<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-22972
CELLSTAR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2479727
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1730 Briercroft Court
Carrollton, Texas 75006
Telephone (214) 466-5000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- --
On July 10, 1996, there were 19,273,562 outstanding shares of Common Stock,
$0.01 par value per share.
<PAGE>
CELLSTAR CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION Number
- ------ --------------------- ------
<S> <C> <C>
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
May 31, 1996 (unaudited) and November 30, 1995 3
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three and Six months ended May 31, 1996 and 1995 4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited)
Six months ended May 31, 1996 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six months ended May 31, 1996 and 1995 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
- ------- -----------------
Item 1. LEGAL PROCEEDINGS 17
Item 2. CHANGES IN SECURITIES 17
Item 3. DEFAULTS UPON SENIOR SECURITIES 17
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
Item 5. OTHER INFORMATION 19
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 19
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CellStar Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
May 31, November 30,
1996 1995
---------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 23,572 31,508
Accounts receivable (less allowance for doubtful
accounts of $7,600 and $3,738, respectively) 123,558 125,079
Inventories 85,505 109,287
Deferred income taxes 1,311 3,158
Prepaid expenses 1,814 2,124
------- -------
Total current assets 235,760 271,156
Property and equipment, net 23,539 23,549
Goodwill (less accumulated amortization of $874
and $437, respectively) 17,053 17,047
Other assets 2,486 3,169
------- -------
$ 278,838 314,921
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 55,849 78,758
Notes payable to financial institutions 89,601 98,603
Accrued expenses 12,225 8,446
Income taxes payable 5,368 10,355
Current portion of long-term debt 554 584
------- -------
Total current liabilities 163,597 196,746
Long-term debt, less current portion 6,606 6,880
------- -------
Total liabilities 170,203 203,626
Stockholders' equity:
Common stock, $.01 par value, 50,000,000 shares
authorized; 19,274,000 shares issued and
outstanding 193 193
Additional paid-in capital 68,167 68,167
Common stock warrants 4 4
Foreign currency translation adjustments (4,247) (3,901)
Retained earnings 44,518 46,832
------- -------
Total stockholders' equity 108,635 111,295
------- -------
$ 278,838 314,921
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
CellStar Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months Six months
ended May 31, ended May 31,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Net product sales $ 202,624 157,152 377,489 327,518
Activation income 19,459 17,577 46,332 35,190
Residual income 3,488 3,043 6,725 5,941
-------- ------- ------- -------
Total revenues 225,571 177,772 430,546 368,649
Cost of sales 195,943 154,546 368,913 321,573
-------- ------- ------- -------
Gross profit 29,628 23,226 61,633 47,076
Operating expenses:
Selling, general and
administrative expenses 31,681 16,726 60,587 34,246
-------- ------- ------- -------
Operating income (loss) (2,053) 6,500 1,046 12,830
-------- ------- ------- -------
Other income (expenses):
Interest expense (2,436) (1,029) (4,975) (1,750)
(Undistributed loss)
equity in earnings of
joint ventures (256) 1,717 (651) 3,343
Other, net 335 (124) 1,166 (105)
-------- ------- ------- -------
Total other income (expenses) (2,357) 564 (4,460) 1,488
-------- ------- ------- -------
Income (loss) before
income taxes (4,410) 7,064 (3,414) 14,318
(Benefit) provision for
income taxes (1,358) 1,901 (1,100) 4,012
-------- ------- ------- -------
Net income (loss) $ (3,052) 5,163 (2,314) 10,306
======== ======= ======= =======
Net income (loss) per share $ (0.16) 0.28 (0.12) 0.56
======== ======= ======= =======
Weighted average number of
shares outstanding 19,274 18,561 19,274 18,560
======== ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
CellStar Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
Six months ended May 31, 1996
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Foreign
Additional Common currency
Common stock paid-in stock translation Retained
------------
Shares Amount capital warrants adjustments earnings Total
------ ------ ------- -------- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1995 19,274 $ 193 68,167 4 (3,901) 46,832 111,295
Net loss - - - - - (2,314) (2,314)
Foreign currency translation
adjustments - - - - (346) - (346)
------ ------ ------ ------- ------ ------ -------
Balance at May 31, 1996 19,274 $ 193 68,167 4 (4,247) 44,518 108,635
====== ====== ====== ======= ====== ====== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
CellStar Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Six months ended May 31, 1996 and 1995
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,314) 10,306
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,725 1,294
Deferred income taxes 1,847 860
Undistributed loss (equity in earnings) of joint
ventures 651 (3,343)
Changes in certain operating assets and liabilities:
Accounts receivable 1,175 (16,225)
Inventories 24,953 (25,263)
Prepaid expenses 310 (777)
Other assets (247) (27)
Accounts payable (24,080) (5,119)
Income taxes payable (4,987) (64)
Accrued expenses 3,336 567
-------- -------
Net cash provided by (used in)
operating activities 3,369 (37,791)
-------- -------
Cash flows from investing activities:
Purchases of property and equipment (1,999) (4,897)
Purchase of equity investment in joint venture - (700)
-------- -------
Net cash used in investing activities (1,999) (5,597)
-------- -------
Cash flows from financing activities:
Net (payments) borrowings on notes payable to
financial institutions (9,002) 30,916
Net proceeds from issuance of common stock and common
stock warrants - 40
Principal payments on long-term debt (304) (138)
-------- -------
Net cash provided by (used in)
financing activities (9,306) 30,818
-------- -------
Net decrease in cash and cash equivalents (7,936) (12,570)
Cash and cash equivalents at beginning of period 31,508 13,970
-------- -------
Cash and cash equivalents at end of period $ 23,572 1,400
======== =======
Supplemental cash flow information:
Interest paid $ 5,321 1,786
======== =======
Income taxes paid $ 1,184 3,216
======== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
---------------------
Although interim consolidated financial statements of CellStar Corporation
(the "Company") are unaudited, it is the opinion of the Company's management
that all recurring adjustments necessary for a fair statement of the results
have been reflected therein. Operating revenues and net earnings for any
interim period are not necessarily indicative of the results that may be
expected for the entire year.
These statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended November 30, 1995.
(2) Geographic Area Information
---------------------------
The Company operates predominately within one business segment, wholesale
and retail sales of cellular phones and related products and services.
Financial information by geographic area as of and for the six months ended
May 31, 1996 and 1995, is as follows (in thousands):
<TABLE>
<CAPTION>
United South Asia-
States Mexico America Pacific Total
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
May 31, 1996:
Total revenues, net of
intercompany amounts $239,285 19,263 42,225 129,773 430,546
Intercompany sales
(purchases) 25,006 (6,893) (17,289) (824) -
Income (loss) before
income taxes (7,277) 983 (6,134) 9,014 (3,414)
Net income (loss) (5,284) 1,027 (4,591) 6,534 (2,314)
Identifiable assets 140,235 11,146 52,263 75,194 278,838
May 31, 1995:
Total revenues, net of
intercompany amounts $275,544 27,058 56,606 9,441 368,649
Intercompany sales
(purchases) 41,517 (13,021) (28,168) (328) -
Income (loss) before
income taxes 12,077 (2,638) 1,221 3,658 14,318
Net income (loss) 7,529 (1,631) 868 3,540 10,306
Identifiable assets 151,372 10,073 50,828 9,350 221,623
</TABLE>
The Company classifies export sales to its foreign nonconsolidated joint
ventures as revenues attributable to its United States operations. Certain
prior year amounts have been reclassified to conform to the current year
presentation.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
CellStar Corporation (the "Company" or "CellStar") reported a net loss for
the quarter ended May 31, 1996. The loss was attributable primarily to
unprofitable growth in its Communication Centers in Sam's Club locations and to
unusual operating and foreign currency losses associated with its international
operations.
The Company has grown dramatically over the last five years with compound
revenue growth of 63.0%. While the Company believes that the worldwide market
for wireless telecommunications products will be strong in the future and plans
to participate in this worldwide market, due to increased competition and other
factors, the Company may not be able to sustain the growth rates that have been
achieved historically. In addition, as the market for wireless communications
products matures, the Company expects greater seasonality in the sales of its
products than previously recorded.
The Company announced in April 1996 that it was encountering problems with
its financial control systems. At that time, CellStar initiated a program to
build stronger financial and information technology control systems. The initial
focus has been on materials management, international operations and information
technology. The Company expects to see positive impact from these important
steps by the end of the 1996 fiscal year.
The Company primarily relies on cash generated from operations and
borrowings under existing credit facilities to fund working capital, capital
expenditures and expansions. CellStar believes that its current cash resources
will be adequate to meet the Company's capital needs in the near term. The
Company also believes that long-term capital will be required over time to allow
CellStar to grow and anticipates that such funding will be available. See
"Liquidity and Capital Resources."
The Company has entered into a non-binding letter of intent with a Fortune
500 telecommunications company for the sale of the Company's Communication
Centers located in Sam's Clubs. The definitive terms of the proposed sale have
not been finalized, and, therefore, the impact of such sale on the Company's
future operations cannot be determined at this time. In the event that the
proposed sale is not consummated, the Company intends to pursue other
alternatives available to it with respect to its operations in Sam's Clubs.
8
<PAGE>
Results of Operations
The following table sets forth certain unaudited consolidated statement of
operations data for the Company expressed as a percentage of total revenues for
the three and six months ended May 31, 1996 and 1995:
<TABLE>
<CAPTION>
Three months Six months
ended May 31, ended May 31,
1996 1995 1996 1995
------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Net product sales 89.8% 88.4% 87.7% 88.8%
Activation income 8.6 9.9 10.8 9.6
Residual income 1.6 1.7 1.5 1.6
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
Cost of sales 86.9 86.9 85.7 87.2
----- ----- ----- -----
Gross profit 13.1 13.1 14.3 12.8
Selling, general and
administrative expenses 14.0 9.4 14.1 9.3
----- ----- ----- -----
Operating income (loss) (0.9) 3.7 0.2 3.5
----- ----- ----- -----
Other income (expenses):
Interest expense (1.1) (0.6) (1.2) (0.5)
(Undistributed loss) equity
in earnings
of joint ventures (0.1) 1.0 (0.1) 0.9
Other, net 0.2 (0.1) 0.3 -
----- ----- ----- -----
Total other income
(expenses) (1.0) 0.3 (1.0) 0.4
----- ----- ----- -----
Income (loss) before income
taxes (1.9) 4.0 (0.8) 3.9
(Benefit) provision for income
taxes (0.6) 1.1 (0.3) 1.1
----- ----- ----- -----
Net income (loss) (1.3)% 2.9% (0.5)% 2.8%
===== ===== ===== =====
</TABLE>
The Company classifies revenues generated by its majority-owned
foreign subsidiaries as revenues attributable to its international operations
and classifies export sales to its foreign nonconsolidated ventures as revenues
attributable to its domestic operations. The amount of net revenues and their
percentages of the Company's domestic and international revenues for the three
and six months ended May 31, 1996 and 1995 are shown below:
<TABLE>
<CAPTION>
Three months ended May 31, Six months ended May 31,
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Net product sales $ 112,752 50.0 % 119,685 67.3 % 195,391 45.4 % 247,107 67.0 %
Activation income 15,170 6.7 13,038 7.3 37,975 8.8 23,555 6.4
Residual income 3,041 1.4 2,547 1.4 5,919 1.4 4,882 1.3
-------- ----- ------- ----- ------- ----- ------- ------
Total domestic 130,963 58.1 135,270 76.0 239,285 55.6 275,544 74.7
-------- ----- ------- ----- ------- ----- ------- ------
International:
Net product sales 89,872 39.8 37,467 21.1 182,098 42.3 80,411 21.8
Activation income 4,289 1.9 4,539 2.6 8,357 1.9 11,635 3.2
Residual income 447 0.2 496 0.3 806 0.2 1,059 0.3
-------- ----- ------- ----- ------- ----- ------- ------
Total international 94,608 41.9 42,502 24.0 191,261 44.4 93,105 25.3
-------- ----- ------- ----- ------- ----- ------- ------
Total $ 225,571 100.0 % 177,772 100.0 % 430,546 100.0 % 368,649 100.0 %
======= ===== ======= ===== ======= ===== ======= ======
</TABLE>
9
<PAGE>
Three Months Ended May 31, 1996, Compared to Three Months Ended May 31, 1995
Revenues. Total revenues increased $47.8 million, or 26.9%, from
$177.8 million in the second fiscal quarter of 1995 to $225.6 million in the
second fiscal quarter of 1996.
Domestic revenues decreased $4.3 million, or 3.2%. The decrease in
domestic revenues was due primarily to a $6.9 million decrease in net product
sales, which resulted from the acquisition of the remaining 50% interest in the
Company's Hong Kong joint venture, CellStar (Asia) Corporation, Ltd. ("CellStar
Asia"), in June 1995. Prior to the acquisition, CellStar Asia's revenues were
considered as export sales within domestic operations. Exclusive of the decrease
resulting from this acquisition, domestic revenues increased $41.7 million due
to increased product demand and increases in domestic activation income and
domestic residual income.
Domestic activation income increased primarily as a result of an
overall increase in unit sales at the retail level, which was partially offset
by a decrease in the average commission per activation paid by cellular
carriers. The increase in unit sales at the retail level was attributable to the
Company's expansion of Communication Centers from an average of 150 to 352 Sam's
Club locations for the three months ended May 31, 1995 and 1996, respectively.
The increase in residual income corresponds to the Company's growing cellular
phone user base, which was partially offset by lower average monthly user phone
bills.
The Company's international revenues increased 122.6% from $42.5
million to $94.6 million. The growth in international revenues was due
primarily to the acquisition of the remaining 50% interest in CellStar Asia,
which resulted in CellStar Asia's revenues being classified as international
revenues beginning in June 1995. Prior to the acquisition, CellStar Asia's
operations were not consolidated with the operations of the Company and sales to
CellStar Asia were considered revenues of the Company's domestic operations.
CellStar Asia provided approximately $53.7 million in product revenues in the
second fiscal quarter of 1996. Sales of product to CellStar Asia in 1995,
prior to the Company's acquisition of the remaining 50% interest, were $46.0
million and were included in domestic net product sales. The Company's
operations in Singapore, CellStar Pacific PTE LTD ("CellStar Pacific"), which
commenced in the first quarter of 1995, generated $9.3 million of revenue in
1996, a 10.7% increase from $8.4 million in 1995.
Net product sales in Mexico increased by approximately $2.9 million,
or 70.7%, from $4.1 million in 1995 to $7.0 million in 1996. This improvement
in net product sales in Mexico was primarily due to the introduction of lower
cost prepaid cellular plans, which stimulated demand for cellular products.
Net product sales in the Company's South American operations declined
$4.0 million, or 16.7%, from $23.9 million in 1995 to $19.9 million in 1996.
This decline resulted from lower levels of net product sales in each of the
Company's South American operations, with the exception of the Company's
operations in Argentina and Ecuador, which commenced business in November 1995.
The largest declines in net product sales were experienced by the Company's
operations in Colombia and Venezuela. Net product sales in Colombia declined
$4.8 million, or 56.5%, from $8.5 million in 1995 to $3.7 million in 1996. The
Company has responded to this reduced level of net product sales by reducing its
overhead and employee headcount to a level that is appropriate to support this
smaller revenue base. Net product sales in Venezuela declined by $3.1 million,
or 93.9%, from $3.3 million in 1995 to $0.2 million in 1996. This decrease in
net product sales resulted from declining economic conditions in Venezuela and a
major devaluation in the Venezuelan bolivar relative to the U.S. dollar during
the second quarter of 1996. See "International Operations."
10
<PAGE>
Gross Profit. Gross profit increased by $6.4 million, or 27.6%, from
$23.2 million to $29.6 million, and gross profit as a percentage of total
revenues remained unchanged from 13.1% in the second quarter of fiscal year
1995. Revenues for the three-month period ended May 31, 1995 included export
sales of $46.0 million, with a gross margin of 4.4%, to CellStar Asia, which
became a wholly-owned subsidiary on June 2, 1995. The increase in gross profit
in 1996 was primarily due to the consolidation of CellStar Asia's higher gross
margin sales and an increase in domestic retail sales relative to wholesale
sales, which have a higher gross margin than wholesale sales. Domestic retail
revenues increased from $21.0 million to $33.1 million for the three months
ended May 31, 1995, and 1996, respectively. The increase was primarily due to
the increase in the number of retail Communication Centers in Sam's Club
locations. These increases were partially offset by a provision for inventory
obsolescence and increased foreign currency losses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $15.0 million, or 89.8%, from $16.7 million to
$31.7 million. Approximately $3.6 million, or 24.0%, of the increase was
attributable to an increase in salaries and benefits for the addition of
employees to support the growth of the Company's operations, primarily the
expansion of Communication Centers from an average of 150 to 352 Sam's Club
locations for the three months ended May 31, 1995 and 1996, respectively. The
expansion of Communication Centers also gave rise to other increases in selling,
general and administrative expenses as these operations have experienced higher
operating expenses than wholesale operations. This growth and expansion coupled
with the Company's increased presence in the Asia-Pacific region generated
higher expenses. An additional $2.5 million of the increase resulted from an
increase in trade accounts receivable reserves to reflect a deterioration in the
trade accounts receivable portfolio, primarily in the Company's Brazilian
operations. See "International Operations."
Operating Income (Loss). Operating income decreased from $6.5 million
to a loss of $2.1 million due to the significant increase in selling, general
and administrative expenses. Correspondingly, the decrease in operating income
(loss) as a percentage of total revenues from 3.7% to (0.9%) was attributable to
the increase in selling, general and administrative expenses.
Interest Expense. Interest expense increased in the second fiscal
quarter of 1996 to $2.4 million, from $1.0 million in the second fiscal quarter
of 1995. The increase in interest expense resulted primarily from the
maintenance of a higher balance under the Company's revolving credit agreements.
(Undistributed Loss) Equity in Earnings of Joint Ventures.
(Undistributed loss) equity in earnings of joint ventures decreased $2.0 million
from the second fiscal quarter of 1995 to the second fiscal quarter of 1996.
The decrease was attributable to the Company's acquisition of the remaining 50%
interest in CellStar Asia in June 1995. The Company's 50% equity interest in
the operations of CellStar Asia prior to the date of the acquisition was
classified as equity in earnings of joint ventures.
(Benefit) Provision for Income Taxes. Income tax expense decreased
from an expense of $1.9 million in the second quarter of 1995 to a benefit of
$1.4 million in the second quarter of 1996. This decrease was primarily due to
an operating loss and a higher effective tax rate. The higher effective tax
rate was primarily attributable to additional tax liability related to the
Company's international operations.
11
<PAGE>
Six Months Ended May 31, 1996, Compared to Six Months Ended May 31, 1995
Revenues. Total revenues increased $61.9 million, or 16.8%, from
$368.6 million in the six-month period ended May 31, 1995 to $430.5 million in
the six-month period ended May 31, 1996.
Domestic revenues decreased $36.3 million, or 13.2%. The decrease in
domestic revenues was due primarily to a $51.7 million decrease in net product
sales which resulted from the acquisition of the remaining 50% interest in
CellStar Asia. Prior to the acquisition, CellStar Asia's revenues were
considered as export sales within domestic operations. Exclusive of the decrease
resulting from this acquisition, domestic revenues increased by $53.9 million
due to increased product demand and increases in domestic activation income and
domestic residual income.
Domestic activation income increased primarily as a result of an
overall increase in unit sales at the retail level, which was partially offset
by a decrease in the average commission per activation paid by cellular
carriers. The increase in unit sales at the retail level was attributable to the
Company's expansion of Communication Centers from an average of 122 to 351 Sam's
Club locations for the six months ended May 31, 1995 and 1996, respectively.
The increase in residual income corresponds to the Company's growing cellular
phone user base, which was partially offset by lower average monthly user phone
bills.
The Company's international revenues increased 105.5%, from $93.1
million to $191.3 million. The growth in international revenues was due
primarily to the acquisition of the remaining 50% interest in CellStar Asia,
which resulted in CellStar Asia's revenues being classified as international
revenues beginning in June 1995. Prior to the acquisition, CellStar Asia's
operations were not consolidated with the operations of the Company and sales to
CellStar Asia were considered revenues of the Company's domestic operations.
CellStar Asia provided approximately $109.4 million in product revenues in the
first half of 1996. Sales of product to CellStar Asia in 1995, prior to the
Company's acquisition of the remaining 50% interest, were $90.2 million and were
included in domestic net product sales. The Company's operations in Singapore,
CellStar Pacific, which commenced in the first quarter of 1995, generated $20.4
million of revenue in 1996, a 117.0% increase from $9.4 million in 1995.
Net product sales in Mexico decreased by approximately $5.1 million,
or 27.9%, from $18.3 million in 1995 to $13.2 million in 1996. This decline in
net product sales in Mexico was primarily due to decreased demand for cellular
products in Mexico that began in the second quarter of 1995 and continued
through the first quarter of fiscal 1996. The decline in demand was, in turn,
caused in part by a large devaluation of the Mexican peso relative to the U.S.
dollar in December 1994. While net product sales in Mexico declined during the
first six months of 1996 relative to the same period in 1995, net product sales
during the second quarter of 1996 improved from the same period in 1995 due to
the introduction of lower cost prepaid cellular plans that stimulated demand for
cellular products.
Net product sales in the Company's South American operations declined
$13.6 million, or 25.8%, from $52.7 million in 1995 to $39.1 million in 1996.
This decline in net product sales resulted from lower net product sales in each
of the Company's South American operations, with the exception of the Company's
operations in Argentina and Ecuador, which commenced business in November 1995.
