMENT to the distribution agreement entered into in Warsaw, on July 3, 1997, by and between UDV Poland Sp.z o.o. and Carey Agri International. I. Para. 1 Point V shall be amended to read: This agreement is concluded for the period of one year, starting from January 1, 1998. II. All the other terms and conditions thereof remain in force. III. The Amendment has been executed in two identical copies, one for each of the parties. CAREY AGRI INT. POLAND SP.Z O.O. U.D.V. POLAND SP.Z O.O. DISTRIBUTOR William Carey Marek Rozycki [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] PRESIDENT OF DIRECTOR GENERAL THE MANAGEMENT BOARD EX-10.7 5 DISTRIBUTION CONTRACT - GUINESS EXHIBIT 10.7 [LETTERHEAD OF GUINNESS BREWING WORLDWIDE APPEARS HERE] 17th November, 1997 Carey Agri International Poland Sp.zo.o. ul Lubelska 13 03-802 Warszawa POLAND Attention: Mr. Bill Carey By post and by facsimile Fax no. 0048-22-6180238 Dear Sirs, POLISH DISTRIBUTION ARRANGEMENTS -------------------------------- Guinness Brewing Worldwide Ltd ("GBW") hereby offers to Carey Agri International Poland Sp.zo.o. ("Carey Agri") exclusive distribution rights in Poland on the following basis: 1. Products The Guinness products to be imported, distributed and sold by Carey Agri ("the Products") will be as follows: (i) draught and bottled GUINNESS ES71 Stout; (ii) GUINNESS Foreign Extra Stout; (iii) Canned Draught GUINNESS; (iv) draught and bottled KILKENNY Irish Beer; (v) draught CASHEL'S Cider; and (vii) such other beverages as may be agreed between the parties in writing from time to time. 2. Term and Termination 2.1 The initial term of this arrangement will be eight (8) months from 1st November, 1997 until 30th June, 1998, provided that the arrangement will continue thereafter unless and until terminated by either party upon 60 days written notice (such notice to expire on or at any time after 1st July, 1998). 2.2 Either party will be entitled to terminate this arrangement with immediate effect by written notice to the other if that other party commits any breach of the Page 2 of 3 terms of this arrangement which is not remedied within 30 days after the receipt of written notice giving particulars of the breach and requiring it to be remedied. 2.3 For the avoidance of doubt, this arrangement supersedes the letter from Guinness to Carey Agri dated 31st July, 1997, and the parties hereby agree that the said letter will have no further force or effect save in relation to any accrued rights of either party thereunder. 3. Terms of Sale 3.1 The Products will be supplied by GBW to Carey Agri on the Guinness Terms & Conditions of Sale for the time being in force ("the Guinness Terms"). A copy of the current Guinness Terms has been supplied to Carey Agri. Any changes to the Guinness Terms will be communicated to Carey Agri from time to time. 3.2 The Guinness terms will apply to the exclusion of all other terms and conditions of sale whether implied by law or otherwise. 4. Carey Agri's Obligations At all times during the term of this arrangement Carey Agri will: (i) use its best endeavours to develop the market for and promote the sales of the Products in Poland; (ii) not manufacture or distribute any stout, ale or cider which in the reasonable opinion of Guinness competes with the Products in Poland; (iii) refrain from any marketing or distribution activities outside Poland in relation to the Products; (iv) maintain sufficient stocks of the Products to meet demand in Poland; (v) only import and distribute the Products or allow them to be distributed in good and unadulterated condition; and (vi) provide GBW with a monthly written report in a form acceptable to GBW within 10 working days after each month end. 5. GBW's Obligations At all times during the terms of this arrangement GBW will: Page 3 of 3 (i) refrain from selling or supplying the Products to any customer or person in Poland other than Carey Agri, unless Carey Agri cannot satisfy demand for the Products from customers in Poland (provided that GBW will retain the right to supply the Products direct to any GBW affiliate in Poland which owns and operates retail premises); and (ii) be solely responsible for the formulas and specifications according to which the Products are brewed. 