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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
November 30, 1997 0-22972
CELLSTAR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2479727
(State of Incorporation) (I.R.S. Employer Identification No.)
1730 Briercroft Court
Carrollton, Texas 75006
Telephone (972) 466-5000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
----------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
RIGHTS TO PURCHASE SERIES A PREFERRED STOCK
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
On February 25, 1998, the aggregate market value of the voting stock held by
nonaffiliates of the Company was approximately $581,115,900, based on the
closing sale price of $30.00 as reported by the NASDAQ/NMS. (For purposes of
determination of the above stated amount, only directors, executive officers
and 10% or greater stockholders have been deemed affiliates).
On February 25, 1998, there were 29,377,009 outstanding shares of Common
Stock, $0.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders of the
Company to be held during 1998 are incorporated by reference into Part III of
this Form 10-K.
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CELLSTAR CORPORATION
INDEX TO FORM 10-K
<TABLE>
<CAPTION>
PAGE
NUMBER
<C> <S> <C>
Part I.
Item 1. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 16
Item 6. Selected Consolidated Financial Data 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26
Item 8. Consolidated Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 26
Part III.
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and
Management 27
Item 13. Certain Relationships and Related Transactions 27
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K 28
</TABLE>
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PART I.
ITEM 1. BUSINESS
GENERAL
CellStar Overview
CellStar Corporation ("CellStar" or the "Company") is a leading global
provider of wireless communications products, primarily handsets, with
operations in the United States, the Asia-Pacific Region, the Latin American
Region and the European Region. The "Asia-Pacific Region" consists of the
People's Republic of China, including Hong Kong ("PRC"), Singapore, Malaysia,
Taiwan and The Philippines. The "Latin American Region" consists of Mexico,
Colombia, Venezuela, Ecuador, Chile, Argentina and Brazil. The "European
Region" consists of the United Kingdom and Sweden.
The Company is one of the world's largest non-carrier wholesale distributors
of wireless phones for Motorola, Inc. ("Motorola") and Ericsson Inc.
("Ericsson") and also distributes wireless phones for manufacturers such as
Nokia Mobile Phones, Inc. ("Nokia"), QUALCOMM Incorporated ("QUALCOMM"), Sony
Electronics Inc. ("Sony") and NEC Corporation ("NEC").
The Company's distribution services include purchasing, marketing, selling,
warehousing, picking, packing, shipping and "just-in-time" delivery of wireless
handsets and accessories. In addition, in the United States and certain other
markets the Company offers its customers value-added facilitation services,
including inventory management, product fulfillment, kitting and customized
packaging, private labeling, light assembly, accounts receivable management and
end-user support services, including customized "1-800" fulfillment. The
Company is also a retailer of wireless communications products. The Company's
revenues grew at a 52.3% compound annual rate during the five fiscal years
ended November 30, 1997, and increased 56.5% for the year ended November 30,
1997, compared to the year ended November 30, 1996. Net income for fiscal 1997
was $53.6 million, compared to a net loss of $6.4 million for fiscal 1996.
The Company, a Delaware corporation, was formed in 1993 to hold the stock of
a company that is now an operating subsidiary. The operating subsidiary was
originally formed in 1981 to distribute and install automotive aftermarket
products. In 1984, the Company began offering wireless communications products
and services, and in 1989, the Company became an authorized distributor of
Motorola cellular phones in certain regions of the United States. The Company
entered into similar arrangements with Motorola in the Latin American Region in
1991, the Asia-Pacific Region in 1994 and the United Kingdom in 1996.
Industry Overview
Wireless communications technology encompasses wireless communications
devices such as handheld, mobile and transportable phones, pagers and two-way
radios. Since its inception in 1983, the wireless phone service market has
grown rapidly. An industry source, Dataquest, estimates that from 1992 through
1996, worldwide wireless phone subscribers grew at a compound annual rate of
approximately 54.5%. According to Dataquest estimates, as of December 31, 1997,
there were approximately 193.9 million wireless phone subscribers worldwide, of
which approximately 52.2 million subscribers were in the United States,
approximately 22.0 million subscribers were in the Asia-Pacific Region,
approximately 8.9 million subscribers were in the Latin American Region and
approximately 8.0 million subscribers were in the United Kingdom.
The Company believes that growth in its industry will continue for a number
of reasons. Economic growth, increased service availability and the lower cost
of wireless service compared to conventional landline telephone systems in
emerging markets will, the Company believes, continue to create demand for
wireless communications products. The Company also believes that the change
from analog to digital technology will increase overall market growth and
encourage consumers to purchase the next generation of products. In addition,
advanced digital technologies have led to increases in the number of network
operators and resellers,
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which have promoted greater competition for subscribers and, the Company
believes, have resulted in increased demand for wireless communications
products. Finally, the proliferation of new manufacturers is expected to lower
prices, increase product selection and expand sales channels.
The Company's rapid growth has placed a significant strain on its management,
employees, systems and financial resources. The Company's continued growth will
depend upon, among other things, the Company's ability to maintain its
operating margins, continue to secure an adequate supply of competitive
products on a timely basis and on commercially reasonable terms, continually
turn its inventories and accounts receivable, successfully manage growth
(including monitoring operations, controlling costs and maintaining effective
inventory and credit controls), manage operations that are geographically
dispersed, achieve significant penetration in existing and new geographic
markets and hire, train and retain qualified employees who can effectively
manage and operate its business.
The Company's rapid growth has also placed significant strains on its
information technology systems, including those used to manage inventory,
accounts receivable, and accounts payable. Although the Company has hired
additional employees and is investing in refinements to its systems, the
Company's growth may continue to place strains upon its systems and its human,
financial and other resources and may negatively affect its ability to manage
and control its operations.
UNITED STATES
Industry
In the United States, wireless phone service was developed as an alternative
to conventional landline systems and existing mobile phone service and has been
one of the fastest growing market segments in the communications industry. The
number of U.S. wireless subscribers has grown significantly since the inception
of the wireless phone industry in 1983. According to Dataquest estimates, as of
December 31, 1996, there were approximately 42.2 million subscribers in the
United States. Dataquest estimates that the number of wireless subscribers in
the United States grew by close to ten million in 1997.
The chart below sets forth certain estimated information regarding U.S.
wireless phone shipments and subscriber growth.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Number of Wireless Phones Shipped............ 20,956 16,457 14,381 12,774 8,565
Number of Subscribers........................ 52,180 42,188 32,187 23,630 16,255
</TABLE>
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Source: Dataquest, Mobile Telephones Worldwide, 1992-2001--Market Trends 1997
(September 1997 Estimates)
The Company believes that the U.S. market for wireless services will continue
to expand due to the increasing affordability and availability of such services
and shorter development cycles for new products and enhancements. In addition,
many wireless service providers are upgrading their existing systems from
analog to digital technology as a result of capacity constraints in many of the
larger wireless markets and in order to respond to competition. Digital
technology increases system capacity and is expected to offer other advantages,
such as improved overall average signal quality, improved call security,
potentially lower incremental costs for additional subscribers and the ability
to provide data transmission services. If digital technology improves and
becomes more affordable, the Company may benefit both from the sale of digital
wireless phones as replacements for existing analog wireless phones and from
the increased system capacity digital technology offers.
Wholesale Operations
General. Approximately 96% of the Company's U.S. revenues during fiscal 1997
were derived from wholesale operations, compared to 78% for fiscal 1996. In the
United States, manufacturers such as Motorola,
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Ericsson and NEC sell wireless phones directly to large wireless carriers, such
as AT&T Wireless Services, Inc., and large mass merchandisers, such as Sears,
Roebuck and Co. The Company's wholesale operations complement these
manufacturers' distribution channels, in that these manufacturers generally
also sell to wholesale distributors such as the Company in order to access
smaller volume purchasers. The Company also acts as a wholesale distributor of
wireless accessories manufactured by original equipment manufacturers ("OEMs")
and other suppliers to large wireless carriers and mass merchandisers, as well
as to smaller volume purchasers.
During fiscal 1997, the Company sold its products to over 2,500 U.S.
wholesale customers, the ten largest of which accounted for approximately 29%
of the Company's consolidated net product sales in fiscal 1997. The Company
offers wireless phones and accessories manufactured by OEMs, such as Motorola,
Ericsson, Nokia, QUALCOMM, Sony and NEC, and aftermarket accessories
manufactured by a variety of suppliers. Accessories include, among others,
boosters, hands-free kits, handheld accessories, antennas, batteries, battery
packs, battery eliminators, leather cases and battery chargers. The Company
sells these products under private labels to wireless carriers such as
Southwestern Bell Mobile Systems, Inc. ("SBMS"), GTE Mobilnet, AirTouch
Cellular, Pacific Bell Mobile Services ("PBMS") and U.S. Cellular.
The Company offers a broad product mix in the United States, including
products that are compatible with digital systems, such as TDMA and CDMA, as
well as analog systems, such as AMPs. The Company anticipates that its product
offerings will continue to expand with the evolution of new technologies as
they become commercially viable.
In addition to its distribution services, the Company provides various value-
added facilitation and fulfillment services, including aftermarket and OEM
product packaging and configuration, inventory management, order processing,
return and repair management, marketing and design, credit and collections and
phone sales. The Company believes that opportunities continue to exist for it
to assist wireless communications carriers in meeting their supply and
distribution needs by providing complete order-fulfillment services. The
Company anticipates an increased demand for such services as new and existing
wireless carriers and manufacturers desire to outsource these activities in
order to reduce costs and focus on their own core businesses.
The Company's primary distribution facility, a 120,000 square foot warehouse
facility, is located at its international headquarters in the Dallas/Fort Worth
metropolitan area. The Company also operates a wholesale distribution facility
in Miami, Florida to serve customers in the Latin American Region. The Company
also offers facilitation services for its operations in the Latin American
Region out of the Miami, Florida location. In addition, the Company has
recently entered into a lease for a new 58,900 square foot distribution
facility in Chino, California to support the Company's west coast customers.
Sales and Marketing. The Company markets its products nationally to wholesale
purchasers, using, among other methods, direct sales strategies, the Internet,
strategic account management, trade shows and trade journal advertising. The
Company offers advertising allowances, ready-to-use advertising materials and
displays, easy access to hard-to-find products, credit terms, a variety of name
brand products and highly-responsive customer service.
Retail Operations
General. Approximately 4% of the Company's U.S. revenues in fiscal 1997 were
derived from retail operations compared to 22% for fiscal 1996. As of November
30, 1997, the Company conducted its U.S. retail operations through 13 stand-
alone retail stores in three states.
The Company's retail stores generate revenues from three sources: the sale of
wireless phones and other products, activation commissions and, in most cases,
residual payments. An activation commission is paid by a wireless carrier when
a customer initially subscribes for wireless service. The amount of the
activation commission paid by a wireless carrier is based on the service plans
and promotional marketing programs
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offered by that particular wireless carrier. Most of the Company's carrier
contracts provide for a residual payment, which is a monthly payment made by a
wireless carrier to the Company based on the wireless phone usage by a customer
activated by the Company. Because standard wireless industry practice among
activation agents is to offer certain wireless phones to a wireless subscriber
at no charge, as a practical matter, the Company does not believe it can
operate at the retail level on a profitable basis without agency agreements
with wireless carriers that provide for activation commissions or residual
fees. The Company's relationships with its carriers are governed by contracts,
pursuant to which the Company is engaged as an agent to solicit and sell
wireless phone services in certain geographic areas and may not act as a
representative or agent for any other carrier or reseller in those areas.
Sales and Marketing. The Company promotes its stand-alone retail stores
through direct mailings and local media, including newspapers.
ASIA-PACIFIC REGION
Industry
According to Dataquest estimates, as of December 31, 1996, there were
approximately 12.3 million subscribers in the Asia-Pacific Region. Dataquest
estimates that the number of wireless subscribers in the Asia-Pacific Region
grew by close to ten million in 1997. Whereas demand for wireless service in
major industrialized countries has been driven primarily by automobile and
business travel, the Company believes that in the Asia-Pacific Region, demand
for such services has been and will continue to be driven by an unsatisfied
demand for basic phone service due to the lack of adequate landline service and
to limited wireless penetration. The Company believes that wireless systems in
this region offer a more attractive alternative to landline systems because
wireless systems do not require the substantial amount of time and investment
in infrastructure (in the form of buried or overhead cables) associated with
landline systems. Based on these factors, as well as the large population bases
and economic growth in this region, the Company believes that phone users will
increasingly utilize wireless systems, despite the fact that wireless service
may be more expensive to the consumer than conventional landline
communications.
The chart below sets forth certain estimated information regarding wireless
phone shipments and subscriber growth in the Asia-Pacific Region.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1997 1996 1995 1994 1993
------ ------ ----- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Number of Wireless Phones Shipped............... 11,252 6,456 3,606 1,685 954
Number of Subscribers........................... 22,023 12,319 6,753 3,576 2,054
</TABLE>
- --------
Source: Dataquest, Mobile Telephones Worldwide, 1992-2001--Market Trends 1997
(September 1997 Estimates)
Operations
General. The key to the Company's expansion in the Asia-Pacific Region has
been its relationships with wireless equipment manufacturers. The Company
historically has entered a new market with the support of a manufacturer. The
Company distributes products in the Asia-Pacific Region primarily for Motorola
and Ericsson. In February 1998, the Company entered into agreements for the
distribution of cellular mobile telephones and accessories for Nokia in the
PRC. Throughout the Asia-Pacific Region, CellStar acts as a wholesale
distributor of wireless phones to large and small volume purchasers, including
indirect sales to the large wireless carriers.
All of the Company's operations in this region are wholly or majority-owned
except for the Company's operations in Malaysia. CellStar (Asia) Corporation
Limited ("CellStar Asia"), the oldest of the Company's business units in the
region and the Company's most significant operation outside the United States,
began as a
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joint venture in 1993 and became wholly-owned in June 1995. CellStar Asia's
revenue is derived principally from wholesale sales of wireless products to
Hong Kong-based companies that ship wireless products to the remainder of the
PRC.
Shanghai CellStar International Trading Company, Ltd. ("CellStar Shanghai"),
a wholly-owned, limited liability foreign trade company established in
Shanghai, PRC, commenced domestic wholesale operations in the PRC in 1997 using
a local commodities exchange market as an intermediary, pursuant to an
experimental initiative in market access authorized by the Shanghai municipal
government. CellStar Shanghai purchases wireless handsets locally manufactured
by Motorola and, beginning in February 1998, Nokia and wholesales those
products to distributors and retailers located throughout the PRC. CellStar
Shanghai has also entered into cooperative arrangements with certain local
distributors that allow them to establish wholesale and retail operations
utilizing CellStar's trademarks. Under the terms of such arrangements, CellStar
Shanghai further provides services, sales support, training and access to
promotional materials for use in their operations. In exchange, those
distributors agree to purchase all of their requirements of wireless handsets
from CellStar Shanghai and further agree to allow CellStar Shanghai to purchase
up to 50% of their operation if and when foreign ownership of domestic retail
operations is allowed by the PRC government. CellStar Shanghai currently deals
with local distributors in approximately ten major metropolitan areas
throughout the PRC. CellStar Shanghai, in cooperation with one of its local
distributors, uses space in a three-story building in the Pudong district of
Shanghai, including a showroom for its products.
Although the Company's business in the Asia-Pacific Region is predominantly
wholesale, operations within a particular country may be either wholesale,
retail, or both, and may be owned solely by the Company or jointly with local
partners, depending on the market and regulatory environment in the host
country.
The following table outlines the Company's entry into the Asia-Pacific
Region:
<TABLE>
<CAPTION>
Year Type of Operation
Country Entered (as of November 30, 1997)
- ------- ------- ------------------------
<S> <C> <C>
Hong Kong/China 1993 Wholesale
Singapore 1995 Wholesale and Retail
The Philippines 1995 Wholesale and Retail
Malaysia 1995 Wholesale and Retail
Taiwan 1995 Wholesale
</TABLE>
At November 30, 1997, the Company sold its products to over 450 wholesale
customers in the Asia-Pacific Region (excluding customers of the Company's
Malaysian joint venture), the ten largest of which accounted for approximately
21% of the Company's consolidated net product sales in fiscal 1997. The Company
offers wireless phones and accessories manufactured by OEMs, such as Motorola,
Ericsson and, beginning in February 1998 in the PRC, Nokia, and aftermarket
accessories manufactured by a variety of suppliers. Accessories include, among
others, batteries, hands-free kits, chargers, carkits, battery eliminators and
leather cases.
The Company offers a broad product mix in the Asia-Pacific Region, including
products that are compatible with digital systems, such as GSM, DCS-1800MHz and
D-AMPS, as well as analog systems, such as AMPS and ETACs. The Company
anticipates that its product offerings will continue to expand with the
evolution of new technologies as they become commercially viable.
The Company's operations and sales in the Asia-Pacific Region are subject to
political and economic risks, including the following: political instability;
currency controls; currency devaluations; exchange rate fluctuations;
potentially unstable channels of distribution; increased credit risks; export
control laws that might limit the markets the Company can enter; inflation;
changes in laws related to foreign ownership of businesses abroad; foreign tax
laws; changes in import/export regulations, including enforcement policies; and
tariff and
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freight rates. Political and other factors beyond the control of the Company,
including trade disputes among nations, currency fluctuations or internal
instability in any nation where the Company conducts business, could have a
materially adverse effect on the Company.
Sales and Marketing. The Company markets its products to a variety of
wholesale purchasers, including retailers, exporters and wireless carriers,
through its direct sales force and through tradeshows and television
advertising. To penetrate local markets in The Philippines and Indonesia, the
Company has made use of subagent and license relationships.
LATIN AMERICAN REGION
Industry
According to Dataquest estimates, as of December 31, 1996, there were
approximately 5.5 million subscribers in the Latin American Region. Dataquest
estimates that the number of wireless subscribers in the Latin American Region
grew over three million in 1997. The Company believes that in the Latin
American Region, demand for such services has been and will continue to be
driven by an unsatisfied demand for basic phone service due to lack of adequate
landline service and limited wireless penetration, as well as expansion of
wireless capacity in this region.
The chart below sets forth certain estimated information regarding wireless
phone shipments and subscriber growth in the Latin American Region.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Number of Wireless Phones Shipped.................. 4,005 2,452 1,442 1,010 434
Number of Subscribers ............................. 8,889 5,469 3,287 1,951 962
</TABLE>
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Source: Dataquest, Mobile Telephones Worldwide, 1992-2001--Market Trends 1997
(September 1997 Estimates)
Operations
General. The key to the Company's expansion in the Latin American Region has
been its relationships with wireless equipment manufacturers and wireless
service carriers. The Company distributes products in the Latin American Region
for manufacturers such as Motorola, Ericsson and Nokia. CellStar acts as a
wholesale distributor of wireless communications products in the Latin American
Region to large volume purchasers, such as the large wireless carriers (e.g.,
Telcel, the wireless subsidiary of Telmex), as well as to smaller volume
purchasers.
Although the Company's business in the Latin American Region is predominantly
wholesale, operations within a particular country may be either wholesale,
retail or both. The Company has historically acted through wholly-owned
subsidiaries in each of the countries in this region. The Company's largest
wholesale customers in the region are wireless carriers. As of November 30,
1997, the Company operated 30 retail locations (including kiosks) in Latin
America -- 25 in Mexico, three in Colombia and one in each of Venezuela and
Ecuador. The Company receives activation commissions in all Latin American
retail markets.
The following table outlines the Company's entry into the Latin American
Region:
<TABLE>
<CAPTION>
Year Type of Operation
Country Entered (as of November 30, 1997)
- ------- ------- ------------------------
<S> <C> <C>
Mexico 1991 Wholesale and Retail
Venezuela 1993 Wholesale and Retail
Brazil 1993 Wholesale
Chile 1993 Wholesale
Colombia 1994 Wholesale and Retail
Ecuador 1995 Wholesale and Retail
Argentina 1995 Wholesale
</TABLE>
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At November 30, 1997, the Company sold its products to over 1,000 wholesale
customers in the Latin American Region, the ten largest of which accounted for
approximately 6% of the Company's consolidated net product sales in fiscal
1997. The Company offers wireless communications products manufactured by OEMs,
such as Motorola, Nokia and Ericsson, and aftermarket accessories manufactured
by a variety of suppliers. Accessories include, among others, batteries, hands-
free kits, chargers, leather cases, power supplies and antennas. The Company
sells these products to mass merchandisers and other retailers.
The Company offers a broad product mix in the Latin American Region,
including products that are compatible with digital systems, primarily TDMA, as
well as analog systems, such as AMPS and NAMPS. The Company anticipates that
its product offerings will continue to expand with the evolution of new
technologies as they become commercially viable.
The Company's operations and sales in the Latin American Region are subject
to political and economic risks, including the following: political
instability; currency controls; currency devaluations; exchange rate
fluctuations; potentially unstable channels of distribution; increased credit
risks; export control laws that might limit the markets the Company can enter;
inflation; changes in laws related to foreign ownership of businesses abroad;
foreign tax laws; changes in import/export regulations, including enforcement
policies; and tariff and freight rates. Political and other factors beyond the
control of the Company, including trade disputes among nations, currency
fluctuations or internal instability in any nation where the Company conducts
business, could have a materially adverse effect on the Company.
Sales and Marketing. The Company markets its products through direct sales
and advertising. In the Latin American markets where it conducts retail
operations, the Company primarily utilizes direct mailings and newspapers to
promote its retail operations. To penetrate local markets, the Company has made
use of subagent relationships in Mexico, Venezuela, Colombia and Ecuador and
license relationships in Uruguay and Peru. In addition, the Company offers
prepaid wireless programs in Venezuela. The Company expects these prepaid
programs to make wireless communications services more accessible to the
overall population in these markets because it eliminates the need for
established credit and monthly fees.
EUROPEAN REGION
The Company's U.K. subsidiary distributes wireless phones, pagers, mobile
radio and other wireless communications equipment and related accessory
products throughout the United Kingdom. In February 1998, the Company completed
its acquisition of TA Intercall AB, a wholesale distributor of wireless
communications products in Sweden. The new company, CellStar-Intercall AB
distributes products in Sweden and other European markets for several
manufacturers, including Ericcson, Nokia and Motorola. The Company's operations
and sales in the European Region are subject to certain of the political and
economic risks to which the Company is subject in its other regions.
OTHER REGIONS
The Company is also considering entry into other countries where the Company
believes the business environment is conducive to the growth of the wireless
market. The Company will continue to assess evolving market conditions,
economic conditions and other factors that may affect its prospects in a
particular foreign country.
INDUSTRY RELATIONSHIPS
The Company has established relationships with leading wireless equipment
manufacturers and wireless service carriers. These alliances have been key to
the Company's market and product expansion.
Although the Company purchased its products from more than 20 primary
suppliers in fiscal 1997, substantially all of the Company's purchases were
from Motorola, Nokia, Ericsson and NEC. For the year ended November 30, 1997,
Motorola accounted for approximately 74% of the Company's product purchases,
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including CellStar branded products. In addition, revenues attributable to the
Company's fulfillment agreement with PBMS accounted for approximately 12% of
total revenues for fiscal 1997. This level of revenues resulted from the
rollout of PCS product into certain west coast markets and is not necessarily
indicative of future results.
The Company has various supply contracts with terms of approximately one year
with Motorola, Nokia, Ericsson, QUALCOMM and Sony that specify territories,
minimum purchase levels, pricing and payment terms. These contracts typically
provide that the Company will receive the benefit of price decreases on
products in the Company's inventory if such products were shipped to the
Company within a specified period of time prior to the price decrease.
The Company's expansion has been due to several factors, one of which is its
relationship with Motorola, historically the largest manufacturer of wireless
products in the world, according to Dataquest, and the Company's largest
supplier. The Company considers its relationships with its suppliers to be
satisfactory. The Company believes that its relationship with Motorola will
enable it to continue to offer a wide variety of wireless communications
products in the marketplace. In July 1995, Motorola purchased 1,044,656 shares
of the outstanding common stock of the Company. While the Company believes that
its relationship with Motorola and other significant vendors is satisfactory,
there can be no assurance that these relationships will continue.
The Company experiences, from time to time, shortages in supply for certain
products that are in high demand, and no assurance can be given that product
shortages will not occur in the future. The loss of Motorola or any other
significant vendor or a substantial price increase imposed by any vendor or a
shortage of product available from its vendors could have a materially adverse
impact on the Company.
SEASONALITY AND CYCLICALITY
The effects of seasonal fluctuations have not historically been apparent in
the Company's operating results due to the Company's rapid growth in revenues.
However, the Company's sales are influenced by a number of seasonal factors in
the different countries and markets in which it operates, including the
purchasing patterns of customers in different markets, product promotions of
competitors and suppliers, availability of distribution channels and product
supply and pricing. Seasonality did, however, contribute to the increase in the
Company's sales during the fourth quarter of 1996. The Company's sales are also
influenced by cyclical economic conditions in the different countries and
markets in which it operates. An economic downturn in one of the Company's
principal markets could have a materially adverse effect on the Company's
operating results.
ASSET MANAGEMENT
Information Technology
The Company continues to invest in and focus on technology to improve
financial and information technology control systems. The Company is also
continuing to focus on materials management and international operations. In
addition, the Company has undertaken several short-term and long-term projects
to enhance its information technology systems, including (i) development of
data warehousing and decision support technologies, (ii) updates to the network
operating system and core network servers to newer technology, (iii) upgrades
to allow remote computing, (iv) advancements in inventory planning and control,
(v) implementation of electronic commerce utilizing the Internet and (vi)
integration and more efficient communication between global sites.
Many existing computer systems use only two digits to identify a year in the
date field and thus are not equipped to handle the change in the century. In
June 1997, the Company initiated a Year 2000 readiness project. The Company
believes that the costs of addressing, and the effects of, the Year 2000 issue
will not be material to the Company's business, operations or financial
condition.
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Inventory
The Company purchases its products from more than 20 primary suppliers that
ship directly to the Company's warehouse or distribution facilities. Inventory
purchases are based on quality, price, service, market demand, product
availability and brand recognition. Certain of the Company's major vendors
provide favorable purchasing terms to the Company, including price protection
credits, stock balancing, increased product availability and cooperative
advertising and marketing allowances. The Company provides stock balancing to
certain of its customers.
Inventory control is important to the Company's ability to maintain margins
while offering its customers competitive prices and rapid delivery of a wide
variety of products. The Company uses its integrated management information
technology systems, specifically its inventory management, electronic purchase
order and sales modules, to help manage inventory and sales margins.
During fiscal 1997, the Company continued implementation of its program to
reengineer its materials management processes, including configuration of its
main warehouse layout to optimize cycle times and reduce inventory handling
costs. The Company has also continued to expand on technologies such as Radio
Frequency (to capture outbound serial numbers into the Company's AS/400 system)
and integration of the Company's major shipping partner into the AS/400 system.
Typically, the Company ships its products within 24 hours from receipt of
customer orders and, therefore, backlog is not considered material to the
Company's business.
The market for wireless products is characterized by rapidly changing
technology and frequent new product introductions, often resulting in product
obsolescence or short product life cycles. The Company's success depends in
large part upon its ability to anticipate and adapt its business to such
technological changes. There can be no assurance that the Company will be able
to identify, obtain and offer products necessary to remain competitive or that
competitors or manufacturers of wireless communications products will not
market products that have perceived advantages over the Company's products or
that render the products sold by the Company obsolete or less marketable. The
Company maintains a significant investment in its product inventory and,
therefore, is subject to the risks of inventory obsolescence and excessive
inventory levels. The Company attempts to limit these risks by managing
inventory turns and by entering into arrangements with its vendors, including
price protection credits and return privileges for slow-moving products. The
Company's significant inventory investment in its international operations
exposes it to certain political and economic risks. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
SIGNIFICANT TRADEMARKS
The Company markets certain of its products under the trade name CellStar.
The Company has registered its trade name on the Principal Register of the
United States Patent and Trademark Office and has registered or applied for
registration of its trade name in certain foreign jurisdictions. The Company
also has filed for registrations of its other trade names in the United States
and other jurisdictions where it does business.
COMPETITION
The Company operates in a highly competitive environment and believes that
such competition will intensify in the future. The Company competes primarily
on the basis of inventory availability and selection, delivery time, service
and price. Many of the Company's competitors are larger and have greater
capital and management resources than the Company. In addition, potential users
of wireless systems may find their communications needs satisfied by other
current and developing technologies. For example, advanced digital systems are
being developed to compete with analog systems. The Company's ability to remain
competitive will therefore depend upon its ability to anticipate and adapt its
business to such technological changes. There can be no assurance that the
Company will be successful in anticipating and adapting to such technological
changes.
11
<PAGE>
In the current U.S. wholesale wireless communications products markets, the
Company's primary competitors are wireless carriers and other independent
distributors such as Brightpoint, Inc. ("Brightpoint") and Pana-Pacific
Corporation. The Company also competes with logistics companies. The Company's
major competitors in the United States in the retail wireless communications
products markets are other agents and resellers and wireless carriers that have
retail outlets.
Competitors of the Company in the Asia-Pacific and Latin American Regions
include national carriers that have retail outlets with direct end-user access,
and U.S. and foreign-based exporters and distributors, including Brightpoint.
The Company is also subject to competition from gray market activities by third
parties that are legal, but are not authorized by manufacturers, or that are
illegal (e.g., activities that avoid applicable duties or taxes). In addition,
the Company competes for activation fees and residual fees with agents and
subagents for the wireless carriers.
EMPLOYEES
As of November 30, 1997, the Company had approximately 1,100 employees
worldwide. In Mexico, approximately 120 employees are subject to labor
agreements. The Company has never experienced any material labor disruption and
is unaware of any efforts or plans to organize additional employees. Management
believes that its labor relations are satisfactory.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the executive
officers of the Company:
<TABLE>
<S> <C> <C>
Alan H. Goldfield 54 Chief Executive Officer and Chairman of the Board
Richard M. Gozia 53 President, Chief Operating Officer and Director
A.S. Horng 40 Chairman, Chief Executive Officer and General
Manager of CellStar (Asia) Corporation Limited
Mark Q. Huggins 48 Senior Vice President--Administration, Chief
Financial Officer and Treasurer
Daniel T. Bogar 38 Senior Vice President--Latin American Region and
Director
Timothy L. Maretti 44 Senior Vice President--U.S. Region
Evelyn Henry Miller 40 Vice President--Corporate Controller
Elaine Flud Rodriguez 41 Vice President, General Counsel and Secretary
</TABLE>
Alan H. Goldfield is a founder of the Company and has been the Chairman of
the Board and Chief Executive Officer of the Company since its formation. Mr.
Goldfield served as President of the Company from its formation until March
1995, when Terry S. Parker was appointed President, and from August 1996 until
December 1996, when Richard M. Gozia was appointed President. Mr. Goldfield
serves as an officer and director of the Company pursuant to his employment
agreement.
Richard M. Gozia has been the President and Chief Operating Officer of the
Company since December 1996. Mr. Gozia joined CellStar as Executive Vice
President--Administration and Chief Financial Officer in June 1996. He has been
a member of the Board of Directors since June 1996. Mr. Gozia serves as an
officer and director of the Company pursuant to his employment agreement. From
1994 to 1996, Mr. Gozia served as Executive Vice President of SpectraVision,
Inc. ("SpectraVision"), a provider of in-room hotel movies. In June 1995,
SpectraVision filed for protection under the federal bankruptcy laws. From 1991
to 1994, Mr. Gozia was Chairman and Chief Executive Officer of Wyatt
Cafeterias, Inc. In June 1995, Triangle FoodService Corporation, formerly Wyatt
Cafeterias, Inc., filed for protection under the federal bankruptcy laws.
A.S. Horng has served as Chairman of CellStar Asia since January 1998 and has
also served as Chief Executive Officer of such company since April 1997 and
General Manager since 1993. From April 1997 until January 1998, Mr. Horng
served as Vice Chairman of CellStar Asia, and from April 1997 until October
1997,
12
<PAGE>
Mr. Horng served as President of CellStar Asia. From 1991 to 1993, Mr. Horng
was President of C-Mart USA Corporation, a distributor and manufacturer of
aftermarket cellular phone accessory products. Mr. Horng serves the Company
pursuant to an employment agreement.
Mark Q. Huggins joined the Company as Senior Vice President--Administration,
Chief Financial Officer and Treasurer in January 1997. From September 1992
until January 1997, Mr. Huggins served as Chief Financial Officer of Van Camp
Seafood Company, Inc. ("Van Camp"), a manufacturer of canned seafood products.
In April 1997, Van Camp filed for protection under the federal bankruptcy laws.
Mr. Huggins is a certified public accountant. Mr. Huggins serves as an officer
of the Company pursuant to his employment agreement.
Daniel T. Bogar has served as Senior Vice President--Latin American Region
since January 1998 and as a director of the Company since July 1994. Mr. Bogar
served as Vice President of Latin American Operations from April 1997 to
February 1998. From 1993 to 1997, Mr. Bogar served as Vice President of South
American Operations. From 1991 to 1992, Mr. Bogar managed the Company's
operations in Mexico, and from 1987 to 1991, Mr. Bogar was General Manager of
the Company's Houston operations. Mr. Bogar has been responsible for the
Company's South American operations since 1992.
Timothy L. Maretti has served as Senior Vice President--U.S. Region of the
Company since January 1998 and has been a Vice President of the Company since
October 1993. From March 1992 to 1993, Mr. Maretti served as general director
of the Company's Mexican operations. From 1987 to 1992, Mr. Maretti served as
Vice President--Regional General Manager of SBMS, Dallas.
Evelyn Henry Miller has served as Vice President--Corporate Controller of the
Company since November 1995. From August 1993 until October 1995, Ms. Miller
served as Director, Corporate Accounting of Aviall, Inc. ("Aviall"), the
world's largest independent overhauler of turbine engines and distributor of
airplane parts. From April 1988 until August 1993, Ms. Miller served in various
other capacities for Aviall. Prior to joining Aviall, Ms. Miller served as
Assistant Controller, Accounting Operations for Dallas Market Center (a
Trammell Crow Company) and held several positions with KPMG Peat Marwick. Ms.
Miller is a certified public accountant.
Elaine Flud Rodriguez joined the Company in September 1993 and has been Vice
President, General Counsel and Secretary since October 1993. From October 1991
to August 1993, she was General Counsel and Secretary of Zoecon Corporation, a
pesticide manufacturer and distributor owned by Sandoz Ltd. Prior thereto she
was engaged in the private practice of law with Atlas & Hall and Akin, Gump,
Strauss, Hauer & Feld. Ms. Rodriguez is licensed to practice in the states of
Texas and Louisiana.
The Company's success is substantially dependent on the efforts of Alan H.
Goldfield, its Chief Executive Officer, and certain other of the Company's
executive officers and key employees. The loss or interruption of the continued
full-time service of Mr. Goldfield or other of the Company's executive officers
and key employees could materially and adversely affect the Company's business.
Although the Company has entered into employment agreements with Mr. Goldfield
and several other officers and employees, there can be no assurance that the
Company will be able to retain their services. The Company does not maintain
key man insurance on the life of Mr. Goldfield or any other officer of the
Company. In addition, the Company would be in default under the terms of its
Multicurrency Revolving Credit Facility if both Mr. Goldfield and the Company's
President, Richard M. Gozia, cease to be involved in the Company's management.
To support its continued growth, the Company will be required to effectively
recruit, develop and retain additional qualified management. The inability of
the Company to attract and retain such necessary personnel could also have a
materially adverse effect on the Company.
13
<PAGE>
ITEM 2. PROPERTIES
As of November 30, 1997, the Company had a total of 19 U.S. operating
facilities in five states of which 16 were leased. As of November 30, 1997, the
Company had a total of 29 operating facilities in the Asia-Pacific Region
(including kiosks, but not including facilities of the Company's Malaysian
joint venture), 28 of which were leased, and a total of 37 operating facilities
in the Latin American Region (including kiosks), 36 of which were leased. These
facilities serve as offices, warehouses, distribution centers or retail
locations. The Company leases one of its U.S. stand-alone retail stores from
its Chief Executive Officer, Alan H. Goldfield.
The Company's corporate headquarters and distribution facility, located at
1730 and 1728 Briercroft Court in Carrollton, Texas, are owned by the Company.
The corporate headquarters contains approximately 43,000 square feet and is
utilized as the Company's primary corporate offices and as a product return
center. The distribution facility contains approximately 120,000 square feet
and is used as the Company's primary warehouse and distribution center, as well
as for corporate offices.
The Company leases its Miami, Florida distribution facility, which contains
approximately 22,500 square feet and is used to serve customers in the Latin
American Region. In addition, the Company has recently entered into a lease for
a new 58,900 square foot distribution facility located in Chino, California.
The Company believes that suitable additional space will be available, if
necessary, to accommodate future expansion of its operations.
ITEM 3. LEGAL PROCEEDINGS
During the period from May 1996 through July 1996, four purported class
action lawsuits were filed in the United States District Court for the Northern
District of Texas, Dallas Division, styled as follows: (1) Sidney Gluck, John
Dolcemaschio, James Miller and Nancy L. Miller v. CellStar Corporation, Alan H.
Goldfield, Terry S. Parker, John S. Bain, Kenneth W. Sanders, and KPMG Peat
Marwick, L.L.P.; (2) Diane Larson against CellStar Corporation, Alan H.
Goldfield, Terry S. Parker and Evelyn M. Henry; (3) Elvia H. Goggin and R.
Heath Larry vs. CellStar Corporation, Alan H. Goldfield and Terry S. Parker;
and (4) Reed and Lillian Riemer v. CellStar Corporation, Alan H. Goldfield,
Terry S. Parker, John S. Bain, Kenneth W. Sanders and KPMG Peat Marwick, L.L.P.
These four lawsuits have since been consolidated into the case styled State
of Wisconsin Investment Board, Diane Larson, Martin Katz, Mostafa Aboul-Fetouh,
Ahmed Aboul-Fetouh and Enass Aboul-Fetouh on behalf of themselves and others
similarly situated v. Alan H. Goldfield, Terry S. Parker, Kenneth W. Sanders,
John S. Bain, Evelyn M. Henry, Michael S. Hedge, Kenneth E. Kerby, Daniel T.
Bogar, Leonard C. Ratley, James L. Johnson, Ronald J. Kramer, CellStar
Corporation and KPMG Peat Marwick LLP, Civil Action No. 3:96-CV-1353-R. The
State of Wisconsin Investment Board has been appointed lead plaintiff in the
consolidated action and has filed a Consolidated Amended Complaint asserting
claims against the Company and certain of its present and former officers and
directors for violations of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and Rule 10b-5 promulgated
thereunder, Section 27.01 of the Texas Civil Statutes, common law fraud,
negligent misrepresentation, and breach of fiduciary duty to disclose under
Delaware common law. The Consolidated Amended Complaint alleges, among other
things, that the defendants misrepresented or failed to disclose material facts
regarding the business, financial condition, performance and future prospects
of the Company and that, as a result of such statements or omissions, the value
of the Company's Common Stock was artificially inflated. Claims are also
asserted against the Company's auditors, KPMG Peat Marwick LLP. The plaintiffs
seek compensatory damages, exemplary damages and costs and expenses, including
attorneys' fees and expert fees. Although the plaintiffs have not specified the
amount of damages sought, they have argued that the alleged class has sustained
in excess of $50 million in damages. In December 1996, defendants filed motions
to dismiss all claims asserted in the Consolidated Amended Complaint. The
motions are pending.
14
<PAGE>
The Company believes it has meritorious defenses to these claims and is
vigorously defending this action. No discovery has been taken at this time, and
the ultimate outcome is not currently predictable.
The Company is a party to various other claims, legal actions and complaints
arising in the ordinary course of business. Management believes that the
disposition of these other matters will not have a materially adverse effect on
the consolidated financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fiscal quarter ended November 30, 1997.
15
<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the NASDAQ Stock Market under the
symbol "CLST." The following table sets forth, on a per share basis for the
periods indicated, the high and low sale prices for the common stock as
reported by the NASDAQ Stock Market. Sales prices prior to June 18, 1997, have
been adjusted to give effect to a three-for-two stock split, which was made in
the form of a stock dividend distributed on June 17, 1997.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal Year ended November 30, 1997
Quarter Ended:
February 28, 1997...................................... $17.666 $ 7.417
May 31, 1997........................................... $24.250 $13.250
August 31, 1997........................................ $34.750 $22.167
November 30, 1997...................................... $49.875 $25.875
Fiscal Year ended November 30, 1996
Quarter Ended:
February 29, 1996...................................... $19.500 $11.583
May 31, 1996........................................... $12.000 $ 3.833
August 31, 1996........................................ $ 6.917 $ 4.167
November 30, 1996...................................... $ 8.500 $ 4.000
</TABLE>
As of February 25, 1998, there were 155 stockholders of record, although the
Company believes that the number of beneficial owners is significantly greater
than that number because a large number of shares are held of record by CEDE &
Co.
The Company has never declared or paid cash dividends on its common stock.
The Company currently intends to retain all earnings to finance the continued
growth and development of its business and does not anticipate paying cash
dividends on the common stock in the foreseeable future. Any future
determination as to the payment of cash dividends will depend on a number of
factors, including future earnings, capital requirements, the financial
condition and prospects of the Company and any restrictions under the Company's
credit agreements existing from time to time, as well as other factors the
Board of Directors may deem relevant. The Company's current revolving credit
facility restricts the payment of dividends by the Company to its stockholders.
There can be no assurance that the Company will pay any dividends in the
future.
On October 14, 1997, the Company issued $150.0 million of 5% Convertible
Subordinated Notes Due 2002 (the "Notes"). Bear, Stearns & Co. Inc. and Chase
Securities Inc. initially purchased the Notes from the Company in a private
offering pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"), and sold the Notes in reliance on Rule 144A and
Regulation S under the Securities Act to qualified institutional investors. The
Notes were sold for an aggregate offering price of $150.0 million less
discounts and commissions of $4,237,500. The Notes are unsecured obligations
and are convertible into the Company's common stock at a price of $55.335 per
share, subject to adjustment.
16
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The financial data presented below, as of and for each of the years in the
five-year period ended November 30, 1997, were derived from the Company's
audited financial statements. The selected consolidated financial data should
be read in conjunction with "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the Company's Consolidated
Financial Statements and Notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------
1997 1996 1995 1994 1993
---------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND
OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS DATA:
Revenues:
Net product sales $1,442,875 845,569 723,886 447,741 224,845
Activation income 28,561 88,474 75,690 60,153 42,223
Residual income 11,378 13,558 12,339 10,528 8,308
---------- ------- ------- ------- -------
Total revenues 1,482,814 947,601 811,915 518,422 275,376
Cost of sales 1,325,488 810,000 702,074 448,780 229,796
---------- ------- ------- ------- -------
Gross profit 157,326 137,601 109,841 69,642 45,580
---------- ------- ------- ------- -------
Operating expenses:
Selling, general and
administrative
expenses 81,319 135,585 76,553 44,598 28,321
Fees and bonus to
stockholders - - - - 3,135
---------- ------- ------- ------- -------
Total operating
expenses 81,319 135,585 76,553 44,598 31,456
---------- ------- ------- ------- -------
Operating income 76,007 2,016 33,288 25,044 14,124
Other income
(expense), net (5,051) (8,882) (2,950) 232 (1,228)
---------- ------- ------- ------- -------
Income (loss) before
income taxes 70,956 (6,866) 30,338 25,276 12,896
Income taxes 17,323 (453) 7,442 9,028 5,043
---------- ------- ------- ------- -------
Net income (loss) $ 53,633 (6,413) 22,896 16,248 7,853
========== ======= ======= ======= =======
Net income (loss) per
share $ 1.78 (0.22) 0.81 0.59 0.39
========== ======= ======= ======= =======
Weighted average
number of shares and
equivalent shares
outstanding(/1/) 30,084 28,910 28,233 27,662 20,250
========== ======= ======= ======= =======
OPERATING DATA:
International revenues
as a percentage of
total revenues 41.5% 39.9% 41.1%(/2/) 23.3%(/2/) 22.5%
<CAPTION>
AT NOVEMBER 30,
--------------------------------------------------------
1997 1996 1995 1994 1993
---------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 259,954 71,365 74,410 63,668 7,052
Total assets $ 497,111 298,551 314,921 186,354 89,894
Short-term debt $ - 56,704 99,187 12,735 8,968
Long-term debt, less
current portion $ 150,000 6,285 6,880 3,095 -
Notes payable to
stockholders, less
current portion $ - - - - 7,214
Stockholders' equity $ 160,865 104,263 111,295 76,642 7,749
</TABLE>
- --------
(/1/) Common stock amounts have been retroactively adjusted to give effect to a
three-for-two stock split, which was made in the form of a stock dividend
distributed on June 17, 1997.
(/2/) Excludes sales to CellStar Asia, which were included in U.S. sales prior
to the Company's acquisition of the remaining 50% interest in CellStar
Asia in June 1995. If the Company's acquisition of the remaining 50%
interest in CellStar Asia in June 1995 is given pro forma effect as of
December 1, 1993, international revenues as a percentage of total revenues
would be 51.9% and 34.7% for fiscal 1995 and 1994, respectively.
17
<PAGE>
ITEM 7. 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 total
revenues grew from $275.4 million to $1,482.8 million. The Company accomplished
this growth in both U.S. and international sales by focusing its efforts on the
cellular phone industry. To date, U.S. 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
earnings per share increased from $0.39 to $1.78 between its fiscal years ended
November 30, 1993 and 1997.
The Company's revenues are grouped into three categories: net product sales,
activation income and residual income. Net product sales include sales of
handsets and other wireless communications products and revenues from
fulfillment and other value-added services. Activation income includes
commissions paid by a cellular carrier when a customer initially subscribes for
cellular service through the Company. Residual income includes payments
received from carriers based on the cellular phone usage by a customer
activated by the Company.
The Company's historical records do not enable management to provide accurate
information with respect to disaggregated wholesale and retail prices, volumes
and gross margins. The gross margins realized from the Company's wholesale
product revenues have generally been lower than the margins realized from its
retail product revenues. However, due to the more labor intensive nature of the
Company's retail operations, selling, general and administrative expenses have
generally been higher with respect to retail sales, which partially offsets the
higher gross margins the Company realizes from retail product sales.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the captions "Business," "Properties,"
"Legal Proceedings," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and elsewhere in this report may
constitute "forward-looking" statements for purposes of the Securities Act and
the Exchange Act and, as such, may involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from future results,
performance or achievements expressed or implied by such forward-looking
statements. When used in this report, the words "anticipates," "estimates,"
"believes," "will," "continues," "expects," "projections," "forecasts,"
"intends," "may," "might," "could" and similar expressions are intended to be
among the statements that identify forward-looking statements. Various factors
that could cause the actual results, performance or achievements of the Company
to differ materially from the Company's expectations are disclosed in this
report ("Cautionary Statements"), including, without limitation, those
statements made in conjunction with the forward-looking statements included
under the captions identified above and otherwise herein. All written and oral
forward-looking statements attributable to the Company are expressly qualified
in their entirety by the Cautionary Statements.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of operations
data for the Company expressed as a percentage of total revenues for the past
three fiscal years:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Revenues:
Net product sales 97.3% 89.2% 89.2%
Activation income 1.9 9.3 9.3
Residual income 0.8 1.5 1.5
----- ----- -----
Total revenues 100.0 100.0 100.0
Cost of sales 89.4 85.5 86.5
----- ----- -----
Gross profit 10.6 14.5 13.5
Selling, general and administrative expenses 5.5 14.3 9.4
----- ----- -----
Operating income 5.1 0.2 4.1
Other income (expense):
Interest expense (0.5) (0.9) (0.8)
Other, net 0.2 - 0.4
----- ----- -----
Total other income (expense) (0.3) (0.9) (0.4)
----- ----- -----
Income (loss) before income taxes 4.8 (0.7) 3.7
Income taxes 1.2 - 0.9
----- ----- -----
Net income (loss) 3.6% (0.7)% 2.8%
===== ===== =====
</TABLE>
The amount of net revenues and the approximate percentages of net revenues
attributable to the Company's operations for the past three fiscal years are
shown below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S.:
Net product sales(/1/) $ 845,354 57.0% 485,788 51.3% 415,094 51.1%
Activation income 12,962 0.9 71,072 7.5 52,704 6.5
Residual income 8,550 0.6 11,884 1.3 10,379 1.3
---------- ----- ------- ----- ------- -----
Total U.S. 866,866 58.5 568,744 60.1 478,177 58.9
---------- ----- ------- ----- ------- -----
Asia-Pacific:
Net product sales(/2/) 419,008 28.3 247,773 26.1 183,274 22.6
Activation income 3,743 0.2 720 0.1 - -
Residual income - - - - - -
---------- ----- ------- ----- ------- -----
Total Asia-Pacific 422,751 28.5 248,493 26.2 183,274 22.6
---------- ----- ------- ----- ------- -----
Latin America:
Net product sales 109,371 7.4 101,440 10.7 125,518 15.5
Activation income 11,856 0.8 16,682 1.8 22,986 2.8
Residual income 2,828 0.2 1,674 0.1 1,960 0.2
---------- ----- ------- ----- ------- -----
Total Latin America 124,055 8.4 119,796 12.6 150,464 18.5
---------- ----- ------- ----- ------- -----
Europe:
Net product sales 69,142 4.6 10,568 1.1 - -
Activation income - - - - - -
Residual income - - - - - -
---------- ----- ------- ----- ------- -----
Total Europe 69,142 4.6 10,568 1.1 - -
---------- ----- ------- ----- ------- -----
Total $1,482,814 100.0% 947,601 100.0% 811,915 100.0%
========== ===== ======= ===== ======= =====
</TABLE>
- --------
(/1/) Includes export sales of $90.2 million in 1995 to CellStar Asia prior to
June 3, 1995 when CellStar Asia became a wholly-owned subsidiary of the
Company.
(/2/) Fiscal year 1995 includes sales of $143.1 million by CellStar Asia after
June 2, 1995.
19
<PAGE>
FISCAL 1997 COMPARED TO FISCAL 1996
Revenues. Total revenues increased $535.2 million, or 56.5%, from $947.6
million in fiscal 1996 to $1,482.8 million in fiscal 1997.
U.S. revenues increased $298.2 million, or 52.4%, from $568.7 million in
fiscal 1996 to $866.9 million in fiscal 1997. The increase was due to an
increase in net product sales of $359.6 million, which was partially offset by
decreases in activation and residual income. The increase in net product sales
was largely due to the increase in revenues from distribution and fulfillment
contracts for the provision of products and value-added services and sales from
the Company's Miami, Florida warehouse to customers exporting into South
American countries. As expected for fiscal 1997, U.S. activation and residual
income decreased, primarily as a result of the sale of substantially all of the
Company's Communication Centers on November 26, 1996.
Net product sales in the Asia-Pacific Region increased $171.2 million, or
69.1%, from $247.8 million in fiscal 1996 to $419.0 million in fiscal 1997. The
Company's operations in the PRC, primarily Hong Kong, provided $319.7 million
in net product sales in fiscal 1997, an increase of $120.0 million compared to
$199.7 million in fiscal 1996. The higher revenue levels resulted from the
expansion in overall demand for wireless handsets in the region, particularly
in the PRC, coupled with the increased availability of product during the year.
Net product sales by the Company's Singapore operations increased $37.2
million, from $46.1 million in fiscal 1996 to $83.2 million in fiscal 1997.
This increase was primarily due to increased demand in The Philippines and
Indonesia. The Company's operations in Taiwan, which commenced in the second
quarter of fiscal 1996, provided $16.1 million of net product sales in fiscal
1997, an increase of $14.1 million compared to $2.0 million in fiscal 1996. The
Asia-Pacific operations are substantially wholesale related, and, as a result,
activation income is not significant.
The Company's operations in the Latin American Region provided $109.4 million
of net product sales in fiscal 1997, compared to $101.4 million in fiscal 1996,
an $8.0 million, or 7.9%, increase. Net product sales in Mexico, Argentina and
Venezuela increased $27.0 million, $7.8 million and $6.4 million, respectively.
Net product sales in Brazil and the remainder of the region decreased $23.1
million and $10.1 million, respectively. The increase in Mexico was the result
of a change in promotional strategy by the principal cellular carrier, which
began subsidizing cellular phone units. The increase in Argentina was due to
improved market penetration and a new pricing strategy by the local carrier
whereby the calling party pays for the call. The increase in Venezuela was
fueled by the Company's prepaid cellular business. The sharp decline in Brazil
was principally due to actions of the Brazilian government, which limited the
authorization of additional wireless phone lines. Activation and residual
income generated by the Company's operations in the Latin American Region
decreased from $18.4 million in fiscal 1996 to $14.7 million in fiscal 1997.
The decrease in activation income was principally attributable to Mexico, which
experienced a decrease of $3.8 million as a result of a reduction in
commissions from its principal cellular carrier. The reduction was slightly
offset by an increase in activation income in Venezuela from the Company's
prepaid cellular business.
Net product sales from the Company's European operation in the United
Kingdom, which commenced in the second quarter of fiscal 1996, were $69.1
million in fiscal 1997, an increase of $58.5 million compared to $10.6 million
in fiscal 1996.
Gross Profit. Gross profit increased $19.7 million, or 14.3%, from $137.6
million in fiscal 1996 to $157.3 million in fiscal 1997, while gross profit as
a percentage of total revenues decreased from 14.5% in fiscal 1996 to 10.6% in
fiscal 1997. The increase in gross profit was primarily due to the increase in
CellStar Asia's net product sales of high-end products and due to the increase
in sales from the Company's Miami, Florida, warehouse to customers exporting
into South American countries. A reduction in the provision for inventory
obsolescence of $3.9 million, from $8.7 million in fiscal 1996 to $4.8 million
in fiscal 1997, also contributed to the increase in gross profit. These
increases were partially offset by a significant decrease in U.S. retail
revenues of $92.0 million, from $127.9 million in fiscal 1996 to $35.9 million
in fiscal 1997. Retail revenues have a higher gross profit as a percentage of
total revenues than wholesale net product sales. Gross profit as a percentage
of total revenues decreased primarily due to the sale
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of substantially all of the Company's Communication Centers in November 1996
and due to the higher percentage of revenues from distribution and fulfillment
contracts, which have lower gross profit margins than the Company's
traditional wholesale business. Net foreign currency transaction losses in
fiscal 1997 were $1.4 million, compared to $1.8 million in fiscal 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $54.3 million, or 40.0%, from $135.6 million
in fiscal 1996 to $81.3 million in fiscal 1997. Approximately $22.6 million,
or 41.6%, of the decrease was attributable to the reduction of employees
related to the sale of the Communication Centers. The sale of the
Communication Centers also gave rise to other decreases in selling, general
and administrative expenses totaling approximately $8.9 million. A reduction
in bad debt expense of $24.8 million, or 45.7% of the total decrease, was
primarily attributable to the continuing strategy of increasing sales from the
Company's Miami, Florida warehouse to customers exporting into South American
countries, which has resulted in the Company's ability to enhance its controls
over the extension of credit. Bad debt expense as a percentage of total
revenues decreased from 2.9% in fiscal 1996 to 0.2% in fiscal 1997. These
decreases were partially offset by an increase of $7.5 million in fiscal 1997
in employee-related costs incurred in connection with the increase in net
product sales. Overall, the company reduced selling, general and
administrative expenses as a percentage of total revenues from 14.3% in fiscal
1996 to 5.5% in fiscal 1997.
Operating Income. Operating income increased $74.0 million, from $2.0
million in fiscal 1996 to $76.0 million in fiscal 1997, due to the increase in
revenues and the decrease in selling, general and administrative expenses.
Correspondingly, operating income as a percentage of total revenues increased
from 0.2% in fiscal 1996 to 5.1% in fiscal 1997.
Interest Expense. Interest expense declined in fiscal 1997 to $7.8 million
from $8.4 million in fiscal 1996. The decrease in interest expense resulted
primarily from the maintenance of lower balances under the Company's revolving
credit agreement.
Other, Net. Other, net increased $2.6 million, from an expense of $0.3
million in fiscal 1996 to income of $2.3 million in fiscal 1997, primarily as
a result of an increase in interest income of $1.2 million, from $0.9 million
to $2.1 million, and a decrease in minority interest of $0.7 million due to
the acquisition of the remaining 20.0% interest of the Company's Singapore
subsidiary on May 30, 1997.
Income Taxes. The Company's income tax expense increased $17.8 million in
fiscal 1997. The increase was primarily due to higher income before income
taxes for the year ended November 30, 1997. The effective tax rate is higher
for the year ended November 30, 1997 compared to the same period a year
earlier, primarily due to higher proportional taxable income in both the
United States and the Latin American Regions, which have statutory tax rates
of approximately 35%.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues. Total revenues increased $135.7 million, or 16.7%, from $811.9
million in fiscal 1995 to $947.6 million in fiscal 1996.
U.S. revenues increased 18.9%, from $478.2 million in fiscal 1995 to $568.7
million in fiscal 1996. The increase was due to increases in net product sales
of $70.7 million, activation income of $18.4 million and residual income of
$1.5 million. The increase in net product sales was due primarily to a shift
in strategy from in-country product sales by the Company's South American
subsidiaries to sales by the Company's Miami, Florida warehouse to customers
exporting into South American countries. The Company adopted this strategy to
reduce currency, accounts receivable and inventory risks. In addition, the
U.S. operations achieved growth in net product sales from sales to wholesale
customers in the United States.
U.S. activation income increased primarily as a result of an overall
increase in sales of cellular phone units at the retail level. The increase in
unit sales at the retail level was attributable to the Company's expansion of
Communication Centers in Sam's Clubs beginning in the fourth quarter of fiscal
1994. Since the Company sold
21
<PAGE>
substantially all of its Communication Centers in November 1996, the Company
expected a decline in activation income in fiscal 1997. The increase in
residual income primarily corresponded to the Company's growing cellular phone
user base where the Company operated stand-alone retail stores, which increase
was partially offset by lower average monthly user phone bills.
The Company's international revenues, which include direct revenues derived
primarily from the operations of its subsidiaries in the Asia-Pacific and Latin
American Regions, increased 13.5%, from $333.7 million in fiscal 1995 to $378.8
million in fiscal 1996. The growth in international revenues was due to the
acquisition of the remaining 50% interest in CellStar Asia, which resulted in
CellStar Asia's sales being classified as international sales beginning in June
1995. Prior to the June 1995 acquisition, CellStar Asia's operations were not
consolidated with the operations of the Company, and sales of products to
CellStar Asia were considered revenues of the Company's U.S. operations. Net
product sales to CellStar Asia prior to the acquisition totaled $90.2 million
in fiscal 1995. After the acquisition, CellStar Asia had $143.1 million and
$199.7 million in fiscal 1995 and 1996, respectively, of net product sales,
which were included in the Company's international revenues. In the aggregate,
sales by CellStar Asia decreased from $228.0 million in fiscal 1995 to $199.7
million in fiscal 1996. The decrease was due to several factors including the
unavailability of the highly popular PCS phones and increased competition that
caused downward pressure on selling prices. The Company's Singapore operations
provided $40.2 million of net product sales in fiscal 1995 compared to $46.1
million of net product sales of fiscal 1996. The Company's operations in
Taiwan, which commenced operations in the second quarter in fiscal 1996,
provided $2.0 million of net product sales in fiscal 1996. The Asia-Pacific
operations are substantially wholesale related, and, as a result, activation
income is not significant.
The Company's operations in the Latin American Region provided $101.4 million
of net product sales in fiscal 1996, compared to $125.5 million in fiscal 1995.
The decline was due primarily to a sharp decline in sales in Brazil, which
decreased from $47.0 million in fiscal 1995 to $30.6 million in fiscal 1996.
This decline was due to the continued deterioration in the business climate in
Brazil for the cellular phone industry and to a change in the Company's
strategy of selling products from its warehouse in Miami, Florida, to customers
exporting into South American countries. The decline in net product sales was
partially offset by a $20.0 million increase in net product sales in Argentina,
a market the Company entered in late 1995. Activation income generated by the
Company's operations in the Latin American Region decreased from $23.0 million
in fiscal 1995 to $16.7 million in fiscal 1996. The decrease in activation
income was primarily attributable to the decline in activation income in
Venezuela, which decreased from $4.8 million in fiscal 1995 to $0.7 million in
fiscal 1996 due to weak economic conditions and political turmoil.
Gross Profit. Gross profit increased $27.8 million, or 25.3%, from $109.8
million in fiscal 1995 to $137.6 million in fiscal 1996, while gross profit as
a percentage of total revenues increased from 13.5% to 14.5% in fiscal 1995 and
1996, respectively. This increase in the gross margin percent was primarily due
to the consolidation of CellStar Asia's higher gross margin revenues following
the Company's acquisition of the remaining 50% interest in CellStar Asia in
June 1995, and an increase in higher margin U.S. retail sales. Revenues for
fiscal 1995 include export sales of $90.2 million, with a gross margin of 4.0%,
to CellStar Asia prior to June 1995 when it became a wholly-owned subsidiary.
After CellStar Asia became a wholly-owned subsidiary, its revenues were
consolidated with the Company's rather than being reported as U.S. net product
sales. U.S. retail sales increased from $90.5 million in fiscal 1995 to $127.9
million in fiscal 1996 due to the increase in the number of Communication
Centers. These gross profit increases were partially offset by provisions for
inventory obsolescence and the effect of general economic declines in the Latin
American Region.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $59.0 million, or 77.0%, from $76.6 million
in fiscal 1995 to $135.6 million in fiscal 1996. Approximately $28.0 million,
or 47.5%, of the increase resulted from an increase in trade accounts
receivable reserves to reflect a further deterioration in the trade accounts
receivable portfolio, primarily for Brazil-related receivables. Substantially
all of the Company's customers in Brazil were significantly and adversely
impacted by actions
22
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taken by Telebras, the government owned cellular telephone company, which
unexpectedly limited the number of cellular telephone lines available for
activation in Brazil during 1995 and 1996. Beginning in late 1995 and
continuing through 1996, Telebras announced plans to activate significant
numbers of cellular lines on a monthly basis to meet the large demand for
cellular service in the major metropolitan areas. In response to these
announcements, many of the Company's retail customers began to rapidly expand
their operations, in many cases opening multiple retail locations specializing
in cellular telephones and related products and incurring corresponding
increases in inventory and overhead. However, the government failed to release
the number of lines promised, leaving many of the Company's retail customers
with insufficient sales revenues to support the increased overhead and
ultimately insufficient cash flows to repay the Company. Bad debt expense as a
percentage of total revenues increased from 0.3% in fiscal 1995 to 2.9% in
fiscal 1996. An additional $11.7 million, or 19.8%, of the increase in selling,
general and administrative expenses was attributable to an increase in salaries
and employee benefits for the addition of employees to support the growth of
the Company's operations, primarily related to the Communication Centers. The
Communication Centers also contributed to other increases in selling, general
and administrative expenses as these operations experienced higher operating
expenses than wholesale operations. The Company sold 334 of its Communication
Centers on November 26, 1996. As a percentage of total revenues, selling,
general and administrative expenses increased from 9.4% to 14.3%.
