<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
COMMISSION FILE NUMBER 0-22972
CELLSTAR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2479727
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1730 BRIERCROFT COURT
CARROLLTON, TEXAS 75006
TELEPHONE (972) 466-5000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
On June 30, 1998, there were 58,956,968 outstanding shares of Common
Stock, $0.01 par value per share.
<PAGE>
CELLSTAR CORPORATION
INDEX TO FORM 10-Q
Page
PART I - FINANCIAL INFORMATION Number
- ------------------------------ ------
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (unaudited)
May 31, 1998 and November 30, 1997 3
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three and six months ended May 31, 1998 and 1997 4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited)
Six months ended May 31, 1998 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six months ended May 31, 1998 and 1997 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13
PART II - OTHER INFORMATION
- ---------------------------
Item 1. LEGAL PROCEEDINGS 14
Item 2. CHANGES IN SECURITIES 14
Item 3. DEFAULTS UPON SENIOR SECURITIES 14
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
Item 5. OTHER INFORMATION 15
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 15
2
<PAGE>
PART 1- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CELLSTAR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
May 31, November 30,
1998 1997
-------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 40,173 74,646
Accounts receivable (less allowance for doubtful accounts of
$26,483 and $23,857, respectively) 267,942 176,032
Inventories 205,162 190,404
Deferred income tax assets 6,092 2,457
Prepaid expenses 6,181 2,661
--------- ---------
Total current assets 525,550 446,200
Property and equipment, net 24,550 22,877
Goodwill (less accumulated amortization of $3,109
and $2,378, respectively) 34,587 17,616
Other assets 10,385 10,418
--------- ---------
$ 595,072 497,111
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 197,602 160,614
Notes payable to financial institutions 13,232 -
Accrued expenses 20,695 13,545
Income taxes payable 18,562 11,044
Deferred income tax liabilities 244 1,043
--------- ---------
Total current liabilities 250,335 186,246
Long-term debt 150,000 150,000
--------- ---------
Total liabilities 400,335 336,246
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued - -
Common stock, $.01 par value, 200,000,000 shares
authorized; 58,956,968 and 29,249,420 shares
issued and outstanding, respectively 590 293
Additional paid-in capital 76,463 72,985
Common stock warrants 4 4
Foreign currency translation adjustments (7,219) (6,469)
Retained earnings 124,899 94,052
--------- ---------
Total stockholders' equity 194,737 160,865
--------- ---------
$ 595,072 497,111
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months Six months
ended May 31, ended May 31,
1998 1997 1998 1997
--------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 445,660 377,562 852,405 634,207
Cost of sales 400,758 336,916 766,093 561,710
--------- --------- --------- ---------
Gross profit 44,902 40,646 86,312 72,497
Selling, general and
administrative expenses 23,718 22,003 46,455 43,763
--------- --------- --------- ---------
Operating income 21,184 18,643 39,857 28,734
Other income (expense):
Interest expense (2,617) (1,791) (5,137) (3,505)
Other, net 962 988 1,571 1,077
--------- --------- --------- ---------
Total other income (expense) (1,655) (803) (3,566) (2,428)
--------- --------- --------- ---------
Income before income taxes 19,529 17,840 36,291 26,306
Provision for income taxes 2,930 3,631 5,444 6,115
--------- --------- --------- ---------
Net income $ 16,599 14,209 30,847 20,191
========= ========= ========= =========
Net income per share:
Basic $ 0.28 0.25 0.52 0.35
========= ========= ========= =========
Diluted $ 0.27 0.24 0.50 0.34
========= ========= ========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Six months ended May 31, 1998
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Common currency
------------ paid-in stock translation Retained
Shares Amount capital warrants adjustments earnings Total
-------- -------- ---------- -------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1997 29,249 $ 293 72,985 4 (6,469) 94,052 160,865
Net income - - - - - 30,847 30,847
Common stock issued under
stock option plans 230 2 3,773 - - - 3,775
Two-for-one common
stock split 29,478 295 (295) - - - -
Foreign currency translation
adjustment - - - - (750) - (750)
-------- -------- -------- -------- -------- -------- --------
Balance at May 31, 1998 58,957 $ 590 76,463 4 (7,219) 124,899 194,737
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six months ended May 31, 1998 and 1997
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 30,847 20,191
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 3,797 2,345
Deferred income taxes (3,639) (106)
Changes in operating assets and liabilities
net of effects from acquisitions of businesses:
Accounts receivable (81,428) (5,399)
Inventories (8,454) (26,513)
Prepaid expenses (2,070) (2,503)
Other assets (811) (360)
Accounts payable (21,440) 25,671
Accrued expenses (240) 3,986
Income taxes payable 7,394 6,990
-------- --------
Net cash (used in) provided by operating
activities (76,044) 24,302
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (3,602) (1,441)
Acquisitions of businesses, net of cash acquired (12,871) -
Acquisitions of minority interests (250) (502)
Purchases of equity investments in affiliated companies - (412)
-------- --------
Net cash used in investing activities (16,723) (2,355)
-------- --------
Cash flows from financing activities:
Net borrowings on notes payable to financial institutions 10,239 11,969
Checks not presented for payment 44,795 -
Principal payments on long-term debt - (312)
Net proceeds from issuance of common stock 3,260 624
-------- --------
Net cash provided by financing activities 58,294 12,281
-------- --------
Net (decrease) increase in cash and cash equivalents (34,473) 34,228
Cash and cash equivalents at beginning of period 74,646 27,296
-------- --------
Cash and cash equivalents at end of period $ 40,173 61,524
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
Although the interim consolidated financial statements of CellStar
Corporation (the "Company") are unaudited, it is the opinion of the
Company's management that all adjustments (consisting of only normal
recurring adjustments) necessary for a fair statement of the results have
been reflected therein. Operating revenues and net earnings for any
interim period are not necessarily indicative of results that may be
expected for the entire year.
These statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended November 30, 1997.
(2) Concentration of Credit Risk and Major Customer Information
Pacific Bell Mobile Services ("PBMS") accounted for 13.7%, or $60.9
million, and 11.0%, or $94.0 million, of revenues for the three and six
month periods ended May 31, 1998, respectively. This level of activity
occurred primarily during the second quarter as a result of promotional
activity by PBMS in certain of its West Coast markets and may not be
indicative of future performance.
(3) Stock Split
On May 19, 1998, the Board of Directors approved a two-for-one common stock
split, which split was effected in the form of a stock dividend that was
distributed on June 23, 1998, to stockholders of record on June 5, 1998.
All historical share, dilutive securities and net income per share amounts
have been retroactively adjusted for the stock split.
7
<PAGE>
(4) Net Income Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("Statement 128"), effective December 1, 1997.
Statement 128 changes the manner in which the Company calculates and
presents its net income per share and requires net income per share amounts
for all prior periods to be restated to conform to the new presentation.
The adoption of Statement 128 did not have a material effect on the
Company's net income per share amounts. A reconciliation of the numerators
and denominators of the basic and diluted net income per share computations
for the three and six months ended May 31, 1998, and 1997, follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended May 31,
1998 1997
------------------------------------ -------------------------------------
Net Net income Net Net income
income Shares per share income Shares per share
----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic income per share:
Net income $ 16,599 - 14,209 -
Weighted average number of shares - 58,921 - 57,903
----------- ----------- ----------- -----------
Basic net income per share $ 16,599 58,921 0.28 14,209 57,903 0.25
=========== =========== ========== =========== =========== ===========
Diluted income per share:
Net income $ 16,599 - 14,209 -
Interest on convertible notes 1,125 - - -
----------- ----------- ----------- -----------
Adjusted net income 17,724 - 14,209 -
Weighted average number of shares - 58,921 - 57,903
Effective of dilutive securities:
Warrants - 948 - 603
Options - 1,565 - 857
Convertible notes - 5,422 - -
----------- ----------- ----------- -----------
Total effect of dilutive securities - 7,935 - 1,460
----------- ----------- ----------- -----------
Diluted net income per share $ 17,724 66,856 0.27 14,209 59,363 0.24
=========== =========== ========== =========== =========== ===========
Six months ended May 31,
1998 1997
------------------------------------ -------------------------------------
Net Net income Net Net income
income Shares per share income Shares per share
----------- ----------- ---------- ----------- ----------- -----------
Basic income per share:
Net income $ 30,847 - 20,191 -
Weighted average number of shares - 58,777 - 57,866
----------- ----------- ----------- -----------
Basic net income per share $ 30,847 58,777 0.52 20,191 57,866 0.35
=========== =========== ========== =========== =========== ===========
Diluted income per share:
Net income $ 30,847 - 20,191 -
Interest on convertible notes 2,250 - - -
----------- ----------- ----------- -----------
Adjusted net income 33,097 - 20,191 -
Weighted average number of shares - 58,777 - 57,866
Effect of dilutive securities:
Warrants - 889 - 503
Options - 1,308 - 480
Convertible notes - 5,422 - -
----------- ----------- ----------- -----------
Total effect of dilutive securities - 7,619 - 983
----------- ----------- ----------- -----------
Diluted net income per share $ 33,097 66,396 0.50 20,191 58,849 0.34
=========== =========== ========== =========== =========== ===========
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading global provider of wireless communications
products, primarily handsets. From fiscal 1993 to fiscal 1997, the Company's
revenues grew from $275.4 million to $1,482.8 million. The Company accomplished
this growth in both the North American Region and its international operations
by focusing its efforts on the cellular phone industry. The North American
Region is currently comprised of sales in the United States. To date, North
American Region sales of wireless communications products have increased
primarily as a result of greater market penetration due in part to decreasing
unit prices. The Company's international sales of wireless communications
products have increased primarily as a result of its entry into the Asia-Pacific
Region and the Latin American Region. The Company's diluted net income per share
increased from $0.20 to $0.89 between its fiscal years ended November 30, 1993
and 1997.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
relating to such matters as anticipated financial performance and business
prospects. When used in this Quarterly Report, the words "may," "expects,"
"anticipates," "will" and similar expressions are intended to be among the
statements that identify forward-looking statements. From time to time, the
Company may also publish forward-looking statements. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors, including foreign currency risks, political
instability, changes in foreign laws, regulations and tariffs, new technologies,
competition, customer and vendor relationships, seasonality, inventory
obsolescence and availability, "gray market" resales and inflation, could cause
the Company's actual results and experience to differ materially from
anticipated results or other expectations expressed in the Company's forward-
looking statements.
9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated
statements of operations data for the Company expressed as a percentage of
revenues for the three and six month periods ended May 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three months Six months
ended May 31, ended May 31,
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 89.9 89.2 89.9 88.6
----- ----- ----- -----
Gross profit 10.1 10.8 10.1 11.4
Selling, general and administrative expenses 5.3 5.8 5.4 6.9
----- ----- ----- -----
Operating income 4.8 5.0 4.7 4.5
Other income (expense):
Interest expense (0.6) (0.5) (0.6) (0.6)
Other, net 0.2 0.3 0.2 0.2
----- ----- ----- -----
Total other income (expense) (0.4) (0.2) (0.4) (0.4)
----- ----- ----- -----
Income before income taxes 4.4 4.8 4.3 4.1
Provision for income taxes 0.7 1.0 0.7 0.9
---- ---- ---- ----
Net income 3.7% 3.8% 3.6% 3.2%
==== ==== ==== ====
</TABLE>
10
<PAGE>
THREE MONTHS ENDED MAY 31, 1998 COMPARED TO THREE MONTHS ENDED MAY 31, 1997
Revenues. The Company's revenues increased $68.1 million, or 18.0%, from
$377.6 million to $445.7 million.
