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CHS Electronics Inc – ‘424A’ on 6/24/97

As of: Tuesday, 6/24/97 · Accession #: 950170-97-770 · File #: 333-29779

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 6/24/97  CHS Electronics Inc               424A                   1:315K                                   Donnelley Fin’l/Miami/FA

Prospectus — Rule 424(a)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424A        Prospectus                                           102    565K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Accounts receivable Asset Management Available Information Business Capitalization Certain United States Federal Tax Considerations for Non-United States Holders of Common Stock CHS Electronics, Inc Common Stock Competition Currency Risk Management Description of Capital Stock Dividend Policy Experts Gross profit Incorporation of Certain Documents by Reference Index to Financial Statements J.C. Bradford & Co Karma International S.A Legal Matters Liquidity and Capital Resources Management Management's Discussion and Analysis of Financial Condition and Results of Operations Montgomery Securities Net sales Offering, The Possible Need for Additional Capital Price Range of Common Stock Principal Shareholders Products and Customers Prospectus Summary Raymond James & Associates, Inc Recent Developments Risk Factors Seasonality Selected Consolidated Financial Data Shares Eligible for Future Sale Strategy Table of Contents The Offering Underwriting Use of Proceeds Vendor Relations
1	1st Page - Filing Submission
"	Common Stock
3	Prospectus Summary
5	The Offering
7	Risk Factors
9	Possible Need for Additional Capital
11	Shares Eligible for Future Sale
12	Recent Developments
14	Use of Proceeds
"	Dividend Policy
15	Price Range of Common Stock
16	Capitalization
17	Selected Consolidated Financial Data
18	Management's Discussion and Analysis of Financial Condition and Results of Operations
19	Net sales
"	Gross profit
22	Seasonality
"	Liquidity and Capital Resources
23	Asset Management
"	Accounts receivable
"	Currency Risk Management
25	Business
26	Strategy
27	Products and Customers
28	Vendor Relations
29	Competition
32	Management
35	Principal Shareholders
37	Description of Capital Stock
39	Underwriting
41	Legal Matters
"	Experts
"	Available Information
42	Incorporation of Certain Documents by Reference
43	Index to Financial Statements
"	Karma International S.A
44	CHS Electronics, Inc
95	Raymond James & Associates, Inc
"	Montgomery Securities
"	J.C. Bradford & Co
100	Certain United States Federal Tax Considerations for Non-United States Holders of Common Stock
102	Table of Contents

424A 1st Page of 102 TOC ↑Top Previous Next ↓Bottom Just 1st
SUBJECT TO COMPLETION DATED JUNE 24, 1997
10,000,000 SHARES

[CHS EXCELLENCE IN DISTRIBUTION GRAPHIC OMITTED]

COMMON STOCK
----------------

ALL OF THE 10,000,000 SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING
ISSUED AND SOLD BY CHS ELECTRONICS, INC. ("CHS" OR THE "COMPANY"). OF THE
10,000,000 SHARES OF COMMON STOCK OFFERED HEREBY, 7,000,000 SHARES ARE BEING
OFFERED IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS (AS DEFINED
HEREIN) (THE "U.S. OFFERING") AND 3,000,000 SHARES ARE BEING OFFERED IN A
CONCURRENT OFFERING OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
MANAGERS (AS DEFINED HEREIN) (THE "INTERNATIONAL OFFERING" AND, TOGETHER WITH
THE U.S. OFFERING, THE "OFFERING"). THE PRICE TO PUBLIC AND THE UNDERWRITING
DISCOUNTS AND COMMISSIONS PER SHARE WILL BE IDENTICAL FOR THE U.S. OFFERING AND
THE INTERNATIONAL OFFERING. SEE "UNDERWRITING."

THE COMMON STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE TRADING
SYMBOL "CHSE." ON JUNE 23, 1997, THE LAST REPORTED SALE PRICE OF THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET WAS $26.50 PER SHARE.

----------------

SEE "RISK FACTORS" ON PAGES 7 THROUGH 11 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

----------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

=========================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
---------------------------------------------------------
Per Share ...... $ $ $
---------------------------------------------------------
Total(3) ...... $ $ $
=========================================================
(1) The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses estimated at $500,000, which are payable by CHS.

(3) The Company has granted to the U.S. Underwriters a 30-day option to
purchase up to an aggregate of 1,050,000 additional shares of Common
Stock, and to the International Managers a 30-day option to purchase up to
an aggregate of 450,000 additional shares of Common Stock, on the same terms
and conditions as the Common Stock offered hereby, solely to cover
over-allotments, if any. If such options are exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively. See "Principal
Shareholders" and "Underwriting."

----------------

THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL U.S. UNDERWRITERS,
SUBJECT TO PRIOR SALE, WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY THEM, AND
SUBJECT TO CERTAIN OTHER CONDITIONS INCLUDING THE RIGHT OF THE U.S.
UNDERWRITERS TO WITHDRAW, CANCEL, MODIFY OR REJECT ANY ORDER IN WHOLE OR IN
PART. IT IS EXPECTED THAT DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT
, 1997 AT THE OFFICES OF RAYMOND JAMES & ASSOCIATES, INC., ST.
PETERSBURG, FLORIDA.
----------------
RAYMOND JAMES & ASSOCIATES, INC.
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
CLEARY GULL REILAND & MCDEVITT INC.

The date of this Prospectus is , 1997

424A 2nd Page of 102 TOC 1st Previous Next ↓Bottom Just 2nd
[INSIDE FRONT COVER]
[MAP WITH LOCATIONS]

---------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT AND STABILIZING TRANSACTIONS, THE
PURCHASE OF SUCH SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE SECURITIES
OFFERED HEREBY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."

---------------

All amounts in this Prospectus are stated in United States dollars. The
translation from foreign currencies to United States dollars is performed for
balance sheet accounts using exchange rates in effect at the balance sheet date
and for revenue and expense accounts using the average exchange rates during
the period.

424A 3rd Page of 102 TOC 1st Previous Next ↓Bottom Just 3rd
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
FINANCIAL INFORMATION AND SHARE DATA IN THIS PROSPECTUS (I) HAVE BEEN ADJUSTED
TO REFLECT A ONE-FOR-TWO REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK, PAR
VALUE $.001 PER SHARE (THE "COMMON STOCK"), ON MARCH 14, 1996, AND (II) ASSUME
NO EXERCISE OF THE OVER-ALLOTMENT OPTIONS DESCRIBED UNDER "UNDERWRITING."

THE COMPANY

CHS Electronics, Inc. ("CHS" or the "Company") is a leading international
distributor of microcomputer products, including personal computers,
peripherals, networking products and software. CHS operates in 29 countries
across three regions, including Western Europe, Eastern Europe and Latin
America, and services an active customer base of greater than 66,000 resellers.
Substantially all of the products sold by the Company are manufactured by 35
vendors, including such market leaders as Hewlett-Packard, Microsoft, Seagate,
IBM, Compaq, Western Digital, Intel, 3Com, Canon, Novell, Epson and Creative
Labs. The Company is a focused distributor, as opposed to a broadline
distributor, and seeks to represent leading vendors within specific product
categories. CHS believes that it is the fourth largest distributor of
microcomputer products in the world, the second largest distributor in Europe
and the largest distributor in Latin America and Eastern Europe. The Company
has no significant sales in the United States.

The Company has pursued an aggressive strategy of growth through
acquisitions which, together with growth in its existing business, has enabled
the Company to significantly increase net sales and achieve strong operating
results. Most recently, on June 20, 1997, the Company entered into an agreement
to purchase, for $160 million, Karma International S.A. ("Karma"), a distributor
of personal computer components to over 10,000 customers in Europe, the Middle
East and Asia. Net sales and operating earnings of Karma in 1996 were $700.2
million and $18.5 million, respectively. In the three-year period ended December
31, 1996, net sales of the Company increased from $359.2 million in 1994 to $1.9
billion in 1996 and operating earnings of the Company increased from $3.4
million in 1994 to $28.9 million in 1996. On a pro forma basis, assuming all
1996 acquisitions including the European and Latin American distribution
businesses of Merisel, Inc. ("Merisel") and the 1997 acquisitions of Karma and
Frank & Walter Computer GmbH ("Frank & Walter") were made on January 1, 1996,
the Company's 1996 net sales and operating earnings would have been $4.3 billion
and $60.9 million, respectively.

The large number and diversity of resellers make it cost efficient for
vendors to outsource to distributors such as the Company a portion of their
distribution, credit, inventory, marketing and customer support requirements.
Similarly, due to the large number of product vendors, resellers generally
cannot efficiently establish direct purchasing relationships with each vendor
and instead rely on distributors to satisfy their product, financing, marketing
and technical support needs. The Company believes that the computer
distribution industry is consolidating as access to financial resources and
economies of scale become more critical and as certain vendors limit the number
of authorized distributors of their respective products.

424A 4th Page of 102 TOC 1st Previous Next ↓Bottom Just 4th
computers for 1995 was 18.4% in Western Europe, 2.4% in Eastern Europe and 2.1%
in Latin America as compared to a penetration rate of 36.5% in the United
States. A significant portion of the Company's sales are in the emerging
markets of Eastern Europe and Latin America, regions which the Company believes
are underserved relative to the entire industry and offer substantial growth
opportunities. According to IDC, Latin America is expected to be the most
rapidly growing personal computer market in the world between 1997 and 2001.
IDC projects that personal computer sales in Latin America, Eastern Europe, the
Middle East, the Mediterranean and Africa, referred to by IDC as the "rest of
the world," will grow from $14.9 billion in 1997 to $21.6 billion in 1999,
representing a compound annual growth rate of 20.3%. This rate compares
favorably to a 9.0% compound annual growth rate projected by IDC for personal
computer sales in the United States over the same period.

CHS operates under a decentralized structure under which managers familiar
with the customs and needs of a particular country are delegated the authority
to make daily decisions necessary to satisfy the particular demands of their
respective markets. As compared to certain competitors which operate under a
more centralized structure, the Company believes that its business model of
focused distribution through locally managed full service facilities
integrating warehousing, purchasing, sales, credit and accounting functions
provides competitive and operating advantages.

The Company's objectives are to strengthen its position as a leading
distributor of microcomputer products in Western Europe, Eastern Europe and
Latin America and to expand into new regions including Africa, the Middle East
and Asia. In order to achieve these objectives, CHS intends to continue to
implement the following strategies:

/bullet/ GROW THROUGH ACQUISITIONS. A major portion of the Company's
growth is attributable to acquisitions and the Company intends to continue
its practice of making targeted purchases of high quality distributors in
selected markets. During the period which began January 1, 1994 and ended
March 31, 1997, the Company acquired a total of 34 companies, the most
significant of which were the seven companies from Merisel in Europe and
Latin America and Frank & Walter in Germany. The Company generally seeks
acquisition candidates that have strong entrepreneurial management teams
and experience in the local market and that could benefit from the
economies of scale that the Company provides through its focused product
lines. In order to reduce financial risk and enhance operating
performance, in many cases the Company structures an acquisition with an
earnout component based on the performance of the acquired company and
generally payable in shares of Common Stock one year subsequent to the
acquisition. The Company also makes select acquisitions using cash or
stock without an earnout component. These local distributors generally are
attracted to combining with CHS in order to gain personal financial
liquidity, access to key product lines provided by CHS and enhanced vendor
credit facilities. After an acquisition, the new CHS subsidiary adopts the
policies and financial reporting procedures of the Company but operates as
a relatively autonomous business unit, consistent with the Company's
decentralized structure. The Company believes its acquisition strategy is
advantageous to its vendors because, through their relationship with CHS,
vendors may gain entry into new markets with established local
distribution companies and can substitute the creditworthiness of CHS for
that of the local distributor.

424A 5th Page of 102 TOC 1st Previous Next ↓Bottom Just 5th
servicing of the products of these vendors. The Company believes that its
focused distribution model also results in more effective asset
management. Generally, products from leading vendors are in greater
demand, resulting in more efficient inventory management, including
greater inventory turns, lower working capital requirements and fewer
stock keeping units ("SKUs"). CHS generally maintains up to 10,000 SKUs
per location while broadline distributors typically carry greater than
40,000 SKUs.

/bullet/ FURTHER DEVELOP AND PENETRATE INTERNATIONAL MARKETS. The Company
has focused its activities on the distribution of microcomputer products
in Western Europe and the emerging markets of Eastern Europe and Latin
America, regions which it believes are underserved with respect to the
distribution of microcomputer products and therefore provide significant
growth opportunities. The Company believes that the markets in Western
Europe, Eastern Europe and Latin America are complex due to the diversity
of language, regulatory, technical and other factors and provide
attractive opportunities for CHS to add value to its relationships with
its vendors and customers because of the presence of its knowledgeable
local management. Additionally, the Company intends to expand into new
regions including Africa, the Middle East and Asia. The Company attempts
to limit its exposure to declines in any one area or economy by its
presence in a large number of markets.

In December 1993, CHS commenced its operations as an international
distributor of microcomputer products. On March 14, 1996, the Company
reincorporated from Utah to Florida and effectuated a one-for-two reverse stock
split. The world headquarters of the Company is located at 2153 N.W. 86th
Avenue, Miami, Florida 33122, where its telephone number is (305) 716-8273.

THE OFFERING

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Common Stock offered by the Company:

U.S. Offering .................................... 7,000,000

International Offering ........................... 3,000,000
----------
Total ............................................. 10,000,000

Common Stock outstanding after the Offering(1) ...... 24,709,643

Use of Proceeds .................................... To provide funds for the cash portion of the
Karma acquisition, amounts due to sellers under
other acquisition agreements, future acquisitions,
working capital to be used principally to take
advantage of discounts for early payment to
vendors and other general corporate purposes.
See "Use of Proceeds."

Nasdaq National Market Symbol ........................ CHSE

----------------
(1) Does not include 3,852,749 shares of Common Stock reserved for issuance
upon exercise of currently outstanding options, additional options which
may be granted under the Company's 1994 Stock Incentive Plan, the
Directors and Officers 1997 Stock Option Plan and 1996 and 1997 Chief
Executive Officer Stock Option Plans (collectively, the "Plans") and
warrants.

424A 6th Page of 102 TOC 1st Previous Next ↓Bottom Just 6th
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OTHER DATA)

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PREDECESSOR(1) THE COMPANY
---------------- ---------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1992 1993(2) 1994(2)(3) 1995(4) 1996
---------------- ------------- ------------ ---------- -------------------------
PRO
ACTUAL FORMA(5)
------------ ------------

INCOME STATEMENT DATA:
Net sales ........................ $79,884 $ 146,408 $359,169 $936,703 $1,855,540 $4,279,961
Gross profit ..................... 7,178 9,440 25,186 67,987 131,108 286,047
Operating earnings ............... 2,078 365 3,388 10,799 28,873 60,900
Earnings (loss) before income
taxes and minority interest ...... 1,812 (482) 1,568 6,102 20,360 38,960
Net earnings (loss) ............... 1,156 (723) 965 4,305 12,166 23,214
Net earnings (loss) per share:
primary ........................... N/A $ (.32) $ .21 $ .59 $ 1.16 $ 1.23
fully diluted ..................... N/A (.32) .21 .59 1.16 1.23
Weighted average shares
outstanding:
primary ........................... N/A 2,269 4,693 7,283 10,438 18,868
fully diluted ..................... N/A 2,269 4,693 7,283 10,438 18,868
OTHER DATA:
Number of countries at
period end ........................ 1 2 10 15 28 34
Inventory turns(7) ............... 17 23 10 10 12 10
Days receivable at period end(8) . 32 26 35 33 36 28

THREE MONTHS ENDED
MARCH 31,
---------------------------------
1996 1997
---------- ----------------------
PRO
ACTUAL FORMA(6)
---------- -----------

INCOME STATEMENT DATA:
Net sales ........................ $302,995 $877,103 $1,118,402
Gross profit ..................... 22,542 62,463 76,217
Operating earnings ............... 4,692 14,625 20,249
Earnings (loss) before income
taxes and minority interest ...... 3,366 9,776 14,045
Net earnings (loss) ............... 1,988 6,711 10,141
Net earnings (loss) per share:
primary ........................... $ .25 $ .44 $ .47
fully diluted ..................... .24 .44 $ .47
Weighted average shares
outstanding:
primary ........................... 7,862 15,343 21,527
fully diluted ..................... 8,183 15,423 21,607
OTHER DATA:
Number of countries at
period end ........................ 23 29 35
Inventory turns(7) ............... 10 10 9
Days receivable at period end(8) . 33 34 30

[Enlarge/Download Table]

AT MARCH 31, 1997
--------------------------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(9) AS ADJUSTED(9)(10)
--------- ---------------- -------------------

BALANCE SHEET DATA:
Cash and cash equivalents ...... $32,699 $ 245,749 $ 171,749
Working capital ............... 37,005 288,255 236,102
Total assets .................. 901,443 1,114,493 1,326,939
Notes payable .................. 172,497 172,497 191,409
Long-term debt .................. 51,017 51,017 51,143
Shareholders' equity ............ 130,439 381,689 450,489

----------------
(1) In December 1993, the Company acquired its operating subsidiary in Germany
(the "Predecessor"). The Predecessor information provided represents the
operations of this acquired company prior to the acquisition and is
derived from the financial statements of the acquired company.
(2) Restated to give effect to the acquisition in 1995 of CHS Portugal and 16%
of CHS Czechia as of January 1, 1993, the date Comtrad, Inc. ("Comtrad")
acquired these companies. Comtrad is the former majority shareholder of
the Company and is currently a principal shareholder. See "Principal
Shareholders" and Note B to the Company's Consolidated Financial
Statements.
(3) Restated to give effect to the acquisition in 1995 of CHS England, CHS
France and CHS Belgium as of September 1, 1994, the date Comtrad acquired
these companies. See Note B to the Company's Consolidated Financial
Statements.
(4) Restated to give effect to the acquisition in 1995 of CHS Finland, CHS
Sweden and CHS BEK as of July 1, 1995, CHS Poland as of November 1, 1995,
and the acquisition in 1996 of CHS Brazil, CHS Slovakia, CHS Baltic, CHS
Bulgaria, CHS Romania and CHS Croatia as of December 31, 1994, the dates
Comtrad or Comtrad Holdings, Inc. ("CHI"), the sole shareholder of
Comtrad, acquired these companies. See Note B to the Company's Consolidated
Financial Statements.
(5) Gives effect to the acquisition in 1996 of CHS Hungary (51% ownership),
CHS Switzerland, CHS Merisel Mexico, CHS Merisel Latin America, CHS
Merisel Austria, CHS Merisel France, CHS Merisel Germany, CHS Merisel
Switzerland, CHS Merisel UK, Frank & Walter and Karma, assuming such
transactions had occurred as of January 1, 1996. See "Recent Developments"
and Note B to the Company's Consolidated Financial Statements and Pro
Forma Condensed Consolidated Financial Statements.
(6) Gives effect to the acquisition of Karma as if such transaction had
occurred as of January 1, 1996. See "Recent Developments" and Pro Forma
Condensed Consolidated Financial Statements.
(7) Calculated by dividing cost of sales by the average of beginning and
ending inventory, except for the year ended December 31, 1996. For the
year ended December 31, 1996, due to the impact of the acquisitions from
Merisel, the cost of sales for the fourth quarter of 1996 was multiplied
by four and divided by the average of the beginning and ending inventory
for the quarter.
(8) Calculated by dividing ending receivables by the average sales per day for
the last quarter for each period.
(9) Adjusted to give effect to the sale of 10,000,000 shares of Common Stock
offered by the Company at an assumed public offering price of $26.50 per
share and the application of net proceeds therefrom, as described under
"Use of Proceeds."
(10) Gives effect to the acquisition of Karma as if it had occurred on March 31,
1997.

424A 7th Page of 102 TOC 1st Previous Next ↓Bottom Just 7th
RISK FACTORS

THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE
RISKS DESCRIBED BELOW. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS BEFORE PURCHASING THE SHARES OFFERED HEREBY.

THIS PROSPECTUS CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), WHICH REPRESENT THE COMPANY'S EXPECTATIONS OR BELIEFS,
INCLUDING, BUT NOT LIMITED TO, STATEMENTS CONCERNING GROSS MARGINS AND SALES OF
THE COMPANY'S PRODUCTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL
RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE COMPANY'S CONTROL, AND
ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF IMPORTANT
FACTORS, INCLUDING THE LEVEL OF ACQUISITION OPPORTUNITIES AVAILABLE TO THE
COMPANY AND THE COMPANY'S ABILITY TO EFFICIENTLY PRICE AND NEGOTIATE SUCH
ACQUISITIONS ON A FAVORABLE BASIS, THE FINANCIAL CONDITION OF THE COMPANY'S
CUSTOMERS, THE FAILURE TO PROPERLY MANAGE GROWTH AND SUCCESSFULLY INTEGRATE
ACQUIRED COMPANIES AND OPERATIONS, CHANGES IN ECONOMIC CONDITIONS, DEMAND FOR
THE COMPANY'S PRODUCTS AND CHANGES IN COMPETITIVE ENVIRONMENT.

THE COMPANY CAUTIONS THAT THE FACTORS DESCRIBED ABOVE COULD CAUSE ACTUAL
RESULTS OR OUTCOMES TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY
FORWARD-LOOKING STATEMENTS OF THE COMPANY MADE BY OR ON BEHALF OF THE COMPANY.
ANY FORWARD-LOOKING STATEMENT SPEAKS ONLY AS OF THE DATE ON WHICH SUCH
STATEMENT IS MADE, AND THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE ANY
FORWARD-LOOKING STATEMENT OR STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES
AFTER THE DATE ON WHICH SUCH STATEMENT IS MADE OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS. NEW FACTORS EMERGE FROM TIME TO TIME, AND IT IS NOT
POSSIBLE FOR MANAGEMENT TO PREDICT ALL OF SUCH FACTORS. FURTHER, MANAGEMENT
CANNOT ASSESS THE IMPACT OF EACH SUCH FACTOR ON THE BUSINESS OR THE EXTENT TO
WHICH ANY FACTOR, OR COMBINATION OF FACTORS, MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING STATEMENTS.

ACQUISITIONS

The Company intends to use a significant portion of the net proceeds from
this Offering for the Karma transaction and to continue to pursue the
acquisition of other companies, assets or product lines that the Company
believes would complement or expand its existing business. Acquisitions involve
a number of risks that could adversely affect the Company's operating results,
including (i) the diversion of management's attention; (ii) the assimilation of
the operations and personnel of the acquired companies; (iii) the amortization
of acquired intangible assets; (iv) the assumption of potential liabilities,
disclosed or undisclosed, associated with the businesses acquired, which
liabilities may exceed the amount of indemnification available from the seller;
(v) the risk that the financial and accounting systems utilized by the
businesses acquired will not meet the Company's standards; (vi) the risk that
the businesses acquired will not maintain the quality of services that the
Company has historically provided; (vii) the dilutive effect of the use of the
Company's Common Stock as consideration for acquisitions; and (viii) the
inability to attract and retain qualified local management. There can be no
assurance that the Company will consummate future acquisitions, including the
Karma transaction, on satisfactory terms, if at all, that adequate financing
will be available on terms acceptable to the Company, if at all, or that any
acquired operations will be successfully integrated or that such operations
will ultimately have a positive impact on the Company, its financial condition
or results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Business--Strategy."

MANAGEMENT OF GROWTH

The Company has rapidly expanded its operations in recent years. Since its
public offering in June 1996, the Company has acquired 14 distributors in 12
countries, primarily in Western Europe and Latin America. The Company intends
to continue its acquisition strategy. The Company's significant growth and
recent acquisitions have placed, and are expected to continue to place,
substantial demands on the Company's managerial, operational, financial and
other resources. There can be no assurance that the

424A 8th Page of 102 TOC 1st Previous Next ↓Bottom Just 8th
Company will be able to successfully integrate the operations and management of
these acquired businesses. Further acquisitions will require the Company to
continue to invest in its operations, including its financial and management
information systems, and to increase its efforts to retain, motivate and
effectively manage its employees, all of which may significantly increase the
Company's operating expenses. There can be no assurance that the management
skills and systems currently in place will be adequate to implement its
strategy. Any failure by the Company to achieve and manage its growth as
planned could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Strategy."

RISKS ASSOCIATED WITH INTERNATIONAL SALES

Substantially all of the Company's sales are to customers outside of the
United States. Approximately 87% of the Company's sales were denominated in
currency other than the United States dollar as of March 31, 1997. Changes in
the value of foreign currencies relative to the United States dollar could
adversely affect the Company's results of operations and financial position,
and transaction gains and losses could contribute to fluctuations in the
Company's results of operations. When possible, the Company engages in currency
hedging transactions and certain other practices to reduce these risks. There
can be no assurance that fluctuations in foreign currency rates will not have a
material adverse effect on the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Asset Management" and "Business--Competition."

The Company's existing and planned international operations are subject to
political and economic uncertainties, including among others, inflation,
hyperinflation, risk of renegotiation or modification of existing agreements or
arrangements with governmental authorities, transportation, tariffs, export
controls, foreign exchange restrictions which limit the repatriation of
investments and earnings therefrom, changes in taxation, governmental
challenges to the Company's tax reduction strategies, hostilities and
confiscation of property. Changes related to these matters could have a
material adverse effect on the Company's business, financial condition and
results of operations.

RELIANCE ON KEY VENDORS

The Company obtains its products from its vendors under non-exclusive
distribution agreements which are subject to renewal annually and may be
canceled by either party on short notice. While the Company distributes the
products of approximately 35 vendors, approximately 49%, 35%, 34% and 26% of
its net sales during the years ended December 31, 1994, 1995, 1996 and the
first quarter of 1997, respectively, were derived from the sale of products
supplied by Hewlett-Packard. An additional 12% of net sales during 1996 and 10%
during the first quarter of 1997 were derived from the Company's next largest
supplier, Microsoft. The loss of these relationships would, and the loss of
certain other relationships could, have a material adverse effect on the
Company. See "Business--Vendor Relations."

DEPENDENCE ON KEY PERSONNEL

The Company is highly dependent upon its ability to retain its current
personnel and to continue to attract and retain qualified personnel. The
Company is particularly dependent on the services of its Chairman of the Board,
Chief Executive Officer and President, Claudio Osorio. The Company does not
possess any key-man life insurance policies with respect to Mr. Osorio or any
other officer of the Company. There is intense competition for qualified
personnel, and there can be no assurance that the Company will be able to
continue to attract and retain the qualified personnel necessary for the
development of its business. Loss of the services of, or failure to recruit,
key personnel could have a material adverse effect on the Company.

COMPETITION; DECLINING GROSS PROFIT MARGINS

The Company's business is highly competitive. Certain of the Company's
competitors have greater financial, marketing, service and technical support
resources than the Company. There can be no

424A 9th Page of 102 TOC 1st Previous Next ↓Bottom Just 9th
assurance that the Company's resources will be sufficient to allow the Company
to compete effectively in the future. Continued increases in competition could
have a material adverse effect on the Company's results of operations because
of price reductions and potential loss of market share. Certain of the
Company's competitors may sell products at prices below those charged by the
Company. As a result of this price competition, the Company and its competitors
currently are experiencing downward pressure on gross margins, which the
Company expects to continue for the foreseeable future. The Company intends to
offset the impact of declines in its gross margins by reducing its operating
expenses as a percentage of net sales, although there can be no assurance of
the success of this strategy in future periods. See "Business--Competition."

RELIANCE ON CERTAIN MARKETS

Certain markets within which the Company operates represent a high
percentage of the Company's total operating earnings and net sales. While net
sales in Eastern Europe represented only 11.6% and 9.2% of the Company's total
sales for the year ended December 31, 1996 and the quarter ended March 31,
1997, respectively, operating income related to such sales accounted for 36.1%
and 19.0%, respectively, of the Company's total operating income as a result of
higher margins applicable to sales in Eastern Europe. Additionally, sales in
Germany represented 35% of net sales for the quarter ended March 31, 1997 as a
result of the Frank & Walter and Merisel acquisitions. Decreases in the volume
of sales in such regions or declines in operating margins could have a material
adverse effect on the Company's results of operations or financial condition.

VARIABILITY OF CUSTOMER REQUIREMENTS; NATURE OF CUSTOMER COMMITMENTS ON ORDERS

The level and timing of orders placed by the Company's customers vary due
to a number of factors, including customer attempts to manage inventory,
changes in customers' strategies and variations in demand for products. The
Company relies on its estimate of anticipated future volumes when making
commitments regarding the quantities and the mix of products that it intends to
carry in inventory. The Company does not have long term contracts with its
customers and a variety of conditions could cause customers to reduce their
orders. Any significant reduction in customer orders could adversely impact the
Company. See "Business--Products and Customers."

POTENTIAL QUARTERLY FLUCTUATIONS; SEASONALITY OF SALES

The Company may experience variability in its net sales and net income on
a quarterly basis as a result of many factors, including the condition of the
microcomputer industry in general, shifts in demand for software and hardware
products and industry announcements of new products or upgrades. The Company's
planned operating expenditures are based on sales forecasts. If revenues do not
meet expectations in any given quarter, operating results may be materially
adversely affected. Sales in Europe in the first and fourth quarters of each
year are typically higher than in the second and third quarters. In Latin
America, sales in the third and fourth quarters of each year are typically
higher than in the first and second quarters. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality."

POSSIBLE NEED FOR ADDITIONAL CAPITAL

The Company has grown through both acquisitions and internal expansion,
both of which have resulted in the need for significant amounts of capital. To
maintain historical levels of growth, the Company may need to seek additional
funding through public or private financing and may, when attractive sources of
capital become available, elect to obtain capital in anticipation of such
needs. Adequate funds for these purposes may not be available when needed or
may not be available on terms favorable to the Company. If additional funds are
raised by issuing equity securities, dilution to existing shareholders may
result. If funding is insufficient, the Company may be required to delay,
reduce the scope of or eliminate some or all of its expansion programs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

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EFFECTS OF TECHNOLOGICAL CHANGE

The products sold by the Company are characterized by rapidly changing
technology, frequent new product introductions and evolving industry standards
that can render the products marketed by the Company obsolete or unmarketable
in a relatively short period of time. The Company's future success will depend
upon its ability to limit its exposure to obsolescence in its inventory and to
gain access to its vendors' new product lines, as well as product lines of any
additional vendors that release new and desirable technology. Although the
Company attempts to enter into stock rotation agreements with its vendors
permitting the return of inventory, there can be no assurance that these
efforts will be successful. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Asset Management."