Operating Income. Operating income decreased substantially from $33.3 million
in fiscal 1995 to $2.0 million in fiscal 1996 due mainly to the significant
increase in selling, general and administrative expenses, as discussed above.
(Undistributed Loss) Equity in Earnings of Joint Ventures. (Undistributed
loss) equity in earnings of joint ventures decreased in fiscal 1996 by $3.4
million from fiscal 1995. The decrease was attributable to the Company's
acquisition of the remaining 50% interest in CellStar Asia in June 1995. The
Company's 50% equity interest in the operations of CellStar Asia prior to the
date of the acquisition was classified as equity in earnings of joint ventures.
Interest Expense. Interest expense increased in fiscal 1996 to $8.3 million
from $6.1 million in fiscal 1995. The increase in interest expense resulted
primarily from the maintenance of higher average balances under the Company's
revolving credit agreements.
Income Taxes. The Company's income tax expense decreased in fiscal 1996 by
$7.9 million, or 106.7%, from fiscal 1995, due to a tax benefit resulting from
accumulated losses related to the Company's Brazilian operations and a lower
overall effective tax rate. The lower effective tax rate in fiscal 1996 was
primarily attributable to foreign and U.S. tax effects from foreign operations.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Company's issuance of $150.0 million of 5% Convertible
Subordinated Notes Due 2002 (the "Notes"), as described below, the Company
relied primarily on cash generated from operations and borrowings under its
revolving credit facility in the United States to fund working capital, capital
expenditures and expansions. The Company also received extended credit terms
from certain suppliers.
On October 14, 1997, the Company issued the Notes in reliance on registration
exemptions under the Securities Act. The Notes are unsecured obligations, are
convertible into the Company's common stock at a price of $55.335 per share,
are not callable for three years and mature on October 15, 2002. The proceeds
from the Notes were used to pay off the revolving credit facility in the United
States, to retire long-term debt obligations, to fund working capital
requirements and for other general corporate purposes. Commencing April 15,
1998, the Company will be required to make interest payments on the Notes semi-
annually on April 15 and October 15 of each year.
On October 15, 1997, the Company entered into a new $135.0 million
Multicurrency Revolving Credit Facility (the "Facility") with a syndicate of
banks. The Facility has a term of approximately five years,
23
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replaces the Company's previous $90.0 million revolving credit facility and
provides the ability to borrow up to $25.0 million in certain currencies that
are customarily offered to banks in the London interbank market and are
convertible into dollars in the international bank market. Fundings under the
Facility are limited by an asset coverage test, which is measured quarterly.
The Facility contains, among other provisions, covenants relating to the
maintenance of minimum net worth and certain financial ratios, dividend
payments, additional debt, mergers and acquisitions and dispositions of assets.
At February 27, 1998, $21.9 million was outstanding under the Facility.
At November 30, 1997, the Company had $74.6 million of cash and cash
equivalents, an increase of $47.4 million since November 30, 1996. The increase
resulted primarily from cash generated from operating activities outside the
United States and by the proceeds from the Notes. Approximately two-thirds of
the Company's cash resides outside the United States, primarily in its Asia-
Pacific Region subsidiaries. While the Company has historically retained cash
in that region to support the subsidiaries in that region, the Company
currently expects to utilize its recently-established global agency treasury
center in Dublin, Ireland, to pool certain of its global resources. This
approach should allow the Company to better utilize its cash worldwide, while
minimizing income taxes. Additionally, the Company's accounts receivable,
inventories and accounts payable have increased in the United States and the
Asia-Pacific Region since November 30, 1996, as a result of increased net
product sales.
The Company anticipates that proceeds from the Notes, amounts available under
the Facility and funds from operations will be sufficient to satisfy its
capital requirements and current expansion plans for fiscal 1998.
Cash used in investing activities of $6.2 million in fiscal 1997 included the
purchase of additional prepaid cellular hardware and software in Venezuela for
$1.4 million, acquisition of office space in Shanghai, PRC for $1.2 million and
purchases of various computer and office equipment for $3.6 million. The
Company believes that the fiscal 1997 level of capital expenditures is
representative of ongoing annual maintenance capital expenditures.
INTERNATIONAL OPERATIONS
The Company's international operations are subject to political and economic
risks, including but not limited to political instability, increased credit
risks, changing tax and trade regulations and currency devaluations and
controls; however, the Company has not experienced any material foreign
currency transaction gains or losses during the last three fiscal years. The
Company maintains a significant presence in Hong Kong, and with the transfer of
Hong Kong from the United Kingdom to the PRC on July 1, 1997, the Company's
operations in the Asia-Pacific Region may be exposed to a higher degree of
currency volatility and economic instability than has historically been the
case. As a result of recent economic volatility in the Asia-Pacific region,
many currencies in the region have lost value relative to the U.S. dollar.
Although the Company has experienced no material foreign currency transaction
losses since the beginning of this currency crisis, the Company's operations in
its Asia-Pacific Region have been subject to a higher degree of economic
instability, especially in the southern portion of such region, which includes
the Company's operations in Singapore, The Philippines and Malaysia.
In early 1996, the Company instituted a strategy to reduce the overall level
of assets maintained in the Latin American Region. The intent of this strategy
was to reduce the Company's working capital requirements related to its Latin
American operations and to reduce the Company's exposure to financial and
operating risks in the Latin American Region. Other changes to the Company's
business strategy in the Latin American Region include sales of products from
the Miami, Florida warehouse to customers exporting into South American
countries. While these initiatives have reduced the Company's exposure to
certain economic and political risks associated with transacting business in
the Latin American Region, the Company continues to maintain a significant
presence in the region. As such, the Company will remain subject to the risks
created by the volatile political and economic conditions that have
historically prevailed in the region.
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<PAGE>
IMPACT OF INFLATION
Historically, inflation has not had a significant impact on the Company's
overall operating results. However, the effects of inflation in volatile
economies in foreign markets could have an adverse impact on the Company.
SEASONALITY AND CYCLICALITY
The effects of seasonal fluctuations have not historically been apparent in
the Company's operating results due to the Company's rapid growth in revenues.
However, the Company's sales are influenced by a number of seasonal factors in
the different countries and markets in which it operates, including the
purchasing patterns of customers in different markets, product promotions of
competitors and suppliers, availability of distribution channels, and product
supply and pricing. Seasonality did, however, contribute to the increase in the
Company's sales during the fourth quarter of 1996. The Company's sales are also
influenced by cyclical economic conditions in the different countries and
markets in which it operates. An economic downturn in one of the Company's
principal markets could have a materially adverse effect on the Company's
operating results.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" ("Statement 128"), which is effective for interim
or annual periods ending after December 15, 1997. Statement 128 will change how
the Company calculates its earnings per share and will require earnings per
share amounts for all prior periods to be restated to conform with the new
presentation. Management does not believe that the adoption of Statement 128
will have a material effect on the Company's earnings per share amounts.
MANAGEMENT'S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of the Company are the responsibility
of management. They have been prepared in accordance with generally accepted
accounting principles and include estimates and judgments made by management.
To meet the responsibility for reliable financial data, management maintains a
system of internal accounting controls which is designed to provide reasonable
assurance that transactions are executed as authorized and are accurately
recorded and that assets are properly safeguarded. Although accounting controls
are designed to achieve this objective, it must be recognized that errors or
irregularities may occur. In addition, it is necessary to assess and balance
the relative cost and the expected benefit of the internal accounting controls.
25
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ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on Page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
26
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PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item regarding Directors of the Company is
set forth in the Proxy Statement (the "Proxy Statement") to be delivered to the
Company's stockholders in connection with the Company's 1998 Annual Meeting of
Stockholders under the heading "Election of Directors," which information is
incorporated herein by reference. The information required by this item
regarding executive officers of the Company is set forth under the heading
"Executive Officers of the Registrant" in Part I of this Form 10-K, which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in the Proxy Statement
under the heading "Executive Compensation," which information is incorporated
herein by reference. Information contained in the Proxy Statement under the
captions "Executive Compensation--Report of the Compensation Committee of the
Board of Directors on Executive Compensation" and "Comparative Performance
Graph" is not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth in the Proxy Statement
under the heading "Security Ownership of Certain Beneficial Owners and
Management," which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth in the Proxy Statement
under the caption "Certain Transactions," which information is incorporated
herein by reference.
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PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1. CONSOLIDATED FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements on page F-1 of this Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES
See Index to Consolidated Financial Statements on page F-1.
3. EXHIBITS
<TABLE>
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of CellStar
Corporation.(1)
3.2 Amended and Restated Bylaws of CellStar Corporation.(14)
4.1 The Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws of CellStar Corporation filed in response to items 3.1
and 3.2 are incorporated in this item by reference.(1)(14)
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 Chase Mellon Shareholder Services, L.L.C., as Rights
Agent ("Rights Agreement").(3)
4.4 First Amendment to Rights Agreement, dated as of June 18, 1997.(4)
4.5 Form of Certificate of Designation, Preferences and Rights of Series A
Preferred Stock of CellStar Corporation ("Certificate of
Designation")(3)
4.6 Form of Rights Certificate.(3)
4.7 Certificate of Correction of Certificate of Designation.(4)
4.8 Indenture, dated as of October 14, 1997, by and between CellStar
Corporation and The Bank of New York, as Trustee(13)
10.1 Employment Agreement, effective as of December 1, 1994, by and between
CellStar Corporation and Alan H. Goldfield.(2)(15)
10.2 Employment Agreement, effective as of May 24, 1996, by and between
CellStar, Ltd., CellStar Corporation and Richard M. Gozia.(5)(15)
10.3 Employment Agreement by and between CellStar, Ltd., CellStar Corporation
and Mark Q. Huggins, effective as of January 15, 1997.(6)(15)
10.4 Employment Agreement, effective January 22, 1998, by and between
CellStar (Asia) Corporation Limited, CellStar Corporation and Hong An-
Hsien.(14)(15)
10.5 Agreement by and between Motorola Inc., by and through its Pan American
Cellular Subscriber Group, and CellStar, Ltd., effective January 1, 1997
(United States).(7)(16)
10.6 Master Agreement for the Purchase of Products and Inventory Maintenance,
Assembly and Fulfillment (IAF) Services between Pacific Bell Mobile
Services and CellStar, Ltd., effective September 20, 1996.(6)(16)
10.7 Agreement by and between National Auto Center, Inc. and the Pan American
Cellular Subscriber Division of Motorola Inc., dated as of January 1,
1995 (Latin American and Caribbean Territory).(8)
10.8 Lease by and between Alan H. Goldfield and National Auto Center, Inc.
regarding 605 West Airport Freeway, Irving, Texas.(10)(15)
10.9 Exclusive Cellular Subagent Agreement by and between National Auto
Center and Alan H. Goldfield d/b/a National Tape.(10)(15)
10.10 Registration Rights Agreement by and between the Company and Audiovox
Corporation.(10)
10.11 Form of Warrant for the purchase of shares of common stock to be issued
to Ladenburg, Thalmann & Co., Inc. and Raymond James & Associates,
Inc.(10)
10.12 Stock Purchase Agreement by and between the Company and Motorola Inc.,
dated as of July 20, 1995.(1)
10.13 Registration Rights Agreement by and between the Company and Motorola
Inc., dated as of July 20, 1995.(1)
</TABLE>
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<TABLE>
<C> <S>
10.14 Credit Agreement, dated as of October 15, 1997, among CellStar
Corporation, each of the banks or other lending institutions signatory
thereto, The First National Bank of Chicago and National City Bank, as
co-agents, and Texas Commerce Bank National Association, as agent.(14)
10.15 CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan.
(14)(15)
10.16 CellStar Corporation Amended and Restated Annual Incentive Compensation
Plan. (6)(15)
10.17 CellStar Corporation 1994 Amended and Restated Director Nonqualified
Stock Option Plan. (11)
10.18 Registration Rights Agreement, dated as of June 2, 1995, between Hong An
Hsien and CellStar Corporation. (14)(15)
10.19 Registration Rights Agreement, entered into as of May 30, 1997, between
Leap International PTE LTD and CellStar Corporation(12)
10.20 Purchase Agreement, dated October 7, 1997, by and among CellStar
Corporation and Bear, Stearns & Co. Inc. and Chase Securities Inc. (13)
10.21 Registration Rights Agreement, dated as of October 14, 1997, by and
among CellStar Corporation and Bear, Stearns & Co. Inc. and Chase
Securities Inc. (13)
10.22 Agreement, dated as of April 28, 1995, by and between CellStar, Ltd. and
Motorola, Inc., Greater China Cellular Subscriber Division (People's
Republic of China). (9)
21.1 Subsidiaries of the Company. (14)
23.1 Consent of KPMG Peat Marwick LLP. (14)
27 Financial Data Schedule (14)
99.1 Shareholders Agreement by Alan H. Goldfield to Motorola Inc., dated as
of July 20, 1995. (1)
</TABLE>
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(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 Registration Statement on
Form 8-A (File No. 000-22972), filed January 3, 1997, and incorporated
herein by reference.
(4) 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.
(5) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1996, and incorporated herein by
reference.
(6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended November 30, 1996, and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended August 31, 1997, and incorporated herein by
reference.
(8) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended November 30, 1994, and incorporated herein by
reference.
(9) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1995, and incorporated herein by
reference.
(10) Previously filed as an exhibit to the Company's Registration Statement No.
33-70262 on Form S-1 and incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended February 28, 1995, and incorporated herein by
reference.
(12) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1997, and incorporated herein by
reference.
(13) 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.
(14) Filed herewith.
(15) The exhibit is a management contract or compensatory plan or arrangement.
(16) Certain provisions of this exhibit are subject to a request for
confidential treatment filed with the Securities and Exchange Commission.
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4. REPORTS ON FORM 8-K
On September 26, 1997, the Company filed a Current Report on Form 8-K dated
September 25, 1997, to report, under Item 5 therein, (i) the Company's planned
private offering of $100.0 million aggregate principal amount of Convertible
Subordinated Notes Due 2002 (the "Notes"); and (ii) the Company's negotiations
for a new $125.0 million multicurrency revolving credit facility. On October
24, 1997, the Company filed a Current Report on Form 8-K dated October 8, 1997,
to report, under Item 5 therein, (i) pricing of $130.0 million of the Notes,
the grant of an over-allotment option to purchase up to an additional $20.0
million of the Notes and consummation of the offering of $150.0 million of the
Notes and (ii) completion of a new $135.0 million multicurrency revolving
credit facility.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CELLSTAR CORPORATION
/s/ Alan H. Goldfield
By: _________________________________
Alan H. Goldfield
Chairman of the Board
and
Chief Executive Officer
Date: February 27, 1998
31
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
By: /s/ Alan H. Goldfield Date: February 27, 1998
----------------------------------------
Alan H. Goldfield
Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
By: /s/ Richard M. Gozia Date: February 27, 1998
----------------------------------------
Richard M. Gozia
President, Chief Operating Officer and
Director
By: /s/ Mark Q. Huggins Date: February 27, 1998
----------------------------------------
Mark Q. Huggins
Senior Vice President--Administration,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
By: /s/ Evelyn Henry Miller Date: February 27, 1998
----------------------------------------
Evelyn Henry Miller
Vice President--Corporate Controller
(Principal Accounting Officer)
By: /s/ Daniel T. Bogar Date: February 27, 1998
----------------------------------------
Daniel T. Bogar
Senior Vice President--Latin American
Region
and Director
By: /s/ James L. Johnson Date: February 27, 1998
----------------------------------------
James L. Johnson
Director
By: /s/ Sheldon I. Stein Date: February 27, 1998
----------------------------------------
Sheldon I. Stein
Director
By: /s/ John T. Stupka Date: February 27, 1998
----------------------------------------
John T. Stupka
Director
By: /s/ Terry S. Parker Date: February 27, 1998
----------------------------------------
Terry S. Parker
Director
</TABLE>
32
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets as of November 30, 1997 and 1996............... F-3
Consolidated Statements of Operations for the years ended November 30,
1997, 1996 and 1995....................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
November 30, 1997, 1996 and 1995.......................................... F-5
Consolidated Statements of Cash Flows for the years ended November 30,
1997, 1996 and 1995....................................................... F-6
Notes to Consolidated Financial Statements................................. F-7
Schedule II--Valuation and Qualifying Accounts for the years ended November
30, 1997, 1996 and 1995................................................... S-1
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CellStar Corporation:
We have audited the consolidated financial statements of CellStar Corporation
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CellStar
Corporation and subsidiaries as of November 30, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-
year period ended November 30, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
January 13, 1998
F-2
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30, 1997 and 1996
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 74,646 27,296
Accounts receivable (less allowance for doubtful accounts
of $23,857 and $29,023, respectively) 176,032 131,812
Inventories 190,404 94,473
Deferred income tax assets 2,457 4,274
Prepaid expenses 2,661 1,513
-------- -------
Total current assets 446,200 259,368
Property and equipment, net 22,877 20,134
Goodwill (less accumulated amortization of $2,378 and
$1,330, respectively) 17,616 16,597
Other assets 10,418 2,452
-------- -------
$497,111 298,551
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $160,614 116,091
Notes payable to financial institutions - 56,136
Accrued expenses 13,545 12,250
Income taxes payable 11,044 1,852
Deferred income tax liabilities 1,043 1,106
Current portion of long-term debt - 568
-------- -------
Total current liabilities 186,246 188,003
Long-term debt, less current portion 150,000 6,285
-------- -------
Total liabilities 336,246 194,288
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued - -
Common stock, $.01 par value, 45,000,000 shares
authorized; 29,249,420 and 28,910,343 shares issued and
outstanding, respectively 293 193
Additional paid-in capital 72,985 68,167
Common stock warrants 4 4
Foreign currency translation adjustments (6,469) (4,520)
Retained earnings 94,052 40,419
-------- -------
Total stockholders' equity 160,865 104,263
-------- -------
$497,111 298,551
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended November 30, 1997, 1996 and 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ------- -------
<S> <C> <C> <C>
Revenues:
Net product sales $1,442,875 845,569 723,886
Activation income 28,561 88,474 75,690
Residual income 11,378 13,558 12,339
---------- ------- -------
Total revenues 1,482,814 947,601 811,915
Cost of sales 1,325,488 810,000 702,074
---------- ------- -------
Gross profit 157,326 137,601 109,841
Selling, general and administrative expenses 81,319 135,585 76,553
---------- ------- -------
Operating income 76,007 2,016 33,288
Other income (expense):
Interest expense (7,776) (8,350) (6,144)
Equity in earnings (undistributed loss) of
joint ventures 465 (219) 3,222
Other, net 2,260 (313) (28)
---------- ------- -------
Total other income (expense) (5,051) (8,882) (2,950)
---------- ------- -------
Income (loss) before income taxes 70,956 (6,866) 30,338
Provision (benefit) for income taxes 17,323 (453) 7,442
---------- ------- -------
Net income (loss) $ 53,633 (6,413) 22,896
========== ======= =======
Net income (loss) per share $ 1.78 (0.22) 0.81
========== ======= =======
Weighted average number of shares and
equivalent shares outstanding 30,084 28,910 28,233
========== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended November 30, 1997, 1996 and 1995
(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,
1994 27,840 $186 52,940 4 (424) 23,936 76,642
Net income - - - - - 22,896 22,896
Issuance of common
stock 1,070 7 15,227 - - - 15,234
Foreign currency
translation
adjustment - - - - (3,477) - (3,477)
------ ---- ------ --- ------ ------ -------
Balance at November 30,
1995 28,910 193 68,167 4 (3,901) 46,832 111,295
Net loss - - - - - (6,413) (6,413)
Foreign currency
translation
adjustment - - - - (619) - (619)
------ ---- ------ --- ------ ------ -------
Balance at November 30,
1996 28,910 193 68,167 4 (4,520) 40,419 104,263
Net income - - - - - 53,633 53,633
Common stock issued
under stock option
plans 166 2 2,167 - - - 2,169
Common stock issued
for acquisition of
minority interest 173 1 2,748 - - - 2,749
Three-for-two common
stock split - 97 (97) - - - -
Foreign currency
translation
adjustment - - - - (1,949) - (1,949)
------ ---- ------ --- ------ ------ -------
Balance at November 30,
1997 29,249 $293 72,985 4 (6,469) 94,052 160,865
====== ==== ====== === ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended November 30, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 53,633 (6,413) 22,896
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Provision for doubtful accounts 4,239 32,561 5,954
Provision for inventory obsolescence 4,830 8,718 466
Depreciation and amortization 5,063 5,799 3,372
Gain on sale of assets - (128) -
(Equity in earnings) undistributed loss of
joint ventures (465) 219 (3,222)
Deferred income taxes 1,754 (1,116) (1,823)
Changes in operating assets and liabilities:
Accounts receivable (50,408) (40,660) (76,496)
Inventories (100,761) 6,067 (5,971)
Prepaid expenses (1,148) 611 (1,480)
Other assets 241 318 (1,708)
Accounts payable 44,523 36,162 (5,166)
Accrued expenses 2,624 3,361 3,056
Income taxes payable 9,192 (7,397) 3,495
-------- ------- -------
Net cash (used in) provided by operating
activities (26,683) 38,102 (56,627)
-------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment (6,212) (6,139) (12,284)
Proceeds from sale of assets - 6,903 -
Acquisition of minority interest (502) - -
Purchases of equity investments in affiliated
companies (3,412) - (750)
-------- ------- -------
Net cash (used in) provided by investing
activities (10,126) 764 (13,034)
-------- ------- -------
Cash flows from financing activities:
Net (payments) borrowings on notes payable to
financial institutions (56,136) (42,467) 86,103
Proceeds from issuance of note payable to
stockholder - - 3,728
Payments on notes payable to stockholders - - (22,000)
Net proceeds from issuance of long-term debt 144,979 - 4,425
Principal payments on long-term debt (6,853) (611) (291)
Net proceeds from issuance of common stock 2,169 - 15,234
-------- ------- -------
Net cash provided by (used in) financing
activities 84,159 (43,078) 87,199
-------- ------- -------
Net increase (decrease) in cash and cash
equivalents 47,350 (4,212) 17,538
Cash and cash equivalents at beginning of year 27,296 31,508 13,970
-------- ------- -------
Cash and cash equivalents at end of year $ 74,646 27,296 31,508
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
CellStar Corporation and subsidiaries (the "Company") is a leading global
provider of wireless communications products, primarily handsets, with
operations in the United States, the Asia-Pacific Region, the Latin American
Region and the European Region. The Company is one of the world's largest non-
carrier wholesale distributors of wireless phones for Motorola and Ericsson,
and also distributes wireless phones for manufacturers such as Nokia, QUALCOMM,
Sony and NEC.
All significant intercompany balances and transactions have been eliminated
in consolidation. Certain prior year amounts have been reclassified to conform
to the current year presentation.
(b) Inventories
Inventories are stated at the lower of cost (primarily on a moving average
basis) or market.
(c) Property and Equipment
Property and equipment are recorded at cost. Depreciation of equipment is
provided over the estimated useful lives of the respective assets, which range
from three to thirty years, on a straight-line basis. Leasehold improvements
are amortized over the shorter of their useful lives or the related lease term.
Major renewals are capitalized, while maintenance, repairs and minor renewals
are expensed as incurred.
(d) Preopening Costs
Labor and certain other costs related to the opening of new retail locations
are expensed as incurred.
(e) Revenue Recognition
For the Company's wholesale business, revenue is recognized when product is
shipped. In accordance with contractual agreements with cellular service
providers, the Company receives an activation commission for obtaining
subscribers for cellular phone services in connection with the Company's retail
operations. The agreements contain various provisions for additional
commissions ("residual commissions") based upon subscriber usage. The
agreements also provide for the reduction or elimination of activation
commissions if subscribers deactivate service within stipulated periods. The
Company recognizes revenue for activation commissions upon the cellular service
providers' acceptance of subscriber contracts and residual commissions when
earned and provides an allowance for estimated cellular service deactivations,
which is reflected as a reduction of accounts receivable and activation income
in the accompanying consolidated financial statements.
(f) Foreign Currency
Assets and liabilities of the Company's foreign subsidiaries have been
translated at the rate of exchange at the end of each period. Revenues and
expenses have been translated at the weighted average rate of exchange in
effect during the respective period. Gains and losses resulting from
translation are accumulated as a separate component of stockholders' equity,
except for subsidiaries located in countries whose economies are considered
highly inflationary. In such cases, translation adjustments are included
primarily in cost of sales in the accompanying consolidated statements of
operations. Net transaction losses for the years ended November 30, 1997, 1996
and 1995 were $1.4 million, $1.8 million and $1.3 million, respectively. The
currency exchange rates of the Latin American countries in which the Company
conducts operations have historically been
F-7
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
volatile. The Company manages the risk of foreign currency devaluation by
attempting to increase prices of products sold at or above the anticipated rate
of local currency devaluation relative to the U.S. dollar and by indexing
certain of its receivables to exchange rates in effect at the time of their
payment.
(g) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred income tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred income tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
(h) Net Income (Loss) Per Share
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock and common stock equivalents
outstanding during each period. Primary and fully diluted earnings per common
and common equivalent share are essentially the same.
(i) Statements of Cash Flows Information
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with an original maturity of 90 days or
less to be cash equivalents. The Company paid approximately $7.1 million, $8.7
million and $6.0 million of interest for the years ended November 30, 1997,
1996 and 1995, respectively. The Company paid approximately $6.4 million, $7.8
million and $4.0 million of income taxes for the years ended November 30, 1997,
1996 and 1995, respectively.
(j) Equity Investments in Affiliated Companies
The Company accounts for its investments in common stock of affiliated
companies using the equity method. The investments are included in other assets
in the accompanying consolidated balance sheets.
(k) 401(k) Savings Plan
The Company established a savings plan for employees in 1994. Employees are
eligible to participate if they were full-time employees as of July 1, 1994 or
upon completing ninety days of service. The plan is subject to the provisions
of the Employee Retirement Income Security Act of 1974. Under provisions of the
plan, eligible employees are allowed to contribute as much as 15% of their
compensation, up to the annual maximum allowed by the Internal Revenue Service.
The Company may make a discretionary matching contribution based on the
Company's profitability. In 1997, the Company made contributions of
approximately $0.3 million to the plan. The Company did not make contributions
to the plan in 1996 or 1995.
(l) Goodwill
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired and is amortized using the straight-line method over 20
years. The Company assesses the net realizable value of these intangible assets
by determining the estimated future cash flows related to such assets. In the
event that these assets are found to be carried at amounts which are in excess
of estimated future operating cash flows, then the intangible assets will be
adjusted for impairment to a level commensurate with a discounted cash flow
analysis of the underlying assets.
F-8
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(m) Use of Estimates
Management of the Company has made a number of estimates and assumptions
related to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities in preparation of these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(n) Impairment of Long-Lived Assets
On December 1, 1996, the Company adopted Financial Accounting Standards Board
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("Statement 121"). This statement requires
that long-lived assets and certain identifiable intangibles held and used by
the Company be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Statement 121 also requires that long-lived assets to be disposed
of be reported at the lower of the carrying amount or the fair value less costs
to sell. Adoption of this statement did not have a material impact on the
Company's consolidated financial position, results of operations, or liquidity.
(o) Stock Option Plans
Prior to December 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("Opinion 25"), and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On December 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("Statement 123"), which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, Statement 123 also allows entities to continue to apply the
provisions of Opinion 25 and provide pro forma net income and pro forma income
per share disclosures for employee stock option grants made in 1996 and future
years as if the fair-value-based method defined in Statement 123 had been
applied. The Company has elected to continue to apply the provisions of Opinion
25 and provide the pro forma disclosure provisions of Statement 123.
(2) RELATED PARTY TRANSACTIONS
Motorola is a major supplier of cellular phones and accessories. Total
purchases from Motorola approximated $1,057.2 million, $609.7 million and
$420.2 million for the years ended November 30, 1997, 1996 and 1995,
respectively. Included in accounts payable at November 30, 1997 and 1996 was
approximately $109.2 million and $90.8 million, respectively, due to Motorola
for purchases of inventory.
In accordance with a stock purchase agreement dated July 20, 1995, Motorola
purchased 1.0 million shares of restricted stock from the Company for $15.0
million. The proceeds were used to pay a portion of the $22.0 million note
payable to the Chief Executive Officer issued in connection with the Company's
acquisition of CellStar Asia (note 10).
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of current assets and liabilities as of November 30,
1997 and 1996, approximate fair value due to the short maturity of these
instruments. The fair value of the Company's long-term debt is estimated by
discounting the future cash flows of each instrument at rates currently offered
to the Company for similar debt instruments of comparable maturities or from
quoted market prices.
F-9
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the estimated fair values of the Company's
long-term debt as of November 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------- --------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -----
<S> <C> <C> <C> <C>
Long-term debt $150,000 122,250 6,285 6,285
======== ======= ===== =====
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at November 30, 1997 and
1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- ------
<S> <C> <C>
Land and building $ 8,559 6,837
Furniture, fixtures and equipment 18,208 14,894
Jet aircraft 4,306 4,306
Leasehold improvements 2,936 1,688
-------- ------
34,009 27,725
Less accumulated depreciation and amortization (11,132) (7,591)
-------- ------
$ 22,877 20,134
======== ======
(5) DEBT
Notes payable to financial institutions consisted of the following at November
30, 1997 and 1996 (in thousands):
<CAPTION>
1997 1996
-------- ------
<S> <C> <C>
Multicurrency revolving credit facility $ - -
U.S. revolving credit facility - 53,233
Brazilian credit facility - 2,903
-------- ------
$ - 56,136
======== ======
</TABLE>
On October 15, 1997, the Company entered into a new $135.0 million
Multicurrency Revolving Credit Facility (the "Facility") with a syndicate of
banks. The Facility has a term of approximately five years, replaces the
Company's previous $90.0 million revolving credit facility and provides the
ability to borrow up to $25.0 million in certain currencies that are
customarily offered to banks in the London interbank market and are convertible
into dollars in the international bank market. Fundings under the Facility are
limited by an asset coverage test, which is measured quarterly. The Facility
contains, among other provisions, covenants relating to the maintenance of
minimum net worth and certain financial ratios, dividend payments, additional
debt, mergers and acquisitions and dispositions of assets. At November 30,
1997, the Company had available all of the $135.0 million borrowing capacity.
In October 1997, the U.S. Revolving Credit Facility was replaced by the
Facility as the Company's primary working capital line of credit. The U.S.
Revolving Credit Facility was retired with proceeds from the Company's 5%
Convertible Subordinated Notes.
The weighted average interest rate on short-term borrowings at November 30,
1996 was 9.57%.
F-10
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt consisted of the following at November 30, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -----
<S> <C> <C>
5% Convertible Subordinated Notes $150,000 -
Equipment loan - 2,723
Mortgage note payable - 4,130
-------- -----
150,000 6,853
Less current portion - (568)
-------- -----
$150,000 6,285
======== =====
</TABLE>
The Company's 5% Convertible Subordinated Notes Due October 15, 2002 (the
"Notes") are convertible into 2.7 million shares of common stock at $55.335 per
share at any time prior to maturity. Subsequent to October 18, 2000, the Notes
are redeemable at the option of the Company, in whole or in part, initially at
102.0% and thereafter at prices declining to 100% at maturity, together with
accrued interest. The Notes were initially issued pursuant to an exempt
offering and were subsequently registered under the Securities Act, along with
the common stock into which the Notes are convertible.
The equipment loan and mortgage note payable were retired with proceeds from
the Notes.
(6) INCOME TAXES
Provision (benefit) for income taxes for the years ended November 30, 1997,
1996 and 1995 consisted of the following (in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
Year ended November 30, 1997:
United States:
Federal $ 4,408 1,736 6,144
State 1,134 89 1,223
Latin America 2,570 (63) 2,507
Asia-Pacific 7,457 (8) 7,449
------- ------ ------
$15,569 1,754 17,323
======= ====== ======
Year ended November 30, 1996:
United States:
Federal $(4,682) (1,383) (6,065)
State (366) (78) (444)
Latin America 1,237 204 1,441
Asia-Pacific 4,474 141 4,615
------- ------ ------
$ 663 (1,116) (453)
======= ====== ======
Year ended November 30, 1995:
United States:
Federal $ 4,793 (1,187) 3,606
State 575 (25) 550
Latin America 655 (450) 205
Asia-Pacific 3,242 (161) 3,081
------- ------ ------
$ 9,265 (1,823) 7,442
======= ====== ======
</TABLE>
F-11
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Provision (benefit) for income taxes differed from the amounts computed by
applying the U.S. Federal income tax rate of 35% to pretax income as a result
of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Expected tax expense (benefit) $24,835 (2,403) 10,618
Foreign and U.S. tax effects attributable to
foreign operations (7,022) 2,658 (2,630)
State income taxes, net of Federal benefit 795 (289) 358
Equity in earnings (undistributed loss) of
joint ventures (163) 77 (1,128)
Other, net (1,122) (496) 224
------- ------ ------
Actual tax expense (benefit) $17,323 (453) 7,442
======= ====== ======
</TABLE>
The tax effect of temporary differences underlying significant portions of
deferred income tax assets at November 30, 1997 and 1996, is presented below
(in thousands):
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Deferred income tax assets:
United States:
Allowance for doubtful accounts $ 2,845 2,734
Inventory adjustments for tax purposes 755 2,265
Other, net (1,323) (897)
Asia-Pacific:
Allowance for doubtful accounts 28 20
Latin America:
Other, net 152 152
------- ------
$ 2,457 4,274
======= ======
Deferred income tax liabilities:
Latin America:
Other, net $(1,043) (1,106)
======= ======
</TABLE>
In assessing the realizability of deferred income tax assets, management
considers whether it is more likely than not that the deferred income tax
assets will be realized. The ultimate realization of deferred income tax assets
is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred income tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projections for future taxable income
over the periods which the deferred income tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of these deductible differences. The amount of the deferred income tax
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
F-12
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company does not provide for Federal income taxes or tax benefits on the
undistributed earnings and/or losses of its international subsidiaries because
earnings are reinvested and, in the opinion of management, will continue to be
reinvested indefinitely. At November 30, 1997, the Company had not provided
Federal income taxes on earnings of international subsidiaries of approximately
$62.1 million. Upon distribution of these earnings in the form of dividends or
otherwise, the Company would be subject to both U.S. income taxes and certain
withholding taxes in the various international jurisdictions. Determination of
the related amount of unrecognized deferred U.S. income tax liability is not
practicable because of the complexities associated with this hypothetical
calculation.
Because many types of transactions are susceptible to varying interpretations
under foreign and domestic income tax laws and regulations, the amounts
recorded in the accompanying consolidated financial statements may be subject
to change upon final determination by the respective taxing authorities.
Management believes it has provided an adequate tax provision.
(7) LEASES
The Company leases certain retail stores, office facilities and equipment
under operating leases which range from two to ninety-nine years and which
generally contain renewal options. Rental expense for operating leases was
approximately $4.3 million, $4.3 million and $3.1 million for the years ended
November 30, 1997, 1996 and 1995, respectively. Future minimum lease payments
under operating leases as of November 30, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
NOVEMBER AMOUNT
30, -------
<S> <C>
1998 $ 3,786
1999 2,990
2000 2,074
2001 609
2002 404
Thereafter 1,415
-------
$11,278
=======
</TABLE>
(8) CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMER INFORMATION
Pacific Bell Mobile Services accounted for 12.0%, or $178.2 million, of total
revenues for the year ended November 30, 1997. CellStar Asia accounted for
11.1%, or $90.2 million, of total revenues for the year ended November 30,
1995, prior to it becoming a wholly-owned subsidiary of the Company. No other
customer accounted for 10% or more of total revenues in any of the years ended
November 30, 1997, 1996 or 1995.
F-13
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) GEOGRAPHIC AREA INFORMATION
The Company operates predominantly within one business segment, wholesale and
retail sales of wireless communications products. Financial information by
geographic area as of and for the years ended November 30, 1997, 1996 and 1995,
is as follows (in thousands):
<TABLE>
<CAPTION>
UNITED ASIA- LATIN
STATES PACIFIC AMERICA EUROPE CORPORATE TOTAL
-------- ------- ------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
November 30, 1997:
Total revenues, net of
intercompany amounts $866,866 422,751 124,055 69,142 - 1,482,814
Intercompany sales
(purchases) 64,032 4,937 (69,340) 371 - -
Operating income
(loss) 43,796 44,535 2,627 (145) (14,806) 76,007
Identifiable assets 309,701 120,728 51,244 15,438 - 497,111
November 30, 1996:
Total revenues, net of
intercompany amounts $568,744 248,493 119,796 10,568 - 947,601
Intercompany sales
(purchases) 38,802 (2,121) (36,676) (5) - -
Operating income
(loss) 537 20,808 (4,305) (379) (14,645) 2,016
Identifiable assets 159,993 82,024 44,382 12,152 - 298,551
November 30, 1995:
Total revenues, net of
intercompany amounts $478,177 183,274 150,464 - - 811,915
Intercompany sales
(purchases) 103,332 (32,564) (70,768) - - -
Operating income
(loss) 23,176 16,995 4,291 - (11,174) 33,288
Identifiable assets 149,320 93,441 72,160 - - 314,921
</TABLE>
(10) ACQUISITIONS
(a) Purchase of CellStar Asia
In October 1993, the Company purchased a 50% ownership interest in a newly-
formed company, CellStar Asia, for approximately $0.2 million. On June 2, 1995,
the Company's Chief Executive Officer acquired the remaining 50% interest in
CellStar Asia for cash of $1.0 million and 1.5 million shares of restricted
common stock with a fair value of $21.0 million. Simultaneously, the Chief
Executive Officer then transferred this ownership interest in CellStar Asia to
the Company in exchange for a note payable of $22.0 million, giving the Company
100% ownership in CellStar Asia. The acquisition of the remaining 50% interest
in CellStar Asia was accounted for as a purchase and the results of operations
of CellStar Asia have been included in the consolidated financial statements
from the date of acquisition. The Company's 50% equity interest in the
operations of CellStar Asia, prior to the date of acquisition, is included in
equity in earnings of joint ventures. Goodwill of $17.5 million is being
amortized on a straight-line basis over 20 years. The following unaudited pro
forma information presents the consolidated results of operations of the
Company as if the acquisition of CellStar Asia had occurred on December 1,
1994, with pro forma adjustments to give effect to the elimination of sales by
the Company to CellStar Asia, amortization of goodwill, interest expense on
acquisition debt, and certain other adjustments at November 30, 1995 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Revenues $806,648
Net income 24,913
Net income per share 1.32
</TABLE>
F-14
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prior to the acquisition, the Company's sales to CellStar Asia were $90.2
million in 1995. Gross profit recognized by the Company on these sales was $3.6
million in 1995.
(b) Acquisition of Minority Interest in CellStar Pacific
On February 1, 1995, the Company entered into a joint venture agreement with
Leap International PTE LTD. ("Leap"), a Singapore company, and A. S. Horng
("Mr. Horng"), an individual who was also the Company's joint venture partner
in CellStar Asia. Under the terms of the joint venture agreement, the parties
formed CellStar Pacific PTE LTD ("CellStar Pacific"), a Singapore company,
which was owned 75% by the Company, 20% by Leap and 5% by Mr. Horng. The
Company's initial investment was $0.2 million. An additional 5% of CellStar
Pacific was purchased by the Company in fiscal 1995.
On May 30, 1997, the Company acquired the remaining 20% minority interest of
CellStar Pacific, which conducts operations in Singapore, The Philippines, and
Malaysia, for common stock valued at $2.7 million and $0.5 million in cash.
(11) STOCKHOLDERS' EQUITY
(a) Common Stock Warrants and Options
In December 1993, the Company issued warrants for 660,000 shares of its
common stock. The warrants are exercisable at $9.20 per share, subject to
adjustment in certain events, and expire in December 1998.
The Company has a stock option plan ("the Plan") covering 3.1 million shares
of common stock of the Company. Options under the Plan expire ten years from
the date of grant unless earlier terminated due to the death, disability,
retirement or other termination of service of the optionee. Options, other than
options granted to the Company's Chief Executive Officer, have vesting
schedules ranging from 100% on the first anniversary of the date of grant to
vesting 25% per year commencing on the first anniversary of the date of grant.
The exercise price is equal to the fair market value of the common stock on the
date of grant.
The Company also has a stock option plan for non-employee directors (the
"Directors' Option Plan"). The Directors' Option Plan provides that each non-
employee director of the Company as of the date the Directors' Option Plan was
adopted and each person who thereafter becomes a non-employee director will
automatically be granted an option to purchase 2,500 shares of common stock.
The exercise price is equal to the fair market value of the common stock on the
date of grant. A total of 75,000 shares of common stock is authorized for
issuance pursuant to the Directors' Option Plan. Each option granted under the
Directors' Option Plan will become exercisable six months after its date of
grant and will expire ten years from the date of grant unless earlier
terminated due to the death, disability, retirement or other termination of
service of the optionee.
The per share weighted-average fair value of stock options granted during
1997 and 1996 was $14.498 and $6.861, respectively, on the date of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Dividend yield 0.0% 0.0%
Volatility 77.0% 77.0%
Risk-free interest rate 6.0% 5.2%
Expected term of options (in years) 3.7 2.6
</TABLE>
F-15
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applies Opinion 25 in accounting for its plan and, accordingly,
no compensation cost has been recognized for its stock options in the financial
statements. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under Statement 123, the
Company's net income (loss) would have been the pro forma amounts indicated
below (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C> <C>
Net income (loss) As reported $53,633 (6,413)
Pro forma 51,380 (8,068)
</TABLE>
Pro forma net income (loss) reflects only options granted after November 30,
1995. Therefore, the full impact of calculating compensation cost for stock
options under Statement 123 is not reflected in the pro forma net income (loss)
amounts presented above because compensation cost is reflected over the
options' vesting period of four years and compensation cost for options granted
prior to December 1, 1995 is not considered.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICES OF SHARES PRICES OF SHARES PRICES
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Granted 1,224,250 $24.999 707,501 $13.888 897,900 $12.378
Exercised 167,203 $12.968 - - 25,687 $8.360
Forfeited 81,250 $13.977 606,636 $12.698 20,625 $11.061
Outstanding, end of year 2,067,005 $19.930 1,091,208 $12.733 990,343 $11.887
Exercisable, end of year 596,438 $12.749 270,704 $13.981 14,625 $8.950
Reserved for future
grants under the Plan 833,855
Reserved for future
grants under the
Directors' Option Plan 56,250
</TABLE>
For options outstanding and exercisable as of November 30, 1997, the exercise
prices and remaining lives were:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (IN YEARS) PRICES EXERCISABLE PRICES
- --------------- ----------- --------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$4.333-7.667 110,628 8.1 $ 6.814 30,937 $ 6.434
$11.250-17.709 1,483,877 7.8 $13.191 565,501 $13.095
$29.938-39.750 72,500 9.8 $34.733 - -
$45.875 400,000 9.9 $45.875 - -
--------- --- ------- ------- -------
2,067,005 8.2 $19.930 596,438 $12.749
========= === ======= ======= =======
</TABLE>
(b) Stockholder Rights Plan
The Company adopted a Stockholder Rights Plan, which provides that the
holders of the Company's common stock receive two-thirds of a right ("Right")
for each share of the Company's common stock they
F-16
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
own. Each Right entitles the holder to buy one one-thousandth of a share of
Series A Preferred Stock, par value $.01 per share, at a purchase price of
$80.00 per one one-thousandth of a share, subject to adjustment. The Rights are
not currently exercisable, but would become exercisable if certain events
occurred relating to a person or group acquiring or attempting to acquire 15%
or more of the outstanding shares of common stock of the Company. Under those
circumstances, the holders of Rights would be entitled to buy shares of the
Company's common stock or stock of an acquiror of the Company at a 50%
discount. The Rights expire on January 9, 2007, unless earlier redeemed by the
Company.
(c) Stock Split
On May 20, 1997, the Board of Directors approved a three-for-two common stock
split, which split was effected in the form of a stock dividend that was
distributed on June 17, 1997 to stockholders of record on June 2, 1997. All
weighted average historical share, net income (loss) per share and common stock
amounts have been retroactively adjusted for the stock split.
(12) COMMITMENTS AND CONTINGENCIES
(a) Litigation
During the period from May 14, 1996 through July 22, 1996, four separate
purported class action lawsuits were filed in the United States District Court,
Northern District of Texas, Dallas Division against the Company; certain of the
Company's current and former officers, directors and employees; and the
Company's independent auditors. The four lawsuits have been consolidated, and
the State of Wisconsin Investment Board has been appointed as lead plaintiff in
the consolidated action.
A Consolidated Amended Complaint has been filed, which asserts claims for
violations of Section 10(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Rule 10b-5 promulgated thereunder, violations of
Section 20(a) of the Exchange Act, state statutory fraud, common law fraud,
negligent misrepresentation and breach of fiduciary duty. The Consolidated
Amended Complaint alleges that the defendants made untrue statements of
material fact and/or omitted to state material facts about the business,
financial condition, performance and future prospects of the Company and that,
as a result of such statements or omissions, the value of the Company's common
stock was artificially inflated. Plaintiffs seek compensatory damages,
exemplary damages and costs and expenses, including attorneys' fees and expert
fees.
All defendants have filed motions to dismiss all claims asserted in the
Consolidated Amended Complaint. The motions are pending. The Company believes
it has meritorious defenses to these claims and is vigorously defending this
action. The ultimate outcome is not currently predictable.
The Company is a party to various other claims, legal actions and complaints
arising in the ordinary course of business. Management believes that the
disposition of these matters will not have a materially adverse effect on the
consolidated financial condition or results of operations of the Company.
(b) Financial Guarantee
The Company has guaranteed up to RM6.37 million (Malaysian ringgits), $1.8
million as of November 30, 1997, for bank borrowings of its Malaysian joint
venture.
F-17
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- ------- ------- -------
<S> <C> <C> <C> <C>
1997
Total revenues $256,645 377,562 442,106 406,501
Gross profit 31,851 40,646 43,916 40,913
Net income 5,982 14,209 16,170 17,272
Net income per share 0.20 0.48 0.53 0.57
1996
Total revenues $204,975 225,571 223,590 293,465
Gross profit 32,005 29,628 30,792 45,176
Net income (loss) 738 (3,052) (12,331) 8,232
Net income (loss) per share 0.03 (0.11) (0.43) 0.29
</TABLE>
F-18
<PAGE>
SCHEDULE II
CELLSTAR CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS, BALANCE AT
BEGINNING COSTS AND ACTIVATION NET OF END OF
OF PERIOD EXPENSES INCOME(A) RECOVERIES PERIOD
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
November 30, 1997 $29,023 3,131 1,108 (9,405) 23,857
November 30, 1996 3,738 27,951 4,610 (7,276) 29,023
November 30, 1995 2,889 1,839 4,115 (5,105) 3,738
Reserve for inventory
obsolescence:
November 30, 1997 $ 8,322 4,830 - (10,357) 2,795
November 30, 1996 804 8,718 - (1,200) 8,322
November 30, 1995 2,741 466 - (2,403) 804
</TABLE>
(a) The Company, under agent agreements in connection with its retail
operations, earns activation commissions from cellular service providers
upon engaging subscribers for cellular phone services. The agent
agreements also provide for the reduction or elimination of activation
commissions if the subscribers deactivate service within a stipulated
period. The Company provides an allowance for estimated cellular
deactivations to activation income.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of CellStar
Corporation.(1)
3.2 Amended and Restated Bylaws of CellStar Corporation.(14)
4.1 The Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws of CellStar Corporation filed in response to items 3.1
and 3.2 are incorporated in this item by reference.(1)(14)
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 Chase Mellon Shareholder Services, L.L.C., as
Rights Agent ("Rights Agreement").(3)
4.4 First Amendment to Rights Agreement, dated as of June 18, 1997.(4)
4.5 Form of Certificate of Designation, Preferences and Rights of Series A
Preferred Stock of CellStar Corporation ("Certificate of
Designation")(3)
4.6 Form of Rights Certificate.(3)
4.7 Certificate of Correction of Certificate of Designation.(4)
4.8 Indenture, dated as of October 14, 1997, by and between CellStar
Corporation and The Bank of New York, as Trustee(13)
10.1 Employment Agreement, effective as of December 1, 1994, by and between
CellStar Corporation and Alan H. Goldfield.(2)(15)
10.2 Employment Agreement, effective as of May 24, 1996, by and between
CellStar, Ltd., CellStar Corporation and Richard M. Gozia.(5)(15)
10.3 Employment Agreement by and between CellStar, Ltd., CellStar
Corporation and Mark Q. Huggins, effective as of January 15,
1997.(6)(15)
10.4 Employment Agreement, effective January 22, 1998, by and between
CellStar (Asia) Corporation Limited, CellStar Corporation and Hong An-
Hsien.(14)(15)
10.5 Agreement by and between Motorola Inc., by and through its Pan
American Cellular Subscriber Group, and CellStar, Ltd., effective
January 1, 1997 (United States).(7)(16)
10.6 Master Agreement for the Purchase of Products and Inventory
Maintenance, Assembly and Fulfillment (IAF) Services between Pacific
Bell Mobile Services and CellStar, Ltd., effective September 20,
1996.(6)(16)
10.7 Agreement by and between National Auto Center, Inc. and the Pan
American Cellular Subscriber Division of Motorola Inc., dated as of
January 1, 1995 (Latin American and Caribbean Territory).(8)
10.8 Lease by and between Alan H. Goldfield and National Auto Center, Inc.
regarding 605 West Airport Freeway, Irving, Texas.(10)(15)
10.9 Exclusive Cellular Subagent Agreement by and between National Auto
Center and Alan H. Goldfield d/b/a National Tape.(10)(15)
10.10 Registration Rights Agreement by and between the Company and Audiovox
Corporation.(10)
10.11 Form of Warrant for the purchase of shares of common stock to be
issued to Ladenburg, Thalmann & Co., Inc. and Raymond James &
Associates, Inc.(10)
10.12 Stock Purchase Agreement by and between the Company and Motorola Inc.,
dated as of July 20, 1995.(1)
10.13 Registration Rights Agreement by and between the Company and Motorola
Inc., dated as of July 20, 1995.(1)
10.14 Credit Agreement, dated as of October 15, 1997, among CellStar
Corporation, each of the banks or other lending institutions signatory
thereto, The First National Bank of Chicago and National City Bank, as
co-agents, and Texas Commerce Bank National Association, as agent.(14)
10.15 CellStar Corporation 1993 Amended and Restated Long-Term Incentive
Plan. (14)(15)
10.16 CellStar Corporation Amended and Restated Annual Incentive
Compensation Plan. (6)(15)
10.17 CellStar Corporation 1994 Amended and Restated Director Nonqualified
Stock Option Plan. (11)
10.18 Registration Rights Agreement, dated as of June 2, 1995, between Hong
An Hsien and CellStar Corporation. (14)(15)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.19 Registration Rights Agreement, entered into as of May 30, 1997,
between Leap International PTE LTD and CellStar Corporation(12)
10.20 Purchase Agreement, dated October 7, 1997, by and among CellStar
Corporation and Bear, Stearns & Co. Inc. and Chase Securities Inc.
(13)
10.21 Registration Rights Agreement, dated as of October 14, 1997, by and
among CellStar Corporation and Bear, Stearns & Co. Inc. and Chase
Securities Inc. (13)
10.22 Agreement, dated as of April 28, 1995, by and between CellStar, Ltd.
and Motorola, Inc., Greater China Cellular Subscriber Division
(People's Republic of China). (9)
21.1 Subsidiaries of the Company. (14)
23.1 Consent of KPMG Peat Marwick LLP. (14)
27 Financial Data Schedule (14)
99.1 Shareholders Agreement by Alan H. Goldfield to Motorola Inc., dated as
of July 20, 1995. (1)
</TABLE>
- --------
(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 Registration Statement on
Form 8-A (File No. 000-22972), filed January 3, 1997, and incorporated
herein by reference.
(4) 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.
(5) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1996, and incorporated herein by
reference.
(6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended November 30, 1996, and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended August 31, 1997, and incorporated herein by
reference.
(8) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended November 30, 1994, and incorporated herein by
reference.
(9) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1995, and incorporated herein by
reference.
(10) Previously filed as an exhibit to the Company's Registration Statement No.
33-70262 on Form S-1 and incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended February 28, 1995, and incorporated herein by
reference.
(12) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1997, and incorporated herein by
reference.
(13) 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.
(14) Filed herewith.
(15) The exhibit is a management contract or compensatory plan or arrangement.
(16) Certain provisions of this exhibit are subject to a request for
confidential treatment filed with the Securities and Exchange Commission.
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
CELLSTAR CORPORATION
(as effective September 22, 1997)
ARTICLE I - OFFICES
-------------------
SECTION ONE. REGISTERED OFFICE. The registered office of the corporation
----------- -----------------
shall be in the City of Wilmington, County of New Castle, State of Delaware, and
the name of the registered agent in charge thereof is The Corporation Trust
Company.
SECTION TWO. OTHER OFFICES. In addition to its registered office in the
----------- -------------
State of Delaware, the corporation may have an office or offices both within and
without the State of Delaware at such places as shall be determined from time to
time by the Board of Directors or as the business of the corporation may
require.
ARTICLE II - MEETINGS OF STOCKHOLDERS
-------------------------------------
SECTION ONE. PLACE OF MEETINGS. All meetings of the stockholders for the
----------- -----------------
election of Directors shall be held in the City of Carrollton, County of Dallas,
State of Texas, at such place as may be fixed from time to time by the Board of
Directors, or at such other place, either within or without the State of
Delaware, as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of the stockholders for any other
purpose may be held at such time and place, either within or without the State
of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
SECTION TWO. ANNUAL MEETINGS. The annual meeting of the stockholders of the
----------- ---------------
corporation for the purpose of electing directors and transacting such other
business as properly may be brought before the meeting shall be held on such
date and at such time and place, either within or without the State of Delaware,
as shall be designated by the Board of Directors and stated in the notice of the
meeting.
SECTION THREE. SPECIAL MEETINGS. Special meetings of the stockholders, for
------------- ----------------
any purpose or purposes, unless otherwise prescribed by statute, shall be called
as provided in the Amended and Restated Certificate of Incorporation.
SECTION FOUR. NOTICE OF MEETINGS. Notice of the date, hour, place and
------------ ------------------
purposes of every meeting of the stockholders shall be delivered personally or
mailed not less than ten (10) days nor more than sixty (60) days previous
thereto, to each stockholder of record then entitled to vote who shall have
furnished a written address to the Secretary of the corporation for that
purpose. Such further notice shall be given as may be required by law or the
Amended and Restated Certificate of Incorporation. Business transacted at any
special meeting of the stockholders shall be limited to the purposes stated in
the notice. Meetings may be held without notice if all stockholders then
entitled to vote are present or represented thereat, or if notice is waived by
those not present or represented.
<PAGE>
SECTION FIVE. QUORUM AND ADJOURNMENT OF MEETINGS.
------------ ----------------------------------
(A) The holders of record of a majority of the shares entitled to vote,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of the business except as
otherwise provided by law, by the Amended and Restated Certificate of
Incorporation or by these Amended and Restated Bylaws. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person, or represented by
proxy, shall have power to adjourn the meeting, from time to time, by majority
vote of those present, without notice other than announcement at the meeting,
until the requisite number of shares of stock then entitled to vote shall be
present. At such adjourned meeting at which such requisite number of shares of
stock shall be represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
(B) The number of shares required to constitute a quorum, as set forth
above, may not be reduced to less than a majority of the shares issued and
outstanding without approval of the stockholders.
SECTION SIX. VOTING; PROXY. Each outstanding share of the corporation's
----------- -------------
capital stock will be entitled to one vote on each matter submitted to a vote at
a meeting of stockholders, except to the extent that the voting rights of the
shares of any class or series are increased, limited or denied by the Amended
and Restated Certificate of Incorporation. At each meeting of the stockholders,
every stockholder then having the right to vote at such meeting shall be
entitled to vote in person, or by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three (3) years
prior to such meeting, unless said instrument provides for a longer period. No
shares of stock of the corporation may be voted by proxy at any stockholder
meeting by any person unless, prior to or at the time of the commencing of the
meeting or reconvening of any adjournment thereof, such proxy shall have been
filed with the Secretary of the corporation. A duly executed proxy shall be
irrevocable if, and only as long as, it is coupled with an interest sufficient
in law to support an irrevocable power. A proxy may be made irrevocable
regardless of whether the interest with which it is coupled is an interest in
the stock itself or an interest in the corporation generally. The vote for
directors, and, upon the demand of any stockholder, the vote upon any question
before the meeting, shall be by ballot, except as otherwise provided in the
Amended and Restated Certificate of Incorporation or as may be required by law.
When a quorum is present at any meeting, the affirmative vote of the majority of
shares present in person or represented by proxy at the meeting and entitled to
vote on the subject matter shall decide any questions brought before such
meeting, unless the question is one upon which, by express provision of statute
or of the Amended and Restated Certificate of Incorporation, a different vote is
required, in which case such express provision shall govern and control the
decisions of such questions. There shall be no cumulative voting.
SECTION SEVEN. ELECTION OF DIRECTORS. Directors shall be nominated and
------------- ---------------------
elected as provided in the Amended and Restated Certificate of Incorporation and
shall be elected by a
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plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors.
SECTION EIGHT. STOCKHOLDERS LIST. It shall be the duty of the officer who
------------- -----------------
shall have charge of the stock ledger to prepare or make, at least ten (10) days
before every election, a complete list of stockholders entitled to vote,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open for said ten (10) days to the examination of any stockholder during the
usual hours for business and shall be produced and kept either at a place within
the city where the meeting is to be held that is specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list of stockholders shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION NINE. INSPECTORS OF ELECTION. The corporation, in advance of each
------------ ----------------------
meeting of stockholders, shall appoint one (1) or more inspectors of election to
assist the Secretary of the corporation in the conduct of elections at such
meeting. If any inspector of election shall for any reason fail to attend and
to act at such meeting, an inspector of election may be appointed by the
chairman of the meeting.
SECTION TEN. ORDER OF BUSINESS. At each meeting of the stockholders, one of
----------- -----------------
the following persons, in the order in which they are listed (and in the absence
of the first, the next, and so on), shall serve as chairman of the meeting:
Chairman of the Board, President, Vice Presidents (in the order of their
seniority if more than one) and Secretary. The order of business at each such
meeting shall be as determined by the chairman of the meeting. Except as may be
limited by law or the Amended and Restated Certificate of Incorporation, the
chairman of the meeting shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts and things as are
necessary or desirable for the proper conduct of the meeting, including, without
limitation, the establishment of procedures for the maintenance of order and
safety, limitations on the time allotted to questions or comments on the affairs
of the corporation, restrictions on entry to such meeting after the time
prescribed for the commencement thereof, and the opening and closing of the
voting polls.
ARTICLE III - BOARD OF DIRECTORS
--------------------------------
SECTION ONE. BOARD OF DIRECTORS. The business and affairs of the
----------- ------------------
corporation shall be managed by a Board of Directors. The Board of Directors
may exercise all such powers of the corporation and do all such lawful acts and
things on its behalf as are not by statute or by the Amended and Restated
Certificate of Incorporation or these Amended and Restated Bylaws directed or
required to be exercised or done by stockholders. The Board of Directors may
adopt such rules and regulations not inconsistent with the provisions of law,
the Amended and Restated Certificate of Incorporation of the corporation, or
these Amended and Restated Bylaws for the
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conduct of its meetings and management of the affairs of the corporation as the
Board may deem proper.
SECTION TWO. NUMBER; ELECTION; TENURE AND CLASSIFICATION. The number of
----------- -------------------------------------------
directors constituting the Board shall be as determined pursuant to the Amended
and Restated Certificate of Incorporation. Directors need not be stockholders.
They shall be elected as provided in the Amended and Restated Certificate of
Incorporation, and shall serve until their respective successors shall be
elected and qualified or until their earlier resignation or removal.
SECTION THREE. MEETINGS. Meetings of the Board of Directors shall be held
------------- --------
at such place, within or without the State of Delaware, as may from time to time
be fixed by resolution of the Board of Directors or may be specified in the call
of any meeting. Regular meetings of the Board of Directors shall be held at
such times and at such places as may from time to time be fixed by resolution of
the Board of Directors, and no notice of such regular meetings need be given.
Special meetings may be held at any time upon the call of the Chairman of the
Board, the Presi dent or of three (3) directors, by oral, telegraphic or
written notice, duly delivered, sent or mailed to each director not less than
three (3) days before such meeting. A meeting of the Board of Directors may be
held, without notice, immediately after the annual meeting of the stockholders,
at the same place at which such meeting was held. Meetings may be held at any
time without notice if all the directors are present or if those not present
waive notice of the meeting in writing.
SECTION FOUR. QUORUM; VOTING. A quorum for the transaction of business at
------------ --------------
all meetings of the Board of Directors shall consist of a majority of the
directors then in office. If, however, such quorum shall not be present, the
directors present shall have power to adjourn the meeting, from time to time, by
majority vote, without notice other than announcement at the meeting, until the
requisite number of directors shall be present. The act of the majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by law,
the Amended and Restated Certificate of Incorporation or these Amended and
Restated Bylaws.
SECTION FIVE. VACANCIES. Vacancies on the Board of Directors shall be
------------ ---------
filled in accordance with the provisions of the Amended and Restated Certificate
of Incorporation.
