10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended March 31, 2003

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-24341

CENTRAL EUROPEAN DISTRIBUTION CORPORATION

(Exact Name of Registrant as Specified In Its Charter)

DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
54-18652710
(IRS Employer Identification No.)

1343 MAIN STREET, #301
SARASOTA, FLORIDA
(Address of Principal Executive Offices)

34236
(ZIP Code)

(941) 330-1558
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No x

The number of shares outstanding of each class of the issuer’s common stock as of May 6, 2003:

Common Stock ($.01 par value)
6,835,945 shares

1

INDEX

			Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements	3
		Consolidated Condensed Balance Sheets, at March 31, 2003 (unaudited) and December 31, 2002	3
		Consolidated Condensed Statements of Income (unaudited) for the three month periods ended March 31, 2003 and March 31, 2002	4
		Consolidated Condensed Statements of Changes in Stockholders’ Equity (unaudited) as of March 31, 2003	5
		Consolidated Condensed Statements of Cash Flows (unaudited) for the three month periods ended March 31, 2003 and March 31, 2002	6
		Notes to Consolidated Condensed Financial Statements (unaudited)	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 3.	Quantitative and Qualitative Disclosure about Market Risk	19
	Item 4.	Controls and Procedures	20
PART II.	OTHER INFORMATION
	Item 2.	Changes in Securities and Use of Proceeds	21
	Item 6.	Exhibits and Reports on Form 8-K	21

SIGNATURES 22

2

PART I
FINANCIAL INFORMATION

CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share and per share information)

	March 31, 2003			December 31, 2002
	(unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	1,807		$	2,237
Accounts receivable (net of allowance for doubtful accounts of $3,438 and $3,945 respectively)		47,235			64,803
Inventories		18,658			24,321
Prepaid expenses and other current assets		3,991			3,314
Deferred income taxes		786			713
TOTAL CURRENT ASSETS	$	72,477		$	95,388
Intangible assets, net		2,655			2,868
Goodwill, net		25,281			25,323
Equipment, net		5,381			5,910
Deferred income taxes		880			924
Other assets		281			387
TOTAL ASSETS	$	106,955		$	130,800
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Trade accounts payable	$	28,088		$	53,435
Bank loans and overdraft facilities		12,388			12,289
Short term debt		8,261			8,064
Current portion of long term debt		5,589			3,820
Current portion of obligations under capital leases		294			316
Income taxes payable		363			499
Taxes payable other than income taxes		779			513
Other accrued liabilities		2,311			2,079
TOTAL CURRENT LIABILITIES		58,073			81,015
Long-term debt, less current maturities		4,426			6,195
Long-term obligations under capital leases		326			428
Redeemable common stock		1,781			1,781
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, 6,780,763 and 6,005,263 shares issued at March 31, 2003 and December 31, 2002, respectively)		68			60
Share subscription receivables		(15,578	)		—
Additional paid-in-capital		42,810			27,381
Retained earnings		17,378			15,461
Accumulated other comprehensive loss		(2,179	)		(1,371	)
Less Treasury Stock at cost (72,900 shares at March 31, 2003 and December 31, 2002)		(150	)		(150	)
TOTAL STOCKHOLDERS’ EQUITY		42,349			41,381
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	106,955		$	130,800

The accompanying notes are an integral part of the consolidated condensed financial statements.

3

CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except share and per share information)

	Three months ended March 31, 2003			Three months ended March 31, 2002
Net sales	$	79,468		$	42,650
Cost of goods sold, excluding depreciation and amortization		68,985			36,771
Gross margin, excluding amortization and depreciation		10,483			5,879
Selling, general and administrative expenses, excluding depreciation and amortization		6,802			3,920
Depreciation and amortization		474			277
Bad debt expense		67			384
Operating income		3,140			1,298
Non operating income/(expense)
Interest income		27			30
Interest expense		(553	)		(237	)
Realized and unrealized foreign currency exchange gains/(losses), net		(2	)		(99	)
Other income/(expense), net		(14	)		89
Income before income taxes		2,598			1,081
Income tax expense		681			299
Net income	$	1,917		$	782
Net income per share of common stock, basic	$	0.32		$	0.17
Net income per share of common stock, diluted	$	0.31		$	0.16

The accompanying notes are an integral part of the consolidated condensed financial statements.

4

CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN
STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands)

	Capital Stock
	Issued			In Treasury
	No. of Shares	Amount		No. of Shares	Amount			Share subscription receivable			Additional Paid-in- Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Total Stock-holders’ Equity
Balance at December 31, 2002	6,005	$	60	73	$	(150	)	$	—		$	27,381	$	15,461	$	(1,371	)	$	41,381
Net income for the three months ended March 31, 2003	—		—	—		—			—			—		1,917		—			—
Foreign currency translation adjustment	—		—	—		—			—			—		—		(808	)		—
Comprehensive income for the three months ended March 31, 2003	—		—	—		—			—			—		1,917		(808	)		1,109
Issuance of Shares	670		7	—		—			—			14,426		—		—			14,433
Share subscription receivable	—		—	—		—			(15,578	)		—		—		—			(15,578	)
Stock options exercised by employees and non-employees	105		1	—		—			—			1,003		—		—			1,004
Balance at March 31, 2003	6,780	$	68	73	$	(150	)	$	(15,578	)	$	42,810	$	17,378	$	(2,179	)	$	42,349

The accompanying notes are an integral part of the consolidated condensed financial statements.

5

CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (UNAUDITED)
(in thousands)

	Three months ended March 31, 2003			Three months ended March 31, 2002
OPERATING ACTIVITES
Net income	$	1,917		$	782
Adjustments to reconcile net income to net cash provided by / (used in) operating activities
Depreciation and amortization		474			277
Deferred income tax benefit		(29	)		(93	)
Bad debt provision		67			384
Changes in operating assets and liabilities
Accounts receivable		18,075			8,830
Inventories		5,663			(3,082	)
Prepayments and other current assets		(677	)		(694	)
Trade accounts payable		(25,347	)		(3,841	)
Income taxes and other taxes payable		130			(333	)
Other accrued liabilities and other assets		232			(270	)
Net Cash Provided By Operating Activities		505			1,960
INVESTING ACTIVITIES
Purchases of equipment		(98	)		(84	)
Net Cash Used In Investing Activities		(98	)		(84	)
FINANCING ACTIVITIES
Repayments of short-term borrowings and overdraft facilities		296			(2,435	)
Proceeds from long-term borrowings		—			744
Repayments of long-term borrowings		—			(657	)
Net proceeds from private placement offering of Company’s common stock		(1,152	)		7,551
Stock options exercised		1,004			331
Net Cash Provided By Financing Activities		148			5,534
Effect of exchange rate changes on cash and cash equivalents		(985	)		(169	)
Net increase / (decrease) in cash and cash equivalents		(430	)		7,241
Cash and cash equivalents at beginning of period		2,237			2,466
Cash and cash equivalents at end of period	$	1,807		$	9,707
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Common stock issued to consultants	$	—		$	100
Capital leases	$	—		$	60
Supplemental disclosures of cash flow information
Interest paid	$	543		$	185
Income tax paid	$	839		$	372

The accompanying notes are an integral part of the consolidated condensed financial statements.

6

Central European Distribution Corporation
Notes To Consolidated Condensed Financial Statements (Unaudited)
(amounts in tables expressed in thousands except per share information)

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 then sole subsidiary, Carey Agri International Poland Sp. z o.o. (Carey Agri), which was formed in 1990. In 1999, CEDC formed two additional subsidiaries (MTC and PWW). CEDC also acquired PHA in 2000, Astor in 2001 and Damianex, AGIS and Onufry in 2002. CEDC and its subsidiaries are referred to herein as the Company.

2.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present our financial condition, results of operations and cash flows for the interim periods presented have been included. Operating results for the three-month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The unaudited interim financial statements should be read with reference to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2002.

3.

Comprehensive Loss

The Company’s equity investments are substantially all in Polish zloty and gains or losses resulting from the restatement of these equity investments into U.S. dollars are posted to the Comprehensive Loss Account. As a result of the depreciation of the Polish zloty against the U.S. dollar during the three-month period ended March 31, 2003, the Company incurred foreign currency translation losses of $808,000 on these equity investments. This movement means that the cumulative balance on the Comprehensive Loss Account was a loss of $2,179,000 as at March 31, 2003 and this has been reflected in the Consolidated Condensed Balance Sheet and Statements of Changes in Stockholders’ Equity (unaudited). The total of the accumulated other comprehensive loss consist solely of currency exchange adjustments. No tax benefit has been recorded.

7

Central European Distribution Corporation
Notes To Consolidated Condensed Financial Statements (Unaudited)
(amounts in tables expressed in thousands except per share information)

4.

Earnings Per Share

Net income per share of common stock is calculated under the provisions of SFAS No. 128, “Earnings per Share”.

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated.