The largest declines in net product sales in South America were experienced by
the Company's operations in Colombia and Brazil. Net product sales in Colombia
declined $10.8 million, or 58.7%, from $18.4 million in 1995 to $7.6 million in
1996. The Company has responded to this reduced level of net product sales by
reducing its overhead and employee headcount to a level that is appropriate to
support this smaller revenue base. Net product sales in Brazil declined by $8.6
million, or 34.4%, from $25.0 million in 1995 to $16.4 million in 1996. This
decline in net product sales resulted primarily from a tightening of the
Company's credit sale terms. See "International Operations."
12
<PAGE>
Gross Profit. Gross profit increased by $14.5 million, or 30.8%, from
$47.1 million to $61.6 million, and gross profit as a percentage of total
revenues increased from 12.8% in the six-month period ended May 31, 1995 to
14.3% in the current period. Revenues for the six-month period ended May
31, 1995 included export sales of $90.2 million, with a gross margin of 4.1%, to
CellStar Asia, which became a wholly-owned subsidiary on June 2, 1995. The
increase in gross profit in 1996 was primarily due to the consolidation of
CellStar Asia's higher gross margin sales and an increase in domestic retail
sales relative to wholesale sales, which have a higher gross margin than
wholesale sales. Domestic retail revenues increased from $39.0 million to $70.4
million. The increase was primarily due to the increase in the number of retail
Communication Centers in Sam's Club locations. These gross profit increases were
partially offset by provisions for inventory obsolescence.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $26.4 million, or 77.2%, from $34.2 million to
$60.6 million. Approximately $9.5 million, or 36.0%, of the increase was
attributable to an increase in salaries and benefits for the addition of
employees to support the growth of the Company's operations, primarily the
expansion of Communication Centers from an average of 122 to 351 Sam's Club
locations for the six months ended May 31, 1995 and 1996, respectively. The
expansion of Communication Centers also gave rise to other increases in selling,
general and administrative expenses as these operations have experienced higher
operating expenses than wholesale operations. This growth and expansion coupled
with the Company's increased presence in South America and the Asia-Pacific
region generated higher expenses. An additional $3.6 million of the increase
resulted from an increase in trade accounts receivable reserves to reflect a
deterioration in the trade accounts receivable portfolio, primarily in the
Company's Brazilian operations. See "International Operations."
Operating Income (Loss). Operating income decreased from $12.8
million to $1.0 million due to the significant increase in selling, general and
administrative expenses. Correspondingly, the decrease in operating income as a
percentage of total revenues from 3.5% to 0.2% was attributable to the increase
in selling, general and administrative expenses.
Interest Expense. Interest expense increased in the six months ended
May 31, 1996 to $5.0 million from $1.7 million in the six months ended May 31,
1995. The increase in interest expense resulted primarily from the maintenance
of a higher balance under the Company's revolving credit agreements.
(Undistributed Loss) Equity in Earnings of Joint Ventures.
(Undistributed loss) equity in earnings of joint ventures decreased $4.0 million
from the six months ended May 31, 1995 to the six months ended May 31, 1996.
The decrease was attributable to the Company's acquisition of the remaining 50%
interest in CellStar Asia in June 1995. The Company's 50% equity interest in
the operations of CellStar Asia prior to the date of the acquisition was
classified as equity in earnings of joint ventures.
(Benefit) Provision for Income Taxes. Income tax expense decreased
from an expense of $4.0 million in the six months ended May 31, 1995 to a
benefit of $1.1 million in the six months ended May 31, 1996. This decrease was
primarily due to an operating loss and a higher effective tax rate. The higher
effective tax rate was primarily attributable to the Company's international
operations.
13
<PAGE>
Liquidity and Capital Resources
The Company primarily relies on cash generated from operations and
borrowings under four credit facilities to fund working capital, capital
expenditures and expansions. In addition, in certain situations, the Company
has been provided with extended terms from key suppliers to fund working capital
requirements of its domestic and Latin American operations.
The Company's primary revolving credit facility (the "Credit
Agreement") is with a group of five banks and currently has a maximum borrowing
limit of $135.0 million. However, fundings under the line are limited to a
borrowing base computed as a percentage of domestic accounts receivable and
inventories. At July 11, 1996, the borrowing base limited borrowings to $68.1
million ($75.0 million at May 31, 1996). The Company has further agreed not to
draw any additional amounts until an agreement can be reached to amend the
Credit Agreement. The Company is in negotiations with the bank group to amend
the Credit Agreement to make additional borrowings available again in the
future.
CellStar Asia has a $15.0 million credit agreement with a bank (the
"CellStar Asia Credit Agreement"). Fundings under this credit agreement are
calculated on a borrowing base computed as a percentage of CellStar Asia's
accounts receivable and inventories. The amount outstanding on this line on
July 11, 1996 was $2.3 million ($11.2 million at May 31, 1996). The CellStar
Asia Credit Agreement matures on July 31, 1996. The Company is currently
negotiating with the bank to renew this loan for an additional twelve months.
The Company also had $3.0 million outstanding at July 11, 1996 ($3.5
million at May 31, 1996) of an original $7.0 million bank loan. The loan, which
originally matured on May 3, 1996, has been extended through late July. The
Company is currently in negotiations with the lender to renew this loan for six
months.
In April 1996, the Company's Brazilian operation, CellStar
International Telefonia Celular Ltda. ("CellStar Brazil"), entered into a $2.9
million loan denominated in Brazilian currency from a Brazilian bank that
matures on October 8, 1996. This loan is secured by a standby letter of credit
for $3.0 million from the Company's primary revolving credit facility. The loan
is expected to be repaid from the proceeds of accounts receivable collections of
CellStar Brazil prior to maturity of the loan.
The Company believes it will be able to negotiate amendments or
renewals of its credit agreements. However, there can be no assurance that it
will be successful. If the Company is unsuccessful in these negotiations, it
would be forced to seek financing from other financial institutions, which the
Company believes would be available.
At May 31, 1996, the Company had $23.6 million of cash and cash
equivalents, a decrease of $7.9 million since November 30, 1995. This decrease
is reflective of a reduction of trade and credit obligations and domestic and
Latin American operating losses. The Company reduced accounts payable and bank
debt by $24.1 million and $9.3 million, respectively, during the six months
ended May 31, 1996 by effectively managing inventory levels downward by $25.0
million primarily in its domestic and Asia-Pacific region operations. Through
July 11, 1996, the Company has reduced bank debt by $22.7 million since November
30, 1995. If the sale of the Communication Centers is consummated, the Company
anticipates additional decreases in its bank debt in the near term from a
portion of the proceeds of the sale. The Company does not currently anticipate
that it will need capital in excess of its current credit facilities in the near
future to fund its operations, capital expenditures and near term business
expansion.
The Company has received extended credit terms from key suppliers. The
Company anticipates that such extended terms will continue to be made available
to the Company in certain situations and the Company will take advantage of the
extended terms to meet part of its short-term working capital needs. This
situation did not materially impact the Company's ability to obtain inventory
and thus did not have a significant impact on sales for the period.
Cash used in investing activities of $2.0 million related to purchases
of various computer and office equipment worldwide during the three months ended
May 31, 1996. By comparison, the Company spent $4.9 million during the same
period in the last fiscal year for the construction of its distribution
warehouse in Carrollton, Texas and office equipment primarily for the expansion
of Communication Centers in Sam's Clubs.
14
<PAGE>
Construction of the distribution warehouse and expansion of Communication
Centers were essentially completed in fiscal year 1995. The Company intends to
limit its capital expenditures to $4.0 million for fiscal year 1996.
Traditionally, CellStar has financed growth in its domestic business
and expansion into international markets with bank credit facilities. The
Company believes that long-term capital funding in the form of debt and/or
equity will be required over time to continue to allow the Company to grow.
While CellStar has no immediate plans for long-term debt and/or equity
financing, it anticipates that such financing will be available at the
appropriate time to meet the Company's long-term capital needs.
International Operations
During the second quarter, the Company's operations were negatively
affected by a 62.1% devaluation of the Venezuelan bolivar relative to the U.S.
dollar after the Venezuelan government lifted exchange controls that had been in
place since July 1994. A financial hedge against this devaluation was not
available for purchase in the financial markets and the effects of the
devaluation were too large to be effectively mitigated within the accounting
period through increases in the Company's local currency product pricing. This
devaluation of the Venezuelan bolivar relative to the U.S. dollar was
responsible for substantially all of the Company's foreign currency transaction
losses of $1.4 million recorded to cost of sales during the quarter.
The economic environments in several of the Latin American countries
in which the Company conducts operations have historically been volatile. The
related instability in the value of many of the Latin American currencies versus
the U.S. dollar, and the Company's largely U.S. dollar based cost structure for
its Latin American operations combine to produce the potential for the Company
to incur currency transaction losses in the normal course of business.
Historically, the Company has mitigated the economic impact of modest foreign
currency devaluations relative to the U.S. dollar by pricing its products in
U.S. dollars where possible, by attempting to increase prices of products at or
above the anticipated rate of local currency devaluation relative to the U.S.
dollar, by indexing certain of its receivables to exchange rates in effect at
the time of their payment, and by entering into foreign currency contracts in
certain instances. Although historically these business strategies have
mitigated a substantial portion of the Company's economic risks associated with
foreign currency fluctuations, the Company remains subject to other risks and
costs associated with the methods the Company uses to manage currency
devaluation risks. For example, in currencies such as the Venezuelan bolivar
where hedge contracts are unavailable or in other currencies where contracts are
deemed uneconomical, the Company will continue to remain subject to risks of a
large devaluation in those currencies relative to the U.S. dollar.
During the second quarter, in reaction to this risk, the Company
initiated a program to reduce the overall level of assets maintained by the
Company in its Latin American operations. The intent of this program is to
reduce the Company's working capital requirements related to its Latin American
operations and to thereby also reduce the magnitude of the Company's exposure to
future foreign currency devaluations. The execution of the program during the
second quarter resulted in a $10.5 million or 14.2% reduction in Latin American
assets from $73.9 million at February 29, 1996 to $63.4 million at May 31, 1996.
The Company expects this Latin American asset reduction trend to continue in
subsequent quarters, although at a somewhat slower pace than experienced in the
second quarter. Other changes to the Company's Latin American business strategy
include a general reduction in the number of employees, the downsizing or sale
of certain of the Company's retail operations, and a trend toward selling
product to certain large Latin American customers directly from the Company's
U.S. operations where feasible.
15
<PAGE>
The Company has experienced a significant deterioration in the quality
of the accounts receivable portfolio in its Brazilian operation, for which
$2.0 million have been added to its bad debt reserves during the second quarter.
Poor economic conditions in Brazil are continuing and the amount of new cellular
capacity being added in the major Brazilian markets in the first half of 1996
was lower than had been expected. The Company has significantly tightened its
credit underwriting standards and has focused its ongoing product marketing
efforts towards its largest and best customers. The Company cannot predict the
impact further declines in Brazilian economic conditions, if any, will have on
its receivables portfolio.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On May 14, 1996, a purported class action lawsuit was filed in the
Northern District of Texas, Dallas Division, styled as follows: Sidney Gluck,
John Dolcemaschio, James Miller and Nancy L. Miller v. CellStar Corporation,
Alan H. Goldfield, Terry S. Parker, John S. Bain, Kenneth W. Sanders and KPMG
Peat Marwick, LLP (the "Gluck Suit"). The Gluck Suit alleges violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 10b-5 promulgated thereunder, as well as certain state
laws. The plaintiffs allege that the defendants misrepresented or failed to
disclose material facts concerning the business prospects and financial
condition of the Company, and that the value of the Company's common stock was
artificially inflated as a result of such misrepresentations or failures to
correct the alleged misrepresentations. The Gluck Suit seeks compensatory and
exemplary damages and reimbursement of attorneys' fees and costs.
On May 21, 1996, a purported class action lawsuit was filed in the
Northern District of Texas, Dallas Division, styled as follows: Diane Larson
against CellStar Corporation, Alan H. Goldfield, Terry S. Parker and Evelyn M.
Henry (the "Larson Suit"). The Larson Suit alleges violations of Sections 10(b)
and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The
plaintiffs allege that the defendants misrepresented the actual financial
condition of the Company and its current and future business prospects by
overstating the Company's revenues and earnings and reflecting a bullish outlook
for the Company when it was allegedly experiencing a slowdown in growth. They
allege that these actions artificially inflated the price of the Company's
common stock. The Larson Suit seeks money damages and reimbursement of
attorneys' fees and costs.
On June 14, 1996, a purported class action lawsuit was filed in the
Northern District of Texas, Dallas Division, styled as follows: Elvia H. Goggin
and R. Heath Larry vs. CellStar Corporation, Alan H. Goldfield and Terry S.
Parker (the "Goggin Suit"). The Goggin Suit alleges violations of Sections 10(b)
and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The
plaintiffs allege that the defendants made false and misleading statements
regarding CellStar's performance and misrepresented or failed to disclose
material facts affecting CellStar's expenses and profits, thereby allegedly
artificially inflating or maintaining the market price of CellStar common stock
and distorting investors' assessment of the Company. The Goggin Suit seeks money
damages and reimbursement of attorneys' fees and costs.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
17
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on April 24, 1996.
The stockholders voted on proposals to:
1. Elect one Class I Director of the Company for a term expiring in
1999;
2. Approve the amendment and restatement of the CellStar Corporation
1993 Amended and Restated Long-Term Incentive Plan;
3. Approve the amendment and restatement of the CellStar Corporation
Annual Incentive Compensation Plan; and
4. Ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the fiscal year ending
November 30, 1996.
The proposals were approved by the following votes:
1. Election of Class I Director
<TABLE>
<CAPTION>
Shares
Voted Shares
Nominee For Withheld
------- --- --------
<S> <C> <C>
Daniel T. Bogar 15,208,785 79,153
</TABLE>
2. Amendment and restatement of the CellStar Corporation 1993
Amended and Restated Long-Term Incentive Plan
<TABLE>
<CAPTION>
Shares Shares
Voted Voted Broker
For Against Abstentions Nonvotes
------ ------- ----------- --------
<S> <C> <C> <C>
14,898,037 288,184 29,422 72,295
</TABLE>
3. Amendment and restatement of the CellStar Corporation Annual
Incentive Compensation Plan
<TABLE>
<CAPTION>
Shares Shares
Voted Voted Broker
For Against Abstentions Nonvotes
------ ------- ----------- --------
<S> <C> <C> <C>
15,026,225 160,231 30,787 70,695
</TABLE>
18
<PAGE>
4. Ratification of appointment of KPMG Peat Marwick LLP
Shares Shares
Voted Voted
For Against Abstentions
------ ------- -----------
15,207,461 62,170 18,307
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation of the
Company. (1)
3.2 Amended and Restated Bylaws of the Company. (3)
4.1 The Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws of the Company filed as
Exhibits 3.1 and 3.2 are incorporated into this item by
reference (1)(3)
4.2 Specimen Common Stock Certificate of the Company (2)
10.1 Employment Agreement, effective as of May 24, 1996, by and
between CellStar, Ltd., the Company and Richard M. Gozia (4)
10.2 Joint Venture Agreement, dated as of April 1, 1996, between
CellStar International Corporation\S.A., Simon Rex Earle and
Martin Robert deRooy (4)
10.3 Second Modification of Deed of Trust, dated as of April 15, 1996,
by and between CellStar, Ltd. and First Interstate Bank of Texas,
N.A. (4)
10.4 Promissory Note, dated April 15, 1996, from CellStar, Ltd. to
First Interstate Bank of Texas, N.A. (4)
27.1 Financial Data Schedule (4)
- --------------------------------------------
(1) Previously filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended August 31, 1995, and
incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1995, and
incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended February 28, 1996, and
incorporated herein by reference.
(4) Filed herewith.
19
<PAGE>
(b) Reports on Form 8-K.
None.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CELLSTAR CORPORATION
By: /s/ R. M. Gozia
----------------------------------------
Richard M. Gozia
Executive Vice President-Administration
and Chief Financial Officer
(Principal Financial Officer)
By: /s/ Evelyn Henry Miller
-----------------------------------------
Evelyn Henry Miller
Vice President and Controller
Date: July 15, 1996
21
<PAGE>
EXHIBIT INDEX
-----------------
Exhibit
No. Description
------- ---------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of the Company. (1)
3.2 Amended and Restated Bylaws of the Company. (3)
4.1 The Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws of the Company filed as Exhibits 3.1 and 3.2
are incorporated into this item by reference. (1)(3)
4.2 Specimen Common Stock Certificate of the Company. (2)
10.1 Employment Agreement, effective as of May 24, 1996, by and between
CellStar, Ltd., the Company and Richard M. Gozia (4)
10.2 Joint Venture Agreement, dated as of April 1, 1996, between CellStar
International Corporation\S.A., Simon Rex Earle and Martin Robert
deRooy (4)
10.3 Second Modification of Deed of Trust, dated as of April 15, 1996, by
and between CellStar, Ltd. and First Interstate Bank of
Texas, N.A. (4)
10.4 Promissory Note, dated April 15, 1996, from CellStar, Ltd. to First
Interstate Bank of Texas, N.A. (4)
27.1 Financial Data Schedule (4)
- -----------------------------------------
(1) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 31, 1995, and incorporated
herein by reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 1995, and incorporated
herein by reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended February 28, 1996, and incorporated
herein by reference.
(4) Filed herewith.
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT (the "Agreement") effective as of May 24, 1996,
by and between CellStar, Ltd., a Texas limited partnership, whose principal
executive offices are in Carrollton, Texas (the "Employer"), CellStar
Corporation, a Delaware corporation and parent company of Employer ("Parent"),
and Richard M. Gozia (the "Executive").
R E C I T A L S
---------------
The Board of Directors of Parent has determined that it is in the best
interests of Parent and Employer that Employer retain the Executive's services
and reinforce and encourage the continued attention and dedication of members of
Employer and Parent's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of Parent or the assertion of claims and
actions against employees.
The parties recognize the increased risk of litigation and other claims
being asserted against officers and directors of companies in today's
environment.
The Bylaws of Parent require Parent to indemnify its directors and officers
to the full extent permitted by law.
Costs, limits in coverage and availability of directors' and officers'
liability insurance policies and developments in the application, amendment and
enforcement of statutory and bylaw indemnification provisions generally have
raised questions concerning the adequacy and reliability of the protection
afforded to directors and officers and have increased the difficulty of
attracting and retaining qualified persons to serve as directors and officers.
In recognition of the Executive's need for substantial protection against
personal liability to enhance and induce the Executive's service to Employer and
Parent in an effective manner and the Executive's reliance on the Bylaws, and in
part to provide the Executive with specific contractual assurance that the
protection promised by the Bylaws of Parent will be available to the Executive
(regardless of, among other things, any amendment to or revocation of the Bylaws
or any change in the composition of Parent's Board of Directors or acquisition
transaction relating to Parent), Employer wishes to provide in this Agreement
for the employment of the Executive and the indemnification of, and the
advancing of expenses to, the Executive to the full extent (whether partial or
complete) permitted by law and as set forth in this Agreement, and, to the
extent insurance is maintained, for the coverage of the Executive under Parent's
directors' and officers' liability insurance policies.
Employer wishes to assure itself of the services of the Executive for the
period provided in this Agreement and the Executive wishes to serve in the
employ of the Employer on the terms and conditions hereinafter provided.
<PAGE>
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. Effective May 24, 1996, the Employer shall employ
----------
the Executive and the Executive shall accept employment by the Employer for the
period and upon the terms and conditions contained in this Agreement.
1.2 Office and Duties.
-----------------
(a) Position. The Executive shall serve Employer as Executive
--------
Vice President-Administration and Chief Financial Officer, and as a
Director, of Parent, with authority, duties and responsibilities
consistent with such offices (within the areas set forth on Exhibit
-------
A), and shall perform such other services for Employer, Parent and
_
their affiliated entities consistent with the position of Executive
Vice President and Chief Financial Officer (within the areas set forth
on Exhibit A) as may be reasonably assigned to him from time to
---------
time by senior management of Employer and/or Parent and by the Board
of Directors of Parent. Executive shall also accept election or
appointment, and serve, as an officer and/or director of any
affiliated entity of Employer and Parent, and perform the duties
appropriate thereto (within the areas set forth on Exhibit A), without
---------
additional compensation other than as set forth herein. Executive's
actions as Executive Vice President and Chief Financial Officer shall
at all times be subject to the direction of the Board of Directors of
Parent.
(b) Commitment. Throughout the term of this Agreement, the
----------
Executive shall devote substantially all of his time, energy, skill
and best efforts to the performance of his duties hereunder in a
manner that will faithfully and diligently further the business and
interests of Employer, Parent and their affiliated entities. Subject
to the foregoing, the Executive may serve, or continue to serve, on
the boards of directors of, and hold any other offices or positions
in, companies or organizations that are disclosed to the Board of
Directors of Parent and that will not materially affect the
performance of the Executive's duties pursuant to this Agreement.
1.3 Term. The term of this Agreement shall commence on May 24, 1996
----
(the "Effective Date"), and shall end on May 24, 2001, unless earlier terminated
as provided herein (the period from May 24, 1996, through May 24, 2001, or the
date of such earlier termination, as applicable, is hereinafter referred to as
the "Term").
2
<PAGE>
1.4 Compensation.
------------
(a) Base Salary. Employer shall pay the Executive as compensation
-----------
an aggregate salary ("Base Salary") of $250,000 per year during the
Term, or such greater amount as shall be approved by the Compensation
Committee of the Parent's Board of Directors. The Compensation
Committee shall review the Executive's Base Salary at least annually.