North American revenues increased $22.3 million, or 11.8%, from $189.1
million to $211.4 million. The increase was largely due to growth in sales from
the Company's Miami, Florida warehouse to customers exporting into South
American countries. In addition, the North American operations achieved growth
in revenues from distribution and fulfillment contracts for the provision of
products and value-added services.
Revenues in the Asia-Pacific Region decreased $53.3 million, or 34.7%, from
$153.5 million to $100.2 million. The Company's operations in the People's
Republic of China ("PRC"), primarily Hong Kong, provided $87.1 million in
revenues, a decrease of $31.7 million, or 26.7%, from $118.8 million. This
decrease was due primarily to product unavailability in Hong Kong, which was
partially offset by continued strong demand in the PRC. Last year's second
fiscal quarter sales activity in Hong Kong was unusually high due to the
Company's ability to respond to previously unsatisfied demand with the improved
delivery of certain products from key suppliers. Revenues from the Company's
Singapore operations decreased $18.4 million, or 62.4%, from $29.5 million to
$11.1 million. This decrease was due to less demand for wireless products as a
result of the general economic, financial and currency conditions in the region.
The Company's operations in Taiwan provided $2.0 million of revenues, a decrease
of $3.2 million, or 61.5%, from $5.2 million. The decrease was due to less
demand resulting from the recent economic and currency conditions in the area.
The Company's operations in the Latin American Region provided $75.2
million of revenues, compared to $24.7 million, or a 204.5% increase. Revenues
in Mexico, Venezuela and Chile increased $34.6 million, $11.0 million and $8.2
million, respectively. The increase in Mexico was the result of a promotion by
the principal cellular carrier. The increase in Venezuela was fueled by the
Company's prepaid cellular business. The increase in Chile was due to special
promotions offered by the principal carrier. Additionally, revenues in Brazil
increased $2.5 million, primarily as a result of the releasing of additional
wireless phone lines by the Brazilian government in the second quarter. Revenues
in the remainder of the region decreased $5.8 million, primarily in Argentina.
The decrease in revenues in Argentina was caused by a shift in market demand
from analog to digital phones. The Company was unable to meet the new digital
market demand because of unavailability of a sufficient supply of digital
product. The Company currently expects the availability of digital product to
improve during the remainder of the year. Of the increase in revenues,
activation and residual income generated by the Company's operations in the
Latin American Region increased from $3.1 million to $8.7 million. Most of the
increase was due to activation income from the Company's Venezuelan prepaid
cellular business and its operations in Mexico, which benefited from the
aforementioned carrier promotion.
The Company's European operations recorded revenues of $58.9 million, an
increase of $48.6 million, or 471.8%, from $10.3 million. This increase
reflects continued growth from the Company's U.K. operation and revenues from
the recently acquired operations in Sweden and Poland.
Gross Profit. Gross profit increased $4.3 million, or 10.6%, from $40.6
million to $44.9 million, while, as a percentage of revenues, gross profit
decreased from 10.8% to 10.1%. The increase in gross profit was due to the
increase in wholesale revenues, which were comprised primarily of net product
sales. The decrease in gross profit as a percentage of revenues was due
primarily to an increase in wholesale revenues relative to retail revenues,
which have a higher gross profit margin than wholesale revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased
11
<PAGE>
$1.7 million, or 7.7%, from $22.0 million to $23.7 million. The increase was
related principally to infrastructure costs incurred in connection with the
Company's growth in revenues. Overall, the Company reduced selling, general and
administrative expenses as a percentage of revenues from 5.8% to 5.3%. Bad
debt expense as a percentage of revenues decreased from 0.7% to 0.4%.
Interest Expense. Interest expense increased to $2.6 million from $1.8
million as a result of an increase in long-term debt.
Income Taxes. Income tax expense decreased to $2.9 million from $3.6
million, while the Company's effective tax rate decreased to 15.0% from 20.4%.
The lower effective tax rate was attributable to lower foreign income tax rates
and other tax advantages in certain jurisdictions, principally in the PRC and
Hong Kong.
SIX MONTHS ENDED MAY 31, 1998 COMPARED TO SIX MONTHS ENDED MAY 31, 1997
Revenues. The Company's revenues increased $218.2 million, or 34.4%, from
$634.2 million to $852.4 million.
North American revenues increased $100.1 million, or 29.1%, from $343.4
million to $443.5 million. The increase was largely due to growth in sales from
the Company's Miami, Florida warehouse to customers exporting into South
American countries. In addition, North American operations achieved growth in
revenues from distribution and fulfillment contracts for the provision of
products and value-added services.
Revenues in the Asia-Pacific Region decreased $41.5 million, or 18.9%, from
$220.0 million to $178.5 million. The Company's operations in the PRC, primarily
Hong Kong, provided $144.9 million in revenues, a decrease of $25.6 million, or
15.0%, from $170.5 million. This decrease was due primarily to product
unavailability in Hong Kong, which was partially offset by continued strong
demand in the PRC. Revenues from the Company's Singapore operations decreased
$22.0 million, or 53.7%, from $41.0 million to $19.0 million. This decrease was
due to less demand for wireless products as a result of the general economic,
financial and currency conditions in the region. The Company's operations in
Taiwan provided $14.6 million of revenues, an increase of $6.1 million, or
71.8%, from $8.5 million. The increase was due to higher demand resulting from
the entry of several new carriers into the wireless market in the Company's
first fiscal quarter of 1998. The demand lessened in the second quarter due to
the economic and currency conditions in the area.
The Company's operations in the Latin American Region provided $136.7
million of revenues, compared to $50.3 million, or a 171.8% increase. Revenues
in Mexico, Venezuela and Chile increased $61.6 million, $18.1 million and $8.5
million, respectively. The increase in Mexico was the result of a promotion by
the principal cellular carrier. The increase in Venezuela was fueled by the
Company's prepaid cellular business. The increase in Chile was due to special
promotions offered by the principal carrier during the second fiscal quarter.
Revenues in the remainder of the region decreased $1.8 million, primarily in
Argentina. The decrease in revenues in Argentina was caused by a shift in market
demand from analog to digital phones during the second fiscal quarter. The
Company was unable to meet the new digital market demand because of
unavailability of a sufficient supply of digital product. The Company currently
expects the availability of digital product to improve during the remainder of
the year. Of the increase in revenues, activation and residual income generated
by the Company's operations in the Latin American Region increased from $6.8
million to $16.7 million. Most of the increase was due to activation income from
the Company's Venezuelan prepaid cellular business and its operations in Mexico,
which benefited from the aforementioned carrier promotion.
The Company's European operations recorded revenues of $93.7 million, an
increase of $73.2 million, or 357.1%, from $20.5 million. This increase
reflects continued growth from the Company's U.K. operation and revenues from
the recently acquired operations in Sweden and Poland.
12
<PAGE>
Gross Profit. Gross profit increased $13.8 million, or 19.0%, from $72.5
million to $86.3 million, while, as a percentage of revenues, gross profit
decreased from 11.4% to 10.1%. The increase in gross profit was due to the
increase in wholesale revenues, which were comprised primarily of net product
sales. The decrease in gross profit as a percentage of revenues was due
primarily to an increase in wholesale revenues relative to retail revenues,
which have a higher gross profit margin than wholesale revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.7 million, or 6.2%, from $43.8 million to
$46.5 million. The increase was related principally to infrastructure costs
incurred in connection with the Company's growth in revenues. Overall, the
Company reduced selling, general and administrative expenses as a percentage of
revenues from 6.9% to 5.4%. Bad debt expense as a percentage of revenues
decreased from 0.7% to 0.4%.
Interest Expense. Interest expense increased to $5.1 million from $3.5
million as a result of an increase in long-term debt.
Income Taxes. Income tax expense decreased to $5.4 million from $6.1
million, while the Company's effective tax rate decreased to 15.0% from 23.2%.
The lower effective tax rate was attributable to the continued benefit from
certain tax advantages in Hong Kong that allowed offshore sales to be exempted
from taxation, as well as lower foreign income tax rates and other tax
advantages in certain jurisdictions, principally in the PRC. The utilization of
net operating loss carryforwards, primarily in Latin America, also reduced the
effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended May 31, 1998, the Company relied primarily on
cash generated from operations and borrowings under its $135.0 million
Multicurrency Revolving Credit Facility (the "Facility") to fund working
capital, capital expenditures and expansions. At July 14, 1998, the Company had
available $90.8 million of its borrowing capacity.
At May 31, 1998, the Company had $40.2 million of cash and cash
equivalents, a decrease of $34.5 million since November 30, 1997. Cash has been
used primarily to fund working capital requirements and recent acquisitions in
Sweden, Poland and Peru. Accounts receivable increased primarily from
significantly higher sales activity in the PRC and Mexico, the increase of in-
country sales in South America and receivables associated with the recently
acquired operations in Sweden and Poland, all of which typically have longer
credit terms.
As of June 26, 1998, the Company's Brazilian operations borrowed $9.7
million using a credit facility with a Brazilian bank. In conjunction therewith,
the Company has $7.0 million of letters of credit against its Facility to
guarantee the repayment of the principal plus interest and all other contractual
obligations of its Brazilian operations to the Brazilian bank.
The Company anticipates that available cash, amounts available under the
Facility and cash generated from operations will be sufficient to satisfy its
capital requirements and current expansion plans for fiscal 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material developments have occurred in the Company's legal proceedings
previously reported in the Company's Annual Report on Form 10-K for its 1997
fiscal year.
ITEM 2. CHANGES IN SECURITIES
On May 19, 1998, the Company's Board of Directors authorized a two-for-one
common stock split payable in the form of a 100.0% stock dividend. The stock
dividend was distributed on June 23, 1998, to stockholders of record on June 5,
1998. See Note 3 to Notes to Unaudited Consolidated Financial Statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 19, 1998. The
stockholders voted on proposals to:
1. Elect two Class III Directors of the Company for a term expiring in
2001;
2. Approve the amendment to the Company's Amended and Restated
Certificate of Incorporation; and
3. Approve the amendment and restatement of the CellStar Corporation 1993
Amended and Restated Long-Term Incentive Plan.
