<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended Commission File Number
November 30, 1996 0-22972
CELLSTAR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2479727
(State of Incorporation) (I.R.S. Employer
Identification No.)
1730 Briercroft Court
Carrollton, Texas 75006
Telephone (972) 466-5000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
---------------------------------------
(Title of Class)
Rights to Purchase Series A Preferred Stock
-------------------------------------------
(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
On January 31, 1997, the aggregate market value of the voting stock held by
nonaffiliates of the Company was approximately $277,603,415, based on the
closing sales price of $23.125 as reported by the NASDAQ/NMS. (For purposes of
determination of the above stated amount, only directors, executive officers and
10% or greater stockholders have been deemed affiliates).
On January 31, 1997, there were 19,274,812 outstanding shares of Common Stock,
$0.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Proxy Statement for the Annual Meeting of Stockholders of the
Company to be held during 1997 are incorporated by reference into Part III of
the Form 10-K.
<PAGE>
CELLSTAR CORPORATION
INDEX TO FORM 10-K/A, AMENDMENT NO. 1
<TABLE>
<CAPTION>
Page
Number
Part I.
- -------
<S> <C> <C>
Item 1. Business 3
Item 2. Properties *
Item 3. Legal Proceedings *
Item 4. Submission of Matters to a Vote of Security Holders *
Part II.
- --------
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters *
Item 6. Selected Consolidated Financial Data *
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations *
Item 8. Consolidated Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure *
Part III.
- ---------
Item 10. Directors and Executive Officers of the Registrant *
Item 11. Executive Compensation *
Item 12. Security Ownership of Certain Beneficial Owners and
Management *
Item 13. Certain Relationships and Related Transactions *
Part IV.
- --------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 17
</TABLE>
- -------------------
* Not amended.
2
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Part I.
Item 1. Business
General
CellStar Overview
CellStar Corporation ("CellStar" or the "Company") is an integrated
wholesaler and retailer of cellular phones and other wireless communications
products, with operations in the United States, the Asia-Pacific region, Latin
America and the United Kingdom. The Company is one of the world's largest non-
carrier wholesale distributors of cellular phones for Motorola Inc.
("Motorola"), Nokia Mobile Phones, Inc. ("Nokia") and Ericsson Inc.
("Ericsson"). The Company is also one of the largest non-carrier wholesale
distributors of cellular phones for NEC Corporation ("NEC") in the United
States. The Company is also a retailer of wireless communications products and
services, with 36 retail locations in the United States, 6 retail locations in
the Asia-Pacific region and 20 locations in Latin America as of November 30,
1996.
The Company was formed as a Delaware corporation in 1981 to distribute and
install automotive aftermarket products. In 1984, the Company began offering
cellular phone products and services, and in 1989, the Company became an
authorized distributor of Motorola cellular phones in certain regions of the
United States. The Company entered into a similar arrangement with Motorola in
Latin America in 1991 and in the Asia-Pacific region in 1994. In addition to its
operations in the United States, as of November 30, 1996, the Company conducted
operations in Hong Kong, China, Singapore, Malaysia, Taiwan and the Philippines
(collectively, the "Asia-Pacific Region"), Mexico, Colombia, Venezuela, Ecuador,
Chile, Argentina, and Brazil (collectively, the "Latin American Region") and the
United Kingdom.
Industry Overview
Wireless communications technology provides a communications link between
the public switched phone network and wireless communications devices, such as
cellular handheld, mobile and transportable phones, pagers and two-way radios.
Since its inception in 1983, the market for commercial cellular phone service
has experienced rapid growth worldwide. According to industry estimates, as of
December 31, 1995, there were approximately 85 million cellular phone
subscribers worldwide, of which approximately 32 million subscribers were in the
United States, approximately 7 million subscribers were in the Asia Pacific
Region, approximately 3 million subscribers were in the Latin American Region
and approximately 5 million subscribers were in the United Kingdom.
As the communications industry evolves, new wireless communications
technologies, such as personal communications services ("PCS"), enhanced
specialized mobile radio ("ESMR") systems, and satellite-based systems, continue
to emerge as alternatives to cellular systems. The Company anticipates that the
continued growth of communications technologies and services such as PCS, ESMR
and satellite-based systems will impact the composition of the wireless
communications market. Although these new technologies are expected to compete
with cellular technology, the Company believes that the wireless communications
equipment industry as a whole will benefit from the emergence of such
technologies, as well as from the rapid growth of the worldwide cellular market
in general and the expected continuance of upgrades from analog to digital
cellular technology.
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United States
Industry
In the United States, cellular phone service was developed as an
alternative to conventional landline systems and existing mobile phone service
and has been one of the fastest growing market segments in the communications
industry. The number of U.S. cellular subscribers has grown significantly since
the inception of the cellular phone industry in 1983. According to industry
estimates, as of December 31, 1995, there were approximately 32 million
subscribers in the United States. In 1996, according to industry estimates, the
number of cellular subscribers in the United States grew over 10 million.
The chart below sets forth certain estimated information regarding U.S.
cellular phone shipments and subscriber growth.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Number of Cellular Phones Shipped 16,619 14,381 12,774 8,565 6,049
Number of Subscribers 42,300 32,187 23,630 16,255 11,428
</TABLE>
Source: Dataquest, Cellular Telephony Market Worldwide Overview - Market
Trends 1996 (December 1996 Estimates)
The Company believes that the U.S. market for wireless services will
continue to expand due to the increasing affordability and availability of such
services and shorter development cycles for new products and enhancements. In
addition, many cellular service providers are upgrading their existing cellular
systems from analog to digital technology as a result of capacity constraints in
many of the larger cellular markets and in order to respond to competition.
Digital technology increases system capacity and is expected to offer other
advantages, such as improved overall average signal quality, improved call
security, potentially lower incremental costs for additional subscribers and the
ability to provide data transmission services. If digital technology improves
and becomes more affordable, the Company may benefit both from the sale of
digital cellular phones as replacements for existing analog cellular phones and
from the increased system capacity digital technology offers.
Wholesale Operations
General. Approximately 87% of the Company's U.S. revenues during fiscal
1996 were derived from wholesale operations. In the United States, manufacturers
such as Motorola, Nokia, Ericsson and NEC sell cellular phones directly to large
cellular carriers, such as AT&T Wireless Services, Inc., and large mass
merchandisers, such as Sears, Roebuck and Co. The Company's wholesale operations
complement these manufacturers' distribution channels, in that these
manufacturers generally also sell to wholesale distributors such as the Company
in order to access smaller volume purchasers. The Company also acts as a
wholesale distributor of cellular accessories manufactured by original equipment
manufacturers ("OEMs") and other suppliers to cellular carriers and mass
merchandisers, as well as to smaller volume purchasers.
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<PAGE>
During fiscal 1996, the Company sold its products to over 3,000 U.S.
wholesale customers, the ten largest of which accounted for approximately 24% of
the Company's consolidated net product sales in fiscal 1996. The Company offers
cellular phones and accessories manufactured by OEMs, such as Motorola, Nokia,
NEC and Ericsson, and aftermarket accessories manufactured by a variety of
suppliers. Accessories include, among others, antennas, batteries, battery
packs, battery eliminators and battery chargers. The Company sells these
products under private labels to cellular carriers such as Southwestern Bell
Mobile Systems, Inc., GTE Mobilnet, AirTouch Cellular, Cellular One and U.S.
Cellular.
The Company continues to broaden its product mix to include products that
are compatible with new systems, such as GSM (Global System for Mobile
Communications) and other digital systems. The Company anticipates that its
product offerings will continue to expand with the evolution of new technologies
as they become commercially viable.
During fiscal 1996, the Company began to take advantage of the growing
demand for value-added facilitation and fulfillment services, including
aftermarket and OEM product packaging and configuration, inventory management,
order processing, return and repair management, marketing and design, credit and
collections, and phone sales. The Company has provided some or all of these
services to small carriers and, in October 1996, the Company entered into an
agreement with Pacific Bell Mobile Services, pursuant to which the Company
provides certain of these facilitation services.
The Company's primary distribution facility, a 120,000 square foot
warehouse facility, is located at its international headquarters in the
Dallas/Fort Worth metropolitan area. The Company also operates a wholesale
distribution facility in Miami, Florida to serve customers in the Latin American
Region. During fiscal 1996, the Company altered its business strategy to sell to
customers exporting into Colombia, Venezuela, Ecuador, Chile, Argentina and
Brazil ("South America") directly from the Miami location rather than from its
operations in South America. The Company also offers facilitation services for
its operations in the Latin American Region out of the Miami location. The
Company also operates smaller distribution facilities from its Hayward,
California location.
Sales and Marketing. The Company markets its products nationally to
wholesale purchasers through its direct sales force and trade journal
advertising. The Company offers advertising allowances, ready-to-use advertising
materials and displays, easy access to hard-to-find products, credit terms, a
variety of name brand products and highly responsive customer service.
Retail Operations
General. Approximately 13% of the Company's U.S. revenues in fiscal 1996
were derived from retail operations. On November 26, 1996, as part of its move
to focus on its core wholesale business, the Company sold 334 of its 355
Communication Centers to MCI Telecommunications Corporation ("MCI"). Prior to
such sale, the Company was a large activation agent of cellular phones in the
United States, activating cellular service for large cellular carriers
throughout the United States. During fiscal 1996, the Company had an average of
approximately 350 Communication Centers in operation. As of November 30, 1996,
the Company conducted its U.S. retail operations through 15 stand-alone retail
stores in four states and its 21 remaining Communication Centers.
The Company's retail stores generate revenues from three sources: the sale
of cellular phones and other products, activation commissions and, in many
cases, residual payments. An
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activation commission is paid by a cellular carrier when a customer initially
subscribes for cellular service. The amount of the activation commission paid by
a cellular carrier is based on the service plans and promotional marketing
programs offered by that particular cellular carrier. Many of the Company's
carrier contracts provide for a residual payment, which is a monthly payment
made by a cellular carrier to the Company based on the cellular phone usage by a
customer activated by the Company. Because standard cellular industry practice
among activation agents is to offer certain cellular phones to a cellular
subscriber at no charge, as a practical matter, the Company does not believe it
can operate at the retail level on a profitable basis without agency agreements
with cellular carriers that provide for activation commissions or residual fees.
The Company's relationships with its carriers are governed by contracts,
pursuant to which the Company is engaged as an agent to solicit and sell
cellular phone services in certain geographic areas and may not act as a
representative or agent for any other carrier or reseller in those areas.
In the Dallas/Fort Worth, Texas, Kansas City, Missouri, and Kansas City and
Wichita, Kansas markets, the Company conducts its retail operations under the
name National Auto Cellular, and in the Houston and Austin, Texas markets, the
Company conducts business under the name PC Cellular. The Company recently
closed its retail locations in San Diego, California and Syracuse, New York.
Sales and Marketing. The Company promotes its stand-alone retail stores
through direct mailings and local media, including billboards, newspapers and
radio. Most of the Company's advertising expenditures are spent on print and
radio advertising in order to take advantage of cooperative advertising
allowances generally provided by manufacturers and cellular phone carriers. To
penetrate local markets, the Company has made use of subagent relationships.
Subagents solicit customers and activate cellular service on behalf of the
Company and receive a majority of the activation commissions, while the Company
receives the residual commissions.
Asia-Pacific Region
Industry
According to industry estimates, in 1995, the number of cellular
subscribers in the Asia-Pacific Region grew over 3 million. In 1996, according
to industry estimates, the number of cellular subscribers in the Asia-Pacific
Region grew over 5 million. Whereas demand for wireless service in major
industrialized countries has been driven primarily by automobile and business
travel, the Company believes that in the Asia-Pacific Region, demand for such
services has been and will continue to be driven by an unsatisfied demand for
basic phone service due to the lack of adequate landline service and limited
wireless penetration. The Company believes that wireless systems in this region
offer a more attractive alternative to landline systems because wireless systems
do not require the substantial amount of time and investment in infrastructure
(in the form of buried or overhead cables) associated with landline systems.
Based on these factors, as well as the large population bases and economic
growth in this region, the Company believes that phone users will increasingly
utilize wireless systems, despite the fact that wireless service may be more
expensive to the consumer than conventional landline communications.
6
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The chart below sets forth certain estimated information regarding cellular
phone shipments and subscriber growth in the Asia-Pacific Region.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Number of Cellular Phones Shipped 5,883 3,606 1,685 954 545
Number of Subscribers 11,865 6,753 3,576 2,054 1,195
</TABLE>
Source: Dataquest, Cellular Telephony Market Worldwide Overview - Market
Trends 1996 (December 1996 Estimates)
Operations
General. The key to the Company's expansion in the Asia-Pacific Region has
been its relationships with wireless equipment manufacturers. The Company
typically enters a new market with the support of a manufacturer. The Company
distributes products in the Asia-Pacific Region primarily for Motorola and
Ericsson. Throughout the Asia-Pacific Region, CellStar acts as a wholesale
distributor of wireless phones to large and small volume purchasers, including
indirect sales to the large cellular carriers.
Although the Company's business in the Asia-Pacific Region is predominantly
wholesale, operations within a particular country may be either wholesale,
retail, or both, and may be owned solely by the Company or jointly with local
partners, depending on the market and regulatory environment in the host
country.
The following table outlines the Company's entry into the Asia-Pacific
Region:
<TABLE>
<CAPTION>
Type of Operation
Country Year Entered (as of November 30, 1996)
- ------- ------------ -------------------------
<S> <C> <C>
Hong Kong/China 1993 Wholesale
Singapore 1995 Wholesale and Retail
The Philippines 1995 Wholesale
Malaysia 1995 Wholesale and Retail
Taiwan 1995 Wholesale
</TABLE>
All of the Company's operations in this region are wholly or majority-owned
except for the Company's operations in Malaysia. CellStar (Asia) Corporation,
Ltd. ("CellStar Asia"), the oldest of the Company's business units in the region
and the Company's most significant operation outside the United States, began as
a joint venture in 1993 and became wholly-owned in June 1995. CellStar Asia's
revenue is derived principally from wholesale sales of wireless products to Hong
Kong-based companies that ship wireless products to China.
At November 30, 1996, the Company sold its products to approximately 56
wholesale customers in the Asia-Pacific Region, the ten largest of which
accounted for approximately 21% of the Company's consolidated net product sales
in fiscal 1996. The Company offers wireless phones and accessories manufactured
by OEMs, such as Motorola and Ericsson, and
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aftermarket accessories manufactured by a variety of suppliers. Accessories
include, among others, hands-free kits, earphones and plug-in chargers.
The Company continues to broaden its product mix in the Asia-Pacific Region
to include products that are compatible with new systems, such as ETAC (Enhanced
Total Access Communications), GSM and other digital systems. The Company
anticipates that its product offerings will continue to expand with the
evolution of new technologies as they become commercially viable.
The Company's operations and sales in the Asia-Pacific Region are subject
to political and economic risks, including political instability, currency
controls, currency devaluations, exchange rate fluctuations, increased credit
risks, inflation, foreign tax laws, changes in import/export regulations and
tariff and freight rates. Political and other factors beyond the control of the
Company, including trade disputes among nations, currency fluctuations or
internal instability in any nation where the Company conducts business, could
have a materially adverse effect on the Company.
Sales and Marketing. The Company markets its products to wholesale
purchasers through direct sales and advertising. To penetrate local markets in
the Philippines, the Company has made use of subagent relationships.
Latin American Region
Industry
According to industry estimates, in 1995, the number of cellular
subscribers in the Latin American Region grew over 1 million. In 1996, according
to industry estimates, the number of cellular subscribers in the Latin American
Region grew by close to 2 million. The Company believes that in the Latin
American Region, demand for such services has been and will continue to be
driven by an unsatisfied demand for basic phone service due to lack of adequate
landline service and limited wireless penetration, as well as expansion of
wireless capacity in this region.
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The chart below sets forth certain estimated information regarding cellular
phone shipments and subscriber growth in the Latin American Region.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Number of Cellular Phones Shipped 2,222 1,461 1,010 434 271
Number of Subscribers 5,272 3,305 1,951 962 527
</TABLE>
Source: Dataquest, Cellular Telephony Market Worldwide Overview - Market Trends
1996 (December 1996 Estimates)
Operations
General. The key to the Company's expansion in the Latin American Region
has been its relationships with wireless equipment manufacturers and wireless
service carriers. The Company distributes products in the Latin American Region
for Motorola, Ericsson and Nokia. CellStar acts as a wholesale distributor of
cellular phones in the Latin American Region to large volume purchasers, such as
the large cellular carriers (e.g., Telcel, the cellular subsidiary of Telmex),
as well as to smaller volume purchasers.
Although the Company's business in the Latin American Region is
predominantly wholesale, operations within a particular country may be either
wholesale, retail, or both. In fiscal 1996, the Company instituted a program to
reduce the overall level of assets maintained in the Latin American Region to
reduce its exposure to financial and operating risks in the region and to reduce
working capital requirements. Changes to the Company's operating strategy
include sales of products from the Miami, Florida warehouse to South American
customers exporting into South American countries and a general reduction in the
number of employees in the region.
The following table outlines the Company's entry into its Latin American
Region:
<TABLE>
<CAPTION>
Type of Operation
Country Year Entered (as of November 30, 1996)
- ------- ------------ -------------------------
<S> <C> <C>
Mexico 1991 Wholesale and Retail
Venezuela 1993 Wholesale and Retail
Brazil 1993 Wholesale and Retail
Chile 1993 Wholesale and Retail
Colombia 1994 Wholesale and Retail
Ecuador 1995 Wholesale and Retail
Argentina 1995 Wholesale
</TABLE>
The Company acts through wholly-owned subsidiaries in each of the countries
in this region. The Company's largest wholesale customers in the region are
cellular carriers. As of November 30, 1996, the Company operated 20 full-service
retail stores in Latin America -- 13 in Mexico, 3 in Columbia, and 1 in each of
Venezuela, Chile, Brazil and Ecuador. As of
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November 30, 1996, the Company also operated 4 kiosks in Venezuela. The Company
receives activation commissions in all Latin American retail markets except
Brazil.
At November 30, 1996, the Company sold its products to approximately 550
wholesale customers in the Latin American Region, the ten largest of which
accounted for approximately 7% of the Company's consolidated net product sales
in fiscal 1996. The Company offers cellular phones and accessories manufactured
by OEMs, such as Motorola, Nokia and Ericsson, and aftermarket accessories
manufactured by a variety of suppliers. Accessories include, among others,
batteries, battery eliminators, chargers, leather cases, power supplies and
antennas. The Company sells these products to mass merchandisers and other
retailers.
The Company continues to broaden its product mix in the Latin American
Region to include products that are compatible with new systems, such as
digital. The Company anticipates that its product offerings will continue to
expand with the evolution of new technologies as they become commercially
viable.
The Company's operations and sales in the Latin American Region are subject
to political and economic risks, including political instability, currency
controls, currency devaluations, exchange rate fluctuations, increased credit
risks, inflation, foreign tax laws, changes in import/export regulations and
tariff and freight rates. Political and other factors beyond the control of the
Company, including trade disputes among nations, currency fluctuations or
internal instability in any nation where the Company conducts business, could
have a materially adverse effect on the Company.
Sales and Marketing. The Company markets its products through direct sales
and advertising. In the Latin American markets where it conducts retail
operations, the Company primarily utilizes direct mailings and newspapers to
promote its retail operations. To penetrate local markets, the Company has made
use of subagent relationships in Mexico, Venezuela, Colombia and Ecuador. During
fiscal 1996, the Company launched prepaid cellular programs in Mexico and
Venezuela. The Company expects these prepaid programs to make wireless
communications services more accessible to the overall population in these
markets because it eliminates the need for established credit and monthly fees.
Other Regions
During fiscal 1996, the Company formed a majority-owned U.K. subsidiary to
distribute cellular phones, pagers, PCS, mobile radio and other wireless
communications equipment and related accessory products throughout the United
Kingdom. The Company also signed an agreement with Motorola to distribute
wireless products throughout the United Kingdom. The Company is also considering
entry into other countries where the Company believes the environment is
conducive to the growth of the wireless market. The Company will continue to
assess evolving market conditions, economic conditions and other factors which
may affect its prospects in a particular foreign country.
Industry Relationships
The Company has established relationships with leading wireless equipment
manufacturers and wireless service carriers. These alliances have been key to
the Company's market and product expansion.
Although the Company purchased its products from more than 20 suppliers in
fiscal 1996, substantially all of the Company's purchases were from Motorola,
Nokia, Ericsson and
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NEC. The Company also distributed cellular products that are manufactured by
these and other manufacturers under its own trade name, CellStar. The Company
has various one-year supply contracts with Motorola, Nokia and Ericsson that
specify territories, minimum purchase levels, pricing and payment terms. These
contracts typically provide that the Company will receive the benefit of price
decreases on products in the Company's inventory if such products were shipped
to the Company within a specified period of time prior to the price decrease.
The Company's expansion is due to several factors, one of which is its
relationship with Motorola, the largest manufacturer of cellular products in the
world, according to industry sources, and the Company's largest supplier. For
the year ended November 30, 1996, Motorola accounted for approximately 74% of
the Company's product purchases, including CellStar branded products. The
Company considers its relationships with its suppliers to be satisfactory. The
Company believes that its relationship with Motorola will enable it to continue
to offer a wide variety of cellular products in the marketplace. In July 1995,
Motorola purchased 696,437 shares of the outstanding common stock of the
Company. While the Company believes that its relationship with Motorola and
other significant vendors is satisfactory, there can be no assurance that these
relationships will continue. The loss of Motorola or any other significant
vendor or a substantial price increase imposed by a vendor could have a
materially adverse impact on the Company. In addition, if the Company is unable
to obtain sufficient amounts of products from its vendors on a timely basis, its
operations could be materially and adversely affected.
Seasonality and Cyclicality
The effects of seasonal fluctuations have not historically been apparent in
the Company's operating results due to the Company's rapid growth in revenues.
However, the Company's sales are influenced by a number of seasonal factors in
the different countries and markets in which it operates, including the
purchasing patterns of customers in different markets, product promotions of
competitors and suppliers, availability of distribution channels, and product
supply and pricing. Seasonality contributed to the increase in the Company's
sales during the fourth quarter of 1996. The Company's sales are also influenced
by cyclical economic conditions in the different countries and markets in which
it operates. An economic downturn in one of the Company's principal markets
could have a material adverse effect on the Company's operating results.
Asset Management
Management Information Systems
During fiscal 1996, the Company continued to invest in technology to
improve financial and information technology control systems. The Company is
continuing to focus on materials management and international operations. In
addition, the Company has targeted several new short-term and long-term projects
to enhance its information systems, including (i) development of data
warehousing and decision support technologies, (ii) updates to the network
operating system and core network servers to newer technology, (iii) upgrades to
allow remote computing, (iv) advancements in inventory planning and control, (v)
implementation of electronic commerce utilizing the Internet and (vi)
integration and more efficient communication between global sites.
Inventory
The Company purchases its products from more than 20 suppliers that ship
directly to the Company's warehouse or distribution facilities. Inventory
purchases are based on quality,
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price, service, market demand, product availability and brand recognition.
Certain of the Company's major vendors provide favorable purchasing terms to the
Company, including price protection credits, stock balancing, increased product
availability and cooperative advertising and marketing allowances. The Company
provides stock balancing to certain of its customers. The manufacturers of
products typically provide replacement warranties, which the Company extends to
its customers. Currently, the Company has no long-term contracts for the
purchase of merchandise.
The market for wireless products is characterized by rapidly changing
technology and frequent new product introductions. The Company's success depends
in large part upon its ability to identify and obtain the right to market
products that will meet the changing requirements and demands of the
marketplace. Inventory control is important to the Company's ability to maintain
margins while offering its customers competitive prices and rapid delivery of a
wide variety of products. The Company uses its management information system and
an electronic purchase order system to help manage inventory and sales margins.
There can be no assurance that the Company will be able to identify, obtain
and offer products necessary to remain competitive. The Company has in the past
experienced shortages in supply for certain products that have been in high
demand, and no assurance can be given that product shortages will not occur in
the future.
The Company maintains a significant investment in its product inventory
and, therefore, is subject to the risks of inventory obsolescence and excessive
inventory levels. The Company attempts to limit this risk by managing inventory
turns and by entering into arrangements with its vendors, including price
protection credits and return privileges for slow-moving products. The Company's
significant inventory investment in its international operations exposes it to
certain political and economic risks. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."
During fiscal 1996, the Company embarked upon a program to re-engineer its
materials management processes, including reconfiguration of its main warehouse
layout to optimize cycle times and reduce inventory handling costs. During
fiscal 1997, the Company intends to continue implementation of the re-
engineering program and to expand on technologies such as Radio Frequency (to
capture outbound serial numbers into the Company's AS/400 system) and
integration of the Company's major shipping partner into the AS/400 system.
Typically, the Company ships its products within 24 hours from receipt of
customer orders. Therefore, the only backlog is on products that the Company is
unable to obtain from a supplier. At November 30, 1996, no such orders were
considered firm.
Trademarks
The Company markets certain of its products under the trade name CellStar.
The Company has registered its trade name on the Principal Register of the
United States Patent and Trademark Office and has registered or applied for
registration of its trade name in certain foreign jurisdictions. The Company
also has filed for registrations of its other trade names in the United States
and other jurisdictions where it does business.
Competition
The Company operates in a highly competitive environment and believes that
such competition will intensify in the future. The Company competes primarily on
the basis of inventory availability and selection, delivery time, service and
price. Many of the Company's competitors are larger and have greater capital and
management resources than the Company.
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In addition, potential users of cellular systems may find their communications
needs satisfied by other current and developing technologies. For example, ESMR,
PCS or satellite-based systems are being developed to compete with cellular
systems. The Company's ability to remain competitive will therefore depend upon
its ability to anticipate and adapt its business to such technological changes.
There can be no assurance that the Company will be successful in anticipating
and adapting to such technological changes.
In the current U.S. wholesale wireless phone and accessory product markets,
the Company's primary competitors are cellular carriers and other independent
distributors such as Brightpoint, Inc. ("Brightpoint") and Pana-Pacific
Corporation. The Company also competes with logistics companies. The Company's
major competitors in the United States in the retail cellular phone markets are
other agents and resellers and cellular carriers that have retail outlets.
Competitors of the Company in the Asia-Pacific and Latin American Regions
include national carriers that have retail outlets with direct end-user access,
and U.S. and foreign-based exporters and distributors, including Brightpoint. In
addition, the Company competes for activation fees and residual fees with agents
and subagents for the cellular carriers.
Products that reach the market outside of normal distribution channels,
such as "gray market" resales (e.g., unauthorized or illegal resales, which may
avoid applicable duties and taxes), may also have a negative impact on the
Company's operations.
Employees
As of November 30, 1996, the Company had approximately 1,010 employees. Of
these employees, approximately 540 work in U.S. operations, approximately 180
work in the Asia-Pacific operations, approximately 270 work in the Latin
American operations and approximately 20 work in the U.K. operations. Of the
Company's U.S. employees, approximately 185 are involved in wholesale
operations, approximately 260 are involved in retail operations, and
approximately 95 are corporate office personnel. None of the Company's U.S. or
Asia-Pacific employees are subject to collective bargaining agreements. In
Mexico, approximately 115 employees are subject to labor agreements. The Company
never has experienced any material labor disruption and is unaware of any
efforts or plans to organize additional employees. Management believes that its
labor relations are satisfactory.
Executive Officers of the Registrant
The following table sets forth certain information concerning the executive
officers of the Company:
<TABLE>
<CAPTION>
<S> <C> <C>
Alan H. Goldfield 53 Chief Executive Officer and Chairman of the
Board of Directors
Richard M. Gozia 52 President, Chief Operating Officer and Director
Mark Q. Huggins 47 Senior Vice President -- Administration, Chief
Financial Officer and Treasurer
A.S. Horng 39 General Manager of CellStar Asia
Daniel T. Bogar 37 Vice President -- South American Operations
and Director
Michael S. Hedge 40 Vice President -- Wholesale Sales and Director
Timothy L. Maretti 43 Vice President -- Mexican Operations
Evelyn Henry Miller 39 Vice President -- Corporate Controller
Elaine Flud Rodriguez 40 Vice President, General Counsel and Secretary
Richard L. White 37 Vice President & Chief Information Officer
</TABLE>
13
<PAGE>
Alan H. Goldfield is a founder of the Company and has been the Chairman of
the Board of Directors and Chief Executive Officer of the Company since its
formation in 1981. Mr. Goldfield served as President of the Company from its
formation until March 1995, when Terry S. Parker was appointed President, and
from August 1996 until December 1996, when Richard M. Gozia was appointed
President. Mr. Goldfield serves as an officer and director of the Company
pursuant to his employment agreement.
Richard M. Gozia has been the President and Chief Operating Officer of the
Company since December 1996. Mr. Gozia joined CellStar as Executive Vice
President-Administration and Chief Financial Officer in June 1996. He has been a
member of the Board of Directors since June 1996. Mr. Gozia serves as an officer
and director of the Company pursuant to his employment agreement. From 1994 to
1996, Mr. Gozia served as Executive Vice President of SpectraVision, Inc., a
provider of in-room hotel movies. In June 1995, SpectraVision, Inc. filed for
protection under the federal bankruptcy laws. From 1991 to 1994, Mr. Gozia was
Chairman and Chief Executive Officer of Wyatt Cafeterias, Inc. In June 1995,
Triangle FoodService Corporation, formerly Wyatt Cafeterias, Inc., filed for
protection under the federal bankruptcy laws.
A.S. Horng has been General Manager of CellStar Asia since September 1993.
He currently has responsibility for all of the Company's operations in the
Asia-Pacific Region. From 1991 to 1993, Mr. Horng was President of C-Mart USA
Corporation, a distributor and manufacturer of aftermarket cellular phone
accessory products. Mr. Horng serves CellStar Asia pursuant to his employment
agreement.
Mark Q. Huggins joined the Company as Senior Vice President -
Administration, Chief Financial Officer and Treasurer in January 1997. From
September 1992 until January 1997, Mr. Huggins served as Chief Financial Officer
of Van Camp Seafood Company, Inc., a manufacturer of canned seafood products.
From May 1991 until September 1992, Mr. Huggins served as Vice President -
Finance of Clarke American Checks, Inc., a check printer. Mr. Huggins serves as
an officer of the Company pursuant to his employment agreement.
Daniel T. Bogar has served as Vice President of South American Operations
since October 1993 and has been a director of the Company since July 1994. From
August 1991 to November 1992, Mr. Bogar managed the Company's operations in
Mexico, and from 1987 to 1991, Mr. Bogar was General Manager of the Company's
Houston operations. Mr. Bogar has been responsible for the Company's South
American operations since November 1992.
Michael S. Hedge has served as Vice President of Wholesale Sales and as a
director of the Company since October 1993. From 1990 to 1993, Mr. Hedge was the
Company's Wholesale Distribution Sales Manager. From 1987 until 1990, Mr. Hedge
was Sales Manager of the Company's Houston operations.
Timothy L. Maretti has served as Vice President of Mexican Operations of
the Company since October 1993. In January 1995, Mr. Maretti was given the
additional responsibility of developing the Company's operations in certain
areas of the Asia-Pacific Region, and in January 1996, Mr. Maretti was given the
additional responsibility of developing the Company's operations in Brazil. From
March 1992 to 1993, Mr. Maretti served as general director of the Company's
Mexican operations. From 1987 to 1992, Mr. Maretti served as vice president-
regional general manager of Southwestern Bell Mobile Systems, Inc., Dallas.
Evelyn Henry Miller has served as Vice President - Corporate Controller of
the Company since November 1995. From August 1993 until October 1995, Ms. Miller
served as Director, Corporate Accounting of Aviall, Inc. ("Aviall"), the world's
largest independent overhauler of turbine engines and distributor of airline
parts. From April 1988 until August 1993, Ms. Miller served in various other
capacities for Aviall, including Director, Financial Planning and Analysis;
Senior Manager, Accounting; and Manager, Inventory Accounting and Control. Prior
to joining Aviall, Ms. Miller served as Assistant Controller, Accounting
14
<PAGE>
Operations for Dallas Market Center (a Trammell Crow Company) and held several
positions with KPMG Peat Marwick. Ms. Miller is a Certified Public Accountant.
Elaine Flud Rodriguez joined the Company in September 1993 and has been
Vice President, General Counsel and Secretary since October 1993. From October
1991 to August 1993, she was General Counsel and Secretary of Zoecon
Corporation, a pesticide manufacturer and distributor owned by Sandoz Ltd. Prior
thereto she was engaged in the private practice of law with Atlas & Hall and
Akin, Gump, Strauss, Hauer & Feld. Ms. Rodriguez is licensed to practice law in
the states of Texas and Louisiana.
Richard L. White has served as Vice President and Chief Information Officer
of the Company since November 1996. From October 1995 until joining the Company,
Mr. White served as a director with BSG Alliance/IT, a systems integrater. From
April 1983 to October 1995, Mr. White held several positions with various units
of AMR Corporation, an airline holding company, including Vice President -
Technology for Data Management Services, an AMR Services subsidiary specializing
in offshore data capture and image processing, Manager of Project
Consulting/Risk Assessment for The Sabre Group, and various management positions
with The Sabre Group and American Airlines' technology services.
15
<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements on Page F-1 of this Form 10-K/A,
Amendment No. 1.
16
<PAGE>
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1. Consolidated Financial Statements
See Index to Consolidated Financial Statements on page F-1 of this Form
10-K/A, Amendment No. 1.
2. Financial Statement Schedules
All schedules are omitted because the information is not applicable or is
presented in the Consolidated Financial Statements or related Notes.
3. Exhibits
--------
3.1 Amended and Restated Certificate of Incorporation of the
Company.(1)
3.2 Form of Certificate of Designation, Preferences and Rights of
Series A Preferred Stock of CellStar Corporation ("Certificate of
Designation").(12)
3.3 Amended and Restated Bylaws of the Company.(2)
4.1 The Amended and Restated Certificate of Incorporation, the Amended
and Restated Bylaws and the Certificate of Designation of the
Company filed in response to items 3.1 3.2 and 3.3 are
incorporated in this item by reference.(1)(2)(12)
4.2 Specimen Common Stock Certificate of the Company.(3)
4.3 Rights Agreement, dated as of December 30, 1996, by and between
CellStar Corporation and ChaseMellon Shareholder Services, L.L.C.,
as Rights Agent.(12)
10.1 Employment Agreement by and between the Company and Alan H.
Goldfield, effective as of December 1, 1994.(3)(15)
10.2 Employment Agreement by and between CellStar, Ltd., the Company and
Mark Q. Huggins, effective as of January 15, 1997.(14)(15)
10.3 Authorized Agency Agreement by and between CellStar, Ltd., and
Southwestern Bell Mobile Systems, Inc., entered into as of December
17, 1996.(13)(16)
10.4 Authorized Agency Agreement by and between National Auto Center and
Southwestern Bell Mobile Systems, Inc., entered into as of February
5, 1993.(4)
10.5 Agency Agreement by and between National Auto Center, Inc. and GTE
Mobilnet of South Texas Limited Partnership, dated effective as of
February 1, 1993.(4)
10.6 Agency Agreement by and between National Auto Center, Inc. and GTE
Mobilnet of Austin Limited Partnership, dated effective as of
February 1, 1993.(4)
10.7 Agreement by and between Motorola Inc. by and through its Pan
American Cellular Subscriber Group, and CellStar, Ltd., effective
January 1, 1996 (United States).(5)
10.8 Master Agreement for the Purchase of Products and Inventory
Maintenance, Assembly and Fulfillment (IAF) Services between
Pacific Bell Mobile Services and CellStar, Ltd., effective
September 20, 1996.(13)(16)
10.9 Agreement by and between CellStar Pacific PTE LTD and Motorola
Inc., dated February 9, 1995 (the Philippines) (the "Philippines
Agreement").(7)
10.10 Amendment to the Philippines Agreement, dated July 20, 1995.(3)
17
<PAGE>
10.11 Agreement by and between National Auto Center and the Pan American
Cellular Subscriber Division of Motorola Inc., dated as of January 1,
1995 (Latin American and Caribbean Territory). (6)
10.12 Agreement by and between CellStar, Ltd. and Motorola Inc., Greater China
Cellular Subscriber Division, dated as of April 28, 1995 (People's
Republic of China). (8)
10.13 Agreement by and between CellStar, Ltd. and Motorola Inc., Greater China
Cellular Subscriber Division, dated as of April 28, 1995 (Taiwan). (3)
10.14 Agreement by and between CellStar Pacific PTE LTD and Ericsson Mobile
Communications AB, dated as of April 12, 1995 (China, Hong Kong, Taiwan
and Korea). (8)
10.15 Distribution Contract by and between Cellular Express and Radiomovil
Dipsa, S.A. de C.V., dated as of September 23, 1992 (English translation
of executed agreement). (4)
10.16 Agent Agreement by and between CellStar Celular C.A. and
Telecomunicaciones Movilnet C.A., dated July 23, 1993. (4)
10.17 Lease by and between Alan H. Goldfield and National Auto Center, Inc.
regarding 605 West Airport Freeway, Irving, Texas. (4)(15)
10.18 Exclusive Cellular Subagent Agreement by and between National Auto Center
and Alan H. Goldfield d/b/a National Tape. (4)(15)
10.19 Registration Rights Agreement by and between the Company and Audiovox
Corporation. (4)
10.20 Form of Warrant for the purchase of shares of common stock to be issued
to Ladenburg, Thalmann & Co., Inc. and Raymond James & Associates, Inc.
(4)
10.21 Agency Agreement by and between CellStar de Colombia Ltda. and Occidente
y Caribe Celular S.A., dated as of June 24, 1994. (9)
10.22 Joint Venture Agreement by and among CellStar International
Corporation\Asia, Leap International Pte Ltd. and Hong An Hsein, dated
February 1, 1995. (3)
10.23 National Retail Dealer Agreement by and between National Auto Center,
Inc. and McCaw National Accounts, Inc. (6)
10.24 Agreement by and between Express Telecommunication Company, Inc.
(Extelcom) and CellStar Philippines, Inc., dated January 16, 1995. (6)
10.25 Stock Purchase Agreement by and between the Company and Motorola Inc.,
dated as of July 20, 1995. (1)
10.26 Registration Rights Agreement by and between the Company and Motorola
Inc., dated as of July 20, 1995. (1)
10.27 Amended and Restated Loan Agreement among National Auto Center, Inc., the
Company, each of the banks or other lending institutions signatory
thereto and Texas Commerce Bank National Association, dated as of July
20, 1995 (the "Credit Agreement"). (1)
10.28 First Amendment to Credit Agreement, dated as of February 29, 1996. (2)
10.29 Second Amendment to Credit Agreement, dated as of July 31, 1996. (5)
10.30 Third Amendment to Credit Agreement, dated as of July 31, 1996. (5)
10.31 Deed of Trust among CellStar, Ltd., First Interstate Bank of Texas, N.A.
and P. Michael Wells, Jr., dated April 28, 1995. (1)
10.32 First Modification of Deed of Trust by and between CellStar, Ltd. and
First Interstate Bank of Texas, N.A., dated as of August 31, 1995. (1)
10.33 Second Modification of Deed of Trust by and between CellStar, Ltd. and
First Interstate Bank of Texas, N.A. (11)
10.34 Promissory Note from CellStar, Ltd. to First Interstate Bank of Texas,
N.A. dated April 15, 1996. (11)
10.35 Promissory Note from CellStar, Ltd. to First Interstate Bank of Texas,
N.A. , dated August 31, 1995. (1)
18
<PAGE>
10.36 Loan Agreement by and between NDB Bank, Hong Kong Branch, and
CellStar (Asia) Corporation Limited (the "Asia Loan Agreement"),
dated August 9, 1995. (1)
10.37 Supplement to Debenture, dated November 22, 1995, relating to the
Asia Loan Agreement. (3)
10.38 CellStar Corporation 1993 Amended and Restated Long-Term Incentive
Plan. (14)(15)
10.39 CellStar Corporation Amended and Restated Annual Incentive
Compensation Plan. (14)(15)
10.40 CellStar Corporation 1994 Amended and Restated Director
Nonqualified Stock Option Plan. (7)(15)
10.41 Form of Stock Purchase Agreement by and between Alan H. Goldfield
and CellStar International Corporation/Asia, dated as of June 2,
1995. (10)
10.42 Employment Agreement, effective as of May 24, 1996, by and between
CellStar, Ltd., the Company and Richard M. Gozia. (11)(15)
10.43 Joint Venture Agreement, dated as of April 1, 1996, between
CellStar International Corporation\S.A., Simon Rex Earle and
Martin Robert deRooy and CellStar UK Limited. (11)
10.44 Supply and Service Agreement by and between CellStar, Ltd., and MCI
Telecommunications Corporation, dated as of November 26, 1996 (the
"MCI Supply Agreement"). (13)(16)
10.45 Amendment Number One to MCI Supply Agreement, dated as of January
4, 1997. (14)
10.46 Amendment to MCI Supply Agreement, dated January 8, 1997. (14)
10.47 Distributor Supply Agreement between Motorola Ltd., trading as
Motorola, Cellular Subscriber Division, UK, and CellStar UK
Limited, executed April 3, 1996. (14)
10.48 Accessory Supply Agreement between Motorola Limited, trading as
European Cellular Subscriber Group, and CellStar UK Limited,
executed October 25, 1996. (14)(16)
10.49 Separation Agreement and Release between Kenneth E. Kerby and
CellStar, Ltd., effective December 19, 1996. (14)(15)
10.50 Loan Agreement by and between The First National Bank of Chicago,
Hong Kong Branch, and CellStar (Asia) Corporation Limited (the
"Amended Asian Loan Agreement"), dated July 31, 1996. (14)
10.51 Employment Agreement by and between CellStar (Asia) Corporation
Limited and Hong An-Hsien, dated as of June 1, 1995. (14)(15)
21.1 Subsidiaries of the Company. (13)
23.1 Consent of KPMG Peat Marwick LLP. (13)
27 Financial Data Schedule. (14)
99.1 Shareholders Agreement by Alan H. Goldfield to Motorola Inc., dated
as of July 20, 1995. (1)
_______________
(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 Quarterly Report on Form
10-Q for the quarter ended February 29, 1996, and incorporated herein by
reference.
(3) 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.
(4) Previously filed as an exhibit to the Company's Registration Statement No.
33-70262 on Form S-1, and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended August 31, 1996, and incorporated herein by
reference.
19
<PAGE>
(6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended November 30, 1994, and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended February 28, 1995, and incorporated herein by
reference.
(8) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1995, and incorporated herein by
reference.
(9) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended August 31, 1994, and incorporated herein by
reference.