SECTION SIX. RESIGNATION AND REMOVAL. A director may resign at any time by
----------- -----------------------
giving written notice to the Board of Directors or to the President of the
corporation. Such resignation shall take effect upon receipt thereof by the
Board of Directors or by the President, unless otherwise specified therein.
Removal of directors shall be governed by the provisions of the Amended and
Restated Certificate of Incorporation.
SECTION SEVEN. COMPENSATION. Each director shall receive for services
------------- ------------
rendered as a director of the corporation such compensation and reimbursements
as may be fixed by the Board of Directors. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
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SECTION EIGHT. TELEPHONIC MEETINGS OF BOARD OF DIRECTORS. The Board of
------------- -----------------------------------------
Directors may participate in a meeting by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation by such means shall constitute
presence in person at such meeting.
SECTION NINE. ACTION WITHOUT MEETING. Unless otherwise restricted by the
------------ ----------------------
Amended and Restated Certificate of Incorporation or these Amended and Restated
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting, if all
members of the Board of Directors or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of the Board of Directors or committee.
ARTICLE IV - COMMITTEES
-----------------------
SECTION ONE. COMPENSATION COMMITTEE.
----------- ----------------------
(A) There may be a Compensation Committee of the Board of Directors
consisting of two (2) or more directors of the corporation designated by
resolution passed by a majority of the entire Board of Directors. Members of
the Compensation Committee shall have such powers as shall be conferred or
authorized by the resolution establishing such Committee and shall hold office
during their terms as directors; provided that the Board of Directors shall have
the power at any time to remove any of the members thereof and to appoint other
directors in lieu of the persons so removed. The Board of Directors shall also
designate the Chairman of the Compensation Committee.
(B) All action of the Compensation Committee shall be reported to the Board
of Directors at its meeting next succeeding such action. Regular minutes of the
proceedings of the Compensation Committee shall be kept in a book provided for
that purpose. Vacancies in the Compensation Committee shall be filled by the
Board of Directors.
(C) A majority of the Compensation Committee shall be necessary to
constitute a quorum, and, in every case, an affirmative vote of a majority of
the members shall be necessary for the passage of any resolution. It shall fix
its own rules of procedure and shall meet as provided by such rules or by
resolution of the Board of Directors, and it shall also meet at the call of the
chairman or of any two (2) members of the Compensation Committee. If the
Compensation Committee fails to fix its own rules, the provisions in these
Amended and Restated Bylaws, pertaining to the calling of meetings and conduct
of business by the Board of Directors, shall apply.
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<PAGE>
SECTION TWO. AUDIT COMMITTEE.
----------- ---------------
(A) There may be an Audit Committee of the Board of Directors consisting of
two (2) or more directors, a majority of the members of which shall be
"independent" (as that term is defined by the National Association of Securities
Dealers, Inc. for listing on The Nasdaq National Market) designated by
resolution passed by a majority of the entire Board of Directors. Members of
the Audit Committee shall hold office during their terms as directors, provided
the Board of Directors shall have the power at any time to remove any of the
members thereof and to appoint other independent directors in lieu of the
persons so removed. The Board of Directors shall also designate the chairman of
the Audit Committee. The Audit Committee shall review the scope of the
independent auditors' examinations of the corporation's financial statements and
receive and review their reports. The Audit Committee shall also meet with the
independent auditors, receive recommendations or suggestions for changes in
accounting procedures and initiate and supervise any special investigations it
may choose to undertake.
(B) All action of the Audit Committee shall be reported to the Board of
Directors at its meeting next succeeding such action and shall be subject to
revision and alteration by the Board of Directors, provided that no rights of
third parties shall be affected by any such provision or alteration. Regular
minutes of the proceedings of the Audit Committee shall be kept in a book
provided for that purpose. Vacancies in the Audit Committee shall be filled by
the Board of Directors.
(C) A majority of the members of the Audit Committee shall be necessary to
constitute a quorum, and, in every case, an affirmative vote of a majority of
the members shall be necessary for the passage of any resolution. It shall fix
its own rules of procedure and shall meet as provided by such rules or by
resolution of the Board of Directors, and it shall also meet at the call of the
chairman or of any two (2) members of the Audit Committee. If the Audit
Committee fails to fix its own rules, the provisions in these Amended and
Restated Bylaws, pertaining to the calling of meetings and conduct of business
by the Board of Directors, shall apply as nearly as may be.
SECTION THREE. DESIGNATION AND POWERS OF OTHER COMMITTEES. The Board of
------------- ------------------------------------------
Directors may, in its discretion, by the affirmative vote of a majority of the
entire Board of Directors, appoint such other committees of two or more
directors which shall have and may exercise such powers as shall be conferred or
authorized by the resolution appointing them. A majority of any such committee,
if the committee be composed of more than two members, may determine its action
and fix the time and place of its meetings unless the Board of Directors shall
otherwise provide. The Board of Directors shall have the power at any time to
fill vacancies in, to change the membership of, or to discharge any such
committees.
SECTION FOUR. PROCEDURE; MEETINGS; QUORUM. Regular meetings of any
------------ ---------------------------
committee of the Board of Directors, of which no notice shall be necessary, may
be held at such times and places as shall be fixed by resolution adopted by a
majority of the members thereof. Special meetings of any committee of the Board
shall be called at the request of any member
6
<PAGE>
thereof. Notice of each special meeting of any committee of the Board shall be
sent by mail, telegraph or telephone, or be delivered personally to each member
thereof not later than the day before the day on which the meeting is to be
held, but notice need not be given to any member who shall, either before or
after the meeting, submit a signed waiver of such notice or who shall attend
such meeting without protesting, prior to or at its commencement, the lack of
such notice to such member. Any special meeting of any committee of the Board
shall be a legal meeting without any notice thereof having been given, if all
the members thereof shall be present thereat. Notice of any adjourned meeting of
any committee of the Board need not be given. Any committee of the Board may
adopt such rules and regulations not inconsistent with the provisions of law,
the Amended and Restated Certificate of Incorporation of the corporation or
these Amended and Restated Bylaws for the conduct of its meetings as such
committee may deem proper. A majority of a committee of the Board shall
constitute a quorum for the transaction of business at any meeting, and the vote
of a majority of the members thereof present at any meeting at which a quorum is
present shall be the act of such committee. In the absence or disqualification
of a member, the remaining members, whether or not a quorum, may fill a vacancy.
Each committee of the Board of Directors shall keep written minutes of its
proceedings, a copy of which is to be filed with the secretary of the
corporation, and shall report on such proceedings to the Board.
ARTICLE V - OFFICERS
--------------------
SECTION ONE. EXECUTIVE OFFICERS. The Board of Directors, at its first
----------- ------------------
meeting after each annual meeting of stockholders, shall choose a Chairman of
the Board and shall choose a President who shall be a member of the Board of
Directors, and one or more Vice Presidents, a Chief Financial Officer, a
Secretary, a Treasurer and such other officers as it shall deem necessary, who
need not be members of the Board of Directors. Any two or more offices may be
held by the same person.
SECTION TWO. OTHER OFFICERS AND AGENTS. The Board of Directors may, by
------------ -------------------------
resolution, at any time, appoint such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such offices as shall be determined from time to time by the
Board of Directors. To the extent it deems advisable and in the best interests
of the corporation, the Board of Directors may, by resolution, at any time,
delegate the authority granted by this Section to the Chairman of the Board,
Chief Executive Officer and President of the Company, subject to ratification by
the Board of Directors.
SECTION THREE. TENURE; RESIGNATION; REMOVAL AND VACANCIES. The officers of
------------- -------------------------------- ---------
the corporation shall hold office until their death, their successors are
elected and qualify in their stead or until their resignation or removal,
whichever shall first occur; provided, however, that if the term of office of
any officer elected or appointed pursuant to Section Two of this Article V shall
have been fixed by the Board of Directors, he shall cease to hold such office
not later than the date of expiration of such term regardless of whether any
other person shall have been elected or appointed to succeed him. Any officer
or agent elected or appointed by the Board
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<PAGE>
of Directors may be removed at any time, with or without cause, by the
affirmative vote of the majority of the entire Board of Directors; provided,
however, that any such removal shall be without prejudice to the rights, if any,
of the officer so employed under any employment contract or other agreement with
the corporation. An officer may resign at any time upon written notice to the
Board of Directors. If the office of any officer becomes vacant by reason of
death, resignation, retirement, disqualification, removal from office or
otherwise, the Board of Directors may choose a successor or successors to hold
such office for such term as may be specified by the Board of Directors.
SECTION FOUR. COMPENSATION. The salaries of all executive officers of the
------------ ------------
corporation shall be fixed by the Compensation Committee of the Board of
Directors unless overruled by the action of the Board of Directors. To the
extent it deems advisable and in the best interests of the corporation, the
Board of Directors may, by resolution, at any time, delegate the authority
granted by this Section to the Chairman of the Board, Chief Executive Officer
and President of the Corporation, subject to ratification by the Board of
Directors or the Company Committee.
SECTION FIVE. AUTHORITY AND DUTIES. All officers as between themselves and
------------ --------------------
the corporation, shall have such authority and perform such duties in the
management of the corporation as may be provided in these Amended and Restated
Bylaws. In addition to the powers and duties hereinafter specifically
prescribed for the respective officers, the Board of Directors may from time to
time impose or confer upon any of the officers such additional duties and powers
as the Board of Directors may see fit, and the Board of Directors may from time
to time impose or confer any or all of the duties and powers hereinafter
specifically prescribed for any officer upon any other officer or officers.
SECTION SIX. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside
----------- ---------------------
at all meetings of the stockholders and of the Board of Directors at which he is
present. Except where by law the signature of the President is required, the
Chairman of the Board shall possess the same power as the President to sign all
certificates, contracts and other instruments of the corporation. The Chairman
of the Board shall have such other powers and perform such other duties as from
time to time may be conferred or imposed upon him by the Board of Directors.
SECTION SEVEN. PRESIDENT. The President of the corporation shall be the
------------- ---------
chief administrative officer of the corporation and, subject to the control of
the Board of Directors and the Chief Executive Officer, will supervise and
control all of the business and affairs of the corporation and, in connection
therewith, shall be authorized to delegate to other officers of the corporation
such of his powers and duties as the President at such times and in such manner
as he may deem to be advisable. He shall possess power to sign all
certificates, contracts and other instruments of the corporation. He shall, in
the absence of the Chairman of the Board, preside at all meetings of the
stockholders and of the Board of Directors. He shall perform all such other
duties as are incident to his office or are properly required of him by the
Board of Directors. He shall vote, in the name of the corporation, stock or
securities in other corporations or associations
8
<PAGE>
held by the corporation, unless another officer is designated by the Board of
Directors for the purpose. He shall from time to time report to the Board of
Directors all matters within his knowledge which the interest of the corporation
may require to be brought to their notice, and shall also perform such other
duties as may be assigned to him from time to time by the Board of Directors.
SECTION EIGHT. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
------------- -----------------------
corporation shall have, subject only to the Board of Directors, general and
active management and supervision of the business and affairs of the corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall have all powers and duties or supervision and
management usually vested in the general manager of a corporation, including the
supervision and direction of all other officers of the corporation and the power
to appoint and discharge agents and employees.
SECTION NINE. CHIEF FINANCIAL OFFICER. The Chief Financial Officer of the
------------ -----------------------
corporation shall assist the President in the general control and management of
the business affairs of the corporation and shall have such other authority and
responsibilities and perform such other duties as the President shall delegate
or as the President or the Board of Directors shall assign to him. When
specifically authorized by action of the Board of Directors, he shall possess
power to sign all certificates, contracts and other instruments of the
corporation. He shall from time to time report to the Board of Directors all
matters within his knowledge which the interest of the corporation may require
to be brought to their notice.
SECTION TEN. VICE PRESIDENTS. When specifically authorized by action of the
------------ ---------------
Board of Directors, each Vice President shall possess power to sign all
certificates, contracts and other instruments of the corporation, and shall have
such other authority and perform such other duties as may be assigned to them
from time to time by the Board of Directors or as may be designated by these
Amended and Restated Bylaws, the Chairman of the Board or the President.
SECTION ELEVEN. CORPORATE SECRETARY.
-------------- -------------------
(A) The Corporate Secretary (hereinafter called the ("Secretary") shall
attend all meetings of the Board of Directors and stockholders and act as
secretary thereof, and shall record all votes and the minutes of all proceedings
in a book for that purpose belonging to the corporation to be kept in his
custody and shall perform like duties for all committees of the Board of
Directors. He shall give or cause to be given notice of all meetings of the
stockholders and of the directors. He shall keep in safe custody the seal of
the corporation and shall in general perform all of the duties incident to the
office of Secretary, subject to the control of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors, the
Chairman of the Board or the President.
(B) The Secretary shall act as transfer agent of the corporation and/or
registrar of its capital stock, with the usual duties pertaining thereto;
provided, however, that the Board of Directors
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<PAGE>
may, by resolution, as to any class of its capital stock appoint one or more
persons one or more persons or corporations as transfer agents and/or registrars
in his stead.
(C) Each Assistant Secretary shall have the powers of the Secretary subject
to the direction of the Chairman of the Board, the President, the Secretary or
the Board of Directors.
SECTION TWELVE. TREASURER.
-------------- ---------
(A) The Treasurer shall have custody of all funds and securities of the
corporation which may come into his hands. He may endorse, on behalf of the
corporation, for collection, checks, notes and other obligations, and shall
deposit the same to the credit of the corporation in such banks or depositories
as the Board of Directors may designate, or pursuant to the authority of general
or special resolutions of the Board of Directors. Whenever required by the
Chairman of the Board, the President or the Board of Directors, he shall render
a statement of his accounts. He shall enter regularly, in books of the
corporation to be kept by him for the purpose, full and accurate accounts of all
moneys received and paid by him on the account of the corporation; he shall at
any reasonable time exhibit his books and accounts to any director of the
corporation during business hours; and, he shall perform all acts incident to
the position of Treasurer, subject to the control of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors,
the Chairman of the Board or the President. He shall give a bond for the
faithful discharge of his duties in such sum as the Board of Directors may
require.
(B) Each Assistant Treasurer shall have such of the other duties, and
perform such of the duties, of the Treasurer, as may be prescribed by the Board
of Directors, the Chairman of the Board, the President or the Treasurer.
SECTION THIRTEEN. DUTIES OF OFFICERS MAY BE DELEGATED. For any reason that
---------------- -----------------------------------
the Directors may deem sufficient, the Board of Directors may delegate the
powers or duties of any officer to any other person, for the time being, except
where otherwise provided by statute.
ARTICLE VI - CERTIFICATES OF STOCK
----------------------------------
SECTION ONE. FORM AND SIGNATURE. Every stockholder shall have a certificate
----------- ------------------
signed by the Chairman of the Board, the President or a Vice President and the
Treasurer, Secretary or an Assistant Secretary, certifying the number of shares
owned by him in the corporation. Such certificate shall be in such form as the
Board of Directors may from time to time prescribe, and shall be countersigned
and registered in such manner, if any, as the Board of Directors, by resolution,
may prescribe. If the corporation has a transfer agent or an assistant transfer
agent or a transfer clerk acting on its behalf, and a registrar, the signature
of any such officer of the corporation may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
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<PAGE>
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
SECTION TWO. REGISTRATION OF TRANSFER. The shares of stock of the
----------- ------------------------
corporation shall be transferable on the books of the corporation by the holder
thereof, in person or by his duly authorized attorney, upon surrender for
cancellation of a certificate or certificates for the same number of shares,
with an assignment and power of transfer duly endorsed thereon or ascribed
thereto, duly executed, with such proof of the authenticity of the signature as
the corporation or its agents may reasonably require; provided, however, that,
if the corporation has a transfer agent, such transfers of stock in accordance
with this Section Two of Article VI shall be the responsibility of such transfer
agent.
SECTION THREE. CLOSING OF TRANSFER BOOKS. The Board of Directors shall have
------------- -------------------------
the power to close the stock transfer books of the corporation for a period not
exceeding sixty (60) days preceding the date of any meeting of stockholders or
the date for payment or any dividend or the date for the allotment of rights or
the date when any change or conversion or exchange of capital stock shall go
into effect; provided, however, that in lieu of closing the stock transfer books
as aforesaid, the Board of Directors may fix in advance a date, not exceeding
sixty (60) days preceding the date of any meeting of stockholders or the date
for the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or determination of the stockholders entitled
to notice of, and to vote at, any such meeting, or entitled to receive payment
of any such dividend, or to any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of capital stock,
and, in such case, such stockholders, and only such stockholders as shall be
stockholders of record on the date so fixed, shall be entitled to such notice
of, and to vote at, such meeting, or to receive payment of such dividends, or to
receive such allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any stock on the books of the corporation
after any such record date fixed as aforesaid.
SECTION FOUR. ISSUANCE OF NEW SHARES OF STOCK. In the event the corporation
------------ -------------------------------
issues new shares of stock, the stockholders shall not be entitled to preemptive
rights.
SECTION FIVE. LOST CERTIFICATES. The Board of Directors may direct a new
------------ -----------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, on the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
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SECTION SIX. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
------------ -----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for cause and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII - GENERAL PROVISIONS
--------------------------------
SECTION ONE. CONTRACTS, DEEDS, OTHER INSTRUMENTS, ETC. Contracts and other
----------- ----------------------------------------
instruments in writing may be made on behalf and in the name of the corporation
as follows: (i) by the officers authorized so to do under Article V of these
Amended and Restated Bylaws, and if required by law, under the corporation seal,
attested by the Secretary or an Assistant Secretary; and (ii) by such officers
and such other persons as the President of the corporation may, in writing,
authorize so to do with respect to specified types of contracts and other
instruments, such authorizations to also specify whether the corporate seal and
attestation by the Secretary or an Assistant Secretary shall be required; and,
if so executed, shall be binding upon the corporation, provided, however, that
the Board of Directors may, by resolution, authorize the execution of contracts,
deeds and other instruments in writing generally or in specific instances in
such manner and by such persons as may therein be designated. No person shall
have authority, on behalf of the corporation, to sign checks, drafts or other
instruments for the payment of money or notes or acceptances unless specifically
authorized by the Board of Directors or these Amended and Restated Bylaws.
SECTION TWO. NOTICES.
----------- -------
(A) Whenever by law, the Amended and Restated Certificate of Incorporation
or these Amended and Restated Bylaws notice is required to be given to any
director, officer or stockholder, and no provisions is made as to how such
notice shall be given, it shall not be construed to mean personal notice, but
such notice may be given in writing, by mail, by depositing the same in the post
office or letter box, in a postage prepaid sealed wrapper, addressed to such
stockholder, officer or director at such address as appears on the books of the
corporation, or in default of other address, to such director, officer or
stockholder at the General Post office in the City of Wilmington, Delaware, and
such notice shall be deemed to be given at the time when the same shall be thus
mailed.
(B) Any stockholder, director or officer may waive any notice required to be
given by law or under these Amended and Restated bylaws.
SECTION THREE. FISCAL YEAR. The fiscal year shall begin the first day of
-------------- -----------
December in each year.
12
<PAGE>
SECTION FOUR. BOARD OF DIRECTORS' ANNUAL STATEMENT. The Board of Directors
------------ ------------------------------------
shall present at each annual meeting, and when called for by vote of the
stockholders at any special meeting of the stockholders, a full and clear
statement of the business and condition of the corporation.
SECTION FIVE. AMENDMENTS. These Amended and Restated Bylaws may be altered,
------------ ----------
amended or repealed or new Bylaws may be adopted by a majority of the entire
Board of Directors, without any action on the part of the stockholders, at any
meeting of the Board of Directors if notice of such alteration, amendment,
repeal or adoption of new Bylaws be contained in the notice of such meeting;
provided, however, that any such alteration, amendment, repeal or adoption must
be effected in accordance with the Amended and Restated Certificate of
Incorporation. The stockholders of the corporation shall have the power to
adopt, amend or repeal any provisions of the Amended and Restated Bylaws only to
the extent and in the manner provided in the Amended and Restated Certificate of
Incorporation of the corporation. Notwithstanding any other provision contained
herein to the contrary, these Amended and Restated Bylaws shall not be amended
so as to make them inconsistent with any provision of the Amended and Restated
Certificate of Incorporation. The affirmative vote of the holders of at least
80% of the voting power of all of the then-outstanding shares of the Voting
Stock (as defined in the Amended and Restated Certificate of Incorporation),
voting together as a single class, shall be required to alter, amend, repeal, or
adopt any provision inconsistent with the preceding sentence.
SECTION SIX. APPLICATION OF THESE AMENDED AND RESTATED BYLAWS. In the event
----------- -------------------------------- ---------------
that any provision of these Amended and Restated Bylaws is or may be in conflict
with any law of the United States, of the State of Delaware, or of any other
governmental body or power having jurisdiction of this corporation, or over the
subject matter to which such provision of these Amended and Restated Bylaws
applies, or may apply, such provision of these Amended and Restated Bylaws shall
be inoperative to the extent only that the operation thereof conflicts with such
law, and shall in all other respects be in full force and effect.
SECTION SEVEN. INDEMNIFICATION BY CORPORATION.
------------- ------------------------------
(A) Any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as director, officer, employee or agent (including
trustee) of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified by the corporation (funds paid or required to
be paid to any person as a result of the provisions of this Section Seven shall
be returned to the corporation or reduced, as the case may be, to the extent
that such person receives funds pursuant to an indemnification from any such
other corporation, partnership, joint venture, trust or enterprise) to the
fullest extent permissible under Delaware law, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actu ally and
reasonably incurred by such person in connection with such action, suit or
proceeding,
13
<PAGE>
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
---------------
equivalent, shall not, of itself, create a presumption that the person seeking
indemnification did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe that his conduct was unlawful. Entry of a judgment by consent as part
of a settlement shall not be deemed a final adjudication of liability for
negligence or misconduct in the performance of any duty, nor of any other issue
or matter.
(B) Any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent (including trustee) of another corporation,
partnership, joint venture, trust or other enterprise, shall be indemnified by
the corporation (funds paid or required to be paid to any person as a result of
the provisions of this Section Seven shall be returned to the corporation or
reduced, as the case may be, to the extent that such person receives funds
pursuant to an indemnification from any such other corporation, partnership,
joint venture, trust or enterprise) to the fullest extent permissible under
Delaware law against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action, suit or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action, suit or
proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
(C) To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraph (A) or (B) of this Section
Seven, or in defense of any claim, issue or matter therein, he shall be
indemnified by the corporation against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(D) Any indemnification under paragraph (A) or (B) of this Section Seven
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in paragraphs (A) and (B) of this
Section Seven. Such determination shall be made as follows: (i) by majority
vote of the directors who were not parties to such action, suit or proceeding,
even though less than a
14
<PAGE>
quorum of the Board of Directors; or (ii) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written opinion; or
(iii) by the holders of a majority of the shares of capital stock of the
corporation entitled to vote thereon.
(E) Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid in advance of final disposition
upon receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized in this Section Seven. Such
expenses incurred by other employees and agents may be so paid upon such terms
and conditions, if any, as the Board of Directors deems appropriate.
(F) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other paragraphs of this Section Seven shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(G) The indemnification and advancement of expenses provided by, or granted
pursuant to, this Section Seven shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION EIGHT. CORPORATE SEAL. The corporate seal shall have inscribed
------------- --------------
thereon the name of the corporation and the words "Corporate Seal, Delaware".
SECTION NINE. CONFLICTS WITH AMENDED AND RESTATED CERTIFICATE OF
------------ --------------------------------------------------
INCORPORATION. In the event of a conflict between the provisions of these
- -------------
Amended and Restated Bylaws and the Amended and Restated Certificate of
Incorporation, the provisions of the Amended and Restated Certificate of
Incorporation shall control. The affirmative vote of the holders of at least
80% of the voting power of all of the then-outstanding shares of the Voting
Stock (as defined in the Amended and Restated Certificate of Incorporation),
voting together as a single class, shall be required to alter, amend, repeal, or
adopt any provision inconsistent with this Section Nine.
15
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT (this "Agreement"), effective as of the date of
last execution below (the "Effective Date"), by and between CellStar (Asia)
Corporation Limited (the "Employer"), CellStar Corporation, a Delaware
corporation and parent company of Employer ("Parent"), and Hong An-Hsien (the
"Employee").
R E C I T A L S
- - - - - - - -
WHEREAS, Employer desires to obtain the benefit of the services of Employee
as an employee of Employer for the period of time provided in this Agreement;
and
WHEREAS, Employee desires to render services for Employer on the terms and
conditions hereinafter provided; and
WHEREAS, Employer desires that Employee be able to participate in Parent's
stock option and incentive compensation plans; and
WHEREAS, the Compensation Committee of the Board of Directors of Parent
deems it advisable and in the best interests of Parent and Employer to enter
into this Employment Agreement with Employee;
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereby agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. Effective on the Effective Date the Employer shall employ
----------
the Employee and the Employee shall accept employment by the Employer for the
period and upon the terms and conditions contained in this Agreement.
1.2 Term. The term of this Agreement shall commence on the Effective Date
----
and shall end on the five year anniversary of the Effective Date (the "Original
Term"), unless earlier terminated as provided herein (the period from the
Effective Date to the five year anniversary of the Effective Date, or to the
date of such earlier termination, as applicable, is hereinafter referred to as
the "Term").
<PAGE>
1.3 Position and Duties.
-------------------
(a) Position. During the Term, the Employee shall serve as Chairman
--------
of Employer, with authority, duties and responsibilities consistent with
such position, and shall perform such other services for Employer, Parent
and their affiliated entities consistent with such position as may be
reasonably assigned to him from time to time by senior management and/or
the boards of directors of Employer and/or Parent. During the Term,
Employee shall, if so elected or appointed, also accept election or
appointment, and serve, as an officer and/or director of Employer or any of
its affiliated entities and perform the duties appropriate thereto, without
additional compensation other than as set forth herein. Employee's actions
hereunder shall at all times be subject to the direction of the senior
management and the boards of directors of Employer and Parent.
(b) Commitment. During the Term, the Employee shall devote
----------
substantially all of his time, energy, skill and best efforts to the
performance of his duties hereunder in a manner that will faithfully and
diligently further the business and interests of Employer, Parent and their
affiliated entities. Subject to the foregoing, the Employee may serve in
any capacity with any civic, educational or charitable organization;
provided that such activities and services do not interfere or conflict
with the performance of his duties hereunder. Employee shall comply with
reasonable policies, standards and regulations established from time to
time by senior management and/or the boards of directors of Employer and
Parent.
1.4 Compensation.
------------
(a) Base Salary. Subject to Section 1.4(c) below, beginning on the
-----------
Effective Date, Employer shall pay the Employee as compensation an
aggregate salary ("Base Salary") of U.S. $800,000 per year during the Term,
or such greater amount as shall be approved in accordance with the policies
of Employer and/or Parent, as applicable. The Base Salary for each year
shall be paid by Employer in accordance with the regular payroll practices
of Employer.
(b) Annual Incentive Payment. Each year during the Term, the Employee
------------------------
shall be eligible to participate in an annual incentive plan approved by
the Compensation Committee of Parent's Board of Directors. Subject to any
required approvals of the Compensation Committee of the Board of Directors
of Parent and subject to achievement of specified goals (the "Goals"), for
the fiscal year ending in November 1998, Employee will be eligible to earn
an annual incentive payment at the 50% target level (i.e., 50% of his base
salary earned during such fiscal year), which incentive payment may be less
than such target level or up to two times such target level. Subject to any
required approvals of the Compensation Committee of the Board of Directors
of Parent, the Goals will be
2
<PAGE>
based 25% on Parent's earnings per share and 75% on achievement of budgeted
net income for CellStar (Asia) Corporation Limited.
(c) Withholding. With respect to any compensation received by
-----------
Employee with respect to Employee's services for Employer or any of its
affiliates, Employer will deduct such withholding and other payroll taxes
as are required to be withheld by Employer under applicable law.
(d) Stock Options. Parent will recommend to the Compensation
-------------
Committee of the Board of Directors of Parent that Employee be granted a
stock option (the "Option") entitling him to purchase 100,000 shares of
Parent's common stock (i) at the reported market closing sales price
thereof on the date of grant and (ii) at an exercise rate of 100% of the
shares covered thereby on the first anniversary of the date of grant.
(e) Life Insurance. During the Term and subject to Employee's
--------------
qualification under normal life insurance underwriting standards as of the
date hereof and at any policy renewal date, the Employer shall provide, at
Employer's expense, a term life insurance policy on the life of Employee in
a face amount equal to $4,000,000 for the benefit of such beneficiary or
beneficiaries as may be designated from time to time by Employee.
(f) Disability Insurance. During the Term and subject to Employee's
--------------------
qualification under normal disability insurance underwriting standards as
of the date hereof and at any policy renewal date, Employer shall provide,
at Employer's expense, a disability insurance policy that will pay
Employee, pursuant to the terms of such policy, an annual disability
benefit of $640,000 until the Employee reaches the age of 65.
(g) Payment and Reimbursement of Expenses. During the Term, Employer
-------------------------------------
shall pay or reimburse the Employee for all reasonable travel and other
expenses incurred by the Employee in performing his obligations under this
Agreement in accordance with the policies and procedures of Employer or
Parent, provided that the Employee properly accounts therefor in accordance
with the regular policies of Employer or Parent, as applicable.
(h) Fringe Benefits and Perquisites. During the Term, the Employee
-------------------------------
shall be entitled to participate in or receive benefits under any stock
purchase, profit-sharing, pension, retirement, life, medical, dental,
disability or other plan or arrangement made available by Employer or
Parent to employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements. In
addition, Employee will have use of a company car, if any. Nothing paid to
the Employee under any plan or arrangement made available to the Employee
shall be deemed to be in lieu of compensation hereunder.
3
<PAGE>
(i) Vacations. During the Term and in accordance with the regular
---------
policies of Employer, the Employee shall be entitled to no less than 20
days of vacation in any calendar year (prorated in any calendar year in
which Employee is employed hereunder for less than the entire year in
accordance with the number of days in such calendar year during which the
Employee is so employed).
(j) Medical Expenses. During the Term, Employer shall pay, or
----------------
reimburse the Employee for, all reasonable medical and dental expenses
incurred by the Employee or his spouse or Dependents (as defined in Section
152 of the Internal Revenue Code). The Employee acknowledges that Employer
may enter into insurance agreements with respect to the payments and
reimbursements described in this subsection. The Employee will use
reasonable efforts to assist Employer in recovering payments and
reimbursements from such insurers.
1.5 Termination.
-----------
(a) Disability. Employer may terminate this Agreement for Disability.
----------
"Disability" shall exist if, because of ill health, physical or mental
disability, or any other reason beyond his control, and notwithstanding
reasonable accommodations made by Employer, the Employee shall have been
unable, unwilling or shall have failed to perform his duties under this
Agreement, as determined in good faith by Parent's Board of Directors or a
committee thereof, for a period of 180 consecutive days, or if, in any
12-month period, the Employee shall have been unable or unwilling or shall
have failed to perform his duties for a period of 270 or more business
days, irrespective of whether or not such days are consecutive.
(b) Cause. Employer may terminate the Employee's employment for
-----
Cause. Termination for "Cause" shall mean termination because of the
Employee's (i) gross incompetence, (ii) willful gross misconduct that
causes or is likely to cause material economic harm to Employer, Parent or
their affiliated entities or that brings or is likely to bring substantial
discredit to the reputation of Employer, Parent or any of their affiliated
entities, as determined by the Board of Directors of Parent in good faith,
(iii) failure to follow directions of senior management or the boards of
directors of Employer or Parent that are consistent with his duties under
this Agreement, (iv) conviction of, or entry of a pleading of guilty or
nolo contendre to, any crime involving moral turpitude or entry of an order
duly issued by any federal or state regulatory agency having jurisdiction
in the matter permanently prohibiting Employee from participating in the
conduct of the affairs of Employer, Parent or their affiliated entities, or
(v) material breach of any provision of this Agreement that is not remedied
within 60 days after receipt of written notice from Employer or Parent
specifying such breach.
4
<PAGE>
(c) Without Cause. During the Term, Employer may terminate the
-------------
Employee's employment Without Cause, subject to the provisions of
subsection 1.6(c) (Termination Without Cause or for Company Breach).
-----------------------------------------------
Termination "Without Cause" shall mean termination of the Employee's
employment by Employer other than termination for Cause or for Disability.
(d) Company Breach. The Employee may terminate his employment
--------------
hereunder for Company Breach. For purposes of this Agreement a "Company
Breach" shall be deemed to occur in the event of a material breach of this
Agreement by Employer or Parent, including without limitation any material
reduction in the authority, duties and responsibilities that the Employee
has on the Effective Date of this Agreement; provided, however, that the
-------- -------
foregoing items shall not constitute Company Breach unless the Employee
notifies Employer thereof in writing, specifying in reasonable detail the
basis therefor and stating that it is grounds for Company Breach, and
unless Employer fails to cure such Company Breach within 60 days after such
notice is sent or given under this Agreement.
(e) Change in Control. The Employee may terminate his employment
-----------------
hereunder within 12 months of a Change in Control (defined below):
(i) "Change in Control" shall mean any of the following:
(1) any consolidation or merger of Parent in which Parent is
not the continuing or surviving corporation or pursuant to which
shares of Parent's common stock would be converted into cash,
securities or other property, other than a merger of Parent in
which the holders of Parent common stock immediately prior to the
merger have the same proportionate ownership of common stock of
the surviving corporation immediately after the merger;
(2) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of Parent;
(3) any approval by the stockholders of Parent of any plan
or proposal for the liquidation or dissolution of Parent;
(4) the cessation of control (by virtue of their not
constituting a majority of directors) of Parent's Board of
Directors by the individuals (the "Continuing Directors") who (x)
at the date of this Agreement were directors or (y) become
directors after the date of this Agreement and whose election or
nomination for election by Parent's stockholders, was
5
<PAGE>
approved by a vote of at least two-thirds of the directors then in
office who were directors at the date of this Agreement or whose
election or nomination for election was previously so approved);
or
(5) (A) the acquisition of beneficial ownership ("Beneficial
Ownership"), within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), of an
aggregate of 15% or more of the voting power of Parent's
outstanding voting securities by any person or group (as such term
is used in Rule 13d-5 under the Exchange Act) who Beneficially
Owned less than 10% of the voting power of Parent's outstanding
voting securities on the Effective Date of this Agreement, (B) the
acquisition of Beneficial Ownership of an additional 5% of the
voting power of Parent's outstanding voting securities by any
person or group who Beneficially Owned at least 10% of the voting
power of Parent's outstanding voting securities on the Effective
Date of this agreement, or (C) the execution by Parent and a
stockholder of a contract that by its terms grants such
stockholder (in its, hers or his capacity as a stockholder) or
such stockholder's Affiliate (as defined in Rule 405 promulgated
under the Securities Act of 1933 (an "Affiliate")) including,
without limitation, such stockholder's nominee to Parent's Board
of Directors (in its, hers or his capacity as an Affiliate of such
stockholder), the right to veto or block decisions or actions of
Parent's Board of Directors; provided, however, that
-------- -------
notwithstanding the foregoing, the events described in items (A),
(B) or (C) above shall not constitute a Change in Control
hereunder if the acquiror is (aa) Alan H. Goldfield or his
Affiliates, (bb) a trustee or other fiduciary holding securities
under an employee benefit plan of Employer, Parent or one of their
affiliated entities and acting in such capacity, (cc) a
corporation owned, directly or indirectly, by the stockholders of
Parent in substantially the same proportions as their ownership of
voting securities of Parent or (dd) a person or group meeting the
requirements of clauses (i) and (ii) of Rule 13d-1(b)(1) under the
Exchange Act or (ee) in the case of an acquisition described in
items (A) or (B) above (but not in the case of an acquisition
described in item (C) above), any other person whose acquisition
of shares of voting securities is approved in advance by a
majority of the Continuing Directors; provided further, however
-------- ------- -------
that none of the following shall constitute a Change in Control:
(aa) the right of the holders of any voting securities of Parent
to vote as a class on any matter or (bb) any vote required of
disinterested or unaffiliated directors or stockholders including,
without limitation, pursuant to Section 144 of the Delaware
General Corporation Law or Rule 16b-3 promulgated pursuant to the
Exchange Act.
6
<PAGE>
(6) subject to applicable law, in a Chapter 11 bankruptcy
proceeding, the appointment of a trustee or the conversion of a
case involving Parent to a case under Chapter 7.
(f) Without Good Reason. During the Term, the Employee may terminate
-------------------
his employment Without Good Reason upon 30 days prior written notice to
Employer of such termination, which notice may be waived by Employer in
Employer's discretion. Termination "Without Good Reason" shall mean
termination of the Employee's employment by the Employee other than
termination for Company Breach.
(g) Explanation of Termination of Employment. Any party terminating
----------------------------------------
this Agreement shall give prompt written notice ("Notice of Termination")
to the other party hereto advising such other party of the termination of
this Agreement stating in reasonable detail the basis for such termination.
The Notice of Termination shall indicate whether termination is being made
for Cause, Without Cause or for Disability (if Employer has terminated the
Agreement) or for Company Breach, upon a Change in Control or Without Good
Reason (if the Employee has terminated the Agreement).
(h) Date of Termination. "Date of Termination" shall mean the last
-------------------
day of Employee's employment, as determined in accordance with this Section
1.5.
1.6 Compensation Upon Termination.
-----------------------------
(a) During Disability. During any period that the Employee fails to
-----------------
perform his duties hereunder because of ill health, physical or mental
disability, or any other reason beyond his control, he shall continue to
receive his full salary and benefits pursuant to Section 1.4 (Compensation)
------------
through the Date of Termination.
(b) Termination for Cause or Without Good Reason. If Employer shall
--------------------------------------------
terminate the Employee's employment for Cause or if the Employee shall
terminate his employment Without Good Reason, then Employer's obligation to
pay salary and benefits pursuant to Section 1.4 (Compensation) shall
------------
terminate, except that Employer shall pay the Employee his accrued but
unpaid salary and benefits pursuant to Section 1.4 (Compensation) through
------------
the Date of Termination.
(c) Termination Without Cause or for Company Breach. If Employer
-----------------------------------------------
shall terminate the Employee's employment Without Cause or if the Employee
shall terminate his employment for Company Breach, then Employer shall pay
to the Employee, as severance pay in a lump sum on the 15th day following
the Date of Termination, the following amounts:
7
<PAGE>
(i) his accrued but unpaid Base Salary through the Date of
Termination at the rate in effect as of the Date of Termination; and
(ii) in lieu of any further Base Salary and Annual Incentive
Payments for periods subsequent to the Date of Termination, an amount
equal to the product of (A) the sum of Employee's Base Salary at the
rate in effect as of the Date of Termination plus the amount of the
Annual Incentive Payment paid to the Employee for the preceding year
(or such shorter period for which any Annual Incentive Payment has
been paid) divided by 365 and (B) multiplied by the number of days
from the Date of Termination to the last day of the Original Term.
In addition, the Employee will be entitled to a prorated portion of
any annual incentive payment earned for the fiscal year in which his
employment is terminated, if earned in accordance with the terms of its
grant.
If the Employee terminates his employment for Company Breach based
upon a material reduction by Employer of the Employee's Base Salary, then
for purposes of this subsection 1.6(c) (Termination Without Cause or for
--------------------------------
Company Breach), the Employee's Base Salary as of the Date of Termination
--------------
shall be deemed to be the Employee's Base Salary immediately prior to the
reduction that the Employee claims as grounds for Company Breach.
(d) Termination Upon a Change in Control. If the Employee terminates
------------------------------------
his employment after a Change in Control pursuant to subsection 1.5(e)
(Change in Control), then Employer shall pay to the Employee as severance
------------------
pay and as liquidated damages (because actual damages are difficult to
ascertain), in a lump sum, in cash, within 15 days after termination, an
amount equal to $100 less than three times the Employee's "annualized
includable compensation for the base period" (as defined in Section 280G of
the Internal Revenue Code of 1986); provided, however, that if such lump
-------- -------
sum severance payment, either alone or together with other payments or
benefits, either cash or non-cash, that the Employee has the right to
receive from Employer, including, but not limited to, accelerated vesting
or payment of any deferred compensation, options, stock appreciation rights
or any benefits payable to the Employee under any plan for the benefit of
employees, would constitute an "excess parachute payment" (as defined in
Section 280G of the Internal Revenue Code of 1986), then such lump sum
severance payment or other benefit shall be reduced to the largest amount
that will not result in receipt by the Employee of a parachute payment.
The determination of the amount of the payment described in this subsection
shall be made by Parent's independent auditors.
(e) Termination for Disability. If Employer shall terminate the
--------------------------
Employee's employment for Disability, Employer's obligation to pay salary
and benefits pursuant to Section 1.4 (Compensation) shall terminate, except
------------
that Employer shall pay the Employee
8
<PAGE>
(i) accrued but unpaid salary and benefits pursuant to Section 1.4
(Compensation) through the Date of Termination, and (ii) the benefits set
------------
forth in Section 1.6(f) (Employee Benefits) through the Original
-----------------
Term. The Employer also shall make any additional payments necessary
to provide the disability benefits set forth in Section 1.4(f) (Disability
----------
Insurance) above.
---------
(f) Employee Benefits. Employer shall maintain in full force and
-----------------
effect (to the extent consistent with past practice), for the continued
benefit of Employee and, if applicable, his wife and children, the employee
benefits set forth in subsections 1.4(e) (Life Insurance), 1.4(f)
--------------
(Disability Insurance), 1.4(h) (Fringe Benefits and Perquisites) and 1.4(j)
--------------------- -------------------------------
(Medical Expenses) through the Date of Termination (subject to the
----------------
provisions of Section 1.6(e)); provided that his continued participation
or, if applicable, the participation of his wife and children, is possible
under the general terms and conditions of such plans and programs.
(g) No Mitigation. The Employee shall not be required to mitigate
-------------
the amount of any payment provided for in this Section 1.6 (Compensation
------------
Upon Termination) by seeking other employment or otherwise.
----------------
1.7 Death of Employee. If Employee dies prior to the expiration of this
-----------------
Agreement, Employee's employment and other obligations under this Agreement
shall automatically terminate and all compensation to which Employee is or would
have been entitled hereunder (including without limitation under subsections
1.4(a) (Base Salary) and 1.4(b) (Annual Incentive Payment)) shall terminate as
----------- ------------------------
of the end of the month in which Employee's death occurs; provided, however,
-------- -------
that (i) Employer shall pay to Employee's estate, as soon as practicable, a
prorated Annual Incentive Payment, if earned in accordance with Parent's annual
incentive plan; (ii) for the balance of the month in which Employee's death
occurs, Employee's wife and children shall be entitled to receive their benefits
under Employer's group hospitalization, medical and dental plans (if any), to
the extent permitted under the terms of such plans; (iii) Employee's estate or
named beneficiary or beneficiaries, as appropriate, shall receive the benefits
payable pursuant to subsection 1.4(e) (Life Insurance) and 1.4(h) (Fringe
-------------- ------
Benefits and Perquisites) hereof and such reimbursement as may have been due to
- -------------------------
the Employee pursuant to subsection 1.4(g) (Payment and Reimbursement of
----------------------------
Expenses) hereof.
- --------
ARTICLE 2
NON-COMPETITION AND CONFIDENTIALITY
2.1 Non-Competition.
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(a) Description of Proscribed Actions. During the Term and for a
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period of 18 months thereafter, in consideration for the obligations of
Employer and Parent hereunder,
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including without limitation their disclosure (pursuant to subsection
2.2(b) (Obligation of The Company) below) of Confidential Information, the
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Employee shall not:
(i) directly or indirectly, engage or invest in, own, manage,
operate, control or participate in the ownership, management,
operation or control of, be employed by, associated or in any manner
connected with, or render services or advice to, any Competing
Business (defined below); provided, however, that the Employee may
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invest in the securities of any enterprise (but without otherwise
participating in the activities of such enterprise) if (x) such
securities are listed on any national or regional securities exchange
or have been registered under Section 12(g) of the Exchange Act and
(y) the Employee does not beneficially own (as defined Rule 13d-3
promulgated under the Exchange Act) in excess of 5% of the outstanding
capital stock of such enterprise;
(ii) directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, employee,
employer, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity,
solicit, divert or take away any suppliers, customers or clients of
the Company or any of its Affiliates; or
(iii) directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, employee,
employer, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity,
either (i) hire, attempt to hire, contact or solicit with respect to
hiring, any employee of Employer or Parent or any Affiliate thereof,
(ii) induce or otherwise counsel, advise or encourage any employee of
Employer, Parent or any Affiliate thereof to leave the employment of
Employer, Parent or any Affiliate thereof, or (iii) induce any
representative or agent of Employer, Parent or any Affiliate thereof
to terminate or modify its relationship with Employer, Parent or such
Affiliate.
(b) Judicial Modification. The Employee agrees that if a court of
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competent jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Section 2.1 (Non-
---
Competition) is overly restrictive and unenforceable, the court may reduce
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or modify such restrictions to those which it deems reasonable and
enforceable under the circumstances, and as so reduced or modified, the
parties hereto agree that the restrictions of this Section 2.1 (Non-
---
Competition) shall remain in full force and effect. The Employee further
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agrees that if a court of competent jurisdiction determines that any
provision of this Section 2.1 (Non-Competition) is invalid or against
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public policy, the remaining provisions of this Section 2.1 (Non-
---
Competition) and the
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remainder of this Agreement shall not be affected thereby, and shall remain
in full force and effect.
(c) Nature of Restrictions. The Employee acknowledges that the
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business of Employer and Parent and their Affiliates is international in
scope and that the Restrictions imposed by this Agreement are legitimate,
reasonable and necessary to protect Employer's, Parent's and their
Affiliates' investment in their businesses and the goodwill thereof. The
Employee acknowledges that the scope and duration of the restrictions
contained herein are reasonable in light of the time that the Employee has
been or will be engaged in the business of Employer, Parent and/or their
Affiliates, and the Employee's relationship with the suppliers, customers
and clients of Employer, Parent and their Affiliates. The Employee further
acknowledges that the restrictions contained herein are not burdensome to
the Employee in light of the consideration paid therefor and the other
opportunities that remain open to the Employee. Moreover, the Employee
acknowledges that he has other means available to him for the pursuit of
his livelihood.
(d) Competing Business. "Competing Business" shall mean any
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individual, business, firm, company, partnership, joint venture,
organization, or other entity engaged in the wholesale distribution or
retail sales of wireless communication equipment in any domestic or
international market area in which Employer, Parent or any of their
Affiliates does business at any time during the Employee's employment with
Employer or any of its Affiliates.
2.2 Confidentiality. For the purposes of this Section 2.2
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(Confidentiality), the term "the Company" shall be construed also to include
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Employer, Parent and any and all Affiliates of Employer and Parent.
(a) Confidential Information. "Confidential Information" shall mean
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information that is used in the Company's business and
(i) is proprietary to, about or created by the Company;
(ii) gives the Company some competitive advantage, the
opportunity of obtaining such advantage or the disclosure of which
could be detrimental to the interests of the Company;
(iii) is not typically disclosed to non-employees by the
Company, or otherwise is treated as confidential by the Company; or
(iv) is designated as Confidential Information by the Company or
from all the relevant circumstances should reasonably be assumed by
the Employee to be confidential to the Company.
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Confidential Information shall not include information publicly known
(other than as a result of a disclosure by the Employee ). The phrase
"publicly known" shall mean readily accessible to the public in a written
publication and shall not include information that is only available by a
substantial searching of the published literature or information the
substance of which must be pieced together from a number of different
publications and sources, or by focused searches of literature guided by
Confidential Information.
(b) Obligation of The Company. During the Term, the Company shall
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provide access to, or furnish to, the Employee Confidential Information of
the Company necessary to enable the Employee properly to perform his
obligations under this Agreement.
(c) Non-Disclosure. The Employee acknowledges, understands and agrees
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that all Confidential Information, whether developed by the Company or
others or whether developed by the Employee while carrying out the terms
and provisions of this Agreement (or previously while serving as an officer
of the Company), shall be the exclusive and confidential property of the
Company and (i) shall not be disclosed to any person other than employees
of the Company and professionals engaged on behalf of the Company, and
other than disclosure in the scope of the Company's business in accordance
with the Company's policies for disclosing information, (ii) shall be
safeguarded and kept from unintentional disclosure and (iii) shall not be
used for the Employee's personal benefit. Subject to the terms of the
preceding sentence, the Employee shall not use, copy or transfer
Confidential Information other than as is necessary in carrying out his
duties under this Agreement.
2.3 Injunctive Relief. Because of the Employee's experience and
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reputation in the industries in which Employer, Parent and their Affiliates
operate, and because of the unique nature of the Confidential Information, the
Employee acknowledges, understands and agrees that Employer and Parent will
suffer immediate and irreparable harm if the Employee fails to comply with any
of his obligations under Article 2 (Non-Competition and Confidentiality) of this
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Agreement, and that monetary damages will be inadequate to compensate Employer
and Parent for such breach. Accordingly, the Employee agrees that Employer and
Parent shall, in addition to any other remedies available to them at law or in
equity, be entitled to injunctive relief to enforce the terms of Article 2 (Non-
---
Competition and Confidentiality), without the necessity of proving inadequacy of
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legal remedies or irreparable harm.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES BY EMPLOYEE
Employee hereby represents and warrants, the same being part of the essence
of this Agreement, that, as of the Effective Date, he is not a party to any
agreement, contract or
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understanding, and that no facts or circumstances exist, that would in any way
restrict or prohibit him from undertaking or performing any of his obligations
under this Agreement. The foregoing representation and warranty shall remain in
effect throughout the Term.
ARTICLE 4
INDEMNIFICATION
4.1 Basic Indemnification Arrangement.
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(a) Indemnity. If the Employee was, is or becomes a party to or
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witness or other participant in, or is threatened to be made a party to or
witness or other participant in, a Claim (defined below) by reason of (or
arising in part out of) an Indemnifiable Event (defined below), Parent
shall indemnify the Employee to the fullest extent permitted by law, as
soon as practicable but in any event no later than thirty days after
written demand is presented to Parent, against any and all Expenses
(defined below), judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges actually incurred
and paid or payable in connection with or in respect of such Expenses,
judgments, fines, penalties or amounts paid in settlement) of such Claim.
If so requested by the Employee, Parent shall advance (within two business
days of such request) any and all Expenses to the Employee (an "Expense
Advance"); provided, however, that Parent may require the Employee first to
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deliver to Parent an undertaking by or on behalf of the Employee to repay
such Expense Advance if it shall ultimately be determined that he is not
entitled to be indemnified by Parent.
(b) Conditions. Notwithstanding the foregoing, (i) the obligations of
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Parent under subsection 4.1(a) (Indemnity) shall be subject to the
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condition that the Reviewing Party (defined below) shall not have
determined (in a written opinion, in any case in which the special,
independent counsel referred to in subsection 4.1(c) (Independent Counsel)
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hereof is involved) that the Employee would not be permitted to be
indemnified under applicable law, and (ii) the obligation of Parent to make
an Expense Advance pursuant to subsection 4.1(a) (Indemnity) shall be
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subject to the condition that, if, when and to the extent that the
Reviewing Party determines that the Employee would not be permitted to be
so indemnified under applicable law, Parent shall be entitled to be
reimbursed by the Employee (who hereby agrees to reimburse Parent) for all
such amounts theretofore paid; provided, however, that if the Employee
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commences legal proceedings in a court of competent jurisdiction to secure
a determination that the Employee should be indemnified under applicable
law, any determination made by the Reviewing Party that the Employee would
not be permitted to be indemnified under applicable law shall not be
binding and the Employee shall not be required to reimburse Parent for any
Expense Advance until a final judicial determination is made with respect
thereto (as to which all rights of appeal
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therefrom have been exhausted or lapsed). If there has been no
determination by the Reviewing Party or if the Reviewing Party determines
that the Employee substantively would not be permitted to be indemnified in
whole or in part under applicable law, the Employee shall have the right to
commence litigation in any court in the State of Texas having subject
matter jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, and Parent hereby consents to
service of process and to appear in any such proceeding. Any determination
by the Reviewing Party otherwise shall be conclusive and binding on Parent
and the Employee.
(c) Independent Counsel. If the determination of entitlement to
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indemnification is to be made by Independent Counsel (defined below), the
Independent Counsel shall be selected as provided in this subsection 4.1(c)
(Independent Counsel). The Independent Counsel shall be selected by
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majority vote of a quorum of Disinterested Directors (defined below), and
Parent shall give written notice to the Employee advising him of the
identity of the Independent Counsel so selected. The Employee may, within
seven days after receipt of the written notice, deliver to Parent a written
objection to the selection. His objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the
requirements of Independent Counsel as defined in subsection 4.1(h)
(Independent Counsel Definition) below, and the objection shall set forth
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with particularity the factual basis of the assertion. If written
objection is made, the Independent Counsel so selected shall be
disqualified. If, within 20 days after submission by the Employee of a
demand for indemnification pursuant to subsection 4.1(a) (Indemnity) of
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this Agreement, no Independent Counsel shall have been selected, or if
selected shall have been objected to, in accordance with this subsection
4.1(c) (Independent Counsel), either Parent or the Employee may petition a
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court of competent jurisdiction in the State of Texas for the appointment
as Independent Counsel of a person selected by that court or by any other
person that court shall designate, and the person so appointed shall act as
Independent Counsel. Parent shall pay all reasonable fees and expenses
incident to the procedures of this subsection 4.1(c) (Independent Counsel),
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regardless of the manner in which the Independent Counsel was selected or
appointed. Parent shall pay the reasonable fees and expenses of the
Independent Counsel and shall indemnify fully the Independent Counsel
against any and all expenses (including attorneys' fees) claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
(d) Claim. "Claim" shall mean any threatened, pending or completed
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action, suit or proceeding, any inquiry or investigation, or any appeal
therefrom whether conducted by Parent or any other party, that the Employee
in good faith believes might lead to the institution of any such action,
suit or proceeding, whether civil, criminal, administrative, investigative
or other.
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(e) Indemnifiable Event. "Indemnifiable Event" shall mean any event
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or occurrence related to the fact that the Employee is or was serving
Parent in some capacity, including without limitation, as a director,
officer, employee, agent (including trustee) or fiduciary of Parent or of
another corporation, partnership, joint venture, trust or other enterprise,
or by reason of anything done or not done by the Employee in any such
capacity.
(f) Expenses. "Expenses" shall include attorneys' fees and all other
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costs, expenses and obligations actually incurred and paid in connection
with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or
participate in any Claim relating to any Indemnifiable Event.
(g) Reviewing Party. "Reviewing Party" shall mean a quorum of
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Parent's Board of Directors consisting of Disinterested Directors or, if
such a quorum is not obtainable or if such a quorum so directs, Independent
Counsel. Any decision by such a quorum must be by a majority vote of the
quorum.
(h) Independent Counsel Definition. "Independent Counsel" shall mean
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a law firm, or a member of a law firm, that is experienced in matters of
Delaware corporate law and neither is, nor in the past five years has been,
retained to represent Parent or the Employee in any matter material to
either such party or any other party to the Claim relating to an
Indemnifiable Event. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards
of professional conduct then prevailing, would have a conflict of interest
in representing either Parent or the Employee in an action to determine the
Employee's rights under this Agreement.
(i) Disinterested Director. "Disinterested Director" shall mean a
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director of Parent who is not and was not at any time a party to a Claim
relating to an Indemnifiable Event.
4.2 Notification and Defense of Claim.
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(a) Notification. Promptly after receipt by the Employee of notice of
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the commencement of any Claim, the Employee will, if a claim for
indemnification in respect thereof is to be made against Parent under this
Agreement, notify Parent of the commencement thereof; but the omission to
notify Parent will not relieve it from any liability which it may have to
the Employee otherwise than under this Agreement.
(b) Defense. With respect to any Claim as to which the Employee
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notifies Parent of the commencement thereof, Parent will be entitled to
participate therein at its own expense. Except as otherwise provided
below, to the extent that it may wish, Parent jointly with any other
indemnifying party similarly notified will be entitled to assume the
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defense thereof, with counsel satisfactory to the Employee. After notice
from Parent to the Employee of its election to assume the defense thereof,
Parent will not be liable to the Employee under this Agreement for any
legal or other expenses subsequently incurred by the Employee in connection
with the defense thereof other than reasonable costs of investigation or as
otherwise provided below. The Employee shall have the right to employ
counsel in such Claim, but the fees and expenses of such counsel incurred
after notice from Parent of its assumption of the defense thereof shall be
at the expense of the Employee unless (i) the employment of counsel by the
Employee has been authorized by Parent, (ii) the Employee shall have
reasonably concluded that there may be a conflict of interest between
Parent and the Employee in the conduct of the defense of such Claim or
(iii) Parent shall not in fact have employed counsel to assume the defense
of such Claim, in each of which cases the fees and expenses of counsel
shall be borne by Parent. Parent shall not be entitled to assume the
defense of any Claim brought by or on behalf of Parent or as to which the
Employee shall have reasonably made the conclusion provided for in (ii)
above.
(c) Settlements. Parent shall not be liable to indemnify the Employee
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under this Agreement for any amounts paid in settlement of any Claim made
without its written consent. Parent shall not settle any Claim in any
manner that would impose any penalty or limitation on the Employee without
the Employee's written consent. Neither Parent nor the Employee will
unreasonably withhold their consent to any proposed settlement.
4.3 Indemnification for Additional Expenses. Parent shall indemnify the
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Employee against any and all expenses (including attorneys' fees) and, if
requested by the Employee, shall (within two business days of such request)
advance such expenses to the Employee, which are incurred by the Employee in
connection with any claim asserted against or action brought by the Employee for
(i) indemnification or advance payment of Expenses by Parent under this
Agreement or any other agreement or Parent bylaw now or hereafter in effect
relating to claims for Indemnifiable Events or (ii) recovery under any
directors' and officers' liability insurance policies maintained by Parent,
regardless of whether the Employee ultimately is determined to be entitled to
such indemnification, advance expense payment or insurance recovery, as the case
may be.
4.4 Partial Indemnity, Etc. If the Employee is entitled under any
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provision of this Agreement to indemnification by Parent for some or a portion
of the Expenses, judgments, fines, penalties and amounts paid in settlement of a
Claim but not, however, for all of the total amount thereof, Parent shall
nevertheless indemnify the Employee for the portion thereof to which the
Employee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that the Employee has been successful on the merits or
otherwise in defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, the Employee shall be indemnified against all
Expenses incurred in connection therewith. In connection with any determination
by the
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Reviewing Party or otherwise as to whether the Employee is entitled to be
indemnified hereunder the burden of proof shall be on Parent to establish that
the Employee is not so entitled.
4.5 No Presumption. For purposes of this Agreement, the termination of
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any Claim, action, suit or proceeding, by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that the Employee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law.
4.6 Non-exclusivity. The rights of the Employee hereunder shall be in
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addition to any other rights the Employee may have under Parent's bylaws,
pursuant to resolutions or determinations of Parent's Board of Directors or
stockholders, under the Delaware General Corporation Law or otherwise. To the
extent that a change in the Delaware General Corporation Law (whether by statute
or judicial decision) permits greater indemnification by agreement than would be
afforded currently under Parent's bylaws and this Agreement, it is the intent of
the parties hereto that the Employee shall enjoy by this Agreement the greater
benefits so afforded by such change.
4.7 Liability Insurance. To the extent Parent maintains an insurance
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policy or policies providing directors' and officers' liability insurance, the
Employee shall be covered by such policy or policies, in accordance with its or
their terms, to the maximum extent of the coverage available for any Parent
employee.
ARTICLE 5
MISCELLANEOUS
5.1 Period of Limitations. No legal action shall be brought and no cause
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of action shall be asserted by or on behalf of Employer or Parent or any of
their Affiliates against the Employee, the Employee's spouse, heirs, executors
or personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, and any claim or cause of action of
Employer or Parent or any Affiliate shall be extinguished and deemed released
unless asserted by the timely filing of a legal action within such two-year
period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action such shorter period shall
govern.
5.2 Counterparts. This Agreement may be executed in two or more
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counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
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5.3 Indulgences, Etc. Neither the failure nor any delay on the part of
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either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any right, remedy, power or privilege, nor shall any
waiver of any right, remedy, power, or privilege with respect to any occurrence
be construed as a waiver of such right, remedy, power or privilege with respect
to any other occurrence.
5.4 Employee's Sole Remedy. The Employee's sole remedy shall be against
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Employer or Parent for any claim, liability or obligation of any nature
whatsoever arising out of or relating to this Agreement or an alleged breach of
this Agreement or for any other claim arising out of the Employee's employment
by Employer, his service to Employer or its Affiliates or the termination of the
Employee's employment hereunder (collectively, "Employee Claims"). The Employee
shall have no claim or right of any nature whatsoever against any of Employer's
or its Affiliates' directors, former directors, officers, former officers,
employees, former employees, stockholders, former stockholders, agents, former
agents or the independent counsel in their individual capacities arising out of
or relating to any Employee Claim. The Employee hereby releases and covenants
not to sue any person other than Employer or Parent over any Employee Claim.
The persons described in this Section 5.4 (other than Employer, Parent and the
Employee) shall be third-party beneficiaries of this Agreement for purposes of
enforcing the terms of this Section 5.4 (Employee's Sole Remedy) against the
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Employee.
5.5 Notices. All notices, requests, demands and other communications
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required or permitted under this Agreement and the transactions contemplated
herein shall be in writing and shall be deemed to have been duly given, made and
received when sent by telecopy (with a copy sent by mail) or when personally
delivered or one business day after it is sent by overnight service, addressed
as set forth below:
If to the Employee:
Hong An-Hsien
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------------------------
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If to Employer or Parent:
CellStar Corporation
1730 Briercroft Court
Carrollton, Texas 75006
Attn: General Counsel
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Any party may alter the address to which communications or copies are to be sent
by giving notice of such change of address in conformity with the provisions of
this subsection for the giving of notice, which shall be effective only upon
receipt.