The Base Salary for each year shall be paid by Employer in accordance
with the regular payroll practices of Employer.
(b) Annual Incentive Payment. Each year during the Term, the
------------------------
Executive shall be eligible to receive an annual incentive payment
(the "Annual Incentive Payment") determined in accordance with an
annual incentive plan approved by the Compensation Committee of
Parent's Board of Directors. The parties understand that, for the
fiscal year ending in November 1996, the Executive will be entitled to
earn an Annual Incentive Payment under Parent's Amended and Restated
Annual Incentive Compensation Plan of not less than 50% of that
portion of his base salary earned during such fiscal year, but not
more than $120,000; provided that Parent achieves the earnings per
share and other performance standards set forth in such plan and
established by the Compensation Committee for such fiscal year.
(c) Stock Options. Executive shall be granted a stock option
-------------
entitling him to purchase 50,000 shares of Parent's common stock at
the reported market closing sales price thereof on the Effective Date
of this Agreement (the "Initial Option"). The Initial Option shall
become exercisable by the Executive at the rate of 12,500 shares per
year during the Term; provided, however, that any unvested portion of
-------- -------
the Initial Option shall immediately vest if the Executive's
employment is terminated Without Cause (defined below) or for Company
Breach (defined below) or as a result of a Change in Control (defined
below). Unless earlier terminated in accordance with the terms of the
related option agreement, the Initial Option, to the extent vested,
shall be exercisable, in whole or in part, until 5:00 p.m., Dallas
time, on May 23, 2006. The Initial Option shall be evidenced by a
stock option agreement in the form attached hereto as Exhibit B. The
parties agree that the Initial Option shall be construed as if such
option were granted under the Parent's 1993 Amended and Restated Long-
Term Incentive Plan (the "1993 Plan"). The Executive shall be eligible
to receive additional stock options in amounts (if any) and on terms
and conditions to be determined by the applicable committee of
Parent's Board of Directors.
(d) Life Insurance. During the Term and subject to the
--------------
Executive's qualification under normal life insurance underwriting
standards as of the date hereof and at any policy renewal date, the
Employer shall provide, at Employer's expense, a term life insurance
policy on the life of the Executive in a face amount equal to
$1,250,000 for the benefit of such beneficiary or beneficiaries as may
be designated from time to time by the Executive.
3
<PAGE>
(e) Disability Insurance. During the Term and subject to the
--------------------
Executive's qualification under normal disability insurance
underwriting standards as of the date hereof and at any policy renewal
date, Employer shall provide, at Employer's expense, a disability
insurance policy that will pay the Executive, pursuant to the terms of
such policy, an annual disability benefit of $200,000 until the
Executive reaches the age of 65.
(f) Medical Expenses. During the Term, Employer shall pay, or
----------------
reimburse the Executive for, all medical and dental expenses incurred
by the Executive or his spouse or Dependents (as defined in Section
152 of the Internal Revenue Code). The Executive acknowledges that
Employer may enter into insurance agreements with respect to the
payments and reimbursements descried in this subsection. The Executive
will use reasonable efforts to assist Employer in recovering payments
and reimbursements from such insurers.
(g) Payment and Reimbursement of Expenses. During the Term,
-------------------------------------
Employer shall pay or reimburse the Executive for all reasonable
travel and other expenses incurred by the Executive in performing his
obligations under this Agreement in accordance with the policies and
procedures of Employer for senior executive officers, provided that
the Executive properly accounts therefor in accordance with the
regular policies of Employer.
(h) Fringe Benefits and Perquisites. During the Term, the
-------------------------------
Executive shall be entitled to participate in or receive benefits
under any stock purchase, profit-sharing, pension, retirement, life,
medical, dental, disability or other plan or arrangement made
available by Employer or Parent to senior executive officers, subject
to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements. Nothing paid to the
Executive under any plan or arrangement made available to the
Executive shall be deemed to be in lieu of compensation hereunder.
(i) Vacations. During the Term and in accordance with the regular
---------
policies of Employer, the Executive shall be entitled to the number of
paid vacation days in each calendar year determined by Employer from
time to time for its senior executive officers, but not less than four
weeks in any calendar year (prorated in any calendar year in which the
Executive is employed hereunder for less than the entire year in
accordance with the number of days in such calendar year during which
the Executive is so employed).
1.5 Termination.
-----------
(a) Disability. Employer may terminate this Agreement for
----------
Disability. "Disability" shall exist if because of ill health,
physical or mental disability, or any other reason beyond his control,
and notwithstanding reasonable accommodations made by Employer, the
Executive shall have been unable, unwilling or shall have failed to
perform his duties under this Agreement, as determined in good faith
by the Compensation Committee of Parent's Board of Directors, for a
period of 180 consecutive days, or if, in any 12-month period, the
Executive shall have been unable or unwilling
4
<PAGE>
or shall have failed to perform his duties for a period of 270 or more
business days, irrespective of whether or not such days are
consecutive.
(b) Cause. Employer may terminate the Executive's employment for
-----
Cause. Termination for "Cause" shall mean termination because of the
Executive's (i) gross incompetence, (ii) willful gross misconduct that
causes or is likely to cause material economic harm to Parent and its
affiliated entities on a consolidated basis or that brings or is
likely to bring substantial discredit to the reputation of Employer,
Parent or any of their affiliated entities taken as a whole, (iii)
failure to follow directions of Parent's Board of Directors that are
consistent with his duties under this Agreement, (iv) final,
nonappealable conviction of a felony involving moral turpitude, or (v)
material breach of any provision of this Agreement. Items (i), (ii),
(iii) and (v) of this subsection shall not constitute Cause unless
Employer or Parent notifies the Executive thereof in writing,
specifying in reasonable detail the basis therefor and stating that it
is grounds for Cause. Furthermore, if Executive's actions are curable,
items (i), (ii), (iii) and (v) of this subsection shall not constitute
Cause unless the Executive fails to cure such matter within 60 days
after such notice is sent or given under this Agreement. The Executive
shall be permitted to respond and to defend himself before the Board
of Directors of Parent or any appropriate committee thereof within a
reasonable time after written notification of any proposed termination
for Cause under items (i), (ii), (iii) or (v) of this subsection.
(c) Without Cause. During the Term, Employer may terminate the
-------------
Executive's employment Without Cause, subject to the provisions of
subsection 1.6(d) (Termination Without Cause or for Company Breach).
-----------------------------------------------
Termination "Without Cause" shall mean termination of the Executive's
employment by Employer other than termination for Cause or for
Disability.
(d) Company Breach. The Executive may terminate his employment
--------------
hereunder for Company Breach. For purposes of this Agreement a
"Company Breach" shall be deemed to occur (i) in the event of a
material breach of this Agreement by Employer or Parent, including
without limitation any material reduction in the authority, duties and
responsibilities that the Executive has on the Effective Date of this
Agreement or (ii) if Executive's eligibility for a bonus in any fiscal
year (provided that all performance standards established for him have
been achieved) shall be, in terms of a percentage of base salary, any
amount less than the percentage of base salary established for the
Chief Executive Officer of Parent for such fiscal year, or (iii) if
Executive's eligibility for bonus in any fiscal year shall be based on
performance standards that are materially greater or different than
those established for the Chief Executive Officer of Parent; provided,
--------
however, that the foregoing items shall not constitute Company Breach
-------
unless the Executive notifies Employer or Parent (as applicable)
thereof in writing, specifying in reasonable detail the basis therefor
and stating that it is grounds for Company Breach, and unless Employer
or Parent fails to cure such Company Breach within 60 days after such
notice is sent or given under this Agreement.
(e) Change in Control. The Executive may terminate his employment
-----------------
hereunder within 12 months of a Change in Control (defined below):
5
<PAGE>
(i) "Change in Control" shall mean any of the following:
(1) any consolidation or merger of Parent in which Parent
is not the continuing or surviving corporation or pursuant to
which shares of Parent's common stock would be converted into
cash, securities or other property, other than a merger of
Parent in which the holders of Parent common stock
immediately prior to the merger have the same proportionate
ownership of common stock of the surviving corporation
immediately after the merger;
(2) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of Parent;
(3) any approval by the stockholders of Parent of any
plan or proposal for the liquidation or dissolution of
Parent;
(4) the cessation of control (by virtue of their not
constituting a majority of directors) of Parent's Board of
Directors by the individuals (the "Continuing Directors") who
(x) at the date of this Agreement were directors or (y)
become directors after the date of this Agreement and whose
election or nomination for election by Parent's stockholders,
was approved by a vote of at least two-thirds of the
directors then in office who were directors at the date of
this Agreement or whose election or nomination for election
was previously so approved); or
(5) (A) the acquisition of beneficial ownership
("Beneficial Ownership"), within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of an aggregate of 15% or more of the voting
power of Parent's outstanding voting securities by any person
or group (as such term is used in Rule 13d-5 under the
Exchange Act) who Beneficially Owned less than 10% of the
voting power of Parent's outstanding voting securities on the
Effective Date of this Agreement, (B) the acquisition of
Beneficial Ownership of an additional 5% of the voting power
of Parent's outstanding voting securities by any person or
group who Beneficially Owned at least 10% of the voting power
of Parent's outstanding voting securities on the Effective
Date of this agreement, or (C) the execution by Parent and a
stockholder of a contract that by its terms grants such
stockholder (in its, hers or his capacity as a stockholder)
or such stockholder's Affiliate (as defined in Rule 405
promulgated under the Securities Act of 1933 (an
"Affiliate")) including, without limitation, such
stockholder's nominee to Parent's Board of Directors (in its,
hers or his capacity as an Affiliate of such stockholder),
the right to veto or block decisions or actions of Parent's
Board of Directors; provided, however, that notwithstanding
-------- -------
the foregoing, the events described in items (A), (B) or (C)
above shall not
6
<PAGE>
constitute a Change in Control hereunder if the acquiror is
(aa) Alan H. Goldfield or his Affiliates, (bb) a trustee or
other fiduciary holding securities under an employee benefit
plan of Employer, Parent or one of their affiliated entities
and acting in such capacity, (cc) a corporation owned,
directly or indirectly, by the stockholders of Parent in
substantially the same proportions as their ownership of
voting securities of Parent or (dd) a person or group meeting
the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1)
under the Exchange Act or (ee) in the case of an acquisition
described in items (A) or (B) above (but not in the case of
an acquisition described in item (C) above), any other person
whose acquisition of shares of voting securities is approved
in advance by a majority of the Continuing Directors;
provided further, however that none of the following shall
-------- ------- -------
constitute a Change in Control: (aa) the right of the holders
of any voting securities of Parent to vote as a class on any
matter or (bb) any vote required of disinterested or
unaffiliated directors or stockholders including, without
limitation, pursuant to Section 144 of the Delaware General
Corporation Law or Rule 16b-3 promulgated pursuant to the
Exchange Act.
(6) subject to applicable law, in a Chapter 11 bankruptcy
proceeding, the appointment of a trustee or the conversion of
a case involving Parent to a case under Chapter 7.
(f) Without Good Reason. During the Term, the Executive may
-------------------
terminate his employment Without Good Reason. Termination "Without
Good Reason" shall mean termination of the Executive's employment by
the Executive other than termination for Company Breach.
(g) Explanation of Termination of Employment. Any party
----------------------------------------
terminating this Agreement shall give prompt written notice ("Notice
of Termination") to the other party hereto advising such other party
of the termination of this Agreement. Within thirty (30) days after
notification that the Agreement has been terminated, the terminating
party shall deliver to the other party hereto a written explanation
(the "Explanation of Termination of Employment"), which shall state in
reasonable detail the basis for such termination and shall indicate
whether termination is being made for Cause, Without Cause or for
Disability (if Employer has terminated the Agreement) or for Company
Breach, upon a Change in Control or Without Good Reason (if the
Executive has terminated the Agreement).
(h) Date of Termination. "Date of Termination" shall mean the
-------------------
date on which Notice of Termination is sent or given under this
Agreement.
1.6 Compensation During Disability or Upon Termination.
--------------------------------------------------
(a) During Disability. During any period that the Executive fails
-----------------
to perform his duties hereunder because of ill health, physical or
mental disability, or any other
7
<PAGE>
reason beyond his control, he shall continue to receive his full
salary and benefits pursuant to Section 1.4 (Compensation) until the
------------
Date of Termination.
(b) Termination for Disability. If Employer shall terminate the
--------------------------
Executive's employment for Disability, Employer's obligation to pay
salary and benefits pursuant to Section 1.4 (Compensation) shall
------------
terminate, except that Employer shall pay the Executive (i) accrued
but unpaid salary and benefits pursuant to Section 1.4 (Compensation)
------------
through the Date of Termination, and (ii) the benefits set forth in
Section 1.6(f) (Employee Benefits). The Employer also shall make any
-----------------
additional payments necessary to provide the disability benefits set
forth in Section 1.4(e) (Disability Insurance) above.
--------------------
(c) Termination for Cause or Without Good Reason. If Employer
--------------------------------------------
shall terminate the Executive's employment for Cause or if the
Executive shall terminate his employment Without Good Reason, then
Employer's obligation to pay salary and benefits pursuant to Section
1.4 (Compensation) shall terminate, except that Employer shall pay the
------------
Executive his accrued but unpaid salary and benefits pursuant to
Section 1.4 (Compensation) through the Date of Termination.
------------
(d) Termination Without Cause or for Company Breach. If Employer
-----------------------------------------------
shall terminate the Executive's employment Without Cause or if the
Executive shall terminate his employment for Company Breach, then
Employer shall pay to the Executive, as severance pay in a lump sum on
the 15th day following the Date of Termination, the following amounts:
(i) his then-unpaid Base Salary through the Date of
Termination at the rate in effect as of the Date of
Termination; and
(ii) in lieu of any further Base Salary and Annual
Incentive Payments for periods subsequent to the Date of
Termination, an amount equal to the product of (A) the sum of
the Executive's Base Salary at the rate in effect as of the
Date of Termination, plus the average Annual Incentive
Payment paid to the Executive during the preceding two (2)
years (or such shorter period for which any Annual Incentive
Payment has been paid), divided by 365, and multiplied by (B)
the number of days from the Date of Termination to May 24,
2001.
In addition, the Executive will be entitled to a prorated Annual
Incentive Payment for the fiscal year in which his employment is
terminated, if earned in accordance with the terms of its grant.
If the Executive terminates his employment for Company Breach
based upon a material reduction by Employer of the Executive's Base
Salary, then for purposes of this subsection 1.6(d) (Termination
-----------
Without Cause or for Company Breach), the Executive's Base Salary as
-----------------------------------
of the Date of Termination shall be deemed to be the Executive's Base
Salary immediately prior to the reduction that the Executive claims as
grounds for Company Breach.
8
<PAGE>
(e) Termination Upon a Change in Control. If the Executive
------------------------------------
terminates his employment after a Change in Control pursuant to
subsection 1.5(e) (Change in Control), then Employer shall pay to the
-----------------
Executive as severance pay and as liquidated damages (because actual
damages are difficult to ascertain), in a lump sum, in cash, within 15
days after termination, an amount equal to $100 less than three times
the Executive's "annualized includable compensation for the base
period" (as defined in Section 280G of the Internal Revenue Code of
1986); provided, however, that if such lump sum severance payment,
-------- -------
either alone or together with other payments or benefits, either cash
or non-cash, that the Executive has the right to receive from
Employer, including, but not limited to, accelerated vesting or
payment of any deferred compensation, options, stock appreciation
rights or any benefits payable to the Executive under any plan for the
benefit of employees, would constitute an "excess parachute payment"
(as defined in Section 280G of the Internal Revenue Code of 1986),
then such lump sum severance payment or other benefit shall be reduced
to the largest amount that will not result in receipt by the Executive
of a parachute payment. The determination of the amount of the payment
described in this subsection shall be made by Parent's independent
auditors.
(f) Employee Benefits. Unless Employer terminates the Executive's
-----------------
employment for Cause or the Executive terminates his employment
Without Good Reason, Employer shall maintain in full force and effect
(to the extent consistent with past practice), for the continued
benefit of the Executive and, if applicable, his wife and children,
the employee benefits set forth in subsections 1.4(d) (Life
----
Insurance), 1.4(e) (Disability Insurance), 1.4(f) (Medical Expenses)
--------- -------------------- ----------------
and 1.4(h) (Fringe Benefits and Perquisites) above that he was
-------------------------------
entitled to receive immediately prior to the Date of Termination
(subject to the general terms and conditions of the plans and programs
under which he receives such benefits) for the balance of the Term or
for the period provided for under the terms and conditions of such
plans and programs, whichever is longer, provided that his continued
participation or, if applicable, the participation of his wife and
children, is possible under the general terms and conditions of such
plans and programs.
(g) No Mitigation. The Executive shall not be required to
-------------
mitigate the amount of any payment provided for in this Section 1.6
(Compensation During Disability or Upon Termination) by seeking other
--------------------------------------------------
employment or otherwise.
1.7 Death of Executive. If the Executive dies prior to the
------------------
expiration of this Agreement, the Executive's employment and other obligations
under this Agreement shall automatically terminate and all compensation, to
which the Executive is or would have been entitled hereunder (including without
limitation under subsections 1.4(a) (Base Salary) and 1.4(b) (Annual Incentive
----------- ----------------
Payment)), shall terminate as of the end of the month in which the Executive's
- -------
death occurs; provided, however, that (i) Employer shall pay to the Executive's
-------- -------
estate, as soon as practicable, a prorated Annual Incentive Payment, if earned
in accordance with Parent's annual incentive plan; (ii) for the balance of the
Term, the Executive's wife and children shall be entitled to receive their
benefits under Employer's group hospitalization, medical and dental plans (if
any); (iii) the Executive's estate or named beneficiary or beneficiaries, as
appropriate, shall receive the benefits payable pursuant to subsection 1.4(d)
(Life Insurance) and 1.4(h)
--------------
9
<PAGE>
(Fringe Benefits and Perquisites) hereof and such reimbursement as may have been
--------------------------------
due to the Executive pursuant to subsection 1.4(g) (Payment and Reimbursement of
----------------------------
Expenses) hereof.
- --------
ARTICLE 2
NON-COMPETITION AND CONFIDENTIALITY
2.1 Non-Competition.
---------------
(a) Description of Proscribed Actions. During the Term and for a
---------------------------------
period of two (2) years thereafter, in consideration for the
obligations of Employer and Parent hereunder, including without
limitation their disclosure (pursuant to subsection 2.2(b) (Obligation
----------
of The Company) below) of Confidential Information and Parent's
--------------
agreement to indemnify the Executive (pursuant to Article 3
(Indemnification) hereof), the Executive shall not:
---------------
(i) directly or indirectly, engage or invest in, own, manage,
operate, control or participate in the ownership, management,
operation or control of, be employed by, associated or in any
manner connected with, or render services or advice to, any
Competing Business (defined below); provided, however, that the
-------- -------
Executive may invest in the securities of any enterprise (but
without otherwise participating in the activities of such
enterprise) if (x) such securities are listed on any national or
regional securities exchange or have been registered under
Section 12(g) of the Exchange Act and (y) the Executive does not
beneficially own (as defined Rule 13d-3 promulgated under the
Exchange Act) in excess of 5% of the outstanding capital stock of
such enterprise;
(ii) directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, employee,
employer, advisor (whether paid or unpaid), stockholder, partner
or in any other individual or representative capacity whatsoever,
either for his own benefit or for the benefit of any other person
or entity, solicit, divert or take away any suppliers, customers
or clients of the Company or any of its Affiliates; or
(iii) directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, employee,
employer, advisor (whether paid or unpaid), stockholder, partner
or in any other individual or representative capacity whatsoever,
either for his own benefit or for the benefit of any other person
or entity, either (i) hire, attempt to hire, contact or solicit
with respect to hiring, any employee of Employer or Parent or any
Affiliate thereof, (ii) induce or otherwise counsel, advise or
encourage any employee of Employer, Parent or any Affiliate
thereof to leave the employment of Employer, Parent or any
Affiliate thereof, or (iii) induce any representative or agent of
Employer, Parent or any Affiliate thereof to terminate or modify
its relationship with Employer, Parent or such Affiliate.
10
<PAGE>
(b) Judicial Modification. The Executive agrees that if a court
---------------------
of competent jurisdiction determines that the length of time or any
other restriction, or portion thereof, set forth in this Section 2.1
(Non-Competition) is overly restrictive and unenforceable, the court
---------------
may reduce or modify such restrictions to those which it deems
reasonable and enforceable under the circumstances, and as so reduced
or modified, the parties hereto agree that the restrictions of this
Section 2.1 (Non-Competition) shall remain in full force and effect.
---------------
The Executive further agrees that if a court of competent jurisdiction
determines that any provision of this Section 2.1 (Non-Competition) is
---------------
invalid or against public policy, the remaining provisions of this
Section 2.1 (Non-Competition) and the remainder of this Agreement
---------------
shall not be affected thereby, and shall remain in full force and
effect.
(c) Nature of Restrictions. The Executive acknowledges that the
----------------------
business of Employer and Parent and their Affiliates is international
in scope and that the Restrictions imposed by this Agreement are
legitimate, reasonable and necessary to protect Employer's, Parent's
and their Affiliates' investment in their businesses and the goodwill
thereof. The Executive acknowledges that the scope and duration of the
restrictions contained herein are reasonable in light of the time that
the Executive has been or will be engaged in the business of Employer,
Parent and/or their Affiliates, and the Executive's relationship with
the suppliers, customers and clients of Employer, Parent and their
Affiliates. The Executive further acknowledges that the restrictions
contained herein are not burdensome to the Executive in light of the
consideration paid therefor and the other opportunities that remain
open to the Executive. Moreover, the Executive acknowledges that he
has other means available to him for the pursuit of his livelihood.