(10) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated June 2, 1995, and incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1996, and incorporated herein by
reference.
(12) Previously filed as an exhibit to the Company's Registration Statement on
Form 8-A(File No. 000-22972) and incorporated herein by reference.
(13) Filed herewith.
(14) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended November 30, 1996, and incorporated herein by
reference.
(15) The exhibit is a management contract or compensatory plan or arrangement.
(16) Certain provisions of this exhibit are subject to a request for
confidential treatment filed with the Securities and Exchange Commission.
4. Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the fiscal
year covered by this report on Form 10-K.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
CELLSTAR CORPORATION
By: /s/ Mark Q. Huggins
----------------------------------------
Mark Q. Huggins
Senior Vice President-Administration,
Chief Financial Officer and Treasurer
Date: July 10, 1997
21
<PAGE>
CellStar Corporation and Subsidiaries
Index to Consolidated Financial Statements
Independent Auditors' Report........................................... F-2
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Operations.................................. F-4
Consolidated Statements of Stockholders' Equity ....................... F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements............................. F-7
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
CellStar Corporation:
We have audited the accompanying consolidated balance sheets of CellStar
Corporation and subsidiaries as of November 30, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended November 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CellStar
Corporation and subsidiaries as of November 30, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended November 30, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
January 31, 1997
F-2
<PAGE>
CellStar Corporation and Subsidiaries
Consolidated Balance Sheets
November 30, 1996 and 1995
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 27,296 31,508
Accounts receivable (less allowance for doubtful accounts of
$29,023 and $3,738, respectively) 131,812 125,079
Inventories 94,473 109,287
Deferred income taxes 4,274 3,158
Prepaid expenses 1,513 2,124
--------- ---------
Total current assets 259,368 271,156
Property and equipment, net 20,134 23,181
Goodwill (less accumulated amortization of $1,330 and $437, respectively) 16,597 17,047
Other assets 2,452 3,537
--------- ---------
$ 298,551 314,921
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 116,091 78,758
Notes payable to financial institutions 56,136 98,603
Accrued expenses 12,250 8,446
Income taxes payable 2,958 10,355
Current portion of long-term debt 568 584
--------- ---------
Total current liabilities 188,003 196,746
Long-term debt, less current portion 6,285 6,880
--------- ---------
Total liabilities 194,288 203,626
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
none issued - -
Common stock, $.01 par value, 45,000,000 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 (4,520) (3,901)
Retained earnings 40,419 46,832
--------- ---------
Total stockholders' equity 104,263 111,295
--------- ---------
$ 298,551 314,921
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CellStar Corporation and Subsidiaries
Consolidated Statements of Operations
Years ended November 30, 1996, 1995 and 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Net product sales $ 845,569 723,886 447,741
Activation income 88,474 75,690 60,153
Residual income 13,558 12,339 10,528
----------- ----------- -----------
Total revenues 947,601 811,915 518,422
Cost of sales 810,000 702,074 448,780
----------- ----------- -----------
Gross profit 137,601 109,841 69,642
Selling, general and administrative expenses 135,585 76,553 44,598
----------- ----------- -----------
Operating income 2,016 33,288 25,044
Other income (expense):
Interest expense (8,350) (6,144) (1,016)
(Undistributed loss) equity in earnings of joint ventures (219) 3,222 1,073
Other, net (313) (28) 175
----------- ----------- -----------
Total other income (expense) (8,882) (2,950) 232
----------- ----------- -----------
(Loss) income before income taxes (6,866) 30,338 25,276
(Benefit) provision for income taxes (453) 7,442 9,028
----------- ----------- -----------
Net (loss) income $ (6,413) 22,896 16,248
=========== =========== ===========
Net (loss) income per share $ (0.33) 1.22 0.88
=========== =========== ===========
Weighted average number of shares outstanding 19,274 18,822 18,441
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CellStar Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended November 30, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Common currency
------------ paid-in stock translation Retained
Shares Amount capital warrants adjustments earnings Total
------ ------ ---------- -------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1993 13,500 $ 135 - - (74) 7,688 7,749
Net income - - - - - 16,248 16,248
Issuance of common stock 5,060 51 52,940 - - - 52,991
Warrants issued in connection with
initial public offering - - - 4 - - 4
Foreign currency translation
adjustment - - - - (350) - (350)
------ ------ ---------- -------- ----------- -------- -------
Balance at November 30, 1994 18,560 186 52,940 4 (424) 23,936 76,642
Net income - - - - - 22,896 22,896
Issuance of common stock 714 7 15,227 - - - 15,234
Foreign currency translation
adjustment - - - - (3,477) - (3,477)
------ ------ ---------- -------- ----------- -------- -------
Balance at November 30, 1995 19,274 193 68,167 4 (3,901) 46,832 111,295
Net loss - - - - - (6,413) (6,413)
Foreign currency translation
adjustment - - - - (619) - (619)
------ ------ ---------- -------- ----------- -------- -------
Balance at November 30, 1996 19,274 $ 193 68,167 4 (4,520) 40,419 104,263
====== ====== ========== ======== =========== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CellStar Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years ended November 30, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (6,413) 22,896 16,248
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Allowance for doubtful accounts, net of chargeoffs 24,538 849 1,103
Provision for inventory obsolescence 8,718 466 338
Depreciation and amortization 5,799 3,372 1,623
Gain on sale of assets (128) - -
(Undistributed loss) equity in earnings of joint ventures 219 (3,222) (1,073)
Deferred income tax benefit (1,116) (1,823) (1,424)
Changes in certain operating assets and liabilities:
Accounts receivable (32,637) (71,391) (30,512)
Inventories 6,067 (5,971) (51,413)
Prepaid expenses 611 (1,480) (518)
Other assets 318 (1,708) (741)
Accounts payable 36,162 (5,166) 24,682
Accrued expenses 3,361 3,056 1,074
Income taxes payable (7,397) 3,495 1,757
---------- ---------- ----------
Net cash provided by (used in) operating activities 38,102 (56,627) (38,856)
---------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (6,139) (12,284) (4,615)
Proceeds from sale of assets 6,903 - -
Acquisition, net of cash acquired - - (260)
Purchase of equity investments in joint ventures - (750) -
---------- ---------- ----------
Net cash provided by (used in) investing activities 764 (13,034) (4,875)
---------- ---------- ----------
Cash flows from financing activities:
Net (payments) borrowings on notes payable to financial institutions (42,467) 86,103 10,000
Proceeds from issuance of note payable to stockholder - 3,728 -
Payments on notes payable to stockholders - (22,000) (13,682)
Proceeds from issuance of long-term debt - 4,425 -
Principal payments on long-term debt (611) (291) (198)
Net proceeds from issuance of common stock and common
stock warrants - 15,234 54,031
---------- ---------- ----------
Net cash (used in) provided by financing activities (43,078) 87,199 50,151
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents (4,212) 17,538 6,420
Cash and cash equivalents at beginning of year 31,508 13,970 7,550
---------- ---------- ----------
Cash and cash equivalents at end of year $ 27,296 31,508 13,970
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CellStar Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(1) Description of Business and Summary of Significant Accounting Policies
(a) Description of Business
CellStar Corporation and subsidiaries (the "Company") is an
integrated wholesaler and retailer of cellular phones and other wireless
communications products, with operations in the United States, the Asia-Pacific
Region, Latin America and the United Kingdom. The Company is one of the world's
largest non-carrier wholesale distributors of cellular phones for Motorola,
Nokia and Ericsson. The Company is also one of the largest non-carrier wholesale
distributors of cellular phones for NEC in the United States. The Company is
also a retailer of wireless communications products and services, with 36 retail
locations in the United States, 6 retail locations in the Asia-Pacific Region
and 20 retail locations in Latin America as of November 30, 1996.
All significant intercompany balances and transactions have been
eliminated in consolidation. The fair value of current assets and liabilities
approximates carrying value due to their short maturity. The fair value of
long-term debt approximates carrying value due to the market rates of interest
being charged. Certain prior year amounts have been reclassified to conform to
the current year presentation.
(b) Inventories
Inventories are stated at the lower of cost (primarily on a moving
average basis) or market.
(c) Property and Equipment
Property and equipment are recorded at cost. Depreciation of
equipment is provided over the estimated useful lives of the respective assets,
which range from three to thirty years, on a straight-line basis. Leasehold
improvements are amortized over the shorter of their useful life or the related
lease term. Major renewals are capitalized, while maintenance, repairs and minor
renewals are expensed as incurred.
(d) Preopening Costs
Labor and certain other costs related to the opening of new retail
locations are expensed as incurred.
(e) Revenue Recognition
For the Company's wholesale business, revenue is recognized when
product is shipped. In accordance with contractual agreements with cellular
service providers, the Company receives an initial activation commission for
obtaining subscribers for cellular phone services in connection with the
Company's retail operations. The agreements contain various provisions for
additional commissions ("residual commissions") based upon subscriber usage. The
agreements also provide for the reduction or elimination of initial activation
commissions if subscribers deactivate service within stipulated periods. The
Company recognizes initial activation and residual commission revenue when
earned and provides an allowance for estimated cellular service deactivations,
which is reflected as a reduction of accounts receivable in the accompanying
consolidated balance sheets.
(f) Foreign Currency
Assets and liabilities of the Company's foreign subsidiaries have
been translated at the rates of exchange at the end of each period. Revenues and
expenses have been translated at the weighted average rates of exchange in
effect during the respective period. Gains and losses resulting from translation
are accumulated as a separate component of stockholders' equity, except for
subsidiaries
F-7
<PAGE>
CellStar Corporation and Subsidiaries
Notes to Consolidated Financial Statements
located in countries whose economies are considered highly inflationary. In such
cases, translation adjustments are included primarily in cost of sales in the
accompanying consolidated statements of operations. Transaction gains or losses
for the years ended November 30, 1996, 1995 and 1994 were $1.8 million, $1.3
million and $1.4 million, respectively, and are included in the accompanying
consolidated statements of operations. The currency exchange rates of the Latin
American countries in which the Company conducts operations have historically
been volatile. The Company manages the risk of foreign currency devaluation by
attempting to increase prices of products sold 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 exchange contracts in certain instances.
(g) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(h) Net (Loss) Income Per Share
Net (loss) income per share is computed by dividing net (loss) income
by the weighted average number of shares of common stock and common stock
equivalents outstanding during each period. The dilutive effect of common stock
options and warrants, treated as common stock equivalents, is calculated using
the treasury stock method. Primary and fully diluted earnings per common and
common equivalent share are essentially the same.
(i) Statements of Cash Flow Information
For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid investments with an original maturity of 90
days or less to be cash equivalents. The Company paid approximately $8.7
million, $6.0 million and $1.0 million of interest expense for the years ended
November 30, 1996, 1995 and 1994, respectively. The Company paid approximately
$7.8 million, $4.0 million and $8.7 million of income taxes for the years ended
November 30, 1996, 1995 and 1994, respectively. The Company wrote-off accounts
receivable of approximately $2.8 million, $2.0 million and $1.3 million for the
years ended November 30, 1996, 1995 and 1994, respectively.
(j) Equity Investments
The Company accounts for its investments in common stock of its joint
ventures using the equity method. The investments are included in other assets.
(k) 401(k) Savings Plan
The Company established a savings plan for employees in 1994.
Employees are eligible to participate if they were full-time employees as of
July 1, 1994 or upon completing ninety days of service. The plan is subject to
the provisions of the Employee Retirement Income Security Act of 1974. Under
provisions of the plan, eligible employees are allowed to contribute as much as
15% of their compensation, up to the annual maximum allowed by the Internal
Revenue Service. To date, the Company has made no contributions to the plan.
F-8
<PAGE>
CellStar Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(l) Goodwill
Goodwill represents the excess of the purchase price over the fair
value of net assets acquired and is amortized using the straight-line method
over 20 years. The Company assesses the net realizable value of this intangible
asset by determining the estimated future cash flows related to such assets. In
the event that assets are found to be carried at amounts which are in excess of
estimated future operating cash flows, then the intangible assets will be
adjusted for impairment to a level commensurate with a discounted cash flow
analysis of the underlying assets.
(m) Use of Estimates
Management of the Company has made a number of estimates and
assumptions related to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities in preparation of these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(2) Related Party Transactions
(a) Transactions with Motorola
Motorola is a major supplier of cellular phones and accessories to
the Company. Total purchases from Motorola approximated $609.7 million, $420.2
million and $310.4 million for the years ended November 30, 1996, 1995 and 1994,
respectively. Included in accounts payable at November 30, 1996 and 1995 was
approximately $90.8 million and $54.1 million, respectively, due to Motorola for
purchases of inventory.
In accordance with a stock purchase agreement dated July 20, 1995,
Motorola purchased 696,437 shares of restricted stock from the Company for
approximately $15.0 million. The proceeds were used to pay a portion of the
$22.0 million note payable to the Chief Executive Officer made in connection
with the Company's acquisition of CellStar Asia (note 10).
(b) Transactions with Audiovox Corporation
In December 1993, the Company entered into a one-year distributor
agreement with Audiovox Corporation ("Audiovox") whereby the Company was named
an exclusive independent distributor of certain Audiovox products in Texas,
Oklahoma, New Mexico and Mexico. Effective in 1995, the Company only served as a
sales representative for certain Audiovox automotive products. Total inventory
purchases from Audiovox were $0.5 million, $1.2 million and $21.6 million for
the years ended November 30, 1996, 1995 and 1994, respectively. Included in
accounts payable at November 30, 1996 and 1995 was $0.3 million and $0.4
million, respectively, due to Audiovox for purchases of inventory.
(3) Inventories
Inventories consisted of the following at November 30, 1996 and 1995
(in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Inventories $102,795 $110,091
Reserves (8,322) (804)
---------- ----------
Inventories, net $ 94,473 $109,287
========== ==========
</TABLE>
F-9
<PAGE>
CellStar Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(4) Property and Equipment
Property and equipment consisted of the following at November 30,
1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land and building $ 6,837 6,837
Furniture, fixtures and equipment 14,894 12,587
Jet aircraft 4,306 4,306
Leasehold improvements 1,688 2,998
Construction in progress - 998
------------ ------------
27,725 27,726
Less accumulated depreciation
and amortization (7,591) (4,545)
------------ ------------
$ 20,134 23,181
============ ============
</TABLE>
(5) Debt
Notes payable to financial institutions consisted of the following at
November 30, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
U.S. revolving credit facility $ 53,233 70,000
Asian revolving credit facility - 21,603
Brazilian note payable - 7,000
Brazilian credit facility 2,903 -
------------ ------------
$ 56,136 98,603
============ ============
</TABLE>
The U.S. revolving credit facility, with Texas Commerce Bank ("TCB")
as agent, was reduced from $135.0 million to $90.0 million in July 1996. The
facility matures on July 20, 1998 and is secured primarily by certain of the
Company's U.S. accounts receivable and inventory. At November 30, 1996, the
availability of funds under the U.S. revolving credit facility was governed by a
borrowing base of $85.6 million. Effective December 24, 1996, the advance rates
of the borrowing base were lowered. Borrowings were limited to $65.9 million at
January 27, 1997.
The U.S. revolving credit facility contains, among other provisions,
covenants relating to minimum net worth, the maintenance of certain financial
ratios, capital spending, dividend payments, additional debt, mergers, and
acquisitions and dispositions of assets. The Company did not comply with certain
covenants at November 30, 1996 and accordingly has received waivers with respect
to such covenants from its lenders. Covenants are measured on a quarterly basis.
There can be no assurance that the Company will not require additional waivers
in the future or, if required, that the lenders will grant them.
The Asian revolving credit facility, extended by the First National
Bank of Chicago, Hong Kong branch, was reduced from $22.5 million to $15.0
million on March 31, 1996. The facility matures on July 31, 1997 and is secured
primarily by CellStar Asia's accounts receivable and inventory and the Company's
guarantee. The availability of funds under the Asian revolving credit facility
is governed by a
F-10
<PAGE>
CellStar Corporation and Subsidiaries
Notes to Consolidated Financial Statements
borrowing base. The Asian revolving credit facility contains, among other
provisions, covenants relating to CellStar Asia's net worth and certain
financial ratios.
The outstanding balance under the Brazilian note payable was repaid
by the Company during 1996. At November 30, 1996, the Company's Brazilian
subsidiary had a $2.9 million line of credit with a Brazilian bank that was
secured by a letter of credit issued by TCB.
The weighted average interest rate on short-term borrowings at
November 30, 1996 and 1995 was 9.57% and 7.65%, respectively.
Long-term debt consisted of the following at November 30, 1996 and
1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Equipment loan $ 2,723 3,039
Mortgage note payable 4,130 4,425
---------- ----------
6,853 7,464
Less current portion (568) (584)
---------- ----------
$ 6,285 6,880
========== ==========
</TABLE>
The equipment loan is a note payable to a finance company which bears
interest at the Federal Reserve Bank's one-month Commercial Paper Rate plus
3.12% (8.57% at November 30, 1996). The note is payable in monthly installments
of approximately $41,000 through July 2003 and is secured by the Company's jet
aircraft. The Company has an option to convert the interest rate to a fixed rate
at a comparable U.S. Treasury base rate plus 3.25%.
The $4.1 million mortgage note is due to a financial institution in
quarterly installments of approximately $74,000 through September 2005; bears
interest at the institution's prime rate plus 1.0%, 9.25% at November 30, 1996,
and is secured by the Company's headquarters facilities.
Required principal payments on long-term debt are as follows (in
thousands):
<TABLE>
<CAPTION>
Year ending
November 30, Payments
- ------------ --------
<S> <C>
1997 $ 568
1998 592
1999 618
2000 647
2001 678
Thereafter 3,750
</TABLE>
F-11
<PAGE>
CellStar Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(6) Income Taxes
Income tax (benefit) expense for the years ended November 30, 1996,
1995 and 1994 consisted of the following (in thousands):
<TABLE>
<CAPTION>
Current Deferred Total
----------- ------------ -----------
<S> <C> <C> <C>
Year ended
November 30, 1996:
United States:
Federal $ (4,682) (1,383) (6,065)
State (366) (78) (444)
Latin America 1,237 204 1,441
Asia-Pacific 4,474 141 4,615
----------- ----------- -----------
$ 663 (1,116) (453)
=========== =========== ===========
Year ended
November 30, 1995:
United States:
Federal $ 4,793 (1,187) 3,606
State 575 (25) 550
Latin America 655 (450) 205
Asia-Pacific 3,242 (161) 3,081
----------- ----------- -----------
$ 9,265 (1,823) 7,442
=========== =========== ===========
Year ended
November 30, 1994:
United States:
Federal $ 6,899 (1,177) 5,722
State 681 (107) 574
Latin America 2,872 (140) 2,732
----------- ----------- -----------
$ 10,452 (1,424) 9,028
=========== =========== ===========
</TABLE>
F-12
<PAGE>
CellStar Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Income tax (benefit) expense differed from the amounts computed by
applying the United States Federal income tax rate of 35% to pretax income as a
result of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Expected tax (benefit) expense $ (2,403) 10,618 8,847
Foreign and U.S. tax effects
attributable to foreign operations 2,658 (2,630) 409
State income taxes, net of
Federal benefit (289) 358 386
(Undistributed loss) equity in earnings
of joint ventures - (1,128) (375)
Change in the valuation
allowance for deferred
tax assets - - (71)
Other, net (419) 224 (168)
---------- ---------- ---------
Actual tax (benefit) expense $ (453) 7,442 9,028
========== ========== =========
</TABLE>
The tax effect of temporary differences underlying significant portions
of deferred tax assets at November 30, 1996 and 1995, is presented below (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
United States:
Accounts receivable, principally
allowance for doubtful accounts $ 2,734 956
Inventory adjustments for tax
purposes 2,265 2,545
Other, net (897) (860)
Asia-Pacific:
Accounts receivable, principally
allowance for doubtful accounts 20 161
Latin America:
Other, net 152 356
---------- ----------
Net deferred tax asset $ 4,274 3,158
========== ==========
</TABLE>
Based on the expectation that the temporary differences will reverse
in the next year and the ability to carryback deferred tax benefits, management
believes it is more likely than not that the Company will realize the benefit of
such deferred tax assets.
The Company does not provide for Federal income taxes or tax benefits
on the undistributed earnings and/or losses of its international subsidiaries
because earnings are reinvested and, in the opinion of management, will continue
to be reinvested indefinitely. At November 30, 1996, the Company had not
provided Federal income taxes on earnings of international subsidiaries of
approximately $23.8 million. Upon distribution of these earnings in the form of
dividends or otherwise, the Company would be subject to both U.S. income taxes
and withholding taxes in the various international jurisdictions.
F-13
<PAGE>
CellStar Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Because many types of transactions are susceptible to varying
interpretations under foreign and U.S. income tax laws and regulations, the
amounts recorded in the accompanying consolidated financial statements may be
subject to change upon final determination by the respective taxing authorities.
Management believes it has provided an adequate tax provision.
(7) Leases
The Company leases certain land, retail stores, office facilities and
equipment under operating leases which range from two to ninety-nine years and
which generally contain renewal options for consecutive five-year terms. Rental
expense for operating leases was approximately $4.3 million, $3.1 million and
$2.1 million for the years ended November 30, 1996, 1995 and 1994, respectively.
Future minimum lease payments under operating leases as of November 30, 1996 are
as follows (in thousands):
<TABLE>
<CAPTION>
November 30, Amount
----------
<S> <C>
1997 $ 3,234
1998 2,630
1999 1,574
2000 1,077
2001 157
Thereafter 1,247
----------
$ 9,919
==========
</TABLE>
(8) Concentration of Credit Risk and Major Customer Information
CellStar Asia accounted for 11.5% or $59.8 million of total revenues
for the year ended November 30, 1994 and accounted for 11.1% or $90.2 million of
total revenues for the year ended November 30, 1995, prior to it becoming a
wholly-owned subsidiary of the Company (note 10). No other customer accounted
for 10% or more of total revenues in each of the years ended November 30, 1996,
1995 and 1994.
F-14
<PAGE>
CellStar Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(9) Geographic Area Information
The Company operates predominantly within one business segment,
wholesale and retail sales of cellular phones and related equipment. Financial
information by geographic area as of and for the years ended November 30, 1996,
1995 and 1994, is as follows (in thousands):
<TABLE>
<CAPTION>
United Latin
States Asia-Pacific America Europe Total
---------- -------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
November 30, 1996:
Total revenues, net of intercompany amounts $ 568,744 248,493 119,796 10,568 947,601
Intercompany sales (purchases) 38,802 (2,121) (36,676) (5) -
(Loss) income before income taxes (3,870) 20,094 (22,877) (213) (6,866)
Net income (loss) 2,639 15,479 (24,318) (213) (6,413)
Identifiable assets 159,993 82,024 44,382 12,152 298,551
November 30, 1995:
Total revenues, net of intercompany amounts $ 478,177 183,274 150,464 - 811,915
Intercompany sales (purchases) 103,332 (32,564) (70,768) - -
Income before income taxes 10,213 19,775 350 - 30,338
Net income 6,057 16,694 145 - 22,896
Identifiable assets 149,320 93,441 72,160 - 314,921
November 30, 1994:
Total revenues, net of intercompany amounts $ 398,104 - 120,318 - 518,422
Intercompany sales (purchases) 66,199 - (66,199) - -
Income before income taxes 19,170 - 6,106 - 25,276
Net income 12,874 - 3,374 - 16,248
Identifiable assets 131,219 - 55,135 - 186,354
</TABLE>
(10) Purchase of CellStar Asia
In October 1993, the Company purchased a 50% ownership interest in a
newly-formed company, CellStar Asia, for approximately $0.2 million. On February
1, 1995, the Company entered into a joint venture agreement with Leap
International PTE LTD. ("Leap"), a Singapore company, and Horng An Hsien ("Mr.
Horng"), an individual who was also the Company's joint venture partner in
CellStar Asia. Under the terms of the joint venture agreement, the parties
formed CellStar Pacific PTE LTD ("CellStar Pacific"), a Singapore company which
was owned 75% by the Company, 20% by Leap and 5% by Mr. Horng. The Company's
initial investment was approximately $0.2 million. An additional 5% of CellStar
Pacific was purchased by the Company in fiscal 1995. CellStar Asia and CellStar
Pacific distribute cellular phone products in the People's Republic of China and
other Asia-Pacific markets.
F-15
<PAGE>
CellStar Corporation and Subsidiaries
Notes to Consolidated Financial Statements
On June 2, 1995, the Company's Chief Executive Officer acquired the
remaining 50% interest in CellStar Asia for cash of $1.0 million and 1.0 million
shares of restricted common stock with a fair value of $21.0 million.
Simultaneously, the Chief Executive Officer then transferred this ownership
interest in CellStar Asia to the Company in exchange for a note payable of $22.0
million, giving the Company 100% ownership in CellStar Asia. The acquisition of
the remaining 50% interest in CellStar Asia is being accounted for as a purchase
and the results of operations of CellStar Asia have been included in the
consolidated financial statements from the date of acquisition. The Company's
50% equity interest in the operations of CellStar Asia, prior to the date of
acquisition, is included in equity in earnings of joint venture. Goodwill of
$17.5 million is being amortized on a straight-line basis over 20 years. The
following unaudited pro forma information presents the consolidated results of
operations of the Company as if the acquisition of CellStar Asia had occurred on
December 1, 1993, with pro forma adjustments to give effect to the elimination
of sales by the Company to CellStar Asia, amortization of goodwill, interest
expense on acquisition debt, and certain other adjustments at November 30, 1995
and 1994 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Revenues $ 806,648 519,712
Net income 24,913 15,215
Net income per share 1.32 0.83
</TABLE>
Prior to the acquisition, the Company's sales to CellStar Asia were
$90.2 million and $59.8 million in 1995 and 1994, respectively. Gross profit
recognized by the Company on these sales was $3.6 million and $1.8 million in
1995 and 1994, respectively.
(11) Stockholders' Equity
(a) Reorganization and Initial Public Offering
On December 1, 1993, a wholly-owned subsidiary of the Company was merged
with and into National Auto Center, Inc. ("NAC"), a Texas corporation which was
incorporated in 1981. As a result of this transaction, the Company acquired all
of the outstanding common stock of NAC. In connection with the reorganization,
all of the outstanding stock of Audiomex Export Corp. ("Audiomex"), the parent
company of Celular Express, S.A. de C.V. (the Mexican operations), was
contributed to NAC. NAC and Audiomex had been jointly owned by Audiovox and the
Company's Chief Executive Officer, each of which was issued 6.75 million shares
of the Company's common stock in the reorganization. The reorganization was
treated in a manner similar to a pooling of interests.
In December 1993, the Company issued 5.06 million shares of common stock
to the public. The net proceeds of this initial public offering were $53.0
million. The proceeds were used to pay $13.7 million of notes payable to the
Company's stockholders, $2.5 million of a note payable to a financial
institution, and $2.9 million of accrued fees and bonus to stockholders. The
balance of the proceeds was added to the Company's working capital for general
corporate purposes.
F-16
<PAGE>
CellStar Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(b) Common Stock Options and Warrants
In December 1993, the Company issued warrants for 440,000 shares of its
common stock. The warrants are exercisable at $13.80 per share for a period of
four years commencing in December 1994, subject to adjustment in certain events,
and expire in December 1998.
In December 1993, the Company adopted the 1993 Stock Option Plan ("the
Plan") covering 500,000 shares of common stock of the Company. On March 14,
1995, the number of shares covered by the Plan was increased to 1.5 million.
Options under the Plan will be granted as determined by the Company's Board of
Directors. The options will expire ten years from the date of grant unless
earlier termination due to death, disability, retirement or other termination of
employment of the optionee. Options, other than options granted to the Company's
Chief Executive Officer, have vesting schedules ranging from immediate vesting
on the date of grant to vesting 25% per year commencing on the first anniversary
of the date of grant. The exercise price is the quoted market value of the
common stock on the date of grant.
In March 1994, the Board of Directors also adopted the 1994 Directors'
Nonqualified Stock Plan (the "Directors' Option Plan") and subsequently amended
it in November 1994. The Directors' Option Plan provides that each non-employee
director of the Company as of the date the Directors' Option Plan was adopted
and each person who thereafter becomes a non-employee director will
automatically be granted an option to purchase 2,500 shares of common stock. The
purchase price for the shares on the grant date is equal to fair market value of
the shares on the grant date. A total of 50,000 shares of common stock is
authorized for issuance pursuant to the Directors' Option Plan. Each option
granted under the Directors' Option Plan will become exercisable six months
after its date of grant and will not be exercisable more than ten years after
its date of grant. The options will expire ten years from the date of grant
unless earlier termination due to death, disability, retirement or other
termination of employment of the optionee.
F-17
<PAGE>
CellStar Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Details of stock options are as follows:
<TABLE>
<CAPTION>
Number of Shares Option Price
------------------- -----------------
1994
- -------------------------
<S> <C> <C>
Granted 120,000 $11.50 - 19.00
Exercised - -
Forfeited 27,500 $11.50
Outstanding, end of year 92,500 $11.50 - 19.00
Exercisable, end of year - -
<CAPTION>
1995
- -------------------------
<S> <C> <C>
Granted 598,600 $18.50 - 29.75
Exercised 17,125 $11.50 - 18.62
Forfeited 13,750 $11.50 - 18.50
Outstanding, end of year 660,225 $11.50 - 29.75
Exercisable, end of year 9,750 $11.50 - 19.00
<CAPTION>
1996
- -------------------------
<S> <C> <C>
Granted 471,665 $ 6.50 - 26.25
Exercised - -
Forfeited 404,422 $11.50 - 29.75
Outstanding, end of year 727,468 $ 6.50 - 22.75
Exercisable, end of year 180,468 $11.50 - 22.75
Reserved for future grants under the Plan 780,032
Reserved for future grants under the Directors' Option Plan 42,500
</TABLE>
(c) Common Stock Ownership and Voting Rights
In December 1993, Audiovox granted the Chief Executive Officer a two-
year option to purchase, in whole or in part, up to 1.5 million shares of the
Company's common stock owned by Audiovox. On June 2, 1995, the Chief Executive
Officer exercised this option at $11.50 per share. Additionally, Audiovox
granted the Chief Executive Officer an option to purchase up to 250,000 shares
of the Company's common stock at $13.80 per share, commencing in December 1993
and expiring in December 1996. These options were subject to certain
restrictions and adjustments.
The Chief Executive Officer had the right to vote the 1.3 million shares
owned by Audiovox until December 3, 1995. Further, the Chief Executive Officer
has a revocable proxy to vote the 1.0 million shares transferred for the
acquisition of CellStar Asia (note 10).
(d) Stockholder Rights Plan
On December 30, 1996, the Board of Directors of the Company declared a
dividend distribution of one common stock purchase right ("Right") for each
share of the Company's common stock outstanding on January 9, 1997. Each Right
entitles the holder to buy one one-thousandth of a share of Series A Preferred
Stock, par value $.01 per share, at a purchase price of $80.00 per one one-
thousandth of a share, subject to adjustment. The Rights are not currently
exercisable, but would become exercisable if certain events occurred relating to
a person or group acquiring or
F-18
<PAGE>
CellStar Corporation and Subsidiaries
Notes to Consolidated Financial Statements
attempting to acquire 15% or more of the outstanding shares of common stock of
the Company. The Rights expire on January 9, 2007, unless earlier redeemed by
the Company.
(12) Commitments and Contingencies
(a) Employment Contracts
In January 1995, the Board of Directors approved an employment agreement
with the Company's Chief Executive Officer ("CEO"). This agreement has no fixed
expiration date. Instead, the agreement expires on the fifth anniversary of the
date the Board of Directors determines to fix the expiration date. The
agreement, among other provisions, provides the CEO with a base salary of
$850,000 (subject to adjustment by the Board of Directors), potential annual
incentive payments, stock options and life and disability insurance. In 1996 and
1995, the Chief Executive Officer received a base salary of $850,000. In 1994,
the Chief Executive Officer received a base salary of $400,000 plus a bonus,
based on the Company's operating performance, of an additional $400,000. These
amounts are included in selling, general and administrative expenses in the
accompanying consolidated statements of operations. In May 1996, the Board of
Directors approved an employment agreement with the Company's Chief Financial
Officer (current President and Chief Operating Officer). Such agreement will
expire on May 24, 2001, and provides for a base salary of $250,000 (subject to
adjustment by the Board of Directors), potential for annual incentive payments,
stock options and life and disability insurance. In 1996, the Chief Financial
Officer received a prorated base salary of $125,000.
(b) Litigation
During the period from May 14, 1996 through July 22, 1996, four separate
purported class action lawsuits were filed in the United States District Court,
Northern District of Texas, Dallas Division against the Company; certain of the
Company's current and former officers, directors and employees; and the
Company's independent auditors. The four lawsuits have been consolidated, and
the State of Wisconsin Investment Board has been appointed as lead plaintiff in
the consolidated action.
A Consolidated Amended Complaint has been filed, which asserts claims
for violations of Section 10(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 10b-5 promulgated thereunder, violations
of Section 20(a) of the Exchange Act, state statutory fraud, common law fraud,
negligent misrepresentation and breach of fiduciary duty. The Consolidated
Amended Complaint alleges that the defendants made untrue statements of material
fact and/or omitted to state material facts about the business, financial
condition, performance and future prospects of the Company and that, as a result
of such statements or omissions, the value of the Company's common stock was
artificially inflated. Plaintiffs seek compensatory damages, exemplary damages
and costs and expenses, including attorneys' fees and expert fees.
All defendants have filed motions to dismiss all claims asserted in the
Consolidated Amended Complaint. The motions are pending. The Company believes it
has meritorious defenses to these claims and is vigorously defending this
action. The ultimate outcome is not currently predictable.
The Company is a party to various other claims, legal actions and
complaints arising in the ordinary course of business. Management believes that
the disposition of these other matters will not have a materially adverse effect
on the consolidated financial condition or results of operations of the Company.
(c) Financial Guarantee
The Company has guaranteed up to RM6.4 million (Malaysian ringgits),
$2.5 million as of November 30, 1996, for bank borrowings of its Malaysian
joint venture.
F-19
<PAGE>
CellStar Corporation and Subsidiaries
Supplemental Financial Data (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth
Three Months Ended Quarter Quarter Quarter Quarter
- ------------------ ------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
1996
Total revenues $ 204,975 225,571 223,590 293,465
Gross profit 32,005 29,628 30,792 45,176
Net income (loss) 738 (3,052) (12,331) 8,232
Net income (loss) per share 0.04 (0.16) (0.64) 0.43
<CAPTION>
1995
<S> <C> <C> <C> <C>
Total revenues $ 190,876 177,772 198,300 244,967
Gross profit 23,849 23,226 30,746 32,020
Net income 5,143 5,163 6,222 6,368
Net income per share 0.28 0.28 0.33 0.33
</TABLE>
F-20
<PAGE>
EXHIBIT INDEX
3.1 Amended and Restated Certificate of Incorporation of the Company.(1)
3.2 Form of Certificate of Designation, Preferences and Rights of Series A
Preferred Stock of CellStar Corporation ("Certificate of
Designation").(12)
3.3 Amended and Restated Bylaws of the Company.(2)
4.1 The Amended and Restated Certificate of Incorporation, the Amended and
Restated Bylaws and the Certificate of Designation of the Company filed
in response to items 3.1, 3.2 and 3.3 are incorporated in this item by
reference.(1)(2)(12)
4.2 Specimen Common Stock Certificate of the Company.(3)
4.3 Rights Agreement, dated as of December 30, 1996, by and between CellStar
Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent.(12)
10.1 Employment Agreement by and between the Company and Alan H. Goldfield,
effective as of December 1, 1994.(3)(15)
10.2 Employment Agreement by and between CellStar, Ltd., the Company and Mark
Q. Huggins, effective as of January 15, 1997.(14)(15)
10.3 Authorized Agency Agreement by and between CellStar, Ltd., and
Southwestern Bell Mobile Systems, Inc., entered into as of December 17,
1996.(13)(16)
10.4 Authorized Agency Agreement by and between National Auto Center and
Southwestern Bell Mobile Systems, Inc., entered into as of February 5,
1993.(4)
10.5 Agency Agreement by and between National Auto Center, Inc. and GTE
Mobilnet of South Texas Limited Partnership, dated effective as of
February 1, 1993.(4)
10.6 Agency Agreement by and between National Auto Center, Inc. and GTE
Mobilnet of Austin Limited Partnership, dated effective as of February 1,
1993.(4)
10.7 Agreement by and between Motorola Inc. by and through its Pan American
Cellular Subscriber Group, and CellStar, Ltd., effective January 1, 1996
(United States).(5)
10.8 Master Agreement for the Purchase of Products and Inventory Maintenance,
Assembly and Fulfillment (IAF) Services between Pacific Bell Mobile
Services and CellStar, Ltd., effective September 20, 1996.(13)(16)
10.9 Agreement by and between CellStar Pacific PTE LTD and Motorola Inc.,
dated February 9, 1995 (the Philippines) (the "Philippines
Agreement").(7)
10.10 Amendment to the Philippines Agreement, dated July 20, 1995.(3)
<PAGE>
10.11 Agreement by and between National Auto Center and the Pan American
Cellular Subscriber Division of Motorola Inc., dated as of January 1,
1995 (Latin American and Caribbean Territory). (6)
10.12 Agreement by and between CellStar, Ltd. and Motorola Inc., Greater China
Cellular Subscriber Division, dated as of April 28, 1995 (People's
Republic of China). (8)
10.13 Agreement by and between CellStar, Ltd. and Motorola Inc., Greater China
Cellular Subscriber Division, dated as of April 28, 1995 (Taiwan). (3)
10.14 Agreement by and between CellStar Pacific PTE LTD and Ericsson Mobile
Communications AB, dated as of April 12, 1995 (China, Hong Kong, Taiwan
and Korea). (8)
10.15 Distribution Contract by and between Cellular Express and Radiomovil
Dipsa, S.A. de C.V., dated as of September 23, 1992 (English translation
of executed agreement). (4)
10.16 Agent Agreement by and between CellStar Celular C.A. and
Telecomunicaciones Movilnet C.A., dated July 23, 1993. (4)
10.17 Lease by and between Alan H. Goldfield and National Auto Center, Inc.
regarding 605 West Airport Freeway, Irving, Texas. (4)(15)
10.18 Exclusive Cellular Subagent Agreement by and between National Auto Center
and Alan H. Goldfield d/b/a National Tape. (4)(15)
10.19 Registration Rights Agreement by and between the Company and Audiovox
Corporation. (4)
10.20 Form of Warrant for the purchase of shares of common stock to be issued
to Ladenburg, Thalmann & Co., Inc. and Raymond James & Associates, Inc.
(4)
10.21 Agency Agreement by and between CellStar de Colombia Ltda. and Occidente
y Caribe Celular S.A., dated as of June 24, 1994. (9)
10.22 Joint Venture Agreement by and among CellStar International
Corporation\Asia, Leap International Pte Ltd. and Hong An Hsein, dated
February 1, 1995. (3)
10.23 National Retail Dealer Agreement by and between National Auto Center,
Inc. and McCaw National Accounts, Inc. (6)
10.24 Agreement by and between Express Telecommunication Company, Inc.
(Extelcom) and CellStar Philippines, Inc., dated January 16, 1995. (6)
10.25 Stock Purchase Agreement by and between the Company and Motorola Inc.,
dated as of July 20, 1995. (1)
10.26 Registration Rights Agreement by and between the Company and Motorola
Inc., dated as of July 20, 1995. (1)
10.27 Amended and Restated Loan Agreement among National Auto Center, Inc., the
Company, each of the banks or other lending institutions signatory
thereto and Texas Commerce Bank National Association, dated as of July
20, 1995 (the "Credit Agreement"). (1)
10.28 First Amendment to Credit Agreement, dated as of February 29, 1996. (2)
10.29 Second Amendment to Credit Agreement, dated as of July 31, 1996. (5)
10.30 Third Amendment to Credit Agreement, dated as of July 31, 1996. (5)
10.31 Deed of Trust among CellStar, Ltd., First Interstate Bank of Texas, N.A.
and P. Michael Wells, Jr., dated April 28, 1995. (1)
10.32 First Modification of Deed of Trust by and between CellStar, Ltd. and
First Interstate Bank of Texas, N.A., dated as of August 31, 1995. (1)
10.33 Second Modification of Deed of Trust by and between CellStar, Ltd. and
First Interstate Bank of Texas, N.A. (11)
10.34 Promissory Note from CellStar, Ltd. to First Interstate Bank of Texas,
N.A. dated April 15, 1996. (11)
10.35 Promissory Note from CellStar, Ltd. to First Interstate Bank of Texas,
N.A., dated August 31, 1995. (1)
<PAGE>
10.36 Loan Agreement by and between NDB Bank, Hong Kong Branch, and
CellStar (Asia) Corporation Limited (the "Asia Loan Agreement"),
dated August 9, 1995. (1)
10.37 Supplement to Debenture, dated November 22, 1995, relating to the
Asia Loan Agreement. (3)
10.38 CellStar Corporation 1993 Amended and Restated Long-Term Incentive
Plan. (14)(15)
10.39 CellStar Corporation Amended and Restated Annual Incentive
Compensation Plan. (14)(15)
10.40 CellStar Corporation 1994 Amended and Restated Director
Nonqualified Stock Option Plan. (7)(15)
10.41 Form of Stock Purchase Agreement by and between Alan H. Goldfield
and CellStar International Corporation/Asia, dated as of June 2,
1995. (10)
10.42 Employment Agreement, effective as of May 24, 1996, by and between
CellStar, Ltd., the Company and Richard M. Gozia. (11)(15)
10.43 Joint Venture Agreement, dated as of April 1, 1996, between
CellStar International Corporation\S.A., Simon Rex Earle and
Martin Robert deRooy and CellStar UK Limited. (11)
10.44 Supply and Service Agreement by and between CellStar, Ltd., and MCI
Telecommunications Corporation, dated as of November 26, 1996 (the
"MCI Supply Agreement"). (13)(16)
10.45 Amendment Number One to MCI Supply Agreement, dated as of January
4, 1997. (14)
10.46 Amendment to MCI Supply Agreement, dated January 8, 1997. (14)
10.47 Distributor Supply Agreement between Motorola Ltd., trading as
Motorola, Cellular Subscriber Division, UK, and CellStar UK
Limited, executed April 3, 1996. (14)
10.48 Accessory Supply Agreement between Motorola Limited, trading as
European Cellular Subscriber Group, and CellStar UK Limited,
executed October 25, 1996. (14)(16)
10.49 Separation Agreement and Release between Kenneth E. Kerby and
CellStar, Ltd., effective December 19, 1996. (14)(15)
10.50 Loan Agreement by and between The First National Bank of Chicago,
Hong Kong Branch, and CellStar (Asia) Corporation Limited (the
"Amended Asian Loan Agreement"), dated July 31, 1996. (14)
10.51 Employment Agreement by and between CellStar (Asia) Corporation
Limited and Hong An-Hsien, dated as of June 1, 1995. (14)(15)
21.1 Subsidiaries of the Company. (13)
23.1 Consent of KPMG Peat Marwick LLP. (13)
27 Financial Data Schedule. (14)
99.1 Shareholders Agreement by Alan H. Goldfield to Motorola Inc., dated
as of July 20, 1995. (1)
_______________
(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 Quarterly Report on Form
10-Q for the quarter ended February 29, 1996, and incorporated herein by
reference.
