<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1998
REGISTRATION NO. 333-41753
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CELLSTAR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2479727
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1730 BRIERCROFT COURT ELAINE FLUD RODRIGUEZ
CARROLLTON, TEXAS 75006 VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
(972) 466-5000 1730 BRIERCROFT COURT
(Address, including zip CARROLLTON, TEXAS 75006
code, and telephone number, (972) 466-5000
including area code, of (Name, address, including
registrant's principal zip code, and telephone number,
executive offices) including area code, of agent for service)
------------------------
COPY TO:
RICHARD D. RAFFERTY
HAYNES AND BOONE, LLP
3100 NATIONSBANK PLAZA
901 MAIN STREET
DALLAS, TEXAS 75202-3789
(214) 651-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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THE REGISTRATION STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH THE PROVISIONS OF SECTION 8(a) OF THE SECURITIES ACT OF 1933 AS AMENDED.
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PROSPECTUS
$150,000,000
5% CONVERTIBLE SUBORDINATED NOTES DUE 2002
AND
2,882,635 SHARES OF COMMON STOCK
CELLSTAR CORPORATION
This Prospectus relates to the offer and sale (the "Offering") by the
Selling Securityholders (as defined) from time to time of (i) up to
$150,000,000 aggregate principal amount of 5% Convertible Subordinated Notes due
2002 (the "Notes") of CellStar Corporation, a Delaware corporation (the
"Company"), (ii) the 2,710,761 shares of Common Stock, par value $0.01 per share
(the "Common Stock"), of the Company issuable upon conversion of the Notes or
such greater number of shares of Common Stock that may be issued upon adjustment
of the conversion price (as hereinafter described) and (iii) up to 171,874
shares of Common Stock currently held by a selling securityholder. See "Selling
Securityholders." The Notes and the Common Stock offered hereby are referred to
herein as the "Securities." The Notes were originally issued in October 1997 to
Bear, Stearns & Co. Inc. and Chase Securities Inc. (together, the "Initial
Purchasers") in a transaction exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and were subsequently
resold by the Initial Purchasers to persons reasonably believed by the Initial
Purchasers to be "qualified institutional buyers" (as defined in Rule 144A under
the Securities Act) and to persons in offshore transactions in reliance upon
Regulation S under the Securities Act.
The Notes will mature on October 15, 2002, unless previously redeemed. See
"Description of Notes -- Optional Redemption by the Company." Interest on the
Notes will be payable semi-annually on April 15 and October 15 of each year,
commencing April 15, 1998. Holders of the Notes will be entitled at any time
after December 13, 1997 through October 11, 2002, subject to prior redemption,
to convert any Notes or portions thereof into Common Stock at a conversion price
of $55.335 per share, subject to certain adjustments. See "Description of Notes
- -- Conversion of Notes." The Common Stock is traded on the Nasdaq Stock Market
under the symbol "CLST." On February 5, 1998, the last reported sale price of
the Common Stock on the Nasdaq Stock Market was $25.063 per share.
The Notes are redeemable, in whole or in part, at the option of the
Company, at any time on or after October 18, 2000, at the declining redemption
prices set forth herein plus accrued and unpaid interest. In the event of a
Change of Control (as defined), each Holder of Notes may require the Company to
repurchase such Holder's Notes in whole or in part at a repurchase price of 101%
of the principal amount thereof plus accrued and unpaid interest. See
"Description of Notes -- Change of Control."
The Notes are unsecured obligations of the Company and are subordinated in
right of payment to all existing and future Senior Indebtedness (as defined) of
the Company. In addition, because the Company's operations are conducted
exclusively through its operating subsidiaries, claims of creditors and holders
of indebtedness of such subsidiaries will have priority with respect to the
assets and earnings of such subsidiaries over the claims of creditors of the
Company, including Holders of the Notes. At October 31, 1997, the Company had no
Senior Indebtedness, although the Company's subsidiaries had approximately
$121.9 million of trade payables outstanding. The Company's primary revolving
credit facility (the "Revolving Credit Facility") provides for maximum
borrowings of $135.0 million, subject to an asset coverage test. At October 31,
1997, the Company had available all of the $135.0 million borrowing capacity.
(Cover page information continued on next page.)
______________________________________________________________________
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN
INVESTMENT IN THE SECURITIES OFFERED HEREBY.
______________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY ___, 1998
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(Continued from previous page.)
The Company will not receive any of the proceeds from the sale of the
Securities offered hereby. The Securities may be sold from time to time to
purchasers directly by the Selling Securityholders. Alternatively, the
Selling Securityholders may from time to time offer the Securities through
brokers, dealers or agents who may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the Securities for whom they may act as agent. The Selling
Securityholders and any such brokers, dealers or agents who participate in
the distribution of the Securities may be deemed to be "underwriters," and
any profits on the sale of the Securities by them and any discounts,
commissions or concessions received by any such brokers, dealers or agents
might be deemed to be underwriting discounts and commissions under the
Securities Act. To the extent the Selling Securityholders may be deemed to
be underwriters, the Selling Securityholders may be subject to certain
statutory liabilities of the Securities Act, including, but not limited to,
Sections 11, 12 and 17 of the Securities Act, and Rule 10b-5 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). See "Plan
of Distribution."
At any time a particular offer of the Securities is made, a revised
Prospectus or Prospectus Supplement, if required, will be distributed that will,
to the extent required, set forth the aggregate amount and type of Securities
being offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, any discounts, commissions and other items
constituting compensation from the Selling Securityholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers. See "Plan
of Distribution."
Pursuant to a Registration Rights Agreement entered into in connection
with the offer and sale of the Notes by the Company, each of the Company and
the Selling Securityholders (with the exception of Leap International PTE LTD
("Leap")) will be indemnified by the other against certain liabilities,
including certain liabilities under the Securities Act, or will be entitled
to contribution in connection therewith. The Company has agreed to pay
substantially all of the expenses incidental to the registration, offering
and sale of the Securities to the public other than commissions, fees and
discounts of underwriters, brokers, dealers and agents, if any. Such
expenses are estimated to be approximately $101,081, of which the Company
will bear approximately $99,770. See "Plan of Distribution."
Certain of the Notes are currently eligible to trade in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market.
Notes resold pursuant to this Prospectus will no longer be eligible for trading
in the PORTAL Market. The Company does not intend to list the Notes on any
securities exchange or to seek approval for quotation of the Notes through any
automated quotation system. Although the Initial Purchasers have advised the
Company that they intend to make a market in the Notes, they are not obligated
to do so and may suspend any such market-making activities at any time and
without prior notice. Accordingly, there can be no assurance that an active
market for the Notes will develop or be maintained.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's Regional Offices at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates, and from the web site that the Commission
maintains at http://www.sec.gov. The Common Stock is listed on the Nasdaq Stock
Market and, in connection with such listing, the Company also files reports,
proxy statements and other information with the Nasdaq Stock Market. Such
reports, proxy statements and other information filed by the Company can be
inspected and copied at the offices of the Nasdaq Stock Market, 1735 K Street,
N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Securities offered
hereby. This Prospectus is a part of such Registration Statement, but, as
permitted by the rules and regulations of the Commission, does not include all
the information set forth in the Registration Statement, to which reference is
made for further information with respect to the Company. Any statements
contained herein concerning the provisions of any documents filed with the
Registration Statement are necessarily summaries of such documents, and, in each
instance, reference is made to the copy of such documents filed with the
Commission. Each such statement is qualified in its entirety by such reference.
Copies of the Registration Statement are on file at the offices of the
Commission and may be obtained from the Commission upon payment of prescribed
rates or may be examined without charge at the public reference facilities of
the Commission as described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission are incorporated into
this Prospectus by reference:
(1) The Company's Annual Report on Form 10-K (File No. 0-22972) for the year
ended November 30, 1996, as amended by Form 10-K/A, Amendment No. 1 (File
No. 0-22972), filed July 10, 1997;
(2) The Company's Quarterly Reports on Form 10-Q (File No. 0-22972) for the
quarters ended February 28, 1997, May 31, 1997 and August 31, 1997;
(3) Form 10-Q/A, Amendment No. 1 (File No. 0-22972), to the Company's
Quarterly Report on Form 10-Q (File No. 0-22972) for the quarter ended
August 31, 1996, filed December 6, 1996;
(4) Form 10-Q/A, Amendment No. 2 (File No. 0-22972), to the Company's
Quarterly Report on Form 10-Q (File No. 0-22972) for the quarter ended
August 31, 1996, filed March 28, 1997;
(5) The Company's Current Report on Form 8-K (File No. 0-22972), dated
December 30, 1996, filed January 3, 1997;
(6) The Company's Current Report on Form 8-K (File No. 0-22972), dated
September 25, 1997, filed September 26, 1997;
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(7) The Company's Current Report on Form 8-K (File No. 0-22972) dated October
8, 1997, filed October 24, 1997;
(8) The Company's Current Report on Form 8-K (File No. 0-22972) dated January
14, 1998, filed January 22, 1998; and
(9) Registration Statement on Form 8-A (File No. 0-22972), filed November 26,
1993.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of this Offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom this Prospectus is delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above, other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference herein or any incorporated document. Requests should be directed to
CellStar Corporation, 1730 Briercroft Court, Carrollton, Texas 75006, Attention:
General Counsel, telephone (972) 466-5000.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the captions "Summary" and "Risk
Factors" and elsewhere in this Prospectus may constitute "forward-looking"
statements for purposes of the Securities Act and the Exchange Act and as such
may involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to be
materially different from the future results, performance or achievements
expressed or implied by such forward-looking statements. When used in this
Prospectus, the words "anticipates," "believes," "will," "continue," "expects,"
"may" and similar expressions are intended to be among the statements that
identify forward-looking statements. Various factors that could cause the actual
results, performance or achievements of the Company to differ materially from
the Company's expectations are disclosed in this Prospectus ("Cautionary
Statements"), including, without limitation, those statements made in
conjunction with the forward-looking statements included under "Risk Factors"
and otherwise herein. All written and oral forward-looking statements
attributable to the Company are expressly qualified in their entirety by the
Cautionary Statements.
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SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE
REQUIRES, THE TERMS "CELLSTAR" AND THE "COMPANY" REFER TO CELLSTAR CORPORATION
AND ITS CONSOLIDATED SUBSIDIARIES. ALL COMMON STOCK AMOUNTS HAVE BEEN
RETROACTIVELY ADJUSTED TO GIVE EFFECT TO A THREE-FOR-TWO STOCK SPLIT, WHICH WAS
MADE IN THE FORM OF A STOCK DIVIDEND DISTRIBUTED ON JUNE 17, 1997 TO HOLDERS OF
RECORD OF THE COMPANY'S COMMON STOCK ON JUNE 2, 1997. IN ADDITION TO THE OTHER
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, THE
FACTORS SET FORTH UNDER "RISK FACTORS" SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING AN INVESTMENT IN THE NOTES AND UNDERLYING COMMON STOCK OFFERED
HEREBY.
THE OFFERING
THIS PROSPECTUS RELATES TO THE OFFERING BY THE SELLING SECURITYHOLDERS OF
(I) THE COMMON STOCK HELD BY LEAP AND (II) THE NOTES AND, TO THE EXTENT THE
NOTES HAVE BEEN, OR ARE, CONVERTED, THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THE NOTES. FOR A MORE DETAILED DESCRIPTION OF THE TERMS OF THE NOTES AND THE
COMMON STOCK, SEE "DESCRIPTION OF NOTES" AND "DESCRIPTION OF CAPITAL STOCK."
THE NOTES
Issuer. . . . . . . . . . . . . . . . . CellStar Corporation
Notes Offered . . . . . . . . . . . . . Up to $150,000,000 principal amount of
5% Convertible Subordinated Notes Due
2002 issued under an indenture (the
"Indenture") between the Company and
The Bank of New York, as trustee.
Interest Payment Dates. . . . . . . . . April 15 and October 15 of each year,
commencing April 15, 1998.
Maturity. . . . . . . . . . . . . . . . October 15, 2002.
Conversion Price. . . . . . . . . . . . Convertible into Common Stock of the
Company at $55.335 per share, subject
to adjustment as set forth herein. See
"Description of Notes -- Conversion of
Notes."
Redemption. . . . . . . . . . . . . . . The Notes are redeemable, in whole or
in part, at the option of the Company,
at any time on or after October 18,
2000, at the declining redemption
prices set forth herein plus accrued
and unpaid interest. See "Description
of Notes -- Optional Redemption by the
Company."
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Change of Control . . . . . . . . . . . In the event of a Change of Control,
Holders of the Notes will have the
right to require the Company to
repurchase their Notes in whole or in
part at a price of 101% of the
principal amount thereof plus accrued
and unpaid interest. See "Description
of Notes -- Change of Control."
Ranking . . . . . . . . . . . . . . . . The Notes constitute general,
unsecured obligations of the Company
and are subordinated in right of
payment to all existing and future
Senior Indebtedness of the Company. In
addition, because the Company's
operations are conducted exclusively
through its operating subsidiaries,
claims of creditors of such
subsidiaries will have priority with
respect to the assets and earnings of
such subsidiaries over the claims of
creditors of the Company, including
Holders of the Notes. At October 31,
1997, the Company had no Senior
Indebtedness outstanding, although the
Company's subsidiaries had
approximately $121.9 million of trade
payables outstanding. The Company's
Revolving Credit Facility provides for
maximum borrowings of $135.0 million,
subject to an asset coverage test. At
October 31, 1997, the Company had
available all of the $135.0 million
borrowing capacity. The Indenture does
not limit the amount of additional
indebtedness that the Company or its
subsidiaries can create, incur, assume
or guarantee. See "Description of
Notes -- Subordination."
THE COMMON STOCK
Common Stock Outstanding as of
February 5, 1998 (1). . . . . . . . . . 29,377,009 shares
Shares Offered (2). . . . . . . . . . . 171,874 shares of Common Stock held by
Leap and up to 2,710,761 shares of
Common Stock that may be issued upon
conversion of the Notes. See
"Description of Notes--Conversion of
Notes."
Common Stock to be Outstanding Assuming
Conversion of the Notes (1)(2). . . . . 32,087,770 shares
Nasdaq National Market Symbol . . . . . CLST
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(1) Excludes 3,101,187 shares of Common Stock issuable upon exercise of
stock options and warrants outstanding as of February 5, 1998.
(2) Assumes no adjustment of the conversion price of the Notes. See
"Description of Notes--Conversion of Notes."
RISK FACTORS
For a discussion of certain factors that should be considered by
prospective purchasers in evaluating an investment in the Notes and the Common
Stock, see "Risk Factors."
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RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CONSIDERED, TOGETHER WITH THE OTHER
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, IN
EVALUATING THE COMPANY BEFORE MAKING AN INVESTMENT IN THE NOTES OR THE COMMON
STOCK.
RISKS ASSOCIATED WITH RAPID GROWTH
The Company's rapid growth has placed a significant strain on its
management, employees, systems and financial resources. The Company's continued
growth will depend upon, among other things, the Company's ability to maintain
its operating margins, continue to secure an adequate supply of competitive
products on a timely basis and on commercially reasonable terms, continually
turn its inventories and accounts receivable, successfully manage growth
(including monitoring operations, controlling costs and maintaining effective
inventory and credit controls), manage operations that are geographically
dispersed, achieve significant penetration in existing and new geographic
markets and hire, train and retain qualified employees who can effectively
manage and operate its business.
The Company's rapid growth has also placed significant strains on its
management information systems, including those used to manage inventory,
accounts receivable, and accounts payable. Although the Company has hired
additional employees and is investing in refinements to its systems, the
Company's growth may continue to place strains upon its systems and its human,
financial and other resources and may negatively affect its ability to manage
and control its operations.
RISKS ATTRIBUTABLE TO INTERNATIONAL OPERATIONS
The Company relies on sales to international markets for a significant
portion of its revenues and net income. Approximately 39.9% of the Company's
revenues in fiscal 1996 were generated by the Company's international
operations, of which 65.6% was attributable to the Asia-Pacific region
(primarily Hong Kong), and 31.6% was attributable to the Latin American
region. Additionally, a significant portion of the Company's net loss in
fiscal 1996 was attributable to the Company's Latin American operations.
The Company expects that revenues from international sales will comprise
a greater portion of total revenues in fiscal 1997.
The Company's international expansion is primarily directed at countries
that lack adequate landline phone service, are experiencing rapid economic
growth and have high population density. International operations and sales,
especially in countries with emerging economies, such as the People's Republic
of China (the "PRC"), are subject to political and economic risks, including the
following: political instability; currency controls; currency devaluations;
exchange rate fluctuations; potentially unstable channels of distribution; "gray
market" activities of third parties that are legal but are not authorized by
manufacturers, or that are illegal (E.G., activities that avoid applicable
duties or taxes); increased credit risks; export control laws that might limit
the markets the Company can enter; inflation; changes in laws related to foreign
ownership of businesses operating abroad; foreign tax laws; changes in
import/export or other regulations, including enforcement policies; and tariff
and freight rates. Political and other factors beyond the Company's control,
including without limitation those factors discussed below, could have a
materially adverse effect on the Company. There can be no assurance that the
Company will be successful in international markets. See "--Concentration of
Sales; Collection and Credit Risks" and "Selected Consolidated Financial
Data."