CHANGING METHODS OF MICROCOMPUTER PRODUCTS AND SOFTWARE DISTRIBUTION

The methods by which microcomputer products manufacturers distribute their
products to the end-user are constantly changing and alternative strategies are
continually being evaluated. Several major manufacturers have announced that
they are considering distribution strategies whereby distributors such as the
Company may be required to perform more value-added services during the
distribution process. These services could include basic assembly and
configuration of products before distribution to customers. Performing such
activities would require the Company to expand its existing competencies. The
Company has only limited experience in performing services of this type, and
its relationships with its vendors could be adversely affected if it fails to
meet vendors' distribution service requirements. The Company cannot predict
whether or to what extent its vendors will modify their distributor service
requirements.

In the quarter ended March 31, 1997, approximately 14% of the Company's
sales were related to software products. The manner in which microcomputer
software is distributed and sold is changing and new methods of distribution
and sale may emerge or expand. Software vendors have sold, and may intensify
their efforts to sell, their products directly to end-users. From time to time
certain vendors have instituted programs for the direct sale of large order
quantities of software to certain major corporate accounts and these types of
programs may continue to be developed and used by various vendors. In addition,
certain major vendors have implemented programs for master copy distribution
(site licensing) of software. These programs generally grant an organization
the right to make any number of copies of software for distribution within the
organization provided that the organization pays a fee to the vendor for each
copy made. Also, vendors may attempt to increase the volume of software
products distributed electronically via the Internet or through CD-ROM. Any of
these competitive programs, if successful, could have a material adverse effect
on the Company's business, financial condition and results of operations.

SHARE PRICE VOLATILITY

The market for securities of technology companies historically has been
more volatile than the market for stocks in general. The price of the Common
Stock of the Company may be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, announcement of
acquisitions, vendor additions or cancellations and the availability of new
products. In addition, the stock market has from time to time experienced
extreme price and volume fluctuations that have particularly affected the
market price for many high technology companies and that often have been
unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Common Stock. See
"Price Range of Common Stock."

CONCENTRATION OF COMMON STOCK OWNERSHIP AND ANTI-TAKEOVER CONSIDERATIONS

The Company's Board of Directors has the authority to issue 5,000,000
shares of Preferred Stock in one or more series and to fix the powers,
designations, preferences and relative rights thereof without any further vote
or action by the Company's shareholders. The issuance of Preferred Stock could
dilute

424A 11th Page of 102 TOC 1st Previous Next ↓Bottom Just 11th
the voting power of holders of Common Stock and could have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company's Articles of Incorporation provide that the holders of a majority of
the Preferred Stock, voting separately from the holders of the Common Stock,
must approve certain transactions. These, and certain other provisions of the
Company's Articles of Incorporation and By-laws, as well as Florida law, may
operate in a manner that could discourage or render more difficult a takeover
of the Company or the removal of management or may limit the price certain
investors may be willing to pay in the future for shares of Common Stock. See
"Principal Shareholders" and "Description of Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market after
this Offering, including sales pursuant to Rule 144 promulgated under the
Securities Act or otherwise, or the perception that such sales could occur, may
adversely affect the market price of the Company's Common Stock. Upon
completion of this Offering, the Company will have 24,709,643 shares of Common
Stock outstanding. Of these shares, all of the 10,000,000 shares sold in this
Offering will be freely tradable without restriction or further registration
under the Securities Act. Of the remaining 14,709,643 shares, 6,599,111 shares
are deemed "restricted shares" under Rule 144 in that they were originally
issued and sold by the Company in private transactions in reliance upon
exemptions under the Securities Act. Of those shares, 5,804,105 shares are held
by persons deemed "affiliates" of the Company as such term is defined in Rule
144 and 795,006 shares are held by persons who are not affiliates of the
Company. The restricted shares may not be sold except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption
from registration such as the exemption provided by Rule 144 under the
Securities Act. Of the restricted shares (i) 465,029 shares held by
non-affiliates are eligible for immediate resale under the provisions of Rule
144(k), and (ii) 5,804,105 shares held by executive officers, directors and
certain shareholders are subject to lock-up agreements that prohibit their
resale prior to 90 days from the date of this Prospectus without the prior
consent of Raymond James & Associates, Inc. and thereafter may be sold subject
to the volume limitations and other provisions of Rule 144. See "Description of
Capital Stock" and "Underwriting."

424A 12th Page of 102 TOC 1st Previous Next ↓Bottom Just 12th
RECENT DEVELOPMENTS

ACQUISITIONS

On June 20, 1997, the Company entered into an agreement to purchase Karma
International S.A., a distributor of personal computer components to over 10,000
customers in Europe, the Middle East and Asia. Karma's product line includes
mass storage products, CPUs, memory chips, motherboards, sound, video and other
cards and monitors. Karma is a focused distributor which carries approximately
500 SKUs from 14 vendors including Quantum, Western Digital, Maxtor, Cyrix and
AMD. These products represent the basic components of a personal computer and
may be used without regard to the specific language, regulatory and technical
factors of individual markets. As a result of the universal nature of these
products, Karma is able to centralize warehousing and ship approximately 75% of
its products from a single facility in Amsterdam, The Netherlands. Karma's
customers are primarily personal computer assemblers, systems integrators and
value-added resellers ("VARs"). The Company believes that Karma's principal
competitive advantages are its low cost operating model and efficient
distribution system. Karma operates in 18 countries through 28 offices in
Europe, the Middle East and Asia.

Karma was organized in July 1990 and, for the twelve months ended December
31, 1996, had net sales of approximately $700.2 million, operating earnings of
$18.5 million and net profits of $15.1 million.

The acquisition of Karma provides the Company entry into the high growth,
emerging markets of Asia and the Middle East and enhances its position as a
leading distributor of mass storage products throughout Europe. The acquisition
of Karma will also provide the Company with additional economies of scale with
regard to purchasing and logistics and enable it to further broaden its
customer base. Upon completion of the acquisition, the Company believes it will
be the largest distributor of mass storage products in the world.

The contract purchase price for Karma is $160 million to be paid by
delivery of (i) $74 million in cash and (ii) $86 million in Common Stock, with
the number of shares determined based upon the average closing price over a
specified period. Karma's existing management will continue to operate Karma as
a subsidiary of CHS. The transaction is expected to be completed in August 1997,
but is subject to a number of conditions including the completion of this
Offering. Upon completion of the acquisition of Karma, one representative of
Karma will immediately be elected to the Board of Directors of CHS with an
additional member to be added in 1998.

On June 4, 1997, the Company announced it had signed definitive agreements
for the purchase of four privately held distribution companies operating in
South America and Eastern Europe: Ameritech Exports, Inc., a Miami-based
distributor of Compaq products throughout South America with 1996 net sales of
$13 million; Ameritech Argentina, S.A., an Argentina-based distributor of
microcomputer products with 1996 net sales of $18 million; CompExpress
Informatica Ltda., one of the largest IBM distributors in Brazil with 1996 net
sales of $51 million; and Atlantis Skupina, a distributor of microcomputer
products in Slovenia with 1996 net sales of $6 million.

On May 15, 1997, the Company exercised an option to acquire Lars Krull
Holding A/S, a distributor of microcomputer products with operations in Denmark,
Norway, Sweden and Ireland. The company is being acquired through an earnout
based on future financial performance payable in a combination of stock and
cash. The net sales for the year ended April 1997 were $43 million. The Company
expects to complete the acquisition in July 1997.

On March 20, 1997, the Company completed its acquisition of the operations
of Frank & Walter, which the Company believes is the fourth largest computer
distributor in Germany with over 10,000 active dealers, for 2,200,000
unregistered shares of Common Stock. As a result of this acquisition, the
Company believes it is the largest distributor of microcomputer products in
Germany. The Company intends to combine the operations of Frank & Walter, based
in Braunschweig, with its operation in Germany. Carsten Frank, the founder of
Frank & Walter, has become a director of CHS and the CHS executive vice
president responsible for the Company's operations in Europe.

The Company has acquired certain other companies in 1997 that individually
or in the aggregate are not deemed to be significant to the operations of the
Company.

On October 4, 1996, the Company completed the acquisition of the assets
and the assumption of the liabilities of the distribution businesses of Merisel
in Austria, France, Germany, Switzerland and the

424A 13th Page of 102 TOC 1st Previous Next ↓Bottom Just 13th
United Kingdom as well as Merisel's export operations serving Latin America
from Miami, Florida and a distribution business in Mexico. The purchase price,
as adjusted, was approximately $148 million and was funded through cash of $30
million and $118 million of debt assumed or refinanced.

The following table sets forth acquisitions made by the Company since its
public offering in June 1996, the service areas of the operations acquired and
the acquisition date. Except as noted below, these acquisitions have been
included in the Company's financial statements from the date the entity was
acquired.

SUBSIDIARY(1) SERVICE AREA ACQUISITION DATE
--------------------------------------- ---------------- -----------------
CHS Dinexim Latin America May 1997
CHS Access and Agora Czech Republic May 1997
CHS International High Tech Marketing Africa April 1997
Frank & Walter(2) Germany March 1997
CHS Estonia Estonia January 1997
CHS Merisel Austria Austria September 1996
CHS Merisel France France September 1996
CHS Merisel Germany Germany September 1996
CHS Merisel Switzerland Switzerland September 1996
CHS Merisel UK UK September 1996
CHS Merisel Latin America Latin America September 1996
CHS Merisel Mexico Mexico September 1996
CHS Ecuador(3) Ecuador June 1996
CHS Russia Russia June 1996

----------------
(1) The names are those by which the Company refers to its subsidiaries and are
not necessarily the legal names of the entities.
(2) The results of operations of Frank & Walter have been included as of
January 1, 1997.
(3) The Company owns 51% of CHS Ecuador.

POTENTIAL MERGER TRANSACTION

The Company is currently engaged in discussions with the shareholders of
CHI concerning the possible merger of CHI and its wholly owned subsidiary,
Comtrad, into the Company. Substantially all of the consolidated assets of CHI
and Comtrad are shares of Common Stock (24.4% of the shares outstanding prior
to the Offering). The terms of the merger are still under negotiation and there
can be no assurance that agreement on these or any other terms will be reached.
It is currently contemplated that the shareholders of CHI will receive newly
issued shares of the Company in an aggregate value equal to the difference
between the fair value of the assets of CHI and Comtrad at the time of the
merger and the fair value of the liabilities of CHI and Comtrad assumed by the
Company pursuant to the merger.

The Company believes that the transaction will be in the best interest of
the Company's shareholders as it will reduce the concentration of shareholder
ownership in the Company through the termination of Comtrad and CHI and the
corresponding payment of shares of Common Stock to the prior shareholders of
such entities. Claudio Osorio, the Chairman, Chief Executive Officer and
President of the Company, is the President of Comtrad and CHI. It is currently
contemplated that conditions to the consummation of the merger will include (i)
the receipt by the Company of an opinion from Raymond James & Associates, Inc.,
one of the representatives of the Underwriters, to the effect that the terms of
the merger are fair to the Company from a financial point of view and (ii)
completion by the Company of its tax and general due diligence review. Approval
by the shareholders of the Company will not be required to effectuate the
merger.

424A 14th Page of 102 TOC 1st Previous Next ↓Bottom Just 14th
USE OF PROCEEDS

The net proceeds to the Company (after deducting underwriting discounts and
commissions and estimated offering expenses) from the sale of 10,000,000 shares
of Common Stock offered by the Company, assuming a public offering price of
$26.50 per share, are estimated to be approximately $251.3 million ($289.0
million if the U.S. Underwriters' and International Managers' over-allotment
options are exercised in full).

The Company expects to use $74.0 million of the proceeds of the Offering
for payment of the cash portion of the Karma acquisition. See "Recent
Developments." The balance of the proceeds will be used for payments to sellers
under acquisition agreements ($38.2 million), future acquisitions (approximately
$20 million) and working capital to be used principally to take advantage of
discounts for early payment to vendors. At the present time, the Company has not
entered into binding contracts with respect to certain contemplated acquisitions
and no assurance can be given that any such acquisitions will be consummated or
when additional acquisitions will occur. See "Risk Factors--Possible Need for
Additional Capital" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Pending utilization as described above, the net proceeds of this Offering
will be invested in short- term, high-grade, interest-bearing securities.

DIVIDEND POLICY

The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future, but intends instead
to retain any future earnings for reinvestment in its business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors deems relevant.

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PRICE RANGE OF COMMON STOCK

The following table sets forth for the periods indicated the high and low
closing prices of the Company's Common Stock (symbol: CHSE) from January 1, 1995
through April 16, 1995 in the over- the-counter market, from April 17, 1995
through June 6, 1996 on the Nasdaq Small-Cap Market and thereafter on the Nasdaq
National Market. The Company effected a one-for-two reverse stock split on March
14, 1996. Prices for prior periods have been adjusted to reflect the effect of
the reverse stock split.

[Download Table]

FISCAL YEAR PERIOD HIGH LOW
------------- ----------------------------------------------- -------- -------

1995 First Quarter .............................. $ 8-1/2 $ 6
Second Quarter .............................. 11 8-3/4
Third Quarter .............................. 11-1/2 8
Fourth Quarter .............................. 11-1/2 7-1/2
1996 First Quarter .............................. $16-1/2 $ 8
Second Quarter .............................. 17 10
Third Quarter .............................. 14-1/2 10
Fourth Quarter .............................. 18-3/4 10-3/4
1997 First Quarter .............................. $24 $16
Second Quarter (through June 23, 1997) ...... 26-1/2 17-1/4

The last reported sale price of the Common Stock as reported on the Nasdaq
National Market on June 23, 1997 was $26.50 per share. As of June 19, 1997, the
outstanding Common Stock was held of record by 181 shareholders. The Company
believes that it has in excess of 400 beneficial owners.

424A 16th Page of 102 TOC 1st Previous Next ↓Bottom Just 16th
CAPITALIZATION

The following table sets forth as of March 31, 1997 the capitalization of
the Company, and as adjusted to give effect to the sale by the Company of the
10,000,000 shares of the Common Stock offered hereby at an assumed public
offering price of $26.50 per share and the application of the estimated net
proceeds therefrom as described under "Use of Proceeds." This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and the notes thereto contained elsewhere in this Prospectus.

[Enlarge/Download Table]

MARCH 31, 1997
--------------------------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(2) AS ADJUSTED(3)
------------- ---------------- ---------------
(IN THOUSANDS)

Notes payable ....................................... $ 172,497 $ 172,497 $ 191,409
========= ========= =========
Long-term debt ....................................... $ 51,017 $ 51,017 $ 51,143
Shareholders' equity:
Preferred Stock, $.001 par value, 5,000,000 shares
authorized;
no shares outstanding .............................. -- -- --
Common Stock, $.001 par value, 100,000,000 shares
authorized; 14,692,760 shares outstanding; 24,692,760
shares outstanding,
as adjusted(1) .................................... 15 25 28
Additional paid-in capital ........................ 120,380 371,620 440,417
Retained earnings .................................... 23,435 23,435 23,435
Foreign currency translation adjustment ............ (13,391) (13,391) (13,391)
--------- --------- ---------
Total shareholders' equity ........................ 130,439 381,689 450,489
--------- --------- ---------
Total capitalization .............................. $ 181,456 $ 432,706 $ 501,632
========= ========= =========

----------------
(1) Does not include 2,569,632 shares of Common Stock reserved for issuance
upon exercise of currently outstanding options, additional options which
may be granted under the Plans and warrants.

(2) Adjusted to give effect to the sale of 10,000,000 shares of Common Stock
offered by the Company at an assumed offering price of $26.50 per share.

(3) Adjusted to give effect to the sale of 10,000,000 shares of Common Stock
offered hereby by the Company at an assumed offering price of $26.50 per
share and the acquisition of Karma as if it had occurred on March 31,
1997.

424A 17th Page of 102 TOC 1st Previous Next ↓Bottom Just 17th
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
The following tables set forth certain financial data for each year in the
five-year period ended December 31, 1996 and for the three-month periods ended
March 31, 1996 and 1997. The information presented as of and for the years
ended December 31, 1992, 1993, 1994, 1995 and 1996 is derived from the audited
consolidated financial statements of the Company, which statements have been
audited by Grant Thornton LLP, independent certified public accountants. The
Selected Consolidated Financial Data for the three-month periods ended March
31, 1996 and 1997 have been derived from the Company's unaudited consolidated
financial statements. In the opinion of management, all unaudited consolidated
financial statements used to derive the information presented have been
prepared on the same basis as the audited financial statements and include all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the results for the periods presented. The pro forma
information presented below has been prepared based upon the historical
financial statements of the Company and the acquired subsidiaries for the
periods stated above. Such pro forma information may not be indicative of the
results that would have occurred if the acquisitions had been consummated on
January 1, 1996, or of the operating results that may be achieved by the
combined companies in the future. The following data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus.

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PREDECESSOR(1) THE COMPANY
------------------ ----------------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1992 1993(2) 1994(2)(3) 1995(4)
------------------ ------------- ------------ -------------

INCOME STATEMENT DATA:
Net sales .............................. $ 79,884 $ 146,408 $ 359,169 $ 936,703
Cost of goods sold ..................... 72,706 136,968 333,983 868,716
Gross profit ........................... 7,178 9,440 25,186 67,987
Operating expenses ..................... 5,100 9,075 21,798 57,188
Operating earnings ..................... 2,078 365 3,388 10,799
Interest income ........................ (97) (229) (250) (1,757)
Interest expense ........................ 363 1,076 2,070 6,454
Earnings (loss) before income taxes and
minority interest ..................... 1,812 (482) 1,568 6,102
Income taxes ........................... 656 241 603 1,797
Minority interest ........................ -- -- -- --
Net earnings (loss) ..................... 1,156 (723) 965 4,305
Net earnings (loss) per share:
primary .............................. N/A (.32) .21 .59
fully diluted ........................ N/A (.32) .21 .59
Weighted average shares outstanding:
primary .............................. N/A 2,269 4,693 7,283
fully diluted ........................ N/A 2,269 4,693 7,283
OTHER DATA:
Number of countries at period end ...... 1 2 10 15
Inventory turns(7) ..................... 17 23 10 10
Days receivable at period end(8) ...... 32 26 35 33

THREE MONTHS ENDED
MARCH 31,
-----------------------------------------
1996 1996 1997
------------------------------ ------------- ---------------------------
ACTUAL PRO FORMA(5) ACTUAL PRO FORMA(6)
--------------- -------------- ------------- -------------

INCOME STATEMENT DATA:
Net sales .............................. $ 1,855,540 $ 4,279,961 $ 302,995 $ 877,103 $1,118,402
Cost of goods sold ..................... 1,724,432 3,993,914 280,453 814,640 1,042,185
Gross profit ........................... 131,108 286,047 22,542 62,463 76,217
Operating expenses ..................... 102,235 225,147 17,850 47,838 55,968
Operating earnings ..................... 28,873 60,900 4,692 14,625 20,249
Interest income ........................ (3,199) (4,166) (614) (1,767) (1,911)
Interest expense ........................ 11,712 26,106 1,940 6,616 8,115
Earnings (loss) before income taxes and
minority interest ..................... 20,360 38,960 3,366 9,776 14,045
Income taxes ........................... 6,086 13,457 1,059 2,641 3,412
Minority interest ........................ 2,108 2,289 319 424 492
Net earnings (loss) ..................... 12,166 23,214 1,988 6,711 10,141
Net earnings (loss) per share:
primary .............................. 1.16 1.23 .25 .44 .47
fully diluted ........................ 1.16 1.23 .24 .44 .47
Weighted average shares outstanding:
primary .............................. 10,438 18,868 7,862 15,343 21,527
fully diluted ........................ 10,438 18,868 8,183 15,423 21,607
OTHER DATA:
Number of countries at period end ...... 28 34 23 29 35
Inventory turns(7) ..................... 12 10 10 10 9
Days receivable at period end(8) ...... 36 28 33 34 30

[Enlarge/Download Table]

PREDECESSOR(1) THE COMPANY
---------------- -----------------------------------------------
AT DECEMBER 31,
----------------------------------------------------------------
1992 1993(2) 1994(2)(3) 1995(4) 1996
---------------- ------------ ------------ ---------- ----------

BALANCE SHEET DATA:
Cash and cash equivalents ...... $ 210 $ 603 $ 8,368 $ 11,171 $ 35,137
Working capital (deficit) ...... 662 (1,426) 14,004 9,843 31,506
Total assets .................. 16,013 29,058 164,468 265,804 861,949
Notes payable .................. 2,988 6,949 15,198 46,438 155,932
Long-term debt .................. -- -- 8,104 8,801 45,327
Shareholders' equity ............ 988 1,930 19,870 29,892 104,533

AT MARCH 31, 1997
------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(9)
---------- -------------------

BALANCE SHEET DATA:
Cash and cash equivalents ...... $ 32,699 $ 171,749
Working capital (deficit) ...... 37,005 236,102
Total assets .................. 901,443 1,326,939
Notes payable .................. 172,497 191,409
Long-term debt .................. 51,017 51,143
Shareholders' equity ............ 130,439 450,489

----------------
(1) In December 1993, the Company acquired the Predecessor. The Predecessor
information provided represents the operations of this acquired company
prior to the acquisition and is derived from the financial statements of
the acquired company.
(2) Restated to give effect to the acquisition in 1995 of CHS Portugal and 16%
of CHS Czechia as of January 1, 1993, the date Comtrad acquired these
companies. See Note B to the Company's Consolidated Financial Statements.
(3) Restated to give effect to the acquisition in 1995 of CHS England, CHS
France and CHS Belgium as of September 1, 1994, the date Comtrad acquired
these companies. See Note B to the Company's Consolidated Financial
Statements.
(4) Restated to give effect to the acquisition in 1995 of CHS Finland, CHS
Sweden and CHS BEK as of July 1, 1995, CHS Poland as of November 1, 1995,
and the acquisition in 1996 of CHS Brazil, CHS Slovakia, CHS Baltic, CHS
Bulgaria, CHS Romania and CHS Croatia as of December 31, 1994, the dates
Comtrad or CHI acquired these companies. See Note B to the Company's
Consolidated Financial Statements.
(5) Gives effect to the acquisition in 1996 of CHS Hungary (51% ownership),
CHS Switzerland, CHS Merisel Mexico, CHS Merisel Latin America, CHS
Merisel Austria, CHS Merisel France, CHS Merisel Germany, CHS Merisel
Switzerland, CHS Merisel UK, Frank & Walter, and Karma assuming such
transactions had occurred as of January 1, 1996. See "Recent Developments"
and Note B to the Company's Consolidated Financial Statements and Pro
Forma Condensed Consolidated Financial Statements (unaudited).
(6) Gives effect to the acquisition of Karma assuming said transaction had
occurred as of January 1, 1996.
(7) Calculated by dividing cost of sales by the average of beginning and
ending inventory, except for the year ended December 31, 1996. For the
year ended December 31, 1996, due to the impact of the acquisitions from
Merisel, the cost of sales for the fourth quarter of 1996 was multiplied
by four and divided by the average of the beginning and ending inventory
for such quarter.
(8) Calculated by dividing ending receivables by the average sales per day for
the last quarter for each period.
(9) Adjusted to give effect to the acquisition of Karma and the sale of
10,000,000 shares of Common Stock offered by the Company at an assumed
public offering price of $26.50 per share and the application of net
proceeds therefrom, as if such events had occurred on March 31, 1997, as
described under "Use of Proceeds."

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO AND THE
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) APPEARING
ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

CHS distributes microcomputer products, including personal computers,
peripherals, networking products and software, in 29 countries across Western
Europe, Eastern Europe and Latin America. The Company has pursued and expects
to continue to pursue an aggressive strategy of growth through acquisitions of
distributors in these and other regions. Together with growth in its existing
business, such acquisitions have enabled the Company to significantly increase
net sales and achieve strong operating results. In the three-year period ended
December 31, 1996, the Company's net sales increased from $359.2 million in
1994 to $1.9 billion in 1996, and operating earnings increased from $3.4
million in 1994 to $28.9 million in 1996. The Company attributes these
increases in sales to increased consumer demand for the Company's products and,
more recently, to the expansion of the range of products offered. The Company
has experienced reduced gross margins in recent years due to increasing
competition, particularly in Western Europe, and due to the increased portion
of the Company's sales represented by this region after the Company's
acquisition of certain operations of Merisel in October 1996.

The Company derives all of its operating income and cash flow from its
operating subsidiaries, most of which are organized and operated outside the
United States. Generally, the Company purchases its inventory with United
States dollars and sells in other currencies. The Company seeks to limit its
exposure to the risk of currency fluctuations through hedging. See "--Currency
Risk Management."

The following table sets forth acquisitions made by the Company, the
service areas of the operations acquired and the dates as of which the results
of operations of the acquired company were included in the Company's financial
statements.

[Download Table]

DATE INCLUDED IN
SUBSIDIARY(1) SERVICE AREA FINANCIAL STATEMENTS
--------------------------------------- ---------------- ---------------------

CHS Dinexim Latin America May 1997
CHS Access and Agora Czech Republic May 1997
CHS International High Tech Marketing Africa April 1997
Frank & Walter Germany January 1997
CHS Estonia Estonia January 1997
CHS Merisel UK UK September 1996
CHS Merisel France France September 1996
CHS Merisel Switzerland Switzerland September 1996
CHS Merisel Germany Germany September 1996
CHS Merisel Austria Austria September 1996
CHS Merisel Latin America Latin America September 1996
CHS Merisel Mexico Mexico September 1996
CHS Ecuador(2) Ecuador June 1996
CHS Russia Russia June 1996
CHS Switzerland Switzerland April 1996
CHS Peru Peru March 1996
CHS Hungary(3) Hungary February 1996
CHS Poland Poland November 1995
CHS Sweden Sweden July 1995
CHS Finland Finland July 1995
CHS BEK Latin America July 1995

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[Download Table]

DATE INCLUDED IN
SUBSIDIARY(1) SERVICE AREA FINANCIAL STATEMENTS
----------------- ------------------------------- ---------------------

CHS Brazil Brazil November 1994
CHS England England September 1994
CHS France France September 1994
CHS Belgium Belgium and Luxembourg September 1994
CHS Croatia Croatia September 1994
CHS Bulgaria Bulgaria September 1994
CHS Baltic Lithuania, Latvia and Estonia September 1994
CHS Promark Latin America(4) July 1994
CHS Slovakia Slovakia January 1994
CHS Czechia (5) Czech Republic January 1993
CHS Portugal Portugal January 1993
CHS Germany Germany January 1993

----------------
(1) The names are those by which the Company refers to its subsidiaries and are
not necessarily the legal names of the entities.
(2) The Company owns 51% of CHS Ecuador.
(3) The Company owns 51% of CHS Hungary.
(4) Includes operating subsidiaries in Argentina, Chile, Colombia and
Venezuela.
(5) The Company acquired a 16% interest in CHS Czechia in January 1993 and
acquired the remaining 84% in October 1995.

RESULTS OF OPERATIONS

The following table sets forth, for the periods presented, the percentage
of net sales represented by certain items in the Company's Consolidated
Statements of Earnings:

[Enlarge/Download Table]

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------------------- ----------- -----------------------
PRO PRO
ACTUAL FORMA ACTUAL FORMA
----------- ----------- ----------- -----------

Net sales ........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ............... 93.0 92.7 92.9 93.3 92.6 92.9 93.2
------- ------- ------- ------- ------- ------- -------
Gross profit ..................... 7.0 7.3 7.1 6.7 7.4 7.1 6.8
Operating expenses ............... 6.1 6.1 5.5 5.3 5.9 5.4 5.0
------- ------- ------- ------- ------- ------- -------
Operating earnings ............... .9 1.2 1.6 1.4 1.5 1.7 1.8
Interest income .................. (.1) (.1) (.1) (.1) (.2) (.2) (.2)
Interest expense .................. .6 .6 .6 .6 .6 .8 .7
------- ------- ------- ------- ------- ------- -------
Earnings before income taxes ...... .4 .7 1.1 .9 1.1 1.1 1.3
Income taxes ..................... .1 .2 .3 .3 .3 .3 .4
Minority interest .................. -- -- .1 .1 .1 -- --
------- ------- ------- ------- ------- ------- -------
Net earnings ..................... .3% .5% .7% .5% .7% .8% .9%
======= ======= ======= ======= ======= ======= =======

FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996

NET SALES. Net sales increased $574.1 million, or 189.5%, from $303.0
million in the first quarter of 1996 to $877.1 million in the first quarter of
1997 due to acquisitions and, to a lesser extent, internal growth. Of the
increase in net sales, new subsidiaries having no first quarter 1996 operations
contributed $307.4 million. Net sales of subsidiaries consolidated for both 1996
and 1997, excluding operations where CHS companies were integrated with
operations acquired from Merisel, grew from $140.3 million to $184.3 million, or
31.4%. This growth is attributed to increased consumer demand for microcomputer
products offered by the Company and the expansion of sales by the Company's
subsidiaries to include a full range of products. Due to the combined financial
reporting of the Merisel subsidiaries with the CHS subsidiaries, it is not
possible to present comparable growth rates for sales of CHS subsidiaries
consolidated for both 1996 and 1997.

GROSS PROFIT. Gross profit increased $39.9 million, or 177.1%, from $22.5
million in the first quarter of 1996 to $62.5 million in the first quarter of
1997 due principally to acquisitions and, to a lesser

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extent, internal growth. Newly acquired companies contributed $22.9 million of
gross profit. Gross profit of subsidiaries consolidated for both 1997 and 1996,
excluding operations where CHS companies were integrated with former Merisel
operations, grew from $11.4 million to $14.8 million, or 30.4%.

Gross margin decreased from 7.4% in the first quarter of 1996 to 7.1% in
the first quarter of 1997. The decrease was due to lower gross margins from
subsidiaries located in Eastern Europe and Latin America. The Company attributes
the decrease in gross margin to competitive pressures in these regions, and the
fact that the gross margin of the former Merisel companies acquired by the
Company in Latin America has been generally lower than that of the Company. The
gross margin was also negatively affected in the first quarter of 1997 by lower
gross margins from subsidiaries in the United Kingdom and France acquired from
Merisel, offset by increased gross margins in German operations. This increase
in gross margins in Germany from those in the first quarter of 1996 is
attributed to the German operation acquired from Merisel, which has a wider
product offering with better margins than the Company's other German operations.
The Company expects that overall gross margins may continue to decline in 1997
due to continued competitive pricing pressures across all regions.

OPERATING EXPENSES. Operating expenses as a percentage of net sales
declined from 5.9% in the first quarter of 1996 to 5.5% in the first quarter of
1997. The decline was due to efficiencies gained through increased volume, the
cost savings of merging operations in the United Kingdom and France, and the
Company's efforts to control costs. Operating expenses for both periods include
the results of foreign currency transactions. Such results were a net gain of
$75,000 and $564,000 in first quarter of 1996 and 1997, respectively.