(3) 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.
(4) Previously filed as an exhibit to the Company's Registration Statement No.
33-70262 on Form S-1, and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended August 31, 1996, and incorporated herein by
reference.
<PAGE>
(6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended November 30, 1994, and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended February 28, 1995, and incorporated herein by
reference.
(8) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1995, and incorporated herein by
reference.
(9) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended August 31, 1994, and incorporated herein by
reference.
(10) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated June 2, 1995, and incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1996, and incorporated herein by
reference.
(12) Previously filed as an exhibit to the Company's Registration Statement on
Form 8-A(File No. 000-22972) and incorporated herein by reference.
(13) Filed herewith.
(14) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended November 30, 1996, and incorporated herein by
reference.
(15) The exhibit is a management contract or compensatory plan or arrangement.
(16) Certain provisions of this exhibit are subject to a request for
confidential treatment filed with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 10.3
AUTHORIZED AGENCY AGREEMENT
BETWEEN
SOUTHWESTERN BELL MOBILE SYSTEMS, INC.
AND
CELLSTAR, LTD.
THIS AGREEMENT is made and entered into this 17th day of Dec.,
1996, by and between SOUTHWESTERN BELL MOBILE SYSTEMS, INC. ("SBMS"), acting in
its capacity as general partner of the Dallas SMSA Limited Partnership, and
being a corporation organized and existing under the laws of the States of
Delaware and Virginia with its principal place of business at 17330 Preston
Road, Suite 100A, Dallas, Texas 75252, and CELLSTAR, LTD., a Texas limited
partnershipwith its principal place of business at 1730 Briarcroft Court,
Carrollton, Texas 75006 ("AGENT").
W I T N E S S E T H:
--------------------
Whereas, SBMS is involved in the development, establishment and resale of
cellular radio service ("CRS"), which requires the use by CRS subscribers
("Subscribers") of cellular terminal equipment ("CPE");
Whereas, SBMS and/or its Affiliates is or may become involved in the
development and/or sale of other services, including but not limited to long
distance/toll service for CRS Subscribers, paging services, other Commercial
Mobile Radio Services, and competitive landline local exchange and/or long
distance services (collectively referred to as the "Services");
Whereas, SBMS has been granted regulatory authority to provide CRS in the
cellular geographic service area(s) within the Dallas - Ft. Worth and Sherman -
Denison metropolitan statistical areas ("MSA") and desires to provide CRS in
these Areas, as well as other Services in designated areas, through Authorized
Agents, Resellers, Distributors, direct sales and other forms of distribution to
Subscribers;
Whereas, SBMS has adopted and used or intends to adopt and use certain
valuable trademarks and service marks, symbols, logos and other identifying
indicia ("Marks") in the provision of its Services and CPE;
Whereas, AGENT is desirous of selling SBMS' CRS as a nonexclusive,
authorized CRS agent of SBMS and is desirous of selling, installing, providing
warranty service and/or maintaining CPE necessary for Subscribers to utilize
Services;
1
THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT BY "[REDACTED]".
<PAGE>
Whereas, SBMS and AGENT further agree AGENT shall sell, install, and/or
maintain and provide warranty service for CPE, and is licensed to use certain
identifying trademarks and the like in its business operations, as more
specifically detailed hereinafter.
Now, therefore, in consideration of the mutual promises herein contained,
it is hereby agreed:
1. DEFINITIONS
-----------
Activation. The act of initiating an Authorized Service in or to a
----------
Subscriber's CPE by SBMS.
Affiliate. A person, association, partnership, corporation or joint-stock
---------
company, trust or other business entity however organized ("Person") is an
affiliate of that entity that directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common control with such
Person. Control shall be defined as (i) ownership of a majority of the voting
power of all classes of voting stock or (ii) ownership of a majority of the
beneficial interests in income and capital of an entity other than a
corporation.
Authorized Services. Those Services provided by SBMS that AGENT is
-------------------
authorized hereunder to sell on behalf of SBMS, including CRS and any other
Services set forth on Exhibit "A" hereto, which shall be amended, from time to
time, as determined by SBMS in its sole discretion.
Area. The Dallas - Ft. Worth and Sherman - Denison metropolitan
----
statistical areas ("MSAs") within which SBMS has applied for and obtained
regulatory authority to provide CRS. The counties generally comprising these
MSAs and any additional counties that may be added to the areas served through
the Dallas SMSA Limited Partnership shall be deemed added to the Area, without
the necessity of an amendment to this Agreement with respect to other Authorized
Services, Area is defined as those Areas in which SBMS is authorized to and is
providing or reselling such Authorized Service, except as may be otherwise
defined or limited on Exhibit "A".
Cellular Radio Service (CRS). Any and all service (including resale of
----------------------------
said service) authorized by the F.C.C under Part 22 of its rules as amended
under the cellular orders set forth in An Inquiry Into the Use of the Bands 825-
845 MHz and 870-890 MHz for Cellular Communications Systems; and Amendments of
Parts 2 and 22 of the Commission's Rules Relative to Cellular Communications
Systems (CC Docket No. 79-318), 86 F.C.C. 2d 469 (1981), modified as set forth
in reconsideration order 89 F.C.C. 2d. 58 (1982), and as further modified as set
forth in reconsideration orders, rules or orders from time to time.
Commercial Mobile Radio Services (CMRS). Any and all services (including
---------------------------------------
resale of said services) that (i) fit the definition of commercial mobile
services pursuant to Section 332 of
2
<PAGE>
the Communications Act, 47 U.S.C. (S)332, (ii) are subject to regulation as
commercial mobile radio services by the FCC under the orders set forth in
Implementation of Sections 3(n) and 332 of the Communications Act:, Regulatory
Treatment of Mobile Services (CC Docket No. 93-252) or such other orders or
rules as may be in effect from time to time, or (iii) are the functional
equivalent of a commercial mobile service as defined in 47 U.S.C. (S)332. CMRS
shall in any event include CRS, all forms of specialized mobile radio service
(SMR and ESMR), and personal communications services (PCS).
CPE. The cellular terminal equipment needed for using CRS and other
---
Authorized Services.
Marks. Any and all trademarks, service marks, trade names, insignia,
-----
symbols, logos, decorative designs, or the list SBMS owns or is licensed or
sublicensed to use in connection with the Authorized Services or products
relating thereto and which SBMS, in its sole discretion, determines from time to
time that AGENT is authorized to use.
Paging Services. A service provided by a communication common carrier
---------------
engaged in rendering one-way communication.
Reseller. Any person, association, partnership, corporation, joint stock
--------
company, trust, or other entity that purchases bulk quantities of CRS from a
cellular carrier for resale distribution, directly or indirectly, to ultimate
users of CRS.
Subscriber. A customer of an Authorized Service provided by SBMS. Each
----------
CRS telephone number assigned to a customer of SBMS' CRS is deemed to be a
separate Subscriber, regardless of how many CRS telephone numbers may be
assigned to or used by any one customer.
Successor. Any person, association, partnership, corporation, joint stock
---------
company, trust or other entity however organized, that succeeds to or acquires
the rights, title or interests of another.
2. ACKNOWLEDGMENTS AND REPRESENTATIONS
-----------------------------------
SBMS and AGENT acknowledge that they have read this Agreement and
understand and accept the terms, conditions and covenants contained herein as
being reasonably necessary to maintain SBMS' high standards for CRS and other
Services, thereby to protect and preserve the goodwill of SBMS' CRS, Services
and its Marks. AGENT has read and understands the obligations imposed by the
FCC upon CRS licensees and their duties to SBMS as specified in Section 22.9l2
of the FCC's cellular rules.
AGENT acknowledges that SBMS' ability to provide CRS and other Services is
conditioned upon the continuing validity of its FCC operating license(s) and any
other required
3
<PAGE>
licenses, certificates and permits, and may be affected by state and federal
court decisions and regulatory approvals. SBMS makes no representation
concerning whether said licenses, certificates, and permits will continue to be
valid. AGENT agrees that if SBMS is prohibited from, or otherwise ceases selling
an Authorized Service in the Area, SBMS may declare this Agreement null and void
as to any or all Authorized Services with no penalty.
AGENT acknowledges that it has conducted an independent investigation of
the business of selling CRS and any other Services that it will conduct pursuant
to this Agreement. AGENT recognizes that entry into business as an AGENT of
SBMS involves business risks and the AGENT'S success in such business will
depend primarily upon its abilities and efforts. SBMS expressly disclaims the
making of, and AGENT acknowledges that it has not received or relied upon, any
guaranty, express or implied, as to the amount of commissions or other gross
revenue that it may earn as a result of its agency relationship with SBMS and
acknowledges that it has no knowledge of any representations relating to its
agency relationship with SBMS by an officer, employee or agent of SBMS that are
contrary to the terms herein. AGENT represents to SBMS, as an inducement to its
entry into this Agreement, that AGENT has made no misrepresentations to SBMS in
its application for appointment as a nonexclusive, Authorized Agent of SBMS or
in any other manner.
AGENT and SBMS mutually agree that they shall not have any liability to the
other for any lost profits, consequential, or special damages even if advised of
the possibility of such damages.
3. RELATIONSHIP OF THE PARTIES
---------------------------
SBMS hereby appoints AGENT as a nonexclusive Authorized Agent within the
Area to solicit and contract, on behalf of SBMS, with Subscribers for the
Authorized Services subject to all of the terms and conditions hereof.
During the term of this Agreement or thereafter, SBMS reserves the right
without obligation or liability to AGENT, to market the Authorized Services and
CPE in the same geographical areas served by AGENT, whether through SBMS' own
representatives or through others, including but not limited to, other
Authorized Agents, retailers, Resellers and distributors.
Upon enrollment of a particular Subscriber, that Subscriber shall become a
customer of SBMS, and SBMS shall offer and furnish such customer billing
services and other customer services as SBMS deems appropriate. SBMS shall be
responsible to collect any charges for Authorized Services from Subscribers.
With the sole exception of the Subscribers enrolled by AGENT for the
account of SBMS, with respect to which AGENT acts as agent of SBMS and owes SBMS
the fiduciary and other obligations of an agent to its principal, SBMS and AGENT
acknowledge and agree that their agency relationship arising from this Agreement
does not constitute or create a general agency,
4
<PAGE>
joint venture, partnership, employment relationship or franchise between them.
The parties agree that personnel employed by AGENT to perform services
under this Agreement are not SBMS employees and AGENT assumes full
responsibility for their acts. Such personnel employed by AGENT shall be
informed that they are not entitled to the provisions of any SBMS' employee
benefits. With respect to such personnel, AGENT shall have sole responsibility
for supervision, daily direction and control. SBMS will not be responsible for
worker's compensation, disability benefits, unemployment insurance and
withholding income taxes and social security for said personnel.
3A. RELATIONSHIP WITH SUB-AGENTS
----------------------------
AGENT warrants that it entered into or may enter into appropriate
agreements with all persons or businesses (other than Agent's own employees)
(subject to the conditions stated below) that sell the Authorized Services on
behalf of AGENT ("Sub-Agent"), and that such agreements are, or will be
sufficient to enable it to comply with all provisions of this Agreement except
those that by their nature would not be applicable to a Sub-Agent. Without
limiting the generality of the foregoing, AGENT understands, convents and agrees
that (i) any Sub-Agent appointed by AGENT must agree to comply with all of the
restrictive covenants in Paragraph 18 of this Agreement and the Confidentiality
Obligations in Paragraph 31 of this Agreement. AGENT may not delegate its
responsibilities under this Authorized Agency Agreement to any Sub-Agent, and
shall remain liable to SBMS pursuant to the terms of this Agreement
notwithstanding any agreement with a Sub-Agent, (ii) AGENT will inform SBMS
within thirty (30) days of the identity of any new Sub-Agent, and SBMS shall
have the right to disapprove any new Sub-Agent that in the sole opinion of
SBMS, reflects adversely upon SBMS or which is or has been associated in any way
with a competitor of SBMS in the Area or, for any reasonable business purpose;
and SBMS shall have the right to request the removal of any Sub-Agent who
breaches the agreements set forth above or whose actions, in the sole opinion of
SBMS, reflect adversely upon SBMS; (iii) AGENT shall inform SBMS prior to any
intended relocation of any of its Sub-Agents, which relocation shall then be
subject to SBMS' approval; (iv) Prior to AGENT'S appointment of a Sub-Agent,
SBMS may request, and AGENT will provide, any further information SBMS deems
necessary with respect to any prospective Sub-Agent. A complete list of all
current Sub-Agents, along with the names of the owners, managers, principals,
officers and directors thereof is attached as Exhibit "D". All existing Sub-
Agents of AGENT who are listed in Exhibit " D" are approved by SBMS except to
the extent the relationship between AGENT and a Sub-Agent is inconsistent with
the agreement; however, any Sub-Agent not listed in Exhibit " D" must be
approved in accordance with the procedure in this Paragraph A. AGENT understands
and agrees that Sub-Agents of AGENT shall not be permitted to use, in any manner
whatsoever, the name, trademarks or service marks of SBMS, unless expressly
agreed in a writing signed by AGENT, SBMS and Sub-Agent. Any unauthorized use
of SBMS' name, trademarks or service marks shall be grounds for immediate
termination of any Sub-Agent agreements.
5
<PAGE>
4. AGENT RESPONSIBILITIES
----------------------
a. AGENT agrees to provide materials and advertising to actively
promote SBMS' Authorized Services in a quality manner, and appropriate
sales facilities to enhance the sale of SBMS' Authorized Service.
b. AGENT will sell SBMS' Authorized Services to customers by employing
the following techniques (in addition to others): providing
demonstrations of SBMS' Service, explaining its benefits, explaining the
terms and conditions of purchase of the Service, providing sales
literature prepared by SBMS, and training the customer in the use of
SBMS' service. AGENT will offer CRS subject to all of the applicable
terms of SBMS' form of contract for customers. AGENT will offer Services
subject to all terms and conditions established by SBMS for each such
service, which form of contract will be attached hereto as an addendum.
c. AGENT agrees that it must obtain SBMS' prior written approval to (i)
open any locations in addition to those listed in Exhibit "B" and (ii)
must notify SBMS sixty (60) days prior to closing any location listed in
Exhibit "B". However, an amendment of this Agreement shall not be
necessary to subject any new or additional AGENT locations to the terms
and conditions of this Agreement; rather, the opening of such locations
shall automatically subject them to the terms and conditions of this
Agreement. AGENT agrees to establish and maintain installation and
maintenance facilities at the locations set forth in Exhibit "B";
provided that AGENT may request the consent of SBMS to close or
centralize certain of such facilities, which consent shall not be
unreasonably withheld. Agent may, in Agent's discretion, maintain
installation and maintenance facilities at such other locations as AGENT
may establish from time to time, approval of SBMS shall not be
unreasonably withheld, and to furnish high quality and prompt
installation, warranty and maintenance service for all CPE sold by it to
Subscribers. AGENT, at its own expense, shall obtain from the
manufacturer(s) and distributor(s) all required training in the
operation, installation, warranty and maintenance service of CPE. AGENT
shall be obligated to comply with all of the requirements of the Quality
Assurance Program contained in the Certification Training Manual, as
amended from time to time, and with the specific requirements described
in the remainder of this subparagraph (c). AGENT'S installation,
warranty and maintenance service CRS facility shall be required to
obtain certification from the manufacturer(s) of CPE AGENT sells and
AGENT shall be responsible to secure such certifications. AGENT may only
delegate its installation, warranty and maintenance service obligations
hereunder to a subcontractor with the express prior written approval of
SBMS, which approval will not be unreasonably withheld or withdrawn, and
with any approval necessary from each manufacturer and/or distributor of
an approved model of CPE to be sold or leased by AGENT. Such delegation
shall be by written agreement between AGENT and the service
subcontractor. Notwithstanding such agreement with a service
subcontractor,
6
<PAGE>
AGENT shall remain responsible to SBMS for all installation, warranty
and maintenance service obligations hereunder. AGENT shall reimburse
SBMS for the reasonable cost of installation, repair or warranty which
SBMS, in its sole discretion, deems necessary to have performed at a
facility other than AGENT'S for customers as to whom AGENT fails to
comply with SBMS' standards applicable thereto. Notwithstanding the
foregoing, AGENT's obligations to repair and maintain CPE are subject to
any limitations on AGENT's and/or the manufacturers warranty obligation.
d. AGENT agrees to maintain sufficient liability insurance to protect
SBMS from all claims arising out of the acts, omissions, and/or
representations of AGENT. SBMS shall be named as an additional insured
party on each policy. Such insurance coverage shall be maintained under
one or more policies of insurance from a recognized insurance company
qualified to do business within the Area providing in the aggregate
minimum liability protection of ONE MILLION DOLLARS ($1,000,000.00) per
occurrence for bodily and personal injury and death and ONE MILLION
DOLLARS ($1,000,000.00) per occurrence of property damage. Each such
insurance policy shall provide for not less than thirty (30) days prior
notice to all insured of any modification, cancellation or nonrenewal.
SBMS may, at any time and with ninety (90) days prior notice to AGENT,
require AGENT to increase its coverage of any type of insurance in
reasonable amounts and require different or additional kinds of
insurance, to reasonably reflect inflation, identification of special
risks, changes in law or standards of liability, higher damage awards or
other changes in circumstances. Upon request, AGENT shall furnish SBMS
with a copy of the insurance policy or a binder that demonstrates that
AGENT maintains insurance required as set forth above, such policy or
binder to specifically show SBMS as an additional insured. The
furnishing of such proof of insurance is required within fifteen (15)
days of the execution of this Agreement by AGENT and AGENT agrees to
furnish such proof as soon as prudent after such policies are renewed.
e. AGENT agrees to take all necessary steps to ensure compliance with
AGENT'S obligations under this Agreement by AGENT and its personnel and
any other parties involved in the sale of the Authorized Services by
AGENT, including but not limited to Sub-Agents.
f. AGENT agrees to maintain operations and follow procedures that are
in full compliance with SBMS' requirements as specified in SBMS' Agent
Operations Manual, as amended and distributed from time to time, and to
allow SBMS reasonable access to AGENT'S facilities for inspection. The
SBMS Agent Operations Manual is binding upon AGENT as if fully set forth
herein.
g. For its own account, AGENT agrees to sell CPE to be used by
Subscribers of SBMS' CRS or other end users. AGENT may only offer FCC
approved equipment. AGENT agrees to maintain an inventory of CPE
sufficient to meet reasonable
7
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anticipated demand by Subscribers which AGENT enrolls. AGENT also agrees
to maintain a minimum inventory of parts. In particular, but without
limitation, AGENT agrees not to use any CPE bearing trademarks similar
to or resembling the Marks of SBMS. Except for any SBMS-owned CPE which
AGENT handles on behalf of SBMS, all CPE sales and leases shall be made
by or on behalf of AGENT for its own account and not as agent for, or
for the account of, SBMS. AGENT may establish sale and lease prices,
fees and charges for the CPE and SBMS shall have no control over such
prices or over AGENT'S CPE. With respect to the sale or lease of AGENT'S
CPE, Subscribers shall be customers of AGENT and SBMS shall have no
responsibility to AGENT or to Subscribers with respect to the sale or
lease of AGENT'S CPE.
h. AGENT agrees that AGENT will at all times faithfully, honestly and
diligently perform its obligations hereunder, and that AGENT will
continuously exert its best efforts to promote and enhance the use of
SBMS' Authorized Services.
i. In the relevant Area, AGENT agrees that it will not, at any time
either during the term of this Agreement, or any extension thereof, (1)
induce, influence or suggest to any Subscriber of SBMS' CRS to purchase
CRS or any other CMRS from another Reseller or provider of CRS or CMRS
or switch to and/or contract with another CRS provider, (2) induce,
influence or suggest to any Subscriber of any other Authorized Service
to purchase a service competing with a service provided or offered by
SBMS from any other provider or Reseller of such competing service,
whether or not the competing service is technologically the same as the
Authorized Service in question. As more fully described in Paragraph 18,
AGENT agrees not to act as a representative or agent of any other
reseller or provider of CMRS in the relevant Area. Notwithstanding any
language to the contrary, AGENT shall have the right to enter into or
continue current provision of Paging Services and other Services that
are not SBMS' Authorized Services as of the date of execution of this
Agreement ("Additional Authorized Services"), provided, however, that in
the event SBMS should enter into the business of providing Paging
Services or other Additional Authorized Services, AGENT and SBMS agree
to negotiate in good faith with respect to AGENT'S provision of such
Paging Services or other Additional Authorized Services.
j. AGENT agrees not to take any action inconsistent with the provisions
of this Agreement and shall use its best efforts to support SBMS'
efforts in providing the Authorized Services to Subscribers.
k. AGENT agrees not to take any action inconsistent with, and agrees to
support SBMS' efforts before legal or regulatory authorities regarding
any modification of rates.
8
<PAGE>
l. AGENT agrees that during and after the term of this Agreement, AGENT
will not reveal, divulge, make known, sell, exchange, give away, or
transfer in any way any part of its list of Subscribers or use such
information for any purpose other than (i) AGENT (but no other successor
business entity) maintaining such periodic contact with Subscribers as
is required for warranty service, installation or maintenance of CPE,
(ii) the resolution of disputes between AGENT (but no other corporate
entity) and Subscribers relating to CPE charges and (iii) AGENT (but no
other corporate entity) business activities unrelated to CRS, CMRS, or
any other Authorized Services; provided, however, AGENT shall be under
no such limitation to the extent such Subscriber list or information
known to AGENT regarding such Subscriber list becomes available to any
third party in a manner destroying its nature as a trade secret, other
than through the fault of AGENT and, provided further, that AGENT shall
be under no restriction regarding the use of such information as long as
such use is consistent with the terms of this Agreement.
m. AGENT agrees to advertise association with SBMS' Authorized Services
as an Authorized Agent of SBMS, pursuant to any written procedures SBMS
may publish from time to time.
n. AGENT agrees to use its best efforts to install and maintain CPE for
Subscribers referred to AGENT by SBMS' direct sales force and sales
associates for installation and maintenance on a "first come, first
serve basis", in accordance with SBMS standards established from time to
time.
5. SBMS' RESPONSIBILITIES
----------------------
SBMS will:
a. Upon approval, and subject to compliance with procedures and
guidelines established from time to time, SBMS will furnish the
Authorized Services to Subscribers.
b. Secure any necessary regulatory approvals to conduct the Authorized
Services.
c. Establish the rates, terms, and conditions of the sale of its
Authorized Services to Subscribers.
d. Establish the administrative procedures and guidelines for sale of
Authorized Services, enrollment of Authorized Services Subscribers,
and customer service provided to Subscribers.
e. Promote SBMS' Authorized Services and provide promotional literature
as
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SBMS deems necessary and appropriate. SBMS may advertise SBMS'
Authorized Services from time to time if it deems necessary and
appropriate.
f. Provide a reasonable amount of training on sales of SBMS' Authorized
Services and administrative procedures associated with the enrollment
of Subscribers.
g. Bill Subscribers for SBMS' Authorized Services charges and provide
customer service and assistance, including collection of Authorized
Services charges.
10
<PAGE>
6. CPE BEARING SBMS' MARKS
-----------------------
AGENT shall not have the right, except after SBMS' approval, to sell
CPE bearing SBMS' Marks to any person or entity other than a Subscriber to whom
AGENT has sold SBMS' Authorized Service(s) hereunder. This clause is intended
to protect SBMS' Marks and to assure that such Marks are used properly.
7. COMMISSIONS
-----------
SBMS shall pay commissions to AGENT for Subscribers enrolled by AGENT
onto SBMS' Authorized Services. A Subscriber will be deemed to be enrolled only
when the Subscriber's CRS telephone number is installed in CPE and activated by
SBMS. The current commissions and related Authorized Services are defined and
outlined in the attached Exhibit "C." This commission schedule may be revised
or restructured by SBMS in its sole discretion, upon thirty (30) days advance
written notice to AGENT or by mutual agreement of the parties at any time.
AGENT recognizes that SBMS' ability to sell the Authorized Services
may be affected by state and federal court decisions and state and federal
regulatory approvals. AGENT agrees that if SBMS is prohibited from, or
otherwise ceases, selling the Authorized Services in the Area, SBMS may declare
this Agreement null and void with no penalty.
Commissions shall only continue to accrue as long as this Agreement is
in effect, and the expiration or termination of this Agreement shall effectively
terminate AGENT'S right to any further commissions that would otherwise accrue
after the date of expiration or termination. Subscriber activation commissions
shall be debited in the event a Subscriber does not remain continuously active
on SBMS' system for at least that period(s) of time indicated in Exhibit "C."
SBMS may withhold and offset or apply AGENT compensation against 30
days past due amount owed to SBMS. Whenever AGENT fails to comply with any term
hereof or any procedure referenced in this Agreement or AGENT does not provide
complete and/or accurate information concerning Subscribers to whom an
Authorized Service is sold or, if applicable, the CPE is sold or leased, SBMS
shall have the right to withhold all or a portion of any compensation or other
amount otherwise payable hereunder to AGENT with respect to such Authorized
Service or if applicable, CPE.
8. USE OF MARKS BY AGENT
---------------------
Periodically SBMS will publish a list of the Marks AGENT is licensed
to use under the Agreement. The right granted hereunder shall be the non-
exclusive right of AGENT to use the Marks solely in the Area defined herein.
Such list will also be supplemented with rules and regulations pertaining to the
Marks. AGENT agrees to comply with all such rules and procedures prescribed by
SBMS from time to time during the term of this Agreement. AGENT
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<PAGE>
acknowledges that its right to use the Marks is derived solely from this
Agreement and is limited to the identification of AGENT as an agent of SBMS.
AGENT recognizes the great value of the goodwill associated with the Marks, and
acknowledges that the Marks and all rights therein and goodwill pertaining
thereto belong exclusively to SBMS, and that the Marks have a secondary meaning
in the mind of the public. AGENT acknowledges and agrees that all usage of the
Marks by AGENT and any goodwill established thereby shall inure to the exclusive
benefit of SBMS and its Affiliates and that this Agreement does not confer any
goodwill or other interests in the Marks upon AGENT. Any unauthorized use of the
Marks by AGENT, or any use not in compliance herewith, shall constitute an
infringement of the rights of SBMS and its Affiliates in and to the Marks and
shall further constitute a material breach of this Agreement.
AGENT shall use the Marks with such words qualifying or identifying
the agency relationship of SBMS and AGENT as SBMS from time to time shall in its
sole discretion prescribe. AGENT shall not use the Marks as part of any
corporate or trade name or with any prefix, suffix or other modifying words,
terms, designs or symbols, or in any modified form, nor may AGENT use the Marks
in connection with the sale or lease of any unauthorized product or service or
in any other manner not expressly authorized by this Agreement or separately in
writing by SBMS. If AGENT uses SBMS' Marks on any of AGENT'S stationery, other
forms or business cards, AGENT agrees to display the Marks on such stationery,
other forms, and business cards used in connection with Authorized Services in
the manner prescribed by SBMS.
AGENT agrees to obtain such fictitious or assumed name certificates or
registrations as may be required by applicable law, provided the fictitious or
assumed name, if in connection with this Agreement, is approved in writing by
SBMS and SBMS is provided a copy of the certificate and/or registration. If any
fictitious or assumed name used by AGENT includes anything that identifies SBMS
or its Marks, SBMS may at any time require AGENT to cease using such fictitious
or assumed name, and to cancel any corresponding certificate and/or
registration.
If it becomes advisable at any time in SBMS' sole discretion for AGENT
to modify or discontinue use of any Mark or substitute one or more additional
trade or service marks to identify its relationship with SBMS or, if applicable,
any CPE, AGENT agrees to comply therewith within a reasonable time after notice
thereof by SBMS and the sole obligation of SBMS in any such event shall be to
reimburse AGENT for the out-of-pocket costs, if any, of complying with this
obligation. In addition, AGENT shall replace obsolete identification signs or
identification material with new signs or identification material should AGENT
adopt new Marks replacing one or more Marks identified by SBMS in such list as
herein before specified.
Upon reasonable notice from SBMS, AGENT shall provide to SBMS written
reports containing such statistical and other types of information as SBMS shall
reasonably request for the purpose of ascertaining or determining compliance
with the licensing provisions of this Agreement. Further, upon SBMS' request,
AGENT shall provide SBMS with samples of all
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<PAGE>
advertising and other literature, packages, labels, and labeling prepared by
AGENT which use the Marks or the logos. When using the Marks or the logos under
this Agreement, AGENT undertakes to comply with all laws pertaining to
trademarks in force at any time in the Area defined herein.
9. SBMS' TITLE AND PROTECTION OF SBMS' RIGHTS
------------------------------------------
AGENT agrees that it will not attack the title or any rights of SBMS
in and to the Marks either during the term of this Agreement or thereafter.
SBMS hereby indemnifies AGENT and undertakes to hold AGENT harmless against any
damages and costs from claims or suits arising out of the use by AGENT of the
Marks as authorized in this Agreement, provided that prompt notice is given to
SBMS of any such claim or suit and provided, further, that SBMS shall have the
option to undertake and conduct the defense of any suit so brought and that no
settlement of any such claim or suit is to be made by AGENT without the prior
written consent of SBMS.
AGENT agrees to assist SBMS and SBMS agrees to reimburse AGENT for all
associated reasonable costs to the extent necessary in the procurement of any
protection or to protect any of SBMS' rights to the Marks, and SBMS, if it so
desires, may commence or prosecute any claims or suits in its own name or in the
name of AGENT or join AGENT as a party thereto. When known, AGENT shall
immediately notify SBMS in writing of any infringements or imitations by others
of the Marks that are the same as or similar to those covered by this Agreement.
SBMS shall have the sole right to determine whether any action shall be taken on
account of any such infringements or imitations. AGENT shall not institute any
suit or take any action on account of any such infringements or imitations
without first obtaining the written consent of SBMS.
10. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES
------------------------------------------------
AGENT shall secure and maintain in force all licenses and permits
required of AGENT and its employees in the enrollment of Subscribers and the
sale of CPE, installation and maintenance of CPE, including without limitation,
all required FCC permits and certifications, if required, and business and sales
tax licenses, and shall conduct its business in full compliance with all state
and federal laws, ordinances and regulations applicable to AGENT'S business.
SBMS shall sell or resell the Authorized Services in accordance with applicable
rules, regulations, statutes and decisions governing such Services.
AGENT shall promptly pay, when due, all taxes and assessments against
any real or personal property used in connection with AGENT'S business, and all
liens or encumbrances of every kind or character created or placed upon or
against any such property, and all accounts and other indebtedness of every kind
incurred by AGENT in the conduct of its business.
AGENT shall comply, at its own expense, with the provisions of all
applicable municipal requirements and those state and federal laws, inclusive of
Executive Orders applicable to AGENT as an employer. AGENT will fully comply
with the provisions of the Federal Occupational Safety and Health Act of 1970
and with any rules and regulations issued pursuant
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<PAGE>
to this Act.
AGENT understands that if AGENT operates its CPE business or
represents SBMS' Authorized Services in a manner that is inconsistent with or
contrary to state or federal law or regulation, such action will reflect
adversely upon the name and goodwill of SBMS and its Affiliates. Therefore,
AGENT agrees to comply, if applicable, with Part 22 of the FCC rules, and all
tariffs, other governmental rules and procedures in existence relating to the
sale of the Authorized Services and the sale, lease, warranty service and the
conduct of AGENT'S CPE business hereunder as well as any rules and procedures
relating to such matters reasonably prescribed from time to time by SBMS. AGENT
shall be responsible to familiarize itself with the laws and regulations
applicable to the conduct of its business.
11. ADVERTISING AND BUSINESS PRACTICES OF AGENT
-------------------------------------------
All advertising and promotion by AGENT shall be completely factual and
shall conform to the highest standards of ethical advertising. All advertising
and marketing materials that AGENT desires to use in connection with Authorized
Services or CPE and that have not been prepared by or previously approved by
SBMS must be submitted to SBMS for approval prior to use.
AGENT agrees that it will not begin its advertising and promotion without
SBMS' prior written consent.
AGENT shall notify SBMS in writing within five (5) days of the commencement
of any material action, suit or proceeding, and of the issuance of any order,
writ, injunction, award or decree of any court, agency of other governmental
instrumentality, involving AGENT in connection with any business conducted by
AGENT on behalf of SBMS hereunder.
12. AGENT'S BUSINESS RECORDS
------------------------
AGENT agrees to create and to maintain at its principal office and
preserve for three years from the date of their preparation, full, complete and
accurate records of its business conducted pursuant to this Agreement. Such
records shall include, without limitation, records of all Authorized Services
enrollments and CPE sales, leases or rentals, and SBMS shall be entitled to
inspect the same upon reasonable notice.
13. ASSIGNMENT
----------
This Agreement is fully assignable by SBMS to any affiliated person or
entity and shall inure to the benefit of any assignee or other legal successor
to the interest of SBMS herein.
AGENT acknowledges that SBMS has entered into this Agreement in
reliance upon the character, business experience and ability of AGENT and its
owner(s), officers and managers and
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<PAGE>
that neither the rights and duties created by this Agreement nor a controlling
interest in the ownership of AGENT may be voluntarily, involuntarily, directly
or indirectly assigned, or otherwise transferred (including, without limitation,
by transfer of capital stock or partnership interests, by merger or
consolidation, by issuance of additional securities representing an ownership
interest in AGENT or convertible thereto, or in the event of the death of a
shareholder or partner of AGENT, by will, in declaration of or transfer in trust
or the laws of intestate succession) without the written approval of SBMS, which
will not be unreasonably withheld, subject to such conditions as SBMS deems
reasonably necessary. Any such assignment or transfer without such approval
shall constitute a breach hereof, subject to termination and convey no rights to
or interests herein. Any change in management, personnel or identity that
materially impairs the ability of AGENT to market the Authorized Services shall
also constitute such a breach. "Control" for purposes hereof is defined in
Paragraph 1 above.
14. TERM AND EXTENSION OF AGENCY RELATIONSHIP
-----------------------------------------
The term of this Agreement shall be three (3) years, commencing upon
final execution of this Agreement. AGENT shall provide to SBMS written notice
of the date on which AGENT initiates operations under this Agreement in the
Area. AGENT agrees that SBMS must provide written consent before AGENT actually
initiates business operations.
Upon expiration of this Agreement, if SBMS plans to continue to sell
Authorized Services in the Area and AGENT has substantially complied with all
provisions of this Agreement, then this Agreement shall automatically extend for
additional one (1) year renewal periods subject to either party's option to
terminate this Agreement upon written notice as outlined below. Upon extension
of their agency relationship, SBMS and AGENT shall continue their business
relationship on the same terms and conditions set forth in this Agreement,
subject to changes required by regulatory authorities or as mutually agreed upon
by SBMS and AGENT. AGENT and/or SBMS shall give the other party written notice
of exercise of its option to terminate this Agreement not less than sixty (60)
nor more than one hundred twenty (120) days prior to the expiration of the
original term or the renewal period.
15. LATE PAYMENTS; SECURITY DEPOSIT
-------------------------------
In the event any amount payable by AGENT to SBMS is more than thirty
(30) days overdue, SBMS may, at its sole option, do one or more of the
following: (i) require AGENT to pay its account in full; (ii) apply
commissions and any other credits or other amounts payable to AGENT to reduce
the AGENT'S account payable balance; (iii) require AGENT to deposit with SBMS
an irrevocable commercial letter of credit, cash or other form of security
acceptable to SBMS in its sole discretion to secure future delays or defaults in
payment; or (iv) thirty days after providing written notice to Agent of the
overdue payment, if payment remains overdue, terminate this Agreement. This
deposit will secure payment of any amounts due under this Agreement or any other
agreement between the parties.
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<PAGE>
AGENT understands that in order to purchase CPE from SBMS (if SBMS
determines that it will sell CPE) other than on a cash on delivery basis, AGENT
may be required to sign security agreements, financing statements and related
documents.
16. TERMINATION OF AGREEMENT
------------------------
A. By Agent
--------
If AGENT is in substantial compliance with this Agreement and SBMS
materially breaches this Agreement and fails to cure such breach within thirty
(30) days after written notice thereof is delivered to SBMS, AGENT may terminate
this Agreement effective thirty (30) days after delivery to SBMS of written
notice thereof and AGENT shall not be bound by the provisions in Paragraph 18,
"Covenants Not to Compete."
B. By SBMS
-------
SBMS shall have the right to terminate this Agreement effective upon
thirty (30) days written notice if (a) the FCC Cellular Radio Decisions are not
continued in substantially the same form and such change materially adversely
impacts SBMS' (or an Affiliate's) ability to conduct its business in the Area;
(b) state and/or federal regulatory approval empowering SBMS or its Affiliate to
construct and provide the Authorized Services and/or CPE in the Area is not
granted to either SBMS or an Affiliate, is granted subject to terms and
conditions unacceptable to SBMS or an Affiliate, or is granted under such terms
and conditions that, in SBMS' opinion, materially affect the intended purpose of
this Agreement; or (c) regulatory authorization of the commission schedule of
this Authorized Agent Agreement is made subject to terms and conditions
unacceptable to SBMS or its Affiliates; (d) prior to selling or providing any
Authorized Service to AGENT, SBMS decides not to provide the Authorized Services
in the particular area set forth in Exhibit "A".
Further, SBMS shall have the right to terminate this Agreement effective
upon written notice if: (a) AGENT makes an assignment for the benefit of
creditors; (b) an Order for Relief under Title 11 of the United States Code is
entered by any United States Court against AGENT; (c) a trustee or receiver of
any substantial part of the AGENT'S assets is appointed by any Court; (d) AGENT
sells all or substantially all of AGENT'S inventory or assets other than any
sale in the ordinary course of business.
In addition, SBMS shall have the right to terminate this Agreement
effective upon delivery of notice of termination of AGENT, if AGENT (or one or
more of its owners and affiliates): (i) has made any material misrepresentation
or omission in its application to establish an agency relationship with SBMS or
is convicted of or pleads no contest to a felony or other crime or offense that,
in SBMS' reasonable sole opinion, is likely to adversely affect the reputation
of SBMS or its affiliated companies or the goodwill of the Marks; (ii) attempts
to make an unauthorized assignment of this Agreement; (iii) receives a notice of
violation of the
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<PAGE>
terms or conditions of any license or permit required by AGENT or its
employee(s) in the conduct of AGENT'S Authorized Services and fails to correct
such violation, or to terminate the employment of such employee(s) within the
time period specified in such notice, if any, or within thirty (30) days after
receipt of such notice, whichever first expires; (iv) fails to achieve a minimum
average of twenty-five (25) gross activations for three (3) consecutive months;
or (v) fails to comply with any provision of this Agreement, including any
applicable tariff relating to Authorized Services and/or CPE, and AGENT does not
correct such failure within ten (10) days as to monetary defaults and within
thirty (30) days if non-monetary default after written notice of such failure to
comply is delivered to AGENT.
17. OBLIGATIONS OF AGENT UPON TERMINATION OR EXPIRATION
---------------------------------------------------
AGENT agrees that upon the expiration or termination of this Agreement,
AGENT and its owner(s) and Affiliates will: (i) not thereafter use any actual or
similar Marks, or any actual or similar trade name, service mark, trademark,
logo, insignia, symbol or decorative design therefore used by AGENT specifically
in the sale of the Authorized Services in any manner or for any purpose in the
Area except that AGENT and its owner(s) may use or continue to use any trade
name, service mark, logo, insignia, symbol or decorative design that AGENT or
its owner(s) lawfully used in any business prior to the date of this Agreement;
and will not utilize for any purpose any actual or similar trade name, trade or
service mark or other commercial symbol that suggests or indicates a connection
or association with SBMS or any affiliated company of SBMS, and will not
directly or indirectly, at any time or in any manner, identify itself or any
other business as being associated with SBMS or any affiliated company of SBMS;
(ii) return to SBMS all advertising and marketing materials, forms, and other
materials containing any Mark or otherwise identifying or relating to SBMS'
Authorized Services in the Area; (iii) take such action as may be required to
cancel all fictitious or assumed name or equivalent registrations relating to
any Mark; or authorize SBMS, and any officer of SBMS, as AGENT'S attorney in
fact, to take such actions as may be required to cancel such fictitious or
assumed name or equivalent registration if AGENT fails or refuses to do so, and
all governmental agencies administering fictitious or assumed name or equivalent
registrations may accept and rely upon appropriate documents executed by SBMS or
its officer canceling any such registration; and (iv) provide SBMS with an
updated list of names, addresses and all other relevant information AGENT then
possesses concerning Subscribers of Authorized Services AGENT has enrolled in
the Area.
18. COVENANT NOT TO COMPETE
------------------------
In consideration of SBMS' grant to AGENT of the right to use the Marks, the
right to advertise affiliation with SBMS as an Authorized Agent of SBMS and the
great value of the goodwill associated with AGENT'S ability to use the Marks,
which rights and value are not available to distributors generally, and in
recognition of the value of specialized, technical knowledge of the cellular
industry and other services imparted by SBMS to AGENT from time to time, AGENT
agrees to be bound by the covenants in this Paragraph 18. Such rights and
17
<PAGE>
value shall constitute independent consideration for the covenants in this
Paragraph 18.
Therefore, for value received, as identified above, AGENT agrees that
AGENT, its officers, directors, key employees, and principals, any Affiliate or
the person or persons owning a controlling interest in AGENT or an Affiliate,
shall during the term of this Agreement and except as noted below, and AGENT and
the person or persons owning a controlling interest in AGENT for a period of one
(1) year following the latter of the expiration or termination of this
Agreement;
(1) not, directly or indirectly, induce, influence or suggest to any
Subscriber of SBMS' CRS to purchase CRS or any other CMRS from another
reseller or provider of CRS or CMRS in the Area as existing at the
time of execution of this Agreement;
(2) not directly or indirectly, influence or suggest to any
Subscriber of any other Authorized Service to purchase a competing
service from any other provider or reseller of such competing service
in the Area as existing at the time of execution of this Agreement,
whether or not the competing service is technologically the same as
the Authorized Service in question;
(3) not, under any circumstances or conditions whatsoever, directly
or indirectly, as an individual, partner, stockholder, director,
officer, employee, manager or in any other relation or capacity
whatsoever engage in the sale or promotion of CRS, CMRS, or any other
Authorized Service on behalf of any competing reseller or provider of
such service in the Area as existing at the time of execution of this
Agreement.