5.6 Provisions Separable. The provisions of this Agreement are
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independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
5.7 Entire Agreement. This Agreement contains the entire understanding
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between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained, which shall be deemed terminated effective immediately. The express
terms hereof control and supersede any course of performance and/or usage of the
trade inconsistent with any of the terms hereof. This Agreement may not be
modified or amended other than by an agreement in writing.
5.8 Headings; Index. The headings of paragraphs herein are included
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solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
5.9 Governing Law. This Agreement shall be governed by and construed in
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accordance with the laws of the State of Texas, without giving effect to
principles of conflict of laws.
5.10 Dispute Resolution. Subject to Employer's and Parent's right to seek
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injunctive relief in court as provided in Section 2.3 (Injunctive Relief) of
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this Agreement, any dispute, controversy or claim arising out of or in relation
to or connection to this Agreement, including without limitation any dispute as
to the construction, validity, interpretation, enforceability or breach of this
Agreement, shall be exclusively and finally settled by arbitration, and any
party may submit such dispute, controversy or claim, including a claim for
indemnification under this Section 5.10 (Dispute Resolution), to arbitration.
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(a) Arbitrators. The arbitration shall be heard and determined by one
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arbitrator, who shall be impartial and who shall be selected by mutual
agreement of the parties; provided, however, that if the dispute involves
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more than $2,000,000, then the arbitration shall be heard and determined by
three (3) arbitrators. If three (3) arbitrators are necessary as provided
above, then (i) each side shall appoint an arbitrator of its choice within
thirty (30) days of the submission of a notice of arbitration and (ii) the
party-appointed arbitrators shall in turn appoint a presiding arbitrator of
the tribunal within thirty (30) days following the appointment of the last
party-appointed arbitrator. If (x) the parties
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cannot agree on the sole arbitrator, (y) one party refuses to appoint its
party-appointed arbitrator within said thirty (30) day period or (z) the
party-appointed arbitrators cannot reach agreement on a presiding
arbitrator of the tribunal, then the appointing authority for the
implementation of such procedure shall be the Senior United States District
Judge for the Northern District of Texas, who shall appoint an independent
arbitrator who does not have any financial interest in the dispute,
controversy or claim. If the Senior United States District Judge for the
Northern District of Texas refuses or fails to act as the appointing
authority within ninety (90) days after being requested to do so, then the
appointing authority shall be the Chief Executive Officer of the American
Arbitration Association, who shall appoint an independent arbitrator who
does not have any financial interest in the dispute, controversy or claim.
All decisions and awards by the arbitration tribunal shall be made by
majority vote.
(b) Proceedings. Unless otherwise expressly agreed in writing by the
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parties to the arbitration proceedings:
(i) The arbitration proceedings shall be held in Dallas, Texas,
at a site chosen by mutual agreement of the parties, or if the parties
cannot reach agreement on a location within thirty (30) days of the
appointment of the last arbitrator, then at a site chosen by the
arbitrators;
(ii) The arbitrators shall be and remain at all times wholly
independent and impartial;
(iii) The arbitration proceedings shall be conducted in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, as amended from time to time;
(iv) Any procedural issues not determined under the arbitral
rules selected pursuant to item (iii) above shall be determined by the
law of the place of arbitration, other than those laws which would
refer the matter to another jurisdiction;
(v) The costs of the arbitration proceedings (including
attorneys' fees and costs) shall be borne in the manner determined by
the arbitrators;
(vi) The decision of the arbitrators shall be reduced to writing;
final and binding without the right of appeal; the sole and exclusive
remedy regarding any claims, counterclaims, issues or accounting
presented to the arbitrators; made and promptly paid in United States
dollars free of any deduction or offset; and any costs or fees
incident to enforcing the award shall, to the maximum extent permitted
by law, be charged against the party resisting such enforcement;
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(vii) The award shall include interest from the date of any
breach or violation of this Agreement, as determined by the arbitral
award, and from the date of the award until paid in full, at 6% per
annum; and
(viii) Judgment upon the award may be entered in any court
having jurisdiction over the person or the assets of the party owing
the judgment or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may
be.
5.11 Survival. The covenants and agreements of the parties set forth in
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Article 2 (Non-Competition and Confidentiality), and Article 5 (Miscellaneous)
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are of a continuing nature and shall survive the expiration, termination or
cancellation of this Agreement, regardless of the reason therefor.
5.12 Subrogation. In the event of payment under this Agreement, Employer
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and Parent shall be subrogated to the extent of such payment to all of the
rights of recovery of the Employee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Employer or Parent effectively
to bring suit to enforce such rights.
5.13 No Duplication of Payments. Employer and Parent shall not be liable
--------------------------
under this Agreement to make any payment in connection with any claim made
against the Employee to the extent the Employee has otherwise actually received
payment (under any insurance policy, Bylaw or otherwise) of the amounts
otherwise indemnifiable hereunder.
5.14 Binding Effect, Etc. This Agreement shall be binding upon and inure
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to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of Employer, Parent, spouses, heirs, and personal and legal
representatives. Employer and Parent shall require and cause any successor
(whether direct or indirect by purchase, merger, consolidation or otherwise) to
all, substantially all, or a substantial part, of their business or assets, by
written agreement in form and substance satisfactory to the Employee, expressly
to assume and agree to perform this Agreement in the same manner and to the same
extent that Employer or Parent would be required to perform if no such
succession had taken place.
5.15 Contribution. If the indemnity contained in this Agreement is
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unavailable or insufficient to hold the Employee harmless in a Claim for an
Indemnifiable Event, then separate from and in addition to the indemnity
provided elsewhere herein, Parent shall contribute to Expenses, judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by or on behalf of the Employee in connection with such Claim in such proportion
as appropriately reflects the relative benefits received by, and fault of,
Parent on the one hand and
21
<PAGE>
the Employee on the other in the acts, transactions or matters to which the
Claim relates and other equitable considerations.
5.16 Parent Guaranty. Parent guarantees the payment and performance of all
---------------
obligations of Employer under this Agreement and agrees it will pay or perform
those obligations if for any reason Employer fails to do so. This guarantee is
absolute, continuing, irrevocable and not conditional or contingent. Any notice
given hereunder to either Employer or Parent will be deemed to be notice to
Parent for purposes of this guaranty.
5.17 Prior Employment Agreement. This Agreement supersedes, for all
--------------------------
purposes, that certain Employment Agreement, dated as of June 1, 1995, by and
between Employer and Employee.
* * * * * * * *
[Remainder of page intentionally left blank.]
22
<PAGE>
IN WITNESS WHEREOF, Employer and Parent have caused this Agreement to be
executed by their officer/general partner thereunto duly authorized, and
Employee has signed this Agreement, as of the date(s) indicated below.
CELLSTAR (ASIA) CORPORATION LIMITED
By: /s/ ALAN H. GOLDFIELD
----------------------------------------------
Name: Alan H. Goldfield
----------------------------------------
Title: Director
---------------------------------------
Date:
CELLSTAR CORPORATION
By: /s/ ALAN H. GOLDFIELD
----------------------------------------------
Name: Alan H. Goldfield
----------------------------------------
Title: Chairman and CEO
---------------------------------------
Date:
/s/ HONG AN-HSIEN
--------------------------------------------------
Hong An-Hsien
Date: Jan. 22, 1998
23
<PAGE>
EXHIBIT 10.14
********************************************************************************
CREDIT AGREEMENT
Dated as of October 15, 1997
by and among
CELLSTAR CORPORATION,
as Borrower,
THE FIRST NATIONAL BANK OF CHICAGO
and
NATIONAL CITY BANK,
as Co-Agents,
and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Agent
$135,000,000
MULTICURRENCY REVOLVING
CREDIT FACILITY
********************************************************************************
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - Definitions.......................................................... 1
Section 1.1. Definitions............................................. 1
Section 1.2. Other Definitional Provisions........................... 19
ARTICLE II - Advances............................................................ 20
Section 2.1. Advances................................................ 20
Section 2.2. Swing Line.............................................. 20
Section 2.3. Notes................................................... 23
Section 2.4. Repayment of Advances................................... 23
Section 2.5. Interest................................................ 23
Section 2.6. Borrowing Procedure..................................... 23
Section 2.7. Conversions and Continuations........................... 24
Section 2.8. Use of Proceeds......................................... 25
Section 2.9. Commitment Fee.......................................... 25
Section 2.10. Reduction or Termination of Commitments................. 26
Section 2.11. Administrative Fee...................................... 26
ARTICLE III - Letters of Credit.................................................. 26
Section 3.1. Letters of Credit....................................... 26
Section 3.2. Procedure for Issuing Letters of Credit................. 27
Section 3.3. Participation by Banks.................................. 27
Section 3.4. Payments Constitute Advances............................ 27
Section 3.5. Letter of Credit Fee.................................... 27
Section 3.6. Agent's Responsibilities................................ 28
Section 3.7. Letter of Credit Documents.............................. 28
ARTICLE IV - Payments............................................................ 28
Section 4.1. Method of Payment....................................... 28
Section 4.2. Voluntary Prepayment.................................... 29
Section 4.3. Mandatory Prepayment.................................... 29
Section 4.4. Pro Rata Treatment...................................... 30
Section 4.5. Non-Receipt of Funds by the Agent....................... 30
Section 4.6. Withholding Taxes....................................... 30
Section 4.7. Withholding Tax Exemption............................... 31
Section 4.8. Judgment Currency....................................... 31
ARTICLE V - Yield Protection; Limitations on Advances; Capital Adequacy.......... 32
Section 5.1. Additional Costs........................................ 32
Section 5.2. Limitation on Types of Advances......................... 34
</TABLE>
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<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
Page
-----
<S> <C>
Section 5.3. Illegality.............................................. 34
Section 5.4. Substitute Floating Rate Advances....................... 35
Section 5.5. Compensation............................................ 35
Section 5.6. Capital Adequacy........................................ 36
Section 5.7. Additional Costs in Respect of Letters of Credit........ 36
ARTICLE VI - Security............................................................ 37
Section 6.1. Collateral.............................................. 37
Section 6.2. Setoff.................................................. 38
Section 6.3. Other Subsidiaries...................................... 39
ARTICLE VII - Conditions Precedent............................................... 39
Section 7.1. Initial Extension of Credit............................. 39
Section 7.2. All Extensions of Credit................................ 43
ARTICLE VIII - Representations and Warranties.................................... 43
Section 8.1. Existence and Authority................................. 43
Section 8.2. Financial Statements.................................... 44
Section 8.3. Corporate Action; No Breach............................. 44
Section 8.4. Operation of Business................................... 44
Section 8.5. Litigation and Judgments................................ 45
Section 8.6. Rights in Properties; Liens............................. 45
Section 8.7. Enforceability.......................................... 45
Section 8.8. Approvals............................................... 45
Section 8.9. Debt.................................................... 45
Section 8.10. Taxes................................................... 45
Section 8.11. Use of Proceeds; Margin Securities...................... 46
Section 8.12. ERISA................................................... 46
Section 8.13. Disclosure.............................................. 46
Section 8.14. Subsidiaries; Foreign Affiliates........................ 46
Section 8.15. Agreements.............................................. 47
Section 8.16. Compliance with Laws.................................... 47
Section 8.17. Investment Company Act.................................. 47
Section 8.18. Public Utility Holding Company Act...................... 47
Section 8.19. Environmental Matters................................... 47
Section 8.20. Patents, Trademarks and Copyrights...................... 47
Section 8.21. Relationship to the Banks............................... 47
Section 8.22. Government Regulation................................... 48
Section 8.23. Foreign Employee Benefit Matters........................ 48
</TABLE>
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<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
Page
----
<S> <C>
ARTICLE IX - Affirmative Covenants............................................... 48
Section 9.1. Reporting Requirements.................................. 48
Section 9.2. Maintenance of Existence; Conduct of Business........... 50
Section 9.3. Maintenance of Properties............................... 50
Section 9.4. Taxes and Claims........................................ 51
Section 9.5. Insurance............................................... 51
Section 9.6. Inspection Rights....................................... 51
Section 9.7. Keeping Books and Records............................... 51
Section 9.8. Compliance with Laws and Agreements..................... 51
Section 9.9. Further Assurances...................................... 52
Section 9.10. ERISA................................................... 52
Section 9.11. Foreign Employee Benefit Compliance..................... 52
ARTICLE X - Negative Covenants................................................... 52
Section 10.1. Debt.................................................... 52
Section 10.2. Limitation on Liens..................................... 53
Section 10.3. Mergers, Etc............................................ 54
Section 10.4. Restricted Payments..................................... 54
Section 10.5. Loans and Investments................................... 54
Section 10.6. Transactions With Affiliates............................ 56
Section 10.7. Disposition of Assets................................... 57
Section 10.8. Prepayment of Debt...................................... 57
Section 10.9. Nature of Business...................................... 57
Section 10.10. Environmental Protection................................ 57
Section 10.11. Accounting.............................................. 57
ARTICLE XI - Financial Covenants................................................. 58
Section 11.1. Consolidated Tangible Net Worth......................... 58
Section 11.2. Consolidated Interest Coverage Ratio.................... 58
Section 11.3. Companies Interest Coverage Ratio....................... 58
Section 11.4. Minimum Turnover Ratio.................................. 58
Section 11.5. Consolidated Funded Debt to Consolidated Cash Flow Ratio 59
Section 11.6. Consolidated Senior Debt to Consolidated Cash Flow Ratio 59
ARTICLE XII - Default............................................................ 59
Section 12.1. Events of Default....................................... 59
Section 12.2. Remedies Upon Default................................... 61
Section 12.3. Cash Collateral......................................... 62
Section 12.4. Performance by the Agent................................ 62
</TABLE>
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<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
Page
----
<S> <C>
ARTICLE XIII - The Agent......................................................... 62
Section 13.1. Appointment, Powers and Immunities...................... 62
Section 13.2. Rights of Agent as a Bank............................... 64
Section 13.3. Sharing of Payments, Etc................................ 64
SECTION 13.4. INDEMNIFICATION......................................... 65
Section 13.5. Independent Credit Decisions............................ 65
Section 13.6. Several Commitments..................................... 65
Section 13.7. Successor Agent......................................... 66
ARTICLE XIV - Miscellaneous...................................................... 66
Section 14.1. Expenses................................................ 66
SECTION 14.2. INDEMNIFICATION......................................... 67
Section 14.3. Limitation of Liability................................. 67
Section 14.4. No Fiduciary Relationship............................... 67
Section 14.5. No Waiver; Cumulative Remedies.......................... 68
Section 14.6. Successors and Assigns.................................. 68
Section 14.7. Survival................................................ 71
Section 14.8. ENTIRE AGREEMENT........................................ 71
Section 14.9. Amendments, Etc......................................... 71
Section 14.10. Maximum Interest Rate................................... 72
Section 14.11. Notices................................................. 72
SECTION 14.12. GOVERNING LAW; VENUE; SERVICE OF PROCESS................ 73
Section 14.13. Counterparts............................................ 73
Section 14.14. Severability............................................ 73
Section 14.15. Headings................................................ 73
Section 14.16. Non-Application of Chapter 346 of Texas Finance Code.... 73
Section 14.17. Construction............................................ 74
Section 14.18. Independence of Covenants............................... 74
Section 14.19. WAIVER OF JURY TRIAL.................................... 74
</TABLE>
-iv-
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT (this "Agreement"), dated as of October 15, 1997, is
---------
among CELLSTAR CORPORATION, a Delaware corporation (the "Borrower"), each of the
--------
banks or other lending institutions which is or may from time to time become a
signatory hereto or any successor or permitted assignee thereof (each a "Bank"
----
and, collectively, the "Banks"), THE FIRST NATIONAL BANK OF CHICAGO and NATIONAL
-----
CITY BANK, as co-agents (the "Co-Agents"), and TEXAS COMMERCE BANK NATIONAL
---------
ASSOCIATION, a national banking association ("TCB"), as agent for itself and the
---
other Banks, as issuer of Letters of Credit hereunder , and as the swing line
lender (in such capacity, together with its successors in such capacity, the
"Agent").
-----
R E C I T A L S:
---------------
A. The Borrower has requested that the Banks, the Co-Agents and the Agent
enter into this Agreement in order, among other things, to provide for a
revolving credit facility not to exceed an aggregate principal amount of
$135,000,000, including (i) a $10,000,000 sub-facility for the issuance of
letters of credit, (ii) a $5,000,000 swing line facility and (iii) a $25,000,000
sub-facility for Alternate Currency Advances under the revolving credit
facility, all on the terms and conditions set forth herein.
B. The Banks are willing to extend credit to the Borrower, and TCB is
willing to serve as Agent, upon and subject to the terms and conditions set
forth herein.
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
-----------
Section 1.1. Definitions. As used in this Agreement, the following terms
-----------
have the following meanings:
"A & S" means A & S Air Service, Inc., a Delaware corporation and a
-----
Subsidiary of CAS.
"ACC" means ACC-CellStar, Inc., a Delaware corporation and a
---
Subsidiary of CellStar SA.
"Additional Costs" is defined in Section 5.1.
---------------- -----------
<PAGE>
"Administrative Questionnaire" means an administrative questionnaire
----------------------------
in a form satisfactory to the Agent which each Bank shall complete and
provide to the Agent, setting forth such relevant information as Agent may
request regarding such Bank, including without limitation such Bank's
Applicable Lending Office for each Type of Advance.
"Advance" means an advance of funds by the Banks or any one of them to
-------
the Borrower pursuant to Article II or Section 3.4.
---------- -----------
"Advance Request Form" means a certificate, in substantially the form
--------------------
of Exhibit B hereto, properly completed and signed by the Borrower
---------
requesting an Advance.
"Affiliate" means, as to any Person, any other Person (a) that
---------
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such Person; (b) that
directly or indirectly beneficially owns or holds five percent or more of
any class of voting stock of such Person; or (c) five percent or more of
the voting stock or other ownership, equity or voting interests of which is
directly or indirectly beneficially owned or held by the Person in
question. The term "control" means the possession, directly or indirectly,
of the power to direct or cause direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract,
or otherwise; provided, however, in no event shall the Agent or any Bank be
-------- -------
deemed an Affiliate of the Borrower, any of the Guarantors, any of the
Subsidiaries, or any of the Foreign Affiliates.
"Alternate Base Rate" means as of any date of determination, a rate
-------------------
per annum (rounded upwards, if necessary, to the nearest 1/16th of 1%)
equal to the greater of (a) the Prime Rate in effect on such day, or (b)
the sum of the Federal Funds Effective Rate in effect on such day plus one-
half of one percent. If for any reason the Agent shall have determined
(which determination shall be prima facie correct) that it is unable to
ascertain the Federal Funds Effective Rate for any reason, including the
inability or failure after diligent effort of the Agent to obtain
sufficient quotations in accordance with the definition of Federal Funds
Effective Rate, the Alternate Base Rate shall be determined without regard
to clause (b) of the first sentence of this definition, as appropriate,
until the circumstances giving rise to such inability no longer exist. Any
change in the Alternate Base Rate due to a change in the Prime Rate or the
Federal Funds Effective Rate shall be effective on the effective date of
such change in the Prime Rate or the Federal Funds Effective Rate,
respectively, without notice to the Borrower.
"Alternate Currency" means the following so long as they are Eligible
------------------
Currencies: British pounds sterling, Japanese yen, German deutsche marks,
Italian lire, Canadian dollars, Hong Kong dollars, French francs and ECU's.
For purposes of this definition of Alternate Currency, "Eligible Currency"
-----------------
means any currency other than Dollars that is readily available, freely
traded, in which deposits are customarily offered to banks in the London
interbank market, convertible into Dollars in the international interbank
market and as to which an Equivalent Amount is available in Dollars in the
London interbank
-2-
<PAGE>
market (or other market where the Agent's currency exchange operations in
respect of the applicable currency are then being conducted).
"Alternate Currency Advances" means Advances which are funded in
---------------------------
Alternate Currency and bear interest based upon the Alternate Currency
Rate.
"Alternate Currency Rate" means, for any Alternate Currency Advance
-----------------------
for any Interest Period therefor, an interest rate per annum determined by
the Agent by dividing: (i) the rate per annum determined by the Agent at or
--------
before 10:00 A.M. (Dallas time) (or as soon thereafter as practicable) two
Business Days before the first day of such Interest Period to be the rate
per annum at which deposits in the relevant Alternate Currency are offered
by the Principal Office of the Agent to first class banks in the interbank
euro alternate currency market selected by the Agent for a period equal to
such Interest Period and in an amount substantially equal to the amount of
such Alternate Currency Advance during such Interest Period; by (ii)
Statutory Reserves.
"Applicable Lending Office" means for each Bank and each Type of
-------------------------
Advance, the lending office of such Bank (or of an Affiliate of such Bank)
designated for such Type of Advance in the Administrative Questionnaire or
such other office of such Bank (or of an Affiliate of such Bank) as such
Bank may from time to time specify to the Borrower and the Agent as the
office by which its Advances of such Type are to be made and maintained.
"Applicable Percentage" means, for any day, (a) with respect to
---------------------
Eurodollar Advances, the margin of interest over the Eurodollar Rate that
is applicable when any Applicable Rate based on the Eurodollar Rate is
determined under this Agreement, (b) with respect to Floating Rate
Advances, the margin of interest over the Alternate Base Rate that is
applicable when any Applicable Rate based on the Alternate Base Rate is
determined under this Agreement, (c) with respect to Alternate Currency
Advances, the margin of interest over the Alternate Currency Rate that is
applicable when any Applicable Rate based on the Alternate Currency Rate is
determined under this Agreement, (d) with respect to commitment fees
payable under Section 2.9, the commitment fee percentage that is applicable
-----------
when any such commitment fee is determined under this Agreement, and (e)
with respect to letter of credit fees payable under Section 3.5, the letter
-----------
of credit fee percentage that is applicable when any such letter of credit
fee is determined under this Agreement. The Applicable Percentage is
subject to adjustment (upwards or downwards, as appropriate) based on the
ratio of Consolidated Funded Debt to Consolidated Cash Flow. On each date
a Compliance Certificate is due under Section 9.1(d), the Applicable
--------------
Percentage shall be adjusted to reflect the Applicable Percentage
prescribed below for the ratio of Consolidated Funded Debt to Consolidated
Cash Flow as demonstrated by such Compliance Certificate. At all times the
Applicable Percentage shall be as follows:
-3-
<PAGE>
<TABLE>
<CAPTION>
APPLICABLE PERCENTAGE
FOR EURODOLLAR
RATIO OF CONSOLIDATED ADVANCES, ALTERNATE APPLICABLE MARGIN
FUNDED DEBT TO CURRENCY ADVANCES AND FOR FLOATING APPLICABLE
CONSOLIDATED CASH FLOW LETTER OF CREDIT FEES RATE ADVANCES COMMITMENT FEE
---------------------- --------------------- ------------- --------------
<S> <C> <C> <C>
Less than 1.00 to 1.00 0.875% 0% 0.25%
Greater than or equal to 1.00 to 1.000% 0% 0.25%
1.00, but less than 1.50 to 1.00
Greater than or equal to 1.50 to 1.250% 0% 0.30%
1.00, but less than 2.25 to 1.00
Greater than or equal to 2.25 to 1.500% 0% 0.375%
1.00, but less than 3.00 to 1.00
Greater than or equal to 3.00 to 1.750% 0.25% 0.375%
1.00 but less than 3.50 to 1.00
Greater than or equal to 3.50 to 2.000% 0.50% 0.375%
1.00
</TABLE>
After each adjustment of the Applicable Percentage in accordance herewith
due to a change in the ratio of Consolidated Funded Debt to Consolidated
Cash Flow as demonstrated by the Compliance Certificate, the new Applicable
Percentage shall apply to all Advances made or outstanding thereafter until
the next date that a Compliance Certificate is due under Section 9.1(d) and
--------------
demonstrates a change in the ratio of Consolidated Funded Debt to
Consolidated Cash Flow to an amount so that another Applicable Percentage
shall be applied. Upon the request of the Agent, the Borrower must
demonstrate to the reasonable satisfaction of the Agent the required
applicable ratio in order to obtain an adjustment to a lower Applicable
Percentage. If the Borrower fails to furnish to the Agent any Compliance
Certificate by the date required by this Agreement, then the maximum
Applicable Percentage shall apply at all times after such date for all
Advances made or outstanding after such date until the Borrower furnishes
the required Compliance Certificate to the Agent.
"Applicable Rate" means: (i) during the period that an Advance is a
---------------
Floating Rate Advance (including, without limitation, the Swing Line
Advances), the Alternate Base Rate plus the Applicable Percentage; (ii)
during the period that an Advance is a Eurodollar Advance, the Eurodollar
Rate plus the Applicable Percentage; and (iii) during the period that an
Advance is an Alternate Currency Advance, the Alternate Currency Rate plus
the Applicable Percentage.
-4-
<PAGE>
"Asset Coverage Amount" means at any time:
---------------------
(1) an amount equal to 80% of the sum of (a) Eligible Accounts
less (b) Foreign Accounts to the extent Foreign Accounts exceed
$15,000,000 in the aggregate; plus
----
(2) an amount equal to the lesser of (a) 50% of Eligible
Inventory or (b) 60% of the aggregate amount of the Commitments.
"Assignment and Acceptance" means an assignment and acceptance entered
-------------------------
into by a Bank and its assignee and accepted by the Agent pursuant to
Section 14.6, in substantially the form of Exhibit I hereto.
------------ ---------
"Audiomex" means Audiomex Export Corp., a Texas corporation and a
--------
Subsidiary of NAC.
"Average Inventory" means, as of the end of each fiscal quarter of the
-----------------
Borrower, the average inventory of the Borrower and the Subsidiaries on a
consolidated basis for the period of the four fiscal quarters then ended,
calculated as follows: (a) the sum obtained by adding together the Average
Inventory Per Quarter for each of such four fiscal quarters, divided by (b)
four.
"Average Inventory Per Quarter" means, for any fiscal quarter of the
-----------------------------
Borrower, the following for the Borrower and the Subsidiaries on a
consolidated basis: (a) the sum of (i) the beginning inventory amount for
such quarter, plus (ii) the ending inventory amount for such quarter,
divided by (b) two.
"Borrower Security Agreement" means the Security Agreement of the
---------------------------
Borrower in favor of the Agent in substantially the form of Exhibit E-1
-----------
hereto, as the same may be amended, supplemented, or modified from time to
time.
"Business Day" means (a) any day on which national banks in Dallas,
------------
Texas are open for the conduct of commercial banking business, and (b) with
respect to all borrowings, payments, Conversions, Continuations, Interest
Periods, and notices in connection with each Eurodollar Advance or
Alternate Currency Advance, any day which is a Business Day described in
clause (a) above and which is also a day on which dealings in Dollar or
----------
Alternate Currency deposits are carried out in the relevant interbank
market referred to by the Agent to determine the Eurodollar Rate for such
Eurodollar Advance or the Alternate Currency Rate for such Alternate
Currency Advance and which is also a day on which banks and foreign
exchange markets are open for business in London and (if applicable) for
the purpose of payments in an Alternate Currency in the principal financial
center of the country of such currency.
"Capital Lease Obligations" means, as to any Person, the obligations
-------------------------
of such Person to pay rent or other amounts under a lease of (or other
agreement conveying the
-5-
<PAGE>
right to use) real and/or personal property, which obligations are required
to be classified and accounted for as a capital lease on a balance sheet of
such Person under GAAP. For purposes of this Agreement, the amount of such
Capital Lease Obligations shall be the capitalized amount thereof,
determined in accordance with GAAP.
"CAS" means CellStar Air Services, Inc., a Delaware corporation and a
---
Subsidiary of the Borrower.
"CellStar Asia" means CellStar (Asia) Corporation LTD., a Hong Kong
-------------
corporation and a Subsidiary of CellStar International.
"CellStar International" means CellStar International
----------------------
Corporation/Asia, a Delaware corporation and a Subsidiary of NAC.
"CellStar Ireland" means CellStar Ireland, a United Kingdom company
----------------
resident in Ireland and a Subsidiary, if and when established.
"CellStar SA" means CellStar International Corporation/SA, a Delaware
-----------
corporation and a Subsidiary of NAC.
"Celular Express" means Celular Express S.A. de C.V., a Mexico
---------------
corporation and a Subsidiary of Audiomex.
"Change of Control" means any of the following:
-----------------
(a) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
other than an Excluded Person is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of
1934, as amended, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the
right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of 30% or
more of the combined voting stock of Borrower ordinarily having the
right to vote at an election of directors; provided that no Change of
--------
Control shall be deemed to have occurred from a transfer of the
Borrower's voting securities by Mr. Alan H. Goldfield ("Goldfield") to
(i) a member of Goldfield's immediate family (determined in accordance
with Rule 16a-1(e) of the Securities Exchange Act of 1934, as amended)
either during Goldfield's lifetime or by will or the laws of descent
and distribution; (ii) any trust as to which Goldfield or a member of
(or members) of his immediate family is the sole beneficiary; (iii)
any trust as to which Goldfield is the settlor and the sole trustee
with sole power to revoke; (iv) any entity over which Goldfield has
the power, directly or indirectly, to direct or cause the direction of
the management and policies of the entity, whether through the
ownership of voting securities, by contract or otherwise or (v) any
charitable trust, foundation or corporation under Section 501(c)(3) of
the Internal
-6-
<PAGE>
Revenue Code of 1986, as amended, that is funded and controlled by
Goldfield; provided, further, that any further transfer by any of the
-------- -------
foregoing Persons is not excluded from being deemed a Change of
Control if such further transfer is to a person or group other than
those specified in clauses (i) through (v) above;
(b) during any period of 12 consecutive calendar months,
individuals:
(i) who were directors of Borrower on the first day of such
period, or
(ii) whose election or nomination for election to the board
of directors of Borrower was recommended or approved by at least
a majority of the directors then still in office who were
directors of Borrower on the first day of such period, or whose
election or nomination for election was so approved,
shall cease to constitute a majority of the board of directors of
Borrower;
(c) Both Alan H. Goldfield and Richard M. Gozia shall at any
time cease to be involved in the management of the Borrower and NAC
(other than temporary absences for any period of time not longer than
60 days); and
(d) The occurrence of a Change of Control (as defined in the
Subordinated Note Documents).
"Code" means the Internal Revenue Code of 1986, as amended, and the
----
regulations promulgated and rulings issued thereunder.
"Collateral" is defined in Section 6.1.
---------- -----------
"Commitment" means, as to each Bank, the obligation of such Bank to
----------
make Advances pursuant to Sections 2.1 and 2.2 and issue or participate in
------------ ---
Letters of Credit pursuant to Sections 3.1 and 3.3 in an aggregate
------------ ---
principal amount at any time outstanding up to but not exceeding the amount
set forth opposite the name of such Bank on the signature pages hereto
under the heading "Commitment", as such amount may be reduced pursuant to
Section 2.10 or terminated pursuant to Section 2.10 or Section 12.2.
------------ ------------ ------------
"Commitment Percentage" means, at any time for any Bank, the
---------------------
proportion (stated as a percentage) that its Commitment under this
Agreement bears to the Banks' total Commitments under this Agreement.
"Companies" means, collectively, the Partnerships and NAC; and at all
---------
times when the Agent has a first priority security interest in assets of
CWI, "Companies" shall also include CWI.
---------
-7-
<PAGE>
"Companies Cash Flow" means, for any period, the sum of the following,
-------------------
calculated on a combined basis for the Companies, without duplication:
(a) the amount of net income for such period (whether positive
or negative) before interest expense, income taxes and extraordinary
items, net of
(b) all non-cash items (such as deferred taxes, depreciation,
amortization of goodwill and all other non-cash charges accrued but
not actually paid) which, in determining net income for such period,
were deducted from (or included in) gross income for such period;
provided, however, that in calculating Companies Cash Flow, changes in
-------- -------
the allowance for doubtful accounts shall not be treated as a non-cash
item for purposes of such calculation.
"Compliance Certificate" means a certificate of the president, chief
----------------------
executive officer, chief financial officer or corporate controller of the
Borrower, in the form of Exhibit D hereto, with appropriate completions.
---------
"Consolidated Cash Flow" means, for any period, the sum of the
----------------------
following, calculated on a consolidated basis for the Borrower and the
Subsidiaries without duplication:
(a) the amount of net income for such period (whether positive
or negative) before interest expense, income taxes and extraordinary
items, net of
(b) all non-cash items (such as deferred taxes, depreciation,
amortization of goodwill and all other non-cash charges accrued but
not actually paid) which, in determining net income for such period,
were deducted from (or included in) gross income for such period;
provided, however, that in calculating Consolidated Cash Flow, changes
-------- -------
in the allowance for doubtful accounts shall not be treated as a non-
cash item for purposes of such calculation.
"Consolidated Funded Debt" means, at any particular time, the sum of
------------------------
the following, calculated on a consolidated basis for the Borrower and the
Subsidiaries in accordance with GAAP:
(a) all obligations for borrowed money (whether as a direct
obligor on a promissory note, bond, debenture or other similar
instrument, as a reimbursement obligor with respect to an issued
letter of credit or similar instrument, as an obligor under a
Guarantee of borrowed money, or as any other type of direct or
contingent obligor), plus (but without duplication)
----
(b) all Capital Lease Obligations (other than the interest
component of such obligations).
-8-
<PAGE>
"Consolidated Senior Debt" means Consolidated Funded Debt other than
------------------------
Subordinated Debt.
"Consolidated Tangible Net Worth" means, at any particular time, all
-------------------------------
amounts which, in conformity with GAAP, would be included as stockholders'
or owners' equity on a consolidated balance sheet of the Borrower and the
Subsidiaries; provided, however, there shall be excluded therefrom: (a)
-------- -------
any amount at which shares of capital stock of any Person appear as an
asset on the balance sheet of such Person, (b) goodwill, including any
amounts, however designated, that represent the excess of the purchase
price paid for assets or stock over the value assigned thereto, (c)
patents, trademarks, trade names, and copyrights, (d) deferred expenses,
(e) loans and advances to any stockholder, director, officer, partner, or
employee of the Borrower, any Subsidiary, or any Affiliate of the Borrower
or any Subsidiary, and (f) all other assets which are properly classified
as intangible assets.
"Continue", "Continuation", and "Continued" shall refer to the
-------- ------------ ---------
continuation pursuant to Section 2.7 of (a) a Eurodollar Advance as a
-----------
Eurodollar Advance from one Interest Period to the next Interest Period and
(b) an Alternate Currency Advance as an Alternate Currency Advance from one
Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a conversion
------- ---------- ---------
pursuant to Section 2.7 or Article V of one Type of Advance into another
----------- ---------
Type of Advance.
"Cost of Goods Sold" means, as of the end of each fiscal quarter of
------------------
the Borrower, the cost of goods sold for the Borrower and the Subsidiaries
on a consolidated basis in the period of the four fiscal quarters then
ended.
"CWI" means CellStar West, Inc., a Delaware corporation and a
---
Subsidiary of the NAC.
"Debt" means as to any Person at any time (without duplication): (a)
----
all obligations of such Person for borrowed money, (b) all obligations of
such Person evidenced by bonds, notes, debentures, or other similar
instruments, (c) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable of
such Person arising in the ordinary course of business (including ordinary
and customary duties related to purchases of inventory by Foreign
Subsidiaries and Foreign Affiliates from or financed by the Companies, or
any of them), (d) all Capital Lease Obligations of such Person, (e) all
Debt or other obligations (other than trade payables for the purchase of
goods or materials in the ordinary course of business) of others Guaranteed
by such Person, (f) all obligations secured by a Lien existing on property
owned by such Person, whether or not the obligations secured thereby have
been assumed by such Person or are non-recourse to the credit of such
Person, (g) all reimbursement obligations of such Person (whether
contingent or otherwise) in respect of letters of credit, bankers'
acceptances, surety or other bonds and similar instruments,
-9-
<PAGE>
and (h) all liabilities of such Person in respect of unfunded vested
benefits under any Plan.
"Default" means an Event of Default or the occurrence of an event or
-------
condition which with notice or lapse of time or both would become an Event
of Default.
"Default Rate" means the Maximum Rate or, if no Maximum Rate exists,
------------
the sum of the Alternate Base Rate in effect from day to day plus four
percent.
"Dollars" and "$" mean lawful money of the United States of America.
------- -
"Domestic Subsidiary" means any Subsidiary which is domiciled in the
-------------------
United States of America.
"ECU" means that unit of account known as the ECU that is at present
---
used in the European Monetary System, as defined from time to time by the
European Community, including changes in the components of the ECU pursuant
to the most recent council regulation.
"Eligible Accounts" means, at any time, all accounts receivable of the
-----------------
Companies, or any of them, that satisfy the following conditions:
(a) The account has not been outstanding for more than 90 days
past the original date of invoice;
(b) A Company has good and indefeasible title to the account,
the account is not subject to any Lien except Liens in favor of the
Agent, and the Agent has a valid, perfected first priority Lien in the
account; and
(c) The account is not owed by an employee, a Subsidiary or
Affiliate of any Company.
"Eligible Assignee" means any commercial bank, savings and loan
-----------------
association, savings bank, finance company, insurance company, mutual fund,
or other financial institution (whether a corporation, partnership, or
other entity) acceptable to the Agent.
"Eligible Inventory" means, at any time, all inventory then owned by
------------------
(and in the possession or under the control of) the Companies, or any of
them, and held for sale or disposition in the ordinary course of the
Companies' business, in which the Agent has a perfected, first priority
security interest, valued at the lower of (i) actual cost for the purchase
of such inventory from the original wholesale supplier or (ii) fair market
value. Eligible Inventory shall not include (a) the value of the
obsolescence reserve, (b) inventory located at any location for which a
landlord's waiver is required to be delivered under the Loan Documents and
has not been received by the Agent, and (c) inventory located outside of
the United States of America.
-10-
<PAGE>
"Engagement Letter" means that certain letter agreement dated
-----------------
September 8, 1997, among the Borrower, TCB, and Chase Securities, Inc.
"Environmental Laws" means any and all United States of America
------------------
federal, state, and local laws, regulations, and requirements pertaining to
health, safety, or the environment.
"Environmental Liabilities" means all liabilities, obligations,
-------------------------
responsibilities, remedial actions, losses, damages, punitive damages,
consequential damages, treble damages, costs, expenses, fines, penalties,
sanctions, and interest arising from environmental, health or safety
conditions or the release or threatened release of a Hazardous Material
into the environment, resulting from the past, present, or future
operations of the Borrower or any Subsidiary.
"Equivalent Amount" means (a) the equivalent in Dollars of any
-----------------
Alternate Currency and (b) the equivalent in any Alternate Currency of
Dollars. For purposes of this Agreement, each Equivalent Amount shall be
determined by using the quoted spot rate at which TCB or any affiliate of
TCB offers to exchange Dollars for such Alternate Currency at 11:00 A.M.
Dallas, Texas time two Business Days prior to the date on which such
equivalent is to be determined pursuant to the provisions of this
Agreement. The Agent shall notify each affected Bank of such determination
on such date. The Equivalent Amount of each Advance made in Alternate
Currency shall be recalculated hereunder on each date it is necessary to
determine the unused portion of each Bank's Commitment or any Advances
outstanding on such date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations and published
interpretations thereunder.
"ERISA Affiliate" means any corporation or trade or business which is
---------------
a member of the same controlled group of corporations (within the meaning
of Section 414(b) of the Code) as the Borrower or any Guarantor or is under
common control (within the meaning of Section 414(c) of the Code) with the
Borrower or any Guarantor.
"Eurodollar Advances" means Advances which are funded in Dollars and
-------------------
bear interest at rates determined on the basis of the rates referred to in
the definition of "Eurodollar Rate" in this Section 1.1.
-----------
"Eurodollar Rate" means, for any Eurodollar Advance for any Interest
---------------
Period therefor, an interest rate per annum determined by the Agent at or
before 10:00 A.M. (Dallas time) (or as soon thereafter as practicable) two
Business Days before the first day of such Interest Period, by dividing:
--------
(i) the rate per annum equal to the annual rate of interest shown on the
appropriate reference page of Reuters America, Inc. for a period equal to
such Interest Period, or if such page is not available, the annual rate of
interest shown on the Bloomberg Screen British Banker's LIBOR Fixing for a
period equal to such Interest Period, or if neither of the foregoing is
available, the rate per annum
-11-
<PAGE>
determined by the Agent to be the rate per annum at which deposits of
Dollars are offered by the Principal Office of the Agent to first class
banks in the interbank Eurodollar market selected by the Agent for a period
equal to such Interest Period and in an amount substantially equal to the
amount of such Eurodollar Advance during such Interest Period; by (ii)
Statutory Reserves.
"Event of Default" is defined in Section 12.1.
---------------- ------------
"Excluded Person" means (a) Alan H. Goldfield, (b) a trustee or other
---------------
fiduciary holding securities under an employee benefit plan of the Borrower
and acting in such capacity, and (c) a corporation owned, directly or
indirectly, by the stockholders of the Borrower in substantially the same
proportions as their ownership of voting securities of the Borrower.
"Federal Funds Effective Rate" means, for any day, the rate per annum
----------------------------
determined by the Agent to be equal to the weighted average of the rate on
overnight Federal Funds transactions with members of the Federal Reserve
System arranged by Federal Funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, New York,
or if such rate is not so published for any day which is a Business Day,
the average of the quotations for the day of such transactions received by
the Agent from three Federal Funds brokers of recognized standing selected
by the Agent in its sole discretion. The determination by the Agent of the
rate of interest per annum provided above shall be conclusive absent
manifest error.
"Fee Letter" means that certain Fee Letter, dated September 8, 1997,
----------
among the Borrower, TCB and Chase Securities, Inc.
"Financo" means CellStar Financo, Inc., a Delaware corporation and a
-------
Subsidiary of Borrower.
"FIRA" is defined in Section 8.21.
---- ------------
"Floating Rate Advances" means Advances which are funded in Dollars
----------------------
and bear interest based upon the Alternate Base Rate, including without
limitation, Swing Line Advances.
"Foreign Accounts" means all accounts receivable of the Companies, or
----------------
any of them, with respect to which the account debtor is domiciled in any
country other than the United States of America.
"Foreign Affiliate" means any Person in which the Borrower or any
-----------------
Subsidiary has an equity or ownership interest equal to or less than 50%
and which is organized or domiciled in any country other than the United
States of America.
-12-
<PAGE>
"Foreign Employee Benefit Plan" means any employee benefit plan as
-----------------------------
defined in Section 3(3) of ERISA which is maintained or contributed to for
the benefit of the employees of Borrower, any of its Subsidiaries or any
Affiliates and is not covered by ERISA pursuant to ERISA Section 4(b)(4).
"Foreign Pension Plan" means any employee benefit plan as described in
--------------------
Section 3(3) of ERISA which (a) is maintained or contributed to for the
benefit of employees of Borrower, any of its Subsidiaries or any of its
ERISA Affiliates, (b) is not covered by ERISA pursuant to Section 4(b)(4)
of ERISA, and (c) under applicable local law, is required to be funded
through a trust or other funding vehicle.
"Foreign Subsidiary" means any Subsidiary which is organized or
------------------
domiciled in any country other than the United States of America.
"Fulfillment" means CellStar Fulfillment, Inc., a Delaware
-----------
corporation, a Subsidiary of the Borrower and general partner of CellStar
Fulfillment, Ltd.
"GAAP" means generally accepted accounting principles, applied on a
----
consistent basis, as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board and/or their
respective successors and which are applicable in the circumstances as of
the date in question. Accounting principles are applied on a "consistent
basis" when the accounting principles applied in a current period are
comparable in all material respects to those accounting principles applied
in a preceding period.
"Governmental Authority" means any nation or government, any state or
----------------------
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or
pertaining to government.
"Guarantee" by any Person means any obligation, contingent or
---------
otherwise, of such Person directly or indirectly guaranteeing any Debt or
other obligation of any other Person and, without limiting the generality
of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (a) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-
pay, or to maintain financial statement conditions or otherwise) or (b)
entered into for the purpose of assuring in any other manner the obligee of
such Debt or other obligation of the payment thereof or to protect the
obligee against loss in respect thereof (in whole or in part), provided
that the term Guarantee shall not include endorsements for collection or
deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
-13-
<PAGE>
"Guaranties" means the guaranties of Guarantors in favor of the Agent
----------
and the Banks, each in substantially the form of Exhibit G hereto, as the
---------
same may be amended, supplemented or modified from time to time.
"Guarantor Security Agreements" means the security agreements of the
-----------------------------
Guarantors in favor of the Agent, in substantially the form of Exhibit E-2
-----------
hereto, as the same may be amended, supplemented or modified from time to
time.
"Guarantors" means, collectively, the Partnerships, NAC, ACC, Financo,
----------
CWI, Holdings, Fulfillment, CellStar International, Audiomex, CellStar SA,
CAS, A & S and each other Subsidiary that at any time executes a Guaranty
in favor of the Agents and the Banks.
"Hazardous Material" means any substance, product, waste, pollutant,
------------------
material, chemical, contaminant, constituent, or other material which is or
becomes listed, regulated, or addressed under any Environmental Law,
including, without limitation, asbestos, petroleum, and polychlorinated
biphenyls.
"Hedging Agreements" is defined in Section 10.12.
------------------ -------------
"Hedging Obligations" of a Person means any and all obligations of
-------------------
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions
and modifications thereof and substitutions therefor), under (a) any and
all agreements, devices or arrangements designed to protect at least one of
the parties thereto from the fluctuations of interest rates, exchange rates
or forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or cross-
currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collateral protection agreements, forward
rate currency or interest rate options, puts and warrants, and (b) any and
all cancellations, buy backs, reversals, terminations or assignments of any
of the foregoing.
"Holdings" means NAC Holdings, Inc., a Nevada corporation, a
--------
Subsidiary of the Borrower and the limited partner of CellStar, Ltd. and
CellStar Fulfillment, Ltd.
"Interest Coverage Ratio" means the ratio of (a) Consolidated Cash
-----------------------
Flow to (b) interest expense of the Borrower and the Subsidiaries on a
consolidated basis.
"Interest Period" means with respect to any Eurodollar Advances or
---------------
Alternate Currency Advances, each period commencing on the date such
Advances are made or Converted from Floating Rate Advances or, in the case
of each subsequent, successive Interest Period applicable to a Eurodollar
Advance or an Alternate Currency Advance, the last day of the next
preceding Interest Period with respect to such Advance, and ending on the
numerically corresponding day in the first, second, or third calendar month
thereafter, as the Borrower may select as provided in Section 2.6 or 2.7
----------- ---
hereof, except
-14-
<PAGE>
that each such Interest Period which commences on the last Business Day of
a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end
on the last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (a) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, if such succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day); (b)
any Interest Period which would otherwise extend beyond the Termination
Date shall end on the Termination Date; (c) no more than five Interest
Periods for Eurodollar Advances shall be in effect at the same time; (d) no
more than five Interest Periods for Alternate Currency Advances shall be in
effect at the same time; and (e) no Interest Period for any Eurodollar
Advances or any Alternate Currency Advances shall have a duration of less
than one month and, if the Interest Period for any Eurodollar Advances or
any Alternate Currency Advances would otherwise be a shorter period, such
Advances shall not be available hereunder.
"L/C Application" is defined in Section 3.1.
--------------- -----------
"L/C Documents" is defined in Section 3.1.
------------- -----------
"Letter of Credit" means any letter of credit issued by the Agent for
----------------
the liability of the Borrower pursuant to Article III.
-----------
"Letter of Credit Liabilities" means, at any time, the aggregate face
----------------------------
amounts of all outstanding Letters of Credit.
"Letter of Credit Request Form" means a certificate, in substantially
-----------------------------
the form of Exhibit C hereto, properly completed and signed by the Borrower
---------
requesting issuance of a Letter of Credit.
"Lien" means any lien, mortgage, security interest, tax lien,
----
financing statement, pledge, charge, hypothecation, assignment, preference,
priority, or other encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or title retention agreement),
whether arising by contract, operation of law, or otherwise.
"Loan Documents" means this Agreement and all promissory notes,
--------------
security agreements, pledge agreements, assignments, letters of credit,
guaranties, L/C Documents, and other instruments, documents, and agreements
executed and delivered pursuant to or in connection with this Agreement, as
such instruments, documents, and agreements may be amended, modified,
renewed, extended, or supplemented from time to time; provided, however
that "Loan Documents" shall not include the Subordinated Note Documents.
--------------
"Material Adverse Effect" means a material adverse effect on the
-----------------------
business, condition (financial or otherwise), operations, prospects, or
properties of the Borrower or the Subsidiaries and the Foreign Affiliates
taken as a whole or the ability of the Borrower or any Guarantor to pay and
perform the Obligations.
-15-
<PAGE>
"Maximum Rate" means, at any time, the maximum rate of interest under
------------
applicable law that the Banks may charge the Borrower. The Maximum Rate
shall be calculated in a manner that takes into account any and all fees,
payments, and other charges in respect of the Loan Documents that
constitute interest under applicable law. Each change in any interest rate
provided for herein based upon the Maximum Rate resulting from a change in
the Maximum Rate shall take effect without notice to the Borrower at the
time of such change in the Maximum Rate. For purposes of determining the
Maximum Rate under Texas law, the applicable rate ceiling shall be the
applicable interest rate ceiling described in, and computed in accordance
with, Article 5069-1D.001 et seq., Vernon's Texas Civil Statutes.
"Multiemployer Plan" means a multiemployer plan defined as such in
------------------
Section 3(37) of ERISA to which contributions have been made by the
Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA.
"NAC" means National Auto Center, Inc., a Delaware corporation, and a
---
Subsidiary of the Borrower.
"Net Proceeds" from any issuance, sale or other disposition of any
------------
shares of equity securities (or any securities convertible or exchangeable
for any such shares, or any rights, warrants, or options to subscribe for
or purchase any such shares) means the amount equal to (a) the aggregate
gross proceeds of such issuance, sale or other disposition, less (b) the
following: (i) placement agent fees, (ii) underwriting discounts and
commissions, (iii) bank and other lender fees, and (iv) legal fees and
other expenses payable by the issuer in connection with such issuance, sale
or other disposition.
"Notes" means, collectively, the Revolving Credit Notes.
-----
"Obligated Party" means any Guarantor or any other Person who is or
---------------
becomes party to any agreement that guarantees or secures payment and
performance of the Obligations or any part thereof.
"Obligations" means all obligations, indebtedness, and liabilities of
-----------
the Borrower to the Agent and the Banks, or any of them, arising pursuant
to any of the Loan Documents, now existing or hereafter arising, whether
direct, indirect, related, unrelated, fixed, contingent, liquidated,
unliquidated, joint, several, or joint and several (including, without
limitation, all of the Borrower's contingent reimbursement obligations in
respect of Letters of Credit and Hedging Obligations), and all interest
accruing thereon and all attorneys' fees and other expenses incurred in the
enforcement or collection thereof.
"Partnerships" means, collectively, CellStar, Ltd. and CellStar
------------
Fulfillment, Ltd., each a Texas limited partnership.
"Payor" is defined in Section 4.5.
----- -----------
-16-
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
----
succeeding to all or any of its functions under ERISA.
"Person" means any individual, corporation, business trust,
------
association, company, partnership, joint venture, Governmental Authority,
or other entity.
"Plan" means any employee benefit or other plan established or
----
maintained by the Borrower or any ERISA Affiliate and which is covered by
Title IV of ERISA.
"Pledge Agreements" means the pledge agreements of the Borrower,
-----------------
Fulfillment, Holdings, Audiomex, NAC, CAS and CellStar International in
favor of the Agent in substantially the form of Exhibit F hereto, as the
---------
same may be amended, supplemented or modified from time to time.
"Prime Rate" means the Prime Rate as announced from time to time by
----------
the Agent, automatically fluctuating upward or downward with each
announcement without notice to the Borrower or any other Person. The
Borrower understands that the Prime Rate may not be the Agent's best or
lowest rate or a favored rate, and any statement, representation or
warranty to that effect is expressly disclaimed by the Agent and the Banks.
"Principal Office" means the principal office of the Agent, presently
----------------
located at 1111 Fannin St., 9th Floor, MS46, Houston, Texas 77002 and, for
purposes of interest rate determinations, at 707 Travis, Houston, Texas
77002.
"Prohibited Transaction" means any transaction set forth in Section
----------------------
406 of ERISA or Section 4975 of the Code.
"Quarterly Payment Date" means the last day of each March, June,
----------------------
September, and December of each year, the first of which shall be the first
such day after the date of this Agreement.
"Refunded Swing Line Advances" is defined in Section 2.2.
---------------------------- -----------
"Register" is defined in Section 14.6(d).
-------- ---------------
"Regulation D" means Regulation D of the Board of Governors of the
------------
Federal Reserve System as the same may be amended or supplemented from time
to time.
"Regulatory Change" means, with respect to any Bank, any
-----------------
implementation, adoption or change after the date of this Agreement of
United States federal, state, or foreign laws, rules or regulations
(including Regulation D) or the adoption or making after such date of any
interpretations, directives, or requests applying to a class of banks
including such Bank of or under any United States federal or state, or any
foreign, laws or regulations (whether or not having the force of law) by
any court or governmental or monetary authority charged with the
interpretation or administration thereof.
-17-
<PAGE>
"Reportable Event" means any of the events set forth in Section 4043
----------------
of ERISA.
"Required Banks" means (a) prior to termination of the Commitments, at
--------------
any time while no Advances are outstanding, the Banks having at least 50.1%
of the aggregate amount of the Commitments and, at any time while Advances
are outstanding, the Banks holding at least 50.1% of the outstanding
aggregate principal amount of the Advances other than Swing Line Advances,
and (b) after termination of the Commitments, the Banks holding at least
50.1% of the outstanding aggregate principal amount of the Advances,
including Swing Line Advances.
"Required Payment" is defined in Section 4.5.
---------------- -----------
"Restricted Payment" means, as to any Person, (a) the declaration or
------------------
payment of any dividends or any other payment or distribution (in cash,
property, or obligations) by a Person on account of such Person's capital
stock, (b) the redemption, purchase, retirement, or other acquisition by a
Person of any of its capital stock, or (c) the setting apart of any money
for a sinking fund or other analogous fund for any dividend or other
distribution on such Person's capital stock or for any redemption,
purchase, retirement, or other acquisition of any of such Person's capital
stock.
"Revolving Credit Note" means a promissory note of the Borrower
---------------------
payable to the order of a Bank, in substantially the form of Exhibit A
---------
hereto, and all extensions, renewals, and modifications thereof.
"Significant Subsidiary" means at any time (a) each Domestic
----------------------
Subsidiary, (b) CellStar Asia, (c) Celular Express, (d) CellStar
International Telefonia Celular Ltda., a Brazilian corporation and a
Subsidiary of CellStar SA, (e) CellStar Pacific Pte. Ltd., a Singapore
corporation and a Subsidiary of CellStar International, and (f) each other
Foreign Subsidiary that has assets, revenues or losses that are greater
than 10% of the total assets, revenues or losses, respectively, of the
Borrower and the Subsidiaries on a consolidated basis as of the end of
Borrower's most recent fiscal quarter then ended.
"Specified Currency" is defined in Section 4.8.
------------------ -----------
"Statutory Reserves" means the difference (expressed as a decimal) of
------------------
the number one minus the aggregate of the maximum reserve percentages
(including, without limitation, any marginal, special, emergency, or
supplemental reserves) expressed as a decimal established by the Board of
Governors of the Federal Reserve System and any other banking authority to
which the Agent is subject for Eurocurrency Liabilities (as defined in
Regulation D). Such reserve percentages shall include, without limitation,
those imposed under Regulation D. Eurodollar Advances and Alternate
Currency Advances shall be deemed to constitute Eurocurrency Liabilities
and as such shall be deemed to be subject to such reserve requirements
without benefit of or credit for proration, exceptions or offsets which may
be available from time to time to the Lender
-18-
<PAGE>
under Regulation D. Statutory Reserves shall be adjusted automatically on
and as of the effective date of any change in any reserve percentage.
"Subordinated Debt" means all Debt of the Borrower and the
-----------------
Subsidiaries subordinated in right of payment to the Obligations pursuant
to documents containing maturities, amortization schedules, covenants,
defaults, remedies, subordination provisions and other material terms in
form and substance satisfactory to the Required Banks.
"Subordinated Note Documents" means that certain Indenture dated as of
---------------------------
October 14, 1997, relating to $150,000,000 of convertible subordinated
notes due October 15, 2002 and all promissory notes and other documents and
agreements executed and delivered pursuant to or in connection with such
Indenture.
"Subsidiary" means (a) any corporation of which at least a majority of
----------
the outstanding shares of stock having by the terms thereof ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether or not at the time stock of any other class or
classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time directly or indirectly
owned or controlled by one or more of the Borrower and the Subsidiaries,
and (b) any other entity (i) of which at least a majority of the ownership,
equity or voting interests is at the time directly or indirectly owned or
controlled by one or more of the Borrower and the Subsidiaries and (ii)
which is treated as a subsidiary in accordance with GAAP. Without in any
way limiting the foregoing, the Subsidiaries shall include the
Partnerships.
"Swing Line" means the swing line facility provided by the Agent under
----------
Section 2.2.
-----------
"Swing Line Advance" means, any Floating Rate Advance disbursed by the
------------------
Agent to or on behalf of the Borrower under the Swing Line.
"Swing Line Commitment" means, at any time, the Commitment of the
---------------------
Agent under the Swing Line in the amount specified on the signature pages
hereto.
"Termination Date" means 11:00 A.M. Dallas, Texas time on June 1,
----------------
2002, or such earlier date on which the Commitments terminate as provided
in this Agreement.
"Type" means any type of Advance (i.e., Floating Rate Advance,
----
Eurodollar Advance, Swing Line Advance or Alternate Currency Advance).
"UCC" means the Uniform Commercial Code as in effect in the State of
---
Texas.
Section 1.2. Other Definitional Provisions. All definitions contained in
-----------------------------
this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof", "herein", and "hereunder" and words of
similar import referring to this Agreement refer to this
-19-
<PAGE>
Agreement as a whole and not to any particular provision of this Agreement.
Unless otherwise specified, all Article and Section references pertain to this
Agreement. All accounting terms not specifically defined herein shall be
construed in accordance with GAAP. Terms used herein that are defined in the
UCC, unless otherwise defined herein, shall have the meanings specified in the
UCC. Unless indicated otherwise, all references to amounts expressed in Dollars
shall be deemed to refer also to the Equivalent Amounts thereof.
ARTICLE II
Advances
--------
Section 2.1. Advances. Subject to the terms and conditions of this
--------
Agreement, each Bank severally agrees to make one or more Advances to the
Borrower from time to time from the date hereof to and including the Termination
Date in an aggregate principal amount at any time outstanding up to but not
exceeding the amount of such Bank's Commitment as then in effect, provided that:
(a) the aggregate amount of all Advances at any time
outstanding shall not exceed, and the Banks shall not be obligated to make
any Advance which would cause the aggregate amount of all outstanding
Advances to exceed, the amount equal to (i) the lesser of (A) the aggregate
amount of the Commitments or (B) the Asset Coverage Amount, minus (ii) the
Letter of Credit Liabilities; and
(b) the aggregate amount of all Alternate Currency Advances
at any time outstanding shall not exceed, and the Banks shall not be
obligated to make any Alternate Currency Advances which would cause the
aggregate amount of all outstanding Alternate Currency Advances to exceed
the Equivalent Amount of $25,000,000.
Subject to the foregoing limitations, and the other terms and provisions of this
Agreement, the Borrower may borrow, repay, and reborrow hereunder. The Borrower
may borrow hereunder by means of Floating Rate Advances, Alternate Currency
Advances or Eurodollar Advances and, until the Termination Date, the Borrower
may Convert all or part of one Type of Advance into another Type of Advance or
Continue all or part of any Eurodollar Advance or Alternate Currency Advance.
Advances of each Type made by each Bank shall be made and maintained at such
Bank's Applicable Lending Office for Advances of such Type.
Section 2.2. Swing Line.
----------
(a) Subject to the terms and conditions of this Agreement,
the Agent agrees to make loans to the Borrower as Swing Line Advances from
time to time until and including the Business Day immediately preceding the
Termination Date and not thereafter, in an aggregate principal amount at
any time outstanding not to exceed its Swing Line Commitment, provided that
at any time, the sum of the aggregate amount of all outstanding Advances
plus the Letter of Credit Liabilities shall not exceed the lesser of the
Asset Coverage Amount or the aggregate amount of the Commitments (as such
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<PAGE>
amount is reduced or cancelled in accordance with this Agreement). At any
time until and including the Business Day immediately preceding the
Termination Date, the Borrower may use the Swing Line by borrowing,
prepaying the aggregate amount of all outstanding Advances under the Swing
Line in whole or in part, and reborrowing, all in accordance with the terms
and conditions hereof. The proceeds of each Swing Line Advance shall be
used by the Borrower solely for its short-term cash needs for working
capital and general business purposes.
(b) Each Swing Line Advance shall be a Floating Rate Advance and
shall bear interest prior to maturity at a rate per annum equal to the
lesser of (a) the Applicable Rate, or (b) the Maximum Rate. The Borrower
shall not be entitled to Convert Swing Line Advances into either Eurodollar
Advances or Alternate Currency Advances.
(c) The Borrower may request Swing Line Advances by giving written
notice to the Agent. Such notice shall be irrevocable and must be received
by the Agent prior to 2:00 P.M. Dallas, Texas time for Swing Line Advances
to be made by crediting the account of Borrower maintained with the Agent
and prior to 1:00 P.M. Dallas, Texas time for Swing Line Advances to be
made by wire transfer, in either case on the same Business Day as the
requested date of the Swing Line Advance (which shall be a Business Day).
Such notice shall be given by means of an Advance Request Form, specifying
(i) the requested date of such Swing Line Advance (which shall be a
Business Day), and (ii) the amount of the requested Swing Line Advance,
which shall be in a minimum amount of $100,000. The proceeds of such Swing
Line Advance will be made available by the Agent to the Borrower at the
Principal Office on the requested date of such Advance by crediting the
account of the Borrower maintained with the Agent with such proceeds or by
wire transfer in accordance with written instructions from the Borrower.
Notwithstanding anything to the contrary contained herein, the Borrower
may, at any time and from time to time, prepay the aggregate amount of
outstanding Swing Line Advances, in whole or in part, without premium or
penalty, by giving the Agent at least one Business Day advance irrevocable
notice of the date and amount of prepayment. If any such notice is given,
the amount specified in such notice shall be due and payable on the date
specified therein.