NET INTEREST EXPENSE. Net interest expense increased $3.5 million or 266%
from $1.3 million in the first quarter of 1996 to $4.8 million in the first
quarter of 1997 due to increased borrowings by the Company to support increased
sales.

INCOME TAXES. Income taxes as a percentage of earnings before income taxes
and minority interest in subsidiaries decreased from 31.5% in the first quarter
of 1996 to 27.0% in the first quarter of 1997. This change is due to lower tax
rates in certain countries, non-taxed income in some countries and the use of
net operating loss carryforwards, offset, to some extent, by losses in
subsidiaries with no tax benefit and non-deductible goodwill amortization. The
Company expects to have an effective tax rate lower than the statutory United
States tax rate in 1997 principally due to its ability to use remaining net
operating loss carryforwards from certain subsidiaries.

1996 COMPARED TO 1995

NET SALES. Net sales increased $918.8 million, or 98.1%, from $936.7
million in 1995 to $1.9 billion in 1996 due principally to acquisitions and, to
a lesser extent, internal growth. Of the increase in net sales, subsidiaries
not included in both 1995 and 1996 contributed $640.7 million. Net comparable
sales of subsidiaries consolidated for both 1995 and 1996 grew $278.1 million
or 29.7%. This growth is attributed to increased consumer demand for
microcomputer products offered by the Company and the expansion of sales by the
Company's subsidiaries to include a full range of products.

GROSS PROFIT. Gross profit increased $63.1 million, or 92.8%, from $68.0
million in 1995 to $131.1 million in 1996 due principally to acquisitions and,
to a lesser extent, internal growth. Gross profit on a comparable basis for
subsidiaries consolidated for both 1995 and 1996 increased $18.3 million, or
26.9%. Subsidiaries not included in both 1995 and 1996 contributed $44.8
million of gross profit.

Gross margin decreased from 7.3% in 1995 to 7.1% in 1996. The decrease was
due to lower gross margins from subsidiaries located in Western Europe,
particularly those operations acquired from Merisel, which, as a result of high
volumes of sales by those entities, had a significant impact on the Company's
gross margin as a whole. The Company attributes the decrease in gross margins to
competitive pressures in this region, especially in Germany. The Company's
subsidiaries in Germany had the lowest gross margins of all its European
subsidiaries in 1996. The Company expects that overall gross

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margin may continue to decline in 1997 due to continued competitive pricing
pressures and the fact that the gross margins of the acquired Merisel companies
have been generally lower than that of the Company and will be included in the
consolidation for the full year. In addition, the acquisition of Frank &
Walter, which operates in Germany, where gross margins are generally lower,
will also impact overall gross margin. The gross margin of the combined Merisel
companies for the nine months ended September 30, 1996 was 6.9%.

OPERATING EXPENSES. Operating expenses as a percentage of net sales
declined from 6.1% in 1995 to 5.5% in 1996. The decline was due to efficiencies
gained through increased sales volume and the Company's efforts to control
costs. The reduction was achieved even though a provision of $1.4 million was
made for restructuring costs incurred by CHS (consisting of severance costs for
CHS employees, write-off of CHS leasehold improvements and lease termination
costs of CHS closed facilities) to implement consolidation in markets in which
a CHS company previously existed and a company was acquired from Merisel. The
operating expense ratio without such charge would have been 5.4% for the year.

NET INTEREST EXPENSE. Net interest expense increased $3.8 million, or
81.2%, from $4.7 million in 1995 to $8.5 million in 1996. The increase is
directly related to the increase in average loan amounts outstanding.

INCOME TAXES. Income taxes as a percentage of earnings before income
taxes and minority interest in subsidiaries increased slightly from 29.4% in
1995 to 29.9% in 1996. Management does not believe this change is significant.
The difference between this tax rate and the statutory United States tax rate
is due to the utilization of net operating loss carryforwards and lower foreign
tax rates, offset to some extent by losses in subsidiaries with no tax benefit
and non-deductible goodwill amortization. The Company expects to have an
effective tax rate lower than the statutory United States tax rate in 1997
principally due to its ability to use remaining net operating loss
carryforwards from certain subsidiaries and lower foreign tax rates in other
subsidiaries.

1995 COMPARED TO 1994

NET SALES. Net sales increased $577.5 million, or 160.8%, from $359.2
million in 1994 to $936.7 million in 1995 due principally to acquisitions and
to a lesser extent, internal growth. Of the increase in net sales, subsidiaries
formed or acquired in 1995 contributed $177.7 million. Net sales of
subsidiaries consolidated for part of 1994 and all of 1995 (CHS Promark, CHS
England, CHS France and CHS Belgium) contributed $352.2 million of the increase
in net sales. Net sales of subsidiaries consolidated for all of 1994 and 1995,
which included CHS Germany, CHS Portugal and 16% of CHS Czechia, grew $47.6
million, or 26.3%. This growth is attributed to increased consumer demand for
microcomputer products offered by the Company.

Net sales to Comtrad related companies decreased from $52.4 million in
1994 to $21.1 million in 1995 and had a gross profit margin equivalent to sales
to unaffiliated parties for similar products.

GROSS PROFIT. Gross profit increased $42.8 million, or 169.9%, from $25.2
million in 1994 to $68.0 million in 1995 due principally to acquisitions and,
to a lesser extent, internal growth. Gross profit for subsidiaries included in
the consolidation for all of 1994 and 1995 did not increase in proportion to
sales as a result of the lowering of prices in Germany in response to increased
competition. Gross profit from such subsidiaries grew $1.7 million or 17.9%.
Gross profit from subsidiaries consolidated for part of 1994 and all of 1995
grew $28.6 million. Newly acquired companies contributed $12.5 million of gross
profit.

Gross margin increased from 7.0% in 1994 to 7.3% in 1995. The increase was
due to higher gross margins from subsidiaries consolidated for part of 1994 and
all of 1995. The Company attributes the increase in gross margin to greater
sales of networking and software products which typically have higher gross
margins than other products offered by the Company.

OPERATING EXPENSES. Operating expenses as a percentage of net sales
remained unchanged at 6.1% in 1994 and 1995.

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NET INTEREST EXPENSE. Net interest expense increased $2.9 million, or
158.1%, from $1.8 million in 1994 to $4.7 million in 1995. The increase in
interest expense is directly related to the increase in average loan amounts
outstanding.

INCOME TAXES. Income taxes as a percentage of earnings before income
taxes decreased from 38.5% in 1994 to 29.4% in 1995. The decrease in the
Company's net effective tax rate is attributed to the utilization of net
operating loss carryforwards and lower foreign tax rates, offset to some extent
by non-deductible goodwill amortization.

SEASONALITY

The Company typically experiences variability in its net sales and net
income on a quarterly basis as a result of many factors, including the
condition of the microcomputer industry in general, shifts in demand for
software and hardware products and industry announcements of new products or
upgrades. Sales in Europe in the first and fourth quarters of each year are
typically higher than in the second and third quarters. In Latin America, sales
in the third and fourth quarters of each year are typically higher than in the
first and second quarters.

LIQUIDITY AND CAPITAL RESOURCES

Net cash of $8.0 million was provided by operating activities in the first
quarter of 1997 as compared to the use of $8.0 million in operating activities
in the first quarter of 1996. In the first quarter of 1997 cash was generated
as a result of decreases in receivables, inventory and other current assets,
offset by decreases in accounts payable. In the first quarter of 1996, cash was
used due principally to increases in inventory and other current assets offset
by increases in accounts payable and other current liabilities. The factors in
1997 are consistent with a seasonal reduction in sales in the first quarter of
1997 compared to the fourth quarter of 1996. Cash of approximately $1.6 million
was used for investing activities in the first quarters of 1997 and 1996 for
fixed asset additions. Cash of $2.8 million was provided in the first quarter
of 1997 due principally to acquisitions. Cash of $9.7 million was used in
financing activities in the first quarter of 1997 and cash of $11.7 million was
provided from financing activities in the first quarter of 1996. The
transactions in both years principally pertained to borrowing or repayments
under financing arrangements.

CHS Promark and one of its subsidiaries (collectively, the "Borrowers") are
parties to a loan and security agreement dated February 5, 1996, as amended,
providing for revolving credit advances and the issuance of letters of credit
against eligible accounts receivable and inventory up to a maximum of $60
million. Amounts outstanding bear interest, at the election of the Borrowers, at
either a variable market rate based on the prime rate of the lender or LIBOR.
The agreement limits the ability of the Borrowers to pay dividends to the
Company to 50% of net income after taxes. The agreement matures in October 1999
and is secured by a lien on essentially all of the Borrowers' assets. The
agreement contains certain restrictive covenants. CHS Promark was in violation
of certain covenants at December 31, 1996; however, waivers were granted in
March 1997 through June 1997. The Company believes it will be in compliance with
such covenants at June 30, 1997 or will obtain an additional waiver. The Company
has guaranteed such indebtedness.

The Company's subsidiaries typically enter into short-term credit
agreements with financial institutions in their countries of operations. As of
March 31, 1997, the aggregate amount available under these agreements was $201
million and $169 million was then outstanding. Such agreements are usually for
a term of one year and are secured by the receivables of the borrower. The
weighted average interest rate at March 31, 1997 was 6.7%. The Company
typically guarantees these loans.

The Company's principal need for additional cash in 1997 will be for the
purchase of additional inventory to support growth and to take greater
advantage of available cash discounts offered by certain of the Company's
vendors for early payment. The Company is seeking additional cash for this
purpose through this Offering and its existing bank credit lines and through
additional credit facilities, but there can be no assurance that financing will
be available on terms acceptable to the Company. The unavailability of such
financing could adversely affect the growth of the Company.

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The Company derives all of its operating income and cash flow from its
subsidiaries and relies on payments from, and intercompany borrowings with, its
subsidiaries to generate the funds necessary to meet its obligations. In
certain countries, exchange controls may limit the ability of the Company's
subsidiaries to make payments to the Company. Restrictions in financing or
credit arrangements may also limit such payments. Claims of creditors of the
Company's subsidiaries will generally have priority as to the assets and cash
flow of such subsidiaries over the claims of the Company or its subsidiaries.

INFLATION

The Company operates in certain countries that have experienced high rates
of inflation and hyperinflation. However, inflation did not have any meaningful
impact on the Company's results of operations in the three-year period ended
December 31, 1996, and the Company does not expect that it will have a material
impact in 1997.

ASSET MANAGEMENT

INVENTORY. The Company's goal is to achieve high inventory turns and
maintain a low number of SKUs and thereby reduce the Company's working capital
requirements and improve return on equity. The Company's strategy to achieve
this goal is to both effectively manage its inventory and achieve high order
fill rates.

To reduce the risk of loss to the Company due to vendor price reductions
and slow moving or obsolete inventory, the Company's contracts with its vendors
generally provide price protection and stock rotation privileges, subject to
certain limitations. Price protection allows the Company to offset the accounts
payable owed to a particular vendor if such vendor reduces the price of
products the Company has purchased within a specified period of time and which
remain in inventory. Stock rotation permits the Company to return to the vendor
for full credit, with an offsetting purchase order for new products,
predetermined amounts of inventory purchased within a specified period of time.
Such credit is typically used to offset existing invoices due without incurring
re-stocking fees.

ACCOUNTS RECEIVABLE. The Company manages its accounts receivable to
balance the needs of its customers to purchase on credit with its desire to
minimize its credit losses. Bad debt expense as a percentage of the Company's
net sales for the years ended 1994, 1995 and 1996 was 0.4%, 0.3% and 0.2%,
respectively. The Company's credit losses have been minimized by its extensive
credit approval process and the use of credit insurance and factoring by its
Western European subsidiaries. In its sales to customers in Latin America, the
Company often receives post-dated checks at the time of sale. Customers who
qualify for credit are typically granted payment terms appropriate to the
customs of each country.

CURRENCY RISK MANAGEMENT

FUNCTIONAL CURRENCY. The Company's functional currency, as defined by
Statement of Financial Accounting Standards No. 52, is the United States
dollar. The local currencies of the countries where subsidiaries conduct
operations are considered the functional currencies for such entities. Most of
the Company's subsidiaries use the local currencies as their functional
currency and translate assets and liabilities using the exchange rates in
effect at the balance sheet date and results of operations using the average
exchange rates prevailing during the period. Translation effects are reflected
in the cumulative foreign currency translation adjustment in equity. The
Company's exposure under these translation rules, which is unhedged, may affect
the carrying value of its foreign net assets and therefore its equity and net
tangible book value, but not its net income or cash flow. Exchange differences
arising from transactions and balances in currencies other than the functional
currency are recorded as expense or income in the subsidiaries and the Company
and affect the Statements of Earnings.

HEDGING AND CURRENCY MANAGEMENT ACTIVITIES. The Company attempts to limit
its risk of currency fluctuations through hedging where possible. In the
quarter ended March 31, 1997, a significant amount

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of the purchases of products by the Company were made in United States dollars
and approximately 87% of Company sales were made in currencies other than the
United States dollar. The most significant currencies in which sales were made
were the German mark (35% of sales), the French franc (10%) and the British
pound (10%). At March 31, 1997, approximately $161 million of accounts payable
were attributable to foreign currency liabilities denominated in currencies
other than the subsidiaries' functional currencies. Of these, $132 million was
denominated in United States dollars and $22 million was denominated in German
marks. Approximately 60% of these liabilities were unhedged. The most
significant unhedged amounts were recorded in Dutch guilders ($22 million),
Czech krona ($14 million) and Colombian pesos ($9 million).

In March 1995, the Company formed CHS Finance, which engages in
centralized treasury functions including hedging activities related to foreign
currency for the Company and short-term working capital loans to the Company's
subsidiaries to enable them to take advantage of early payment discounts
offered by certain vendors. These loans are denominated in the functional
currency of the borrowing subsidiary or United States dollars. Generally, CHS
Finance hedges its receivables denominated in currencies other than its
functional currency, the Swiss franc. It attempts to limit the amount of
unhedged receivables to an amount which approximates the United States dollar
denominated loans payable by the Company's subsidiaries. In the fourth quarter
of 1996, the Company modified this policy to allow unhedged receivables,
principally in United States dollars and German marks, of an amount
approximately equal to its total unhedged liabilities. This modified policy
continued through the first quarter of 1997. The Company intends to review this
policy periodically and may modify it in the future.

Through both hedging activities coordinated by CHS Finance and subsidiary
hedging activities, the Company makes forward purchases of United States
dollars in an attempt to hedge certain European currencies and reduce exposure
to fluctuations in exchange rates. Additionally, in certain countries in
Eastern Europe and in Latin America where it is not practical to make forward
purchases, to minimize exposure to currency devaluations, the Company has
adopted a policy of attempting to match accounts receivable with accounts
payable and to limit holdings of local currencies. In these countries, the
Company attempts to sell products at the United States dollar equivalent rate.
Factors which affect exchange rates are varied and no reliable prediction
methods are available for definitively determining future exchange rates. In
general, countries make an effort to maintain stability in rates for trade
purposes. There can be no assurance that these asset management programs will
be effective in limiting the Company's exposure to these risks. For financial
reporting purposes, the Company marks to market all of its forward currency
contracts.

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BUSINESS

CHS is a leading international distributor of microcomputer products,
including personal computers, peripherals, networking products and software.
CHS operates in 29 countries across three regions, including Western Europe,
Eastern Europe and Latin America, and services an active customer base of
greater than 66,000 resellers. Substantially all of the products sold by the
Company are manufactured by 35 vendors, including such market leaders as
Hewlett-Packard, Microsoft, Seagate, IBM, Compaq, Western Digital, Intel, 3Com,
Canon, Novell, Epson and Creative Labs. The Company is a focused distributor,
as opposed to a broadline distributor, and seeks to represent leading vendors
within specific product categories. CHS believes that it is the fourth largest
distributor of microcomputer products in the world, the second largest
distributor in Europe and the largest distributor in Latin America and Eastern
Europe. The Company has no significant sales in the United States.

The Company has pursued an aggressive strategy of growth through
acquisitions which, together with growth in its existing business, has enabled
the Company to significantly increase net sales and achieve strong operating
results. Most recently, on June 20, 1997, the Company entered into an agreement
to purchase, for $160 million, Karma, a distributor of personal computer
components to over 10,000 customers in Europe, the Middle East and Asia. Net
sales and operating earnings of Karma in 1996 were $700.2 million and $18.5
million, respectively. See "Recent Developments." In the three-year period
ended December 31, 1996, net sales of the Company increased from $359.2 million
in 1994 to $1.9 billion in 1996 and operating earnings of the Company increased
from $3.4 million in 1994 to $28.9 million in 1996. On a pro forma basis,
assuming all 1996 acquisitions including the acquisition of the distribution
businesses of Merisel, and the 1997 acquisitions of Karma and Frank & Walter
were made on January 1, 1996, the Company's 1996 net sales and operating
earnings would have been $4.3 billion and $60.9 million, respectively. See
"Selected Consolidated Financial Data" and Pro Forma Condensed Consolidated
Financial Statements.

CHS operates under a decentralized structure under which managers familiar
with the customs and needs of a particular country are delegated the authority
to make daily decisions necessary to satisfy the particular demands of their
respective markets. As compared to certain competitors which operate under a
more centralized system, the Company believes that its business model of
focused distribution through locally managed full service facilities
integrating warehousing, purchasing, sales, credit and accounting services
provides competitive and operating advantages.

INDUSTRY

The microcomputer products distribution industry has grown significantly
in recent years, primarily due to increasing demand worldwide for computer
products and the use of distribution channels by vendors for the distribution
of their products. Historically, there have been two types of companies within
the industry: those that sell directly to the end-user ("resellers") and those
that sell to resellers ("distributors"). Distributors generally purchase a wide
range of products in bulk directly from vendors and then ship products in
smaller quantities to many different types of resellers, which typically
include dealers, VARs, system integrators, mail order resellers, computer
products superstores and mass merchants.

The Company believes that the microcomputer products industry is
well-suited for distribution. The large number and diversity of resellers make
it cost efficient for vendors to outsource to distributors, such as the
Company, a portion of their distribution, credit, inventory, marketing and
customer support requirements. Similarly, due to the large number of vendors,
resellers generally cannot efficiently establish direct purchasing
relationships with each vendor and instead rely on distributors to satisfy a
significant portion of their product, financing, marketing and technical
support needs.

The Company believes the distribution segment of the microcomputer
products industry will continue to grow. More vendors are using the
distribution channel as declining hardware prices, coupled

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with rising selling costs, make it difficult for vendors to efficiently deal
directly with resellers. The Company believes that resellers are increasingly
relying on distributors for inventory management and credit rather than
stocking large inventories themselves and maintaining credit lines to finance
resellers' working capital needs. The Company also believes the distribution
industry is consolidating as access to financial resources and economies of
scale become more critical and as certain vendors limit the number of
authorized distributors of their respective products.

The Company's Pan-European and Pan-Latin American presence strategically
positions the Company to take advantage of the consolidation trend in the
distribution industry. According to IDC, in 1996, Western Europe represented
approximately 24% of the worldwide personal computer market. Additionally, the
regions in which the Company operates are relatively underpenetrated compared
to the United States. The penetration rate with respect to computers for 1995
was 18.4% in Western Europe, 2.4% in Eastern Europe and 2.1% in Latin America
as compared to a penetration rate of 36.5% in the United States. A significant
portion of the Company's sales are in the emerging markets of Eastern Europe
and Latin America, regions which the Company believes are underserved relative
to the entire industry and offer substantial growth opportunities. According to
IDC, Latin America is expected to be the most rapidly growing personal computer
market in the world between 1997 and 2001. IDC projects that personal computer
sales in Latin America, Eastern Europe, the Middle East, the Mediterranean and
Africa, referred to by IDC as the "rest of the world," will grow from $14.9
billion in 1997 to $21.6 billion in 1999, representing a compound annual growth
rate of 20.3%. This compares favorably to a 9.0% compound annual growth rate
projected by IDC for personal computer sales in the United States over the same
period.

The Western European, Eastern European and Latin American markets are each
highly fragmented. Different languages, cultures and technological factors
require experienced local management teams and products which meet the
requirements of the specific area. Requirements that are unique to an area
include customized manuals, approvals of safety factors by local authorities,
microcode which permits the generation of characters in local languages, and
voltage standards. These factors require distributors in these markets to carry
a variety of different SKUs to meet such demands. As a result, vendors depend
heavily on distributors such as the Company to meet the differing demands of
each locale.

STRATEGY

To achieve its objectives of strengthening its position as a leading
distributor of microcomputer products in Western Europe, Eastern Europe and
Latin America and expanding into new regions including Africa, the Middle East
and Asia, the Company has adopted the following strategies:

/bullet/ GROW THROUGH ACQUISITIONS. A major portion of the Company's growth
is attributable to acquisitions and the Company intends to continue its
practice of making targeted purchases of high quality distributors in
selected markets. During the period which began January 1, 1994 and ended
March 31, 1997, the Company acquired a total of 34 companies, the most
significant of which were seven companies from Merisel in Europe and Latin
America and Frank & Walter in Germany. The Company generally seeks
acquisition candidates that have strong entrepreneurial management teams
and experience in the local market and that could benefit from the
economies of scale that the Company provides through its focused product
lines. In order to reduce financial risk and enhance operating
performance, in many cases the Company structures an acquisition with an
earnout component based on the performance of the acquired company and
generally payable in shares of Common Stock one year subsequent to the
acquisition. The Company also makes select acquisitions using cash or
stock without an earnout component. These local distributors generally are
attracted to combining with CHS in order to gain personal financial
liquidity, access to key product lines provided by CHS and enhanced vendor
credit facilities. After an acquisition, the new CHS subsidiary adopts the
policies and financial reporting procedures of the Company but operates as
a relatively autonomous business unit, consistent with the Company's
decentralized structure. The Company believes its acquisition strategy is

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advantageous to its vendors because, through their relationship with CHS,
vendors may gain entry into new markets with established local
distribution companies and can substitute the creditworthiness of CHS for
that of the local distributor.

/bullet/ OPERATE A FOCUSED DISTRIBUTION MODEL. The Company's strategy is to
operate as a focused distributor by dealing in each location with a
limited and select group of high quality branded vendors in each major
product category, such as Hewlett-Packard for printers, Microsoft for
software, Novell for networking, Seagate for mass storage and
Hewlett-Packard, Compaq and IBM for personal computers. Additionally, the
Company seeks to be a significant distributor for each of its major
vendors and establish a partnering relationship with them. The Company
believes that this focused strategy enables it to respond more quickly to
customer requests and gives it greater availability of products, access to
new products and improved pricing. The Company believes this strategy also
enables it to develop greater expertise in the sale and servicing of the
products of these vendors. The Company believes that its focused
distribution model also results in more effective asset management.
Generally, products from leading vendors are in greater demand, resulting
in more efficient inventory management, including greater inventory turns,
lower working capital requirements and fewer SKUs. CHS generally maintains
up to 10,000 SKUs per location while broadline distributors typically
carry greater than 40,000 SKUs.

PRODUCTS AND CUSTOMERS

The Company's sales consist of hardware and software products such as
local area networks, disk drives, personal computers and printers to an active
customer base, as of March 31, 1997, of more than 66,000 VARs and computer
retailers. The Company's products also include components such as random access
memory chips, central processing units and integrated circuit boards. For the
quarter ended March 31, 1997, the Company's product mix by category was
printers (20%), personal computers (19%), mass storage (15%), software (14%),
peripherals (11%), semiconductors (7%), networking (6%) and other (8%).

The Company purchases its products directly from hardware manufacturers
and software publishers in large quantities. As a focused distributor, the
Company focuses on a small number of leading vendors in each product category
and on a small number of high volume items of that manufacturer or publisher.
As a result, the Company carries fewer individual products than the broadline
distributors and works with fewer vendors. The Company generally maintains up
to 10,000 SKUs per location while broadline distributors typically carry
greater than 40,000 SKUs.

The Company's customers typically rely on distributors as their principal
source of microcomputer products and financing. The Company's backlog of orders
is not considered material to an understanding of its business. No single
customer accounted for more than two percent of the Company's net sales in the
quarter ended March 31, 1997.

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VENDOR RELATIONS

The Company obtains its products from its vendors under non-exclusive
distribution agreements, which are subject to renewal annually and may be
canceled by either party on short notice. Under these agreements, the Company
has the right to purchase products at discounts from the list prices. The
amounts of the discounts are determined each year at the time of renewal on the
basis of the projected sales of the Company for the following year and vary for
each vendor. The Company is not required to make additional product payments if
it fails to achieve its projected sales level for the year, but its product
discounts in the following year may be reduced because of the lower sales
levels. While the Company distributes the products of approximately 35 vendors,
approximately 26% of its net sales during the first quarter of 1997 were
derived from the sale of products supplied by Hewlett-Packard. An additional
10% of net sales during the first quarter of 1997 were derived from the
Company's next largest supplier, Microsoft.

The Company's agreements with vendors typically provide a form of price
protection specifying that if the list price of a product is reduced by the
vendor, the Company will typically receive a credit in the amount of the
reduction in distributor cost for each item of the product in inventory.

The Company also has stock rotation arrangements with substantially all of
its vendors. Stock rotation permits the Company to return inventory for full
credit in an amount equal to a certain percentage of the Company's purchases
from the supplier over a specific period. In certain cases, the Company must
purchase inventory at least equal in value to that returned. These agreements
permit the Company to maintain higher inventory levels while limiting the
amount of committed working capital related to slow-moving items.

Vendors deliver products against purchase orders tendered by the Company.
The Company will often request specific delivery dates in its purchase orders
and lead times for delivery from vendors are typically short. Delivery is,
however, subject to availability, and vendors have no liability to the Company
for failure to meet a delivery date. The Company experiences delivery delays
and inventory shortages from time to time. In the opinion of management, these
delays and shortages are common to other distributors of microcomputer
products, in general, and do not have a significant adverse impact on the
Company's operations.

The Company's vendors have increased available credit to the Company
commensurate with its growth. Many of the Company's vendors provide discounts
for prompt payment. Generally, the Company is required to make payment within
14 to 90 days following delivery of products. With some vendors, the Company
can earn a discount for early payment of between 1.5% and 3% of the invoice
amount. To the extent sufficient funds are available, the Company attempts to
take advantage of these discounts. The Company believes that after the
completion of this Offering it will be better able to utilize such discounts.

Generally, the Company's vendors have the right to terminate their
respective distribution agreements on short notice to the Company. In some
cases, the Company must be given a reasonable opportunity to cure any violation
of the agreement before it may be terminated. The Company similarly has the
right to terminate its distribution agreements on short notice to the vendor.
The Company is of the opinion that its relationships with its vendors are good,
and has no reason to believe that its current material distribution agreements
will be terminated or not renewed in the foreseeable future.

SALES, MARKETING AND CUSTOMER SUPPORT

In order to effectively address the individual customs, practices and
business conventions within countries, each operating subsidiary of the Company
maintains general autonomy with respect to sales, marketing and customer
support. Oversight and strategic direction are provided by senior management of
the Company.

SALES. The Company markets its products to resellers, who either package
the Company's products with other computer equipment or sell the products on
an individual basis to end-users. As of

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March 31, 1997, the Company distributed products to approximately 43,000 active
resellers in Western Europe, 14,000 in Latin America and 9,000 in Eastern
Europe.

Each operating subsidiary maintains a sales staff organized to interface
effectively with its respective customer base. As of March 31, 1997,
approximately 47% of the Company's employees were involved with sales
activities.

The Company's customers typically place orders with a sales
representative. Almost all orders are for pick-up or next day delivery. The
Company's computer systems generally allow the salesperson to check customer
credit limits, current inventory levels and pricing.

MARKETING. The Company utilizes a variety of programs to market its major
vendors' products, including direct mailings, periodic advertising by
facsimiles, advertisements in industry trade publications, product brochures,
seminars and participation in select trade shows. Marketing programs are
effectuated at the subsidiary level and are designed to build awareness of the
Company, its products and their collective capability. Each operating
subsidiary maintains staff to provide marketing support.

Funds for the Company's advertising budget generally are obtained from
cooperative advertising reimbursements and market development funds provided by
vendors. Cooperative reimbursements typically have represented approximately 1%
to 2% of the dollar amount of products purchased from those major vendors.
Marketing programs designed for cooperative reimbursement are vendor and
product specific and are designed with vendor approval. Market development
funds are provided to create market awareness of vendors' products. Cooperative
advertising reimbursements and market development funds are recorded in the
Company's financial statements as a reduction to selling, general and
administrative expenses.

CUSTOMER SUPPORT. Under several vendor agreements, the Company is
required to maintain a staff of qualified and trained sales, repair, and
support employees who are able to provide information and advice to resellers,
provide warranty repair service and train resellers on the vendor's products,
their applications, configurations with other computer products, and
installation and support requirements. The employees of the Company fulfilling
these functions are required to complete training courses provided by the
vendor.

In addition, the Company supports all products with a full manufacturer's
warranty and maintains an industry standard return policy, similar to that of
its competitors.

INTERNAL AUDIT

The Company currently maintains four internal auditors on its staff, three
for Europe and one for Latin America. These auditors report directly to the
President and the Chief Financial Officer of the Company and to the Audit
Committee of the Board of Directors. The Company intends to expand its internal
audit staff consistent with its growth.

COMPETITION

The Company operates in an industry which is characterized by intense
competition based on price, product availability, provision of credit to
customers, delivery time, customer support services and breadth of product
line. Competitors exist in a variety of forms including direct sales by
vendors, mail order sales, international distributors, and local distributors.
Some of the Company's competitors have greater financial and administrative
resources than the Company. The Company believes availability of product is a
key element of competitiveness and attempts to differentiate itself from its
competition by providing a select number of name brands in each product line
and maintaining a sufficient inventory of select products to meet demand. The
Company enhances its competitive position by providing responsive customer
service through support and employee training programs. The Company believes
that its vendors and their products are respected in the industry for high
quality and performance.

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Vendor contracts frequently limit sales of their products to specific
geographic areas. Although these restrictions limit the ability of the
Company's subsidiaries to sell outside of their jurisdictions, competition in
the subsidiary's area is also reduced.

EMPLOYEES

At March 31, 1997, the Company employed 2,832 full-time employees of whom
245 were located in the United States. Of the total number of employees, 1,334
worked in marketing and sales, 540 worked in warehousing and delivery and 958
were employed in other positions, including administration. Employees in
certain countries are represented by labor councils mandated by government
regulations which determine compensation and benefits. With these exceptions,
none of the Company's employees are represented by unions. Severance costs
associated with termination of employment in many countries are higher than in
the United States. There has been no disruption of operations due to a labor
dispute. Management considers its employee relations to be good.