	Three Months Ended March 31,
	2003		2002
Basic:
Net income	$	1,917	$	782
Weighted average shares of common stock outstanding		6,006		4,508
Basic earnings per share	$	0.32	$	0.17
Diluted:
Net Income	$	1,917	$	782
Weighted average shares of common stock outstanding		6,006		4,508
Net effect of diluted employee stock options based on the treasury stock method		220		180
Net effect of dilutive stock options based on the treasury stock method in regards to IPO options		39		121
Totals		6,265		4,809
Diluted earnings per share	$	0.31	$	0.16

During the three month period ended March 31, 2003, 105,500 stock options were exercised (55,000 non-employee stock options and 50,500 employee stock options).

5.

Acquisitions

Overview

The Company’s strategy and objectives regarding its acquisition policy are to acquire regionally strong alcohol distributors in order to build market share and construct a nationwide distribution network in order to attract and retain national clients and to strengthen its buying leverage. The price paid by the Company in making its acquisitions is based on earnings projections of the acquired company operating under the Company’s business model.

On April 22, 2002, the Company completed the acquisition of 100% of the voting shares of Damianex S.A., an alcohol distributor in south-eastern Poland. The purchase price of $9,139,880 (including expenses) consisted of $7,359,000 in cash and the issuance of 152,996 shares of common stock valued at $1,781,000 using an average

8

Central European Distribution Corporation
Notes To Consolidated Condensed Financial Statements (Unaudited)
(amounts in tables expressed in thousands except per share information)

5.

Acquisitions (cont’d)

of the share price before and after the transaction date. The source of the funds consisted of a long-term loan of $2,500,000 from Bank Fortis in Warsaw, Poland and $4,638,000 from a private placement offering of common stock (gross proceeds $8,400,000) completed by the Company on March 28, 2002.

The Company has made provisions for certain re-organization costs which will be incurred following a detailed review of Damianex’s operations. These provisions amount to approximately $246,000 and these have been adjusted to the carrying value of goodwill.

Certain common stock issued in connection with the Damianex acquisition is subject to a put option, which allows the seller to require the Company to repurchase the shares at $12.00 per share during the period between April 25, 2003 and April 29, 2003. As at March 31, 2003, the common stock subject to this option has been classified as redeemable common stock at an amount of $12.00 per share ($1,781,000). This put option has not been exercised.

On April 24, 2002, the Company completed the acquisition of 100% of the voting stock of AGIS S.A., an alcohol distributor in northern Poland. The purchase price of $6,933,000 consisted of $4,762,000 (including expenses) in cash and the issuance of 172,676 shares of common stock valued at $2,171,000 using an average of the share price before and after the transaction date. The source of the funds was a long-term loan of $1,800,000 from Bank Fortis in Warsaw, Poland and $2,768,000 from a private placement offering of common stock (gross proceeds $8,400,000) completed by the Company on March 28, 2002.

On October 15, 2002, the Company completed the acquisition of 96.75% of the voting stock of Onufry S.A., an alcohol distributor based in Gdansk. The purchase price was $1,945,300 consisting of $1,565,000 (including expenses) in cash and 39,503 shares of common stock valued at $380,300 using an average of the share price before and after the transaction date. The cash element was funded by a $700,000 bank loan with the balance coming from the Company’s cash reserves.In February 2003, the Company acquired the remaining 3.25% of the voting stock of Onufry for cash consideration of $50,000.

Assuming consummation of the Damianex, AGIS and Onufry acquisitions and the issuance of common shares as of January 1, 2002, the unaudited pro-forma consolidated operating results for the three months ended March 31, 2002 was as follows:

	2002
Net sales	$	85,310
Net income		735
Net income per share data:
Basic earnings per share of common stock	$	0.15
Diluted earnings per share of common stock	$	0.14

9

Central European Distribution Corporation
Notes To Consolidated Condensed Financial Statements (Unaudited)
(amounts in tables expressed in thousands except per share information)

6.

Long-Term Debt and Short-Term Bank Loans

The Company has banking facilities with six banks which are used to support both the Company’s acquisition strategy and its cash on delivery (COD) vodka purchasing requirements. The Company’s normal trade terms from its Polish vodka suppliers are on average 60 days, however, the Company is usually offered significant discounts from the invoice if goods are paid for when delivered. The discounts offered are in excess of the effective rates the Company would pay for the 60 day terms on its normal banking facilities.

The credit lines are denominated in various currencies as follows:

	March 31, 2003		December 31, 2002
USD	$	553	$	744
EUR		—		—
PLN		30,111		29,624
	$	30,664	$	30,368

These facilities are disclosed in the financial statements as:

	March 31, 2003		December 31, 2002
Overdrafts	$	12,388	$	12,289
Short term debt		8,261		8,064
Long term debt – current portion		5,589		3,820
Total long term debt less current portion		4,426		6,195
Total	$	30,664	$	30,368

Principal repayments for the followings years.	March 31, 2003		December 31, 2002
2003	$	24,470	$	24,174
2004		4,434		4,434
2005		1,760		1,760
Total	$	30,664	$	30,368

Within the total overdraft facilities agreed as at March 31, 2003, $4.0 million remains available. These overdraft facilities are subject to renewal between April and December 2003 and the Company has not encountered any difficulties in successfully renegotiating them.

7.

Lease Obligations

In November 2000, the Company entered into a non-cancelable five-year operating lease for its main warehouse and office in Warsaw, which stipulated monthly payments of $130,000. In February 2003, the Company renegotiated this lease by signing a seven-year agreement starting from May 1, 2003 at a lower rent of $90,000 per month. The following is a schedule by year of the future rental payments under the non-cancelable operating lease as of March 31, 2003:

2003	$	1,240
2004		1,080
2005		1,080
2006		1,080
2007		1,080
Thereafter		2,520
	$	8,080

10

Central European Distribution Corporation
Notes To Consolidated Condensed Financial Statements (Unaudited)
(amounts in tables expressed in thousands except per share information)

7.

Lease Obligations (cont’d)

The Company also has rental agreements for all of the regional offices and warehouse space. Monthly rentals range from approximately $2,000 to $11,670. All of the regional office and warehouse leases can be terminated by either party within two or three months’ prior notice. The retail shop leases have no stated expiration date, but can be terminated by either party with three months to six months’ prior notice.

During 2002, the Company continued its policy of renewing its transportation fleet by way of capital leases. The future minimum lease payments for the assets under capital lease at March 31, 2003 are as follows:

2003	$	365
2004		335
	$	700
Less interest		(80	)
	$	620

8.

Income Taxes

Total income tax expense varies from expected income tax expense computed at enacted Polish statutory rates (27% in 2003 and 28% in 2002) as follows:

	March 31,
	2003			2002
Tax at the Polish statutory rate	$	701		$	303
Temporary differences, net, U.S. tax losses		(107	)		(38	)
Movement in allowance for doubtful debts		46			(64	)
Movements in accruals		(75	)		69
Effect of foreign currency exchange rates on net deferred tax assets		113			33
Permanent differences		3			(4	)
Total income tax expense	$	681		$	299

Tax liabilities (including corporate income tax, Value Added Tax (VAT), social security and other taxes) of the Company’s Polish subsidiaries 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 U.S. federal income tax returns are also subject to examination by the U.S. tax authorities. As the application of tax laws and regulations, and transactions are susceptible to varying interpretations, amounts reported in the consolidated financial statements could be changed at a later date upon final determination by the tax authorities.

9.

Stock Option Plans and Warrants

The Company has elected to follow APB 25. Under APB 25, no compensation expense is recognized when the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant.

The Company’s 1997 Stock Incentive Plan (“Incentive Plan”) provides for the grant of stock options, stock appreciation rights, restricted stock and restricted stock units to directors, executives, and other employees (“employees”) of the Company and to non-employee service providers of the Company. The Incentive Plan authorizes, and the Company has reserved for future issuance, up to 1,750,000 shares of Common Stock (subject to anti-dilution adjustment in the event of a stock-split, recapitalization or similar transaction). The Compensation Committee of the Board of Directors of the Company administers the Incentive Plan.

The option exercise price for stock options granted under the Incentive Plan may not be less than fair market.

11

Central European Distribution Corporation
Notes To Consolidated Condensed Financial Statements (Unaudited)
(Amounts in tables expressed in thousands except per share information)

9.

Stock Option Plans and Warrants (cont’d)

value but in some cases may be in excess of the market price of common stock on the date of grant. The Company sets the stock option price based on the closing price of the common stock on the day before the date of grant if such price is not materially different than the opening price of the common stock on the date of grant. Accordingly, there is no compensation expense recorded for options granted under the Incentive Plan to employees. Stock options may be exercised up to 10 years after the date of grant except as otherwise provided in the particular stock option agreement. Payment for the shares purchased under the Incentive Plan must be in cash, which must be received by the Company prior to any shares being issued.

Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of Statement 123. The fair value of these stock options were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 6.69%; dividend yields of 0.0%; volatility factors of the expected market price of the Company’s common stock of 1.57; and a weighted-average expected life of the option of 3.4 years.

The Black-Scholes option valuation method was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock option have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information follows:

	Three Months to March 31,
	2003		2002
Net income as reported	$	1,917	$	782
Pro forma net income	$	1,863	$	537
Pro forma earnings per share:
Basic	$	0.31	$	0.12
Diluted	$	0.30	$	0.11

10.