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CURRENCY FLUCTUATIONS AND EXCHANGE RESTRICTIONS. Currency fluctuations,
devaluations and exchange restrictions in the Company's international markets
may adversely affect the Company's liquidity and results of operations. 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. Although
the Company has implemented measures to manage the impact that currency exchange
rate fluctuations have on its business, there can be no assurance that such
measures will effectively limit the Company's exposure to a decline in operating
results due to foreign currency transaction and translation adjustments. In
addition, in some countries, such as the PRC, local currencies may not be
readily converted into U.S. dollars (or other "hard currencies") or may only be
converted at government-controlled rates, and, in some countries, the transfer
of hard currencies offshore have been restricted from time to time.
FOREIGN CREDIT RISKS. As of August 31, 1997, 43.3% of the Company's assets,
including certain accounts receivable and inventory, were in jurisdictions
outside the United States and were subject to all of the risks attributable to
international operations, as well as increased credit risks, any of which may
impair the Company's assets. In the past, the Company has increased its reserves
for receivables related to its international sales or its domestic sales of
products destined for international markets.
HONG KONG AND THE REMAINDER OF THE PRC. The Company maintains a
significant presence in Hong Kong. At August 31, 1997, 16.9% of the Company's
total assets, including 28.6% of the Company's total cash, was in Hong Kong.
This percentage may increase as the operations in the region continue to
grow. Following the transition of Hong Kong's sovereignty from the United
Kingdom to the PRC, the Company's operations in the Asia-Pacific region will
be exposed to the potential for a higher degree of currency volatility and
economic instability than historically has been the case.
The Company has recently commenced operations in the remainder of the PRC
through a newly established, wholly-owned subsidiary pursuant to an experimental
initiative authorized by the Shanghai municipal government, which allows
foreign-owned entities to conduct domestic wholesale business using a local
commodities exchange market as an intermediary. Conduct of wholesale operations
through the use of a commodities exchange market by foreign-owned entities such
as the Company, and conduct of retail sales of telecommunications equipment by
private, locally-owned companies such as the Company's PRC customers, reflect
recent decisions by governmental authorities to experiment with market access
initiatives. The Company cannot predict to what extent the governmental
authorities will allow private economic activities such as those of the Company
and its customers to continue or what additional limitations or regulations may
be imposed on the Company's activities. There can be no assurance that the
Shanghai municipal government will continue the initiative pursuant to which the
Company conducts its operations or will permit the Company to continue to
participate in that initiative.
There can be no assurance that there will not be an adverse change in
existing political, regulatory, social, economic or commercial conditions in
Hong Kong or in the remainder of the PRC or that any such change would not have
a materially adverse effect on the Company's results of operations or financial
condition. For instance, the Company's operations in Hong Kong or the remainder
of the PRC could be materially adversely affected in the event of a trade
dispute between the PRC and the United States.
SALES TO EXPORTERS. A significant portion of the Company's revenues from
its Hong Kong and Miami, Florida operations is derived from sales to local
exporters, who in turn export the purchased products into other jurisdictions.
Resales by these exporters may constitute activities that are legal
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<PAGE>
but are not authorized by manufacturers, or that are illegal (E.G., activities
that avoid applicable duties or taxes). Actions such as (i) increases in tariff
rates or freight rates, (ii) changes in import/export regulations and policies,
or other governmental regulations or policies, including the tightening of
enforcement of existing regulations or policies, or (iii) changes in
manufacturers' or carriers' policies regarding unauthorized sales, could disrupt
any such channels of distribution or otherwise have a materially adverse effect
on the Company. In addition, because in the case of sales to exporters the
Company may not have contact with the retailers selling the product to the
ultimate consumer or to the retailers' immediate supplier, the Company may have
little or no information regarding the inventory levels or rate of product sales
of such retailers. This could hamper the Company's ability to keep its inventory
at appropriate levels in the event of rapidly changing consumer demand for the
products it sells to exporters.
TERMINATION OF FOREIGN JOINT VENTURES. The Company has historically sought
to enter an international market with a local partner that has operational
experience in the host country to take advantage of the local partner's
knowledge of the host country and to shorten the time necessary to commence
operations. The Company's joint venture agreements typically contain provisions
that allow either the Company or its joint venture partner to terminate the
joint venture under certain circumstances and may require the joint venture
partner to repurchase the non-terminating joint venture partner's interest at
fair market value. If a joint venture is terminated or a joint venture partner
fails to perform its obligations under a joint venture agreement, the Company's
business could be materially and adversely affected. The Company's ability to
own a controlling position in its joint ventures is subject to applicable
foreign laws.
DEPENDENCE ON ACTIVATION OF WIRELESS COMMUNICATIONS SYSTEMS. The Company's
expansion of its business in international markets in many cases is dependent
upon the activation and expansion of wireless communications systems by wireless
carriers and upon the quality of those systems. The failure of wireless carriers
to activate or expand sufficient wireless communications systems in foreign
countries could inhibit the Company's growth. Similarly, the failure of foreign
governments to authorize the installation of wireless communications systems, or
an unexpected change in government policy related to the installation of
wireless communications systems, could materially and adversely affect the
Company's results of operations, financial condition and cash flows.
POSSIBLE ADVERSE EFFECT OF TRADE SANCTIONS. The United States and certain
foreign countries, including the PRC, have been involved in trade disputes in
the past. On occasion, the United States has imposed tariffs and importation
bans on certain products produced in foreign countries, including cellular
phones. Similar tariffs and bans on products produced in the United States or
restrictions on the operations of U.S. companies within a foreign country have
also been enacted by other nations. The invocation of such trade sanctions
involving a country in which the Company conducts a substantial amount of
business could materially and adversely affect the Company's operations in that
country. In addition, the Company cannot ensure that its customers do not resell
products purchased from it in countries subject to trade restrictions imposed by
the U.S. government, which could subject the Company to liability if a court
were to find that the Company improperly facilitated those sales.
FISCAL 1996 LOSS AND FUTURE OPERATING RESULTS
Although the Company had net income of $36.4 million for the nine months
ended August 31, 1997, the Company incurred a net loss of $6.4 million in
fiscal 1996. Net product sales for the year ended November 30, 1996 and the
nine months ended August 31, 1997 were 89.2% and 97.1%, respectively, of
revenues. Net product sales consisted primarily of wireless handset sales, a
segment of its business that operates on a high-volume, low-margin basis. In
addition, the Company's operating expenses can be expected to increase in
connection with the Company's expansion activities. The Company also believes
that, as the number of wireless networks increases as a result of
deregulation,
5
<PAGE>
increased competition and the emergence of new technologies and a growing
industry emphasis on containing costs could further reduce the gross margins
realized by the Company on sales of wireless handsets. Accordingly, the
Company's future profitability will depend upon increasing sales, while managing
costs in order to protect margins. Future events, including, without limitation,
unavailability of product, unanticipated expenses, increased price competition,
unfavorable general economic conditions, adverse developments in international
markets in which the Company operates or in which its products might ultimately
be distributed, product returns and recalls, and uncollectible accounts
receivable, could have an adverse effect on the Company's financial condition or
operating results. There can be no assurance that the Company's rate of sales
growth will continue in the future or that the Company's future operations will
be profitable. Moreover, the risks associated with the Company's rapid growth,
international operations and dependence on major vendors may result in volatile
quarterly operating results, and results of operations in any period should not
be considered indicative of the results to be expected for the full fiscal year
or for any future period.
COMPETITION
The Company operates in a highly competitive environment and believes that
such competition will intensify in the future. On both the wholesale and retail
level, the Company competes with numerous well-established companies, many of
which are larger and have greater capital and management resources than the
Company. In certain markets, the Company faces competition from its own
customers at the retail level and from its own suppliers at the wholesale level.
The Company competes primarily on the basis of inventory availability and
selection, delivery time, service and price. To the extent that the Company's
competitors market the same or similar products and have superior financial
resources, those competitors are better able to withstand substantial price
competition, which is expected to increase, and to implement extensive
advertising and promotional programs. Because of this intense competition,
wholesale distributors and retailers, including the Company, generally operate
with low gross margins. The Company's ability to remain competitive will be
largely dependent on its ability to control its costs and protect its profit
margins and to anticipate and respond to various competitive factors affecting
the industry, including new products that may be introduced, changes in consumer
preferences, demographic trends, international, national, regional and local
economic conditions and discount pricing strategies implemented by competitors.
No assurance can be given that the Company will compete successfully in the
wholesale distribution or retail market, particularly as it enters new
international markets.
In addition to this intense price competition, wireless communications
products are subject to significant price erosion over the life of the product.
Furthermore, the Company faces competition in the United States and in its
international markets from gray market sales, which are often made below the
prices offered by the Company because the seller has been able to avoid all or a
portion of applicable taxes or duties or does not otherwise incur the same costs
as an authorized distributor. The combination of these factors may result in
lower gross margins for the Company in the future.
DEPENDENCE ON MAJOR VENDORS AND CUSTOMERS; PRODUCT SHORTAGES OR PRICE INCREASES
The Company distributes and markets cellular phones and other wireless
communications products manufactured by a number of major vendors. In fiscal
1996, the Company's largest supplier, Motorola Inc. ("Motorola"), accounted for
approximately 74% of the Company's product purchases. The Company has several
contracts with Motorola, covering the various territories served by the
Company, each of which has a one-year term. While the Company believes that its
relationships with Motorola and other significant vendors are satisfactory,
there can be no assurance that these relationships will continue.
6
<PAGE>
Pacific Bell Mobile Services accounted for 18.4%, or $81.3 million, and
13.1%, or $140.8 million, of total revenues for the three and nine month periods
ended August 31, 1997. This level of revenues as compared to total revenues is
not necessarily indicative of future results.
The Company experiences, from time to time, shortages in supply for certain
products that are in high demand, and no assurances can be given that product
shortages will not continue to occur in the future. Adequate supply of products
may negatively affect both revenues and earnings, depending upon the particular
product in short supply, the particular market affected and the length of time
the supply shortage lasts. Because the success of the Company's business depends
upon its major vendors continuing to provide the Company with adequate supplies
of competitive products on a timely basis, the loss of Motorola or any other
significant vendor, a substantial price increase imposed by any such vendor or a
shortage of product available from its vendors could have a materially adverse
effect on the Company.
CONCENTRATION OF SALES; COLLECTION AND CREDIT RISKS
During fiscal 1996, the Company sold its products to over 3,500
wholesale customers, the ten largest of which accounted for approximately 35%
of net product sales. In addition, two of the Company's customers in the
Asia-Pacific region accounted for approximately 52% of the Company's net
product sales in Hong Kong and the remainder of the PRC. The loss of certain
of these customers or their failure to pay or delay in paying amounts owed to
the Company could have a materially adverse effect on the Company's business.
During fiscal 1996, the Company added $28.0 million to its trade accounts
receivable reserves to reflect a deterioration of its trade accounts
receivable portfolio, primarily for Brazil-related receivables.
Substantially all of the Company's customers in Brazil were significantly and
adversely impacted by actions taken by Telebras, the government owned
cellular telephone company, which unexpectedly limited the number of cellular
telephone lines available for activation in Brazil during 1995 and 1996.
Beginning in late 1995 and continuing through 1996, Telebras announced plans
to activate significant numbers of cellular lines on a monthly basis to meet
the large demand for cellular service in the major metropolitan areas. In
response to these announcements, many of the Company's retail customers began
to rapidly expand their operations, in many cases opening multiple retail
locations specializing in cellular telephones and related products and
incurring corresponding increases in inventory and overhead. However, the
government failed to release the number of lines promised, leaving many of
the Company's retail customers with insufficient sales revenues to support
the increased overhead and ultimately insufficient cash flows to repay the
Company. In connection with the Company's implementation of its expansion
strategy, the Company expects its accounts receivable to increase, which will
subject the Company to increased credit risks, particularly in international
markets, and could require the Company to increase its allowance for doubtful
accounts. See "-- Risks Attributable to International Operations" and
"Selected Consolidated Financial Data."
RISKS OF INVENTORY OBSOLESCENCE AND EXCESSIVE INVENTORY LEVELS
The market for wireless communications products is characterized by rapidly
changing technology and frequent new product introductions, often resulting in
product obsolescence or short product life cycles. The Company's success depends
in large part upon its ability to anticipate and adapt its business to such
technological changes. There can be no assurance that the Company will be able
to identify, obtain and offer the products necessary to remain competitive or
that competitors or manufacturers of wireless communications products will not
market products that have perceived advantages over the Company's products or
that render the products sold by the Company obsolete or less marketable. See
"-- Risk of Technological Change." The Company maintains a significant
investment in its product inventory and, therefore, is subject to the risks of
inventory obsolescence and excessive inventory levels. If a substantial amount
of inventory is rendered obsolete or if the Company's inventory levels are
significantly higher than the demand for those products, its business, financial
condition or results of 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 fiscal 1996. The
7
<PAGE>
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 materially adverse effect on
the Company's operating results.
UNCERTAINTY OF DEMAND FOR WIRELESS COMMUNICATIONS PRODUCTS
Although the markets for wireless communications products have grown
substantially in recent years, the wireless communications industry is an
emerging industry with a limited operating history. Demand and market acceptance
for wireless communications services and products are subject to a high level of
uncertainty. As the wireless communications industry matures in a particular
market and customer penetration levels reach their limits, sales of wireless
communications products will decline as the number of new customers decreases,
and that market may eventually substantially consist of sales of replacement
phones to existing customers. The ultimate level of demand for wireless
communications products could be affected by numerous factors beyond the
Company's control, including, among others, changes in governmental regulations
affecting the industry, the introduction of new technologies, unauthorized use
of wireless communications frequencies by third parties, demand for upgraded or
replacement products and discount promotions by wireless communications
carriers. In light of the continually evolving nature of the wireless
communications industry, there can be no assurance as to the ultimate level of
demand and market acceptance for wireless communications products.
RISK OF TECHNOLOGICAL CHANGE
As the communications industry evolves, new wireless communications
technologies, such as personal communications services, enhanced specialized
mobile radio 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 will impact the
composition of the wireless communications market. Alternative technologies
to cellular technology may reduce the demand for cellular products and
services, which could adversely affect the Company. Such technologies could
also materially change the types of products sold by the Company and the
service providers with whom the Company does business. Competing
communications technologies may also result in additional price competition,
which could result in lower activation or residual commission rates payable
to the Company.
Many existing computer systems use only two digits to identify a year
in the date field and thus are not equipped to handle the change in the
century. In June 1997, the Company implemented a Year 2000 readiness project.
The Company believes that the costs of addressing, and the effects of, the
Year 2000 issue will not be material to the Company's business, operations
or financial condition.
LITIGATION
The Company is a party to various lawsuits, including a purported class
action lawsuit alleging violations of certain securities laws, the outcome of
which, if adverse to the Company, could have a materially adverse effect on the
results of operations and financial condition of the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's success is substantially dependent on the efforts of Alan H.
Goldfield, its Chief Executive Officer, and certain other of the Company's
executive officers and key employees. The loss or interruption of the continued
full-time service of Mr. Goldfield or other of the Company's executive officers
and key employees could materially and adversely affect the Company's business.
Although the Company has entered into employment agreements with Mr. Goldfield
and several other officers and employees, there can be no assurance that the
Company will be able to retain their services. The Company does not maintain key
man insurance on the life of Mr. Goldfield or any other officer of the Company.
In addition, the Company would be in default under the current terms of the
Revolving Credit Facility if both Mr. Goldfield and the Company's President
cease to be involved in the Company's management. To support its continued
growth, the Company will be required to effectively
8
<PAGE>
recruit, develop and retain additional qualified management. The inability of
the Company to attract and retain such necessary personnel could also have a
materially adverse effect on the Company.
CONTROLLING INFLUENCE BY MR. GOLDFIELD
As of February 5, 1998, Mr. Goldfield had voting power with respect to
9,938,055 shares, or 33.8%, of the Company's Common Stock, including
1,185,000 shares that are subject to a revocable (upon 90 days written
notice) proxy granted to Mr. Goldfield by Mr. A. S. Horng and excluding
375,000 employee stock options. As a result, Mr. Goldfield is able to
exercise substantial influence over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions.
SUBORDINATION OF THE NOTES
The Notes are general, unsecured obligations of the Company and are
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company. By reason of such subordination, in the event of an insolvency,
liquidation or other reorganization of the Company, all Senior Indebtedness must
be paid in full before the Company may make any payments with respect to the
principal of, premium, if any, and interest on the Notes. In addition, because
the Company's operations are conducted solely through its subsidiaries, claims
of the creditors of the subsidiaries will have priority with respect to the
assets and earnings of such subsidiaries over the claims of the creditors of the
Company, including holders of the Notes, even though such obligations do not
constitute Senior Indebtedness. At October 31, 1997, the Company had no Senior
Indebtedness outstanding, although the Company's subsidiaries had approximately
$121.9 million of trade payables outstanding. The Company's Revolving Credit
Facility provides for maximum borrowings of $135.0 million, subject to an asset
coverage test. At October 31, 1997, the Company had available all of the $135.0
million borrowing capacity. See "Description of Notes--Subordination."