The proposals were approved by the following votes:
1. Election of Class III Directors
Shares
Voted Shares
Nominee For Withheld
------- ------ --------
Alan H. Goldfield 25,720,265 89,891
Terry S. Parker 25,720,097 90,059
14
<PAGE>
2. Amendment of the Company's Amended and Restated Certificate of
Incorporation
Shares Shares
Voted Voted Broker
For Against Abstentions Nonvotes
------ ------- ----------- --------
19,100,712 6,659,009 50,435 -0 -
3. Amendment and restatement of the CellStar Corporation 1993 Amended and
Restated Long-Term Incentive Plan
Shares Shares
Voted Voted Broker
For Against Abstentions Nonvotes
------ ------- ----------- --------
18,775,153 6,960,395 74,608 - 0 -
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
3.1 Amended and Restated Certificate of Incorporation of CellStar Corporation
("Certificate of Incorporation"). (1)
3.2 Certificate of Amendment to Certificate of Incorporation. (7)
3.3 Amended and Restated Bylaws of CellStar Corporation. (3)
4.1 The Certificate of Incorporation, Certificate of Amendment to Certificate
of Incorporation and Amended and Restated Bylaws of CellStar Corporation
filed as Exhibits 3.1, 3.2 and 3.3 are incorporated into this item by
reference. (1)(7)(3)
4.2 Specimen Common Stock Certificate of CellStar Corporation. (2)
4.3 Rights Agreement, dated as of December 30, 1996, by and between CellStar
Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights Agent
("Rights Agreement"). (4)
4.4 First Amendment to Rights Agreement, dated as of June 18, 1997. (5)
4.5 Form of Certificate of Designation, Preferences and Rights of Series A
Preferred Stock of CellStar Corporation (" Certificate of Designation").
(4)
4.6 Form of Rights Certificate. (4)
15
<PAGE>
4.7 Certificate of Correction of Certificate of Designation. (5)
4.8 Indenture, dated as of October 14, 1997, by and between CellStar
Corporation and the Bank of New York, as Trustee. (6)
10.1 1993 Amended and Restated Long-Term Incentive Plan (as amended through
May 19, 1998). (7)
27.1 Financial Data Schedule. (7)
27.2 Restated Financial Data Schedule. (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 Annual Report on Form 10-K
for the fiscal year ended November 30, 1995, and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended February 29, 1996, 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 January 3, 1997, and incorporated
herein by reference.
(5) Previously filed as an exhibit to the Company's Registration Statement on
Form 8 - A/A, Amendment No.1 (File No. 000-22972), filed June 30, 1997, and
incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated October 8, 1997, filed October 24, 1997, and incorporated herein by
reference.
(7) Filed herewith.
(B) REPORTS ON FORM 8-K.
None.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CELLSTAR CORPORATION
By: /s/ Mark Q. Huggins
--------------------------------------
Mark Q. Huggins,
Senior Vice President-Administration
and Chief Financial Officer
(Principal Financial Officer)
By: /s/ Evelyn Henry Miller
--------------------------------------
Evelyn Henry Miller,
Vice President and Corporate
Controller
Date: July 14, 1998
17
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No. Description
- ------- ----------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of CellStar
Corporation ("Certificate of Incorporation"). (1)
3.2 Certificate of Amendment to Certificate of Incorporation. (7)
3.3 Amended and Restated Bylaws of CellStar Corporation. (3)
4.1 The Certificate of Incorporation, Certificate of Amendment to
Certificate of Incorporation and Amended and Restated Bylaws of
CellStar Corporation filed as Exhibits 3.1, 3.2 and 3.3 are
incorporated into this item by reference. (1)(7)(3)
4.2 Specimen Common Stock Certificate of CellStar Corporation. (2)
4.3 Rights Agreement, dated as of December 30, 1996, by and between
CellStar Corporation and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent ("Rights Agreement"). (4)
4.4 First Amendment to Rights Agreement, dated as of June 18, 1997. (5)
4.5 Form of Certificate of Designation, Preferences and Rights of Series A
Preferred Stock of CellStar Corporation ("Certificate of
Designation"). (4)
4.6 Form of Rights Certificate. (4)
4.7 Certificate of Correction of Certificate of Designation. (5)
4.8 Indenture, dated as of October 14, 1997, by and between CellStar
Corporation and The Bank of New York, as Trustee. (6)
10.1 1993 Amended and Restated Long-Term Incentive Plan (as amended through
May 19, 1998). (7)
27.1 Financial Data Schedule. (7)
27.2 Restated Financial Data Schedule. (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 Annual Report on Form 10-K
for the fiscal year ended November 30, 1995, and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended February 29, 1996, 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 January 3, 1997, and incorporated
herein by reference.
(5) Previously filed as an exhibit to the Company's Registration Statement on
Form 8-A/A, Amendment No. 1 (File No. 000-22972), filed June 30, 1997, and
incorporated herein by reference.
<PAGE>
(6) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated October 8, 1997, filed October 24, 1997, and incorporated herein by
reference.
(7) Filed herewith.
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO CERTIFICATE OF INCORPORATION
OF CELLSTAR CORPORATION
CELLSTAR CORPORATION, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the "Company"),
does hereby certify:
FIRST: That the Board of Directors of the Company duly adopted resolutions
setting forth a proposed amendment to the Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") of said corporation,
declaring said amendment to be advisable and directing that said amendment be
considered at the next annual meeting of stockholders. The resolution setting
forth the proposed amendment is as follows:
RESOLVED, that, subject to approval of the Company's stockholders,
the Certificate of Incorporation be, and it hereby is, amended by
changing paragraph (a) of Article 4 thereof so that, as amended, such
paragraph shall read as follows:
"(a) Stock Authorization. The total number of shares of
-------------------
capital stock that the Corporation shall have authority to issue is
205,000,000 shares, which shall consist of (i) 200,000,000 shares
of Common Stock, par value $0.01 per share (the "Common Stock") and
(ii) 5,000,000 shares of Preferred Stock, par value $0.01 per share
(the "Preferred Stock")."
SECOND: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, CellStar Corporation has caused this certificate to be
executed the 19th day of May, 1998.
CELLSTAR CORPORATION
By:/s/ Alan H. Goldfield
----------------------------------------
Alan H. Goldfield
Chairman of the Board and Chief Executive
Officer
<PAGE>
EXHIBIT 10.1
CELLSTAR CORPORATION
1993 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN
(AS AMENDED AND RESTATED THROUGH MAY 19, 1998)
This Plan amends and restates the CellStar Corporation 1993 Stock Option
Plan, as previously amended and restated, which first became effective on
December 3, 1993. Capitalized terms used herein are defined in Article 2
hereof.
To the extent permitted under Rule 16b-3, Sections 162(m) and 422 of the
Code, and any other applicable law or regulation, the Committee shall have the
power, in its sole discretion, to apply any or all of the amendments effected
hereby to outstanding Stock Options previously granted under the Plan;
provided that, to the extent that the application of any such amendment to an
outstanding Stock Option shall have an Adverse Consequence for the Company
and/or a Participant, such amendment shall not apply unless it is specifically
approved by the Committee and consented to by the Participant.
This Plan, as amended and restated, shall be effective as of May 19, 1998.
ARTICLE 1
PURPOSE
The purpose of the Plan is to attract and retain key Employees, Nonemployee
Directors and Advisors of the Company and its Subsidiaries and to provide such
persons with a proprietary interest in the Company through the granting of
Stock Options, Stock Appreciation Rights, Restricted Stock, and/or Cash
Awards, whether granted singly, in combination, or in tandem. The Plan is
designed to
(a) increase the interest of such persons in the welfare of the Company
and its Subsidiaries;
(b) furnish an incentive to such persons to continue their services for
the Company and/or its Subsidiaries; and
(c) provide a means through which the Company and its Subsidiaries may
attract able persons to enter their employ or serve as Advisors.
Unless otherwise specified by the Compensation Committee at the time of
grant, with respect to Reporting Participants, the Plan and all transactions
under the Plan are intended to comply with all applicable conditions of Rule
16b-3. To the extent any provision of the Plan or action by the Committee
fails to so comply, it shall be deemed null and void ab initio, to the extent
permitted by law and deemed advisable by the Committee.
ARTICLE 2
DEFINITIONS
For purposes of the Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
2.1 "Adverse Consequence" means (i) the loss of qualification of a Stock
Option for special treatment under Rule 16b-3 or the commencement of a new
holding period under such rule; (ii) the disqualification of a Stock Option as
an Incentive Stock Option or the repricing of such Stock Option; or (iii) the
Company's inability to claim the Section 162(m) Exception with respect to a
Stock Option or the repricing of such Stock Option.
<PAGE>
2.2 "Advisor" means any person performing advisory or consulting services
for the Company or any Subsidiary, with or without compensation, to whom the
Company chooses to grant an Award in accordance with the Plan, provided that
bona fide services must be rendered by such person and such services shall not
be rendered in connection with the offer or sale of securities in a capital
raising transaction.
2.3 "Applicable Law" shall have the meaning set forth in Article 3 below.
2.4 "Award" means the grant under the Plan of any Stock Options, Stock
Appreciation Rights, shares of Restricted Stock, or Cash Award, whether
granted singly, in combination, or in tandem (sometimes individually referred
to herein as an "Incentive").
2.5 "Award Agreement" means a written agreement between a Participant and
the Company that sets out the terms of the grant of an Award.
2.6 "Award Period" means the period during which one or more Incentives
granted under an Award may be exercised.
2.7 "Board" means the Board of Directors of the Company.
2.8 "Cash Award" means an Award granted pursuant to Article 9 of the Plan.
2.9 "Change of Control" means any of the following: (i) any consolidation or
merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's Common Stock would be
converted into cash, securities or other property, other than a merger of the
Company in which the holders of the Company's Common Stock immediately prior
to the merger have the same proportionate ownership of the surviving
corporation immediately after the merger; (ii) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all
or substantially all of the assets of the Company; (iii) approval by the
stockholders of the Company of any plan or proposal for the liquidation or
dissolution of the Company; (iv) the cessation of control (by virtue of their
not constituting a majority of directors) of the Board by the individuals (the
"Continuing Directors") who (x) at the effective date of this Plan were
directors or (y) become directors after the effective date of this Plan and
whose election or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then in office who
were directors at the effective date of this Plan or whose election or
nomination for election was previously so approved; (v) in a Title 11
bankruptcy proceeding, the appointment of a trustee or the conversion of a
case involving the Company to a case under Chapter 7; or (vi) the acquisition
of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act) of an aggregate of 15% or more of the voting power of the Company's
outstanding voting securities by any person or persons acting as a group
(within the meaning of Rule 13d-5 under the Exchange Act) who beneficially
owned less than 10% of the voting power of the Company's outstanding voting
securities on the effective date of this Plan, or the acquisition of
beneficial ownership of an additional 5% of the voting power of the Company's
outstanding voting securities by any person or group who beneficially owned at
least 10% of the voting power of the Company's outstanding voting securities
on the effective date of this Plan; provided, however, that, notwithstanding
the foregoing, an acquisition shall not constitute a Change of Control
hereunder if the acquiror is (v) Alan H. Goldfield ("Goldfield"); (w) a
trustee or other fiduciary holding securities under an employee benefit plan
of the Company and acting in such capacity; (x) 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; (y) a
person or group meeting the requirements of clauses (i) and (ii) of Rule 13d-
1(b)(1) under the Exchange Act; or (z) any other person whose acquisition of
shares of voting securities is approved in advance by a majority of the
Continuing Directors; and provided further that no Change of Control shall be
deemed to have occurred from a transfer of the Company's voting securities by
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
2
<PAGE>
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
Code that is funded by Goldfield. To the extent that a Participant's
Employment Agreement differs from the Plan with respect to the meaning of
"Change of Control," if such Employment Agreement has been approved by the
Compensation Committee of the Board of Directors, the definition included in
such Employment Agreement shall govern.