(d) Notwithstanding anything herein to the contrary, the Agent shall
not fund any Swing Line Advances if the conditions set forth in Article VII
-----------
have not been satisfied.
(e) The Agent, at any time in its sole and absolute discretion, may,
on behalf of the Borrower (which hereby irrevocably directs the Agent to
act on its behalf) request each Bank (including TCB), by giving written
notice to the Agent and each Bank, to make a Floating Rate Advance in an
amount equal to such Bank's Commitment Percentage of the amount of the
Swing Line Advances outstanding on the date such notice is given or such
lesser amount as the Agent shall specify (the "Refunded Swing Line
-------------------
Advances"). Unless any of the events described in Section 12.1(e) or
---------------
12.1(f) shall have occurred with respect to the Borrower (in which event
-------
the procedures specified in
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<PAGE>
Section 2.2(f) shall apply) each Bank shall make the proceeds of its
--------------
Advance available to the Agent at the Principal Office prior to 12:00 noon
(Dallas, Texas time) in funds immediately available on the Business Day
next succeeding the date such notice is given. The proceeds of such
Floating Rate Advances shall be immediately applied to repay the Refunded
Swing Line Advances. Effective on the day such Floating Rate Advances are
made, the portion of the Swing Line Advances so paid shall no longer be
outstanding as Swing Line Advances, and shall be due under the respective
Revolving Credit Notes payable to the Banks in accordance with their
respective Commitment Percentages.
(f) If prior to the making of an Advance pursuant to Section 2.2(e)
--------------
one of the events described in Section 12.1(e) or 12.1(f) shall have
--------------- -------
occurred and be continuing with respect to the Borrower, each Bank will, on
the date such Advance was to have been made pursuant to Section 2.2(e),
--------------
purchase an undivided participating interest in the Refunded Swing Line
Advances in an amount equal to (i) its Commitment Percentage times (ii) the
-----
Refunded Swing Line Advances. Each Bank will immediately transfer to the
Agent, in immediately available funds, the amount of its participation.
Thereafter, all payments of principal and interest on the Refunded Swing
Line Advances shall be made to and distributed to the Banks by the Agent.
(g) Whenever, at any time after any Bank has purchased a
participating interest in a Swing Line Advances, the Agent receives any
payment on account thereof, the Agent will distribute to such Bank its
participating interest in such amount (appropriately adjusted, in the case
of interest payments, to reflect the period of time during which such
Bank's participating interest was outstanding and funded); provided,
--------
however, that in the event that such payment received by the Agent is
-------
thereafter recovered from the Agent in connection with any bankruptcy or
insolvency proceeding of the Borrower or otherwise, such Bank will return
to the Agent any portion thereof previously distributed by the Agent to it.
(h) Each Bank's obligation to make the Advances referred to in
Section 2.2(e) and to purchase participating interests pursuant to Section
-------------- -------
2.2(f) shall be absolute and unconditional and shall not be affected by any
------
circumstance, including without limitation (i) any setoff, counterclaim,
recoupment, defense or other right which such Bank or the Borrower may have
against the Agent, the Borrower or any other Person for any reason
whatsoever; (ii) the occurrence or continuance of a Default or an Event of
Default; (iii) any adverse change in the condition (financial or otherwise)
of the Borrower; (iv) any breach of this Agreement or any other Loan
Documents by the Borrower, any Guarantor or any other Bank; or (v) any
other circumstance, happening or event whatsoever, whether or not similar
to any of the foregoing; provided, however, that (x) the Banks' obligations
-------- -------
under Section 2.2(e) shall be subject to the minimum amounts specified in
--------------
Section 2.6 so long as no Default or Event of Default is continuing, and
-----------
(y) no Bank shall be required to make an Advance or purchase a
participating interest in a Swing Line Advance that would cause the
aggregate amount of such Lender's Advances, participations in Swing Line
Advances and share of Letter of Credit Liabilities to exceed its Commitment
under this Agreement.
-22-
<PAGE>
Section 2.3. Notes. The obligation of the Borrower to repay each Bank for
-----
Advances made by such Bank and interest thereon shall be evidenced by a
Revolving Credit Note executed by the Borrower, payable to the order of such
Bank, in the principal amount of such Bank's Commitment as in effect on the date
hereof, and dated the date hereof.
Section 2.4. Repayment of Advances. The Borrower shall repay the unpaid
---------------------
principal amount of all Advances on the Termination Date.
Section 2.5. Interest. The unpaid principal amount of the Advances shall
--------
bear interest prior to maturity at a varying rate per annum equal from day to
day to the lesser of (a) the Maximum Rate, or (b) the Applicable Rate. Interest
on the Eurodollar Advances and Alternate Currency Advances shall be computed on
the basis of a year of 360 days and the actual number of days elapsed; provided
that, in the case of Advances denominated in any Alternate Currency in respect
of which the Agent has determined that a 365-day basis is standard market
practice in the applicable interbank market, interest shall be calculated on the
basis of a year of 365 days and the actual number of days elapsed. Interest on
the Floating Rate Advances shall be computed on the basis of a year of 360 days
and the actual number of days elapsed at all times when the Alternate Base Rate
is based on the Federal Funds Effective Rate and a year of 365 or 366 days, as
the case may be, and the actual number of days elapsed at all times when the
Alternate Base Rate is the Prime Rate. If at any time the Applicable Rate for
any Advance shall exceed the Maximum Rate, thereby causing the interest accruing
on such Advance to be limited to the Maximum Rate, then any subsequent reduction
in the Applicable Rate for such Advance shall not reduce the rate of interest on
such Advance below the Maximum Rate until the aggregate amount of interest
accrued on such Advance equals the aggregate amount of interest which would have
accrued on such Advance if the Applicable Rate had at all times been in effect.
Accrued and unpaid interest on the Advances shall be due and payable as follows:
(i) in the case of Floating Rate Advances, on each Quarterly Payment
Date;
(ii) in the case of each Eurodollar Advance and each Alternate
Currency Advance, on the last day of the Interest Period with respect
thereto;
(iii) upon the payment or prepayment of any Advance or the Conversion
of any Advance to an Advance of another Type (but only on the principal
amount so paid, prepaid, or Converted); and
(iv) on the Termination Date.
All past due principal and interest shall bear interest at the Default Rate.
Interest payable at the Default Rate shall be payable from time to time on
demand.
Section 2.6. Borrowing Procedure. The Borrower shall give the Agent
-------------------
notice of each requested Advance (other than Swing Line Advances), by means of
an Advance Request Form, before 11:00 A.M. Dallas, Texas time (a) on the same
Business Day as the requested date of each
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<PAGE>
Floating Rate Advance, (b) at least three Business Days before the requested
date of each Eurodollar Advance, and (c) at least four Business Days before the
requested date of each Alternate Currency Advance, specifying: (i) the requested
date of such Advance (which shall be a Business Day), (ii) the amount of such
Advance, (iii) the Type of the Advance, (iv) in the case of Alternate Currency
Advances, the requested Alternate Currency, it being agreed that Advances made
on any one day shall be made in the same currency, and (v) in the case of a
Eurodollar Advance or an Alternate Currency Advance, the duration of the
Interest Period for such Advance. The Agent at its option may accept telephonic
requests for Advances, provided that such acceptance shall not constitute a
waiver of the Agent's right to delivery of an Advance Request Form in connection
with subsequent Advances. Any telephonic request for an Advance by the Borrower
shall be promptly confirmed by submission of a properly completed Advance
Request Form to the Agent. Each Advance (other than Swing Line Advances) shall
be in a minimum principal amount of $1,000,000 or the Equivalent Amount thereof
or such greater amount which is an integral multiple of $100,000 or the
Equivalent Amount thereof. The aggregate principal amount of Eurodollar
Advances having the same Interest Period shall be at least equal to $1,000,000.
The aggregate principal amount of Alternate Currency Advances having the same
Interest Period shall be at least equal to the Equivalent Amount of $1,000,000.
The Agent shall notify each Bank of the contents of each such notice on the day
such notice is received by the Agent if received by 11:00 A.M. Dallas, Texas
time on a Business Day and otherwise on the next succeeding Business Day.
Promptly on the date specified for each Advance hereunder, each Bank will make
available to the Agent at the Principal Office or, as to Alternate Currency
Advances, at the office designated by Agent for such Alternate Currency, in the
specified Alternate Currency for Alternate Currency Advances and in Dollars for
all other Advances and in immediately available funds, for the account of the
Borrower, such Bank's pro rata share of each Advance. After the Agent's receipt
of such funds and subject to the terms and conditions of this Agreement, the
Agent will (a) make each Advance (other than Alternate Currency Advances)
available to the Borrower by depositing the same, in Dollars in immediately
available funds, in an account of the Borrower maintained with the Agent
designated by the Borrower or by wire transfer in accordance with written
instructions from the Borrower, and (b) will make each Alternate Currency
Advance available to the Borrower by depositing the same, in the requested
Alternate Currency in immediately available funds, in an account of the Borrower
maintained with a financial institution in the country where such Alternate
Currency is legal tender, designated by the Borrower by written notice to the
Agent containing the information specified in Exhibit K hereto for such account,
---------
which notice shall be received by the Agent at least five Business Days before
the requested date of such Alternate Currency Advance. All notices by the
Borrower to the Agent under this Section shall be irrevocable and shall be given
not later than the time specified above for such notice on the day which is not
less than the number of Business Days specified above for such notice.
Section 2.7. Conversions and Continuations. The Borrower shall have the
-----------------------------
right from time to time to Convert all or part of one Type of Advance (excluding
Swing Line Advances) into another Type of Advance or to Continue all or part of
any Eurodollar Advance or any Alternate Currency Advance by giving the Agent
written notice (by means of an Advance Request Form) at least one Business Day
before Conversion into a Floating Rate Advance, and
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<PAGE>
at least three Business Days before Conversion into or Continuation of a
Eurodollar Advance or an Alternate Currency Advance, specifying: (i) the
Conversion or Continuation date, (ii) the amount of the Advance to be Converted
or Continued, (iii) in the case of Conversions, the Type of Advance to be
Converted into, (iv) in the case of Alternate Currency Advances, the requested
Alternate Currency, and (v) in the case of a Continuation of or Conversion into
a Eurodollar Advance or an Alternate Currency Advance, the duration of the
Interest Period applicable thereto; provided that (a) Eurodollar Advances and
Alternate Currency Advances may only be Converted on the last day of the
Interest Period, (b) except for Conversions to Floating Rate Advances, no
Conversions shall be made while a Default or Event of Default has occurred and
is continuing and no Continuations of any Eurodollar Advances or any Alternate
Currency Advances shall be made while a Default or an Event of Default has
occurred and is continuing, unless such Conversion or Continuation has been
approved by Required Banks, (c) the aggregate principal amount of Eurodollar
Advances having the same Interest Period shall be at least equal to $1,000,000
and (d) the aggregate principal amount of Alternate Currency Advances having the
same Interest Period shall be at least equal to the Equivalent Amount of
$1,000,000. All notices given under this Section shall be irrevocable and shall
be given not later than 11:00 A.M. Dallas, Texas time on the day which is not
less than the number of Business Days specified above for such notice. If the
Borrower shall fail to give the Agent the notice as specified above for
Continuation or Conversion of a Eurodollar Advance prior to the end of the
Interest Period with respect thereto, such Eurodollar Advance shall
automatically be Converted into a Floating Rate Advance on the last day of the
Interest Period for such Eurodollar Advance. If Borrower shall fail to give the
Agent notice as specified above for the Continuation or Conversion of an
Alternate Currency Advance prior to the end of the Interest Period with respect
thereto, such Alternate Currency Advance shall be Continued for an Interest
Period of one month; provided, however, that no Alternate Currency Advance shall
be Continued as such if a Default or Event of Default has occurred and
continuing but in such event shall instead be Converted to a Floating Rate
Advance in Dollars at the end of the applicable Interest Period.
Section 2.8. Use of Proceeds. The proceeds of Advances shall be used by
---------------
the Borrower and the Subsidiaries (subject to the terms and provisions of this
Agreement) for working capital in the ordinary course of business and general
corporate purposes and to refinance existing Debt. All advances of loan
proceeds by Borrower to any Guarantor shall be evidenced by a promissory note
payable by such Guarantor to the order of the Borrower, and each such promissory
note shall be endorsed to the order of the Agent and subject to a security
interest in favor of the Agent pursuant to the Loan Documents.
Section 2.9. Commitment Fee. The Borrower agrees to pay to the Agent for
--------------
the account of each Bank a commitment fee equal to the Applicable Percentage of
the daily average unused amount of such Bank's Commitment. The commitment fee
shall be in each case based on a 360 day year and the actual number of days
elapsed. For the purpose of calculating the commitment fee hereunder, (a) the
Commitments of the Banks other than the Agent shall be deemed utilized by the
amount of all outstanding Advances of such Banks (which shall not include Swing
Line Advances) and all Letter of Credit Liabilities of such Banks, and (b) the
Commitments of the Agent shall be deemed utilized by the amount of all
outstanding Advances of the Agent (which
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<PAGE>
shall include outstanding Swing Line Advances) and all Letter of Credit
Liabilities of the Agent. Accrued commitment fees shall be payable in arrears on
each Quarterly Payment Date and on the Termination Date.
Section 2.10. Reduction or Termination of Commitments. The Borrower shall
---------------------------------------
have the right to terminate in whole or reduce in part the unused portion of the
Commitments upon at least five Business Days prior notice (which notice shall be
irrevocable) to the Agent specifying the effective date thereof, whether a
termination or reduction is being made, and the amount of any partial reduction,
provided that each partial reduction shall be in a minimum amount of $1,000,000
or Equivalent Amount or such greater amount which is an integral multiple of
$100,000 or Equivalent Amount and the Borrower shall simultaneously prepay the
amount by which the unpaid principal amount of the Advances exceeds the
Commitments (after giving effect to such notice) plus accrued and unpaid
interest on the principal amount so prepaid. The Commitments may not be
reinstated after they have been terminated or reduced.
Section 2.11. Administrative Fee. The Borrower shall pay to the Agent,
------------------
solely for its own account, an administrative fee as provided in the Fee Letter.
ARTICLE III
Letters of Credit
-----------------
Section 3.1. Letters of Credit. Subject to the terms and conditions of
-----------------
this Agreement, the Agent agrees to issue one or more Letters of Credit
denominated and payable in Dollars for the account of the Borrower from time to
time from the date hereof to and including the Termination Date; provided,
--------
however, that the outstanding Letter of Credit Liabilities shall not at any time
- -------
exceed, and the Agent shall not be obligated to issue any Letter of Credit which
would cause the outstanding Letter of Credit Liabilities to exceed, the lesser
of (a) $10,000,000 or (b) an amount equal to (i) the lesser of the aggregate
amount of the Commitments or the Asset Coverage Amount, minus (ii) the
outstanding Advances. Each Letter of Credit may be issued for the account of or
used by the Borrower or any Subsidiary of the Borrower (including the
Partnerships), but the Borrower shall have full liability for each Letter of
Credit. Each Letter of Credit shall have an expiration date not to exceed one
year, shall not have an expiration date beyond the Termination Date, shall be
payable in Dollars, shall have a minimum face amount of $50,000, must support a
transaction that is entered into in the ordinary course of the Borrower's or its
Subsidiaries' business, must be satisfactory in form and substance to the Agent,
and shall be issued pursuant to such documents and instruments (including,
without limitation, the Agent's standard application for issuance of standby or
commercial letters of credit, as the case may be, as then in effect [each an
"L/C Application"]) as the Agent may require (collectively, the "L/C
- ---------------- ---
Documents"). A copy of the form of L/C Application which is in effect as of the
- ---------
date hereof for standby letters of credit is attached hereto as Exhibit H-1, and
-----------
a copy of the form of L/C Application which is in effect as of the date hereof
for commercial letters of credit is attached hereto as Exhibit H-2. However,
-----------
the form of L/C Application may be changed by the Agent from time to time
without notice to the Borrower or the Banks.
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<PAGE>
Section 3.2. Procedure for Issuing Letters of Credit. Each Letter of
---------------------------------------
Credit shall be issued on at least four Business Days prior notice from the
Borrower to the Agent by means of a Letter of Credit Request Form describing the
transaction proposed to be supported thereby and specifying (a) the requested
date of issuance (which shall be a Business Day), (b) the face amount of the
Letter of Credit, (c) the expiration date of the Letter of Credit, (d) the name
and address of the beneficiary, and (e) the name and address of the account
party (which shall be the Borrower or a Subsidiary of the Borrower), (f) the
purpose for which such Letter of Credit will be used, and (g) the form of the
draft and any other documents required to be presented at the time of any
drawing (such notice to set forth the exact wording of such documents or to
attach copies thereof). The Agent shall notify each Bank of the contents of
each such notice on the day such notice is received by Agent if received by
11:00 A.M. Dallas, Texas time on a Business Day and otherwise on the next
succeeding Business Day.
Section 3.3. Participation by Banks. Immediately upon the Agent's
----------------------
issuance of any Letter of Credit on or after the date hereof, the Agent shall be
deemed to have sold and transferred to each other Bank and each other Bank shall
be deemed irrevocably and unconditionally to have purchased and received from
the Agent, without recourse or warranty, an undivided interest and participation
(to the extent of such Bank's Commitment Percentage) in such Letter of Credit
and all applicable rights of the Agent in such Letter of Credit. The Agent
shall provide to each other Bank a copy of each Letter of Credit issued on or
after the date hereof, promptly after issuance.
Section 3.4. Payments Constitute Advances. Each payment by the Agent
----------------------------
pursuant to a drawing under a Letter of Credit shall constitute and be deemed a
Floating Rate Advance by each Bank to the Borrower under such Bank's Note and
this Agreement as of the day and time such payment is made by the Agent and in
the amount of such Bank's pro rata share of such payment. Promptly on the date
of each payment by the Agent pursuant to a drawing under a Letter of Credit and
after receipt of notice from the Agent as to the amount of such payment, each
Bank will make available to the Agent at the Principal Office in immediately
available funds, such Bank's pro rata share of such payment.
Section 3.5. Letter of Credit Fee. The Borrower shall pay to the Agent
--------------------
for the account of the Banks a nonrefundable letter of credit fee with respect
to standby Letters of Credit, payable on the date each such Letter of Credit is
issued in an amount equal to the Applicable Percentage per annum of the face
amount of such Letter of Credit, for the period during which such Letter of
Credit will remain outstanding. The letter of credit fee is based on a 365 or
366 day year, as the case may be, and the actual number of days in the stated
term of such Letter of Credit. The Borrower shall pay to the Agent for the
account of the Banks a nonrefundable letter of credit fee with respect to
commercial Letters of Credit, payable on the date each such Letter of Credit is
issued, for the three month period following such issuance, and on the first day
of each succeeding three month period, if such Letter of Credit is outstanding
on such day. Each such fee for commercial Letters of Credit shall be in an
amount equal to the Applicable Percentage per annum of the face amount of such
Letter of Credit, for each such entire three month period, regardless of whether
such Letter of Credit actually remains outstanding for such
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<PAGE>
entire three month period, and shall be calculated based on a 365 or 366 day
year, as the case may be. The Borrower shall pay to the Agent, solely for its
own account, a nonrefundable issuance and fronting fee for each Letter of Credit
in an amount equal to one eighth of one percent per annum of the face amount of
such Letter of Credit, calculated on the basis of a year of 365 or 366 days, as
the case may be, and payable on the date each such Letter of Credit is issued.
Section 3.6. Agent's Responsibilities. Agent agrees with each Bank that
------------------------
it will exercise and give the same care and attention to each Letter of Credit
as it gives to its other letters of credit. Each Bank and the Borrower agree
that, in paying any draft or draw under any Letter of Credit, the Agent has no
responsibility to obtain any document (other than any documents expressly
required by the respective Letter of Credit) or to ascertain or inquire as to
any document's validity, enforceability, sufficiency, accuracy or genuineness or
the authority of any Person delivering it. Neither the Agent nor any of its
representatives, directors, officers, employees, attorneys or agents shall be
liable to any Bank, the Borrower or any Subsidiary for any Letter of Credit's
use or for any beneficiary's acts or omissions. The Agent shall have no
liability to the Borrower, any Subsidiary or any Bank for any action, inaction,
error, delay or omission taken or suffered by the Agent or any of its
representatives, directors, officers, employees, attorneys or agents in
connection with any Letter of Credit, applicable draws, drafts or documents, or
the transmission, dispatch or delivery of any related message or advice, if
done, taken or made in accordance with the L/C Documents.
Section 3.7. Letter of Credit Documents. Certain additional provisions
--------------------------
regarding the obligations, liabilities, rights, remedies and agreements of the
Borrower and the Agent relative to the Letters of Credit shall be set forth in
the L/C Documents. The terms of this Agreement shall control any express
conflict between the terms of this Agreement and the terms of any L/C
Application.
ARTICLE IV
Payments
--------
Section 4.1. Method of Payment. All payments of principal, interest, and
-----------------
other amounts to be made by the Borrower under this Agreement and the other Loan
Documents (other than payments of principal and interest with respect to
Alternate Currency Advances) shall be made to the Agent at the Principal Office
in Dollars and immediately available funds, without setoff, deduction, or
counterclaim, not later than 11:00 A.M., Dallas, Texas time on the date on which
such payment shall become due (each such payment made after such time on such
due date to be deemed to have been made on the next succeeding Business Day).
All payments of principal and interest to be made by the Borrower under this
Agreement and the other Loan Documents with respect to Alternate Currency
Advances shall be made to the Agent, in such Alternate Currency and immediately
available funds, without setoff, deduction, or counterclaim, to such account at
such bank, in the country where such Alternate Currency is legal tender, as the
Agent may designate to the Borrower. Such payments of principal and interest
with respect to Alternate
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<PAGE>
Currency Advances shall be made no later than 11:00 A.M. local time in the place
where such bank is located on the date on which such payment shall become due
(each such payment made after such time on such due date to be deemed to have
been made on the next succeeding Business Day). The Borrower shall, at the time
of making each payment under this Agreement and the other Loan Documents,
specify to the Agent the sums payable by the Borrower under this Agreement and
the other Loan Documents to which such payment is to be applied (and in the
event the Borrower fails to so specify, or if an Event of Default has occurred
and is continuing, the Agent may apply such payment to the Obligations in such
order and manner as it may elect in its sole discretion, subject to Section 4.4
-----------
hereof). Each payment received by the Agent under this Agreement or any other
Loan Document for the account of a Bank shall be paid promptly to such Bank, in
immediately available funds, for the account of such Bank's Applicable Lending
Office. Whenever any payment under this Agreement or any other Loan Document
shall be stated to be due on a day that is not a Business Day, such payment
shall be made on the next succeeding Business Day, and such extension of time
shall in such case be included in the computation of the payment of interest and
commitment fee, as the case may be. Each payment received by Agent hereunder or
under any Note shall be paid promptly to the Banks in accordance with Section
-------
4.4, in immediately available funds, for the account of each Bank's Applicable
- ---
Lending Office for the Advance in respect of which such payment is made. If the
Borrower notifies the Agent not later than fifteen Business Days prior to the
date on which a payment in ECU's is to be made by the Borrower under this
Agreement that, in its opinion, sufficient ECU's will not be available to it on
the due date to make such payment in ECU's, such payment shall be made in such
immediately available, freely convertible and freely transferable currency or
currencies as may be agreed between the Borrower, the Agent and the Required
Banks, and, failing such agreement prior to the fifth Business Day preceding the
due date for the payment in question, such currency or currencies as may be
specified by the Agent with the approval of the Required Banks (being a
component currency of the ECU or Dollars or any combination thereof.
Section 4.2. Voluntary Prepayment. The Borrower may prepay the Advances
--------------------
in whole at any time or from time to time in part without premium or penalty but
with accrued interest to the date of prepayment on the amount so prepaid,
provided that (a) the Borrower shall give the Agent at least five Business Days'
prior notice of any prepayment of Advances other than Floating Rate Advances,
(b) each partial prepayment of any Advances (excluding Swing Line Advances)
shall be in the principal amount of $1,000,000 or the Equivalent Amount or such
greater amount which is an integral multiple of $1,000,000 or the Equivalent
Amount, and (c) any and all amounts required pursuant to Section 5.5 hereof
-----------
shall be paid concurrently with such prepayment. All notices under this Section
shall be irrevocable and shall be given not later than 11:00 A.M. Dallas, Texas
time on the day which is not less than the number of Business Days specified
above for such notice.
Section 4.3. Mandatory Prepayment. If at any time the amount equal to the
--------------------
sum of (i) the outstanding principal amount of the Advances, plus (ii) the
Letter of Credit Liabilities exceeds the lesser of the Asset Coverage Amount or
the aggregate amount of the Commitments, the Borrower shall promptly prepay the
outstanding Advances by the amount of the excess plus
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accrued and unpaid interest on the amount so prepaid or, if no Advances are
outstanding, the Borrower shall immediately pledge to the Agent cash or cash
equivalent investments in an amount equal to the excess as security for the
Obligations.
Section 4.4. Pro Rata Treatment. Except to the extent otherwise provided
------------------
herein: (a) each Advance shall be made by the Banks under Section 2.1 or 2.2 or
----------- ---
deemed made by the Banks under Section 3.4, each payment of the commitment fee
-----------
under Section 2.9 and each letter of credit fee under Section 3.5 shall be made
----------- -----------
for the account of the Banks, each termination or reduction of the Commitments
under Section 2.10 shall be applied to the Commitments of the Banks, and each
------------
Letter of Credit shall be deemed participated in by the Banks, pro rata
according to the amounts of their respective Commitments; (b) the making,
Conversion, and Continuation of Advances of a particular Type (other than
Conversions provided for by Section 5.4) shall be made pro rata among the Banks
-----------
holding Advances of such Type according to the amounts of their respective
Commitments; (c) each payment and prepayment of principal of or interest on
Advances by the Borrower of a particular Type shall be made to the Agent for the
account of the Banks holding Advances of such Type pro rata in accordance with
the respective unpaid principal amounts of such Advances held by such Banks; and
(d) Interest Periods for Advances of a particular Type shall be allocated among
the Banks holding Advances of such Type pro rata according to the respective
principal amounts held by such Banks.
Section 4.5. Non-Receipt of Funds by the Agent. Unless the Agent shall
---------------------------------
have been notified by a Bank or the Borrower (the "Payor") prior to the date on
-----
which such Bank is to make payment to the Agent of the proceeds of an Advance to
be made by it hereunder or the Borrower is to make a payment to the Agent for
the account of one or more of the Banks, as the case may be (such payment being
herein called the "Required Payment"), which notice shall be effective upon
----------------
receipt, that the Payor does not intend to make the Required Payment to the
Agent, the Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient on such date and, if the Payor has
not in fact made the Required Payment to the Agent, the recipient of such
payment shall, on demand, pay to the Agent the amount made available to it
together with interest thereon in respect of the period commencing on the date
such amount was so made available by the Agent until the date the Agent recovers
such amount at a rate per annum equal to the Federal Funds Effective Rate for
such period.
Section 4.6. Withholding Taxes. All payments by the Borrower of principal
-----------------
of and interest on the Advances and of all fees and other amounts payable under
any Loan Document are payable without deduction for or on account of any present
or future taxes, duties or other charges levied or imposed by the United States
of America or by the government of any jurisdiction outside the United States of
America or by any political subdivision or taxing authority of or in any of the
foregoing through withholding or deduction with respect to any such payments, or
otherwise with respect to any Alternate Currency Advances. If any such taxes,
duties or other charges are so levied or imposed, the Borrower will pay
additional interest or will make additional payments in such amounts so that
every net payment of principal of and interest on the Advances and of all other
amounts payable by it under any Loan Document, after
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<PAGE>
withholding or deduction for or on account of any such present or future taxes,
duties or other charges, will not be less than the amount provided for herein or
therein, provided that the Borrower shall have no obligation to pay such
additional amounts to any Bank to the extent that such taxes, duties, or other
charges are levied or imposed by reason of the failure of such Bank to comply
with the provisions of Section 4.7. The Borrower shall furnish promptly to the
-----------
Agent for distribution to each affected Bank, as the case may be, official
receipts evidencing any such withholding or reduction and shall confirm that all
applicable taxes, if any, imposed on this Agreement or transactions hereunder
shall have been properly and legally paid by it to the appropriate taxing
authorities by sending official tax receipts or notarized copies of such
receipts to the Agent within 30 days after payment of any applicable tax. The
Borrower agrees to cause all present and future taxes, duties or other charges
levied or imposed by the government of any jurisdiction outside the United
States of America or by any political substitution or taxing authority thereof
(including those to be paid on behalf of any Bank, if any) directly to the
appropriate Governmental Authority. Upon written demand by the Agent, the
Borrower shall indemnify the Agent and the Banks and hold them harmless for the
full amount of such taxes, duties or other charges payable with respect to any
Alternate Currency Advance and any liabilities (including penalties, interest
and expenses) arising from such taxes.
Section 4.7. Withholding Tax Exemption. Each Bank that is not
-------------------------
incorporated under the laws of the United States of America or a state thereof
agrees that it will deliver to the Borrower and the Agent two duly completed
copies of United States Internal Revenue Service Form 1001 or 4224, certifying
in either case that such Bank is entitled to receive payments from the Borrower
under any Loan Document without deduction or withholding of any United States
federal income taxes. Each Bank which so delivers a Form 1001 or 4224 further
undertakes to deliver to the Borrower and the Agent two additional copies of
such form (or a successor form) on or before the date such form expires or
becomes obsolete or after the occurrence of any event requiring a change in the
most recent form so delivered by it, and such amendments thereto or extensions
or renewals thereof as may be reasonably requested by the Borrower or the Agent,
in each case certifying that such Bank is entitled to receive payments from the
Borrower under any Loan Document without deduction or withholding of any United
States federal income taxes, unless an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Bank from duly completing and
delivering any such form with respect to it and such Bank advises the Borrower
and the Agent that it is not capable of receiving such payments without any
deduction or withholding of United States federal income tax.
Section 4.8. Judgment Currency. If, for the purposes of obtaining
-----------------
judgment in any court, it is necessary to convert a sum due from the Borrower
hereunder or under any of the Notes in the currency expressed to be payable
herein or under the Notes (the "Specified Currency") into another currency, the
------------------
parties hereto agree, to the fullest extent that they may effectively do so,
that the rate of exchange used shall be that at which in accordance with normal
banking procedures the Agent could purchase the Specified Currency with such
other currency at the Principal Office on the Business Day preceding that on
which the final, non-appealable
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<PAGE>
judgment is given. The obligations of the Borrower in respect of any sum due to
any Bank or the Agent hereunder or under any Note shall, notwithstanding any
judgment in a currency other than the Specified Currency, be discharged only to
the extent that on the Business Day following receipt by such Bank or the Agent
(as the case may be) of any sum adjudged to be so due in such other currency
such Bank or the Agent (as the case may be) may in accordance with normal,
reasonable banking procedures purchase the Specified Currency with such other
currency. If the amount of the Specified Currency so purchased is less than the
sum originally due to such Bank or the Agent, as the case may be, in the
Specified Currency, the Borrower agrees, to the fullest extent that it may
effectively do so, as a separate obligation and notwithstanding any such
judgment, to indemnify such Bank or the Agent, as the case may be, against such
loss, and if the amount of the Specified Currency so purchased exceeds (a) the
sum originally due to any Bank or the Agent, as the case may be, in the
Specified Currency and (b) any amounts shared with the other Banks as a result
of allocations of such excess as a disproportionate payment to such Bank under
Section 13.3, such Bank or the Agent, as the case may be, agrees to remit such
- ------------
excess to the Borrower. Without prejudice to the survival of any of the other
agreements of the Borrower hereunder, the agreements and obligations of the
Borrower under this Section 4.8 shall survive the termination of this Agreement
-----------
and the payment of all other amounts owing hereunder.
ARTICLE V
Yield Protection; Limitations on Advances; Capital Adequacy
-----------------------------------------------------------
Section 5.1. Additional Costs.
----------------
(a) The Borrower shall pay directly to each Bank from time to time
such amounts as such Bank may determine to be necessary to compensate it
for any costs incurred by such Bank which such Bank determines are
attributable to its making or maintaining of any Eurodollar Advances or any
Alternate Currency Advances hereunder or its obligation to make such
Advances hereunder, or any reduction in any amount receivable by such Bank
hereunder in respect of any such Advances or such obligation (such
increases in costs and reductions in amounts receivable being herein called
"Additional Costs"), resulting from any Regulatory Change which:
----------------
(i) changes the basis of taxation of any amounts payable to
such Bank under this Agreement or its Note in respect of any
Eurodollar Advances or any Alternate Currency Advances (other than
taxes imposed on the overall net income of such Bank or its Applicable
Lending Office for any Eurodollar Advances or any Alternate Currency
Advances by the jurisdiction in which such Bank has its principal
office or such Applicable Lending Office);
(ii) imposes or modifies any reserve, special deposit, minimum
capital, capital ratio, or similar requirement relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities or commitments of, such Bank (including (A) any Eurodollar
Advances or any deposits referred to in the
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definition of "Eurodollar Rate" in Section 1.1 hereof or (B) any
-----------
Alternate Currency Advances or any deposits referred to in the
definition of "Alternate Currency Rate" in Section 1.1 hereof); or
-----------
(iii) imposes any other condition affecting this Agreement or
its Note or any of such extensions of credit or liabilities or
commitments.
Each Bank will notify the Borrower (with a copy to the Agent) of any event
occurring after the date of this Agreement which will entitle such Bank to
compensation pursuant to this Section 5.1(a) as promptly as practicable
--------------
after it obtains knowledge thereof and determines to request such
compensation, and will designate a different Applicable Lending Office for
Eurodollar Advances or Alternate Currency Advances if such designation will
avoid the need for, or reduce the amount of, such compensation and will
not, in the sole opinion of such Bank, violate any law, rule, or regulation
or be in any way disadvantageous to such Bank, provided that such Bank
shall have no obligation to so designate an Applicable Lending Office
located outside the United States of America. Each Bank will furnish to
the Borrower, within 180 days after the occurrence of the event resulting
in Additional Costs, a certificate setting forth the basis and the amount
of each request of such Bank for compensation under this Section 5.1(a).
--------------
If any Bank requests compensation from the Borrower under this Section
-------
5.1(a), the Borrower may, by notice to such Bank (with a copy to Agent),
------
suspend the obligation of such Bank to make or Continue making, or Convert
Advances into, Eurodollar Advances or Alternate Currency Advances until the
Regulatory Change giving rise to such request ceases to be in effect (in
which case the provisions of Section 5.4 hereof shall be applicable) and
-----------
may Convert any Eurodollar Advance into a Floating Rate Advance or Convert
any Alternate Currency Advance into a Floating Rate Advance which is funded
in Dollars, subject to the provisions of Section 5.5.
-----------
(b) Without limiting the effect of the foregoing provisions of this
Section 5.1, in the event that, by reason of any Regulatory Change, any
-----------
Bank either (i) incurs Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of such Bank which includes deposits by reference to which the
interest rate on Eurodollar Advances or Alternate Currency Advances is
determined as provided in this Agreement or a category of extensions of
credit or other assets of such Bank which includes Eurodollar Advances or
Alternate Currency Advances or (ii) becomes subject to restrictions on the
amount of such a category of liabilities or assets which it may hold, then,
if such Bank so elects by notice to the Borrower the obligation of such
Bank to make or Continue making, or Convert Advances into, Eurodollar
Advances or Alternate Currency Advances hereunder shall be suspended until
such Regulatory Change ceases to be in effect (in which case the provisions
of Section 5.4 hereof shall be applicable).
-----------
(c) Determinations and allocations by any Bank for purposes of this
Section 5.1 of the effect of any Regulatory Change on its costs of
-----------
maintaining its
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<PAGE>
obligations to make Advances or of making or maintaining Advances or on
amounts receivable by it in respect of Advances, and of the additional
amounts required to compensate such Bank in respect of any Additional
Costs, shall be conclusive, provided that such determinations and
allocations are made on a reasonable basis.
Section 5.2. Limitation on Types of Advances. Anything herein to the
-------------------------------
contrary notwithstanding, if with respect to any Eurodollar Advances or any
Alternate Currency Advances for any Interest Period therefor:
(a) The Agent determines (which determination shall be conclusive)
that quotations of interest rates for the relevant deposits referred to in
the definitions of "Eurodollar Rate" and "Alternate Currency Rate" in
Section 1.1 hereof are not being provided in the relative amounts or for
-----------
the relative maturities for purposes of determining the rate of interest
for such Advances as provided in this Agreement; or
(b) Required Banks determine (which determination shall be
conclusive) that the relevant rates of interest referred to in the
definitions of "Eurodollar Rate" and "Alternate Currency Rate" in Section
-------
1.1 hereof on the basis of which the rate of interest for such Advances for
---
such Interest Period is to be determined do not accurately reflect the cost
to the Banks of making or maintaining such Advances for such Interest
Period; or
(c) There occurs on or before the date an Alternate Currency Advance
is to be made any material adverse change in national or international
financial, political or economic conditions or currency exchange rates or
exchange controls which would in the opinion of Agent make it impracticable
for the Alternate Currency Advance to be denominated in the Alternate
Currency specified by the Borrower;
then the Agent shall give the Borrower prompt notice thereof specifying relevant
amounts or periods, and so long as such condition remains in effect, the Banks
shall be under no obligation to make additional Eurodollar Advances or Alternate
Currency Advances or to Convert Floating Rate Advances into Eurodollar Advances
or Alternate Currency Advances, and the Borrower shall, (i) on the last day(s)
of the then current Interest Period(s) for the outstanding Eurodollar Advances,
either prepay such Eurodollar Advances or Convert such Eurodollar Advances into
Floating Rate Advances in accordance with the terms of this Agreement, and (ii)
either prepay such Alternate Currency Advances or Convert such Alternate
Currency Advances into Floating Rate Advances funded in Dollars in accordance
with the terms of this Agreement.
Section 5.3. Illegality. Notwithstanding any other provision of this
----------
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to (a) honor its obligation to make Eurodollar Advances or
Alternate Currency Advances hereunder or (b) maintain Eurodollar Advances or
Alternate Currency Advances hereunder, then such Bank shall promptly notify the
Borrower (with a copy to the Agent) thereof and such Bank's obligation to make
or maintain Eurodollar Advances or Alternate Currency Advances and to Convert
Floating
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<PAGE>
Rate Advances into Eurodollar Advances or Alternate Currency Advances hereunder
shall be suspended until such time as such Bank may again make and maintain
Eurodollar Advances or Alternate Currency Advances (in which case the provisions
of Section 5.4 hereof shall be applicable).
-----------
Section 5.4. Substitute Floating Rate Advances. If the obligation of any
---------------------------------
Bank to make Eurodollar Advances or Alternate Currency Advances shall be
suspended pursuant to Section 5.1 or 5.3 hereof, all Advances which would be
----------- ---
otherwise made by such Bank as Eurodollar Advances or Alternate Currency
Advances shall be made instead as Floating Rate Advances in Dollars and all
Advances which would otherwise be Converted into Eurodollar Advances or any
Alternate Currency Advances shall be Converted instead into (or shall remain as)
Floating Rate Advances in Dollars (and, if an event referred to in Section
-------
5.1(b) or 5.3 hereof has occurred and such Bank so requests by notice to the
- ------ ---
Borrower (with a copy to the Agent), all Eurodollar Advances and all Alternate
Currency Advances of such Bank then outstanding shall be automatically Converted
into Floating Rate Advances in Dollars on the date specified by such Bank in
such notice) and, to the extent that Eurodollar Advances and Alternate Currency
Advances are so made as (or Converted into) Floating Rate Advances, all payments
and prepayments of principal which would otherwise be applied to such Bank's
Eurodollar Advances or Alternate Currency Advances shall be applied instead to
its Floating Rate Advances.
Section 5.5. Compensation. The Borrower shall pay to the Agent for the
------------
account of each Bank, upon the request of such Bank through the Agent, such
amount or amounts as shall be sufficient (in the reasonable opinion of such Bank
) to compensate it for any loss, cost, or expense incurred by it as a result of:
(a) Any payment, prepayment or Conversion of a Eurodollar Advance or
an Alternate Currency Advance for any reason (including, without
limitation, the acceleration of outstanding Advances pursuant to Section
-------
12.2) on a date other than the last day of an Interest Period for such
----
Advance; or
(b) Any failure by the Borrower for any reason (including, without
limitation, the failure of any conditions precedent specified in Article
-------
VII to be satisfied) to borrow, Convert, or prepay a Eurodollar Advance or
---
an Alternate Currency Advance on the date for such borrowing, Conversion,
or prepayment, specified in the relevant notice of borrowing, prepayment,
or Conversion under this Agreement; or
(c) Any failure to pay any Alternate Currency Advance in the
Alternate Currency in which it was made.
Without limiting the effect of the preceding sentence, such compensation shall
include, without limitation, (i) an amount equal to the excess, if any, of (1)
the amount of interest which otherwise would have accrued on the principal
amount so paid or Converted or not borrowed for the period from the date of such
payment, Conversion, or failure to borrow to the last day of the Interest Period
for such Advance (or, in the case of a failure to borrow, the Interest Period
for such
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<PAGE>
Advance which would have commenced on the date specified for such borrowing) at
the applicable rate of interest for such Advance provided for herein over (2)
the interest component of the amount such Bank would have bid in the London
interbank market for Dollar deposits (or deposits in the applicable Alternate
Currency) of leading banks and amounts comparable to such principal amount and
with maturities comparable to such period, (ii) any loss or reasonable expense
sustained or incurred in liquidating or employing deposits from third Persons
acquired to effect or maintain such Alternate Currency Advance or Eurodollar
Advance or any part thereof, (iii) any loss incurred in liquidating or closing
out any foreign currency contract undertaken by such Bank in funding and
maintaining such Alternate Currency Advance, and (iv) any loss arising from any
change in the value of Dollars in relation to any such Alternate Currency
Advance which was not paid on the date due between the date such payment was due
and the date of payment, or which was not paid in the Alternate Currency in
which it was made, all as determined by such Bank in its good faith discretion.
Section 5.6. Capital Adequacy. If after the date hereof, any Bank shall
----------------
have determined that any Regulatory Change or compliance by such Bank (or its
parent) with any guideline, request, or directive regarding capital adequacy
(whether or not having the force of law) of any such central bank or other
Governmental Authority, has or would have the effect of reducing the rate of
return on such Bank's (or its parent's) capital as a consequence of its
obligations hereunder or the transactions contemplated hereby to a level below
that which such Bank (or its parent) could have achieved but for such Regulatory
Change or compliance (taking into consideration such Bank's policies with
respect to capital adequacy) by an amount deemed by such Bank to be material,
then from time to time, within 10 Business Days after demand by such Bank (with
a copy to the Agent), the Borrower shall pay to such Bank (or its parent) such
additional amount or amounts as will compensate such Bank for such reduction.
Each Bank will furnish to the Borrower, within 180 days after such Bank actually
incurs such reduction in its rate of return, a certificate of such Bank claiming
compensation under this Section and setting forth the basis and the additional
amount or amounts to be paid to it hereunder. Each such certificate shall be
conclusive, provided that the determination of such amount or amounts is made on
a reasonable basis. In determining such amount or amounts, such Bank may use
any reasonable averaging and attribution methods.
Section 5.7. Additional Costs in Respect of Letters of Credit. If as a
------------------------------------------------
result of any Regulatory Change there shall be imposed, modified, or deemed
applicable any tax, reserve, special deposit, or similar requirement against or
with respect to or measured by reference to Letters of Credit issued or to be
issued hereunder or the Commitments to issue or participate in Letters of Credit
hereunder, and the result shall be to increase the cost to the Agent or any Bank
of issuing, maintaining or participating in any Letter of Credit or its
Commitment to issue or participate in Letters of Credit hereunder or reduce any
amount receivable by the Agent or any Bank hereunder in respect of any Letter of
Credit (which increase in cost, or reduction in amount receivable, shall be the
result of the Agent's or such Bank's reasonable allocation of the aggregate of
such increases or reductions resulting from such event), then, upon demand by
the Agent or such Bank, the Borrower agrees to pay the Agent or such Bank, as
the case may be, from time to time as specified by the Agent or such Bank, as
the case may be, such additional amounts as
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<PAGE>
shall be sufficient to compensate the Agent or such Bank for such increased
costs or reductions in amount. Each Bank will furnish to the Borrower, within
180 days after such Bank actually incurs such increase in cost or reduction in
amount receivable, a certificate of such Bank claiming compensation under this
Section and setting forth the basis and the additional amount or amounts to be
paid to it hereunder. Each such certificate shall be conclusive, provided that
the determination of such amount or amounts is made on a reasonable basis.
ARTICLE VI
Security
--------
Section 6.1. Collateral. To secure full and complete payment and
----------
performance of the Obligations, the Borrower shall execute and deliver or cause
to be executed and delivered the documents described below covering the property
and collateral described in this Section 6.1 (which, together with any other
-----------
property and collateral which may now or hereafter secure the Obligations or any
part thereof, is sometimes herein called the "Collateral"):
----------
(a) The Borrower shall grant to the Agent, for the pro rata benefit
of the Banks, a first priority security interest in all of the Borrower's
personal property, including without limitation all of its accounts,
accounts receivable, equipment, furniture, fixtures, inventory, chattel
paper, documents, instruments and general intangibles, whether now owned or
hereafter acquired, and all products and proceeds thereof, pursuant to the
Borrower Security Agreement, provided that the Agent's security interest in
the Collateral shall be junior in priority to any prior Liens thereon
existing on the date hereof and permitted under this Agreement.
(b) The Guarantors shall grant to the Agent, for the pro rata benefit
of the Banks, a first priority security interest in all personal property
of the Guarantors, including without limitation all accounts, accounts
receivable, equipment (except that one certain aircraft owned by A & S),
furniture, fixtures, inventory, chattel paper, documents, instruments and
general intangibles of each Guarantor, whether now owned or hereafter
acquired, and all products and proceeds thereof, pursuant to the Guarantor
Security Agreements, provided that the Agent's security interest in the
Collateral shall be junior in priority to any prior Liens thereon existing
on the date hereof and permitted under this Agreement.
(c) The Borrower shall grant to the Agent, for the pro rata benefit
of the Banks, a first priority security interest in all of the Borrower's
shares of capital stock of NAC, Financo and CAS pursuant to a Pledge
Agreement.
(d) NAC shall grant to Agent, for the pro rata benefit of the Banks,
a first priority security interest in (a) all of NAC's shares of capital
stock of Holdings, Fulfillment, and CWI, (b) 65% of the shares of voting
stock and all of the shares of non-voting preferred stock of CellStar SA,
Audiomex and CellStar International, and
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<PAGE>
(c) all of NAC's rights, titles and interests as a general partner of
CellStar, Ltd. pursuant to a Pledge Agreement.
(e) CAS shall grant to the Agent, for the pro rata benefit of the
Banks, a first priority security interest in all of the shares of capital
stock of A & S, pursuant to a Pledge Agreement.
(f) CellStar SA shall grant to the Agent, for the pro rata benefit of
the Banks, a first priority security interest in all of CellStar SA's
shares of capital stock of ACC, pursuant to a pledge agreement.
(g) CellStar International shall grant to the Agent, for the pro rata
benefit of the Banks, a first priority security interest in 65% of the
shares of capital stock of CellStar Asia, pursuant to a Pledge Agreement.
(h) Audiomex shall grant to the Agent, for the pro rata benefit of
the Banks, a first priority security interest in 65% of the shares of
capital stock of Celular Express, pursuant to a Pledge Agreement.
(i) Fulfillment shall grant to the Agent, for the pro rata benefit of
the Banks, a security interest in all of its rights, titles and interest as
a general partner of CellStar Fulfillment, Ltd., pursuant to a Pledge
Agreement.
(j) Holdings shall grant to the Agent, for the pro rata benefit of
the Banks, a security interest in all of its rights, titles and interest as
a limited partner of the Partnerships pursuant to a Pledge Agreement.
(k) The Borrower and each Guarantor shall execute and cause to be
executed such further documents and instruments, including without
limitation Uniform Commercial Code financing statements, as the Agent, in
its sole discretion, deems necessary or desirable to create, evidence,
preserve, and perfect its liens and security interest in the Collateral.
Notwithstanding any provision or language to the contrary, nothing herein or in
the Loan Documents shall operate or be construed to create any assignment,
mortgage or Lien in any mark of Borrower or any Guarantor which is the subject
of an intent-to-use application for federal registration under 15 U.S.C.
(S)1051(b), prior to the filing of the Verified Statement of Use under 15 U.S.C.
(S)1051(d) or any assignment, mortgage or Lien otherwise prohibited under the
provisions of the second sentence of 15 U.S.C. (S)1060.
Section 6.2. Setoff. If an Event of Default shall have occurred and be
------
continuing, each Bank shall have the right to set off and apply against the
Obligations in such manner as such Bank may determine, at any time and without
notice to the Borrower, any and all deposits (general or special, time or
demand, provisional or final) or other sums at any time credited by
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<PAGE>
or owing from such Bank to the Borrower whether or not the Obligations are then
due. Each Bank agrees to promptly notify the Agent after any such setoff and
application. The rights and remedies of the Banks hereunder are in addition to
other rights and remedies (including, without limitation, other rights of
setoff) which the Banks may have.
Section 6.3. Other Subsidiaries. Each Person which is now or hereafter
------------------
becomes a Subsidiary (other than Foreign Subsidiaries) shall execute and deliver
to the Agent (a) a Guaranty in form and substance satisfactory to the Agent,
pursuant to which such Subsidiary guaranties the prompt payment and performance
in full of all of the Obligations, and (b) a Guarantor Security Agreement in
form and substance satisfactory to the Agent, pursuant to which such Subsidiary
grants to the Agent, for the pro rata benefit of the Banks, a first priority
security interest in all of such Subsidiary's personal property, including
without limitation the types of personal property described in Section 6.1(b),
--------------
whether now owned or hereafter acquired, and all products and proceeds thereof.
With regard to each Person which is now or hereafter becomes a Subsidiary (other
than Foreign Subsidiaries), the Borrower shall execute or cause to be executed a
pledge agreement in form and substance satisfactory to the Agent, pursuant to
which the Agent, for the pro rata benefit of the Banks, is granted a first
priority security interest (a) in the case of a Domestic Subsidiary (excluding
the holding company of any Foreign Subsidiary), in all of the capital stock of
such Subsidiary, and (b) in the case of a holding company of any Foreign
Subsidiary, 65% of the shares of voting stock and all of the shares of non-
voting preferred stock of such Subsidiary. The Borrower shall cause to be
executed and delivered to the Agent (i) such further documents and instruments,
including without limitation Uniform Commercial Code financing statements, as
the Agent in its sole discretion deems necessary or desirable to create,
evidence, preserve, and perfect its Liens in the Collateral, and (ii) such legal
opinions, corporate and partnership documents and certificates as Agent or its
counsel may require in connection with the documents executed and delivered
pursuant to this Section.
ARTICLE VII
Conditions Precedent
--------------------
Section 7.1. Initial Extension of Credit. The obligation of the Banks to
---------------------------
make the initial Advance or issue the initial Letter of Credit hereunder is
subject to the condition precedent that the Agent shall have received on or
before the day of such Advance or Letter of Credit all of the following, each
dated (unless otherwise indicated) the date hereof, in form and substance
satisfactory to the Agent:
(a) Resolutions. Resolutions of the Board of Directors of the
-----------
Borrower and each Guarantor certified by the Secretary or an Assistant
Secretary of such Person which authorize (i) the execution, delivery, and
performance by the Borrower of this Agreement and the other Loan Documents
to which such Person is or is to be a party, (ii) the execution, delivery,
and performance by each Guarantor of the Guaranty and other Loan Documents
to which such Person is or is to be a party, and (iii) the execution,
delivery
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<PAGE>
and performance by NAC, Holdings and Fulfillment, respectively, on behalf
of the Partnerships, of the Loan Documents to which the Partnerships are or
are to be parties;
(b) Incumbency Certificate. A certificate of incumbency certified by
----------------------
the Secretary or an Assistant Secretary of the Borrower and each Guarantor,
respectively, certifying the names of (i) the officers of the Borrower
authorized to sign this Agreement and each of the other Loan Documents to
which the Borrower is or is to be a party (including the certificates
contemplated herein) together with specimen signatures of such officers,
(ii) the officers of each Guarantor authorized to sign the Guaranty and the
other Loan Documents to which each Guarantor is or is to be a party
(including the certificates contemplated herein) together with specimen
signatures of such officers, and (iii) the officers of NAC, Holdings and
Fulfillment on behalf of the Partnerships authorized to sign the Loan
Documents to which the Partnerships, respectively, are or are to be parties
(including the certificates contemplated therein) together with specimen
signatures of such officers;
(c) Articles of Incorporation. The articles or certificate of
-------------------------
incorporation of the Borrower and each Guarantor, if applicable,
respectively, certified by the Secretary of State of such Person's state of
incorporation and dated within 20 days prior to the date hereof;
(d) Bylaws. The bylaws of the Borrower and each Guarantor, if
------
applicable, certified by the Secretary or an Assistant Secretary of such
Person;
(e) Governmental Certificates. Certificates of the appropriate
-------------------------
governmental officials of the respective states of incorporation of the
Borrower and each Guarantor as to the existence and good standing of such
Persons and certificates of the appropriate governmental officials of each
state where any such Persons own property, conduct business or employ any
Persons as to the qualification and good standing of such Persons,
respectively, in such jurisdictions, each dated within 20 days prior to the
date hereof.
(f) Partnership Agreements. A copy of the Agreement of Limited
----------------------
Partnership of each Partnership, certified by the Secretary or an Assistant
Secretary of the general partner of such Partnership;
(g) Certificate of Limited Partnership. Certificate of Limited
-----------------------------------
Partnership, certified by the Secretary of State of the State of Texas, for
each of the Partnerships, dated within 20 days prior to the date hereof;
(h) Partnership Governmental Certificates. Certificates of the
-------------------------------------
Secretary of State of the State of Texas as to the existence of each of the
Partnerships, and certificates of the appropriate governmental officials of
each state where the Partnerships conduct business or employ any Persons as
to the qualification of the Partnerships to do business in such
jurisdictions, each dated within 20 days prior to the date hereof;
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<PAGE>
(i) Notes. The Notes of each Bank executed by the Borrower;
-----
(j) Borrower Security Agreement. The Borrower Security Agreement
---------------------------
executed by the Borrower;
(k) Guarantor Security Agreements. The Guarantor Security Agreements
-----------------------------
executed by the respective Guarantors;
(l) Pledge Agreements. The Pledge Agreements, each executed by the
-----------------
Borrower, Fulfillment, Holdings, Audiomex, NAC, CAS and CellStar
International;
(m) Financing Statements. Uniform Commercial Code financing
--------------------
statements executed by the Borrower and the Guarantors and covering such
Collateral as the Agent may request;
(n) Intellectual Property Documentation. Documentation satisfactory
-----------------------------------
to the Agent, executed by the appropriate parties, (i) for recording in the
U.S. Patent and Trademark Office to properly reflect Agent's security
interest in all U.S. patents, trademarks and applications therefor of the
Borrower and the Guarantors, and (ii) for recording with the United States
Library of Congress to properly reflect Agent's security interest in all
U.S. copyrights and applications therefor of the Borrower and the
Guarantors;
(o) Guaranties. The Guaranties executed by the Guarantors;
----------
(p) Contribution and Indemnification Agreement. A Contribution and
------------------------------------------
Indemnification Agreement in the form of Exhibit J hereto, executed by the
---------
Borrower and the Guarantors;
(q) Intercompany Loan Documentation. Documentation (including without
-------------------------------
limitation promissory notes, security agreements and financing statements)
satisfactory to Agent evidencing advances made or to be made by the
Borrower or any Guarantor to any Guarantor and obligations of such
Guarantor to repay such advances, such obligations to be secured by a
second priority security interest on the Collateral, and all of such
obligations, security interests and documentation to be subject to a
security interest in favor of the Agent pursuant to the Loan Documents;
(r) Landlord and Mortgagee Waivers. Landlord and mortgagee waivers
------------------------------
required by Section 4.7 of the Borrower Security Agreement and the
-----------
Guarantor Security Agreements to be delivered on or before the date hereof;
(s) L/C Documents. With respect to issuance of any Letter of Credit,
-------------
Agent shall have received all applicable L/C Documents, if any, as required
by Section 3.1;
-----------
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<PAGE>
(t) Insurance Policies. Certificate of insurance with respect to all
------------------
insurance policies required by Section 9.5, and reflecting loss payable
-----------
endorsements in favor of the Agent with respect to all insurance policies
covering Collateral;
(u) UCC Search. The results of a Uniform Commercial Code search
----------
showing all financing statements and other documents or instruments on file
against the Borrower and the Guarantors in the office of the Secretary of
State of the State of Texas and such other jurisdictions as the Agent may
request, each such search to be as of a date no more than 10 days prior to
the date hereof;
(v) Opinion of Counsel. Favorable opinions of (i) Haynes & Boone,
------------------
legal counsel to the Borrower, Guarantors and the Subsidiaries, (ii) Hong
Kong counsel to CellStar International, and (iii) Mexico counsel to
Audiomex, in form and substance satisfactory to the Agent, as to such
matters as the Agent may reasonably request;
(w) Fees. Evidence that all fees provided for in the Engagement
----
Letter and the Fee Letter shall have been paid in full by the Borrower;
(x) Financial Statements. A copy of Form 10Q of the Borrower and the
--------------------
Subsidiaries on a consolidated basis for the fiscal quarter ended August
31, 1997 and for the portion of the fiscal year then ended;
(y) Compliance Certificate. An initial Compliance Certificate dated
----------------------
as of the date hereof for the fiscal quarter ended August 31, 1997,
executed by the president, chief executive officer, chief financial officer
or corporate controller of the Borrower;
(z) Solvency Certificate. A certificate, in form and substance
--------------------
satisfactory to the Agent, executed by the chief financial officer of the
Borrower as to the solvency of each of the Companies;
(aa) Subordinated Notes. Evidence that Borrower shall have issued at
------------------
least $75,000,000 in convertible subordinated notes which mature at least
120 days after the Termination Date and evidenced by the Subordinated Note
Documents satisfactory in form and substance to the Banks in their sole
discretion, including a copy of the Subordinated Note Documents;
(bb) Payoff Letters and Termination of Liens. Payoff letters from
---------------------------------------
each of the prior lenders of the Borrower and its Subsidiaries who are
being paid in full with Advances made under this Agreement or with advances
made under the Subordinated Note Documents, which payoff letters shall set
forth the amount owing by the Borrower to such prior lender and shall state
that such prior lender shall terminate all of its Liens against the
Collateral; and
-42-
<PAGE>
(cc) Legal Structure. Evidence of legal structure of the Borrower and
---------------
its Subsidiaries, in form and substance satisfactory to Banks.
Section 7.2. All Extensions of Credit. The obligation of the Banks to
------------------------
make any Advance or issue any Letter of Credit (including the initial Advance
and the initial Letter of Credit) is subject to the following additional
conditions precedent:
(a) Request for Advance or Letter of Credit. The Agent shall have
---------------------------------------
received in accordance with Section 2.6 or 3.2, as the case may be, an
----------- ---
Advance Request Form or Letter of Credit Request Form dated the date of
such Advance or Letter of Credit and executed by an authorized officer of
the Borrower;
(b) L/C Documents. With respect to any Letter of Credit, Agent shall
-------------
have received all applicable L/C Documents as required by Section 3.1;
-----------
(c) No Default. No Default shall have occurred and be continuing, or
----------
would result from such Advance or Letter of Credit;
(d) Representations and Warranties. All of the representations and
------------------------------
warranties contained in Article VIII hereof and in the other Loan Documents
------------
shall be true and correct on and as of the date of such Advance with the
same force and effect as if such representations and warranties had been
made on and as of such date;
(e) No Material Adverse Change. No material adverse change in the
--------------------------
Borrower or its Subsidiaries shall have occurred since the date of the most
recent financial statements delivered by Borrower to Agent or could be
reasonably expected to occur, and no material adverse change shall have
occurred in the business condition (financial or otherwise), operations,
prospects, or properties of the Borrower and its Subsidiaries on a
consolidated basis; and
(f) Additional Documentation. The Agent shall have received such
------------------------
additional approvals, opinions, or documents as the Agent or its legal
counsel, Winstead Sechrest & Minick P.C., may reasonably request.
ARTICLE VIII
Representations and Warranties
------------------------------
To induce the Agent and the Banks to enter into this Agreement, the
Borrower represents and warrants to the Agent and the Banks that:
Section 8.1. Existence and Authority. The Borrower and each Significant
-----------------------
Subsidiary (a) is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation, or is a
limited partnership duly organized and validly existing
-43-
<PAGE>
under the laws of the State of Texas; (b) has all requisite power and authority
to own its assets and carry on its business as now being or as proposed to be
conducted; and (c) is qualified to do business in all jurisdictions in which the
nature of its business makes such qualification necessary and where failure to
so qualify would have a Material Adverse Effect. The Borrower and each
Guarantor each has the power and authority to execute, deliver, and perform its
obligations under this Agreement and the other Loan Documents to which it is or
may become a party.
Section 8.2. Financial Statements. The Borrower has delivered to the
--------------------
Agent audited consolidated financial statements of the Borrower and its
Subsidiaries as at and for the fiscal year ended November 30, 1996 and unaudited
consolidated financial statements of the Borrower and its Subsidiaries for the
nine-month period ended August 31, 1997. Such financial statements are true and
correct, have been prepared in accordance with GAAP, and fairly and accurately
present, on a consolidated basis, the financial condition of the Borrower and
the Subsidiaries as of the respective dates indicated therein and the results of
operations for the respective periods indicated therein. Neither the Borrower
nor any of the Subsidiaries has any contingent liabilities, liabilities for
taxes, unusual forward or long-term commitments, or unrealized or anticipated
losses from any unfavorable commitments that are material with respect to the
Borrower or the Subsidiaries taken as a whole, except as referred to or
reflected in such financial statements. There has been no material adverse
change in the business, condition (financial or otherwise), operations,
prospects, or properties of the Borrower or any of the Subsidiaries since the
effective date of the most recent consolidated financial statements referred to
in this Section.