6. Proper Law This arrangement will be governed by the laws of England and the parties agree to submit to the non-conclusive jurisdiction of the English Courts. *** If you wish to accept this offer, would you kindly sign and return the attached acknowledgment copy of this letter. Yours GUINNESS BREWING WORLDWIDE LIMITED /s/ [SIGNATURE APEARS HERE] ----------------------------- (Authorized signatory) ON CONFIRMATION COPY ONLY: Acknowledged and agreed for and on behalf of CAREY AGRI INTERNATIONAL POLAND Sp.zo.o by: /s/ WILLIAM CAREY - ------------------------ (Authorized signatory) Name: William Carey ----------------- Date: 11/20/97 ----------------- EX-10.8 6 CONTRACT W/VINEXPORT EXHIBIT 10.8 C O N T R A C T No. 1236 concluded in Bucharest on December 31, 1997. SELLER: VINEXPORT TRADING COMPANY LTD., residing in 78176 BUCHAREST, 10 Grigore Manolescu Street, Sector 1, ROMANIA, tel. (401) 222.82.84, fax (401) 222.82.83, represented by Mr. NICOLAE DAVID, Managing Director. BUYER CAREY AGRI INTERNATIONAL POLAND, SPOLKA Z.o.o., residing in 03-802 WARSAW, 13 Lubelska Street, POLAND, tel. 48.22.6180544, fax 48.22.6180238, represented by Mr. WILLIAM VERNON CAREY, Managing Director. OBJECT: EXPORT OF ROMANIAN BOTTLED WINES TO POLAND IN THE 1998 YEAR. GOODS, QUANTITIES, ROMANIAN BOTTLED WINES, from which: ASSORTMENTS, VARIETIES, WHITE WINES = 50.000 cases of 6 bottles x 750 ml. TYPES: RED WINES = 75.000 cases of 6 bottles x 750 ml. ----------------------------------------------------- TOTAL = 125.000 cases of 6 bottles x 750 ml. The quantities per wines varieties (Chardonnay, Sauvignon Blanc, Riesling, Cabernet Sauvignon, Merlot, Pinot Noir, Feteasca Neagra, Burgund), wines types (dry, medium dry) and respectively labels brands (Romanian Classic, Aura Special Reserve) will be established, in writing, with the both parties agreement at the beginning of the year 1998, before the beginning date of the goods delivery. LABELS: ROMANIAN CLASSIC and AURA SPECIAL RESERVE brands, according to the both parties agreement. The alcohol content specified on the labels shall not differ from the real alcohol content of the wines with more than 0.5% volume alcohol. Any of the Seller's labels brands which will be used by the Buyer, shall not create property rights for the Buyer and the labels brands will only be used or displayed with the Seller's licence. PRICES: The prices will be established, in writing, with the both parties agreement at the beginning of the year 1998, before the beginning date of the goods delivery.
- -2- CONTRACT 1998-VINEXPORT/CAREY QUALITY ORGANOLEPTIC PROPERTIES: CONDITIONS: ASPECT: clear COLOUR: WHITE WINES: white-greenish, yellow-greenish, straw-yellow, yellow-gold RED WINES, red-ruby TASTE/SMELL: characteristic PHYSICAL-CHEMICAL PROPERTIES: Alcohol content (% volume at plus 20 degrees C) - white wines................................ 11-12 - red wines.................................. 12.01-13 Direct reducing sugar content, g/l - dry wines.................................. 0-4 - medium dry wines........................... 4.01-12 Sugar free extract, g/l, minimum - white wines................................ 18 - red wines.................................. 20 Total acidity (C4H606), g/l.............................. 4.5-9 Volatile acidity (CH3COOH), g/l, maximum................. 1.0 Total sulphur dioxide (SO2), mg/l, maximum............... 200 Free sulphur dioxide (SO2), mg/l, maximum................ 40 Sorbic acid, mg/l, maximum............................... 200 GUARANTEE 12 (twelve) months from the date of the goods delivery under the condition TERM OF THE that the goods to be transported, handeled and stored in proper conditions QUALITY: (temperature between plus 5 and plus 15 degrees Celsius, protection from sunlight). BOTTLES Glass bottles of 750 ml., as follows: Clear RHEIN types bottles for RIESLING wine: Clear BORDEAUX type bottles for SAUVIGNON BLANC wine Green BORDEAUX type bottles for CABERNET SAUVIGNON, MERLOT and FETEASCA NEAGRA wines; Green BURGUND type bottles for CHARDONNAY, PINOT NOIR and BURGUND wines. BOTTLES With cork stoppers of minimum 24 x 38 mm. and shrink CLOSURE capsules of 31 x 55/60 mm. PACKING: In corrugated carton cases of 6 bottles x 750 ml. BANDEROLES: The wines bottles have to have Polish banderoles on. The Polish banderoles have to be received by the Seller from the Buyer, by air courier, in good conditions, with minimum 15 (fifteen) days before the date of the goods delivery and the Romanian winery have to glued them over the neck of the bottles.
