6.	COMMITMENTS AND CONTINGENT LIABILITIES

Supply contracts

The Company has various agreements covering its sources of supply, which, in some cases, may be terminated by either party on relatively short notice. Thus, there is a risk that a portion of the Company’s supply of products could be curtailed at any time.

Bank Guarantees

In accordance with current legislation in Russia each producer of spirit beverages must acquire excise stamps and must pay excise tax in full before buying spirit for production purposes. For each lot of stamps purchased, the alcohol producer must provide the relevant body with a bank guarantee in the full amount of payment for the excise tax to secure the legality of usage of the excise stamps. This bank guarantee serves as insurance against the illegal usage of excise stamps by an alcohol producer.

In addition, under new legislation effective since August 1, 2012 the producer purchasing spirit alcohol must a) prepay the excise tax in full or b) provide the relevant tax body with a bank guarantee in the full amount of the excise tax before purchasing to secure payment of the excise tax. This bank guarantee serves as insurance that the excise tax is paid in time.

Russian Alcohol has in place a guarantee line agreement with multiple banks pursuant to which it was provided with a guarantee limit of 23.2 billion Russian rubles (approximately $747.5 million) for a period from 1 to 4 years, Bravo Premium signed a guarantee line agreement with multiple banks pursuant to which it was provided with a guarantee limit of 837.8 million Russian rubles (approximately $27.0 million) for a period from 1 to 2 years and Whitehall has in place a guarantee line agreement with multiple banks pursuant to which it was provided with a guarantee limit of 1.9 billion Russian rubles (approximately $61.2 million) as insurance against the illegal usage of excise stamps.

According to the agreements, companies have the right to obtain bank guarantees during the agreement term for each purchase of excise stamps and spirits. The guarantees for excise stamps are held by Rosalkoregulirovanie (the Federal Service for Alcohol Market Regulation), during the whole production period for which the excise stamps were purchased. The guarantee for excise tax is held by the beneficiary (the tax body) for 6 months after the end of month the spirit was purchased.

As of March 31, 2013, the Company has bank guarantees related to customs duties on imported goods in Poland of 4.9 million Polish zlotys (approximately $1.5 million).

Leases and Rent Commitments

Total rental expense related to operating leases for the three months period ended March 31, 2013 and March 31, 2012 are $4.1 million and $3.2 million respectively. The Company makes rental payments for real estate, vehicles, office, computer, and manufacturing equipment under operating leases.

The following is a schedule by years of the future rental payments under the non-cancelable operating leases as of March 31, 2013:


2013	$	10,902
2014		14,106
2015		12,026
2016		9,223
2017		8,862
Thereafter		2,634

Total	$	57,753

During 2013, the Company continued its policy of renewing its transportation fleet by way of capital leases.

The following table presents gross amount of motor vehicles under capital lease and their accumulated depreciation:


	March 31, 2013			December 31, 2012

Motor vehicles gross amount	$	2,516		$	2,362

Less: accumulated depreciation		(668	)		(651	)


Motor vehicles net amount	$	1,848		$	1,711

The future minimum lease payments for the assets under capital leases as of March 31, 2013 are as follows:


2013	$	810
2014		380
2015		139

Gross payments due	$	1,329
Less interest		(73	)

Net payments due	$	1,256

Assets subject to pledges

The following assets are subject to pledges:

•

The Bialystok facility is located on 78,665 square meters of land that has been pledged as part of the collateral to 2016 Notes

•

The Oborniki facility is located on 80,519 square meters of land that has been pledged as part of the collateral to 2016 Notes

•

The Siberia plant has been pledged as part of the collateral to 2016 Notes

•

The Tula facility has been pledged as part of the collateral to 2016 Notes

•

The Parliament production plant had been pledged as a security for a loan from Grand Invest Bank

Legal proceedings

From time to time we are involved in legal proceedings arising in the normal course of our business, including opposition and cancellation proceedings with respect to trademarks similar to some of our brands, and other proceedings, both in the United States and elsewhere. Except as set forth below, we are not currently involved in or aware of any pending or threatened proceedings that we reasonably expect, either individually or in the aggregate, will result in a material adverse effect on our condensed consolidated financial statements.