(d) Competing Business. "Competing Business" shall mean any
------------------
individual, business, firm, company, partnership, joint venture,
organization, or other entity engaged in the wholesale distribution or
retail sales of wireless communication equipment in any domestic or
international market area in which Employer, Parent or any of their
Affiliates does business at any time during the Executive's employment
with Employer or any of its Affiliates.
2.2 Confidentiality. For the purposes of this Section 2.2
---------------
(Confidentiality), the term "the Company" shall be construed also to include any
- ----------------
and all Affiliates of Employer and Parent.
(a) Confidential Information. "Confidential Information" shall
------------------------
mean information that is used in the Company's business and
(i) is proprietary to, about or created by the Company;
(ii) gives the Company some competitive advantage, the
opportunity of obtaining such advantage or the disclosure of
which could be detrimental to the interests of the Company;
11
<PAGE>
(iii) is not typically disclosed to non-employees by the
Company, or otherwise is treated as confidential by the Company;
or
(iv) is designated as Confidential Information by the Company
or from all the relevant circumstances should reasonably be
assumed by the Executive to be confidential to the Company.
Confidential Information shall not include information publicly known
(other than as a result of a disclosure by the Executive). The phrase
"publicly known" shall mean readily accessible to the public in a
written publication and shall not include information that is only
available by a substantial searching of the published literature or
information the substance of which must be pieced together from a
number of different publications and sources, or by focused searches
of literature guided by Confidential Information.
(b) Obligation of The Company. During the Term, the Company shall
-------------------------
provide access to, or furnish to, the Executive Confidential
Information of the Company necessary to enable the Executive properly
to perform his obligations under this Agreement.
(c) Non-Disclosure. The Executive acknowledges, understands and
--------------
agrees that all Confidential Information, whether developed by the
Company or others or whether developed by the Executive while carrying
out the terms and provisions of this Agreement (or previously while
serving as an officer of the Company), shall be the exclusive and
confidential property of the Company and (i) shall not be disclosed to
any person other than employees of the Company and professionals
engaged on behalf of the Company, and other than disclosure in the
scope of the Company's business in accordance with the Company's
policies for disclosing information, (ii) shall be safeguarded and
kept from unintentional disclosure and (iii) shall not be used for the
Executive's personal benefit. Subject to the terms of the preceding
sentence, the Executive shall not use, copy or transfer Confidential
Information other than as is necessary in carrying out his duties
under this Agreement.
2.3 Injunctive Relief. Because of the Executive's experience and
-----------------
reputation in the industries in which Employer, Parent and their Affiliates
operate, and because of the unique nature of the Confidential Information, the
Executive acknowledges, understands and agrees that Employer and Parent will
suffer immediate and irreparable harm if the Executive fails to comply with any
of his obligations under Article 2 (Non-Competition and Confidentiality) of this
-----------------------------------
Agreement, and that monetary damages will be inadequate to compensate Employer
and Parent for such breach. Accordingly, the Executive agrees that Employer and
Parent shall, in addition to any other remedies available to them at law or in
equity, be entitled to injunctive relief to enforce the terms of Article 2 (Non-
---
Competition and Confidentiality), without the necessity of proving inadequacy of
- -------------------------------
legal remedies or irreparable harm.
12
<PAGE>
ARTICLE 3
INDEMNIFICATION
3.1 Basic Indemnification Arrangement.
---------------------------------
(a) Indemnity. If the Executive was, is or becomes a party to or
---------
witness or other participant in, or is threatened to be made a party
to or witness or other participant in, a Claim (defined below) by
reason of (or arising in part out of) an Indemnifiable Event (defined
below), Parent shall indemnify the Executive to the fullest extent
permitted by law, as soon as practicable but in any event no later
than thirty days after written demand is presented to Parent, against
any and all Expenses (defined below), judgments, fines, penalties and
amounts paid in settlement (including all interest, assessments and
other charges actually incurred and paid or payable in connection with
or in respect of such Expenses, judgments, fines, penalties or amounts
paid in settlement) of such Claim. If so requested by the Executive,
Parent shall advance (within two business days of such request) any
and all Expenses to the Executive (an "Expense Advance"); provided,
--------
however, that Parent may require the Executive first to deliver to
-------
Parent an undertaking by or on behalf of the Executive to repay such
Expense Advance if it shall ultimately be determined that he is not
entitled to be indemnified by Parent.
(b) Conditions. Notwithstanding the foregoing, (i) the
----------
obligations of Parent under subsection 3.1(a) (Indemnity) shall be
---------
subject to the condition that the Reviewing Party (defined below)
shall not have determined (in a written opinion, in any case in which
the special, independent counsel referred to in subsection 3.1(c)
(Independent Counsel) hereof is involved) that the Executive would not
-------------------
be permitted to be indemnified under applicable law, and (ii) the
obligation of Parent to make an Expense Advance pursuant to subsection
3.1(a) (Indemnity) shall be subject to the condition that, if, when
---------
and to the extent that the Reviewing Party determines that the
Executive would not be permitted to be so indemnified under applicable
law, Parent shall be entitled to be reimbursed by the Executive (who
hereby agrees to reimburse Parent) for all such amounts theretofore
paid; provided, however, that if the Executive commences legal
-------- -------
proceedings in a court of competent jurisdiction to secure a
determination that the Executive should be indemnified under
applicable law, any determination made by the Reviewing Party that the
Executive would not be permitted to be indemnified under applicable
law shall not be binding and the Executive shall not be required to
reimburse Parent for any Expense Advance until a final judicial
determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed). If there has been no
determination by the Reviewing Party or if the Reviewing Party
determines that the Executive substantively would not be permitted to
be indemnified in whole or in part under applicable law, the Executive
shall have the right to commence litigation in any court in the State
of Texas having subject matter jurisdiction thereof and in which venue
is proper seeking an initial determination by the court or challenging
any such determination by the Reviewing Party or any aspect thereof,
and Parent hereby consents to service of process and to appear in any
such proceeding. Any determination
13
<PAGE>
by the Reviewing Party otherwise shall be conclusive and binding on
Parent and the Executive.
(c) Independent Counsel. If the determination of entitlement to
-------------------
indemnification is to be made by Independent Counsel (defined below),
the Independent Counsel shall be selected as provided in this
subsection 3.1(c) (Independent Counsel). The Independent Counsel shall
-------------------
be selected by majority vote of a quorum of Disinterested Directors
(defined below), and Parent shall give written notice to the Executive
advising him of the identity of the Independent Counsel so selected.
The Executive may, within seven days after receipt of the written
notice, deliver to Parent a written objection to the selection. His
objection may be asserted only on the ground that the Independent
Counsel so selected does not meet the requirements of Independent
Counsel as defined in subsection 3.1(h) (Independent Counsel
-------------------
Definition) below, and the objection shall set forth with
----------
particularity the factual basis of the assertion. If written objection
is made, the Independent Counsel so selected shall be disqualified.
If, within 20 days after submission by the Executive of a demand for
indemnification pursuant to subsection 3.1(a) (Indemnity) of this
---------
Agreement, no Independent Counsel shall have been selected, or if
selected shall have been objected to, in accordance with this
subsection 3.1(c) (Independent Counsel), either Parent or the
-------------------
Executive may petition a court of competent jurisdiction in the State
of Texas for the appointment as Independent Counsel of a person
selected by that court or by any other person that court shall
designate, and the person so appointed shall act as Independent
Counsel. Parent shall pay all reasonable fees and expenses incident to
the procedures of this subsection 3.1(c) (Independent Counsel),
-------------------
regardless of the manner in which the Independent Counsel was selected
or appointed. Parent shall pay the reasonable fees and expenses of the
Independent Counsel and shall indemnify fully the Independent Counsel
against any and all expenses (including attorneys' fees) claims,
liabilities and damages arising out of or relating to this Agreement
or its engagement pursuant hereto.
(d) Claim. "Claim" shall mean any threatened, pending or
-----
completed action, suit or proceeding, any inquiry or investigation, or
any appeal therefrom whether conducted by Parent or any other party,
that the Executive in good faith believes might lead to the
institution of any such action, suit or proceeding, whether civil,
criminal, administrative, investigative or other.
(e) Indemnifiable Event. "Indemnifiable Event" shall mean any
-------------------
event or occurrence related to the fact that the Executive is or was
serving Parent in some capacity, including without limitation, as a
director, officer, employee, agent (including trustee) or fiduciary of
Parent or of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of anything done or not done by the
Executive in any such capacity.
(f) Expenses. "Expenses" shall include attorneys' fees and all
--------
other costs, expenses and obligations actually incurred and paid in
connection with investigating, defending, being a witness in or
participating in (including on appeal), or preparing to defend, be a
witness in or participate in any Claim relating to any Indemnifiable
Event.
14
<PAGE>
(g) Reviewing Party. "Reviewing Party" shall mean a quorum of
---------------
Parent's Board of Directors consisting of Disinterested Directors or,
if such a quorum is not obtainable or if such a quorum so directs,
Independent Counsel. Any decision by such a quorum must be by a
majority vote of the quorum.
(h) Independent Counsel Definition. "Independent Counsel" shall
------------------------------
mean a law firm, or a member of a law firm, that is experienced in
matters of Delaware corporate law and neither is, nor in the past five
years has been, retained to represent Parent or the Executive in any
matter material to either such party or any other party to the Claim
relating to an Indemnifiable Event. Notwithstanding the foregoing, the
term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either Parent or the
Executive in an action to determine the Executive's rights under this
Agreement.
(i) Disinterested Director. "Disinterested Director" shall mean a
----------------------
director of Parent who is not and was not at any time a party to a
Claim relating to an Indemnifiable Event.
3.2 Notification and Defense of Claim.
---------------------------------
(a) Notification. Promptly after receipt by the Executive of
------------
notice of the commencement of any Claim, the Executive will, if a
claim for indemnification in respect thereof is to be made against
Parent under this Agreement, notify Parent of the commencement
thereof; but the omission to notify Parent will not relieve it from
any liability which it may have to the Executive otherwise than under
this Agreement.
(b) Defense. With respect to any Claim as to which the Executive
-------
notifies Parent of the commencement thereof, Parent will be entitled
to participate therein at its own expense. Except as otherwise
provided below, to the extent that it may wish, Parent jointly with
any other indemnifying party similarly notified will be entitled to
assume the defense thereof, with counsel satisfactory to the
Executive. After notice from Parent to the Executive of its election
to assume the defense thereof, Parent will not be liable to the
Executive under this Agreement for any legal or other expenses
subsequently incurred by the Executive in connection with the defense
thereof other than reasonable costs of investigation or as otherwise
provided below. The Executive shall have the right to employ counsel
in such Claim, but the fees and expenses of such counsel incurred
after notice from Parent of its assumption of the defense thereof
shall be at the expense of the Executive unless (i) the employment of
counsel by the Executive has been authorized by Parent, (ii) the
Executive shall have reasonably concluded that there may be a conflict
of interest between Parent and the Executive in the conduct of the
defense of such Claim or (iii) Parent shall not in fact have employed
counsel to assume the defense of such Claim, in each of which cases
the fees and expenses of counsel shall be borne by Parent. Parent
shall not be entitled to assume the defense of any Claim brought by or
on behalf of Parent or as to which the Executive shall have reasonably
made the conclusion provided for in (ii) above.
15
<PAGE>
(c) Settlements. Parent shall not be liable to indemnify the
-----------
Executive under this Agreement for any amounts paid in settlement of
any Claim made without its written consent. Parent shall not settle
any Claim in any manner that would impose any penalty or limitation on
the Executive without the Executive's written consent. Neither Parent
nor the Executive will unreasonably withhold their consent to any
proposed settlement.
3.3 Establishment of Trust.
----------------------
(a) Trust Creation and Terms. In the event of a Change in Control
------------------------
or a Potential Change in Control (defined below), as the case may be,
Parent shall, upon written request by the Executive, promptly create a
trust (the "Trust") for the benefit of the Executive and from time to
time upon written request of the Executive shall fund such Trust in an
amount sufficient to satisfy any and all Expenses reasonably
anticipated at the time of each such request, and any and all
judgments, fines, penalties and settlement amounts of any and all
Claims relating to an Indemnifiable Event from time to time actually
paid, reasonably anticipated or proposed to be paid. The amount or
amounts to be deposited in the Trust pursuant to the foregoing funding
obligation shall be determined by the Reviewing Party, in any case in
which the Independent Counsel referred to above is involved. The terms
of the Trust shall provide that (i) the Trust shall not be revoked or
the principal thereof invaded, without the written consent of the
Executive, (ii) the Trustee shall advance, within two business days of
a request by the Executive, any and all Expenses to the Executive (and
the Executive hereby agrees to reimburse the Trust under the
circumstances under which the Executive would be required to reimburse
Parent under Section 3.1 (Basic Indemnification Arrangement) of this
---------------------------------
Agreement), (iii) the Trust shall continue to be funded by Parent in
accordance with the funding obligation set forth above, (iv) the
Trustee shall promptly pay to the Executive all amounts for which the
Executive shall be entitled to indemnification or advancement of
expenses pursuant to this Agreement or otherwise, and (v) all
unexpended funds in such Trust shall revert to Parent upon a final
determination by the Reviewing Party or a court of competent
jurisdiction, as the case may be, that the Executive has been fully
indemnified under the terms of this Agreement. The Trustee shall be
chosen by the Executive. Nothing in this Section 3.3 (Establishment of
Trust) shall relieve Parent of any of its obligations under this
Agreement.
(b) Potential Change in Control. A "Potential Change in Control"
---------------------------
shall be deemed to have occurred if (i) Parent enters into an
agreement or arrangement, the consummation of which would result in
the occurrence of a Change in Control; (ii) any person (including
Parent) publicly announces an intention to take or to consider taking
actions which if consummated would constitute a Change in Control; or
(iii) the Parent's Board of Directors adopts a resolution to the
effect that, for purposes of this Agreement, a Potential Change in
Control has occurred.
3.4 Indemnification for Additional Expenses. Parent shall indemnify
---------------------------------------
the Executive against any and all expenses (including attorneys' fees) and, if
requested by the Executive, shall (within two business days of such request)
advance such expenses to the Executive, which are incurred by the Executive in
connection with any claim asserted against or action brought by the
16
<PAGE>
Executive for (i) indemnification or advance payment of Expenses by Parent under
this Agreement or any other agreement or Parent bylaw now or hereafter in effect
relating to claims for Indemnifiable Events or (ii) recovery under any
directors' and officers' liability insurance policies maintained by Parent,
regardless of whether the Executive ultimately is determined to be entitled to
such indemnification, advance expense payment or insurance recovery, as the case
may be.
3.5 Partial Indemnity, Etc. If the Executive is entitled under any
-----------------------
provision of this Agreement to indemnification by Parent for some or a portion
of the Expenses, judgments, fines, penalties and amounts paid in settlement of a
Claim but not, however, for all of the total amount thereof, Parent shall
nevertheless indemnify the Executive for the portion thereof to which the
Executive is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that the Executive has been successful on the merits or
otherwise in defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, the Executive shall be indemnified against all
Expenses incurred in connection therewith. In connection with any determination
by the Reviewing Party or otherwise as to whether the Executive is entitled to
be indemnified hereunder the burden of proof shall be on Parent to establish
that the Executive is not so entitled.
3.6 No Presumption. For purposes of this Agreement, the termination
--------------
of any Claim, action, suit or proceeding, by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that the Executive
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law.
3.7 Non-exclusivity. The rights of the Executive hereunder shall be
---------------
in addition to any other rights the Executive may have under Parent's bylaws,
pursuant to resolutions or determinations of Parent's Board of Directors or
stockholders, under the Delaware General Corporation Law or otherwise. To the
extent that a change in the Delaware General Corporation Law (whether by statute
or judicial decision) permits greater indemnification by agreement than would be
afforded currently under Parent's bylaws and this Agreement, it is the intent of
the parties hereto that the Executive shall enjoy by this Agreement the greater
benefits so afforded by such change.
3.8 Liability Insurance. To the extent Parent maintains an insurance
-------------------
policy or policies providing directors' and officers' liability insurance, the
Executive shall be covered by such policy or policies, in accordance with its or
their terms, to the maximum extent of the coverage available for any Parent
employee.
17
<PAGE>
ARTICLE 4
MISCELLANEOUS
4.1 Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or on behalf of Employer or Parent or any
of their Affiliates against the Executive, the Executive's spouse, heirs,
executors or personal or legal representatives after the expiration of two years
from the date of accrual of such cause of action, and any claim or cause of
action of Employer or Parent or any Affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such two-
year period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action such shorter period shall
govern.
4.2 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
4.3 Indulgences, Etc. Neither the failure nor any delay on the part
-----------------
of either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any right, remedy, power or privilege, nor shall any
waiver of any right, remedy, power, or privilege with respect to any occurrence
be construed as a waiver of such right, remedy, power or privilege with respect
to any other occurrence.
4.4 Executive's Sole Remedy. The Executive's sole remedy shall be
-----------------------
against Employer or Parent for any claim, liability or obligation of any nature
whatsoever arising out of or relating to this Agreement or an alleged breach of
this Agreement or for any other claim arising out of the Executive's employment
by Employer, his service to Employer or its Affiliates, any indemnification
obligation of Parent or the termination of the Executive's employment hereunder
(collectively, "Executive Claims"). The Executive shall have no claim or right
of any nature whatsoever against any of Employer's or its Affiliates' directors,
former directors, officers, former officers, employees, former employees,
stockholders, former stockholders, agents, former agents or the Independent
Counsel in their individual capacities arising out of or relating to any
Executive Claim. The Executive hereby releases and covenants not to sue any
person other than Employer or Parent over any Executive Claim. The persons
described in this Section 4.4 (other than Employer, Parent and the Executive)
shall be third-party beneficiaries of this Agreement for purposes of enforcing
the terms of this Section 4.4 (Executive's Sole Remedy) against the Executive.
-----------------------
4.5 Notices. All notices, requests, demands and other
-------
communications required or permitted under this Agreement and the transactions
contemplated herein shall be in writing and shall be deemed to have been duly
given, made and received when sent by telecopy (with a copy sent by mail) or
when personally delivered or one business day after it is sent by overnight
service, addressed as set forth below:
18
<PAGE>
If to the Executive:
If to Employer or Parent:
CellStar Corporation
1730 Briercroft Court
Carrollton, Texas 75006
Attn: General Counsel
Any party may alter the address to which communications or copies are to be sent
by giving notice of such change of address in conformity with the provisions of
this subsection for the giving of notice, which shall be effective only upon
receipt.
4.6 Provisions Separable. The provisions of this Agreement are
--------------------
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
4.7 Entire Agreement. This Agreement contains the entire
----------------
understanding between the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained, which shall be deemed terminated effective
immediately. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
This Agreement may not be modified or amended other than by an agreement in
writing.
4.8 Headings; Index. The headings of paragraphs and Index of
---------------
Defined Terms herein are included solely for convenience of reference and shall
not control the meaning or interpretation of any of the provisions of this
Agreement.
4.9 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Texas, without giving
effect to principles of conflict of laws; provided, however, that questions
-------- -------
regarding Parent's ability to indemnify and advance expenses pursuant to Article
3 (Indemnification) shall be governed by the Delaware General Corporation Law.
---------------
4.10 Dispute Resolution. Subject to Employer's and Parent's right to
------------------
seek injunctive relief in court as provided in Section 2.3 (Injunctive Relief)
-----------------
of this Agreement and the Executive's right to seek a judicial determination
that the Executive should be indemnified by Parent (as provided in subsection
3.1(b) (Conditions) of this Agreement), any dispute, controversy or claim
----------
arising out of or in relation to or connection to this Agreement, including
19
<PAGE>
without limitation any dispute as to the construction, validity, interpretation,
enforceability or breach of this Agreement, shall be exclusively and finally
settled by arbitration, and any party may submit such dispute, controversy or
claim, including a claim for indemnification under this Section 4.10 (Dispute
-------
Resolution), to arbitration.
- ----------
(a) Arbitrators. The arbitration shall be heard and determined by
-----------
one arbitrator, who shall be impartial and who shall be selected by
mutual agreement of the parties; provided, however, that if the
-------- -------
dispute involves more than $2,000,000, then the arbitration shall be
heard and determined by three (3) arbitrators. If three (3)
arbitrators are necessary as provided above, then (i) each side shall
appoint an arbitrator of its choice within thirty (30) days of the
submission of a notice of arbitration and (ii) the party-appointed
arbitrators shall in turn appoint a presiding arbitrator of the
tribunal within thirty (30) days following the appointment of the last
party-appointed arbitrator. If (x) the parties cannot agree on the
sole arbitrator, (y) one party refuses to appoint its party-appointed
arbitrator within said thirty (30) day period or (z) the party-
appointed arbitrators cannot reach agreement on a presiding arbitrator
of the tribunal, then the appointing authority for the implementation
of such procedure shall be the Senior United States District Judge for
the Northern District of Texas, who shall appoint an independent
arbitrator who does not have any financial interest in the dispute,
controversy or claim. If the Senior United States District Judge for
the Northern District of Texas refuses or fails to act as the
appointing authority within ninety (90) days after being requested to
do so, then the appointing authority shall be the Chief Executive
Officer of the American Arbitration Association, who shall appoint an
independent arbitrator who does not have any financial interest in the
dispute, controversy or claim. All decisions and awards by the
arbitration tribunal shall be made by majority vote.