2.10 "Code" means the Internal Revenue Code of 1986, as amended.
2.11 "Committee" means the committee(s) appointed or designated by the Board
to administer the Plan in accordance with Article 3 of this Plan.
2.12 "Common Stock" means the Common Stock, par value, $.01 per share, of
the Company or, in the event that the outstanding shares of such Common Stock
are hereafter changed into or exchanged for shares of a different stock or
security of the Company or another corporation, such other stock or security.
2.13 "Company" means CellStar Corporation, a Delaware corporation.
2.14 "Date of Grant" means the effective date on which an Award is made to a
Participant as set forth in the applicable Award Agreement.
2.15 "Discretionary Amendment" means any amendment to the Plan that does not
require stockholder approval.
2.16 "Employee" means any employee (including any employee who is also a
director and/or officer) of the Company or its Subsidiaries.
2.17 "Employment Agreement" means an agreement between the Company or any
Subsidiary and a Participant, setting forth the terms and conditions of the
Participant's employment by the Company or such Subsidiary. For purposes of
the Plan, such term shall also be deemed to include any agreement between the
Company or any Subsidiary and an Advisor, setting forth the terms and
conditions of the Advisor's services for the Company or such Subsidiary.
2.18 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
2.19 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.20 "Fair Market Value" of a share of Common Stock means such value as is
determined by the Committee on the basis of such factors as it deems
appropriate; provided that, if the Common Stock is traded on a national
securities exchange or transactions in the Common Stock are quoted on the
NASDAQ National Market System, such value shall be determined by the Committee
on the basis of the last reported sale price for the Common Stock on the date
for which such determination is relevant, as reported on the national
securities exchange or the NASDAQ National Market System, as the case may be.
If the Common Stock is not listed and traded upon a recognized securities
exchange or in the NASDAQ National Market System, the Committee shall make a
determination of Fair Market Value on the basis of the closing bid and asked
quotations for such stock on the date for which such determination is relevant
(as reported by a recognized stock quotation service) or, in the event that
there are no bid or asked quotations for such stock on the date for which such
determination is relevant, then on the basis of the mean between the closing
bid and asked quotations on the date nearest preceding the date for which such
determination is relevant for which such bid and asked quotations were
available. In no event shall "Fair Market Value" be less than the par value of
the Common Stock.
2.21 "Incentive" shall have the meaning given it in Section 2.4 above.
2.22 "Incentive Stock Option" or "ISO" means a Stock Option that by its
terms is intended to be treated as an "incentive stock option" within the
meaning of Section 422 of the Code.
3
<PAGE>
2.23 "Mandated Restrictions" shall have the meaning set forth in Article 3
below.
2.24 "Nonemployee Director" means a member of the Board of Directors of the
Company or any Subsidiary who is not an Employee.
2.25 "Non-qualified Stock Option" means any Stock Option that does not
qualify as an Incentive Stock Option.
2.26 "Option Exercise Price" means the price that must be paid by a
Participant upon exercise of a Stock Option to purchase a share of Common
Stock.
2.27 "Option Period" means the period during which a Stock Option may be
exercised.
2.28 "Participant" shall mean an Employee, Nonemployee Director or Advisor
to whom an Award is granted under this Plan.
2.29 "Plan" means this CellStar Corporation 1993 Amended and Restated Long-
Term Incentive Plan, as amended from time to time.
2.30 "Reporting Participant" means a Participant who is subject to the
reporting requirements of Section 16 of the Exchange Act.
2.31 "Restricted Stock" means shares of Common Stock issued or transferred
to a Participant pursuant to this Plan, which shares are subject to the
restrictions or limitations set forth in Article 7 of this Plan and in the
related Restricted Stock Agreement.
2.32 "Restricted Stock Agreement" means a written agreement between the
Company and a Participant with respect to an Award of Restricted Stock.
2.33 "Retirement" means Termination of Service at or after the Company's
established retirement age, unless otherwise defined in a particular Award
Agreement. To the extent that a Participant's Employment Agreement differs
from the Plan with respect to the meaning of "Retirement," if such Employment
Agreement has been approved by the Compensation Committee of the Board of
Directors, the definition included in such Employment Agreement shall govern.
2.34 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as
amended from time to time.
2.35 "SAR Price" means the price that must be paid by a Participant upon
exercise of an SAR, which shall be at least the Fair Market Value of each
share of Common Stock covered by the SAR, determined on the Date of Grant of
the SAR.
2.36 "Section 162(m)" means Section 162(m) of the Code and the regulations
promulgated thereunder from time to time.
2.37 "Section 162(m) Exception" means the exception under Section 162(m) for
"qualified performance-based compensation."
2.38 "Stock Appreciation Right" or "SAR" means the right to receive a
payment equal to the excess of the Fair Market Value of a specified number of
shares of Common Stock on the date the SAR is exercised over the SAR Price for
such shares.
2.39 "Stock Appreciation Right Agreement" means an agreement between the
Company and a Participant setting forth the terms and conditions of an Award
of Stock Appreciation Rights.
2.40 "Stock Option" means a Non-qualified Stock Option or an Incentive Stock
Option to purchase Common Stock.
4
<PAGE>
2.41 "Stock Option Agreement" means a written agreement between the Company
and a Participant setting forth the terms and conditions of an Award of Stock
Options.
2.42 "Subsidiary" means a subsidiary corporation of the Company, within the
meaning of Section 424(f) of the Code; provided that, with respect to any
Awards under the Plan other than Incentive Stock Options, the term
"Subsidiary" shall be deemed to include (i) any limited partnership, if the
Company or any subsidiary corporation owns a majority of the general
partnership interest and a majority of the limited partnership interests
entitled to vote on the removal and replacement of the general partner, and
(ii) any partnership, if the partners thereof are composed only of the
Company, any subsidiary corporation, or any limited partnership listed in item
(i) above.
2.43 "Ten Percent Owner" means a person who owns, or is deemed within the
meaning of Section 422(b)(6) of the Code to own, stock possessing more than
10% of the total combined voting power of all classes of stock of the Company
(or its parent (within the meaning of Section 424(e) of the Code) or
Subsidiaries). Whether a person is a Ten Percent Owner shall be determined
with respect to a Stock Option based on the facts existing immediately prior
to the Date of Grant of such Stock Option.
2.44 "Termination of Service" occurs when a Participant who is an Employee,
Nonemployee Director or Advisor shall cease to serve as an Employee,
Nonemployee Director or Advisor for any reason; provided that, with respect to
Incentive Stock Options, Termination of Service occurs when a Participant
ceases to serve as an Employee.
2.45 "Total and Permanent Disability" of a Participant means that the
Participant is qualified for long-term disability benefits under the Company's
disability plan or insurance policy; or, if no such plan or policy is then in
existence, that the Participant, because of ill health, physical or mental
disability or any other reason beyond his or her control, is unable to perform
his or her duties of employment for a period of six (6) continuous months, as
determined in good faith by the Committee; provided that, with respect to any
Incentive Stock Option, Total and Permanent Disability shall have the meaning
given it under the rules governing Incentive Stock Options under the Code.
With respect to any Award other than an Incentive Stock Option, to the extent
that a Participant's Employment Agreement differs from the Plan with respect
to the meaning of "Total and Permanent Disability," if such Employment
Agreement has been approved by the Compensation Committee of the Board of
Directors, the definition included in such Employment Agreement shall govern.
ARTICLE 3
ADMINISTRATION
The Plan shall be administered by the Board or by a committee appointed by
the Board, consisting of at least two members of the Board; provided that, (i)
with respect to any Award that is intended to satisfy the requirements of Rule
16b-3, such Award shall be granted and administered by the full Board or by a
committee of the Board consisting of at least such number of directors as are
required from time to time by Rule 16b-3, and each such Board or committee
member shall meet such qualifications as are required by Rule 16b-3 from time
to time; and (ii) with respect to any Award that is intended to satisfy the
requirements of the Section 162(m) Exception, such Award shall be granted and
administered by a committee of the Board consisting of at least such number of
directors as are required from time to time to satisfy the Section 162(m)
Exception, and each such committee member shall meet such qualifications as
are required, from time to time, to satisfy the Section 162(m) Exception. Any
member of the Committee may be removed at any time, with or without cause, by
resolution of the Board. Any vacancy occurring in the membership of the
Committee may be filled by appointment by the Board.
The Committee shall select one of its members to act as its Chairman. A
majority of the Committee shall constitute a quorum, and the act of a majority
of the members of the Committee present at a meeting at which a quorum is
present shall be the act of the Committee.
Subject to the provisions of the Plan, the Committee shall have the sole
discretion and authority to determine and designate from time to time the
eligible persons to whom Awards will be granted and to determine and
5
<PAGE>
interpret the terms and provisions of each Award Agreement, including without
limitation the Award Period, the Date of Grant, and such other terms,
provisions, limitations, and performance requirements, as are approved by the
Committee. The Committee shall determine whether an Award shall include one
type of Incentive, two or more Incentives granted in combination, or two or
more Incentives granted in tandem (that is, a joint grant where exercise of
one Incentive results in cancellation of all or a portion of the other
Incentive).
Subject to the provisions of the Plan, the Committee shall also have sole
discretion and authority to (i) interpret the Plan; (ii) prescribe, amend, and
rescind any rules and regulations necessary or appropriate for the
administration of the Plan; (iii) modify or amend any Award Agreement or waive
any conditions or restrictions applicable to any Stock Option or SAR (or the
exercise thereof) or to any shares of Restricted Stock; and (iv) make such
other determinations and take such other action as it deems necessary or
advisable in the administration of the Plan. Any interpretation,
determination, or other action made or taken by the Committee shall be final,
binding, and conclusive on all interested parties.
With respect to restrictions ("Mandated Restrictions") in the Plan that are
based on the requirements of Rule 16b-3, Section 422 of the Code, the Section
162(m) Exception, the rules of any exchange upon which the Company's
securities are listed, or any other applicable law, rule or restriction
(collectively, "Applicable Law"), to the extent that any such Mandated
Restrictions are no longer required by Applicable Law, the Committee shall
have the sole discretion and authority to grant Awards that are not subject to
such Mandated Restrictions and/or to waive any such Mandated Restrictions with
respect to outstanding Awards.