Section 8.3. Corporate Action; No Breach. The execution, delivery, and
---------------------------
performance by the Borrower of this Agreement and by the Borrower and each
Guarantor of the other Loan Documents to which they are party and compliance
with the terms and provisions hereof and thereof, have been duly authorized by
all requisite corporate and partnership action on the part of each such Person
and do not and will not (a) violate or conflict with, or result in a breach of,
or require any consent under (i) the articles of incorporation, certificate of
incorporation, bylaws, partnership agreement or other organizational documents
of any such Person, (ii) any applicable law, rule, or regulation or any order,
writ, injunction, or decree of any Governmental Authority or arbitrator, or
(iii) any agreement or instrument to which any such Person is a party or by
which any of them or any of their property is bound or subject, or (b)
constitute a default under any such agreement or instrument, or result in the
creation or imposition of any Lien (except as provided in Article VI) upon any
----------
of the revenues or assets of any such Person.
Section 8.4. Operation of Business. The Borrower and each of the
---------------------
Significant Subsidiaries possess all licenses, permits, franchises, patents,
copyrights, trademarks, and tradenames, or rights thereto, necessary to conduct
their respective businesses substantially as now conducted and as presently
proposed to be conducted, except where failure to do so would not have a
Material Adverse Effect. None of the Borrower or the Significant Subsidiaries
is in violation of any valid rights of others with respect to any of the
foregoing, except where such violation would not have a Material Adverse Effect.
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<PAGE>
Section 8.5. Litigation and Judgments. Except as disclosed on Schedule
------------------------ --------
8.5 hereto, there is no action, suit, investigation, or proceeding before or by
- ---
any Governmental Authority or arbitrator pending, or to the knowledge of the
Borrower, threatened against or affecting the Borrower, any Subsidiary, or any
Foreign Affiliate that would, if adversely determined, have a Material Adverse
Effect. There are no outstanding judgments against the Borrower or any
Subsidiary which individually or in the aggregate have or could have a Material
Adverse Effect. As of the date hereof, there are no outstanding judgments
against the Borrower or any Subsidiary.
Section 8.6. Rights in Properties; Liens. The Borrower and each
---------------------------
Significant Subsidiary have good and indefeasible title to or valid leasehold
interests in their respective properties and assets, real and personal,
including the properties, assets, and leasehold interests reflected in the
financial statements described in Section 8.2, and none of the properties,
-----------
assets, or leasehold interests of the Borrower or any Significant Subsidiary is
subject to any Lien, except as permitted by Section 10.2.
------------
Section 8.7. Enforceability. This Agreement constitutes, and the other
--------------
Loan Documents when delivered, shall constitute legal, valid, and binding
obligations of the Borrower and each Guarantor, respectively, which are party
thereto, enforceable against such Persons, respectively, in accordance with
their respective terms, except as limited by (i) bankruptcy, insolvency, or
other laws of general application relating to the enforcement of creditors'
rights, and (ii) general principles of equity, whether applied in a proceeding
in equity or at law.
Section 8.8. Approvals. No authorization, approval, or consent of, and no
---------
filing or registration with, any Governmental Authority or third party is or
will be necessary for the execution, delivery, or performance by the Borrower or
any Guarantor of this Agreement and the other Loan Documents to which the
Borrower or the Guarantors, respectively, is or may become a party or the
validity or enforceability thereof.
Section 8.9. Debt. The Borrower and the Subsidiaries have no Debt, except
----
as disclosed on Schedule 8.9 hereto or otherwise permitted by Section 10.1
------------ ------------
hereof.
Section 8.10. Taxes. The Borrower and each Subsidiary have filed all tax
-----
returns (federal, state, and local) required to be filed, including all income,
franchise, employment, property, and sales tax returns, except for any state or
local tax returns the nonfiling of which will not have a Material Adverse
Effect. The Borrower and each Subsidiary have paid all of their respective
liabilities for taxes, assessments, governmental charges, and other levies that
are due and payable, except for any state or local taxes, assessments,
governmental charges and levies which are not known by the Borrower or any
Subsidiary to be due and payable if the nonpayment thereof will not have a
Material Adverse Effect. The Borrower does not know of any pending
investigation of the Borrower or any Subsidiary by any taxing authority or of
any pending but unassessed tax liability of the Borrower or any Subsidiary.
Section 8.11. Use of Proceeds; Margin Securities. None of the Borrower or
----------------------------------
the Subsidiaries is engaged principally, or as one of its important activities,
in the business of
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<PAGE>
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations G, T, U, or X of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Advance will be used
to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying margin stock.
Section 8.12. ERISA. The Borrower and each Subsidiary are in compliance
-----
in all material respects with all applicable provisions of ERISA. Neither a
Reportable Event nor a Prohibited Transaction has occurred and is continuing
with respect to any Plan. No notice of intent to terminate a Plan has been
filed, nor has any Plan been terminated. No circumstances exist which
constitute grounds entitling the PBGC to institute proceedings to terminate, or
appoint a trustee to administer, a Plan, nor has the PBGC instituted any such
proceedings. Neither the Borrower nor any Guarantor nor any ERISA Affiliate has
completely or partially withdrawn from a Multiemployer Plan. The Borrower, each
Guarantor and each ERISA Affiliate have met their minimum funding requirements
under ERISA with respect to all of their Plans, and the present value of all
vested benefits under each Plan do not exceed the fair market value of all Plan
assets allocable to such benefits, as determined on the most recent valuation
date of the Plan and in accordance with ERISA. Neither the Borrower nor any
Guarantor nor any ERISA Affiliate has incurred any liability to the PBGC under
ERISA.
Section 8.13. Disclosure. No statement, information, report,
----------
representation, or warranty made by the Borrower or any Guarantor in this
Agreement or in any other Loan Document or furnished to the Agent in connection
with this Agreement or any of the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the statements herein or therein not materially misleading.
There is no fact known to the Borrower or any Guarantor which has a Material
Adverse Effect, or which is likely to in the future have a Material Adverse
Effect, that has not been disclosed in writing to the Agent.
Section 8.14. Subsidiaries; Foreign Affiliates. The Borrower has no
--------------------------------
Subsidiaries other than those listed on Schedule 8.14 hereto, and Schedule 8.14
------------- -------------
(a) sets forth the jurisdiction of incorporation or organization of each
Subsidiary, (b) sets forth the percentage of the Borrower's or any Subsidiary's
ownership of the outstanding voting stock or other ownership or equity interests
of each Subsidiary, and (c) designates the Foreign Subsidiaries. All of the
outstanding capital stock of each Subsidiary, other than the Foreign
Subsidiaries, has been validly issued, is fully paid, and is nonassessable. All
of the Foreign Affiliates are specified on Schedule 8.14, and Schedule 8.14 (a)
------------- -------------
sets forth the jurisdiction of incorporation or organization of each Foreign
Affiliate, and (b) sets forth the percentage of the Borrower's or any
Subsidiary's ownership of the outstanding voting stock or other ownership or
equity interests of each Foreign Affiliate. The Borrower shall, from time to
time as necessary, deliver to Agent an updated Schedule 8.14 to this Agreement,
-------------
together with a certificate of an authorized officer of the Borrower certifying
that the information set forth in such schedule is true, correct, and complete
as of such date.
Section 8.15. Agreements. None of the Borrower or the Subsidiaries is a
----------
party to any indenture, loan, or credit agreement, or to any lease or other
agreement or instrument, or subject
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<PAGE>
to any charter or corporate restriction which could have a Material Adverse
Effect. None of the Borrower or the Subsidiaries is in default in any material
respect in the performance, observance, or fulfillment of any of the
obligations, covenants, or conditions contained in any agreement or instrument
material to its business to which it is a party.
Section 8.16. Compliance with Laws. None of the Borrower, the
--------------------
Subsidiaries or, to the best of the Borrower's knowledge, the Foreign Affiliates
is in violation in any material respect of any law, rule, regulation, order, or
decree of any Governmental Authority or arbitrator, except to the extent that
the failure to comply therewith will not have a Material Adverse Effect.
Section 8.17. Investment Company Act. None of the Borrower or the
----------------------
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 8.18. Public Utility Holding Company Act. None of the Borrower or
----------------------------------
the Subsidiaries is a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" or a "public utility" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 8.19. Environmental Matters. Except as disclosed on Schedule 8.19
--------------------- -------------
hereto, (a) to the best of the Borrower's knowledge, there are no conditions or
circumstances associated with the currently or previously owned or leased
properties or operations of the Borrower or any Subsidiary that could reasonably
be expected to give rise to any Environmental Liabilities of the Borrower or any
Subsidiary, and (b) no Lien arising under any Environmental Law has attached to
any property or revenues of the Borrower or any Subsidiary.
Section 8.20. Patents, Trademarks and Copyrights. Schedule 8.20 hereto
---------------------------------- -------------
sets forth a true, accurate and complete listing, as of the date hereof, of all
patents, trademarks and copyrights, and applications therefor, of the Borrower
and Guarantors. Except as created or permitted under the Loan Documents, no
Lien exists with respect to the interest of the Borrower or any Guarantor in any
such patents, trademarks, copyrights or applications, and neither the Borrower
nor any Guarantor has transferred or subordinated any interest it may have in
such patents, trademarks, copyrights and applications. The Borrower shall, from
time to time as necessary, deliver to Agent an updated Schedule 8.20 to this
-------------
Agreement, together with a certificate of an authorized officer of the Borrower
certifying that the information set forth on such schedule is true, correct and
complete as of such date, which schedule may be used to prepare additional
assignments, if necessary.
Section 8.21. Relationship to the Banks. No Person having "control" (as
-------------------------
such term is defined in the Financial Institutions Regulatory and Interest Rate
Control Act of 1978 ("FIRA"), or in regulations promulgated pursuant thereto) of
----
the Borrower or any of the Subsidiaries is an "executive officer," "director" or
"person who directly or indirectly or in concert with one or more persons, owns,
controls, or has the power to vote more than 10% of any class of voting
securities" (as such terms are defined in FIRA or in any regulations promulgated
pursuant thereto) of any of the Banks.
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<PAGE>
Section 8.22. Government Regulation. Neither the Borrower, any Subsidiary
---------------------
nor any Foreign Affiliate is subject to regulation under the Federal Power Act,
the Interstate Commerce Act (as any of the preceding acts have been amended) or
any other Law (other than Regulation X) which regulates the incurring by
Borrower or any Subsidiary of Advances.
Section 8.23. Foreign Employee Benefit Matters. To the best of Borrower's
--------------------------------
and its Subsidiaries' knowledge after diligent inquiry of all relevant Persons:
(a) each Foreign Employee Benefit Plan is in compliance in all respects with all
laws, regulations and rules applicable thereto and the respective requirements
of the governing documents for such Plan, except for any non-compliance the
consequences of which, in the aggregate, would not result in a Material Adverse
Effect; (b) the aggregate of the accumulated benefit obligations under all
Foreign Pension Plans does not exceed the current fair market value of the
assets held in the trusts or similar funding vehicles for such Plans or
reasonable reserves have been established in accordance with prudent business
practices or as required by Agreement Accounting Principles with respect to any
shortfall; (c) with respect to any Foreign Employee Benefit Plan (other than a
Foreign Pension Plan) maintained or contributed to by Borrower or any
Subsidiary, reasonable reserves have been established in accordance with prudent
business practice or where required by ordinary accounting practices in the
jurisdiction in which such Plan is maintained; and (d) there are no actions,
suits or claims (other than routine claims for benefits) pending or, to the
knowledge of Borrower and its Subsidiaries, threatened against Borrower or any
Subsidiary of it or any ERISA Affiliate with respect to any Foreign Employee
Benefit Plan that would, if adversely determined, have a Material Adverse
Effect.
ARTICLE IX
Affirmative Covenants
---------------------
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Bank has any Commitment hereunder, the
Borrower will perform and observe the following affirmative covenants, unless
the Required Banks (or Agent with the consent of the Required Banks) shall
otherwise consent in writing:
Section 9.1. Reporting Requirements. The Borrower will furnish to the
----------------------
Agent and each Bank:
(a) Annual Consolidated and Consolidating Financial Statements.
----------------------------------------------------------
As soon as available, and in any event within 90 days after the end of each
fiscal year of the Borrower (or such later period as may be permitted by
law for reporting companies under the Securities Exchange Act of 1934, as
amended), beginning with the fiscal year ending November 30, 1997, (i) a
copy of the Borrower's annual report on Form 10-K as filed with the
Securities and Exchange Commission and a copy of the annual audited
financial report of the Borrower and the Subsidiaries for such fiscal year
containing, on a consolidated basis, balance sheets and statements of
operations, stockholders' equity, and cash flows as at the end of such
fiscal year and for the 12-month period then ended, in
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<PAGE>
each case setting forth in comparative form the figures for the preceding
fiscal year, all in reasonable detail and audited and certified by, and
accompanied by the unqualified opinion of, independent certified public
accountants of recognized standing acceptable to the Agent, to the effect
that such report has been prepared in accordance with GAAP and presents
fairly the consolidated financial condition and results of operations of
the Borrower and the Subsidiaries at the date and for the periods indicated
therein, and (ii) consolidating financial statements of the Borrower and
the Subsidiaries, containing a balance sheet and statement of operations,
all in reasonable detail;
(b) Quarterly Consolidated and Consolidating Financial Statements. As
-------------------------------------------------------------
soon as available, and in any event within 45 days after the end of each of
the first three quarters of each fiscal year of the Borrower (or such later
period as may be permitted by law for reporting companies under the
Securities Exchange Act of 1934, as amended), (i) a copy of an unaudited
financial report of the Borrower and the Subsidiaries as of the end of such
fiscal quarter and for the portion of the fiscal year then ended on Form
10-Q as filed with the Securities and Exchange Commission, containing, on a
consolidated basis, balance sheets and statements of operations and cash
flows, in each case setting forth in comparative form the figures for the
corresponding period of the preceding fiscal year, all in reasonable detail
and certified by the chief financial officer or corporate controller of the
Borrower to have been prepared in accordance with GAAP and to fairly and
accurately present (subject to year-end audit adjustments) the financial
condition and results of operations of the Borrower and the Subsidiaries,
on a consolidated basis, at the date and for the periods indicated therein,
and (ii) consolidating financial statements of the Borrower and the
Subsidiaries, containing a balance sheet and statement of operations, all
in reasonable detail;
(c) Annual Budget. As soon as available, and in any event within 60
-------------
days after the end of each fiscal year of the Borrower, a copy of the
annual budget for the Borrower's next succeeding fiscal year including,
without limitation, (i) a forecasted balance sheet, statement of income and
statement of cash flows for such fiscal year, (ii) forecasted balance
sheets, statements of income and statements of cash flows for each fiscal
quarter of such fiscal year, and (iii) as soon as practicable, all material
amendments, updates and revisions, if any, to the information provided
pursuant to this subsection (e);
--------------
(d) Compliance Certificate. Concurrently with the delivery of each of
----------------------
the financial statements referred to in subsections 9.1(a) and (b), a
------------------ ---
Compliance Certificate showing calculation of the financial covenants and
Asset Coverage Amount (a certificate showing calculation of the Asset
Coverage Amount may be provided monthly at Borrower's option);
(e) Notice of Litigation. Promptly after the commencement thereof,
--------------------
notice of all actions, suits, and proceedings before any Governmental
Authority or arbitrator affecting the Borrower, any Subsidiary or any
Foreign Affiliate which, if determined
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<PAGE>
adversely to the Borrower, such Subsidiary, or such Foreign Affiliate could
have a Material Adverse Effect;
(f) Notice of Default. As soon as possible and in any event within
-----------------
five days after the Borrower, any Subsidiary or any Foreign Affiliate
obtains knowledge or becomes aware of the occurrence of any Default, a
written notice setting forth the details of such Default and the action
that the Borrower and such other Person have taken and propose to take with
respect thereto;
(g) Notice of Material Adverse Change. As soon as possible and in any
---------------------------------
event within five days after the Borrower, any Subsidiary or any Foreign
Affiliate obtains knowledge or becomes aware of the occurrence of any
matter that could have a Material Adverse Effect, written notice of such
matter;
(h) Notice of Change in Representation or Warranty. As soon as
----------------------------------------------
possible and in any event within five days after the Borrower, any
Subsidiary or any Foreign Affiliate obtains knowledge or becomes aware of
any change in any material fact or circumstance represented or warranted in
any of the Loan Documents, written notice of such change;
(i) General Information. Promptly, such other information concerning
-------------------
the Borrower, any Subsidiary or any Foreign Affiliate as the Agent or any
Bank may from time to time reasonably request.
All financial statements, certificates and reports required to be delivered
under this Section shall be due on the Business Day immediately following the
specified due date if the specified due date is not a Business Day.
Section 9.2. Maintenance of Existence; Conduct of Business. Except as
---------------------------------------------
permitted by Section 10.3, the Borrower will preserve and maintain, and will
------------
cause each Subsidiary to preserve and maintain, its corporate or partnership
existence and all of its leases, privileges, licenses, permits, franchises,
qualifications, agreements and rights that are necessary or desirable in the
ordinary conduct of its business. The Borrower will conduct, and will cause
each Subsidiary and each Foreign Affiliate to conduct, its business in an
orderly and efficient manner in accordance with good business practices.
Section 9.3. Maintenance of Properties. The Borrower will maintain, keep,
-------------------------
and preserve, and cause each Subsidiary to maintain, keep, and preserve, in good
working order and condition, all of its properties (tangible and intangible)
which are useful in any material respect in the proper conduct of its business
or are necessary in the proper conduct of its business.
Section 9.4. Taxes and Claims. The Borrower will pay or discharge, and
----------------
will cause each Subsidiary to pay or discharge, at or before maturity or before
becoming delinquent (a) all taxes, levies, assessments, and governmental charges
imposed on it or its income or profits or any of its property, and (b) all
lawful claims for labor, material, and supplies, which, if unpaid,
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might become a Lien upon any of its property; provided, however, that none of
-------- -------
the Borrower or the Subsidiaries shall be required to pay or discharge any tax,
levy, assessment, or governmental charge or any claim for labor, material, or
supplies which is being contested in good faith by appropriate proceedings
diligently pursued, and for which adequate reserves have been established.
Section 9.5. Insurance. The Borrower will maintain, and will cause each
---------
of the Subsidiaries to maintain, insurance with financially sound and reputable
insurance companies in such amounts and covering such risks as is usually
carried by corporations engaged in similar businesses and owning similar
properties in the same general geographic areas in which the Borrower and the
Subsidiaries operate, provided that in any event the Borrower will maintain and
cause each Subsidiary to maintain workmen's compensation insurance, property
insurance, comprehensive general liability insurance, and products liability
insurance reasonably satisfactory to the Agent. Each insurance policy covering
Collateral shall name the Agent as loss payee and shall provide that such policy
will not be cancelled or reduced without 30 days prior written notice to the
Agent.
Section 9.6. Inspection Rights. At any reasonable time during normal
-----------------
business hours and from time to time, the Borrower will permit, and will cause
each Subsidiary and each Foreign Affiliate to permit, representatives of the
Agent and each Bank to examine, copy, and make extracts from its books and
records, to visit and inspect its properties, and to discuss its business,
operations, and financial condition with its officers, employees, and
independent certified public accountants. Without in any way limiting the
foregoing, Agent may conduct (or cause a third party to conduct) annual audits
of the Collateral at the expense of the Borrower. Such audits may be performed
by Agent's in-house audit and asset management review staff. The Borrower
agrees to pay to Agent on demand all fees, charges and out-of-pocket expenses of
Agent in connection with each such audit.
Section 9.7. Keeping Books and Records. The Borrower will maintain, will
-------------------------
cause each Subsidiary to maintain, and will use its best efforts to cause each
Foreign Affiliate to maintain, proper books of record and account in which full,
true, and correct entries in conformity with GAAP shall be made of all dealings
and transactions in relation to its business and activities; provided, however,
-------- -------
that the Foreign Subsidiaries and the Foreign Affiliates shall be permitted to
maintain day-to-day books of record and account in accordance with local
statutory accounting practices rather than GAAP.
Section 9.8. Compliance with Laws and Agreements. The Borrower will
-----------------------------------
comply, and will cause each Subsidiary to comply, in all material respects with
all applicable laws, rules, regulations, orders, and decrees of any Governmental
Authority or arbitrator and all material agreements, contracts, and instruments
binding on it or affecting its properties or business.
Section 9.9. Further Assurances. The Borrower will, and will cause each
------------------
Subsidiary and each Foreign Affiliate to, execute and deliver such further
agreements and instruments and take such further action as may be requested by
the Agent to carry out the provisions and purposes
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<PAGE>
of this Agreement and the other Loan Documents and to create, preserve, and
perfect the Liens of the Agent in the Collateral.
Section 9.10. ERISA. The Borrower will comply, and will cause each
-----
Subsidiary to comply, with all minimum funding requirements, and all other
material requirements, of ERISA, if applicable, so as not to give rise to any
liability for failure to comply with the requirements of ERISA.
Section 9.11. Foreign Employee Benefit Compliance. Borrower will, and
-----------------------------------
will cause each of its Subsidiaries and ERISA Affiliates to, establish, maintain
and operate all Foreign Employee Benefit Plans to comply in all material
respects with all laws, regulations and rules applicable thereto and the
respective requirements of the governing documents for such Plans, except for
failures to comply which, in the aggregate, would not result in a Material
Adverse Effect.
ARTICLE X
Negative Covenants
------------------
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Bank has any Commitment hereunder, the
Borrower will perform and observe the following negative covenants, unless the
Required Banks (or the Agent with the consent of the Required Banks) shall
otherwise consent in writing:
Section 10.1. Debt. The Borrower will not incur, create, assume, or
----
permit to exist, or permit any Subsidiary or Foreign Affiliate to incur, create,
assume, or permit to exist, any Debt, except:
(a) Debt to the Banks hereunder;
(b) Debt of the Subsidiaries and Foreign Affiliates pursuant to
loans and advances permitted by Section 10.5(i);
---------------
(c) Debt of the Foreign Subsidiaries, Debt of the Foreign
Affiliates, and Guarantees by the Borrower or any Subsidiary of any Debt or
other obligations of any of the Foreign Subsidiaries or the Foreign
Affiliates, all incurred when no Default exists or would result therefrom,
provided that the aggregate amount of all such Debt and obligations
(including such Debt existing on the date hereof and described on Schedule
--------
8.9 hereto, but excluding such Debt of the Foreign Subsidiaries and such
---
Debt of the Foreign Affiliates to the Borrower or any Subsidiary permitted
under Section 10.5(i)) outstanding at any time shall not exceed
---------------
$10,000,000, it being understood that trade payables for the purchase of
goods or materials in the ordinary course of business and Guarantees
thereof are not prohibited or limited by this Section 10.1;
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<PAGE>
(d) Debt consisting of accounts payable of the Companies to each
other for sales of inventory in the ordinary course of business;
(e) Debt of the Guarantors to the Borrower or any Guarantor
under the promissory notes referred to in Section 7.1(t); and
--------------
(f) Any other Debt existing on the date hereof and described on
Schedule 8.9 hereto.
------------
Section 10.2. Limitation on Liens. The Borrower will not incur, create,
-------------------
assume, or permit to exist, or permit any Subsidiary to incur, create, assume,
or permit to exist, any Lien upon any of its property, assets, or revenues,
whether now owned or hereafter acquired, except:
(a) Liens disclosed on Schedule 10.2 hereto;
-------------
(b) Liens in favor of the Agent pursuant to the Loan Documents;
(c) Encumbrances consisting of minor easements, zoning
restrictions, or other restrictions on the use of real property that do not
(individually or in the aggregate) materially affect the value of the
assets encumbered thereby or materially impair the ability of the Borrower
or the Subsidiaries to use such assets in their respective businesses, and
none of which is violated in any material respect by existing or proposed
structures or land use;
(d) Liens for taxes, assessments, or other governmental charges
which are not delinquent or which are being contested in good faith and for
which adequate reserves have been established;
(e) Liens of landlords (for any location where a landlord's
waiver is not required under the Loan Documents), mechanics, materialmen,
warehousemen, carriers, or other similar statutory Liens securing
obligations that (i) are not yet due and are incurred in the ordinary
course of business or (ii) are being contested in good faith by appropriate
proceedings diligently pursued, and for which adequate reserves have been
established;
(f) Liens resulting from good faith deposits to secure payments
of workmen's compensation, unemployment insurance or other social security
programs or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, or contracts (other than for payment of
Debt), or leases made in the ordinary course of business;
(g) Second priority Liens on the Collateral in favor of the
Borrower or any Guarantor, securing the promissory notes referred to in
Section 7.1(t);
--------------
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<PAGE>
(h) Liens on the assets of any of the Foreign Subsidiaries or
Foreign Affiliates to secure Debt permitted by Section 10.1(c) in an
---------------
aggregate amount outstanding at any time not to exceed $10,000,000; and
(i) Liens in funds in the possession of credit card companies
pertaining to credit card sales of goods to end users pursuant to merchant
credit card services agreements.
Section 10.3. Mergers, Etc. The Borrower will not, or will not permit any
------------
Subsidiary to, become a party to a merger or consolidation, or purchase or
otherwise acquire all or substantially all of the assets of any Person or any
shares or other evidence of beneficial ownership of any Person, or wind-up,
dissolve, or liquidate; provided, however, that:
-------- -------
(1) the Borrower or any Subsidiary shall be permitted to become
a party to a merger or consolidation or acquire all or any part of the
assets of any Person or any shares or other beneficial ownership of any
Person, so long as (a) no Default is existing or would result therefrom,
(b) the Borrower has given the Agent at least 20 days prior notice of such
merger, consolidation or acquisition, (c) the total cash and non-cash
consideration paid and Debt assumed or incurred by the Borrower or any
Subsidiary in connection with all such mergers, consolidations or
acquisitions (i) shall not exceed $10,000,000.00 for any single transaction
and (ii) shall not exceed $20,000,000 in the aggregate for any fiscal year,
and (d) the Borrower or such Subsidiary, as the case may be, is the
surviving corporation in such merger or consolidation;
(2) any Guarantor may be dissolved, liquidated or merged into
another Subsidiary, so long as such dissolution, liquidation or merger
results in all assets of such Guarantor being owned by Borrower or another
Guarantor; and
(3) any Subsidiary that is not a Guarantor may be dissolved,
liquidated or merged into Borrower or any Subsidiary, so long as such
dissolution, liquidation or merger results in all assets of such Subsidiary
that is not a Guarantor being owned by Borrower or a Subsidiary.
Section 10.4. Restricted Payments. The Borrower will not make, or permit
-------------------
any Subsidiary to make, any Restricted Payment; provided, however, that (a) the
-------- -------
Subsidiaries shall be permitted to declare and pay dividends to the Borrower or
any Subsidiary that guarantees payment of the Obligations, and (b) the Borrower
or any Subsidiary shall be permitted to declare and make dividend payments or
other distributions payable solely in its own common stock.
Section 10.5. Loans and Investments. The Borrower will not make, or
---------------------
permit any Subsidiary or Foreign Affiliate to make, any advance, loan, extension
of credit, or capital contribution to or investment in, or purchase, or permit
any Subsidiary or Foreign Affiliate to purchase, any stock, bonds, notes,
debentures, or other securities of, any Person, except:
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<PAGE>
(a) readily marketable direct obligations of the United States
of America or any agency thereof with maturities of one year or less from
the date of acquisition;
(b) fully insured certificates of deposit with maturities of one
year or less from the date of acquisition issued by any commercial bank
operating in the United States of America having capital and surplus in
excess of $50,000,000.00, provided, however, that time deposits in an
-------- -------
aggregate amount not in excess of $100,000 may be maintained in any bank
whose deposits are insured by the Federal Deposit Insurance Corporation;
(c) commercial paper of a domestic issuer if at the time of
purchase such paper is rated in one of the two highest rating categories of
Standard & Poor's Rating Service, a division of McGraw/Hill, Inc. or
Moody's Investors Service, Inc.;
(d) debt securities which shall have one of the two highest
ratings from Standard & Poor's Rating Service, a division of McGraw/Hill,
Inc. or Moody's Investors Service, Inc. and which mature within one year
from the date of acquisition;
(e) investments in eurodollars placed through any financial
institution having combined capital, surplus, and undivided profits of not
less than $100,000,000;
(f) repurchase agreements with any financial institution having
combined capital, surplus, and undivided profits of not less than
$100,000,000 for U.S. Government obligations maturing in less than 10 days;
(g) investments in daily money market mutual funds having assets
greater than $2,000,000,000 and limited in holdings to assets of the types
described in subsections (a), (b) and (c) of this Section;
--------------- --- ---
(h) investments in the Texas Commerce Loan Participation Program
or similar programs through any financial institution having combined
capital, surplus, and undivided profits of not less than $100,000,000;
(i) (A) stock or other equity or ownership interests in any
Subsidiary or Foreign Affiliate existing on the date hereof or acquired in
accordance with the provisions of Section 10.3; (B) capital contributions,
------------
loans and advances by the Borrower or any Guarantor to any Guarantor; (C)
capital contributions, loans and advances by any Foreign Subsidiary to
CellStar Ireland (or such other global agency treasury center as the
Borrower may establish from time to time); (D) capital contributions by
Fulfillment to CellStar Fulfillment, Ltd.; (E) capital contributions by NAC
to Fulfillment, provided that any and all such capital contributions by NAC
--------
to Fulfillment shall be used by Fulfillment for capital contributions to
CellStar Fulfillment, Ltd.; (F) capital contributions by the Borrower or
any Subsidiary to any other Subsidiary or any Foreign Affiliate (other than
as described in subsections (B) through (E) above) in an aggregate amount
--------------- ---
not to exceed $5,000,000 during any fiscal year; (G) loans and advances by
the Borrower or any
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<PAGE>
Subsidiary to any Foreign Affiliate in an aggregate amount outstanding at
any time not to exceed $10,000,000; and (H) loans and advances by the
Borrower or any Subsidiary to any other Subsidiary (other than as described
in subsections (B) and (C) above) in an aggregate amount outstanding at any
-----------------------
time not to exceed the greater of $40,000,000 or 20% of the stockholders'
equity in the Borrower, provided that amounts loaned or advanced by the
Borrower or any Subsidiary to any Subsidiary that are in turn loaned or
advanced by that Subsidiary to another Subsidiary shall be counted only
once for purposes of calculations under this subsection (H);
--------------
(j) payroll advances made in the ordinary course of business;
(k) accounts receivable for sales of inventory in the ordinary
course of business, including sales of inventory to Foreign Subsidiaries
and Foreign Affiliates in the ordinary course of the Companies' business,
whether shipped to the Foreign Subsidiaries or Foreign Affiliates from a
Company or directly from the manufacturer, and payment of ordinary and
customary duties related thereto;
(l) loans and advances made by the Borrower, any Subsidiary or
any Foreign Affiliate to their respective officers and employees in the
ordinary course of business not to exceed $1,500,000 in the aggregate
outstanding at any time;
(m) demand deposits at banks whose deposits are insured by the
Federal Deposit Insurance Corporation, maintained by the Borrower or any
Subsidiary in the ordinary course of business for the purpose of paying
operating expenses;
(n) intercompany receivables existing on the date hereof and
described on Schedule 8.9 hereto; and
------------
(o) investments by Foreign Subsidiaries and Foreign Affiliates
which follow a similar risk profile as the investments described in
subsections (a) through (h) and subsection (m) above.
--------------- --- --------------
Section 10.6. Transactions With Affiliates. The Borrower will not enter
----------------------------
into, or permit any Subsidiary or Foreign Affiliate to enter into, any
transaction, including, without limitation, the purchase, sale, or exchange of
property or the rendering of any service, with any Affiliate of the Borrower,
such Subsidiary or such Foreign Affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of the Borrower's, such Subsidiary's or
such Foreign Affiliate's business and upon fair and reasonable terms no less
favorable to the Borrower, such Subsidiary or such Foreign Affiliate than would
be obtained in a comparable arm's-length transaction with a Person not an
Affiliate of the Borrower, such Subsidiary or such Foreign Affiliate; provided,
--------
however, that (a) the Companies shall be permitted to enter into transactions,
- -------
including without limitation the purchase, sale, or exchange of property or the
rendering of any service, with each other, and such transactions among the
Companies shall not be subject to the restrictions set forth in this Section,
and (b) the Borrower and the Subsidiaries shall be permitted
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<PAGE>
to make loans and advances to each other to the extent otherwise permitted by
this Agreement, and such loans and advances shall not be subject to the
restrictions set forth in this Section.
Section 10.7. Disposition of Assets. The Borrower will not sell, lease,
---------------------
assign, transfer, or otherwise dispose of any of its assets, or permit any
Subsidiary to do so with any of its assets, except (a) dispositions of inventory
in the ordinary course of business, (b) dispositions of equipment and fixtures
having a fair market value not to exceed $5,000,000 in the aggregate during the
period from the date of this Agreement through the Termination Date, and (c)
factoring of accounts receivable of any of the Foreign Subsidiaries pursuant to
factoring arrangements entered into in the ordinary course of their respective
businesses.
Section 10.8. Prepayment of Debt. The Borrower will not prepay or permit
------------------
any Subsidiary to prepay, any Debt, except the Obligations.
Section 10.9. Nature of Business. The Borrower will not, or will not
------------------
permit any Subsidiary to, engage in any business substantially different than
the businesses in which they are engaged as of the date hereof.
Section 10.10. Environmental Protection. The Borrower will not, or will
------------------------
not permit any Subsidiary to, (a) use (or permit any tenant to use) any of their
respective properties or assets for the handling, processing, storage,
transportation, or disposal of any Hazardous Material in violation of any
Environmental Law, (b) generate any Hazardous Material in violation of any
Environmental Law, (c) conduct any activity that causes a release or threatened
release of any Hazardous Material, or (d) otherwise conduct any activity or use
any of their respective properties or assets in any manner that is likely to
violate any Environmental Law or create any Environmental Liabilities for which
the Borrower or any Subsidiary would be responsible.
Section 10.11. Accounting. The Borrower will not, or will not permit any
----------
Subsidiary to, change its fiscal year or make any change (a) in accounting
treatment or reporting practices, except as required by GAAP and disclosed to
the Agent, or (b) in tax reporting treatment, except as required by law and
disclosed to the Agent. Notwithstanding the foregoing, the Borrower shall be
permitted to change its tax year-end or its fiscal year-end, or both, to achieve
coinciding tax and fiscal year ends, provided that the Borrower shall execute
and deliver an amendment to this Agreement to change any covenants and reporting
dates which Agent deems necessary or desirable as a result of such change.
ARTICLE XI
Financial Covenants
-------------------
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Bank has any Commitment hereunder, the
Borrower will observe and perform the following financial covenants, unless the
Required Banks (or the Agent with the consent of the Required Banks) shall
otherwise consent in writing:
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<PAGE>
Section 11.1. Consolidated Tangible Net Worth. The Borrower will at all
-------------------------------
times maintain or cause to be maintained Consolidated Tangible Net Worth in an
amount not less than the sum of (a) $100,000,000, plus (b) 50% of net income,
after provision for income taxes, of the Borrower and the Subsidiaries on a
consolidated basis (without any deduction for losses), for each fiscal quarter
of the Borrower ended through the date of determination beginning with the
fiscal quarter ending August 31, 1997, plus (c) 100% of the Net Proceeds
received by the Borrower from any issuance, sale or other disposition of any
shares of capital stock or other equity securities of the Borrower of any class
(or any securities convertible or exchangeable for any such shares, or any
rights, warrants, or options to subscribe for or purchase any such shares).
Section 11.2. Consolidated Interest Coverage Ratio. The Borrower will
------------------------------------
maintain or cause to be maintained, as of the end of each fiscal quarter of the
Borrower, an Interest Coverage Ratio of not less than 3.0 to 1.0 for the most
recent four fiscal quarters then ended.
Section 11.3. Companies Interest Coverage Ratio. The Borrower will
---------------------------------
maintain or cause to be maintained, as of the end of each fiscal quarter of the
Borrower, a ratio of (a) the Companies Cash Flow to (b) interest expense of the
Borrower and the Subsidiaries on a consolidated basis of not less than 1.25 to
1.0 for the most recent four quarters then ended. In the event it is determined
(by the most recent quarterly Compliance Certificate or otherwise) that the
Companies Cash Flow is not sufficient to cause compliance with this Section
-------
11.3, then within 10 days after such determination, the Borrower will cause to
- ----
be transferred to the Companies from the other Subsidiaries cash in an amount
which when added to the Companies Cash Flow is sufficient to cause compliance
with this Section 11.3, and, to the extent they comply with such covenant, the
------------
Companies shall be deemed to have met the requirements of this Section 11.3 for
------------
the relevant period of determination. Notwithstanding anything to the contrary
contained herein, the Companies may not use the transferred cash described in
the preceding sentence to meet the ratio requirements of this Section 11.3 in
------------
more than two consecutive fiscal quarters. Such transferred cash shall remain
with the Companies, notwithstanding any other covenants to the contrary
contained herein, until the Companies have demonstrated compliance with this
Section 11.3 without the benefit of such transferred cash.
- ------------
Section 11.4. Minimum Turnover Ratio. The Borrower will maintain or cause
----------------------
to be maintained, as of the end of each fiscal quarter of the Borrower, a ratio
of Cost of Goods Sold to Average Inventory of not less than 6.0 to 1.0.
Section 11.5. Consolidated Funded Debt to Consolidated Cash Flow Ratio.
--------------------------------------------------------
The Borrower will maintain or cause to be maintained, as of the end of each
fiscal quarter of the Borrower, a ratio of Consolidated Funded Debt, as of the
end of such quarter, to Consolidated Cash Flow, for the most recent four fiscal
quarters then ended, of not greater than (a) 4.0 to 1.0 for the fiscal quarter
ending November 30, 1997 and each fiscal quarter thereafter until and including
the fiscal quarter ending February 28, 1999, and (b) 3.5 to 1.0 thereafter.
Section 11.6. Consolidated Senior Debt to Consolidated Cash Flow Ratio.
--------------------------------------------------------
The Borrower will maintain, or cause to be maintained, as of each fiscal quarter
of the Borrower, a ratio of
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<PAGE>
Consolidated Senior Debt, as of the end of such quarter, to Consolidated Cash
Flow, for the most recent four fiscal quarters then ended, of not greater than
(a) 3.0 to 1.0 for the fiscal quarter ending November 30, 1997 and each fiscal
quarter thereafter until and including the fiscal quarter ending February 28,
1999, and (b) 2.5 to 1.0 thereafter.
ARTICLE XII
Default
-------
Section 12.1. Events of Default. Each of the following shall be deemed an
-----------------
"Event of Default":
(a) The Borrower shall fail to pay (i) any installment of
interest on any of the Notes or any fees after the expiration of five days
after the due date thereof, or (ii) any installment of principal on any of
the Notes or any other portion of the Obligations when due.
(b) Any representation or warranty made or deemed made by the
Borrower or any Obligated Party (or any of their respective officers) in
any Loan Document or in any certificate, report, notice, or financial
statement furnished at any time in connection with this Agreement shall be
false, misleading, or erroneous in any material respect when made or deemed
to have been made.
(c) The Borrower or any Obligated Party shall fail to perform,
observe, or comply with any of the covenants contained in Article IX
----------
(except Section 9.1) and such failure continues unremedied for a period of
-----------
15 days after the earlier of (i) the giving of notice to the Borrower by
the Agent or any Bank of such failure, or (ii) the Borrower's actual
knowledge of such failure.
(d) The Borrower or any Obligated Party shall fail to perform,
observe, or comply with any covenant, agreement, or term contained in this
Agreement or any other Loan Document (except those described in subsections
-----------
(a) and (c) of this Section).
--- ---
(e) The Borrower, any Subsidiary, or any Obligated Party shall
commence a voluntary proceeding seeking liquidation, reorganization, or
other relief with respect to itself or its debts under any bankruptcy,
insolvency, or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian, or other similar
official of it or a substantial part of its property or shall consent to
any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it or
shall make a general assignment for the benefit of creditors or shall
generally fail to pay its debts as they become due or shall take any
corporate action to authorize any of the foregoing.
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<PAGE>
(f) An involuntary proceeding shall be commenced against the
Borrower, any Subsidiary, or any Obligated Party seeking liquidation,
reorganization, or other relief with respect to it or its debts under any
bankruptcy, insolvency, or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian, or
other similar official for it or a substantial part of its property, and
such involuntary proceeding shall remain undismissed and unstayed for a
period of 60 days.
(g) The Borrower, any Subsidiary, or any Obligated Party shall
fail to discharge within a period of 30 days after the commencement thereof
any attachment, sequestration, or similar proceeding or proceedings
involving an aggregate amount in excess of $1,000,000 against any of their
assets or properties.
(h) A final judgment or judgments for the payment of money in
excess of $1,000,000 in the aggregate shall be rendered by a court or
courts against the Borrower, any Subsidiary, or any Obligated Party and the
same shall not be discharged (or provision shall not be made for such
discharge), or a stay of execution thereof shall not be procured, within 30
days from the date of entry thereof and the Borrower, the relevant
Subsidiary, or the relevant Obligated Party shall not, within said period
of 30 days, or such longer period during which execution of the same shall
have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal.
(i) (i) The Borrower, any Subsidiary, or any Obligated Party
shall fail to pay when due, after any applicable grace periods, any
principal of or interest on any Debt (other than the Obligations), or (ii)
the maturity of any such Debt shall have been accelerated, or (iii) any
such Debt shall have been required to be prepaid prior to the stated
maturity thereof, or (iv) with respect to any such Debt in excess of
$5,000,000, the occurrence of any other default, event of default, or other
breach the effect of which permits any holder or holders under such Debt or
any Person acting on behalf of such holder or holders to accelerate the
maturity thereof or require prepayment thereof, or (v) with respect to any
such Debt in excess of $1,000,000, any holder or holders of such Debt or
any Person acting on behalf of such holder or holders have accelerated the
maturity thereof or require any such prepayment upon the occurrence of a
default, event of default or breach other than a payment default.
(j) This Agreement or any other Loan Document shall cease to be
in full force and effect or shall be declared null and void or the validity
or enforceability thereof shall be contested or challenged by the Borrower,
any Subsidiary, any Obligated Party or any of their respective
shareholders, or the Borrower, any Subsidiary, or any Obligated Party shall
deny that it has any further liability or obligation under any of the Loan
Documents, or any lien or security interest created by the Loan Documents
shall for any reason cease to be a valid, first priority perfected security
interest in and lien upon any of the Collateral purported to be covered
thereby.
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(k) Any of the following events shall occur or exist with
respect to the Borrower, any Guarantor or any ERISA Affiliate: (i) any
Prohibited Transaction involving any Plan; (ii) any Reportable Event with
respect to any Plan; (iii) filing under Section 4041 of ERISA of a notice
of intent to terminate any Plan or the termination of any Plan; (iv) any
event or circumstance that might constitute grounds entitling the PBGC to
institute proceedings under Section 4042 of ERISA for the termination of,
or for the appointment of a trustee to administer, any Plan, or the
institution by the PBGC of any such proceedings; or (v) complete or partial
withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or
the reorganization, insolvency, or termination of any Multiemployer Plan;
and in each case above, such event or condition, together with all other
events or conditions, if any, have subjected or could in the reasonable
opinion of the Required Banks subject the Borrower or any Guarantor to any
tax, penalty, or other liability to a Plan, a Multiemployer Plan, the PBGC,
or otherwise (or any combination thereof) which in the aggregate exceed or
could reasonably be expected to exceed $25,000.
(l) Any Change of Control shall occur.
(m) The Borrower, any Subsidiary, or any Obligated Party, or any
of their properties, revenues, or assets, shall become subject to an order
of forfeiture, seizure, or divestiture and the same shall not have been
discharged within 30 days from the date of entry thereof.
(n) Any Material Adverse Effect shall occur.
Section 12.2. Remedies Upon Default. If any Event of Default shall occur
---------------------
and be continuing, the Agent may, with the consent of the Required Banks (and if
directed by the Required Banks, shall), do any one or more of the following:
(a) declare the Obligations or any part thereof to be immediately due and
payable, and the same shall thereupon become immediately due and payable,
without notice, demand, presentment, notice of dishonor, notice of acceleration,
notice of intent to accelerate, notice of intent to demand, protest, or other
formalities of any kind, all of which are hereby expressly waived by the
Borrower, (b) terminate the Commitments without notice to the Borrower or any
Guarantor, (c) reduce any claim to judgment, (d) foreclose or otherwise enforce
any Lien granted to the Agent for the benefit of itself and the Banks to secure
payment and performance of the Obligations, and (e) exercise any and all rights
and remedies afforded by the laws of the State of Texas or any other
jurisdiction, by any of the Loan Documents, by equity, or otherwise; provided,
--------
however, that upon the occurrence of an Event of Default under Section 12.1(e)
- ------- ---------------
or Section 12.1(f), the Commitments of the Banks shall automatically terminate,
---------------
and the Obligations shall become immediately due and payable without notice,
demand, presentment, notice of dishonor, notice of acceleration, notice of
intent to accelerate, notice of intent to demand, protest, or other formalities
of any kind, all of which are hereby expressly waived by the Borrower.
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Section 12.3. Cash Collateral. If any Event of Default shall occur and be
---------------
continuing, the Borrower agrees to, if requested by the Agent or the Required
Banks, immediately deposit with and pledge to the Agent cash or cash equivalent
investments satisfactory to the Agent in its sole and absolute discretion in an
amount equal to the outstanding Letter of Credit Liabilities as security for the
Obligations, and the Agent may retain, as additional Collateral for the payment
of the Obligations with respect to the Letters of Credit, any amounts received
upon foreclosure, or in lieu of foreclosure, through offset, as proceeds of any
Collateral or otherwise.
Section 12.4. Performance by the Agent. If the Borrower shall fail to
------------------------
perform any covenant or agreement contained in any of the Loan Documents, the
Agent may perform or attempt to perform such covenant or agreement on behalf of
the Borrower. In such event, the Borrower agrees to, at the request of the
Agent, promptly pay any amount expended by the Agent in connection with such
performance or attempted performance to the Agent, together with interest
thereon at the Default Rate from and including the date of such expenditure to
but excluding the date such expenditure is paid in full. Notwithstanding the
foregoing, it is expressly agreed that neither the Agent nor any Bank shall have
any liability or responsibility for the performance of any obligation of the
Borrower under this Agreement or any other Loan Document.
ARTICLE XIII
The Agent
---------
Section 13.1. Appointment, Powers and Immunities. In order to expedite
----------------------------------
the various transactions contemplated by this agreement, the Banks hereby
irrevocably appoint and authorize TCB to act as their Agent hereunder and under
each of the other Loan Documents. TCB consents to such appointment and agrees
to perform the duties of the Agent as specified herein. The Banks authorize and
direct the Agent to take such action in their name and on their behalf under the
terms and provisions of the Loan Documents and to exercise such rights and
powers thereunder as are specifically delegated to or required of the Agent for
the Banks, together with such rights and powers as are reasonably incidental
thereto. The Agent is hereby expressly authorized to act as the Agent on behalf
of itself and the other Banks:
(a) To receive on behalf of each of the Banks any payment of
principal, interest, fees or other amounts paid pursuant to this Agreement
and the Notes and to distribute to each Bank its pro rata share of all
payments so received as provided in this Agreement;
(b) To receive all documents and items to be furnished under the
Loan Documents;
(c) To act as nominee for and on behalf of the Banks in and
under the Loan Documents;
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(d) To arrange for the means whereby the funds of the Banks are
to be made available to the Borrower;
(e) To distribute to the Banks information, requests, notices,
payments, prepayments, documents and other items received from the
Borrower, the other Obligated Parties, and other Persons;
(f) To execute and deliver to the Borrower, the other Obligated
Parties, and other Persons, all requests, demands, approvals, notices, and
consents received from the Banks;
(g) To the extent permitted by the Loan Documents, to exercise
on behalf of each Bank all rights and remedies of Banks upon the occurrence
of any Event of Default;
(h) To accept, execute, and deliver the Borrower Security
Agreement, the Guarantor Security Agreements, the Pledge Agreements, and
any other security documents as the secured party; and
(i) To take such other actions as may be requested by Required
Banks.
Neither the Agent nor any of its Affiliates, officers, directors,
employees, attorneys, or agents shall be liable for any action taken or omitted
to be taken by any of them hereunder or otherwise in connection with this
Agreement or any of the other Loan Documents except for its or their own gross
negligence or willful misconduct. Without limiting the generality of the
preceding sentence, the Agent (i) may treat the payee of any Note as the holder
thereof until the Agent receives written notice of the assignment or transfer
thereof signed by such payee and in form satisfactory to the Agent; (ii) shall
have no duties or responsibilities except those expressly set forth in this
Agreement and the other Loan Documents, and shall not by reason of this
Agreement or any other Loan Document be a trustee or fiduciary for any Bank;
(iii) shall not be required to initiate any litigation or collection proceedings
hereunder or under any other Loan Document except to the extent requested by
Required Banks; (iv) shall not be responsible to the Banks for any recitals,
statements, representations or warranties contained in this Agreement or any
other Loan Document, or any certificate or other document referred to or
provided for in, or received by any of them under, this Agreement or any other
Loan Document, or for the value, validity, effectiveness, enforceability, or
sufficiency of this Agreement or any other Loan Document or any other document
referred to or provided for herein or therein or for any failure by any Person
to perform any of its obligations hereunder or thereunder; (v) may consult with
legal counsel (including counsel for the Borrower), independent public
accountants, and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants, or experts; and (vi) shall incur no
liability under or in respect of any Loan Document by acting upon any notice,
consent, certificate, or other instrument or writing believed by it to be
genuine and signed or sent by the proper party or parties. As to any matters
not expressly provided for by this Agreement, the Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder in
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accordance with instructions signed by Required Banks, and such instructions of
Required Banks and any action taken or failure to act pursuant thereto shall be
binding on all of the Banks; provided, however, that the Agent shall not be
-------- -------
required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or any other Loan Document or applicable
law.
Section 13.2. Rights of Agent as a Bank. With respect to its Commitment,
-------------------------
the Advances made by it and the Note issued to it, TCB in its capacity as a Bank
hereunder shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not acting as the Agent, and the term
"Bank" or "Banks" shall, unless the context otherwise indicates, include the
Agent in its individual capacity. The Agent and its Affiliates may (without
having to account therefor to any Bank) accept deposits from, lend money to, act
as trustee under indentures of, provide merchant banking services to, and
generally engage in any kind of business with the Borrower, any of its
Subsidiaries, any other Obligated Party, and any other Person who may do
business with or own securities of the Borrower, any Subsidiary, or any other
Obligated Party, all as if it were not acting as the Agent and without any duty
to account therefor to the Banks.
Section 13.3. Sharing of Payments, Etc. If any Bank shall obtain any
------------------------
payment of any principal of or interest on any Advance made by it under this
Agreement or payment of any other obligation under the Loan Documents then owed
by the Borrower or any other Obligated Party to such Bank, whether voluntary,
involuntary, through the exercise of any right of setoff, banker's lien,
counterclaim or similar right, or otherwise, in excess of its pro rata share,
such Bank shall promptly purchase from the other Banks participations in the
Advances held by them hereunder in such amounts, and make such other adjustments
from time to time as shall be necessary to cause such purchasing Bank to share
the excess payment ratably with each of the other Banks in accordance with its
pro rata portion thereof. To such end, all of the Banks shall make appropriate
adjustments among themselves (by the resale of participations sold or otherwise)
if all or any portion of such excess payment is thereafter rescinded or must
otherwise be restored. The Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any Bank so purchasing a
participation in the Advances made by the other Banks may exercise all rights of
setoff, banker's lien, counterclaim, or similar rights with respect to such
participation as fully as if such Bank were a direct holder of Advances to the
Borrower in the amount of such participation. Nothing contained herein shall
require any Bank to exercise any such right or shall affect the right of any
Bank to exercise, and retain the benefits of exercising, any such right with
respect to any other indebtedness or obligation of the Borrower.
SECTION 13.4. INDEMNIFICATION. THE BANKS HEREBY AGREE TO INDEMNIFY THE
---------------
AGENT FROM AND HOLD THE AGENT HARMLESS AGAINST (TO THE EXTENT NOT REIMBURSED
UNDER SECTIONS 14.1 AND 14.2, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE
------------- ----
BORROWER UNDER SECTIONS 14.1 AND 14.2), RATABLY IN ACCORDANCE WITH THEIR
------------- ----
RESPECTIVE COMMITMENTS, ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES
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(INCLUDING ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER
WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE AGENT IN ANY WAY
RELATING TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR
OMITTED TO BE TAKEN BY THE AGENT UNDER OR IN RESPECT OF ANY OF THE LOAN
DOCUMENTS; PROVIDED, FURTHER, THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF
--------
THE FOREGOING TO THE EXTENT CAUSED BY THE AGENT'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT IS THE EXPRESS INTENTION OF
THE BANKS THAT THE AGENT SHALL BE INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS
AGAINST ALL OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS'
FEES), AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE AGENT.
WITHOUT LIMITING ANY OTHER PROVISION OF THIS SECTION, EACH BANK AGREES TO
REIMBURSE THE AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON
THE BASIS OF THE COMMITMENTS) OF ANY AND ALL OUT-OF-POCKET EXPENSES (INCLUDING
ATTORNEYS' FEES) INCURRED BY THE AGENT IN CONNECTION WITH THE PREPARATION,
EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT
(WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL
ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO
THE EXTENT THAT THE AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY THE BORROWER OR
ANY OTHER OBLIGATED PARTY.
Section 13.5. Independent Credit Decisions. Each Bank agrees that it has
----------------------------
independently and without reliance on the Agent or any other Bank, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis of the Borrower and the Guarantors and decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent or
any other Bank, and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Loan
Documents. The Agent shall not be required to keep itself informed as to the
performance or observance by the Borrower or any Obligated Party of this
Agreement or any other Loan Document or to inspect the properties or books of
the Borrower or any Obligated Party. Except for notices, reports and other
documents and information expressly required to be furnished to the Banks by the
Agent hereunder or under the other Loan Documents, the Agent shall not have any
duty or responsibility to provide any Bank with any credit or other financial
information concerning the affairs, financial condition or business of the
Borrower or any Obligated Party (or any of their Affiliates) which may come into
the possession of the Agent or any of its Affiliates.
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Section 13.6. Several Commitments. The Commitments and other obligations
-------------------
of the Banks under this Agreement are several. The default by any Bank in
making an Advance in accordance with its Commitment shall not relieve the other
Banks of their obligations under this Agreement. In the event of any default by
any Bank in making any Advance, each nondefaulting Bank shall be obligated to
make its Advance but shall not be obligated to advance the amount which the
defaulting Bank was required to advance hereunder. In no event shall any Bank
be required to advance an amount or amounts which shall in the aggregate exceed
such Bank's Commitment. No Bank shall be responsible for any act or omission of
any other Bank.
Section 13.7. Successor Agent. Subject to the appointment and acceptance
---------------
of a successor Agent as provided below, the Agent may resign at any time by
giving notice thereof to the Banks and the Borrower, and the Agent may be
removed at any time with or without cause by Required Banks. Upon any such
resignation or removal, Required Banks will have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by Required
Banks and shall have accepted such appointment within 30 days after the retiring
Agent's giving of notice of resignation or the Required Banks' removal of the
retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a
successor Agent, which shall be a commercial bank organized under the laws of
the United States of America or any State thereof and having combined capital
and surplus of at least $100,000,000. Upon the acceptance of its appointment as
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all rights, powers, privileges, immunities, and duties of the
resigning or removed Agent, and the resigning or removed Agent shall be
discharged from its duties and obligations under this Agreement and the other
Loan Documents. After any Agent's resignation or removal as Agent, the
provisions of this Article XIII shall continue in effect for its benefit in
------------
respect of any actions taken or omitted to be taken by it while it was the
Agent.
ARTICLE XIV
Miscellaneous
-------------
Section 14.1. Expenses. The Borrower agrees to pay on demand: (a) all
--------
reasonable costs and out-of-pocket expenses of the Agent in connection with the
preparation, negotiation, execution, and delivery of this Agreement and the
other Loan Documents and any and all amendments, modifications, renewals,
extensions, and supplements thereof and thereto, including, without limitation,
the reasonable fees and expenses of legal counsel for the Agent, (b) all costs
and out-of-pocket expenses of the Agent and the Banks, or any of them in
connection with any Default and the enforcement of this Agreement or any other
Loan Document, including, without limitation, the reasonable fees and expenses
of legal counsel for the Agent and the Banks, or any of them, (c) all transfer,
stamp, documentary, or other similar taxes, assessments, or charges levied by
any Governmental Authority in respect of this Agreement or any of the other Loan
Documents, (d) all reasonable costs, out-of-pocket expenses, assessments, and
other charges incurred in connection with any filing, registration, recording,
or perfection of any security interest or Lien contemplated by this Agreement or
any other Loan Document, and (e) all other reasonable costs and out-of-pocket
expenses incurred by the Agent in connection with this
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Agreement or any other Loan Document, including, without limitation, all fees,
costs, out-of-pocket expenses, and other charges incurred in connection with
performing or obtaining any audit or appraisal in respect of the Collateral.
SECTION 14.2. INDEMNIFICATION. THE BORROWER HEREBY AGREES TO INDEMNIFY
---------------
THE AGENT AND EACH BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AGENTS, AND PARTICIPANTS FROM, AND
HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS,
DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, INTEREST, EXPENSES
(INCLUDING REASONABLE ATTORNEYS' FEES), AND AMOUNTS PAID IN SETTLEMENT TO WHICH
ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE
TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR
ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS
CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY THE BORROWER OR ANY
GUARANTOR OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT
CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED
RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON,
ABOUT, WITHIN, OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF THE BORROWER OR
ANY SUBSIDIARY, (E) THE USE OR PROPOSED USE OF ANY LETTER OF CREDIT, (F) ANY AND
ALL TAXES, LEVIES, DEDUCTIONS, AND CHARGES IMPOSED ON THE AGENT OR ANY BANK OR
ANY OF THEIR RESPECTIVE CORRESPONDENTS IN RESPECT OF ANY LETTER OF CREDIT OR
ALTERNATE CURRENCY ADVANCE, OR (G) ANY INVESTIGATION, LITIGATION, OR OTHER
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION,
LITIGATION, OR OTHER PROCEEDING, RELATING TO ANY OF THE FOREGOING; PROVIDED,
--------
HOWEVER THAT NO PERSON TO BE INDEMNIFIED HEREUNDER SHALL HAVE THE RIGHT TO BE
- -------
INDEMNIFIED FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT
LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS
THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED
UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND
ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS,
COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM
THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON.
Section 14.3. Limitation of Liability. None of the Agent, any Bank, or
-----------------------
any Affiliate, officer, director, employee, attorney, or agent thereof shall
have any liability with respect to, and the Borrower hereby waives, releases,
and agrees not to sue any of them upon, any claim for any special, indirect,
incidental, or consequential damages suffered or incurred by the Borrower in
connection with, arising out of, or in any way related to, this Agreement or any
of the other Loan
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Documents, or any of the transactions contemplated by this Agreement or any of
the other Loan Documents. The Borrower hereby waives, releases, and agrees not
to sue the Agent or any Bank or any of their respective Affiliates, officers,
directors, employees, attorneys, or agents for punitive damages in respect of
any claim in connection with, arising out of, or in any way related to, this
Agreement or any of the other Loan Documents, or any of the transactions
contemplated by this Agreement or any of the other Loan Documents.
Section 14.4. No Fiduciary Relationship. The relationship between the
-------------------------
Borrower and each Bank with respect to the Loan Documents and the transactions
governed thereby is solely that of debtor and creditor, and neither the Agent
nor any Bank has any fiduciary or other special relationship with the Borrower
with respect to the Loan Documents and the transactions governed thereby, and no
term or condition of any of the Loan Documents shall be construed so as to deem
the relationship between the Borrower and any Bank with respect to the Loan
Documents and the transactions governed thereby to be other than that of debtor
and creditor.
Section 14.5. No Waiver; Cumulative Remedies. No failure on the part of
------------------------------
the Agent or any Bank to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power, or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power, or privilege under this Agreement preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege. The rights and remedies provided for in this Agreement and the other
Loan Documents are cumulative and not exclusive of any rights and remedies
provided by law.
Section 14.6. Successors and Assigns.
----------------------
(a) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The
Borrower shall not be permitted to assign or transfer any of its rights or
obligations hereunder without the prior written consent of the Agent and
all of the Banks. Any Bank may sell participations to one or more banks or
other institutions in or to all or a portion of its rights and obligations
under this Agreement and the other Loan Documents (including, without
limitation, all or a portion of its Commitments, the Advances owing to it
and its share of Letter of Credit Liabilities); provided, however, that (i)
-------- -------
such Bank's obligations under this Agreement and the other Loan Documents
(including, without limitation, its Commitment) shall remain unchanged,
(ii) such Bank shall remain solely responsible to the Borrower for the
performance of such obligations, (iii) such Bank shall remain the holder of
its Note for all purposes of this Agreement, (iv) the Borrower shall
continue to deal solely and directly with such Bank in connection with such
Bank's rights and obligations under this Agreement and the other Loan
Documents, and (v) such Bank shall not sell a participation that conveys to
the participant the right to vote or give or withhold consents under this
Agreement or any other Loan Document, other than the right to vote upon or
consent to (A) any increase of such Bank's Commitment, (B) any reduction of
the principal amount of, or interest to be paid on, the Advances of such
Bank, (C) any reduction of any commitment fee or other amount payable to
such Bank under any Loan
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Document, (D) any postponement of any date for the payment of any amount
payable in respect of the Advances of such Bank, or (E) any material
release of Collateral other than releases contemplated in the Loan
Documents as in effect on the date hereof and releases upon full payment
and performance of the Obligations and termination of the Commitments.