Subsequent Events

On March 31, 2003, the Company completed a private placement by issuing 670,000 shares of common stock for a price of $23.25 per share less associated expenses. On April 2, 2003, the Company issued another 80,000 shares of common stock under the same agreement. The funds from both placements were received in early April. A registration statement on Form S-3 covering resales of the shares sold in the private placement was declared effective on May 1, 2003.

On April 15, 2003, the Company completed its acquisition of Dako Galant Sp. z o.o. The total purchase price was approximately $1.8 million and was financed by a combination of cash and common stock.

On April 29, 2003, the Company declared three-for-two stock dividend payable on May 30, 2003 to shareholders of record on May 19, 2003.

12

11.

Reclassifications

Certain amounts in the 2002 consolidated condensed financial statements have been reclassified to be consistent with the 2003 financial statements. These reclassifications do not have a material effect on the financial statements.

13

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following analysis should be read in conjunction with the Consolidated Condensed Financial Statements and the notes thereto appearing elsewhere in this report.

This Form 10-Q, including, but not limited to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance and that undue reliance should not be placed on such statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events or otherwise unless required to do so by the securities laws.

The following discussion and analysis provides information which management believes is relevant to the reader’s assessment and understanding of the Company’s results of operations and financial condition and should be read in conjunction with the Consolidated Condensed Financial Statements and the notes thereto elsewhere in this report. Investors are also referred to the Risk Factors in the Company’s Form 10-K for the fiscal year ended December 31, 2002.

Overview

In order to aid understanding, we have prepared tables which segment our income statement information as presented in the financial statements into those elements which relate to operations acquired during the reporting period and those which relate to operations owned in both reporting periods. Key definitions are:

•

total operations: total results as stated in our financial statements, which includes the consolidated results for all subsidiaries for the period owned in the reporting period.

•

continuing operations: results for elements of the Company which were owned for the first quarter of each reported year.

•

core growth: growth rates achieved between results from continuing operations as reported in the first quarter of 2003 versus the continuing operations of the first quarter of 2002.

Readers will also find frequent references to the term cash on delivery (COD). Normal trade terms from our Polish vodka suppliers are 60 days; however, we are offered by some of these suppliers significant discounts off the invoice price if we pay for goods when delivered. The discounts offered are considerably in excess of the effective rate we would pay for 60 day terms under our bank facilities.

14

Results of Operations

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

“Operations acquired in 2002” include the first quarter of 2003 results for Damianex (which was acquired on April 22, 2002), AGIS (which was acquired on April 24, 2002), and Onufry (which was acquired on October 15, 2002). Since these operations were not owned in the first quarter of 2002, these results have been excluded from continuing operations 2003 to show comparable operations in the first quarter of 2003 and 2002.

	Total operations Q1 2003		Operations acquired 2002		Continuing operations Q1 2003		Total operations Q1 2002		Growth % from continuing operations
	($ in thousands)
Net Sales	79,468		31,940		47,528		42,650		11.4	%
Cost of goods sold, including excise taxes	68,985		28,198		40,787		36,771		—
Gross profit	10,483		3,742		6,741		5,879		14.7	%
as a percentage of sales	13.2	%	11.7	%	14.2	%	13.8	%	—
Selling, general and administrative expenses	6,802		2,338		4,464		3,920		13.9	%
Depreciation and amortization	474		123		351		277		26.7	%
Bad debt expense	67		32		35		384		3.8	%
Operating income	3,140		1,249		1,891		1,298		45.7	%
as a percentage of sales	4.0	%	3.9	%	4.0	%	3.0	%	—
Non operating income (expense)
Interest income	27		21		6		30		(80.0	%)
Interest expense	(553	)	(167	)	(386	)	(237	)	62.9	%
Realized and unrealized foreign exchange gain (loss)	(2	)	0		(2	)	(99	)	(98.0	%)
Other income (expense), net	(14	)	17		(31	)	89		(147.2	%)
Income before income taxes	2,598		1,120		1,478		1,081		36.7	%
as a percentage of sales	3.3	%	3.5	%	3.1	%	2.5	%	—
Income tax expense	681		337		344		299		—
Net income	1,917		783		1,134		782		45.0	%
as a percentage of sales	2.4	%	2.5	%	2.4	%	1.8	%	—

Net Sales

Total net sales for the three months ended March 31, 2003 increased by 86%, or $36.8 million, to $79.5 million. Net sales from continuing operations increased by 11.4%, or $4.9 million, to $47.5 million from $42.6 million for the same period in 2002. As a result of the reduced excise rates on Polish vodka effective October 1, 2002, the average unit selling price of Polish vodka was 20% lower in the three months ended March 31, 2003 than it was for the same period of 2002. This decrease was offset by the more than 30% increase in the unit sales volume of Polish vodka in the three months ended March 31, 2003 compared to the same period in 2002.

Gross Profit

Total gross profit on net sales increased by 78% or $4.6 million. When expressed as a percentage of net sales, total gross profit decreased from 13.8% to 13.2%. This overall reduction is due to two factors. While core gross margins have increased to 14.2%, the new businesses acquired in 2002 achieved a margin of 11.7%. Because these newly acquired businesses contributed 36%of the total gross profit, the lower margin achieved in these units had a dilutive effect on our total gross profit. Secondly, following the reduction in excise tax, many cheaper brands of Polish vodka have been introduced to the market. The Company has sought to improve the terms on which it purchases these brands which is expected to result in improved margins in future quarters.

15

Operating Expenses

	Total operations Q1 2002		Continuing operations Q1 2003		Operations acquired 2002		Total operations Q1 2003
Selling, general and administrative expenses as a percentage of net sales	9.2	%	9.4	%	7.3	%	8.6	%
Bad debt expense as a percentage of net sales	0.9	%	0.1	%	0.1	%	0.1	%

Total selling, general and administrative expenses (SG&A) increased by 74% from $3.9 million in the first quarter of 2002 to $6.8 million in the first quarter of 2003. When expressed as a percentage of net sales, SG&A fell from 9.2% to 8.6%. This improvement is attributable to the significantly lower cost basis achieved by the new acquisitions which operate in provincial areas offset by a slight increase in core SG&A.

Core SG&A increased due to the fixed nature of some of the company’s expenses and the seasonal nature of the Company’s sales which are traditionally lowest in the first quarter of each year.

Total bad debt expense decreased by $317,000 from $384,000 for the first quarter of 2002 to $67,000 for the first quarter of 2003. As previously disclosed, in the absence of any special circumstances the Company reserves for doubtful accounts based on the ageing of the total accounts receivable. During the period being reported, the Company did not see any further deterioration of the age profile of the accounts receivable nor did it know of any special circumstance which would require provisions in addition to those already made.

Operating Income

Total operating income increased by 142%, or $1.8 million, to $3.1 million for the three months ended March 31, 2003. When expressed as a percentage of sales, total operating income was 4.0% for the three months ended March 31, 2003 as compared to 3.0% for the same period of 2002. Operating income from continuing operations increased by 46% to $1.9 million for the three months ended March 31, 2003. As a percentage of sales, operating income from continuing operations increased to 4.0% for the three months ended March 31, 2003 as compared to 3.0% for the same period of 2002. This increase was due to the factors noted above.

Interest Expense

Total interest expense increased $316,000, or 133%, from $237,000 for the three months ended March 31, 2002 to $553,000 for the three months ended March 31, 2003. Interest cover, being the number of times interest expense is “covered” by operating income and calculated as operating income divided by interest expense, has increased from 5.5 times in the first quarter of 2002 to 5.7 times in the first quarter of 2003. As mentioned in the overview, the Company makes extensive use of COD rebates when the discount offered is significantly better than the effective rate of bank borrowing. While taking advantage of COD terms increases the Company’s short-term borrowings and interest expense, the improvement in overall margins more than offsets the added interest cost.

Net Realized and Unrealized Foreign Currency Losses

The net change relating to foreign exchange losses decreased from $99,000 in the first quarter of 2002 to $2,000 in the first quarter of 2003. These losses were mainly the result of translation movements on trade payables to non Polish suppliers offset by opposite movements in inventories denominated in currencies other than the Polish zloty and held in the Company’s bonded warehouse.

As previously reported the Company converted virtually all of its debt into Polish zloty denominated debt in November 2002. The losses on non converted debt (with a principal value of approximately $553,000) amounted to approximately $30,000. As a result of the conversion of the Company’s debt to Polish zloty and the associated reduction in foreign exchange risk, the Company stopped purchasing hedging instruments and no longer carries any hedging positions.

16

Income Tax

The total tax charge for the period ending March 31, 2003 was $681,000, or 26.2% of pre-tax profits. For the same period in 2002 the charge was $299,000, or 27.7% of pre-tax profits. The increase in income tax is the result of the 140% increase in pre-tax profits from $1.1 million for the first quarter of 2002 to $2.6 million for the first quarter of 2003.

Net Income

Total net income increased by 145% from $782,000 in the first quarter of 2002 to $1,917,000 in the first quarter of 2003. Net income from continuing operations increased by 45%. These increases were due to the factors noted above.