ARTICLE 4
ELIGIBILITY
Any Employee, Nonemployee Director, or Advisor whose judgment, initiative,
and efforts contributed or may be expected to contribute to the successful
performance of the Company is eligible to participate in the Plan; provided
that only Employees shall be eligible to receive Incentive Stock Options; and
provided further that, to the extent required by Applicable Law, no member of
the Committee shall be eligible to participate in the Plan. The Committee,
upon its own action, may grant, but shall not be required to grant, an Award
to any Employee, Nonemployee Director, or Advisor. Awards may be granted by
the Committee at any time and from time to time to new Participants, or to
then Participants, or to a greater or lesser number of Participants, and may
include or exclude previous Participants, as the Committee shall determine;
provided that no Participant may receive during any fiscal year of the Company
Awards in the form of shares of Common Stock, including Stock Options, SARs or
Restricted Stock, the aggregate of which shall exceed 250,000 shares of Common
Stock. Except as required by this Plan, Awards granted at different times need
not contain similar provisions. The Committee's determinations under the Plan
(including without limitation determinations of which persons, if any, are to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among Employees, Nonemployee
Directors and/or Advisors who receive, or are eligible to receive, Awards
under the Plan.
ARTICLE 5
SHARES SUBJECT TO PLAN
The number of shares of Common Stock that may be issued pursuant to Awards
granted under the Plan is 4,000,000 (as may be adjusted in accordance with
Articles 12 and 13 hereof). Such shares of Common Stock may be made available
from either authorized but unissued Common Stock or Common Stock held by the
Company in its treasury. To the extent permitted by the stockholder approval
requirements of Rule 16b-3, Sections 162(m) and 422 of the Code, and any other
applicable law or regulation, shares of Common Stock previously subject to
Awards which are forfeited, terminated, settled in cash in lieu of Common
Stock, or exchanged for Awards that do not involve Common Stock, or that are
subject to expired and unexercised Stock Options or SARs, shall immediately
become available for Awards under the Plan.
6
<PAGE>
During the term of this Plan, the Company will at all times reserve and keep
available a number of shares of Common Stock sufficient to satisfy the
requirements of this Plan.
ARTICLE 6
STOCK OPTIONS
6.1 GRANT OF STOCK OPTIONS. The Committee may, in its sole discretion, grant
Stock Options in accordance with the terms and conditions set forth in the
Plan. The grant of a Stock Option shall be evidenced by a Stock Option
Agreement setting forth the Date of Grant, the total number of shares
purchasable pursuant to the Stock Option, the Option Period, the vesting
schedule (if any), and such other terms and provisions as are consistent with
the Plan.
6.2 OPTION EXERCISE PRICE. The Option Exercise Price for any Stock Option
shall be determined by the Committee and shall be no less than One Hundred
Percent (100%) of the Fair Market Value per share of Common Stock on the Date
of Grant; provided that, with respect to any Incentive Stock Option that is
granted to a Ten Percent Owner, the Option Exercise Price shall be at least
110% of the Fair Market Value of the Common Stock on the Date of Grant.
6.3 OPTION PERIOD. The Option Period for any Stock Option shall be
determined by the Committee; provided that no portion of any Stock Option may
be exercised after the expiration of ten (10) years from its Date of Grant;
and provided further that, with respect to any Incentive Stock Option that is
granted to a Ten Percent Owner, the term of such Incentive Stock Option (to
the extent required by the Code at the time of grant) shall be no more than
five (5) years from the Date of Grant.
6.4 MAXIMUM ISO GRANTS. The Committee may not grant Incentive Stock Options
under the Plan to any Employee which would permit the aggregate Fair Market
Value (determined on the Date of Grant) of the Common Stock with respect to
which Incentive Stock Options (under this and any other plan of the Company
and its Subsidiaries or parent) are exercisable for the first time by such
Employee during any calendar year to exceed $100,000. To the extent that any
Stock Option is granted under the Plan that is first exercisable in excess of
the foregoing limitations, such Stock Option shall be deemed to be a Non-
qualified Stock Option.
6.5 EXERCISE OF STOCK OPTIONS. Subject to the terms, conditions, and
restrictions of the Plan, each Stock Option may be exercised in accordance
with the terms of the Stock Option Agreement pursuant to which the Stock
Option is granted. If the Committee imposes conditions upon exercise of any
Stock Option, the Committee may, in its sole discretion, accelerate the date
on which all or any portion of the Stock Option may be exercised; provided
that, the Committee shall not, without the Participant's consent, accelerate
any Incentive Stock Option if such acceleration would disqualify such Stock
Option as an Incentive Stock Option. Notwithstanding anything in the Plan to
the contrary, to the extent required by Rule 16b-3, a Reporting Participant
may not exercise a Stock Option or Stock Appreciation Right until at least six
months have expired from the "date of grant" (within the meaning of Rule 16b-
3).
Subject to such administrative regulations as the Committee may from time to
time adopt, a Stock Option will be deemed exercised for purposes of the Plan
when (i) written notice of exercise has been received by the Company at its
principal office (which notice shall set forth the number of shares of Common
Stock with respect to which the Stock Option is to be exercised and the date
of exercise thereof, which shall be at least three (3) days after giving such
notice, unless an earlier time shall have been mutually agreed upon) and (ii)
payment of the Option Exercise Price is received by the Company in accordance
with Section 6.6 below; provided that, with respect to a cashless exercise of
any Stock Option (in accordance with clause (c) of Section 6.6 below), such
Stock Option will be deemed exercised for purposes of the Plan on the date of
sale of the shares of Common Stock received upon exercise. No Stock Option may
be exercised for a fractional share of Common Stock.
6.6 PAYMENT OF OPTION EXERCISE PRICE. The Option Exercise Price may be paid
as follows: (a) in cash or by certified check, bank draft, or money order
payable to the order of the Company, (b) with Common Stock
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(including Restricted Stock), valued at its Fair Market Value on the date of
exercise, (c) by delivery (including by FAX) to the Company or its designated
agent of an executed irrevocable option exercise form together with
irrevocable instructions from the Participant to a broker or dealer,
reasonably acceptable to the Company, to sell certain of the shares of Common
Stock purchased upon exercise of the Stock Option or to pledge such shares as
collateral for a loan and promptly deliver to the Company the amount of sale
or loan proceeds necessary to pay such purchase price, and/or (d) in any other
form of valid consideration that is acceptable to the Committee in its sole
discretion. In the event that shares of Restricted Stock are tendered as
consideration for the exercise of a Stock Option, a number of shares of Common
Stock issued upon the exercise of the Stock Option, equal to the number of
shares of Restricted Stock used as consideration therefor, shall be subject to
the same restrictions as the Restricted Stock so submitted.
Upon payment of all amounts due from the Participant, the Company shall
cause certificates for the Common Stock then being purchased to be delivered
to the Participant (or the person exercising the Participant's Stock Option in
the event of his death) at its principal business office or other mutually
agreed upon location within ten (10) business days after the exercise.
If the Participant fails to pay for any of the Common Stock specified in
such notice or fails to accept delivery thereof, the Participant's right to
purchase such Common Stock may be terminated by the Company.
6.7 LIMITATION ON INCENTIVE STOCK OPTION CHARACTERIZATION. To the extent
that any Stock Option fails to qualify as an Incentive Stock Option, such
Stock Option will be considered a Non-qualified Stock Option.
6.8 TERMINATION OF SERVICE.
Unless otherwise permitted by the Committee, in its sole discretion, in the
event of Termination of Service of a Participant, any Stock Options held by
such Participant shall be exercisable as follows:
(a) Termination Due to Death or Total and Permanent Disability. In the
event of a Participant's Termination of Service due to death or Total and
Permanent Disability, such Participant's Stock Options may be exercised, to
the extent such Stock Options could have been exercised by the Participant
on the date of the Participant's death or Total and Permanent Disability
(as applicable), for a period of twelve (12) months after the Participant's
death or Total and Permanent Disability (as applicable) or until the
expiration of the original Option Period (if sooner).
(b) Termination Due to Retirement. In the event of a Participant's
Termination of Service due to Retirement, such Participant's Stock Options
may be exercised, to the extent such Stock Options could have been
exercised by the Participant on the date of the Participant's Retirement,
for a period of three (3) months after the date of the Participant's
Retirement or until the expiration of the original Option Period (if
sooner).
(c) Termination for Reasons Other than Death, Total and Permanent
Disability, or Retirement. In the event of a Participant's Termination of
Service for any reason other than death, Total and Permanent Disability, or
Retirement, such Participant's Stock Options may be exercised, to the
extent such Stock Options could have been exercised by the Participant on
the date of such Termination of Service, for a period of thirty (30) days
after the date of such Termination of Service or until the expiration of
the original Option Period (if sooner).
6.9 TRANSFERABILITY OF STOCK OPTIONS.
(a) Incentive Stock Options. Incentive Stock Options may not be transferred
or assigned other than by will or the laws of descent and distribution and may
be exercised during the lifetime of the Participant only by the Participant or
the Participant's legally authorized representative, and each Stock Option
Agreement in respect of an Incentive Stock Option shall so provide. The
designation by a Participant of a beneficiary will not constitute a transfer
of the Stock Option.
The Committee may waive or modify any limitation contained in this Section
6.9(a) that is not required for compliance with Section 422 of the Code.
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(b) Non-qualified Stock Options.
(1) Participants Other Than Reporting Participants. With respect to Non-
qualified Stock Options granted hereunder to any Participant who is not a
Reporting Participant, the Committee may, in its sole discretion, provide
in any Stock Option Agreement (or in an amendment to any existing Stock
Option Agreement) such provisions regarding transferability of the Non-
qualified Stock Options as the Committee, in its sole discretion, deems
appropriate.
(2) Reporting Participants. Except as may be specified by the Committee
in accordance with the following paragraph, a Non-qualified Stock Option
granted to a Reporting Participant may not be transferred or assigned other
than by will or the laws of descent and distribution or pursuant to the
terms of a qualified domestic relations order, as defined by the Code or
Title I of ERISA, or the rules thereunder. The designation by a Reporting
Participant of a beneficiary will not constitute a transfer of the Stock
Option.
The Committee may, in its sole discretion, provide in any Stock Option
Agreement (or in an amendment to any existing Stock Option Agreement) that
Non-qualified Stock Options granted hereunder to a Reporting Participant
may be transferred to members of the Reporting Participant's immediate
family, trusts for the benefit of such immediate family members and
partnerships in which such immediate family members are the only partners,
provided that there cannot be any consideration for the transfer.
The Committee may waive or modify any limitation contained in this
Section 6.9(b)(2) that is not required for compliance with Rule 16b-3.
ARTICLE 7
RESTRICTED STOCK
7.1 GRANT OF RESTRICTED STOCK. The Committee may, in its sole discretion,
grant Restricted Stock Awards in accordance with the terms and conditions set
forth in the Plan. The grant of an Award of Restricted Stock shall be
evidenced by a Restricted Stock Agreement setting forth (i) the Date of Grant,
(ii) the number of shares of Restricted Stock awarded, (iii) the price, if
any, to be paid by the Participant for such Restricted Stock, (iv) the time or
times within which such Award may be subject to forfeiture, (v) specified
performance goals, or other criteria, if any, that the Committee determines
must be met in order to remove any restrictions (including vesting) on such
Award, and (vi) such other terms and provisions as are consistent with the
Plan. The provisions of Restricted Stock Awards need not be the same with
respect to each Participant.