- -3- CONTRACT 1998-VINEXPORT/CAREY
DELIVERY Successive deliveries, until December 31, 1998. TERM: The date of the goods delivery is understood as the date of delivery mentioned in the international truck way bill (CMR). The purchase order of the Buyer have to be received by the Seller, by fax, with minimum 25 (twenty five) days before the date of the goods delivery. The purchase order will be valid only after the receiving by the buyer of the Seller's confirmation, by fax, that the purchase order can be fulfilled. The date when the goods will be ready for delivery will be indicated, by fax, by the Seller to the Buyer, only after the receiving by the Seller, in good conditions, of the Polish banderoles. The Buyer have to inform the Seller with minimum 2 (two) working days before the date of the goods delivery about the plate number of the truck which will arrive at the loading place in Romania. TAKING-OVER: The goods quantitative and qualitative taking-over is made in Romania at the date of the goods delivery by the Buyer's representative or authorized agent (individual or person-at-law) and confirmed by means of a taking-over document. In such case the Seller has responsibility for hidden flaws only. In the absence of the Buyer's representative or authorized agent in Romania, the Buyer takes over the goods in Romania, as follows: - the final quantitative taking-over: on the basis of the international truck way bill (CMR); - the qualitative taking-over: on the basis of the Analyses report issued by the laboratory of the Romanian Winery. TRANSPORT: By trucks, proper for the transport of bottled wines, on the Buyer's expense. The goods have to be accompanied by the following documents: - Signed invoice............................ 3 cp. - International truck way bill (CMR)........ 2 cp. - EUR 1..................................... 1 cp. - Analyses Report........................... 2 cp. - Specification............................. 2 cp. ADVISING: The Seller will send, by fax, to the Buyer within maximum 2 (two) working days from the date of the goods delivery a copy of the invoice.
- -4- CONTRACT 1998-VINEXPORT/CAREY
PAYMENT: DOCUMENTARY COLLECTION through DOCUMENTS AGAINST ACCEPTANCE BILL at 45 (forty five) days from the date of the goods delivery mentioned in the international truck way bill (CMR). The payment of the goods have to be made by the Buyer through BANK ROZWOJU EXPORTU S.A., Pl. Bankowy no.2, 00-950 Warszawa, Wydzial Rachunkow Zlotowych i Walutowych, POLAND, in the favour of the Seller to ING BANK N.V. BUCHAREST BRANCH, ING BUILDING. Soseaua Kiseleff No. 13-15, P.O. BOX 2-208, Sector 1, Bucuresti, phone: 00.40.1.222.16.00, fax: 00.40.1.222.14.01, account number: 010371401.4, Swift code: INGBROBU, against presentation by the Seller of the following documents: - Signed invoice............................ 3 cp. - International truck way bill (CMR)........ 1 cp. - Analyses report........................... 1 cp. All banking charges and commissions at the Buyer's bank are in the Buyer's account. All banking charges and commissions at the Seller's bank are in the Seller's account. The Seller has the right to stop the deliveries of the goods and is exempted of responsability concerning the subsequent deliveries in case that the Buyer doesn't pay within the above mentioned time the counter-value of the goods delivered and invoiced by the Seller. CLAIMS: Any possible claims can be made by the Buyer only for quality defects. The claims must be received by the Seller from the Buyer, by fax, within 20 (twenty) days from the arrival date of the goods at the place of destination in Poland (Pruszkow). Any possible claims for quality defects after expiring of the above mentioned time can be made by the Buyer only for hidden flaws and only within the guarantee terms of the quality and have to be received by the Seller from the Buyer, by fax, within 15 (fifteen) days from the date of their finding out. By hidden flaws the contracting parties understand the quality defects of the goods which can not be evidenced by an usual quality control but by laboratory methods only.
- -5- CONTRACT 1998-VINEXPORT/CAREY
For all possible claims for quality defects the Buyer is obliged to send to the Seller, by air courier, within maximum 15 (fifteen) days from the notification date of the claim, samples of the claimed goods and original Certificate of Analysis/Decision issued by an authorized Polish laboratory (STACJA SANITARNO-EPIDEEMIOLOGICZANA) from which it have to result that the goods are not according to the contractual quality conditions and these ones are unsuitable for the human consumption from sanitary point of view and therefore are not allowed to be sold on the Polish market. Any qualitative claims received by the Seller after the expiry date of the guarantee term of the quality will be null and void. FORCE By Force Majeure the contracting parties understand MAJEURE: the circumstances which appear after the signing of this contract as a result of some uncommon, unforseen and unavoidable event, as for example natural calamities (earthquakes, floods, a.s.o.), fire, war, civil war, revolution, riots, uprising, civil or political movements, strikes and/or labour conflictes, restrictive laws/rules/decisions/ orders or acts of the legislative and/or administrative authorities or other similar casualties. The contracting parties are entirely or partially exempted of liability as far as the fulfilment of the contractual obligations isn't possible because of the Force Majeure. The contractual party which can not fulfil the contractual obligations because of the Force Majeure circumstances has immediately to advise about this the other contracting party, by fax, and in maximum 30 (thirty) days from their occurance has to notify the other contracting party by registred letter. The Force Majeure circumstances have to be confirmed by a Certificate issued by the Chamber of Commerce or by any other competent authority from the Seller's or respectively from the Buyer's country. The same modality of advising and notification is also applied for the association of the Force Majeure circumstances. If the Force Majeure circumstances last for more than 60 (sixty) days from its notification, the contracting parties are entitled to cancel the contract by a registred letter, no formality whatsoever is considered. For any delay or non-fulfilment of the contractual obligations by either contracting party as a result of the Force Majeure circumstances notified and justified accordingly, neither of the contracting parties has the right to make a demand upon the other contracting party for penalities, interest and compensation of any possible damages. Force Majeure circumstances shall not release either contracting party from its liability to make payments for the goods delivered before the Force Majeure occurance.
