-----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, WXP+qnKpmJUNUS8sxTBursJmZw4n1eXX2+DT6W/wjJfINyy6NTBcuh7wiNg8Nd0M i90ahHwT0xdRw9/ccGoK0g== 0001021408-02-006953.txt : 20020514 0001021408-02-006953.hdr.sgml : 20020514 ACCESSION NUMBER: 0001021408-02-006953 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020514 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020514 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: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-24341 FILM NUMBER: 02647671 BUSINESS ADDRESS: STREET 1: PALM TOWER BUILDING STREET 2: 1343 MAIN STREET SUITE 301 CITY: SARASOTA STATE: FL ZIP: 34236 BUSINESS PHONE: 9413301558 MAIL ADDRESS: STREET 1: PALM TOWER BUILDING STREET 2: 1343 MAIN STREET SUITE 301 CITY: SARASOTA STATE: FL ZIP: 34236 8-K/A 1 d8ka.txt AMENDMENT #1 TO FORM 8K SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 Form 8-K/A (Amendment No. 1) CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 May 14, 2002 (Date of Report) Central European Distribution Corporation (Exact name of registrant as specified in its charter)
Delaware 0-24341 54-1865271 (State or other jurisdiction (Commission file number) (IRS employer identification number) of incorporation)
1343 Main Street, Suite 301, Sarasota Florida 34236 (Address of Principal Executive Offices) Registrants telephone number, including area code: (941) 330 1558 ITEM 7 Financial Statements, Pro forma Financial Information and Exhibits (a) Financial Statements of Business Acquired INDEX
Page ---- PART I. Financial Information - ------- --------------------- Item 1. Report of Independent Auditors..................................................................... 3 Item 2. Financial Statements............................................................................... Balance Sheets at December 31, 2000 and December 31, 2001.......................................... 4 Statements of Income for the years ended December 31, 2000 and December 31, 2001.............................................................................. 5 Statements of Changes in Stockholders' Equity for the years ended December 31, 2000 and December 31, 2001 ........................................................... 6 Statements of Cash Flows for the years ended December 31, 2000 and December 31, 2001 ............................................................................. 7 Notes to Financial Statements...................................................................... 8-14 (b) Unaudited Pro forma Financial Information ----------------------------------------- Unaudited pro forma condensed combined balance sheet at December 31, 2001.......................... 16 Unaudited pro forma condensed combined income statement for the year ended December 31, 2001.................................................................................. 17 Notes to the unaudited pro forma financial information ............................................ 18-21
2 REPORT OF INDEPENDENT AUDITORS The Board of Directors of Damianex S.A. We have audited the accompanying balance sheets of Damianex S.A. as of December 31, 2000 and 2001 and the related statements of income, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Damianex S.A. at December 31, 2000 and 2001, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG AUDIT Sp. z o.o. Warsaw, Poland April 22, 2002 3 DAMIANEX S.A. BALANCE SHEETS (Amounts in columns expressed in thousands)
December 31, ------------------ 2000 2001 ------- ------- ASSETS Current Assets Cash and cash equivalents $ 2,688 $ 2,327 Accounts receivable, (net of allowance for doubtful accounts of $55,000 and $273,000, respectively) 5,795 6,964 Inventories 4,282 4,356 Deferred income taxes 2 19 Prepaid expenses and other current assets 178 54 ------- ------- Total Current Assets 12,945 13,720 Non-current deferred income taxes 164 172 Property, plant, and equipment, net 1,370 1,550 ------- ------- Total Assets $14,479 $15,442 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Trade accounts payable $ 6,431 $ 3,346 Bank loans and overdraft facilities 5,303 8,012 Income and other taxes payable 264 308 Other current liabilities 143 205 ------- ------- Total Current Liabilities 12,141 11,871 Commitments and contingencies Stockholders' Equity Common Stock ($57 par value, 30,500 shares authorized, issued and outstanding at December 31, 2000 and 2001) 1,739 1,739 Retained earnings 617 1,727 Accumulated other comprehensive income (loss) (18) 105 ------- ------- Total Stockholders' Equity 2,338 3,571 ------- ------- Total Liabilities and Stockholders' Equity $14,479 $15,442 ======= =======
4 DAMIANEX S.A. STATEMENT OF INCOME (Amounts in columns expressed in thousands)
Year ended December 31, ----------------------- 2000 2001 ------- ------- Net sales $59,135 $78,977 Cost of goods sold, excluding depreciation 52,756 70,262 ------- ------- 6,379 8,715 Selling, general and administrative expenses, excluding depreciation 4,976 6,008 Bad debt expense 45 218 Depreciation of tangible fixed assets 49 258 ------- ------- Operating income 1,309 2,231 Non-operating income (expense) Interest expense (401) (555) Interest income 62 108 Realized and unrealized foreign currency transaction gains, net 16 140 Other expenses, net (88) (193) ------- ------- Income before income taxes 898 1,731 Income tax expense (296) (520) ------- ------- Net income $ 602 $ 1,211 ======= =======
See accompanying notes. 5 DAMIANEX S.A. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Monetary amounts in columns expressed in thousands)
Accumulated other Common Retained comprehensive Stock Earnings income/(loss) Total --------------- -------- ------------- ------ No. of shares Amount ------ ------ Balance at 31, December 1999 30,500 $1,739 $ 15 $ 184 $1,938 Net income 602 -- 602 Foreign currency translation adjustment -- -- -- (202) (202) (net of tax effect) ------ ------ ------ ----- ------ Comprehensive income -- -- 400 ------ ------ ------ ----- ------ Balance at 31, December 30,500 1,739 617 (18) 2,338 2000 Net income -- -- 1,211 -- 1,211 Foreign currency translation adjustment (net of tax effect) -- -- -- 123 123 ------ ------ ------ ----- ------ Comprehensive income -- -- 1,334 Dividend declared and paid (101) (101) ------ ------ ------ ----- ------ Balance at 31, December 30,500 $1,739 $1,727 $ 105 $3,571 2001 ====== ====== ====== ===== ======
See accompanying notes. 6 DAMIANEX S.A. STATEMENTS OF CASH FLOWS (amounts in columns expressed in thousands)
Year ended December 31, ----------------------- 2000 2001 ------- ------- Operating Activities Net income $ 602 $ 1,211 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 49 258 Bad debt provision 45 218 Deferred income tax benefit (2) (25) Gain on disposal of fixed assets (6) (14) Changes in operating assets and liabilities: Accounts receivable (2,203) (1,387) Inventories (3,617) (74) Prepayments and other current assets (156) 124 Trade accounts payable 4,545 (3,085) Income and other taxes payable 216 44 Other payables 141 199 ------- ------- Net Cash used in Operating Activities (386) (2,531) Investing Activities Purchase of property and equipment (645) (481) Proceeds from sale of equipment 35 43 ------- ------- Net Cash used in Investing Activities (610) (438) Financing Activities Proceeds from short-term borrowings 5,303 8,012 Repayments of short-term borrowings (1,717) (5,303) Dividends paid -- (101) ------- ------- Net Cash Provided by Financing Activities 3,586 2,608 ------- ------- Net Increase (Decrease) in cash and cash equivalents 2,590 (361) Cash and cash equivalents at beginning of period 98 2,688 ------- ------- Cash and cash equivalents at end of period $ 2,688 $ 2,327 ======= ======= Supplement cash flow information: Interest paid $ 397 $ 447 Income taxes paid $ 163 $ 391