(4) not, directly or indirectly, allow any other person, firm or
other entity to use the name, trade name, goodwill or any other assets
or property of AGENT or SBMS in any manner in connection with such
other entity's sale of CRS, CMRS or any other Authorized Service on
behalf of a competing reseller or provider of service in the Area, and
AGENT specifically agrees not to transfer, assign, authorize or
consent to the transfer of an AGENT telephone number to such a
competing person, firm or other entity upon the expiration or
termination of this Agreement.
Notwithstanding any language to the contrary, subject to the obligation to
negotiate in good faith as set forth in Section (4) (i), the restrictive
covenants contained herein shall not operate so as to restrict AGENT from the
business of providing or selling Paging Services or nonexclusive Additional
Authorized Services.
19. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS
-------------------------------------------------
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Except as expressly provided to the contrary herein, each term and
condition of this Agreement, and any portion thereof, shall be considered
severable and if, for any reason, any such provision hereof is held to be
invalid, contrary to, or in conflict with any applicable present or future law,
regulation or public policy in a final, unappealable ruling issued by any court,
agency or tribunal with competent jurisdiction in a proceeding to which SBMS or
its Affiliate is a party, that ruling shall not impair the operation of, or have
any other effect upon, such other portions of this Agreement as may remain
otherwise enforceable which shall continue to be given full force and effect and
bind the parties hereto, although any portion held to be invalid shall be deemed
not to be a part of this Agreement from the date the time for appeal expires, if
AGENT is a party thereto, otherwise upon AGENT'S receipt of a notice of
nonenforcement thereof from SBMS.
To the extent that Paragraphs 4 or 18 contain or impose a restriction
upon AGENT that is deemed unenforceable by virtue of its scope in terms of area,
business activity prohibited and/or length of time, but could be enforceable by
reducing any or all thereof, AGENT and SBMS agree that same shall be enforced to
the fullest extent permissible under the laws and public policies applied in the
jurisdiction in which enforcement is sought. SBMS and AGENT shall mutually
agree to a modification of any invalid or unenforceable term or condition hereof
to the extent required to be valid and enforceable. Such modifications to this
Agreement shall be required only in the Area directly affected by any such
ruling.
20. WAIVER OF OBLIGATIONS
---------------------
SBMS and AGENT may by written instrument unilaterally waive or reduce
any obligation of or restriction upon the other under this Agreement, effective
upon delivery of written notice thereof to the other or such other effective
date stated in the notice of waiver.
Whenever this Agreement requires the consent of a party, such request
shall be in writing and no consent may be unreasonably withheld. All consents
or withholding of consent with reasons therefore shall be in writing.
SBMS and AGENT shall not be deemed to have waived or impaired any
right, power or option reserved by this Agreement (including, without
limitation, the right to demand exact compliance with every term, condition and
covenant herein, or to declare any breach hereof to be a default and to
terminate this Agreement prior to the expiration of its term), by virtue of any
custom or practice of the parties at variance with the terms hereof or any
failure, refusal or neglect of SBMS or AGENT to exercise any right under this
Agreement or to insist upon exact compliance by the other with its obligations
hereunder, including without limitation any rule or procedure, or any waiver,
forbearance, delay, failure or omission by SBMS to exercise any right, power or
option, whether of the same, similar or different nature, with respect to one or
more other Authorized Agents or other forms of distribution.
21. RIGHTS OF PARTIES ARE CUMULATIVE
--------------------------------
19
<PAGE>
The rights of SBMS and AGENT hereunder are cumulative and no exercise
or enforcement by SBMS or AGENT of any right or remedy hereunder shall preclude
the exercise or enforcement by SBMS or AGENT of any other right or remedy
hereunder or that SBMS or AGENT is entitled by law to enforce.
20
<PAGE>
22. GOVERNING LAW AND LIMITATION OF ACTIONS
---------------------------------------
Except to the extent governed by United States law that preempts state
law, this Agreement shall be interpreted under and governed by the laws of the
State of Texas.
Any lawsuit or other claim arising out of or in connection with this
Agreement or the relationship of the parties must be brought, if at all, within
twenty-five (25) months after the cause of action accrues, regardless of when it
is discovered.
If any suit or action shall be brought to enforce or declare any of
the terms of this Agreement, to terminate this Agreement or to recover any
damages sustained as a result of a default in the performance of any obligations
under this Agreement, or a breach of any of the representations and warranties
herein contained or otherwise pursuant to this Agreement, then the party not
prevailing in such suit or action shall be liable to the prevailing party for
the prevailing party's cost and expenses, including, without limitation, court
costs and reasonable attorney's fees and expert witness' fees (including without
limitations, the value of time spent by in-house personnel), the amount of which
shall be fixed by the court and shall be made a part of any judgment rendered.
The parties agree that such suit or action must be brought, if at all, within
one (1) year after the underlying cause of action accrues.
23. TESTIMONY
---------
Matters relating to this Agreement may be an issue before various
regulatory bodies. Upon reasonable notice AGENT agrees to fully cooperate with
SBMS regarding any such matters including willingly providing employees of AGENT
to testify at appropriate times regarding any aspect of this Agreement or other
related issues. SBMS agrees to reimburse AGENT for reasonable costs expended in
supplying such testimony.
24. BINDING EFFECT
--------------
This Agreement is binding upon the parties hereto, their respective
executors, administrators, heirs, assigns and successors in interest.
All obligations by either party that expressly or by their nature
survive the expiration or termination of this Agreement shall continue in full
force and effect subsequent to and notwithstanding its expiration or termination
and until they are satisfied in full or by their nature.
25. IMPOSSIBILITY OF PERFORMANCE
----------------------------
Neither SBMS nor AGENT shall be liable for loss or damage or deemed to
be in breach of this Agreement if its failure to perform its obligations results
from: (i) compliance with any law, ruling, order, regulation, requirement or
instruction of any federal, state or municipal government or any department or
agency thereof or court of competent jurisdiction; (ii) acts of
21
<PAGE>
God; (iii) acts or omissions of the other party; (iv) fires, strikes, embargoes,
war, insurrection or riot. Any delay resulting from any of said causes shall
extend performance accordingly or excuse performance, in whole or in part, as
may be reasonable.
26. INTERPRETATION
--------------
The preambles and exhibits to this Agreement are a part of this Agreement,
which constitute the entire agreement of the parties, and there are no other
oral or written understandings or agreements between SBMS and AGENT relating to
the subject matter hereof.
Nothing in this Agreement is intended, nor shall be deemed, to confer
any rights or remedies upon any person or legal entity not a party hereto,
except for those affiliates of SBMS as may be involved in the provision of one
or more of the Authorized Services, provided that SBMS shall remain liable to
Agent pursuant to the terms of this Agreement.
The headings of the several paragraphs hereof are for convenience only
and do not define, limit or construe the contents of such paragraphs.
The term "AGENT" as used herein is applicable to one or more persons,
a corporation or a partnership. If two or more persons are at any time AGENT
hereunder, whether or not as partners or joint ventures, their obligations and
liabilities to SBMS shall be joint and several.
This Agreement shall be interpreted and governed without regard as to
which party hereto drafted the Agreement.
This Agreement shall be executed in multiple copies, each of which
shall be deemed an original.
27. INDEMNITY
---------
Subject to the provisions of Paragraph 3 and the insurance requirements set
forth in Paragraph 4, each party hereto agrees to defend, indemnify and save
harmless the other party and its successors and assigns and its employees and
agents and their heirs, legal representatives and assigns from any and all
claims or demands whatsoever, including the costs, expenses and reasonable
attorneys' fees incurred on account thereof, that may be made (i) by the
indemnifying party's employees or any other persons for bodily injury or damage
to property occasioned by the acts or omissions of the indemnifying party or its
subcontractor, or the employees or agents of any of them, and (ii) by the
party's employees under workers compensation or similar acts.
22
<PAGE>
28. SURVIVAL
--------
The terms, provisions, representations, and warranties contained in
this Agreement that by their sense and context are intended to survive the
performance thereof by either or both parties hereunder shall so survive the
completion of performances and termination of this Agreement, including the
making of any and all payments due hereunder.
29. LICENSES
--------
No licenses, express or implied, under any patents are granted by SBMS
or its Affiliates to AGENT.
30. NOTICES AND PAYMENTS
--------------------
All payments due AGENT shall be made to such address or bank as AGENT
from time to time designates. All notices and reports required to be delivered
by the provisions of the Agreement shall be deemed so delivered three (3)
business days after placement in the United States Certified or Registered Mail,
postage prepaid and addressed to the party to be notified at its most current
principal business address of which the notifying party has been notified. All
reports and other information required by this Agreement shall be directed to
SBMS at the data processing center or the address provided to AGENT from time to
time, or to such other persons and places as SBMS may direct from time to time.
Any required report not actually received or postmarked by SBMS or AGENT during
regular business hours on the date due, shall be deemed delinquent.
31. CONFIDENTIAL INFORMATION
------------------------
Any specifications, drawings, sketches, models, samples, data,
computer programs or documentation, or technical or business information
("Information") furnished or disclosed by SBMS to AGENT hereunder shall be
deemed the exclusive property of SBMS, including title to copyright in all
copyrightable material, and, when in tangible form, shall be returned to SBMS
upon completion or termination of authorized work. Unless such Information is
required to be disclosed by law, was previously known to AGENT free of any
obligation to keep it confidential, or has been or is subsequently made public
by SBMS or a third party, it shall be held in confidence by AGENT, shall be used
only for the purposes hereunder, and may be used for other purposes only upon
such terms and conditions as may be mutually agreed upon in writing. In
addition, the parties hereby agree that Subscriber lists and related information
or data are the exclusive property of SBMS and are to be used by AGENT solely in
the performance of its obligations and duties as described herein and are to be
returned to SBMS upon the termination of this Agreement.
So long as this Agreement is in effect, AGENT shall not publicly disclose
any of the terms of this Agreement without the prior written consent of SBMS,
except as may be required
23
<PAGE>
by law or otherwise authorized by the terms of this
Agreement.
AGENT is served with process to obtain Information, AGENT shall
immediately notify SBMS, which shall have the right to seek to quash such
process regardless of any such efforts by Agent.
Unless marked "proprietary," any Information furnished or disclosed by
AGENT to SBMS shall not obligate SBMS to hold such Information in confidence.
32. COVENANT NOT TO SOLICIT EMPLOYMENT
----------------------------------
Agent and SBMS recognize and agree that each party hereto takes a
great deal of time to hire and train employees for its respective business.
Agent and SBMS fully understand the time and expense each party incurs to
obtain qualified personnel, and Agent and SBMS agree not to offer employment to
or employ any of the other party's employees without written consent by a Vice
President or the President of the other party.
33. AUTHORITY
---------
Each of the parties represents, warrants and agrees that it is a
corporation or partnership duly organized, validly existing and in good standing
under the laws of the state of its formation, and has all requisite power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby; that the execution and delivery of this
Agreement and the performance hereof have been duly and validly authorized by
all necessary corporate or partnership action; and that the execution and
delivery by it of this Agreement and the performance of this Agreement by it
will not conflict with or result in a breach of or constitute or result in a
default under any of the terms, conditions or provisions of the Articles or
Certificates of Incorporation, By-Laws, or other of its governing instruments or
any judgment, order, decree, law, regulation or ruling of any court or
governmental authority or any agreement, contract, commitment or other
instrument to which it is a party or by which it is bound.
Specifically, AGENT represents and warrants that (i) AGENT is not a
party to any agreement to distribute, promote or otherwise sell CRS, CMRS or any
other Authorized Service ( except Paging Services or Additional Authorized
Services) on behalf of any competing provider, reseller or agent in the Area;
(ii) the execution and delivery by it of this Agreement and the performance of
this Agreement by it will not conflict with or result in a breach or constitute
or result in a default under any of the terms, conditions or provisions of any
agreement between AGENT and any other carrier, reseller or agent of CRS, CMRS or
any other Authorized Service.
34. RIGHT OF FIRST REFUSAL TO SUBLET OR ASSIGN STORE LOCATION(S)
------------------------------------------------------------
A. Preapproval of SBMS as Subtenant or Assignee
24
<PAGE>
In connection with negotiating the lease(s) for store location(s) (the
"Lease Premises"), Agent will use its reasonable best efforts to obtain a clause
in each such lease allowing for the free transferability of AGENT'S interest in
the lease(s) in the form of any unrestricted right on the part of Agent to
sublet, assign or otherwise transfer the Leased Premises to SBMS or any
Affiliate thereof.
B. Terms of Sublease or Agreement
The assignment or sublease shall specifically state that rental
payments shall be made directly to the landlord under the lease(s), and
Agent shall indemnify SBMS for any and all defaults under the lease(s) or
any other damage claims, etc. which arose during AGENT'S possession of the
Lease Premises.
C. Right of First Refusal
If, during the term of this Agreement, Agent shall elect to close or
relocate one or more of the sales locations located in any one or more of
the Leased Premises, Agent shall give written notice (the "Relocation
Notice") to SBMS of its desire to close or relocate one or more of its
sales locations on or before sixty (60) days prior to anticipated closure
or relocation of such sales location. The Relocation Notice shall include
a copy of the lease(s) for the particular Leased Premise(s) which are the
subject of the Relocation Notice, together with any and all amendments,
letter agreements, correspondence, etc. with respect to that particular
lease(s).
Within thirty (30) days after the receipt by SBMS of the Relocation
Notice and lease(s), SBMS shall advise Agent in writing whether it intends
to become AGENT'S subleasee or assignee under the lease(s). If the consent
of the landlord is required, Agent shall use its best efforts to obtain
such consent and shall generally cooperate fully with SBMS in connection
with the assignment or subletting of the Leased Premises to SBMS. The terms
and conditions of the sublease or assignment shall be identical to those
set forth in the lease(s).
If SBMS does not advise Agent of its intentions with respect to the
lease(s) within such thirty (30) day period, Agent shall be free to attempt
to sublet or assign the lease(s) to a third party under any terms and
conditions. If Agent should attempt to sublet or assign the Leased
Premises under different terms and conditions than those set forth in the
lease(s). Agent shall first offer in writing the Leased Premises under the
new terms and conditions to SBMS who shall have fifteen (15) days in which
to determine if it will enter a sublease or assignment with Agent under
such different terms or conditions.
35. RIGHT OF FIRST REFUSAL TO PURCHASE STORE LOCATION(S)
----------------------------------------------------
If at any time during the term of this Agreement or upon termination
of this Agreement,
25
<PAGE>
Agent receives a bona fide offer to purchase any or all of Agent's store
location(s), from a third party, and Agent desires to accept such offer, Agent
shall cause such offer to be reduced to writing and shall notify SBMS in writing
of such offer. Agent shall provide SBMS thirty (30) business days to exercise a
right of first refusal with respect to AGENT'S store location(s) by delivering
to Agent a written notice indicating SBMS' desire to make the same purchase
under terms and conditions identical in all material respects to the terms and
conditions of the third party's offer. Notwithstanding the foregoing, if a term
of the third party's offer specifies consideration other than cash, SBMS may
exercise its right of first refusal by agreeing to pay an amount in cash
reasonably equivalent to the value of such noncash consideration.
IN WITNESS WHEREOF the parties hereto have executed and delivered this
Agreement in two counterparts on the day and year first above written, AND
HEREBY DECLARE THAT THEY HAVE READ AND DO UNDERSTAND EACH AND EVERY TERM,
-----------------------------------------------------
CONDITION, AND COVENANT CONTAINED IN THIS AGREEMENT OR IN ANY DOCUMENT
- ----------------------------------------------------------------------
INCORPORATED BY REFERENCE.
- --------------------------
CELLSTAR, LTD.
By: /s/ Alan H. Goldfield
----------------------------------------
Title: Chairman and Chief Executive Officer
-------------------------------------
Name: Alan H. Goldfield
--------------------------------------
(Print/Type)
Date: 12/16/96
--------------------------------------
SOUTHWESTERN BELL MOBILE SYSTEMS, INC.,
AS GENERAL PARTNER FOR:
- -------------------------------------------
By: /s/ Lowell Whitlock
----------------------------------------
Title: VP / GM - DFW
------------------------------------
Name: Lowell Whitlock
-------------------------------------
(Print/Type)
Date: 12/17/96
--------------------------------------
Approved as to Form: /s/ illegible
26
<PAGE>
EXHIBIT A
---------
AUTHORIZED SERVICES
- -------------------
1. Commercial Mobile Radio Services (CMRS)
2. CMRS Long Distance
27
<PAGE>
EXHIBIT B
---------
AUTHORIZED AGENT LOCATIONS
- --------------------------
This Exhibit "B" sets forth the initial locations at which AGENT is
authorized to operate as described in this Agreement.
It is agreed by AGENT and SBMS that if the initial business location(s)
and/or the date upon which Authorized Services operations of AGENT will commence
are not known at the date of execution of this Agreement, the same may be added
from time to time as such information becomes known but no later than the
effective date of AGENT operations.
AGENT shall not change or add business locations without SBMS' prior
written approval. AGENT shall consult with SBMS before initiating any action to
change or supplement any of its business locations.
Any business locations that AGENT opens and operates in the Area shall be
subject to all of the terms of the Agreement, whether or not an amendment is
signed by the parties adding the addresses of any new or different locations.
COUNTIES IN WHICH AGENT IS AUTHORIZED:
Dallas and Tarrant
BUSINESS LOCATIONS:
1. 605 W. Airport Freeway, Irving, Texas 75062
2. 512 N. Central Expressway, Richardson, Texas 75080
3. 4146 S. Cooper, Arlington, Texas 76015
4. 4216 LBJ Freeway, Dallas, Texas 75244
5. 5937 Donnelly, Ft. Worth, Texas 76107
EFFECTIVE DATE OF AGENT OPERATIONS:
(under this Agreement)
- -----------------------------------
28
<PAGE>
EXHIBIT C
----------
COMMISSION SCHEDULE (DALLAS-FT. WORTH)
TO AUTHORIZED AGENCY AGREEMENT
(THIS EXHIBIT C SHALL BE EFFECTIVE AS OF AUGUST 1, 1996)
CELL STAR, LTD.
COMMISSIONS
- -----------
Commissions will be paid by SBMS to AGENT in the following manner:
<TABLE>
<CAPTION>
RATE PLAN COMMISSION
--------- ----------
<S> <C>
Bell 15 I, Basic [REDACTED]
Weekender III, Bell 250 I, III and Corporate [REDACTED]
Bell 400 I, III, Bell 700 I, III, and Bell 950 I, III [REDACTED]
</TABLE>
<TABLE>
<CAPTION>
SPECIAL PLAN COMMISSION
------------ ----------
<S> <C>
Bell 15 III [REDACTED]
Weekender I [REDACTED]
</TABLE>
Commissions will be paid within thirty (30) days of the bill close date on
paperwork properly completed and received by SBMS by the second business day of
the following month. Incomplete or incorrect paperwork will be returned to the
Agent and will not be paid during the current cycle unless it is received back
by SBMS by the second business day of the following month. Agent inquiries must
be submitted within six (6) months of the activation date to be eligible for
payment.
Subscriber activation commissions shall be debited in full in the event
Subscriber does not remain on SBMS system in the Area for at least [REDACTED]
subsequent to activation. In addition, if Subscriber switches rate plans during
the initial [REDACTED], then the Agent's commission will be debited or credited
by the difference in the two commission rates.
Commissions will not be paid on paperwork SBMS deems to be fraudulent. This
includes, but is not limited to, forged signatures or forged initials. If it is
determined that the Agent, its sales personnel or Sub-Agent committed the
fraudulent activation, then the Agent will be held responsible for any
subsequent charge-offs involved with such activation.
RESIDUALS
- ---------
Residuals will be paid in the following manner:
ACTIVATIONS RESIDUALS
[REDACTED] [REDACTED]
Residuals will be paid by calculating the appropriate percentage of Agent
originated Subscribers' air-time, features, monthly access charges and long
distance charges for the previous months bills. Taxes, one time fees, directory
assistance and any other miscellaneous charges will not be included in
the calculation of residual payments. Any customer account in a suspend or final
status will not be eligible in the calculation for residuals.
MSA/NW OCTOBER 30, 1996
1
__________
"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
<PAGE>
Example: Agent XX activates a customer on the Weekender III ($39.95) rate plan.
The customer also wants detailed air ($3.00) and voice mail ($6.95). During the
month, the customer uses airtime of $125.00 and long-distance of $20.00. Agent
XX has 110 activations for the month. Residual amounts paid to the Agent for
this customer would be [REDACTED], calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
Access $ 39.95
Feature (Detailed Air) $ 3.00
Feature (Voice Mail) $ 6.95
Airtime $ 125.00
Long Distance $ 20.00
--------
Total $ 194.90
Times Residual Tier (110 Activations) X [REDACTED]
------------
Residuals [REDACTED]
</TABLE>
Agent's right to payment of residuals shall terminate following expiration of
this Agreement, including any renewal period, or as otherwise provided herein.
SBMS, in its sole discretion, may terminate or suspend payment of Agents' entire
residual base if the current month's gross activations [REDACTED]
drop below [REDACTED].
TRADE-IN
- --------
Agent may be eligible to receive payment pursuant to the Trade-in Program to be
established by SBMS. Failure to comply with all current Trade-in Program
guidelines may result in Agent's loss of eligibility to participate in the
Trade-in Program. The Trade-in Program may be revised or restructured at any
time by SBMS, in its sole discretion, upon fifteen (15) days advance written
notice to Agent.
VERTICAL SERVICES
- -----------------
Vertical Services will be paid in the following manner:
Commissions will be paid on vertical services equal to two times the amount of
the monthly charge for the service. Ninety (90) day vesting will apply to
commissions on vertical services. Promotional and no charge verticals are
compensated at $ 0.00 unless otherwise stated.
CO-OP
- -----
Co-op will be paid in the following manner:
Advertising Co-op will be accrued on a monthly basis in the amount of [REDACTED]
per net activation.
Co-op guidelines must be followed in order to receive co-op payments. Co-op
payments shall be due and payable to Agent 30 days following submission of
invoices approved by the SBMS Marketing Department, provided however, no Co-op
invoices will be paid until such amounts have been earned and accrued in Agent's
Co-op account.
MSA/NW OCTOBER 30, 1996
2
__________
"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
<PAGE>
SPIFFS
- ------
The Agent with the lowest churn for the month will receive a special incentive
payment (SPIFF) of [REDACTED] per net activation based on SBMS' commission
report.
The Agent with the highest percentage increase in net activations over the
same month in the previous year (excluding sales due to Agent's Sam's Club
Operations in the previous year) will receive a (SPIFF) of [REDACTED] per net
activation based on SBMS' commission report.
The Agent must be in operation a minimum of [REDACTED] and have [REDACTED] net
activations per month to be eligible to receive any such (SPIFF). Agents will
fall into a [REDACTED] net activation category or [REDACTED] net activation
category, for purposes of the calculation.
<TABLE>
<CAPTION>
NET ACTIVATIONS SPIFF
--------------- -----
<S> <C>
[REDACTED] [REDACTED]
</TABLE>
GENERAL
- -------
In order to receive compensation as set forth in this Exhibit C, SBMS must be
notified and in agreement with any transfer of ownership of store locations.
SBMS reserves the right to withhold or apply commissions and residuals against
overdue receivables owed to SBMS by Agent, or against write-offs assessed by
SBMS resulting from fraudulent paperwork deemed to be caused by the Agent, its
sales personnel, or its Sub-Agent.
Agent must submit customer deposit checks that have been returned to them by a
financial institution (e.g. NSF check, closed account, etc.) to SBMS Dallas
Treasury whose address is 15660 Dallas Parkway, Suite 1300, Dallas, TX 75248,
within two months from the date of the check in order to receive reimbursement.
This Exhibit C may be revised or restructured at any time by SBMS, in its sole
discretion, upon thirty (30) days advance written notice to Agent.
Agent will be compensated for the services and rate plans as set forth in this
Exhibit C. SBMS reserves the right to compensate Agent for all other services
and rate plans not set forth herein in amounts to be determined solely by SBMS.
DEFINITIONS
- -----------
Net activations are equal to monthly gross activations less all non-vested
deactivations.
** Non-vested deactivations are deactivations less than 180 days old.
SOUTHWESTERN BELL MOBILE SYSTEMS ACKNOWLEDGMENT:
- -------------------------------- --------------
AGENT: Cellstar, Ltd.
BY: /s/ Lowell D. Whitlock BY: /s/ Alan H. Goldfield
----------------------------- -----------------------------------
NAME: LOWELL D. WHITLOCK NAME: ALAN H. GOLDFIELD
--------------------------- ---------------------------------
TITLE: VICE PRESIDENT & TITLE: CHAIRMAN AND CHIEF
GENERAL MANAGER EXECUTIVE OFFICER
-------------------------- --------------------------------
DATE: 12/17/96 DATE: 12/16/96
--------------------------- ---------------------------------
MSA/NW OCTOBER 30, 1996
3
__________
"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
<PAGE>
EXHIBIT D
---------
Subagents
Ratel Communications
John Boling
3001 D. Airport Freeway
Bedford, Texas 76021
817-267-1770
Cellular International
Fima Kuperburg
10434 Ryker #C
Dallas, Texas 75238
214-341-2610
Beepers Etc.
Leo Prather/Cleveland Armstead
13455 Noel Road, Suite 1000
Dallas, Texas 75240
214-774-4537
Advanced Cellular Technology
Mike Jeffus
1420 Schukar Court
Irving, Texas 75061
972-986-2213
Cellular Paging
Chris Adeime
3317 West Illinois
Dallas, Texas 75211
214-339-5283
Cellular Paging
Chris Adeime
2431 A South Collins
Arlington, Texas 76014
817-265-4117
<PAGE>
EXHIBIT D
---------
Subagents
Callnet Communication
Felix Osimiri
2302 Gus Thomason
Dallas, Texas 75228
214-327-9308
Radio Shack
Larry Criner
1601 B West Ennis Avenue
Ennis, Texas 75119
214-875-5770
Beepers Unlimited
Bobby & Debbie Harris
1147 East Industrial
Sulphur Springs, Texas 75482
903-439-6049
Universal Paging
Marvis Oa
3068 Forest Lane, Suite 209B
Dallas, Texas 75234
214-357-6565
Prime Time Communications
Keith Stenson
4607 Village Fair Drive, #327
Dallas, Texas 75234
214-374-7534
Protech Electronics
Scott Grant
3884 Shiloh Road, Suite 100
Garland, Texas 75041
972-864-4720
<PAGE>
EXHIBIT D
---------
Subagents
Larry Haag
1802 Guildford Street
Garland, Texas 75044
972-414-8430
Mobile Advantage
Eric Jobe
503 A West Henderson
Cleburne, Texas 76031
817-558-0610
Mobile Electronics
Eric Jobe
726 East Highway 377
Grandbury, Texas 76048
817-279-7243
Moeller Cellular
David Pitre
3805 B Camp Bowie
Cleburne, Texas 76107
817-731-1011
Mobile Communications
Jay Montgomery
903 South Main
Weatherford, Texas 76086
817-596-0099
Texoma Prime
Connie Ferguson
Route 6, Box 569A
Gainesville, Texas 76240
888-453-3229
<PAGE>
EXHIBIT D
---------
Subagents
Golden Key Leasing
Darrell Wright
P.O. Box 541
Arlington, Texas 76004-0541
817-226-4477
Telemart
Ben Tobar
546 Harwood Road
Hurst, Texas 76054
817-498-7831
National Tape
dba National Auto Accessories
Alan Goldfield, Sole Proprietor
2608 South Buckner
Dallas, Texas 75127
214-285-2188
Cellular on the Go
Curt Miller
3512 Sweetwood
Bedford, Texas 76021
817-364-2878
K.A. Marketing
Sandy Monroe
1 Stone Briar Way
Frisco, Texas 75034
972-957-7547
972-993-3993
<PAGE>
EXHIBIT D
---------
Subagents
Bengo Networks
Ben Udechukwu
9492 Webb Chapel
Dallas, Texas 75220
972-654-0721
Advanced Voice Systems
Hazel Altheia
11551 Forest Central, Suite 105
Dallas, Texas 75243
214-340-1976
<PAGE>
EXHIBIT 10.8
MASTER AGREEMENT NO. P/PS-960163
MASTER AGREEMENT
FOR
THE PURCHASE OF PRODUCTS
AND
INVENTORY MAINTENANCE, ASSEMBLY AND FULFILLMENT (IAF) SERVICES
BETWEEN
PACIFIC BELL MOBILE SERVICES
AND
CELLSTAR, LTD.
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT BY "[REDACTED]".
<PAGE>
MASTER AGREEMENT NO. P/PS-960163
TABLE OF CONTENTS
-----------------
1. DEFINITIONS 1
2. TERM OF AGREEMENT 3
3. MASTER AGREEMENT 3
4. SCOPE OF WORK 4
4.1 CUSTOMER PARTNER TEAM 4
4.2 EXTERNAL RELATIONSHIPS 4
4.2.1 Sourcing 4
4.2.2 Vendors and Product Suppliers 5
4.2.3 Retailers and Other Resellers 6
4.2.4 Direct Sales Accounts (Subscriber and Business Customers) 6
4.3 WORKING RELATIONSHIP 6
4.3.1 Dedicated Product Inventory Ownership and Management 6
4.3.2 Open Stock Forecast and Supply 7
4.3.3 Product Assembly 7
4.3.4 Credit Line Administration, Order Processing and Fulfillment 7
4.3.5 Accounts Receivable, Invoicing and Collections 8
4.3.6 Inventory Accounting and Control 9
4.3.7 Maintenance of Books and Records 9
4.3.8 Inventory/Warehousing 9
4.3.9 Returns Processing 9
4.3.10 Use of Fictitious Business Name 9
4.4 COMPENSATION 10
4.4.1 Start-up Costs 10
4.4.2 Inventory Carrying Costs 10
4.4.3 Standard Product Cost 10
4.4.4 Credit for Customer Receivable 11
4.4.5 Fulfillment Services Costs 11
4.4.6 Monthly Recurring Service Fees 11
4.4.7 Returns 11
4.4.8 Purchase Price Variances 11
4.5 PBMS/SUPPLIER AGREEMENTS 12
5. ORDERS 13
6. PRICES 14
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
MASTER AGREEMENT NO. P/PS-960163
7. INVOICING AND PAYMENT 14
8. SHIPPING AND PACKING 15
9. TAXES 15
10. RECORDS AND AUDITS 16
11. INDEPENDENT CONTRACTOR 16
12. NONEXCLUSIVE AGREEMENT 16
13. INDEMNIFICATION 16
14. INSURANCE 17
15. ACCESS 18
16. INFORMATION 19
17. QUALITY 20
18. REGISTRATION 21
19. INSIGNIA 22
20. HAZARDOUS MATERIALS 22
21. CODES, LAWS OR REGULATIONS 22
22. NOTICE OF DELAYS 22
23. CHANGES AND SUSPENSIONS 22
24. TERMINATION AND CANCELLATION 23
25. PARTIAL TERMINATION OR CANCELLATION 23
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26. NONASSIGNMENT 24
27. NOTICES 24
28. PUBLICITY 24
29. COMPLIANCE WITH LAWS 24
30. TITLE 25
31. NO THIRD PARTY BENEFICIARIES 25
32. AMENDMENTS AND WAIVERS 25
33. EXECUTIVE ORDERS 25
34. HEADINGS 25
35. GOVERNING LAW 25
36. REMEDIES CUMULATIVE 25
37. SEVERABILITY 25
38. SURVIVAL 26
39. PATENTS 26
40. FORCE MAJEURE 26
41. SUBCONTRACTING PLAN 26
42. MBE/WBE/DVBE CANCELLATION CLAUSE 26
43. DELIVERY OF PRODUCTS AND PERFORMANCE OF SERVICES 27
44. USE OF CELLSTAR'S PUBLISHED SPECIFICATIONS 28
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45. DOCUMENTATION 28
46. RISK OF LOSS 28
47. WARRANTIES 28
48. TERMINATION OF ORDERS 29
49. ALTERNATE DISPUTE RESOLUTION 29
50. PRECEDENCE 30
51. LIMITATION OF LIABILITY 30
52. CORPORATE AUTHORIZATION 30
53. ENTIRE AGREEMENT 31
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EXHIBITS
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EXHIBIT A: Executive Orders and Associated Regulations
EXHIBIT A-1: Job Specific Subcontracting Plan
EXHIBIT A-2: MBE/WBE/DVBE Summary Subcontracting Report
(Job Specific Results)
EXHIBIT A-3: Commodity Product Subcontracting Plan
EXHIBIT A-4: MBE/WBE/DVBE Summary Subcontracting Report
(Commodity Results)
EXHIBIT B: Description of Products, Services & Prices
EXHIBIT C: PBMS' Credit and Collection Costs
EXHIBIT D: PCS Price List
EXHIBIT E: Sample Order
EXHIBIT F: Assembly Cost Model
APPENDIX 1: Procedures Manual
PROPRIETARY AND CONFIDENTIAL
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THIS MASTER AGREEMENT ("AGREEMENT"), EFFECTIVE SEPTEMBER 20, 1996, IS BETWEEN
CELLSTAR, LTD., A TEXAS LIMITED PARTNERSHIP ("CELLSTAR"), AND PACIFIC BELL
MOBILE SERVICES, A CALIFORNIA CORPORATION ("PBMS"). THE PARTIES, INTENDING TO
BE LEGALLY BOUND, AGREE AS FOLLOWS:
1. DEFINITIONS
For purposes of this Agreement, the following terms and all other terms
defined in this Agreement shall have the meanings so defined unless the
context clearly indicates otherwise. A term defined in the singular shall
include the plural and vice versa when the context so indicates.
"AFFILIATE" - means with respect to PBMS (a) any corporation or other
entity owning, either directly or indirectly, a majority of the outstanding
stock of PBMS ("Parent"), or (b) any corporation or other entity in which a
majority of the ownership interest is held, either directly or indirectly,
by Parent or PBMS.
"CELLSTAR ORDER" - means an order executed by CellStar under a product
supplier/PBMS agreement.
"COMPONENT INVENTORY" - means items carried in inventory at the component
level for resale to subscribers as repair or replacement items. These
components are usually but not always "B Stock" items which have been
received as returns without apparent defect or reconditioned merchandise
which cannot be sold as new equipment.
"CUSTOMERS" - means either Retailers, resellers, business and/or end users.
"DEDICATED PRODUCTS" - means Products purchased by CellStar at PBMS"
direction under terms negotiated by PBMS with the Product manufacturers.
Subject to Section 4.3.1.c, Dedicated Products shall be reserved
exclusively for PBMS' use.
"FULFILLMENT SERVICES" - means picking, assembling of Products, packaging,
preparation of shipping documents, shipping to Customers, processing of
Customer returns and tracking of shipments and all associated Services
associated with providing Products to Customers and receiving Products back
from Customers.
"INFORMATION" - means all ideas, discoveries, concepts, know-how,
techniques, designs, specifications, drawings, sketches, models, manuals,
samples, tools, pricing, Customer lists, competitor, manufacturer, or
manufacturing information, computer programs, technical information, and
other confidential business, Customer or personnel information or data,
whether written, oral or otherwise owned or controlled by the disclosing
party.
"INSIGNIA" - means PBMS' and as applicable, the manufacturers' trademarks,
trade names, symbols, decorative designs or evidence of PBMS' inspection.
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"MATERIAL ADVERSE CHANGE" - means a material adverse change in (a) the
business assets, operations, prospects or financial condition of either
party, or (b) the ability of either party to perform its obligations under
this Agreement.
"OPEN STOCK" - means Products purchased at CellStar's discretion and in
CellStar's inventory available to the general market.
"OPEN STOCK INVENTORY" - means original equipment manufacturer accessories
carried in inventory by CellStar for sale to PBMS and other CellStar
customers. These items may be packaged as PBMS branded items in unique
PBMS retail packages. When so packaged at the request of PBMS, these items
are converted to "Dedicated Products".
"ORDERS" - means purchase orders, in written (e.g. mailed or faxed), or
electronic form (e.g. EDI, flat file) as may be delivered to CellStar for
the purpose of ordering Products and/or Services hereunder. A purchase
order shall be substantially in the form of Exhibit E (Sample Order)
attached hereto and made a part hereof. Each such purchase order, in
written or electronic form shall be deemed to be a separate and independent
agreement between the parties thereto with respect to the subject matter
thereof and shall incorporate (a) all of the provisions of this Agreement
(including any appendices, exhibits, specifications and other documents
attached hereto) as it may from time to time be amended, and (b) any
specifications attached thereto.
"PCS" - means Personal Communication Services.
"PROCEDURES MANUAL" - means a multi-paged document, (the initial version of
which is attached hereto and incorporated by reference hereto as Appendix
1), which details processes and deliverables which will be routinely
performed in the relationship between CellStar and PBMS, and which shall be
periodically revised, from time to time, upon written agreement by both
parties.
"PRODUCTS" - means the equipment and materials, including but not limited
to: PCS handsets, accessories, and collateral material, as may be furnished
to PBMS' Customers by CellStar hereunder.
"PURCHASE PRICE VARIANCE" - means the difference between the actual
delivered cost of Products or components and the standard cost contained in
CellStar's accounting systems.
"RETAILER" - means any vendor of products, whether through traditional
retail outlet or through membership or discount or wholesale establishments
selling to the end user consumer.
"SERVICES" - means all services furnished by CellStar hereunder to PBMS
and/or to PBMS' Customers.
"SPECIFICATIONS" - means CellStar's commercial and technical specifications
(including drawings) for the Products and Services provided hereunder and
such other specifications, e.g. (Procedures Manual), as are listed in the
exhibits or appendices, attached hereto and made a part hereof, or as are
attached to and made a part of the applicable Order.
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"WARRANTY" - means the warranties for CellStar's Services or the Products
covered by CellStar's and/or the Product manufacturer's warranties under
this Agreement.
2. TERM OF AGREEMENT
a. This Agreement shall become effective as of the date stated above (the
"Effective Date"), and unless sooner terminated or canceled as provided
herein, shall continue through September 20, 2001.
b. Either CellStar or PBMS may terminate this Agreement upon one hundred
and eighty (180) calendar days' prior written notice to the other
setting forth the effective date of such termination. The termination,
cancellation or expiration of this Agreement shall not affect the
obligations of the parties under any Order previously executed
hereunder, and the terms and conditions of this Agreement shall continue
to apply to such Order as if this Agreement had not expired, or been
terminated or canceled. Upon the termination, cancellation or
expiration of this Agreement, PBMS agrees to purchase any Dedicated
Products remaining in CellStar's inventory, including any Open Stock
inventory which has been converted to Dedicated Product inventory.
3. MASTER AGREEMENT
a This Agreement anticipates the future issuance of Orders by Pacific Bell
Mobile Services and any PBMS Affiliate as may be designated by Pacific
Bell Mobile Services in writing. Each such entity executing an Order
shall be deemed to be a party to that Order and shall be subject to the
terms and conditions of this Agreement for purposes of that Order;
provided that no PBMS Affiliate shall be permitted to issue an Order
hereunder until (i) such Affiliate has satisfied CellStar's credit
standards, and (ii) an authorized representative of such Affiliate has
executed appropriate documentation pursuant to which it agrees to be
bound by the terms and conditions of this Agreement for the obligations
incurred under such Order. For the purposes of any Order executed
hereunder by any PBMS Affiliate, the term "PBMS" in this Agreement shall
be deemed to also refer to such Affiliate where the context so
indicates. Prior to any Affiliate's execution of an Order hereunder,
PBMS shall obtain that Affiliate's written agreement to be bound by all
the terms and conditions of this Agreement.
b. The provisions of this Agreement shall apply to all contracts entered
into between CellStar and PBMS during the term of this Agreement with
respect to the Products and Services which are the subject of this
Agreement unless the parties expressly agree otherwise by a written
modification to this Agreement, signed by the persons who executed this
Agreement or any other authorized representative of the parties, or
unless an Affiliate of PBMS enters into a separate written agreement
with CellStar, signed by CellStar and the persons authorized to execute
agreements for the PBMS Affiliate. Any such separate agreement signed
between CellStar and a PBMS Affiliate shall apply only to CellStar and
such Affiliate and have no effect
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whatsoever on PBMS. In the absence of such a modification to this
Agreement or such separate agreement, any terms in any other contract
respecting the subject matter of this Agreement which are additional to,
different from or inconsistent with the provisions of this Agreement
shall be deemed to be void and of no effect whatsoever.
4. SCOPE OF WORK
This Agreement describes the principles of the relationship between PBMS
and CellStar and describes CellStar's provision of Products and value added
Services, including but not limited to, sourcing, inventory, assembly,
credit, collections and fulfillment Services to support Product
distribution to PBMS' Customers.
4.1 CUSTOMER PARTNER TEAM
The parties will jointly commit resources to support the following
business processes and structures to accomplish PBMS' and CellStar's
objectives under this Agreement.
The Customer Partner Team ("CPT") shall set direction, priorities,
expectations and boundaries and act to resolve business issues which
arise. The CPT will particularly focus on emphasizing collaborative
work between the parties and to preserve and promote partnering
between the parties.
CPT members shall consist of three (3) representatives each from
CellStar and PBMS. At least one representative from each party will
be at the vice president level or higher. Those representatives,
together with the other CPT members shall be responsible for:
1. Maintaining and reviewing the Services cost structure;
2. Reviewing current processes and additional issues as the parties
may identify for process improvements;
3. At least once each calendar quarter, reviewing pricing, and
recommending price adjustments to the CPT, if necessary;
4. Reviewing forecasting, supply management, and delivery processes
in an effort to streamline processes and to reduce costs
associated with these processes for the benefit of both parties;
and
5. Facilitating the Alternate Dispute Resolution ("ADR") process as
defined in this Agreement.
4.2 EXTERNAL RELATIONSHIPS
4.2.1 SOURCING
PCS Equipment. PBMS has entered into, or may enter into,
-------------
agreements ("PBMS/supplier agreements") with certain
manufacturers or suppliers (hereinafter individually and
collectively "product suppliers") for the purchase of Products.
CellStar agrees that, except with respect to Open Stock, it
shall, upon receipt of an Order by PBMS, place a CellStar
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Order under the PBMS/supplier agreement specified by PBMS for the
quantity of Dedicated Products identified by PBMS in such Order.