- -6- CONTRACT 1998-VINEXPORT/CAREY
OBLIGATIONS, The Seller is obliged to deliver the goods according LITIGAITONS: to the conditions of this contract and the Buyer is obliged to take-over the goods according to the conditions of this contract and to pay them at the established and invoiced prices. The non-fulfilment or the faulty performance of the contractual stipulations has as effect the payment by the guilty contracting party to the other contracting party the resulted losses. All litigations resulted from this contract or in connection with it are to be settled by amiable way. If this is not possible, the contracting parties have to admit the award by the Arbitration commission under the Chamber of Commerce and Industry of Romania, in Bucharest which will arbitrate the litigations according to its own legal procedures. The award passed by the Arbitration Commission under the Chamber of Commerce and Industry of Romania, in Bucharest will be final and binding upon both contracting parties. The contracting parties agree that this contract should abide by the Romanian law and undertake to enforce without any delay the award passed by the Arbitration Commission under the Chamber of Commerce and Industry of Romania, in Bucharest. MISCELLANEOUS: The Buyer can not reexport to other countries the goods which make the object of this contract without the Seller's previous written agreement. The buyer can not buy the wines, assortments/varieties/types which make the object of this contract directly from the Romanian wineries which produce these ones. The stipulations of this contract can be amended, in writing, before or during its carrying on, only with the agreement of both contracting parties. None of the contracting parties can assign and/or transfer the contract in whole or in part to another third party, without the previous written agreement of the other contracting party. The negotiations and correspondence prior to the date of signing of this contract and contrary to its stipulations are null and void. VALIDITY OF THE CONTRACT: Until December 31, 1998. This contract containing 6 (six) pages has been concluded in 2 (two) copies, equally valid, one of each for every contracting party and comes into force beginning with the date of its signing by the both contracting parties.
- -7- CONTRACT 1998-VINEXPORT/CAREY SELLER BUYER: VINEXPORT TRADING COMPANY LTD. CAREY AGRI INTERNATIONAL POLAND BUCHAREST, ROMANIA WARSAW, POLAND MANAGING DIRECTOR MANAGING DIRECTOR NICOLAE DAVID WILLIAM VERNON CAREY Dyrektor Zarazdu CAREY POLAND Sp. z o.o. /s/ NICOLAE DAVID /s/ WILLIAM CAREY Place and date of signing Place and date of signing by the Seller by the Buyer: BUCHAREST, DECEMBER 31, 1997 EX-10.11 7 EMPLOYMENT AGREEMENT - R. BOHOJLO & CO. EXHIBIT 10.11 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of this 1st day of January, 1998 by and between Central European Distribution Corporation, Inc., a Delaware corporation (the "Company"), and Robert Bohojlo (the "Executive"). WHEREAS, the Company desires to employ the Executive, and the Executive desires to be employed by the Company, on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows: 1. Employment. On the terms and conditions set forth in this ---------- Agreement, the Company agrees to employ the Executive and the Executive agrees to be employed by the Company for the term set forth in Section 2 hereof and in the position and with the duties set forth in Section 3 hereof. 2. Term. The employment of the Executive by the Company as provided ---- in Section 1 hereof shall commence on the date hereof and end three (3) years thereafter (the "Expiration Date"). 3. Position and Duties. The Executive shall serve as vice president ------------------- and chief financial officer of the Company as well as the chief financial officer of the Company's subsidiary, Carey Agri International Sp. z o.o (the "Subsidiary") with such duties and responsibilities as the board of directors of the Company (the "Board") or the Chief Executive Officer of the Company may from time to time determine and assign to the Executive. The Executive shall devote the Executive's reasonable best efforts and substantially full business time to the performance of the Executive's duties and the advancement of the business and affairs of the Company and the Subsidiary. 4. Place of Performance. In connection with the Executive's -------------------- employment by the Company, the Executive shall be based at the principal executive office of the Subsidiary, which the Company retains the right to change in its discretion, or such other place as the Company and the Executive mutually agree, except for required travel on Company business. 5. Compensation. ------------ 5(a). Salary. The Executive shall be paid an annual base salary ------ (the "Salary") at the rate of $43,000 per year. 5(b). Stock Options. As part of the consideration for entering ------------- into this Agreement and performing services hereunder, the Company grants to the Executive stock options for 30,000 shares of its common stock, par value $.01 per share (the "Common Stock") to vest and be exercisable as follows: (i) options for 5,000 shares to be exercisable at the selling price to the public in the Company's initial public offering and to become exercisable on January 1, 1999; (ii) options for 10,000 shares to be exercisable at the average trading price of the Common Stock for the last five trading days of 1998 and to become exercisable on January 1, 2000; and (iii) options for 15,000 shares to be exercisable at the average trading price of the Common Stock for the last five trading days of 1999 and to become exercisable on November 1, 2000. All such options are granted under the Company's 1997 Stock Incentive Plan and are contingent upon the successful completion of the Company's initial public offering and the approval of the shareholders of the Company of the 1997 Stock Incentive Plan. All such options shall have a term ending on but including December 31, 2000. This grant shall be documented in a stock option agreement to be provided to the Executive by the Company. 