Liquidity and Capital Resources

During the three months ended March 31, 2003, the Company’s operating activities generated cash of $0.5 million compared to generating $2.0 million of cash during the three months ended March 31, 2002. Operating cash flows are generated by or used for:

•

cash earnings - defined as net earnings as adjusted for non-cash expense/income items (such as depreciation)

•

movements in working capital, primarily the movements of trade receivables and payables as well as inventory.

•

movements in other current assets and liabilities.

The sources and uses of operating cash flows can be summarized as:

	Three months ended March 31,
	2003			2002
Cash earnings	$	2,429		$	1,350
Movements in working capital		(1,609	)		1,907
Movements in other current assets/liabilities		(315	)		(1,297	)
Net cash generated by operating activities	$	505		$	1,960

The Company’s normal trade terms from its Polish vodka suppliers are on average 60 days, however, the Company is usually offered significant discounts from the invoice value if goods are paid for when delivered (COD). The discounts offered are in excess of the effective rates the Company would pay for the 60 day terms on its normal banking facilities. By accepting COD terms the Company is effectively moving its working capital support from its suppliers to its bankers, which means that reported operating cash flow is reduced as the COD element is disclosed in financing activities under movements in bank facilities.

The Company did not undertake any major investing activities during the quarter. Capital expenditures were primarily related to improved information technology systems for two of the Company’s subsidiaries.

Financing activities generated $148,000 during the quarter. Approximately $1 million was generated from the exercise of previously granted options. During the quarter ended March 31, 2003, some of the Company’s debt servicing obligations became due within one year (from March 31, 2003) and this has been reflected in the balance sheet.

On March 31, 2003, the Company completed a private placement of 670,000 shares of common stock at a purchase price $23.25 a share. In addition, on April 2, 2003, the Company sold an additional 80,000 shares at the same price. Due to wire transfer delays, the proceeds of the private placement were received by the Company in early April 2003. The effect of the transaction relating to the shares issued on March 31, 2003 is shown in the Statement of Changes in Stockholders’ Equity on page 5. As the shares were issued on the last day of the quarter they had no impact on the weighted averages used in either the basic or diluted earnings per share calculations.

The Company believes that its operating cash flow, together with borrowings under available credit facilities will be sufficient for its operating needs, other than future acquisitions, and debt servicing requirements as they come due.

17

As stated above, the movements on the comprehensive loss account are driven by the effect of exchange rate movements in Polish zloty denominated equity items within the balance sheet. Because of the size of the movement in this period the Company has disclosed the item separately.

Statement on Inflation and Currency Fluctuations

Inflation in Poland is projected at 0.8% for 2003, compared to actual inflation of 1.1% in 2002. For the first three months of 2003, inflation was 0.6%.

The Company’s equity investments are substantially all in Polish zloty and gains or losses resulting from the restatement of these equity investments into U.S. dollars are posted to the Comprehensive Income Account. As a result of the 5.5% depreciation of the Polish zloty against the U.S. dollar during the three-month period ending March 31, 2003, the Company incurred foreign currency translation losses of $808,000 on these equity investments. The size of this loss has necessitated that it be disclosed on the face of the cash flow statement. It should be noted that between March 31, 2003 and May 1, 2003, the value of the Polish zloty appreciated 7.29% against the U.S. dollar.

Critical Accounting Policies and Estimates

General

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of revenues, expenses, assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.

Revenue Recognition

Revenue derived from beverage distribution is recognized when goods are shipped to customers and where a delivery acceptance note signed by the customer has been returned to the Company. Sales are stated net turnover related customer discounts, an estimate of customer returns and sales tax (VAT). Revenue derived from retail operations (less than 1% of the total revenue) is recognized at the point of sale.

Expenses

The Company recognizes expenses in the period in which either the cost is incurred or in the period in which the associated revenue and margin has been recognized.

Provisions for Doubtful Debt

Allowances for doubtful accounts are based upon the ageing of the accounts receivable. The Company makes an allowance based on a sliding scale which culminates in a 100% provision once the receivable is past due over one year. Where circumstances require, the Company will make specific provisions for any excess not provided for under the general provision. When a final determination is delivered to the Company regarding the non-recovery of a receivable, the Company then charges the unrecoverable amount to the accumulated allowance.

Inventory

Inventories are stated at the lower of cost (first-in, first-out method) or market. Costs include customs duty (where applicable), and all costs associated with bringing the inventory for sale. These costs include importation, handling, storage and transport costs, and exclude rebates received from suppliers, which are reflected as reductions to closing inventory.

Because of the nature of the products supplied by the Company, great attention is paid to inventory rotation. Where goods are estimated to be obsolete or unmarketable they are written down to a value reflecting the saleable value in their relevant condition.

18

Goodwill

As required by FASB 142, acquired goodwill is no longer amortized. Instead the Company assesses the recoverability of its goodwill at least once a year or whenever adverse events, changes in circumstances or business climate for individual business units may not be sufficient to support the recorded goodwill. If undiscounted cash flows are not sufficient to support the goodwill, an impairment charge will be recognized to reduce the carrying value of the goodwill to an appropriate level. No such charge has been considered necessary in the period being reported.

Intangible Assets

Intangible assets consist primarily of acquired trademarks. The trademarks are amortized on a straight-line basis over the period of expected economic benefit which is currently estimated at 10 years. The Company assesses the recoverability of its trademark at least once a year or whenever adverse events, changes in circumstances or business climate for individual business units may not be sufficient to support the recorded trademark. If undiscounted cash flows are not sufficient to support the recorded trademark, an impairment charge will be recognized to reduce the carrying value of the recorded trademark to an appropriate level. No such charge has been considered necessary in the period being reported.

Employee Stock Based Compensation

The Company accounts for grants to employees under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. For grants to employees, no stock-based employee compensation cost is reflected in net income, as all options granted under the Company’s option plan had an exercise price at least equal to the market value of the underlying common stock on the date of the grant.

Marketing and Promotion Costs

The Company does not involve itself in any direct advertising but manages the marketing and promotional budgets of suppliers for which it has exclusive distribution rights. These marketing and promotion costs, which are recorded under Selling, General and Administrative costs, are expensed as incurred and include free promotional product and point of sales merchandise. Where free product is given to a customer outside of any promotional activity it is included in cost of goods sold.

Shipping and Handling Costs

Where the Company has incurred costs in shipping goods to its warehouse facilities these costs are recorded as part of inventory and then to cost of goods sold. Shipping and handling costs associated with distribution to customers are recorded in Selling, General and Administrative costs and are expensed as incurred.

Deferred Taxation

Deferred tax assets and liabilities are recorded where there is a timing delay in accounting for an income or expense item through the Company’s statutory tax records. The deferred tax assets and liabilities are calculated on a quarterly basis and the resulting asset or liability is accounted for on the balance sheet. Where a deferred tax asset arises the Company assesses whether a valuation allowance is required to be made. Valuation allowances are provided when it is more likely than not that some or all of the deferred tax asset will not be realized in the future. The Company has concluded that a valuation allowance is not considered necessary in the period being reported.

ITEM 3:

Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Risk. Currently less than 2% of the Company’s loans are denominated in currencies other than its functional currency, the Polish zloty. As a result in the three months ended March 31, 2003, the Company is no longer exposed to any significant risk from foreign exchange movements and it has discontinued its hedging activities.

19

ITEM 4.

Controls and Procedures

CEO and CFO Certifications. Immediately following the “Signatures” section of this quarterly report are the certifications of the CEO and the CFO required by Rules 13a-14 and 15d-14 the Securities Exchange Act of 1934 (the “Certifications”). This section of the quarterly report contains the information concerning the evaluation of Disclosure Controls and changes to Internal Controls referred to in the Certifications and this information should be read in conjunction with the Certifications for a more complete understanding of the topics presented.

Disclosure Controls and Internal Controls. Disclosure Controls are procedures that are designed for the purpose of ensuring that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934 (such as this quarterly report), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Internal Controls are designed for the purpose of providing reasonable assurance that the Company’s transactions are properly authorized, recorded and reported and that the Company’s assets are safeguarded from improper use to permit the preparation of the Company’s financial statements in conformity with generally accepted accounting principles.

Limitations on the Effectiveness of Controls. The Company’s management, including the CEO and CFO, does not expect that the Company’s Disclosure Controls or Internal Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Further, the design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes to Internal Controls. In accordance with the SEC’s requirements, the CEO and the CFO note that, since the date of their last evaluation, there have been no significant changes in Internal Controls or in other factors that could significantly affect Internal Controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

Conclusions regarding Disclosure Controls. Based upon the required evaluation of Disclosure Controls, the CEO and CFO have concluded that, subject to the limitations noted above, the Company’s Disclosure Controls are effective to ensure that material information relating to the Company and its consolidated subsidiaries is made known to management, including the CEO and CFO, particularly during the period when the Company’s periodic reports are being prepared.

20

PART II.

OTHER INFORMATION

ITEM 2.

CHANGES IN SECURITIES AND USE OF PROCEEDS

(c)

On March 31, 2003 and April 2, 2003, the Company completed a private placement of 750,000 shares of its common stock at a purchase price of $23.25 per share to five institutional accredited investors for gross proceeds of $17,437,500. Of these shares certificates for 670,000 shares of common stock were issued on March 31, 2003 for gross proceeds of $15,577,500. The purchasers also received the right to purchase an additional 150,000 shares of common stock at the same price per share at any time prior to July 28, 2003. Banc of America Securities LLC served as placement agent for the transaction and received a fee of 6.0% of the gross proceeds plus expenses. The securities were issued in reliance on the exemptions provided by Regulation D.