The Indenture does not restrict the ability of the Company or any of its
subsidiaries to incur additional indebtedness or to pledge their assets in the
future. See "Description of Notes."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S SENIOR INDEBTEDNESS
The Company's Revolving Credit Facility contains, among other
provisions, covenants relating to the maintenance of minimum net worth and
certain financial ratios, dividend payments by CellStar Corporation to its
stockholders, additional debt, mergers, and acquisitions and dispositions of
assets. A breach of any of these covenants could result in a default under
the Revolving Credit Facility. Upon the occurrence of an event of default
under the Revolving Credit Facility, the lenders thereunder could elect to
declare all amounts outstanding under the Revolving Credit Facility, together
with accrued interest, to be immediately due and payable. If the Company were
unable to repay those amounts, such lenders could proceed against the
collateral granted to them to secure that indebtedness. Substantially all of
the Company's U.S. assets and the common stock of its subsidiaries secure its
borrowings under the Revolving Credit Facility.
Although the Company was in compliance with its covenants under its prior
revolving credit facility at August 31, 1997, at November 30, 1996, the Company
was not in compliance with certain covenants under such facility regarding (i)
limitations on capital spending and (ii) maintenance by the Company's most
significant U.S. subsidiary of a minimum net worth. The Company's lenders waived
non-compliance with those covenants. Covenants were measured on a quarterly
basis.
9
<PAGE>
REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer to repurchase all then outstanding Notes at a price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, thereon to the date of repurchase. Certain events involving a
Change of Control may result in an event of default under the Revolving Credit
Facility and may result in an event of default under other indebtedness of the
Company that may be incurred in the future. An event of default under the
Revolving Credit Facility or other indebtedness could result in an acceleration
of such indebtedness. See "Description of Notes -- Change of Control." There can
be no assurance that the Company would have sufficient resources to repurchase
the Notes and pay its obligations under the Revolving Credit Facility or other
indebtedness upon the occurrence of a Change of Control. These provisions may be
deemed to have anti-takeover effects and may delay, defer or prevent a merger,
tender offer or other takeover attempt.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
There is no existing market for the Notes and the Company does not intend
to apply for listing of the Notes offered hereby on any securities exchange.
Prior to their resale pursuant to this Prospectus, Notes sold to "qualified
institutional buyers" as defined in Rule 144A under the Securities Act ("QIBs")
were eligible for trading on the PORTAL Market. The Notes sold pursuant to this
Prospectus will no longer be eligible for trading on the PORTAL Market.
Accordingly, there can be no assurance as to the liquidity of any market that
may develop for the Notes, the ability of holders of the Notes to sell their
Notes or the price at which holders would be able to sell their Notes. Future
trading prices of the Notes will depend on many factors, including, among other
things, prevailing interest rates, the Company's operating results, the market
for similar securities and changes in the prices of the Company's Common Stock.
The Initial Purchasers have advised the Company that they currently intend to
make a market in the Notes. However, they are not obligated to make a market in
the Notes and any market making may be discontinued at any time.
POSSIBLE VOLATILITY OF STOCK PRICE
Price and volume fluctuations in the stock market could adversely affect
the market price of the Common Stock without regard to the Company's
operating performance. The market price for shares of Common Stock has varied
significantly and may continue to be volatile depending on news announcements
and changes in general market conditions. The Company believes that factors
such as quarterly variations in the Company's financial results or the
financial results of competitors, general industry conditions, including
competitive developments, and economic conditions in the United States and
the Company's international markets also could cause substantial price
fluctuations in the Common Stock. The Company believes that changes in the
market price for the Common Stock could affect the prices at which the Notes
may trade from time to time.
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws include a number of provisions that may have the effect of
encouraging persons considering unsolicited tender offers or other unilateral
takeover proposals to negotiate with the Company's Board of Directors rather
than pursue non-negotiated takeover attempts. These provisions include a
classified Board of Directors, "fair price provisions," restrictions regarding
the nomination and removal of directors, super majority voting requirements on
certain matters and authorized "blank check" preferred stock. The Company has
also adopted a stockholder rights plan (a "poison pill"). These anti-takeover
provisions could have the effect of discouraging or making more difficult a
merger, tender offer, other business combination or proxy contest, even if such
event would be favorable to the
10
<PAGE>
interests of the stockholders. See "Description of Capital Stock -- Change of
Control Provisions; -- Stockholder Rights Plan."
POSSIBLE HEALTH RISKS FROM PORTABLE CELLULAR PHONES
Lawsuits have been filed alleging a link between the non-thermal
electromagnetic field emitted by portable cellular phones and the development of
cancer. To date, there have been relatively few medical studies relating to
cellular phones and the effects of non-thermal electromagnetic fields on health,
and there are no widely accepted theories regarding how exposure to a
non-thermal electromagnetic field, such as the type emitted by a portable
cellular phone, could affect living cells or threaten health. The scientific
community is divided on whether there is any risk associated with the use of
cellular phones and the magnitude of any risk. Future medical studies could
produce findings that could have a materially adverse impact upon the cellular
phone industry and the Company.
11
<PAGE>
THE COMPANY
CellStar is a leading global provider of wireless communications products,
primarily handsets, with operations in the United States, the Asia-Pacific
region, the Latin American region and the United Kingdom. The "Asia-Pacific
Region" consists of the PRC (including Hong Kong), Singapore, Malaysia, Taiwan
and The Philippines. The "Latin American Region" consists of Mexico, Colombia,
Venezuela, Ecuador, Chile, Argentina and Brazil.
The Company distributes wireless handsets and related accessories from
leading manufacturers to network operators, agents, resellers, dealers and
retailers in the wireless communications market. The Company's distribution
services include purchasing, marketing, selling, warehousing, picking, packing,
shipping and "just-in-time" delivery of wireless handsets and accessories. In
addition, in the United States and certain other markets the Company offers its
customers value-added facilitation services, including inventory management,
product fulfillment, kitting and customized packaging, light assembly, accounts
receivable management and end-user support services.
The Company, a Delaware corporation, was formed in 1993 to hold the stock
of a company that is now an operating subsidiary. The operating subsidiary was
originally formed in 1981 to distribute and install automotive aftermarket
products. In 1984, the Company began offering wireless communications 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 similar arrangements with Motorola in the Latin American Region in
1991, the Asia-Pacific Region in 1994 and the United Kingdom in 1996.
The Company's corporate headquarters are located at 1730 Briercroft Court,
Carrollton, Texas 75006, and the Company's telephone number at such address is
(972) 466-5000.
12
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on the Nasdaq Stock Market under the
symbol "CLST." The following table sets forth, on a per share basis for the
periods indicated, the high and low sale prices for the Common Stock as reported
by the Nasdaq Stock Market. All sales prices have been adjusted to give effect
to a three-for-two stock split, which was made in the form of a stock dividend
distributed on June 17, 1997.
HIGH LOW
------- -------
FISCAL YEAR ENDED NOVEMBER 30, 1996
Quarter Ended:
February 29, 1996 . . . . . . . . . . . . . . . . $19.500 $11.583
May 31, 1996. . . . . . . . . . . . . . . . . . . $12.000 $ 3.833
August 31, 1996 . . . . . . . . . . . . . . . . . $ 6.917 $ 4.167
November 30, 1996 . . . . . . . . . . . . . . . . $ 8.500 $ 4.000
FISCAL YEAR ENDED NOVEMBER 30, 1997
Quarter Ended:
February 28, 1997 . . . . . . . . . . . . . . . . $17.666 $ 7.417
May 31, 1997. . . . . . . . . . . . . . . . . . . $24.250 $13.250
August 31, 1997 . . . . . . . . . . . . . . . . . $34.750 $22.167
November 30, 1997 . . . . . . . . . . . . . . . . $49.875 $24.625
FISCAL YEAR ENDING NOVEMBER 30, 1998
Quarter Ending:
February 28, 1998 (through February 5, 1998). . . $29.500 $18.000
On February 5, 1998, the last reported sale price for the Common Stock
as reported by the Nasdaq Stock Market was $25.063 per share. As of February 5,
1998, there were 155 holders of record of the Common Stock.
RATIO OF EARNINGS TO FIXED CHARGES
NINE MONTHS
YEAR ENDED NOVEMBER 30, ENDED AUGUST 31,
---------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
Ratio of Earnings
to Fixed Charges(1) 2.3x 8.4x 12.2x 4.7x 0.3x - 8.3x
- -----------
(1) For purposes of computing the ratio of earnings to fixed charges (i)
"earnings" consist of pre-tax earnings plus fixed charges (adjusted to exclude
the amount of any capitalized interest), and (ii) "fixed charges" consist of
interest, whether expensed or capitalized, amortization of debt issuance costs
and discount relating to any indebtedness, whether expensed or capitalized, and
the portion of rental expense (approximately one-third) estimated to be
representative of an interest factor. For the year ended November 30, 1996, and
nine months ended August 31, 1996, earnings were inadequate to cover fixed
charges by $6.9 million and $13.0 million, respectively.
13
<PAGE>
USE OF PROCEEDS
The Securities are being offered for the account of the selling
securityholders listed herein (the "Selling Securityholders".) See "Selling
Securityholders." The Company will not receive any portion of the net
proceeds from the sale of the Securities by the Selling Securityholders. See
"Plan of Distribution."
SELECTED CONSOLIDATED FINANCIAL DATA
The financial data presented below, as of and for each of the years in the
five-year period ended November 30, 1996, were derived from the Company's
audited financial statements. The financial data as of and for the nine months
ended August 31, 1996 and 1997 were derived from the Company's unaudited
financial statements for such periods. Such unaudited financial statements
includes all adjustments, consisting of normal recurring accruals, which the
Company considers necessary for a fair presentation of the financial position
and results of operations for these periods. Operating results for the nine
months ended August 31, 1997 are not necessarily indicative of the results which
may be expected for the year ending November 30, 1997. The selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and Notes thereto incorporated herein by
reference.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED NOVEMBER 30, ENDED AUGUST 31,
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE, RATIO AMOUNTS AND OPERATING DATA)
(UNAUDITED)
STATEMENTS OF OPERATIONS DATA:
Revenues:
Net product sales ............... $ 136,946 224,845 447,741 723,886 845,569 573,168 1,044,838
Activation income ............... 39,387 42,223 60,153 75,690 88,474 70,786 22,811
Residual income ................. 4,626 8,308 10,528 12,339 13,558 10,182 8,664
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues .................... 180,959 275,376 518,422 811,915 947,601 654,136 1,076,313
Cost of sales ..................... 148,490 229,796 448,780 702,074 810,000 561,711 959,900
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit ...................... 32,469 45,580 69,642 109,841 137,601 92,425 116,413
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Selling, general and
administrative expenses ....... 19,882 28,321 44,598 76,553 135,585(1) 97,872 64,190
Fees and bonus to stockholders .. 9,084 3,135 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses .......... 28,966 31,456 44,598 76,553 135,585 97,872 64,190
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) ........... 3,503 14,124 25,044 33,288 2,016 (5,447) 52,223
Other income (expense):
Interest expense ................ (1,229) (1,401) (1,016) (6,144) (8,350) (6,861) (5,514)
Other, net ...................... (406) 173 1,248 3,194 (532) (721) 2,236
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total other income (expense) ...... (1,635) (1,228) 232 (2,950) (8,882) (7,582) (3,278)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes ........................... 1,868 12,896 25,276 30,338 (6,866) (13,029) 48,945
Income taxes ...................... 1,880 5,043 9,028 7,442 (453) 1,617 12,585
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net (loss) income ................. $ (12) 7,853 16,248 22,896 (6,413) (14,646) 36,360
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) per share ....... $ -- 0.39 0.59 0.81 (0.22) (0.51) 1.20
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Weighted average number of shares
and equivalent shares outstanding(2) 20,250 20,250 27,662 28,233 28,910 28,910 30,290
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ratio of earnings to fixed
charges(3) ...................... 2.3x 8.4x 12.2x 4.7x 0.3x -- 8.3x
OPERATING DATA:
International revenues as a
percentage of total revenues .... 31.0% 22.5% 23.3%(4) 41.1%(4) 39.9% 40.9%(5) 43.1%(5)
Number of U.S. retail locations:
Stand-alone stores .............. 11 12 17 16 15 16 13
Communication Centers(6) ........ -- -- 76 347 21 356 21
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AT NOVEMBER 30, AT AUGUST 31,
---------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
(UNAUDITED)
BALANCE SHEET DATA:
Working capital................ $ 9,584 7,052 63,668 74,410 71,365 59,328 106,588
Total assets................... $ 52,762 89,894 186,354 314,921 298,551 278,964 433,105
Short-term debt................ $ 4,037 8,968 12,735 99,187 56,704 72,433 82,388
Long-term debt, less current
portion...................... $ -- -- 3,095 6,880 6,285 6,447 5,796
Notes payable to stockholders,
less current portion......... $ 13,420 7,214 -- -- -- -- --
Stockholders' (deficit) equity $ (51) 7,749 76,642 111,295 104,263 96,177 143,954
</TABLE>
(1) Includes approximately $21.8 million in provisions for bad debts that
the Company has identified as primarily associated with Brazil-related
receivables. Also includes certain expenses relating to the unprofitable
growth of the Company's Communication Centers. The Company has subsequently
reorganized its Brazilian operations and sold substantially all of its
Communication Centers.
(2) Common stock amounts have been retroactively adjusted to give effect to
a three-for-two stock split, which was made in the form of a stock dividend
distributed on June 17, 1997.
(3) For purposes of computing the ratio of earnings to fixed charges (i)
"earnings" consist of pre-tax earnings plus fixed charges (adjusted to
exclude the amount of any capitalized interest), and (ii) "fixed charges"
consist of interest, whether expensed or capitalized, amortization of debt
issuance costs and discount relating to any indebtedness, whether expensed
or capitalized, and the portion of rental expense (approximately one-third)
estimated to be representative of an interest factor. For the year ended
November 30, 1996 and nine months ended August 31, 1996, earnings were
inadequate to cover fixed charges by $6.9 million and $13.0 million,
respectively.
(4) Excludes sales to CellStar Asia, which were included in U.S. sales prior to
the Company's acquisition of the remaining 50% interest in CellStar Asia in
June 1995. If the Company's acquisition of the remaining 50% interest in
CellStar Asia in June 1995 is given pro forma effect as of December 1,
1993, international revenues as a percent of total revenues would have been
34.7% and 51.9% for fiscal 1994 and 1995, respectively.
(5) For the nine months ended August 31, 1996 and 1997, operating (loss) income
(before allocation of corporate overhead) generated by the Company's
international operations was ($2.3) million and $36.8 million,
respectively, on total operating income (before allocation of corporate
overhead) of $6.3 million and $63.2 million, respectively.
(6) On November 26, 1996, the Company sold substantially all of its
Communication Centers to MCI.
15
<PAGE>
SELLING SECURITYHOLDERS
The Registration Statement of which this Prospectus is a part has been
filed pursuant to Rule 415 under the Securities Act to afford the holders of the
Securities the opportunity to sell their Securities in public transactions
rather than pursuant to an exemption from the registration and prospectus
delivery requirements of the Securities Act.
The shares of Common Stock owned by Leap were issued to Leap in May 1997 in
a transaction exempt from the registration requirements of the Securities Act in
connection with the acquisition by the Company of 20% of CellStar Pacific PTE
LTD, a Singapore company ("CellStar Pacific").
The Notes were originally issued by the Company to the Initial
Purchasers in a transaction exempt from the registration requirements of the
Securities Act and were subsequently resold by the Initial Purchasers to
persons reasonably believed by the Initial Purchasers to be QIBs in reliance
upon Rule 144A under the Securities Act and to persons in off-shore
transactions in reliance upon Regulation S under the Securities Act.
The Selling Securityholders (which term includes their permitted
transferees, pledgees, donees and their successors) may from time to time offer
and sell pursuant to this Prospectus any or all of the Notes and the shares of
Common Stock initially issued or issuable upon conversion of the Notes or, in
the case of Leap, the 171,874 shares of Common Stock held by it.
The following table sets forth the name of each Selling Securityholder and
(i) the amount of Notes owned by each Selling Securityholder (assuming no Notes
have been sold since the date on which such securityholder provided such
information to the Company), (ii) the maximum amount of Notes which may be
offered for the account of such Selling Securityholder under this Prospectus,
(iii) the amount of Common Stock owned by each Selling Securityholder (assuming
no shares of Common Stock have been sold since the date on which such
securityholder provided such information to the Company) and (iv) the maximum
amount of Common Stock which may be offered for the account of such Selling
Securityholder under this Prospectus.
Except as set forth below, to the Company's knowledge, none of the Selling
Securityholders has, or within the past three years has had, any position,
office or other material relationship with the Company or any of its
predecessors or affiliates. The following table is based upon information
furnished to the Company by The Depository Trust Company, New York, New York and
the Selling Securityholders. The Company makes no representation as to the
accuracy of the information provided regarding beneficial ownership of Notes
or Common Stock by the Selling Securityholders, to the extent that such
beneficial ownership is not reflected in the Company's records.
16
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF COMMON
NOTES OWNED PRINCIPAL AMOUNT COMMON STOCK STOCK
NAME OF SELLING PRIOR TO OF NOTES OFFERED OWNED PRIOR OFFERED
SECURITY HOLDER(1) OFFERING HEREBY TO OFFERING(2) HEREBY(3)
- ------------------- ------------- ---------------- -------------- ---------
<S> <C> <C> <C> <C>
Leap International PTE
LTD (4) $ 0 $ 0 171,874 171,874
Aristeia Trading, L.L.C.