5(c). Bonus. The Executive shall be paid on terms and conditions to be agreed to in a separate agreement an annual bonus equal to at least one-twelfth of the Salary. 5(d). Withholding Taxes and Other Deductions. To the extent -------------------------------------- required by law, the Company and the Subsidiary shall withhold from any payments due Executive under this Agreement any applicable federal, state or local taxes and such other deductions as are prescribed by law or Company or Subsidiary policy. 6. Expenses. The Company and the Subsidiary shall reimburse the -------- Executive for all reasonable expenses incurred by the Executive (in accordance with the policies and procedures in effect for senior executives of the Company and the Subsidiary) in connection with the Executive's services under this Agreement. The Executive shall account to the Company or the Subsidiary, as the case may be, for such expenses in accordance with policies and procedures established by the Company or the Subsidiary. 7. Confidential Information. ------------------------ 7(a). The Executive covenants and agrees that the Executive will not ever, without the prior written consent of the Board or a person authorized by the Board, publish or disclose to any unaffiliated third party or use for the Executive's personal benefit or advantage any confidential information with respect to any of the Company's or Subsidiary's products, services, subscribers, suppliers, marketing techniques, methods or future plans disclosed to the Executive as a result of the Executive's employment with the Company, to the extent such information has 2 heretofore remained confidential (except for unauthorized disclosures) and except as otherwise ordered by a court of competent jurisdiction. 7(b). The Executive acknowledges that the restrictions contained in Section 7(a) hereof are reasonable and necessary, in view of the nature of the Company's business, in order to protect the legitimate interests of the Company, and that any violation thereof would result in irreparable injury to the Company. Therefore, the Executive agrees that in the event of a breach or threatened breach by the Executive of the provisions of Section 7(a) hereof, the Company shall be entitled to obtain from any court of competent jurisdiction, preliminary or permanent injunctive relief restraining the Executive from disclosing or using any such confidential information. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including, without limitation, recovery of damages from the Executive. 7(c). The Executive shall deliver promptly to the Company on termination of employment, or at any other time the Company may so request, all confidential memoranda, notes, records, reports and other documents (and all copies thereof) relating to the Company's and its affiliates' businesses which the Executive obtained while employed by, or otherwise serving or acting on behalf of, the Company or which the Executive may then possess or have under his or her control. 8. Non-Competition. --------------- 8(a). Non-Competition. The Executive covenants and agrees that --------------- the Executive will not, during the Executive's employment hereunder and for a period of one (1) year thereafter (to the extent permitted by law), at any time and in any state or other jurisdiction in which the Company or Subsidiary is engaged or has reasonably firm plans to engage in business, (i) compete with the Company or Subsidiary on behalf of the Executive or any third party; (ii) participate as a director, agent, representative, stockholder or partner or have any direct or indirect financial interest in any enterprise which engages in the alcohol product distribution business or any other business in which the Company or Subsidiary is engaged; or (iii) participate as an employee or officer in any enterprise in which the Executive's responsibility relates to the alcohol product distribution business or any other business in which the Company or Subsidiary is engaged. The ownership by the Executive of less than five percent (5%) of the outstanding stock of any corporation listed on a national securities exchange conducting any such business shall not be deemed a violation of this Section 8(a). 8(b). Injunctive Relief. In the event the restrictions against ----------------- engaging in a competitive activity contained in Section 8(a) hereof shall be determined by any court of competent jurisdiction to be unenforceable by reason of their extending for too great a period of time or over too great a geographical area or by reason of their being too extensive in any other respect, Section 8(a) hereof shall be interpreted to extend only over the maximum period of time for which it may be enforceable and over the maximum geographical area as to which it may be enforceable and to the maximum 3 extent in all other respects as to which it may be enforceable, all as determined by such court in such action. 8(c). Non-Solicitation. The Executive covenants and agrees that ----------------- the Executive will not, during the Executive's employment hereunder and for a period of one (1) year thereafter induce or attempt to induce any employee of the Company or the Subsidiary to render services for any other person, firm, or corporation. 9. Termination of Employment. ------------------------- 9(a). Death. The Executive's employment hereunder shall ----- terminate upon the Executive's death. 