See accompanying notes. 7 DAMIANEX S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) 1. Organization and Description of Business The business "Damianex was originally organized as a partnership ("the Partnership") during 1991. Damianex S.A. (the "Company", "S.A.") was established on December 10, 1998 as a Polish Joint Stock Company. The Company started trading activities on May 21, 1999, when inventories were transferred to the Company from the Partnership in exchange for cash. The partnership ceased to exist during 2000. The Company's main activities are the wholesale of alcoholic (mainly beer) and non-alcoholic beverages. The Company has approximately 600 employees and 11 branch offices, which are located throughout south-eastern Poland. The Company's headquarters are located in Lancut, Poland and all of the Company's operations are conducted within the boundaries of Poland. Pursuant to Polish statutory requirements, Damianex S.A. may pay annual dividends, based on their audited Polish statutory financial statements, to the extent of their retained earnings as defined. At December 31, 2001, substantially all retained earnings were available for payment of dividends. 2. Accounting Policies The significant accounting policies and practices followed by the Company are as follows: Basis of Presentation The Company maintains its books of account and prepares its statutory financial statements in Polish zloties (PLN) in accordance with Polish statutory requirements and the Accounting Act of September 29, 1994. The accompanying financial statements have been adjusted to reflect accounting principles generally accepted in the United States ("US GAAP"). Foreign Currency Translation and Transactions The accompanying financial statements have been prepared in US Dollars. The Company's functional currency is the local currency -Polish Zloty. Assets and liabilities are translated to US Dollars at the exchange rate in effect at each year end. Income statement accounts are translated to US Dollars at the average rate of exchange prevailing during the year. Translation adjustments (net of taxes) arising from the use of differing exchange rates from period to period are included as a separate component of stockholders' equity. Gains and losses from foreign currency transactions are included in net income for the period. The exchange rate used on zloty denominated transactions and balances for translation purposes as of December 31, 2000 and 2001 for one US dollar was 4.149 PLN and 3.98 PLN respectively. As of April 22, 2002, the rate had changed to 4.04 PLN. 8 DAMIANEX S.A. NOTES TO FINANCIAL STATEMENTS Monetary amounts in columns expressed in thousands Property, Plan and Equipment Property, plant and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Depreciation periods are as follows: Type Depreciation life in years - ------------------------- -------------------------- Land -- Buildings 25-40 Machinery and Equipment 2-5 Transportation Equipment 2-5 Other 2-7 The Company periodically reviews property, plant and equipment, when indicators of impairment exist and if the value of the asset is impaired, an impairment loss is recognized. The Company recognizes impairment losses on long-lived assets in the event the net book values of such assets exceeds the future undiscounted cash flows attributable to such assets. No such impairment adjustments have been recorded by the Company. Revenue Recognition Revenue is recognized when goods are shipped or delivered to customers in accordance with United States Securities and Exchange Commission Staff Accounting Bulletin 101. Sales are presented net of sales returns and discounts. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market value. Inventories are comprised primarily of beer and non-alcoholic beverages. The Company has not experienced significant losses from spoilage or obsolescence. Cash and Cash Equivalents Short-term investments that have a maturity of three months or less at the date of purchase are classified as cash equivalents. All of the amounts were located in bank accounts in Poland at December 31, 2001 and 2000. 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 the liability method. Comprehensive income Comprehensive income, is defined as all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income includes net income adjusted by, among other items, foreign currency translation adjustments. The foreign translation gains and losses on the translation from Polish zloties to US dollars are classified as a separate component of the stockholders' equity as "accumulated other comprehensive income (loss)". During the period ended December 31, 2001, the Company incurred foreign currency translation gains of $123,000 (net of tax effect) and reported this amount as part of the accumulated comprehensive income in stockholders' equity of $105,000. The total of the accumulated other comprehensive income consists of currency translation adjustments 9 DAMIANEX S.A. NOTES TO FINANCIAL STATEMENTS Monetary amounts in columns expressed in thousands ($12,000 net loss, net of taxes) and adjustments from discontinuing hyper-inflationary accounting for assets purchased prior to January 1, 1998 ($117,000 gain, net of taxes) Employee benefits The Company is required pursuant to Polish labor laws, to pay a bonus of one months salary to employees upon retirement. The estimated liability for these benefits is accrued on a current basis. The Company also accrues for vacation pay. Recently issued accounting pronouncements In June 2001, the Financial Accounting Standards Board (FASB) released SFAS 141 "Business Combinations". This Statement requires that combinations be accounted for by a single method - the purchase method. This Statement also requires among other things, separate recognition of intangible assets apart from goodwill if they meet the prescribed criteria. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. In June 2001, the FASB released SFAS 142 "Goodwill and other intangible assets". This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses among other things, how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15, 2001. The Company does not anticipate that these two statements will have a material effect on their financial statements. In August 2001, the FASB released SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". This standard supersedes SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of". This statement removes goodwill from its scope, (addressed in SFAS 142) and addresses long-lived assets to be held and used, to be disposed of other than by sale and to be disposed of by sale. The provisions of this statement are required to be applied starting with fiscal years beginning after December 15, 2001. The Company does not anticipate that this statement will have a material effect on their financial statements. 