(5) 1,000,000 1,000,000 18,071 18,071
Arkansas PERS (6) 915,000 915,000 16,535 16,535
BancAmerica
ROBERTSON
STEPHENS 1,400,000 1,400,000 25,300 25,300
Bankers Trust
International 10,000,000 10,000,000 307,017 180,717
Bear, Stearns & Co. Inc.
(7) 12,000,000 12,000,000 216,860 216,860
Capital Markets
Transactions, Inc. (8) 5,000,000 5,000,000 90,358 90,358
Colonial Penn Life
Insurance Co. 500,000 500,000 9,035 9,035
Delaware PERS (6) 800,000 800,000 14,457 14,457
Equi-Select Growth &
Income Portfolio (9) 600,000 600,000 10,843 10,843
Fidelity Financial Trust:
Fidelity Convertible
Securities Fund (10) 11,000,000 11,000,000 198,789 198,789
Forest Fulcrum Fund
L.P. (11) 500,000 500,000 9,035 9,035
Forest Global Convert
Fund Ser A-5 (12) 500,000 500,000 9,035 9,035
Gleneagles Fund Co.
(13) 250,000 250,000 4,517 4,517
Greenspring Fund,
Incorporated (14) 1,500,000 1,500,000 27,107 27,107
Hawaiian Airlines
Employees Pension
Plan-IAM (6) 100,000 100,000 1,807 1,807
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF COMMON
NOTES OWNED PRINCIPAL AMOUNT COMMON STOCK STOCK
NAME OF SELLING PRIOR TO OF NOTES OFFERED OWNED PRIOR OFFERED
SECURITY HOLDER(1) OFFERING HEREBY TO OFFERING(2) HEREBY(3)
- ------------------- ----------- ---------------- -------------- ---------
<S> <C> <C> <C> <C>
Hawaiian Airlines
Retirement Plan for
Pilots(6) 100,000 100,000 1,807 1,807
Hawaiian Airlines
Salaried Plan (6) 20,000 20,000 361 361
HSBC Securities Inc. 1,000,000 1,000,000 18,071 18,071
ICI American Holdings
Pension (6) 320,000 320,000 5,782 5,782
KA Management, Ltd.
(15) 2,422,500 2,422,500 43,778 43,778
KA Trading, L.P. (16) 1,827,500 1,827,500 33,026 33,026
Kapiolani Medical
System (6) 150,000 150,000 2,710 2,710
McMahan Securities
Company, L.P. (17) 77,000 77,000 1,391 1,391
Merrill Lynch Pierce Fenner
& Smith Inc. 5,550,000 5,550,000 100,298 100,298
Nalco Chemical
Retirement Trust (6) 140,000 140,000 2,530 2,530
Natwest Securities
Corporation 35,325,000 35,325,000 638,384 638,384
The Northwestern
Mutual Life Insurance
Company (18) 9,500,000 9,500,000 171,681 171,681
Palladin Overseas Fund
Ltd. (19) 250,000 250,000 4,517 4,517
PRIM Board (6) 1,300,000 1,300,000 23,493 23,493
Santander Merchant
Bank Limited 2,000,000 2,000,000 36,143 36,143
Shepard Investments
International Ltd. (20) 26,075,000 26,075,000 471,220 471,220
Societe Generale Secs.
CP. 5,850,000 5,850,000 105,719 105,719
Spear, Leeds & Kellog 1,000,000 1,000,000 18,071 18,071
Stark International (21) 3,750,000 3,750,000 67,769 67,769
Starvest Discretionary
(6) 300,000 300,000 5,421 5,421
State of Oregon Equity
(6) 3,195,000 3,195,000 57,739 57,739
18
<PAGE>
PRINCIPAL
AMOUNT OF COMMON
NOTES OWNED PRINCIPAL AMOUNT COMMON STOCK STOCK
NAME OF SELLING PRIOR TO OF NOTES OFFERED OWNED PRIOR OFFERED
SECURITY HOLDER(1) OFFERING HEREBY TO OFFERING(2) HEREBY(3)
- ------------------- ------------- ---------------- -------------- ---------
<S> <C> <C> <C> <C>
State of Oregon/SAIF
Corporation (6) 2,825,000 2,825,000 51,052 51,052
ZENECA Holdings
Pension Trust (6) 320,000 320,000 5,782 5,782
----------- ----------- ----------- ---------
SUBTOTAL 149,362,000 149,362,000 2,997,385 2,871,085
----------- ----------- ----------- ---------
Unnamed Holders of
Notes or any future
transferees, pledges,
donees or successors
of or from any such
unnamed Holder (22) 638,000 638,000 11,550(23) 11,550
----------- ----------- ----------- ---------
TOTAL $150,000,000 $150,000,000 3,008,935 2,882,635
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
- ------------------------
(1) The information set forth herein is as of (a) November 10, 1997 for
BancAmerica ROBERTSON STEPHENS; (b) November 17, 1997 for each of Forest
Fulcrum Fund L.P., and Forest Global Convert Fund Ser A-5;
(c) November 21, 1997 for each of Arkansas PERS, ICI American Holdings
Pension, ZENECA Holdings Pension Trust, Delaware PERS, PRIM Board, State
of Oregon/SAIF Corporation and Nalco Chemical Retirement Trust;
(d) November 24, 1997 for Leap International PTE LTD; (e) December 2,
1997 for each of Shepard Investments International Ltd. and Stark
International; (f) December 5, 1997 for each of Santander Merchant
Bank Limited, Gleneagles Fund Co., Colonial Penn Life Insurance
Company and Palladin Overseas Fund Ltd.; (g) December 11, 1997 for
each of Bankers Trust International and HSBC Securities Inc.; (h)
December 12, 1997 for each of Bear, Stearns & Co. Inc., Equi-Select
Growth & Income Portfolio, Natwest Securities Corporation and McMahan
Securities Company, L.P.; (i) December 15, 1997 for Societe Generale
Secs. CP.; (j) December 17, 1997 for each of KA Management, Ltd and
KA Trading, L.P.; (k) January 12, 1998 for Spear, Leeds & Kellog;
(l) January 13, 1998 for each of State of Oregon Equity, Starvest
Discretionary, Kapiolani Medical System, Hawaiian Airlines Employees
Pension Plan - IAM, Hawaiian Airlines Retirement Plan for Pilots and
Hawaiian Airlines Salaried Plan; (m) January 16, 1998 for Aristeia
Trading, L.L.C.; (n) January 23, 1998 for Merrill Lynch Pierce Fenner
& Smith, Inc.; (o) January 28, 1998 for Greenspring Fund,
Incorporated; (p) January 29, 1998 for The Northwestern Mutual Life
Insurance Company; (q) February 4, 1998 for Fidelity Financial Trust:
Fidelity Convertible Securities Fund; and (r) February 6, 1998 for
Capital Markets Transactions, Inc.
(2) Includes the shares of Common Stock into which the Notes held by such
Selling Securityholder are convertible at the initial conversion price.
The conversion price and the number of shares of Common Stock issuable
upon conversion of the Notes are subject to adjustment under certain
circumstances. See "Description of Notes -- Conversion of Notes."
Accordingly, the number of shares of Common Stock issuable upon
conversion of the Notes may increase or decrease from time to time.
(3) Assumes conversion into Common Stock of the full amount of Notes held by
the Selling Securityholder at the initial conversion price and the
offering of such shares by such Selling Securityholder pursuant to the
Registration Statement of which this Prospectus forms a part. The
conversion price and the number of shares of Common Stock issuable upon
conversion of the Notes is subject to adjustment under certain
circumstances. See "Description of Notes -- Conversion of Notes."
Accordingly, the number of shares of Common Stock issuable upon
conversion of the Notes may increase or decrease from time to time.
Fractional shares will not be issued upon conversion of the Notes;
rather, cash will be paid in lieu of fractional shares, if any.
19
<PAGE>
(4) On February 1, 1995, the Company entered into a joint venture agreement
with Leap and Mr. A.S. Horng, an officer of the Company. Under the terms
of the joint venture agreement, the parties formed CellStar Pacific,
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. Mr. Horng's
5% interest in CellStar Pacific was purchased by the Company in fiscal
1995. In May 1997, the Company acquired the remaining 20% of CellStar
Pacific from Leap for 171,874 shares of the Company's Common Stock,
valued at $2.7 million, and $0.5 million in cash and granted Leap the
right to include such shares in certain registration statements filed by
the Company in connection with offerings of the Company's securities.
Leap's shares of Common Stock are included in this Registration Statement
pursuant to such registration rights.
(5) Aristeia Capital is the management company for Aristeia Trading, L.L.C.,
and has the power to vote and dispose of such securities.
(6) Froley, Revy Investment Co. Inc. is an investment manager for such entity
and has the power to vote and dispose of such securities.
(7) Bear, Stearns & Co. Inc. was an Initial Purchaser in the private
placement of the Notes. Mr. Sheldon I. Stein, a member of the Board of
Directors of the Company, is a Senior Managing Director of Bear, Stearns
& Co. Inc. Bear, Stearns & Co. Inc. has provided investment banking
services to the Company in the past year, and it is anticipated that it
will continue to provide such services in the current year.
(8) Capital Markets Transactions, Inc. is an affiliate of Chase Securities
Inc. Chase Securities Inc. was an Initial Purchaser in the private
placement of the Notes.
(9) Robertson Stephens & Company Investment Management, L.P. is the
investment advisor to Equi-Select Growth & Income Portfolio and has the
power to vote and dispose of such securities.
(10) Fidelity Management & Research Company ("FMR Co.") has advised the
Company as follows:
The entity is either an investment company or a portfolio of an
investment company registered under Section 8 of the Investment Company
Act of 1940, as amended, or a private investment account advised by FMR
Co. FMR Co. is a Massachusetts corporation and an investment advisor
registered under Section 203 of the Investment Advisers Act of 1940, as
amended, and provides investment advisory services to each of such
Fidelity entities identified above, and to other registered investment
companies and to certain other funds which are generally offered to a
limited group of investors. FMR Co. is a wholly-owned subsidiary of FMR
Corp., a Massachusetts corporation.
(11) Forest Investment Management, L.P., the investment advisor to Forest
Fulcrum Fund L.P., and Founders Financial Group, L.P., the general partner
of Forest Investment Management, L.P., have the power to vote and dispose
of such securities.
(12) Forest Management Co. Ltd., the investment advisor to Forest Global
Convet Fund Ser A-5, Forest Investment Management, L.P., the sole
shareholder of Forest Management Co., Ltd., and Forest Financial Group,
L.P., the general partner of Forest Investment Management, L.P., have the
power to vote and dispose of such securities.
(13) The Palladin Group L.P., the investment manager for Gleneagles Fund Co.,
and Palladin Capital Management, L.L.C., the general partner of The
Palladin Group L.P., have the power to vote and dispose of such
securities.
(14) Key Equity Management, the investment advisor to Greenspring Fund,
Incorporated, and Corbyn Investment Management, Inc., the parent
company of Key Equity Management, have the power to vote and dispose
of such securities.
(15) Tarmachan Capital Co. is the investment advisor to KA Management, Ltd.
and has the power to vote and dispose of such securities.
(16) Tarmachan Capital Management, Inc. is the general partner of KA Trading,
L.P. and has the power to vote and dispose of such securities.
(17) Bruce McMahan is the general partner of McMahan Securities Company,
L.P., and has the power to vote and dispose of such securities.
(18) The Northwestern Mutual Life Insurance Company has advised the Company as
follows:
The amount shown includes $500,000 in principal amount of Notes held
in The Northwestern Mutual Life Insurance Company Group Annuity
Separate Account. In the ordinary course of business, Northwestern Mutual
Investment Services, Inc., Robert W. Baird & Co. Incorporated, Baird/Mark
Capital Group, and MGIC Mortgage Securities Corporation, each of which is
a broker-dealer and affiliated with The Northwestern Mutual Life Insurance
Company, may, from time to time, have acquired or disposed of, or may in
the future acquire or dispose of, securities of the Company or its
affiliates, for such broker-dealers' own accounts or for the accounts of
others. Other affiliates of The Northwestern Mutual Life Insurance
Company may, in the ordinary course of business, effect transactions in
the securities of the Company or its affiliates. Only security holdings
of The Northwestern Mutual Life Insurance Company are reflected in the
chart above. The Northwestern Mutual Life Insurance Company has, within
the last three years, held the Company's Common Stock, but does not
currently hold any such securities. The Northwestern Mutual Life
Insurance Company and its affiliates may, in the ordinary course of
business, take part in transactions involving the real property of the
Company or its affiliates. In disclosing the foregoing information, The
Northwestern Mutual Life Insurance Company does not concede that such
information necessarily constitutes material relationships under Item 507
of Regulation S-K under the Securities Act.
20
<PAGE>
(19) The Palladin Group L.P., the investment manager for Palladin Overseas
Fund Ltd., and Palladin Capital Management, L.L.C., the general partner
of The Palladin Group L.P., have the power to vote and dispose of such
securities.
(20) Staro Asset Management, L.L.C. is the investment manager for Shepard
Investments International Ltd. and has the power to vote and dispose of
such securities.
(21) Staro Asset Management, L.L.C. is the general partner of Stark
International and has the power to vote and dispose of such securities.
(22) No such Holder may offer Securities pursuant to the Registration
Statement of which this Prospectus forms a part until such Holder is
included as a Selling Securityholder in a supplement to this Prospectus.
(23) Assumes that the unnamed Holders of Notes or any future transferees,
pledgees, donees or successors of or from any such unnamed Holder do not
beneficially own any Common Stock other than the Common Stock issuable
upon conversion of the Notes at the initial conversion price.
21
<PAGE>
Because the Selling Securityholders may, pursuant to this Prospectus,
offer all or some portion of the Notes or Common Stock they presently hold, no
estimate can be given as to the amount of the Notes or Common Stock that will be
held by the Selling Securityholders upon termination of any such sales. In
addition, the Selling Securityholders identified above may have sold,
transferred or otherwise disposed of all or a portion of their Notes or Common
Stock since the date on which they provided the information regarding their
Notes and Common Stock in transactions exempt from the registration requirements
of the Securities Act. See "Plan of Distribution."
Only Selling Securityholders identified above who beneficially own the
Notes or Common Stock set forth opposite each such Selling Securityholder's name
in the foregoing table on the effective date of the Registration Statement of
which this Prospectus forms a part may sell such Notes pursuant to
22
<PAGE>
this Prospectus. The Company may from time to time include additional Selling
Securityholders in supplements to this Prospectus.
Holders of Securities who wish to register their Securities must
complete a questionnaire to provide certain information for inclusion in the
Registration Statement of which the Prospectus is a part and return the
completed questionnaire to the Company by the close of business on the date
specified in the questionnaire. The form of questionnaire can be obtained from
the Company. Holders will be named in the Registration Statement either as
originally filed or by amendment, upon their returning the questionnaire to the
Company. The Company will be required, to the extent it receives questionnaires
from Holders after initial effectiveness of the Registration Statement, to file
supplemental prospectuses within 20 business days of receiving such completed
questionnaires, unless the Company receives completed questionnaires from
Holders holding at least $1.0 million principal amount of Notes, in which case
supplemental prospectuses will be filed within 10 business days of receiving
such information. Until such time, Holders failing to submit a questionnaire
will not be permitted to sell or otherwise transfer the Notes held or Common
Stock issued upon conversion of the Notes held except in accordance with the
provisions set forth under "Transfer Restrictions."
23
<PAGE>
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds of the sale of the
Securities offered hereby. The Securities may be sold from time to time to
purchasers directly by the Selling Securityholders. Alternatively, the Selling
Securityholders may from time to time offer the Securities through brokers,
dealers or agents who may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers of the Securities for whom they may act as agent. The Selling
Securityholders and any such brokers, dealers or agents who participate in the
distribution of the Securities may be deemed to be "underwriters," and any
profits on the sale of the Securities by them and any discounts, commissions or
concessions received by any such brokers, dealers or agents might be deemed to
be underwriting discounts and commissions under the Securities Act. To the
extent the Selling Securityholders may be deemed to be underwriters, the Selling
Securityholders may be subject to certain statutory liabilities of the
Securities Act, including, but not limited to, Sections 11, 12 and 17 of the
Securities Act and Rule 10b-5 under the Exchange Act.
The Securities offered hereby may be sold from time to time by the Selling
Securityholders, or, to the extent permitted, by pledgees, donees, transferees
or other successors in interest. The Securities may be disposed of from time to
time in one or more transactions through any one or more of the following: (i)
the purchasers directly, (ii) in ordinary brokerage transactions and
transactions in which the broker solicits purchasers, (iii) through underwriters
or dealers who may receive compensation in the form of underwriting discounts,
concessions, or commissions from the Selling Securityholders or such successors
in interest and/or from the purchasers of the Securities for whom they may act
as agent, (iv) the writing of options on the Securities, (v) the pledge of the
Securities as security for any loan or obligation, including pledges to brokers
or dealers who may, from time to time, themselves effect distributions of the
Securities or interests therein, (vi) purchases by a broker or dealer as
principal and resale by such broker or dealer for its own account, (vii) a block
trade in which the broker or dealer so engaged will attempt to sell the
Securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction and (viii) an exchange distribution in
accordance with the rules of such exchange or transactions in the over the
counter market. Such sales may be made at prices and at terms then prevailing or
at prices related to the then current market price or at negotiated prices and
terms. In effecting sales, brokers or dealers may arrange for other brokers or
dealers to participate. The Selling Securityholders or such successors in
interest, and any underwriters, brokers, dealers or agents that participate in
the distribution of the Securities, may be deemed to be "underwriters" within
the meaning of the Securities Act, and any profit on the sale of the Securities
by them and any discounts, commissions or concessions received by any such
underwriters, brokers, dealers or agents may be deemed to be underwriting
commissions or discounts under the Securities Act. At any time a particular
offer of the Securities is made, a revised Prospectus or Prospectus Supplement,
if required, will be distributed that will, to the extent required, set forth
the aggregate amount and type of Securities being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agents,
any discounts, commissions and other items constituting compensation from the
Selling Securityholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers. Such Prospectus Supplement and, if necessary, a
post-effective amendment to the Registration Statement of which this Prospectus
is a part, will be filed with the Commission to reflect the disclosure of
additional information with respect to the distribution of the Securities. In
addition, the Securities covered by this Prospectus may be sold in private
transactions or under Rule 144 rather than pursuant to this Prospectus.