9(b). By the Company. The Company may terminate the Executive's -------------- employment hereunder under the following circumstances: (i) If the Executive shall have been unable to perform all of the Executive's duties hereunder by reason of illness, physical or mental disability or other similar incapacity, which inability shall continue for more than three (3) consecutive months, the Company may terminate the Executive's employment hereunder. (ii) The Company may terminate the Executive's employment hereunder for "Cause." For purposes of this Agreement, "Cause" shall mean (A) willful refusal by the Executive to follow a written order of the Chairman of the Board or the Board of Directors, (B) the Executive's willful engagement in conduct materially injurious to the Company, (C) dishonesty of a material nature that relates to the performance of the Executive's duties under this Agreement, (D) the Executive's conviction for any felony involving moral turpitude, (E) the Executive's continued failure to perform his duties under this Agreement (except due to the Executive's incapacity as a result of physical or mental illness) to the satisfaction of the Board of Directors of the Company for a period of at least forty-five (45) consecutive days after written notice is delivered to the Executive specifically identifying the manner in which the Executive has failed to perform his duties, and (F) termination of the Executive's employment agreement with the Subsidiary. In addition, the Company may terminate the Executive's employment for "Cause" if the normal business operations of the Company are rendered commercially impractical as a consequence of an act of God, accident, fire, labor controversy, riot or civil commotion, act of public enemy, law, enactment, rule, order, or any act of government or governmental instrumentality, failure of facilities, or other cause of a similar or dissimilar nature that is not reasonably within the control of the Company or which the Company could not, by reasonable diligence, have avoided. 9(c). By the Executive. The Executive may terminate the ---------------- Executive's employment hereunder for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean (i) the Company's failure to perform or observe any of the material terms or provisions of this Agreement, and the continued failure of the Company to cure such default within thirty (30) days after written demand for 4 performance has been given to the Company by the Executive, which demand shall describe specifically the nature of such alleged failure to perform or observe such material terms or provisions; or (ii) a material reduction in the scope of the Executive's responsibilities and duties. 9(d). Notice of Termination. Any termination of the Executive's --------------------- employment by the Company or the Executive (other than pursuant to Section 9(a) hereof) shall be communicated by written "Notice of Termination" to the other party hereto in accordance with Section 11 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon, if any, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 9(e). Date of Termination. For purposes of this Agreement, the ------------------- "Date of Termination" shall mean (i) if the Executive's employment is terminated by the Executive's death, the date of the Executive's death; (ii) if the Executive's employment is terminated pursuant to Section 9(b)(i) hereof, thirty (30) days after Notice of Termination, provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period; (iii) if the Executive's employment is terminated pursuant to Section 9(b)(ii)(A) - (E) or 9(c) hereof, the date specified in the Notice of Termination;, if the Executive's employment is terminated pursuant to Section 9(b)(ii)(F) hereof, the date the Executive's employment agreement with the Subsidiary is terminated after the required notice provision under Polish law, and (iv) if the Executive's employment is terminated for any other reason, the date on which Notice of Termination is given. 10. Compensation Upon Termination. ----------------------------- 10(a). If the Executive's employment is terminated by the Executive's death, the Company shall pay to the Executive's estate, or as may be directed by the legal representatives of such estate, the Executive's Salary through the Date of Termination and the Company shall have no further obligations to the Executive under this Agreement. 10(b). During any period that the Executive fails to perform the Executive's duties hereunder as a result of incapacity due to physical or mental illness ("disability period"), the Executive shall continue to receive (i) the Executive's Salary through the Date of Termination; provided, that payments so -------- made to the Executive during the disability period shall be reduced by the sum of the amounts, if any, payable to the Executive at or prior to the time of any such payment under disability benefit plans of the Company and which amounts were not previously applied to reduce any such payment and the Company shall have no further obligations to the Executive under this Agreement. 5 10(c). If the Company terminates the Executive's employment for Cause as provided in Section 9(b)(ii) hereof, the Company shall pay the Executive the Executive's Salary through the Date of Termination and the Company shall have no further obligations to the Executive under this Agreement. 10(d). If the Executive terminates the Executive's employment other than for Good Reason, the Company shall pay the Executive the Executive's Salary through the Date of Termination and the Company shall have no further obligations to the Executive under this agreement. 10(e). If the Company terminates the Executive's employment other than for Cause, disability or death, or the Executive terminates the Executive's employment for Good Reason as provided in Section 9(c) hereof, the Company shall pay the Executive the Executive's Salary through the Date of Termination and the Company shall have no further obligations to the Executive under this Agreement. 