Such participants shall have no rights under the Loan Documents, other than
certain voting rights as provided above. Subject to the following, each
Bank may obtain (on behalf of its participants) the benefits of Article V
---------
with respect to all participations in its part of the Obligations
outstanding from time to time. If a participant is entitled to the
benefits of Article V or a Bank grants rights to its participants to vote
---------
or give or withhold consents respecting the matters described above, then
that Bank must include a voting mechanism in the relevant participation
agreement whereby a majority of its portion of the Obligations (whether
held by it or participated) shall control the vote for all of that Bank's
portion of the Obligations. Except in the case of the sale of a
participating interest to another Bank, the relevant participation
agreement shall prohibit the participant from transferring, pledging,
assigning, selling participations in, or otherwise encumbering its portion
of the Obligations.
(b) The Borrower and each of the Banks agree that any Bank may at any
time assign to one or more Eligible Assignees all, or a proportionate part
of all, of its rights and obligations under this Agreement and the other
Loan Documents (including, without limitation, its Commitment, Advances and
Letter of Credit Liabilities); provided, however, that (i) the Borrower
-------- -------
shall have given its prior written consent to such assignment, such consent
not to be unreasonably withheld, provided that after the occurrence and
during the continuance of a Default no consent of the Borrower shall be
required for any such assignment, (ii) each such assignment shall be of a
consistent, and not a varying, percentage of all of the assigning Bank's
rights and obligations under this Agreement and the other Loan Documents,
(iii) except in the case of an assignment of all of a Bank's rights and
obligations under this Agreement and the other Loan Documents, the amount
of the Commitment of the assigning Bank being assigned pursuant to each
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $5,000,000, and
the amount of the Commitment of the assigning Bank remaining after each
such assignment shall in no event be less than $5,000,000, and (iv) the
parties to each such assignment shall execute and deliver to the Agent for
its acceptance and recording in the Register (as defined below), an
Assignment and Acceptance, together with the Note subject to such
assignment, and a processing and recordation fee of $3,000. Upon such
execution, delivery, acceptance, and recording, from and after the
effective date specified in each Assignment and Acceptance, which effective
date shall be at least 10 Business Days after the execution thereof, or, if
so specified in such Assignment and Acceptance, the date of acceptance
thereof by the Agent, (x) the assignee thereunder shall be a party hereto
as a "Bank" and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment and Acceptance, have the
rights and obligations of a Bank hereunder and under the Loan Documents and
(y) the Bank that is an assignor thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
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Assignment and Acceptance, relinquish its rights and be released from its
obligations under this Agreement and the other Loan Documents (and, in the
case of an Assignment and Acceptance covering all or the remaining portion
of a Bank's rights and obligations under the Loan Documents, such Bank
shall cease to be a party thereto).
(c) By executing and delivering an Assignment and Acceptance, the Bank
that is an assignor thereunder and the assignee thereunder confirm to and
agree with each other and the other parties hereto as follows: (i) other
than as provided in such Assignment and Acceptance, such assigning Bank
makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties, or representations made in or in
connection with the Loan Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency, or value of the Loan Documents or
any other instrument or document furnished pursuant thereto; (ii) such
assigning Bank makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or
any Obligated Party or the performance or observance by the Borrower or any
Obligated Party of its obligations under the Loan Documents; (iii) such
assignee confirms that it has received a copy of the other Loan Documents,
together with copies of the financial statements referred to in Section 8.2
-----------
and such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into such Assignment and
Acceptance; (iv) such assignee will, independently and without reliance
upon the Agent or such assignor and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement and the other
Loan Documents; (v) such assignee confirms that it is an Eligible Assignee;
(vi) such assignee appoints and authorizes the Agent to take such action as
agent on its behalf and exercise such powers under the Loan Documents as
are delegated to the Agent by the terms thereof, together with such powers
as are reasonably incidental thereto; and (vii) such assignee agrees that
it will perform in accordance with their terms all of the obligations which
by the terms of the Loan Documents are required to be performed by it as a
Bank.
(d) The Agent may maintain at its Principal Office a copy of each
Assignment and Acceptance delivered to and accepted by it and a register
for the recordation of the names and addresses of the Banks and the
Commitment of, and principal amount of the Advances owing to, each Bank
from time to time (the "Register"). The entries in the Register shall be
--------
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent, and the Banks may treat each Person whose name is
recorded in the Register as a Bank hereunder for all purposes under the
Loan Documents. The Register shall be available for inspection by the
Borrower or any Bank at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Bank and assignee representing that it is an Eligible Assignee,
together with any Note subject to such assignment, the Agent shall, if such
Assignment and Acceptance has
-70-
<PAGE>
been completed and is in substantially the form of Exhibit I hereto and all
---------
requirements set forth in this Section have been satisfied, (i) accept such
Assignment and Acceptance, (ii) record the information contained therein in
the Register, if any, and (iii) give prompt written notice thereof to the
Borrower. Within five Business Days after its receipt of such notice, the
Borrower shall execute and deliver to the Agent in exchange for the
surrendered Note a new Note payable to the order of such Eligible Assignee
in an amount equal to the Commitment assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Bank has retained a
Commitment, a new Note payable to the order of the assigning Bank in an
amount equal to the Commitment retained by it hereunder (each such
promissory note shall constitute a "Note" for purposes of the Loan
Documents). Such new Notes shall be in an aggregate face amount of the
surrendered Note, shall be dated the effective date of such Assignment and
Acceptance, and shall otherwise be in substantially the form of Exhibit A
---------
hereto.
(f) Any Bank may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section, disclose
to the assignee or participant or proposed assignee or participant, subject
to the confidentiality agreements between the Borrower and the Banks, any
information relating to the Borrower, the Subsidiaries or the Foreign
Affiliates furnished to such Bank by or on behalf of the Borrower, the
Subsidiaries or the Foreign Affiliates.
(g) Any Bank may at any time, without the consent of the Borrower or
the Agent, collaterally assign all or any of its rights under the Loan
Documents to a Federal Reserve Bank; provided, however, that no such
-------- -------
assignment shall release the assigning Bank from its obligations
thereunder.
Section 14.7. Survival. All representations and warranties made in this
--------
Agreement or any other Loan Document or in any document, statement, or
certificate furnished in connection with this Agreement shall survive the
execution and delivery of this Agreement and the other Loan Documents, and no
investigation by the Agent or any Bank or any closing shall affect the
representations and warranties or the right of the Agent or any Bank to rely
upon them. Without prejudice to the survival of any other obligation of the
Borrower hereunder, the obligations of the Borrower under Sections 14.1 and 14.2
----------------------
shall survive repayment of the Notes and termination of the Commitments and the
Letters of Credit.
Section 14.8. ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES, AND THE OTHER
----------------
LOAN DOCUMENTS REFERRED TO HEREIN REPRESENT THE FINAL AGREEMENT AMONG THE
PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. This Agreement replaces that
certain Amended and Restated Loan Agreement dated as of July 20, 1995 as amended
(the "Existing Agreement"), among NAC, the Borrower, the banks named therein and
TCB as agent for such banks, which Existing Agreement is being terminated as of
the date hereof by a separate termination agreement.
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<PAGE>
Section 14.9. Amendments, Etc. No amendment or waiver of any provision of
----------------
this Agreement, the Notes, or any other Loan Document to which the Borrower is a
party (other than the Engagement Letter), nor any consent to any departure by
the Borrower therefrom, shall in any event be effective unless the same shall be
agreed or consented to in writing by Required Banks (or Agent with the consent
of Required Banks) and the Borrower, and each such waiver, amendment, or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, that no amendment, waiver, or consent shall, unless
--------
in writing and signed by all of the Banks and the Borrower, do any of the
following: (a) increase Commitments of the Banks or subject the Banks to any
additional obligations; (b) reduce the principal of, or interest on, the Notes
or any fees or other amounts payable hereunder (except any fees payable to the
Agent solely for its account as specified herein or in the Engagement Letter);
(c) postpone any date fixed for any payment of principal of, or interest on, the
Notes or any fees or other amounts payable hereunder (except any fees payable to
the Agent solely for its account as specified herein or in the Engagement
Letter); (d) increase any of the percentages of Eligible Accounts and Eligible
Inventory included in the Asset Coverage Amount, as set forth in the definition
thereof, or any change in the definition of Eligible Accounts or Eligible
Inventory that results in an increase in the assets or values of assets included
in the Asset Coverage Amount; (e) waive any of the conditions specified in
Article VII; (f) change the percentage of the Commitments or of the aggregate
- -----------
unpaid principal amount of the Notes or the number of Banks which shall be
required for the Banks or any of them to take any action under this Agreement;
(g) change any provision contained in this Section 14.9; (h) release any
------------
Collateral or any Guarantor. Notwithstanding anything to the contrary contained
in this Section, no amendment, waiver, or consent shall be made with respect to
Article XIII hereof without the prior written consent of the Agent.
- ------------
Section 14.10. Maximum Interest Rate. No provision of this Agreement or
---------------------
any other Loan Document shall require the payment or the collection of interest
in excess of the maximum amount permitted by applicable law. If any excess of
interest in such respect is hereby provided for, or shall be adjudicated to be
so provided, in any Loan Document or otherwise in connection with this loan
transaction, the provisions of this Section shall govern and prevail and neither
the Borrower nor the sureties, guarantors, successors, or assigns of the
Borrower shall be obligated to pay the excess amount of such interest or any
other excess sum paid for the use, forbearance, or detention of sums loaned
pursuant hereto. In the event any Bank ever receives, collects, or applies as
interest any such sum, such amount which would be in excess of the maximum
amount permitted by applicable law shall be applied as a payment and reduction
of the principal of the indebtedness; and, if the principal has been paid in
full, any remaining excess shall forthwith be paid to the Borrower. In
determining whether or not the interest paid or payable exceeds the Maximum
Rate, the Borrower and each Bank shall, to the extent permitted by applicable
law, (a) characterize any non-principal payment as an expense, fee, or premium
rather than as interest, (b) exclude voluntary prepayments and the effects
thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal
parts the total amount of interest throughout the entire contemplated term of
the indebtedness evidenced by the Notes so that interest for the entire term
does not exceed the Maximum Rate.
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<PAGE>
Section 14.11. Notices. All notices and other communications provided for
-------
in this Agreement and the other Loan Documents shall be given in writing and
telecopied, mailed by certified mail return receipt requested, or delivered to
the intended recipient at the "Address for Notices" specified below its name on
the signature pages hereof; or, as to any party at such other address as shall
be designated by such party in a notice to the other party given in accordance
with this Section. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telecopy, subject to telephone confirmation of receipt, or when personally
delivered or, in the case of a mailed notice, when duly deposited in the mails,
in each case given or addressed as aforesaid; provided, however, notices to the
-------- -------
Agent pursuant to Article II and Article III shall not be effective until
---------- -----------
received by the Agent.
SECTION 14.12. GOVERNING LAW; VENUE; SERVICE OF PROCESS. THIS AGREEMENT
----------------------------------------
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS AGREEMENT
HAS BEEN ENTERED INTO IN DALLAS COUNTY, TEXAS, AND IT SHALL BE PERFORMABLE FOR
ALL PURPOSES IN DALLAS COUNTY, TEXAS. ANY ACTION OR PROCEEDING AGAINST THE
BORROWER UNDER OR IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS MAY BE BROUGHT IN
ANY STATE OR FEDERAL COURT IN DALLAS COUNTY, TEXAS. THE BORROWER HEREBY
IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B)
WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN
INCONVENIENT FORUM. THE BORROWER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE
MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS
SPECIFIED OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14.11.
-------------
NOTHING HEREIN OR IN ANY OF THE OTHER LOAN DOCUMENTS SHALL AFFECT THE RIGHT OF
THE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT OF THE AGENT OR ANY BANK TO BRING ANY ACTION OR PROCEEDING
AGAINST THE BORROWER OR WITH RESPECT TO ANY OF ITS RESPECTIVE PROPERTY IN COURTS
IN OTHER JURISDICTIONS. ANY ACTION OR PROCEEDING BY THE BORROWER AGAINST THE
AGENT OR ANY BANK SHALL BE BROUGHT ONLY IN A COURT LOCATED IN DALLAS COUNTY,
TEXAS.
Section 14.13. Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 14.14. Severability. Any provision of this Agreement held by a
------------
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
-73-
<PAGE>
Section 14.15. Headings. The headings, captions, and arrangements used in
--------
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 14.16. Non-Application of Chapter 346 of Texas Finance Code. The
----------------------------------------------------
provisions of Chapter 346 of the Texas Finance Code (Vernon's Texas Civil
Statutes) are specifically declared by the parties hereto not to be applicable
to this Agreement or any of the other Loan Documents or to the transactions
contemplated hereby.
Section 14.17. Construction. The Borrower, the Agent and each Bank
------------
acknowledge that each of them has had the benefit of legal counsel of its own
choice and has been afforded an opportunity to review this Agreement and the
other Loan Documents with its legal counsel and that this Agreement and the
other Loan Documents shall be construed as if jointly drafted by the parties
hereto.
Section 14.18. Independence of Covenants. All covenants hereunder shall
-------------------------
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
exists.
Section 14.19. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
--------------------
APPLICABLE LAW, THE BORROWER HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT
TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED
UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF THE AGENT
OR ANY BANK IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
-74-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
BORROWER:
--------
CELLSTAR CORPORATION
By: /s/ Mark Q. Huggins
------------------------------
Mark Q. Huggins
Senior Vice President and
Chief Financial Officer
Address for Notices:
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Telephone No.: (972) 466-5000
Attention: General Counsel
AGENTS AND BANKS:
----------------
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent and as a Bank
Commitment By: /s/ Allen K. King
- ---------- ------------------------------
Allen K. King
$25,000,000, including a Vice President
$5,000,000 Swing Line Commitment
Address for Notices:
Address: 2200 Ross Avenue, 3rd Floor
Dallas, Texas 75201
Fax No.: (214) 965-2997
Telephone No.: (214) 965-2705
Attention: Allen K. King
-75-
<PAGE>
Principal Office:
1111 Fannin St.
9th Floor, MS46
Houston, Texas 77002
Fax No.: (713) 750-3810
Telephone No.: (713) 750-2784
Attention: Loan Syndication Services/
Gale Manning
Principal Office for interest rate determinations:
707 Travis
Houston, Texas 77002
THE FIRST NATIONAL BANK OF CHICAGO,
as a Co-Agent and a Bank
Commitment By: /s/ Kathleen Comella
- ---------- ----------------------------------------
Name: Kathleen Comella
-----------------------------------
$25,000,000 Title: Vice President
----------------------------------
Address for Notices:
Address: One First National Plaza
Suite 0088
Chicago, Illinois 60670
Fax No.: 312/732-3055
Telephone No.: 312/732-1706
Attention: Cory Olson
NATIONAL CITY BANK,
as a Co-Agent and a Bank
Commitment By: /s/ Don Pullen
- ---------- ----------------------------------------
Name: Don Pullen
-----------------------------------
$25,000,000 Title: V.P.
----------------------------------
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<PAGE>
Address for Notices:
Address: 101 S. Fifth, 7th Floor
Louisville, Kentucky 40202
Fax No.: (502) 581-5122
Telephone No.: (502) 581-6352 or
(502) 894-9444
Attention: Don Pullen/Randy Rawe
CREDIT LYONNAIS NEW YORK BRANCH
Commitment By: /s/ Robert Ivosevich
- ---------- ----------------------------------------
Robert Ivosevich
$20,000,000 Senior Vice President
Address for Notices:
Address: 2200 Ross Avenue, Suite 4400W
Dallas, Texas 75201
Fax No.: (214) 220-2323
Telephone No.: (214) 220-2300
Attention: Sam Hill
THE FUJI BANK, LIMITED, HOUSTON AGENCY
Commitment By: /s/ Nate Ellis
- ---------- ----------------------------------------
Name: Nate Ellis
--------------------------------------
$20,000,000 Title: Vice President & Manager
-------------------------------------
Address for Notices:
Address: 1 Houston Center, Suite 4100
1221 McKinney Street
Houston, Texas 77010
Fax No.: (713) 759-0717
Telephone No.: (713) 650-7854
Attention: Christopher Smith
-77-
<PAGE>
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
Commitment By: /s/ Craig T. Scheef
- ---------- ----------------------------------------
Name: Craig T. Scheef
-----------------------------------
$20,000,000 Title: Vice President
----------------------------------
Address for Notices:
Address: 1445 Ross Avenue
Dallas, Texas 75202
Fax No.: (214) 740-1519
Telephone No.: (214) 740-1548
Attention: Craig Scheef
-78-
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit Description of Exhibit
- ------- ----------------------
A Form of Revolving Credit Note
B Advance Request Form
C Letter of Credit Request Form
D Compliance Certificate
E-1 Borrower Security Agreement
E-2 Guarantor Security Agreement
F Form of Pledge Agreement
G Guaranty
H-1 L/C Application for Standby Letters of Credit
H-2 L/C Application for Commercial Letters of Credit
I Assignment and Acceptance
J Contribution and Indemnification Agreement
K Account Information
INDEX TO SCHEDULES
------------------
Schedule Description of Exhibit
- -------- ----------------------
8.5 Existing Litigation
8.9 Existing Debt
8.14 Subsidiaries and Foreign Affiliates
8.19 Environmental Matters
8.20 Patents, Trademarks and Copyrights
10.2 Existing Liens
-79-
<PAGE>
EXHIBIT A
TO
CREDIT AGREEMENT
Form of Revolving Credit Note
-----------------------------
<PAGE>
REVOLVING CREDIT NOTE
---------------------
$__________________ Dallas, Texas October 15, 1997
FOR VALUE RECEIVED, the undersigned, CELLSTAR CORPORATION, a Delaware
corporation ("Maker"), hereby promises to pay to the order of _________________
-----
("Payee"), at the offices of Texas Commerce Bank National Association, as agent
-----
(together with any successor as provided in the Agreement, hereinbelow defined,
the "Agent"), at 1111 Fannin St., 9th Floor, MS46, Houston, Texas 77002, on the
-----
dates hereinafter specified, in lawful money of the United States of America,
the principal sum of _________________________ ($_____________) or so much
thereof as may be advanced and outstanding hereunder, together with interest as
hereinafter specified.
This Note is one of the Revolving Credit Notes referred to in that certain
Credit Agreement dated as of October 15, 1997, among Maker, Payee, Agent, The
First National Bank of Chicago and National City Bank, as co-agents
(collectively, the "Co-Agents"), and each of the other banks or lending
---------
institutions which is or may from time to time become a signatory thereto and
any successors or permitted assigns thereof (such Credit Agreement, as the same
may be amended, modified, or supplemented from time to time, being referred to
herein as the "Agreement"). Capitalized terms used and not otherwise defined in
---------
this Note have the respective meanings specified in the Agreement.
The Agreement, among other things, contains provisions for acceleration of
the maturity of this Note upon the happening of certain stated events and also
for prepayments of Advances prior to the maturity of this Note upon the terms
and conditions specified in the Agreement.
This Note evidences Advances made by the Agent and the Banks to Maker under
the Agreement. In addition, as provided in Section 3.4 of the Agreement, each
payment made by Agent pursuant to a drawing under a Letter of Credit shall
constitute and be deemed an Advance by the Banks to Maker, including an Advance
by Payee to Maker under this Note, in accordance with the terms of the
Agreement. Maker may borrow, repay and reborrow hereunder upon the terms and
conditions specified in the Agreement.
The outstanding principal balance hereof shall bear interest at a varying
rate per annum which shall from day to day be equal to the lesser of (a) the
Maximum Rate, or (b) the Applicable Rate, each such change in the rate of
interest charged hereunder to become effective, without notice to Maker, on the
effective date of each change in the Applicable Rate or the Maximum Rate, as the
case may be; provided, however, if at any time the Applicable Rate shall exceed
-------- -------
the Maximum Rate, thereby causing the interest rate hereon to be limited to the
Maximum Rate, then any subsequent reduction in the Applicable Rate shall not
reduce the rate of interest hereon below the Maximum Rate until the total amount
of interest accrued hereon equals the amount of interest which would have
accrued hereon if the Applicable Rate had at all times been in effect.
REVOLVING CREDIT NOTE - Page 1
<PAGE>
Accrued and unpaid interest on this Note shall be due and payable on the
dates specified in Section 2.5 of the Agreement. All principal of this Note
-----------
shall be due and payable on the Termination Date. All past due principal and
interest shall bear interest at the Default Rate. Interest payable at the
Default Rate shall be payable from time to time on demand.
Interest on the Eurodollar Advances and Alternate Currency Advances shall
be computed on the basis of a year of 360 days and the actual number of days
elapsed; provided that, in the case of Advances denominated in any Alternate
Currency in respect of which the Agent has determined that a 365-day basis is
standard market practice in the applicable interbank market, interest shall be
calculated on the basis of a year of 365 days and the actual number of days
elapsed. Interest on the Floating Rate Advances shall be computed on the basis
of a year of 360 days and the actual number of days elapsed at all times when
the Alternate Base Rate is based on the Federal Funds Effective Rate and a year
of 365 or 366 days, as the case may be, and the actual number of days elapsed at
all times when the Alternate Base Rate is the Prime Rate.
Notwithstanding anything to the contrary contained herein, no provisions of
this Note shall require the payment or permit the collection of interest in
excess of the Maximum Rate. If any excess of interest in such respect is herein
provided for, or shall be adjudicated to be so provided, in this Note or
otherwise in connection with this loan transaction, the provisions of this
paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this Note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker. In determining whether or not the interest paid or
payable exceeds the Maximum Rate, Maker and Payee shall, to the extent permitted
by applicable law, (i) characterize any non-principal payment as an expense,
fee, or premium rather than as interest, (ii) exclude voluntary prepayments and
the effects thereof, and (iii) amortize, prorate, allocate, and spread in equal
or unequal parts the total amount of interest throughout the entire contemplated
term of the indebtedness evidenced by this Note so that the interest for the
entire term does not exceed the Maximum Rate.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS
NOTE IS PERFORMABLE IN DALLAS COUNTY, TEXAS.
Maker and each surety, guarantor, endorser, and other party ever liable for
payment of any sums of money payable on this Note jointly and severally waive
notice, presentment, demand for payment, protest, notice of protest and non-
payment or dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, grace, and all other
formalities of any kind, except any notice and grace periods provided in the
Agreement, and consent to all extensions without notice for any period or
periods of time and partial payments, before or after maturity, and any
impairment of any Collateral securing this Note, all without prejudice to the
holder. The holder shall similarly have the right to deal in any way, at any
time,
REVOLVING CREDIT NOTE - Page 2
<PAGE>
with one or more of the foregoing parties without notice to any other party, and
to grant any such party any extensions of time for payment of any of said
indebtedness, or to release or substitute part or all of the Collateral securing
this Note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this Note or any continuation thereof or to record in its internal
records all advances made to Maker hereunder and all payments made on account of
the principal thereof, which endorsements or records shall be prima facie
evidence as to the outstanding principal amount of this Note; provided, however,
any failure by the holder hereof to make any endorsement or record shall not
limit or otherwise affect the obligations of Maker under the Agreement or this
Note.
CELLSTAR CORPORATION
By:___________________________________________
Mark Q. Huggins
Senior Vice President
and Chief Financial Officer
REVOLVING CREDIT NOTE - Page 3
<PAGE>
Schedule
DATE ADVANCE PRINCIPAL PAYMENT BALANCE
-------- ------------- ------------------- -----------
-------- ------------- ------------------- -----------
-------- ------------- ------------------- -----------
-------- ------------- ------------------- -----------
-------- ------------- ------------------- -----------
-------- ------------- ------------------- -----------
-------- ------------- ------------------- -----------
-------- ------------- ------------------- -----------
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-------- ------------- ------------------- -----------
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-------- ------------- ------------------- -----------
<PAGE>
EXHIBIT B
TO
CREDIT AGREEMENT
Advance Request Form
--------------------
<PAGE>
ADVANCE REQUEST FORM
--------------------
TO: Texas Commerce Bank National Association, as Agent
2200 Ross Avenue, 3rd Floor
Dallas, Texas 75201
Attention: Allen K. King
Ladies and Gentlemen:
The undersigned is an officer of CELLSTAR CORPORATION, a Delaware
corporation (the "Borrower"), and is authorized to make and deliver this
--------
certificate pursuant to that certain Credit Agreement dated as of October 15,
1997, among the Borrower, each of the banks or other lending institutions which
is or may from time to time become a signatory thereto and any successors or
permitted assignees thereof, The First National Bank of Chicago and National
City Bank, as co-agents (collectively, the "Co-Agents"), and Texas Commerce Bank
---------
National Association, a national banking association, as agent for itself and
the other Banks and as issuer of Letters of Credit thereunder (the "Agent")
-----
(such Credit Agreement as the same may be amended, supplemented or modified from
time to time, being hereinafter referred to as the "Credit Agreement"). All
----------------
terms defined in the Credit Agreement shall have the same meaning herein.
In accordance with the Credit Agreement, the Borrower hereby (check
whichever is applicable):
_____ 1. Requests that the Banks make an Advance (the "Requested Advance"), in
-----------------
the amount set forth in item (g) below, of the following Type (check
whichever is applicable):
_____ Floating Rate Advance
_____ Eurodollar Advance having an Interest Period of (check
whichever is applicable):
_____ one month
_____ two months
_____ three months
_____ Alternate Currency Advance
a. In _________________ (type of Alternate Currency)
b. Having an Interest Period of (check whichever is
applicable):
_____ one month
_____ two months
_____ three months
_____ Swing Line Advance/1/
_____ 2. Requests that the Banks Convert a Floating Rate Advance/2/ into a
Eurodollar Advance in the amount of $__________, having an Interest
Period of (check whichever is applicable):
______________________
/1/ Swing Line Advances must be Floating Rate Advances
/2/ Swing Line Advances may not be converted into Eurodollar Advances or
Alternate Currency Advances
ADVANCE REQUEST FORM - Page 1
<PAGE>
_____ one month
_____ two months
_____ three months
_____ 3. Request that the Banks Convert a Floating Rate Advance/2/ into an
Alternate Currency Advance in the Equivalent Amount of
$_______________.
a. Having an Interest Period of (check whichever is
applicable):
_____ one month
_____ two months
_____ three months
b. In ____________________ (type of Alternate Currency) of
$__________.
_____ 4. Requests that the Banks Convert a Eurodollar Advance into a Floating
Rate Advance in the amount $__________.
_____ 5. Request that the Banks Convert a Eurodollar Advance into an
Alternate Currency Advance in the Equivalent Amount of
$______________.
a. Having an Interest Period of (check whichever is applicable):
_____ one month
_____ two months
_____ three months
b. In ____________________ (type of Alternate Currency)
_____ 6. Request that the Banks Convert an Alternate Currency Advance in
_______________ (type of Alternative Currency) into a Floating Rate
Advance in the amount of $_______________.
_____ 7. Request that the Banks Convert an Alternate Currency Advance in
________________ (type of Alternate Currency) into a Eurodollar
Advance in the amount of $_____________, having an Interest Period of
(check whichever is applicable):
_____ one month
_____ two months
_____ three months
_____ 8. Requests that the Banks Continue a Eurodollar Advance in the amount of
$__________, having an Interest Period of (check whichever is
applicable):
_____ one month
_____ two months
_____ three months
_____ 9. Requests that the Banks Continue an Alternate Currency Advance in the
Equivalent Amount of $___________:
ADVANCE REQUEST FORM - Page 2
<PAGE>
a. Having an Interest Period of (check whichever is applicable):
_____ one month
_____ two months
_____ three months
b. In _____________________ (type of Alternate Currency)
The Borrower hereby requests and instructs the Agent to make the Requested
Advance available to Borrower by (check whichever is applicable):
_____ depositing the same in the following account maintained with Agent:
--------------------------------------------------------------------
--------------------------------------------------------------------
_____ wire transfer in accordance with the following wiring instructions:
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
In connection with the foregoing and pursuant to the terms and provisions
of the Credit Agreement, the undersigned hereby certifies that the following
statements are true and correct:
(i) The representations and warranties contained in Article VIII of
the Credit Agreement and in each of the other Loan Documents are true and
correct on and as of the date hereof with the same force and effect as if
made on and as of such date.
(ii) No Default has occurred and is continuing or would result from
the Requested Advance.
(iii) The amount of the Requested Advance, when added to all
outstanding Advances and Letter of Credit Liabilities, will not exceed the
lesser of the Asset Coverage Amount or the amount of the Commitments.
(iv) If the Requested Advance is an Alternate Currency Advance, the
amount of such Requested Advance when added to all outstanding Alternate
Currency Advances, will not exceed $25,000,000.
(v) If the Requested Advance is a Swing Line Advance, the amount of
such Requested Advance, when added to all outstanding Swing Line Advances,
will not exceed the Swing Line Commitment.
(vi) Each Company has adequate capital to conduct its business as a
going concern, as now conducted and as proposed to be conducted, each
Company will be able to meet its obligations under the Loan Documents and
in respect of its other existing and future indebtedness and liabilities as
and when the same shall be due and payable, and each Company is not
insolvent (as that term is defined in 11 U.S.C. (S) 101 or applicable law)
and will not be rendered insolvent by the Requested Advance, and the
foregoing statements are supported by the Companies' internal projections
and forecasts.
(vii) All information supplied below is true, correct, and complete
as of the date hereof.
Information
-----------
(a) Outstanding principal amount of Advances............ $____________
(b) Outstanding Letter of Credit Liabilities............ $____________
(c) Asset Coverage Amount............................... $____________
(d) The amount of the Commitments minus the sum of
line (a) plus line (b).............................. $____________
ADVANCE REQUEST FORM - Page 3
<PAGE>
<TABLE>
<S> <C>
(e) The Asset Coverage Amount minus the sum of line (a) plus
line (b).............................................................. $____________
(f) Net availability for Advances: [lesser of line (d) or line (e)]....... $____________
(g) Outstanding principal amount of Swing Line Advances................... $____________
(h) Outstanding principal amount of Alternate Currency Advances........... $____________
(i) Amount of Requested Advance/3/........................................ $____________
</TABLE>
BORROWER:
--------
CELLSTAR CORPORATION
By:____________________________________
Name:________________________________
Title:_______________________________
Dated as of:___________________
[insert date of
Requested Advance]
cc: Texas Commerce Bank National Association,
as Agent
1111 Fannin St.
9th Floor, MS46
Houston, Texas 77002
Attention: Loan Syndication Services/
Gale Manning
________________________
/3/ Each Advance (excluding Swing Line Advances) shall be in a minimum
principal amount of $1,000,000 or such greater amount which is an integral
multiple of $100,000. Each Swing Line Advance shall be in a minimum
principal amount of $100,000. The aggregate principal amount of Eurodollar
Advances having the same Interest Period shall be at least equal to
$1,000,000. The aggregate principal amount of Alternate Currency Advances
having the same Interest Period shall be at least equal to $1,000,000.
ADVANCE REQUEST FORM - Page 4
<PAGE>
EXHIBIT C
TO
CREDIT AGREEMENT
Letter of Credit Request Form
-----------------------------
<PAGE>
LETTER OF CREDIT REQUEST FORM
-----------------------------
TO: Texas Commerce Bank National Association, as Agent
2200 Ross Avenue, 3rd Floor
Dallas, Texas 75201
Attention: Allen K. King
Ladies and Gentlemen:
The undersigned is an officer of CELLSTAR CORPORATION, a Delaware
corporation (the "Borrower"), and is authorized to make and deliver this
--------
certificate pursuant to that certain Credit Agreement dated as of October 15,
1997, among Borrower, each of the banks or other lending institutions which is
or may from time to time become a signatory thereto and any successors or
permitted assigns thereof, The First National Bank of Chicago and National City
Bank, as co-agents (collectively, the "Co-Agents"), and Texas Commerce Bank
---------
National Association, as agent for itself and the other Banks and as issuer of
Letters of Credit thereunder (the "Agent") (such Credit Agreement, as the same
may be amended, supplemented or modified from time to time, being hereinafter
referred to as the "Credit Agreement"). All terms defined in the Credit
----------------
Agreement shall have the same meaning herein.
In accordance with the Credit Agreement, the Borrower hereby requests that
the Agent issue a Letter of Credit. The Letter of Credit shall:
(a) be issued on ________________, 19___;/1/
(b) be in the amount of $____________;/2/
(c) permit [a single drawing/multiple drawings]/3/ on the terms and
conditions set forth in the L/C Application attached as Annex I
hereto;
(d) be payable upon presentation of a [sight draft/time draft. The
time draft shall be payable on __________________, 19___];/4/
(e) expire on __________________, 19___;/4/
(f) be issued for the account of ______________________;/5/ and
(g) be used for the following purpose:_______________________________
_________________________________________________________________
_____________________________________________________________./6/
The Letter of Credit is to be delivered by the Agent to _______________./7/
[Drawing/Each drawing]/3/ under the Letter of Credit shall be subject to
the conditions specified in the L/C Application attached as Annex I hereto.
-------
In connection with the foregoing and pursuant to the terms and provisions
of the Credit Agreement, the undersigned hereby certifies that the following
statements are true and correct:
(i) The representations and warranties contained in Article VIII of
the Credit Agreement and in each of the other Loan Documents are true and
correct on and as of the date hereof with the same force and effect as if
made on and as of such date.
(ii) No Default has occurred and is continuing or would result from
the issuance of the Letter of Credit requested hereunder.
(iii) The face amount of the Letter of Credit requested hereunder,
when added to all outstanding Letter of Credit Liabilities, will not exceed
$10,000,000.
_________________________________
/1/ Insert date not later than the Termination Date.
/2/ Insert face amount of Letter of Credit. Minimum face amount: $50,000.
Issuance is subject to Dollar limit on aggregate face amount of Letters of
Credit specified in Section 3.1 of the Credit Agreement.
/3/ Specify one.
/4/ Insert date not later than the earlier of (a) one year after issuance or
(b) the Termination Date.
/5/ Insert name and address of account party, which shall be the Borrower or a
Subsidiary of the Borrower.
/6/ Describe purpose for which Letter of Credit will be used.
/7/ Insert name of Borrower or name and address of beneficiary.
LETTER OF CREDIT REQUEST FORM - PAGE 1
<PAGE>
(iv) The face amount of the Letter of Credit requested hereunder,
when added to all outstanding Advances and Letter of Credit Liabilities,
will not exceed the lesser of the Asset Coverage Amount or the amount of
the Commitments.
(v) Each Company has adequate capital to conduct its business as a
going concern, as now conducted and as proposed to be conducted, each
Company will be able to meet its obligations under the Loan Documents and
in respect of its other existing and future indebtedness and liabilities as
and when the same shall be due and payable, and each Company is not
insolvent (as that term is defined in 11 U.S.C. (S) 101 or applicable law)
and will not be rendered insolvent by the Letter of Credit, and the
foregoing statements are supported by the Companies' internal projections
and forecasts.
(vi) The proposed terms of the Letter of Credit requested hereunder
and the transactions proposed to be supported thereby are accurately and
completely described on the L/C Application attached as Annex I hereto.
-------
(vii) All information supplied below is true, correct, and complete
as of the date hereof.
Information
-----------
<TABLE>
<S> <C> <C>
(a) Outstanding principal amount of Advances........................... $____________
(b) Outstanding Letter of Credit Liabilities........................... $____________
(c) Asset Coverage Amount.............................................. $____________
(d) The amount of the Commitments
minus the sum of line (a) plus line (b)............................ $____________
(e) The Asset Coverage Amount minus the sum
of line (a) plus line (b).......................................... $____________
(f) Difference of $10,000,000 minus line (b)........................... $____________
(g) Net availability for Letters of Credit: [lesser of line
(d), line (e) or line (f)]......................................... $____________
(h) Face Amount of requested Letter of Credit.......................... $____________
(i) Date requested for issuance of Letter of Credit.................... _______, 19__
</TABLE>
BORROWER:
--------
CELLSTAR CORPORATION
By:________________________________
Name:___________________________
Title:__________________________
Dated as of:_____________________
[insert date of
proposed issuance
of Letter of Credit]
cc: Texas Commerce Bank National Association,
as Agent
1111 Fannin St.
9th Floor, MS46
Houston, Texas 77002
Attention: Loan Syndication Services/
Gale Manning
LETTER OF CREDIT REQUEST FORM - PAGE 2
<PAGE>
ANNEX 1
TO LETTER OF CREDIT REQUEST FORM
L/C Application
---------------
<PAGE>
EXHIBIT D
TO
CREDIT AGREEMENT
Compliance Certificate
----------------------
<PAGE>
COMPLIANCE CERTIFICATE
----------------------
TO: Texas Commerce Bank National Association, as Agent
2200 Ross Avenue, 3rd Floor
Dallas, Texas 75201
Attention: Allen K. King
Ladies and Gentlemen:
The undersigned is the president, chief executive officer, the chief
financial officer or the corporate controller of CELLSTAR CORPORATION, a
Delaware corporation (the "Borrower"), and is authorized to make and deliver
--------
this certificate pursuant to that certain Credit Agreement dated as of October
15, 1997, among the Borrower, each of the banks or other lending institutions
which is or may become a party thereto and the successors and permitted assigns
thereof, The First National Bank of Chicago and National City Bank, as co-agents
(collectively, the "Co-Agents"), and Texas Commerce Bank National Association, a
---------
national banking association, as agent for itself and each of the other Banks
and as issuer of Letters of Credit thereunder (the "Agent") (such Credit
-----
Agreement, as the same may be amended, supplemented or modified from time to
time, being hereinafter referred to as the "Credit Agreement"). All terms
----------------
defined in the Credit Agreement shall have the same meaning herein.
In connection with the foregoing and pursuant to the terms and provisions
of the Credit Agreement, the undersigned hereby certifies to the Agent, each Co-
Agent and each Bank that the following statements are true and correct:
A. Representations and Warranties. The representations and warranties
------------------------------
contained in Article VIII of the Credit Agreement and in each of the other Loan
Documents are true and correct on and as of the date hereof with the same force
and effect as if made on and as of such date.
B. Financial Covenants. The information set forth below is true and
-------------------
correct based upon the financial statements delivered herewith as of the last
day of the fiscal quarter next preceding the date of this certificate:
<TABLE>
(1) Consolidated Tangible Net Worth as of ___________, 19___:
-------------------------------
<S> <C>
(a) Stockholders' or owners' equity of the Borrower and the Subsidiaries
on a consolidated basis as of such date........................................ $___________
(b) Amount at which shares of capital stock of any Person appear as an
asset on the balance sheet of such Person...................................... $___________
(c) Goodwill, including amounts that represent the excess of the purchase
price paid for assets or stock over the value assigned thereto................. $___________
(d) Patents, trademarks, trade names, and copyrights............................... $___________
(e) Deferred expenses.............................................................. $___________
(f) Loans and advances to any stockholder, director, officer, partner or
employee of the Borrower, any Subsidiary, or any Affiliate of the
Borrower or any Subsidiary..................................................... $___________
(g) All other assets are properly classified as intangible assets.................. $___________
(h) Sum of Lines (b), (c), (d), (e), (f) and (g)................................... $___________
(i) Tangible Net Worth (Difference of Line (a) minus Line (h))..................... $___________
(j) Sum of net income, after provision for income taxes, of the Borrower
and the Subsidiaries on a consolidated basis (without any deduction
for losses) for each fiscal quarter of the Borrower ended through such
date beginning with the fiscal quarter ending August 31, 1997.................. $___________
(k) 50% of Line (j)................................................................ $___________
(l) With respect to any issuance, sale or other disposition of any shares
of capital stock or other equity securities of Borrower of any class
(or any securities convertible or exchangeable for any such shares, or
any rights, warrants or options to subscribe for or purchase any such
shares), the aggregate gross proceeds of such issuance, sale or other
disposition, less the following: (i) placement agent fees, (ii)
underwriting discounts and commissions, (iii) bank and other lender
fees, and (iv) legal fees and other expenses payable by the issuer
</TABLE>
COMPLIANCE CERTIFICATE - Page 1
<PAGE>
<TABLE>
<S> <C>
in connection with such issuance, sale or other disposition, to the
extent such proceeds are received by the Borrower.................................. $___________
(m) Minimum Consolidated Tangible Net Worth required by Section 11.1 of
Credit Agreement ($100,000,000 plus Line (k) plus Line (1))........................ $___________
(2) Consolidated Interest Coverage Ratio as of ___________, 19___ (for the four
------------------------------------
fiscal-quarter period most recently ended):
(a) The sum of the following, calculated on a consolidated basis for the
Borrower and the Subsidiaries, without duplication: (i) the amount of
net income for the four-fiscal-quarter period most recently ended
(whether positive or negative) before interest expense, income taxes
and extraordinary items, net of (ii) all non-cash items (such as
deferred taxes, depreciation, amortization of goodwill and all other
non-cash charges accrued but not actually paid) which, in determining
net income for such period, were deducted from (or included in) gross
income for such period; provided, however, that for purposes of the
-------- -------
foregoing calculation, changes in the allowance for doubtful accounts
shall not be treated as a non-cash item............................................ $___________
(b) Interest expense of the Borrower and the Subsidiaries on a
consolidated basis................................................................. $___________
(c) Ratio of Line (a) to Line (b)...................................................... _____ to____
(d) Minimum Consolidated Interest Coverage Ratio required by Section 11.2
of Credit Agreement................................................................ 3.0 to 1.0
(3) Companies Interest Coverage Ratio as of ____________, 19____:
---------------------------------
(a) The sum of the following, calculated on a combined basis for the
Companies, without duplication: (i) the amount of net income for the
four fiscal quarter period most recently ended (whether positive or
negative) before interest expense, income taxes and extraordinary
items, net of (ii) all non-cash items (such as deferred taxes,
depreciation, amortization of goodwill and all other non-cash charges
accrued but not actually paid) which, in determining net income for
such period, were deducted from (or included in) gross income for such
period; provided, however, that for purposes of calculating the
-------- -------
foregoing, changes in the allowance for doubtful accounts shall not be
treated as a non-cash item......................................................... $___________
(b) Interest expense of the Borrowers and the Subsidiaries on a
consolidated basis (Line 2(b))..................................................... $___________
(c) Ratio of Line (a) to Line (b)...................................................... _____ to____
(d) Amount of cash transferred from Subsidiaries to the Companies as
permitted by Section 11.3 of the Credit Agreement/1/............................... $___________
(e) Ratio of the sum of Line (a) plus Line (d) to Line (b)............................. _____ to ____
(f) Minimum Companies Interest Coverage Ratio required by Section 11.3 of
Credit Agreement................................................................... 1.25 to 1.0
(4) Minimum Turnover Ratio for the quarter ended ___________, 19___:
----------------------
(a) Cost of goods sold for the Borrower and the Subsidiaries on a
consolidated basis in the period of the four fiscal quarters then
ended.............................................................................. $___________
(b) Average Inventory Per Quarter for each of the most recent four fiscal
quarters then ended:
</TABLE>
_____________________________
/1/ In the event it is determined that the Companies Cash Flow is not
sufficient to cause compliance with Section 11.3 of the Credit
Agreement, then within ten days after such determination, the Borrower
will cause to be transferred to the Companies from the other
Subsidiaries cash in an amount which when added to the Companies Cash
Flow is sufficient to cause compliance with Section 11.3 of the Credit
Agreement, and, to the extent they comply with such covenant, the
Companies shall be deemed to have met the requirements of Section 11.3
of the Credit Agreement for the relevant period of determination. The
Companies may not use transferred cash to meet the ratio requirement
of Section 11.3 of the Credit Agreement in more than two consecutive
fiscal quarters. Such transferred cash shall remain with the
Companies, notwithstanding any other covenants to the contrary
contained herein, until the Companies have demonstrated compliance
with Section 11.3 of the Credit Agreement without the benefit of such
transferred cash.
COMPLIANCE CERTIFICATE - Page 2
<PAGE>
<TABLE>
<CAPTION>
Beginning Ending
Inventory Inventory
Quarters Amount Amount
-------- ------ ------
<S> <C> <C> <C>
1 $________ + $________ divided by 2 = ................... $____________
2 $________ + $________ divided by 2 = ................... $____________
3 $________ + $________ divided by 2 = ................... $____________
4 $________ + $________ divided by 2 = ................... $____________
(c) Total sum of Average Inventory Per Quarter for quarters shown in Line (b)................................ $____________
(d) Average Inventory (Line (c) divided by four)............................................................. $____________
(e) Turnover Ratio (Ratio of Line (a) to Line (d))........................................................... ____ to _____
(f) Minimum Turnover Ratio required by Section 11.4 of Credit Agreement...................................... 6.0 to 1.0
(5) Consolidated Funded Debt to Consolidated Cash Flow Ratio as of __________, 19___:
--------------------------------------------------------
(a) On a consolidated basis for the Borrower and the Subsidiaries in accordance
with GAAP, all obligations for borrowed money (whether as a direct obligor
on a promissory note, bond, debenture or other similar instrument, as a
reimbursement obligor with respect to an issued letter of credit or similar
instrument, as an obligor under a Guarantee for borrowed money, or as any
type of direct or contingent obligor) as of the last day of the fiscal quarter
most recently ended...................................................................................... $___________
(b) On a consolidated basis for the Borrower and the Subsidiaries, without
duplicating any amount included in Line (a) above, the capitalized amount of all
obligations to pay rent or other amounts under a lease of (or other agreement conveying
the right to use) real and/or personal property, which obligations are required to be classified
and accounted for as a capital lease on a consolidated balance sheet of the Borrower under
GAAP, as of the last day of the fiscal quarter most recently ended, determined in accordance
with GAAP................................................................................................ $___________
(c) Consolidated Funded Debt (the sum of Line (a) plus Line (b))............................................. $___________
(d) Consolidated Cash Flow (Line (2)(a))..................................................................... $___________
(e) Ratio of Line (c) to Line (d)............................................................................ ____ to ____
(f) Maximum Consolidated Funded Debt to Consolidated Cash Flow Ratio permitted by Section 11.5
of Credit Agreement for the fiscal quarter ending November 30, 1997 and each fiscal quarter
thereafter until and including the fiscal quarter ending February 28, 1999............................... 4.0 to 1.0
(g) Maximum Consolidated Funded Debt to Consolidated Cash Flow Ratio permitted by
Section 11.5 of the Credit Agreement thereafter.......................................................... 3.5 to 1.0
(6) Consolidated Senior Debt to Consolidated Cash Flow Ratio as of _____________, 19___:
--------------------------------------------------------
(a) Consolidated Funded Debt (Line (5)(c))................................................................... $____________
(b) Subordinated Debt........................................................................................ $____________
(c) Consolidated Senior Debt (Line (a) minus Line (b))....................................................... $____________
(d) Consolidated Cash Flow (Line (2)(a))..................................................................... $___________
(e) Ratio of Line (c) to Line (d)............................................................................ ____ to ____
(f) Maximum Consolidated Senior Debt to Consolidated Cash Flow Ratio permitted by
Section 11.6 of Credit Agreement for the fiscal quarter ending November 30, 1997
and each fiscal quarter thereafter until and including the fiscal quarter ending
February 28, 1999........................................................................................ 3.0 to 1.0
(g) Maximum Consolidated Senior Debt to Consolidated Cash Flow Ratio permitted by
Section 11.6 of the Credit Agreement thereafter.......................................................... 2.5 to 1.0
</TABLE>
COMPLIANCE CERTIFICATE - Page 3
<PAGE>
<TABLE>
<S> <C>
(7) Intercompany Loans and Capital Contributions as of ___________, 19___:
--------------------------------------------
(a) Capital contributions by the Borrower or any Subsidiary to any other Subsidiary or any
Foreign Affiliate (other than as described in subsections (B) through (E) of Section 10.5(i) of the
-------------- --- ---------------
Credit Agreement) during the current fiscal year through the fiscal quarter most recently ended/2/........ $___________
(b) Capital contributions by the Borrower or any Subsidiary to any other Subsidiary or any
Foreign Affiliate (other than as described in subsections (B) through (E) of Section 10.5(i) of the
--------------- --- ---------------
Credit Agreement) during the fiscal year most recently ended/3/........................................... $___________
(c) Maximum amount of such capital contributions permitted by subsection (F) of Section 10.5(i) of
-------------- ---------------
the Credit Agreement during any fiscal year............................................................... $5,000,000
(d) Aggregate amount of loans and advances by the Borrower or any Subsidiary
Foreign Affiliate outstanding as of such date............................................................. $___________
(e) Maximum aggregate amount of such loans and advances permitted to be outstanding at any time............... $10,000,000
(f) Aggregate amount of loans and advances by the Borrower or any Subsidiary to any
other Subsidiary (other than as described in subsections (B) and (C) of Section 10.5(i) of the
----------------------- ---------------
Credit Agreement) outstanding as of such date/4/.......................................................... $___________
(g) Maximum aggregate amount of such loans and advances permitted to be outstanding at any time:
(1) Stockholders' equity in the Borrower as of such date................................................. $___________
(2) 20% of Line (1)...................................................................................... $___________
(3) Greater of $40,000,000 or Line (2)................................................................... $___________
(8) Asset Coverage Amount as of _____________, 19___:
---------------------
(a) Eligible Accounts:
-----------------
(1) All accounts receivable of each of the Companies in which such Company has
good and indefeasible title, which are not subject to any Lien except Liens in
favor of the Agent, and in which the Agent has a valid, perfected first priority Lien:
NAC.................................................................................................. $___________
CellStar, Ltd........................................................................................ $___________
CellStar Fulfillment, Ltd............................................................................ $___________
CWI (if applicable).................................................................................. $___________
TOTAL GROSS ACCOUNTS RECEIVABLE.................................................................... $___________
(2) Accounts which have been outstanding more than 90 days past the original date
of invoice........................................................................................... $___________
(3) Accounts owned by any employee, Subsidiary or Affiliate of any Company............................... $___________
(4) Sum of Line (2) plus Line (3)........................................................................ $___________
(5) Eligible Accounts (Line (1) minus Line (4)).......................................................... $___________
(6) Foreign Accounts in excess of $15,000,000............................................................ $___________
(7) Line (5) minus Line (6).............................................................................. $___________
(8) 80% of Line (7)...................................................................................... $___________
(b) Eligible Inventory:
------------------
(1) All inventory then owned by (and in the possession or under the control of) the
Companies, or any of them, and held for sale or disposition in the ordinary course
of the Companies' business, in which the Agent has a perfected, first priority
security interest, which is not located at any location for which a landlord's
waiver is required to be delivered and has not been received by the Agent, and is
not located outside of the United States of America, valued at the lower of
(i) actual cost for the purchase of such inventory from the original wholesale supplier
or (ii) fair market value:
</TABLE>
__________________________________
/2/ For each Compliance Certificate delivered for any of the Borrower's first
three quarters of any fiscal year.
/3/ For each Compliance Certificate delivered for any fiscal year-end of the
Borrower.
/4/ Amounts loaned or advanced by the Borrower or any Subsidiary to any
Subsidiary that are in turn loaned or advanced by that Subsidiary to
another Subsidiary shall be counted only once for purposes of this
calculation.
COMPLIANCE CERTIFICATE - PAGE 4
<PAGE>
<TABLE>
<S> <C>
NAC.................................................................................................. $___________
CellStar, Ltd........................................................................................ $___________
CellStar Fulfillment, Ltd............................................................................ $___________
CWI (if applicable).................................................................................. $___________
TOTAL INVENTORY...................................................................................... $___________
(2) The value of the obsolescence reserve................................................................ $___________
(3) Eligible Inventory (Line (1) minus Line (2))......................................................... $___________
(4) 50% of Line (3)...................................................................................... $___________
(5) Aggregate amount of the Commitments.................................................................. $___________
(6) 60% of Line (5)...................................................................................... $___________
(7) Lesser of Line (4) or Line (6)....................................................................... $___________
(c) Asset Coverage Amount (Line (a)(8) plus Line (b)(7))...................................................... $___________
(d) Outstanding principal amount of Advances.................................................................. $___________
(e) Outstanding Letter of Credit Liabilities.................................................................. $___________
(f) Sum of Line (d) plus Line (e)............................................................................. $___________
(g) Available credit amount or amount to be paid if negative (the lesser of the Commitments or
Line (c), minus Line (f))................................................................................. $___________
</TABLE>
The undersigned hereby certifies that (a) the above information and
calculations are true and correct and not misleading as of the date hereof, (b)
Borrower has delivered to the Agent, the Co-Agents and the Banks all financial
information and reports required by the Credit Agreement by the dates provided
therein, and (c) no Default has occurred and is continuing.
CELLSTAR CORPORATION
By:____________________________________
Name:_______________________________
Title:______________________________
Dated as of:___________
COMPLIANCE CERTIFICATE - PAGE 5
<PAGE>
EXHIBIT E-1
TO
CREDIT AGREEMENT
Borrower Security Agreement
---------------------------
<PAGE>
BORROWER SECURITY AGREEMENT
---------------------------
THIS SECURITY AGREEMENT (this "Agreement") dated as of October 15, 1997, is
---------
by and between CELLSTAR CORPORATION, a Delaware corporation (the "Debtor"), and
------
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association
("TCB"), not in its individual capacity but solely as agent for itself and each
---
of the other banks or lending institutions (each, a "Bank" and, collectively,
----
the "Banks") which is or may from time to time become a signatory to the Credit
-----
Agreement (hereinafter defined) or any successor or permitted assignee thereof
(TCB in such capacity, together with its successors in such capacity, the
"Agent").
-----
R E C I T A L S:
- - - - - - - -
A. The Debtor, the Agent, The First National Bank of Chicago and National
City Bank, as co-agents (collectively, the "Co-Agents"), and the Banks
---------
heretofore entered into that certain Credit Agreement of even date herewith
(such Credit Agreement, as the same may be amended, supplemented or modified
from time to time, the "Credit Agreement"), providing for loans and extensions
----------------
of credit to the Debtor.
B. The Agent, the Co-Agents and the Banks have conditioned their
obligations under the Credit Agreement on the execution and delivery by the
Debtor of this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions
-----------
Section 1.1 Definitions. As used in this Agreement, the following terms
-----------
have the following meanings:
"Accounts" means any "account", as such term is defined in Section
--------
9.106 of the UCC, now owned or hereafter acquired by the Debtor, and, in
any event, shall include, without limitation, each of the following,
whether now owned or hereafter acquired by the Debtor: (a) all rights of
the Debtor to payment for goods sold or leased or services rendered,
whether or not earned by performance, (b) all accounts receivable of the
Debtor, (c) all rights of the Debtor to receive any payment of money or
other form of consideration, (d) all security pledged, assigned, or granted
to or held by the Debtor to secure any of the foregoing, (e) all guaranties
of, or indemnifications with respect to, any of the foregoing, and
BORROWER SECURITY AGREEMENT - Page 1
<PAGE>
(f) all rights of the Debtor as an unpaid seller of goods or services,
including, but not limited to, all rights of stoppage in transit, replevin,
reclamation, and resale.
"Chattel Paper" means any "chattel paper", as such term is defined in
-------------
Section 9.105(a)(2) of the UCC, now owned or hereafter acquired by the
Debtor.
"Collateral" has the meaning specified in Section 2.1 of this
---------- -----------
Agreement.
"Document" means any "document", as such term is defined in Section
--------
9.105(a)(6) of the UCC, now owned or hereafter acquired by the Debtor,
including, without limitation, all documents of title and warehouse
receipts of the Debtor.
"Equipment" means any "equipment", as such term is defined in Section
---------
9.109(2) of the UCC, now owned or hereafter acquired by the Debtor and, in
any event, shall include, without limitation, all machinery, equipment,
furnishings, fixtures and vehicles now owned or hereafter acquired by the
Debtor and any and all additions, substitutions, and replacements of any of
the foregoing, wherever located, together with all attachments, components,
parts, equipment, and accessories installed thereon or affixed thereto.
"General Intangibles" means any "general intangibles", as such term is
-------------------
defined in Section 9.106 of the UCC, now owned or hereafter acquired by the
Debtor and, in any event, shall include, without limitation, each of the
following, whether now owned or hereafter acquired by the Debtor: (a) all
of the Debtor's patents, patent applications, patent rights, service marks,
trademarks, trade names, trade secrets, intellectual property,
registrations, goodwill, copyrights, franchises, licenses, permits,
proprietary information, customer lists, designs, and inventions, (b) all
of the Debtor's books, records, data, plans, manuals, computer software,
and computer programs, (c) all of the Debtor's contract rights, partnership
interests, joint venture interests, securities, deposit accounts,
investment accounts, and certificates of deposit, (d) all rights of the
Debtor to payment under letters of credit and similar agreements, (e) all
tax refunds and tax refund claims of the Debtor, (f) all choses in action
and causes of action of the Debtor (whether arising in contract, tort, or
otherwise and whether or not currently in litigation) and all judgments in
favor of the Debtor, (g) all rights and claims of the Debtor under
warranties and indemnities, and (h) all rights of the Debtor under any
insurance, surety, or similar contract or arrangement.
"Instrument" means any "instrument", as such term is defined in
----------
Section 9.105(a)(9) of the UCC, now owned or hereafter acquired by the
Debtor, other than stock and other securities.
BORROWER SECURITY AGREEMENT - Page 2
<PAGE>
"Inventory" means any "inventory", as such term is defined in Section
---------
9.109(4) of the UCC, now owned or hereafter acquired by the Debtor, and, in
any event, shall include, without limitation, each of the following,
whether now owned or hereafter acquired by the Debtor: (a) all goods and
other personal property of the Debtor that are held for sale or lease or to
be furnished under any contract of service, (b) all raw materials, work-in-
process, finished goods, inventory, supplies, and materials of the Debtor,
(c) all wrapping, packaging, advertising, and shipping materials of the
Debtor, (d) all goods that have been returned to, repossessed by, or
stopped in transit by the Debtor, and (e) all Documents evidencing any of
the foregoing.
"Obligations" means:
-----------
(a) the indebtedness, liabilities and obligations of the Debtor
to the Banks evidenced by those Notes of even date herewith, executed
by Debtor and payable to the order of the Banks in the aggregate
principal amount of $135,000,000;
(b) the "Obligations", as such term is defined in the Credit
Agreement;
(c) all future Advances by the Agent, any Co-Agent or any Bank to
the Debtor, or either of them;
(d) all costs and expenses, including without limitation all
reasonable attorneys' fees and legal expenses, incurred by the Agent,
any Co-Agent or any Bank to preserve and maintain the Collateral,
collect the obligations herein described and enforce this Agreement;
(f) all other obligations, indebtedness and liabilities of the
Debtor, or either of them, to the Agent, any Co-Agent or any Bank
under any of the Loan Documents, now existing or hereafter arising,
regardless of whether such obligations, indebtedness and liabilities
are similar, dissimilar, related, unrelated, direct, indirect, fixed,
contingent, primary, secondary, joint, several, or joint and several;
and
(g) all extensions, renewals and modifications of any of the
foregoing.
"Permitted Liens" means the security interests granted hereby and
---------------
Liens expressly permitted by Section 10.2 of the Credit Agreement.
"Proceeds" means any "proceeds", as such term is defined in Section
--------
9.306 of the UCC and, in any event, shall include, but not be limited to,
(a) any and all
BORROWER SECURITY AGREEMENT - Page 3
<PAGE>
proceeds of any insurance, indemnity, warranty, or guaranty payable to the
Debtor from time to time with respect to any of the Collateral, (b) any and
all payments (in any form whatsoever) made or due and payable to the Debtor
from time to time in connection with any requisition, confiscation,
condemnation, seizure, or forfeiture of all or any part of the Collateral
by any Governmental Authority (or any person acting under color of
Governmental Authority), and (c) any and all other amounts from time to
time paid or payable under or in connection with any of the Collateral.
"UCC" means the Uniform Commercial Code as in effect in the State of
---
Texas or, if so required with respect to any particular Collateral by
mandatory provisions of applicable law, as in effect in the jurisdiction in
which such Collateral is located.
Section 1.2 Terms Defined in Credit Agreement. All capitalized terms used
---------------------------------
and not otherwise defined herein shall have their respective meanings as
specified in the Credit Agreement.
ARTICLE II
Security Interest
-----------------
Section 2.1 Security Interest. As collateral security for the prompt
-----------------
payment and performance in full when due of the Obligations (whether at stated
maturity, by acceleration, or otherwise), the Debtor hereby grants to the Agent,
for the pro rata benefit of the Banks, a first priority lien on and security
interest in all of the Debtor's right, title, and interest in and to the
following, whether now owned or hereafter arising or acquired and wherever
located (collectively, the "Collateral"):
----------
(a) all Accounts;
(b) all Chattel Paper;
(c) all Instruments;
(d) all General Intangibles;
(e) all Documents;
(f) all Inventory;
(g) all Equipment; and
(h) all Proceeds and products of any or all of the foregoing.
BORROWER SECURITY AGREEMENT - Page 4
<PAGE>
Without limiting the foregoing, this Agreement secures the payment of all
amounts that constitute part of the Obligations and would be owed by the Debtor
to the Agent, any Co-Agent or any Bank but for the fact that they are
unenforceable or not allowable due to the existence of bankruptcy,
reorganization, or similar proceedings involving the Debtor. If the grant,
pledge, or collateral transfer or assignment of any rights of the Debtor under
any contract included in the Collateral is expressly prohibited by such
contract, then the security interest hereby granted therein nonetheless remains
effective to the extent allowed by UCC Section 9.318 or other applicable law but
is otherwise limited by that prohibition.
Section 2.2 Debtor Remains Liable. Notwithstanding anything to the
---------------------
contrary contained herein, (a) the Debtor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Agent
of any of its rights hereunder shall not release the Debtor from any of its
duties or obligations under the contracts and agreements included in the
Collateral, and (c) neither the Agent nor any Bank shall have any obligation or
liability under any of the contracts and agreements included in the Collateral
by reason of this Agreement, nor shall the Agent or any Bank be obligated to
perform any of the obligations or duties of the Debtor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
ARTICLE III
Representations and Warranties
------------------------------
To induce the Agent to enter into this Agreement and the Agent, the Co-
Agents and the Banks to enter into the Credit Agreement, the Debtor represents
and warrants to the Agent that:
Section 3.1 Title. The Debtor is, and with respect to Collateral acquired
-----
after the date hereof the Debtor will be, the legal and beneficial owner of the
Collateral free and clear of any Lien, except Permitted Liens.