ITEM 6.

EXHIBITS AND REPORTS ON FORM 8K

(b)

Reports on Form 8-K

During the quarter ended March 31, 2003 the Company filed the following reports on Form 8-K;

(i)

January 28, 2003 – Reporting under Item 5 the execution of a letter of intent to acquire Dako Galant Company and filing the associated press release under Item 7.

(ii)

February 18, 2003 – Reporting revised earnings guidance under Item 5 and filing the associated press release under Item 7.

(iii)

March 18, 2003/ March 28, 2003 – Reporting a change in the Company’s certifying accountant under Item 4 and filing the required letter from the Company’s former accountant.

Subsequent to the end of the quarter the Company filed the following reports on Form 8-K:

(i)

April 2, 2003 – Reporting the closing of 80,000 shares of common stock for gross proceeds of $1,860,000 under the private placement agreement closed on March 31, 2003, Item 5 and filing under Item 7 the operative agreements and associated press releases.

(ii)

April 30, 2003 – Reporting under Item 9 the announcement of the Company’s first quarter results and filing the associated press release. Because of the delay in integrating Item 12 into the EDGAR system, this information was filed under Item 9 rather than Item 12 in accordance with SEC Release 33-8216.

21

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 Thereunto Duly Authorized.

	CENTRAL EUROPEAN DISTRIBUTION CORPORATION (registrant)
Date: May 14, 2003	By:	/s/ WILLIAM V. CAREY
		William V. Carey President and Chief Executive Officer

Date: May 14, 2003	By:	/s/ NEIL A.M. CROOK
		Neil A.M. Crook Chief Financial Officer

22

CERTIFICATIONS

I, William V. Carey, President and Chief Executive Officer of Central European Distribution Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Central European Distribution Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

By:	/s/ WILLIAM V. CAREY
	William V. Carey President and Chief Executive Officer (principal executive officer)

23

CERTIFICATIONS

I, Neil A.M. Crook, Chief Financial Officer of Central European Distribution Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Central European Distribution Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

By:	/s/ NEIL A. M. CROOK
	Neil A.M. Crook Chief Financial Officer (principal financial officer)

24

Exhibit Number	Exhibit Description
2.1	Share Sale Agreement dated April 16, 2003 between the Company, CareyAgri International Poland Sp. z o.o. and the sellers relating to the acquisition of Dako Galant
3.1	Certificate of Incorporation (Filed as Exhibit 3.1 to Registration Statement on Form SB-2, File No. 333-42387, filed with the Commission on December 17, 1997 (the “1997 Registration Statement”) and incorporated herein by reference.)
3.2	Bylaws (Filed as Exhibit 3.2 to the 1997 Registration Statement and incorporated herein by reference.)
99.1	Certification of the CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2	Certification of the CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

25

EX-2.1

Exhibit 2.1

SHARE SALE AGREEMENT

between

Carey Agri International Poland Sp. z o.o.,

Central European Distribution Corporation

and

Przedsiebiorstwo Handlowo Produkcyjne “DAKO” Sp. z o.o.,

Mirosław Sokalski

LANDWELL

WIERZBOWSKI i WSPÓLNICY

Warsaw, 16 April 2003

SHARE PURCHASE AGREEMENT

This share sale agreement (hereinafter: the “Agreement”) was signed on 16 April 2003 by and between:

1. Carey Agri International Poland Sp. z o.o. with its registered office at ul. Bokserska 66A, 02-690 Warsaw, Poland, represented by William V. Carey, (hereinafter: “Carey Agri”),

2. Central European Distribution Corporation with its registered office at 1343 Main Street, # 301, Sarasota, Florida 34236, USA, represented by William V. Carey, (hereinafter: “CEDC”), hereinafter jointly referred to as the “Buyers”.

The documents confirming authorisation of the Buyers to conclude this Agreement constitute Schedule 1 to this Agreement.

and

1. Przedsiebiorstwo Handlowo Produkcyjne “DAKO” Sp. z o.o. with its registered office at ul. Grunwaldzka 4 in Stargard Szczecinski, Poland (KRS. No. 0000114750), represented by Mr. Wacław Dawidowicz (hereinafter: “DAKO Sp. z o.o.”)

2. Mirosław Sokalski, domiciled: 75-685 Koszalin, ul. Kasztanowa 5, Poland (“Mr. Sokalski”), hereinafter jointly referred to as the “Sellers”.

The documents confirming authorisation of the Sellers to conclude this Agreement constitute Schedule 2 to this Agreement.

RECITALS

A. The Sellers hold 2,641 shares in “DAKO-GALANT” Przedsiebiorstwo Handlowo Produkcyjne Sp. z o.o. with its registered office in Koszalin, at ul. Poprzeczna 11, 75-841 Koszalin, Poland, registered in the National Court Register of the District Court in Koszalin under KRS number 0000035408 (hereinafter: the “Company”).

B. The Sellers agreed to sell to the Buyers and the Buyers agreed to purchase all the Sellers’ Shares in the Company upon the terms and conditions contemplated by this Agreement.

1. DEFINITIONS

Unless the context provides otherwise, the following terms and expressions used in this Agreement and beginning with capitals shall have the following meaning:

“Parties”	–	shall mean Sellers and Buyers;
“Shares”	–	shall  mean 2,641 (two thousand six hundred forty one) shares in the Company, with a face value of PLN 500 each share, i.e. 1,159 shares in the Company held by Mr. Sokalski and 1,482 shares in the Company held by DAKO Sp. z o.o.;

SHARE PURCHASE AGREEMENT

“DAKO Shares”	-  shall mean 1,482 (one thousand four hundred eighty two) shares in the Company held by DAKO Sp. z o.o.;
“Sokalski Shares”	-  shall mean 1,159 shares in the Company held by Mr. Sokalski (one thousand one hundred fifty nine);
“Price”	-  shall mean the aggregate purchase price for the Shares in the Company, as defined in clause 3 of this Agreement;
“CEDC Stock”	-  shall mean the shares (or depositary certificates representing the above shares) in Central European Distribution Corporation, a company listed on NASDAQ in the United States of America, the number and value of which are defined in clause 3.3. and 3.5.1. of this Agreement;
“Completion Date”	-  shall mean 16 April 2003 on which the Sellers transfer the Shares to the Buyers;
“Company’s Real Property”	-  shall mean any real estate owned or perpetually usufruct by the Company prior to the Completion Date, including real estate at ul. Cukrowa 10c in Szczecin (No. KW 114771) and at Plac Słowianski 8 in Swinoujscie (No. KW 17785).
“Verification Period”	-  shall mean 105 days period following the Completion Date.

2. SALE AND PURCHASE

2.1. The Sellers hereby sell the Shares to the Buyers and the Buyers hereby purchase the Shares from the Sellers, in the way that: Carey Agri purchases 1,077 DAKO Shares from DAKO Sp. z o.o. and 905 Sokalski Shares from Mr. Sokalski, while CEDC purchases 405 DAKO Shares from DAKO Sp. z o.o. and 254 Sokalski Shares from Mr. Sokalski.

2.2. The Shares are transferred to the Buyers with all rights attached to them, free and clear of any and all liens, encumbrances, pledges and rights of third parties.

3. PRICE FOR THE SHARES

3.1. The aggregate Price for all the Shares shall amount to PLN 7,146,436.89 (seven million one hundred forty six thousand four hundred thirty six and 89/100).

3.2. Subject to clause 4.1 and 4.2 below, PLN 5,154,671.23 (five million one hundred fifty four thousand six hundred seventy one and 23/100) out of the Price shall be paid by Carey Agri on 17 April 2003. The payment, considering corrections under 4.1 and 4.2 shall be effected by bank transfer in the following way:

3.2.1. PLN 1,787,137.86 (one million seven hundred eighty seven thousand one hundred thirty seven and 86/100) shall be paid to the following bank account of

3

SHARE PURCHASE AGREEMENT

DAKO Sp. z o.o. Bank Pekao S.A. I O/Stargard nr 11001454-38579-2101-111-0;

3.2.2. PLN 2,235,689.62 (two million two hundred thirty five thousand six hundred eighty nine and 62/100) shall be paid to the following bank account of Mr. Sokalski: Kredyt Bank S.A. I O/Koszalin nr 15001096-101090026612.

3.3. Subject to clause 3.6 below, PLN 1,991,765.66 (one million nine hundred ninety one thousand seven hundred sixty five and 66/100) out of the Price shall be paid by CEDC in CEDC Stock.