Notwithstanding the above, CellStar shall not be obligated to
purchase Products on behalf of PBMS which will bring anticipated
inventory above a level of expected 60 day sales. PBMS shall
provide CellStar the applicable PBMS/supplier agreement (or all
pertinent portions thereof) in order for CellStar to place a
CellStar Order. If CellStar cannot abide by any term(s) set out
in the PBMS/supplier agreement (or portions thereof) provided by
PBMS, CellStar shall immediately notify PBMS and shall not
proceed with placing a CellStar Order under such agreement until
PBMS and CellStar expressly agree otherwise in writing. Further
terms around CellStar's use of PBMS/supplier agreements are set
forth in Section 4.2.2 below and the section entitled
"PBMS/Supplier Agreements" of this Agreement.
4.2.2 VENDORS AND PRODUCT SUPPLIERS
a. Generally, in this Agreement where the term "vendor" or
"manufacturer" is used, it means the supplier providing Open
Stock to CellStar. Where the term "product supplier" is
used, it means the supplier providing Dedicated Products to
CellStar under a CellStar Order issued pursuant to the
PBMS/supplier agreement.
b. With respect to Dedicated Products, PBMS will be responsible
for product supplier selection and certification, product
selection, pricing and contract negotiations for Dedicated
Products. As to each CellStar Order for Dedicated Products,
PBMS shall pass through to CellStar the rights of PBMS under
the product supplier agreement, including but not limited
to, product supplier indemnity and warranties applicable to
CellStar's use of the Dedicated Products, to the extent
allowed by the product supplier. Nothing in this Agreement
shall diminish any pass-through warranties, indemnity or
other rights extended to CellStar through PBMS, by the
product suppliers.
c. If PBMS directs CellStar to issue a CellStar Order for the
purchase of Dedicated Products under a PBMS/supplier
agreement, PBMS will ensure that the product supplier has
granted CellStar all necessary rights to place that Order.
d. CellStar will procure, receive, inventory, pack for
shipping, ship, and disburse Dedicated Products received
from the vendors and product suppliers.
e. CellStar will be solely responsible for entering into any
necessary vendor agreements for the purchase of Open Stock
Products. CellStar shall pass through to PBMS the rights of
CellStar under the vendor agreement, including but not
limited to, vendor indemnity and warranties applicable to
PBMS' and its Customers' use of the Open Stock Products, to
the extent allowed by the vendor. Nothing in this Agreement
shall diminish any
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pass-through warranties, indemnity or other rights extended
to PBMS through CellStar, by the vendor.
4.2.3 RETAILERS AND OTHER RESELLERS
a. Generally all Customer contact will be through PBMS.
b. Generally, issues related to Customer payment, credit and
collections will be handled through CellStar.
c. CellStar will provide Products to Customers as specified in
Exhibit D and invoice Customers at PBMS' direction as stated
in the applicable Order or if not stated in the Order, as
specified in the Procedures Manual.
d. CellStar will process Customer returns in accordance with
PBMS' sales policy as specified in the Procedures Manual.
4.2.4 DIRECT SALES ACCOUNTS (SUBSCRIBER AND BUSINESS CUSTOMERS)
PBMS will handle all billing and accounts receivable transactions
with direct sales account Customers. CellStar's primary
responsibility in connection with Direct Sales Accounts ("Direct
Sales Accounts") will be to provide fulfillment Services and to
process Customer returns in accordance with the Procedures
Manual.
4.3 WORKING RELATIONSHIP
The following processes will be contained and further described in the
Procedures Manual:
4.3.1 DEDICATED PRODUCT INVENTORY OWNERSHIP AND MANAGEMENT
a. CellStar will maintain inventories in its facilities and
will be responsible for risk of physical loss or damage, and
any requested insurance as is consistent with prepaid and
add conventions.
b. CellStar will determine inventory and safety stock levels
necessary to support PBMS' business pursuant to a rolling 90
calendar day forecast which PBMS shall provide and update
monthly.
c. PBMS and CellStar recognize that product suppliers may
prohibit sale of handsets outside PBMS' services territory.
In light of that recognition, PBMS and CellStar shall work
cooperatively with the product suppliers to dispose of slow-
moving stock. If CellStar wishes to sell Dedicated Products
to third parties in addition to PBMS' Customers, CellStar
shall 1) gain the written consent of PBMS Director of
Procurement prior to the sale, and 2) if requested by PBMS
and at a charge to be agreed upon, remove the Insignia from
the Product.
d. CellStar will provide space for PBMS to perform quality
control inspections on inbound Dedicated Products as
reasonably required by PBMS, as specified in the Procedures
Manual.
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4.3.2 OPEN STOCK FORECAST AND SUPPLY
a. PBMS will provide a forecast of PBMS' requirements for Open
Stock Products on a rolling 90 calendar day forecast. Such
forecast shall be updated by PBMS.
b. CellStar will advise PBMS promptly, within 2 business days,
of any Open Stock vendor supply constraints.
c. CellStar will make reasonable best efforts to provide Open
Stock Product availability to fill all PBMS Orders.
4.3.3 PRODUCT ASSEMBLY
a. CellStar will assemble and package components to PBMS'
specifications.
b. CellStar will control the security and data collection
processes for SIM cards.
c. CellStar will provide PBMS with sales forecasting and
DRP/MRP assistance to facilitate efficient inventory
management accessible manually initially, by 11-1-1996.
d. PBMS will provide input to sales forecasting modules and
DRP/MRP system parameters to (i) facilitate efficient
inventory management and (ii) ensure product availability as
necessary.
e. PBMS and CellStar will work together to develop cost
effective production/assembly processes.
4.3.4 CREDIT LINE ADMINISTRATION, ORDER PROCESSING AND FULFILLMENT
a. PBMS' Customer Care and Order Processing systems shall be
capable of accepting orders from Retailers and other
resellers, individual subscribers, and business Customers.
b. PBMS will determine and administer all Order processing
procedures, specific Customer Order packaging requirements,
pricing, sales and marketing relationships with its
Customers.
c. PBMS will pass Customer shipping instructions (including
without limitation, Order packaging and labeling
specifications), and billing information to CellStar
electronically through the PBMS Order Processing system, as
specified in the Procedures Manual, or in such other manner
used by PBMS to communicate the information.
d. CellStar shall generate a packing list for each Order.
e. CellStar will provide Retailer and other reseller credit
line administration for Orders received from PBMS.
Exceptions to credit lines may be approved by PBMS' Chief
Financial Officer or designate and PBMS assumes
responsibility for Customer credit risk with respect to such
approved exceptions. CellStar assumes responsibility for
all other credit risk associated with the financial strength
of Retailers and other resellers invoiced by CellStar. PBMS
shall be responsible for collection or repayment to CellStar
for customer deductions for allowances, fines,
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penalties and other debits unrelated to traditional credit
risk. Notwithstanding the foregoing sentence, if PBMS in
good faith believes that any Customer deduction for
allowances, fines, etc. are the result of a CellStar error
in fulfilling CellStar's obligations under the applicable
Order and further believes that CellStar should assume the
burden of that deduction, then PBMS may present the issue to
the CPT for resolution.
f. CellStar shall provide all Fulfillment Services with respect
to Customer Orders.
g. CellStar will provide electronic confirmation to PBMS of all
shipments completed on behalf of PBMS including carrier
tracking codes by January 31, 1997.
4.3.5 ACCOUNTS RECEIVABLE, INVOICING AND COLLECTIONS
a. PBMS will bill individual subscribers and business Customers
for its Direct Sales Accounts through PBMS' Customer Care
and Billing systems (CCBS). Accordingly, PBMS will not
provide this type of billing information to CellStar.
b. CellStar will invoice Retailers and other resellers upon
Product shipment in accordance with PBMS' instructions
regarding the Customer's billing information as stated in
the applicable Order or, if not stated in the applicable
Order, as specified in the Procedures Manual.
c. CellStar will collect payments from Retailers and other
resellers.
d. CellStar will perform payment reconciliation with Retailers
and other resellers to assist PBMS in properly classifying
deductions and resolving disputes for unauthorized Customer
deductions from invoices. PBMS will reimburse CellStar for
all Customer deductions (not associated with traditional
risk of creditworthiness), whether authorized or otherwise,
in accordance with PBMS' Deductions Policy. PBMS shall
reimburse CellStar for any unresolved Customer deduction
that is outstanding for more than 180 days without regard of
the status of collection efforts. Notwithstanding the
foregoing sentence, if PBMS in good faith believes that any
such Customer deduction arose from a CellStar error which
was in CellStar's control, in fulfilling CellStar's
obligations under the applicable Order, PBMS shall present
the issue to the CPT for resolution. If PBMS reimburses
CellStar for a Customer deduction and CellStar subsequently
collects the deduction from the Customer, CellStar shall
immediately credit PBMS that amount.
e. CellStar will invoice PBMS for Products shipped to the
Customer immediately following Product shipment to the
Customer.
f. Upon PBMS' request, CellStar will promptly provide
information to PBMS on each Customer's sales and credit
status.
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4.3.6 INVENTORY ACCOUNTING AND CONTROL
CellStar covenants and agrees to employ methods of inventory
accounting and control that are in accordance with generally
accepted accounting principles.
4.3.7 MAINTENANCE OF BOOKS AND RECORDS
CellStar covenants and agrees to maintain books and records
covering all transactions under this Agreement and shall make
such books and records available for PBMS' inspection at any
time, including CPA auditors from a major accounting firm hired
by or engaged by PBMS, by and through CellStar's representatives
and agents, during regular business hours on any business day.
4.3.8 INVENTORY/WAREHOUSING
CellStar shall separately inventory and warehouse Dedicated
Products from Open Stock. CellStar shall designate an area for
Dedicated Products in a separate secure area and in accordance
with PBMS' instructions.
4.3.9 RETURNS PROCESSING
a. CellStar will process Customer returns from Retailers and
other resellers, individual subscribers, and business
Customers through its J.D. Edwards system and PBMS' Customer
Care and Order Processing systems.
b. PBMS will be responsible for setting the appropriate
standard cost value of the A and B and discard stock items
in the inventory master file. CellStar will determine the
value of the returned products based on the returns
procedures set forth in the Procedures Manual. CellStar will
bill PBMS for any inventory writedown from A to B or discard
stock value.
c. All Customer returns and vendor and product supplier
warranty procedures for the Products shall be in accordance
with the Procedures Manual.
4.3.10 USE OF FICTITIOUS BUSINESS NAME
a. The parties understand and agree that CellStar will, for
certain purposes, need to use the name "Pacific Bell Mobile
Services Fulfillment" or such other substantially similar
name as CellStar is able to register as an assumed name in
the State of Texas and Dallas County, Texas (the "Name").
PBMS hereby authorizes CellStar to use the name for the
following purposes: (i) receipt and acceptance of payment
from Customers (including, without limitation, via lock-box
wire transfer or check), (ii) inclusion in shipping
collateral provided to Customers, (iii) invoicing of
Customers and provision of Customer statements, (iv) written
and oral correspondence with Customers, (v) such other
purposes
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as are authorized in writing by PBMS and (vi) collection
activities; provided that any use of the Name by CellStar
shall be in accordance with the guidelines provided by PBMS
entitled "Four Basic Rules", incorporated by reference into
this Agreement. PBMS further authorizes CellStar to register
the Name with the Secretary of State of the State of Texas
and in Dallas County, Texas. CellStar's right to use the
Name is a nonexclusive right and PBMS shall retain all
ownership and intellectual property rights in the Name.
Except as provided herein, CellStar shall not use the Name
in any advertising or publicity matter without PBMS' prior
written consent.
b. Upon expiration, termination or cancellation of this
Agreement, CellStar may continue to use the Name only during
the period the Services are transitioned to PBMS or its
authorized contractor and for the purpose of receiving or
collecting remaining payments, if any, due CellStar from
Customers in connection with the Agreement (collectively,
the "Transition Period"). Upon the conclusion of the
Transition Period, and upon PBMS' request, CellStar shall
confirm in writing that it has ceased all use of the Name.
4.4 COMPENSATION
As detailed in Exhibits B and C, PBMS shall compensate CellStar for
each of the following Service components:
4.4.1 START-UP COSTS
Upon execution of this Agreement, CellStar will invoice PBMS for
the start-up costs set forth in Exhibit B.
4.4.2 INVENTORY CARRYING COSTS
A recurring charge, calculated and billed monthly as a "cost of
capital" charged on average daily inventory plus the average
daily balance of amounts due from PBMS for Product shipments. The
calculation shall include a credit for the average daily balance
of unpaid product supplier invoices to reflect an adjustment in
accordance with Exhibit B for vendor payment terms. CellStar will
invoice PBMS the daily average balance carrying costs as of the
close of each month.
4.4.3 STANDARD PRODUCT COST
CellStar shall invoice PBMS standard Product cost at the time of
shipment as set forth in Section 7.a. This cost represents the
sum of all Product components and assembly costs including
assembly charges, packaging and collateral materials and standard
loss allowances as shown on the Product bill of materials.
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4.4.4 CREDIT FOR CUSTOMER RECEIVABLE
Following each shipment, CellStar will record a payable to PBMS
for the value of the invoice to the Retailer or other reseller as
set forth in Section 7.b.
4.4.5 FULFILLMENT SERVICES COSTS
A warehouse picking charge of [REDACTED] per carton shipped.
An additional charge of [REDACTED] per Order picked from
Component Inventory.
Actual transportation charges as billed by the carrier (the
discounted amount) for delivery to the Customer.
Actual insurance charges covering loss or damage in transit.
4.4.6 MONTHLY RECURRING SERVICE FEES
The monthly service fees shall be comprised of the following
components:
a. A monthly "cost of capital" charge predicated on the average
daily balance for accounts receivable for outstanding
invoices to PBMS and Customers, minus the average daily
balance of amounts due to PBMS from CellStar for receivables
transferred to CellStar by PBMS, plus a [REDACTED] of net
monthly invoices to Retailers and other resellers and
resellers billed by CellStar for PBMS sales .
b. A monthly Service fee for invoice processing and collection
Services predicated on the cost of such Services plus
margins as set forth in Exhibit C.
c. Non-recoverable returns and freight.
d. Such other items as set forth in Exhibit C.
4.4.7 RETURNS
See Procedures Manual. See also Exhibit B for the fees to be
billed to PBMS for skid storage fees and Products returned by
Customers ("return fees").
4.4.8 PURCHASE PRICE VARIANCES
CellStar shall operate on the basis of a "standard cost"
accounting system and shall invoice all Product cost at "standard
cost" as noted in Section 4.4.3. All purchase price variances
for the account of PBMS shall be invoiced or credited to PBMS as
of the close of each month. Periodic changes in standard cost
will generate a change in inventory valuation and corresponding
debit or credit to Purchase Price Variances accounts. These
debits and credits to the Purchase Price Variances
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accounts for the account of PBMS shall be invoiced or credited by
CellStar as of the close of each month.
4.5 PBMS/SUPPLIER AGREEMENTS
a. PBMS has included in certain third party manufacturer or supplier
agreements (hereinafter "PBMS/supplier agreements") with its PCS
product suppliers (the "product suppliers") the right for a third
party distributor, such as CellStar, to execute orders under the
PBMS/supplier agreements for the purchase of PCS products. As
necessary and as permitted by nondisclosure agreements between
PBMS and its suppliers, PBMS agrees to provide CellStar a copy
of the PBMS/supplier agreements (or pertinent extracts) in order
for CellStar to order Dedicated Products only as PBMS may direct,
and not for the purpose of ordering products for any of
CellStar's other customers. CellStar agrees to keep the terms of
the supplier agreements strictly confidential and not to disclose
the terms of the PBMS/supplier agreements, including pricing, to
any third party, without PBMS' prior written consent, unless that
third party has a legitimate need to know in the performance of
services to CellStar, and is covered by an appropriate
confidentiality agreement prior to accessing the Information.
"Third parties" shall include without limitation, any potential
competitors of the product suppliers, including competitors that
are partners or third parties holding any form of equity interest
in CellStar.
b. In addition to the above and subject to CellStar's rights under
Section 4.2.1. above (regarding instances, if any, in which
CellStar has notified PBMS that it cannot comply with a product
supplier agreement prior to executing a CellStar Order), CellStar
agrees to abide by all applicable terms and conditions of the
PBMS/supplier agreements, including payment and confidentiality
terms. CellStar may not add any supplementary or conflicting
terms to any CellStar Order under a PBMS/supplier agreement
without PBMS' prior written consent. The right to receive any
liquidated damages, promotional monies or other such payments
under a PBMS/supplier agreement shall belong exclusively to PBMS
whether or not CellStar executed a CellStar Order for Dedicated
Products in connection with the product supplier's payment of
liquidated damages, promotional monies or other such payments.
In the event the product supplier pays any such liquidated
damages, promotional monies or other such payments to CellStar in
connection with Dedicated Products, CellStar shall immediately
transfer those funds to PBMS without set-off, administrative
charge or deduction of any kind.
c. In connection with a CellStar Order for Dedicated Products under
a PBMS/supplier agreement, if CellStar does not or, believes it
cannot, make full payment to any product supplier within 30 days
following product delivery by the product supplier under the
applicable CellStar
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Order, CellStar shall notify PBMS immediately and provide
information concerning the reason for the nonpayment.
Notwithstanding the foregoing, CellStar agrees to make best
efforts to make payment to the product suppliers when due and
CellStar expressly acknowledges that failure to do so shall
result in a material breach by CellStar of the terms of this
Agreement, unless PBMS expressly waives CellStar's breach in
writing. PBMS agrees that it shall not cure a breach of
CellStar's payment obligations under a PBMS/supplier agreement
unless and until such time that CellStar's 15 calendar day cure
period (as described in Section 24 of this Agreement) has
elapsed.
d. In the event that PBMS cures CellStar's default on any payment
obligation to a product supplier under a CellStar Order issued
pursuant to a PBMS/supplier agreement, CellStar shall with
respect to that default:
i) TO THE EXTENT THAT CELLSTAR HAS PREVIOUSLY SHIPPED THE
PRODUCTS TO THE CUSTOMER: CellStar shall immediately credit
PBMS' account in full for the money PBMS paid to the product
supplier (the "default amount").
ii) IN THE EVENT THAT THE PRODUCTS HAVE NOT YET BEEN SHIPPED TO
THE CUSTOMER: CellStar shall automatically be deemed to
have sold the Products to PBMS upon the date, and in
consideration of, PBMS' payment to the product supplier.
Any subsequent shipment of such Products to Customers shall
be considered consignment inventory and Product costs shall
not be billed to PBMS, unless CellStar buys back the
Products from PBMS.
e. In the event that this Agreement expires or is terminated or
canceled, any credits, including default amounts remaining in
PBMS' account, shall be paid to PBMS in cash within thirty (30)
days of such expiration, termination or cancellation date.
Additionally, at any time, PBMS may set-off any PBMS payment due
CellStar, by the amount of credits due PBMS.
5. ORDERS
CellStar's commencement of performance of any Order shall be deemed to be
acceptance of such Order upon the terms and provisions of this Agreement.
Any additional or different terms in any CellStar quotation,
acknowledgment, invoice or other communication to PBMS, whether or not such
terms materially alter an Order, shall be deemed objected to by PBMS
without need of further notice of objection and shall be of no effect and
not in any circumstance be binding upon PBMS unless expressly accepted by
PBMS in writing.
Subject to CellStar's rights set forth in the preceding paragraph, the
parties expressly agree that all Orders electronically transmitted by PBMS
to CellStar shall be deemed to constitute a "writing sufficient to indicate
that a contract for sale has been made between
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the parties and signed by the party against whom enforcement is sought or
by his authorized agent or broker" for purposes of section 2201 of the
California Uniform Commercial Code. The parties further agree that data
mechanically or electronically stored by PBMS or CellStar in the course of
business shall constitute acceptable documentation of the contents of any
Order or invoice electronically transmitted by either party to the other.
6. PRICES
Prices are set forth in Exhibit B and D. [REDACTED] Prices changes and
prices for any new Products or Services set forth in Exhibit B shall be
implemented only when agreed to by the CPT. Additionally, the following
shall apply:
(i) Any price changes for assembly costs as set forth in Section 1.c. of
Exhibit B, shall be determined on the basis of the assembly cost model set
forth in Exhibit F.
(ii) Assembly prices for all new Products set forth in Exhibit B,
including price changes for those Products, shall be determined on the
basis of assembly cost model set forth in Exhibit F.
(iii) Any price changes for credit and collection Services as set forth in
Section 3.c. of Exhibit B shall be determined on the basis of the component
cost analysis set forth in Exhibit C.
(iv) Prices for any new administrative Services set forth in Exhibit B,
including any price changes for those Services, shall be determined on the
basis of component cost analysis similar to that set forth in Exhibit C.
7. INVOICING AND PAYMENT
a. Promptly after shipment of Products to the Customer, CellStar shall
render an invoice to PBMS for each such shipment. The invoice shall
identify and separately show quantities and prices for each item
shipped and for Services provided any shipping charges to be borne by
PBMS, applicable sales or use taxes, any discounts and total amount
due. PBMS shall promptly pay CellStar the amount due within one (1)
business day after receipt of the invoice. Both parties are currently
working to develop EFT capabilities. Until such time that EFT is
implemented, PBMS will remit payment by wire transfer each Monday, for
the prior week.
b. Promptly after the shipment of Products to the Customer, CellStar
shall remit payment to PBMS in an amount that equals the invoiced
amount generated by CellStar to the Retailer or other reseller. Both
parties are currently working to develop EFT capabilities. Until such
time that EFT is implemented, CellStar will remit payment by wire
transfer each Monday, for the prior week.
c. Promptly after the performance of Services rendered, CellStar shall
render an invoice electronically for such Services. The invoice shall
identify and separately show prices for the Services, including Cost
of Capital. PBMS shall promptly pay CellStar the amount due via
electronic funds transfer ("EFT') within one (1) business day after
receipt of the invoice. Both parties are currently working to develop
EFT capabilities. Until such time that EFT is
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implemented, PBMS will remit payment by wire transfer each Monday, for
the prior week.
d. If PBMS disputes any invoice rendered or amount paid, PBMS shall so
notify CellStar after payment, and the parties, through the CPT, shall
use their best efforts to resolve such dispute expeditiously. The CPT
shall provide all pertinent information to PBMS and CellStar upon
request to enable and cooperate with PBMS in investigating the amount
in dispute.
e. With respect to Section 7.a. and b. above, upon agreement by both
parties, amounts due for transactions under such Sections may be
consolidated for the purpose of the single transfer of funds. Nothing
in this paragraph e. however, limits PBMS' right to set-off payments
due CellStar as set forth in Section 4.5.e. of this Agreement.
8. SHIPPING AND PACKING
a. CellStar shall ship all Orders to PBMS' Retailers and other resellers
according to the specific shipping instructions for that Customer when
set forth in the Procedures Manual, unless PBMS specifies other
instructions in the applicable Order, provided that CellStar shall
have had a reasonable opportunity to (i) review the applicable
Customer's standard shipping instructions prior to receipt of such
Order, and (ii) make arrangements to accommodate any special
instructions of such Customer. PBMS agrees to reimburse CellStar for
additional freight charges, if any, required to satisfy such special
instructions. Whenever possible however, CellStar shall use the
lowest priced shipping carrier (and where possible use a contract
carrier) capable of shipping the Products on time. In the event the
Order contains other shipping instructions, then notwithstanding the
section entitled "Order of Precedence" in this Agreement, the Order
shall take precedence over the shipping instructions set forth in the
Procedures Manual.
b. CellStar shall ship Products as specified in PBMS' Order to meet PBMS'
specified shipment or arrival date.
c. Unless expressly stated to the contrary, CellStar's charges for
transportation Services including, but not limited to, routing,
transporting, hauling, hoisting, storage and detention, are not
included in any prices furnished for Products.
d. Marking and labeling ("Marking") of packages may vary depending on
Product and Order type. Standard Markings shall include, but not be
limited to, Markings which are or shall be required by applicable laws
and regulations governing the environment and hazardous
materials/wastes, Order number, container number, ship-to address,
return address, Product identification, quantity, date packed and
gross weight, where applicable.
9. TAXES
a. PBMS shall reimburse CellStar the cost of all sales and use taxes and
import and export duties, and other governmental fees to the extent
related to PBMS' Orders not otherwise included in the invoice for the
original shipment to PBMS Customers.
b. CellStar agrees to pay, and to hold PBMS harmless from and against,
any penalty, interest, additional tax or other charge that may be
levied or assessed as
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a result of the delay or failure of CellStar for any reason to pay any
tax or file any return or information required by law, rule or
regulation or by this Agreement to be paid or filed by CellStar.
c. If PBMS is exempt from payment of any applicable sales and/or use tax
upon notifying CellStar of the basis for claiming such exemption
CellStar agrees to take all legal and proper steps to sell the
Products free of sales and/or use tax or to act as PBMS' agent in
applying for any applicable rebate of tax. PBMS will, upon request
furnish CellStar with any applicable tax exemption number.
10. RECORDS AND AUDITS
CellStar shall maintain accurate records of all matters which relate to
CellStar's obligations hereunder in accordance with generally accepted
accounting principles and practices, uniformly and consistently applied in
a format that will permit audit. Unless otherwise provided in this
Agreement, CellStar shall retain such records for a period of four (4)
years from the date of final payment under the Order to which such records
relate. To the extent that such records may be relevant in determining if
CellStar is complying with its obligations under the applicable Order, PBMS
and its authorized representatives shall, at any time, upon reasonable
advance notice, have access to such records for inspection and audit during
normal business hours.
11. INDEPENDENT CONTRACTOR
CellStar hereby declares and represents that CellStar is engaged in an
independent business and will perform its obligations under this Agreement
as an independent contractor and not as the agent or employee of PBMS; that
the persons performing services hereunder are not agents or employees of
PBMS; that CellStar has and hereby retains the right to exercise full
control of and supervision over the performance of CellStar's obligations
hereunder and full control over the employment, direction, compensation and
discharge of all employees assisting in the performance of such
obligations; that CellStar shall be solely responsible for all matters
relating to payment of such employees, including compliance with workers'
compensation, unemployment, disability insurance, social security,
withholding and all other federal, state and local laws, rules and
regulations governing such matters; and that CellStar shall be responsible
for CellStar's own acts and omissions and those of CellStar's agents,
employees and contractors during the performance of CellStar's obligations
under this Agreement.
12. NONEXCLUSIVE AGREEMENT
This Agreement is a nonexclusive agreement. PBMS expressly reserves the
right to contract with others for any of the products or services it may
require. PBMS also reserves the right, at any time, to 1) bring any of the
Services described under this Agreement in-house or 2) enter into an
arrangement whereby a PBMS Affiliate provides the types of Services
described hereunder.
13. INDEMNIFICATION
CellStar shall indemnify, defend and hold harmless PBMS and its Affiliates,
and the directors, shareholders, agents and employees of any of them
("Indemnitees"), from and against any fine, penalty, loss, cost, damage,
injury, claim, expense or liability, including
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attorney's fees and court costs (individually and collectively
"Liabilities"), as a result of (i) injury to or death of any person; (ii)
damage to, loss or destruction of any property; (iii) failure to comply
with the section entitled "Compliance with Laws", or (iv) breach of a
PBMS/supplier agreement where such Liabilities arise out of CellStar's
performance of this Agreement except for that portion of Liabilities which
are caused by PBMS' negligence or willful misconduct. CellStar shall (1)
keep PBMS and any PBMS Indemnitees subject to such Liabilities fully
informed as to the progress of the defense and/or settlement and (2) afford
PBMS or any Indemnitee, each at its own expense, an opportunity to
participate on an equal basis with CellStar in the defense or settlement of
any such Liabilities.
With respect to any claim of infringement of any patent, copyright, trade
secret or other intellectual property right of any third party in
connection with Open Stock, CellStar shall pass through to PBMS the
manufacturer's and/or vendor's indemnity in connection with such
infringement claim to the extent allowed by that manufacturer or vendor.
With respect to any claim of infringement of any patent, copyright, trade
secret or other intellectual, proprietary right of any third party in
connection with Dedicated Products, PBMS shall pass through to CellStar the
product supplier's indemnity in connection with such infringement claim, to
the extent allowed by that product supplier.
While PBMS is on CellStar's premises, PBMS agrees to indemnify CellStar
under the same terms as set forth in paragraph a. above, for Liabilities as
a result of any injury to or death of any person or damage, loss or
destruction of any property which arises from PBMS' negligence or willful
misconduct except for that portion of Liabilities which are caused by
CellStar's negligence or willful misconduct. In addition, PBMS agrees to
indemnify CellStar under the same terms as set forth in paragraph a. above
for Liabilities as a result of failure to comply with the Section entitled
"Compliance With Laws" which arise out of PBMS' performance of this
Agreement.
PBMS agrees to indemnify, defend and hold harmless CellStar and its
affiliates, and the directors, stockholders, agents and employees of any of
them, from and against any Liabilities that arise in connection with
CellStar's use of the Name, except to the extent such Liabilities are due
to CellStar's negligence or misconduct.
14. INSURANCE
Any and all insurance, including Worker's Compensation Insurance, that may
be required under the laws, ordinances, and regulations of any governmental
authority, with respect to CellStar's performance under this Agreement, is
and shall be the sole responsibility of CellStar.
a. Without in any way limiting CellStar's indemnification obligations
hereunder, CellStar shall maintain the following insurance:
i) Commercial General Liability (Bodily Injury and Property Damage)
Insurance including the following supplementary coverages:
1. Contractual Liability to cover liability assumed under this
Agreement;
2. Personal Injury Liability;
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3. Product and Completed Operations Liability Insurance;
4. Property Damage Liability Insurance;
ii) Business Automobile Liability Insurance if any of CellStar's
employee owned, leased, hired or borrowed automobiles are used in
the performance of this Agreement. Coverage shall be in force
for all owned, non-owned and hired automobiles used by CellStar.
iii) The limit of the liability for insurance required above shall
not be less than two million dollars ($2,000,000) combined single
limit per occurrence.
b. The insurance specified above shall:
i) Name PBMS, its Affiliates, directors, agents and employees as
additional insureds in matters covered by this Agreement, at
CellStar's sole expense;
ii) Provide that such insurance is primary coverage with respect to
all insureds;
iii) Contain a Standard Cross Liability Endorsement which provides
that the liability insurance applies separately to each insured
and that the policies cover claims or suits by one insured
against the other;
iv) Contain a waiver of subrogation and an assignment of statutory
lien against PBMS for purposes of Worker's Compensation
Insurance;
v) Include a requirement that the insurer provide PBMS with thirty
(30) days written notice to PBMS prior to the effective date of
any cancellation or material change of the policy or policies of
insurance;
vi) have insurance issued by insurance companies that hold a current
rating of not less than A/XV, according to Best's Key Rating
Guide.
c. If requested by PBMS, CellStar shall provide PBMS with a Certificate
of Insurance executed by a duly authorized representative of the
insurer evidencing the coverages, limits, and provisions specified
above.
d. If CellStar's insurance is on "claims-made" forms, CellStar's
obligations to maintain the insurance and to provide policy
endorsements required herein shall survive the termination of this
Agreement for a period of five (5) years.
15. ACCESS
a. PBMS' Premises
CellStar shall when appropriate have reasonable access to PBMS'
premises during normal business hours and at such other times as may
be agreed upon by the parties in order to enable CellStar to perform
its obligations under this Agreement. CellStar shall coordinate such
access with PBMS' designated representative prior to visiting such
premises. If PBMS for any lawful reason requests CellStar to
discontinue furnishing any person provided by CellStar for performing
work on PBMS' premises, CellStar shall immediately comply with such
request. Such person shall leave PBMS' premises promptly and CellStar
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shall not furnish such person again to perform work on PBMS' premises
without PBMS' prior consent.
b. CellStar's Premises
PBMS shall, upon reasonable prior notice to CellStar and at no
additional charge, have reasonable access to CellStar's premises
during normal business hours in order to observe CellStar's work with
respect to the Products and Services or to take possession of any
Dedicated Products paid for by PBMS. If CellStar for any lawful reason
requests PBMS to discontinue furnishing any person provided by PBMS
for performing work on CellStarOs premises, PBMS shall immediately
comply with such request. Such person shall leave CellStarOs premises
promptly and PBMS shall not furnish such person again to perform work
on CellStarOs premises without CellStarOs prior consent.
c. Rules and Regulations
The employees and agents of CellStar and PBMS shall, while on the
premises of the other, comply with all site rules and regulations,
including, where required by government regulations, submission of
satisfactory clearance from the U.S. Department of Defense and other
governmental authorities concerned.
d. Releases Void
Neither party shall require waivers or releases of any personal rights
from representatives of the other in connection with visits to its
premises, and no such releases or waivers shall be pleaded by either
party in any action or proceeding.
16. INFORMATION
a. In the performance of its obligations under this Agreement, either
party may receive or access (the Oreceiving partyO) Information from
the other party (the Odisclosing partyO). Such Information may
contain material which is proprietary or confidential, disclosures of
patentable inventions with respect to which patents may not have been
issued or for which patent applications may not have been filed, or
material which is subject to applicable laws regarding secrecy of
communications or trade secrets. Accordingly, the receiving party
agrees:
i) that all such Information so acquired by it or its employees,
contractors or agents (individually and collectively "personnel")
hereunder shall be and shall remain the disclosing party's
exclusive property;
ii) to inform all of its personnel engaged in handling such
Information of the proprietary or confidential character of such
Information and of the existence of applicable laws regarding
secrecy of communications;
iii) to limit access to such Information to its personnel having a
need to know;
iv) to keep, and have its personnel who receive or access such
Information keep, such Information confidential;
v) to return promptly or certify that it has destroyed, any copies
of such Information in written, graphic or other tangible form
upon the disclosing partyOs request; and
vi) to use such Information only for purposes of this Agreement and
for other purposes only upon such terms as may be agreed upon
between the parties in writing.
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b. Notwithstanding the foregoing, nothing contained in this Section 16
shall restrict either party in the use or disclosure of any
Information from the other party which:
i) is already in such party's possession without accompanying use or
disclosure restrictions prior to its receipt from the other
party; or
ii) is or subsequently becomes publicly available through no fault of
such party; or
iii) is rightfully received by such party from a third party without
accompanying use or disclosure restrictions; or
iv) is independently developed by such party or a third party without
the aid, application or use of any Information received pursuant
to this Agreement; or
v) is approved in writing for release by the other party.
c. Each party hereto acknowledges and agrees that in the event of the
violation of this Section 16, irreparable damage may occur, and
therefore the aggrieved party shall be entitled to seek court ordered
injunctive relief to halt the violation of this Agreement which such
remedy shall be in addition to any other remedies available to the
aggrieved party at law or in equity.
d. If either party is required by law or by governmental regulation or
rule or receives a request to disclose all or any part of the
disclosing party's Information by applicable law or, under the terms
of a subpoena or other order issued by a court of competent
jurisdiction or by a government agency, the receiving party shall:
(i) promptly notify the disclosing party of the existence, terms and
circumstances surrounding any such requirement or request; (ii)
consult with the disclosing party regarding the advisability of taking
steps to resist or narrow such requirement or request; (iii) if
disclosure of such Information is required, furnish only such portion
of the Information as the receiving party is advised by counsel is
legally required to be disclosed; and (iv) cooperate with the
disclosing party, at the disclosing party's expense, in its efforts to
obtain an order or other reliable assurance that confidential
treatment will be accorded to that portion of the Information that is
required to be disclosed.
17. QUALITY
a. PBMS and CellStar believe that benefits accrue to both parties when
they cooperate to improve quality and to control costs.
b. CellStar shall be engaged in on-going quality improvement efforts and
practices which are consistent with the latest standards and practices
in the industry.
c. CellStar shall maintain a quality assurance system designed to
identify, correct and prevent deficiencies.
d.
i) CellStar agrees to perform all quality control functions in
conformance with the "Warranties" section of the Agreement, the
Specifications and applicable Order; and, in the absence of
Specifications, to good commercial practice. Detailed inspection
records, documentation and
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other data relating to CellStar's standards in effect at
CellStar's premises shall be maintained by and made available to
PBMS upon request.
ii) At PBMS' option, PBMS may at all reasonable times and places,
either perform or observe CellStar performance of inspections and
tests of any Products pertaining to the Agreement. CellStar
shall designate, at each of CellStar's applicable distribution
facilities, one (1) or more responsible employees with whom PBMS
may discuss any matters relating to Product quality and
reliability. CellStar shall also make available to PBMS at no
additional charge, such facilities, data, Specifications and
information regarding CellStar procedures and any other
documents, information and assistance as may be deemed reasonably
necessary by PBMS to perform inspections and tests related to
CellStar's Product handling and as mutually agreed by the CPT in
writing.
iii) PBMS may inspect and test Products, in whole or in part, prior
to or subsequent to final assembly and/or completion of Product
manufacturing or repair processes. Whenever Products are made
available to PBMS for inspection and testing, CellStar shall also
make available to PBMS copies of any Order(s) applicable to such
Products. Whenever CellStar establishes a stock of Products to
be shipped to PBMS or its Customers pursuant to Orders to be
issued by PBMS in the future, such Products shall be available
for inspections by PBMS prior to delivery by CellStar.
iv) PBMS' exercise of, or failure to exercise, the rights provided in
this Section shall not relieve CellStar of its obligation to
furnish all Products in conformance to this Agreement and the
applicable Order.
18. REGISTRATION
To the extent that PBMS purchases Open Stock, CellStar represents that,
from the date of this Agreement on a going forward basis, it will use its
best reasonable efforts to include in its contracts with each manufacturer
that provides Open Stock to CellStar, the manufacturer's commitment and
obligation to comply with all Federal Communications Commission's Rules and
Regulations as may be amended from time to time, including, but not limited
to, all labeling and Customer instruction requirements with respect to that
Open Stock. CellStar agrees to indemnify PBMS for any Liabilities
pursuant to the Section entitled "Indemnification" of this Agreement for
CellStar's breach of this Section entitled "Registration". PBMS agrees
that it will use its best reasonable efforts to include in its contracts
with each product supplier that provides Dedicated Products to CellStar the
product supplier's commitment and obligation to comply with all Federal
Communication Commission's rules and regulations as may be amended from
time to time, including but not limited to all labeling and Customer
instruction requirements with respect to that Dedicated Product. PBMS
agrees to indemnify CellStar for any Liabilities pursuant to the Section
entitled "Indemnification" of this Agreement for PBMS' breach of this
Section entitled "Registration".
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19. INSIGNIA
Upon PBMS' written request, Insignia shall be properly affixed by CellStar
to the Products furnished. Such Insignia shall not be affixed, used or
otherwise displayed on the Products furnished or in connection therewith
without PBMS' written approval. The manner in which such Insignia will be
affixed must be approved in writing by PBMS. If PBMS directs CellStar to
remove Insignia from any Products rejected or not purchased by PBMS,
CellStar shall do so at a price to be negotiated by the CPT for such
removal.
20. HAZARDOUS MATERIALS
a. CellStar shall notify PBMS in writing at least thirty (30) days prior
to shipment when any Open Stock Product or Services or processes
consists of or contains a "hazardous chemical substance or mixture" or
a "hazardous and/or radioactive material", as these terms are defined
in all applicable federal, state and local laws, regulations and
orders ("Regulations").
b. Any hazardous materials in Products or Services provided hereunder by
CellStar shall be transported or handled in accordance with the
requirements of the applicable Regulations including, but not limited
to, those of the Department of Transportation governing transportation
of such hazardous materials.
21. CODES, LAWS OR REGULATIONS
CellStar shall make any changes to its Services and will use its best
efforts to cause the manufacturers of Open Stock to change the Open Stock
and PBMS will use its best efforts to cause the product suppliers of
Dedicated Products to change the Dedicated Products, in order to meet
codes, laws or regulations which are in effect.
22. NOTICE OF DELAYS
Whenever any actual or potential cause delays or threatens to delay
CellStar's performance, CellStar shall immediately so notify PBMS in
writing. Such notice shall include all relevant information concerning the
actual or potential cause of the delay and its background. During the
period such actual or potential cause exists, CellStar shall keep PBMS
advised of its effect on CellStar's performance and of the measures being
taken to remove it.
23. CHANGES AND SUSPENSIONS
a. Subject to Section 48 below, PBMS may, by notice to CellStar, suspend,
in whole or in part, the delivery of Products and the performance of
Services or any Order. If PBMS directs any such change or suspension,
the parties shall agree to any adjustments in prices or dates
necessitated thereby and shall execute a revised Order reflecting such
adjustments.
b. Subject to Section 40 below, CellStar may not, without PBMS' prior
written consent, make any changes whatsoever with respect to the
Products or Services specified in any Order hereunder.
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24. TERMINATION AND CANCELLATION
a. Default
If either party is in material default of any of its obligations under
this Agreement and such default continues for fifteen (15) calendar
days after written notice thereof is given by the party not in
default, such nondefaulting party may cancel this Agreement and/or any
Orders which may be affected by such default.
The parties acknowledge that the first 180 calendar days of this
Agreement will involve prototype development and process refinement
and that breaches which are immaterial in nature with respect to such
efforts shall not constitute a default which shall allow the other
party to cancel this Agreement, unless however the default is ongoing
and the defaulting party does not take reasonable steps within 60
calendar days following notice of the breach, to eliminate the
default.
Default may include any of the following Events of Default which would
allow the nondefaulting party to cancel this Agreement and/or any
Orders immediately:
i) Termination of Business, Bankruptcy, Etc. Either party shall
-----------------------------------------
cease its operations or sell or otherwise dispose of all or
substantially all of its assets or there shall be change in
ownership of either party's business, an assignment for the
benefit of creditors, insolvency, appointment of a receiver or
the filing of any petition under bankruptcy or debtor's relief
laws of, or against either party.
ii) Material Adverse Change Either party shall have reasonably
-----------------------
determined that since the Effective Date, a Material Adverse
Change has occurred with respect to the other party.
iii) Representations and Warranties Any warranty, representation or
------------------------------
certification made by either party or any officer of either party
in this Agreement or in any document executed and delivered by
either party in connection therewith shall be untrue in any
material respect, in any case, on any date as of which the facts
set forth are stated or certified.
b. Termination
Provisions for termination of Orders hereunder are set forth in
Section 48 of this Agreement.
25. PARTIAL TERMINATION OR CANCELLATION
Subject to Section 48, where a provision of this Agreement or applicable
law permits PBMS to terminate or cancel an Order, such termination or
cancellation may, at PBMS' option, be either complete or partial. Subject
to Section 48, in the case of a partial termination or cancellation PBMS
may, at its option, accept a portion of the Products or Services covered by
an Order and pay CellStar for such Products or Services at the prices set
forth in such Order and the parties shall execute a revised Order to
reflect such partial termination or cancellation. The right to cancel an
Order shall also include the right to cancel any other affected Order.