3. Property, Plant and equipment Property, plant and equipment, presented net of accumulated depreciation in the balance sheets, consists of: December 31, ----------------- 2000 2001 ------ ------ Land $ 78 $ 87 Buildings 738 799 Machinery and equipment 57 86 Transportation equipment 575 878 Other 148 179 ------ ------ 1,596 2,029 Less accumulated depreciation 226 479 ------ ------ Property, plant and equipment, net $1,370 $1,550 ====== ====== 10 DAMIANEX S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) 4. Allowance for Doubtful Accounts Changes in the allowance for doubtful accounts were as follows: Year ended December, 31 ----------------------- 2000 2001 ---- ---- Balance, beginning of year $10 $ 55 Provision for doubtful accounts 45 218 ----------------------- Balance, end of year $55 $273 ======================= 5. Short-term bank loan and overdraft facilities During 2000, the Company entered into two overdraft facilities that were denominated in foreign currencies. These were: 4,707,900 Swiss Franc (CHF) (secured by an authorization to the Company's current bank account and the cession of rights to an insurance agreement, with an interest rate of 3 months CHF LIBOR) and a $1,220,000 USD facility which was secured with a bill of exchange, cession of rights to an insurance agreement and take-over rights in regards to inventory and fixed assets. The interest rate applied amounted to 6 months USD LIBOR plus 1%. The Company also opened a 5,000,000 Polish Zloty (PLN) overdraft facility, secured by cession of rights to an insurance agreement, bill of exchange and take-over rights to vehicles. The interest rate applied was WIBOR. December 31, 2000 ----------------- Swiss Franc (CHF), maximum available CHF 4,708 ($2,876) $2,876 USD overdraft, maximum available $1,220 1,220 Polish Zloty (PLN), maximum available PLN 5,000 ($1,207) 1,207 ------ Total $5,303 ====== During 2001, all outstanding overdraft facilities as at 31 December 2000 were repaid. A new overdraft facility was acquired for 4,000,000 Swiss Francs (CHF) which was secured by the Company's inventories. The interest rate was set at 3 month CHF LIBOR plus 1.8%. The other overdraft facilities opened in 2001 were as follows: 18,000,000 Polish Zloty (PLN), which was secured by the (pound)ancut premises, and authorization to the Company's bank accounts and inventories. The interest rate applied was 1 month WIBOR plus 0.7%; 10,000,000 PLN which was secured with authorization to the Company's bank accounts and take over rights of Company inventories, interest rate at 1 month WIBOR + 2%. December 31, 2001 ----------------- Swiss Franc (CHF), maximum available CHF 4,000 ($2,384) $1,191 Polish Zloty (PLN), maximum available PLN 18,000 ($4,515) 4,312 Polish Zloty (PLN), maximum available PLN 10,000 ($2,509) 2,509 ------ Total $8,012 ====== The weighted average interest rate on short-term borrowings at December 31, 2001 and 2000 was approximately 14.33%, and 14.55% respectively. 6. Income Taxes 11 DAMIANEX S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) Income tax expense for the years ended December 31, 2000 and 2001, is summarized below: 2000 2001 ---- ---- Current Polish income tax expense $298 $545 Deferred Polish income tax benefit (2) (25) ---- ---- Income tax expense $296 $520 ==== ==== Total income tax expense varies from expected income tax expense computed at Polish statutory rates (30% in 2000 and 28% in 2001) as follows:
Year ended December 31, ----------------------- 2000 2001 ---- ---- Tax at Polish statutory rate $269 $485 Increase in deferred tax asset valuation allowance relating primarily to bad debt expense 10 41 Permanent differences between financial and taxable income 17 (6) ---- ---- Income tax expense $296 $520 ==== ====
Significant components of the Company's deferred tax assets is follows: December 31, ------------ 2000 2001 ---- ----- Deferred tax liabilities: Unrealized foreign exchange gains $ -- $(12) Prepaid expenses (14) -- ---- ---- $(14) $(12) Deferred tax assets: Differences on fixed assets resulting from hyperinflationary adjustments and in the tax base $164 $172 Allowance for doubtful accounts receivable 17 76 Unrealized foreign exchange losses 11 -- Accrued expenses and deferred income -- 8 ---- ---- 178 244 Less valuation allowance (12) (53) ---- ---- Net deferred tax asset $166 $191 ==== ==== Consisting of: Current deferred tax asset $ 2 $ 19 Non-current deferred tax asset 164 172 ---- ---- $166 $191 ==== ==== 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. The valuation allowance relates primarily to the future tax deductibility of the allowance for bad debts which may not be deductible under local statutes. 12 DAMIANEX S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) In November 1999, legislation was enacted which reduced the corporate income tax rates in Poland effective January 1, 2000. The tax rate of 32% was reduced to 30% in 2000, 28% in 2001 and 2002, 24% in 2003 and 22% thereafter. The Company's tax liabilities (including corporate income tax, Value Added Tax (VAT), 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. As the application of tax laws and regulations and transactions are susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determination by the tax authorities. 7. 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 and cash equivalents, accounts receivable, certain other current assets, trade accounts payable, bank loans and overdraft facilities, and other payables. These financial instruments are shown separately in the balance sheets and their carrying values approximate their fair values. This is because substantially all of these financial instruments have short maturity periods or carry interest at rates that approximate current market rates. The Company does not utilize financial derivatives such as foreign currency contracts or interest rate swaps. 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, 2000 and 2001, the Company had no customers which accounted for more than ten percent of outstanding receivables. The Company has not experienced significant credit losses in the past. Currency Risk A portion of Company's bank loans and financial costs are expected to continue to be, denominated in or indexed to the other non-Polish denominated currency. By contrast, all of the Company's revenue is denominated in Polish zloty. Any devaluation of the Polish zloty against the non-Polish denominated currency, 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. Supply contracts The Company has various agreements covering its sources of supply. Either party on relatively short notice may terminate some of them. Thus, there is a risk that some portion of the Company's supply of products could be curtailed at any time. Management believes that if these arrangements were terminated that alternative suppliers would be found without significant disruption to the business. Lease Obligations The Company has cancelable rental agreements for a number of the branch office locations. Monthly rentals range from approximately $4000 to $8000. All the branch office leases can be terminated by either party within two to three months. The rental expense incurred under operating leases during 2000 and 2001 was as follows: 2000 2001 ---- ---- Rent expense $246 $431 ==== ==== 13 DAMIANEX S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) 8. Related party transactions During 2000, the Company acquired the following business operating assets from the Partnership for cash consideration, which was equivalent to the underlying carrying value in the accounts of the partnership. 