FACILITIES

The corporate headquarters of the Company is located at 2153 N.W. 86th
Avenue, Miami, Florida, which is also the principal operational facility for
CHS Promark. Approximately 1,200 square feet of this facility is allocated to
the Company's offices and the remaining 32,800 square feet are used as
administrative, service, and warehouse space for CHS Promark.

The Company's facilities are described below:

COUNTRY SQUARE FEET LEASE EXPIRATION
------------------------ ------------- -----------------
Argentina 9,469 *
Austria 6,994 2000
Belgium 46,354 2001-2003
Brazil 16,100 2001
Bulgaria 3,443 1997
Chile 16,140 2005
Colombia 431 *
32,292 1997-2000
Croatia 1,938 1997
Czech Republic 25,469 *
11,029 1998
Ecuador 5,855 1999
Estonia 11,580 2010
Finland 22,596 1999
France 128,980 1998-2001
Germany 256,676 1998-2010
100,373 *
Hungary 39,565 2006
Latvia 2,873 2002
Lithuania 739 *
Mexico 24,593 1997-2000
The Netherlands** 198,522 2005
Peru 6,133 2000-2001
Poland 26,684 1997
Portugal 12,500 2002
Russia 38,230 2000
Slovakia 4,745 1997
Sweden 11,840 1998
Switzerland 3,000(1) 2001
45,902(2) 1998-2000

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COUNTRY SQUARE FEET LEASE EXPIRATION
--------------------- ---------------- -----------------
United Kingdom 135,207 2003-2016
10,000 *
United States 18,300(3) 1998-2000
232,939(4) 2002
Uruguay 8,608 1999
Venezuela 8,178 1997-2001

----------------
* Owned facility.
** The Company is seeking to sell its Helmond warehouse facility leasehold
interest.
(1) CHS Finance facility.
(2) CHS Switzerland facilities.
(3) CHS BEK facility.
(4) CHS Promark and CHS Merisel Latin America facilities.

In each of the countries, the size set forth above includes sales,
administrative and warehousing functions and may be composed of multiple
facilities. The Company considers its existing facilities to be adequate for
its foreseeable needs.

LEGAL PROCEEDINGS

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MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The executive officers and directors of the Company, as well as certain
key employees, and their ages as of June 1, 1997, are as follows:

[Enlarge/Download Table]

NAME AGE POSITION
---------------------- ----- -------------------------------------------------------------

Claudio Osorio 37 Chairman of the Board, Chief Executive Officer and President
Alvin Perlman 70 Executive Vice President--Latin American Region and Director
Carsten Frank 34 Executive Vice President--European Region and Director
Craig Toll 49 Chief Financial Officer and Treasurer
Antonio Boccalandro 30 Secretary and Director
Pasquale Giordano(1) 47 Chief Operating Officer--European Region
Clifford Dyer(1) 59 Chief Operating Officer--Latin American Region
Zbynek Kraus 44 Manager of Czech Republic Operation and Director
Otto Gerlach 70 Director
Pierino Lardi 49 Director
Donald D. Winstead 59 Director

----------------
(1) Each of these persons is a significant employee, but not an executive
officer of the Company.

CLAUDIO OSORIO (full name--Claudio Eleazar Osorio Rodriguez), the founder
of the Company's current business and operations, has served as the President,
Chief Executive Officer, and a director of the Company since 1993. Mr. Osorio
has served as President of Comtrad since 1988. He is a director of Comtrad and
the President and a director of CHI.

ALVIN PERLMAN has been a director and the Executive Vice President--Latin
American Region of the Company since 1994. He has served for the past five
years as the Chief Executive Officer of Zemex Electronics, Inc., d/b/a CHS
Promark, and was the sole owner of CHS Promark prior to its acquisition by the
Company in June 1994. Mr. Perlman has also served as a director of CHI since
November 1994.

CARSTEN FRANK has been a director of the Company since May 1997 and has
been Executive Vice President--European Region of the Company since January
1997. Mr. Frank founded Frank & Walter in 1988 and has served as such company's
Managing Director since its formation. Frank & Walter was acquired by the
Company in March 1997.

CRAIG TOLL has been the Chief Financial Officer of the Company since July
1994 and its Treasurer since June 1995. Mr. Toll was self-employed as a
consultant to CHS Promark from April 1994 to June 1994. For over five years
prior to April 1994, Mr. Toll was a partner in the accounting firm of Deloitte
& Touche.

ANTONIO BOCCALANDRO has been a director and the Secretary of the Company
since 1993. He was Treasurer of the Company from December 1993 to June 1995. He
has also been employed in various capacities by Comtrad since 1988. Mr.
Boccalandro became a director of Comtrad in 1990 and he has been a director of
CHI since June 1994.

PASQUALE GIORDANO has been the Chief Operating Officer--European Region of
the Company since January 1, 1997. From January 1989 through December 31, 1996,
Mr. Giordano was the President and Chief Operating Officer of CHS Promark.
Prior to such service, he was a Vice President of CHS Promark in charge of its
New York office. From 1988 until he joined CHS Promark in 1989, Mr. Giordano
was Vice President of the electronics division of Abraham & Strauss, a division
of Federated Department Stores, Inc.

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CLIFFORD DYER has been the Chief Operating Officer--Latin American Region
since January 1, 1997. From February 1987 until it was acquired by the Company
in October 1996, Mr. Dyer was President of Merisel Latin America, Inc. and was
responsible for all Latin American operations. He was the founder in 1982 of
the predecessor company to Merisel Latin America, Inc. Prior to 1982, Mr. Dyer
was President of GTE Venezuela and held directorships in various companies.

ZBYNEK KRAUS has been a director of the Company since March 1996 and, since
1993, the General Manager of the Company's Czech Republic operation. From
January 1996 to December 31, 1996, Mr. Kraus served as Vice President - East
European Region of the Company. From 1990 to 1993, he was an owner and the sales
director of the Czech Republic operation.

OTTO GERLACH has been a director of the Company since August 1994, and is a
principal owner and has served for over five years as the President of Larco,
C.A., a privately-owned wholesale import/ export and manufacturing company based
in Caracas, Venezuela.

PIERINO LARDI has been a director of the Company since May 1997. Mr. Lardi
has been Chief Executive Officer and President of Banca Commerciale Lugano
since 1995. Mr. Lardi served as Executive Vice President of United Overseas
Bank from 1985 through 1995.

DONALD D. WINSTEAD has been a director of the Company since 1993 and has
been self-employed as a business consultant since June 1991. In connection with
his consulting activities he has served since October 1993 as the Chief
Executive Officer and a director of Medical Resource Group Inc., a closely held
Nevada corporation engaged in the business of medical equipment leasing and
rental. For over three years prior to June 1991, Mr. Winstead was the Chairman
of the Board and Chief Executive Officer of Netcor Inc., a company engaged in
the manufacture and sale of communications equipment.

The term of office of each director of the Company ends at the next annual
meeting of the Company's shareholders or when his successor is elected and
qualified. Officers of the Company serve at the discretion of the Board of
Directors, subject to the terms of any employment agreements with the Company.
There are no family relationships among any of the Company's executive officers
and directors.

Comtrad and CHI have agreed to vote their shares of Common Stock in favor
of Mr. Frank's election to the Company's Board of Directors at the Company's
pending 1997 Annual Meeting of Shareholders and thereafter.

All of the Company's directors who are not employees of the Company receive
$250 for attendance at each Board of Directors meeting and are reimbursed for
travel expenses incurred to attend such meetings. Directors who are employees of
the Company do not receive separate compensation for their service as directors.
No separate payment is made for attending committee meetings.

The Company has an Audit Committee and a Compensation Committee. The Audit
Committee, composed of Messrs. Gerlach and Winstead, is responsible for
reviewing and making recommendations regarding the Company's employment of
independent auditors, the annual audit of the Company's financial statements
and the Company's internal accounting practices and policies. The Compensation
Committee, composed of Messrs. Gerlach and Winstead, is responsible for making
recommendations to the Board of Directors regarding compensation arrangements
for senior management, recommendations concerning the adoption of any
compensation plans in which management is eligible to participate and grants of
stock options or other benefits under such plans.

EMPLOYMENT ARRANGEMENTS

The Company has entered into three-year employment agreements with Messrs.
Osorio, Toll and Frank. Mr. Osorio's agreement was effective January 1, 1996,
Mr. Toll's agreement was effective July 1, 1996 and Mr. Frank's agreement was
effective as of January 1, 1997. The agreements for Messrs. Osorio

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(as amended), Toll and Frank provide for annual salaries of $750,000, $200,000
and $350,000, respectively, and in the case of Mr. Osorio, requires him to
devote substantially all of his time and attention to the business and affairs
of the Company, and, in the case of Messrs. Toll and Frank, requires them to
devote their full time and attention to the business and affairs of the
Company. Mr. Frank's agreement provides for a minimum bonus of $150,000 per
year. The agreements also provide that upon termination of employment without
"cause" or termination by the executive for "good reason" (which includes a
change of control of the Company), the executive is entitled to receive, in
addition to all accrued or earned but unpaid salary, bonus or benefits, an
amount equal to two and one-half times base salary paid to the executive during
the last full year prior to termination of employment, together with an amount
equal to the bonus paid to the executive in the prior year multiplied by a
fraction, the numerator of which is the number of days elapsed in the then
current year through termination and the denominator of which is 365. The
agreements also provide that the executive will not compete with the Company
during his employment and for two years thereafter unless the Company
terminates the executive without "cause" or the executive terminates his
employment for "good reason."

Under the terms of the Company's employment agreement with Alvin Perlman
dated June 30, 1994, Mr. Perlman is employed as an executive vice president of
the Company, and Chief Executive Officer and Chairman of the Board of CHS
Promark. The term of the agreement is five years. Mr. Perlman receives an
annual salary of $500,000 and other benefits commensurate with his position,
and is entitled to participate in any group or employee benefit or insurance
plans. Upon termination of Mr. Perlman's employment as a result of death or
disability, he (or his estate) receives 50% of his compensation for the balance
of the term of the agreement. Mr. Perlman may terminate the agreement upon a
change in more than 50% of the ownership of CHS Promark in which case he is to
receive his full compensation for the balance of the term of the agreement.
Under the agreement, Mr. Perlman is prohibited from competing with the Company
for two years in the Western Hemisphere after his employment terminates.

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PRINCIPAL SHAREHOLDERS

The following table sets forth certain information concerning the
beneficial ownership of the Common Stock as of June 16, 1997 and as adjusted to
reflect the sale of 10,000,000 shares by the Company by (i) each person known by
the Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each director and executive officer of the Company, and (iii) all
executive officers and directors of the Company as a group. Except as otherwise
indicated, the Company believes that all beneficial owners named below have sole
voting and investment power with respect to all shares of Common Stock
beneficially owned by them.

[Download Table]

PERCENTAGE
BENEFICIALLY OWNED
----------------------
NUMBER OF SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER(1)(2)(3) BENEFICIALLY OWNED OFFERING OFFERING
------------------------------------- -------------------- ---------- ---------

Claudio Osorio(4) .................. 3,959,385 26.2% 15.8%
Alvin Perlman(4) .................. 3,959,385 26.2% 15.8%
Carsten Frank ..................... 2,200,000 15.0% 8.9%
Antonio Boccalandro(5) ............ 938 * *
Otto Gerlach(6) .................. - - -
Zbynek Kraus(7) .................. - - -
Pierino Lardi ..................... - - -
Donald D. Winstead(8) ............ 22,500 * *
Craig Toll(9) ..................... 67,500 * *
All officers and directors as a group
(9 persons) ..................... 6,250,323 41.2% 24.8%
Comtrad(4)(10) ..................... 3,959,385 26.2% 15.8%
Merrill Lynch & Co., Inc.(11)........ 1,006,400 6.8% 4.1%
Marsh & McLennan Companies, Inc.(12). 928,423 6.3% 3.8%

----------------
* Less than 1%
(1) The address for each of the executive officers and directors is 2153 N.W.
86th Avenue, Miami, Florida 33122, except for Carsten Frank which is
Hansestrasse 47, 38112 Braunschweig Germany.
(2) Except as noted, all shares are held beneficially and of record.
(3) Under Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or
the power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the
shares (for example, upon exercise of an option) within 60 days of the
date as of which the information is provided. In computing the percentage
ownership of any person, the amount of shares outstanding is deemed to
include the amount of shares beneficially owned by such person (and only
such person) by reason of these acquisition rights. As a result, the
percentage of outstanding shares of any person as shown in this table does
not necessarily reflect the person's actual ownership or voting power with
respect to the number of shares of Common Stock actually outstanding as of
June 16, 1997.
(4) Includes 367,029 shares held of record by Comtrad, a wholly-owned
subsidiary of CHI, 3,169,500 shares held of record by CHI, 47,576 shares
held of record by Penrose Trading Co. S.A. (a shareholder of CHI and of
which Mr. Osorio has effective control) and currently exercisable options
to purchase 375,280 shares held by Mr. Osorio. Claudio Osorio and Alvin
Perlman together own and control a majority of the issued and outstanding
capital stock of CHI, and Messrs. Osorio and Perlman have entered into an
agreement pursuant to which they have agreed to vote their shares of CHI
common stock together on certain matters submitted to the shareholders of
CHI. Alvin Perlman, CHI and Comtrad have agreed to vote all shares of the
Common Stock they own or control, together on any matter submitted to the
shareholders of the Company. In addition, Messrs. Osorio and Perlman and
CHI are parties to an agreement which grants to Mr. Osorio and Comtrad,
until June 30, 1997, the right to acquire all, but not less than all, of
the shares of Common Stock of the Company and the shares of Comtrad Common
Stock owned by Mr. Perlman. Mr. Perlman may reject all or a portion of
such exercise; provided, however, that any shares as to which the option
exercise is rejected are excluded from a right granted by the agreement to
Mr. Perlman to put the referenced shares to Mr. Osorio. The put option may
be exercised during the period beginning July 1 and ending July 31, 1997.
CHI has guaranteed Mr. Osorio's obligations and has pledged 676,006 shares
of Common Stock in connection therewith, which shares are included in the
above aggregate ownership. Subject to the claims of certain creditors, the
holders of CHI Class A common stock (which includes Penrose Trading Co.
S.A.) have a liquidation preference on the 965,000 shares of Company
Common Stock owned by CHI. Further, subject to the claims of certain
creditors and subject to the rights of holders of CHI Class A common
stock, the holders of CHI Class B common stock have a liquidation
preference on 287,500 shares of Company Common Stock held by CHI or any
subsidiary thereof. Based on the foregoing relationships and agreements,
Claudio Osorio, Alvin Perlman, CHI, and Comtrad may be deemed to have
shared voting and investment

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control over the above-indicated aggregate number of shares of Common
Stock. Such shares exclude 100,000 shares of Common Stock which Comtrad is
obligated to deliver to the sellers of three entities purchased by Comtrad
and subsequently sold to the Company.
(5) Mr. Boccalandro holds currently exercisable options to purchase 938 shares
of Common Stock. Mr. Boccalandro is a director of CHI, who serves at the
discretion of the controlling shareholders of CHI, Messrs. Osorio and
Perlman. Accordingly, Mr. Boccalandro disclaims any investment or voting
control with respect to the Common Stock owned and controlled by CHI.
(6) Mr. Gerlach owns approximately 11.8% of the outstanding common shares of
CHI and 16.7% of the shares of Class A common stock of CHI which, subject
to the claims of certain creditors, have a liquidation preference on
965,000 shares of Common Stock owned by CHI. Mr. Gerlach disclaims
beneficial ownership of the shares of Common Stock held by CHI and
Comtrad.
(7) Mr. Kraus is a shareholder of Penrose Trading Co. S.A. which is a
shareholder of CHI and the Company. Mr. Kraus disclaims beneficial
ownership of the shares of the Company held by Penrose Trading Co. S.A.
and CHI.
(8) Mr. Winstead is the holder of currently exercisable options to purchase
22,500 shares of Common Stock.
(9) Mr. Toll is the holder of currently exercisable options to purchase a
total of 47,500 shares of Common Stock.
(10) The address for Comtrad and CHI is P.O. Box 660708, Miami Springs, Florida
33266.
(11) The address for Merrill Lynch & Co., Inc. is World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281. The information relating
to the Common Stock is based on a Schedule 13G, dated February 14, 1997.
(12) The address for Marsh & McLennan Companies, Inc. is 1166 Avenue of the
Americas, New York, New York 10036. The information relating to the Common
Stock is based on a Schedule 13G, dated January 27, 1997.

424A 37th Page of 102 TOC 1st Previous Next ↓Bottom Just 37th
DESCRIPTION OF CAPITAL STOCK

COMMON STOCK

The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor.
Holders of Common Stock have no preemptive, conversion or other subscription
rights. There are no redemption or sinking fund provisions available to the
Common Stock. In the event of liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of Preferred Stock, if any, then outstanding.

PREFERRED STOCK

The Company is authorized to issue Preferred Stock with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without
shareholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting
power or other rights of the holders of the Company's Common Stock and, in
certain instances, could adversely affect the market price of such stock. In
the event of issuance, the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. No shares of Preferred Stock are outstanding and the
Company has no present intention to issue any shares of its Preferred Stock.

The holders of Common and Preferred Stock vote as a single group on all
matters except the following, which require the affirmative vote of a majority
of the holders of Common Stock and a majority of the holders of Preferred
Stock: (a) any merger or consolidation of the Company with or into any other
corporation except in the case of a merger into the Company of a subsidiary of
the Company 90% or more of which is owned by the Company and which does not
require a vote of shareholders of either corporation pursuant to the laws of
the State of Florida; (b) any share exchange in which a corporation, person or
entity acquires the issued or outstanding shares of stock of the Company
pursuant to a vote of shareholders of the Company; (c) any sale, lease,
exchange or other transfer of all, or substantially all, of the assets of the
Company to any other corporation, person or entity; or (d) any amendment to the
Articles of Incorporation.

REGISTRATION RIGHTS

Under a June 30, 1994 agreement, the Company granted to Comtrad
registration rights with respect to 1,540,000 shares of Common Stock of which
1,150,000 were sold in the Company's offering in June 1996. Comtrad may, until
August 31, 1997, require the Company to file a registration statement with
respect to the remaining shares. Until June 30, 1999, Comtrad may also include
these shares in certain other offerings by the Company. Comtrad has agreed with
Carsten Frank that any exercise by Comtrad of such rights will include a pro
rata number of the shares of Common Stock owned by Mr. Frank. On October 16,
1996, the Company granted Hugo Wyrsch the right to register a certain number of
his shares of Common Stock, the aggregate market value of which is not to
exceed $1 million, in the event the Company proposes to register the sale of
its securities. Such right terminates on March 28, 1998. Further, under the
terms of various other acquisition agreements, the Company may be required to
register additional shares of Common Stock to be issued to sellers of certain
companies upon the determination of the purchase prices for such companies
based on earnout purchase price formulas contained in such agreements. See
"Principal Shareholders" and "Underwriting."

CERTAIN FLORIDA LEGISLATION

The State of Florida has enacted legislation that may deter or frustrate
takeovers of Florida corporations. The Florida Control Share Act generally
provides that shares acquired in excess of certain specified thresholds will
not possess any voting rights unless such voting rights are approved by a
majority of a corporation's disinterested shareholders. The Florida Affiliated
Transactions Act generally requires supermajority approval by disinterested
shareholders of certain specified transactions between

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a public corporation and holders of more than 10% of the outstanding voting
shares of the corporation (or their affiliates). Florida law and the Company's
Articles of Incorporation also authorize the Company to indemnify the Company's
directors, officers, employees and agents. In addition, Florida law and the
Company's Articles of Incorporation presently limit the personal liability of
corporate directors for monetary damages, except where the directors (i) breach
their fiduciary duties and (ii) such breach constitutes or includes certain
violations of criminal law, a transaction from which the directors derived an
improper personal benefit, certain unlawful distributions or certain other
reckless, wanton or willful acts or misconduct. The Company may also indemnify
any person who was or is a party to any proceeding by reason of the fact that
he is or was a director, officer, employee or agent of the Company (or is or
was serving at the request of the Company in such a position for another
entity) against liability to be in the best interests of the Company and, with
respect to criminal proceedings, had no reasonable cause to believe his conduct
was unlawful.

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.

The existence of authorized but unissued and unreserved shares of Common
Stock and Preferred Stock may enable the Board of Directors to issue shares to
persons friendly to current management which would render more difficult or
discourage an attempt to obtain control of the Company by means of a proxy
contest, tender offer, merger or otherwise, and thereby protect the continuity
of the Company's management.

CERTAIN LIMITATIONS ON SHAREHOLDER ACTIONS

NOTICE PROCEDURES FOR SHAREHOLDER PROPOSALS AT ANNUAL MEETING. The
Articles of Incorporation of the Company establish advance notice procedures
with respect to shareholder proposals to be brought before an annual meeting of
shareholders. These procedures, which are in addition to any other applicable
requirements of law, require that a shareholder must give notice to the Company
not less than 120 days nor more than 180 days prior to the first anniversary of
the date of the notice of annual meeting provided with respect to the previous
year's annual meeting.

AMENDMENTS TO CHARTER. The Articles of Incorporation of the Company
include a provision requiring the affirmative vote of a majority of both the
holders of the Common Stock and the Preferred Stock to amend its Articles of
Incorporation.

SPECIAL MEETINGS OF SHAREHOLDERS. Special meetings of a Florida
corporation's shareholders may be called by its board of directors, by the
persons authorized to do so in its Articles of Incorporation or bylaws or by
the holders of not less than 10% of all votes entitled to be cast on any issue
proposed to be considered at the special meeting, unless a greater percentage,
not to exceed 50%, is required by the articles of incorporation. The Articles
of Incorporation of the Company contain a 50% requirement for the calling of
special meetings by the shareholders.

SHAREHOLDER VOTES ON CERTAIN MATTERS. The holders of the Company's Common
and Preferred Stock vote as a single group on all matters except the following,
which require the affirmative vote of a majority of the holders of the
Company's Common Stock and a majority of the holders of the Company's Preferred
Stock: (a) any merger or consolidation of the Company with or into any other
corporation except in the case of a merger into the Company of a subsidiary of
the Company 90% or more of which is owned by the Company and which does not
require a vote of shareholders of either corporation pursuant to the laws of
the State of Florida; (b) any share exchange in which a corporation, person or
entity acquires the issued or outstanding shares of stock of the Company
pursuant to a vote of shareholders of the Company; (c) any sale, lease,
exchange or other transfer of all, or substantially all, of the assets of the
Company to any other corporation, person or entity; or (d) any amendment to the
Articles of Incorporation of the Company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Interwest
Transfer Company.

424A 39th Page of 102 TOC 1st Previous Next ↓Bottom Just 39th
UNDERWRITING

The U.S. Underwriters named below, acting through their representatives,
Raymond James & Associates, Inc., Montgomery Securities, J.C. Bradford & Co.
and Cleary Gull Reiland & McDevitt Inc. (the "U.S. Representatives"), have
severally agreed, subject to the terms and conditions of the underwriting
agreement by and among the Company and the U.S. Underwriters (the "Underwriting
Agreement"), to purchase from the Company the number of shares of Common Stock
set forth opposite their respective names below:

[Download Table]

NUMBER OF
NAME SHARES
-------------------------------------------- ----------

Raymond James & Associates, Inc. .........
Montgomery Securities .....................
J.C. Bradford & Co. .....................
Cleary Gull Reiland & McDevitt Inc. ......

---------
Total ................................. 7,000,000
=========

The Company has also entered into a Subscription Agreement (the
"Subscription Agreement") with certain underwriters outside the United States
and Canada (the "International Managers"), for whom Raymond James & Associates,
Inc., Montgomery Securities and J.C. Bradford & Co. are acting as
representatives (the "International Representatives"), relating to the
International Offering. The closing of the International Offering is a condition
to the closing of the U.S. Offering and the closing of the U.S. Offering is a
condition to the closing of the International Offering.

The Underwriting Agreement and the Subscription Agreement provide that the
respective obligations of the several U.S. Underwriters and International
Managers to pay for and accept delivery of the shares of Common Stock being sold
pursuant to each such agreement are subject to certain conditions. The U.S.
Underwriters and the International Managers are obligated to purchase all of the
shares being sold pursuant to each such agreement if any are purchased. The
Company has been advised by the U.S. Representatives that the U.S. Underwriters
propose initially to offer the shares to the public at the offering price set
forth on the cover page of this Prospectus and to certain selected dealers,
including the U.S. Underwriters, at such price less a concession not in excess
of $ per share. The U.S. Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
Offering, the public offering price, concession and discount may be changed. The
U.S.

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Representatives have informed the Company that the U.S. Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.

The Underwriting Agreement provides for indemnification among the Company
and the U.S. Underwriters against certain liabilities in connection with this
Offering, including liabilities under the Securities Act.

The Company, each of its executive officers and directors, CHI and Comtrad
have agreed not to offer, sell, contract to sell, announce their intention to
sell, pledge or otherwise dispose of, directly or indirectly, or in the case of
the Company, file with the Securities and Exchange Commission (the "Commission")
a registration statement under the Securities Act relating to, shares of Common
Stock, or securities convertible into or exchangeable or exercisable for shares
of Common Stock, without the consent of Raymond James & Associates, Inc., for a
period of 90 days following the closing of this Offering. This restriction does
not apply to certain issuances of Common Stock by the Company pursuant to its
stock option plans. See "Shares Eligible for Future Sale."

The Company has granted to the U.S. Underwriters an option exercisable
during the 30-day period after the date of this Prospectus to purchase up to an
aggregate of 1,050,000 additional shares of Common Stock at the same price per
share as the Company receives for the 7,000,000 shares which the U.S.
Underwriters have agreed to purchase from the Company, for the sole purpose of
covering over-allotments, if any. To the extent that the U.S. Underwriters
exercise such option, each U.S. Underwriter will be committed, subject to
certain conditions, to purchase a number of the additional shares of Common
Stock proportionate to each U.S. Underwriter's initial commitment. The Company
has granted the International Managers a similar option to purchase up to an
aggregate of 450,000 additional shares of Common Stock.

The public offering price, the aggregate underwriting discounts and
commissions per share and the per share concession and discount to dealers for
the U.S. Offering and the concurrent International Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and the International
Managers (the "Intersyndicate Agreement") relating to the Offering, changes in
the public offering price, the aggregate underwriting discounts and commissions
per share and the per share concession and discount to dealers will be made on
behalf of the U.S. Underwriters and the International Managers by Raymond James
& Associates, Inc.

Pursuant to the Intersyndicate Agreement, each of the U.S. Underwriters has
agreed that, as part of the U.S. Offering and subject to certain exceptions, it
has not offered or sold, and will not offer or sell, directly or indirectly, any
shares of Common Stock or distribute any prospectus relating to the Common Stock
to any person outside the United States or Canada or to any other dealer who
does not so agree. Each of the International Managers has agreed or will agree
that, as part of the International Offering and subject to certain exceptions,
it has not offered or sold, and will not offer or sell, directly or indirectly,
any shares of Common Stock or distribute any prospectus relating to the Common
Stock to any person in the United States or Canada or to any other dealer who
does not so agree. The foregoing limitations do not apply to stabilization
transactions or to transactions between the U.S. Underwriters and the
International Managers pursuant to the Intersyndicate Agreement. As used herein,
"United States" means the United States of America (including the States and the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction. "Canada" means Canada, its provinces, territories, possessions
and other areas subject to its jurisdiction, and an offer or sale shall be in
the United States or Canada if it is made to (i) an individual resident in the
United States or Canada or (ii) a corporation, partnership, pension,
profit sharing or other trust or other entity (including any such entity acting
as an investment adviser with discretionary authority) whose office most
directly involved with the purchase is located in the United States or Canada.

Pursuant to the Intersyndicate Agreement, sales may be made between the
U.S. Underwriters and the International Managers of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the public offering price, less such amount as may be determined by Raymond
James & Associates, Inc.,

424A 41st Page of 102 TOC 1st Previous Next ↓Bottom Just 41st
but not exceeding the selling concession applicable to such shares. To the
extent there are sales between the U.S. Underwriters and the International
Managers pursuant to the Intersyndicate Agreement, the number of shares of
Common Stock initially available for sale by the U.S. Underwriters or by the
International Managers may be more or less than the amount appearing on the
cover page of this Prospectus. Neither the U.S. Underwriters nor the
International Managers are obligated to purchase from the other any unsold
shares of Class A Common Stock.

This Prospectus may be used by underwriters and dealers in connection with
sales of shares in the International Offering to persons located in the United
States and Canada, to the extent such sales are permitted by the contractual
limitations on sales described above.

The U.S. and International Representatives, on behalf of the U.S.
Underwriters and the International Managers, may engage in over-allotment,
stabilizing transactions, syndicate covering transactions and penalty bids in
accordance with Regulation M under the Exchange Act. Over-allotment involves
syndicate sales in excess of the offering size, which creates a syndicate short
position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the Common Stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. In "passive" market making, market makers in the
Common Stock who are U.S. Underwriters, International Managers or prospective
underwriters or managers may, subject to certain limitations, make bids for or
purchases of the Common Stock until the time, if any, at which a stabilizing bid
is made. Penalty bids permit the U.S. and International Representatives to
reclaim a selling concession from a syndicate member when shares of Common Stock
originally sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
Common Stock to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on The Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for
the Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.,
Miami, Florida. The validity of the Common Stock offered hereby will be passed
upon for the Underwriters by King & Spalding, Atlanta, Georgia.

EXPERTS

The financial statements included in this Prospectus have been audited by
Grant Thornton LLP independent certified public accountants, and KPMG Cevdet
Suner Denetim ve Yeminli Mali Musavirlik A.S., independent auditors, as
indicated in their respective reports as listed in the Index to Financial
Statements, and are included herein in reliance upon the authority of said firms
as experts in giving said reports.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company may be inspected and copied (at prescribed
rates) at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the following
regional offices of the Commission: 7 World Trade Center, Suite 1300, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, such reports, proxy statements and other

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information can be obtained from the Commission's web site at
http://www.sec.gov. Quotations relating to the Common Stock appear on the
Nasdaq National Market. Such reports, proxy statements and other information
concerning the Company can also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.