(b) Proceedings. Unless otherwise expressly agreed in writing by
-----------
the parties to the arbitration proceedings:
(i) The arbitration proceedings shall be held in Dallas,
Texas, at a site chosen by mutual agreement of the parties, or if
the parties cannot reach agreement on a location within thirty
(30) days of the appointment of the last arbitrator, then at a
site chosen by the arbitrators;
(ii) The arbitrators shall be and remain at all times wholly
independent and impartial;
(iii) The arbitration proceedings shall be conducted in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, as amended from time to time;
(iv) Any procedural issues not determined under the arbitral
rules selected pursuant to item (iii) above shall be determined
by the law of the place of arbitration, other than those laws
which would refer the matter to another jurisdiction;
20
<PAGE>
(v) The costs of the arbitration proceedings (including
attorneys' fees and costs) shall be borne in the manner
determined by the arbitrators;
(vi) The decision of the arbitrators shall be reduced to
writing; final and binding without the right of appeal; the sole
and exclusive remedy regarding any claims, counterclaims, issues
or accounting presented to the arbitrators; made and promptly
paid in United States dollars free of any deduction or offset;
and any costs or fees incident to enforcing the award shall, to
the maximum extent permitted by law, be charged against the party
resisting such enforcement;
(vii) The award shall include interest from the date of any
breach or violation of this Agreement, as determined by the
arbitral award, and from the date of the award until paid in
full, at 6% per annum; and
(viii) Judgment upon the award may be entered in any court
having jurisdiction over the person or the assets of the party
owing the judgment or application may be made to such court for a
judicial acceptance of the award and an order of enforcement, as
the case may be.
4.11 Survival. The covenants and agreements of the parties set forth
--------
in Article 2 (Non-Competition and Confidentiality), Article 3 (Indemnification)
----------------------------------- ---------------
and Article 4 (Miscellaneous) are of a continuing nature and shall survive the
-------------
expiration, termination or cancellation of this Agreement, regardless of the
reason therefor.
4.12 Subrogation. In the event of payment under this Agreement,
-----------
Employer and Parent shall be subrogated to the extent of such payment to all of
the rights of recovery of the Executive, who shall execute all papers required
and shall do everything that may be necessary to secure such rights, including
the execution of such documents necessary to enable Employer or Parent
effectively to bring suit to enforce such rights.
4.13 No Duplication of Payments. Employer and Parent shall not be
--------------------------
liable under this Agreement to make any payment in connection with any claim
made against the Executive to the extent the Executive has otherwise actually
received payment (under any insurance policy, Bylaw or otherwise) of the amounts
otherwise indemnifiable hereunder.
4.14 Binding Effect, Etc. This Agreement shall be binding upon and
--------------------
inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns, including any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the
business or assets of Employer, Parent, spouses, heirs, and personal and legal
representatives. Employer and Parent shall require and cause any successor
(whether direct or indirect by purchase, merger, consolidation or otherwise) to
all, substantially all, or a substantial part, of their business or assets, by
written agreement in form and substance satisfactory to the Executive, expressly
to assume and agree to perform this Agreement in the same manner and to the same
extent that Employer or Parent would be required to perform if no such
succession had taken place. The indemnity provisions of this Agreement shall
continue in effect regardless of whether the Executive continues to serve as an
employee of Employer.
21
<PAGE>
4.15 Contribution. If the indemnity contained in this Agreement is
------------
unavailable or insufficient to hold the Executive harmless in a Claim for an
Indemnifiable Event, then separate from and in addition to the indemnity
provided elsewhere herein, Parent shall contribute to Expenses, judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by or on behalf of the Executive in connection with such Claim in such
proportion as appropriately reflects the relative benefits received by, and
fault of, Parent on the one hand and the Executive on the other in the acts,
transactions or matters to which the Claim relates and other equitable
considerations.
4.16 Parent Guaranty. Parent guarantees the payment and performance
---------------
of all obligations of Employer under this Agreement and agrees it will pay or
perform those obligations if for any reason Employer fails to do so. This
guarantee is absolute, continuing, irrevocable and not conditional or
contingent. Any notice given hereunder to either Employer or Parent will be
deemed to be notice to Parent for purposes of this guaranty.
* * * * * * * *
22
<PAGE>
IN WITNESS WHEREOF, Employer and Parent have caused this Agreement to
be executed by their officer/general partner thereunto duly authorized, and
Executive has signed this Agreement, all as of the day and year first above
written.
CELLSTAR CORPORATION
By: /s/ ALAN H. GOLDFIELD
---------------------------------------
Name: Alan H. Goldfield
---------------------------------
Title: Chairman & CEO
--------------------------------
CELLSTAR, LTD.
By National Auto Center, Inc.,
its General Partner
By: /s/ ALAN H. GOLDFIELD
---------------------------------------
Name: Alan H. Goldfield
---------------------------------
Title: Chairman & CEO
--------------------------------
/s/ R. M. GOZIA
-------------------------------------------
Richard M. Gozia
23
<PAGE>
INDEX OF DEFINED TERMS
----------------------
TERM SECTION
- ---- -------
Affiliate 1.5(e)
Agreement Preamble
Annual Incentive Payment 1.4(b)
Base Salary 1.4(a)
Beneficial Ownership 1.5(e)
Cause 1.5(b)
Change in Control 1.5(e)
Claim 3.1(d)
Company Breach 1.5(d)
Competing Business 2.1(d)
Confidential Information 2.2(a)
Continuing Directors 1.5(e)
Date of Termination 1.5(h)
Disability 1.5(a)
Disinterested Directors 3.1(i)
Effective Date 1.3
Employer Preamble
Executive Preamble
Executive Claims 4.4
Exchange Act 1.5(e)
Expense Advance 3.1(a)
Expenses 3.1(f)
Explanation of Termination of Employment 1.5(g)
Indemnifiable Event 3.1(e)
Independent Counsel 3.1(h)
Notice of Termination 1.5(g)
Initial Option 1.4(c)
Parent Preamble
Potential Change in Control 3.3(b)
Reviewing Party 3.1(g)
Term 1.3
Trust 3.3(a)
Without Cause 1.5(c)
24
<PAGE>
Without Good Reason 1.5(f)
1993 Plan 1.4(c)
25
<PAGE>
EXHIBIT A
List of Service Areas
---------------------
Accounting
Finance
Treasury
Banking Relations
Management Information Systems
Investor Relations
Budgeting
Credit
Human Resources (effective upon the sale or other discontinuance of Parent's
Sam's Club Operations)
26
<PAGE>
Exhibit B
NONQUALIFIED STOCK OPTION AGREEMENT
-----------------------------------
CELLSTAR CORPORATION
--------------------
This Stock Option Agreement (this "Agreement") is entered into by and
between CellStar Corporation, a Delaware corporation (the "Company"), and
Richard M. Gozia (the "Optionee"). The Company and the Optionee agree as
follows:
1. Grant of Option. Pursuant to a duly adopted resolution of the
---------------
Compensation Committee (the "Committee") of the Board of Directors (the "Board")
of the Company, the Company grants to the Optionee an option (the "Stock
Option") to purchase from the Company a total of 50,000 shares (the "Optioned
Shares") of Common Stock of the Company at $______ per share (being the fair
market value per share of the Common Stock on this date of grant), in the
amounts, during the periods, and upon the terms and conditions set forth herein.
The date of grant of this Stock Option is May 24, 1996 (the "Date of Grant").
This Stock Option is not intended to qualify as an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
2. Interpretation. To the extent permitted by applicable law, this
--------------
Stock Option shall be interpreted by reference to the Company's 1993 Amended and
Restated Long-Term Incentive Plan (the "1993 Plan"), the terms and conditions of
which are incorporated herein by reference; however, unless specifically
permitted by the Committee, the terms of the 1993 Plan shall not be considered
an enlargement of any benefits under this Agreement. CAPITALIZED TERMS USED AND
NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS ASSIGNED TO THEM IN THE
1993 PLAN. This Stock Option is subject to any rules promulgated pursuant to the
1993 Plan by the Board or the Committee and communicated to the Optionee in
writing. Notwithstanding the foregoing, the parties acknowledge that this Stock
Option has not been granted under the 1993 Plan.
3. Vesting; Time of Exercise. Except as specifically provided in
-------------------------
this Agreement and subject to certain restrictions and conditions set forth in
the 1993 Plan, this Stock Option may be exercised, in whole or in part, in
accordance with the following schedule:
<TABLE>
<CAPTION>
Percentage
Exercisable Period
- ----------- ------
<C> <S>
0% Immediately
25% On and after the first anniversary of the Date of Grant
50% On and after the second anniversary of the Date of Grant
75% On and after the third anniversary of the Date of Grant
100% On and after the fourth anniversary of the Date of Grant
</TABLE>
Notwithstanding the above vesting schedule, in the event that the
------------------------------------------
Optionee's employment is terminated Without Cause or for Company Breachor as a
result of a Change in Control, this Stock Option shall become immediately
exercisable with respect to 100% of the Optioned Shares. The phrases "Without
Cause" and "Company Breach" and "Change in Control" shall
<PAGE>
have the meanings assigned to them in the Optionee's Employment Agreement with
the Company dated as of even date herewith (the "Employment Agreement").
The unexercised portion of this Stock Option from one annual period may be
carried over to a subsequent annual period or periods, and the right of the
Optionee to exercise the Stock Option as to such unexercised portion shall
continue for the entire term. In no event may the Stock Option be exercised in
whole or in part, however, after the expiration of the term set forth in Section
4 below.
4. Term; Forfeiture. This Stock Option, and all unexercised Optioned
----------------
Shares granted to the Optionee hereunder, will terminate and be forfeited at the
first of the following to occur:
(a) 5 p.m. on May 23, 2006;
(b) 5 p.m. on the date which is twelve (12) months following the
Optionee's Termination of Service due to death or Disability (as defined in
the Employment Agreement);
(c) 5 p.m. on the date which is three (3) months following the
Optionee's Termination of Service due to Retirement; or
(d) 5 p.m. on the 30th day after the day of any other Termination of
Service.
In the event of the Optionee's Termination of Service under subsections
(b),(c) or (d) above, the Stock Option will be exercisable, for the periods
indicated, only to the extent that it has vested (pursuant to Section 3 above)
as of the date of Termination of Service.
5. Who May Exercise. Subject to the terms and conditions set forth in
----------------
Sections 3 and 4 above and the following sentence, during the lifetime of the
Optionee, unless transferred pursuant to a qualified domestic relations order
(see Section 8, below), this Stock Option may be exercised only by the Optionee.
In the event of the Optionee's Termination of Service as a result of death or
Disability prior to the termination date specified in Section 4(a) hereof, the
following persons may exercise this Stock Option (to the extent it is
exercisable on the date of Termination of Service) on behalf of the Optionee at
any time prior to the earlier of the dates specified in Sections 4(a) or (b)
hereof: (i) if the Optionee is disabled, the legal representative of the
Optionee; or (ii) if the Optionee dies, the personal representative of his
estate, or the person who acquires the right to exercise this Stock Option by
bequest or inheritance or by reason of the death of the Optionee; provided that
this Stock Option shall remain subject to the other terms of this Agreement, the
1993 Plan, and applicable laws, rules, and regulations.
6. Restrictions. This Stock Option may be exercised only with respect to
------------
full shares, and no fractional share of stock shall be issued.
7. Manner of Exercise. Subject to such administrative regulations as the
------------------
Board or the Committee may from time to time adopt, this Stock Option may be
exercised by the delivery
2
<PAGE>
of written notice to the Committee setting forth the number of shares of Common
Stock with respect to which the Stock Option is to be exercised and the date of
exercise thereof (the "Exercise Date"), which shall be at least three (3) days
after giving such notice, unless an earlier time shall have been mutually agreed
upon. On the Exercise Date, the Optionee shall deliver to the Company
consideration with a value equal to the total Option Price of the shares to be
purchased, payable as follows: (a) cash, certified check, bank draft, or money
order payable to the order of the Company, (b) Common Stock (including
Restricted Stock), valued at its Fair Market Value on the Exercise Date, (c) by
delivery (including by FAX) to the Company or its designated agent of an
executed irrevocable option exercise form together with irrevocable instructions
from the Optionee to a broker or dealer, reasonably acceptable to the Company,
to sell certain of the shares of Common Stock purchased upon exercise of the
Stock Option or to pledge such shares as collateral for a loan and promptly
deliver to the Company the amount of sale or loan proceeds necessary to pay such
purchase price, and/or (d) in any other form of payment that is acceptable to
the Committee in its sole discretion. In the event that shares of Restricted
Stock are tendered as consideration for the exercise of the Stock Option, a
number of shares of Common Stock issued upon the exercise of the Stock Option,
equal to the number of shares of Restricted Stock used as consideration
therefor, shall be subject to the same restrictions as the Restricted Stock so
submitted.
Upon payment of all amounts due from the Optionee, the Company shall cause
certificates for the Optioned Shares then being purchased to be delivered to the
Optionee (or the person exercising the Optionee's Stock Option in the event of
his death) at its principal business office within ten (10) business days after
the Exercise Date. The obligation of the Company to deliver shares of Common
Stock shall, however, be subject to the condition that if at any time the
Committee shall determine in its discretion that the listing, registration, or
qualification of the Stock Option or the Optioned Shares upon any securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or in
connection with, the Stock Option or the issuance or purchase of shares of
Common Stock thereunder, then the Stock Option may not be exercised in whole or
in part unless such listing, registration, qualification, consent, or approval
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
If the Optionee fails to pay for any of the Optioned Shares specified in
such notice or fails to accept delivery thereof, then the Optionee's right to
purchase such Optioned Shares may be terminated by the Company.
8. Non-Assignability. This Stock Option is not assignable or transferable
-----------------
by the Optionee except (i) by will or by the laws of descent and distribution or
(ii) pursuant to the terms of a qualified domestic relations order (as defined
in Section 411(a)(13) of the Code or Section 206(d)(3) of the Employee
Retirement Income Act of 1974, as amended).
9. Rights as Stockholder. The Optionee will have no rights as a
---------------------
stockholder with respect to any shares covered by this Stock Option until the
issuance of a certificate or certificates to the Optionee for the shares.
Except as otherwise provided in Section 10 hereof, no adjustment shall be made
for dividends or other rights for which the record date is prior to the issuance
of such certificate or certificates.
3
<PAGE>
10. Adjustment of Number of Shares and Related Matters. The number of
--------------------------------------------------
shares of Common Stock covered by this Stock Option, and the Option Price
thereof, shall be subject to adjustment in accordance with Article 13 of the
----------
1993 Plan.
11. Optionee's Representations. Notwithstanding any of the provisions
--------------------------
hereof, the Optionee hereby agrees that he will not exercise the Stock Option
granted hereby, and that the Company will not be obligated to issue any shares
to the Optionee hereunder, if the exercise thereof or the issuance of such
shares shall constitute a violation by the Optionee or the Company of any
provision of any law or regulation of any governmental authority. Any
determination in this connection by the Committee shall be final, binding, and
conclusive. The obligations of the Company and the rights of the Optionee are
subject to all applicable laws, rules, and regulations.
12. Investment Representation. Unless the Common Stock is issued to
-------------------------
him in a transaction registered under applicable federal and state securities
laws, by his execution hereof, the Optionee represents and warrants to the
Company that all Common Stock which may be purchased hereunder will be acquired
by the Optionee for investment purposes for his own account and not with any
intent for resale or distribution in violation of federal or state securities
laws. Unless the Common Stock is issued to him in a transaction registered
under the applicable federal and state securities laws, all certificates issued
with respect to the Common Stock shall bear an appropriate restrictive
investment legend. The Company agrees to register the issuance of Common Stock
to the Optionee pursuant to this Stock Option as soon as is practicable, but in
no event later than the first anniversary of the Date of Grant.
13. Optionee's Acknowledgments. The Optionee acknowledges receipt of a
---------------------------
copy of the 1993 Plan and represents that he is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all the terms and
provisions thereof. The Optionee hereby agrees to accept as binding, conclusive,
and final all decisions or interpretations of the Board and/or the Committee
upon any questions arising under this Agreement.
14. Law Governing. This Agreement shall be governed by, construed, and
-------------
enforced in accordance with the laws of the State of Texas (excluding any
conflict of laws rule or principle of Texas law that might refer the governance,
construction, or interpretation of this agreement to the laws of another state).
15. No Right to Continue Employment. Nothing herein shall be construed to
-------------------------------
confer upon the Optionee the right to continue in the employment of the Company
or any Subsidiary or interfere with or restrict in any way the right of the
Company or any Subsidiary to discharge the Optionee at any time (subject to any
contract rights of the Participant).
16. Legal Construction. In the event that any one or more of the terms,
-------------------
provisions, or agreements that are contained in this Agreement shall be held by
a Court of competent jurisdiction to be invalid, illegal, or unenforceable in
any respect for any reason, the invalid, illegal, or unenforceable term,
provision, or agreement shall not affect any other term, provision, or agreement
that is contained in this Agreement and this Agreement shall be
4
<PAGE>
construed in all respects as if the invalid, illegal, or unenforceable term,
provision, or agreement had never been contained herein.
17. Covenants and Agreements as Independent Agreements. Each of the
--------------------------------------------------
covenants and agreements that is set forth in this Agreement shall be construed
as a covenant and agreement independent of any other provision of this
Agreement. The existence of any claim or cause of action of the Optionee
against the Company, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Company of the covenants and
agreements that are set forth in this Agreement.
18. Entire Agreement. This Agreement supersedes any and all other prior
----------------
understandings and agreements, either oral or in writing, between the parties
with respect to the subject matter hereof and constitute the sole and only
agreements between the parties with respect to the said subject matter. All
prior negotiations and agreements between the parties with respect to the
subject matter hereof are merged into this Agreement. Each party to this
Agreement acknowledges that no representations, inducements, promises, or
agreements, orally or otherwise, have been made by any party or by anyone acting
on behalf of any party, which are not embodied in this Agreement and that any
agreement, statement or promise that is not contained in this Agreement shall
not be valid or binding or of any force or effect.
19. Parties Bound. The terms, provisions, representations, warranties,
-------------
covenants, and agreements that are contained in this Agreement shall apply to,
be binding upon, and inure to the benefit of the parties and their respective
heirs, executors, administrators, legal representatives, and permitted
successors and assigns.
20. Modification. No change or modification of this Agreement shall be
------------
valid or binding upon the parties unless the change or modification is in
writing and signed by the parties. Notwithstanding the preceding sentence, the
Company may amend the 1993 Plan to the extent permitted in the 1993 Plan.
21. Headings. The headings that are used in this Agreement are used for
--------
reference and convenience purposes only and do not constitute substantive
matters to be considered in construing the terms and provisions of this
Agreement.
22. Gender and Number. Words of any gender used in this Agreement shall
-----------------
be held and construed to include any other gender, and words in the singular
number shall be held to include the plural, and vice versa, unless the context
requires otherwise.
23. Notice. Any notice required or permitted to be delivered hereunder
------
shall be deemed to be delivered only when actually received by the Company or by
the Participant, as the case may be, at the addresses set forth below, or at
such other addresses as they have theretofore specified by written notice
delivered in accordance herewith:
5
<PAGE>
(A) Notice to the Company shall be addressed and delivered as
follows:
CELLSTAR CORPORATION
1730 BRIERCROFT COURT
CARROLLTON, TEXAS 75006
ATTENTION: GENERAL COUNSEL
(B) Notice to the Optionee shall be addressed and delivered as
follows:
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer, and the Optionee, to evidence his consent and
approval of all the terms hereof, has duly executed this Agreement, as of the
______ day of _________, 1996.
CELLSTAR CORPORATION
By: _________________________________
Title: ______________________________
OPTIONEE:
_____________________________________
Richard M. Gozia
7
<PAGE>
EXHIBIT 10.2
JOINT VENTURE AGREEMENT
This Agreement is made and entered into as of the 1st day of April, 1996,
between CELLSTAR INTERNATIONAL CORPORATION\SA, a company organized and existing
under the laws of the State of Delaware (hereinafter "CellStar"), Simon Rex
Earle, an individual ("Earle") and Martin Robert deRooy, an individual
("deRooy") (Earle and deRooy being hereinafter sometimes collectively referred
to as the "Individual Shareholders" or singularly as the "Individual
Shareholder") (CellStar and the Individual Shareholders being hereinafter
sometimes collectively referred to as the "Shareholders" or singularly the
"Shareholder"), and CELLSTAR UK LIMITED, a company incorporated under the laws
of England (hereinafter the "Company").
Whereas, CellStar owns 100% of the B Ordinary Shares of the Company, the
primary purpose of which is to engage in the wholesale distribution throughout
the United Kingdom (the "Territory") of cellular telephones, pagers, personal
communications services (PCS), mobile radio and other wireless communications
equipment and related accessory products (hereinafter the "Products"); and
Whereas, CellStar is currently negotiating to conclude a distribution
agreement on behalf of the Company with Motorola, Inc. for the distribution of
Motorola cellular telephones and accessories in the Territory; and
Whereas, each of the Individual Shareholders wish to subscribe for 100 A
Ordinary Shares of the Company; and
Whereas, the Individual Shareholders shall supply to the Company management
services, knowledge of local business environment and marketing services; and
Whereas, CellStar shall supply the Company with Products for distribution
throughout the Territory, with Product knowledge, with marketing know-how, and
other technical services.