2000 ---- Vehicles $156 Computers $ 10 Other $ 12 Inventory $ 60 9. Subsequent Events On April 22, 2002, the shareholders of the Company sold one hundred percent of their shares to Central European Distribution Corporation ("CEDC"), a United States company and to its wholly-owned subsidiary Carey Agri International Poland. The sales price consisted of approximately $7,138,000 of cash and 152,996 unregistered newly issued common shares of CEDC, with a 1-year restriction on sale. On April 13, 2002, a dividend of $740,000 was declared with respect to prior earnings. The dividend is to be paid over five consecutive months, starting May 2002. 14 Central European Distribution Corporation Pro Forma Financial Statements Pro Forma Combined Condensed Financial Information As at and for the year ended December 31, 2001 The unaudited pro forma condensed combined balance sheet information set for below for Central European Distribution Corporation (CEDC) and Damianex S.A. gives effect to the purchase on April 22, 2002 of Damianex S.A. by CEDC as if it had been completed on December 31, 2001. The unaudited pro forma condensed combined income statement for 2001 assumes the acquisition was completed on January 1, 2001. The unaudited pro forma condensed combined balance sheet and income statement have been presented as of and for the year ended December 31, 2001. The data is subject to the assumptions and adjustments in the accompanying notes to the pro forma balance sheets and income statements. CEDC has accounted for the acquisition of Damianex S.A. as a purchase in accordance with SFAS 141. The pro forma information does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and therefore should be read in conjunction with the historical financial statements of CEDC included in its Annual 2001 Report on Form 10K, which are on file with the Securities and Exchange Commission; and the historical financial statements of Damianex S.A. for 2000 and 2001, included herein. The pro forma adjustments do not reflect operating efficiencies and cost savings that may be achievable with respect to the newly acquired company. The pro forma adjustments do not include any adjustments to the historical operating data for future changes in selling prices or operating changes. A final determination of required purchase accounting adjustments, including the allocation of the purchase price to the assets acquired and liabilities assumed based on their respective estimated fair values, will be made after completion of the escrow period (the date government approval in regards to the ownership of the acquired real estate is received, approximately 3 months) and upon receipt of an independent valuation. Accordingly, the purchase accounting adjustments and the following pro forma condensed combined balance sheet and income statement information may be revised. CEDC currently knows of no events that would require a substantial change to the preliminary purchase price allocation. The pro forma financial information is presented for illustrative purposes only and is not intended to be indicative of the financial position and operating results that would have occurred if the acquisition had been consummated in accordance with the assumptions set forth below nor is it intended to be a forecast of future operating results or financial position. Central European Distribution Corporation 15 Central European Distribution Corporation Unaudited Pro Forma Condensed Combined Balance Sheet Information December 31, 2001 Amounts in columns expressed in thousands of USD
Total Pro Forma Historical Historical Pro Forma CEDC with CEDC A Damianex A Adjustments Damianex SA SA ------------- ------------- ----------- ---------- ASSETS Current Assets Cash and cash equivalents $ 2,466 $ 2,327 D 7,854 D 2,500 B (7,455) $ 7,692 Accounts receivable, net 38,102 6,964 45,066 Inventories 9,001 4,356 13,357 Deferred income tax and other current 2,040 73 C 318 2,431 assets ------- ------- ------- ------- 51,609 13,720 3,217 68,546 Property, plant and equipment, net 3,372 1,550 C 368 5,290 Intangible assets, net 3,002 -- 3,002 Goodwill, net 9,969 -- C 5,664 15,633 Deferred income taxes and other assets 1,025 172 1,197 ------- ------- ------- ------- Total Assets $68,977 $15,442 $ 9,249 $93,668 ======= ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Trade accounts payable $29,685 $ 3,346 C 740 $33,771 Bank loans and overdraft facilities 9,861 8,012 17,873 Income and other taxes payable 1,307 308 1,615 Other accrued liabilities 1,692 205 1,897 Current portion of debt and capital leases 2,181 -- 2,181 ------- ------- ------- ------- 44,726 11,871 740 57,337 Non-current deferred taxes -- -- C 92 92 Long-term portion of debt and capital leases 3,495 -- D 2,500 5,995 Temporary equity -- B 1,634 1,634 Stockholders' Equity Common stock 46 1,739 D 7 E (1,739) 53 Additional paid in capital 15,383 -- D 7,847 23,230 Retained earnings 7,161 1,727 E (1,727) 7,161 Accumulated other comprehensive income (loss) (1,684) 105 E (105) (1,684) Less Treasury shares (150) -- (150) ------- ------- ------- ------- 20,756 3,571 4,283 28,610 ------- ------- ------- ------- Total Liabilities and Stockholders' $68,977 $15,442 $ 9,249 $93,668 Equity ======= ======= ======= =======
16 Central European Distribution Corporation Unaudited Pro Forma Condensed Combined Income Statement Information For the year ended December 31, 2001 Amounts in columns expressed in thousands of USD (except per share data)
Total Pro Forma Historical CEDC with Historical Damianex A Pro Forma Damianex CEDC A SA Adjustments SA ---------- ---------- ----------- --------- Net sales $178,236 $78,977 $257,213 Cost of goods sold, excluding depreciation 154,622 70,262 224,884 -------- ------- ----- -------- 23,614 8,715 32,329 Selling, general and administrative expenses, excluding depreciation 16,445 6,008 22,453 Bad debt expense 711 218 929 Depreciation of tangible fixed assets 841 258F 10 1,109 Amortization of intangible assets 762 -- 762 -------- ------- ----- -------- Operating income 4,855 2,231 (10) 7,076 Non-operating income (expense) Interest expense (1,345) (555)D (106) (2,006) Other income, net 148 55 -- 203 -------- ------- ----- -------- Income before income taxes 3,658 1,731 (116) 5,273 Income tax (expense) benefit (1,132) (520)G 33 (1,619) -------- ------- ----- -------- Net income $ 2,526 $ 1,211 $ (83) $ 3,654 ======== ======= ===== ======== Net income per share of common stock , basic $ 0.58 $ 0.67 ======== ======== Net income per share of common stock , diluted $ 0.57 $ 0.66 ======== ========