The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act, with respect to
the shares of Common Stock offered hereby. This Prospectus, which is a part of
the Registration Statement, does not contain all the information set forth in,
or annexed as exhibits to, such Registration Statement, certain portions of
which have been omitted pursuant to rules and regulations of the Commission.
For further information with respect to the Company and the shares of Common
Stock offered hereby, reference is hereby made to such Registration Statement,
including the exhibits thereto. Copies of such Registration Statement,
including exhibits, may be obtained from the aforementioned public reference
facilities of the Commission upon payment of the prescribed fees, or may be
examined without charge at such facilities. Statements contained herein
concerning any document filed as an exhibit are not necessarily complete and,
in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission under the
Exchange Act are incorporated by reference in and made a part of this
Prospectus:

(a) the Company's Annual Report on Form 10-K, as amended, for the year
ended December 31, 1996;

(b) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;

(c) The Company's Current Reports on Form 8-K dated October 4, 1996,
as amended, and April 4, 1997, as amended, respectively;

(d) the Company's Proxy Statement relating to its 1997 Annual Meeting
of Shareholders; and

(e) the description of the Common Stock contained in the Company's
Registration Statement on Form 10 dated May 26, 1994.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of this Offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein, or in any
other subsequently filed document, which also is incorporated or deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. The Company hereby undertakes to
provide, without charge, to each person, including any beneficial owner, to
whom a copy of this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the information incorporated herein by
reference. Exhibits to any of such documents, however, will not be provided
unless such exhibits are specifically incorporated by reference into such
documents. The requests should be addressed to the Company's principal
executive offices: Attn: Secretary, 2153 N.W. 86th Avenue, Miami, Florida
33122, telephone number (305) 716-8273.

424A 43rd Page of 102 TOC 1st Previous Next ↓Bottom Just 43rd
INDEX TO FINANCIAL STATEMENTS

PAGE
-----
CHS Electronics, Inc.--Pro Forma Financial Information
Basis of Presentation ................................................ F-2
Pro Forma Condensed Consolidated Balance Sheet ..................... F-3
Pro Forma Condensed Consolidated Statement of Earnings ............... F-4
Notes to Pro Forma Condensed Consolidated Financial Statements ...... F-6

CHS Electronics, Inc.--Historical Financial Statements
Report of Independent Certified Public Accountants .................. F-8
Consolidated Balance Sheets ....................................... F-9
Consolidated Statements of Earnings ................................. F-10
Consolidated Statements of Shareholders' Equity ..................... F-11
Consolidated Statements of Cash Flows .............................. F-12
Notes to the Financial Statements ................................. F-14

Karma International S.A. (formerly Bluefin S.A.)
Independent Auditors' Report ....................................... F-32
Consolidated Balance Sheets .......................................... F-33
Consolidated Statements of Income .................................... F-34
Consolidated Statements of Shareholders' Equity ..................... F-35
Consolidated Statements of Cash Flows .............................. F-36
Notes to Consolidated Financial Statements ........................... F-37

F-1

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CHS ELECTRONICS, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

BASIS OF PRESENTATION

The following Pro Forma Condensed Consolidated Balance Sheet as of March
31, 1997 and the Pro Forma Condensed Consolidated Statements of Earnings for
the year ended December 31, 1996 and the three months ended March 31, 1997 give
effect to the acquisition by the Company of an operation in Hungary (CHS
Hungary), effective February 1996, an operation in Switzerland (CHS
Switzerland), effective April 1996, the European, Latin American and Mexican
subsidiaries of Merisel, Inc. (ELM) effective October 1996, and an operation in
Germany effective January 1, 1997 (F&W), and a probable acquisition of the
operations of Karma International S.A. (Karma). Each acquisition has been
accounted for using the purchase method of accounting. The Pro Forma Condensed
Consolidated Balance Sheet as of March 31, 1997 is presented as if the
acquisition of Karma (the only acquisition not already reflected in the
historical financial statements) had taken place on March 31, 1997. The Pro
Forma Condensed Consolidated Statements of Earnings for the year ended December
31, 1996 and for the three months ended March 31, 1997 present the pro forma
results assuming all acquisitions occurred January 1, 1996. A list of the
companies included in each period is shown below.

COMPANIES INCLUDED IN ACQUIRED COMPANIES COLUMN
IN THE PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
------------------- -------------------
F&W Karma
ELM
CHS Switzerland
CHS Hungary
Karma

The Pro Forma Condensed Consolidated Financial Statements have been
prepared based upon the historical financial statements of the Company and the
acquired subsidiaries for the periods stated above. Such pro forma statements
may not be indicative of the results that would have occurred if the
acquisitions had been consummated on the indicated dates, or of the operating
results that may be achieved by the combined companies in the future. The Pro
Forma Statements should be read in conjunction with the Company's Consolidated
Financial Statements and the notes thereto.

F-2

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CHS ELECTRONICS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 1997
(In thousands)

[Enlarge/Download Table]

CHS ACQUIRED PRO FORMA
HISTORICAL COMPANY ADJUSTMENTS COMBINED
------------ ------------- ----------------- ---------------

ASSETS
Current Assets:
Cash ....................................... $ 32,699 $ -- $ 74,000(b) $ 32,699
(74,000)(a)
Accounts receivable, net .................. 335,599 37,315 372,914
Inventories ................................. 349,246 98,980 448,226
Other current assets ........................ 35,298 28,878 64,176
--------- --------- ------------ -----------
Total current assets ..................... 752,842 165,173 -- 918,015
Property and equipment, net .................. 36,706 2,214 38,920
Costs in excess of assets acquired, net ...... 105,105 117,588(c) 222,693
Other assets ................................. 6,790 1,471 142,800(a) 8,261
(142,800)(c)
--------- --------- ------------ -----------
$ 901,443 $ 168,858 $ 117,588 $ 1,187,889
========= ========= ============ ===========
LIABILITIES
Current Liabilities:
Notes payable .............................. $ 172,497 $ 18,912 $ 191,409
Accounts payable ........................... 434,713 110,980 545,693
Accrued liabilities ........................ 60,365 11,280 71,645
Amounts due to sellers under
acquisition agreements .................. 42,200 -- 42,200
Income taxes payable ........................ 3,577 917 4,494
Deferred taxes .............................. 2,485 1,237 3,722
--------- --------- ------------ -----------
Total current liabilities .................. 715,837 143,326 -- 859,163
Long term debt .............................. 51,017 126 51,143
Minority interest ........................... 4,150 194 4,344
Shareholders' Equity:
Common stock .............................. 15 10,803 3(a) 21
3(b)
(10,803)(c)
Additional paid-in capital .................. 120,380 68,797(a) 263,174
73,997(b)
Retained earnings ........................... 23,435 15,258 (15,258)(c) 23,435
Legal reserve .............................. -- 53 (53)(c) --
Translation adjustment ..................... (13,391) (902) 902(c) (13,391)
--------- --------- ------------ -----------
Total shareholders' equity ............... 130,439 25,212 117,588 273,239
--------- --------- ------------ -----------
$ 901,443 $ 168,858 $ 117,588 $ 1,187,889
========= ========= ============ ===========

F-3

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CHS ELECTRONICS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
(In thousands, except share and per share data)

[Enlarge/Download Table]

CHS ACQUIRED PRO FORMA
HISTORICAL COMPANIES ADJUSTMENTS COMBINED
------------ ------------ -------------------- -----------

Net sales .............................. $1,855,540 $2,465,273 $ (40,852)(d) $4,279,961
Cost of sales ........................... 1,724,432 2,310,334 (40,852)(d) 3,993,914
----------- ----------- ------------- -----------
Gross profit ........................... 131,108 154,939 -- 286,047
Operating expenses ..................... 102,235 119,883 7,539(e) 225,147
(1,817)(f)
(2,054)(g)
(639)(h)
----------- ----------- ------------- -----------
Operating income ........................ 28,873 35,056 (3,029) 60,900
Interest expense (income) ............... 8,513 15,162 (1,735)(i) 21,940
----------- ----------- ------------- -----------
Earnings before income taxes
and minority interest .................. 20,360 19,894 (1,294) 38,960
Provision for income taxes ............ 6,086 7,073 298(j) 13,457
----------- ----------- ------------- -----------
Earnings before minority interest ...... 14,274 12,821 (1,592) 25,503
Minority interest ..................... 2,108 48 133(k) 2,289
----------- ----------- ------------- -----------
Net earnings ........................... $ 12,166 $ 12,773 $ (1,725) $ 23,214
=========== =========== ============= ===========
Weighted average number of
common shares outstanding ............... 10,438,019 8,429,873 18,867,892
Net earnings per share .................. $ 1.16 $ 1.23

F-4

424A 47th Page of 102 TOC 1st Previous Next ↓Bottom Just 47th
CHS ELECTRONICS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997
(In thousands, except share and per share data)

[Enlarge/Download Table]

CHS ACQUIRED PRO FORMA
HISTORICAL COMPANY ADJUSTMENTS COMBINED
------------ ----------- ------------- -----------

Net sales .............................. $ 877,103 $ 241,299 $1,118,402
Cost of sales ........................... 814,640 227,545 1,042,185
----------- ---------- ---------- -----------
Gross profit ........................... 62,463 13,754 -- 76,217
Operating expenses ..................... 47,838 6,708 1,422(e) 55,968
----------- ---------- ---------- -----------
Operating income ........................ 14,625 7,046 (1,422) 20,249
Interest expense (income) ............... 4,849 1,355 6,204
----------- ---------- ---------- -----------
Earnings before income taxes
and minority interest .................. 9,776 5,691 (1,422) 14,045
Provision for income taxes ............ 2,641 771 3,412
----------- ---------- ---------- -----------
Earnings before minority interest ...... 7,135 4,920 (1,422) 10,633
Minority interest ..................... 424 68 492
----------- ---------- ---------- -----------
Net earnings ........................... $ 6,711 $ 4,852 $ (1,422) $ 10,141
=========== ========== ========== ===========
Weighted average number of
common shares outstanding ............ 15,343,087 6,184,123 21,527,210
Net earnings per share .................. $ .44 $ .47

F-5

424A 48th Page of 102 TOC 1st Previous Next ↓Bottom Just 48th
CHS ELECTRONICS, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

a) In June 1997, the Company signed an agreement to purchase 100% of the stock
of Karma for $74 million in cash and $86 million in shares of unregistered
common stock of the Company. Karma is engaged principally in the
distribution of computer components in 18 countries in Europe, the Middle
East and Asia. For purposes of the Pro Forma Condensed Consolidated Balance
Sheet as of March 31, 1997, the purchase price of Karma is recorded at
$142,800,000. This price consists of the $74 million cash component added
to the discounted value of the unregistered shares to be delivered. The
discount used was 20%, based on the large size and the restricted nature of
the block of shares. Assuming a price of $26.50 per share, the Company
would deliver 3,245,283 shares.

In December 1996, the Company signed an agreement to purchase 100% of the
stock of F&W for 2,200,000 shares of unregistered common stock. F&W is a
distributor of computers and computer products located in Germany.

On October 4, 1996, the Company acquired certain assets as well as 100% of
certain European, Latin American and Mexican subsidiaries of ELM for total
consideration of $147.6 million resulting in goodwill of $10.5 million. The
operations acquired serve the market areas of Austria, France, Germany,
Switzerland, the United Kingdom, Mexico and Latin America. The facilities
acquired are in Austria, France, Germany, Switzerland, the United Kingdom,
Mexico, Miami, Florida and a warehouse in The Netherlands. The business of
ELM is distribution of computers and peripherals in a manner similar to
that of the Company.

In April 1996, the Company acquired 100% of Wyrsch Trading SA (CHS
Switzerland) for 183,237 shares of common stock of the Company, which
resulted in goodwill of $870,000. CHS Switzerland is a distributor of
computers and computer peripherals located in Lucerne, Switzerland.

In January 1996, effective February 1, 1996, the Company acquired 51% of
Kventa KFT. (CHS Hungary) for $17.6 million, resulting in $15.8 million of
goodwill. CHS Hungary is based in Budapest, Hungary and is a distributor
and retailer of products similar to those distributed by the Company.

All these transactions have been accounted for under the purchase method
of accounting.

b) To record the issuance and sale of 2,938,840 of the 10,000,000 shares of
common stock of the Company offered hereby at an assumed offering price of
$26.50 per share (net proceeds at $25.18 per share) to raise the cash
consideration to be paid in connection with the acquisition of Karma.

c) To eliminate the investment account and Karma equity accounts and to record
goodwill of $117,588,000 for Karma. For purposes of the Pro Forma Condensed
Consolidated Balance Sheet as of March 31, 1997, the goodwill was computed
by subtracting from the $142.8 million estimated purchase price of the
Karma acquisition the fair value of the net assets acquired of $25,212,000.

d) To eliminate intercompany sales between the Company and F&W.

e) To record amortization of goodwill over a period of 20 years. Amortization
was provided for F&W, ELM, CHS Switzerland, CHS Hungary and Karma based on
goodwill of $27,618,000, $10,523,000, $870,000, $15,827,000 and
$113,740,000, respectively, for the period of time each company was added
to the Pro Forma Condensed Consolidated Statements of Earnings for the year
ended

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CHS ELECTRONICS, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--(CONTINUED)

December 31, 1996 and for the three months ended March 31, 1997. For
purposes of the Pro Forma Condensed Consolidated Statements of Earnings for
the year ended December 31, 1996 and for the three months ended March 31,
1997, the goodwill of Karma was computed based on the difference between
the estimated purchase price of $142,800,000 and the estimated fair value
of net assets to be acquired as of the projected closing date of the
transaction.

f) To eliminate operating costs of ELM European headquarters personnel no
longer employed by the Company after the acquisition. The European
headquarters was not purchased in the acquisition.

g) To eliminate Merisel corporate overhead charged to ELM. The Company has
recorded all of its overhead and does not anticipate hiring additional
staff to manage ELM.

h) To eliminate the cost of the computer system that ELM rented from Merisel in
excess of the cost of running the system currently.

i) To reduce interest expense from the rates charged by Merisel on the
intercompany debt to the interest rates being incurred on the debt that
replaced the intercompany debt.

j) To adjust tax benefit based on the above adjustments based on the 1996
blended rate for the European subsidiaries of ELM.

k) To record an adjustment for minority interest of CHS Hungary.

l) Details of the Acquired Companies column in the accompanying Statement of
Earnings for the year ended December 31, 1996 are as follows (in
thousands):

[Enlarge/Download Table]

CHS CHS
F&W ELM SWITZERLAND HUNGARY KARMA COMBINED
---------- --------------- ------------- --------- ---------- -----------

Net sales .................. $686,115 $ 1,059,912 $17,196 $1,847 $700,203 $2,465,273
Cost of sales ............... 638,318 986,549 15,675 1,461 668,331 2,310,334
--------- ----------- -------- ------- --------- -----------
Gross profit ............... 47,797 73,363 1,521 386 31,872 154,939
Operating expenses ......... 36,890 68,351 1,240 49 13,353 119,883
--------- ----------- -------- ------- --------- -----------
Operating income ............ 10,907 5,012 281 337 18,519 35,056
Interest expense (income) ... 4,591 9,577 65 5 924 15,162
--------- ----------- -------- ------- --------- -----------
Earnings (loss) before income
taxes and minority interest 6,316 (4,565) 216 332 17,595 19,894
Provision for income taxes ... 2,807 1,690 47 59 2,470 7,073
--------- ----------- -------- ------- --------- -----------
Earnings before minority
interest .................. 3,509 (6,255) 169 273 15,125 12,821
Minority interest ............ -- -- -- -- 48 48
--------- ----------- -------- ------- --------- -----------
Net earnings (loss) ......... $ 3,509 $ (6,255) $ 169 $ 273 $ 15,077 $ 12,773
========= =========== ======== ======= ========= ===========

F-7

424A 50th Page of 102 TOC 1st Previous Next ↓Bottom Just 50th
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders
CHS Electronics, Inc.

We have audited the accompanying consolidated balance sheets of CHS
Electronics, Inc. and subsidiaries (the "Company") as of December 31, 1995 and
1996, and the related consolidated statements of earnings, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CHS
Electronics, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.

Grant Thornton LLP
Miami, Florida
March 7, 1997

F-8

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CHS ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

[Enlarge/Download Table]

DECEMBER 31 DECEMBER 31 MARCH 31,
1995 1996 1997
------------- ------------- ------------
(RESTATED) (UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash ...................................................... $ 11,171 $ 35,137 $ 32,699
Accounts receivable:
Trade, less allowance for doubtful accounts of
$4,388 in 1995, $14,830 in 1996 and $15,465 in 1997 ...... 112,501 340,098 331,580
Affiliates ................................................ 843 3,241 4,019
--------- --------- ---------
113,344 343,339 335,599
Inventories ................................................ 102,159 321,770 349,246
Deferred tax asset .......................................... 456 -- --
Prepaid expenses .......................................... 9,824 39,374 35,298
--------- --------- ---------
Total current assets ....................................... 236,954 739,620 752,842
PROPERTY AND EQUIPMENT, NET ................................. 9,126 30,947 36,706
COST IN EXCESS OF ASSETS ACQUIRED, NET ..................... 17,305 78,780 105,105
OTHER ASSETS ................................................ 2,419 12,602 6,790
--------- --------- ---------
$265,804 $ 861,949 $ 901,443
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable ............................................. $ 46,438 $ 155,932 $ 172,497
Accounts payable, trade .................................... 165,494 452,569 434,713
Accrued liabilities ....................................... 14,242 44,873 60,365
Amounts due to sellers under acquisition agreements ......... -- 49,200 42,200
Income taxes payable ....................................... 937 5,120 3,577
Deferred income taxes ....................................... -- 420 2,485
--------- --------- ---------
Total current liabilities ................................. 227,111 708,114 715,837
LONG TERM DEBT ............................................. 8,801 45,327 51,017
MINORITY INTEREST .......................................... -- 3,975 4,150
SHAREHOLDERS' EQUITY:
Preferred stock, authorized 5,000,000 shares;
0 shares issued and outstanding ........................... -- -- --
Common stock, authorized 100,000,000 shares
at $.001 par value; issued and outstanding
7,582,534 shares in 1995, 12,400,384 shares
in 1996 and 14,692,760 in 1997 ........................... 8 12 15
Additional paid-in capital ................................. 24,976 92,850 120,380
Retained earnings .......................................... 4,558 16,724 23,435
Cumulative foreign currency translation adjustment ......... 350 (5,053) (13,391)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY ................................. 29,892 104,533 130,439
--------- --------- ---------
$265,804 $ 861,949 $ 901,443
========= ========= =========

The accompanying notes are an integral part of these statements.

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CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)

[Enlarge/Download Table]

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
------------- ------------- --------------- ------------- -------------
(RESTATED) (UNAUDITED)

Net sales (including sales to
affiliates of $52,421, $21,063,
$0, $0, and $0, respectively)............... $ 359,169 $ 936,703 $ 1,855,540 $ 302,995 $ 877,103
Cost of goods sold ........................ 333,983 868,716 1,724,432 280,453 814,640
--------- --------- ----------- --------- ---------
Gross profit .............................. 25,186 67,987 131,108 22,542 62,463
Operating expenses ........................ 21,798 57,188 102,235 17,850 47,838
--------- --------- ----------- --------- ---------
Operating income ........................... 3,388 10,799 28,873 4,692 14,625
Other (income) expense:
Interest income ........................... (250) (1,757) (3,199) (614) (1,767)
Interest expense ........................... 2,070 6,454 11,712 1,940 6,616
--------- --------- ----------- --------- ---------
1,820 4,697 8,513 1,326 4,849
--------- --------- ----------- --------- ---------
Earnings before income taxes and
minority interest in subsidiaries ......... 1,568 6,102 20,360 3,366 9,776
Income taxes .............................. 603 1,797 6,086 1,059 2,641
Minority interest in subsidiaries ......... -- -- 2,108 319 424
--------- --------- ----------- --------- ---------
Net earnings .............................. $ 965 $ 4,305 $ 12,166 $ 1,988 $ 6,711
========= ========= =========== ========= =========
Net earnings per common share-primary ...... $ .21 $ .59 $ 1.16 $ .25 $ .44
========= ========= =========== ========= =========
Net earnings per common
share-fully diluted ........................ $ .21 $ .59 $ 1.16 $ .24 $ .44
========= ========= =========== ========= =========

The accompanying notes are an integral part of these statements.

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CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended December 31, 1996
and Three Months Ended March 31, 1997
(In thousands)

[Enlarge/Download Table]

CUMULATIVE
FOREIGN
ADDITIONAL RETAINED CURRENCY
COMMON PAID-IN EARNINGS DEFERRED TRANSLATION
STOCK CAPITAL (DEFICIT) COMPENSATION ADJUSTMENT TOTAL
-------- ------------ ----------- -------------- ------------ ------------

Balance at January 1, 1994 ............... $ 6 $ 3,247 $ (712) $ -- $ (611) $ 1,930
Issuance of common stock through
private offering ........................ 2 3,998 -- -- -- 4,000
Issuance of common stock
in acquisitions ........................ 6 18,841 -- -- -- 18,847
Issuance of compensatory
stock options ........................... -- 280 -- (280) -- --
Deferred compensation recognized . -- -- -- 142 -- 142
Net earnings .............................. -- -- 965 -- -- 965
Foreign currency translation
adjustment .............................. -- -- -- -- 734 734
----- -------- ------- -------- --------- --------
Balance at December 31, 1994,
as previously reported .................. 14 26,366 253 (138) 123 26,618
Adjustment for acquisition of six
companies (Note B) ..................... -- (6,748) -- -- -- (6,748)
----- -------- ------- -------- --------- --------
Balance at December 31, 1994,
as restated ........................... 14 19,618 253 (138) 123 19,870
Adjustment for 1 for 2 reverse split . (7) 7 -- -- -- --
Deferred compensation recognized . -- -- -- 138 -- 138
Issuance of common stock
in acquisitions ........................ 1 5,351 -- -- -- 5,352
Net earnings .............................. -- -- 4,305 -- -- 4,305
Foreign currency translation
adjustment .............................. -- -- -- -- 227 227
----- -------- ------- -------- --------- --------
Balance at December 31, 1995 ............ 8 24,976 4,558 -- 350 29,892
Common stock or other
consideration issued in
acquisitions (Note B) .................. -- 16,982 -- -- -- 16,982
Common stock issued in
public offering ........................ 4 50,610 -- -- -- 50,614
Stock options exercised .................. -- 282 -- -- -- 282
Net earnings .............................. -- -- 12,166 -- -- 12,166
Foreign currency translation
adjustment .............................. -- -- -- -- (5,403) (5,403)
----- -------- ------- -------- --------- --------
Balance at December 31, 1996 ............ 12 92,850 16,724 -- (5,053) 104,533
Stock options exercised
(unaudited) ........................... 1 604 -- -- -- 605
Common stock issued
in acquisitions (unaudited) ............ 2 26,926 -- -- -- 26,928
Net earnings (unaudited) .................. -- -- 6,711 -- -- 6,711
Foreign currency translation
adjustment (unaudited) .................. -- -- -- -- (8,338) (8,338)
----- -------- ------- -------- --------- --------
Balance at March 31, 1997
(unaudited) ........................... $ 15 $120,380 $23,435 $ -- $ (13,391) $130,439
===== ======== ======= ======== ========= ========

The accompanying notes are an integral part of these statements.

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CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

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THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ -------------- ------------ -----------
(RESTATED) (RESTATED) (UNAUDITED)

Increase (decrease) in cash and cash
equivalents:
Cash flows from operating activities:
Net earnings .................................... $ 965 $ 4,305 $ 12,166 $ 1,988 $ 6,711
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization .................. 874 2,456 6,632 891 3,658
Deferred compensation amortized ............... 138 148 -- -- --
Minority interest in net earnings ............... -- -- 2,108 319 424
Changes in assets and liabilities
excluding effects of acquisitions:
Accounts receivable-trade, net ............... (9,242) (37,724) (118,694) 2,461 48,531
Accounts receivable-affiliates, net ............ (1,022) (12,285) (2,398) (1,631) (778)
Inventories .................................... (18,798) (32,204) (129,357) (11,357) 17,155
Prepaid expenses and other
current assets .............................. (2,429) (1,742) (22,345) (4,019) 23,305
Accounts payable .............................. 36,617 51,818 173,244 1,821 (94,381)
Accrued liabilities and income taxes ......... 758 3,175 (20,481) 1,545 3,420
-------- --------- ---------- -------- --------
Net cash provided by (used in)
operating activities: ........................ 7,861 (22,053) (99,125) (7,982) 8,045
Cash flows from investing activities:
Purchase of fixed assets ..................... (1,728) (6,866) (11,624) (1,618) (1,658)
Cash provided from (used in)
acquisitions ................................. 4,890 1,317 (26,876) -- 2,800
-------- --------- ---------- -------- --------
Net cash provided by (used in)
investing activities: ........................ 3,162 (5,549) (38,500) (1,618) 1,142
Cash flows from financing activities:
Proceeds from public offering .................. -- -- 50,614 -- --
Proceeds from private placement ............... 4,000 -- -- -- --
Proceeds from stock options exercised ......... -- -- 282 -- 605
Payments on notes to affiliate .................. (3,771) -- -- -- --
Proceeds from affiliate notes .................. 1,650 -- -- -- --
Net borrowing from (repayments to) banks . (5,254) 29,855 112,452 11,657 (10,317)
-------- --------- ---------- -------- --------
Net cash provided by (used in)
financing activities: ........................ (3,375) 29,855 163,348 11,657 (9,712)
Effect of exchange rate changes on cash ......... 117 550 (1,757) (228) (1,913)
-------- --------- ---------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .............................. 7,765 2,803 23,966 1,829 (2,438)
Cash and cash equivalents at beginning of
period .......................................... 603 8,368 11,171 11,171 35,137
-------- --------- ---------- -------- --------
Cash and cash equivalents at end of period ...... $ 8,368 $ 11,171 $ 35,137 $ 13,000 $ 32,699
======== ========= ========== ======== ========

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CHS ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--CONTINUED
(In thousands)

[Enlarge/Download Table]

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ------------------
1994 1995 1996 1996 1997
------------ ------------ --------- -------- -------
(RESTATED) (RESTATED) (UNAUDITED)

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ....................................... $1,532 $4,944 $10,064 $2,154 $7,251
Income taxes .................................... $ 747 $1,753 $ 3,892 $ 291 $3,231

Non cash investing and financing activities:

These statements of cash flows do not include non-cash investing and financing
transactions associated with the common stock issued for various acquisitions.
The components of the transactions in each year are as follows:

[Enlarge/Download Table]

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- -------- ---------
(UNAUDITED)

Fair value of assets acquired including
cash acquired ....................................... $92,049 $19,216 $14,691 $7,284 $131,498
Less: Common stock or other consideration issued ...... 26,647 7,152 3,278 2,515 26,928
-------- -------- -------- ------- ---------
Liabilities assumed .................................... $65,402 $12,064 $11,413 $4,769 $104,570
======== ======== ======== ======= =========

In 1996, $13.7 million was credited to additional paid-in capital representing
additional consideration paid by Comtrad, Inc. (Comtrad) under acquisition
agreements for subsidiaries now held by the Company.

In 1994 and 1995, a $6.7 million and a $5.2 million, respectively, reduction in
receivable from affiliate was charged to additional paid-in capital.
Compensatory stock options of $280,000 were issued in 1994.

The accompanying notes are an integral part of these statements.

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CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE A--SUMMARY OF ACCOUNTING POLICIES

1. Formation of Business

On January 1, 1993, CHS Electronic Publishing Service GmbH, (CHS Germany)
was acquired by Comtrad, a U.S. corporation based in Miami, Florida. In
December 1993, Comtrad transferred CHS Germany to a publicly held, inactive
Utah corporation which then changed its name to CHS Electronics, Inc. (the
Company). This transaction has been accounted for as a reverse acquisition so
that in all periods prior to 1994, CHS Germany is the reporting entity.

2. NATURE OF OPERATIONS

The Company is an international distributor of computer equipment,
peripherals and software. The products are sold, principally to resellers, in
Western Europe, Latin America and Eastern Europe.

3. RESTATEMENTS

The 1994 and 1995 financial statements have been restated for the effects
of companies acquired in a manner similar to a pooling of interests due to a
common control (see Note B). All share and per share information have been
restated for a one-for-two reverse stock split approved by the shareholders in
March 1996.

4. PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its subsidiaries, wholly owned and majority owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.

5. FOREIGN CURRENCY TRANSLATION

Assets and liabilities of foreign subsidiaries are translated into United
States dollars at the exchange rate in effect at the end of the year. Revenues
and expenses of these subsidiaries are translated at the average exchange rate
during the year. The aggregate effect of translating the financial statements
of foreign subsidiaries is included in a separate component of shareholders'
equity entitled cumulative foreign currency translation adjustment. In the
normal course of business, the Company advances funds to certain of its foreign
subsidiaries, which are not expected to be repaid in the foreseeable future.
Translation adjustments resulting from these advances are included in
cumulative foreign currency translation adjustment. For entities in highly
inflationary countries, the United States dollar is considered the functional
currency and a combination of current and historical rates are used in
translating assets and liabilities. The related exchange adjustments are
included in earnings.

6. CASH EQUIVALENTS

For the purpose of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.

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CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE A--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)

7. CONCENTRATION OF CREDIT RISK

The Company's credit risk on trade receivables is diversified over a wide
geographic area and many customers. The largest customer accounts for less than
1% of sales. The Company performs ongoing credit evaluations of its customers.
In Latin America, the Company obtains guarantees from its customers in some
cases. The Company uses credit insurance in several locations (covering $223
million in receivables at December 31, 1996) and factoring without recourse in
other locations to mitigate risk and provides for estimated credit losses at
time of sale.

8. INVENTORIES

Inventories, consisting of finished products, are stated at the lower of
cost or market, with cost being determined principally by current replacement
cost, which approximates the first-in first-out method.

9. DEPRECIATION AND AMORTIZATION

Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives. Leasehold improvements are amortized over the lives of
respective leases or the service lives of the improvements, whichever is
shorter.

The straight-line and accelerated methods of depreciation are followed for
financial reporting purposes. The useful lives are as follows:

[Download Table]

YEARS
------

Buildings ........................... 30-50
Leasehold improvements ............ 3-7
Computer equipment .................. 2-5
Office equipment and furniture ...... 3-10

Expenditures for renewals and improvements that significantly extend the
useful life of an asset are capitalized. The costs of software used in business
operations are capitalized and amortized over their expected useful lives.
Expenditures for maintenance and repairs are charged to operations when
incurred. When assets are sold or retired, the cost of the asset and the
related accumulated depreciation are removed from the accounts and any gain or
loss is recognized at such time.

10. INCOME TAXES

The Company utilizes the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES. Under the liability
method specified by SFAS 109, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities as measured by the current enacted tax rates
which will be in effect when these differences reverse. Deferred tax expense is
the result of changes in deferred tax assets and liabilities.

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CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE A--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)

The Company intends to invest the undistributed earnings of its foreign
subsidiaries indefinitely. At December 31, 1995 and 1996, the cumulative amount
of undistributed earnings on which the Company has not recognized United States
income taxes was approximately $6 million and $13 million, respectively.
However, it is anticipated that United States income taxes on such amounts
would be partially offset by available foreign income tax credits.