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26. NONASSIGNMENT
Except as otherwise provided by law, neither party shall assign its rights
or delegate its duties ("Assignment") under this Agreement, without the
prior written consent of the other party, which consent shall not be
unreasonably withheld. Any attempted Assignment or delegation of duties in
contravention of this section shall be void and of no effect. This
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns, if any, of CellStar and PBMS. The assigning party
shall provide thirty (30) days prior written notice to the other party of
any proposed Assignment.
27. NOTICES
Except as otherwise provided in this Agreement, or applicable Order, all
notices or other communications hereunder shall be deemed to have been duly
given when made in writing and either 1) delivered in person, 2) delivered
to an agent, such as an overnight or similar delivery service, or 3)
deposited in the United States Mail, postage prepaid, and addressed as
follows:
To: CELLSTAR, LTD.
1730 Briercroft Court
Carrollton, TX 75006
Attn.: General Counsel
To: PACIFIC BELL MOBILE SERVICES
4410 Rosewood Dr. Bldg. 1, 4th Floor
Pleasanton, CA 94588
Attn.: Director - Procurement
The address to which notices or communications may be given by either party
may be changed by written notice given by such party to the other pursuant
to this paragraph entitled "Notices".
28. PUBLICITY
CellStar shall not use PBMS' or PBMS' Customers' or manufacturers' names or
any language, pictures or symbols which could, in PBMS' judgment, imply
their identity in any a) written or oral advertising or presentation or b)
brochure, newsletter, book, or other written advertising material of
whatever nature, without PBMS' prior written consent. PBMS shall not use
Open Stock manufacturers' names or any language, pictures, or symbols which
could, in CellStar's judgment, imply their identity in any a) written or
oral advertising or presentation or b) brochure, newsletter, book or other
written advertising material of whatever nature, without CellStar's prior
written consent.
29. COMPLIANCE WITH LAWS
Each party shall comply with all applicable federal, state and local laws,
regulations and codes, including, but not limited to, the procurement of
permits, certificates and licenses when needed in the performance of this
Agreement.
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30. TITLE
Unless otherwise provided in this Agreement, title to Dedicated Products
shall vest in CellStar when the Products have been delivered by the product
suppliers or manufacturers to CellStar's destination.
31. NO THIRD PARTY BENEFICIARIES
This Agreement is for the benefit of PBMS and CellStar and not for any
other person.
32. AMENDMENTS AND WAIVERS
This Agreement may be amended or modified only by a written document signed
by authorized representatives of both parties. No course of dealing or
failure of either party to strictly enforce any term, right or condition of
this Agreement shall be construed as a general waiver or relinquishment of
such term, right or condition. Waiver by either party of any default shall
not be deemed a waiver of any other default.
33. EXECUTIVE ORDERS
Exhibit A entitled "Exhibit A - Executive Orders and Associated
Regulations" is attached hereto and made a part hereof. As used in Exhibit
A "Contractor" shall mean CellStar.
34. HEADINGS
Article, section, or paragraph headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
35. GOVERNING LAW
This Agreement and each Order shall be construed in accordance with the
domestic laws (including the Uniform Commercial Code) but not the rules
governing conflicts of law, of the State of California. To the extent that
an Order involves the performance of Services, such Services shall be
deemed to be "goods" within the meaning of the California Uniform
Commercial Code.
36. REMEDIES CUMULATIVE
Except to the extent of any conflict with the section entitled "Limitation
of Liability", any rights of cancellation, termination, or other remedies
prescribed in this Agreement are cumulative and are not intended to be
exclusive of any other remedies to which the injured party may be entitled,
including but not limited to, the remedies of specific performance and
cover, however, neither party shall retain the benefit of inconsistent
remedies. Notwithstanding the foregoing, the remedy of specific performance
shall apply only in the event of breach of 1) Section 16.c, 2) CellStar's
obligation to sell Dedicated Products only to PBMS' Customers (unless
otherwise permitted by PBMS), and 3) Section 52.
37. SEVERABILITY
If any provision or any part of a provision of this Agreement shall be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate or render unenforceable any other portion of this Agreement.
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38. SURVIVAL
Provisions contained in this Agreement that by their sense and context are
intended to survive completion of performance, termination or cancellation
of this Agreement shall so survive.
39. PATENTS
No licenses, express or implied, under any patents are granted by either
party to the other party hereunder.
40. FORCE MAJEURE
a. Neither party shall be deemed in default of this Agreement or any
Order hereunder to the extent that any delay or failure in the
performance of its obligations results from any cause beyond its
reasonable control and without its fault or negligence, due to acts of
God, disruption of telecommunications links, acts of civil or military
authority, embargoes, epidemics, war, riots, insurrections, fires,
explosions, earthquakes, floods, unusually severe weather conditions
or strikes.
b. If any force majeure condition occurs, the affected party shall give
immediate notice to the other party and the other party may elect to:
(1) terminate the affected Order(s) or any part thereof, (2) suspend
the affected Order(s) or any part thereof for the duration of the
force majeure condition, with the option to obtain elsewhere products
and services to be furnished under such Order(s) and deduct from any
commitment under such Order(s) the products and services obtained or
for which commitments have been made elsewhere or (3) resume
performance under such Order(s) once the force majeure condition
ceases with an option in the notified party to extend any affected
delivery or performance date up to the length of time the force
majeure condition endured. Unless the notified party gives written
notice within thirty (30) days after being notified of the force
majeure condition, (2) shall be deemed selected.
41. SUBCONTRACTING PLAN
CellStar shall adopt and comply with the Exhibit(s) entitled Prime
Contractor MBE/WBE/DVBE Job Specific Subcontracting Plan and/or Prime
Contractor MBE/WBE/DVBE Commodity Product Subcontracting Plan, attached
hereto and made a part hereof.
42. MBE/WBE/DVBE CANCELLATION CLAUSE
a. If CellStar has represented itself or one of its subcontractors as a
minority- or women-owned business or disabled veteran business
enterprise: CellStar agrees that falsification or misrepresentation
of, or failure to report a disqualifying change in, the MBE/WBE/DVBE
status of CellStar or any subcontractor utilized by CellStar; or
CellStar's failure to comply in good faith with any MBE/WBE/DVBE
utilization goals established by CellStar's Subcontracting Plan; or
CellStar's failure to cooperate in any investigation conducted by
PBMS, or by PBMS' agent, to determine CellStar's compliance with this
section, will constitute a material breach of this Agreement. In the
event of any such breach,
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PBMS may, at its option, cancel this Agreement; and CellStar waives
all claims related to such cancellation.
b. As used in this Agreement, Minority and Women Business Enterprises
(MBEs/WBEs) are defined as businesses which are certified by the
California Public Utilities Commission Clearinghouse to be 51% owned
and operated by a minority individual or group or by one or more
women; for publicly-held businesses, at least 51% of the stock must be
owned by one or more minorities or women who are U.S. citizens or
legal aliens with permanent residence status. In each case, the
management and daily operations must be controlled by one or more of
those individuals. Foreign-owned firms operating in the United States
are not included in these definitions.
For the purposes of this definition, minority group members include
male or female Asian Americans, Black Americans, Filipino Americans,
Hispanic Americans, Native Americans (i.e., American Indians, Eskimos,
Aleuts and Native Hawaiians), Polynesian Americans, and multi-ethnic
(i.e., any combination of MBEs and WBEs where no one specific group
has a 51% ownership and control of the business, but when aggregated,
the ownership and control combination meets or exceeds the 51% rule).
"Control" in this context means exercising the power to make policy
decisions. "Operate" in this context means actively involved in the
day-to-day management of the business.
Disabled Veteran Business Enterprises (DVBEs) are defined as business
concerns certified as DVBEs by the California State Office of Small
and Minority Business (OSMB). The DVBE must be: (1) a sole
proprietorship at least 51% owned by one or more disabled veterans; or
(2) a publicly-owned business in which at least 51% of the stock is
owned by one or more disabled veterans; or (3) a subsidiary which is
wholly owned by a parent corporation, but only if at least 51% of the
voting stock of the parent corporation is owned by one or more
disabled veterans; or (4) a joint venture in which at least 51% of the
joint venture's management and control and earnings are held by one or
more disabled veterans.
In each case the management and control of the daily business
operations are by one or more disabled veterans. For the purpose of
this definition, a disabled veteran is a veteran of the military,
naval or air service of the United States with a service-connected
disability who is a resident of the State of California.
43. DELIVERY OF PRODUCTS AND PERFORMANCE OF SERVICES
a. All dates for shipment or delivery of Products and performance of
Services are firm and time is of the essence. Shipment or delivery
dates shall be specified in each Order. (i) In the event CellStar
fails to meet the scheduled delivery date set forth in the applicable
Order and the Customer cancels the Order, CellStar agrees to assume
return shipping costs for the canceled Products if the late delivery
was due to CellStar's error. (ii) In the event CellStar fails to
meet the scheduled delivery date set forth in the applicable Order but
the Customer nonetheless accepts the late shipment, CellStar shall, if
the CPT
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agrees, assume liability for any deductions taken by that Customer in
connection with the late shipment if the late shipment was due to
CellStar's error and within CellStar's reasonable control.
b. Notwithstanding anything to the contrary herein, PBMS understands and
agrees that CellStar shall not be responsible for same day shipping
unless CellStar receives the applicable Order by 3:00 pm, Central
Standard Time on the shipment date.
44. USE OF CELLSTAR'S PUBLISHED SPECIFICATIONS
CellStar shall, at no charge, provide PBMS with copies of CellStar's
published Specifications, user instructions, manuals and other training
materials pertaining to the Products and Services purchased hereunder.
PBMS shall have the right to reproduce any and all of such materials as
necessary for PBMS' use of such Products.
45. DOCUMENTATION
Each party shall furnish to the other at no charge, mutually agreeable
documentation, and any succeeding changes thereto, as described herein.
PBMS may reproduce such documentation for use hereunder.
46. RISK OF LOSS
Subject to the following sentence, CellStar will be responsible for risk of
physical loss of or damage to all inventories in their facilities and
during shipment to the destination specified in the applicable Order, until
such time that PBMS' Customer signs the carrier's receipt for the delivery.
CellStar shall secure and prepay cartage insurance on behalf of the
Customer and bill the Customer for such cartage insurance.
47. WARRANTIES
Services
a. CellStar warrants to PBMS that the Services provided hereunder shall
be performed in a fully workmanlike manner to PBMS' reasonable
satisfaction and in accordance with the Specifications set forth in
this Agreement and the applicable Order. CellStar further warrants
that such Services shall be free from material defects in workmanship.
This warranty shall survive inspection, acceptance and payment for a
period of one (1) year.
b. If during the term hereof, PBMS believes that there is a breach of
warranty as described herein, PBMS shall notify CellStar, setting
forth in writing the nature of such claimed breach. CellStar shall
promptly investigate such breach and advise PBMS of CellStar's planned
corrective action. Thereafter, CellStar shall either repair or
replace the affected Product, in CellStar's sole discretion. If such
breach of warranty has not been corrected within a reasonable time
(not to exceed five (5) business days from PBMS' notice to CellStar of
the breach) or if two (2) or more such breaches of warranty occur
within any thirty (30) day period, PBMS may, in addition to all other
rights and remedies provided by law or this Agreement, cancel the
Order for the Services affected by such breach.
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48. TERMINATION OF ORDERS
Services
PBMS may terminate any Order covering the Services as described in Exhibit
C and this Agreement, upon 90 calendar days written notice to CellStar.
PBMS may terminate any other Order for other types of Services upon
immediate notice. In the event of such termination, PBMS shall pay to
CellStar the reasonable cost for such Services as set forth in Exhibit B
and C, incurred by CellStar up to the date of said termination. PBMS shall
not be responsible for the cost of any work performed by CellStar after
such termination, nor for any costs incurred by CellStar's subcontractors
which CellStar could have reasonably avoided. In no case shall termination
costs exceed the amount, if any, agreed upon in the applicable Order for
such Services. CellStar shall credit or reimburse PBMS for payments made by
PBMS prior to termination to the extent such payments exceed the cost of
work performed by CellStar, up to CellStar's receipt of the notice of
termination.
49. ALTERNATE DISPUTE RESOLUTION
a. If a controversy or claim should arise, a PBMS project representative
and a project representative of CellStar, or their respective
successors in the positions they now hold (herein called the "project
representatives"), will meet in a mutually convenient location, at
least once, and will attempt to, and are empowered to resolve the
matter. Either project representative may request the other to meet
within fourteen (14) days, at a mutually agreed time.
b. If the matter has not been resolved within twenty-one (21) days of
their first meeting, the project representatives shall refer the
matter to a PBMS senior executive, who shall have full authority to
settle the dispute with a senior executive of CellStar. Thereupon,
the project representatives shall promptly prepare and exchange
memoranda stating the issues in dispute and their positions,
summarizing the negotiations which have taken place, and attaching
relevant documents. The senior executives will meet for negotiations
within fourteen (14) days of the end of the twenty-one (21) day period
referred to above, at a mutually agreed time.
c. The first meeting shall be held at the offices of the project
representative receiving the request to meet. If more than one
meeting is held, the meetings shall be held in rotation at the offices
of CellStar and PBMS.
d. If the matter has not been resolved within thirty (30) days of the
meeting of the senior executives (which period may be extended by
mutual agreement), the parties will attempt in good faith to resolve
the controversy or claim under the commercial Mediation Rules of the
American Arbitration Association, before resorting to arbitration,
litigation, or some other dispute resolution procedure.
e. If the parties cannot resolve the dispute by mediation, the
controversy or claim arising out of or relating to this Agreement,
shall be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
The decision of the Arbitrator(s) is/are considered self-execution and
failure of either party to abide by the decision may be considered to
be a breach of contract. Judgment upon the award rendered by the
arbitrator(s) may also be entered in any court having jurisdiction
thereof. for the
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purpose of determining federal diversity jurisdiction the parties are
considered residents and domicilliaries of different states.
f. Nothing in this provision shall prevent the parties from mutually
agreeing to use an alternative means to resolve the dispute, such as a
"mini-trial" or other procedure, whether or not it is sponsored by the
American Arbitration Association. Additionally, nothing in this
Section 49 shall restrict either party from seeking injunctive relief
under Section 16.c. of this Agreement and with respect to CellStar's
obligation to sell Dedicated Products only to PBMS' Customer, unless
otherwise permitted by PBMS.
50. PRECEDENCE
In the event of any conflict or inconsistency contained within this
Agreement and for purposes of resolving disputes between the parties
regarding the interpretation of this Agreement, resolution thereof shall be
made by giving precedence to the following portions of this Agreement in
the order listed:
1. Exhibits
2. Main Body
3. Orders
4. Procedures Manual (Appendix 1)
Notwithstanding the above, if PBMS includes any specific payment or
delivery instructions in the applicable Order which conflict with the
Exhibits, Main Body, or Procedures Manual, those instructions shall take
precedence over the Exhibits, Main Body and Procedures Manual but only with
respect to those specific instructions.
51. LIMITATION OF LIABILITY
In no event will either party be liable to the other under this Agreement
for any indirect, special, or consequential damages, such as frustration of
economic or business expectations, or lost profits or revenues, whether or
not the other party has been informed of the possibility of such damages.
[REDACTED] Nothing in this Section 51 shall limit either party's liability
in connection with payments or credits which are due or thereafter due and
owing from one party to the other or for any payment or credits due or
thereafter due and owing any product supplier in connection with Products
ordered from that product supplier.
52. CORPORATE AUTHORIZATION
The parties shall take any and all steps necessary or appropriate,
including without limitation, the taking of appropriate corporate action,
to implement and to give effect to the provisions of this Agreement. Each
party acknowledges and agrees that the other has entered into this
Agreement in reliance of the foregoing. Accordingly, each party agrees that
the other party may enforce this provision by obtaining specific
performance or injunctive relief. CellStar, Ltd. is a subsidiary of
CellStar Corporation which guarantees all
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__________
"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
<PAGE>
MASTER AGREEMENT NO. P/PS-960163
of the obligations of and performance of CellStar, Ltd. under this
Agreement. By signing this Agreement as a duly authorized officer of
CellStar Corporation the undersigned waives individual notice to CellStar
Corporation and commits to indemnify and hold PBMS harmless from any and
all financial or performance obligations of CellStar, Ltd. which are not
carried out fully in accordance with the terms of this Agreement.
53. ENTIRE AGREEMENT
This Agreement, including all Orders, exhibits and subordinate documents
attached to or referenced in this Agreement or any Orders and all
proposals, descriptions, drawings, Specifications, marketing materials and
other literature published by CellStar in connection with or in
contemplation of any Order or of this Agreement shall constitute the entire
agreement between PBMS and CellStar with respect to the subject matter.
(Signature Page Follows)
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized representatives.
PACIFIC BELL MOBILE SERVICES
By: /s/ KEN ELMER
----------------------------------
(Signature)
Print Name: Ken Elmer
--------------------------
Title: Chief Financial Officer
-------------------------------
Date Signed: 10/5/96
-------------------------
CELLSTAR, LTD.
By National Auto Center, Inc., its General Partner
By: /s/ R.M. GOZIA
----------------------------------
(Signature)
Print Name: Richard M. Gozia
--------------------------
Title: Executive Vice President
-------------------------------
Date Signed: 10/7/96
-------------------------
BY SIGNING THIS AGREEMENT, CELLSTAR CORPORATION FULLY ACCEPTS AND GUARANTEES THE
PERFORMANCE AND FINANCIAL OBLIGATIONS OF CELLSTAR, LTD.
CELLSTAR CORPORATION CELLSTAR CORPORATION
By: /s/ R.M. GOZIA By: /s/ ELAINE F. RODRIGUEZ
--------------------------------- ----------------------------------
(Signature) (Signature)
Print Name: Richard M. Gozia Print Name: Elaine Flud Rodriguez
------------------------- --------------------------
Title: Executive Vice President Title: Vice President
------------------------------ -------------------------------
Date Signed: 10/7/96 Date Signed: 10/7/96
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<PAGE>
EXHIBIT A
EXECUTIVE ORDERS AND ASSOCIATED REGULATIONS
PBMS as a common carrier of telecommunications services, engage in work as
contractors for various departments and agencies of the United States
Government. Also, certain facilities may be constructed pursuant to federally
assisted construction programs. Because of the foregoing, work under this
contract may be subject to the provisions of certain Executive Orders, federal
laws and associated regulations. To the extent that such Executive Orders,
federal laws and associated regulations apply to the work under this contract,
and only to that extent, Contractor agrees to comply with the provisions of all
such Executive Orders, federal laws and associated regulations, as now in force
or as may be amended in the future, including, but not limited to the following:
1. EQUAL EMPLOYMENT OPPORTUNITY PROVISIONS
In accordance with Executive Order 11246, dated September 24, 1965, and 41
C.F.R.(S)60-1.4, the parties incorporate herein by this reference the
regulations and contract clauses required by those provisions to be made a
part of nonexempt contracts and subcontracts.
2. CERTIFICATION OF NON SEGREGATED FACILITIES
In accordance with Executive order 11246, dated September 24, 1965, and 41
C.F.R.(S)60-1.8, Contractor certifies that is does not and will not maintain
or provide for its employees any facilities segregated on the basis of race,
color, religion, sex, or national origin at any of its establishments, and
that it does and will not permit its employees to perform their services at
any location, under its control, where such segregated facilities are
maintained. The term "facilities" as used herein means waiting rooms, work
areas, restaurants and other eating areas, time clocks, restrooms, wash
rooms, locker rooms and other storage or dressing areas, parking lots,
drinking fountains, recreation or entertainment areas, transportation and
housing facilities provided for employees, provided that separate or single-
user toilet and necessary changing facilities shall be provided to assure
privacy between the sexes. Contractor will obtain similar certifications from
proposed subcontractors prior to the award of any nonexempt subcontract.
3. CERTIFICATION OF AFFIRMATIVE ACTION PROGRAM
Contractor certifies that it has developed and is maintaining an Affirmative
Action Plan as required by 41 C.F.R.(S)60-1.40.
4. CERTIFICATION OF FILING
Contractor certifies that it will file annually, on or before the 31st day of
March, complete and accurate reports on Standard Form 100 (EEO-1) or such
forms as may be promulgated in its place as required by 41 C.F.R.(S)60-1.7.
5. AFFIRMATIVE ACTION FOR DISABLED VETERANS AND VETERANS OF THE VIETNAM ERA
In accordance with Executive Order 11701, dated January 15, 1974, and 41
C.F.R.(S)60-250.20, the parties incorporate herein by this reference the
regulations and contract clauses required by those provisions to be made a
part of Government contracts and subcontracts.
6. AFFIRMATIVE ACTION FOR HANDICAPPED PERSONS
In accordance with Executive Order 11758, dated January 15, 1974, and 41
C.F.R.(S)60-741.20, the parties incorporate herein by this reference the
regulations and contract clauses required by those provisions to be made a
part of Government contracts and subcontracts.
7. UTILIZATION OF SMALL BUSINESS CONCERNS AND SMALL DISADVANTAGED BUSINESS
CONCERNS
48 C.F.R., Ch. 1, (S)19.704(4) and 19.708(a) require that the following
clause is included:
Utilization of Small Business Concerns and Small Disadvantaged Business
Concerns (June, 1985)
(a) It is the policy of the United States that small business concerns and
small business concerns owned and controlled by socially and economically
disadvantaged individuals shall have the maximum practicable opportunity
to participate in performing contracts let by any Federal agency,
including contracts and subcontracts for subsystems, assemblies,
components, and related services for major systems. It is further the
policy of the United States that its prime contractors establish
procedures to ensure the timely payment of amounts due pursuant to the
terms of their subcontracts with small business concerns and small
business concerns owned and controlled by socially and economically
disadvantaged individuals.
(b) The Contractor hereby agrees to carry out this policy in the awarding of
subcontracts to the fullest extent consistent with efficient contract
performance. The Contractor further agrees to cooperate in any studies or
surveys as may be conducted by the United States Small Business
Administration or the awarding agency of the United States as may be
necessary to determine the extent of the Contractor's compliance with
this clause.
(c) As used in this contract, the term "small business concern" shall mean a
small business as defined pursuant to section 3 of the Small Business Act
and relevant regulations promulgated pursuant thereto. The term "small
business concern owned and controlled by socially and economically
disadvantaged individuals" shall mean a small business concern:
(1) Which is at least 51 percent owned by one or more socially and
economically disadvantaged individuals; or, in the case or any
publicly owned business, at least 51 percent of the stock of which is
owned by one or more socially and economically disadvantaged
individuals; and
(2) Whose management and daily business operations are controlled by one
or more of such individuals.
The Contractor shall presume that socially and economically disadvantaged
individuals include Black Americans, Hispanic Americans, Native Americans,
Asian-Pacific Americans, Asian-Indian Americans and other minorities, or any
other individual found to be disadvantaged by the Administration pursuant to
section 8(a) of the Small Business Act.
1
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
(d) Contractors acting in good faith may rely on written representations by
their subcontractors regarding their status as either a small business
concern or a small business concern owned and controlled by socially and
economically disadvantaged individuals.
Small Business and Small Disadvantaged Business Subcontracting Plan
Contractor, unless it is a small business concern, as defined in section 3 of
the Small Business Act, agrees to adopt and comply with a small business and
small disadvantaged business subcontracting plan, which shall be included in
and made a part of this contract. The parties incorporate herein by this
reference the regulations and contract clauses required by 48 C.F.R., Ch. 1,
(S)19-704(4) and 19.708(b) to be made a part of Government contracts and
subcontracts.
8. WOMEN-OWNED SMALL BUSINESSES
As prescribed in 48 C.F.R., Ch. 1, (S)19.902, the following clause is
included in solicitations and contracts when the contract amount is expected
to be over the small purchase threshold, unless (a) the contract is to be
performed entirely outside the United States, its possessions, Puerto Rico,
and the Trust Territory of the Pacific Islands, or (b) a personal services
contract is contemplated:
(a) "Women-owned small businesses", as used in this clause, means businesses
that are at least 51 percent owned by women who are United States
Citizens and who also control and operate the business.
"Control", as used in this clause, means exercising the power to make
policy decisions.
"Operate", as used in this clause, means being actively involved in the
day-to-day management of the business
(b) It is the policy of the United States that women-owned small businesses
shall have the maximum practicable opportunity to participate in
performing contracts awarded by any Federal agency.
(c) The Contractor agrees to use its best efforts to give women-owned small
businesses the maximum practicable opportunity to participate in the
subcontracts it awards to the fullest extent consistent with the
efficient performance of its contract.
9. LABOR SURPLUS AREA CONCERNS
As prescribed in 48 C.F.R., Ch. 1, (S)20.302(a)(b), the following clauses are
included:
(a) Applicability. This clause is applicable if this contract exceeds the
appropriate small purchase limitation in Part 13 of the Federal
Acquisition Regulation.
(b) Policy. It is the policy of the Government to award contracts to concerns
that agree to perform substantially in labor surplus areas (LSA's) when
this can be done consistent with the efficient performance of the
contract and at prices no higher than are obtainable elsewhere. The
Contractor agrees to use its best efforts to place subcontracts in
accordance with this policy.
(c) Order of Preference. In complying with paragraph (b) above and with
paragraph (c) of the clause of this contract entitled Utilization of
Small Business Concerns and Small Disadvantaged Business Concerns, the
Contractor shall observe the following order of preference in awarding
subcontracts: (1) small business concerns that are LSA concerns, (2)
other small business concerns, and (3) other LSA concerns.
(d) Definitions. "Labor Surplus Area", as used in this clause, means a
geographical area identified by the Department of Labor in accordance
with 20 C.F.R.(S)654, Subpart A, as an area of concentrated unemployment
or underemployment or an area of labor surplus.
"Labor surplus area concern", as used in this clause, means a concern that
together with its first-tier subcontractors will perform substantially in
labor surplus areas. Performance is substantially in labor surplus areas if
the costs incurred under the contract on account of manufacturing,
production, or performance of appropriate services in labor surplus areas
exceed 50 percent of the contract price.
Labor Surplus Area Subcontracting Program
(a) See the Utilization of Labor Surplus Area Concerns clause of this
contract for applicable definitions.
(b) The Contractor agrees to establish and conduct a program to encourage
labor surplus area (LSA) concerns to compete for subcontracts within
their capabilities when the subcontracts are consistent with the
efficient performance of the contract at prices no higher than obtainable
elsewhere. The Contractor shall:
(1) Designate a liaison officer who will (I) maintain liaison with
authorized representatives of the Government on LSA matters, (ii)
supervise compliance with the Utilization of Labor Surplus Area
Concerns clause, and (iii) administer the Contractor's labor surplus
are subcontracting program;
(2) Provide adequate and timely consideration of the potentialities of
LSA concerns in all make-or-buy decisions;
(3) Ensure that LSA concerns have an equitable opportunity to compete for
subcontracts, particularly by arranging solicitations, time for the
preparation of offers, quantities, specifications and delivery
schedules so as to facilitate the participation of LSA concerns;
(4) Include the Utilization of Labor Surplus Area Concerns clause in
subcontracts that offer substantial LSA subcontracting opportunities;
and
(5) Maintain records showing (I) the procedures adopted and (ii) the
Contractor's performance, to comply with this clause. The records
will be kept available for review by the Government until the
expiration of 1 year after the award of this contract, or for such
longer period as may be required by any other clause of this
contract, or by applicable law or regulations.
(c) The Contractor further agrees to insert in any related subcontract that
may exceed $500,000 and that contains the Utilization of Labor Surplus
Area Concerns clause, terms that conform substantially to the language of
this clause, including this paragraph (c), and to notify the Contracting
Officer of the names of subcontractors.
2
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
EXHIBIT A-1
PRIME CONTRACTOR MBE/WBE/DVBE JOB SPECIFIC SUBCONTRACTING PLAN
Prime Contractor Name:
----------------------------------------------------------
Address:
-------------------------------------------------------------------------
Telephone Number:
---------------------------------------------------------------
Description Of Goods Or Services:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following, together with any attachments is submitted as an MBE/WBE/DVBE
subcontracting plan.
1. Do you plan to subcontract any portion of the goods or services being quoted,
bid or proposed?
YES NO
-------- --------
2. If answer to item 1 is Yes,
A. What is your overall company MBE/WBE/DVBE program goal?
*Minority Business Enterprises (MBEs) %
--------
*Women Business Enterprises (WBEs) %
--------
*Disabled Veteran Business Enterprises (DVBEs) %
--------
B. What is your projected MBE/WBE/DVBE purchases?
*Minority Business Enterprises (MBEs) %
--------
*Women Business Enterprises (WBEs) %
--------
*Disabled Veteran Business Enterprises (DVBEs) %
--------
*SEE MBE/WBE/DVBE SUBCONTRACTING PLAN CLAUSE IN AGREEMENT FOR DEFINITION OF
MBE, WBE AND DVBE
3
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
3. If answer to item 1 is No, or if no MBE/WBE/DVBE subcontractors will be
utilized where subcontracting has been identified, please explain in detail
(attach additional sheets if necessary):
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
4. List the principal goods and/or services to be subcontracted to
MBE/WBE/DVBEs, should your quotation, bid or proposal be accepted (attach
additional sheets if necessary):
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
5. Describe what good faith efforts you plan to undertake to ensure that
MBE/WBE/DVBEs will have an equitable opportunity to compete for subcontracts
to be awarded (attach additional sheets if necessary):
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
6. Contractor agrees that it will maintain, if awarded the resulting
contract/purchase or work order, all necessary documents and records to
support its efforts to achieve its estimated MBE/WBE/DVBE subcontracting
goal(s). Contractor also agrees that it will be responsible for identifying,
soliciting and qualifying MBE/WBE/DVBE subcontractors.
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
7. The following individual, acting in the capacity of MBE/WBE/DVBE coordinator
for contractor, will:
*administer the MBE/WBE/DVBE subcontracting plan and
*cooperate in any studies or surveys as may be required by PBMS in order to
determine the extent of compliance by contractor with the subcontracting
plan.
NAME:
------------------------------------------------------
TITLE:
-----------------------------------------------------
TELEPHONE NUMBER:
------------------------------------------
AUTHORIZED SIGNATURE:
--------------------------------------
DATE:
---------------------------
4
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
Exhibit A-2 MASTER AGREEMENT NO. P/PS-960163
PACIFIC BELL MOBILE SERVICES
MBE/WBE/DVBE SUMMARY SUBCONTRACTING REPORT
(Job Specific Results)
1. Reporting Corporation | 2. Contract/Purchase or | 3. This report reflects the
or Company (Name, | Work Order Number | utilization of Minority
address, city, zip | | Business Enterprise/
and telephone number) | | Women Business Enter-
| | prise/Disabled Veterans
| | Enterprise (MBE/WBE/
| | DVBE) subcontractors
| | for period
| |
| | ________________ through
| |
| | ________________________
| | (Please indicate dates)
4. SUBCONTRACT DOLLAR AND PERCENTAGE
Ethnicity Actual Cumulative
for
Period
$ | % $ | %
Polynesian Female | |
Polynesian Male | |
Filipino Female | |
Filipino Male | |
Hispanic Female | |
Hispanic Male | |
Black Female | |
Black Male | |
Asian Female | |
Asian Male | |
Native American Female | |
Native American Male | |
Multi-Ethnic Female | |
Multi-Ethnic Male | |
Non-Minority Female | |
Disabled Veteran | |
*See Attached Definitions Percent of MBE/WBE/DVBE Purchase/Total Purchase
5
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
Exhibit A-2 MASTER AGREEMENT NO. P/PS-960163
5. SUBCONTRACT ACHIEVEMENT
<TABLE>
<CAPTION>
Subcontracting Plan Estimate Actual for Period Cumulative
MBE WBE DVBE MBE WBE DVBE MBE WBE DVBE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subcontracted Dollars $ $ $ $ $ $ $ $ $
----- ----- ----- ----- ----- ----- ----- ----- -----
Total Contract/Purchase or
Work Order Dollars $ $
--------------------- -----------------------
Subcontracted Percent to
Total Dollars % % % % % % % % %
----- ----- ----- ----- ----- ----- ----- ----- -----
</TABLE>
6
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
Exhibit A-2 MASTER AGREEMENT NO. P/PS-960163
6. MBE/WBE/DVBE Subcontractor(s) (Name, address, city, zip, telephone number),
description of goods or service(s) supplied during this reporting and total
dollars paid. (Attach additional sheets if necessary)
Name_____________________ | _________________________ | _______________________
Address__________________ | _________________________ | _______________________
City, State, Zip_________ | _________________________ | _______________________
Telephone
Number___________________ | _________________________ | _______________________
Goods/Service(s)_________ | _________________________ | _______________________
Ethnicity________________ | _________________________ | _______________________
Total Dollars____________ | _________________________ | _______________________
7. Remarks (Explain if the actual results as identified in items 4 and 5 are
below estimated MBE/WBE/DVBE utilization goal submitted as part of this
contract/purchase or work order).
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
8. MBE/WBE/DVBE | I hereby certify that | Date
Coordinator | the above information |
(Name & Title) | is true and correct |
(Print or Type) | |
| |
_______________________ | |
_______________________ | _____________________________ | ____________________
| Signature |
________________________|_______________________________|_____________________
| |
9. Approving Officer | I hereby certify that | Date
(Name & Title) | the above information |
(Print or Type) | is true and correct |
_______________________ | |
7
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
Exhibit A-2 MASTER AGREEMENT NO. P/PS-960163
_______________________ | |
_______________________ | _____________________________ | ____________________
| (Signature) |
________________________|_______________________________|_____________________
10. This summary report should be mailed
promptly to:
Pacific Bell Mobile Services Note: Questions and/or
MBE/WBE/DVBE Operations Staff requests for assistance
Results and Analysis Administrator may be referenced to the
2600 Camino Ramon, Room 1E400 MBE/WBE/DVBE
San Ramon, California 94583 Subcontracting Administrator
at (510) 823-7048
8
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
MASTER AGREEMENT NO. P/PS-960163
EXHIBIT A-3
PRIME CONTRACTOR MBE/WBE/DVBE COMMODITY PRODUCT SUBCONTRACTING PLAN
Prime Contractor Name:
----------------------------------------------------------
Address:
------------------------------------------------------------------------
Telephone Number:
---------------------------------------------------------------
RFQ/RFB/RFP/RFI Number (if
applicable)
-------------------------------------------------------------------
Description Of Goods Or Services:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Definition: A commodity (or commercial) product is defined as a unit in regular
- ----------
production that is sold in substantial quantities to the general public and/or
industry at regular prices.
If a company is offering a commodity product, then the subcontracting plan may
relate to the company's general production of both commercial and noncommercial
products, rather than just specific items being procured under the contract.
The following, together with any attachments is submitted as an MBE/WBE/DVBE
subcontracting plan.
1. Do you plan to subcontract any portion of the goods or services being quoted,
bid or proposed?
YES NO
-------------- ---------------
2. If answer to item 1 is Yes,
A. What is your overall company MBE/WBE/DVBE program goal?
*Minority Business Enterprises (MBEs) %
--------
*Women Business Enterprises (WBEs) %
--------
*Disabled Veteran Business Enterprises (DVBEs) %
--------
B. What is your projected MBE/WBE/DVBE purchases?
*Minority Business Enterprises (MBEs) %
--------
*Women Business Enterprises (WBEs) %
--------
*Disabled Veteran Business Enterprises (DVBEs) %
--------
*SEE MBE/WBE/DVBE SUBCONTRACTING PLAN CLAUSE IN AGREEMENT FOR DEFINITION OF MBE,
WBE AND DVBE
9
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
MASTER AGREEMENT NO. P/PS-960163
3. If answer to item 1 is No, or if no MBE/WBE/DVBE subcontractors will be
utilized where subcontracting has been identified, please explain in detail
(attach additional sheets if necessary):
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
4. List the principal goods and/or services to be subcontracted to
MBE/WBE/DVBEs, should your quotation, bid or proposal be accepted (attach
additional sheets if necessary):
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
5. Describe what good faith efforts you plan to undertake to ensure that
MBE/WBE/DVBEs will have an equitable opportunity to compete for subcontracts
to be awarded (attach additional sheets if necessary):
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
6. Contractor agrees that is will maintain, if awarded the resulting
contract/purchase or work order, all necessary documents and records to
support its efforts to achieve its estimated MBE/WBE/DVBE subcontracting
goal(s). Contractor also agrees that it will be responsible for identifying,
soliciting and qualifying MBE/WBE/DVBE subcontractors.
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
7. The following individual, acting in the capacity of MBE/WBE/DVBE coordinator
for contractor, will:
*administer the MBE/WBE/DVBE subcontracting plan
*submit summary reports (in the form Exhibit A-4), and
*cooperate in any studies or surveys as may be required by PBMS in order to
determine the extent of compliance by contractor with the subcontracting
plan.
NAME:
------------------------------------------------------
TITLE:
-----------------------------------------------------
TELEPHONE NUMBER:
------------------------------------------
AUTHORIZED SIGNATURE:
--------------------------------------
TYPED/PRINTED NAME:
----------------------------------------
TITLE: DATE:
------------------ ------------------------------
10
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
Exhibit A-4 MASTER AGREEMENT NO. P/PS-960163
PACIFIC BELL MOBILE SERVICES
MBE/WBE/DVBE SUMMARY SUBCONTRACTING REPORT
(Commodity Results)
1. Reporting Corporation | 2. Contract/Purchase or | 3. This report reflects the
or Company (Name, | Work Order Number | utilization of Minority
address, city, zip | | Business Enterprise/
and telephone number) | | Women Business Enter-
| | prise/Disabled Veterans
| | Enterprise (MBE/WBE/
| | DVBE) subcontractors
| | for period
| |
| | ________________ through
| |
| | ________________________
| | (Please indicate dates)
4. SUBCONTRACT DOLLAR AND PERCENTAGE
<TABLE>
<CAPTION>
Ethnicity Actual Cumulative Ethnicity Actual Cumulative
for for
Period Period
<S> <C> <C> <C> <C> <C>
$ | % $ | % $ | % $ | %
Polynesian Female | | Asian Female | |
Polynesian Male | | Asian Male | |
Filipino Female | | Native American Female | |
Filipino Male | | Native American Male | |
Hispanic Female | | Multi-Ethnic Female | |
Hispanic Male | | Multi-Ethnic Male | |
Black Female | | Non-Minority Female | |
Black Male | | Disabled Veteran | |
</TABLE>
*See Attached Definitions Percent of MBE/WBE/DVBE Purchase/Total Purchase
11
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
Exhibit A-4 MASTER AGREEMENT NO. P/PS-960163
5. SUBCONTRACT ACHIEVEMENT
<TABLE>
<CAPTION>
Subcontracting Plan Estimate Actual for Period Cumulative
MBE WBE DVBE MBE WBE DVBE MBE WBE DVBE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MBE/WBE/DVBE Purchases to
Sales % % % % % % % % %
----- ----- ----- ----- ----- ----- ----- ----- -----
</TABLE>
12
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
Exhibit A-4 MASTER AGREEMENT NO. P/PS-960163
6. MBE/WBE/DVBE Subcontractor(s) (Name, address, city, zip, telephone number),
description of goods or service(s) supplied during this reporting and total
dollars paid. (Attach additional sheets if necessary)
Name_____________________ | _________________________ | _______________________
Address__________________ | _________________________ | _______________________
City, State, Zip_________ | _________________________ | _______________________
Telephone
Number___________________ | _________________________ | _______________________
Goods/Service(s)_________ | _________________________ | _______________________
Ethnicity________________ | _________________________ | _______________________
Total Dollars____________ | _________________________ | _______________________
7. Remarks (Explain if the actual results as identified in items 4 and 5 are
below estimated MBE/WBE/DVBE utilization goal submitted as part of this
contract/purchase or work order).
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
8. MBE/WBE/DVBE | I hereby certify that | Date
Coordinator | the above information |
(Name & Title) | is true and correct |
(Print or Type) | |
| |
_______________________ | |
_______________________ | _____________________________ | ____________________
| Signature |
________________________|_______________________________|_____________________
| |
9. Approving Officer | I hereby certify that | Date
(Name & Title) | the above information |
(Print or Type) | is true and correct |
_______________________ | |
13
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
Exhibit A-4 MASTER AGREEMENT NO. P/PS-960163
_______________________ | |
_______________________ | _____________________________ | ____________________
| (Signature) |
________________________|_______________________________|_____________________
10. This summary report should be mailed
promptly to:
Pacific Bell Mobile Services Note: Questions and/or
MBE/WBE/DVBE Operations Staff requests for assistance
Results and Analysis Administrator may be referenced to the
2600 Camino Ramon, Room 1E400 MBE/WBE/DVBE
San Ramon, California 94583 Subcontracting Administrator
at (510) 823-7048
14
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
MASTER AGREEMENT NO. P/PS-960163
EXHIBIT B
CELLSTAR
DESCRIPTION OF PRODUCTS AND SERVICES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DESCRIPTION ONE TIME MONTHLY PRICE
FEE FEE [REDACTED]
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 LOGISTICS
- --------------------------------------------------------------------------------
A Hardware Costs [REDACTED]
- --------------------------------------------------------------------------------
B Personnel Costs [REDACTED]
- --------------------------------------------------------------------------------
C Assembly Costs [REDACTED] [REDACTED]
- --------------------------------------------------------------------------------
D Advance Return and Pick to Ship [REDACTED]
- --------------------------------------------------------------------------------
E Fulfillment Costs [REDACTED]
- --------------------------------------------------------------------------------
F Returns Processing *
. Receiving and Sort [REDACTED]
. Triage and return to vendor
. Triage and repair/refurb
. Restocking Fee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2 INVENTORY CARRYING COSTS
- --------------------------------------------------------------------------------
A recurring charge, calculated [REDACTED]
and billed monthly as a "cost
of capital" charged on average
daily inventory plus the average
daily balance of amounts due from
PBMS for Product shipments. The
calculation shall include a credit
for average daily balance of unpaid
product supplier invoices.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3 CREDIT AND COLLECTIONS
- --------------------------------------------------------------------------------
A Receivable Maintenance [REDACTED]
Costs (calculated on the average
daily balance of Retailer receivables
minus the average daily balance of
amounts due to PBMS from CellStar for
receivables transferred to CellStar by
PBMS; plus a [REDACTED] of net monthly
invoices to Retailers billed by
CellStar for PBMS sales).