17 Central European Distribution Corporation Notes to the Unaudited Pro Forma Condensed Combined Financial Information For the year ended December 31, 2001 Amounts in columns expressed in thousands of USD (except per share data) A. These columns represent the historical balance sheet and results of operations as follows: CEDC - combined results as of and for the year ended December 31, 2001 Damianex S.A. - historical results as of and for the year ended December 31, 2001 B. On April 22, 2002, CEDC purchased the outstanding shares of Damianex S.A. Total consideration for the acquisition consisted of the following: Cash consideration to stockholders $7,138 152,996 shares of CEDC common stock 1,634 Acquisition costs (estimated) 317 ------ $9,089 ====== CEDC's common stock was valued at the average stock price a few days before and after the agreement terms were finalized. The shares issued are not registered and may not be sold without the consent of CEDC for one year subsequent to the acquisition. The Sellers were granted an option to sell the acquired CEDC stock ("Put Option") back to the Company equal to $12.00 per share from April 23, 2003 to April 29, 2003. See note I for further information. As part of the Agreement, approximately $3,200,000 was transferred to an escrow account. The funds in the escrow account will be paid to the sellers when CEDC receives approval from the Polish Government in regards to the ownership of the real estate element of the transaction (estimated to be approximately 3 months). If approval is not received, the real estate will be separated from the Company and sold to a mutually agreed upon third party for a mutually agreed price. As part of the sale of the real estate, a lease agreement would be established for a period of three to five years with the buyers which shall not exceed the market price applicable in the region. If the real estate is not sold within six months from the day the Polish Government informs the parties of its refusal, the funds in the escrow account will be transferred back to CEDC with 50% of the interest earned on the prepayment. 18 Central European Distribution Corporation Notes to the Unaudited Pro Forma Condensed Combined Financial Information For the year ended December 31, 2001 Amounts in columns expressed in thousands of USD (except per share data) C. In connection with the preparation of the Pro Forma Condensed Combined Balance sheet information at December 31, 2001, the book values of certain assets were adjusted to estimated fair values as follows (assuming the Polish Government approves the real estate element of the transaction): Cost of acquisition of Damianex S.A. $ 9,089 Historical net book value of Damianex S.A. at December 31, 2001 *2,831 To increase land to estimated fair value 165 To increase buildings to estimated fair value 203 To record deferred taxes on increase of book values of land and buildings (92) Other current assets **318 ----- ------- Preliminary goodwill $ 5,664 =======
* Assuming the acquisition was finalized on December 31, 2001, the historical net book has been reduced to reflect a dividend declared in 2002 in the amount of $740,000. ** Assuming the acquisition was finalized on December 31, 2001, the goodwill was adjusted to reflect the actual acquired goodwill on April 22, 2002. In accordance with SFAS 142, goodwill is no longer amortized. The allocation of the excess purchase price to goodwill may be revised when the Company receives an independent valuation in regards to the acquisition of the tangible and intangible business assets acquired and upon completion of the escrow period. CEDC does not expect material adjustments from the completion of this process. D. The acquisition was financed as follows: The Company secured additional long-term borrowings of approximately $2,500,000. The interest rate on the additional borrowings is LIBOR plus 2%. The average LIBOR plus 2% rate for 2001 was approximately 4.25%. The additional interest expense in regards to the pro forma condensed combined income statement information is approximately $106,000. The loan is repayable in quarterly installments commencing during the second quarter of 2003. On March 28, 2002, CEDC finalized the private placement of 800,000 shares of the Company's common stock. The Company received approximate net proceeds of $7,854,000. The Company is using the proceeds as follows: Acquisition of Damaniex $4,638 Proposed acquisition of AGIS 2,916 Other 300 ------ $7,854 ====== 19 Central European Distribution Corporation Notes to the Unaudited Pro Forma Condensed Combined Financial Information For the year ended December 31, 2001 Amounts in columns expressed in thousands of USD (except per share data) E. The following adjustments have been made to eliminate the December 31, 2001 shareholders' equity account of Damianex. December 31, 2001 ----------------- Common Stock $1,739 Retained earnings 1,727 Accumulated other comprehensive income, (net of tax) 105 ------ $3,571 ====== F. The increase in the fair market values of the acquired buildings subsequently increased the depreciation expense for 2001. The depreciation expense was calculated based on the estimated average remaining life of buildings (approximately 20 years) which is approximately 5%. The additional depreciation expense for the year ended December 31, 2001 is approximately $10,000. G. The pro forma income tax entry provides consideration for the following items: Year ended December 31, 2001 Interest expense $106 ---- Additional tax deductible expenditures 106 Tax rate for period 28% ---- Total pro forma tax expense 30 *Deferred tax benefit 3 ---- $ 33 ==== *The deferred tax benefit (see paragraph C) is a result of the reversal of the deferred tax liability in regards to additional depreciation expense derived from the fair value adjustment of buildings. . H. CEDC's management does not presently anticipate any significant personnel reductions as a result of the acquisition. I. As indicated in note B, the acquisition agreement granted the Sellers of Damianex the option to sell the 152,996 shares granted in the business combination back to CEDC in 12 months at a price of $12.00 per share. The discount from the fair value of the put options will be accreted over the 12 months by a charge to retained earnings (reduction of earnings available to common stockholders when calculating earnings per share). If the put lapses, the shares will be transferred to equity at the accreted value. If the shares are purchased by the Company they will be treated as treasury shares. These shares have been disclosed in the pro forma condensed consolidated balance sheet as temporary equity above stockholders' equity. Prior to the exercise option period (April 23, 2003 to April 29, 2003) these shares will be considered in the calculation of diluted earnings per share (unless considered anti-dilutive). 