3.4. Subject to clause 3.6, 4.1 and 4.2 below, the Buyers shall make the payment mentioned in clause 3.2 and 3.3 to the Sellers in accordance with the table below:

	Form of payment	DAKO Sp. z o.o.		Mr. Sokalski		Total
		Value	Number of shares	Value	Number of shares	Value	Number of shares
CEDC	CEDC Stock	1 225 218,62	405	766 547,04	254	1 991 765,66	659
CAREY AGRI	Bank transfer	2 854 357,22		2 300 314,01		5 154 671,23
	To the Sellers’ bank accounts	1 787 137,86	1077	2 235 689,62	905	4 022 827,48	1982
	To the Company’s bank account	1 067 219,36		64 624,39		1 131 843,75
	Total	4 079 575,84	1482	3 066 861,05	1159	7 146 436,89	2641

3.5. CEDC shall make the payments mentioned in clause 3.3 to the Sellers in accordance with the following rules:

3.5.1. The number of CEDC Stock to be received by the Sellers shall be based on 120 days’ average CEDC share price before the Completion Date (i.e. USD 24.20), calculated upon the NBP average exchange rate published one day before the Completion Date (i.e. 3.9469). The above calculation gives 20,853 (twenty thousand eight hundred fifty three) CEDC Stock.

3.5.2. Within 30 days from the Completion Date 20,853 of CEDC Stock (decreased by 10,000 of shares in CEDC), i.e. 10,853 (ten thousand eight hundred fifty three) of CEDC Stock shall be issued and delivered to DAKO Sp. z o.o. and Mr. Sokalski, in proportions resulting from the table included in clause 3.4. In result DAKO Sp. z o.o. shall receive 12,828 (twelve thousand eight hundred twenty eight) of CEDC Stock while Mr. Sokalski shall receive 8,025 (eight thousand twenty five) of CEDC Stock

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3.6. 10,000 of CEDC Stock out of its total number of CEDC Stock (hereinafter: “Special Stock”) – resulting from calculation described in clause 3.5.1 – shall constitute security of duly performance of this Agreement by the Sellers. The Special Stock representing respective portion of the payment mentioned in clause 3.3 and calculated as in clause 3.5.1 shall be issued and delivered to DAKO Sp. z o.o. and Mr. Sokalski, in proportions resulting from the table included in clause 3.4., within 60 days following the Verification Period, provided that the Sellers duly performed their obligations under this Agreement.

3.7. The Sellers undertake not to transfer or dispose of CEDC Stock or Special Stock prior to the lapse of a 12 months’ period following the Completion Date. The Sellers shall sign lock-up letters relating to the special Stock on 105^th day following the Completion Date.

4. PAYMENT FOR THE COMPANY’S REAL AND PRICE ADJUSTMENT

4.1. Since the right of perpetual usufructary to the Company’s Real Property (as well as ownership of buildings located on them) was sold to DAKO Sp. z o.o. prior to the Completion Date, and due to the above sale DAKO Sp. z o.o. owes PLN 1,067,219.36 (one million sixty seven thousand two hundred ninety and 36/100) to the Company (hereinafter: the “Price for Real Property”), the Parties agree that the Price for the Real Property shall be paid to the Company directly by Carey Agri. DAKO Sp. z o.o. hereby authorises Carey Agri to pay the Price for Real Property to the Company. The above payment shall respectively decrease the transaction cash payment mentioned in clause 3.2 above to be transferred to DAKO Sp. z o.o. for DAKO Shares. The copy of the authorisation addressed to the Company to admit the Price for Real Property from Carey Agri constitutes Schedule 3 attached hereto.

4.2. Since “GALANT Spisak i Sokalski” spólka jawna owes PLN 64,624.39 (sixty four thousand six hundred twenty four and 39/100) to the Company (hereinafter: the “GALANT’s Debt”), the Parties agree that the GALANT’s Debt shall be paid to the Company directly by Carey Agri. Mr. Sokalski, acting on behalf of “GALANT Spisak i Sokalski” spólka jawna hereby authorises Carey Agri to pay the GALANT’s Debt to the Company. The above payment shall respectively decrease the transaction cash payment mentioned in clause 3.2 above to be transferred to Mr. Sokalski for Sokalski Shares. The copy of the authorisation addressed to the Company to admit the Price for Real Property from Carey Agri constitutes Schedule 3A attached hereto.

4.3. The receivables set forth in Schedule 21 paid by the Company’s debtors to its bank account:

- by 15 June 2003 shall be reimbursed to the Sellers in 100% (in proportions resulting from the table included in clause 3.4.);

- from 16 June 2003 to 15 October 2003 shall be reimbursed to the Sellers in 50% (in proportions resulting from the table included in clause 3.4.).

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4.4. On 15^th of July 2003 another verification of the Company’s overdue receivables outstanding by over 90 days shall be effected. If on 15^th of July 2003 there are any the Company’s overdue receivables outstanding by over 90 days or receivables, other than set forth in Schedule 21 (hereinafter: “New Receivables”), the Sellers shall pay back the value of the New Receivables to the Buyers.

4.5. If within 45 days following 15 July 2003 the Company’s debtors shall pay the New Receivables, the Sellers shall reimburse them to the Buyers in full. The New Receivables, which shall be paid after the lapse of the above 45-days period shall be reimbursed by the Sellers to the Buyers in 50%.

4.6. The amount of receivables due from the Company’s employees resulting from the listing made until 15 April 2003, shall be reimbursed by the Sellers to the Buyers by 31 July 2003. If the receivables due from the employees set forth in Schedule 22 and resulting from listing made until 15 April 2003, shall have been paid by the employees and credited to the Company’s bank account by 31 December 2003, they shall be reimbursed by the Buyers to the Sellers in full.

4.7. The settlements between the Parties resulting from clauses 4.3-4.5 shall be effected by 30 October 2003. The Parties agree either to set off their mutual receivables or to respectively verify the number of the Special Stock due to the Sellers.

5. COMPLETION DATE

5.1. At the Completion Date the Parties shall take the following actions:

5.1.1. the Sellers, shall deliver the Buyers the following resolutions adopted by the Shareholders Meeting of the Company the latest on the Completion Date:

 - resolution on dismissal the Company’s Management Board and

 - resolution on appointment of the new Management Board composed of:

a)     Mr. Wacław Dawidowicz – President of the Company’s Management Board;

b)     Mr. William Vernon Carey – Vice-President of the Company’s Management Board;

c)     Mr. Evangelos Evangelou – Member of the Company’s Management Board;

d)     Mr. Marek Jarosz – Member of the Company’s Management Board.

 - resolution on consent to the transaction contemplated by this Agreement;

 - resolution on amendments to the Company’s Articles of Association according to which the President or Vice-President of the Management Board may act solely to make statements on behalf of the Company while joint action of two members of the Management Board shall be required to act on behalf of the Company.

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The above resolutions constitute Schedule 27 to this Agreement.

5.1.2. The Sellers shall cause the Company to execute the following employment contracts:

 - the employment contract with Mr. Wacław Dawidowicz (attached as Schedule 4 hereto);

 - the employment contract with Mrs. Maria Jolanta Kowalczyk (attached as Schedule 5 hereto);

 - the employment contract with Mr. Mirosław Sokalski (attached as Schedule 6 hereto).

5.1.3. The Buyers shall provide the Sellers with the Lock-up Letters relating to CEDC Stock (hereinafter: the “Lock-up Letters”), and the Sellers shall sign the Lock-up Letters and return them to the Buyers. The Lock-up Letters shall be attached hereto as Schedule 7.

5.1.4. The Sellers shall deliver to the Buyers:

 - Mr. Lesław Spisak’s statement, with signature certified by notary public, in which he represents that the Company has no obligations towards him, except for payment of PLN 760,000 with interests in the amount of PLN 21,633 (hereinafter: “Mr. Spisak’s Statement”); Mr. Spisak’s Statement shall be attached hereto as Schedule 8;

 - a statement made by “GALANT Spisak i Sokalski” spółka jawna with signature certified by notary public, including (i) its waiver of any its claims against the Company, except for claims which may potentially arise under the existing lease agreements concluded with the Company and (ii) confirmation that Mr. Spisak and Sokalski subscribed for the shares in the Company individually and paid for them from their individual property (hereinafter: “GALANT’s Statement”); GALANT’s Statement shall be attached hereto as Schedule 9;

 - Mr. Sokalski’s wife consent to the sale of the Shares of Mr. Sokalski to the Buyers (hereinafter: “Mrs. Sokalski’s Statement”); Mrs. Sokalski’s Statement shall be attached hereto as Schedule 10;

 - certificates issued by a relevant tax office and the Social Security Office (ZUS) confirming that there are no outstanding tax or social security contributions to be paid by the Company; the above certificates shall be attached hereto as Schedule 11.

5.1.5. DAKO Sp. z o.o. shall deliver to the Buyers resolution of the Shareholders’ Meeting of DAKO Sp. z o.o. containing consent to the sale of the Shares of DAKO to the Buyers; the above resolution shall be attached hereto as Schedule 12.

5.1.6. The Sellers shall deliver to the Buyers documents confirming the sale of the Real Property in compliance with this Agreement. The above documents shall be attached hereto as Schedule 13.

5.1.7. The Sellers shall provide the Buyers with the lease agreements concluded with the Company on the terms and conditions agreed by the Parties, the drafts of which constitute Schedule 14 hereto.

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SHARE PURCHASE AGREEMENT

5.1.8. On the basis of Article 187 § 1 of the Commercial Companies Code, the Buyers shall notify the Company of the purchase of the Shares.