- --------------------------------------------------------------------------------
B Skid Storage Fee (after [REDACTED] days) [REDACTED]
- --------------------------------------------------------------------------------
C Credit and Collection Services [REDACTED]
- --------------------------------------------------------------------------------
</TABLE>
* In addition, PBMS will be billed for the difference when A stock is written
down and for return freight of non PBMS items
1
__________
"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
<PAGE>
MASTER AGREEMENT NO. P/PS-960163
EXHIBIT C
PBMS Credit & Collection Costs
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Item Annual Monthly Comment
- --------------------------------------------------------------
<S> <C> <C> <C>
Collection Analyst [REDACTED] [REDACTED] [REDACTED]
A/R Posting Rep
Lock Box
PBMS DID Line
Long Distance
D&B Investigation
Postage
Invoices
Credit Applications
EDI Transactions
AS 400
Business Analyst
Sr. Programmer
Programmer
EDI Specialist
EBE @ 20%
- --------------------------------------------------------------
Sub-Total
- --------------------------------------------------------------
Contingency
- --------------------------------------------------------------
TOTAL
- --------------------------------------------------------------
Margin
- --------------------------------------------------------------
Grand Total
- --------------------------------------------------------------
</TABLE>
__________
"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
<PAGE>
EXHIBIT D MASTER AGREEMENT NO. P/PS-960163
PACIFIC BELL PCS PRICE LIST
OEM ACCESSORIES FOR MOTOROLA FLARE
BATTERIES
- --------------------------------------------------------------------------------
SNN4512PB TALK PACK NICD BATTERY - BLACK [REDACTED]
SNN4516PB TALK PACK NIMH BATTERY - BLACK
SNN4582PB XT TALK PACK NICD BATTERY - BLACK
SNN4585PB XT TALK PACK NIMH BATTERY - BLACK
SNN4588PB STANDARD NICD BATTERY - BLACK
SNN4591PB STANDARD NIMH BATTERY - BLACK
SNN4594PB XT SLIM NICD BATTERY - BLACK
SNN4597PB XT SLIM NIMH BATTERY - BLACK
POWER PLUS TALK AND CHARGE
- --------------------------------------------------------------------------------
SLN9933PB ULTRA SAVER/CHARGER
LEATHER CASE
- --------------------------------------------------------------------------------
LCSXPB LEATHER CASE
OEM ACCESSORIES FOR NOKIA 2190
BATTERIES
- --------------------------------------------------------------------------------
BBH2SPB 400 MAH NICD SLIM BATTERY
BBH1SPB 500 MAH NIMH SLIM BATTERY
BBH2HPB 1100 MAH NICD HICAP BATTERY
BBH1HPB 1500 MAH NIMH HICAP BATTERY
POWER PLUS TALK AND CHARGE
- --------------------------------------------------------------------------------
LCH2PB RAPID IN-CAR CHARGER
LEATHER CASE
- --------------------------------------------------------------------------------
LCSXPB LEATHER CASE
OEM ACCESSORIES FOR ERICSSON
CH337
BATTERIES
- --------------------------------------------------------------------------------
BKB1931001PB 550MAH SLIMLINE NIMH BATTERY
BKB1931009PB 950 MAH MIDCAP NIMH BATTERY
BKB1931015PB 700 MAH BASIC NICD BATTERY **
BKB193025PB 1000 MAH HICAP NICD BATTERY **
*BKB1931021PB 1200 MAH NIMH BATTERY
*BKB193085PB 500 MAH NIMH BATTERY
POWER PLUS TALK AND CHARGE
- --------------------------------------------------------------------------------
BML1631001PB VEHICLE POWER ADAPTER PLUS **
LEATHER CASE
KRY1041032PB FLIP LEATHER POUCH **
NOTE:
"*" REPRESENTS NEW SKU
"**" REPRESENTS NEW PRICING
"PB" SUFFIX ON ABOVE PART NUMBERS REPRESENT PACIFIC BELL CUSTOM PACKAGING.
__________
"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
<PAGE>
EXHIBIT E MASTER AGREEMENT NO. P/PS-960163
PACIFIC BELL ---------------------------------------
MOBILE SERVICES Purchase Order
4410 Rosewood Drive, Suite 400 ---------------------------------------
Pleasanton, CA 94588 PURCHASE ORDER NO. REVISION PAGE
Phone (510) 227-2200
Fax (510) 227-2223
---------------------------------------
THIS PURCHASE ORDER NO. MUST APPEAR ON
ALL INVOICES, PACKING LISTS, CARTONS
AND CORRESPONDENCE RELATED TO THIS
ORDER.
---------------------------------------
SHIP TO:
---------------------------------------
VENDOR: BILL TO:
- --------------------------------------------------------------------------------
CUSTOMER ACCT. NO. VENDOR NO. DATE OF ORDER/BUYER REVISED DATE/BUYER
- --------------------------------------------------------------------------------
PAYMENT TERMS SHIP VIA F.O.B.
- --------------------------------------------------------------------------------
FREIGHT TERMS REQUESTOR/DELIVER TO CONFIRM TO/TELEPHONE
- --------------------------------------------------------------------------------
ITEM PART NUMBER/ DELIVERY DATE QUANTITY UNIT UNIT PRICE EXTENSION TAX
DESCRIPTION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPROVAL: TOTAL
------------------------------
AUTHORIZATION
- ------------------------------ ------------------ ------------------------------
Requested By Phone Name
------------------------------
Signature
- ------------------------------ ------------------ ------------------------------
Prepared By Phone
------------------------------
Date
- --------------------------------------------------------------------------------
45
PROPRIETARY AND CONFIDENTIAL
Not for Use or Disclosure Outside
CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES
Except Under Written Agreement
<PAGE>
EXHIBIT F MASTER AGREEMENT NO. P/PS-960163
Assembly Cost Model
[REDACTED]
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"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
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EXHIBIT 10.44
SUPPLY AND SERVICE AGREEMENT
This Supply and Service Agreement (this "Agreement") is entered into, as of
this 26 day of November, 1996 and effective as of the closing of the below-
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defined Asset Purchase Agreement ("Effective Date") by and between CellStar,
Ltd., a Texas limited partnership, ("CellStar") and MCI Telecommunications
Corporation, a Delaware corporation, ("MCI").
WHEREAS, MCI has simultaneously herewith purchased certain assets used by
CellStar in connection with the operation of its retail business involving the
sale and activation of wireless communications equipment at kiosks located
inside Sam's Club locations throughout the United States. (Such kiosks located
inside Sam's Clubs throughout the United States which may hereafter be owned or
operated by MCI are hereinafter referred to as the "Communication Centers"); and
WHEREAS, MCI has simultaneously herewith entered into an Interim Services
Agreement pursuant to which CellStar will be providing to MCI certain
operational and inventory management services ("Interim Services Agreement");
and
WHEREAS, CellStar is willing to provide to MCI the benefits of its supply
arrangements with manufacturers of the products sold in the Communication
Centers, as well as CellStar's distribution process for the supply of such
products to the Communication Centers; and
WHEREAS, MCI wishes to obtain a source of supply for accessory products for
Wireless Handsets (as defined below) listed in Exhibit A (the "Accessory
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Products") and cellular telephones ("Cellular Telephones"), Personal
Communications Services ("PCS") handsets and two-way radios listed in Exhibit B
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(collectively referred to herein as the "Wireless Handsets") for the
Communication Centers and contemplates repetitive purchases of such products
from CellStar (the Accessory Products and Wireless Handsets purchased by MCI
from CellStar hereunder being collectively referred to herein as the
"Products"); and
WHEREAS, MCI wishes to retain the services of CellStar for the receiving,
warehousing, assembly (if requested), fulfillment and distribution to the
Communication Centers on behalf of MCI of products sourced by MCI from vendors
other than CellStar (including, but not limited to wireless handsets, pagers,
pre-paid calling cards and movie discount passes) as well as promotional
literature, packaging materials and such other items as may be requested by MCI
from time to time (such products, promotional literature, packaging materials
and other items not purchased by MCI from CellStar hereunder hereinafter
collectively referred to as the "Inventory Items"); and
WHEREAS, MCI wishes to obtain the services of CellStar for packaging (if
requested), programming (if requested), returns processing and other customized
fulfillment services; and
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions herein contained, and other good and valuable consideration, the
receipt and sufficiency of which
THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT BY "[REDACTED]".
<PAGE>
is hereby acknowledged, MCI and CellStar agree as follows:
1. SALE AND PURCHASE OF ACCESSORY PRODUCTS.
(a) MCI agrees to purchase and CellStar agrees to sell Accessory
Products under the terms and conditions set forth in this Agreement. Subject to
(b) and (c) below, MCI agrees that, during the term of this Agreement, it shall
purchase exclusively from CellStar all of its requirements for Accessory
Products for sale in the Communication Centers. CellStar shall not substitute
any Accessory Product without the express written consent of MCI. Additional
accessory products which are not listed on Exhibit A as of the date hereof may
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be added to this Agreement and the list set forth on Exhibit A upon written
---------
agreement of the parties. In such an event, the parties will amend this
Agreement accordingly and include a revised Exhibit A.
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(b) In the event that CellStar materially breaches the Interim
Services Agreement between the parties as such material breaches are defined in
the Interim Services Agreement, MCI may, at its option, either terminate (i)
this Agreement in its entirety; or (ii) MCI's exclusive obligation hereunder to
purchase all Accessory Products and associated distribution services associated
with such Accessory Products from CellStar.
(c) In addition, the requirement of MCI to purchase a specific
Accessory Product hereunder shall terminate if (i) MCI has failed to approve
such non-OEM Accessory Product after the technical and quality evaluation set
forth herein in Section 16; and (ii) CellStar has been unable to supply an
alternative product that is acceptable to MCI within the time period set forth
in Section 16. In accordance with the provisions of Section 16 hereof, the
obligation of MCI to purchase all of its requirements of such particular non-OEM
Accessory Product hereunder will be reinstated automatically when CellStar has
available and can provide such a non-OEM Accessory Product that conforms to
MCI's commercially reasonable technical and quality specifications. In such
case, MCI will be permitted to satisfy any outstanding purchase commitments that
it has made to any other vendors who have agreed to provide such a non-OEM
Accessory Product that conforms to MCI's technical and quality specifications,
which commitments shall not exceed one hundred and twenty (120) days from the
date MCI's requirement to purchase such Accessory Products from CellStar
pursuant to this subsection 1(c) terminates.
(d) For purposes of this Agreement, the term "OEM Accessory Products"
shall refer to Wireless Handset accessory products manufactured for, by, or on
behalf of, the original equipment manufacturer.
2. SALE AND PURCHASE OF WIRELESS HANDSETS. MCI agrees to purchase and
CellStar agrees to sell the Wireless Handsets listed on Exhibit B attached
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hereto under the terms and conditions set forth in this Agreement. It is
understood that MCI has the right but not the obligation to purchase all or a
portion of its requirements for Wireless Handsets for sale in the Communication
Centers from CellStar. CellStar shall not substitute any Wireless Handset
without the express written consent of MCI. Additional wireless handsets which
are not listed on Exhibit B as of the
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date hereof may be added to this Agreement and the list set forth on Exhibit B
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upon written agreement of the parties. In such an event, the parties will amend
this Agreement accordingly and include a revised Exhibit B.
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3. WAREHOUSE, DISTRIBUTION AND FULFILLMENT SERVICES.
(a) CellStar will provide to MCI all warehouse, distribution and
fulfillment services required by MCI in connection with MCI's sale in the
Communication Centers of (i) all Products (except for Accessory Products and
associated distribution services which are deleted from the list of Accessory
Products and Services pursuant to Section 1(b) above); and (ii) all wireless
handsets purchased by MCI from third parties.
(b) CellStar will provide to MCI warehouse, distribution and
fulfillment services required by MCI in connection with the sale by MCI in the
Communication Centers of certain Inventory Items, including all wireless
handsets purchased by MCI from third parties.
(c) The services described in (a) and (b) above shall include but are
not limited to warehousing, assembly (if requested), programming (if requested),
packaging (if requested), shipping, insuring (as agreed below), reporting, and
returns processing (if requested) of such Products, Inventory Items, and
wireless handsets purchased by MCI from third parties, to the Communication
Centers as described in Exhibit C (the "Services") .
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(d) Additional services which are not listed on Exhibit C as of the
---------
date hereof may be added to this Agreement and the list set forth in Exhibit C
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by written agreement of the parties and only if CellStar is able to provide such
additional services at a Competitive Market Price (as such term is defined in
Section 4(j) hereof). In such an event, the parties will amend this Agreement
accordingly and include a revised Exhibit C.
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4. PRICING AND PAYMENT TERMS, AND RIGHT OF OFFSET.
(a) CellStar's prices to MCI for OEM Accessory Products purchased
hereunder shall initially be as set forth on Exhibit A. Those stated prices are
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and such Product Prices for OEM Accessory Products thereafter shall be in an
amount equal to the manufacturer's invoice price less any pro-rata manufacturer
discounts, special incentives and similar rebates to which MCI would otherwise
be entitled if MCI were purchasing such products directly from the manufacturer
(but specifically excluding Co-op and MDF, as defined in Sections 9 and 10
respectively, allowances or credits for which shall be handled in accordance
with Sections 9 and 10 hereof respectively). CellStar shall provide standard
private label packaging of such OEM Accessory Products in accordance with
reasonable instructions from MCI and agreed upon by CellStar and the
manufacturer at no additional cost. Should MCI choose not to have CellStar
perform private label packaging of OEM Accessory Products, prices of such OEM
Accessory Products shall be determined using the formula set forth in subsection
4(b) below.
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(b) CellStar's prices to MCI for non-OEM Accessory Products purchased
hereunder shall initially be as set forth on Exhibit A. Those stated prices are
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and such Product prices for non-OEM Accessory Products thereafter shall be an
amount equal to [REDACTED]. CellStar shall provide standard private label
packaging of such non-OEM Accessory Products in accordance with reasonable
instructions from MCI and agreed upon by CellStar at no additional cost.
(c) Prices for Wireless Handsets purchased hereunder shall initially
be as set forth on Exhibit B. Those stated prices are and such Product prices
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for Wireless Handsets thereafter shall be an amount equal to [REDACTED].
(d) Unless otherwise stated herein, actual freight and insurance
associated with each shipment from CellStar's warehouse to the Communication
Centers shall be billed to and payable by MCI as separate line items on each
invoice. CellStar shall make commercially reasonable efforts to insure that all
such freight and insurance charges paid for by MCI under this Agreement are the
lowest in the market. CellStar and MCI shall work together to obtain such
favorable rates.
(e) Prices for Accessory Products and Wireless Handsets calculated as
set forth in subsections (a), (b) and (c) above are hereinafter collectively
referred to as the "Product Prices."
(f) [REDACTED]
(g) [REDACTED]
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"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
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(h) MCI shall pay CellStar for the Services at the rates established
on Exhibit C (the "Service Fees"). Such Service Fees (including the
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$0.88 set forth below) shall remain fixed until July 1, 1997 following which
date CellStar may adjust its Service Fees upon thirty (30) days prior written
notice to MCI subject to the procedures and limitations set forth in Section
4(j) below. Prior to July 1, 1997, CellStar reserves the right to change such
Service Fees if MCI (i) requests that CellStar distribute wireless handsets
purchased by MCI from third parties; or (ii) sources its accessories product
program in its entirety to another vendor in accordance with the terms of
Sections 1(b) or 4(j) herein and requests CellStar to distribute such
accessories; provided that any such change in Service Fees requested by CellStar
as a result of (i) above shall be determined by adding $0.88 for each wireless
handset purchased by MCI from such third parties and any change as a result of
(ii) above shall be subject to the procedures and limitations set forth in
Section 4(j) below.
(i) Each delivery of Products and Inventory Items to the Communication
Centers will be separately invoiced, along with related Service Fees for
assembly and order processing. All Product Prices and freight and insurance,
including any expediting fees, shall be included as separate line items on each
invoice and payable by MCI unless otherwise stated herein. Such invoices shall
include, but not be limited to: (i) purchase order number; (ii) SKU or item
numbers shipped; (iii)
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quantity shipped and billed; (iv) "ship to" address; (v) Service Fees incurred;
(vi) Services performed; (vii) net invoice amount; and (viii) any other
information or special instructions reasonably requested by MCI. CellStar shall
provide reasonable supporting documentation for each invoice as MCI may
reasonably request including, but not limited to packing slips. CellStar will
also issue invoices from time to time for returns processing credits and/or
fees, credits for penalties, credits for MDF, credits for MCI's twenty percent
(20%) share of 800# orders as described in Exhibit C hereof, and other Service
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Fees for Services rendered which are not otherwise invoiced with each delivery.
Co-op reimbursements will be handled in accordance with Section 9 hereof. Such
invoices or credit statements shall include information reasonably requested by
MCI. MCI shall pay all invoiced amounts within thirty (30) days after the date
of invoice.
(j) [REDACTED]
__________
"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
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(k) CellStar shall provide to MCI a credit against payments owed under
this Agreement for any amounts finally determined to be owed by National Auto or
CellStar under Sections 3.6 and 3.7 of the Asset Purchase Agreement.
5. PERFORMANCE STANDARDS.
(a) CellStar warrants that the Services provided hereunder shall be
performed in a professional and workmanlike manner in accordance with the
deadlines and specifications set forth herein or as reasonably requested by MCI
from time to time.
(b) Notwithstanding whether or not CellStar has had an opportunity to
inspect the Inventory Items, CellStar shall be responsible for all security and
safety of the premises used to perform activities under this Agreement, and
shall be responsible for any loss or damage to Inventory Items while in
CellStar's possession or on CellStar's premises in accordance with Section 11.
CellStar shall make best efforts to identify and eliminate any pattern of
shrinkage of Inventory Items. In addition, CellStar shall immediately correct
any deficiencies it identifies in its processes that are contributing to such
shrinkage. CellStar shall maintain a log for all significant problem
resolutions and shall provide problem trending reporting.
(c) CellStar shall be responsible for establishing a comprehensive
problem escalation, coordination and response procedure to respond to systems
failures, or any developments or problems that impact the order processing and
fulfillment activities described in this Agreement. CellStar shall establish
eight (8) hour per day, five (5) day per week notification procedures to ensure
that appropriate MCI personnel are notified promptly following CellStar's
determination of a significant problem or possible problem. In addition,
CellStar will provide an after hours contact person for MCI who will be
available to MCI twenty-four (24) hours a day, seven (7) days a week. Such
person shall be capable of implementing problem resolution plans that are
mutually agreed upon by MCI and CellStar.
6. FORECASTS.
(a) MCI's Inventory Manager shall provide CellStar on a monthly basis,
within ten (10) days prior to the end of each calendar month, a continuous usage
forecast for the next three
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(3) calendar months to assist CellStar in maintaining an orderly production flow
for the purpose of MCI's delivery requirements for both Products and Services.
MCI shall indicate the Product model number or SKU, projected purchase volume by
units, and specific Services requested for each calendar month included in the
forecast. The first calendar month of the three month forecast shall constitute
a firm purchase commitment by MCI for the Products and Services set forth
therein. If there is a shortage of such forecasted Products caused solely by
the manufacturer, CellStar shall allocate products received from the
manufacturer among its customers who have firm purchase commitments on a prorata
basis in accordance with the volume of their respective commitments. MCI shall
draw down on such firm purchase commitment by placing weekly or bi-weekly
Purchase Orders (as defined in Section 7(a) below) against such forecast. MCI
shall have three (3) months to make up any shortfall. If after such three (3)
month period MCI has not satisfied such shortfall, then MCI shall pay to
CellStar the forecasted price of the Products not yet purchased by MCI and
CellStar shall ship such Products to MCI in accordance with MCI's instructions.
(b) If the total of Products included in Purchase Orders for shipment
submitted by MCI in any calendar month exceeds the forecasted amount (such
orders hereinafter referred to as "Out of Forecast Orders"), CellStar agrees
that it shall utilize a "first order in-first shipment out" method for
allocating inventory among customers. CellStar shall make commercially
reasonable efforts to ship such materials by MCI's requested deadline and shall
not be assessed any penalty for failure to meet such deadline. MCI shall
approve any rush charges before they are incurred.
7. PURCHASE ORDERS.
(a) MCI shall submit purchase orders for Products ("Purchase Orders")
to CellStar at 1730 Briercroft Court, Carrollton, Texas 75006 via facsimile or
other mutually agreed upon methods. Each Purchase Order shall be submitted by
MCI and received by CellStar before 1 p.m. (Dallas time) on Monday of each week
(Tuesday when Monday is a holiday) (the "Order Deadline"). Any Purchase Order
received by the Order Deadline shall be shipped by CellStar in order to be
delivered to the Sam's Club address where the particular Communication Center is
located no later than Friday of the same week in which the Purchase Order was
received. In the event CellStar shall fail to timely deliver any order which
was received by CellStar by the Order Deadline, CellStar shall credit to MCI on
future purchases an amount equal to the lesser of ten percent (10%) of the
insured value of Products and Inventory Items ordered for that shipment or fifty
percent (50%) of the insured value of any missing or damaged materials;
provided, however, that CellStar shall not be required to issue such credit to
MCI in the event CellStar's failure to timely and accurately deliver was due to
(i) a Force Majeure event as defined in Section 24 hereof; (ii) the Purchase
Order was changed after the order entry process has been performed; (iii) the
order was an Out of Forecast Order described in Section 6(b) above; (iv) the
damage to or discrepancy in an order was caused by the shipping carrier; (v) the
Inventory Items to be delivered were not available to CellStar in a timely
manner for any reason beyond CellStar's control; (vi) such failure is due solely
to the default of any carrier or supplier; or (vii) such failure is due solely
to the acts or omissions of Sam's Club, MCI or their agents or employees.
CellStar agrees to use commercially reasonable efforts to notify MCI of any
Purchase Orders it receives which request shipment to locations other than the
Sam's Club
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locations at which MCI owns kiosks or which are unusual orders due to size or
product mix. CellStar agrees to cooperate with MCI in immediately halting the
shipment of any such orders upon notice from MCI.
(b) All Purchase Orders shall be only upon the terms and conditions of
this Agreement. The only effect of any terms and conditions in MCI's Purchase
Orders shall be to request the time and place of delivery or the number and type
of units to be delivered, but they shall not change, alter or add to the terms
and conditions of this Agreement in any other way. CellStar's invoice shall
also not change the terms and conditions of this Agreement.
(c) In order the facilitate transactions under this Agreement, the
parties may electronically transmit and receive data in agreed formats in
substitution for conventional paper based documents as provided in an Electronic
Data Interchange Trading Partner Agreement to be mutually agreed upon by the
parties.
8. Stock Balancing. Within [REDACTED] following the end of each [REDACTED]
during the term of this Agreement, MCI may return for credit against future
purchases, F.O.B. CellStar's warehouse, an unlimited amount of new, unopened,
undamaged and not defaced Accessory Products purchased by MCI from CellStar
during the previous [REDACTED]. MCI shall be responsible for the cost of
freight and insurance for such returned Accessory Products. MCI will include a
return authorization received from CellStar with any such returned shipment.
CellStar agrees to issue any credit for the actual Product Price, including any
taxes paid by MCI to CellStar, of such returned Accessory Products within thirty
(30) days of receipt of the Accessory Products.
9. [REDACTED]
10. [REDACTED]
__________
"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
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11. DELIVERY, RISK OF LOSS AND TITLE.
(a) Unless otherwise mutually agreed upon in writing by the parties,
all deliveries of Products and Inventory Items hereunder are FOB the Sam's Club
location designated on the . Unless otherwise agreed to herein, actual freight
and insurance associated with each shipment shall be billed to and payable by
MCI as separate line items on each invoice. CellStar reserves the right to make
deliveries of any per kiosk shipment in installments; provided, however, that
any additional costs incurred by CellStar as a result of such installment
shipments shall be borne by CellStar.
(b) Title to Products and risk of loss or damage to the Products
shall pass to MCI upon CellStar's delivery to and MCI's acceptance at the Sam's
Club location. Such acceptance by MCI shall be deemed to have occurred when the
receipt of such goods is acknowledged by MCI or by Sam's Club acting on behalf
of MCI. MCI hereby grants to CellStar a purchase money security interest in
Products delivered to MCI and the proceeds thereof now existing or hereafter
arising out of MCI's sale or other disposition of the Products. MCI agrees to
cooperate in whatever manner necessary to assist CellStar in perfecting and
recording such purchase money security interest upon CellStar's request.
(c) Title to Inventory Items shall at all times remain with MCI;
provided, however, that CellStar shall be responsible for any loss or damage to
Inventory Items upon delivery and acceptance by CellStar at CellStar's
warehouse; and provided, further, however, that CellStar shall not be
responsible for loss or damage to fulfillment, collateral and promotional
materials included in the list of Inventory Items in an amount up to five
percent (5%) of the total value of such fulfillment, collateral and promotional
materials received by CellStar during the calendar quarter in which such
shrinkage occurred. Such acceptance by CellStar shall be deemed to have occurred
when the receipt of such goods is acknowledged by CellStar. CellStar shall use
best efforts for the safekeeping and safe handling of all Inventory Items
provided to CellStar pursuant to this Agreement and shall insure the full
replacement value of the Inventory Items located in its warehouse at any time.
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12. INSPECTION.
(a) MCI must notify CellStar, in writing, within seventy-two (72)
hours of receipt of shipment of Products or Inventory Items of (i) any
shortages, discrepancies or freight damage claims existing between the items
charged to MCI on any packing slip and the goods actually received by MCI in the
corresponding shipment; or (ii) any damages to the corresponding goods. CellStar
shall promptly correct such shortage, discrepancy, or damage at no charge to MCI
within one (1) business day following notice from MCI if CellStar has goods in
stock in its warehouse. If CellStar does not have such goods in stock in its
warehouse, CellStar shall make best reasonable efforts to correct such shortage,
discrepancy, or damage promptly at no charge to MCI. If written notice of such
shortage, discrepancy, damage, or other objection is not received by CellStar
within that time, MCI shall be deemed to have accepted the missing or damaged
goods, and MCI agrees to pay the total amounts agreed to herein for such missing
or damaged goods. Freight damage claims shall be filed by CellStar directly with
the carrier within seven (7) days of receipt of the notification of damage.
(b) CellStar must notify MCI, in writing, within twenty-four (24)
hours of receipt of shipment of Inventory Items of (i) any shortages,
discrepancies or freight damage claims existing between the items charged to MCI
on any packing slip from MCI or a third party vendor for Inventory Items and the
Inventory Items actually received by CellStar in the corresponding shipment; or
(ii) any damages to the corresponding Inventory Items. MCI shall promptly
intervene with such third party vendors on behalf of CellStar to correct such
shortage, discrepancy, or damage at no charge to CellStar. If after such
intervention by MCI, such third party vendors refuse to correct any such
shortage, discrepancy, or damage, then MCI shall not hold CellStar responsible
for such missing or damaged goods; provided that CellStar has exercised
commercially reasonable care regarding the protection and security of such
goods. If written notice of such shortage, discrepancy, damage, or other
objection is not received by MCI within that time, CellStar shall be deemed to
have accepted the missing or damaged goods, and CellStar agrees to be
responsible to MCI for such missing or damaged goods. Freight damage claims
shall be filed by MCI or its third party vendors directly with the carrier
within seven (7) days of receipt of the notification of damage from CellStar.
CellStar will assist MCI or its third party vendors in the filing of such
freight damage claims and shall retain all packaging and shipping materials from
such damaged shipments until the claim is settled and unless otherwise directed
by MCI.
13. RETURNS.
(a) Return Authorization. A return authorization must be obtained in
accordance with CellStar's standard procedures prior to any Products or
Inventory Items being shipped back to CellStar. Except as specifically set
forth in subsection (d) below, all freight and insurance charges for returned
goods must be paid by MCI.
(b) Warranty Returns for Products.
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(i) Accessory Products. Accessory Products shall be accepted for
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return in accordance with the warranty provisions set forth
in Section 18 hereof. Upon receipt, CellStar shall inspect
such Accessory Products and the accompanying documentation,
if any, to determine whether such returned Accessory
Products qualify for warranty protection under the terms of
the applicable warranty. If such Accessory Products are
found to be defective under the terms of the applicable
warranty, CellStar shall, at its option exchange or credit
MCI for such defective Accessory Products and shall report
to MCI accordingly pursuant to the Interim Services
Agreement or Section 17, as appropriate. If CellStar
exchanges such products, CellStar shall ship such exchanged
product, at CellStar's cost (including freight and
insurance), to the Communication Center from which the
defective product was received. If such Accessory Product is
found not to qualify for warranty protection under the terms
of the applicable warranty, CellStar shall, at MCI's option,
return such non-qualifying product at MCI's cost to the
Communication Center from which the product was received or
dispose of such Accessory Products at no cost to MCI.
(ii) Cellular Telephones. Cellular Telephones shall be accepted
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for return in accordance with the manufacturers' warranty
set forth in Section 18 hereof. Upon receipt, CellStar shall
inspect such Cellular Telephones and the accompanying
documentation, if any, to determine whether such returned
Cellular Telephones qualify for warranty protection under
the terms of the applicable warranty. If such Cellular
Telephones are found to be defective under the terms of the
applicable warranty, CellStar shall, at MCI's option, repair
or return to the manufacturer for repair or replacement such
defective Cellular Telephones at no cost to MCI. Any
repaired or replaced product shall be returned, at
CellStar's cost (including freight and insurance), to the
Communication Center from which the defective product was
received. If such Cellular Telephones are found not to
qualify for warranty protection under the terms of the
applicable warranty, CellStar shall return such non-
qualifying product, at MCI's cost (including freight and
insurance), to the Communication Center from which the
product was received.
(iii) Two-Way Radios. Two-Way Radios shall be accepted for return
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in accordance with the manufacturers' warranty set forth in
Section 18 hereof. Upon receipt, CellStar shall, at its own
expense, coordinate the return of such products to the
manufacturer, for repair or replacement in accordance with
the terms of the applicable warranty.
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Any repaired or replaced product shall be returned, at
CellStar's cost (including freight and insurance), to the
Communication Center from which the defective product was
received. If such Two-Way Radios are found not to qualify
for warranty protection under the terms of the applicable
warranty, CellStar shall return such non-qualifying product,
at MCI's cost (including freight and insurance), to the
Communication Center from which the product was received.
(iv) Technical Support for Products. CellStar shall make
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available to MCI telephone technical support and assistance
in the diagnosis and resolution of problems with Products
eight hours a day, five (5) days a week during CellStar's
normal business hours. There shall be no charge for such
technical support.
(c) Returns for Inventory Items. CellStar shall accept returns of
Pagers from Communication Centers for processing in accordance with Exhibit C
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attached hereto. Pagers accepted for return shall be subject to the returns
processing fees set forth in Exhibit C hereto. The parties may agree to add
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returns services for other Inventory Items by mutual written agreement and shall
amend this Agreement accordingly.
(d) Transition Period. Regardless of whether the Products are under
warranty, for a period of forty five (45) days following the Effective Date
hereof, CellStar shall credit to MCI the refund value of such items, including
all freight, insurance, and any taxes related to the return of such Products
returned to CellStar from the Communication Centers. Thereafter, MCI shall be
responsible for all freight and insurance for the return of all Products
returned to CellStar from the Communication Centers.
14. CANCELLATION OR CHANGE OF PURCHASE ORDERS. MCI may cancel, change or
reschedule Products or Inventory Items on any Purchase Order subject to MCI's
payment to CellStar of a cancellation, change or rescheduling fee equal to
[REDACTED] for each Purchase Order that has advanced to order entry/print status
and [REDACTED] for each Purchase Order that has advanced to pick confirm status.
MCI shall not be charged cancellation or change fee for orders having a pre-
order entry status. If any such change or rescheduling results in additional
shipments within the same calendar week to the same "ship to" address, such
shipment shall be made at a cost of [REDACTED] per shipment per "ship to"
address.
15. TAXES. The prices set forth herein are exclusive of any amount for
Federal, State and/or Local excise or sales taxes on the Products and/or
Services provided under this Agreement. If any such excluded tax, exclusive
however, of any taxes measured by CellStar's net income or taxes based on
CellStar's gross receipts or based on CellStar's franchise, is determined to be
applicable to the Products and Services provided under this Agreement or to the
extent CellStar is required to pay or bear burden thereof, one hundred percent
(100%) thereof shall be added to the prices set forth
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"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
<PAGE>
herein and paid by MCI. In the event MCI claims exemption from sales or other
such taxes under this Agreement, MCI shall hold CellStar harmless for any
subsequent assessments levied by a proper taxing authority for such taxes,
including interests, penalties and late charges.
16. PRODUCT CHANGES.
(a) MCI shall make best efforts within ten (10) business days from the
Effective Date hereof to (i) perform a commercially reasonable technical and
quality evaluation of Accessory Products provided to MCI as of the date of
closing in accordance with 16(b) and approve or reject Accessory Products in
accordance with the procedures set forth in Section 16(b) herein; and (ii)
provide to CellStar its minimum commercially reasonable technical and quality
specifications for each Accessory Product. If the technical and quality
evaluation required in (i) above results in MCI's rejection of the Accessory
Products, CellStar shall immediately initiate efforts to provide a conforming
Accessory Product. In any case, however, MCI may not source or give notice of
an intent to source such an Accessory Product from another vendor until January
1, 1997.
(b) In the event CellStar wishes to (i) make available to MCI any new
non-OEM Accessory Product, or (ii) change any style or manufacturer for any non-
OEM Accessory Product, CellStar shall, at least twenty (20) business days prior
to offering such Accessory Product for sale or effecting such change, provide to
MCI at least three (3) random samples for a ten (10) business day technical and
quality evaluation in accordance with MCI's minimum technical and quality
specifications described in subsection 16(a) above or MCI's revised commercially
reasonable technical and quality specifications that are provided to CellStar
from time to time. In the event such Accessory Product is approved by MCI, such
Accessory Product shall be added to the list set forth on Exhibit A upon
---------
execution of an amendment hereto.
(c) In the event MCI wishes to buy a new non-OEM Accessory Product or
change any style or specification for any non-OEM Accessory Product, MCI shall
provide to CellStar in writing commercially reasonable technical and quality
specifications for any such new product or changes. CellStar shall stock in its
warehouse such new or changed product within thirty (30) days in accordance with
the following procedure. Within five (5) business days following receipt by
CellStar of MCI's technical and quality specifications, CellStar shall provide
at least three (3) random samples of such new or changed product for a ten (10)
business day technical and quality evaluation in accordance with those minimum
technical and quality specifications. If MCI approves such accessory product,
it shall be added to the list of Accessory Products and this Agreement shall be
amended accordingly. If CellStar is unable to provide three (3) random samples
of such accessory product within five (5) business days or MCI rejects the
accessory products due to failure to satisfy such technical and quality
evaluation, MCI may source such accessory product from another party until
CellStar is able to source such accessory product for MCI. Alternatively,
CellStar and MCI may agree in writing on the substitution of an alternative
accessory product that conforms to MCI's commercially reasonable technical and
quality specifications.
(d) All samples to be provided hereunder shall be sent to Steven
Molyneaux,
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National Service Manager, MCI Wireless, 2000 York Road, Oakbrook, Illinois
60521, Suite 126, or such other person or address as MCI may designate in
writing to CellStar from time to time. Within 72 hours following the completion
of any such evaluations or tests, MCI shall provide to CellStar copies of any
test results or other evaluations which it conducts on non-OEM Accessory
Products, including a detailed written explanation of any perceived failure to
meet specifications previously provided to CellStar.
17. RECORDS AND REPORTS.
(a) CellStar shall maintain complete and accurate records of all
invoices, shipping, inventory, insurance, returns, penalties, MDF, Co-op, MCI's
twenty percent (20%) share of #800 items, all amounts billable to and payments
made by MCI, the information listed in subsection (d) below, and any other
matters which relate to CellStar's obligations hereunder, in accordance with
generally accepted accounting practices. CellStar shall retain and make
available upon request such records for a period of three (3) years from the
date of shipment of Products, Inventory Items, or rendering of Services covered
by this Agreement.
(b) CellStar shall provide to MCI by 11 a.m. (EST) each Monday, an
ASCII file (in similar fashion as file transmissions described in the Interim
Services Agreement) containing all of the information contained in each of the
individual invoices issued during the prior calendar week, consolidating such
information by "ship-to" address (which corresponds to a Communication Center or
an area manager's address) and as soon as reasonably available by SKU or item
number. Such file shall also contain all fees invoiced during such calendar week
and such other sales order information as MCI may reasonably request. CellStar
shall provide a paper printout of such ASCII file promptly thereafter.
(c) CellStar shall provide to MCI a consolidated monthly statement.
The monthly statement shall include the information listed in subsection 17(b)
above for outstanding invoices.
(d) Upon the reasonable request of MCI, CellStar agrees to provide
weekly inventory reports on Inventory Items located in its warehouse and cycle
counts within one (1) business day.
(e) CellStar has agreed as part of the Interim Services Agreement to
provide to MCI certain information for inventory information reporting. During
the term of the Interim Services Agreement, all such information will be
provided under the terms and conditions of the Interim Services Agreement.
Thereafter, CellStar shall continue to provide the following information under
the terms of this Agreement to MCI five (5) business days a week (except as
otherwise noted in subsection 17(e)(v)) with Monday information including
Friday, Saturday and Sunday data, no later than noon, CST (except for Mondays
when Friday, Saturday and Sunday data get transmitted at approximately 6:00 p.m.
CST). If any of the following information is not made available within one (1)
business day of the time that MCI notifies CellStar that the information has not
been received in accordance with the deadlines above, then MCI shall be entitled
to a credit
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against the Services Fee equal to[REDACTED] per day for each day that the
information is not made available starting on the day of MCI's notice.
(i) MCI Purchase Orders
(ii) Receipts of Inventory Items against MCI Purchase Orders
(iii) Replenishment orders from the Communication Centers
(iv) All orders of items shipped from CellStar's warehouse to
the Communication Centers
(v) Warehouse inventory quantities for all Inventory Items on
a weekly basis
(vi) Adjustments/returns that were sent back to CellStar's
warehouse from the Communication Centers
(vii) Credits/returns related to Inventory Items
(viii) Credits/returns of Inventory Items that do not require
shipment (damaged goods that are non-returnable to the
vendor, shrinkage, miscounted inventory, receiving
discrepancies, etc.)
(ix) Any other inventory management and tracking information
reasonably requested by MCI and agreed to by CellStar.
(f) Upon five (5) business days advance notice, MCI or its
representatives shall have the right to conduct an audit and review, at
reasonable hours and on CellStar premises (no more often than quarterly), of the
books and records of CellStar as they pertain to amounts owed under this
Agreement, Inventory Items, Co-op, MDF, special incentives and similar rebates,
and the net actual cost of Products purchased under this Agreement (in order to
verify the cost plus a factor pricing set forth in Section 4 hereof). MCI shall
bear the costs of such audits unless the auditors find a variance of two percent
(2%) or greater in the amounts invoiced to MCI whereupon such overcharges shall
be refunded to MCI with interest at the prime rate. In the event of such an
overcharge, CellStar shall pay the reasonable costs associated with the audit.
Any undercharges shall be paid by MCI.
18. LIMITED WARRANTIES AND REMEDIES.
(a) CellStar warrants its title to the Products sold by it and
warrants to MCI that its Products are free of defects of workmanship or material
and are in conformity with applicable specifications and descriptions set out in
the printed publications of CellStar or the manufacturer.
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"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
<PAGE>
The limited warranty provided by the manufacturers of Wireless Handsets and OEM
Accessory Products shall accompany such Products. A copy of the limited
warranty which will accompany each non-OEM Accessory Product and which will be
extended by CellStar to ultimate purchasers for use is attached hereto as
Exhibit D. CellStar extends to MCI the same such warranties it extends to
- ---------
ultimate purchasers for use, subject to the conditions stated hereinafter in
this Section 18. No claim shall be maintained hereunder unless the facts
giving rise to it are discovered within the warranty period of the Product and
written notice thereof given to CellStar within thirty (30) days of discovery.
The sole and exclusive liability of CellStar for breach of warranty shall be to
refund the purchase price of, or at its option, to replace or repair the Product
or part concerned FOB its service facility or such other places as CellStar may
designate.
(b) The warranty period for the Products shall be as follows:
(i) All non-OEM batteries: Two (2) year warranty (subject to
requirement for proof of purchase after one year).
(ii) All other non-OEM accessories: Lifetime warranty (subject
to requirement for proof of purchase after one year).
(iii) All OEM accessories: Manufacturers' warranty passes
through to MCI. CellStar provides no additional warranty.
(iv) All Wireless Handsets: Manufacturers' warranty passes
through to MCI. CellStar provides no additional warranty.
(c) The foregoing sets forth the sole and exclusive remedy of MCI for
claims (except as to title) based on defect in or failure of Products, whether
the claim is in contract, tort (including negligence), strict liability or
otherwise, and however instituted. Upon expiration of the warranty period, all
such liability shall terminate. Except as set forth in Section 23, the
foregoing warranties are exclusive and in lieu of all other warranties, whether
written, oral, implied or statutory. NO IMPLIED OR STATUTORY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE SHALL APPLY.
19. TRADEMARK LICENSE. CellStar grants to MCI the nonexclusive right to
use CellStar's trade names and trademarks set forth on Exhibit E in marketing
---------
CellStar's Products during the term hereof. MCI agrees to designate the Product
properly and depict marks accurately.
20. TERM. This Agreement shall be for an initial term of two (2) years,
commencing on the date hereof unless otherwise terminated pursuant to the terms
hereof.
21. TERMINATION.
(a) Either party my terminate this Agreement immediately upon written
notice to the other party if (i) the other party is in default of any material
obligations hereunder, and, if curable, such party has failed to cure such
default within thirty (30) days after receipt of such written notice; (ii) the
other party violates any international, federal, state, provincial or local law
relating
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to or affecting this Agreement; or (iii) the other party becomes insolvent,
makes a general assignment for the benefit of its creditors, files or does not
object to the filing of any petition in bankruptcy or insolvency in any federal
or state proceeding, has a receiver or trustee appointed over all or any
substantial part of its property or undertakes or is subject to similar actions.
(b) During the initial term hereof, MCI shall additionally have the
right to terminate this Agreement at any time following eighteen (18) months
from the effective date hereof in the event CellStar breaches any of the terms
of the Non-Competition Agreement of even date herewith between the parties,
notwithstanding the fact that such Non-Competition Agreement will have already
terminated according to its own terms.
(c) In the event of a material breach of the Interim Services
Agreement and expiration of any applicable cure period, as such material
breaches and cure periods are defined in the Interim Services Agreement, MCI
shall have the right to terminate this Agreement immediately.