7.2 RESTRICTIONS AND CONDITIONS. Each Restricted Stock Award shall confer
upon the recipient thereof the right to receive a specified number of shares
of Common Stock in accordance with the terms and conditions of each
Participant's Restricted Stock Agreement and the restrictions and conditions
set forth below:
(a) The shares of Common Stock awarded hereunder to a Participant shall
be restricted for a period of time (the "Restriction Period") to be
determined by the Committee for each Participant at the time of the Award.
The restrictions shall prohibit the sale, transfer, pledge, assignment or
other encumbrance of such shares and shall provide for possible reversion
thereof to the Company in accordance with subparagraph (f) during the
Restriction Period. The Restriction Period shall commence on the Date of
Grant and, unless otherwise established by the Committee in the Restricted
Stock Agreement, shall expire upon satisfaction of the conditions set forth
in the Award Agreement, which conditions may provide for vesting based on
(i) length of continuous service, (ii) achievement of specific business
objectives, (iii) increases in specified indices, (iv) attainment of
specified growth rates, or (v) any other factor, as determined by the
Committee in its sole discretion. The Committee may, in its sole
discretion, remove any or all of the restrictions on such Restricted Stock
whenever it may determine that, by reason of changes in applicable laws or
other changes in circumstances arising after the date of the Award, such
action is appropriate.
(b) From the Date of Grant of a Restricted Stock Award, the Participant
shall have, with respect to his or her shares of Restricted Stock, all of
the rights of a stockholder of the Company, including the right to
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vote the shares, and the right to receive any dividends thereon, subject to
forfeiture of such rights, as provided in subparagraph (f) below.
(c) Each Participant who is awarded Restricted Stock shall be issued a
stock certificate or certificates in respect of such shares of Common
Stock, which shall be registered in the name of the Participant, but shall
be delivered by the Participant to the Company together with a stock power
endorsed in blank. Each such certificate shall be registered in the name of
the Participant, and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Restricted Stock,
substantially in the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE,
RESTRICTIONS ON TRANSFER AND CERTAIN OTHER TERMS AND CONDITIONS SET
FORTH IN THE CELLSTAR CORPORATION 1993 AMENDED AND RESTATED LONG-TERM
INCENTIVE PLAN AND IN A RELATED AWARD AGREEMENT ENTERED INTO BETWEEN
THE REGISTERED OWNER AND CELLSTAR CORPORATION. COPIES OF SUCH PLAN AND
AGREEMENT ARE ON FILE AT THE PRINCIPAL PLACE OF BUSINESS OR REGISTERED
OFFICE OF, AND WILL BE FURNISHED WITHOUT CHARGE UPON WRITTEN REQUEST BY
THE RECORD HOLDER TO, CELLSTAR CORPORATION, 1730 BRIERCROFT COURT,
CARROLLTON, TEXAS 75006.
Each Restricted Stock Agreement shall require that (i) each Participant,
by his or her acceptance of Restricted Stock, shall irrevocably grant to
the Company a power of attorney to transfer any shares so forfeited to the
Company and agrees to execute any documents requested by the Company in
connection with such forfeiture and transfer, and (ii) such provisions
regarding returns and transfers of stock certificates with respect to
forfeited shares of Common Stock shall be specifically performable by the
Company in a court of equity or law.
(d) Upon the lapse of a Restriction Period, the Company will return the
stock certificates representing shares of Common Stock with respect to
which the restrictions have lapsed to the Participant or his or her legal
representative, and pursuant to the instruction of the Participant or his
or her legal representative will issue a certificate for such shares that
does not bear the legend set forth in subparagraph (c) above.
(e) Any other securities or assets (other than ordinary cash dividends)
that are received by a Participant with respect to shares of Restricted
Stock awarded to such Participant, which shares are still subject to
restrictions established in accordance with subparagraph (a) above, will be
subject to the same restrictions and will be delivered by the Participant
to the Company as provided in subparagraph (c) above.
(f) Subject to the provisions of the particular Award Agreement, and
unless otherwise permitted by the Committee in its sole discretion, upon
Termination of Service for any reason during the Restriction Period, any
nonvested shares of Restricted Stock held by such Participant shall be
forfeited by the Participant. In the event a Participant has paid any
consideration to the Company for forfeited Restricted Stock, the Company
shall, as soon as practicable after the event causing forfeiture (but in
any event within 5 business days), pay to the Participant, in cash, an
amount equal to the total consideration paid by the Participant for such
forfeited shares. Upon any forfeiture, all rights of a Participant with
respect to the forfeited shares of Restricted Stock shall cease and
terminate, without any further obligation on the part of the Company.
7.3 NOTICE TO COMPANY OF SECTION 83(b) ELECTION. Any Participant who
exercises an election under Section 83(b) of the Code to have his or her
receipt of shares of Restricted Stock taxed currently, without regard to
restrictions, must give notice to the Company of such election immediately
upon making such election. Any such election must be made within 30 days after
the effective date of issuance and cannot be revoked except with the consent
of the Internal Revenue Service.
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ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1 GRANTS OF SARS. The Committee may, in its sole discretion, grant Stock
Appreciation Rights in accordance with the terms and conditions set forth in
the Plan. Each SAR Agreement may contain such additional terms and conditions,
not inconsistent with the terms of the Plan, as are determined by the
Committee in its sole discretion. An SAR may be granted in combination with,
in addition to, or completely independent of, a Stock Option or any other
Award. An SAR shall entitle a Participant to surrender to the Company all or a
portion of the SAR in exchange for an amount equal to the excess of the Fair
Market Value of a share of Common Stock on the date of exercise over the SAR
Price, multiplied by the total number of shares of Common Stock with respect
to which the SAR shall have been exercised.
8.2 SAR PRICE. The SAR Price for any share of Common Stock subject to an SAR
shall be no less than One Hundred Percent (100%) of the Fair Market Value of
the share on the Date of Grant.
8.3 AWARD PERIOD. Subject to Section 8.9 below, the Award Period for any
Stock Appreciation Right shall be determined by the Committee; provided that
no portion of any Stock Appreciation Right may be exercised after the
expiration of ten (10) years from its Date of Grant.
8.4 FORM OF PAYMENT. In the discretion of the Committee, the Company may
satisfy its payment obligation upon a Participant's exercise of an SAR (i) in
cash, (b) in shares of Common Stock valued at their Fair Market Value on the
date of exercise, or (c) in part with cash and in part with shares of Common
Stock.
8.5 EXERCISE OF SARS. Subject to the following paragraph, each Stock
Appreciation Right shall be exercisable in accordance with the terms of the
Stock Appreciation Rights Agreement pursuant to which the Stock Appreciation
Right is granted. Subject to the conditions of this Section 8.5 and such
administrative regulations as the Committee may from time to time adopt, an
SAR may be exercised by the delivery of written notice to the Committee
setting forth the number of shares of Common Stock with respect to which the
SAR is to be exercised and the date of exercise thereof, which shall be at
least three (3) days after giving such notice unless an earlier time shall
have been mutually agreed upon. On the date of exercise, the Participant shall
receive from the Company in exchange therefor payment in an amount equal to
the excess (if any) of the Fair Market Value (as of the date of the exercise
of the SAR) of one share of Common Stock over the SAR Price per share
specified in such SAR, multiplied by the total number of shares of Common
Stock of the SAR being surrendered.
A transaction under the Plan involving the exercise of an SAR and the
receipt of cash in complete or partial settlement of the SAR by a Reporting
Participant shall be subject to the satisfaction of all of the following
conditions:
(a) the Company shall have been subject to and complied with the
reporting requirements of Section 13(a) of the Exchange Act for at least
one year prior to the exercise of the SAR;
(b) the Company regularly releases for publication quarterly and annual
summary statements of sales and earnings;
(c) any election by the Reporting Participant to receive cash in full or
partial settlement of the SAR, as well as the exercise by the insider of
the SAR for cash, shall have been made during the period beginning on the
third business day following the date of release of the financial data
specified in subparagraph (b) above and ending on the twelfth day following
such date, unless the exercise by the participant of the SAR is for cash
and the date of exercise is automatic or fixed in advance under the Plan
and is outside the control of the participant, in which case the condition
in this subparagraph (c) shall not be applicable; and
(d) The SAR must be held for six months from the date of acquisition to
the date of cash settlement.
If the conditions to the exercise of an SAR by a Reporting Participant
contained in Rule 16b-3 are subsequently modified, the foregoing conditions
shall automatically be deemed amended to incorporate such
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modifications. Furthermore, the Committee may waive any limitation contained
in this Section that is not required for compliance with Rule 16b-3.
8.6 EFFECT ON STOCK OPTIONS AND VICE-VERSA. Whenever a Stock Appreciation
Right is granted in relation to a Stock Option and the exercise of one affects
the right to exercise the other, the number of shares of stock available under
the Stock Option to which the Stock Appreciation Right relates will decrease
by a number equal to the number of shares of Common Stock for which the Stock
Appreciation Right is exercised. Upon the exercise of a Stock Option, any
related SAR will terminate as to any number of shares of Common Stock subject
to such Stock Appreciation Right that exceeds the total number of shares of
Common Stock for which the Stock Option remains unexercised.
8.7 TERMINATION OF EMPLOYMENT OR SERVICE. Unless otherwise permitted by the
Committee, in its sole discretion, in the event of Termination of Service of a
Participant, any Stock Appreciation Rights held by such Participant shall be
exercisable as set forth below; provided that, whenever a Stock Appreciation
Right is granted in relation to a Stock Option and the exercise of one affects
the right to exercise the other, the Stock Appreciation Right may be exercised
only during the period, if any, within which the Stock Option to which it
relates may be exercised.
(a) Termination Due to Death or Total and Permanent Disability. In the
event of a Participant's Termination of Service due to death or Total and
Permanent Disability, such Participant's Stock Appreciation Rights may be
exercised, to the extent such Stock Appreciation Rights could have been
exercised by the Participant on the date of the Participant's death or
Total and Permanent Disability (as applicable), for a period of twelve (12)
months after the Participant's death or Total and Permanent Disability (as
applicable) or until the expiration of the original Award Period (if
sooner).
(b) Termination Due to Retirement. In the event of a Participant's
Termination of Service due to Retirement, such Participant's Stock
Appreciation Rights may be exercised, to the extent such Stock Appreciation
Rights could have been exercised by the Participant on the date of the
Participant's Retirement, for a period of three (3) months after the date
of the Participant's Retirement or until the expiration of the original
Award Period (if sooner).
(c) Termination for Reasons Other than Death, Total and Permanent
Disability, or Retirement. In the event of a Participant's Termination of
Service for any reason other than death, Total and Permanent Disability, or
Retirement, such Participant's Stock Appreciation Rights may be exercised,
to the extent such Stock Appreciation Rights could have been exercised on
the date of such Termination of Service, for a period of thirty (30) days
after the date of such Termination of Service or until the expiration of
the original Award Period (if sooner).