To the best knowledge of the Company, there are currently no plans,
arrangements or understandings between any Selling Securityholders and any
broker, dealer, agent or underwriter regarding the sale of the Securities by the
Selling Securityholders. There is no assurance that any Selling Securityholder
will sell any or all of the Securities offered by it hereunder or that any such
24
<PAGE>
Selling Securityholder will not transfer, devise or gift such Securities by
other means not described herein.
The Selling Securityholders and other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M, which may limit the timing of purchases and sales of any of the Securities by
the Selling Securityholders and any other such person. Furthermore, under
Regulation M under the Exchange Act, any person engaged in the distribution of
the Securities may not simultaneously engage in market-making activities with
respect to the particular Securities being distributed for certain periods prior
to the commencement of such distribution. All of the foregoing may affect the
marketability of the Securities and the ability of any person or entity to
engage in market-making activities with respect to the Securities.
Pursuant to the Registration Rights Agreement entered into in connection
with the offer and sale of the Notes by the Company, each of the Company and the
Selling Securityholders (except for Leap) will be indemnified by the other
against certain liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection therewith.
The Company has agreed to pay substantially all of the expenses incidental
to the registration, offering and sale of the Securities to the public other
than commissions, fees and discounts of underwriters, brokers, dealers and
agents, if any.
25
<PAGE>
DESCRIPTION OF NOTES
The Notes were issued under the Indenture between the Company and The Bank
of New York, as trustee (the "Trustee"). A copy of the form of Indenture is
available from the Company upon request. The terms of the Indenture are governed
by certain provisions contained in the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). The following summaries of certain provisions of
the Notes and the Indenture do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all the provisions of the
Notes and the Indenture, including the definitions therein of certain terms that
are not otherwise defined in this Prospectus and those terms made a part of the
Indenture by reference to the Trust Indenture Act as in effect on the date of
the Indenture. Wherever particular provisions or defined terms of the Indenture
(or of the form of Notes that is a part thereof) are referred to, such
provisions or defined terms are incorporated herein by reference in their
entirety. As used in this "Description of Notes," the "Company" refers to
CellStar Corporation and does not, unless the context otherwise indicates,
include its subsidiaries.
GENERAL
The Notes are general, unsecured subordinated obligations of the Company
and are convertible into Common Stock as described below under the subheading
"Conversion of Notes." The Notes are limited to $150,000,000 aggregate principal
amount, were issued in fully registered form only in denominations of $1,000 in
principal amount or any multiple thereof and mature on October 15, 2002, unless
earlier redeemed at the option of the Company or repurchased at the option of
the Holder upon a Change of Control.
The Indenture does not contain any financial covenants or any restrictions
on the payment of dividends, the repurchase of securities of the Company or the
incurrence of debt by the Company or any of its subsidiaries.
The Notes bear interest from October 14, 1997, at an annual rate of 5%,
payable semi-annually on each April 15 and October 15, commencing April 15,
1998, to Holders of record at the close of business on the preceding April 1 and
October 1, respectively. Interest is computed on the basis of a 360-day year
composed of twelve 30-day months.
Principal will be payable, and Notes held in certificated form may be
presented for conversion, registration of transfer and exchange, without service
charge, at the office of the Trustee in New York, New York. Reference is made to
the information set forth below under the subheading "-- Form, Denomination and
Registration" for information as to the Notes held as beneficial interests in
one or more global notes.
FORM, DENOMINATION AND REGISTRATION
The Notes were issued in fully registered form, without coupons, in
denominations of $1,000 and integral multiples thereof.
GLOBAL NOTES; BOOK ENTRY FORM. Notes initially held by QIBs were evidenced
initially by a global note deposited with, or on behalf of, The Depository Trust
Company ("DTC"), and registered in the name of Cede & Co. ("Cede") as the
nominee of DTC. Notes initially sold to persons in offshore transactions (each,
a "Non-U.S. Person") in compliance with Regulation S were evidenced initially by
a global note deposited with, or on behalf of, DTC and registered in the name of
Cede as the nominee of DTC for the accounts of Euroclear and Cedel Bank. Notes
sold to Institutional Accredited Investors were evidenced initially by a global
note deposited with, or on behalf of, DTC and registered in the name of Cede as
the nominee of DTC.
26
<PAGE>
A purchaser (a "Public Holder") of Notes pursuant to this Prospectus will
receive a beneficial interest in an unrestricted global note (the "Public Global
Note") which will be deposited with, or on behalf of, DTC and registered in the
name of Cede, as the nominee of DTC. Except as set forth below, the record
ownership of the Public Global Note may be transferred in whole or in part, only
to another nominee of DTC or to a successor of DTC or its nominee.
A Public Holder may hold its interest in the Public Global Note directly
through DTC if such holders are participants in DTC or indirectly through
organizations that are participants in DTC (the "Participants"). Holders who are
not Participants may beneficially own interests in the Public Global Note held
by DTC only through Participants or certain banks, brokers, dealers, trust
companies and other parties that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants"). So long as Cede, as the nominee of DTC, is the registered owner
of the Public Global Note, Cede for all purposes will be considered the sole
holder of the Public Global Note. Owners of beneficial interests in the Public
Global Note will be entitled to have certificates registered in their names and
to receive physical delivery of certificates in definitive form (a "Definitive
Note").
Payment of interest on and the redemption and repurchase price of the
Public Global Note will be made to Cede, the nominee for DTC, as registered
owner of the Public Global Note, by wire transfer of immediately available funds
on each interest payment date, each redemption date and each repurchase date, as
applicable. None of the Company, the Trustee or any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Public Global
Note or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. Payment of interest on and the redemption and
repurchase price of the Definitive Notes will be paid by check mailed to such
holders entitled thereto on each interest payment date, each redemption date and
each repurchase date, as applicable.
The Company has been informed by DTC that, with respect to any payment of
interest on, or the redemption or repurchase price of, the Public Global Note,
DTC's practice is to credit Participants' accounts on the payment date,
redemption date or repurchase date, as applicable therefor, with payments in
amounts proportionate to their respective beneficial interests in the principal
amount represented by the Public Global Note as shown on the records of DTC,
unless DTC has reason to believe that it will not receive payment on such
payment date. Payments by Participants to owners of beneficial interests in the
principal amount represented by the Public Global Note held through such
Participants will be the responsibility of such Participants, as is now the case
with securities held for the accounts of customers registered in "street name."
Transfers between Participants will be effected in the ordinary way in
accordance with DTC rules and will be settled in immediately available funds.
The laws of some states require that certain persons take physical delivery of
securities in definitive form. Consequently, the ability to transfer beneficial
interests in the Global Notes to such persons may be limited. Because DTC can
only act on behalf of Participants, who in turn act on behalf of Indirect
Participants and certain banks, the ability of a person having a beneficial
interest in the principal amount represented by the Public Global Note to pledge
such interest to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing such interest.
Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) will have responsibility for the
performance of DTC, or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised the Company that it will take any action permitted
to be taken by a Public Holder of Notes (including, without limitation, the
presentation of Notes for exchange as
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described below) only at the direction of one or more Participants to whose
account with DTC interests in the Public Global Note are credited, and only in
respect of the principal amount of the Notes represented by the Public Global
Note as to which such Participant or Participants has or have given such
direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes to accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Certain of such Participants (or their
representatives), together with other entities, own DTC. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through, or maintain a custodial relationship with, a
Participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Public Global Note among Participants, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days, the Company will cause the Notes to be issued in
definitive form in exchange for the Public Global Note.
DEFINITIVE NOTES. Notes sold to investors that so request will be issued in
the form of a Definitive Note and such interest in the Notes will not be
represented by the Public Global Note. Furthermore, Definitive Notes may be
issued in exchange for Notes represented by the Public Global Note if no
successor depositary is appointed by the Company as set forth above.
CONVERSION OF NOTES
The Holders of Notes will be entitled at any time after December 13, 1997
through the close of business October 11, 2002, subject to prior redemption or
repurchase, to convert any Notes or portions thereof (in denominations of $1,000
in principal amount or integral multiples thereof) into Common Stock at a
conversion price of $55.335 per share, subject to adjustment as described below;
provided that in the case of Notes called for redemption, conversion rights will
expire immediately prior to the close of business on the last business day
before the date fixed for redemption, unless the Company defaults in payment of
the redemption price. A Note (or portion thereof) in respect of which a Holder
is exercising its option to require repurchase upon a Change of Control may be
converted only if such Holder withdraws its election to exercise such repurchase
option in accordance with the terms of the Indenture.
Except as described below, no adjustment will be made on conversion of any
Notes for interest accrued thereon or for dividends paid on any Common Stock
issued. Holders of Notes at the close of business on a record date will be
entitled to receive the interest payable on such Note on the corresponding
interest payment date. However, Notes surrendered for conversion after the close
of business on a record date, and before the opening of business on the
corresponding interest payment date must be accompanied by funds equal to the
interest payable on such succeeding interest payment date on the principal
amount so converted (unless such Note is subject to redemption on a redemption
date between such record date and the close of business on the corresponding
interest payment date). The interest payment with respect to a Note called for
redemption on a date during the period from the close of business on or after
any record date to the close of business on the business day following
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the corresponding interest payment date will be payable on the corresponding
interest payment date to the registered Holder at the close of business on that
record date (notwithstanding the conversion of such Note before the close of
business on the corresponding interest payment date) and a Holder of Notes who
elects to convert need not include funds equal to the interest to be paid. The
Company is not required to issue fractional shares of Common Stock upon
conversion of Notes and, in lieu thereof, will pay a cash adjustment based upon
the closing price of the Common Stock on the last business day prior to the date
of conversion.
The conversion price is subject to adjustment (under formulae set forth in
the Indenture) upon the occurrence of certain events, including: (i) the
issuance of Common Stock as a dividend or distribution on the outstanding Common
Stock, (ii) the issuance to all holders of Common Stock of certain rights,
options or warrants entitling them (for a period expiring within 45 days after
the date fixed for determination of stockholders entitled to receive such
rights, options or warrants) to purchase Common Stock at less than the current
market price, (iii) certain subdivisions, combinations and reclassifications of
Common Stock, (iv) distributions to all holders of Common Stock of capital stock
of the Company (other than Common Stock) or evidences of indebtedness of the
Company or assets (including securities, but excluding those dividends, rights,
options, warrants and distributions referred to in clauses (i) and (ii) above
and dividends and distributions in connection with the liquidation, dissolution
or winding up of the Company and dividends and distributions paid exclusively in
cash), (v) distributions consisting exclusively of cash (excluding any cash
portion of distributions referred to in clause (iv) or in connection with a
consolidation, merger or sale of assets of the Company as referred to in clause
(ii) of the second paragraph below) to all holders of Common Stock in an
aggregate amount that, together with (x) all other all-cash distributions made
within the preceding 12 months in respect of which no adjustment has been made
and (y) any cash and the fair market value of other consideration payable in
respect of any tender offers by the Company or any of its subsidiaries for
Common Stock concluded within the preceding 12 months in respect of which no
adjustment has been made, exceeds 20% of the Company's market capitalization
(being the product of the then current market price of the Common Stock times
the number of shares of Common Stock then outstanding) on the record date for
such distribution and (vi) the purchase of Common Stock pursuant to a tender
offer made by the Company or any of its subsidiaries which involves an aggregate
consideration that, together with (x) any cash and the fair market value of any
other consideration payable in any other tender offer by the Company or any of
its subsidiaries for Common Stock expiring within the 12 months preceding such
tender offer in respect of which no adjustment has been made and (y) the
aggregate amount of any all-cash distributions referred to in clause (v) above
to all holders of Common Stock within the 12 months preceding the expiration of
such tender offer in respect of which no adjustments have been made, exceeds 20%
of the Company's market capitalization on the expiration of such tender offer.
No adjustment in the conversion price will be required unless such adjustment
would require a change of at least 1% in the conversion price then in effect;
provided that any adjustment that would otherwise be required to be made shall
be carried forward and taken into account in any subsequent adjustment.
No adjustment will be made pursuant to clause (iv) of the preceding
paragraph if the Company makes proper provision for each Holder of Notes who
converts a Note to receive, in addition to the Common Stock issuable upon such
conversion, the kind and amount of assets (including securities) if such Holder
had been a holder of the Common Stock at the time of the distribution of such
assets or securities. Rights, options or warrants distributed by the Company to
all holders of the Common Stock that entitle the holders thereof to purchase
shares of the Company's capital stock and that, until the occurrence of an event
(a "Triggering Event"), (i) are deemed to be transferred with the Common Stock,
(ii) are not exercisable and (iii) are also issued in respect of future
issuances of Common Stock, shall not be deemed to be distributed until the
occurrence of the Triggering Event.
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In the case of (i) any reclassification or change of the Common Stock
(other than changes in par value or from par value to no par value or resulting
from a subdivision or a combination) or (ii) a consolidation or merger involving
the Company or a sale or conveyance to another corporation of the property and
assets of the Company as an entirety or substantially as an entirety (determined
on a consolidated basis), in each case as a result of which holders of Common
Stock shall be entitled to receive stock, other securities, other property or
assets (including cash) with respect to or in exchange for such Common Stock,
the Holders of the Notes then outstanding will be entitled thereafter to convert
such Notes into the kind and amount of shares of stock, other securities or
other property or assets that they would have owned or been entitled to receive
upon such reclassification, change, consolidation, merger, sale or conveyance
had such Notes been converted into Common Stock immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance, after
giving effect to any adjustment event, assuming that a Holder of Notes would not
have exercised any rights of election as to the stock, other securities or other
property or assets receivable in connection therewith and received per share the
kind and amount received per share by a plurality of non-electing shareholders.
In the event of a taxable distribution to holders of Common Stock (or other
transaction) that results in any adjustment of the conversion price, the Holders
of Notes may, in certain circumstances, be deemed to have received a
distribution subject to the U.S. income tax as a dividend; in certain other
circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain U.S. Federal Income Tax
Considerations -- U.S. Holders -- Adjustments to Conversion Price."
The Company from time to time may, to the extent permitted by law, reduce
the conversion price by any amount for any period of at least 20 days, in which
case the Company shall give at least 15 days' notice of such decrease, if the
Board of Directors has made a determination that such decrease would be in the
best interests of the Company, which determination shall be conclusive. The
Company may, at its option, make such reductions in the conversion price, in
addition to those set forth above, as the Company deems advisable to avoid or
diminish any income tax to its stockholders resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes. See "Certain U.S. Federal Income Tax
Considerations."
SUBORDINATION
The payment of all Obligations is, to the extent set forth in the
Indenture, subordinated in right of payment to the prior payment in full, in
cash or cash equivalents, of all Senior Indebtedness. Upon any distribution to
creditors of the Company in a liquidation or dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
related to the Company or its property, in an assignment for the benefit of
creditors or any marshalling of the Company's assets and liabilities, the
holders of all Senior Indebtedness will first be entitled to receive payment in
full, in cash or cash equivalents, of all amounts due or to become due thereon
before the Holders of the Notes will be entitled to receive any payment or
distribution of any kind or character, whether in cash, cash equivalents,
property, or securities, on or in respect of the Obligations, or for the
acquisition of any of the Notes for cash, cash equivalents, property or
securities; and until all such amounts due or to become due with respect to all
Senior Indebtedness are first paid in full, in cash or cash equivalents, any
payment or distribution to which the Holders of the Notes would be entitled but
for the subordination provisions of the Indenture will be made to the holders of
Senior Indebtedness as their interests may appear.
The Company also may not make any payment upon or in respect of the Notes
or to acquire any of the Notes for cash, cash equivalents, property, securities
or otherwise if (a) a default in the payment of any obligations (a "Payment
Default") on Senior Indebtedness occurs and is continuing
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beyond any applicable period of grace or (b) any default occurs and is
continuing with respect to any Senior Indebtedness resulting in the acceleration
of maturity of all or any portion of such Senior Indebtedness. In addition, no
payment on any of the Obligations shall be made if, and the Company shall not
acquire any Notes while, any other default (a "non-payment default") occurs and
is continuing (or would occur upon any payment or distribution with respect to
the Obligations) with respect to Senior Indebtedness that permits holders of the
Senior Indebtedness as to which such default relates to accelerate its maturity
and the Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Bank Representative or the representative or representatives of holders
of at least a majority in principal amount of Senior Indebtedness then
outstanding. Payments on the Notes may and shall be resumed (i) in the case of a
Payment Default, upon the date on which such default is cured or waived, or (ii)
in the case of a non-payment default, 179 days after the date on which the
applicable Payment Blockage Notice is received (or sooner, if such default is
cured or waived), unless the maturity of any Senior Indebtedness has been
accelerated. No new period of payment blockage may be commenced by a creditor
within 360 days after the receipt by the Trustee of any prior Payment Blockage
Notice by or on behalf of such creditor. No non-payment default that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice, unless such non-payment default shall have been cured or waived for a
period of not less than 90 consecutive days.