10(f). Parachute Limitations. Notwithstanding any other --------------------- provision of this Agreement or of any other agreement, contract or understanding heretofore or hereafter entered into by the Executive with the Company or any subsidiary or affiliate thereof, except an agreement, contract or understanding hereafter entered into that expressly modifies or excludes application of this Section 10(f) (the "Other Agreements"), and notwithstanding any formal or informal plan or other arrangement heretofore or hereafter adopted by the Company (or any subsidiary or affiliate thereof) for the direct or indirect compensation of the Executive (including groups or classes of participants or beneficiaries of which the Executive is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Executive (a "Benefit Plan"), if the Executive is a "disqualified individual" (as defined in Section 280G(c) of the Internal Revenue Code of 1986, as amended (the "Code")), any right to receive any payment or benefit under this Agreement shall not become exercisable (i) to the extent that such right to payment or benefit, taking into account all other rights, payments or benefits to or for the Executive under this Agreement, all Other Agreements and all Benefit Plans, would cause any payment or benefit to the Executive under this Agreement to be considered a "parachute payment" within the meaning of Section 280G(b)(2) of the Code as then in effect (a "Parachute Payment") and (ii) if, as --- a result of receiving a Parachute Payment, the aggregate after-tax amount received by the Executive from the Company under this Agreement, all Other Agreements and all Benefit Plans would be less than the maximum after-tax amount that could be received by the Executive without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such right to payment or benefit under this Agreement, any Other Agreement or any Benefit Plan would cause the Executive to be considered to have received a Parachute Payment under this Agreement that would have the effect of decreasing the after-tax amount received by the Executive as described in clause (ii) of the preceding sentence, then the Executive shall have the right, in the Executive's sole discretion, to designate those rights, payments or benefits under this Agreement, any Other Agreements and any Benefit 6 Plans that should be reduced or eliminated so as to avoid having the payment or benefit to the Executive under this Agreement be deemed to be a Parachute Payment. 10(g). Mitigation. Any sums earned by the Executive pursuant to ---------- any subsequent employment shall be offset against any remaining obligation the Company may have to pay by virtue of termination under this Agreement. 11. Notices. All notices, demands, requests or other communications ------- required or permitted to be given or made hereunder shall be in writing and shall be delivered, telecopied or mailed by first class registered or certified mail, postage prepaid, addressed as follows: (a) If to the Company: Central European Distribution Corporation 211 North Union Street, #110 Alexandria, Virginia 22314 Telecopier: 703-683-4707 Attention: William V. Carey President (b) If to the Executive: Robert Bohojlo Fabryczna 25 Street, App. 15 00-446 Warsaw, Poland Telephone: 621-67-86 or to such other address as may be designated by either party in a notice to the other. Each notice, demand, request or other communication that shall be given or made in the manner described above shall be deemed sufficiently given or made for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, the answer back or the affidavit of messenger being deemed conclusive evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. 12. Severability. The invalidity or unenforceability of any one or ------------ more provisions of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect. 13. Survival. It is the express intention and agreement of the -------- parties hereto that the provisions of Sections 7 and 8 hereof shall survive the termination of employment of the Executive. In addition, all obligations of the Company to make payments hereunder shall survive any termination of this Agreement on the terms and conditions set forth herein. 7 14. Assignment. The rights and obligations of the parties to this ---------- Agreement shall not be assignable, except that the rights and obligations of the Company hereunder shall be assignable in connection with any subsequent merger, consolidation, sale of all substantially all of the assets of the Company or similar reorganization of a successor corporation. 15. Binding Effect. Subject to any provisions hereof restricting -------------- assignment, this Agreement shall be binding upon the parties hereto and shall inure to the benefit of the parties and their respective heirs, devisees, executors, administrators, legal representatives, successors and assigns. 16. Amendment; Waiver. This Agreement shall not be amended, altered ----------------- or modified except by an instrument in writing duly executed by the parties hereto. Neither the waiver by either of the parties hereto of a breach of or a default under any of the provisions of this Agreement, nor the failure of either of the parties, on one or more occasions, to enforce any of the provisions of this Agreement or to exercise any right or privilege hereunder, shall thereafter be construed as a waiver of any subsequent breach or default of a similar nature, or as a waiver of any such provisions, rights or privileges hereunder. 17. Headings. Section and subsection headings contained in this -------- Agreement are inserted for convenience of reference only, shall not be deemed to be a part of this Agreement for any purpose, and shall not in any way define or affect the meaning, construction or scope of any of the provisions hereof. 