8.8 TRANSFERABILITY OF STOCK APPRECIATION RIGHTS.
(a) Participants Other Than Reporting Participants. Subject to Section
8.9 below, with respect to SARs granted hereunder to any Participant who is
not a Reporting Participant, the Committee may, in its sole discretion,
provide in any Stock Appreciation Rights Agreement (or in an amendment to
any existing Stock Appreciation Rights Agreement) such provisions regarding
transferability of the SARs as the Committee, in its sole discretion, deems
appropriate.
(b) Reporting Participants. Subject to Section 8.9 below, and except as
may be specified by the Committee in accordance with the following
paragraph, a Stock Appreciation Right granted to a Reporting Participant
may not be transferred or assigned other than by will or the laws of
descent and distribution or pursuant to the terms of a qualified domestic
relations order, as defined by the Code or Title I of ERISA, or the rules
thereunder. The designation by a Reporting Participant of a beneficiary
will not constitute a transfer of the SAR.
Subject to Section 8.9 below, the Committee may, in its sole discretion,
provide in any Stock Appreciation Rights Agreement (or in an amendment to
any existing Stock Appreciation Rights Agreement)
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that Stock Appreciation Rights granted hereunder to a Reporting Participant
may be transferred to members of the Reporting Participant's immediate
family, trusts for the benefit of such immediate family members and
partnerships in which such immediate family members are the only partners,
provided that there cannot be any consideration for the transfer.
The Committee may waive or modify any limitation contained in this
Section 8.8(b) that is not required from compliance with Rule 16b-3.
8.9 TANDEM INCENTIVE STOCK OPTION--STOCK APPRECIATION RIGHT. Whenever an
Incentive Stock Option and a Stock Appreciation Right are granted together and
the exercise of one affects the right to exercise the other, the following
requirements shall apply:
(a) The Stock Appreciation Right shall expire no later than the
expiration of the underlying Incentive Stock Option;
(b) The Stock Appreciation Right may be for no more than the difference
between the Stock Option Exercise Price of the underlying Incentive Stock
Option and the Fair Market Value of the Common Stock subject to the
underlying Incentive Stock Option at the time the SAR is exercised;
(c) The Stock Appreciation Right is transferable only when the underlying
Incentive Stock Option is transferable, and under the same conditions;
(d) The Stock Appreciation Right may be exercised only when the
underlying Incentive Stock Option is eligible to be exercised; and
(e) The Stock Appreciation Right may be exercised only when the Fair
Market Value of the Common Stock subject to the underlying Incentive Stock
Option exceeds the Option Exercise Price of the underlying Incentive Stock
Option.
ARTICLE 9
CASH AWARDS
9.1 GRANT OF CASH AWARDS. The Committee may, in its sole discretion, grant
Cash Awards in accordance with the terms and conditions set forth in the Plan.
Each related Award Agreement shall set forth (i) the amount of the Cash Award,
(ii) the time or times within which such Award may be subject to forfeiture,
if any, (iii) specified performance goals, or other criteria, if any, as the
Committee may determine must be met in order to remove any restrictions
(including vesting) on such Award, and (iv) any other terms, limitations,
restrictions, and conditions of the Incentive that are consistent with this
Plan.
The Award Agreement shall also set forth the vesting period for the Cash
Award, if any, which shall commence on the Date of Grant and, unless otherwise
established by the Committee in the Award Agreement, shall expire upon
satisfaction of the conditions set forth in the Award Agreement. Such
conditions may provide for vesting based on (i) length of continuous service,
(ii) achievement of specific business objectives, (iii) increases in specified
indices, (iv) attainment of specified growth rates, or (v) other comparable
measurements of Company performance, as may be determined by the Committee in
its sole discretion.
9.2 TERMINATION OF SERVICE. Subject to the provisions of the particular
Award Agreement, and unless otherwise permitted by the Committee, in its sole
discretion, upon Termination of Service for any reason during a vesting period
(if any), the nonvested portion of a Cash Award shall be forfeited by the
Participant. Upon any forfeiture, all rights of a Participant with respect to
the forfeited Cash Award shall cease and terminate, without any further
obligation on the part of the Company.
9.3 FORM OF PAYMENT. In the sole discretion of the Committee, the Company
may satisfy its obligation under a Cash Award by the distribution of that
number of shares of Common Stock, Stock Options, or Restricted
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Stock, or any combination thereof, having an aggregate Fair Market Value (as
of the date of payment) equal to the amount of cash otherwise payable to the
Participant, with a cash settlement to be made for any fractional share
interests, or the Company may settle such obligation in part with shares of
Common Stock and in part with cash. If required by Rule 16b-3 at the time of
distribution, any shares of Common Stock distributed to a Reporting
Participant must be held by such Participant for at least six months from the
date of distribution.
ARTICLE 10
AMENDMENT OR DISCONTINUANCE
The Plan may be amended or discontinued by the Board, or, if the Board has
specifically delegated this authority to the Committee, by the Committee,
without the approval of the stockholders; provided that no amendment shall be
made without approval of the stockholders of the Company if such approval is
required under the Code, Rule 16b-3, the requirements of any exchange upon
which the Company's securities are listed, or any other applicable law or
regulation. In addition, no termination or amendment of the Plan may, without
the consent of the Participant to whom any Award has theretofore been granted,
adversely affect the rights of such Participant with respect to such Award.
ARTICLE 11
TERM
Unless sooner terminated by action of the Board, the Plan will terminate on
December 3, 2003.
ARTICLE 12
CAPITAL ADJUSTMENTS
If at any time while the Plan is in effect, or while unexercised Stock
Options or SARs or unvested shares of Restricted Stock are outstanding, there
shall be any increase or decrease in the number of issued and outstanding
shares of Common Stock resulting from (1) the declaration or payment of a
stock dividend, (2) any recapitalization resulting in a stock split-up,
combination, or exchange of shares of Common Stock, or (3) other increase or
decrease in such shares effected without receipt of consideration by the
Company, then and in such event:
(a) An appropriate adjustment shall be made in the maximum number of
shares of Common Stock then subject to being awarded under the Plan and in
the maximum number of shares of Common Stock then subject to being awarded
to a Participant, to the end that the same proportion of the Company's
issued and outstanding shares of Common Stock shall continue to be subject
to being so awarded;
(b) Appropriate adjustments shall be made in the number of shares of
Common Stock purchasable under outstanding, unexercised Stock Options and
the Option Exercise Price therefor, to the end that the same proportion of
the Company's issued and outstanding shares of Common Stock in each such
instance shall remain subject to purchase at the same aggregate Option
Exercise Price;
(c) Appropriate adjustments shall be made in the number of shares of
Common Stock subject to outstanding, unexercised SARs and the SAR Price
therefor, to the end that the same proportion of the Company's issued and
outstanding shares of Common Stock in each instance shall remain subject to
exercise at the same aggregate SAR Price; and
(d) Appropriate adjustments shall be made in the number of outstanding
shares of Restricted Stock with respect to which restrictions have not yet
lapsed prior to any such change.
Except as otherwise expressly provided herein, the issuance by the Company
of shares of its capital stock of any class, or securities convertible into
shares of capital stock of any class, either in connection with direct
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sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, (i) the number, or Option Exercise
Price, of shares of Common Stock then subject to outstanding Stock Options
granted under the Plan, (ii) the number, or SAR Price, of SARs then subject to
outstanding SARs granted under the Plan, or (iii) the number of outstanding
shares of Restricted Stock.
Upon the occurrence of each event requiring an adjustment with respect to
Stock Options, SARs, or shares of Restricted Stock, the Company shall mail to
each affected Participant its computation of such adjustment which shall be
conclusive and shall be binding upon each such Participant.
ARTICLE 13
RECAPITALIZATION, MERGER AND CONSOLIDATION
(a) The existence of this Plan and Incentives granted hereunder shall not
affect in any way the right or power of the Company or its stockholders to
make or authorize any or all adjustments, recapitalizations, reorganizations,
or other changes in the Company's capital structure and its business, or any
merger or consolidation of the Company, or any issue of bonds, debentures,
preferred or preference stocks ranking prior to or otherwise affecting the
Common Stock or the rights thereof (or any rights, options, or warrants to
purchase same), or the dissolution or liquidation of the Company, or any sale
or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
(b) Subject to any required action by the stockholders, if the Company shall
be the surviving or resulting corporation in any merger or consolidation, any
Incentive granted hereunder shall pertain to and apply to the securities or
rights (including cash, property, or assets) to which a holder of the number
of shares of Common Stock subject to the Incentive would have been entitled.
(c) In the event of any merger or consolidation pursuant to which the
Company is not the surviving or resulting corporation, there shall be
substituted for each share of Common Stock subject to the unexercised or
unvested portions of outstanding Incentives, that number of shares of each
class of stock or other securities or that amount of cash, property, or assets
of the surviving or consolidated company that were distributed or
distributable to the stockholders of the Company in respect to each share of
Common Stock held by them, such outstanding Incentives to thereafter pertain
to such stock, securities, cash, or property in accordance with their terms
(subject to subparagraph (d) below). Notwithstanding the foregoing, however,
all such Incentives may be cancelled by the Board as of the effective date of
any such reorganization, merger, or consolidation, by giving notice to each
holder thereof or his personal representative of its intention to do so and by
permitting the exercise during the thirty (30) day period next preceding such
effective date of any outstanding Stock Options or SARs, whether or not vested
in accordance with their original terms, and by waiving all restrictions on
outstanding shares of Restricted Stock.
(d) In the event of a Change of Control, then, notwithstanding any other
provision in this Plan to the contrary, all unmatured installments of
Incentives outstanding shall thereupon automatically be accelerated and
exercisable in full, and all restrictions and/or performance goals with
respect to any Incentive shall be deemed satisfied. The determination of the
Committee that any of the foregoing conditions has been met shall be binding
and conclusive on all parties.
15
<PAGE>
ARTICLE 14
LIQUIDATION OR DISSOLUTION
In case the Company shall, at any time while any Incentive under this Plan
shall be in force and remain unexpired, (i) sell all or substantially all of
its property, or (ii) dissolve, liquidate, or wind up its affairs, then each
Participant may thereafter receive upon exercise of any Option or SAR (in lieu
of each share of Common Stock of the Company which such Participant would have
been entitled to receive) the same kind and amount of any securities or assets
as may be issuable, distributable, or payable upon any such sale, dissolution,
liquidation, or winding up with respect to each share of Common Stock of the
Company. If the Company shall, at any time prior to the expiration of any
Incentive, make any partial distribution of its assets, in the nature of a
partial liquidation, whether payable in cash or in kind (but excluding the
distribution of a cash dividend payable out of earned surplus and designated
as such), then in such event the exercise prices then in effect with respect
to any outstanding Stock Options or SARs shall be reduced, on the payment date
of such distribution, in proportion to the percentage reduction in the
tangible book value of the shares of the Company's Common Stock (determined in
accordance with generally accepted accounting principles) resulting by reason
of such distribution.