On October 24, 2011, a class action complaint titled Steamfitters Local 449 Pension Fund vs. Central European Distribution Corporation, et al., was filed in the United States District Court, District of New Jersey on behalf of a putative class of all purchasers of our common stock from August 5, 2010 through February 28, 2011 against us and certain of our officers. The complaint seeks unspecified money damages and alleges violations of federal securities law in connection with alleged materially false and misleading statements and/or omissions regarding our business, financial results and prospects in our public statements and public filings with the SEC for the second and third quarters of 2010, relating to declines in our vodka portfolio, our need to take an impairment charge relating to the deterioration in fair value of certain of our brands in Poland and negative financial results from the launch of Żubrówka Biaĩa. Subsequent to the above complaint, a second, substantially similar class action complaint titled Tim Schuler v. Central European Distribution Corporation, et al., was filed in the same court. By court orders dated August 22, 2012, the Steamfitters action and the Schuler action were consolidated and are now proceeding in the District of New Jersey under the caption In re Central European Distribution Corp. Securities Litigation, 11-cv-6247 (JBS-KMW). The Arkansas Public Employees Retirement System and the Fresno County Employees’ Retirement Association have been named Lead Plaintiffs in this action. Pursuant to an Order of the Court, on February 19, 2013, Lead Plaintiffs filed a consolidated complaint on behalf of a purported class of all purchasers of the Company’s common stock between March 1, 2010 and February 28, 2011, advancing similar allegations to those contained in the original complaints concerning purported materially false and misleading statements and/or omissions relating principally to the purported negative financial results from the launch of Żubrówka Biaĩa. On April 10, 2013, the Court stayed the action as to CEDC pursuant to section 362 of chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) as a result of its April 7, 2013 filing of a voluntary petition (the “Petition”) for relief under the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).

On May 13, 2013, the Bankruptcy Court conducted a hearing (the “Confirmation Hearing”) on (i) the adequacy of the Amended and Restated Offering Memorandum, Consent Solicitation Statement and Disclosure Statement Soliciting Acceptances of a Prepackaged Plan of Reorganization, dated March 8, 2013, as supplemented by Supplement No. 1 to the Amended and Restated Offering Memorandum, Consent Solicitation, and Disclosure Statement Soliciting Acceptances of a Prepackaged Plan of Reorganization, dated March 18, 2013 (Docket No. 10) (the “Disclosure Statement”), and (ii) confirmation of the Company’s Second Amended and Restated Joint Prepackaged Chapter 11 Plan of Reorganization (Docket No. 126) (the “Plan”). After the Confirmation Hearing the Bankruptcy Court entered its Findings of Fact, Conclusions of Law and Order (I) Approving (A) the Disclosure Statement Pursuant to Sections 1125 and 1126(c) of the Bankruptcy Code, (B) the Prepetition Solicitation Procedures, and (C) the Forms of Ballots, and (II) Confirming the Second Amended and Restated Joint Prepackaged Chapter 11 Plan of Reorganization of Central European Distribution Corporation et al. (Docket No. 166) (the “Confirmation Order”). Upon entry of the Confirmation Order by the Bankruptcy Court, the Company’s obligations with respect to this action were discharged and pursuant to the Plan (as modified by the Confirmation Order) and section 524 of the Bankruptcy Code, continuation of this action is permanently enjoined as to the Company.