11. REVENUE RECOGNITION

The Company recognizes sales upon shipment, as there is no significant
post-sale obligation and collectibility is reasonably assured. Income from
vendor rebates, discounts, and cooperative advertising is recognized when
earned, as a reduction of the cost of inventory sold or as a reduction of
operating expenses.

12. COST IN EXCESS OF ASSETS ACQUIRED, NET

The cost in excess of assets acquired is being amortized to earnings over
a 20-year period on a straight-line basis. The Company evaluates its goodwill
in accordance with SFAS No. 121 to determine potential impairment by comparing
the carrying value to undiscounted future cash flows of the related assets. The
Company modifies or adjusts the value of a subsidiary's goodwill if an
impairment is indicated by the difference between the undiscounted cash flows
and the carrying value. All of the Company's goodwill is identified with the
assets acquired and falls under the scope of SFAS No. 121. Accumulated
amortization was $1.2 million and $2.2 million at December 31, 1995 and 1996,
respectively.

13. EARNINGS PER COMMON SHARE

Earnings per share for each year is computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
(common stock options and warrants) outstanding during the year, unless such
inclusion is anti-dilutive. The weighted average number of shares for primary
earnings per share was 4,693,332 in 1994, 7,282,785 in 1995, 10,438,019 in 1996
and 7,862,349 and 15,343,087 for the three-month periods ended March 31, 1996
and 1997, respectively. The weighted average number of shares used in the
computation of fully diluted earnings per share was 8,183,391 and 15,423,433
for the three-month periods ended March 31, 1996 and 1997, respectively.

14. STOCK OPTIONS

Options granted under the Company's 1994 Stock Option Plan and 1996 Chief
Executive Officer Stock Option Plan are accounted for under APB Opinion 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. As to grants requiring shareholder
approval, the Company considers the date of grant to be the date of action by
the Board of Directors when, on such date, shareholder approval is deemed to
be perfunctory.

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424A 59th Page of 102 TOC 1st Previous Next ↓Bottom Just 59th
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE A--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)

15. USE OF ESTIMATES

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reported period. Actual results could
differ from those estimates.

16. INTERIM FINANCIAL INFORMATION

The financial statements at March 31, 1997 and for the quarters ended
March 31, 1996 and 1997 are unaudited and prepared on the same basis as the
audited consolidated financial statements included herein. In the opinion of
management, such interim financial statements included all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the results for such periods. The results of operations for the quarter ended
March 31, 1997 are not necessarily indicative of the results to be expected for
the full year or any other interim period.

17. NEW ACCOUNTING PRONOUNCEMENT

In February 1997, the FASB issued SFAS No. 128, "Earnings per Share", and
SFAS No. 129, "Disclosure of Information about Capital Structure."

SFAS No. 128 simplifies the earnings per share ("EPS") calculations
required by Accounting Principles Board ("APB") Opinion No. 15, and related
interpretations, by replacing the presentation of primary EPS with a
presentation of basic EPS. SFAS No. 128 requires dual presentation of basic and
diluted EPS by entities with complex capital structures. Basic EPS includes no
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution of securities that could share in
the earnings of an entity, similar to the fully diluted EPS of APB Opinion No.
15. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. When adopted, SFAS No. 128 will require restatement of all
prior-period EPS data presented. The Company has not sufficiently analyzed SFAS
No. 128 to determine what effect SFAS No. 128 will have on its historical
reported EPS amounts.

NOTE B--ACQUISITIONS

In 1996 the Company acquired eighteen companies in as many countries. The
largest acquisition was of seven companies comprising the European and Latin
American businesses of a competitor, Merisel. These seven companies were
acquired for cash and debt assumptions. The total consideration paid was
approximately $148 million consisting of $30 million of cash and $118 million
of debt assumed or refinanced. The Company financed the acquisition primarily
through borrowing or factoring at each subsidiary acquired. Approximately $11
million is owed to Merisel at December 31, 1996. The acquisition has been
accounted for as a purchase, effective as of September 30, 1996. Therefore,

F-17

424A 60th Page of 102 TOC 1st Previous Next ↓Bottom Just 60th
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE B--ACQUISITIONS--(CONTINUED)

operations of these companies are included only in the 1996 fourth quarter. The
cost of the acquisition has been allocated to the assets acquired based on
their fair values. This resulted in approximately $10.5 million of goodwill.

In connection with this acquisition, the Company intends to consolidate
former Merisel operations and CHS operations in the five countries where each
had operations. Additionally, the Company intends to dispose of the former
Merisel warehouse located in The Netherlands and has entered into a letter of
intent to sell the warehouse. The consolidation of the operations in the United
Kingdom and France is complete and the remainder of the consolidations should
be completed in 1997. The Company has accrued approximately $15 million for
these activities, consisting of severence cost-$1 million, lease
termination-$4.6 million, loss on sale of the warehouse in The Netherlands-$6.4
million and write-offs of leasehold improvements and computer systems-$3
million. Through December 31, 1996, $2 million has been charged against this
reserve, consisting principally of severance costs, lease termination costs and
write-offs of leasehold improvements.

In June 1996, the Company acquired 100% of an unaffiliated company in
Russia for consideration based on a multiple of that company's net income in
1996. The acquisition was initially recorded at no consideration, which
approximated the value of net assets acquired. Subsequently, the agreement was
modified to measure the value of the Company based 50% on 1996 results and 50%
on 1997 results. The 1996 portion is payable in cash and the 1997 portion is
payable in cash or stock at the seller's option. In 1996, $20.6 million was
recorded as purchase price and goodwill.

In April 1996, the Company acquired 100% of an unaffiliated company in
Switzerland for consideration based on a multiple of the acquired company's
1996 net earnings but not less than $1.7 million. The acquisition was initially
recorded at $1.7 million resulting in no goodwill. Subsequently, the agreement
was modified to base the price on results through September 30, 1996. In the
1996 fourth quarter 183,237 CHS shares were issued and there was an adjustment
to the purchase price based on a revaluation of the assets at the date of
purchase, which resulted in goodwill of $870,000.

In March 1996, the Company acquired six companies from Comtrad for a
reduction of indebtedness of $7.8 million. These acquisitions have been
accounted for as an exchange between entities under common control in a manner
similar to a pooling of interests. Accordingly, these acquisitions have been
included in the accompanying financial statements from the date acquired by
Comtrad. As a result, financial statements for 1995 have been restated. The
companies in Bulgaria, Croatia, Lithuania and Romania were started by Comtrad
in 1993 and 1994 for a minimal investment and have insignificant operations.
They are treated as if Comtrad acquired them on December 31, 1994. Sixty-five
percent of a company in Slovakia was acquired in early 1994 for a minimal
investment and 1994 results were insignificant. The remaining 35% was acquired
by Comtrad for a contingent payment in CHS shares to be based on 1996 results.
This acquisition has been recorded as of December 31, 1994 based on the cost of
the 65% interest acquired with the remaining cost to be recorded as goodwill
when known. The contingent amount is not known at this time. Comtrad acquired
the Brazil company in November 1994 for Comtrad common shares valued at
$762,000. The acquisition was recorded by the Company as of December 31, 1994
at this value, resulting in goodwill of $2.5 million. An additional

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CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE B--ACQUISITIONS--(CONTINUED)

amount of $240,000 was paid by Comtrad in 1996 to complete its acquisition of
this company, which had the effect of increasing goodwill to $2.75 million.

The combined and separate CHS results of the companies for 1995 are as
shown below (in thousands):

[Enlarge/Download Table]

CHS (AS
ORIGINALLY
PRESENTED) COMBINED
COMBINED BALTIC BRAZIL BULGARIA CROATIA ROMANIA SLOVAKIA (RESTATED)
------------ -------- ------------ ---------- --------- --------- ---------- -----------

Sales ............... $862,324 $2,610 $ 45,934 $ 4,236 $ 4,820 $ 3,592 $ 13,187 $936,703
Net earnings (loss) 4,743 63 (147) (25) (100) (152) (77) 4,305

In February 1996, the Company acquired 51% of an unaffiliated company in
Hungary for consideration based on 51% of the book value of equity at December
31, 1996 plus a multiple of 51% of 1996 net earnings. Based on a history of
profitable operations, the acquisition was initially recorded at 51% of the
book value on January 31, 1996. Based on 1996 results the purchase price was
increased to $17.6 million resulting in goodwill of $15.8 million. As permitted
by the agreement, the sellers have elected to receive the proceeds in cash
rather than stock.

In 1995, the Company acquired nine companies in as many countries. Eight
of these were acquired from Comtrad Holdings, Inc. ("CHI") or Comtrad (a wholly
owned subsidiary of CHI) and have been accounted for as an exchange between
entities under common control in a manner similar to a pooling of interests.
Accordingly, these acquisitions have been included in the accompanying
financial statements from the date acquired by Comtrad or CHI. The acquisition
of the company in the Czech Republic was partially (16%) from Comtrad and
partially from an individual. The portion from Comtrad was valued at Comtrad's
basis of $758,000. The portion purchased from the unrelated individual has been
accounted for as a purchase. Results of the remaining 84% of the Czech Republic
company have been included in the accompanying financial statements from
October 1, 1995. Information about the pooled acquisitions is shown below:

[Enlarge/Download Table]

CHS COMTRAD OR CHI
COMPANY SERVICE AREA CONSIDERATION ACQUISITION DATE ACQUISITION DATE
--------------------- ---------------- ---------------- ------------------ -----------------

CHS England United Kingdom April 1995 September 1994
CHS France France 1,750,000 April 1995 September 1994
CHS Belgium Belgium shares April 1995 September 1994
CHS Portugal Portugal April 1995 January 1993
CHS BEK Latin America 287,500 shares October 1995 July 1995
CHS Czechia (16%) Czech Republic 92,000 shares October 1995 January 1993
CHS Finland Finland $2,300,000 December 1995 July 1995
CHS Sweden Sweden $2,400,000 December 1995 July 1995
CHS Poland Poland $2,300,000 December 1995 November 1995

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CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE B--ACQUISITIONS--(CONTINUED)

In these transactions, assets and liabilities were transferred to the
Company at Comtrad's or CHI's original cost basis. In several of these
transactions Comtrad's cost is subject to adjustment from earnout agreements.
Comtrad's purchase price for the three companies in the United Kingdom, France
and Belgium consisted of a $7 million note and an amount determined by an
earnout based on 1994 and 1995 earnings. In accounting for this transaction
initially, after reducing fixed assets to zero, there was an excess of net
assets acquired over cost ($4,161,000 at December 31, 1994). In May 1995, the
acquisition agreement was modified to reduce to 100,000 the maximum number of
additional Company shares that could become due to such sellers based on 1995
operating results, in return for Comtrad's payment to the sellers of $794,000
and 500,000 shares of Company stock owned by Comtrad. The 100,000 additional
shares were issued by Comtrad in early 1996. The value of this additional
purchase price ($5,344,000), less what had previously been recorded as a
liability for the 1994 earnout ($617,000), has been recorded in the
accompanying consolidated balance sheet as an increase in additional paid-in
capital, a reduction of the excess of net assets acquired over cost to zero and
restoration of a portion of fixed assets. In 1995, $975,000 of depreciation
which would have applied to fixed assets reduced to zero was not incurred.

As consideration for the acquisition of the company in Portugal, Comtrad
delivered common stock valued at $800,000. The acquisition was recorded at this
value, resulting in goodwill of $450,000.

As consideration for the acquisition of BEK, CHI delivered CHI class B
common shares which have preference rights in liquidation to a specified number
of Company shares held by CHI depending on a one-year earnout. As of December
31, 1995, the acquisition was recorded at CHI's basis of approximately $1.75
million, based on the six month results. In 1996 the amount was adjusted to
$2.4 million based on the final results resulting in total goodwill of $2.4
million.

Comtrad acquired two companies in Sweden and Finland for a number of
Company shares owned by Comtrad to be determined by an earnout based on 1996
results. At December 31,1996 the amount was recorded based on such results, at
$11.2 million by charging costs in excess of assets acquired and crediting
additional paid-in capital.

In consideration for the acquisition of the company in Poland, CHI
delivered shares of its stock, a $600,000 note and an unknown number of Company
shares to be determined by an earnout based on 1996 results. The value given by
CHI was determined to be $1.8 million and the difference of $500,000 between
that amount and the price paid by the Company has been charged to additional
paid-in capital. Costs in excess of assets acquired of $.7 million has been
recorded on this transaction. At December 31, 1996, the earnout amount was
recorded based on 1996 results at $2.2 million which increased goodwill and
additional paid-in capital.

As noted above, terms of several of the acquisitions by Comtrad provided
for contingent consideration. The Company believes such contingent
consideration payments are additional purchase price. The Company's conclusion
is based on the terms of each agreement, which provide that the contingent
consideration is not dependent on the continued employment of sellers, is based
on a multiple of earnings over a short time period, is the major portion of the
purchase price and is in addition to fair compensation paid to the former owner
through salary and bonus.

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CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE B--ACQUISITIONS--(CONTINUED)

The Company acquired 84% of the Czech Republic company from an individual
by issuing 483,000 shares which were valued at their market value of
$3,246,000. This produced goodwill of $2.4 million.

On June 30, 1994, the Company entered into a Plan of Acquisition ("Plan"),
with Comtrad, CHI, and Alvin Perlman ("Perlman"), the sole shareholder of CHS
Promark and the owner of the minority interests in certain subsidiaries. Under
the terms of the Plan, the Company acquired from CHI 77% of the capital stock
of CHS Promark and 30% of the outstanding capital of three companies operating
in Argentina, Chile and Colombia (the South American subsidiaries) in exchange
for 1,540,000 shares of the Company's common stock. In a simultaneous
transaction, the Company acquired the remaining 23% of the stock of CHS Promark
(which owned the remaining 70% of the South American subsidiaries) from Perlman
in exchange for 460,000 shares of the Company's common stock. In July 1994, CHS
Promark acquired the Venezuelan operations of Comtrad for nominal
consideration. The exchange between the Company and CHI has been accounted for
as an exchange between entities under common control with CHI's cost basis in
the acquired assets being pushed down to the Company. The exchange between the
Company and Perlman for the remaining 23% interest in CHS Promark has been
accounted for by the Company as a purchase. The Company recorded a total
investment of $11.3 million, which was the fair market value of CHS Promark as
determined by an independent appraisal. The excess of the cost over the fair
value of the net assets acquired was approximately $8.4 million and is being
amortized over 20 years.

The following represents the unaudited pro forma results of operations
assuming all of these acquisitions had taken place on January 1, 1995:

[Download Table]

YEAR ENDED DECEMBER 31,
--------------------------
1995 1996
------------ -----------
(IN THOUSANDS EXCEPT PER
SHARE DATA)

Sales ........................ $2,449,861 $2,940,792
Net earnings ............... 1,995 4,317
Net earnings per share ...... $ .25 .41

Pro forma adjustments have been made to eliminate a non-recurring loss in
the operations acquired from Merisel and to add goodwill amortization and
interest expense on the amounts payable to selling shareholders at 7.5%. The
pro forma information is not necessarily indicative of the actual results of
operations that would have occurred had the acquisitions taken place on January
1, 1995, or of results which may occur in the future.

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424A 64th Page of 102 TOC 1st Previous Next ↓Bottom Just 64th
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE C--ALLOWANCE FOR DOUBTFUL ACCOUNTS

[Download Table]

YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
---------- ------------ ------------
(IN THOUSANDS)

Allowance for doubtful accounts
Beginning balance .................. $ 546 $ 3,358 $ 4,388
Provision for bad debt ............ 1,596 3,035 3,412
Write-offs ........................ (473) (2,161) (3,775)
Acquired through acquisition ...... 1,689 156 10,805
------ -------- --------
Ending balance ..................... $3,358 $ 4,388 $ 14,830
====== ======== ========

NOTE D--PROPERTY AND EQUIPMENT

[Download Table]

DECEMBER 31,
-------------------
1995 1996
-------- --------
(IN THOUSANDS)

Land and buildings ................................. $1,943 $ 3,167
Furniture and fixtures .............................. 6,973 15,126
Leasehold improvements .............................. 1,790 4,914
Computers and office equipment ..................... 2,498 25,000
Vehicles and other ................................. 1,992 5,414
------- --------
15,196 53,621
Less accumulated depreciation and amortization ...... 6,070 22,674
------- --------
$9,126 $30,947
======= ========

NOTE E--INCOME TAXES

The components of earnings before income taxes and minority interest in
subsidiaries consist of the following:

[Download Table]

YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)

Domestic ...... $1,258 $ 741 $ 1,361
Foreign ...... 310 5,361 18,999
------- ------- --------
Total ......... $1,568 $6,102 $20,360
======= ======= ========

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CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE E--INCOME TAXES--(CONTINUED)

The provision for income taxes consists of the following:

[Download Table]

YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
---------- ---------- -----------
(IN THOUSANDS)

Current
U.S. Federal ...... $ 776 $ 525 $ 1,721
U.S. State ......... 122 41 228
Foreign ............ 35 1,357 4,520
------ ------ -------
933 1,923 6,469
------ ------ -------
Deferred
U.S. Federal ...... (289) 67 (258)
U.S. State ......... (41) 5 (47)
Foreign ............ -- (198) (78)
------ ------ -------
(330) (126) (383)
----- ------ ------ -------
Total ............... $ 603 $1,797 $ 6,086
====== ====== =======

Deferred tax assets (liabilities) are comprised of the following:

[Download Table]

DECEMBER 31,
---------------------------
1995 1996
------------ ------------
(IN THOUSANDS)

Net operating losses of foreign subsidiaries ......... $ 4,162 $ 11,405
Employee compensation not currently deductible ...... 127 131
Inventory differences .............................. 66 (3,009)
Allowances for bad debts ........................... 265 1,788
Accruals not currently deductible ..................... -- 305
Other ................................................ -- (34)
-------- --------
4,620 10,586
Valuation allowance ................................. (4,164) (11,006)
-------- --------
Total ................................................ $ 456 $ (420)
======== ========

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CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE E--INCOME TAXES--(CONTINUED)

The major elements contributing to the difference between taxes at the
U.S. federal statutory tax rate and the effective tax rate are as follows:

[Enlarge/Download Table]

YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
--------- ----------- ------------
(IN THOUSANDS)

Income taxes at the statutory rate ................................. $ 533 $ 2,070 $ 6,922
Foreign income subject to tax at other than statutory rate ......... (53) (212) (1,356)
State or local income taxes, less effect of federal benefits ...... 53 55 168
Losses without tax benefit ....................................... 390 613 1,329
Goodwill amortization ............................................. 108 190 255
Utilizations of net operating losses of foreign subsidiaries ...... (382) (826) (1,196)
Other ............................................................ (46) (93) (36)
----- ------- --------
Income taxes at the effective tax rate ........................... $ 603 $ 1,797 $ 6,086
===== ======= ========

At December 31, 1996, the Company has net operating loss carryforwards in
certain foreign jurisdictions that expire as follows:

[Download Table]

1998 .................. $9,480,000
1999 .................. 6,539,000
2000 .................. 1,964,000
No expiration date ...... 14,388,000

NOTE F--NOTES PAYABLE AND LONG TERM DEBT

Several of the Company's subsidiaries have credit lines with local banks
totaling $224 million at December 31, 1996. Generally, borrowings under such
lines are collateralized by receivables or inventory. The lines are principally
of one year duration and are renewable by the banks. In 1996, the maximum and
average amounts outstanding were $172 million and $116 million, respectively.
The weighted average interest rate at December 31, 1996 was 7.3%.

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CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE F--NOTES PAYABLE AND LONG TERM DEBT--(CONTINUED)

The Company's long-term debt consists of the following at:

[Enlarge/Download Table]

DECEMBER 31,
-------------------- MARCH 31,
1995 1996 1997
-------- --------- ------------
(IN THOUSANDS) (UNAUDITED)

CHS Promark has a $60 million revolving credit agreement with a
financial institution. The agreement, which expires October 1999,
provides for advances and letters of credit based upon eligible
accounts receivable and inventories. Interest is at a variable market
rate based on the prime rate of the lender or LIBOR, at CHS
Promark's option. All of CHS Promark's assets, including accounts
receivable and inventories totaling $65.5 million at December 31,
1996, are pledged as collateral. The agreement contains certain
restrictive covenants, including limitations on transactions with
affiliated companies and employee loans. CHS Promark was in
violation of these specific covenants at December 31, 1996, but
waivers for these violations were granted by the financial institution
in March 1997 through June 1997. The agreement also limits the
ability of CHS Promark to pay dividends to the Company to 50% of
CHS Promark's net income ............................................. $ -- $34,374 $40,898
CHS Promark had a $12,000,000 revolving credit agreement with a
bank. The agreement, which was refinanced in February, 1996,
included banker's acceptances and a line of credit. Interest on the
advances under the line was at the bank's base rate for the first 5
months of 1995 and at a penalty rate for the remainder of 1995.
CHS Promark's accounts receivable and inventories were pledged as
collateral. In addition, the credit agreement contained certain
restrictive covenants ................................................ 8,004 -- --
Capitalized leases, collateralized by computer equipment, bearing
interest ranging from 7.4% to 11% with maturities through
September 2002 ...................................................... 628 10,626 9,961
Other notes and mortgages on building, interest at 9.5%, with
maturities through 2002, collateralized by a building with net book
value at December 31, 1996 of $674,000 .............................. 343 2,455 3,671
------- -------- --------
Total ............................................................... 8,975 47,455 54,530
Less current portion of long-term debt, included in notes payable ... 174 2,128 3,513
------- -------- --------
Total long-term debt ................................................ $8,801 $45,327 $51,017
======= ======== ========
Scheduled maturities of long-term debt are as follows (in thousands):
Year ending December 31, 1997 ....................................... $2,128
1998 ............................................................... 3,851
1999 ............................................................... 36,945
2000 ............................................................... 2,539
2001 ...............................................................
883

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424A 68th Page of 102 TOC 1st Previous Next ↓Bottom Just 68th
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE G--CONCENTRATIONS

The Company's operations are substantially all outside the United States.
In 1996, the largest amount of sales occurred in Germany, which comprised 17%
of total sales. The Company also had sales of almost 13% in each of England and
France. While these countries are considered politically stable, there is risk
that economic difficulties in any of these countries could adversely affect the
Company's business. The Company also has operations in the less politically
stable countries of Croatia, Bulgaria and Venezuela.

Most of the Company's sales are made in local currencies other than the
United States dollar. The largest amounts of sales were in German marks (17%),
French francs (13%) and British pounds (12%). In some countries, certain
purchases and the resulting payables are in currencies (principally the U.S.
dollar) different than the functional currency. Further, certain subsidiaries
have loans receivable or payable denominated in currencies other than their
functional currency. Transaction gains and losses on these receivables and
liabilities are included in the determination of earnings for the relevant
periods. In 1994, 1995, and 1996, foreign currency gains were $385,000,
$74,000, and $1,559,000, respectively.

The Company enters into foreign exchange contracts to hedge foreign
currency transactions on a continuing basis for periods consistent with its
committed exposure. The foreign exchange contracts are valued at market and
generally have maturities which do not exceed six months. Gains and losses on
foreign exchange contracts offset losses and gains on assets, liabilities and
transactions being hedged. As a result, the Company does not anticipate any
material adverse effect due to exchange rate movements over the short-term
period covered by these contracts. At December 31, 1996, the face value of
foreign exchange forward contracts against trade payables was $47 million,
which approximated the fair market value of the contracts. At December 31,
1996, accounts payable denominated in United States dollars and German marks
were $166 million (principally $120 million in United States dollars and $43
million in German marks). The largest unhedged amounts of trade payables were
in subsidiaries in The Netherlands ($43 million), Czech Republic ($16 million),
and Poland ($13 million), and various Latin American countries ($25 million).

In some countries there are risks of continuing periodic devaluations or
of large devaluations. In these countries, no hedging mechanism exists. The
Company has risks in these countries that such devaluations could cause
economic loss and negatively impact future sales since its product cost would
increase in local terms after such devaluations. The Company attempts to limit
its economic loss through structural mechanisms of limiting its holdings of
local currency and receivables to the amount of its local currency payables.

The Company has a major supplier, Hewlett-Packard (HP), whose products
accounted for 49%, 35%, and 34% of sales for 1994, 1995 and 1996, respectively.
No other vendor accounted for more than 10% of sales in any year except in 1996
in which one vendor was 12%. HP has the right to terminate its distribution
agreement with any Company subsidiary if the subsidiary is unable to cure,
within a reasonable period of time, any violation of the agreement after having
received notice from HP of the violation. Each Company subsidiary has the right
to terminate the HP agreement on 90 days notice. Each Company subsidiary
believes that its relationship with HP is good, and has no reason to believe
that its distribution arrangement will not be a long-term relationship. No
assurance can be given, however, that HP will renew each Company subsidiary's
agreement at the time of its annual review or in

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424A 69th Page of 102 TOC 1st Previous Next ↓Bottom Just 69th
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

subsequent years. Management has not formulated alternative plans of action in
the event the HP contracts are terminated. The amounts outstanding to HP at
December 31, 1995 and 1996 were $32 million and $70 million, respectively.

NOTE H--LEASE OBLIGATIONS AND OTHER CONTINGENCIES

The Company leases equipment, offices, sales and warehouse space under
non-cancelable leases. The following is a schedule by years of the minimum
rental commitments remaining on leased property and equipment (in thousands):

[Enlarge/Download Table]

YEAR ENDING DECEMBER 31, BUILDINGS EQUIPMENT VEHICLES AND OTHER TOTAL
--------------------------- ----------- ----------- -------------------- --------

1997 ..................... $7,578 $1,256 $2,233 $11,067
1998 .................. 5,367 848 1,495 7,710
1999 .................. 5,037 497 805 6,339
2000 .................. 4,513 242 555 5,310
2001 .................. 3,540 33 128 3,701
Subsequent years ...... 16,398 202 -- 16,600

Total rental expense was $1,583,000, $2,503,000, and $6,715,000 for the
years ended December 31, 1994, 1995 and 1996, respectively.

Rental expense includes approximately $734,000 annually for monthly rent
due on a CHS facility in Germany under a lease agreement dated November 1993
with a term of 17 years. CHS Germany has the option to purchase the leased
property at both the end of the seventh year of the lease term and at the end
of the lease, for the net book value of the property as calculated under
applicable German tax laws. The option prices at the end of the seventh and
seventeenth year would approximate $5.6 million and $2.8 million, respectively.
In addition, the lessor has the right to adjust the minimum rental payments at
the end of 1999 if certain economic conditions prevail.

The Company is involved in litigation relating to claims arising out of
its operations in the normal course of business. The Company is not currently
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on the Company. The Company is
subject to a tax audit in Portugal where the tax authorities have preliminarily
found a deficiency of approximately $3 million. The Company believes it has
properly reported its income and paid taxes in Portugal and intends to contest
the proposed adjustments vigorously. The Company has requested a re-audit,
which has been granted, although no specific date is yet scheduled. The Company
expects the ultimate resolution of this matter will not have a material adverse
effect on the Company's financial position or results of operations.

NOTE I--RELATED PARTY TRANSACTIONS

At December 31, 1995 and 1996, the Company carried receivables from
Comtrad in an amount of $843,000 and $3.2 million respectively. In 1996, this
receivable is in the form of a promissory note which Comtrad has agreed to
collateralize with 210,000 shares of CHS owned by Comtrad. The amount is due
the earlier of a public offering of the Company or 60 days after demand.
Interest charged to Comtrad was $162,000, $438,000 and $86,000 in 1994, 1995
and 1996 respectively. In 1995, the Company owed

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424A 70th Page of 102 TOC 1st Previous Next ↓Bottom Just 70th
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE I--RELATED PARTY TRANSACTIONS--(CONTINUED)

amounts to Comtrad which were subsequently extinguished. Interest paid to
Comtrad was $117,000 and $126,000 in 1994 and 1995, respectively.

In 1996, the Company purchased a company in Romania from Comtrad for
$375,000 (see Note B). Subsequently, the Company loaned $800,000 to the
subsidiary to enable it to purchase an office building. In December 1996, the
Company sold this subsidiary back to Comtrad for the original purchase price
plus an amount equal to the losses from April to date of sale ($200,000). No
gain was recognized on the sale, which had the impact of increasing the amount
due from Comtrad by $1.4 million.

During 1993, various management services were provided to CHS Germany by
Comtrad or its affiliates. As compensation for these services, a management
charge aggregating $896,000 was levied. In the fourth quarter of 1994, a study
was performed of the actual costs relating to the services provided by Comtrad
and its affiliates. Based on such study the Company applied for and received a
credit from Comtrad against such fees of $579,000. Such amount has been
recorded as a reduction of administrative expenses in 1994. In the past the
Company billed Comtrad for actual costs of salaries, space and other
administrative costs it incurred on Comtrad's behalf. Such amounts were
$670,000, $495,000, and $0 in 1994, 1995 and 1996, respectively. In 1995,
Comtrad billed the Company $887,000 for the Company's share of actual costs
incurred by Comtrad for salaries, space and other administrative expenses for
shared employees.

Comtrad owned operating subsidiaries in Europe engaged in essentially the
same business as CHS Germany. During the ten months ended October 31, 1994,
certain Comtrad subsidiaries purchased substantially all of their goods for
resale from CHS Germany. These entities were initially invoiced at cost plus 2%
for all goods purchased. This arrangement was necessary since formal
distributorship agreements between the Comtrad subsidiary companies and the
principal supplier of goods, HP had not been finalized. In the last quarter of
1994, a study of the actual handling costs was completed, which concluded the
actual costs for the year were 4.5% of such sales. As a result an additional
$500,000, representing the cumulative effect of the difference between 4.5% and
2%, was billed to the affiliates and recorded in gross profit in 1994. Handling
costs billed to Comtrad, which are recorded as a reduction in operating costs,
were $900,000, $73,000 and $0 in 1994, 1995 and 1996 respectively.

A director of the Company serves the Company as a management consultant
under a consulting agreement specifying payments of $4,000 per month. In 1994,
1995, and 1996, $45,700 and $48,000 and $48,000 respectively was paid under
this agreement.