ARTICLE 15
INCENTIVES IN SUBSTITUTION FOR INCENTIVES GRANTED BY OTHER CORPORATIONS
Stock Options, SARs and shares of Restricted Stock may be granted under the
Plan from time to time in substitution for options, stock appreciation rights
or shares of restricted stock held by employees of a corporation who become or
are about to become Employees of the Company or any Subsidiary as a result of
a merger or consolidation of the employing corporation with the Company or the
acquisition by the Company of stock of the employing corporation. The terms
and conditions of the substitute Incentives so granted may vary from the terms
and conditions set forth in this Plan to such extent as the Board at the time
of grant may deem appropriate to conform, in whole or in part, to the
provisions of the options, stock appreciation rights or shares of restricted
stock in substitution for which they are granted.
ARTICLE 16
MISCELLANEOUS PROVISIONS
16.1 INVESTMENT INTENT. The Company may require that there be presented to
and filed with it by any Participant under the Plan, such evidence as it may
deem necessary to establish that the Incentives granted or the shares of
Common Stock to be purchased or transferred are being acquired for investment
and not with a view to their distribution.
16.2 NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor any Incentive
granted under the Plan shall confer upon any Participant any right with
respect to continuance of employment by the Company or any Subsidiary.
16.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Board or the
Committee, nor any officer or Employee of the Company acting on behalf of the
Board or the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to
the Plan, and all members of the Board or the Committee and each and any
officer or employee of the Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company in respect
of any such action, determination, or interpretation.
16
<PAGE>
16.4 EFFECT OF THE PLAN. Neither the adoption of this Plan nor any action of
the Board or the Committee shall be deemed to give any person any right to be
granted an Award or any other rights except as may be evidenced by an Award
Agreement, or any amendment thereto, duly authorized by the Committee and
executed on behalf of the Company, and then only to the extent and upon the
terms and conditions expressly set forth therein.
16.5 COMPLIANCE WITH SECURITIES LAWS AND OTHER RULES AND REGULATIONS. The
Plan, the grant and exercise of Incentives hereunder, and the obligation of
the Company to sell and deliver shares of Common Stock, shall be subject to
all applicable federal and state laws, rules and regulations and to such
approvals by any government or regulatory agency as may be required. The
Company shall have no obligation to sell or issue shares of Common Stock under
any Incentive if the Committee determines, in its sole discretion, that
issuance thereof would constitute a violation by the Participant or the
Company of any provisions of any law or regulation of any governmental
authority (including Section 16 of the Exchange Act) or any securities
exchange or other forum in which shares of Common Stock are traded; and, as a
condition of any sale or issuance of shares of Common Stock under an
Incentive, the Committee may require such agreements or undertakings, if any,
as the Committee may deem necessary or advisable to assure compliance with any
such law or regulation.
16.6 WITHHOLDING; NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF ISO
HOLDING PERIOD.
(a) Condition Precedent. Whenever shares of Common Stock are to be issued
pursuant an Award, the Company shall have the right to require the Participant
to remit to the Company an amount sufficient to satisfy federal, state, local
or other withholding tax requirements prior to the delivery of any certificate
or certificates for such shares of Common Stock.
(b) Manner of Satisfying Withholding Obligation. When a Participant is
required to pay to the Company an amount required to be withheld under
applicable tax laws in connection with an Award, such payment may be made (i)
in cash, (ii) by check, (iii) if permitted by the Committee, by delivery to
the Company of shares of Common Stock already owned by the Participant having
a Fair Market Value on the date the amount of tax to be withheld is to be
determined (the "Tax Date") equal to the amount required to be withheld, (iv)
with respect to Stock Options, through the withholding by the Company
("Company Withholding") of a portion of the shares of Common Stock acquired
upon the exercise of the Stock Options (provided that, with respect to any
Stock Option held by a Reporting Participant, at least six months has elapsed
between the Date of Grant of such Stock Option and the exercise involving tax
withholding) having a Fair Market Value on the Tax Date equal to the amount
required to be withheld, or (v) in any other form of valid consideration, as
permitted by the Committee in its discretion; provided that a Reporting
Participant shall not be permitted to satisfy his or her withholding
obligation through Company Withholding unless required to do so by the
Committee, in its sole discretion. The Committee may waive or modify any
limitation contained in this Section that is not required for compliance with
Rule 16b-3.
(c) Notice of Disposition of Stock Acquired Pursuant to Incentive Stock
Options. If shares of Common Stock acquired upon exercise of an Incentive
Stock Option are disposed of by a Participant prior to the expiration of
either two (2) years from the Date of Grant of such Stock Option or one (1)
year from the transfer of shares of Common Stock to the Participant pursuant
to the exercise of such Stock Option, or in any other disqualifying
disposition within the meaning of Section 422 of the Code, such Participant
shall notify the Company in writing of the date and terms of such disposition.
A disqualifying disposition by a Participant shall not affect the status of
any other Stock Option granted under the Plan as an Incentive Stock Option
within the meaning of Section 422 of the Code.
16.7 USE OF PROCEEDS. Proceeds from the sale of shares of Common Stock
pursuant to Incentives granted under this Plan shall constitute general funds
of the Company.
17
<PAGE>
16.8 LEGEND. Each certificate representing shares of Common Stock issued to
a Participant pursuant to the Plan shall bear the following legend, or a
similar legend deemed by the Company to constitute an appropriate notice of
the provisions hereof and the applicable security laws (any such certificate
not having such legend shall be surrendered upon demand by the Company and so
endorsed):
On the face of the certificate:
"Transfer of this stock is restricted in accordance with conditions
printed on the reverse of this certificate."
On the reverse:
"The shares of stock evidenced by this certificate are subject to and
transferrable only in accordance with that certain CellStar Corporation
1993 Amended and Restated Long-Term Incentive Plan, as amended from
time to time, a copy of which is on file at the principal office of the
Company in Carrollton, Texas. No transfer or pledge of the shares
evidenced hereby may be made except in accordance with and subject to
the provisions of said Plan. By acceptance of this certificate, any
holder, transferee or pledge hereof agrees to be bound by all of the
provisions of said Plan."
Insert the following legend on the certificate if the shares were not
issued in a transaction registered under the applicable federal and state
securities laws:
"Shares of stock represented by this certificate have been acquired by
the holder for investment and not for resale, transfer or distribution,
have been issued pursuant to exemptions from the registration
requirements of applicable state and federal securities laws, and may
not be offered for sale, sold or transferred other than pursuant to
effective registration under such laws, or in transactions otherwise in
compliance with such laws, and upon evidence satisfactory to the
Company of compliance with such laws, as to which the Company may rely
upon an opinion of counsel satisfactory to the Company."
A copy of this Plan shall be kept on file in the principal office of the
Company in Carrollton, Texas.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed as
of May 19, 1998, by its President and Secretary pursuant to prior action
taken by the Board.
CellStar Corporation
By: /s/ RICHARD M. GOZIA
---------------------------------
President
Attest:
/s/ ELAINE FLUD RODRIGUEZ
- -------------------------
Secretary
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> NOV-30-1998 NOV-30-1998
<PERIOD-START> MAR-01-1998 DEC-01-1997
<PERIOD-END> MAY-31-1998 MAY-31-1998
<CASH> 40,173 40,173
<SECURITIES> 0 0
<RECEIVABLES> 294,425 294,425
<ALLOWANCES> 26,483 26,483
<INVENTORY> 205,162 205,162
<CURRENT-ASSETS> 525,550 525,550
<PP&E> 38,060 38,060
<DEPRECIATION> 13,510 13,510
<TOTAL-ASSETS> 595,072 595,072
<CURRENT-LIABILITIES> 250,335 250,335
<BONDS> 150,000 150,000
0 0
0 0
<COMMON> 590 590
<OTHER-SE> 194,147 194,147
<TOTAL-LIABILITY-AND-EQUITY> 595,072 595,072
<SALES> 445,660 852,405
<TOTAL-REVENUES> 445,660 852,405
<CGS> 400,758 766,093
<TOTAL-COSTS> 400,758 766,093
<OTHER-EXPENSES> 21,125 41,562
<LOSS-PROVISION> 1,631 3,322
<INTEREST-EXPENSE> 2,617 5,137
<INCOME-PRETAX> 19,529 36,291
<INCOME-TAX> 2,930 5,444
<INCOME-CONTINUING> 16,599 30,847
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 16,599 30,847
<EPS-PRIMARY> 0.28<F1><F3> 0.52<F1><F3>
<EPS-DILUTED> 0.27<F2><F3> 0.50<F2><F3>
<FN>
<F1>BASIC NET INCOME PER SHARE UNDER SFAS NO. 128.
<F2>DILUTED NET INCOME PER SHARE UNDER SFAS NO. 128.
<F3>A 2 FOR 1 COMMON STOCK SPLIT WAS DISTRIBUTED ON JUNE 23, 1998. PRIOR
FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED FOR THIS RECAPITALIZATION, EXCEPT
FOR MAY 31, 1997 CONTAINED HEREIN.</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> NOV-30-1997 NOV-30-1997
<PERIOD-START> MAR-01-1997 DEC-01-1996
<PERIOD-END> MAY-31-1997 MAY-31-1997
<CASH> 61,524 61,524
<SECURITIES> 0 0
<RECEIVABLES> 170,561 170,561
<ALLOWANCES> 33,632 33,632
<INVENTORY> 120,986 120,986
<CURRENT-ASSETS> 328,247 328,247
<PP&E> 29,165 29,165
<DEPRECIATION> 9,307 9,307
<TOTAL-ASSETS> 368,808 368,808
<CURRENT-LIABILITIES> 235,304 235,304
<BONDS> 0 0
0 0
0 0
<COMMON> 291 291
<OTHER-SE> 127,254 127,254
<TOTAL-LIABILITY-AND-EQUITY> 368,808 368,808
<SALES> 377,562 634,207
<TOTAL-REVENUES> 377,562 634,207
<CGS> 336,916 561,710
<TOTAL-COSTS> 336,916 561,710
<OTHER-EXPENSES> 18,582 38,225
<LOSS-PROVISION> 2,433 4,461
<INTEREST-EXPENSE> 1,791 3,505
<INCOME-PRETAX> 17,840 26,306
<INCOME-TAX> 3,631 6,115
<INCOME-CONTINUING> 14,209 20,191
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,209 20,191
<EPS-PRIMARY> 0.25<F1><F3> 0.35<F1><F3>
<EPS-DILUTED> 0.24<F2><F3> 0.34<F2><F3>
<FN>
<F1>BASIC NET INCOME PER SHARE UNDER SFAS NO. 128.
<F2>DILUTED NET INCOME PER SHARE UNDER SFAS NO. 128.
<F3>A 2 FOR 1 COMMON STOCK SPLIT WAS DISTRIBUTED ON JUNE 23, 1998. PRIOR
FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED FOR THIS RECAPITALIZATION, EXCEPT
FOR MAY 31, 1997 CONTAINED HEREIN.
</FN>
</TABLE>