Now, Therefore, the parties agree as follows:
1. SHARE CAPITAL
1.1 Forthwith on the execution of this Agreement, each of the Individual
Shareholders shall subscribe for one hundred (100) A Ordinary Shares (Pounds)1
each in the Company. These shares will be issued fully paid in cash.
1.2 Although immediately following the issuance of the shares as contemplated
in paragraph 1.1 above, the share capital of the Company shall be held 80% by
CellStar and 10% by each of the Individual Shareholders, CellStar recognizes the
desire of the Individual Shareholders to increase their aggregate share
ownership to up to 49% of the total outstanding
1
<PAGE>
ordinary shares of the Company. In recognition of this, CellStar agrees, during
the term of this Agreement, as follows:
(a) The Individual Shareholders shall have the option, but not the
obligation, to purchase from time to time from CellStar for cash up to an
aggregate total of 299 B Ordinary Shares of the Company (149.5 B Ordinary
Shares each) held by CellStar (the "Option Shares") pro rata in the
proportion that the number of shares owned by the Individual Shareholder
on the date of notice bears to the aggregate number of shares owned by
all of the Individual Shareholders.
(b) An Individual Shareholder who desires to exercise his option shall give
written notice signed by such Individual Shareholder to CellStar and to
the other Individual Shareholder at least thirty (30) days prior to the
end of any fiscal year. Each such notice shall state the number of Option
Shares which the Individual Shareholder giving the notice elects to
purchase. The Individual Shareholder receiving such notice shall, within
ten (10) days following receipt of such notice elect to purchase all or a
portion of his pro rata portion of the Option Shares by giving written
notice to the other Individual Shareholder and CellStar. If any
Individual Shareholder fails to exercise his right to purchase his full
pro rata portion of the Option Shares, the other Individual Shareholder
shall have the option of purchasing all or a portion of the Option Shares
remaining unpurchased.
(c) The purchase price per share for the Option Shares for each Individual
Shareholder shall be determined as follows: (i) the total aggregate
number of shares held by the purchasing Individual Shareholder
immediately following the Closing; divided by (ii) the total number of
shares outstanding immediately following the Closing; multiplied by
(iii) the total Net Worth of the Company on the Closing date; and
divided by (iv) the number of Option Shares purchased by the purchasing
Individual Shareholder. Payment for the Option Shares shall be made in
cash and in full at the closing. The closing of the purchase shall occur
within thirty (30) days following the end of such fiscal year.
(d) It is specifically understood and agreed by the parties hereto that, upon
the purchase by any Individual Shareholder of any of the Option Shares
pursuant to this Section, the A Ordinary Shares held by all Individual
Shareholders will automatically lose their right to dividends under
Section 4.5 of this Agreement, and shall thereupon rank pari passu in all
respects with the B Ordinary Shares in the Company.
(e) "Net Worth" shall mean the net worth of the Company as determined by the
independent accountants, regularly retained by the Company to audit its
annual accounts, in accordance with generally accepted accounting
principles in England applied by the Company on the date as of which the
Net Worth is to be determined plus any and all dividends paid to
Shareholders from the date of this
2
<PAGE>
Agreement through the closing date. Such determination, in the absence of
bad faith, corruption or gross negligence, shall be binding and
conclusive on each party hereto.
1.3 During the term of this Agreement, the Company shall not issue or sell
shares of its stock unless such issuance is approved in advance by the unanimous
consent of the Shareholders.
2. AGREEMENT TO PREVAIL
2.1 The parties hereby agree that in the event of any inconsistency or
conflict between the provisions of this Agreement and the Articles of
Association, the provisions of this Agreement will prevail.
3. BOARD OF DIRECTORS
3.1 The Board of Directors shall consist of six (6) persons: four (4) of whom
shall be nominated by CellStar and one (1) of whom shall be nominated by each
Individual Shareholder. Each Shareholder hereby agrees to cause the election of
the directors nominated by the other Shareholder. In case the office of a
director is vacated by death, resignation, removal, or otherwise, each
Shareholder shall cause, and hereby agrees to the election of a director
nominated by the Shareholder who nominated the predecessor director.
3.2 Meetings of the Board of Directors may be called by each director.
Notice of a meeting of the Board of Directors shall be given to each director at
least twenty (20) days prior to the date set for such meetings; provided that,
in case of urgency, the above period may be shortened with the written consent
of all of the directors. Notice to directors in England shall be given by
registered mail or telecopy, and notice to directors outside England shall be
sent by telecopy with confirmation by registered mail. No notice shall be
required for the convocation of a meeting of the Board of Directors where all
the directors are present, and where all the directors in writing waive the
notice provided for above.
3.3 The Board of Directors shall elect a Chairman who shall be one of the
CellStar nominated directors. At any meeting of the Board of Directors, the
Chairman shall have the deciding vote in the event of a tie.
3.4 The Company shall be managed by its directors in accordance with its
Articles of Association.
3.5 If an Individual Shareholder who is a director of the Company disposes of
his shares for any reason and he does not resign as a director at the closing of
the disposition of such shares, whether such disposition is to the Company, to
another Shareholder or to an outside party, such Individual Shareholder hereby
agrees that such disposition shall constitute such a resignation by him.
3
<PAGE>
4. PROVISION OF RESOURCES
4.1 CellStar shall supply to the Company know-how and assistance including
marketing and promotional expertise and shall license to the Company its
trademarks as appropriate, all in accordance with the terms of the License
Agreement (a copy of which is attached hereto as Schedule 1). This Agreement
shall not come into effect between the parties until the License Agreement has
been executed by the parties thereto.
4.2 The Company hereby acknowledges that CellStar, as a licensee with the
right to sublicense, has heretofore authorized it to incorporate using the name
"CellStar" in its corporate name. The Company hereby acknowledges and agrees
that all right, title and interest in and to the name "CellStar" belongs to
CellStar and its licensor, CellStar Ltd. The Company hereby agrees that
CellStar and/or its licensor may withdraw its consent to allow Company to use
"CellStar" in its corporate name at any time with or without cause by written
notice to the Company. The Company further agrees that, in the event of such
withdrawal of consent, the Company and the Shareholders shall immediately take
all steps necessary to change the name of the Company to cease using "CellStar"
or any name resembling or confusingly similar to "CellStar" in such name.
4.4 The Company shall develop and present to the Board of Directors for
majority board approval a budget for each fiscal year of the Company. The
fiscal year for the Company shall end November 30. The first such budget for
the 1996 fiscal year shall be presented to the Board of Directors within thirty
(30) days following the date hereof. Each subsequent budget shall be presented
to the Board of Directors not less than sixty (60) days prior to the start of
each fiscal year.
4.5 The parties agree that it shall be the policy of the Company to pay
lawful dividends to the holders of preferred shares on an annual basis as
follows:
(a) The Company shall pay dividends with respect to A Ordinary Shares to each
Individual Shareholder in an amount equal to the percentage of Net
Profits (as hereinafter defined) which corresponds to such Individual
Shareholder's percentage ownership of the total outstanding shares of the
Company on the date of determination. Such bonus shall be paid within
thirty (30) days following the completion of the Company's fiscal year
end audit.
(b) For purposes hereof, "Net Profits" shall mean the net income of the
Company for such fiscal year (after provision for taxes and all other
expenses) determined in accordance with generally accepted accounting
principles consistently applied. The determination of Net Profits for any
fiscal year by the Company's auditors shall be conclusive.
(c) If the Company does not have sufficient profits available for
distribution (within the meaning of the Company's Act 1985) to enable it
to pay in respect of any
4
<PAGE>
financial year the amount of dividends provided for in Section 4.5(a)
above, then the Company shall pay such amount as it is lawfully able to
distribute, and any deficit in the amount of Net Profits not distributed
to an Individual Shareholder as a result shall not be accumulated and
carried forward into the next financial year.
4.6 For so long as CellStar owns at least 80% of the total outstanding
shares of the Company, CellStar shall provide financing to support the business
of the Company in accordance with the requirements of the Company's annual
budget, as approved by the Board of Directors. In consideration for the
provision of such financial assistance, the Company shall pay interest to
CellStar on all such funds advanced in an amount equal to CellStar's cost of
funds. The Board of Directors may, from time to time during the course of the
fiscal year, revise the annual budget as they see fit to reflect business
conditions, prospects or other general economic conditions. CellStar may, at
its sole option, cease to provide financing for the Company in the event that,
as of the end of any fiscal quarter, the Company shall not have been profitable
on a cumulative basis.
4.7 In the event any Individual Shareholder exercises his option to purchase
any or all of the Option Shares pursuant to Section 1.2 hereof, CellStar's
financing obligations set forth in Section 4.6 above shall cease and any
additional financing shall be supplied by the Shareholders in amounts equal to
each Shareholder's percentage ownership and on equal terms. It is the present
intention of the parties that interest rates for loaned or guaranteed capital
shall be 2% over the cost of funds for each contributing Shareholder. Capital
provided by way of guaranteed bank loans shall be equivalent to directly loaned
capital.
5. PROTECTION OF TRADE SECRETS
5.1 None of the parties shall use in any way trade secrets, know-how and
knowledge of the other parties received by such party hereunder or pursuant to
the License Agreement other than information which has become freely available
to the public other than through the unauthorized disclosure by such party, the
Company or any of their employees, servants or agents. This protection extends
throughout the term of this Agreement and any time thereafter.
6. APPOINTMENT OF DISTRIBUTOR
6.1 CellStar hereby appoints the Company as its distributor for the sale of
Products within the Territory. CellStar shall not appoint any other person,
firm or company in the Territory as a distributor or agent for the Products in
the Territory. It is specifically understood, however, that sales by CellStar
or its affiliates to customers located outside the Territory but who resell
within the Territory, shall not be deemed to violate this Section 6.1.
6.2 Nothing in this Agreement shall entitle the Company to any priority of
supply in relation to the Products as against CellStar's other distributors or
customers, or any right or
5
<PAGE>
remedy against CellStar if any of the Products are sold in the Territory by any
person, firm or company outside the Territory.
6.3 In consideration hereof, the Company shall not, during the term of this
Agreement:
(a) obtain Products for resale from any person, firm or company other than
CellStar without CellStar's prior written consent;
(b) be concerned or interested in the sale or distribution in the Territory
of any products which compete directly with the Products without
CellStar's prior consent;
(c) seek customers, establish any branch or maintain any distribution depot
for the Products in any country which is outside the Territory; or
(d) sell Products to any customer which is (i) in any country outside the
European Economic Community, or (ii) within the Territory if to the
knowledge of the Company that customer intends to sell the Products in
any country which is outside the European Economic Community.
6.4 It is specifically understood and agreed that in the event the Company
fails to enter into a definitive distribution agreement with Motorola, Inc.,
this Agreement shall, at the option of CellStar, terminate and, in such event,
the Individual Shareholders shall immediately deliver to CellStar the share
certificates relating to their shares in the Company together with stock
transfer forms duly executed by them in blank, for no consideration.
7. CONFIDENTIALITY AND NON-COMPETITION
7.1 Each Individual Shareholder shall use his best efforts to keep secret and
confidential all know-how, trade secrets, inventions, improvements and knowledge
imparted to the Company by CellStar pursuant to the License Agreement or
received by it hereunder. The parties shall not communicate any such
information to any third person without the prior written consent of CellStar.
7.2 It is the intent of the parties hereto that the Company shall conduct all
business relating to wireless communications within the Territory. The
Individual Shareholders therefore further agree that, so long as this Agreement
is in effect, they shall not, directly or indirectly, engage in the sale of
Products and/or wireless communications service within the Territory (including
but not limited to activation or resale of cellular or paging services).
6
<PAGE>
8. ACCOUNTS AND AUDITORS
8.1 The firm of KPMG Peat Marwick shall be appointed as the auditors of the
Company. Any proposed change of such appointment shall be submitted to the Board
of Directors for approval.
8.2 Each party shall have the right to inspect the books of account and other
records of the Company and to make copies or take extracts upon reasonable
notice having been given to the Company, but all such extracts and copies shall
be confidential and the parties agree not to disclose them to any third party
save as may be necessary for compliance with any statutory or other legal
requirements.
8.3 As of the end of each fiscal year, the financial records of the Company
shall be audited by the auditors of the Company.
9. TERMINATION
9.1 Any Shareholder may terminate this Agreement forthwith upon giving the
other parties written notice in the event that:
(a) A receiver is appointed over one of the Shareholders or over all or
substantially all of the property of that Shareholder, if such receiver
is not discharged within 30 days, or upon or after the making by such
Shareholder of any assignment or attempted assignment or composition or
arrangement with or for the benefit of creditors, or upon or after the
passing of any resolution or the institution of any proceeding for the
winding up of the business of such Shareholder, provided that a right to
terminate shall not arise hereunder in the event of a Shareholder's being
liquidated only in connection with a scheme of corporate reorganization,
reconstruction, merger or other combination, or an Individual Shareholder
is declared bankrupt or enters into any general composition or
arrangement with or for the benefit of his creditors including a
voluntary arrangement under the Insolvency Act of 1986;
(b) a Shareholder attempts to Dispose (as such term is hereinafter defined)
of all or some of his or its shares in the Company in contravention of
the provisions of the Articles of Association or other provisions of this
Agreement; or
(c) the License Agreement is terminated by either of the parties thereto.
9.2 CellStar may terminate this Agreement with or without cause upon giving
the other parties 90 days' written notice of termination.
7
<PAGE>
9.3 Termination of this Agreement shall not relieve any party of any of its
obligations stated herein or rescind nor shall it give rise to any right to
rescind anything done or any payment made or other consideration given to any
party hereunder prior to such termination.
9.4 Failure or delay on the part of any party to exercise its rights of
termination hereunder shall not be construed to prejudice its right of
termination for any subsequent default.
10. RESTRICTIONS OF TRANSFER OF SHARES
10.1 Except as otherwise provided in Section 10.2 hereof, no Shareholder may
shall make or suffer any Disposition of all or any portion of his or its shares
in the Company. For purposes hereof, "Disposition" shall mean any sale,
transfer, encumbrance, gift, donation, assignment, pledge, hypothecation, or
other disposition of any shares of the Company or any interest therein, whether
voluntary or involuntary, and whether during a Shareholder's lifetime or upon or
after his death, including, but not limited to, any Disposition by operation of
law, by merger or dissolution of a Shareholder, pursuant to the termination of
marital relationship, by court order, by judicial process, or by foreclosure,
levy, or attachment, or by transfer to the estate of an Individual Shareholder
or to the beneficiary of an Individual Shareholder, in either case upon the
death of an Individual Shareholder. When used as a verb such term shall have a
correlative meaning.
10.2 Should CellStar wish to terminate this Agreement pursuant to Section 9
hereof for any reason, CellStar shall have the right, but not the obligation, to
require the Individual Shareholders to sell all of its shares in the Company at
a price equal to the retained earnings of the Company multiplied by the
percentage of the total outstanding shares of the Company held by the Individual
Shareholders on the closing date. CellStar shall provide written notice to the
Individual Shareholders stating that, within 30 days after the mailing of the
notice, CellStar shall have the right to purchase all of the shares of the
Company owned by the Individual Shareholders with the purchase price payable in
cash within 30 days after mailing of the notice. The closing of the transaction
shall be at a reasonable place and time set by CellStar. At the closing, the
shares of the Individual Shareholders shall be delivered to CellStar duly
endorsed in exchange for cash or other good funds in payment of the price.
11. NON-ASSIGNABILITY
11.1 The parties hereto may not assign their rights or obligations hereunder
without the prior written consent of the other parties.
11.2 Without prejudice to the generality of the foregoing, no party may
assign, transfer, encumber or in any manner whatsoever dispose of all or some of
its shares in the Company except by transfer in accordance with the Articles of
Association and in accordance with the terms hereof.
8
<PAGE>
12. NOTICES
12.1 All notices hereunder to be given in writing shall be deemed to have been
served on the date accepted for delivery by registered or certified mail or
telefax receipt acknowledged at the address indicated as the principal or
registered office of the party as herein recorded or as amended by written
notice from time to time.
If to CellStar: CellStar International Corporation\S.A.
1730 Briercroft Court
Carrollton, Texas 75006
United States of America
Attn: President
If to Earle: Simon Rex Earle
251 Clifton Drive South
Lytham St. Annes
Lancashire
FY8 1HW
If to deRooy: Martin Robert deRooy
30 Cassandra Ct.
Regent Pk.
Asgard Dr.
Salford 5 M54TQ
If to the Company: CellStar UK Limited
Bushbury House
435 Wilmslow Road
Withington
Manchester M20 9AF
with copy to: CellStar Corporation
1730 Briercroft Court
Carrollton, Texas 75006
United States of America
Attn: General Counsel
13. GOVERNING LAW AND ARBITRATION
13.1 This Agreement shall be governed by and construed in accordance with the
laws of England.
13.2 Any dispute arising out of this Agreement or under the terms hereof shall
be settled in accordance with the Rules of Conciliation and Arbitration of the
International Chamber
9
<PAGE>
of Commerce. Arbitration shall be held in London, England, and the arbitrators
award may be entered in any court having jurisdiction over any one or more of
the parties.
14. GENERAL
14.1 This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and legal representative.
15. EXECUTION IN COUNTERPARTS
15.1 This Agreement may be executed in multiple counterparts, each of which
shall be deemed enforceable and valid, without production of the others.
In Witness Whereof, the parties have hereunto set their hands and seals on the
day and year first above written.
CELLSTAR INTERNATIONAL
CORPORATION\S.A.
By: /s/ ALAN H. GOLDFIELD
___________________________________
Name: Alan H. Goldfield
_________________________________
Title: President
________________________________
EARLE
/s/ S. R. EARLE
_______________________________________
SIMON REX EARLE
DEROOY
/s/ M. R. DEROOY
_______________________________________
MARTIN ROBERT DEROOY
10
<PAGE>
CELLSTAR UK LIMITED
By: /s/ M. R. DEROOY
___________________________________
Name: M. R. DeRooy
_________________________________
Title: Director
________________________________
11
<PAGE>
Exhibit 10.3
RECORDATION REQUESTED BY:
First Interstate Bank of Texas, N.A.
Houston Loan Operations Center
P.O. Box 3326, MS #595
Houston, Texas 77253-3326
WHEN RECORDED MAIL TO:
Leslie V. Lochhead
Jenkens & Gilchrist
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
SEND TAX NOTICES TO:
CellStar, Ltd.
1730 Briercroft Drive
Carrollton, Texas 75006 SPACE ABOVE THIS LINE IS FOR RECORDER'S USE ONLY
- -------------------------------------------------------------------------------
SECOND MODIFICATION OF DEED OF TRUST
THIS SECOND MODIFICATION OF DEED OF TRUST (the "Modification"), dated as of
------------
April 15, 1996 is by and between CELLSTAR, LTD. ("Grantor") and FIRST INTERSTATE
-------
BANK OF TEXAS, N.A. ("Beneficiary").
-----------
RECITALS
--------
Grantor has executed that certain Deed of Trust dated April 28, 1995 which
names First Interstate Bank of Texas, N.A. as Beneficiary, P. Michael Wells, Jr.
as Trustee (the "Trustee"), encumbers the property described on Exhibit A hereto
-------
and was filed on May 9, 1995 in the Deed of Trust Records of Dallas County,
Texas in Volume 95090 and Page 01805 (as modified by that certain First
Modification of Deed of Trust dated August 31, 1995 and filed on September
1,1995 in the Deed of Trust Records of Dallas County, Texas in Volume 95171 and
Page 00243 and as the same may be further modified, the "Deed of Trust"),
-------------
Grantor and Beneficiary now desire to modify the Deed of Trust as herein set
forth.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
DEFINED TERMS. Capitalized terms used in this Modification, to the extent not
otherwise defined herein, shall have the same meanings as set forth in the Deed
of Trust as modified hereby.
AMENDMENTS. Effective as of the date hereof, the Deed of Trust is hereby
amended in the following respects:
AMENDMENT TO THE DEFINITION OF NOTE. The term "Note" in the Deed of Trust
is hereby amended in its entirety to read as follows:
Note. The word "Note" means the promissory note dated April 15, 1996, in
the principal amount of $4,277,500 from Grantor to Beneficiary, together
with all renewals, extensions, modifications, refinanings and
substitutions for such promissory note, which promissory note was
executed to modify in its entirety, but not extinguish the indebtedness
evidenced by, that certain promissory note dated August 31, 1995 in the
principal amount of $4,425,000 from Grantor to the Beneficiary (the
"Previous Note"). The Note evidences the indebtedness previously
evidenced by the Previous Note and originally evidenced by that certain
Promissory Note dated April 28,1995 in the principal amount of
$3,000,000 from Grantor to the Beneficiary. The maturity date of the
Note is September 1, 2005.