Immediately prior to the Company's acquisition of CHS Promark, CHI,
Comtrad, the shareholders of Comtrad, the Company and Alvin Perlman entered
into an Agreement and Plan of Exchange ("Exchange Agreement"). Under the terms
of the Exchange Agreement, all of the Comtrad shareholders exchanged 100% of
the outstanding Comtrad common stock for 770,000 shares of CHI common stock and
100,000 shares of CHI class A common stock. Mr. Perlman exchanged 77% of the
issued and outstanding capital stock of CHS Promark for 230,000 shares of CHI
common stock. The class A common stock of CHI has no dividend, liquidation,
participation or voting rights, except it is redeemable at the election of CHI
with 1,540,000 shares of the Company's common stock held by

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424A 71st Page of 102 TOC 1st Previous Next ↓Bottom Just 71st
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE I--RELATED PARTY TRANSACTIONS--(CONTINUED)

Comtrad and has preference in liquidation over the CHI common stock with
respect to the same 1,540,000 shares. In a related transaction, Mr. Perlman
sold CHI 30% of the capital stock of each of the South American subsidiaries
for $2.5 million paid in the form of $100,000 in cash and a 7% promissory note
in the principal amount of $2.4 million which has been fully satisfied.

The Company has guaranteed the obligation of CHI to pay to the former
owner of its subsidiary in Poland an earnout amount. Such amount, when known,
is to be paid in Company stock.

NOTE J--COMMON STOCK AND STOCK OPTION PLANS

In June 1996, the Company completed a public offering of common shares in
which the Company sold 4,591,539 shares and selling shareholders sold 1,733,461
shares. The Company shares were sold at $12 per share which raised $50.6
million for the Company net of expenses and commissions. As part of the
offering the underwriter received warrants entitling the purchase of 300,000
shares of stock in a 4-year period beginning in June 1997 at a price starting
at $13.20 and increasing each year.

In March 1996, the shareholders approved a reincorporation as a Florida
company, a reverse one-for-two stock split and the authorization of 5,000,000
shares of preferred stock in such class or series and with such rights as
approved by the Board of Directors. All share information has been restated to
reflect the one-for-two split. A majority vote by the holders of the preferred
stock as well as the holders of common stock is necessary to vote affirmatively
on matters of mergers, sales of substantially all the Company's assets,
exchanges of stock or changes in the articles of incorporation.

On February 17, 1994, the Company completed a private placement offering
of 896,523 shares of its common stock. The stock was sold to unrelated
investors at $4.46 per share. The net proceeds of $3,998,493 were used to
partially repay the $4,000,000 promissory note owed to Comtrad.

In 1994, Claudio Osorio, CHI, and Alvin Perlman entered into an option
agreement. The option agreement grants to CHI and Mr. Osorio an option until
June 30, 1996, subsequently extended to June 1997, to purchase all shares of
the Company's common stock and CHI common stock held by Mr. Perlman for $15
million less any amounts realized by Mr. Perlman on sales of CHS shares he
owns. The current option price is approximately $10 million. For the month of
July 1997, Mr. Perlman has an option to put all shares of the Company's common
stock and the CHI common stock held by him to Mr. Osorio for $15 million less
any amounts realized by Mr. Perlman on sales of CHS shares he owns, and CHI has
guaranteed Mr. Osorio's performance if the put option is exercised. The payment
obligations of CHI under the option agreement, should they arise, are secured
by 727,097 shares of the Company's common stock held by CHI.

In August 1994, a Stock Incentive Plan was adopted by the Company's Board
of Directors and subsequently approved by the Company's shareholders in June
1995. The maximum number of shares issuable under the Plan was 497,000. In
September 1995, the Board of Directors and subsequently the shareholders
approved the issuance of an additional 150,000 shares under the plan. In
December 1996, the Board of Directors approved, subject to approval by the
Company's shareholders, the issuance of an additional 600,000 shares under the
plan. Certain of the grants (423,000 at December 31, 1996) are

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424A 72nd Page of 102 TOC 1st Previous Next ↓Bottom Just 72nd
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE J--COMMON STOCK AND STOCK OPTION PLANS--(CONTINUED)

intended to qualify as incentive stock options and the remaining are
non-qualified options. All options were issued with an exercise price equal to
the market price and have a life of 10 years. Vesting periods are generally 25%
a year for four years.

In June 1996, the Board of Directors approved, subject to approval by the
Company's shareholders, the 1996 Chief Executive Officer Option Plan. The Plan
provides for options covering up to 500,000 shares of CHS stock to be issued to
the CEO upon the approval by the Board of Directors of a qualifying
acquisition, as defined, or of any acquisition if recommended by the
Compensation Committee and approved by the Board. A qualifying acquisition is
one where greater than 50% of the purchase price is to be paid by delivery of a
number of shares of common stock calculated by an earn out formula. The options
are to be granted at market value and vest based on the earnings of the
acquired company. In 1996, 432,794 options were granted under this plan.

In December 1994, when the estimated fair value was $6.00, the Board
granted the Company's Chief Executive Officer non-qualified options to purchase
56,080 shares for which the exercise price is $1.00 per share. The vesting
period is two years and the options expire in ten years. The compensation
element of $280,400 was considered applicable to this individual's year of
service beginning July 1, 1994 and the full amount has been amortized to
compensation expense in the accompanying financial statements.

The Company accounts for its stock options under APB 25. No compensation
cost has been recognized as the exercise price of such options do not exceed
the fair value of the underlying stock at the date of grant. Had compensation
cost for the plan been determined based on the fair value of the options at the
grant dates consistent with the method of SFAS 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, the Company's net earnings per share would have been reduced to
the pro forma amounts indicated below.

[Download Table]

1995 1996
------------ ------------

Net earnings As reported $4,305,000 $12,166,000
Pro forma 4,241,000 11,777,000
Primary earnings per share As reported $ .59 1.16
Pro forma .58 1.13

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes options pricing model with the following
weighted-average assumptions used for grants in 1995 and 1996, respectively;
dividend yield of 0% for each year; expected volatility of 70% in each year;
risk-free interest rates of 5.81% in 1995 and 6.06% in 1996; and expected lives
of 4.5 years for each grant year.

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424A 73rd Page of 102 TOC 1st Previous Next ↓Bottom Just 73rd
CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE J--COMMON STOCK AND STOCK OPTION PLANS--(CONTINUED)

A summary of the status of the Company's stock option plans as of December
31, 1994, 1995, and 1996, and changes during the years ending on those dates is
presented below.

[Enlarge/Download Table]

1994 1995 1996
-------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------- ---------- ------------- ---------- -------------- ---------

Outstanding at beginning
of year ........................ -- -- 402,005 $5.30 564,088 $6.90
Granted ........................ 422,005 $5.34 223,000 9.58 1,055,813 14.63
Exercised ........................ -- -- -- -- (41,074) 6.86
Cancelled ........................ (20,000) 6.00 (60,917) 6.16 (35,961) 15.42
--------- ------ --------- ------ ---------- ------
Outstanding at end of year ...... 402,005 5.30 564,088 6.90 1,542,866 12.02
========= ====== ========= ====== ========== ======
Options exercisable at year end -- -- 138,855 $4.99 515,628 $8.90
Weighted - average fair value
of options granted during
the year ..................... N/A N/A $8.83

The following information applies to options outstanding at December 31,
1996:

[Download Table]

Number outstanding .............................. 1,542,866
Range of exercise prices ........................ $6.00-18.63
Weighted average exercise price .................. $12.02
Weighted average remaining contractual life ...... 9.2 years

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CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE K--SEGMENT INFORMATION

The Company's operations involve a single industry segment distribution of
microcomputer equipment and software products. The geographic areas in which
the Company operates are Western Europe, Eastern Europe and Latin America. Net
sales, operating income (before interest and income taxes) and identifiable
assets by geographical area were as follows (in thousands):

[Enlarge/Download Table]

WESTERN EASTERN LATIN
EUROPE EUROPE AMERICA ELIMINATIONS CONSOLIDATED
------------ ---------- ---------- -------------- -------------

1994
Net sales ............... $ 287,244 $ 6,559 $ 65,366 $ -- $ 359,169
=========== ========= ========= ========= ==========
Operating income ......... $ 1,809 $ 43 $ 2,004 $ -- $ 3,856
Corporate expenses ...... (468)
----------
$ 3,388
==========
Identifiable assets ...... $ 110,457 $ 4,868 $ 49,433 $ (419) $ 164,339
Corporate assets ......... 129
----------
$ 164,468
==========
1995
Net sales ............... $ 542,438 $ 65,320 $328,945 $ -- $ 936,703
=========== ========= ========= ========= ==========
Operating income ......... $ 7,358 $ 252 $ 3,934 $ -- $ 11,544
Corporate expenses ...... (745)
----------
10,799
==========
Identifiable assets ...... $ 169,442 $ 33,283 $ 85,409 $ (22,677) $ 265,457
Corporate assets ......... 347
----------
$ 265,804
==========
1996
Net sales ............... $1,063,997 $215,518 $576,025 $ -- $1,855,540
=========== ========= ========= ========= ==========
Operating income ......... $ 9,559 $ 11,440 $ 10,663 $ -- $ 31,662
Corporate expenses ...... (2,789)
----------
$ 28,873
==========
Identifiable assets ...... $ 528,568 $110,656 $207,734 $ -- $ 846,958
Corporate assets ......... 14,991
----------
$ 861,949
==========

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CHS ELECTRONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997--(CONTINUED)
(INFORMATION RELATING TO THE INTERIM PERIODS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)

NOTE L--SUBSEQUENT EVENTS

In December 1996 the Company signed a definitive agreement to purchase
F&W, a privately held company in Germany in the same business as the Company.
The agreement is subject to obtaining governmental anti-trust approvals (which
has been obtained) and certain other provisions. The transaction is expected to
close in March 1997 but be effective January 1997. The purchase price is 2.2
million unregistered shares of common stock. The transaction is expected to be
accounted for as a purchase. For 1996, F&W had net sales of $686 million,
operating income of $10.8 million and pretax income of $6.3 million (unaudited
information)

In January 1997 the Board of Directors approved, subject to approval by
the Company's shareholders, the Directors and Officers 1997 Stock Option Plan.
Under the plan 600,000 options will be available for grant to senior officers
and directors. All options will be granted at market value and have specific
vesting periods, generally pro rata over 3 years. Through March 1997, 540,000
options were granted under this plan.

NOTE M--SUMMARIZED QUARTERLY FINANCIAL DATA FOR 1995 AND 1996 (unaudited)

(IN THOUSANDS, EXCEPT FOR PER SHARE INFORMATION)

[Enlarge/Download Table]

Q1 Q2 Q3 Q4 YEAR
---------- ---------- ---------- --------------- -----------

1995
Net sales .................. $207,419 $172,744 $239,074 $ 317,466 $ 936,703
Gross profit ............... 14,910 13,400 17,425 22,252 67,987
Net earnings ............... 1,667 950 1,163 525 4,305
Net earnings per share ...... .24 .14 .16 .07 .59
1996
Net sales .................. $302,995 $316,506 $376,209 $ 859,830 $1,855,540
Gross profit ............... 22,542 23,764 27,109 57,693 131,108
Net earnings ............... 1,988 1,726 2,325 6,127 12,166
Net earnings per share ...... .25 .21 .19 .48(a) 1.16

----------------
(A) Results for the fourth quarter 1996 include a restructuring charge of $1.4
million ($1.1 million or $.11 per share after tax) for costs incurred by the
Company to implement consolidation of its operations with acquired operations
from Merisel.

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424A 76th Page of 102 TOC 1st Previous Next ↓Bottom Just 76th
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Karma International S.A.

We have audited the accompanying consolidated balance sheets of Karma
International S.A. (formerly Bluefin S.A.) and its subsidiaries (the Company)
as of December 31, 1995 and 1996, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Karma
International S.A. (formerly Bluefin S.A.) and its subsidiaries as of December
31, 1995 and 1996, and the results of their operations and their cash flows for
the years then ended in accordance with accounting principles generally
accepted in the United States.

KPMG Cevdet Suner Denetim ve
Yeminli Mali Musavirlik A.S.

Istanbul, Turkey
April 16, 1997

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424A 77th Page of 102 TOC 1st Previous Next ↓Bottom Just 77th
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)

[Enlarge/Download Table]

1995 1996
--------- -------------

ASSETS
Current assets:
Cash and equivalents (Note 4) .................................... $ 6,684 $ 9,600
Trade receivables, net (Note 5) ................................. 6,450 26,148
Due from related parties (Notes 3 and 6) ........................ 6,278 8,926
Inventories, net (Notes 3 and 7) ................................. 35,551 88,579
Other current assets (Note 8) .................................... 3,338 5,832
Deferred tax assets (Notes 3 and 12) ........................... 111 204
-------- ---------
Total current assets .......................................... 58,412 139,289
Property and equipment, net (Notes 3 and 9) ..................... 511 1,694
Intangible and other long term assets, net ........................ 16 975
-------- ---------
Total assets ................................................ $58,939 $ 141,958
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings (Note 10) ............................................. $ 5,828 $ 7,925
Trade payables (Note 11) ....................................... 40,125 92,396
Due to related parties (Notes 3 and 6) ........................... 2,689 6,229
Taxes payable (Notes 3 and 12) ................................. 456 1,306
Other current liabilities (Note 13) .............................. 3,550 11,582
Deferred tax liabilities (Notes 3 and 12) ........................ 12 1,159
-------- ---------
Total current liabilities .................................... 52,660 120,597
Long term liabilities ............................................. -- 103
Minority interest (Note 3) ....................................... 386 144
-------- ---------
Total liabilities ............................................. 53,046 120,844
Shareholders' equity:
Common stock, $10 par value, authorized 20,000,000 shares;
issued and outstanding 1,080,288 shares in 1996 (Note 14) ...... 5,136 10,803
Legal reserve ................................................... -- 9
Accumulated translation adjustment (Note 3) ..................... 49 (148)
Retained earnings ................................................ 708 10,450
-------- ---------
Total shareholders' equity .................................... 5,893 21,114
COMMITMENTS AND CONTINGENCIES (Note 15)
Total liabilities and shareholders' equity .................. $58,939 $ 141,958
======== =========

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

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424A 78th Page of 102 TOC 1st Previous Next ↓Bottom Just 78th
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)

[Enlarge/Download Table]

1995 1996
-------------- --------------

Net sales (Note 3) .......................................... $ 287,663 $ 700,203
Cost of goods sold (Note 3) ................................. (275,104) (668,397)
---------- ----------
Gross profit ............................................. 12,559 31,806
Selling, general and administrative expenses (Note 3) ......... (5,275) (13,353)
---------- ----------
7,284 18,453
Interest income ............................................. 117 967
Interest expense ............................................. (942) (1,891)
Other (expense) income, net ................................... (175) 66
---------- ----------
Income before taxes on income and minority interest ...... 6,284 17,595
Taxes on income (Notes 3 and 12) .............................. (405) (2,470)
---------- ----------
Income before minority interest ........................... 5,879 15,125
Minority interest (Note 3) .................................... (77) (48)
---------- ----------
Net income ................................................ $ 5,802 $ 15,077
========== ==========

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

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424A 79th Page of 102 TOC 1st Previous Next ↓Bottom Just 79th
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)

[Enlarge/Download Table]

RETAINED
EARNINGS/ ACCUMULATED TOTAL
COMMON LEGAL (ACCUMULATED TRANSLATION SHAREHOLDERS'
STOCK RESERVE LOSSES) ADJUSTMENT EQUITY/(DEFICIT)
--------- --------- -------------- ------------- -----------------

BALANCES AT DECEMBER 31, 1994 ............ $ 64 $-- $ (164) $ 35 $ (65)
Capital share transactions (Note 14) ... 142 142
Translation adjustments (net of tax $5) 14 14
Net income .............................. 5,802 5,802
Transfer to share capital (Note 14) ... 4,930 (4,930) --
------- -------- -------
BALANCES AT DECEMBER 31, 1995 ............ 5,136 -- 708 49 5,893
Transfer to legal reserve ............... 9 (9) --
Capital share transactions (Note 14) ... 113 113
Effect of disposition of operations
(Note 14) .............................. (19) 278 259
Translation adjustments (net of tax $41) (197) (197)
Net income .............................. 15,077 15,077
Transfer to share capital (Note 14) ... 5,573 (5,573) --
Other ................................. (31) (31)
-------- -------
BALANCES AT DECEMBER 31, 1996 ............ $10,803 $ 9 $10,450 $ (148) $21,114
======= ==== ======== ====== =======

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

F-37

424A 80th Page of 102 TOC 1st Previous Next ↓Bottom Just 80th
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)

[Enlarge/Download Table]

1995 1996
----------- -------------

OPERATING ACTIVITIES:
Net income ................................................... $ 5,802 $ 15,077
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ................................................ 42 118
Amortization ................................................ -- 107
Provision for inventories .................................... 319 1,086
Provision for doubtful receivables ........................... 5 8
Provision for deferred taxes ................................. (40) 1,095
Changes in assets and liabilities:
Trade receivables .......................................... 1,742 (19,706)
Due from related parties .................................... (2,491) (2,648)
Inventories ................................................ (29,630) (54,114)
Other current assets ....................................... (2,366) (2,494)
Trade payables ............................................. 20,828 52,271
Due to related parties ....................................... 1,437 3,540
Taxes payable ................................................ 370 850
Other current liabilities .................................... 3,039 8,032
Other, net ................................................... (12) (735)
-------- ---------
Net cash (used in) provided by operating activities ...... (955) 2,487
INVESTING ACTIVITIES:
Additions to property and equipment ........................ (359) (1,301)
-------- ---------
Net cash used in investing activities ..................... (359) (1,301)
FINANCING ACTIVITIES:
Capital share transactions ................................. 142 113
Proceeds from issuance of short-term debt .................. 5,828 8,025
Payment of short-term debt ................................. (332) (5,928)
Change in minority interest ................................. 386 (242)
-------- ---------
Net cash provided by financing activities ............... 6,024 1,968
EXCHANGE RATE EFFECT ON CASH, GROSS ........................... 19 (238)
-------- ---------
Net increase in cash and equivalents ........................ 4,729 2,916
Cash and equivalents at the beginning of period ............... 1,955 6,684
-------- ---------
Cash and equivalents at the end of period ..................... $ 6,684 $ 9,600
======== =========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid ................................................ $ 940 $ 885
Taxes on income paid ....................................... 88 219

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

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424A 81st Page of 102 TOC 1st Previous Next ↓Bottom Just 81st
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)

1. DESCRIPTION OF BUSINESS:

Karma International S.A. ("Karma International"--the Parent company) was
incorporated in Luxembourg in 1996, formerly Bluefin S.A. which was
incorporated on July 27, 1990. The consolidated financial statements of Karma
International include the results of operations and financial position of its
wholly owned subsidiaries, majority owned subsidiaries and entities under
common control of Karma International and/or the controlling shareholders (Note
14) which are part of a shareholders' agreement whereby the controlling
shareholders reached an agreement to contribute their capital in subsidiaries
to Karma International AG in 1995 and consequently to Karma International S.A.
in 1996. Accordingly, in 1996, the shares of Karma International AG, Karma
Components AG, Carre & Ribeiro Informatica Lda, Karma Denmark Aps and Karma
Italia Srl were contributed by the controlling shareholders of Karma
International. The consolidated financial statements as of and for the year
ended December 31, 1995 have been restated to account for the entities under
common control "as if" a pooling of interest had occurred.

The following companies' (subsidiaries) results of operations and
financial position have been included in the consolidated financial statements
based upon the relative percentage below which represent the earliest period
for which such entities were under common control of Karma International and/or
the controlling shareholders.

[Download Table]

OWNERSHIP
-----------------
COMPANIES 1995 1996
-------------------------------------------------------------- ------ --------

Carre & Ribeiro Informatica Lda, Portugal ............... 75% 75%
Karma Benelux BV, the Netherlands ........................ 100% 100%
Karma Components AG, Switzerland ........................ 75% 95%
Karma Components SA, Spain(1) ........................... -- 100%
Karma Computer GmbH, Germany(1) ........................... -- 100%
Karma Czech a.s., Czech Republic(1) ..................... -- 75%
Karma Denmark ApS, Denmark .............................. 75% 75%
Karma International AG, Switzerland ..................... 95% 100%
Karma Italia Srl, Italy ................................. 75% 75%
Karma Polska International Group Limited, Poland(1) ...... -- 75%
Karma Sarl, France ....................................... 100% 100%
Karma UK Limited, United Kingdom ........................ 100% 100%
Riverrise Trading Limited, Ireland(2) ..................... 100% --

----------------
(1) Company began operations in 1996.

(2) Company's operations disposed of in 1996. (Note 14)

F-39

424A 82nd Page of 102 TOC 1st Previous Next ↓Bottom Just 82nd
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)--(CONTINUED)

1. DESCRIPTION OF BUSINESS:--(CONTINUED)

Karma International and its subsidiaries (the Company) operates in a single
industry trading computer components. In principle, the Company purchases
components from international suppliers and sells them in the local markets. The
companies other than the Parent company and Karma International AG are mostly
engaged in marketing and selling the products in their respective local markets.
The Company's principal operations are outside of Luxembourg and are conducted
by subsidiaries located in various countries in Europe. The subsidiaries are the
approved distributors of various international companies in computer hardware,
software, networking and data communication markets. The Company has entered
into agreements with suppliers and manufacturers of these products. These
agreements provide, among other things, that the Company obtains favourable
pricing based on certain committed levels of purchases, that the Company is
price protected in the event the vendor reduces its prices and that goods can be
returned to the vendor within a period of three months effective from the date
when such goods become unsaleable due to technological reasons. The agreements
are generally renegotiated annually and are subject to termination by the vendor
or the Company with thirty to ninety days notice. Although the Company believes
it maintains satisfactory relations with these vendors, the discontinuance,
termination or non-renewal of certain of these agreements could adversely affect
the Company's business.

In 1996, the shareholders agreed to transfer their ownership interests in
Oktabit Hellas A.E. (Greece) and Karma Donanim Yazilim A.S. (Turkey), which are
wholly owned by the controlling shareholders, to the Company. The share
transfer procedures have not been finalized as of December 31, 1996. Therefore,
such companies were not included in the accompanying consolidated financial
statements. Had the transfer procedures been completed and had these companies
been included in the accompanying consolidated financial statements as of and
for the years ended December 31, 1995 and 1996, total assets; total revenues
and net income would be higher by $8,095 and $12,404; $5,565 and $31,864, and
$295 and $304 in 1995 and 1996, respectively.

2. Adjustments and Reclassifications to Statutory Books of Accounts:

Karma International and the subsidiaries maintain their books of accounts
and prepare their statutory financial statements in their local currencies and
in accordance with local commercial practice and tax regulations applicable in
the countries where they are resident. The accompanying consolidated financial
statements are based on these statutory records with adjustments and
reclassifications for the purpose of fair presentation in accordance with
accounting principles generally accepted in the United States.

3. Summary of Significant Accounting Policies:

The major accounting policies followed in the preparation of the
consolidated financial statements referred to above are set out below:

(A) REVENUE AND EXPENSE RECOGNITION--

Revenues are recognized at the time the goods are shipped. Cost of goods
sold include material costs only. Selling, general and administrative costs are
charged to expense as incurred. Income from vendor rebates and discounts are
recognized when earned, as a reduction of the cost of goods sold or as a
reduction of operating expenses.

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424A 83rd Page of 102 TOC 1st Previous Next ↓Bottom Just 83rd
KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)--(CONTINUED)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)

(B) PRINCIPLES OF CONSOLIDATION--

The consolidated financial statements of Karma International include the
results of operations and financial position of its wholly owned subsidiaries,
majority owned subsidiaries and entities under common control of Karma
International and/or the controlling shareholders (Note 14) which are part of a
shareholders' agreement whereby the controlling shareholders reached an
agreement to contribute their capital in subsidiaries to Karma International AG
in 1995 and consequently to Karma International S.A. in 1996. Accordingly, in
1996, the shares of Karma International AG, Karma Components AG, Carre &
Ribeiro Informatica Lda, Karma Denmark Aps and Karma Italia Srl have been
contributed by the controlling shareholders into Karma International. The
consolidated financial statements as of and for the year ended December 31,
1995 have been restated to account for the entities under common control "as
if" a pooling of interest had occurred.

The major principles of consolidation are as follows:

/bullet/ All significant intercompany balances and transactions have been
eliminated in consolidation.

/bullet/ Minority interest in the net assets and net income of the
consolidated companies are separately classified in the consolidated
balance sheets and consolidated statements of income.

The subsidiaries record transactions in their local currencies which
represent their operating currencies. Transactions denominated in currencies
other than local currencies are recorded at the exchange rates ruling at the
date of the transactions. Assets and liabilities denominated in currencies
other than local currencies are converted into the local currencies at the
exchange rates ruling at balance sheet date. Resulting exchange differences are
recognized in the income for the period.

Financial statements of the subsidiaries have been translated into U.S.
dollars, the reporting currency of the Parent company. Accordingly, balance
sheet items are translated at the year-end exchange rates while statement of
income items are translated at average rates during the year. All foreign
exchange adjustments resulting from translation of the financial statements
into U.S. dollars are included in a separate section of shareholders' equity
titled `Accumulated translation adjustment'.

(D) PROPERTY AND EQUIPMENT--

Property and equipment are stated at cost. Depreciation is provided using
the straight-line method based on the estimated useful lives of the assets.

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KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)--(CONTINUED)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)

Depreciation rates used are as follows:

[Download Table]

%
--------

Buildings .............................. 2
Motor vehicles ........................ 12 -25
Furnitures, fixture and equipment ...... 15 -33
Leasehold improvements .................. 20

The costs of ordinary maintenance and repairs are charged to expense as
incurred.

When assets are otherwise disposed of, the costs and the related
accumulated depreciation are removed from the accounts and resulting gain or
loss is reflected in net income.

(E) INVENTORIES--

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in first-out method.

(F) INCOME TAXES--

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

(G) RELATED PARTY TRANSACTIONS--

For the purpose of the accompanying consolidated financial statements,
shareholders and all companies in which there is direct or indirect ownership
by the shareholders of the consolidated companies are considered as related
parties.

(H) USE OF ESTIMATES--

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles in the United States.
Actual results could differ from those estimates. Significant estimates and
assumptions include the amounts reflected as allowance for doubtful
receivables, allowance for inventories, amounts due from vendors under
incentive programs and deferred tax assets.

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KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)--(CONTINUED)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)

(I) IMPAIRMENT OF LONG-LIVED ASSETS--

The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of, on January 1, 1996.
Adoption of this statement did not have a material impact on the Company's
consolidated financial position, results of operations, or liquidity.

(J) TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES--

In June 1996, the Financial Accounting Standards Board issued SFAS No.
125, Accounting for Transfers and Servicing of Financial Assets and
extinguishments of Liabilities. SFAS No. 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996 and is to be applied prospectively. This statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. Management of the Company does not expect that adoption
of SFAS No. 125 will have a material impact on the Company's consolidated
financial position, results of operations, or liquidity.

(K) EARNINGS PER SHARE--

In 1996, the Financial Accounting Standards Board issued SFAS No. 128,
which is effective for periods ending after December 15, 1997. The Company has
not been required to calculate earnings per share amounts. However, the
adoption of this standard would not have an effect on the Company's earnings
per share amounts as the Company has no common stock equivalents.

4. Cash and Equivalents:

At December 31, the breakdown of cash and equivalents is as follows:

[Download Table]

1995 1996
-------- -------

Cash ........................ $6,662 $9,581
Cash equivalents ......... 22 19
------- -------
Cash and equivalents ...... $6,684 $9,600
======= =======

5. Trade Receivables, net:

At December 31, trade receivables consisted of receivables maturing within
one year and are as follows:

[Download Table]

1995 1996
----------- ------------

Accounts receivable .............................. $ 6,558 $ 26,264
Less: Allowance for doubtful receivables ...... (108) (116)
------- --------
$ 6,450 $ 26,148
======= ========

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KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)--(CONTINUED)

5. TRADE RECEIVABLES, NET:--(CONTINUED)
Allowance for doubtful receivables:

[Download Table]

1995 1996
------ -----

Beginning balance ............... $103 $108
Provision for bad debt ...... 5 8
----- -----
Ending balance ............... $108 $116
===== =====

6. Due From/To Related Parties:

(a) At December 31, due from related parties comprised of following
balances:

[Download Table]

1995 1996
-------- -------

Karma Donanim Yazilim A.S. ...... $ 197 $7,266
Distribution Karma, Dubai ...... -- 1,161
Riverrise Trading Ltd ......... -- 303
Joaquim Ribeiro ............... -- 193
Mehmet Betil .................. 2,079 --
Umur Serter ..................... 1,989 --
Alvi Mazon ..................... 189 --
Bernd Karre ..................... 334 --
Oktabit Hellas A.E. ............ 768 --
Others ........................ 722 3
------- -------
$6,278 $8,926
======= =======

(b) At December 31, due to related parties comprised of following
balances:

[Download Table]

1995 1996
-------- -------

Eurocom Computer Systems GmbH, Germany ...... $2,048 $4,104
Bernd Karre .............................. -- 1,040
Privest SAH, Luxembourg .................. 420 440
Oktabit Hellas A.E. ........................ -- 312
Others .................................... 221 333
------- -------
$2,689 $6,229
======= =======

At December 31, 1996, $4,388 of the balance with Karma Donanim Yazilim
A.S. resulted from ordinary trading activities. Remaining $2,878 represents a
loan given to this company. Balances with Distribution Karma, Riverrise Trading
Ltd, Eurocom Computer Systeme GmbH and Oktabit Hellas A.E. resulted from
ordinary trading activities. At December 31, 1996, Distribution Karma was
acting as an agent of Karma International AG.

F-44

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KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)--(CONTINUED)
7. Inventories:

At December 31, inventories comprised:

[Download Table]

1995 1996
------------ ------------

Finished goods ........................ $ 35,959 $ 89,708
Less: Allowance for inventories ...... (408) (1,129)
-------- --------
$ 35,551 $ 88,579
======== ========

At December 31, 1996, inventories amounting to $904 were pledged as
guarantees against borrowings obtained from Rabobank (Note 10).

As of December 31, 1996, inventories were insured to the extent of
$83,000.

8. Other Current Assets:

At December 31, 1995 and 1996, other current assets consist principally of
price protection and receivables from returned goods.

9. Property and Equipment:

Property and equipment at December 31, consist of the following:

[Download Table]

USEFUL LIVES 1995 1996
-------------- ---------- ----------

Buildings ................................. 50 years $ 78 $ 450
Motor vehicles ........................... 4-8 years 92 218
Furnitures, fixture and equipment ...... 3-7 years 452 1,249
Leasehold improvements .................. 5 years -- 6
------ ------
Property and equipment at cost ...... 622 1,923
Less: Accumulated depreciation ......... (111) (229)
------ ------
$ 511 $1,694
====== ======

At December 31, 1996, buildings at cost $423 were pledged as guarantees
against borrowings obtained from Barclay Bank plc (Note 10).