20 Central European Distribution Corporation Notes to the Unaudited Pro Forma Condensed Combined Financial Information For the year ended December 31, 2001 Amounts in columns expressed in thousands of USD (except per share data) J. Pro forma net income per share information considers the effects of shares issued in the private placement transaction as though they were outstanding during the period presented. Due to the put feature, the shares issued to the selling shareholders are not considered in the basic pro forma earnings per share calculations. The shares used for these calculations were as follows: Year ended December 31, 2001 ----------------------------- Historical Pro forma ---------- --------- Basic 4,359 *5,159 Diluted 4,447 **5,241 * Includes 800,000 common shares issued in regards to the private placement offering (see paragraph D), ** The pro forma diluted earnings per share are calculated using the pro forma shares above. The pro forma diluted earnings per share calculation does not include the 161,380 incremental shares as a result of applying the reverse treasury stock method to the 152,996 common shares with attached put options issued in connection with this acquisition. The result of this is anti-dilutive. As discussed in Note I, the discount of the fair value of the put options in regards to the 152,996 shares issued for the purchase of Damianex will be accreted over the 12 months by a charge to retained earnings (reduction of earnings available to common stockholders when calculating earnings per share). For purposes of the calculation of pro forma basic earnings per share, net income disclosed in the pro forma condensed consolidated income statement has been reduced by full accretion of the discount of $202,000, resulting in earnings available to common stockholders of $3,452,000. This amount is divided by the pro forma basic and diluted shares shown above to arrive at pro forma earnings per share. 21 (c) Exhibits 2 Investment Agreement dated April 22, 2002 23 Consent of Ernst & Young Audit Sp. z o.o. 22 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Central European Distribution Corporation (Registrant) May 14, 2002 /s/ James Archbold ---------------------------- James Archbold Vice President and Secretary 23 EX-2 3 dex2.txt INVESTMENT AGREEMENT Exhibit 2 --------------------------------------- INVESTMENT AGREEMENT --------------------------------------- BETWEEN CENTRAL EUROPEAN DISTRIBUTION CORPORATION CAREY AGRI INTERNATIONAL POLAND SPOLKA Z O.O. and MICHAL CIAPALA BOGUSLAW BARNAT IWONA BARNAT Investment Agreement Signed on the 22 of April 2002 between: 1. Carey Agri International Poland Sp. z o.o. ("Carey Agri") whose registered seat is at ul. Bokserska 66A, 02-690 Warsaw, Poland, represented by William V. Carey, 2. Central European Distribution Corporation ("CEDC") whose registered seat is at 1343 Main Street, #301, Sarasota, Florida 34236 USA, represented by William V. Carey, (jointly referred to as the "Buyers") and 3. Michal Ciapala whose domicile is at ul. Wiejska 2B, 37-100 Lancut, Poland ("MC") 4. Boguslaw Barnat whose domicile is Dabrowki 194a, 37-100 Lancut, Poland ("BB") 5. Iwona Barnat whose domicile is Dabrowki 194a, 37-100 Lancut, Poland ("IB"), represented on the ground of the power of attorney by Boguslaw Barnat. Copy of the power of attorney is attached as Schedule 9 to this agreement. (jointly referred to as the "Sellers") RECITALS A. MC, BB, IB - the Sellers own 100 percent of the share capital ("Shares") of Damianex S.A. ("Company") whose registered seat is at ul. Kasprowicza 2, Lancut, Poland, registered with the National Court Register of the District Court in Rzeszow under KRS number 0000108201. B. According to the Letter of Intent concluded on 8 March 2002 the Sellers have agreed to sell to the Buyers all the shares in the Company. It is hereby agreed as follows: 1. DEFINITIONS In this Agreement the following expressions shall be taken to mean as follows: "Company" shall mean Damianex S.A. "Shares" shall mean the Company registered shares, constituting the entire share capital of the Company, including the number of shares issued in connection with converting of the Company's reserves (resulting from undistributed income for the past years until 2001) into the share capital. "Price" shall mean the purchase price of 100% of the Shares in the Company, as defined in clause 3.1. 2 "Funds" shall mean a part of the Price, as defined in clause 3.6, to be transferred to the escrow account. "Completion Date" shall mean the day of signing the Investment Agreement and its Schedules as defined in clause 4. "Closing Date" shall mean the day the MSWiA permit is presented to the Escrow Agent in order to release the Funds and the share certificates from the escrow account. "CEDC Stock" shall mean the share certificates of Central European Distribution Corporation, as defined in clause 3.7. "Prepayment" shall mean a part of the Price, as defined in clause 3.5, to be paid on the Completion Date. "Real Estate" shall mean all pieces of real estate owned by the Company. "Escrow Agent" shall mean the escrow agent as defined in the Escrow Agreement being Schedule No. 3 to this Agreement. "Bonus Scheme" shall mean the bonus scheme defined in clause 11 of the Letter of Intent dated 8 January 2002. 2. SALE AND PURCHASE, CONDITION PRECEDENT 2.1. Upon the terms and subject to the conditions contained in this Agreement the Sellers agree to sell and the Buyers agree to buy and acquire the Shares free of any liens, encumbrances and third party rights. 2.2. Carey Agri shall purchase 60% (i.e. 50.809) of the Company Shares and CEDC shall purchase 40% (i.e. 33.872) of the Company Shares. 2.3. The sale and purchase shall take place on condition of obtaining a permit of the Ministry of Internal Affairs and Administration for the purchase of Shares ("MSWIA Permit"). 2.4. The Conditional Share Purchase Agreement ("SPA") constitutes Schedule No. 1 to this Agreement. 3. PURCHASE PRICE 3.1. The purchase price for the Shares shall be PLN 35,339,075.00 ("Price"). 3.2. PLN 28,839,075.00 shall be paid in cash. 3.3. PLN 6,500,000 shall be paid in CEDC Stock. CEDC is listed on NASDAQ in the United States. 3 3.4. The Buyers shall make the cash payment mentioned in clause 3.2 to the Sellers in accordance with the table below: ------------------------------------------------ Carey Agri International CEDC Total Poland Sp. z o.o. ------------------------------------------------------------------ MC 51.00% 10,371,772 4,386,000 14,757,772 ------------------------------------------------------------------ BB 48.97% 9,858,361 4,214,000 14,072,361 ------------------------------------------------------------------ IB 0.03% 8,942 8,942 ------------------------------------------------------------------ Total 20,239,075 8,600,000 28,839,075 ----------------------------------------------------------- 3.5. PLN 15,000,000.00 shall be paid to the Sellers in the form of a Prepayment on the Completion Date. 3.6. PLN 13,839,075.00 shall be transferred to an agreed escrow account. 3.7. The Buyers shall make the payment mentioned in clause 3.3 to the Sellers in accordance with the following principles: 3.7.1. 44,150 of the CEDC Stock to be received by MC and BB, with the value of PLN 2,000,000 shall be calculated at price of USD 10.9569 per share according to the NBP USD exchange rate published on the 26th of March 2002 being USD 1=PLN 4,1343. 3.7.2. 