"Bank Representative" means the agent or representative in respect of the
Designated Senior Indebtedness; provided that if, and for so long as, the
Designated Senior Indebtedness lacks such a representative, then the Bank
Representative for the Designated Senior Indebtedness shall at all times
constitute the holders of a majority in outstanding principal amount of the
Designated Senior Indebtedness.
"Designated Senior Indebtedness" means Senior Indebtedness under or in
respect of the Company's Revolving Credit Facility as the same and related
documents have been or may be amended, modified, renewed, extended, supplemented
or restated from time to time, in whole or in part (and without limitation as to
amount, terms, conditions, covenants and other provisions) and any agreements
hereafter entered into in renewal, extension, supplement, restatement,
replacement or other modification thereof, whether the Company is a borrower or
guarantor thereunder and whether with any other agent, lender or group of
lenders.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, expenses, damages and other
liabilities payable under, or with respect to, the Notes or the Indenture, or
both.
"Senior Indebtedness" means the principal of, premium, if any, interest
(including post-petition interest) on, and any other obligation or liability in
respect of, and any fees, costs, expenses and any other amounts (including
indemnity payments) related to the following, whether outstanding on the date of
the Indenture or thereafter incurred, assumed, arising, guaranteed, issued, or
created: (a) indebtedness, matured or unmatured, whether or not contingent, of
the Company for money borrowed evidenced by notes or other written obligations,
(b) any foreign exchange contract, option, hedge, interest rate contract,
interest rate swap agreement or other similar agreement or arrangement designed
to protect the Company or any of its subsidiaries against fluctuations in
currency or interest rates, (c) indebtedness, matured or unmatured, whether or
not contingent, of the Company evidenced by notes, debentures, bonds or similar
instruments, letters of credit or bankers' acceptances (or reimbursement
agreements in respect thereof), (d) obligations of the Company as lessee under
capitalized leases and under leases of property made as part of any sale and
leaseback transactions, (e) the Designated Senior Indebtedness, (f) indebtedness
of others of any of the kinds described in the preceding clauses (a) through (e)
assumed or guaranteed by the Company and (g) renewals, extensions,
modifications, amendments, replacements, substitutions, and refinancings of, and
indebtedness and
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obligations of a successor person issued in exchange for or in replacement of,
indebtedness or obligations of the kinds described in the preceding clauses (a)
through (f), unless the agreement pursuant to which any such indebtedness
described in clauses (a) through (g) is created, issued, assumed or guaranteed
expressly provides that such indebtedness is not senior or superior in right of
payment to the Notes; provided, however, that the following shall not constitute
Senior Indebtedness: (i) any indebtedness or obligation of the Company in
respect of the Notes; (ii) any indebtedness of the Company to any of its
subsidiaries or other affiliates; (iii) any indebtedness that is subordinated or
junior in any respect to any other indebtedness of the Company other than
indebtedness described in clauses (a) through (g) above; and (iv) any
indebtedness incurred for the purchase of goods or materials in the ordinary
course of business.
In the event that the Trustee (or paying agent if other than the Trustee)
or any Holder receives any payment or distribution with respect to the
Obligations at a time when such payment or distribution is prohibited under the
Indenture, such payment or distribution shall be held in trust for the benefit
of, and shall be paid over and delivered to, the holders of Senior Indebtedness
or their representative as their respective interests may appear. After all
Senior Indebtedness is first paid in full, in cash or cash equivalents, and
until the Notes are paid in full, Holders shall be subrogated (equally and
ratably with all other Indebtedness pari passu with the Notes) to the rights of
holders of Senior Indebtedness to receive distributions applicable to Senior
Indebtedness to the extent that distributions otherwise payable to the Holders
have been applied to the payment of Senior Indebtedness.
At October 31, 1997, the Company had no Senior Indebtedness outstanding,
although the Company's subsidiaries had approximately $121.9 million of trade
payables outstanding. The Revolving Credit Facility provides for maximum
borrowings of $135.0 million, subject to an asset coverage test. At October 31,
1997, the Company had available all of the $135.0 million borrowing capacity.
The Indenture does not limit the amount of additional indebtedness that the
Company or its subsidiaries can create, incur, assume or guarantee.
Because of these subordination provisions, in the event of a liquidation or
insolvency of the Company or any of its subsidiaries, Holders of Notes may
recover less, ratably, than the holders of Senior Indebtedness.
No provision contained in the Indenture or the Notes will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, and interest on the Notes. The subordination
provisions of the Indenture and the Notes will not prevent the occurrence of any
Default or Event of Default under the Indenture or limit the rights of the
Trustee or any other holder, subject to the provisions of this subsection
entitled "Subordination," to pursue any other rights or remedies with respect to
the Notes.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not redeemable at the option of the Company prior to October
18, 2000. At any time on or after that date, the Notes may be redeemed at the
Company's option on at least 30 but not more than 60 days' notice, in whole at
any time or in part from time to time, at the following prices (expressed in
percentages of the principal amount), together with accrued interest to the date
fixed for redemption if redeemed after:
DATE REDEMPTION PRICE
---------------- ----------------
October 18, 2000. . . . . . . . . . . . . . . . . 102.0%
October 15, 2001 . . . . . . . . . . . . . . . . . 101.0%
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If fewer than all the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed in principal amounts of $1,000 or integral multiples
thereof by lot or, in its discretion, on a pro rata basis. If any Note is to be
redeemed in part only, a new Note or Notes in principal amount equal to the
unredeemed principal portion thereof will be issued. If a portion of a Holder's
Notes is selected for partial redemption and such Holder converts a portion of
such Notes, such converted portion shall be deemed to be taken from the portion
selected for redemption. No sinking fund is provided for the Notes.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes shall have
the right to require that the Company repurchase such Holder's Notes in whole or
in part in integral multiples of $1,000, at a purchase price in cash in an
amount equal to 101% of the principal amount thereof, together with accrued and
unpaid interest to the date of purchase, pursuant to an offer (the "Change of
Control Offer") made in accordance with the procedures described below and the
other provisions of the Indenture.
A "Change of Control" means an event or series of events in which (i) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), other than an Excluded Person (as defined below), acquires
"beneficial ownership" (as determined in accordance with Rule 13d-3 under the
Exchange Act), directly or indirectly, of more than 50% of the combined voting
power of the then outstanding securities entitled to vote generally in elections
of directors of the Company (the "Voting Stock") or (ii) the Company
consolidates or merges with any other corporation or business entity, or
conveys, transfers or leases all or substantially all of its assets to any
person, unless the shareholders of the Company immediately before such
transaction own, directly or indirectly, at least 51% of the combined voting
power of the outstanding voting securities of the corporation or business entity
resulting from such transaction in substantially the same proportion as their
ownership of the Voting Stock immediately before such transaction; provided that
a Change in Control shall not be deemed to have occurred if either (i) the
closing price per share of the Common Stock for any 5 trading days within the
period of 10 consecutive trading days ending immediately after the announcement
of such Change of Control transaction shall equal or exceed 105% of the
conversion price of the Notes in effect on the trading day on which such
announcement is made or (ii) at least 90% of the consideration in the Change of
Control transaction consists of shares of common stock traded on a national
securities exchange or quoted on the Nasdaq Stock Market, and as a result of
such transaction, the Notes become convertible solely into such common stock;
and provided further that no Change of Control shall be deemed to have occurred
from a transfer of the Company's voting securities by Alan H. Goldfield
("Goldfield") to (v) a member of Goldfield's immediate family (within the
meaning of Rule 16a-1(e) of the Exchange Act) either during Goldfield's lifetime
or by will or the laws of descent and distribution; (w) any trust as to which
Goldfield or a member (or members) of his immediate family is the beneficiary;
(x) any trust as to which Goldfield is the settlor with sole power to revoke;
(y) any entity over which Goldfield has the power, directly or indirectly, to
direct or cause the direction of the management and policies of the entity,
whether through the ownership of voting securities, by contract or otherwise; or
(z) any charitable trust, foundation or corporation under Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended (the "Code") that is funded by
Goldfield.
"Excluded Person" means (a) Goldfield, (b) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company and acting in
such capacity, and (c) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of voting securities of the Company.
Within 30 days following any Change of Control, unless the Company has
given the Holders notice of its intention to redeem the Notes pursuant to the
provisions of the subsection entitled
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"Optional Redemption by the Company," the Company shall send by first-class
mail, postage prepaid, to the Trustee and to each Holder of Notes, at such
Holder's address appearing in the security register, a notice stating, among
other things, that a Change of Control has occurred, the purchase price, the
purchase date, which shall be a business day no earlier than 30 days nor later
than 60 days from the date such notice is mailed, and certain other procedures
that a Holder of Notes must follow to accept a Change of Control Offer or to
withdraw such acceptance.
The Company will comply, to the extent applicable, with the requirements of
Rule 13e-4 and 14e-1 under the Exchange Act and other securities laws or
regulations in connection with the repurchase of the Notes as described above.
The Indenture requires that in the event of a Change of Control, prior to
the mailing of the notice to the Holders of the Notes, but in any event within
30 days following any Change of Control, the Company covenants to (i) repay in
full all of the Designated Senior Indebtedness and terminate all commitments
thereunder or offer to do so and repay the Designated Senior Indebtedness and
terminate all commitments of each lender who has accepted such offer or (ii)
obtain the requisite consent under the Designated Senior Indebtedness to permit
the repurchase of the Notes as described above. The Company must first comply
with the covenant described in the preceding sentence before it shall be
required to purchase Notes in the event of a Change of Control.
The occurrence of certain of the events that would constitute a Change of
Control may constitute a default under the Revolving Credit Facility. Future
indebtedness of the Company may contain prohibitions of certain events which
would constitute a Change of Control or require the Company to offer to
repurchase such indebtedness upon a Change of Control. Moreover, the exercise by
the Holders of Notes of their right to require the Company to purchase the Notes
could cause a default under such indebtedness, even if the Change of Control
itself does not, due to the financial effect of such purchase on the Company.
Finally, the Company's ability to pay cash to Holders of Notes upon a purchase
may be limited by the Company's then existing financial resources. There can be
no assurance that sufficient funds will be available when necessary to make any
required purchases. Furthermore, the Change of Control provisions may in certain
circumstances make more difficult or discourage a takeover of the Company and
the removal of the incumbent management.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Company shall not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets (determined on a
consolidated basis) whether in a single transaction or a series of related
transactions, to any person unless: (i) either the Company is the resulting or
surviving person, or unless the resulting or surviving person or the person to
whom such assets are transferred (in each case, the "Successor Company") is a
corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia, and the Successor Company (if not the
Company) expressly assumes by a supplemental indenture, executed and delivered
to the Trustee, in form satisfactory to the Trustee, all the obligations of the
Company under the Indenture and the Notes, including the conversion rights
described above under "Conversion of Notes," (ii) immediately after giving
effect to such transaction no Event of Default has happened and is continuing
and (iii) the Company delivers to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that such consolidation, merger or transfer and
such supplemental indenture (if any) comply with the Indenture.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in the Indenture as being: (i) any default
in payment of the principal of or premium, if any, on the Notes when due at
maturity, upon redemption or otherwise,
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including failure by the Company to purchase the Notes when required as
described under "Change of Control" (whether or not such payment shall be
prohibited by the subordination provisions of the Indenture); (ii) any default
for 30 days in payment of any installment of interest on the Notes (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture); (iii) any default by the Company for 60 days after notice in the
observance or performance of any other covenants in the Indenture; (iv) an event
of default occurs under any mortgage, indenture, guarantee or instrument under
which indebtedness of the Company or any of its subsidiaries is issued, secured
or evidenced or payment is guaranteed, which default is caused by a Payment
Default at final maturity or results in the acceleration of such indebtedness
prior to its expressed maturity and the total principal amount of such
indebtedness unpaid or accelerated exceeds $10.0 million and such Payment
Default shall not have been cured or such acceleration rescinded within a
ten-day period; (v) any judgment or decree for the payment of money in excess of
$20.0 million (to the extent not covered by insurance) is rendered against the
Company or one of its subsidiaries and such judgment or decree shall remain
undischarged or unstayed for a period of 60 days from entry thereof; or (vi)
certain events involving bankruptcy, insolvency or reorganization of the Company
or a significant subsidiary, as defined in Rule 1-02 of Regulation S-X,
promulgated under the Securities Act. The Indenture provides that the Trustee
may withhold notice to the Holders of Notes of any default (except in payment of
principal, premium, if any, or interest with respect to the Notes) if the
Trustee in good faith considers it in the interest of the Holders of Notes to do
so.
The Indenture provides that if any Event of Default shall have occurred and
be continuing, the Trustee or the Holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of and premium,
if any, and accrued interest on the Notes to be due and payable immediately, but
if the Company shall cure all defaults (except the non-payment of interest on,
premium, if any, and principal of any Notes which shall have become due by
acceleration) and certain other conditions are met, such declaration may be
canceled and past defaults may be waived by the Holders of a majority in
principal amount of Notes then outstanding.
If the payment of the Notes is accelerated because of an Event of Default,
the Company shall promptly notify the holders of the Designated Senior
Indebtedness or the Bank Representative. The Company may not pay the Notes until
five business days after such holders or the Bank Representative receive notice
of such acceleration and, thereafter, may pay the Notes only if the
subordination provisions of the Indenture otherwise permit payment at that time.
The Holders of a majority in principal amount of the Notes then outstanding
shall have the right to direct the time, method and place of conducting any
proceedings for any remedy available to the Trustee, subject to certain
limitations specified in the Indenture. The Indenture provides that, subject to
the duty of the Trustee following an Event of Default to act with the required
standard of care, the Trustee will not be under an obligation to exercise any of
its rights or powers under the Indenture at the request or direction of any of
the Holders, unless the Trustee receives satisfactory indemnity against any
associated loss, liability or expense.
SATISFACTION AND DISCHARGE; DEFEASANCE
The Indenture will cease to be of further effect as to all outstanding
Notes (except as to (i) rights of registration of transfer and exchange and the
Company's right of optional redemption, (ii) substitution of apparently
mutilated, defaced, destroyed, lost or stolen Notes, (iii) rights of Holders of
Notes to receive payments of principal of, premium, if any, and interest on, the
Notes, (iv) rights of Holders of Notes to convert to Common Stock, (v) rights,
obligations and immunities of the Trustee under the Indenture and (vi) rights of
the Holders of Notes as beneficiaries of the Indenture with respect to the
property so deposited with the Trustee payable to all or any of them), if (A)
the Company will have paid or caused to be paid the principal of, premium, if
any, and interest on the
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Notes as and when the same will have become due and payable or (B) all
outstanding Notes (except lost, stolen or destroyed Notes which have been
replaced or paid) have been delivered to the Trustee for cancellation or (x) the
Notes not previously delivered to the Trustee for cancellation will have become
due and payable or are by their terms to become due and payable within one year
or are to be called for redemption within one year under arrangements
satisfactory to the Trustee upon delivery of notice and (y) the Company will
have irrevocably deposited with the Trustee, in trust, cash, in an amount
sufficient to pay principal of, premium, if any, and interest on the outstanding
Notes, to maturity or redemption, as the case may be. Such trust may only be
established if such deposit will not result in a breach or violation of, or
constitute a default under, any agreement or instrument pursuant to which the
Company is a party or by which it is bound and the Company has delivered to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions related to such satisfaction and discharge have been complied
with.
The Indenture will also cease to be in effect (except as described in
clauses (i) through (vi) in the immediately preceding paragraph) and the
indebtedness on all outstanding Notes will be discharged on the 123rd day after
the irrevocable deposit by the Company with the Trustee, in trust, specifically
pledged as security for, and dedicated solely to, the benefit of the Holders of
Notes, of cash, U.S. Government Obligations (as defined in the Indenture) or a
combination thereof, in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay the principal of,
premium, if any, and interest on the Notes then outstanding in accordance with
the terms of the Indenture and the Notes ("legal defeasance"). Such legal
defeasance may only be effected if (i) such deposit will not result in a breach
or violation of, or constitute a default under, any agreement or instrument to
which the Company is a party or by which it is bound, (ii) the Company has
delivered to the Trustee an opinion of counsel stating that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, based
thereon, the holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit, defeasance and
discharge by the Company and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such deposit, defeasance and discharge had not occurred, (iii) the Company
has delivered to the Trustee an opinion of counsel to the effect that after the
123rd day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally and (iv) the Company has delivered to the
Trustee an Officers' Certificate and an opinion of counsel stating that all
conditions related to the defeasance have been complied with.