5.1.9. After completion of the actions mentioned in clauses 5.1.1.- 5.1.7. and signature of the Agreement, on 17 April 2003 Carey Agri shall transfer, by bank wire, the portion of the Price defined in clause 3.2, and adjusted in compliance with clause 4.1 to the Sellers. The above transfer shall be effected according to clause 3.2 and the table included in clause 3.4 to the Sellers’ respective bank accounts, and – according to clause 4.1 and 4.2 – to the account of the Company (Pekao S.A. I O/Stargard Szczecinski nr: 11001454-247854-2101-111-0) .

6. ACTIONS TAKEN AFTER THE COMPLETION DATE

6.1. Within 30 days following the Completion Date, CEDC shall deliver the CEDC Stocks to the Sellers as described in clause 3.5, while the Special Stock shall be delivered to the Sellers in compliance with the clause 3.6.

6.2. The Parties confirm that there shall not be any dividend paid out to the Sellers for the year 2002 and 2003.

6.3. The Sellers shall immediately replace the business names of companies or enterprises, in which they have or will have shares or an interest, if such business names contain the word “DAKO” or “GALANT”. The new business names shall not include the word “DAKO” or “GALANT”. The above changes shall be registered with respective registers by 31 December 2003. If all required registrations are not completed by the above date, the validity of the Lock-up Letters, mentioned in clause 5.1.3., shall be respectively prolonged.

6.4. Promptly after the Completion Date the Shareholders Meeting of the Company shall amend the Articles of Association of the Company allowing appointment of the Management Board of the Company composed of:

a) Mr. Wacław Dawidowicz – President of the Company’s Management Board;

b) Mrs. Maria Jolanta Kowalczyk – Vice-President of the Company’s Management Board;

c) Mr. William Vernon Carey – Member of the Company’s Management Board;

d) Mr. Evangelos Evangelou – Member of the Company’s Management Board;

e) Mr. Neil Crook – Member of the Company’s Management Board;

f) Mr. Mirosław Sokalski – Member of the Company’s Management Board;

g) Mr. Marek Jarosz – Member of the Company’s Management Board.

6.5. Promptly after the registration of the amendment of the Articles of Association of the Company set forth in clause 6.4, the Shareholders Meeting of the Company shall appoint the Management Board of the Company composed of persons listed in the clause 6.4.

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SHARE PURCHASE AGREEMENT

7. REPRESENTATIONS AND WARRANTIES OF THE SELLERS

7.1. The Sellers hereby jointly and severally represent and warrant to the Buyers that each of the following representations and warranties is true, complete and accurate:

7.1.1. The Company has been duly organized and validly exists under the laws of the Republic of Poland. The current uniform text of the Company’s Articles of Association constitutes Schedule 15 to this Agreement.

7.1.2. The Shares have been duly created, issued and subscribed for by the Sellers. The Shares are fully paid and free and clear of any and all liens, encumbrances, pledges and rights of third parties. The Company’s share capital amounts to PLN 1,900,000 (one million nine hundred thousand) and is divided into 3,800 (three thousand eight hundred) shares of a face value of PLN 500 per share. Each share carries one vote at the Shareholders’ Meeting of the Company. A copy of the current share book signed by the Company’s Management Board is attached as Schedule 16 hereto.

7.1.3. The Company’s shares held currently by Mr. Mirosław Sokalski, as well as the shares sold by Mr. Lesław Spisak to the Company did not constitute co-ownership of Mr. Mirosław Sokalski and Mr. Lesławe Spisak and did not constitute the property of “GALANT Spisak i Sokalski” spółka jawna. The Sellers have and shall have no claims against the Company in connection with the Shares, and they have fulfilled all obligations towards the Company in relation to the Shares.

7.1.4. The Company’s shares are held by: DAKO Sp. z o.o. (1,482 shares), Mr. Mirosław Sokalski (1,159 shares), and the Company (1,159 shares acquired from Mr. Lesław Spisak in order to redeem them).

7.1.5. 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 of their suppliers or customers to stop co-operation with the Company.

7.1.6. The Sellers have the power and authority to sign this Agreement and execute the transaction contemplated herein. The execution of this Agreement and the performance of the obligations set forth herein have been duly authorized 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 judgment of any court, or any permit or approval of any governmental agency.

7.1.7. This Agreement constitutes a valid and legally binding obligation of the Sellers, enforceable in accordance with its terms.

7.1.8. The Company’s share capital was increased only once, up to PLN 1,900,000.00. The in-kind contributions paid in order to increase the Company’s share capital, have not constituted co-ownership of the Company’s shareholders. There are no claims of the Sellers or third parties connected with the Company’s shares and

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SHARE PURCHASE AGREEMENT

increase in the Company’s share capital. The above increase in the Company’s share capital has been duly registered.

7.1.9. All resolutions of the Company’s shareholders were validly and duly adopted and they are legally binding.

7.1.10. The Company does not hold shares or interests in any other company or other business entity.

7.1.11. The Company’s financial statements for the financial year ending on 31 December 2002 have been prepared in accordance with the Accounting Act and fairly present the standing and sales of the Company.

7.1.12. The Company has all respective rights to trademarks: “DAKO-GALANT”, “DAKO” and “GALANT”. The above rights have been disclosed in trademarks’ register maintained by the Patent Office.

7.1.13. The Company have duly filed all tax and social security contribution returns which should have been filed, including but not limited to those relating to corporate income tax and value added tax, and have paid all taxes including wage, tax and social security contributions which became due or assessed or will become due or will be assessed on or before the day of signing hereof. There is no outstanding tax or social security contribution to be paid by the Company or DAKO Sp. z o.o. or Mr. Sokalski or “GALANT Spisak i Sokałski” spółka jawna.

7.1.14. The irregularities regarding VAT declarations and VAT payments identified by tax inspections performed in the Company in 2000-2002 were eliminated in accordance with the instruction included in the respective tax office decisions.

7.1.15. Except for litigation before labour court, resulting from the Company’s employees’ claims, which value does not exceed PLN 6,000 (the list of the above litigation constitutes Schedule 24) and litigation where the Company is a plaintiff, the Company is not engaged in any legal, including civil, action or litigation and there are no proceedings (including judicial, arbitration, enforcement, taxation administrative, bankruptcy, arrangement with creditors’ proceedings) or investigations either pending against the Company or which should be expected by the Company.

7.1.16. The Company did not conclude any loan agreements and has no bank loans, except for loans granted on the basis of: (i) the agreement for a bank loan No. 02/1089 concluded on 23 August 2002 with “BIG Bank Gdanski S.A.” (ii) the agreement for a bank loan No. 02/1091 concluded on 13 September 2002 with “BIG Bank Gdanski S.A.” (iii) the agreement for a bank loan concluded on 18 October 2002 by the Company, “Bank Handlowy w Warszawie S.A.”, and “Unicom Bols Group Sp. z o.o.” (so-called “pay-link”). The company duly fulfils all of its obligations under these agreements.

7.1.17. The Company did not issue any other promissory notes then listed in Schedule 17 hereto.

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SHARE PURCHASE AGREEMENT

7.1.18. The Company did not conclude agreements for transfer of ownership as a security, except for those listed in Schedule 18 hereto.

7.1.19. The Company did not conclude agreements for establishing a pledge by registration, except for those listed in Schedule 19 hereto.

7.1.20. No proceedings have been initiated to enforce a pledge or any other security established on the Company’s assets. The Company enjoys full legal title to its assets, subject to restrictions resulting from Schedule 18 and 19.

7.1.21. The agreements concluded by the Company are enforceable and legally binding. The list of lease agreements for the Company’s premises (currently performed) constitutes Schedule 20 to this Agreement.

7.1.22. No request for declaration of bankruptcy or opening of arrangement proceedings has been filed in respect of the Company as or for compulsory management referred to in Article 1062 of the Code of Civil Procedure and no receiver referred to in Article 27 of the Act on Registered Pledge has been established in respect of the Company’s business.

7.1.23. The following three licenses for selling alcohol were granted to the Company, and they are valid and did not expire:

 - a license granted by the Ministry of Trade for wholesale of alcoholic beverages containing more than 18% of alcohol, valid through 31 December 2003;

- a license granted by the Marshall of the West-Pomerania Voivodship for wholesale of alcoholic beverages containing up to 4.5% of alcohol and for wholesale of beer, valid through 18 January 2005;

- a license granted by the Marshall of West-Pomerania Voivodship for wholesale of alcoholic beverages containing from 4.5% to 18% of alcohol excluding beer; valid through 18 January 2005.

7.1.24. The Company does not have any overdue payments to its employees.

7.1.25. There is no litigation pending with former or current shareholders of the Company or members of the Company’s Management Board.

7.1.26. The Company terminated the consortium agreement for establishing “Konsorcjum Alkohole Dystrybucja w Krakowie” concluded on 4 April 2002 (effective on 30 May 2003). Schedule 1 to the consortium agreement for establishing “Konsorcjum Alkohole Dystrybucja w Krakowie” concluded on 4 April 2002 has never been prepared and signed. The Sellers are not aware of any claims raised against the Company by the parties to the above agreement and there are no reasons for such claims to be raised in the future.