CONTINUATION OF LIENS. This Modification is being executed and delivered for
purposes of ratifying, confirming, amending and/or otherwise modifying the Deed
of Trust and all assignments, pledges, security interests and liens created or
intended to be created thereunder (herein collectively referred to as the
"Existing Liens"); however, neither this Modification, nor any other agreement,
- ---------------
instrument or other documentation executed and/or delivered in connection
herewith or therewith shall constitute a novation of all or any portion of the
obligations and indebtedness secured by the Deed of Trust immediately prior to
the effectiveness of this Modification (the "Existing Obligations") or the
--------------------
Existing Liens, and none of the same shall be deemed to have been accepted in
extinguishment or satisfaction thereof. As a result, the Existing Obligations
shall not be deemed to have been satisfied and shall continue in favor of
Beneficiary. All Existing Obligations and Existing Liens shall continue in full
force and effect and the Existing Liens shall continue as security for the Note
to the same extent that the same secures the Existing Obligations, without
change to the priority thereof. Notwithstanding the foregoing, in the event
that all or any portion of the Note or the other indebtedness or
<PAGE>
04-15-1996 SECOND MODIFICATION Page 2
OF
DEED OF TRUST
(Continued)
================================================================================
obligations to be secured by the Deed of Trust are not or cannot be secured by
the Deed of Trust (as modified hereby), it is understood and agreed that in
consideration for Beneficiary's agreement to enter into the Note (as defined in
the Deed of Trust as modified hereby and such Note herein the "New Note") and to
--------
make the financial accommodations thereunder, and for Ten and No/100 Dollars
($10.00), Grantor does hereby GRANT, BARGAIN, SELL, CONVEY, TRANSFER, ASSIGN,
MORTGAGE and SET OVER unto the Trustee, its successors, assigns or substitutes,
for the benefit of the Beneficiary, the Real Property to have and to hold
together with all rights, hereditaments and appurtenances in any wise
appertaining or belonging thereto, forever. This conveyance is given to secure
the payment of the Indebtedness and performance of any and all obligations of
Grantor under the New Note, the Related Documents, this Modification and the
Deed of Trust and all renewals, extensions, increases or modifications thereof,
or any part thereof. All of the provisions contained in the Deed of Trust, as
modified by this Modification, are incorporated into the terms and provisions of
this section.
RATIFICATIONS. The terms and provisions set forth in this Modification shall
modify and supersede all inconsistent terms and provisions set forth in the Deed
of Trust. Grantor hereby ratifies and confirms all of the terms and provisions
of the Deed of Trust as amended hereby and of the Related Documents. Grantor
and Beneficiary agree that the Deed of Trust, as amended hereby, and the other
Related Documents shall continue to be legal, valid, binding and enforceable in
accordance with their respective terms. In furtherance and not in limitation of
the foregoing, Grantor hereby ratifies and confirms the terms and provisions of
that certain Indemnity Agreement dated April 28, 1995 executed by Grantor,
CellStar Corporation and National Auto Center, Inc. for the benefit of
Beneficiary (as the same may be modified, herein the "Indemnity Agreement") and
-------------------
agrees and acknowledges that: (1) The term "Loan" as used in the Indemnity
Agreement shall mean the loan evidenced by the New Note; (2) The term "Note" as
used in the Indemnity Agreement shall mean the New Note and all amendments or
other modifications thereto; and (3) The term "Mortgage" as used in the
Indemnity Agreement means and includes the Deed of Trust as modified by this
Modification. As used in the Deed of Trust, the term "Related Documents"
includes without limitation the Waiver Letter dated April 15, 1996 among
Grantor, Beneficiary, CellStar Corporation and National Auto Center, Inc. (the
"Waiver Letter")
- --------------
REPRESENTATIONS AND WARRANTIES; WAIVER. Grantor (and by their execution below
CellStar Corporation and National Auto Center, Inc. ) each hereby represent and
warrant to Beneficiary that (1) the execution, delivery and performance of this
Modification, the New Note and any and all other Related Documents executed
and/or delivered in connection herewith have been authorized by all requisite
action on their part and, with respect to Grantor, its general partner and will
not violate the partnership agreement of Grantor nor its Articles of
Incorporation or by laws, (2) the representations and warranties contained in
the Deed of Trust, as amended hereby, the Indemnity Agreement and all other
Related Documents are true and correct on and as of the date hereof as though
made on and as of the date hereof, (3) after giving effect to the Waiver Letter,
no Event of Default has occurred and is continuing and no event or condition has
occurred that with the giving of notice or lapse of time or both would be an
Event of Default and (4) there are no claims or offsets against, or defenses or
counterclaims to, the terms and provisions of and the other obligations created
or evidenced by the Note or the other Related Documents. GRANTOR (AND BY THEIR
EXECUTION BELOW CELLSTAR CORPORATION AND NATIONAL AUTO CENTER, INC.) EACH HEREBY
RELEASE, ACQUIT AND FOREVER DISCHARGE BENEFICIARY AND ITS SUCCESSORS, ASSIGNS
AND PREDECESSORS IN INTEREST AND THE OFFICERS, EMPLOYEES, ATTORNEYS AND AGENTS
OF EACH OF THE FOREGOING (ALL OF WHOM ARE HERE AND JOINTLY SEVERALLY REFERRED TO
AS "RELEASED PARTIES") FROM ANY AND ALL LIABILITIES, DAMAGES, LOSSES,
----------------
OBLIGATIONS, COSTS, EXPENSES, SUIT, CLAIMS, DEMANDS, CAUSES OF ACTIONS OR
DAMAGES OR ANY OTHER RELIEF, WHETHER OR NOT KNOW OR SUSPECTED OF ANY KIND,
NATURE OR CHARACTER, AT LAW OR EQUITY, WHICH ANY OF THEM MAY NOW HAVE OR EVER
HAVE HAD AGAINST ANY OF THE RELEASED PARTIES ARISING PRIOR TO THE DATE HEREOF IN
CONNECTION WITH THE DEED OF TRUST, THE DOCUMENTS EXECUTED AND DELIVERED IN
CONNECTION THEREWITH OR OTHERWISE IN CONNECTION WITH THE EXISTING OBLIGATIONS.
REFERENCE TO DEED OF TRUST. Each of the Related Documents, including the Deed
of Trust and any and all other agreements, instruments or documentation now or
hereafter executed and delivered pursuant to the terms hereof or pursuant to the
terms of the Deed of Trust as amended hereby, are hereby amended so that any
reference in such Related Documents to the Deed of Trust shall mean a reference
to the Deed of Trust as amended hereby.
SEVERABILITY. Any provision of this Modification held by a court of competent
jurisdiction to be invalid or unenforceable shall not impair or invalidate the
remainder of this Modification and the effect thereof shall be confined to the
provision so held to be invalid or unenforceable.
APPLICABLE LAW. This Modification shall be governed by and construed in
accordance with the laws of the State of Texas.
COUNTERPARTS. This Modification may be executed in one or more counterparts,
each of which when so executed shall be deemed to be an original, but all of
which when taken together shall constitute one and the same agreement.
HEADINGS. The headings, captions, and arrangements used in this Modification
are for convenience only and shall not affect the interpretation of this
Modification.
<PAGE>
04-15-1996 SECOND MODIFICATION Page 3
OF
DEED OF TRUST
(Continued)
================================================================================
ENTIRE AGREEMENT. THIS MODIFICATION EMBODIES THE FINAL, ENTIRE AGREEMENT AMONG
THE PARTIES HERETO RELATING TO THE SUBJECT MATTER OF THIS MODIFICATION AND
SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS MODIFICATION, AND MAY
NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
ORAL AGREEMENTS AMONG THE PARTIES HERETO.
AGREEMENT FOR BINDING ARBITRATION. THE PARTIES (INCLUDING CELLSTAR CORPORATION
AND NATIONAL AUTO CENTER, INC. ) AGREE TO BE BOUND BY THE TERMS AND PROVISIONS
OF THE CURRENT ARBITRATION PROGRAM OF BENEFICIARY WHICH IS INCORPORATED BY
REFERENCE HEREIN AND ACKNOWLEDGED AS RECEIVED BY THE PARTIES PURSUANT TO WHICH
ANY AND ALL DISPUTES RELATING TO THIS MODIFICATION OR ANY RELATED DOCUMENT SHALL
BE RESOLVED BY MANDATORY BINDING ARBITRATION UPON THE REQUEST OF ANY PARTY. AS
A RESULT OF THE FOREGOING, THE ARBITRATION PROVISIONS SET FORTH IN THE DEED OF
TRUST ARE HEREBY DELETED THEREFROM.
EXPENSES OF LENDER. Grantor hereby agrees to pay Beneficiary on demand: (i) all
reasonable costs and expenses incurred by Beneficiary in connection with the
preparation, negotiation, and execution of this Modification, the New Note, the
Waiver Letter and the other Related Documents and any and all amendments,
modifications, renewals, extensions, and supplements thereof and thereto,
including, without limitation, the reasonable fees and expenses of Beneficiary's
legal counsel, (ii) all reasonable costs and expenses incurred by Beneficiary in
connection with the enforcement of any Related Document including, without
limitation, the reasonable fees and expenses of Beneficiary's legal counsel, and
(iii) all other reasonable costs and expenses incurred by Beneficiary in
connection with any Related Document including, without limitation, all
reasonable costs, expenses, taxes, assessments, filing fees, and other charges
levied by an governmental authority or otherwise payable in respect of any
Related Document in connection with or in obtaining any mortgagee title
insurance policy, survey, audit, or appraisal in respect of the Real Property
provided that the Grantor shall not be obligated to pay for the cost of any
appraisal obtained prior to the date of this Modification.
IN WITNESS WHEREOF, this Modification is executed by the undersigned as of
the date first written above.
GRANTOR:
-------
CELLSTAR, LTD.
BY: National Auto Center, Inc.,
its general partner
By: /s/ Alan H. Goldfield
-----------------------------------------
Alan H. Goldfield
Chief Executive Officer
BENEFICIARY:
-----------
FIRST INTERSTATE BANK OF TEXAS, N.A.
By: /s/ Craig T. Scheef
-----------------------------------------
Craig T. Scheef
Vice President
<PAGE>
04-15-1996 SECOND MODIFICATION Page 4
OF
DEED OF TRUST
(Continued)
================================================================================
Guarantor Acknowledgment
CellStar Corporation and National Auto Center, Inc. (together herein called
the "Guarantors") consent and agree to the terms and provisions set forth in
this Modification and to the execution and delivery of the New Note. In
furtherance of the foregoing, each Grantor specifically agrees to be bound by
the "Representation and Warranty; Waiver" paragraph of this Modification. Each
Guarantor hereby ratifies and confirms all of the terms and provisions of the
Guaranty that it executed dated April 28,1995 in favor of Beneficiary and agrees
that such Guaranty along with all other Related Documents to which is it a party
(including the Indemnity Agreement) shall continue to be legal, valid, binding
and enforceable in accordance with their respective terms. In furtherance and
not in limitation of the foregoing, each Guarantor hereby confirms the
following: (1) the term "Note" as used in its Guaranty means and includes the
New Note and all amendments and other modifications thereto; (2) the term "Deed
of Trust" as used in each Guaranty means the Deed of Trust as modified by this
Modification; (3) the term "Loan" as used in the Indemnity Agreement means the
loan evidenced by the New Note; (4) the term "Note" as used in the Indemnity
Agreement means the New Note and all amendments and other modifications thereto;
and (5) the term "Mortgage" as used in the Indemnity Agreement means the Deed of
Trust as modified by this Modification.
CELLSTAR CORPORATION
By: /s/ Alan H. Goldfield
-----------------------------------------------
Alan H. Goldfield
Chief Executive Officer
NATIONAL AUTO CENTER, INC.
By: /s/ Alan H. Goldfield
-----------------------------------------------
Alan H. Goldfield
Chief Executive Officer
ACKNOWLEDGMENTS
---------------
THE STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was acknowledged before me on this 18th day of April 1996
----
by Alan H. Goldfield, Chief Executive Officer of CellStar Corporation, a
Delaware corporation on behalf of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 18th day of April 1996.
----
/s/ Elaine Flud Rodriguez
--------------------------------------------------
Notary Public, State of Texas
My Commission Expires: Printed Name of Notary:
- --------------------------- --------------------------------------------------
<PAGE>
04-15-1996 SECOND MODIFICATION Page 5
OF
DEED OF TRUST
(Continued)
================================================================================
THE STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was acknowledged before me on this 18th day of April 1996
----
by Alan H. Goldfield, Chief Executive Officer of National Auto. Center Inc. a
Texas corporation on behalf of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 18th day of April 1996.
----
/s/ Elaine Flud Rodriguez
--------------------------------------------------
Notary Public, State of Texas
My Commission Expires: Printed Name of Notary:
August 4, 1997
- --------------------------- --------------------------------------------------
THE STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was acknowledged before me on this 22nd day of April 1996
----
by Craig T. Scheef, Vice President of First Interstate Bank of Texas, N.A. , a
national banking association, on behalf of said banking association.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 22nd day of April 1996.
----
/s/ Debbie Rackley
--------------------------------------------------
Notary Public, State of Texas
My Commission Expires: Printed Name of Notary:
06-15-97 DEBBIE RACKLEY
- --------------------------- --------------------------------------------------
THE STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was acknowledged before me on this 18th day of April 1996
----
by Alan H. Goldfield, Chief Executive Officer of National Auto Center, Inc. a
Texas corporation and general partnership of CellStar Ltd., a Texas limited
partnership on behalf of said corporation and partnership.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 18th day of April 1996.
----
/s/ Elaine Flud Rodriguez
--------------------------------------------------
Notary Public, State of Texas
My Commission Expires: Printed Name of Notary:
August 4, 1997
- --------------------------- --------------------------------------------------
<PAGE>
Exhibit "A"
to
Second Modification of Deed of Trust
Real Property
-------------
TRACT I:
- -------
Being Lot 1, Block 1 of CellStar ADDITION, an Addition to the City of
CARROLLTON, DALLAS County, Texas, according to the Plat thereof recorded in
Volume 94174, Page 1589, Map Records, Dallas County, Texas, described as
follows:
BEING a tract or parcel of land situated in the James Armstrong Survey, Abstract
No. 30, and in the William Masters Survey, Abstract No. 899, in the City of
Carrollton, Dallas County, Texas, and being all of LOT 3 of the "REPLAT
BRIERCROFT BUSINESS PARK," an addition to the City of Carrollton recorded in
Volume 85040 Page 4832 in the Dallas County Map Records, and also including part
of LOT 5 of BLOCK 3 of "REPLAT OF BLOCK 2 & LOT 2, BLOCK 3, LUNA PARK PLACE," an
addition to the City of Carrollton recorded in Volume 92100, Page 1968 in the
Dallas County Map Records, and being more particularly described as follows:
BEGINNING at a found 1/2 inch iron rod on the north line of Briercroft Court
(60 foot right-of-way) at the southeast corner of said LOT 3 and the southwest
corner of LOT 2 of "REPLAT BRIERCROFT BUSINESS PARK," said iron rod being South
89 degrees 58' 49" West 798.70 feet from the intersection of the north line of
Briercroft Court and the west line of Luna Road (70 foot right-of-way) as shown
on said "REPLAT BRIERCROFT BUSINESS PARK";
THENCE South 89 degrees 58' 49" West 164.23 feet along the north line of
Briercroft Court to a set 1/2-inch iron rod;
THENCE Northwesterly an arc distance of 33.05 feet along a curve to the right
and continuing along the north line of Briercroft Court to a set 1/2-inch iron
rod, said curve having a radius of 90.00 feet, a central angle of 21 degrees 02'
22", and the long chord bears North 79 degrees 30' 00" West, 32.86 feet;
THENCE Southwesterly an arc distance of 57.17 feet along a curve to the left and
continuing along the north line of Briercroft Court to a set 1/2-inch iron rod,
said curve having a radius of 60.00 feet, a central angle of 54 degrees 35' 47",
and the long chord bears South 83 degrees 43' 18" West 55.04 feet;
THENCE South 89 degrees 58' 49" West 211.87 feet along the south side of LOT 3
of said "REPLAT BRIERCROFT BUSINESS PARK" and the north side of LOT 4A of
"REPLAT OF LOT 4 & PART OF LOT 5, BRIERCROFT BUSINESS PARK" an addition to the
City of Carrollton recorded in Volume 93014, Page 661 in the Dallas County Map
Records to a set 1/2-inch iron rod;
THENCE North 00 degrees 00' 58" West 756.95 feet along the east side of tract
land described in the Easement Deed to Farmers Branch-Carrollton Flood Control
District dated December 8, 1976 and recorded in Volume 76240 page 2709 in the
Dallas County Deed Records and continuing along the east side of the tract of
land described in the Easement Deed to Farmers Branch-Carrollton Flood Control
District dated February 28, 1977 and recorded in Volume 77170 Page 2234 in the
Dallas County Deed Records being the same as the west side of said LOT 3 of
"REPLAT BRIERCROFT BUSINESS PARK" and the west side of said LOT 5 of BLOCK 3 of
"REPLAT OF BLOCK 2 & LOT 2, BLOCK 3, LUNA PARK PLACE," to a set 1/2-inch iron
rod;
THENCE North 89 degrees 59' 02" East 250.08 feet along the common line between
LOT 5 AND LOT 4 of BLOCK 3 to a found 1/2-inch iron rod;
THENCE Southeasterly an arc distance of 220.68 feet along a curve to the left
and along the west line of West Crosby Road to a set 1/2-inch iron rod, said
curve having a radius of 160.00 feet, a central angle of 79 degrees 01' 33", and
the long chord bears South 41 degrees 22' 56" East, 203.60 feet;
THENCE South 00 degrees 00' 58" East 350.61 feet to a set 1/2-inch iron rod;
THENCE South 89 degrees 47' 20" East 78.47 feet to a set 1/2-inch iron rod;
THENCE South 00 degrees 01' 11" East 253.19 feet to the POINT OF BEGINNING and
containing 295,183 square feet or 6.7765 acres of land, more or less.
TRACT II:
- --------
Exhibit A to Second Modification - Page 1 of 3
<PAGE>
Being Lot 4A, of BRIERCROFT BUSINESS PARK, an Addition to the City of
CARROLLTON, DALLAS County Texas, according to the Plat thereof recorded in
Volume 93014, Page 0661, Map Records, DALLAS County, Texas.
TRACT I:
- -------
A tract or parcel of land situated in the James Armstrong Survey, Abstract No.
30, and in the William Masters Survey, Abstract No. 899, in the City of
Carrollton, Dallas County, Texas, and being the same as LOT 1 BLOCK 1 "CellStar
Addition" an addition to the City of Carrollton recorded in Volume 94174, Page
1590 in the Dallas County Map Records and being more particularly described as
follows:
BEGINNING at a found 1/2-inch iron rod on the North line of Briercroft Court (60
foot right-of-way) at the Southeast corner of said LOT 1 BLOCK 1 "CellStar
Addition" and the southwest corner of Lot 2 of "REPLAT BRIERCROFT BUSINESS
PARK", an addition to the City of Carrollton recorded in Volume 85040, Page 4832
in the Dallas County Map Records, said iron rod being South 89 degrees 58' 49"
West 798.70 feet from the intersection of the north line of Briercroft Court and
the west line of Luna Road (70 foot right-of-way) as shown on said "REPLAT
BRIERCROFT BUSINESS PARK";
THENCE South 89 degrees 58' 49" West 164.23 feet along the north line of
Briercroft Court to a set 1/2-inch iron rod;
THENCE Northwesterly an arc distance of 33.05 feet along a curve to the right
and continuing along the north line of Briercroft Court to a set 1/2-inch iron
rod, said curve having a radius 90.00 feet, a central angle of 21 degrees 02'
22", and the long chord bears North 79 degrees 30' 00" West 32.86 feet;
THENCE Southwesterly an arc distance of 57.17 feet along a curve to the left and
continuing along the north line of Briercroft Court to a set 1/2-inch iron rod,
said curve having a radius of 60.00 feet, a central angle of 54 degrees 35' 47",
and the long chord bears South 83 degrees 43' 18" West 55.04 feet;
THENCE South 89 degrees 58' 49" West 211.87 feet along the south side of LOT 1
BLOCK 1 "CellStar Addition" and along the north side of LOT 4A of "LOT 4A of the
REPLAT of BRIERCROFT BUSINESS PARK" an addition to the City of Carrollton,
recorded in Volume 93014, Page 661 in the Dallas County Map Records, to a set
1/2-inch iron rod;
THENCE North 00 degrees 00' 58" West 756.95 feet along the east side of a tract
of land described in the Easement Deed to Farmers Branch-Carrollton Flood
Control District dated December 8, 1976 and recorded in Volume 76240, Page 2709
in the Dallas County Deed Records and continuing along the east side of the
tract of land described in the Easement Deed to Farmers Branch-Carrollton Flood
Control District dated February 28, 1977 and recorded in Volume 77170, Page 2234
in the Dallas County Deed Records being the same as the west side of said LOT 1
BLOCK 1 "CellStar Addition", to a set 1/2-inch iron rod.
THENCE North 89 degrees 59' 02" East 250.08 feet along the north side of said
LOT 1 BLOCK 1 "CellStar Addition" and along the south side of LOT 4 BLOCK 3 of
"A Replat of Block 2 and Lot 2 Block 3, Luna Park Place" an addition to the City
of Carrollton recorded in volume 92100, Page 1968 in the Dallas County Map
Records, to a found 1/2-inch iron rod on the west line of West Crosby Road (60
foot right-of-way);
THENCE Southeasterly an arc distance of 220.68 feet along a curve to the left
and along the west line of West Crosby Road to a set 1/2-inch iron rod, said
curve having a radius of 160.00 feet, a central angle of 79 degrees 01' 33", and
the long chord bears South 41 degrees 22' 56" East 203.60 feet;
THENCE South 00 degrees 00' 58" East 350.61 feet along the east side of said LOT
1 BLOCK 1 "CellStar Addition" and along the west side of LOT 6 BLOCK 3 of
"Replat Lot 6 Block 3 Luna Park Place" an addition to the City of Carrollton
recorded in Volume 94174, Page 1537 in the Dallas County Map Records, to a set
1/2-inch iron rod;
THENCE South 89 degrees 47' 20" East 78.47 feet continuing along the east side
of said LOT 1 BLOCK 1 "CellStar Addition" and along the south side of said LOT 6
BLOCK 3 of "Replat Lot 6 Block 3 Luna Park Place" to a set 1/2-inch iron rod;
THENCE South 00 degrees 01' 11" East 253.19 feet continuing along the east side
of said LOT 1 BLOCK 1 "CellStar Addition" and along the west side of said LOT 2
of "REPLAT OF BRIERCROFT BUSINESS PARK", to the Point of Beginning and
Containing 295,183 square feet or 6.7765 acres of land, more or less.