The Company may also be released from its obligations under the covenants
described above under "Change of Control" and "Merger, Consolidation and Sale of
Assets" with respect to the Notes outstanding on the 123rd day after the
irrevocable deposit by the Company with the Trustee, in trust, specifically
pledged as security for, and dedicated solely to, the benefit of the Holders of
Notes, of cash, U.S. Government Obligations or a combination thereof, in an
amount sufficient in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee, to pay the principal of, premium, if any, and interest on the Notes
then outstanding in accordance with the terms of the Indenture and the Notes
("covenant defeasance"). Such covenant defeasance may only be effected if (i)
such deposit will not result in a breach or violation of, or constitute a
default under, any agreement or instrument to which the Company is a party or by
which it is bound, (ii) the Company has delivered to the Trustee an Officers'
Certificate and an opinion of counsel to the effect that the Holders of Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such deposit and covenant defeasance by the Company and will be
subject to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit and covenant defeasance
had not occurred, (iii) the
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Company has delivered to the Trustee an opinion of counsel to the effect that
after the 123rd day following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally and (iv) the Company has
delivered to the Trustee an Officers' Certificate and an opinion of counsel
stating that all conditions related to the covenant defeasance have been
complied with. Following such covenant defeasance, the Company will no longer be
required to comply with the obligations described above under "Merger,
Consolidation and Sale of Assets" and will have no obligation to repurchase the
Notes pursuant to the provisions described under "Change of Control."
Notwithstanding any satisfaction and discharge or defeasance of the
Indenture, the obligations of the Company described under "Conversion of Notes"
will survive to the extent provided in the Indenture until the Notes cease to be
outstanding.
MODIFICATIONS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than a majority in principal amount
of the Notes at the time outstanding, to modify the Indenture or any
supplemental indenture or the rights of the Holders of Notes, except that no
such modification shall (i) extend the fixed maturity of any Note, reduce the
rate or extend the time of payment of interest thereon, reduce the principal
amount thereof or premium, if any, thereon, reduce any amount payable upon
redemption thereof, change the obligation of the Company to offer to repurchase
the Notes upon the happening of a Change of Control, impair or affect the right
of a Holder to institute suit for the payment thereof, change the currency in
which the Notes are payable, modify the subordination provisions of the
Indenture in a manner adverse to the Holders of Notes or impair the right of
Holders to convert the Notes into Common Stock subject to the terms set forth in
the Indenture, without the consent of the Holder of each Note so affected or
(ii) reduce the aforesaid percentage of Notes, without the consent of the
Holders of all of the Notes then outstanding.
CONCERNING THE TRUSTEE
The Bank of New York, the Trustee under the Indenture, has been appointed
by the Company as the paying agent, conversion agent, registrar and custodian
with regard to the Notes. The Trustee and/or its affiliates may in the future
provide banking and other services to the Company in the ordinary course of
their respective businesses.
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DESCRIPTION OF CAPITAL STOCK
The following summary description of the Common Stock is qualified in its
entirety by reference to the Company's Amended and Restated Certificate of
Incorporation.
COMMON STOCK
The Company is authorized to issue 45,000,000 shares of Common Stock, of
which 29,377,009 shares were outstanding as of February 5, 1998. On February
5, 1998, there were 155 holders of record of the Common Stock. As of February
5, 1998, a total of 2,501,187 shares of Common Stock were issuable upon
exercise of options granted pursuant to the Company's equity compensation
plans and 660,000 shares were issuable upon exercise of warrants. Holders of
Common Stock are entitled to one vote for each share held of record on all
matters to be voted on by the stockholders and do not have cumulative voting
rights. Each share of Common Stock is entitled to receive dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor and, upon liquidation, to share ratably in the net assets available
for distribution, in each case subject to the rights of holders of Preferred
Stock. Shares of Common Stock are not redeemable and have no statutory
preemptive or similar rights. The Common Stock currently outstanding is, and
all shares issued upon conversion of the Notes offered hereby will be, duly
authorized, validly issued, fully paid and nonassessable. On May 20, 1997,
the Company's Board of Directors approved a three-for-two stock split, which
was made in the form of a stock dividend distributed on June 17, 1997 to
holders of record of the Company's Common Stock on June 2, 1997.
STOCKHOLDER RIGHTS PLAN
On December 30, 1996, the Board of Directors of the Company declared a
dividend of one right to purchase one one-thousandth of a share of Series A
Preferred Stock (a "Right") for each outstanding share of Common Stock to the
holders of record on January 9, 1997 and authorized and directed the issuance of
one Right with respect to each share of Common Stock that shall become
outstanding prior to the occurrence of certain terminating events. The Rights
were issued with a purchase price of $80 per one one-thousandth of a share of
Series A Preferred Stock (the "Purchase Price"). Currently, the Rights trade
with the shares of Common Stock. The description and terms of the Rights are set
forth in a Rights Agreement (the "Rights Agreement") between the Company and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent.
The Rights will separate from the Common Stock upon the earlier of (i) ten
(10) business days following a public announcement that a person (other than
Alan H. Goldfield) or group of affiliated or associated persons (an "Acquiring
Person") has acquired, or obtained the right to acquire, beneficial ownership of
fifteen percent (15%) or more of the outstanding shares of Common Stock (the
"Stock Acquisition Date"), or (ii) ten (10) business days (or such later date as
the Board of Directors shall determine) following the commencement of a tender
or exchange offer that would result in a person or group beneficially owning
fifteen percent (15%) or more of such outstanding shares of Common Stock. The
date the Rights separate is referred to as the "Distribution Date." The Rights
are not exercisable until the Distribution Date and will expire at the close of
business on January 9, 2007, unless earlier redeemed by the Company as described
below.
In the event that (i) the Company is the surviving corporation in a merger
or other business combination with an Acquiring Person (or any associate or
affiliate thereof) and its Common Stock remains outstanding and unchanged, (ii)
any person shall acquire beneficial ownership of more than fifteen percent (15%)
of the outstanding shares of Common Stock (except pursuant to (A) certain
consolidations or mergers involving the Company or sales or transfers of the
combined assets, cash flow or earning power of the Company and its subsidiaries
or (B) an offer for all outstanding shares of Common Stock at a price and upon
terms and conditions which a majority of the Disinterested
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Directors (as defined below) determines to be in the best interests of the
Company and its stockholders), or (iii) there occurs a reclassification of
securities, a recapitalization of the Company or any of certain business
combinations or other transactions (other than certain consolidations and
mergers involving the Company and sales or transfers of the combined assets,
cash flow or earning power of the Company and its subsidiaries) involving the
Company or any of its subsidiaries which has the effect of increasing by more
than 1% the proportionate share of any class of the outstanding equity
securities of the Company or any of its subsidiaries beneficially owned by an
Acquiring Person (or any associate or affiliate thereof), each holder of a Right
(other than the Acquiring Person and certain related parties) will thereafter
have the right to receive, upon exercise, Common Stock (or, in certain
circumstances, cash, property or other securities of the Company) having a value
equal to two times the Purchase Price of the Right. However, Rights are not
exercisable following the occurrence of any of the events described above until
such time as the Rights are no longer redeemable by the Company as described
below. Notwithstanding any of the foregoing, following the occurrence of any of
the events described in this paragraph, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person will be null and void.
In the event that, at any time following the Stock Acquisition Date, (i)
the Company shall enter into a merger or other business combination transaction
in which the Company is not the surviving corporation, (ii) the Company is the
surviving corporation in a consolidation, merger or similar transaction pursuant
to which all or part of the outstanding shares of Common Stock are changed into
or exchanged for stock or other securities of any other person or cash or any
other property or (iii) more than 50% of the combined assets, cash flow or
earning power of the Company and its subsidiaries is sold or transferred (in
each case other than certain consolidations with, mergers with and into, or
sales of assets, cash flow or earning power by or to subsidiaries of the Company
as specified in the Rights Agreement), each holder of a Right (except Rights
which previously have been voided as set forth above) shall thereafter have the
right to receive, upon exercise, common stock of the acquiring company having a
value equal to two times the Purchase Price of the Right. The events described
in this paragraph and in the preceding paragraph are referred to as "Triggering
Events."
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
shares of Common Stock, the Board of Directors of the Company may, without
payment of the Purchase Price by the holder, exchange the Rights (other than
Rights owned by such person or group, which will become void), in whole or in
part, for shares of Common Stock at an exchange ratio of one-half the number of
shares of Common Stock (or in certain circumstances Preferred Stock) for which a
Right is exercisable immediately prior to the time of the Company's decision to
exchange the Rights (subject to adjustment).
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in a manner which causes the Rights to become exercisable. The Company believes,
however, that the Rights should neither affect any prospective offeror that is
willing to negotiate with the Board of Directors of the Company nor interfere
with any merger of other business combination approved by the Board of Directors
of the Company. At any time until 10 business days following the Stock
Acquisition Date, the Company may redeem the Rights in whole, but not in part,
at a price of $0.001 per Right (payable in cash, shares of Common Stock or other
consideration deemed appropriate by the Board of Directors).
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company prior to the Distribution Date; PROVIDED, that
any amendments after the Stock Acquisition Date must be approved by a majority
of the Disinterested Directors. The term "Disinterested Director" means any
member of the Board of Directors of the Company who was a member of the Board
prior to the date
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of the Rights Agreement, and any person who is subsequently elected to the Board
if such person is recommended or approved by a majority of the Disinterested
Directors, but shall not include an Acquiring Person, or an affiliate or
associate of an Acquiring Person, or any representative of the foregoing
entities. After the Distribution Date, the provisions of the Rights Agreement
may be amended by the Board in order to cure any ambiguity, inconsistency or
defect, to make changes which do not adversely affect the interest of holders of
Rights (excluding the interest of any Acquiring Person) or to shorten or
lengthen any time period under the Rights Agreement; PROVIDED, however, that no
amendment to adjust the time period governing redemption shall be made at such
time as the Rights are not redeemable; and, PROVIDED, that any amendments after
the Stock Acquisition Date must be approved by a majority of the Disinterested
Directors.
Copies of the Rights Agreement are also available free of charge from the
Rights Agent. The foregoing description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement.
CHANGE OF CONTROL PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws may have the effect of preventing,
discouraging or delaying any change in the control of the Company and may
maintain the incumbency of the Board of Directors and management. The Company is
authorized to issue 5,000,000 shares of Preferred Stock, none of which are
outstanding as of the date of this Prospectus. The authorization of undesignated
Preferred Stock makes it possible for the Board of Directors to issue Preferred
Stock with voting or other rights or preferences that could impede the success
of any attempt to change control of the Company.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Anti-takeover Law") regulating corporate
takeovers. The Anti-takeover Law prevents certain Delaware corporations,
including those whose securities are listed on the Nasdaq Stock Market, from
engaging, under certain circumstances, in a "business combination" (which
includes, without limitations, mergers, consolidations, stock sales and
asset-based transactions) with any "interested stockholder" (a stockholder who
acquired 15% or more of the corporation's outstanding voting stock without the
prior approval of the corporation's Board of Directors) for three years
following the date that such stockholder became an "interested stockholder." A
Delaware corporation may "opt out" of the Anti-takeover Law with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares. The
Company has not "opted out" of the provisions of the Anti-takeover Law.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C. of Dallas, Texas serves as
transfer agent and registrar for the Company's Common Stock.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a discussion of certain material U.S. federal income tax
consequences (certain material U.S. Federal estate tax consequences with respect
to Non-U.S. Holders as defined) of the purchase, ownership and disposition of
the Notes as of the date hereof. For purposes of this discussion, a "U.S.
Holder" is a Holder that is an individual who is a citizen or resident of the
United States, a corporation or a partnership that is organized under the laws
of the United States or any state thereof or an estate or trust whose income is
includible in gross income regardless of its source. For taxable years beginning
after December 31, 1996, a trust that holds the Notes or the Common Stock will
be a U.S. Holder if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more U.S. fiduciaries
have the authority to control decisions of the trust. A "Non-U.S. Holder" is a
Holder that is not a U.S. Holder. This summary applies only to Notes and Common
Stock held as capital assets within the meaning of Section 1221 of the Code. It
does not discuss all of the tax consequences that may be relevant to a Holder in
light of its particular circumstances or to Holders subject to special rules,
such as dealers in securities or foreign currencies, financial institutions,
life insurance companies, or regulated investment companies, or to Holders whose
functional currency is not the United States dollar or who hold the Notes or the
Common Stock as part of a synthetic security, conversion transaction, or certain
"straddle" or hedging transactions.
The U.S. federal income tax and estate tax considerations set forth below
are based upon the Code and regulations, rulings and judicial decisions
thereunder as of the date hereof, and such authorities may be repealed, revoked
or modified, possibly with retroactive effect, so as to result in U.S. federal
income tax consequences different from those presented below. The discussion
does not consider the effect of any applicable foreign, state, local or other
tax law, or estate or gift tax considerations (other than estate taxes in
respect of Non-U.S. Holders).
U.S. HOLDERS
INTEREST. Interest on a Note should be taxable to a U.S. Holder as ordinary
interest income in accordance with the U.S. Holder's method of accounting for
U.S. federal income tax purposes.
SALE, EXCHANGE OR REDEMPTION OF A NOTE. A U.S. Holder should recognize gain
or loss, if any, on the sale, redemption or other taxable disposition of a Note
in an amount equal to the difference, if any, between the U.S. Holder's adjusted
tax basis in the Note and the amount received therefor (other than amounts
attributable to accrued and unpaid interest on the Notes, which should be
treated as interest for U.S. federal income tax purposes and subject to tax if
not previously taxed). Subject to the market discount rules noted under "U.S.
Holders -- Market Discount and Bond Premium" below, gain or loss, if any,
recognized on the sale, redemption or other taxable disposition of a Note
generally should be long-term capital gain or loss if the Note was held for more
than one year as of the date of disposition.
MARKET DISCOUNT AND BOND PREMIUM. If a U.S. Holder acquires a Note and the
Note's stated redemption price at maturity (the principal amount thereof)
exceeds the U.S. Holder's initial tax basis in the Note by more than a DE
MINIMIS amount, the U.S. Holder should generally be treated as having acquired
the Note at a "market discount" equal to such excess. In addition, if a U.S.
Holder's initial tax basis in a Note exceeds the stated redemption price at
maturity of the Note, the U.S. Holder should generally be treated as having
acquired the Note with "bond premium" in an amount equal to such excess. U.S.
Holders should consult their tax advisers regarding the existence, if any, and
tax consequences of market discount and bond premium.
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CONVERSION OF THE NOTES. A U.S. Holder should not recognize gain or loss
upon conversion of the Notes into Common Stock. The U.S. Holder's tax basis in
shares of Common Stock received upon conversion should be the same as the U.S.
Holder's adjusted tax basis of the Notes converted (reduced by the portion of
such basis allocable to any fractional Common Stock interest for which the U.S.
Holder receives a cash payment from the Company). The holding period of the
Common Stock received in the conversion should include the holding period of the
Notes that were converted. A U.S. Holder generally should recognize gain (or
loss) upon a conversion to the extent that any cash paid in lieu of a fractional
share of Common Stock exceeds (or is less than) its tax basis allocable to such
fractional share.
DIVIDENDS. Dividends paid on Common Stock received upon conversion, other
than stock dividends excluded from gross income pursuant to Section 305 of the
Code, will be taxable to a U.S. Holder as ordinary income, to the extent paid
out of the Company's current or accumulated earnings and profits. Subject to
certain restrictions, dividends received by a corporate U.S. Holder generally
should be eligible for the 70% dividends received deduction.
SALE OF COMMON STOCK. A U.S. Holder of Common Stock received on conversion
who sells or otherwise disposes of such stock in a taxable transaction will
recognize capital gain or loss equal to the difference between the cash and the
fair market value of any property received on such sale and the U.S. Holder's
tax basis in such stock. Such gain or loss will be long-term capital gain or
loss if the holding period for such Common Stock (which includes such U.S.
Holder's holding period for Notes converted into Common Stock) was more than 18
months.
ADJUSTMENTS TO CONVERSION PRICE. Pursuant to Treasury Regulations
promulgated under Section 305 of the Code, a U.S. Holder of a Note should be
treated as having received a constructive distribution from the Company upon an
adjustment in the conversion price of the Notes if (i) as a result of such
adjustment, the proportionate interest of such U.S. Holder in the assets or
earnings and profits of the Company is increased and (ii) the adjustment is not
made pursuant to a bona fide, reasonable anti-dilution formula. An adjustment in
the conversion price would not be considered made pursuant to such a formula if
the adjustment were made to compensate for certain taxable distributions with
respect to the Common Stock into which the Notes are convertible. Thus, under
certain circumstances, a decrease in the conversion price of the Notes may be
taxable to a U.S. Holder of a Note as a dividend to the extent of the current or
accumulated earnings and profits of the Company. In addition, the failure to
adjust fully the conversion price of the Notes to reflect distributions of stock
dividends with respect to the Common Stock may result in a taxable dividend to
the U.S. Holders of the Common Stock.
BACKUP WITHHOLDING AND INFORMATION REPORTING. A U.S. Holder of a Note, or
of Common Stock issued upon conversion of a Note, may be subject to information
reporting and possible backup withholding. If applicable, backup withholding
would apply at a rate of 31% with respect to interest or dividends on, or the
proceeds of a sale, exchange, redemption, retirement, or other disposition of,
such Note or Common Stock, as the case may be, unless (i) such U.S. Holder is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable backup withholding rules.