108.846 of the CEDC Stock to be received by MC and BB, with the value of PLN 4,500,000 shall be calculated at price of USD 10.00 per share and according to the NBP USD exchange rate published on the 26th of March 2002 being USD 1=PLN 4,1343. 3.7.3. The share certificates for 22,075 shares mentioned in clause 3.7.1 with the value of PLN 1,000,000 and 54.423 shares mentioned in clause 3.7.2 with the value of PLN 2,250,000 shall be issued by CEDC in the name of MC with a year's lock up period and delivered within 30 days of the Closing Date. 3.7.4. The share certificates for 22,075 shares mentioned in clause 3.7.1 with the value of PLN 1,000,000 and 54.423 shares mentioned in clause 3.7.2. with the value of PLN 2,250,000 shall be issued by CEDC in the name of BB with a year's lock up period and delivered within 30 days of the Closing Date. 3.8. The Price includes the reduction of the amounts of PLN 160,925 for receivables being overdue on 26/th/ March 2002 more than 90 days. A full specification of the receivables reducing the Price valued at PLN 160,925 has been attached to this agreement as Schedule No. 7. 3.8.1. The Sellers shall pay back to the Buyers an equivalent of all receivables, other then specified in the Schedule 7, which after the lapse of the 90th day from signing the Investment Agreement become overdue more than 90 days. 3.8.2. All receivables referred in Schedule 7 shall be paid back to the Sellers, if paid after the 26/th/ March 2002 to the Company's account. 4 4. COMPLETION The Completion Date shall be the day of signing this Agreement. On the Completion Date, the parties shall take the following actions. 4.1. On the Completion Date, the Buyers and the Sellers shall conclude the SPA. 4.2. On the Completion Date, the Sellers provide the Buyers with the Company's Management Board consent for sale of the Shares. 4.3. On the Completion Date, the Buyers and the Sellers shall conclude an agreement for the pledge on the Company Shares ("Pledge Agreement"), which, inter alia, transfers the right of vote at the Company's Shareholders' Meeting to the Buyers. The Pledge Agreement has been attached as Schedule No. 2 to this Agreement. 4.4. On the Completion Date, the Sellers shall cause the Company's Management Board to enter, into the Company's Book of Shares, information on the pledge on Shares and rights of the Buyers to vote at the Company's Shareholders' Meeting. A copy of this entry authorised by the Management Board as well as a copy of the Sellers' consent for this entry shall be handed over to the Buyers. 4.5. On the Completion Date, the Buyers and the Sellers shall conclude an escrow account agreement ("Escrow Agreement"). According to the Escrow Agreement the Buyers shall transfer the Funds to the escrow account and the Sellers shall deposit share certificates at the escrow account. The Escrow Agreement has been attached as Schedule No. 3 to this Agreement. 4.6. On the Completion Date, the Prepayment mentioned in clause 3.5 shall be paid by the Buyers to the Sellers according to the table below: ---------------------- Carey Agri International Poland Sp. Z o.o. ---------------------------------------------- MC 51,00% 7.650.000 ---------------------------------------------- BB 48,97% 7.345.000 ---------------------------------------------- IB 0,03% 4.500 ---------------------------------------------- Total 15 000 000 --------------------------------- onto the following bank accounts: MichalCiapala: PEKAO S.A. I O/Rzeszow nr 12401792 - 8123866 - 2700 -211112- 001, Boguslaw Barnat and Iwona Barnat: PEKAO S.A. I O / Rzeszow nr 12401792 - 8123912 - 2700 - 211112 - 001 4.7. On the Completion Date, the Sellers shall provide the Buyers with the Lock-up Letters ("Lock-up Letters"). The Lock-up Letters have been attached as Schedule No. 4 to this Agreement. 5 4.8. On the Completion Date, the Buyers shall cause that the Company, MC and BB shall execute employment contracts in the form set out in Schedule No. 6 to this Agreement. 4.9. On the Completion Date, the Sellers shall appoint members of the new Management Board and the new Supervisory Board of the Company. The Management Board members shall be as follows: - Mr Michal Ciapala as President of the Management Board - Mr Boguslaw Barnat as Vice President of the Management Board - Mr Evangelos Evangelou as Member of the Management Board - Mr Wojciech Strzalkowski as Member of the Management Board - Mrs Edyta Krawczyk as Member of the Management Board The Supervisory Board members shall be as follows: - Mr William V. Carey - Mr Neil Crook - Mr Andrzej Strot 4.10. The Minutes of the Company's Shareholders' Meeting regarding the appointment of members of the new Management Board and the new Supervisory Board have been attached as Schedule No. 5 to this Agreement. 5. REPRESENTATIONS AND WARRANTIES OF THE SELLERS The Sellers hereby jointly and severally represent and warrant to the Buyers that each of the following representations and warranties is true and accurate: 5.1. The Company has been duly organised and validly exists under the laws of the Republic of Poland. 5.2. The Shares have been duly created and are free and clear of any and all liens, encumbrances, pledges and third party rights. 5.3. The transfer of the Shares to the Buyers shall not give a legal reason to any third party to terminate or modify any agreements to which the Company is a party. As of the date of signing this Agreement the Sellers are unaware of any intent by suppliers or customers to stop co-operation with the Company. 5.4. The execution of this Agreement and the performance of the obligations set forth herein have been duly authorised by the Sellers and will not result in violation of any law, decree or regulation, any contract to which either of the Sellers is a party, or by which it or its property may be bound, any judgement of any court, or any permit or approval of any governmental agency; 6 5.5. This Agreement constitutes a valid and legally binding obligation of the Sellers, enforceable in accordance with its terms. The Sellers acknowledge that the Buyers enter into this transaction based on the assumption of full truth and accuracy of the above statements. 6. REPRESENTATIONS AND WARRANTIES OF THE BUYERS The Buyers hereby represent and warrant to the Sellers as follows: 6.1. CEDC has been duly organised and is validly existing under the laws of the State of Delaware and has the power and authority to execute the transaction contemplated herein; 6.2. Carey Agri has been duly organised and is validly existing under the laws of Poland and has the power and authority to execute the transaction contemplated herein; 6.3. The execution of this Agreement and the performance of the obligations set forth herein have been duly authorised by the Buyers and will not result in violation of any law, decree or regulation, any contract to which either of the Buyers is a party, or by which it or its property may be bound, any judgement of any court, or any permit or approval of any governmental agency; 6.4. This Agreement constitutes a valid and legally binding obligation of the Buyers, enforceable in accordance with its terms. 