On June 8, 2012, a purported securities fraud class action titled Grodko v. Central European Distribution Corporation, et al., was filed against the Company in the United States District Court for the Southern District of New York. The plaintiff in the lawsuit, who is suing purportedly on behalf of a class of all purchasers of the Company’s common stock between March 1, 2010 and June 4, 2012, alleges that the Company made false and/or misleading statements related to and/or failed to disclose that (1) the Company’s reported net sales in the years ended December 31, 2010 and 2011 were materially inflated; (2) as a result of a failure to account for retroactive trade rebates provided to the customers of Russian Alcohol, the Company anticipates restating its reported consolidated net sales, operating profit and related accounts for these periods; and (3) as a result of the foregoing, the Company’s statements were materially false and misleading at all relevant times. On August 7, 2012 a second, substantially similar class action complaint titled Puerto Rico System of Annuities and Pension for Teachers v. Central European Distribution Corporation, et al., was filed in the same court. By court orders dated September 4, 2012, the Grodko action and the Puerto Rico System of Annuities and Pension for Teachers action were transferred to the United States District Court for the District of New Jersey, where the actions have been consolidated and are proceeding under the caption Grodko v. Central European Distribution Corporation, et. al, No. 12-cv-5530 (JBS-KMW). The Puerto Rico System of Annuities and Pensions for Teachers has been named Lead Plaintiff in this action. On February 15, 2013, the Lead Plaintiff filed a consolidated amended complaint on behalf of a purported class of all purchasers of the Company’s common stock between March 1, 2010 and November 13, 2012, advancing similar allegations to those contained in the original complaints concerning purported materially false and misleading statements and/or omissions relating principally to accounting practices at CEDC’s Russian subsidiary, Russian Alcohol Group, and the Company’s related restatements. On April 10, 2013, the Court stayed the action as to CEDC pursuant to section 362 the Bankruptcy Code, as a result of its April 7, 2013 filing of the Petition for relief under the Bankruptcy Code in the Bankruptcy Court.

Upon entry of the Confirmation Order by the Bankruptcy Court, the Company’s obligations with respect to this action were discharged and pursuant to the Plan (as modified by the Confirmation Order) and section 524 of the Bankruptcy Code, continuation of this action is permanently enjoined as to the Company.

By complaints dated December 13, 2012, a single plaintiff filed two separate “derivative” actions against seven current and former CEDC directors, and against CEDC as a “nominal” defendant. The seven current and former directors named as defendants are: William Carey, Christopher Biedermann, David Bailey, Marek E. Forysiak, Markus Sieger, N. Scott Fine, Robert P. Koch and William S. Shanahan. These two actions were filed in the Superior Court of New Jersey, Burlington County, Chancery Division. Both complaints allege breaches of fiduciary duty, waste of corporate assets, and unjust enrichment. One complaint deals with alleged violations of the Foreign Corrupt Practices Act. The other complaint deals with alleged GAAP violations resulting from the Russian Alcohol Group trade rebate issue. Plaintiff is still in the process of attempting to effectuate service of the complaints on defendants. By orders dated April 30, 2013, the Court dismissed these derivative actions without prejudice and subject to reinstatement if the bankruptcy proceedings do not fully dispose of the issues between the parties.

The Company intends to mount a vigorous defense to the claims asserted. Although we believe the allegations in the above complaints are without merit, these types of lawsuits can be protracted, time-consuming, distracting to management and expensive and, whether or not the claims are ultimately successful, could ultimately have an adverse effect on our business, operating results and cash flows.

As noted in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2011, filed with the SEC on October 5, 2012, the Audit Committee, through its counsel, voluntarily notified the SEC of its internal investigation regarding the Company’s retroactive trade rebates, trade marketing refunds and related accounting issues. The Company has subsequently been contacted by the Fraud Division of the Criminal Division of the US Department of Justice (“DOJ”) regarding the disclosure in the Form 10-K/A for the year ended December 31, 2011, filed with the SEC on October 5, 2012 that there has been a breach of the books and records provisions of the Foreign Corrupt Practices Act (“FCPA”) of the United States and potentially other breaches of the FCPA. The Company has been asked to provide information about these matters on a voluntary basis to the SEC and DOJ. The Company is fully cooperating with the SEC and DOJ. Any action by the SEC or DOJ could result in criminal or civil sanctions against the Company and/or certain of its current or former officers, directors or employees. The Company cannot predict the duration, scope or ultimate outcome of the investigations and is unable to estimate the financial impact they may have, or predict the reporting periods in which any such financial impacts may be recorded.