18. Governing Law. This Agreement, the rights and obligations of the ------------- parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia (but not including the choice of law rules thereof). 19. Action of Behalf of the Subsidiary. The Company is executing ---------------------------------- this Agreement also on behalf of its Subsidiary and agrees to cause the Subsidiary to fulfill its obligations hereunder, though the appointment and removal, if necessary, of members of the management board of the Subsidiary. 20. Entire Agreement. This Agreement constitutes the entire ---------------- agreement between the parties hereto with respect to the subject matter hereof, and it supersedes all prior oral or written agreements, commitments or understandings with respect to the matters provided for herein. 21. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be an original and all of which shall be deemed to constitute one and the same instrument. 8 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement, or have caused this Agreement to be duly executed on their behalf, as of the day and year first hereinabove written. CENTRAL EUROPEAN DISTRIBUTION CORPORATION By: /s/ William V. Carey -------------------------------------------- Name: William V. Carey Title: President and Chief Executive Officer THE EXECUTIVE: /s/ Robert Bohojlo ----------------------------------------------- Robert Bohojlo 9 EX-10.12 8 EMPLOYMENT AGREEMENT - R. BOHOJLO & CAREY AGRI EXHIBIT 10.12 Employment contract Concluded on 18.12.97 between Carey Agri International Poland Sp. z o.o. with its registered seat in Warsaw, ul. Lubelska 13, hereinafter referred to as the "Employer" represented by William Carey - President and Mr. Robert Bohojlo resident in Warsaw hereinafter referred to as the "Employee" (S) 1 The Employer engages the Employee as Chief Finance Officer. (S) 2 The agreement herewith is signed for 3 years period and can by dissolved by 3 months notice. (S) 3 The range of duties of the employed party is the following but not limited to: 1. Preparing and presenting the reports regarding the * P/L; * balance sheet; * actual overhead vs. projected overhead; * profitability ratio's of the company; 2. Cooperation with the Chief Accountant; 3. Cooperation with the controller in analyzing the overhead costs of Warsaw branch and other branches; 4. Preparation of the GAPP reports on the monthly basis; 5. Cooperation with the Company management; 6. Creation of the internal procedures on finances of the company; 7. Creation of the internal procedures of reporting. (S) 4 The employment will start on January 1st, 1998. (S) 5 During the term of this contract, the Employee will be paid on accordance with the basis set out below: 1) Monthly net renumeration amounts to the equivalent of 833.33 USD paid in Polish zlotys. 2) In order to account the monthly renumeration, the average exchange rate announced by the National Bank of Poland at the day of payment is used. (S) 6 The Employee will be entitled to use the company car in the class of Ford Mondeo for business purposes. (S) 7 The Employee is entitled to annual vacation leave according to the Labour Code provisions. (S) 8 All issues not regulated herein shall be determined in accordance with the Polish Labour Code. (S) 9 Any modifications of this contract must be made in writing under penalty of nullity. (S) 10 The Agreement has been made in two identical copies, one for each Party and in two language versions; Polish and English, each of which have equal force. [illegible signature] [illegible signature] - ------------------------- -------------------------- Employer Employee 2 Statement I declare, that I have received a copy of this contract and after acknowledging its substance, I accept the proposed terms of employment and renumeration. Simultaneously, I acknowledge the work regulations presently in force within the firm. I hereby confirm my undertaking to keep confidential all information relating to my Employer and employment and not to convey them to any third party. [illegible signature] [illegible signature] - ------------------------- -------------------------- Employee Recipient of the Statement 3 EX-23.1 9 CONSENT OF ERNST & YOUNG SP. Z.O.O CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Summary Consolidated Financial Data," "Selected Consolidated Financial Data," and "Experts" and to the use of our report dated March 20, 1998, in Amendment No. 1 on Form S-1 to the Registration Statement (Form SB-2 No. 333-42387) and related Prospectus of Central European Distribution Corporation for the registration of 3,125,000 shares of its common stock and 250,000 related warrants. Warsaw, Poland /s/ Ernst & Young Audit Sp. z o.o. April 17, 1998 EX-23.3 10 CONSENT OF JOSEPH S. CONTI Exhibit 23.3 Consent of Future Director I, Joseph S. Conti, resident at 744 Metropolitan Avenue, Staten Island, New York 10301, do hereby consent to being named a future director of Central European Distribution Corporation (the "Company"), effective immediately after the closing of the Company's initial public offering, in the Company's registration statement initially filed on Form SB-2 (registration number 333- 42387). Date: April 15, 1998 /s/ Joseph S. Conti ------------------------------ Joseph S. Conti EX-27 11 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Financial Statements of CEDC for the year ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1,053 0 7,064 94 3,280 11,641 782 279 12,530 12,149 0 0 0 18 316 12,530 40,189 40,189 34,859 34,859 0 48 172 649 341 308 0 0 0 308 0.17 0.17 All sales are in the country of Poland. All income taxes are to the country of Poland.
-----END PRIVACY-ENHANCED MESSAGE-----