7. ADDITIONAL OBLIGATION OF THE SELLERS 7.1. The Sellers shall for unlimited period of time assume the liability and shall indemnify the Company and/or the Buyers for any payment of tax or debts resulting from any tax control or legal proceedings concerning the Company's activity before the Completion Date. 7.2. The Sellers shall be informed by the Buyers about any tax control and legal proceedings concerning the Company's activity before the Completion Date. 8. CLOSING The Closing Date shall be the day the MSWIA Permit is presented to the Escrow Agent in order to release the Funds and the Share certificates from the escrow account. On the Closing Date, the parties shall take the following actions. 8.1. On the Closing Date, the Escrow Agent shall transfer the Funds to the Sellers. 8.2. On the Closing Date, the Escrow Agent shall transfer the Share certificates to the Buyers. The Share certificates shall be endorsed by the Sellers to the Buyers. 7 8.3. On the Closing Date, the Management Board of the Company shall enter the Buyers into the Company's Book of Shares. A copy of this entry authorised by the Management Board as well as a copy of the Sellers' consent for such entry shall be handed over to the Buyers. 9. ACTIONS AFTER THE CLOSING 9.1. Within 30 days from the Closing the Buyers shall provide MC and BB with the CEDC Stocks mentioned in clause 3.7 of this Agreement. 9.2. Within 3 months from the Closing the parties shall agree a Bonus Scheme for the Sellers based on their performance under the CEDC bonus scheme. The principles used for calculation of the performance bonus shall be attached in the form of Schedule No. 8 to this Agreement. 10. PUT OPTION 10.1. The Buyers hereby grants to the Sellers an option to sell CEDC Stocks ("Put Option"). In consideration of the granting of such an Option, the Buyers shall pay to the Sellers the purchase price as described in clause 10.4 hereunder. The Sellers accepts the Put Option but without any undertaking to sell. The CEDC Stocks will be sold with the right to dividends from the first day of the financial year during which the Put Option is exercised. 10.2. The Put Option may be exercised from 23 April 2003 to 29 April 2003 ("Put Option Period"), being the first seven days after the lock-up period, as defined in the Lock-up Letters. 10.3. The Sellers shall exercise the Put Option by sending a notice to the Buyers within the Put Option Period. The Put Option may be exercised on one occasion only and for all the CEDC Stocks that the Sellers will own at the Put Option Period. 10.4. The purchase price of the CEDC Stocks shall be equal to USD 12 per one CEDS Stock and will be calculated on the basis of the number of CEDC Stocks owned by the Sellers. 11. ALTERNATIVE ACQUISITION In case that the Ministry of Internal Affairs and Administration refuses to issue the MSWIA Permit the parties shall take the following actions. 11.1. The Parties agree to cause the separation of the Real Estate from the Company and sell it to the mutually agreed third party for mutually agreed price. The Buyers and the Sellers are aware that the market price for Real Estate could be lower than its book value. The Buyers declare that they will not present any claims against the Sellers in connection with the above mentioned price difference. 11.2. The Parties agree to cause the third party, as a new owner of the Real Estate, to conclude a lease agreement for three to five years with the Company or the Buyers. The rent under the lease agreement shall not exceed the market price applicable in the region. 11.3. The Buyers and the Sellers shall conclude a new, unconditional Share Purchase Agreement on the same terms as specified in the SPA. 8 11.4. The actions mentioned in clauses 11.1 to 11.3 shall be made within six months from the day the Ministry of Internal Affairs and Administration informed the parties on its refusal. 11.5. If the above mentioned actions are not finalised within the time limits specified above, the Sellers shall be obliged to pay the amount of the Prepayment mentioned in clause 3.5 back to the Buyers alongside of 50% of the interests earned on the Prepayment. The parties agree that for these purposes the interest rate is calculated as 6%. 11.6. If the Sellers paid the Prepayment back to the Buyers, the Escrow Agent shall release the Funds and the Shares from escrow account as well as the Pledge Agreement shall expire. 12. NON-COMPETITION COVENANT During three years from the Closing Date, the Sellers should not be involved in any business which competes with that of the Company, or, in particular, participate in competitive partnerships and companies as a partner, a shareholder or a member of their governing bodies. In the case of a breach of this obligation by any of the Sellers, the employment contracts of BB and MC may be terminated with immediate effect, and BB and MC shall pay to the Buyers a contractual penalty equal to their annual gross salary referred to in their employment contract. 13. NOTIFICATIONS All notices and communications required or permitted under this Agreement shall be sufficiently given if personally delivered with acknowledgement of receipt or by registered letter or by telex with answerback: To the Buyers: -------------- Carey Agri International Poland Sp. z o.o. ul. Bokserska66A, 02-690 Warszawa,Polska, for the attention of William V. Carey. To the Sellers: --------------- Michal Ciapala, ul. Wiejska 2B, 37-100 Lancut, Polska Boguslaw i Iwona Barnat, Dabrowki 194a, 37-100 Lancut, Polska or to any other address which may be notified in writing by either party to the other in the above form. 14. MISCELLANEOUS 14.1. Any legal, financial and consulting expenses of the Sellers in relation to the transaction must be borne solely by the Sellers. The Buyers shall be responsible for their own expenses. 9 14.2. The Buyers shall pay the tax on civil law transactions related with the sale of the Shares. 14.3. This Agreement shall be governed by and construed in accordance with the laws of the Republic of Poland. 14.4. Any and all disputes arising in connection with this Agreement shall be settled by the Court proper for the Company's registered seat. 14.5. This Agreement has been executed in two counterparts in English and four counterparts in Polish. The Polish language version shall prevail where there is any difference between the English and Polish language versions Signed by: /s/ William V. Carey -------------------- For the Buyers Signed by: /s/ Michal Ciapala /s/ Boguslaw Barnat /s/ Iwona Barnat -------------------- ------------------- ---------------- For the Sellers Schedules: ---------- 1. The Conditional Share Purchase Agreement 2. The Pledge Agreement 3. The Escrow Agreement 4. The Lock-up Letters 5. The Minutes of the Company's Shareholders' Meeting 6. The Employment Contracts 7. The specification of the receivables 8. The principles for calculation of Bonus Scheme 9. Copy of power of attorney for Boguslaw Barnat. 10 EX-23 4 dex23.txt CONSENT OF INDEPENT AUDITORS Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the use of our report dated April 22, 2002 with respect to the financial statements of Damianex S.A. at December 31, 2000 and 2001, and for the years then ended, which are included in this form 8-K filed by CEDC ERNST & YOUNG AUDIT Sp. z o.o. Warsaw, Poland May 7, 2002 -----END PRIVACY-ENHANCED MESSAGE-----