7.1.27. Within 90 days prior to the conclusion of this Agreement the Company was not a party to any transaction of sale or purchase of fixed assets concluded with the entities in which the Sellers hold shares or interests, except for

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transactions relating to means of transportation and the Company’s Real Property. The acquisition by the Company of means of transportation from the entities in which the Sellers hold shares or interests was effected on an arms’ length basis.

7.1.28. The Company is not an owner, co-owner or perpetual usufructor of any real estate. The Company’s Real Property has been sold prior to the signature of this Agreement.

7.1.29. Since 23 January 2003 the Company’s business has continued in the normal course of business, in consistence with the way the above business had been run during the period prior to the date of this Agreement. In particular, since 23 January 2003 the Company has not raised the employee’s salaries, acquired or disposed of any fixed assets with a value exceeding PLN 15,000.00 (except for sale of the Company’s Real Property).

7.1.30. By 30 April 2003 the Sellers shall cause the sale of the Company’s non-transferable returnable packaging for the net price of PLN 28,000 (twenty eight thousand), which are stored in the Company’s warehouses. The Sellers shall promptly provide the Buyers with documents confirming completion of the above sale.

7.1.31. The value of the Company’s overdue receivables outstanding by over 90 days amounts to PLN 1,666,000.08 (one million six hundred sixty six thousand and 8/100). The list of the above receivables constitutes Schedule 21 to this Agreement. The value of the Company’s receivables from the employees amounts to PLN 213,878.12 (two hundred thirteen thousand eight hundred seventy eight and 12/100) as of 30 March 2003. The list of the above receivables constitutes Schedule 22 to this Agreement.

7.1.32. The Sellers have disclosed, to the Buyers, all information which is or may reasonably be regarded as material to an accurate appraisal of the business, the assets and liabilities, the net equity, the financial standing and sales and in general all the Company’s affairs.

7.2. The Sellers acknowledge that the Buyers enter into this Agreement based on the assumption of full truth and accuracy of the above statements.

The Sellers hereby covenant and agree that they shall compensate the Buyers for and indemnify and hold the Buyers harmless against any and all liabilities and losses resulting from material breach of any of the Representations and Warranties (including but not limited to their incompleteness, incorrectness or inaccurateness) or material breach of other provisions of this Agreement by the Sellers. In order to avoid any doubts, the Parties agree that material breach shall mean the breach causing directly or indirectly damage or loss or obligation to pay by any of the Sellers and/or by the Company of an amount of at least PLN 5,000. In order to avoid any doubts, the Parties also agree that payment of the compensation to the Sellers and taking over of liability for the Sellers’ damages and losses shall be limited to the value of damages and losses suffered by the Sellers.

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8. REPRESENTATIONS AND WARRANTIES OF THE BUYERS

The Buyers hereby represent and warrant to the Sellers as follows:

8.1. CEDC has been duly organized and validly exists under the laws of the State of Delaware and has the power and authority to execute the transaction contemplated herein;

8.2. Carey Agri has been duly organized and validly exists under the laws of Poland and has the power and authority to execute the transaction contemplated herein;

8.3. The execution of this Agreement and the performance of the obligations set forth herein have been duly authorized 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 judgment of any court, or any permit or approval of any governmental agency;

8.4. This Agreement constitutes a valid and legally binding obligation of the Buyers, enforceable in accordance with its terms.

9. INDEMNITY AND COVENANTS

9.1. The Sellers shall, for an 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 inspection or legal proceedings concerning the Company’s activity before the Completion Date.

9.2. The Buyers undertake to take-over, from the Sellers, Mrs. Mariola Sokalski, Mr. Waclaw Dawidowicz and Mrs. Maria Jolanta Kowalczyk collaterals and guarantees granted by these persons to the Company (for the Company’s duties), securing the bank loans and receivables of the Company’s suppliers, within 90 days following the Competition Date. The Parties shall cooperate in order to fulfil the above obligation. The list of the above collaterals and guarantees shall be prepared within 14 days following the conclusion of the above Agreement.

9.3. From 1 January 2004, the Sellers and companies or entities owned by any of the Sellers or in which any of the Sellers have any interest will not use or cease to use the trademark or word “Dako” or “Galant”. The copy of the certificate confirming registration of the trademark “Dako-Galant” in the Patent Office is attached as a Schedule 23 hereto.

9.4. After the Completion Date the members of the Management Board of the Company shall be entitled to receive a fee for future results (“Bonus”), calculated accordingly to CEDC standard formula. The value of the Bonus and rules of its payment shall be specified in a separate agreement within 4 months from the Completion Date. Moreover, remuneration of Mrs. Maria Jolanta Kowalczyk and Mr. Miroslaw Sokalski shall be respectively adjusted to the amounts resulting from the Letter of Intent that had been signed by the Parties.

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9.5. Each Party shall keep confidential all information contained in this Agreement by one year following its conclusion. The above undertaking shall not apply to any information which is currently publicly available or disclosure of which is required by mandatory provisions of laws or necessary for proper performance of this Agreement.

10. NOTIFICATIONS

10.1. All notices, statements and communications required or permitted under this Agreement shall be effectively given, if personally delivered or sent by a registered letter (return receipt requested) to the following address:

To the Buyers:

Carey Agri International Poland Sp. z o.o. and Central European Distribution Corporation

ul. Bokserska 66A,

02-690 Warszawa, Polska,

Fax: 22 455 18 10

Attention of Mr. William V. Carey.

To the Sellers:

Przedsiebiorstwo Handlowo Produkcyjne “DAKO” Sp. z o.o.

ul. Grunwaldzka 4,

73-110 Stargard Szczecinski,

Poland

Fax: 91 577 05 04 or 577 64 02

Attention of Mr. Waclaw Dawidowicz

or respectively

Mr. Miroslaw Sokalski

75-685 Koszalin

ul. Kasztanowa 5.

10.2. The Parties undertake to notify promptly one another of the change of the address for correspondence. In the event of failure to notify of the change of address, all correspondence sent to the addresses indicated above shall be deemed delivered to the appropriate address.

11. MISCELLANEOUS

11.1. Any legal, financial and consulting expenses of the Sellers in relation to this Agreement shall be borne solely by the Sellers. The Buyers shall be responsible for their own expenses.

11.2. The cost of the tax on civil law transactions being 1% of the Price shall be borne jointly by the Sellers and Buyers in equal parts.

11.3. This Agreement shall be governed by and construed in accordance with the laws of the Republic of Poland.

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11.4. Any and all disputes arising in connection with this Agreement shall be settled by the Arbitration Court of the Polish Chamber of Commerce in accordance with its rules of proceedings. Arbitration proceedings shall be held in Warsaw and shall be conducted in Polish.

11.5. This Agreement has been executed in four counterparts in Polish, two counterparts for the Sellers and two for the Buyers. The Parties shall promptly prepare English translation of the Agreement. The Polish language version shall constitute the basis for interpretation of this Agreement.

Schedules to the Agreement:

1. Documents confirming authorisation of the Buyers to conclude the Agreement;

2. Documents confirming authorisation of the Sellers to conclude the Agreement;

3. Authorisation;

3A. Authorisation to pay GALANT’s debt;

4. Employment contract with Mr. Wacław Dawidowicz;

5. Employment contract with Mrs. Maria Kowalczyk;

6. Employment contract with Mr. Miroslaw Sokalski;

7. Lock-up Letters;

8. Mr. Spisak’s Statement;

9. GALANT’s Statement;

10. Mrs. Sokalski’s Statement;

11. Certificates issued by a relevant tax office and the Social Security Office (ZUS);

12. Resolution of DAKO Sp. z o.o.’s shareholders;

13. Documents relating to the sale of the Company’s Real Property;

14. Lease agreements to be concluded;

15. Uniform text of the Articles of Association of the Company;

16. Copy of the share book;

17. List of promissory notes issued by the Company;

18. List of the Company’s agreements for transfer of ownership as a security;

19. List of the Company’s agreements for establishing a pledge by registration;

20. List of lease agreements currently executed;

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21. List of the Company’s overdue receivables outstanding by over 90 days;

22. List of receivables from employees;

23. Copy of a certificate regarding registration of the Trademark;

24. List of litigations before labour court;

25. List of reserves for receivables;

26. Resolutions mentioned in clause 5.1.1.

For the Buyers

Signed by: _______________________                      ________________________                         

For the Sellers

Signed by: _______________________                      ________________________                         

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EX-99.1

Exhibit 99.1

Written Statement of Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

          The undersigned, the Chief Executive Officer of Central European Distribution Corporation (the “Company”), hereby certifies that, to his knowledge on the date hereof:

(a)	the Form 10-Q of the Company for the quarterly period ended March 31, 2003, filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b)	information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
		/s/ WILLIAM V. CAREY
		William V. Carey Chief Executive Officer May 14, 2003

EX-99.2

Exhibit 99.2

Written Statement of Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

          The undersigned, the Chief Financial Officer of Central European Distribution Corporation (the “Company”), hereby certifies that, to his knowledge on the date hereof:

(a)	the Form 10-Q of the Company for the quarterly period ended March 31, 2003, filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b)	information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
		/s/ NEIL A.M. CROOK
		Neil A.M. Crook Chief Financial Officer May 14, 2003