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KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)--(CONTINUED)
10. Borrowings:

At December 31, the balance consists of borrowings from financial
institutions as follows:

[Download Table]

1995 1996
-------- -------

Yapi Kredi Dankasi A.S., Germany ...... -- $2,879
Rabobank B.A., Den Haag ............ -- 716
Credit Lyonnais Finance Ltd ......... -- 2,031
Barclay Bank plc ..................... -- 951
Rabobank B.A., Den Haag ............ -- 150
Rabobank B.A., Den Haag ............ -- 38
BB Aval .............................. $2,700 --
Union de Banques Suisse ............ 964 --
Union de Banques Suisse ............ 480 --
National West ........................ 804 --
Lombard .............................. 473 --
Contrade Private Bank Limited ...... 137 --
Others .............................. 270 1,160
------- -------
$5,828 $7,925
======= =======

Several of the Company's subsidiaries have credit lines with local banks
totalling $12,942 at December 31, 1996. Generally, borrowings under such lines
are collateralized by receivables, bank letters of guarantee, inventory or
property. The lines are principally of one year duration and are renewable by
the banks. In 1996, the average amounts outstanding were $6,877. The weighted
average interest rate at December 31, 1996 was approximately 8.5%.

At December 31, 1996, the following collaterals were provided to financial
institutions against approved lines of credit:

[Download Table]

TYPE OF COLLATERAL AMOUNT
--------------------------------- -------

Rabobank B.A., Den Haag ............ Bank letters of guarantee $ 500
Rabobank B.A., Den Haag ......... Pledge on inventories $ 904
Barclay Bank plc .................. Mortgage on buildings $ 423
Credit Lyonnais Finance Ltd ...... Assignment on trade receivables $2,031

11. Trade Payables:

At December 31, trade payables consist principally of international vendor
balances mainly resulting from purchase transactions.

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KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)--(CONTINUED)
12. Taxes on Income:

Taxes on income is only attributable to income from continuing operations
and consists of:

[Download Table]

CURRENT DEFERRED TOTAL
--------- ---------- ------

Year ended December 31, 1995:
Foreign taxes ......... $ 445 $ (40) $ 405
Year ended December 31, 1996:
Foreign taxes ......... 1,375 1,095 2,470

Taxes on income attributable to income from continuing operations was $405
and $2,470 for the years ended December 31, 1995 and 1996, respectively, and
differed from the amounts computed by applying the federal income tax rate of
9.8 percent of Switzerland, where the main subsidiary (Karma International AG)
has its operations, to pretax income from continuing operations as a result of
the following:

[Download Table]

1995 1996
---------- -------

Computed "expected" tax expense ..................... $ 632 $1,707
(Reduction) increase in income taxes resulting from:
Foreign income subject to tax at other rates ...... (264) 255
State and other income taxes ..................... 37 508
------ -------
$ 405 $2,470
====== =======

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and 1996 are presented below:

[Enlarge/Download Table]

1995 1996
---------- -------------

Deferred tax assets:
Accounts and other receivable principally due to
allowance for doubtful accounts .................................... $ 27 $ 81
Inventory differences ................................................ 54 140
Net operating loss carryforwards ....................................... 40 158
Accumulated translation adjustment .................................... 2 67
Other .................................................................. -- 57
----- --------
Total gross deferred tax assets .......................................... 123 503
Less valuation allowances ............................................. (2) (10)
----- --------
Net deferred tax assets ................................................ 121 493
Deferred tax liabilities:
Property and equipment, principally due to differences in depreciation (3) (8)
Deferral of taxes, due to incentives per Swiss tax regulation applied on
inventory amounts ................................................... -- (1,343)
Accumulated translation adjustment .................................... (17) (33)
Other .................................................................. (2) (64)
----- --------
Total deferred tax liabilities .......................................... (22) (1,448)
----- --------
Net deferred tax asset (liability) ....................................... $ 99 $ (955)
===== ========

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KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)--(CONTINUED)

12. TAXES ON INCOME:--(CONTINUED)

Management believes that it is more likely than not that the Company will
realize the net deferred tax assets.

13. Other Current Liabilities:

At December 31, other current liabilities consist of the following:

[Download Table]

1995 1996
-------- --------

VAT payable ..................... $2,408 $ 6,259
Advances from customers ...... 249 2,380
Accrued expenses ............ 14 835
Withholding taxes ............ 40 528
Others ........................ 839 1,580
------- --------
$3,550 $11,582
======= ========

14. Common Stock:

At December 31, 1996, the Company's common stock consists of 1,080,288
shares par value of $10.00 each.

At December 31, 1996, the breakdown of common stock by shareholders
(controlling shareholders) is as follows:

[Download Table]

AMOUNT %
--------- ------

Bren Canmutlu ............... $ 1,620 15.0
Ofer Magen ............... 1,620 15.0
Mehmet Betil ............ 1,611 14.9
Bernd Karre ............... 1,611 14.9
Alvi Mazon ............... 1,611 14.9
Umur Serter ............... 1,611 14.9
Ron Golan ............... 540 5.0
Antonis Papaioannou ...... 540 5.0
Privest SAH ............... 39 0.4
-------- ------
$10,803 100.0
======== ======

As explained in Note 1, the consolidated financial statements as of and
for the year ended December 31, 1995 have been restated to account for the
entities under common control "as if" a pooling of interest had occurred.
Therefore, the Company's common stock has been restated accordingly. As of
December 31, the Company's common stock as restated consisted of the following
companies' common stocks:

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KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)--(CONTINUED)

14. COMMON STOCK:--(CONTINUED)

[Enlarge/Download Table]

DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31,
1994 TRANSFERS 1995 TRANSFERS 1996
-------------- ----------- -------------- ----------- -------------

Karma International S.A. ......... $ 40 $ -- $ 40 $ 5,573 $ 5,613
Karma International AG ......... -- 4,930 4,930 -- 4,930
Karma Sarl ..................... 202 -- 202 -- 202
Karma UK Limited ............... 200 -- 200 -- 200
Karma Benelux BV ............... 22 -- 22 -- 22
Riverrise Trading Ltd ............ 19 -- 19 -- 19
Capital share transactions ...... -- 142 142 118 260
Effect of disposition
of operations .................. -- -- -- (19) (19)
------ ------- ------ -------- -------
483 5,072 5,555 5,672 11,227
Elimination of investments ...... (419) -- (419) (5) (424)
------ ------- ------ -------- -------
$ 64 $5,072 $5,136 $ 5,667 $10,803
====== ======= ====== ======== =======

In 1995 and 1996, retained earnings of $4,930 and $5,573, respectively,
have been contributed to Karma International AG and Karma International S.A. and
represent the shareholders' contributed capital balances (common stock at par
value). Capital share transactions represent common stock of entities owned not
only by Karma International S.A. (or Bluefin S.A.), but also by the controlling
shareholders; accordingly, the common stock of such entities are included in the
financial statements. At December 31, 1996, $260 represents the 5 percent share
capital of Karma International AG held by controlling shareholders.

Effect of disposition of operations represents the disposition of common
stock and accumulated losses of Riverrise Trading Limited, a company which was
the principal operating company of the controlling shareholders until September
30, 1995, the date when Karma International AG was established. From this date
on, Karma International AG became the principal operating company of the
controlling shareholders, and accordingly the net assets of Riverrise Trading
Limited was disposed of from the consolidated shareholders' equity in 1996.

15. Commitments and Contingencies:

Guarantees

As of December 31, 1996, the Company is contingently liable in respect of
collaterals given to banks and suppliers, as follows:

[Download Table]

Accommodation notes ............ $50,000
Bank letters of guarantee ...... 5,716
--------
$55,716
========

F-49

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KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)--(CONTINUED)

15. COMMITMENTS AND CONTINGENCIES:--(CONTINUED)

LEASES

The Company and its subsidiaries' lease agreements consist principally of
operating leases. Rent expense for 1996 was $289. The future minimum lease
payments as of December 31, 1996, in the aggregate and for each of the five
succeeding years, is as follows:

[Download Table]

1997 ...... $312
1998 ...... 241
1999 ...... 82
2000 ...... 77
2001 ...... 59
-----
$771
=====

LEGAL PROCEEDINGS

The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, or liquidity.

16. Fair Value of Financial Instruments:

The Company's financial instruments consist of cash and equivalents, trade
receivables, borrowings and trade payables. The carrying amounts of these
financial instruments approximate their fair values because of the short
maturity.

17. Related Party Transactions:

For the year ended December 31, 1996, the breakdown of the related party
transaction is as follows:

[Download Table]

SALES PURCHASES
---------- ----------

Eurocom Computer Systeme GmbH ............... $150,273 $22,402
Karma Donanim Yazilim A.S. ............ 35,560 --
Oktabit Hellas A.E. ..................... 13,649 --
Distribution Karma ..................... 3,229 --
Karma Components Limited ............... 2,428 --
Udas Uluslararasi Danismanlik A.S. ...... -- 1,944
Riverrise Trading Ltd. .................. -- 4,602
--------- --------
$205,139 $28,948
========= ========

In 1995, sales to related parties was $100,127 and purchases from related
parties was $57,753.

In 1996, the Company also purchased property and equipment amounting to
$283 and intangible assets amounting to $4 from Eurocom Computer Systeme GmbH.

18. Concentrations:

The Company's operations are substantially all inside Europe. In 1996, the
largest amount of sales occurred in Germany, which comprised 21% of total
sales. The Company also had sales of almost 15%

F-50

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KARMA INTERNATIONAL S.A. (FORMERLY BLUEFIN S.A.) AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)--(CONTINUED)

18. CONCENTRATIONS:--(CONTINUED)

in Benelux countries. While these countries and other countries where the
Company has operations are considered politically stable, there is a risk that
economic difficulties in any of these countries could adversely affect the
Company's business.

59% of the Company's sales are made in local currencies other than U.S.
dollar. The largest amount of sales was in Dutch Guilders (15%). In some
countries, certain purchases and resulting payables are in currencies different
than the functional currency. The Company had sales to Eurocom Computer Systeme
GmbH, a related party, in the amount of $57,541 and $150,273, in 1995 and 1996,
respectively. No other companies represent more than 10% of total sales.
Further, certain subsidiaries have loans receivable or payable denominated in
currencies other than their functional currency. Transaction gains and losses
on these receivables and liabilities are included in the determination of
earnings for relevant periods. In 1995 and 1996, such foreign currency gains
and losses were not material.

The Company has a major supplier, Quantum Peripherals (Europe) SA
(Quantum), whose products accounted for 42% and 39% of sales for 1995 and 1996,
respectively. No other vendor accounted for more than 10% of sales in any year
except in 1995 in which one vendor was 26%. The Company or Quantum have the
right to terminate the distribution agreement without penalty for any reason or
no reason by giving the other party written notice ninety days in advance. The
Company believes that its relationship with Quantum is good and has no reason
to believe that its distribution arrangement will not be a long term
relationship. No assurance can be given, however, that Quantum will renew the
Company's agreement at the time of its annual review or in subsequent years.
Management has not formulated alternative plans of action in the event the
Quantum contract is terminated. The amounts outstanding to Quantum at December
31, 1995 and 1996 were $19,340 and $42,378, respectively.

19. Subsequent Event (Unaudited):

In June 1997, the Company signed a definitive agreement with CHS
Electronics, Inc. (CHS) to sell 100% of the common stock to CHS for $160
million to be paid in cash and unregistered shares of CHS common stock.

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[Small map with CHS locations at the top right corner of the page. Below the map
are the logos of certain CHS vendors and a list of certain CHS vendors.]

424A 95th Page of 102 TOC 1st Previous Next ↓Bottom Just 95th
================================================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY U.S. UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER TO SELL IS NOT AUTHORIZED, OR IN WHICH THE
PERSON IS NOT AUTHORIZED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF COMPANY SINCE THE DATE HEREOF
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
PAGE
-----
Prospectus Summary ..................... 3
Risk Factors ........................ 7
Recent Developments .................. 12
Use of Proceeds ..................... 14
Dividend Policy ..................... 14
Price Range of Common Stock ......... 15
Capitalization ........................ 16
Selected Consolidated Financial Data.... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ..................... 18
Business .............................. 25
Management ........................... 32
Principal Shareholders ............... 35
Description Of Capital Stock ......... 37
Underwriting ........................ 39
Legal Matters ........................ 41
Experts .............................. 41
Available Information ............... 41
Incorporation of Certain Documents by
Reference ........................ 42
Index to Financial
Statements ........................ F-1

================================================================================

10,000,000 SHARES

[CHS EXCELLENCE IN DISTRIBUTION GRAPHIC OMITTED]

COMMON STOCK

-------------------
P R O S P E C T U S
-------------------

RAYMOND JAMES
& ASSOCIATES, INC.

MONTGOMERY SECURITIES

J.C. BRADFORD & CO.

CLEARY GULL
REILAND & MCDEVITT INC.

, 1997
================================================================================

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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

SUBJECT TO COMPLETION DATED JUNE 24, 1997

10,000,000 SHARES

[CHS EXCELLENCE IN DISTRIBUTION GRAPHIC OMITTED]

COMMON STOCK
----------------

ALL OF THE 10,000,000 SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING
ISSUED AND SOLD BY CHS ELECTRONICS, INC. ("CHS" OR THE "COMPANY"). OF THE
10,000,000 SHARES OF COMMON STOCK OFFERED HEREBY, 3,000,000 SHARES ARE BEING
OFFERED OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL MANAGERS (AS
DEFINED HEREIN) (THE "INTERNATIONAL OFFERING") AND 7,000,000 SHARES ARE BEING
OFFERED IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS (AS DEFINED
HEREIN) (THE "U.S. OFFERING," AND TOGETHER WITH THE INTERNATIONAL OFFERING, THE
"OFFERING"). THE PRICE TO PUBLIC AND THE UNDERWRITING DISCOUNTS AND COMMISSIONS
PER SHARE WILL BE IDENTICAL FOR THE U.S. OFFERING AND THE INTERNATIONAL
OFFERING. SEE "UNDERWRITING."

----------------
SEE "RISK FACTORS" ON PAGES 7 THROUGH 11 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
----------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

=========================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
---------------------------------------------------------
Per Share ...... $ $ $
---------------------------------------------------------
Total(3) ...... $ $ $
=========================================================
(1) The Company has agreed to indemnify the International Managers against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."

(2) Before deducting expenses estimated at $500,000, which are payable by CHS.

(3) The Company has granted to the International Managers a 30-day option to
purchase up to 450,000 additional shares of Common Stock, and to the U.S.
Underwriters a 30-day option to purchase up to 1,050,000 additional shares
of Common Stock, on the same terms and conditions as the Common Stock
offered hereby, solely to cover over-allotments, if any. If such options are
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ , respectively. See
"Principal Shareholders" and "Underwriting."

----------------

THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL INTERNATIONAL
MANAGERS, SUBJECT TO PRIOR SALE, WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY
THEM, AND SUBJECT TO CERTAIN OTHER CONDITIONS INCLUDING THE RIGHT OF THE
INTERNATIONAL MANAGERS TO WITHDRAW, CANCEL, MODIFY OR REJECT ANY ORDER IN WHOLE
OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT
, 1997 AT THE OFFICES OF RAYMOND JAMES & ASSOCIATES, INC., ST. PETERSBURG,
FLORIDA.

----------------
RAYMOND JAMES & ASSOCIATES, INC.

MONTGOMERY SECURITIES
J.C. BRADFORD & CO.

The date of this Prospectus is , 1997

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[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

UNDERWRITING

The institutions named below (the "International Managers"), acting through
their representatives, Raymond James & Associates, Inc., Montgomery Securities
and J.C. Bradford & Co. (the "International Representatives"), have severally
agreed, subject to the terms and conditions of the subscription agreement by and
among the Company and the International Managers (the "Subscription Agreement"),
to purchase from the Company the number of shares of Common Stock set forth
opposite their respective names below:

NUMBER OF
NAME SHARES
----------------------------------------- ----------
Raymond James & Associates, Inc. ......
Montgomery Securities ..................
J.C. Bradford & Co. ..................

---------
Total .............................. 3,000,000
=========

The Company has also entered into an underwriting agreement (the
"Underwriting Agreement") with certain underwriters in the United States and
Canada (the "U.S. Underwriters") for whom Raymond James & Associates, Inc.,
Montgomery Securities, J.C. Bradford & Co. and Cleary Gull Reiland & McDevitt
Inc. are acting as representatives (the "U.S. Representatives"), relating to
the U.S. Offering. The closing of the U.S. Offering is a condition to the
closing of the International Offering and the closing of the International
Offering is a condition to the closing of the U.S. Offering.

The Subscription Agreement and the Underwriting Agreement provide that the
respective obligations of the several International Managers and U.S.
Underwriters to pay for and accept delivery of the shares of Common Stock being
sold pursuant to each such agreement are subject to certain conditions. The
International Managers and the U.S. Underwriters are obligated to purchase all
of the shares being sold pursuant to each such agreement if any are purchased.
The Company has been advised by the International Representatives that the
International Managers propose initially to offer the shares to the public at
the offering price set forth on the cover page of this Prospectus and to certain
selected dealers, including the International Managers, at such price less a
concession not in excess of $ per share. The International Managers
may allow, and such

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[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

dealers may reallow, a concession not in excess of $ per share to certain
other dealers. After the Offering, the public offering price, concession and
discount may be changed. The International Representatives have informed the
Company that the International Managers do not intend to confirm sales to any
accounts over which they exercise discretionary authority.

The Subscription Agreement provides for indemnification among the Company
and the International Managers against certain liabilities in connection with
this Offering, including liabilities under the Securities Act.

The Company, each of its executive officers and directors, CHI and
Comtrad have agreed not to offer, sell, contract to sell, announce their
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
in the case of the Company, file with the Securities and Exchange Commission
(the "Commission") a registration statement under the Securities Act relating
to, shares of Common Stock, or securities convertible into or exchangeable or
exercisable for shares of Common Stock, without the consent of Raymond James &
Associates, Inc., for a period of 90 days following the closing of this
Offering. This restriction does not apply to certain issuances of Common Stock
by the Company pursuant to its stock option plans. See "Shares Eligible for
Future Sale."

The Company has granted to the International Managers an option exercisable
during the 30-day period after the date of this Prospectus to purchase up to an
aggregate of 450,000 additional shares of Common Stock at the same price per
share as the Company receives for the 3,000,000 shares which the International
Managers have agreed to purchase from the Company, for the sole purpose of
covering over-allotments, if any. To the extent that the International Managers
exercise such option, each International Manager will be committed, subject to
certain conditions, to purchase a number of the additional shares of Common
Stock proportionate to each International Manager's initial commitment. The
Company has granted the U.S. Underwriters a similar option to purchase up to an
aggregate of 1,050,000 additional shares of Common Stock.

The public offering price, the aggregate underwriting discounts and
commissions per share and the per share concession and discount to dealers for
the International Offering and the concurrent U.S. Offering will be identical.
Pursuant to an Agreement between the International Managers and the U.S.
Underwriters (the "Intersyndicate Agreement") relating to the Offering, changes
in the public offering price, the aggregate underwriting discounts and
commissions per share and the per share concession and discount to dealers will
be made on behalf of the International Managers and the U.S. Underwriters by
Raymond James & Associates, Inc.

Pursuant to the Intersyndicate Agreement, each of the International
Managers has agreed that, as part of the International Offering and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Common Stock or distribute any prospectus
relating to the Common Stock to any person in the United States or Canada or to
any other dealer who does not so agree. Each of the U.S. Underwriters has agreed
or will agree that, as part of the U.S. Offering and subject to certain
exceptions, it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of Common Stock or distribute any prospectus relating to
the Common Stock to any person outside the United States or Canada or to any
other dealer who does not so agree. The foregoing limitations do not apply to
stabilization transactions or to transactions between the International Managers
and the U.S. Underwriters pursuant to the Intersyndicate Agreement. As used
herein, "United States" means the United States of America (including the States
and the District of Columbia), its territories, possessions and other areas
subject to its jurisdiction. "Canada" means Canada, its provinces, territories,
possessions and other areas subject to its jurisdiction, and an offer or sale
shall be in the United States or Canada if it is made to (i) an individual
resident in the United States or Canada or (ii) a corporation, partnership,
pension, profit sharing or other trust or other entity (including any such
entity acting as an investment adviser with discretionary authority) whose
office most directly involved with the purchase is located in the United States
or Canada.

Pursuant to the Intersyndicate Agreement, sales may be made between the
International Managers and the U.S. Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any

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[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

shares so sold shall be the public offering price, less such amount as may be
determined by Raymond James & Associates, Inc., but not exceeding the selling
concession applicable to such shares. To the extent there are sales between the
International Managers and the U.S. Underwriters pursuant to the Intersyndicate
Agreement, the number of shares of Common Stock initially available for sale by
the International Managers or by the U.S. Underwriters may be more or less than
the amount appearing on the cover page of this Prospectus. Neither the
International Managers nor the U.S. Underwriters are obligated to purchase from
the other any unsold shares of Common Stock.

This Prospectus may be used by underwriters and dealers in connection with
sales of shares in the U.S. Offering to persons located outside the United
States and Canada, to the extent such sales are permitted by the contractual
limitations on sales described above.

The International and U.S. Representatives, on behalf of the International
Managers and U.S. Underwriters, may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Exchange Act. Over-allotment involves syndicate
sales in excess of the Offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions. In
"passive" market making, market makers in the Common Stock who are International
Managers or U.S. Underwriters or prospective underwriters or managers may,
subject to certain limitations, make bids for or purchases of the Common Stock
until the time, if any, at which a stabilizing bid is made. Penalty bids permit
the International and U.S. Representatives to reclaim a selling concession from
a syndicate member when shares of Common Stock originally sold by such syndicate
member are purchased in a syndicate covering transaction to cover syndicate
short positions. Such stabilizing transactions, syndicate covering transactions
and penalty bids may cause the price of the Common Stock to be higher than it
would otherwise be in the absence of such transactions. These transactions may
be effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of Common
Stock, or the possession, circulation or distribution of this Prospectus or any
other material relating to the Company or shares of Common Stock in any
jurisdiction where action for that purpose is required. Accordingly, the shares
of Common Stock may not be offered or sold, directly or indirectly, and neither
this Prospectus nor any other offering material or advertisements in connection
with the shares of Common Stock may be distributed or published, in or from any
country or jurisdiction except in compliance with any applicable rules and
regulations of any such country or jurisdiction.

Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.

Each International Manager has agreed that: (i) it has not offered or sold
and, prior to the expiration of the period of six months from the closing of
this Offering, will not offer or sell any shares of Common Stock to persons in
the United Kingdom, except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Common Stock in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom

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[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

any document received by it in connection with the issuance of Common Stock to
a person who is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exceptions) Order 1996 or is a person to
whom such document may otherwise lawfully be issued or passed on.

CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS OF COMMON STOCK

The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of Common Stock by a "Non-United States Holder" and does not address tax
consequences arising under the laws of any foreign, state or local jurisdiction.
As used herein, a "Non-United States Holder" is a beneficial owner of Common
Stock that, for United States federal income tax purposes, is not (i) a citizen
or resident of the United States, (ii) a corporation, partnership or other
entity created or organized under the laws of the United States or any political
subdivision thereof, (iii) an estate, the income of which is subject to United
States federal income taxation regardless of its source, or (iv) a trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States fiduciaries who have the authority to
control all substantial decisions of such trust.

This discussion is based on provisions of the Internal Revenue Code of
1986, as amended, existing and proposed regulations promulgated thereunder and
administrative and judicial interpretations thereof as of the date hereof, all
of which are subject to change, possibly retroactively. This discussion does not
address all aspects of United States federal income and estate taxation and does
not address foreign, state and local tax consequences that may be relevant to
Non-United States Holders in light of their personal circumstances. Prospective
investors who are Non-United States Holders are urged to consult their tax
advisors regarding the United States federal tax consequences of acquiring,
holding and disposing of the Common Stock, as well as any tax consequences that
may arise under the laws of any foreign, state, local or other taxing
jurisdiction.

DIVIDENDS

Generally, any dividend paid to a Non-United States Holder will be subject
to withholding of United States federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty. If the dividend is
effectively connected with the conduct of a United States trade or business of
the Non-United States Holder, the dividend would be subject to United States
federal income tax on a net income basis (and, with respect to corporate
holders and under certain circumstances, the branch profits tax) and would be
exempt from the 30% withholding tax described above.

Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above, and, under the current
interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under proposed United
States Treasury regulations, not currently in effect, however, a Non-United
States Holder who wishes to claim the benefit of an applicable treaty rate
would be required to satisfy applicable certification and other requirements.
States withholding tax pursuant to a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund
with the United States Internal Revenue Service.

DISPOSITION OF COMMON STOCK

A Non-United States Holder generally will not be subject to United States
federal income tax on any gain recognized upon the sale or other disposition of
Common Stock unless (i) such gain is

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[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

effectively connected with the conduct of a United States trade or business of
the Non-United States Holder or (ii) in the case of a Non-United States Holder
who is a non-resident alien individual and holds the Common Stock as a capital
asset, such individual is present in the United States for 183 days or more
days during the taxable year of disposition and certain other requirements are
met. If a Non-United States Holder falls under clause (i) above, the holder
will be subject to tax on the net gain derived from the sale on the same basis
that applies to United States persons generally (and, with respect to corporate
holders and under certain circumstances, the branch profits tax). If an
individual Non-United States Holder falls under clause (ii) above, the holder
generally will be subject to a flat 30% tax on the gain derived from the sale,
which gain may be offset by United States source capital losses.

INFORMATION REPORTING BACKUP WITHHOLDING

The Company must report annually to the United States Internal Revenue
Service and to each Non-United States Holder the amount of dividends paid to
such holder and the amount of any tax withheld. These information reporting
requirements apply regardless of whether withholding is required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-United States
Holder resides under the provisions of an applicable income tax treaty.

United States backup withholding tax generally will not apply to the
payment of (a) dividends on Common Stock to a Non-United States Holder at an
address outside the United States or (b) the proceeds of the sale of Common
Stock to or through the foreign office of broker. In the case of the payment of
proceeds from such a sale of Common Stock through a foreign office of a United
States broker or a foreign broker that has certain types of relationships to
the United States, however, information reporting, but not backup withholding,
is required with respect to the payment unless the broker has documentary
evidence in its files that the owner is a Non-United States Holder and certain
other requirements are met or the holder otherwise establishes an exemption.
The payment of the proceeds from the sale of Common Stock and dividends paid on
Common Stock to or through a United States office of a broker is subject to
information reporting and possible backup withholding at the rate of 31% unless
the owner certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption.

Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the United States Internal Revenue
Service.

These information reporting and backup withholding rules are under review
by the United States Treasury and their application to holding and disposing of
Common Stock could be changed by future regulations. On April 15, 1996, the
United States Internal Revenue Service issued proposed Treasury regulations
concerning the withholding of tax and reporting for certain amounts paid to
non-resident individuals and foreign corporations. The proposed regulations
would, among other changes, eliminate the presumption under current regulations
with respect to dividends paid to addresses outside the United States. The
proposed Treasury regulations, if adopted in their present form, would be
effective for payments made after December 31, 1997. Prospective purchasers of
Common Stock should consult their tax advisors concerning the potential
application and effect of such Treasury regulations.

FEDERAL ESTATE TAXES

Common Stock held by an individual Non-United States Holder at the time of
death will be included in such holder's gross estate for United States federal
estate tax purposes and may be subject to United States federal estate tax,
unless an applicable tax treaty provides otherwise.

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================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY INTERNATIONAL MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER TO SELL IS NOT AUTHORIZED, OR IN WHICH THE PERSON IS NOT
AUTHORIZED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------

TABLE OF CONTENTS

PAGE
-----
Prospectus Summary ..................... 3
Risk Factors ........................ 7
Recent Developments .................. 12
Use of Proceeds ..................... 14
Dividend Policy ..................... 14
Price Range of Common Stock ......... 15
Capitalization ........................ 16
Selected Consolidated Financial Data.... 17
Management's Discussion and Analysis
of Financial Condition and
Results of Operations................ 18
Business .............................. 25
Management ........................... 32
Principal Shareholders ............... 35
Description Of Capital Stock ......... 37
Underwriting ........................ 39
Certain United States Federal Tax
Considerations for Non-United States
Holders of Common Stock.............. 42
Legal Matters ........................ 44
Experts .............................. 44
Available Information ............... 44
Incorporation of Certain Documents by
Reference ........................ 44
Index to Financial
Statements ........................ F-1

================================================================================

10,000,000 SHARES

[CHS EXCELLENCE IN DISTRIBUTION GRAPHIC OMITTED]

COMMON STOCK

-------------------
P R O S P E C T U S
-------------------

RAYMOND JAMES
& ASSOCIATES, INC.

MONTGOMERY SECURITIES

J.C. BRADFORD & CO.

, 1997
================================================================================

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘424A’ Filing	Date	First	Last	Other Filings

	6/30/99	37		10-Q
	3/28/98	37
	12/31/97	67	101	10-K
	12/15/97	59	85
	8/31/97	37
	7/31/97	35		DEF 14A
	6/30/97	22	35	10-Q
Filed on:	6/24/97	1	96
	6/23/97	1	96
	6/20/97	3	25	S-3
	6/19/97	15
	6/16/97	35
	6/4/97	12
	6/1/97	32
	5/15/97	12		10-Q
	4/16/97	76
	4/4/97	42		8-K
	3/31/97	4	75	10-K, 10-Q
	3/20/97	12		8-K, 8-K/A
	3/7/97	50
	2/14/97	36
	1/27/97	36
	1/1/97	13	44
	12/31/96	3	93	10-K, 10-K/A
	10/16/96	37
	10/4/96	12	48	8-K, 8-K/A
	9/30/96	21	60	10-Q
	7/1/96	33
	6/30/96	71		10-Q
	6/6/96	15		S-1MEF
	4/15/96	101
	3/31/96	17	75	10-Q
	3/14/96	3	15
	2/5/96	22
	2/1/96	48
	1/31/96	61
	1/1/96	3	85
	12/31/95	8	93
	11/1/95	6	17
	10/1/95	61
	9/30/95	91
	7/1/95	6	17
	4/17/95	15
	4/16/95	15
	1/1/95	15	63
	12/31/94	6	91
	10/31/94	70
	9/1/94	6	17
	7/1/94	72
	6/30/94	34	63
	5/26/94	42
	2/17/94	71
	1/1/94	4	53
	12/31/93	17
	1/1/93	6	56
	12/31/92	17
				List all Filings

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Filing Submission 0000950170-97-000770 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

CHS Electronics Inc – ‘424A’ on 6/24/97

As of: Tuesday, 6/24/97 · Accession #: 950170-97-770 · File #: 333-29779

Prospectus — Rule 424(a)Filing Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Prospectus — Rule 424(a)
Filing Table of Contents