NON-U.S. HOLDERS
THE NOTES. The payment of interest on a Note should generally not be
subject to U.S. federal withholding tax, if (i) the interest is not effectively
connected with the conduct of a trade or business within the United States, (ii)
the Non-U.S. Holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (iii) the Non-
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U.S. Holder is not a controlled foreign corporation that is related to the
Company actually or constructively through stock ownership and (iv) either (a)
the beneficial owner of the Note certifies to the Company or its agent, under
penalties of perjury, that it is not a U.S. Holder and provides its name and
address on U.S. Treasury Form W-8 (or on a suitable substitute form) or (b) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"financial institution") and holds the Note certifies under penalties of perjury
that such a Form W-8 (or suitable substitute form) has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof. Even if interest
on the Notes is not exempt from withholding tax under the above rules, an
applicable U.S. tax treaty may reduce or eliminate the withholding tax if the
Non-U.S. Holder establishes entitlement to treaty benefits.
A Non-U.S. Holder should generally not be subject to U.S. federal income
tax on any gain or income realized in connection with the sale, exchange,
retirement, or other disposition of a Note, including the exchange of a Note for
Common Stock, unless (a) the Non-U.S. Holder is an individual who is present in
the United States for 183 days or more in the taxable year of the disposition,
and either (i) has a tax home in the United States and the gain from the
disposition is not attributable to an office of other fixed place of business
maintained by such non-U.S. Holder in a foreign country or (ii) the gain from
the disposition is attributable to an office or other fixed place of business
maintained by such non-U.S. Holder in the United States; or (b) the Non-U.S.
Holder is subject to the provisions of the U.S. tax law applicable to former
citizens and residents of the United States.
A Note held directly by an individual who, at the time of death, is not a
citizen or resident of the United States should not be includible in such
individual's gross estate for U.S. estate tax purposes as a result of such
individual's death if the individual does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of the
Company entitled to vote and, at the time of the individual's death, if payments
with respect to such Note would not have been effectively connected with the
conduct by such individual of a trade or business in the United States. Even if
the Note was includible in the gross estate under the foregoing rules, the Note
may be excluded under the provisions of an applicable estate tax treaty.
THE COMMON STOCK. In general, dividends (including any amounts that are
treated as dividends as described above) paid to a Non-U.S. Holder of the Common
Stock should be subject to U.S. federal income tax withholding at a 30% rate
unless such rate is reduced by an applicable income tax treaty. Dividends that
are effectively connected with such Non-U.S. Holder's conduct of a trade or
business in the United States or, if a tax treaty applies, attributable to a
permanent establishment, or, in the case of an individual, a "fixed base," in
the United States ("U.S. trade or business income") are generally subject to
U.S. federal income tax at regular rates, but are not generally subject to the
30% withholding tax if the Non-U.S. Holder files the appropriate form with the
payor. Any U.S. trade or business income received by a Non-U.S. Holder that is a
corporation may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be applicable under
an income tax treaty.
Dividends paid to an address in a foreign country are presumed (absent
actual knowledge to the contrary) to be paid to a resident of such country for
purposes of the withholding tax discussed above and, under the current
interpretation of Treasury Regulations, for purposes of determining the
applicability of a tax treaty rate. Under proposed Treasury Regulations not
currently in effect, however, a Non-U.S. Holder of the Common Stock who wishes
to claim the benefit of an applicable tax treaty rate would be required to
satisfy applicable certification and other requirements, which would include
filing a form that contains the Non-U.S. Holder's name and address. In certain
circumstances, the proposed regulations also require that the Non-U.S. Holder
provide certain documentary evidence issued by the foreign governmental
authorities as proof of residence in the foreign country.
43
<PAGE>
A Non-U.S. Holder of the Common Stock that is eligible for a reduced rate
of U.S. federal withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for refund
with the Internal Revenue Service.
A Non-U.S. Holder of the Common Stock should generally not be subject to
U.S. income or withholding tax on gain realized on the sale, exchange or
redemption (provided that the redemption is treated as the sale or exchange of
the stock) of such stock, unless (a) the Non-U.S. Holder is an individual who is
present in the United States for 183 days or more in the taxable year of the
disposition, and either (i) has a tax home in the United States and the gain
from the disposition is not attributable to an office or other fixed place of
business maintained by such Non-U.S. Holder in a foreign country or (ii) the
gain from the disposition is attributable to an office or other fixed place of
business maintained by such Non-U.S. Holder in the United States; (b) the
Non-U.S. Holder is subject to the provisions of the U.S. tax law applicable to
former citizens and residents of the United States; or (c) the Company is, or
has been, a U.S. real property holding company. The Company does not believe
that it is, or has been a U.S. real property holding company. Common Stock held
directly by an individual who at the time of death is not a citizen or resident
of the United States will nevertheless generally be includible in the gross
estate of such individual for U.S. estate tax purposes, subject to contrary
provisions of an applicable estate tax treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING. The Company must report
annually to the Internal Revenue Service and to each Non-U.S. Holder any
interest or dividends paid to a Non-U.S. Holder. Copies of these information
returns may also be made available under the provisions of a tax treaty or other
agreement to the tax authorities of the country in which the Non-U.S. Holder
resides. Payments on the Notes made by the Company or any paying agent of the
Company and payments of dividends on the Common Stock to certain noncorporate
Non-U.S. Holders generally should be subject to information reporting and
possibly to "backup withholding" at a rate of 31%. Information reporting and
backup withholding do not apply, however, to payments by the Company or a paying
agent on a Note or to payments of dividends on the Common Stock if the
certification described under "Non-U.S. Holders -- The Notes" above is received,
provided in each case that the payor does not have actual knowledge that the
Holder is a U.S. Holder.
Payment of proceeds from a sale of a Note or the Common Stock to or through
the U.S. office of a broker is subject to information reporting and backup
withholding unless the Non-U.S. Holder certifies as to its non-U.S. status or
otherwise establishes an exemption from information reporting and backup
withholding. Payment outside the United States of the proceeds of the sale of a
Note or the Common Stock to or through a foreign office of a "broker" (as
defined in applicable U.S. Treasury Regulations) should not be subject to
information reporting or backup withholding, except that if the broker is a U.S.
person, a controlled foreign corporation for U.S. federal income tax purposes or
a foreign person 50% or more of whose gross income is from a U.S. trade or
business, information reporting should apply to such payment unless the broker
has documentary evidence in its records that the beneficial owner is not a U.S.
Holder and certain other conditions are not met or the beneficial owner
otherwise establishes an exemption.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INTENDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO A PARTICULAR HOLDER'S
SITUATION. PERSONS CONSIDERING A PURCHASE OF THE NOTES OR COMMON STOCK SHOULD
CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF
PURCHASING, OWNING AND DISPOSING OF THE NOTES AND THE COMMON STOCK, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL OR FOREIGN LAWS AND OTHER TAX LAWS AND
THE POSSIBLE EFFECTS OF CHANGES (POSSIBLY INCLUDING RETROACTIVE CHANGES) IN U.S.
FEDERAL AND OTHER TAX LAWS.
44
<PAGE>
LEGAL MATTERS
Certain legal matters related to the Securities will be passed upon for the
Company by Haynes and Boone, LLP, Dallas, Texas.
EXPERTS
The consolidated financial statements of the Company as of November 30,
1996 and 1995, and for each of the years in the three-year period ended
November 30, 1996, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
45
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY SELLING SECURITYHOLDER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY
SECURITIES OTHER THAN THE NOTES AND COMMON STOCK TO WHICH IT RELATES OR AN OFFER
TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
PAGE
----
Summary...................................................... 1
Risk Factors................................................. 3
The Company.................................................. 12
Price Range of Common Stock.................................. 13
Ratio of Earnings to Fixed Charges........................... 13
Use of Proceeds.............................................. 14
Selected Consolidated Financial Data......................... 14
Selling Securityholders...................................... 16
Plan of Distribution......................................... 24
Description of Notes......................................... 26
Description of Capital Stock................................. 38
Certain U.S. Federal Income
Tax Considerations.......................................... 41
Legal Matters................................................ 45
Experts...................................................... 45
CELLSTAR CORPORATION
$150,000,000
OF
5% CONVERTIBLE SUBORDINATED
NOTES DUE 2002
2,882,635 SHARES OF COMMON STOCK
----------------------
PROSPECTUS
----------------------
February __, 1998
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Securities and Exchange Commission Registration Fee................ $ 45,581
Nasdaq National Market Listing Fee................................. 17,500
Printing Expenses.................................................. 3,000
Accounting Fees and Expenses....................................... 10,000
Legal Fees and Expenses............................................ 25,000
--------
Total.......................................................... $101,081
--------
--------
All of the above expenses except the Securities and Exchange Commission
registration fee are estimated. The Company will bear approximately $99,770
of the above expenses and a Selling Securityholder will bear approximately
$1,311 of the expenses.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Section 145 of the Delaware General
Corporation Law (the "DGCL") generally provides that a corporation is empowered
to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
in any of such capacities of another corporation or other enterprise, if such
director, officer, employee or agent acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. Such statute
provides further that the indemnification permitted thereunder shall not be
deemed exclusive of any other rights to which such persons may be entitled under
any bylaw, vote of stockholders or disinterested directors or otherwise.
Article 11 of the Amended and Restated Certificate of Incorporation of the
Company and Section 7 of Article VII of the Company's Amended and Restated
Bylaws provide generally for indemnification of all such directors, officers and
agents.
Section 102(b)(7) of the DGCL provides that a corporation's certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
liability for unauthorized acquisitions or redemptions of, or dividends on,
capital stock), or (iv) for any transaction from which the director derived an
improper personal benefit. Article 11 of the Amended and Restated Certificate of
Incorporation of the Company provides that, to the fullest extent permitted by
the DGCL, as the same exists or may hereafter be amended, a director of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director.
The Company has entered into employment agreements with Alan H. Goldfield
and Richard M. Gozia, directors and officers of the Company, which agreements
provide that they will be indemnified
II-1
<PAGE>
by the Company to the fullest extent permitted by law. Mr. Goldfield's and Mr.
Gozia's rights to indemnification are protected by their rights under their
employment agreements to require the Company to establish and fund a trust to
indemnify them after a "change in control" (as defined in their respective
employment agreements) or a potential "change in control."
The Company has directors' and officers' liability insurance insuring its
directors and officers against liability incurred in their capacities as
directors and officers and providing for reimbursement of the registrant for any
indemnification payments made by it to directors and officers.
The Notes were originally issued and sold by the Company to the Initial
Purchasers pursuant to a Purchase Agreement, dated October 7, 1997 (the
"Purchase Agreement") by and among the Company and the Initial Purchasers.
Pursuant to the Purchase Agreement, the Initial Purchasers agreed to indemnity
the Company and its directors, officers and controlling persons within the
meaning of the Securities Act or the Exchange Act against certain liabilities,
including liabilities under the Securities Act and Exchange Act, arising out of
or based upon certain misstatements or omissions made by the Initial Purchasers
in connection with the resale of the Notes by the Initial Purchasers.
This Registration Statement is being prepared and filed by the Company
pursuant to a Registration Rights Agreement, dated as of October 14, 1997, (the
"Registration Rights Agreement"), by and among the Company and the Initial
Purchasers, for the benefit of holders of the Notes (the "Holders"). Pursuant
to the Registration Rights Agreement, each Holder agreed to indemnify the
Company and its directors, officers and controlling persons within the meaning
of the Securities Act or the Exchange Act, and the respective officers,
directors, partners, employees, representatives and agents of each such person,
against certain liabilities, including liabilities under the Securities Act and
Exchange Act, arising out of or based upon misstatements or omissions furnished
in writing by such Holder for use in this Registration Statement or the
prospectus included herein, as such prospectus may be amended or supplemented.
ITEM 16. EXHIBITS.
EXHIBIT NO. EXHIBIT
----------- --------
4.1 Amended and Restated Certificate of Incorporation of the
Company(1)
4.2 Amended and Restated Bylaws of the Company(2)
4.3 Specimen Common Stock Certificate of the Company(3)
4.4 Form of Certificate of Designation, Preferences and Rights
of Series A Preferred Stock of the Company (the "Certificate
of Designation")(4)
4.5 Certificate of Correction to Certificate of Designation(5)
4.6 Rights Agreement, dated as of December 30, 1996 (the "Rights
Agreement"), by and between the Company and ChaseMellon
Shareholder Services, LLC, as Rights Agent
("ChaseMellon")(4)
4.7 First Amendment to Rights Agreement, dated as of June 18,
1997, by and between the Company and ChaseMellon(5)
4.8 Indenture, dated as of October 14, 1997, by and between the
Company and The Bank of New York ("BONY"), as Trustee(6)
4.9 Form of Definitive Note(6)
4.10 Form of Public Global Note(7)
5.1 Opinion of Haynes and Boone, LLP, Regarding the Legality of
the Notes and Common Stock(7)
12.1 Statement Regarding Computation of Ratios of Earnings to
Fixed Charges(7)
23.1 Consent of Haynes and Boone, LLP (included in Exhibit
5.1)(7)
23.2 Consent of KPMG Peat Marwick LLP(8)
II-2
<PAGE>
24.1 Power of Attorney (included on the signature page to this
Registration Statement)(7)
25.1 Form T-1, Statement of Eligibility and Qualification of
BONY(7)
____________
(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 for 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 on
Form 8-A (File No. 000-22972) filed on January 3, 1997, and incorporated
herein by reference.
(5) Previously filed as an exhibit to the Company's Form 8-A/A Amendment No. 1
to Registration Statement on Form 8-A (File No. 000-22972) filed on
June 30, 1997, and incorporated herein by reference.
(6) Previously filed as an Exhibit to the Company's Current Report on Form 8-K
filed on October 24, 1997, and incorporated herein by reference.
(7) Previously filed.
(8) Filed herewith.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of CellStar
Corporation (the "Registrant") pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which any offers or sales are being
made, a post-effective amendment to the registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
II-3
<PAGE>
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offering therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Pre-Effective Amendment No. 2 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Carrollton, State of Texas, on the sixth day of February, 1998.
CELLSTAR CORPORATION
By /s/ RICHARD M. GOZIA
----------------------
RICHARD M. GOZIA
PRESIDENT AND CHIEF
OPERATING OFFICER
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on
Form S-3 has been signed by the following persons on behalf of the Registrant
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------ ------------ -------
<S> <C> <C>
* Chairman of the Board of February 6, 1998
- ----------------------- Directors and Chief Executive
Alan H. Goldfield Officer (Principal Executive Officer)
/s/ RICHARD M. GOZIA President, Chief Operating February 6, 1998
- ---------------------- Officer and Director
Richard M. Gozia
* Senior Vice President-- February 6, 1998
- ---------------------- Administration, Chief
Mark Q. Huggins Financial Officer and
Treasurer (Principal Financial Officer)
* Vice President--Corporate February 6, 1998
- ----------------------- Controller (Principal
Evelyn Henry Miller Accounting Officer)
* Senior Vice President--Latin February 6, 1998
- ----------------------- American Region and
Daniel T. Bogar Director
* Director February 6, 1998
- -----------------------
James L. Johnson
* Director February 6, 1998
- -----------------------
Terry S. Parker
* Director February 6, 1998
- -----------------------
Sheldon I. Stein
* Director February 6, 1998
- -----------------------
John T. Stupka
</TABLE>
* By: /s/ RICHARD M. GOZIA
-------------------------
Richard M. Gozia, pursuant
to powers of attorney previously
filed with the Securities and
Exchange Commission
II-6
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT
----------- --------
4.1 Amended and Restated Certificate of Incorporation of the
Company(1)
4.2 Amended and Restated Bylaws of the Company(2)
4.3 Specimen Common Stock Certificate of the Company(3)
4.4 Form of Certificate of Designation, Preferences and Rights
of Series A Preferred Stock of the Company (the "Certificate
of Designation")(4)
4.5 Certificate of Correction to Certificate of Designation(5)
4.6 Rights Agreement, dated as of December 30, 1996 (the "Rights
Agreement"), by and between the Company and ChaseMellon
Shareholder Services, LLC, as Rights Agent
("ChaseMellon")(4)
4.7 First Amendment to Rights Agreement, dated as of June 18,
1997, by and between the Company and ChaseMellon(5)
4.8 Indenture, dated as of October 14, 1997, by and between the
Company and The Bank of New York ("BONY"), as Trustee(6)
4.9 Form of Definitive Note(6)
4.10 Form of Public Global Note(7)
5.1 Opinion of Haynes and Boone, LLP, Regarding the Legality of
the Notes and Common Stock(7)
12.1 Statement Regarding Computation of Ratios of Earnings to
Fixed Charges(7)
23.1 Consent of Haynes and Boone, LLP (included in Exhibit
5.1)(7)
23.2 Consent of KPMG Peat Marwick LLP(8)
24.1 Power of Attorney (included on the signature page to this
Registration Statement)(7)
25.1 Form T-1, Statement of Eligibility and Qualification of
BONY(7)
____________
(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 for 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 on
Form 8-A (File No. 000-22972) filed on January 3, 1997, and incorporated
herein by reference.
(5) Previously filed as an exhibit to the Company's Form 8-A/A Amendment
No. 1 to Registration Statement on Form 8-A (File No. 000-22972) filed
on June 30, 1997, and incorporated herein by reference.
(6) Previously filed as an Exhibit to the Company's Current Report on Form 8-K
filed on October 24, 1997, and incorporated herein by reference.
(7) Previously filed.
(8) Filed herewith.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
CellStar Corporation:
We consent to the use of our report incorporated by reference herein and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Dallas, Texas
February 9, 1998