TRACT II:
- --------
Being a tract of land situated in the James Armstrong Survey, Abstract No. 30,
in the City of Carrollton, Dallas County, Texas and being all of Lot 4A,
Briercroft Business Park Replat, an addition to the City of Carrollton, Texas as
recorded in Volume 93014, Page 661, Deed Records Dallas County, Texas
(D.R.D.C.T.) and being more particularly described as follows:
Exhibit A to Second Modification - Page 2 of 3
<PAGE>
BEGINNING at a 1/2-inch found iron rod for the northwest corner of said Lot 4A,
said corner being on the south line of Cellstar Addition, an addition to the
city of Carrollton, Texas as recorded in Volume 94174, Page 1589, (D.R.D.C.T.);
THENCE South 89 degrees 47 minutes 47 seconds East, along said common line a
distance of 210.75 feet to a 1/2-inch set iron rod with a yellow plastic cap
stamped "HALFF ASSOC. INC." (hereinafter referred to as "with cap") for a corner
lying on the West right-of-way line of Briercroft Court (60 foot right-of-way)
and being on a circular curve to the left having a radius of 60.00 feet and
whose chord bears South 17 degrees 54 minutes and 32 seconds West, a distance of
75.09 feet;
THENCE Southwesterly, departing said common line and along said west line and
said curve to the left, through a central angle of 77 degrees 29 minutes 03
seconds, an arc distance of 81.13 feet to a 1/2-inch set iron rod with cap at
the point of reverse curvature of a circular curve to the right having a radius
of 90.00 feet and whose chord bears South 10 degrees 18 minutes 59 seconds East,
a distance of 32.86 feet;
THENCE Southeasterly, continuing along said west line and said curve to the
right, through a central angle of 21 degrees 02 minutes 22 seconds an arc
distance of 33.05 feet to a 1/2-inch set iron rod with cap at the point of
tangency;
THENCE South 00 degrees 12 minutes 13 seconds West, continuing along said west
line, a distance of 621.93 feet to a 1/2-inch set iron rod with cap for a
corner, said corner being on the south line of said Lot 4A, said corner also
being on the north line of a tract of land conveyed to M.E. Moore Trust as
recorded in Volume 85169, Page 4754, (D.R.D.C.T.);
THENCE North 89 degrees 47 minutes 47 seconds West, departing said west line,
and along the said south line a distance of 194.86 feet to a 5/8-inch found iron
rod with cap stamped "NELSON" for a corner on the west line of said Lot 4A, said
corner also being on the east line of a tract of land conveyed to Farmers Branch
Flood control District as recorded in Volume 76240, Page 2709, (D.R.D.C.T.);
THENCE North 00 degrees 16 minutes 43 seconds East, departing said south line
and along said west line, a distance of 725.78 feet to the POINT OF BEGINNING
AND CONTAINING 140,730 square feet or 3.231 acres of land, more or less.
Exhibit A to Second Modification - Page 3 of 3
<PAGE>
Exhibit 10.4
PROMISSORY NOTE
<TABLE>
<CAPTION>
<S> <C>
Borrower: CellStar, Ltd. (TIN: 1-75-2584122-1) Lender: First Interstate Bank of Texas, N.A.
1730 Briercroft Drive Dallas Central Office
Carrollton, Texas 75006 1445 Ross Avenue
P. O. Box 650291
Dallas, TX 75265-0291
================================================================================================
</TABLE>
Principal Amount: $4,277,500.00 Date of Note: April 15, 1996
PROMISE TO PAY. CellStar, Ltd. ("Borrower") promises to pay to First Interstate
Bank of Texas N.A. ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Four Million Two Hundred Seventy-Seven Thousand
Five Hundred Dollars ($4,277,500.00), together with interest on the outstanding
unpaid principal balance until maturity.
PAYMENT. Borrower will pay this loan in accordance with the following payment
schedule:
Quarterly payments in the principal amount of $73,750 plus all accrued and
unpaid interest shall be due and payable commencing on June 1, 1996 and
continuing on each September 1, December 1, March 1 and June 1 thereafter
until September 1, 2005 at which time all unpaid principal, accrued and
unpaid interest and any other amounts owed in connection with the loan
shall be fully due and payable.
Interest on this Note is computed on a 365/360 simple interest basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days, times
the outstanding principal balance, times the actual number of days the principal
balance is outstanding, unless such calculation would result in a usurious rate,
in which case interest shall be calculated on a per diem basis of a year of 365
or 366 days, as the case may be. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied in any
order at Lender's sole discretion, including the following order: first to all
past due amounts; then to accrued unpaid interest; then to principal; and any
remaining amount to any unpaid collection costs and other charges.
VARIABLE INTEREST RATE. The unpaid principal amount of this Note shall bear
interest prior to maturity at a varying rate per annum equal from day to day to
the lesser of (a) the Maximum Rate or (b) the Applicable Rate, each such change
in the rate of interest charged on this Note to become effective, without notice
to Borrower, on the effective date of each change in the Applicable Rate or the
Maximum Rate, as the case may be; provided, however, if at any time the rate of
interest specified in clause (b) preceding shall exceed the Maximum Rate,
thereby causing the interest on the unpaid principal amount of this Note to be
limited to the Maximum Rate, then any subsequent reduction in the Applicable
Rate shall not reduce the rate of interest on the unpaid principal amount of
this Note below the Maximum Rate until the aggregate amount of interest accrued
on the unpaid principal amount of this Note equals the aggregate amount of
interest which would have accrued on the unpaid principal amount of this Note if
the interest rate specified in clause (b) preceding had at all times been in
effect. All past due principal and interest shall bear interest at the Post
Maturity Rate.
DEFINITIONS. As used in this Note, the following terms have the following
meanings:
"Applicable Rate" means the Prime Rate plus the Prime Margin.
---------------
"Business Day" means any day on which commercial banks are not
------------
authorized or required to close in Dallas, Texas.
"Dollars" and "$" mean lawful money of the United States of America.
------- -
"Maximum Rate" means the maximum rate of nonusurious interest
------------
permitted from day to day by applicable law, including as to Article 5069-
1.04, Vernon's Texas Civil Statutes (and as the same may be incorporated by
reference in other Texas statutes), but otherwise without limitation, that
rate based upon the "indicated rate ceiling" and calculated after taking
into account any and all relevant fees payments, and other charges
contracted for, charged or received in respect of this Note which are
deemed to be interest under applicable law.
"Prime Rate" means, at any time, the rate of interest per annum then
----------
most recently set by Lender as its prime rate. Borrower understands that
Lender may make loans based on other rates as well.
<PAGE>
04-15-1996 PROMISSORY NOTE Page 2
(Continued)
================================================================================
"Prime Margin" means, during the periods set forth below, the percent
------------
per annum set forth below opposite the applicable period:
<TABLE>
<CAPTION>
Period Percentage
- -------------------------------------------------------------
From and Including To but Excluding
- -------------------------------------------------------------
<S> <C> <C>
4/15/96 8/15/96 0%
- -------------------------------------------------------------
8/15/96 11/15/96 .5%
- -------------------------------------------------------------
11/15/96 2/15/97 1%
- -------------------------------------------------------------
2/15/97 5/15/97 1.5%
- -------------------------------------------------------------
5/15/97 9/2/05 2%
- -------------------------------------------------------------
</TABLE>
OPTIONAL PREPAYMENT. Borrower may prepay this Note in part or in full at any
time before final maturity, whether by cash, a new loan, renewal, or otherwise;
provided that each partial prepayment shall be in a minimum principal amount of
$500,000 and shall be applied to the principal installments due hereunder in the
inverse order of maturity. Prepayment in full shall consist of payment of the
remaining unpaid principal balance together with all accrued and unpaid interest
and all other amounts, costs and expenses for which Borrower is responsible
under this Note or any other agreement with Lender pertaining to this loan, and
in no event will Borrower ever be required to pay any unearned interest.
MANDATORY PREPAYMENT. In the event that the outstanding principal amount of
this Note even exceeds an amount equal to 75% of the most recent appraised value
of the Real Property (as such term is defined in that certain Deed of Trust
dated April 28, 1994 executed by Borrower for the benefit of Lender, as the same
has been modified, the "Deed of Trust") as determined from appraisals obtained
-------------
by Lender, Borrower agrees to make a prepayment on this Note in the amount of
the excess together with accrued and unpaid interest on the amount prepaid,
within three (3) days of the Lenders' demand. Any such prepayment shall be
applied to the principal installments due hereunder in the inverse order of
maturity.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to pay (i) any installment of interest on this Note or any fees
or expenses due hereunder or under any other agreement Borrower has with Lender
that is executed in connection with this Note within five (5) days of the date
due or (ii) any installment of principal or any other obligation hereunder or
under any other agreement Borrower has with Lender that is executed in
connection with this Note. (b) Borrower fails to perform, observe or comply
with any of the covenants contained in Sections 2(a), 2(c), 2(d), 2(e) and 2(f)
of that certain Indemnity Agreement dated April 28, 1994 executed by Borrower,
CellStar Corporation and National Auto Center, Inc. for the benefit of Lender or
the following titled paragraphs of the Deed of Trust: "Removal of Improvements",
"Nuisance", "Waste", "Payment", "Right to Contest", "Maintenance of Insurance",
"Defense of Title" or the paragraph entitled "Affirmative Covenants" set forth
in this Note. (c) Borrower fails to perform, observe or comply with any of the
covenants contained in this Note or the documents executed in connection
herewith (other than those covenants described in the other clauses of this
Default paragraph including without limitation, clauses (a), (b), (h) and (j))
and such failure shall continue unremedied for a period of fifteen (15) days
after the earlier of (i) the giving of notice to the Borrower by the Lender or
(ii) the Borrower's actual knowledge of such failure. (d) Any representation or
statement made or furnished to Lender by Borrower or on Borrower's behalf is
false or misleading in any material respect. (e) Borrower becomes insolvent, a
receiver is appointed for any part of Borrower's property, Borrower makes an
assignment for the benefit of creditors, or any proceeding is commenced either
by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any
creditor tries to take any of Borrower's property on or in which Lender has a
lien or security interest and any proceedings instituted in connection therewith
are not dismissed within the earlier of (i) thirty (30) days after such
proceedings have been commenced or (ii) ten (10) days before the applicable
property is taken by such creditor. (g) any of the events described in this
default section occurs with respect to any guarantor of this Note. (h) Borrower
or any guarantor for this Note shall fail to pay when due, after any applicable
grace period, any principal of or interest on any indebtedness which in any
individual case or in the
<PAGE>
04-15-1996 PROMISSORY NOTE Page 3
(Continued)
================================================================================
aggregate exceeds One Million Dollars ($1,000,000.00) other than the
indebtedness evidenced hereby, or the maturity of any such indebtedness shall
have been required to be prepaid prior to the stated maturity thereof, or any
event shall have occurred that permits any holder or holders of such
indebtedness or any person or entity acting on behalf of such holder of holders
to accelerate the maturity thereof or require any such prepayment, including,
without limitation, any event of default occurring under that certain Amended
and Restated Loan Agreement dated July 20, 1995 among National Auto Center,
Inc., CellStar Corporation, Texas Commerce Bank National Association as agent
and certain banks named therein (as the same may be amended or otherwise
modified, and any credit agreement executed in replacement thereof, herein the
"TCB Credit Agreement"), whether or not such event or event of default has been
waived by the applicable holders (so, for example, even if the lenders under the
TCB Credit Agreement waive or otherwise remedy any event of default thereunder,
such event of default shall be deemed a default hereunder until waived in
writing by Lender). (i) The occurrence of any default under any documents
securing the payment of this Note. (j) National Auto Center, Inc., Borrower and
CellStar Fullfillment, Ltd. (collectively the "Companies") fail to maintain, as
---------
of the end of each fiscal year on a consolidated basis (but excluding from such
consolidation CellStar International Corporation, Audiomex Export Corporation
and CellStar International S.A.), a ratio of net income after tax plus
depreciation and amortization less extraordinary gains to the sum of current
maturities of long term debt (excluding the principal amount of the revolving
loan extended under the TCB Credit Agreement) and capital leases (all calculated
in accordance with generally accepted accounting principals consistently applied
[herein "GAAP"] and for the 12 month period then ending) of not less than 1:25
to 1:00.
LENDER'S RIGHTS. Upon default Lender may declare the entire indebtedness,
including the unpaid principal balance on this Note, all unpaid interest, and
all other amounts, costs and expenses for which Borrower is responsible under
this Note or any other agreement with Lender pertaining to this loan,
immediately due and then Borrower will pay that amount. Lender may hire an
attorney to help collect this Note if Borrower does not pay, and Borrower will
pay Lender's reasonable attorneys' fees. Borrower also will pay Lender all
other amounts actually incurred by Lender as court costs, lawful fees for
filing, recording, or releasing to any public office any instrument securing
this loan; the reasonable cost actually expended for repossessing, storing,
preparing for sale, and selling any security; and fees for noting a lien on or
transferring a certificate of title to any motor vehicle or other titled
collateral offered as security for this loan, or premiums or identifiable
charges received in connection with the sale of authorized insurance. This Note
has been delivered to Lender and accepted by Lender in the State of Texas. If
there is a lawsuit, and if the transaction evidenced by this Note occurred in
Dallas County, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of Dallas County, the State of Texas. Subject to the
provisions on arbitration, this Note shall be governed by and construed in
accordance with the laws of the State of Texas and applicable federal laws.
AGREEMENT FOR BINDING ARBITRATION. THE PARTIES AGREE TO BE BOUND BY THE TERMS
AND PROVISIONS OF THE CURRENT ARBITRATION PROGRAM OF FIRST INTERSTATE BANK OF
TEXAS N.A. WHICH IS INCORPORATED BY REFERENCE HEREIN AND IS ACKNOWLEDGED AS
RECEIVED BY THE PARTIES, PURSUANT TO WHICH ANY AND ALL DISPUTES SHALL BE
RESOLVED BY MANDATORY BINDING ARBITRATION UPON THE REQUEST OF ANY PARTY.
DEFAULT RATE OF INTEREST. Lender may, at its option and without notice, charge
interest at a rate (the "Default Rate") equivalent to the Post Maturity Rate
(not to exceed the maximum lawful rate) on any past due amounts of the
indebtedness for the number of days said amounts are past due. Amounts shall be
considered past due when not paid on the date due, whether said amounts become
due pursuant to the payment schedule or as a result of acceleration, or
otherwise. Further, if Lender gives written notice to Borrower of any one or
more defaults under the Note or any related loan documents and such defaults are
not cured completely and strictly in accordance with the terms of the notice of
default within the period of time allowed by Lender for cure of same, Lender may
charge interest at the Default Rate on the entire amount of the indebtedness
until two Business Days after such defaults are cured and that fact is
communicated to and confirmed by Lender. Lender's use of the remedies available
to Lender upon the occurrence of an event of default shall not constitute an
election of remedies or otherwise limit Lender's rights concerning other
remedies available to Lender upon the occurrence of an event of default.
POST MATURITY RATE. The Post Maturity Rate on this Note is the lesser of the
maximum rate allowed by applicable law or 4 percentage points over the Prime
Rate. Borrower will pay interest on all sums due after final maturity, whether
by acceleration or otherwise, at that rate, with the exception of any amounts
added to the principal balance of this Note based on Lender's payment of
insurance premiums, which will continue to accrue interest at the prematurity
rate.
AFFIRMATIVE COVENANTS. So long as the Note or any part is outstanding or the
Lender has any commitment hereunder, the Borrower will perform and observe the
following affirmative covenants, unless the Lender shall otherwise consent in
writing:
(A). QUARTERLY REPORTS. As soon as available and in any event within forty-
five (45) days after the end of each of the quarters of each fiscal year of
CellStar Corporation, Borrower will provide to Lender a copy of (i)
CellStar Corporation's report on form 10-Q submitted to the Securities and
Exchange Commission as of the end of each such quarter and (ii) an
unaudited financial report of the
<PAGE>
04-15-1996 PROMISSORY NOTE Page 4
(Continued)
================================================================================
Companies as of the end of such quarter and for the portion of the fiscal year
then ended, containing, on a consolidated basis (but excluding from such
consolidation CellStar International Corporation, Audiomex Export Corporation
and CellStar International S.A.), balance sheets, statements or income,
statements of retained earnings and cash flow statements, in each case setting
forth in comparative form the figures for the corresponding period of the
preceding fiscal year, all in reasonable detail certified by the chief financial
officer of National Auto Center, Inc. to have been prepared in accordance with
GAAP and to fairly and accurately present (subject to year end audit
adjustments) the financial condition and results of operations of the
Companies at the date and for the periods indicated therein.
(B). ANNUAL FINANCIAL STATEMENTS. As soon as available and in any event within
ninety (90) days after the end of each fiscal year of CellStar Corporation
beginning with the fiscal year ended November 30, 1994, Borrower will provide to
Lender a copy of (i) CellStar Corporation's report on form 10-K submitted to the
Securities and Exchange Commission as of the end of such year and (ii) the
annual unaudited report for the Companies for such fiscal year containing, on a
consolidated basis (but excluding from such consolidation CellStar International
Corporation, Audiomex Export Corporation and CellStar International SA.),
balance sheets, income statements, statements of retained earnings and cash flow
statements, as at the end of such fiscal year and for the twelve (12) month
period then ended, in each case setting forth in comparative form the figures
for the preceding fiscal year, all in reasonable detail and certified by the
chief financial officer of National Auto Center, Inc. to have been prepared in
accordance with GAAP and to fairly and accurately present the financial
condition and results of operations of the Companies at the date and for the
periods indicated therein.
(C). CERTIFICATE OF NO DEFAULT; NOTICE OF DEFAULT. Furnish to the Lender within
ninety (90) days of the end of each fiscal year, a Certificate of No Default
signed by an officer of the Borrower in a form acceptable to Lender to the
effect that to the best of his knowledge and after reasonable investigation no
default has occurred hereunder and no event which, with the giving of notice or
the lapse of time or both, would constitute a default has occurred and is
continuing and showing the calculations demonstrating compliance with clause (j)
of the Default paragraph of this Note. Borrower shall also promptly notify
Lender when it becomes aware of any default which has occurred hereunder.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will
not affect the rest of the Note. In particular, this section means (among other
things) that Borrower does not agree or intend to pay, and Lender does not agree
or intend to contract for, charge, collect, take, reserve or receive
(collectively referred lo herein as "charge or collect"), any amount in the
nature of interest or in the nature of a fee for this loan, which would in any
way or event (including demand, prepayment, or acceleration) cause Lender to
charge or collect more for this loan than the maximum Lender would be permitted
to charge or collect by federal law or the law of the State of Texas (as
applicable). Any such excess interest or unauthorized fee shall, instead of
anything stated to the contrary, be applied, first to reduce the principal
balance of this loan, and when the principal has been paid in full, be refunded
to Borrower. The right to accelerate maturity of sums due under this Note does
not include the right to accelerate any interest which has not otherwise accrued
on the date of such acceleration, and Lender does not intend to charge or
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Lender for the use, forbearance or detention of sums due
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the loan evidenced by
this Note until payment in full so that the rate or amount of interest on
account of the loan evidenced hereby does not exceed the applicable usury
ceiling. Lender may delay or forgo enforcing any of its rights or remedies
under this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest, notice of dishonor, notice of intent
to accelerate the maturity of this Note, and notice of acceleration of the
maturity of this Note. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
MODIFICATION OF PRIOR NOTE. This Note is executed to modify in its entirety,
but not extinguish the indebtedness evidenced by, that certain promissory note
dated August 31, 1995 executed by Borrower and payable to the order of Lender in
the original principal amount of $4,425,000 (the "Prior Note"). This Note
----------
evidences indebtedness previously evidenced by the Prior Note and originally
evidenced by that certain Promissory Note dated April 28, 1995 executed by
Borrower and payable to the order of Lender in the original principal amount of
$3,000,000. Borrower agrees to pay to Lender on June 1, 1996 all unpaid
interest accrued under the Prior Note through the date hereof.
<PAGE>
04-15-1996 PROMISSORY NOTE Page 5
(Continued)
================================================================================
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
CellStar, Ltd.
By: NATIONAL AUTO CENTER, INC., its general partner
By: /s/ Alan H. Goldfield
---------------------------
Alan H. Goldfield
Chief Executive Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 5/31/96
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 23,572
<SECURITIES> 0
<RECEIVABLES> 131,158
<ALLOWANCES> 7,600
<INVENTORY> 85,505
<CURRENT-ASSETS> 235,760
<PP&E> 25,873
<DEPRECIATION> 2,334
<TOTAL-ASSETS> 278,838
<CURRENT-LIABILITIES> 163,597
<BONDS> 0
0
0
<COMMON> 193
<OTHER-SE> 108,442
<TOTAL-LIABILITY-AND-EQUITY> 278,838
<SALES> 430,546
<TOTAL-REVENUES> 430,546
<CGS> 368,913
<TOTAL-COSTS> 368,913
<OTHER-EXPENSES> 60,072
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,975
<INCOME-PRETAX> (3,414)
<INCOME-TAX> (1,100)
<INCOME-CONTINUING> (2,314)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,314)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