(d) MCI shall have the right to terminate this Agreement upon thirty
(30) days prior written notice if: (i) shrinkage of Inventory Items exceeds
eight percent (8%) of total Inventory Items under the control of CellStar in any
given month (other than fulfillment, collateral, and promotional materials for
which CellStar already has a five percent (5%) shrinkage allowance); or (ii)
shrinkage of Inventory Items exceeds five percent (5%) of total Inventory Items
under the control of CellStar in a second month (other than fulfillment,
collateral, and promotional materials for which CellStar already has a five
percent (5%) shrinkage allowance) provided that MCI has given CellStar a written
warning that shrinkage of Inventory Items exceeded five percent (5%) of total
Inventory Items under the control of CellStar in one previous month during the
term of the Agreement.
22. CONFIDENTIALITY OF INFORMATION.
(a) CellStar agrees that all information related to the Services,
whether received orally, in print, or electronically, including but not limited
to MCI data and business information inputted, received, reported or generated
by CellStar, or stored in any CellStar computer system under the terms of this
Agreement, shall be received by CellStar in strict confidence. MCI agrees that
all information related to all amounts due and payable under the terms of this
Agreement, including but not limited to Product Prices and Service Fees and such
other information that CellStar may, from time to time designate as
confidential, whether received orally, in print, or electronically, shall be
received by MCI in strict confidence. All such information shall be deemed to
be "Confidential Information".
(b) Each party agrees that it shall use such Confidential Information
for the purposes of and only in the performance of this Agreement, and that it
shall not make copies of any such Confidential Information or any part thereof
except to the extent otherwise expressly permitted by this Agreement or by the
owner of the information ("Owner"). The party receiving the Confidential
Information ("Recipient") shall not disclose any Confidential Information to any
third party without the express written consent of the Owner other than to its
employees, consultants and
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agents, and its Affiliates' employees, consultants and agents, who have a need
to know to perform under this Agreement, and who are bound to protect the
received Confidential Information from unauthorized use and disclosure under the
terms of a written agreement or corporate policy, provided that in any case, the
Recipient shall be liable for any breaches of confidentiality by any of them.
The Recipient shall protect the Confidential Information using the same degree
of care used to protect Recipient's own confidential or proprietary information
of like importance, but in any case using no less than a reasonable degree of
care. The Recipient shall return Confidential Information and any copies
thereof to the Owner at the completion or termination of this Agreement, or at
such earlier date as the Owner may desire.
(c) If the Recipient is required by law, regulation or court order to
disclose any Confidential Information, the Recipient will promptly notify the
Owner in writing prior to making any such disclosure in order to facilitate the
Owner seeking a protective order or other appropriate remedy from the proper
authority. The Recipient agrees to cooperate with the Owner in seeking such
order or other remedy. The Recipient further agrees that if the Owner is not
successful in precluding the requesting legal body from requiring the disclosure
of the Confidential Information, it will furnish only that portion of the
Confidential Information which is legally required and will exercise all
reasonable efforts to obtain reliable assurances that confidential treatment
will be accorded the Confidential Information.
(d) The Recipient acknowledges that the Confidential Information
constitutes unique, valuable and special trade secret and business information
of the Owner, and that disclosure may cause irreparable injury to the Owner.
Accordingly, the parties acknowledge and agree that the remedy at law for any
breach of the covenants contained in this Agreement may be inadequate, and in
recognition, agrees that the Owner, shall, in addition, be entitled to seek
injunctive relief without bond including reasonable attorneys' fees and other
court costs and expenses, in the event of a breach or threatened breach of any
of the provisions of this Agreement, which relief shall be in addition to and
not in derogation of any other remedies which may be available to the Owner as a
result of such breach.
(e) Notwithstanding the foregoing, the restrictions set forth in this
Section on use and disclosure of Confidential Information shall not apply to
information that: (a) was publicly known at the time of Owner's communication
thereof to Recipient; (b) becomes publicly known through no fault of Recipient
subsequent to the time of Owner's communication thereof to Recipient; (c) is
received from a third party free to disclose it to Recipient; (d) was in
Recipient's possession free of any obligation of confidence at the time of
Owner's communication thereof to Recipient; (e) is developed by Recipient
independently of and without reference to any of Owner's Confidential
Information or other information that Owner disclosed in confidence to any third
party ; (f) is rightfully obtained by Recipient from third parties authorized to
make such disclosure without restriction; (g) is identified by Owner as no
longer proprietary or confidential; or (h) is lawfully required to be disclosed
to any governmental agency or judicial body or is otherwise required to be
disclosed by law.
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23. INDEMNIFICATION AND INSURANCE.
(a) Patent and Copyright Indemnification. CellStar agrees to defend,
at its expense, any claims or suits against MCI based upon a claim that any
Products furnished hereunder directly infringes a U.S. patent or copyright and
to pay costs and damages finally awarded in any such suit, provided that
CellStar is notified promptly in writing of the suit and at CellStar's request
and at its expense is given control of said claim and all requested assistance
for defense of same. If the use or sale of any Products furnished hereunder is
enjoined as a result of such suit, CellStar at its option and at no expense to
MCI, shall obtain for MCI the right to use or sell said Products or shall
substitute an equivalent Product reasonably acceptable to MCI, and extend this
indemnity thereto or shall accept the return of the Products and reimburse MCI
the purchase price therefor, less a reasonable charge for reasonable wear and
tear. This indemnity does not extend to any suit based upon any infringement or
alleged infringement of any patent or copyright by the alteration of any
Products furnished by CellStar or by the combination of any Products furnished
by CellStar and other elements, nor does it extend to any products of MCI's
design or formula. The foregoing states the entire liability of CellStar for
patent or copyright infringement. IN NO EVENT SHALL CELLSTAR BE LIABLE FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING FROM INFRINGEMENT OR ALLEGED
INFRINGEMENT OF PATENTS, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHTS EXCEPT
AS OTHERWISE SET FORTH HEREIN.
(b) Other CellStar Indemnification. CellStar shall indemnify and hold
MCI, its officers, directors, employees, affiliates (including their officers,
directors and employees), and agents (the "MCI Indemnified Parties") harmless
from any liabilities, claims, losses and expenses, including without limitation,
interest, penalties, consequential damages and all reasonable attorneys' fees
including in-house counsel fees, accountants, and other experts, that may be
incurred by MCI as a result of or arising out of claims made: (i) by any third
party for injury to persons, including death, and damage to property, including
theft, resulting from CellStar's negligent acts or omissions; (ii) by any third
party for injury to persons, including death, and damage to property, resulting
from any material supplied or used by CellStar in a defective and unreasonably
dangerous condition; (iii) under Worker's Compensation, or similar employer-
employee liability acts, against MCI by persons provided by CellStar; and (iv)
any claim for infringement of any U.S. trademark or copyright by reason of use
of CellStar's trademarks in connection with the Products. If any MCI
Indemnified Party makes an indemnification request to CellStar, the MCI
Indemnified Party shall permit CellStar to defend or settle at its own expense,
any action or claim against the MCI Indemnified Party for which CellStar is
responsible under this provision; provided that (i) any such settlement or
disposition shall impose no obligation whatsoever on the MCI Indemnified Party
that is not wholly discharged or dischargeable by CellStar, and imposes no
conditions or obligations on the MCI Indemnified Party other than the payment of
monies that are readily measurable for purposes of determining the monetary
indemnification or reimbursement obligations of CellStar and (ii) CellStar will
be capable of fully performing its obligations pursuant to such settlement or
disposition, including the financial capacity to pay when due all sums it is
obligated to pay pursuant to such settlement or disposition. The MCI
Indemnified Party shall notify CellStar promptly of any claim
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<PAGE>
for which CellStar is responsible and shall cooperate with CellStar in every
commercially reasonable way to facilitate defense of any such claim; provided
that the MCI Indemnified Party's failure to notify CellStar shall not diminish
CellStar's obligations under this Section unless CellStar is materially
prejudiced as a result of such failure.
(c) MCI Indemnification. MCI shall indemnify and hold CellStar, its
officers, directors, employees, affiliates (including their officers, directors
and employees), and agents (the "CellStar Indemnified Parties") harmless from
any liabilities, claims, losses and expenses, including without limitation,
interest, penalties, consequential damages and all reasonable attorneys' fees
including in-house counsel fees, accountants, and other experts, that may be
incurred by CellStar as a result of or arising out of claims made: (i) by any
third party for injury to persons, including death, and damage to property,
including theft, resulting from MCI's negligent acts or omissions; (ii) by any
third party for injury to persons, including death, and damage to property,
resulting from any material supplied by MCI in a defective and unreasonably
dangerous condition; and (iii) under Worker's Compensation, or similar employer-
employee liability acts, against CellStar by persons provided by MCI. If any
CellStar Indemnified Party makes an indemnification request to MCI, the CellStar
Indemnified Party shall permit MCI to defend or settle at its own expense, any
action or claim against the CellStar Indemnified Party for which MCI is
responsible under this provision; provided that (i) any such settlement or
disposition shall impose no obligation whatsoever on the CellStar Indemnified
Party that is not wholly discharged or dischargeable by MCI, and imposes no
conditions or obligations on the CellStar Indemnified Party other than the
payment of monies that are readily measurable for purposes of determining the
monetary indemnification or reimbursement obligations of MCI and (ii) MCI will
be capable of fully performing its obligations pursuant to such settlement or
disposition, including the financial capacity to pay when due all sums it is
obligated to pay pursuant to such settlement or disposition. The CellStar
Indemnified Party shall notify MCI promptly of any claim for which MCI is
responsible and shall cooperate with MCI in every commercially reasonable way to
facilitate defense of any such claim; provided that the CellStar Indemnified
Party's failure to notify MCI shall not diminish MCI's obligations under this
Section 23 unless MCI is materially prejudiced as a result of such failure.
(d) Insurance Requirements. During the term of this Agreement,
CellStar shall maintain insurance of the kinds and in the amounts specified
below with insurers of recognized responsibility, licensed to do business in the
State(s) where the work is being performed, and having either: an A.M. Best's
rating of A8, a Standard & Poor's (S&P) rating of AA, or a Moody's rating of
Aa2.
(i) In accordance with the above, CellStar shall maintain the
following insurance coverages:
(1) Workers' Compensation insurance as required by the
State(s) in which the contract is to be performed;
(2) Employer's Liability insurance with limits of not less
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than [CONFIDENTIAL MATERIAL REDACTED] per occurrence;
(3) Comprehensive or Commercial General Liability
Insurance, on an Occurrence Basis, including but not limited to
(premises-operations, broad form property damage in addition to
that covered by Section 23(d)(5) below, contractual liability,
independent contractors, personal injury) with limits of no less
than $10,000,000 combined single limit for each occurrence; and
(4) Automobile Liability, Comprehensive Form, with limits
of at lease $1,000,000 combined single limit for each occurrence.
(5) Bailee Liability Insurance, with limits of at least the
full replacement value of all Inventory Items physically located
at CellStar's warehouse at any given time.
(ii) THE REQUIRED MINIMUM LIMITS OF COVERAGE SHOWN ABOVE, HOWEVER,
WILL NOT IN ANY WAY RESTRICT OR DIMINISH CELLSTAR'S LIABILITY UNDER
THIS AGREEMENT.
(iii) CellStar's insurers shall waive all rights of recovery
against MCI for any injuries to persons or damage to property in the
execution of work performed under this Agreement.
(iv) CellStar's insurance shall be considered primary and not
excess or contributing with any other applicable insurance.
(v) All policies (excluding Workers' Compensation) shall name MCI,
its subsidiaries and affiliates, as additional insureds as respects
work performed under this Agreement and all coverage shall include MCI
property. CellStar will submit to MCI a standard "Accord" insurance
certificate (or comparable form acceptable to MCI) signed by an
authorized representative of such insurance company(ies), certifying
that the insurance coverage(s) required hereunder are in effect for
the purposes of this Agreement. Said insurance certificate shall
certify that no material alteration, modification or termination of
such coverage(s) shall be effective without at least 30 days advance
written notice to MCI.
24. FORCE MAJEURE. If the performance of this Agreement, or of any
obligation hereunder, is prevented, restricted or interfered with by reason of
acts of God, wars, revolution, civil commotion, acts of public enemies, blockage
or embargo, strikes, acts of the Government in its sovereign capacity,
interruptions of transportation, material default of any carrier or supplier, or
any other extraordinary and unexpected circumstance beyond the control and
without the fault or
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negligence of the performing party, upon giving prompt notice to the other, but
in no event to exceed more than ten (10) days after the performing party's
learning of such event or after the date when the performing party reasonably
should have known of event, the performing party shall be excused from such
performance on a day-to-day basis to the extent of such prevention, restriction
or interference with (and the other party shall likewise be excused from payment
for all services not performed); provided, however, that the performing party
shall use its best efforts to avoid or remove such causes of non-performance and
both parties shall proceed whenever such causes are removed or cease.
25. COMPLIANCE WITH LAWS. Each of the parties shall comply with the
provisions of all applicable federal, state, county and local laws, ordinances,
regulations and codes including but not limited to compliance with the Federal
Communications Commission's Rules and Regulations, and, irrespective of whether
a specification is furnished, if equipment, services or containers furnished
hereunder by CellStar are required to be constructed, packaged, labeled or
registered in a prescribed manner, CellStar shall comply with applicable
federal, state or local law. If MCI exports Products outside the United States,
MCI shall be responsible for complying with all U.S. export laws and regulations
and with all laws and regulations, including, but not limited to, permission to
connect, packaging and instruction, in the countries to which Products have been
exported. Each party shall indemnify and hold harmless the other from and
against all liabilities, claims, costs, losses, damages (including, without
limitation, any indirect, special, consequential, incidental or punitive
damages), and expenses (including attorneys' fees and allocated in-house legal
expenses) arising out of breach of this Section.
26. ASSIGNMENT. The rights and obligations under this Agreement may not
be assigned without, in each instance, the prior written consent of the non-
assigning party.
27. GOVERNING LAW. This Agreement, including all matters relating to the
validity, construction, performance and enforcement thereof, shall be governed
by the laws of the State of New York without giving effect to its principles of
conflicts of law.
28. RELATIONSHIP OF PARTIES.
(a) The relationship of the parties under this Agreement shall be, and
shall at all times remain, one of independent contractors and not that of
franchisor and franchisee, joint venturers, partners , principal and agent,
employees, or any other relationship, and neither party shall have the rights
to bind or obligate the other.
(b) All persons furnished by the parties in performance of the
Services hereunder shall be considered solely that party's employees or agents;
and that party shall be responsible for compliance with all laws, rules, and
regulations involving, but not limited to, employment of labor, hours of labor,
working conditions, payment of wages and payment of taxes, such as unemployment,
social security and other payroll taxes, including applicable contributions from
such persons when required by law. In addition, CellStar shall not improperly
influence any MCI employee in any manner that would cause such MCI employee to
violate MCI's Code of Employee Conduct involving
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conflicts of interest regarding acceptance of vendor gifts and gratuities (as
such MCI's Code of Employee Conduct is updated from time to time and provided to
CellStar by MCI).
(c) Each party shall be solely responsible for all reporting and
payment obligations relating to FICA, income tax, unemployment compensation and
workers compensation withholdings, and other employer related obligations of a
similar nature with respect to their own employees.
(d) Each party shall be solely responsible to the other for all acts
and omissions of its employees and agents assigned by such party for the
performance of its obligations hereunder.
29. ENTIRE AGREEMENT. This Agreement and the Exhibits hereto, together
with the Interim Services Agreement and the Asset Purchase Agreement,
constitutes the entire Agreement between the parties and supersede any prior or
contemporaneous oral or written representations with regard to the subject
matter hereof. This Agreement may not be modified or amended except by a
writing signed by both parties. No waiver of any provision hereof shall be
effective unless in writing signed by the party alleged to have waived such
provision. Any single waiver shall not operate to waive subsequent or other
defaults.
30. SEVERABILITY. If any provision of this Agreement is contrary to,
prohibited by or held invalid by any law, rule, order or regulation of any
government or by the final determination of any state or Federal court, such
invalidity shall not effect the enforceability of any of the provisions not held
to be invalid.
31. NOTICES. All notices, requests, demands or other communications
required or permitted hereunder shall be in writing, shall be deemed delivered
(i) on the date of delivery when delivered by hand, (ii) on the date of
transmission when sent by telex, electronic mail or facsimile transmission
during normal business hours with telephone confirmation of receipt, (iii) one
(1) day after dispatch when sent by overnight courier maintaining records of
receipt, or (iv) three (3) days after dispatch when sent by registered mail,
postage prepaid, return receipt requested, all addressed as follows (or at such
other addresses as shall be given in writing by either Party to the other):
If to MCI:
MCI Telecommunications Corporation
1200 South Hayes Street
Arlington, VA 22202
Attention: Terry Macko
Segment Marketing
Vice President
Fax: (703) 415-6789
With a copy to:
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MCI Telecommunications Corporation
1200 South Hayes Street
Arlington, VA 22202
Attention: Lanese Jorgensen, Esq.
Senior Attorney
Law & Public Policy
Fax: (703) 415-7102
If to CellStar:
CellStar, Ltd.
1730 Briercroft Court
Carrollton, TX 75006
Attention: Alan H. Goldfield
Chairman and CEO
Fax: (972) 323-1589
With a copy to:
CellStar, Ltd.
1730 Briercroft Court
Carrollton, TX 75006
Attention: General Counsel
Fax: (972) 466-5030
With an additional copy to :
CellStar, Ltd.
1730 Briercroft Court
Carrollton, TX 75006
Attention: Chief Financial Officer
Fax: (972) 466-0288
32. DISPUTE RESOLUTION PROCEDURES.
(a) Other than a dispute under Section 4(j) herein, for which the
provisions thereof shall govern, in the event of any disagreement regarding
performance under or interpretation of this Agreement, the parties shall attempt
to reach a negotiated resolution. If such a dispute remains unresolved for a
period of thirty (30) days after one party has provided written notice of the
dispute to the other, then each party shall designate an officer of appropriate
authority to resolve the dispute, in accordance with Section 32(b) below.
(b) Any dispute arising out of or related to this Agreement (including
any dispute
25
<PAGE>
arising under Section 4(j) herein), which cannot be resolved by negotiation
under Section 32(a) above, shall be settled by binding arbitration in accordance
with the J.A.M.S./ENDISPUTE Arbitration Rules and Procedures ("Endispute
Rules"), as amended by this Agreement. The costs of arbitration, including the
fees and expenses of the arbitrator, shall be shared equally by the parties
unless the arbitration award provides otherwise. Each party shall bear the cost
of preparing and presenting its case. The parties agree that this provision and
the Arbitrator's authority to grant relief shall be subject to the United States
Arbitration Act, 9 U.S.C. 1-16 et seq. ("USAA"), the provisions of this
Agreement, and the ABA-AAA Code of Ethics for Arbitrators in Commercial
Disputes. The parties agree that the arbitrator shall have no power or
authority to make awards or issue orders of any kind except as expressly
permitted by this Agreement, and in no event shall the arbitrator have the
authority to make any award that provides for punitive or exemplary damages.
The Arbitrator's decision shall follow the plain meaning of the relevant
documents, and shall be final and binding. The award may be confirmed and
enforced in any court of competent jurisdiction. All post-award proceedings
shall be governed by the USAA.
33. WAIVER OF CERTAIN REMEDIES. Notwithstanding any provision of this
Agreement, neither party shall be liable for any indirect, special,
consequential, incidental or punitive damages arising out of this Agreement,
even if advised of the possibility of such damages; provided, that this shall
not limit the liability of the indemnifying party to indemnify the indemnified
party with respect to claims brought by third parties against the indemnified
party as provided for in this Agreement.
34. SURVIVAL. The respective obligations of the parties under this
Agreement that by their nature would continue beyond the termination,
cancellation or expiration, shall survive any termination, cancellation or
expiration, including, but not limited to, obligations to insure and indemnify,
insure and maintain confidentiality, deliver and have the opportunity to inspect
and accept goods under existing Purchase Orders, and provide continued
availability of warranty support and services.
35. PARAGRAPH HEADINGS. The headings of the paragraphs are inserted for
convenience of reference only and are not intended to affect the meaning or
interpretation of this Agreement.
36. ORDER OF PRECEDENCE. This Agreement and all Exhibits are intended to
be read consistently and as a whole. Nonetheless, in the event of any
ambiguity, inconsistency or conflict between the terms of the Agreement and an
Exhibit hereto, the terms and conditions of the Agreement shall control.
37. COUNTERPARTS. This Agreement may be signed in one or more
counterparts each of which shall be deemed to be an original but together shall
constitute one instrument.
26
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in duplicate by their duly authorized representatives.
CELLSTAR, LTD. MCI TELECOMMUNICATIONS
By NATIONAL AUTO CENTER, INC. CORPORATION
General Partner
By: /s/ Richard M. Gozia By: /s/ Victoria Harker
-------------------------------- --------------------------------
Name: Name:
------------------------------ ------------------------------
Its: Executive Vice President Its: Vice President of Finance
------------------------------- -------------------------------
27
<PAGE>
EXHIBIT A
ACCESSORY PRODUCTS AND PRICES
-----------------------------
[REDACTED]
Motorola Application
--------
W033020 All
W051019 All
W061020 Flip
W061019 TT250
E26-1-120 650
E8R-1-020 All
W8K3020 Flip
E8S-3-019 TT250
E8S-3-120 650
HFK-5-020 All above
SNN4589P Slim Nickle Metal Batt.
Nokia
-----
E03-3-213 636/638
E03-3-042 232
W051213 636/638
W051027 232
E26-1-213 636/638
E06-1-042 232
E8R-1-042 232
E8S-1-213 636/638
E8S-3-042 232
E8S-3213 636
BBT6LP 636/Slim Nickle Metal Batt.
BTH8SMP 232/Slim Nickle Metal Batt.
E061043 2120
NEC
---
W031025 810
W051025 810
W061025 810
E8R-1-025 810
W8K1025 810
Misc. Accessories
-----------------
E8M-1-079 All handheld
E8B-1-110 All Trans.
28
__________
"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
<PAGE>
[REDACTED]
E01-1-050 Any 3 Watt
E01-1-055 Any 3 Watt
B01-1-070 Any 3 Watt
HLN9033 Leather Case (Two-Way Radio)
B016063 Connector (Mot. Attache Phone)
29
__________
"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
<PAGE>
EXHIBIT B
WIRELESS HANDSETS AND PRICES
----------------------------
[REDACTED]
Motorola
--------
TT250
550 ProPak
650
Lite II ProPak
Lite II Standard
Attache with battery
Lunch Box with battery
Nokia
-----
636/638
232 (includes all colors)
NEC
---
810
TWO WAY RADIOS
--------------
Motorola Sprint CS10
Accessory
---------
HLN9034 Cs.w/Loop
HLN8240 Belt Clip
HLN8371 Desk Chgr
HLN3987 Int. Elim.
HNN9044 Battery Pack
HTN9026 3h Desk Chgr
HTN8232 10h Desk Ch
HAD9742 Stub Ant.
30
__________
"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
<PAGE>
EXHIBIT C
SERVICES AND FEES
-----------------
1. WAREHOUSE, DISTRIBUTION AND FULFILLMENT SERVICES.
(a) Services Regarding Inventory Items. The services to be performed
hereunder by CellStar regarding Inventory Items shall include the receiving,
handling, storage, assembly (if requested), shipping, and reporting as described
herein of the Inventory Items listed on Attachment A of various vendors (the
------------
"MCI Vendors"). CellStar shall warehouse the Inventory Items at its warehouse
facility located at 1728 Briercroft Court, Carrollton, Texas 75006, or such
other warehouse facilities as shall be approved in writing by MCI from time to
time (the "Warehouse").
(b) Fulfillment Services. The services to be performed hereunder by
CellStar include the assembly (if requested), packaging (if requested),
programming (if requested), shipping, returns processing and other fulfillment
services relating to the Products and the Inventory Items.
(c) Availability. The Services provided by CellStar hereunder shall
be available eight (8) hours per day during normal business hours, five days per
week, fifty-two weeks per year unless otherwise mutually agreed upon by the
parties (excluding New Years Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving, the day after Thanksgiving, and Christmas).
(d) Maintenance. CellStar agrees to maintain its warehouse in a
clean, orderly, and safe condition; to maintain all equipment used by it in the
performance of its services hereunder in a clean, proper, and safe operating
condition; and to maintain the grounds around the warehouse in a safe, neat and
presentable manner.
(e) Record keeping. CellStar shall maintain, in accordance with
generally accepted accounting principles and practices, such records as may be
necessary to adequately reflect the accuracy of CellStar's charges and invoices
for reimbursement under the Agreement.
2. COMPENSATION. In consideration for the Services to be performed
hereunder, MCI shall pay CellStar Service Fees as set forth on Attachment B, as
------------
invoiced by CellStar in accordance with Section 4 of the Agreement.
3. SAFEKEEPING/TITLE. CellStar shall exercise all commercially
reasonable care for the safekeeping and safe handling of all Inventory Items
provided to CellStar by MCI pursuant to this Agreement, including, but not
limited to placing pagers, prepaid calling cards, movie tickets and other
valuable items in a segregated, locked area. Title to the Inventory Items
shall at all times remain with MCI.
31
<PAGE>
4. OPERATIONS METHODS AND PROCEDURES.
(a) Receiving of Shipments. CellStar shall scan or otherwise enter
Inventory Items into CellStar's inventory management and order processing system
within one full business day of actual receipt of shipment. Product receipt
shall follow the procedures outlined in Attachment C.
------------
(b) Performance of Services. CellStar shall perform the Services in
accordance with its standard and operating procedures as such may be changed
from time to time, including those procedures outlined in Attachment C.
------------
5. IN-BOUND FREIGHT CHARGES. CellStar and MCI understand that MCI
Vendors will be providing in-bound freight shipments of Inventory Items to
CellStar at no charge to CellStar.
6. DAMAGED ITEMS.
(a) In-bound Freight Damage. CellStar shall not be liable for
shipments of Inventory Items until they have been received and accepted at the
Warehouse. CellStar will assist MCI in filing and resolving any freight claims
for these shipments and shall retain all packaging and shipping materials until
the claim is settled unless otherwise directed by MCI.
(b) Out-bound Freight Damage and Warehouse Damage. Subject to the
allowance for shrinkage contained in Section 11(c) of this Agreement, the risk
of loss, damage, or destruction of the Products and Inventory Items shall be
borne by CellStar from the time the shipments are received and accepted at the
Warehouse until the goods are delivered to and accepted by MCI at the Sam's Club
location.
(c) Definition of Damaged Products. Unless otherwise stated in
Section 12, Products and Inventory Items shall be considered damaged when the
actual unit has been marred in any manner, including, but not limited to,
scratched, dented, water stained or stained by any other substance, crushed,
punctured, and/or when the item has obvious damage detected by rattling sound.
Any Inventory Items that is not resalable as a new product, due to any visual
defects or obvious internal damage, shall be considered damaged.
7. INSURANCE.
(a) In-bound Shipment. CellStar shall not be responsible for insuring
in-bound shipments of Inventory Items, nor shall it be responsible for any loss
or damage incurred during such shipment. However, CellStar will assist MCI in
filing and resolving any freight claims.
(b) Warehouse Inventory. CellStar shall insure, and provide proof of
insurance to MCI, naming MCI as beneficiary, the full replacement value of the
Inventory Items stored in the Warehouse at any time. CellStar shall also
maintain property and liability insurance as set forth
32
<PAGE>
in Section 23 of this Agreement. In addition, CellStar will promptly notify MCI
in writing of any claims filed that relate in whole or in part to any Inventory
Items. With respect to any such claims disputed in whole or in part by the
insurance carrier, CellStar will notify MCI of the dispute, provide MCI with
such information as may be requested by MCI in writing and shall not settle such
claims (insofar as they relate to the Inventory Items) for less than the full
value thereof without the written approval of MCI.
(c) Out-bound Shipment. Unless otherwise stated in the Agreement,
CellStar shall insure at MCI's cost all out-bound freight shipments for the full
replacement value of the Products and Inventory Items being transported to any
Communication Center.
8. WAREHOUSE ACCESS. MCI shall have access to the warehouse during
CellStar's normal working hours, upon two (2) hours prior notice to CellStar,
for the purpose of inspecting Inventory Items, evaluating damaged Inventory
Items, performing Inventory Item counts and other reasonable requirements.
33
<PAGE>
ATTACHMENT A
INVENTORY ITEMS
MCI PAGERS
PART NUMBER DESCRIPTION FREQUENCY COV
BPNXA86BLK002 PRONTO BLACK 929.8625 L
BBFXA86BLK002 BRAVO BLACK 929.8625 L
BBFXA58BLK002 BRAVO BLACK 929.5875 R/N
BUXXA86BLK002 ULTRA BLACK 929.8625 L
BUXXA86TTL002 ULTRA TEAL 929.8625 L
BUXXA86CIC002 ULTRA CRAN 929.8625 L
BUXXA86BBL002 ULTRA BLUE 929.8625 L
BUXXA58BLK002 ULTRA BLACK 929.5875 R/N
BAGXA86BLK002 ADVISOR BLACK 929.8625 L
BAGXA58BLK002 ADVISOR BLACK 929.5875 R/N
BAGXA86BLK002S ADVISOR BLACK 929.8625 L
SPORTS
BAGXA58BLK002S ADVISOR BLACK 929.5875 R/N
SPORTS
BUXRE70BLK002 ULTRA BLACK 158.7000 L
BUXRE10BLK002 ULTRA BLACK 158.1000 L
BUXRD84BLK002 ULTRA BLACK 152.8400 L
BPNXA96BLK002 PRONTO BLACK 929.9625 L
BPNXA73BLK002 PRONTO BLACK 929.7375 L
BBFXA96BLK002 BRAVO BLACK 929.9625 L
BBFXA96TTL002 BRAVO TEAL 929.9625 L
BBFXA96CIC002 BRAVO CRAN 929.9625 L
BBFXA96BBL002 BRAVO BLUE 929.9625 L
34
<PAGE>
PART NUMBER DESCRIPTION FREQUENCY COV
BBFXA86TTL002 BRAVO TEAL 929.8625 L
BBFXA86CIC02 BRAVO CRAN 929.8625 L
BBFXA86BBL002 BRAVO BLUE 929.8625 L
BBFXA73BLK002 BRAVO BLACK 929.7375 L
BBFXA73TTL002 BRAVO TEAL 929.7375 L
BBFXA73CIC002 BRAVO CRAN 929.7375 L
BBFXA73BBL002 BRAVO BLUE 929.7375 L
BUXXA96BLK002 ULTRA BLACK 929.9625 L
BUXXA96TTL002 ULTRA TEAL 929.9625 L
BUXXA96CIC002 ULTRA CRAN 929.9625 L
BUXXA96BBL002 ULTRA BLUE 929.9625 L
BUXXA73BLK002 ULTRA BLACK 929.7375 L
BUXXA73TTL002 ULTRA TEAL 929.7375 L
BUXXA73CIC002 ULTRA CRAN 929.7375 L
BUXXA73BBL002 ULTRA BLUE 929.7375 L
BAGXA96BLK002 ADVISOR BLACK 929.9625 L
BAGXA73BLK002 ADVISOR BLACK 929.7375 L
BAGXA96BLK002S ADVISOR BLACK 929.9625 L
SPORTS
BAGXA73BLK002S ADVISOR BLACK 929.7375 L
SPORTS
BUXRD45BIL002 ULTRA BLACK 454.4500 L
BUXXA63BLK002 ULTRA BLACK 929.6375 L
BUXRE78BLK002 ULTRA BLACK 929.7875 L
BUXXA61BLK002 ULTRA BLACK 929.6125 L
35
<PAGE>
PREPAID CALLING CARDS
Holiday Card 30 Unit
Holiday Card 15 Unit
Collectors' Independence Day 4 30 Units
Collectors' Independence Day 4 30 Units (Promotional Cards)
UNITED ARTIST THEATERS PROMOTIONAL MOVIE TICKETS
FULFILLMENT, COLLATERAL AND PROMOTIONAL MATERIALS
Including, but not limited to:
User Guide and Terms & Conditions
Warranty Cards
Box Sleeves
Alpha Paging Software
Sweepstakes Cards
Paging Correspondence Maps
Sports Paging Brochures
Other Brochures
Other Promotional Materials
Sales Aids
Long Distance Welcome Letters
Buckslips
Greeter Flyers
Other Collateral Materials
36
<PAGE>
ATTACHMENT B
SERVICE FEES
Service Price Per Unit/Product
------- ----------------------
Assembly:
Private Label Packaging of Pagers [REDACTED]
(Individual packaging of pagers
approved and requested by MCI)
Order Fulfillment:
A negotiated flat fee per order processed [REDACTED]
and shipped to each "ship to" address,
including but not limited to the following
aspects of Inventory Item handling and
management:
*Receiving
*Scanning in ESN's
*Storage
*Picking, Packing and Prepping for Shipping
*Freight Processing
*Scanning Out ESN's
*Reporting
Returns Processing
(For Inventory Items Only):
MCI Pager Returns Handling Fee [REDACTED]
1-800-Number Fulfillment
(OEM Accessories available through a transparent phone catalog sales
system, based on credit card purchases only.) The Service Fee shall be
in the form of a margin split with MCI: [REDACTED] to CellStar and
[REDACTED] to MCI. CellStar shall receive the first [REDACTED] of
margin on the total purchase prior to MCI receiving its [REDACTED]
share. If CellStar's [REDACTED] share constitutes less than
[REDACTED], CellStar is entitled to collect that total amount only and
37
__________
"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
<PAGE>
MCI shall not owe CellStar the difference between that amount and
[REDACTED]. (For example, on a [REDACTED] item the split would be
[REDACTED] CellStar/[REDACTED] MCI, on an [REDACTED] item the split
would be [REDACTED] CellStar/[REDACTED] MCI, and on a [REDACTED] item
the split would be [REDACTED] CellStar/[REDACTED] MCI.) All such
credits owed to MCI shall be issued in accordance with the provisions
of Section 4(i) of the Agreement.
38
__________
"[REDACTED]" indicates confidential portions omitted and filed separately with
the Commission.
<PAGE>
ATTACHMENT C
I. INVENTORY ITEM RECEIVING PROCEDURES
1. Vendors and MCI shall create notification procedures reasonably
acceptable to CellStar regarding shipments of Inventory Items into the
Warehouse.
2. MCI and/or MCI vendors shall provide CellStar the following
information:
(a) MCI Purchase Order number
(b) Vendor shipping reference number
(c) Number of pieces and weight and dimensions of shipment
(d) Loading address
(e) Name and telephone number of contact person
(f) Hours of operation
(g) Description of item (including SKU number)
(h) Cost of good
3. CellStar shall accept Inventory Items and verify bills of lading for
correct address, pallet and box/piece counts. Any discrepancies such as
shortages, overages or any damage to the Inventory Items shall be notated on the
bill of lading and signed by the receiving personnel.
4. CellStar shall verify Inventory Items against the MCI vendor's pack
list and note any discrepancies. A receiving exception report shall be
completed describing any discrepancies, including missing and/or damaged
Inventory Items and forward to MCI within two (2) business days of CellStar's
receipt of shipment.
5. CellStar agrees to return any damaged Inventory Items to the MCI
vendor in accordance with instructions to be provided by MCI.
6. Within one (1) business day following receipt at CellStar's warehouse,
CellStar shall enter the serial numbers for all incoming pagers into CellStar's
inventory management system and generate the reports required pursuant to the
terms of this Agreement.
39
<PAGE>
ATTACHMENT C (CONTINUED)
II. MCI PAGER RETURN PROGRAM
MCI Kiosk Policy
- 30 day returns/exchange policy is in effect at the kiosk level.
- MCI will establish a policy for the kiosks to return pagers.
- The kiosks will call CellStar for a return authorization ("RA") for
return of the pagers.
MCI Agreement with PageNet
- PageNet will take all pagers back. PageNet and MCI have agreed to
appropriate crediting terms and charges for such returns.
MCI Return to CellStar
- Pagers will be returned to CellStar twice a month or as otherwise
determined by MCI.
CellStar Responsibilities
- CellStar will verify the pagers received against the RA issued to the
kiosks.
- CellStar is responsible for sorting MCI pagers contained in each
return shipment from other returned items in the same shipment
(including CellStar pagers sold to customers by CellStar prior to the
closing of the Asset Purchase Agreement). No triage will be performed.
- CellStar will sort pagers by SKU or serial number.
- CellStar will post credit by SKU or serial number through the system
to the kiosk and within the system to the MCI Inventory Item Inventory
Return Branch Plant (as defined in the Interim Services Agreement).
- CellStar will return pagers to PageNet twice a month or as otherwise
determined by MCI.
- CellStar will provide PageNet with advance notice of such returns and
cooperate with PageNet's return procedures.
- CellStar will issue a return to PageNet which will relieve MCI's
Inventory and establish a receivable in MCI's records against PageNet
for the return credit.
- CellStar will track such returns in accordance with other procedures
that are mutually agreed upon in writing by the parties.
- Within two (2) business days of shipment to PageNet, CellStar will
provide closed loop reporting which includes MCI pagers to be received
by SKU, MCI pagers actually received by SKU, MCI pagers waiting to be
shipped to PageNet by SKU, and MCI pagers shipped to PageNet by SKU.
CellStar Charges
- CellStar will charge MCI a $0.25 handling fee for each MCI pager that
is returned
40
<PAGE>
to CellStar.
- CellStar will charge MCI for the actual freight costs (including
insurance) incurred to return the MCI pagers to PageNet.
41
<PAGE>
EXHIBIT D
LIMITED WARRANTY FOR NON-OEM ACCESSORY PRODUCTS
-----------------------------------------------
- --------------------------------------------------------------------------------
LIMITED WARRANTY
CellStar extends this limited warranty directly to you, the original end-user
purchaser of its products, provided your purchase was made in Canada, the United
States or Latin America. If you sell or otherwise transfer the product,
warranty coverage automatically terminates. If any part of your CellStar
product (except for batteries) was defective in material or workmanship on the
date of purchase, return it with proof of purchase to the place of purchase (in
the U.S. only) and CellStar will, at its option, either repair or replace it
with a new or rebuilt part at no charge to you for parts or labor.
If any part of your CellStar battery was defective in material or workmanship on
the date of purchase, return it with proof of purchase within 2 years of the
date of purchase to the place of purchase (in the U.S. only) and CellStar will,
at its option, either repair or replace it with a new or rebuilt part at no
charge to you for parts or labor.
LIMITATIONS. This limited warranty does not cover products which have been
improperly installed, repaired or maintained or which have been subjected to
misuse, abuse, accident, physical damage, abnormal operation or handling,
neglect, exposure to fire, water or excessive changes in climate or temperature;
or operation outside of published maximum ratings and/or acts of God; cosmetic
items; products on which warranty stickers or product serial numbers have been
removed, altered or rendered illegible; inadequate signal reception by the
antenna; or the cost of installation, removal or reinstallation.
THIS LIMITED WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED,
INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
AND EXCLUDES ALL LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES FOR ANY CAUSE
WHATSOEVER. Some states and countries do not allow limitations on implied
warranty durations, or the exclusion or limitation of incidental or
consequential damages, so that the above limitation or exclusion may not apply
to you. This warranty gives you specific legal rights, and you may also have
other rights which vary from state to state and from country to country.
EXCLUSION AND DISCLAIMER OF ANY AND ALL EXPRESS AND IMPLIED WARRANTIES BY MCI.
This accessory is not manufactured by MCI but is supplied to MCI by CellStar.
Therefore, MCI MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
WITH RESPECT TO THIS ACCESSORY. However, this accessory is covered by
CellStar's limited warranty.
- --------------------------------------------------------------------------------
42
<PAGE>
- --------------------------------------------------------------------------------
Please fill out and return this postage paid card to put your
accessory product limited warranty in effect. (See package insert for
specific warranty information.)
Name:
------------------------------------------------------------
Street Address:
--------------------------------------------------
City: State: Zip:
-------------------------- -------------- ------
Location of Purchase:
--------------------------------------------
Part Number: Date of Purchase:
------------------- ---------------
MCI
- --------------------------------------------------------------------------------
43
<PAGE>
EXHIBIT E
TRADEMARKS
----------
Essentials/TM/
CellStar/R/
44
<PAGE>
EXHIBIT 21.2
LIST OF SUBSIDIARIES OF CELLSTAR CORPORATION
--------------------------------------------
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY INCORPORATION TRADENAMES USED
- ------------------ ------------- ---------------
<S> <C> <C>
National Auto Center, Inc. Texas National Auto Cellular
PC Cellular
TelStar
Communication Center
CellStar
Cellular Accessories
CMart
CellStar Air Services, Inc. Delaware None
NAC Holdings, Inc. Nevada None
CellStar Fulfillment, Inc. Delaware None
CellStar International
Corporation/Asia Delaware None
CellStar International
Corporation/S.A. Delaware None
Audiomex Export Corporation Delaware None
CellStar Ltd. Texas Limited Partnership National Auto Cellular
PC Cellular
Communication Center
CellStar
interACT/CS
Pacific Bell Mobile Services Fulfullment
CellStar Fulfillment, Ltd. Texas Limited Partnership None
A & S Air Service, Inc. Delaware None
CellStar West, Inc. Delaware None
CellStar (Asia) Corporation LTD Hong Kong None
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY INCORPORATION TRADENAMES USED
- ------------------ ------------- ---------------
<S> <C> <C>
CellStar Pacific PTE LTD Singapore None
CellStar Singapore PTE LTD Singapore None
CellStar S.A. Argentina Servicell
CellStar International
Telefonia Celular, Ltda. Brazil Cellular Express
CellStar Celular Chile S.A. Chile Servicell
CellStar Celular S.A. Venezuela None
CellStar Industria da
Telefonia da Amazonia LTD Brazil None
CellStar de Colombia, Ltda. Colombia Cellular Express
Servicell
CellStar Ecuador S.A. Ecuador None
CellStar (UK) Limited United Kingdom None
Celular Express S.A. de C.V. Mexico None
Celular Express
Management S.A. de C.V. Mexico None
CellStar Philippines, Inc. Philippines None
CellStar Amtel Sdn Bhd. Malaysia None
CellStar (Taiwan) Co., Ltd. Taiwan None
CellStar Telecommunication
Service Company Hong Kong None
Shanghai CellStar International
Trading Company, LTD China None
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors and Stockholders
CellStar Corporation:
We consent to incorporation by reference in the registration statements on Form
S-8 (Nos. 33-87754 and 333-23381) of CellStar Corporation of our report dated
January 31, 1997, relating to the consolidated balance sheets of CellStar
Corporation and subsidiaries as of November 30, 1996, and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended November 30, 1996, which report
appears in the November 30, 1996 annual report on Form 10-K, as amended by Form
10-K/A, Amendment No. 1, of CellStar Corporation.
/s/ KPMG PEAT MARWICK LLP
Dallas, Texas
July 9, 1997