Section 3.2 Accounts. Unless the Debtor has given the Agent written
--------
notice to the contrary, whenever the security interest granted hereunder
attaches to an Account, the Debtor shall be deemed to have represented and
warranted to the Agent as to each and all of its Accounts that (a) each Account
is genuine and in all respects what it purports to be, (b) each Account
represents the legal, valid, and binding obligation of the account debtor
evidencing indebtedness unpaid and owed by such account debtor arising out of
the performance of labor or services by the Debtor or the sale or lease of goods
by the Debtor, (c) the amount of each Account represented as owing is the
correct amount actually and unconditionally owing except for normal trade
discounts granted in the ordinary course of business, and (d) to the best of
Debtor's knowledge, no Account is subject to any offset, counterclaim, or other
defense.
Section 3.3 Financing Statements. No financing statement, security
--------------------
agreement, or other Lien instrument covering all or any part of the Collateral
is on file in any public office, except
BORROWER SECURITY AGREEMENT - Page 5
<PAGE>
those filed in favor of the Agent pursuant to this Agreement or with respect to
any other Permitted Liens. Except as set forth on Schedule 3 hereto, the Debtor
----------
has not within the past five years done business under any name or trade name
other than its legal name set forth at the beginning of this Agreement.
Section 3.4 Principal Place of Business. The principal place of business
---------------------------
and chief executive office of the Debtor, and the office where the Debtor keeps
its books and records, is located at the address of the Debtor shown at the
beginning of this Agreement.
Section 3.5 Location of Collateral. All Inventory and Equipment of the
----------------------
Debtor is located at the places specified on Schedule 1 hereto. The Debtor has
----------
exclusive possession and control of its Inventory and Equipment. None of the
Inventory or Equipment is evidenced by a Document (including, without
limitation, a negotiable document of title). All Instruments and Chattel Paper
have been delivered to the Agent.
Section 3.6 Perfection. This Agreement creates a security interest in the
----------
Collateral in favor of the Agent. Upon the filing of UCC financing statements
in favor of the Agent in the jurisdictions listed on Schedule 2 attached hereto,
----------
and upon the Agent's obtaining possession of all Documents and Instruments of
the Debtor, the security interest in favor of the Agent created herein is and
will constitute a valid and perfected Lien upon and security interest in the
Collateral, subject to no equal or prior Lien, except the Permitted Liens.
ARTICLE IV
Covenants
---------
The Debtor covenants and agrees with the Agent that until the Obligations
are paid and performed in full and all Commitments have terminated:
Section 4.1 Encumbrances. The Debtor shall not create, permit, or suffer
------------
to exist, and shall defend the Collateral against, any Lien on the Collateral,
except the Permitted Liens, and shall defend the Debtor's rights in the
Collateral and the Agent's security interest in the Collateral against the
claims and demands of all Persons. The Debtor shall do nothing to impair the
rights of the Agent in the Collateral.
Section 4.2 Modification of Accounts. The Debtor shall, in accordance
------------------------
with prudent business practices, endeavor to collect or cause to be collected
from each account debtor under its Accounts, as and when due, any and all
amounts owing under such Accounts. Without the prior written consent of the
Agent, the Debtor shall not (a) grant any extension of time for any payment with
respect to any of the Accounts, except for extensions of time granted in the
ordinary course of Debtor's business for payment with respect to Accounts not
included in the Borrowing Base, (b) compromise, compound, or settle any of the
Accounts for less than the full amount thereof, except for compromise, compound
or settlement in the ordinary course of
BORROWER SECURITY AGREEMENT - Page 6
<PAGE>
business of Accounts not included in the Borrowing Base, (c) release, in whole
or in part, any Person liable for payment thereof, except in connection with
settlements permitted by clause (b) above, (d) allow any credit or discount for
----------
payment with respect to any Account other than trade discounts granted in the
ordinary course of business, or (e) release any Lien or guaranty securing any
Account, except in connection with settlements permitted by clause (b) above.
----------
Section 4.3 Disposition of Collateral. The Debtor shall not sell, lease,
-------------------------
assign (by operation of law or otherwise), or otherwise dispose of, or grant any
option with respect to, the Collateral or any part thereof without the prior
written consent of the Agent, except as expressly permitted by the Credit
Agreement.
Section 4.4 Further Assurances. At any time and from time to time, upon
------------------
the request of the Agent, and at the sole expense of the Debtor, the Debtor
shall promptly execute and deliver all such further instruments, agreements, and
documents and take such further action as the Agent may deem necessary or
desirable to preserve and perfect its security interest in the Collateral and
carry out the provisions and purposes of this Agreement. Without limiting the
generality of the foregoing, the Debtor shall (a) execute and deliver to the
Agent such financing statements as the Agent may from time to time require; (b)
deliver and pledge to the Agent all Documents (including, without limitation,
negotiable documents of title) evidencing Inventory or Equipment; (c) deliver
and pledge to the Agent all Instruments and Chattel Paper of the Debtor with any
necessary endorsements; and (d) execute and deliver to the Agent such other
documents, instruments, and agreements as the Agent may require to perfect and
maintain the validity, effectiveness, and priority of the Loan Documents and the
Liens intended to be created thereby. The Debtor authorizes the Agent to file
one or more financing or continuation statements, and amendments thereto,
relating to all or any part of the Collateral without the signature of the
Debtor where permitted by law. A carbon, photographic, or other reproduction of
this Agreement or of any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement and may be filed as a
financing statement.
Section 4.5 Risk of Loss; Insurance. The Debtor shall be responsible for
-----------------------
any loss or damage to the Collateral. The Debtor shall, at is own expense,
maintain or cause to be maintained insurance with respect to the Collateral in
such amounts, against such risks, in such form, and with such insurers as shall
be satisfactory to the Agent from time to time. Each policy for liability
insurance shall provide for all losses to be paid on behalf of the Agent, for
the pro rata benefit of the Banks, and the Debtor as their interests may appear.
Each policy for property insurance shall contain loss payable clauses and a loss
payable endorsement in favor of the Agent, for the pro rata benefit of the
Banks, as its interest may appear. If the Debtor shall fail to maintain or
cause to be maintained the insurance required by this Agreement, the Agent shall
have the right (but shall be under no obligation) to obtain such insurance and
the Debtor shall reimburse the Agent for all costs and expenses incurred by the
Agent in obtaining such insurance. All such insurance shall provide that no
cancellation, reduction in amount, or change in coverage thereof shall be
effective unless the Agent has received 30 days prior written notice thereof.
The Debtor shall deliver to the Agent and each Bank copies of all insurance
policies required by this Agreement.
BORROWER SECURITY AGREEMENT - Page 7
<PAGE>
Section 4.6 Inspection Rights. The Debtor shall permit the Agent, each
-----------------
Bank and their respective representatives to examine, inspect, and audit the
Collateral and to examine, inspect, and copy the Debtor's books and records at
any reasonable time and as often as the Agent or any such Bank may desire during
normal business hours. The Agent and each Bank may at any time and from time to
time contact account debtors and other obligors to verify the existence,
amounts, and terms of the Debtor's Accounts.
Section 4.7 Mortgagee's and Landlord's Agreements. With respect to each
-------------------------------------
location of Inventory having an aggregate value of $100,000 or more, as
specified on Schedule 1 hereto, the Debtor shall cause each mortgagee of real
----------
property owned by the Debtor and each landlord of real property leased by the
Debtor who has not previously done so to execute and deliver to the Agent, on or
before the date hereof, instruments satisfactory in form and substance to the
Agent by which such mortgagee or landlord waives its rights, if any, in the
Collateral (each, a "Landlord's Agreement"). After the date hereof, Debtor
--------------------
shall promptly deliver or cause to be delivered to the Agent Landlord's
Agreements in accordance with this Section for each location where the Inventory
hereafter has an aggregate value of $100,000 or more. At the request of the
Agent, Debtor shall promptly deliver or cause to be delivered Landlord's
Agreements for any locations where any Collateral may now or hereafter be
located.
Section 4.8 Corporate Changes. The Debtor shall not change its name,
-----------------
identity, or corporate structure in any manner that might make any financing
statement filed in connection with this Agreement seriously misleading unless
the Debtor shall have given the Agent 30 days prior written notice thereof and
shall have taken all action deemed necessary or desirable by the Agent to make
each financing statement not seriously misleading. The Debtor shall not change
its principal place of business, chief executive office, or the place where it
keeps its books and records unless it shall have given the Agent 30 days prior
written notice thereof and shall have taken all action deemed necessary or
desirable by the Agent to cause its security interest in the Collateral to be
perfected with the priority required by this Agreement.
Section 4.9 Books and Records; Information. The Debtor shall keep
------------------------------
accurate and complete books and records of the Collateral and the Debtor's
business and financial condition in accordance with GAAP. The Debtor shall from
time to time at the request of the Agent deliver to the Agent such information
regarding the Collateral and the Debtor as the Agent may request, including,
without limitation, lists and descriptions of the Collateral and evidence of the
identity and existence of the Collateral. The Debtor shall mark its books and
records to reflect the security interest of the Agent under this Agreement.
Section 4.10 Equipment and Inventory.
-----------------------
(a) The Debtor shall keep the Equipment and Inventory at the locations
specified on Schedule 1 hereto or, upon 30 days prior written notice to the
----------
Agent, at such other places within the United States of America where all
action required to perfect the Agent's security interest in the Equipment
and Inventory with the priority required by this Agreement shall have been
taken.
BORROWER SECURITY AGREEMENT - Page 8
<PAGE>
(b) The Debtor shall maintain the Equipment and Inventory in good
condition and repair (ordinary wear and tear excepted). The Debtor shall
not permit any waste or destruction of the Equipment or Inventory or any
part thereof. The Debtor shall not permit the Equipment or Inventory to be
used in violation of any law, rule, or regulation or inconsistently with
the terms of any policy of insurance. The Debtor shall not use or permit
any of the Equipment or Inventory to be used in any manner or for any
purpose that would impair its value or expose it to unusual risk.
Section 4.11 Warehouse Receipts Non-Negotiable. The Debtor agrees that if
---------------------------------
any warehouse receipt or receipt in the nature of a warehouse receipt is issued
in respect of any of the Collateral, such warehouse receipt or receipt in the
nature thereof shall not be "negotiable" (as such term is used in Section 7.104
of the UCC as in effect in any relevant jurisdiction or under relevant law).
Section 4.12 Notification. The Debtor shall promptly, and in any event
------------
within five days after the Debtor obtains knowledge or becomes aware of any of
the following, notify the Agent of (a) any Lien or claim that has attached to or
been made or asserted against any of the Collateral, (b) any material damage to
or loss of any of the Collateral, (c) the occurrence of any other event that
could have a material adverse effect on the Collateral or the security interest
created hereunder, and (d) the occurrence or existence of any Default.
Section 4.13 Collection of Accounts. Except as otherwise provided in this
----------------------
Section, the Debtor shall have the right to collect and receive payments on the
Accounts. In connection with such collections, the Debtor may take (and, at the
Agent's direction, shall take) such actions as the Debtor or the Agent may deem
necessary or advisable to enforce collection of the Accounts. At any time, if
an Event of Default shall have occurred and be continuing, the Agent shall have
the right to, or upon the request of the Agent the Debtor shall, instruct all
account debtors and other Persons obligated in respect of the Accounts to make
all payments on the Accounts either (a) directly to the Agent, for the pro rata
benefit of the Banks (by instructing that such payments be remitted to a post
office box which shall be in the name and under the control of the Agent), or
(b) to one or more other banks in the United States of America (by instructing
that such payments be remitted to a post office box which shall be in the name
or under the control of the Agent) under arrangements in form and substance
satisfactory to the Agent pursuant to which the Debtor shall have irrevocably
instructed such other bank (and such other bank shall have agreed) to remit all
such payments directly to the Agent. In addition to the foregoing, the Debtor
agrees that if any Proceeds of any Collateral (including payments made in
respect of Accounts) shall be received by the Debtor while an Event of Default
exists, the Debtor shall promptly deliver such Proceeds to the Agent, for the
pro rata benefit of the Banks, with any necessary endorsements. Until such
Proceeds are delivered to the Agent, such Proceeds shall be held in trust by the
Debtor for the benefit of the Agent and shall not be commingled with any other
funds or property of the Debtor. All Proceeds of Collateral received by the
Agent pursuant to this Section may at the option of the Required Banks in the
exercise of their absolute discretion, (i) be applied by the Agent, the Co-
Agents and the Banks to their respective Obligations in such order and manner as
they may each elect in their absolute discretion, or (ii) be deposited to the
BORROWER SECURITY AGREEMENT - Page 9
<PAGE>
credit of Debtor and held as collateral for the Obligations or permitted to be
used by Debtor in the ordinary course of its business.
ARTICLE V
Rights of the Agent
-------------------
Section 5.1 Power of Attorney. The Debtor hereby irrevocably constitutes
-----------------
and appoints the Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the name of the Debtor or in its own name, to take any
and all action and to execute any and all documents and instruments which the
Agent at any time and from time to time deems necessary or desirable to
accomplish the purposes of this Agreement and, without limiting the generality
of the foregoing, the Debtor hereby gives the Agent the power and right on
behalf of the Debtor and in its own name to do any of the following, without
notice to or the consent of the Debtor, and whether or not an Event of Default
has occurred and is continuing (except as otherwise expressly provided below).
(i) after the occurrence and during the continuance of an Event of
Default, to demand, sue for, collect, or receive in the name of the Debtor
or in its own name, any money or property at any time payable or receivable
on account of or in exchange for any of the Collateral and, in connection
therewith, endorse checks, notes, drafts, acceptances, money orders,
documents of title, or any other instruments for the payment of money under
the Collateral or any policy of insurance;
(ii) to pay or discharge taxes or Liens levied or placed on or
threatened against the Collateral;
(iii) after the occurrence and during the continuance of an Event of
Default, to notify post office authorities to change the address for
delivery of mail of the Debtor to an address designated by the Agent and to
receive, open, and dispose of mail addressed to the Debtor;
(iv) (A) after the occurrence and during the continuance of an
Event of Default, to direct account debtors and any other parties liable
for any payment under any of the Collateral to make payment of any and all
monies due and to become due thereunder directly to the Agent or as the
Agent shall direct; (B) after the occurrence and during the continuance of
an Event of Default, to receive payment of and receipt for any and all
monies, claims, and other amounts due and to become due at any time in
respect of or arising out of any Collateral; (C) after the occurrence and
during the continuance of an Event of Default, to sign and endorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, proxies, stock powers,
verifications, and notices in connection with accounts and other documents
relating to the Collateral; (D) after the occurrence and during the
continuance of an Event of Default, to commence and prosecute any suit,
action, or proceeding at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to
BORROWER SECURITY AGREEMENT - Page 10
<PAGE>
enforce any other right in respect of any Collateral; (E) after the
occurrence and during the continuance of an Event of Default, to defend any
suit, action, or proceeding brought against the Debtor with respect to any
Collateral; (F) after the occurrence and during the continuance of an Event
of Default, to settle, compromise, or adjust any suit, action, or
proceeding described above and, in connection therewith, to give such
discharges or releases as the Agent may deem appropriate; (G) to exchange
any of the Collateral for other property upon any merger, consolidation,
reorganization, recapitalization, or other readjustment of the issuer
thereof and, in connection therewith, deposit any of the Collateral with
any committee, depositary, transfer agent, registrar, or other designated
agency upon such terms as the Agent may determine; (H) to add or release
any guarantor, indorser, surety, or other party to any of the Collateral;
(I) to renew, extend, or otherwise change the terms and conditions of any
of the Collateral; (J) to make, settle, compromise, or adjust claims under
any insurance policy covering any of the Collateral; and (K) after the
occurrence and during the continuance of an Event of Default, to sell,
transfer, pledge, make any agreement with respect to or otherwise deal with
any of the Collateral as fully and completely as though the Agent were the
absolute owner thereof for all purposes, and to do, at the Agent's option
and the Debtor's expense, at any time, or from time to time, all acts and
things which the Agent deems necessary to protect, preserve, or realize
upon the Collateral and the Agent's security interest therein.
This power of attorney is a power coupled with an interest and shall be
irrevocable. The Agent shall be under no duty to exercise or withhold the
exercise of any of the rights, powers, privileges, and options expressly or
implicitly granted to the Agent in this Agreement, and shall not be liable for
any failure to do so or any delay in doing so. The Agent shall not be liable
for any act or omission or for any error of judgment or any mistake of fact or
law in its individual capacity or in its capacity as attorney-in-fact except
acts or omissions resulting from its willful misconduct. This power of attorney
is conferred on the Agent solely to protect, preserve, and realize upon its
security interest in the Collateral. The Agent will exercise its best efforts
to notify Debtor of any action taken by the Agent in its capacity as attorney-
in-fact pursuant to this Section, promptly after such action is taken, provided
that any failure by the Agent to so notify Debtor shall not impose any liability
upon the Agent or affect its rights and remedies hereunder, at law or in equity.
The Agent shall not be responsible for any decline in the value of the
Collateral and shall not be required to take any steps to preserve rights
against prior parties or to protect, preserve, or maintain any security interest
or Lien given to secure the Collateral.
Section 5.2 Setoff; Property Held by the Agents and the Banks. If an
-------------------------------------------------
Event of Default shall have occurred and be continuing, the Agent, each Co-Agent
and each Bank shall have the right to set off and apply against the Obligations,
at any time and without notice to the Debtor, any and all deposits (general or
special, time or demand, provisional or final) or other sums at any time
credited by or owing from the Agent, any Co-Agent or any Bank to the Debtor
whether or not the Obligations are then due. As additional security for the
Obligations, the Debtor hereby grants the Agent, each Co-Agent and each Bank a
security interest in all money, instruments, and other property of the Debtor
now or hereafter held by the Agent, any Co-Agent or any Bank, including without
limitation, property held in safekeeping. In addition to the Agent's, any Co-
Agent's or any Bank's right of setoff and as further security for the
Obligations, the Debtor
BORROWER SECURITY AGREEMENT - Page 11
<PAGE>
hereby grants the Agent, each Co-Agent and each Bank a security interest in all
deposits (general or special, time or demand, provisional or final) of the
Debtor now or hereafter on deposit with or held by the Agent, any Co-Agent or
any Bank and all other sums at any time credited by or owing from the Agent, any
Co-Agent or any Bank to the Debtor. The rights and remedies of the Agent, each
Co-Agent and each Bank hereunder are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which the Agent, any Co-
Agent or any Bank may have.
Section 5.3 Performance by the Agent. If the Debtor shall fail to perform
------------------------
any covenant or agreement contained in this Agreement, the Agent may perform or
attempt to perform such covenant or agreement on behalf of the Debtor. In such
event, the Debtor shall, at the request of the Agent, promptly pay any amount
expended by the Agent in connection with such performance or attempted
performance to the Agent, together with interest thereon at the Default Rate
from and including the date of such expenditure to but excluding the date such
expenditure is paid in full. Notwithstanding the foregoing, it is expressly
agreed that the Agent shall not have any liability or responsibility for the
performance of any obligation of the Debtor under this Agreement.
Section 5.4 Subrogation. If any of the Obligations are given in renewal
-----------
or extension or applied toward the payment of indebtedness secured by any Lien,
the Agent, the Co-Agents and the Banks shall be, and are hereby, subrogated to
all of the rights, titles, interests and Liens securing the indebtedness so
renewed, extended, or paid.
Section 5.5 Agent's Duty of Care. Other than the exercise of reasonable
--------------------
care and the physical custody of the Collateral while held by the Agent
hereunder, the Agent shall have no responsibility for or obligation or duty with
respect to all or any part of the Collateral or any matter or proceeding arising
out of or relating thereto, including without limitation any obligation or duty
to collect any sums due in respect thereof or to protect or preserve any rights
against prior parties or any other rights pertaining thereto, it being
understood and agreed that Debtor shall be responsible for preservation of all
rights in the Collateral. Without limiting the generality of the foregoing, the
Agent shall be conclusively deemed to have exercised reasonable care in the
custody of the Collateral if the Agent takes such action, for purposes of
preserving rights in the Collateral, as Debtor may reasonably request in
writing, but no failure or omission or delay by the Agent in complying with any
such request by Debtor, and no refusal by the Agent to comply with any such
request by Debtor, shall be deemed to be a failure to exercise reasonable care.
ARTICLE VI
Default
-------
Section 6.1 Rights and Remedies. If an Event of Default shall have
-------------------
occurred and be continuing, the Agent shall have the following rights and
remedies:
BORROWER SECURITY AGREEMENT - Page 12
<PAGE>
(i) In addition to all other rights and remedies granted to the
Agent in this Agreement or in any other Loan Document or by applicable law,
the Agent shall have all of the rights and remedies of a secured party
under the UCC (whether or not the UCC applies to the affected Collateral).
Without limiting the generality of the foregoing, the Agent may (1) without
demand or notice to the Debtor, collect, receive, or take possession of the
Collateral or any part thereof and for that purpose the Agent may enter
upon any premises on which the Collateral is located and remove the
Collateral therefrom or render it inoperable, and/or (2) sell, lease, or
otherwise dispose of the Collateral, or any part thereof, in one or more
parcels at public or private sale or sales, at the Agent's offices or
elsewhere, for cash, on credit or for future delivery, and upon such other
terms as the Agent may deem commercially reasonable. The Agent shall have
the right at any public sale or sales, and, to the extent permitted by
applicable law, at any private sale or sales, to bid and become a purchaser
of the Collateral or any part thereof free of any right or equity of
redemption on the part of the Debtor, which right or equity of redemption
is hereby expressly waived and released by the Debtor. Upon the request of
the Agent, the Debtor shall assemble the Collateral and make it available
to the Agent at any place designated by the Agent that is reasonably
convenient to the Debtor and the Agent. The Debtor agrees that the Agent
shall not be obligated to give more than five days written notice of the
time and place of any public sale or of the time after which any private
sale may take place and that such notice shall constitute reasonable notice
of such matters. The Agent shall not be obligated to make any sale of
Collateral if it shall determine not to do so, regardless of the fact that
notice of sale of Collateral may have been given. The Agent may, without
notice or publication, adjourn any public or private sale or cause the same
to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the
time and place to which the same was so adjourned. The Debtor shall be
liable for all expenses of retaking, holding, preparing for sale, or the
like, and all reasonable attorneys' fees, legal expenses, and all other
costs and expenses incurred by the Agent, any Co-Agent or any Bank in
connection with the collection of the Obligations and the enforcement of
the Agent's rights under this Agreement. The Debtor shall remain liable for
any deficiency if the Proceeds of any sale or other disposition of the
Collateral are insufficient to pay the Obligations in full. The Agent, the
Co-Agents and the Banks may apply the Collateral against the Obligations in
such order and manner as they may elect in their absolute discretion. The
Debtor waives all rights of marshalling, valuation, and appraisal in
respect of the Collateral.
(ii) The Agent may cause any or all of the Collateral held by it to
be transferred into the name of the Agent or the name or names of the
Agent's nominee or nominees.
(iii) The Agent may collect or receive all money or property at any
time payable or receivable on account of or in exchange for any of the
Collateral, but shall be under no obligation to do so.
BORROWER SECURITY AGREEMENT - Page 13
<PAGE>
(iv) On any sale of the Collateral, the Agent is hereby authorized
to comply with any limitation or restriction with which compliance is
necessary, in the view of the Agent's counsel, in order to avoid any
violation of applicable law or in order to obtain any required approval of
the purchaser or purchasers by any applicable Governmental Authority.
ARTICLE VII
Miscellaneous
-------------
Section 7.1 No Waiver; Cumulative Remedies. No failure on the part of the
------------------------------
Agent, any Co-Agent or any Bank to exercise and no delay in exercising, and no
course of dealing with respect to, any right, power, or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power, or privilege under this Agreement preclude any
other or further exercise thereof or the exercise of any other right, power, or
privilege. The rights and remedies provided for in this Agreement are
cumulative and not exclusive of any rights and remedies provided by law.
Section 7.2 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the Debtor and the Agent and their respective heirs,
successors, and assigns, except that the Debtor may not assign any of its rights
or obligations under this Agreement without the prior written consent of the
Agent.
Section 7.3 ENTIRE AGREEMENT; AMENDMENT; CONTROLLING AGREEMENT. THIS
--------------------------------------------------
AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE
PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO ORAL
AGREEMENTS OF THE PARTIES HERETO. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the parties hereto.
In the event any term or provision of this Agreement expressly conflicts with
any term or provision of the Credit Agreement, the terms and provisions of the
Credit Agreement shall govern and control.
Section 7.4 Notices. All notices and other communications provided for in
-------
this Agreement shall be given or made in writing and telecopied, mailed by
certified mail return receipt requested, or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof; or, as to any party at such other address as shall be designated by such
party in a notice to the other party given in accordance with this Section.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when transmitted by telecopy, subject to
telephone confirmation of receipt, or when personally delivered or, in the case
of a mailed notice, when duly deposited in the mails, in each case given or
addressed as aforesaid.
Section 7.5 GOVERNING LAW; VENUE. THIS AGREEMENT SHALL BE GOVERNED BY AND
--------------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
BORROWER SECURITY AGREEMENT - Page 14
<PAGE>
OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS
AGREEMENT HAS BEEN ENTERED INTO IN DALLAS COUNTY, TEXAS, AND IT SHALL BE
PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY, TEXAS.
Section 7.6 Headings. The headings, captions, and arrangements used in
--------
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 7.7 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 7.8 Waiver of Bond. In the event the Agent seeks to take
--------------
possession of any or all of the Collateral by judicial process, the Debtor
hereby irrevocably waives any bonds and any surety or security relating thereto
that may be required by applicable law as an incident to such possession, and
waives any demand for possession prior to the commencement of any such suit or
action.
Section 7.9 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 7.10 Termination. If all of the Obligations shall have been paid
-----------
and performed in full and all Commitments shall have expired or terminated, the
Agent shall, upon the written request of the Debtor, execute and deliver to the
Debtor a proper instrument or instruments acknowledging the release and
termination of the security interests created by this Agreement, and shall duly
assign and deliver to the Debtor (without recourse and without any
representation or warranty) such of the Collateral as may be in the possession
of the Agent and has not previously been sold or otherwise applied pursuant to
this Agreement.
Section 7.11 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
--------------------
APPLICABLE LAW, THE DEBTOR HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY
OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF
THE AGENT, ANY CO-AGENT OR ANY BANK IN THE NEGOTIATION, ADMINISTRATION, OR
ENFORCEMENT THEREOF.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
BORROWER SECURITY AGREEMENT - Page 15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first written above.
DEBTOR:
------
CELLSTAR CORPORATION
By:___________________________________________
Mark Q. Huggins
Senior Vice President
and Chief Financial Officer
Address for Notices: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Telephone No.: (972) 466-5000
Attention: General Counsel
AGENT:
-----
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, as Agent
By:___________________________________________
Allen K. King
Vice President
Address for Notices: 2200 Ross Avenue, 3rd Floor
Dallas, Texas 75201
Fax No.: (214) 965-2997
Telephone No.: (214) 965-2705
Attention: Allen K. King
BORROWER SECURITY AGREEMENT - Page 16
<PAGE>
Schedule 1
Location of Inventory and Equipment
-----------------------------------
Locations of Inventory and Equipment
having an aggregate value of $100,000 or more
---------------------------------------------
NONE.
Locations of Inventory and Equipment
having an aggregate value of less than $100,000
-----------------------------------------------
NONE.
SCHEDULE 1- LOCATION OF INVENTORY AND EQUIPMENT 1
<PAGE>
Schedule 2
Jurisdictions for Filing
UCC-1 Financing Statements
--------------------------
Secretary of State of Texas
Secretary of State of Kansas
Secretary of State of Missouri
Clay County, Missouri
Jackson County, Missouri
Secretary of State of Florida
Secretary of State of California
SCHEDULE 2. JURISDICTIONS FOR FILING UCC-1 FINANCING STATEMENTS PAGE SOLO
<PAGE>
Schedule 3
Additional Names and Trade Names
--------------------------------
NONE.
SCHEDULE 3- ADDITIONAL NAMES AND TRADE NAMES PAGE SOLO
<PAGE>
EXHIBIT E-2
TO
CREDIT AGREEMENT
Guarantor Security Agreement
----------------------------
<PAGE>
GUARANTOR SECURITY AGREEMENT
----------------------------
THIS SECURITY AGREEMENT (this "Agreement") dated as of October 15, 1997, is
---------
by and among the undersigned debtors (collectively, the "Debtors" and each a
-------
"Debtor"), and Texas Commerce Bank National Association, a national banking
------
association ("TCB"), not in its individual capacity but solely as agent for
---
itself and each of the other banks or lending institutions (each, a "Bank" and,
----
collectively, the "Banks") which is or may from time to time become a signatory
-----
to the Credit Agreement (hereinafter defined) or any successor or permitted
assignee thereof (TCB in such capacity, together with its successors in such
capacity, the "Agent").
-----
R E C I T A L S:
- - - - - - - -
A. CellStar Corporation, a Delaware corporation (the "Borrower"), the
--------
Agent, The First National Bank of Chicago and National City Bank, as co-agents
(collectively, the "Co-Agents"), and the Banks heretofore entered into that
---------
certain Credit Agreement of even date herewith (such Credit Agreement, as the
same may be amended, supplemented or modified from time to time, the "Credit
------
Agreement").
- ---------
B. Pursuant to the Credit Agreement, the Agent, the Co-Agents and the
Banks have extended credit to the Borrower.
C. The Agent, the Co-Agents and the Banks have conditioned their
obligations to extend credit under the Credit Agreement and the effectiveness of
the Credit Agreement upon the execution and delivery by each Debtor of this
Agreement.
A G R E E M E N T
- - - - - - - - -
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
Definitions
-----------
Section 1.1. Definitions. As used in this Agreement, the following terms
-----------
have the following meanings:
"Accounts" means any "account", as such term is defined in Section
--------
9.106 of the UCC, now owned or hereafter acquired by any Debtor, and, in
any event, shall include, without limitation, each of the following,
whether now owned or hereafter acquired by any Debtor: (a) all rights of
any Debtor to payment for
GUARANTOR SECURITY AGREEMENT - Page 1
<PAGE>
goods sold or leased or services rendered, whether or not earned by
performance, (b) all accounts receivable of any Debtor, (c) all rights of
any Debtor to receive any payment of money or other form of consideration,
(d) all security pledged, assigned, or granted to or held by any Debtor to
secure any of the foregoing, (e) all guaranties of, or indemnifications
with respect to, any of the foregoing, and (f) all rights of any Debtor as
an unpaid seller of goods or services, including, but not limited to, all
rights of stoppage in transit, replevin, reclamation, and resale.
"Chattel Paper" means any "chattel paper", as such term is defined in
-------------
Section 9.105(a)(2) of the UCC, now owned or hereafter acquired by any
Debtor.
"Collateral" has the meaning specified in Section 2.1 of this
---------- -----------
Agreement.
"Document" means any "document", as such term is defined in Section
--------
9.105(a)(6) of the UCC, now owned or hereafter acquired by any Debtor,
including, without limitation, all documents of title and warehouse
receipts of any Debtor.
"Equipment" means any "equipment", as such term is defined in Section
---------
9.109(2) of the UCC, now owned or hereafter acquired by any Debtor and, in
any event, shall include, without limitation, all machinery, equipment,
furnishings, fixtures, and vehicles now owned or hereafter acquired by any
Debtor and any and all additions, substitutions, and replacements of any of
the foregoing, wherever located, together with all attachments, components,
parts, equipment, and accessories installed thereon or affixed thereto.
"General Intangibles" means any "general intangibles", as such term is
-------------------
defined in Section 9.106 of the UCC, now owned or hereafter acquired by any
Debtor and, in any event, shall include, without limitation, each of the
following, whether now owned or hereafter acquired by any Debtor: (a) all
patents, patent applications, patent rights, service marks, trademarks,
trade names, trade secrets, intellectual property, registrations, goodwill,
copyrights, franchises, licenses, permits, proprietary information,
customer lists, designs, and inventions of any Debtor, (b) all books,
records, data, plans, manuals, computer software, and computer programs of
any Debtor, (c) all contract rights, partnership interests, joint venture
interests, securities, deposit accounts, investment accounts, and
certificates of deposit of any Debtor, (d) all rights of any Debtor to
payment under letters of credit and similar agreements, (e) all tax refunds
and tax refund claims of any Debtor, (f) all choses in action and causes of
action of any Debtor (whether arising in contract, tort, or otherwise and
whether or not currently in litigation) and all judgments in favor of any
Debtor, (g) all rights and claims of any Debtor under warranties and
indemnities, and (h) all rights of any Debtor under any insurance, surety,
or similar contract or arrangement.
GUARANTOR SECURITY AGREEMENT - Page 2
<PAGE>
"Instrument" means any "instrument", as such term is defined in
----------
Section 9.105(a)(9) of the UCC, now owned or hereafter acquired by any
Debtor.
"Inventory" means any "inventory", as such term is defined in Section
---------
9.109(4) of the UCC, now owned or hereafter acquired by any Debtor, and, in
any event, shall include, without limitation, each of the following,
whether now owned or hereafter acquired by any Debtor: (a) all goods and
other personal property of any Debtor that are held for sale or lease or to
be furnished under any contract of service, (b) all raw materials, work-in-
process, finished goods, inventory, supplies, and materials of any Debtor,
(c) all wrapping, packaging, advertising, and shipping materials of any
Debtor, (d) all goods that have been returned to, repossessed by, or
stopped in transit by any Debtor, and (e) all Documents evidencing any of
the foregoing.
"Obligations" means:
-----------
(a) the indebtedness, liabilities and obligations of the Borrower to
the Banks evidenced by those Notes of even date herewith, executed by the
Borrower and payable to the order of the Banks in the aggregate principal
amount of $135,000,000;
(b) the indebtedness, liabilities and obligations of each Debtor to
the Agent, the Co-Agents and the Banks under the Guaranty executed by each
Debtor in favor of the Agent, the Co-Agents and the Banks;
(c) the "Obligations" as such term is defined in the Credit Agreement;
(d) all future Advances by the Agent, the Co-Agents or any Bank to the
Borrower and the Debtors, or any of them;
(e) all costs and expenses, including without limitation all
reasonable attorneys' fees and legal expenses, incurred by the Agent, any
Co-Agent or any Bank to preserve and maintain the Collateral, collect the
obligations herein described and enforce this Agreement;
(f) all other obligations, indebtedness and liabilities of the
Borrower and the Debtors, or any of them, to the Agent, any Co-Agent or any
Bank under any of the Loan Documents, now existing or hereafter arising,
regardless of whether such obligations, indebtedness and liabilities are
similar, dissimilar, related, unrelated, direct, indirect, fixed,
contingent, primary, secondary, joint, several, or joint and several; and
(g) all extensions, renewals and modifications of any of the
foregoing.
"Permitted Liens" means the security interests granted hereby and
---------------
Liens expressly permitted by Section 10.2 of the Credit Agreement.
------------
GUARANTOR SECURITY AGREEMENT - Page 3
<PAGE>
"Proceeds" means any "proceeds", as such term is defined in Section
--------
9.306 of the UCC and, in any event, shall include, but not be limited to,
(a) any and all proceeds of any insurance, indemnity, warranty, or guaranty
payable to any Debtor from time to time with respect to any of the
Collateral, (b) any and all payments (in any form whatsoever) made or due
and payable to any Debtor from time to time in connection with any
requisition, confiscation, condemnation, seizure, or forfeiture of all or
any part of the Collateral by any Governmental Authority (or any person
acting under color of Governmental Authority), and (c) any and all other
amounts from time to time paid or payable under or in connection with any
of the Collateral.
"UCC" means the Uniform Commercial Code as in effect in the State of
---
Texas or, if so required with respect to any particular Collateral by
mandatory provisions of applicable law, as in effect in the jurisdiction in
which such Collateral is located.
Section 1.2. Terms Defined in Credit Agreement. All capitalized terms
---------------------------------
used and not otherwise defined herein shall have their respective meanings as
specified in the Credit Agreement.
ARTICLE II
Security Interest
-----------------
Section 2.1. Security Interest. As collateral security for the prompt
-----------------
payment and performance in full when due of the Obligations (whether at stated
maturity, by acceleration, or otherwise), each Debtor hereby grants to the
Agent, for the pro rata benefit of the Banks, a first priority lien on and
security interest in all of its personal property, including without limitation
all of its right, title, and interest in and to the following, whether now owned
or hereafter arising or acquired and wherever located (collectively, the
"Collateral"):
----------
(a) all Accounts;
(b) all Chattel Paper;
(c) all Instruments;
(d) all General Intangibles;
(e) all Documents;
GUARANTOR SECURITY AGREEMENT - Page 4
<PAGE>
(f) all Inventory;
(g) all Equipment; and
(h) all Proceeds and products of any or all of the foregoing.
Without limiting the foregoing, this Agreement secures the payment of all
amounts that constitute part of the Obligations and would be owed by the
Borrower to the Agent, any Co-Agent or any Bank but for the fact that they are
unenforceable or not allowable due to the existence of bankruptcy,
reorganization, or similar proceedings involving the Borrower. If the grant,
pledge, or collateral transfer or assignment of any rights of any Debtor under
any contract included in the Collateral is expressly prohibited by such
contract, then the security interest hereby granted nonetheless remains
effective to the extent allowed by Section 9.318 of the UCC or other applicable
law but is otherwise limited by that prohibition.
Section 2.2. Debtors Remain Liable. Notwithstanding anything to the
---------------------
contrary contained herein, (a) each Debtor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Agent
of any of its rights hereunder shall not release any Debtor from any of its
duties or obligations under the contracts and agreements included in the
Collateral, and (c) neither the Agent, any Co-Agent nor any Bank shall have any
obligation or liability under any of the contracts and agreements included in
the Collateral by reason of this Agreement, nor shall the Agent, any Co-Agent or
any Bank be obligated to perform any of the obligations or duties of any Debtor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
ARTICLE III
Representations and Warranties
------------------------------
Each Debtor represents and warrants to the Agent that:
Section 3.1. Title. The Debtors are, and with respect to Collateral
-----
acquired after the date hereof the Debtors will be, the legal and beneficial
owners of their respective Collateral free and clear of any Lien, except
Permitted Liens.
Section 3.2. Accounts. Unless a Debtor has given the Agent written notice
--------
to the contrary, whenever the security interest granted hereunder attaches to an
Account, each Debtor shall be deemed to have represented and warranted to the
Agent as to each and all of its Accounts that (a) each Account is genuine and in
all respects what it purports to be, (b) each Account represents the legal,
valid, and binding obligation of the account debtor evidencing indebtedness
unpaid and owed by such account debtor arising out of the performance of labor
or services by such Debtor or the sale or lease of goods by such Debtor, (c) the
amount of each
GUARANTOR SECURITY AGREEMENT - Page 5
<PAGE>
Account represented as owing is the correct amount actually and unconditionally
owing except for normal trade discounts granted in the ordinary course of
business, and (d) to the best of Debtor's knowledge, no Account is subject to
any offset, counterclaim, or other defense.
Section 3.3. Financing Statements. No financing statement, security
--------------------
agreement, or other Lien instrument covering all or any part of the Collateral
is on file in any public office, except those filed in favor of the Agent
pursuant to this Agreement or with respect to any other Permitted Liens. Except
as set forth on Schedule 3 hereto, no Debtor has within the past five years done
----------
business under any name or trade name other than its legal name set forth at the
beginning of this Agreement.
Section 3.4. Principal Place of Business. The principal place of business
---------------------------
and chief executive office of each Debtor, and the office where each Debtor
keeps its books and records, is located at the address specified below the name
of such Debtor on the signature pages hereof.
Section 3.5. Location of Collateral. All Inventory and Equipment of each
----------------------
Debtor are located at the places specified on Schedule 1 hereto. Each Debtor
----------
has exclusive possession and control of its Inventory and Equipment. None of
the Inventory or Equipment of any Debtor is evidenced by a Document (including,
without limitation, a negotiable document of title). All Instruments and
Chattel Paper of each Debtor have been delivered to the Agent.
Section 3.6. Perfection. This Agreement creates a security interest in
----------
the Collateral in favor of the Agent. Upon the filing of UCC financing
statements in favor of the Agent in the jurisdictions listed on Schedule 2
----------
attached hereto, and upon the Agent's obtaining possession of all Documents and
Instruments of each Debtor, the security interest in favor of the Agent created
herein will constitute a valid and perfected Lien upon and security interest in
the Collateral, subject to no equal or prior Lien, except the Permitted Liens.
Section 3.7. Benefit to Debtors. The value of the consideration received
------------------
and to be received by each Debtor as a result of the Borrower, the Agent, the
Co-Agents and the Banks entering into and obtaining credit under the Credit
Agreement and the Debtors executing and delivering this Agreement is reasonably
worth at least as much as the liability and obligation of such Debtor hereunder,
and such liability and obligation and the Borrower's entering into and obtaining
credit under the Credit Agreement have benefited and may reasonably be expected
to benefit each Debtor directly and indirectly.
Section 3.8. Credit Agreement. Each and every representation and warranty
----------------
contained in the Credit Agreement is true and correct in all respects.
GUARANTOR SECURITY AGREEMENT - Page 6
<PAGE>
ARTICLE IV
Covenants
---------
The Debtors jointly and severally covenant and agree with the Agent
that until the Obligations are paid and performed in full and all Commitments
have terminated:
Section 4.1. Encumbrances. No Debtor shall create, permit, or suffer
------------
to exist, and each Debtor shall defend the Collateral against, any Lien on the
Collateral, except the Permitted Liens, and each Debtor shall defend its rights
in the Collateral and the Agent's security interest in the Collateral against
the claims and demands of all Persons. No Debtor shall do anything to impair
the rights of the Agent in the Collateral.
Section 4.2. Modification of Accounts. Each Debtor shall, in
------------------------
accordance with prudent business practices, endeavor to collect or cause to be
collected from each account debtor under its Accounts, as and when due, any and
all amounts owing under such Accounts. Without the prior written consent of the
Agent, no Debtor shall (a) grant any extension of time for any payment with
respect to any of the Accounts, except for extensions of time granted in the
ordinary course of such Debtor's business for payment with respect to Accounts
not included in the Borrowing Base, (b) compromise, compound, or settle any of
the Accounts for less than the full amount thereof, except for compromise,
compound or settlement in the ordinary course of business of Accounts not
included in the Borrowing Base, (c) release, in whole or in part, any Person
liable for payment thereof, except in connection with settlements permitted by
clause (b) above, (d) allow any credit or discount for payment with respect to
- ----------
any Account other than trade discounts granted in the ordinary course of
business, or (e) release any Lien or guaranty securing any Account, except in
connection with settlements permitted by clause (b) above.
----------
Section 4.3. Disposition of Collateral. No Debtor shall sell, lease,
-------------------------
assign (by operation of law or otherwise), or otherwise dispose of, or grant any
option with respect to, the Collateral or any part thereof without the prior
written consent of the Agent, except as expressly permitted by the Credit
Agreement.
Section 4.4. Further Assurances. At any time and from time to time,
------------------
upon the request of the Agent, and at the sole expense of the Debtors, each
Debtor shall promptly execute and deliver all such further instruments,
agreements, and documents and take such further action as the Agent may deem
necessary or desirable to preserve and perfect its security interest in the
Collateral and carry out the provisions and purposes of this Agreement. Without
limiting the generality of the foregoing, each Debtor shall (a) execute and
deliver to the Agent such financing statements as the Agent may from time to
time require; (b) deliver and pledge to the Agent all Documents (including,
without limitation, negotiable documents of title) evidencing Inventory or
Equipment; (c) deliver and pledge to the Agent all Instruments and Chattel Paper
of such Debtor with any necessary endorsements; and (d) execute and deliver to
the Agent such other documents, instruments, and agreements as the Agent may
require to perfect and maintain the validity, effectiveness, and priority of the
Loan Documents and the Liens intended to be created
GUARANTOR SECURITY AGREEMENT - Page 7
<PAGE>
thereby. Each Debtor authorizes the Agent to file one or more financing or
continuation statements, and amendments thereto, relating to all or any part of
the Collateral without the signature of such Debtor where permitted by law. A
carbon, photographic, or other reproduction of this Agreement or of any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement and may be filed as a financing statement.
Section 4.5. Risk of Loss; Insurance. The Debtors shall be
-----------------------
responsible for any loss or damage to the Collateral. The Debtors shall, at
their own expense, maintain or cause to be maintained insurance with respect to
the Collateral in such amounts, against such risks, in such form, and with such
insurers as shall be satisfactory to the Agent from time to time. Each policy
for liability insurance shall provide for all losses to be paid on behalf of the
Agent, for the pro rata benefit of the Banks and the Debtor as their interests
may appear. Each policy for property insurance shall contain loss payable
clauses and a loss payable endorsement in favor of the Agent, for the pro rata
benefit of the Banks, as its interest may appear. If the Debtors shall fail to
maintain or cause to be maintained the insurance required by this Agreement, the
Agent shall have the right (but shall be under no obligation) to obtain such
insurance and the Debtors jointly and severally agree to reimburse the Agent for
all costs and expenses incurred by the Agent in obtaining such insurance. All
such insurance shall provide that no cancellation, reduction in amount, or
change in coverage thereof shall be effective unless the Agent has received 30
days prior written notice thereof. The Debtors shall deliver to the Agent and
each Bank copies of all insurance policies required by this Agreement.
Section 4.6. Inspection Rights. Each Debtor shall permit the Agent,
-----------------
each Bank and their respective representatives to examine, inspect, and audit
the Collateral and to examine, inspect, and copy such Debtor's books and records
at any reasonable time and as often as the Agent or any such Bank may desire
during normal business hours. The Agent and each Bank may at any time and from
time to time contact account debtors and other obligors to verify the existence,
amounts, and terms of any Debtor's Accounts.
Section 4.7. Mortgagee's and Landlord's Agreements. With respect to
-------------------------------------
each location of Inventory having an aggregate value of $100,000 or more, as
specified on Schedule 1 hereto, each Debtor shall cause each mortgagee of real
----------
property owned by such Debtor and each landlord of real property leased by such
Debtor who has not previously done so to execute and deliver to the Agent, on or
before the date hereof, instruments satisfactory in form and substance to the
Agent by which such mortgagee or landlord waives its rights, if any, in the
Collateral (each, a "Landlord's Agreement"); provided, however, that with
-------------------- -------- -------
respect to Collateral located at 8728 Westpark Drive, Houston, Texas, Debtors
shall exert their best efforts to obtain a Landlord's Agreement, but Debtor's
failure to obtain such a Landlord's Agreement with respect to such location
shall not cause the Inventory located at such location to be excluded from the
Asset Coverage Amount if such Inventory otherwise constitutes Eligible
Inventory. After the date hereof, each Debtor shall promptly deliver or cause
to be delivered to the Agent Landlord's Agreements in accordance with this
Section for each location where the Inventory hereafter has an aggregate value
of $100,000 or more. At the request of the Agent, each Debtor shall promptly
GUARANTOR SECURITY AGREEMENT - Page 8
<PAGE>
deliver or cause to be delivered Landlord's Agreements for any locations where
any Collateral may now or hereafter be located.
Section 4.8. Corporate Changes. No Debtor shall change its name,
-----------------
identity, or corporate structure in any manner that might make any financing
statement filed in connection with this Agreement seriously misleading unless
such Debtor shall have given the Agent 30 days prior written notice thereof and
shall have taken all action deemed necessary or desirable by the Agent to make
each financing statement not seriously misleading. No Debtor shall change its
principal place of business, chief executive office, or the place where it keeps
its books and records unless it shall have given the Agent 30 days prior written
notice thereof and shall have taken all action deemed necessary or desirable by
the Agent to cause its security interest in the Collateral to be perfected with
the priority required by this Agreement.
Section 4.9. Books and Records; Information. The Debtors shall keep
------------------------------
accurate and complete books and records of the Collateral and the Debtors'
business and financial condition in accordance with GAAP. Each Debtor shall
from time to time at the request of the Agent deliver to the Agent such
information regarding the Collateral and such Debtor as the Agent may request,
including, without limitation, lists and descriptions of the Collateral and
evidence of the identity and existence of the Collateral. Each Debtor shall
mark its books and records to reflect the security interest of the Agent under
this Agreement.
Section 4.10. Equipment and Inventory.
-----------------------
(a) The Debtors shall keep the Equipment and Inventory at the
locations specified on Schedule 1 hereto or, upon 30 days prior
----------
written notice to the Agent, at such other places within the United
States of America where all action required to perfect the Agent's
security interest in the Equipment and Inventory with the priority
required by this Agreement shall have been taken.
(b) The Debtors shall maintain the Equipment and Inventory in
good condition and repair (ordinary wear and tear excepted). None of
the Debtors shall permit any waste or destruction of the Equipment or
Inventory or any part thereof. None of the Debtors shall permit the
Equipment or Inventory to be used in violation of any law, rule, or
regulation or inconsistently with the terms of any policy of
insurance. None of the Debtors shall use or permit any of the
Equipment or Inventory to be used in any manner or for any purpose
that would impair its value or expose it to unusual risk.
Section 4.11. Warehouse Receipts Non-Negotiable. Each Debtor agrees
---------------------------------
that if any warehouse receipt or receipt in the nature of a warehouse receipt is
issued in respect of any of the Collateral, such warehouse receipt or receipt in
the nature thereof shall not be "negotiable" (as such term is used in Section
7.104 of the UCC as in effect in any relevant jurisdiction or under relevant
law).
GUARANTOR SECURITY AGREEMENT - Page 9
<PAGE>
Section 4.12. Notification. The Debtors shall promptly, and in any event
------------
within five days after any Debtor obtains knowledge or becomes aware of any of
the following, notify the Agent of (a) any Lien or claim that has attached to or
been made or asserted against any of the Collateral, (b) any material damage to
or loss of any of the Collateral, (c) the occurrence of any other event that
could have a material adverse effect on the Collateral or the security interest
created hereunder, and (d) the occurrence or existence of any Default.
Section 4.13. Collection of Accounts. Except as otherwise provided in
----------------------
this Section, the Debtors shall have the right to collect and receive payments
on the Accounts. In connection with such collections, the Debtors may take
(and, at the Agent's direction, shall take) such actions as the Debtors or the
Agent may deem necessary or advisable to enforce collection of the Accounts. At
any time, if an Event of Default shall have occurred and be continuing, the
Agent shall have the right to, or upon the request of the Agent the Debtors
shall, instruct all account debtors and other Persons obligated in respect of
the Accounts to make all payments on the Accounts either (a) directly to the
Agent (by instructing that such payments be remitted to a post office box which
shall be in the name and under the control of the Agent), or (b) to one or more
other banks in the United States of America (by instructing that such payments
be remitted to a post office box which shall be in the name or under the control
of the Agent) under arrangements in form and substance satisfactory to the Agent
pursuant to which the Debtors shall have irrevocably instructed such other bank
(and such other bank shall have agreed) to remit all such payments directly to
the Agent. In addition to the foregoing, each Debtor agrees that if any
Proceeds of any Collateral (including payments made in respect of Accounts)
shall be received by such Debtor while an Event of Default exists, such Debtor
shall promptly deliver such Proceeds to the Agent, for the pro rata benefit of
the Banks, with any necessary endorsements. Until such Proceeds are delivered to
the Agent, such Proceeds shall be held in trust by such Debtor for the benefit
of the Agent and shall not be commingled with any other funds or property of any
Debtor. All Proceeds of Collateral received by the Agent pursuant to this
Section may at the option of the Required Banks in the exercise of their
absolute discretion, (i) be applied by the Agent and the Banks to their
respective Obligations in such order and manner as they may elect in their
absolute discretion, or (ii) be deposited to the credit of any Debtor and held
as collateral for the Obligations or permitted to be used by such Debtor in the
ordinary course of its business.
ARTICLE V
Rights of the Agent
-------------------
Section 5.1. Power of Attorney. Each Debtor hereby irrevocably
-----------------
constitutes and appoints the Agent and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the name of such Debtor or in its own name,
to take any and all action and to execute any and all documents and instruments
which the Agent at any time and from time to time deems necessary or desirable
to accomplish the purposes of this Agreement and, without limiting the
generality of the foregoing, each Debtor hereby gives the Agent the power and
right on behalf of such Debtor and in its own
GUARANTOR SECURITY AGREEMENT - Page 10
<PAGE>
name to do any of the following, without notice to or the consent of such Debtor
and whether or not an Event of Default has occurred and is continuing (except as
otherwise expressly provided below).
(i) after the occurrence and during the continuance of an Event of
Default, to demand, sue for, collect, or receive in the name of any Debtor
or in its own name, any money or property at any time payable or receivable
on account of or in exchange for any of the Collateral and, in connection
therewith, endorse checks, notes, drafts, acceptances, money orders,
documents of title, or any other instruments for the payment of money under
the Collateral or any policy of insurance;
(ii) to pay or discharge taxes or Liens levied or placed on or
threatened against the Collateral;
(iii) after the occurrence and during the continuance of an Event
of Default, to notify post office authorities to change the address for
delivery of mail of any Debtor to an address designated by the Agent and to
receive, open, and dispose of mail addressed to any Debtor;
(iv) (A) after the occurrence and during the continuance of an
Event of Default, to direct account debtors and any other parties liable
for any payment under any of the Collateral to make payment of any and all
monies due and to become due thereunder directly to the Agent or as the
Agent shall direct; (B) after the occurrence and during the continuance of
an Event of Default, to receive payment of and receipt for any and all
monies, claims, and other amounts due and to become due at any time in
respect of or arising out of any Collateral; (C) after the occurrence and
during the continuance of an Event of Default, to sign and endorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, proxies, stock powers,
verifications, and notices in connection with accounts and other documents
relating to the Collateral; (D) after the occurrence and during the
continuance of an Event of Default, to commence and prosecute any suit,
action, or proceeding at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to enforce
any other right in respect of any Collateral; (E) after the occurrence and
during the continuance of an Event of Default, to defend any suit, action,
or proceeding brought against any Debtor with respect to any Collateral;
(F) after the occurrence and during the continuance of an Event of Default,
to settle, compromise, or adjust any suit, action, or proceeding described
above and, in connection therewith, to give such discharges or releases as
the Agent may deem appropriate; (G) to exchange any of the Collateral for
other property upon any merger, consolidation, reorganization,
recapitalization, or other readjustment of the issuer thereof and, in
connection therewith, deposit any of the Collateral with any committee,
depositary, transfer agent, registrar, or other designated agency upon such
terms as the Agent may determine; (H) to add or release any guarantor,
indorser, surety, or other party to any of the Collateral; (I) to renew,
extend, or otherwise change the terms and conditions of any of the
Collateral; (J) to make, settle, compromise,
GUARANTOR SECURITY AGREEMENT - Page 11
<PAGE>
or adjust claims under any insurance policy covering any of the Collateral;
and (K) after the occurrence and during the continuance of an Event of
Default, to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though
the Agent were the absolute owner thereof for all purposes, and to do, at
the Agent's option and the Debtors' expense, at any time, or from time to
time, all acts and things which the Agent deems necessary to protect,
preserve, or realize upon the Collateral and the Agent's security interest
therein.
This power of attorney is a power coupled with an interest and shall be
irrevocable. The Agent shall be under no duty to exercise or withhold the
exercise of any of the rights, powers, privileges, and options expressly or
implicitly granted to the Agent in this Agreement, and shall not be liable for
any failure to do so or any delay in doing so. The Agent shall not be liable
for any act or omission or for any error of judgment or any mistake of fact or
law in its individual capacity or in its capacity as attorney-in-fact except
acts or omissions resulting from its willful misconduct. This power of attorney
is conferred on the Agent solely to protect, preserve, and realize upon its
security interest in the Collateral. The Agent shall not be responsible for any
decline in the value of the Collateral and shall not be required to take any
steps to preserve rights against prior parties or to protect, preserve, or
maintain any security interest or Lien given to secure the Collateral.
Section 5.2. Setoff; Property Held by the Agents and the Banks. If an
-------------------------------------------------
Event of Default shall have occurred and be continuing, the Agent, each Co-Agent
and each Bank shall have the right to set off and apply against the Obligations,
at any time and without notice to any Debtor, any and all deposits (general or
special, time or demand, provisional or final) or other sums at any time
credited by or owing from the Agent, any Co-Agent or any Bank to such Debtor
whether or not the Obligations are then due. As additional security for the
Obligations, each Debtor hereby grants the Agent, each Co-Agent and each Bank a
security interest in all money, instruments, and other property of such Debtor
now or hereafter held by the Agent, any Co-Agent or any Bank, including without
limitation, property held in safekeeping. In addition to the Agent's, any Co-
Agent's or any Bank's right of setoff and as further security for the
Obligations, each Debtor hereby grants the Agent, each Co-Agent and each Bank a
security interest in all deposits (general or special, time or demand,
provisional or final) of such Debtor now or hereafter on deposit with or held by
the Agent, any Co-Agent or any Bank and all other sums at any time credited by
or owing from the Agent, any Co-Agent or any Bank to such Debtor. The rights
and remedies of the Agent, each Co-Agent and each Bank hereunder are in addition
to other rights and remedies (including, without limitation, other rights of
setoff) which the Agent, any Co-Agent or any Bank may have.
Section 5.3. Performance by the Agent. If any Debtor shall fail to
------------------------
perform any covenant or agreement contained in this Agreement, the Agent may
perform or attempt to perform such covenant or agreement on behalf of such
Debtor. In such event, the Debtors shall, at the request of the Agent, promptly
pay any amount expended by the Agent in connection with such performance or
attempted performance to the Agent, together with interest thereon at the
Default Rate from and including the date of such expenditure to but excluding
the date such
GUARANTOR SECURITY AGREEMENT - Page 12
<PAGE>
expenditure is paid in full. Notwithstanding the foregoing, it is expressly
agreed that the Agent shall not have any liability or responsibility for the
performance of any obligation of any Debtor under this Agreement.
Section 5.4. Subrogation. If any of the Obligations are given in renewal
-----------
or extension or applied toward the payment of indebtedness secured by any Lien,
Agent, the Co-Agents and the Banks shall be, and are hereby, subrogated to all
of the rights, titles, interests and Liens securing the indebtedness so renewed,
extended, or paid.
Section 5.5. Agent's Duty of Care. Other than the exercise of reasonable
--------------------
care and the physical custody of the Collateral while held by the Agent
hereunder, the Agent shall have no responsibility for or obligation or duty with
respect to all or any part of the Collateral or any matter or proceeding arising
out of or relating thereto, including without limitation any obligation or duty
to collect any sums due in respect thereof or to protect or preserve any rights
against prior parties or any other rights pertaining thereto, it being
understood and agreed that each Debtor shall be responsible for preservation of
all rights in the Collateral. Without limiting the generality of the foregoing,
the Agent shall be conclusively deemed to have exercised reasonable care in the
custody of the Collateral if the Agent takes such action, for purposes of
preserving rights in the Collateral, as any Debtor may reasonably request in
writing, but no failure or omission or delay by the Agent in complying with any
such request by any Debtor, and no refusal by the Agent to comply with any such
request by any Debtor, shall be deemed to be a failure to exercise reasonable
care.
ARTICLE VI
Default
-------
Section 6.1. Rights and Remedies. If an Event of Default shall have
-------------------
occurred and be continuing, the Agent shall have the following rights and
remedies:
(i) In addition to all other rights and remedies granted to the
Agent in this Agreement or in any other Loan Document or by applicable law,
the Agent shall have all of the rights and remedies of a secured party
under the UCC (whether or not the UCC applies to the affected Collateral).
Without limiting the generality of the foregoing, the Agent may (1) without
demand or notice to any Debtor, collect, receive, or take possession of the
Collateral or any part thereof and for that purpose the Agent may enter
upon any premises on which the Collateral is located and remove the
Collateral therefrom or render it inoperable, and/or (2) sell, lease, or
otherwise dispose of the Collateral, or any part thereof, in one or more
parcels at public or private sale or sales, at the Agent's offices or
elsewhere, for cash, on credit or for future delivery, and upon such other
terms as the Agent may deem commercially reasonable. The Agent shall have
the right at any public sale or sales, and, to the extent permitted by
applicable law, at any private sale or sales, to bid and become a purchaser
of the Collateral or any part thereof free of any right or equity of
redemption on the part of any Debtor, which right or equity of redemption
GUARANTOR SECURITY AGREEMENT - Page 13
<PAGE>
is hereby expressly waived and released by each Debtor. Upon the request
of the Agent, each Debtor shall assemble the Collateral and make it
available to the Agent at any place designated by the Agent that is
reasonably convenient to such Debtor and the Agent. Each Debtor agrees
that the Agent shall not be obligated to give more than five days written
notice of the time and place of any public sale or of the time after which
any private sale may take place and that such notice shall constitute
reasonable notice of such matters. The Agent shall not be obligated to
make any sale of Collateral if it shall determine not to do so, regardless
of the fact that notice of sale of Collateral may have been given. The
Agent may, without notice or publication, adjourn any public or private
sale or cause the same to be adjourned from time to time by announcement at
the time and place fixed for sale, and such sale may, without further
notice, be made at the time and place to which the same was so adjourned.
The Debtors shall be jointly and severally liable for all expenses of
retaking, holding, preparing for sale, or the like, and all attorneys'
fees, legal expenses, and all other costs and expenses incurred by the
Agent in connection with the collection of the Obligations and the
enforcement of the Agent's rights under this Agreement. The Debtors shall
remain liable for any deficiency if the Proceeds of any sale or other
disposition of the Collateral are insufficient to pay the Obligations in
full. The Agent, the Co-Agents and the Banks may apply the Collateral
against the Obligations in such order and manner as the Agent may elect in
its sole discretion. Each Debtor waives all rights of marshalling,
valuation, and appraisal in respect of the Collateral.
(ii) The Agent may cause any or all of the Collateral held by it to
be transferred into the name of the Agent or the name or names of the
Agent's nominee or nominees.
(iii) The Agent may collect or receive all money or property at any
time payable or receivable on account of or in exchange for any of the
Collateral, but shall be under no obligation to do so.
(iv) On any sale of the Collateral, the Agent is hereby authorized
to comply with any limitation or restriction with which compliance is
necessary, in the view of the Agent's counsel, in order to avoid any
violation of applicable law or in order to obtain any required approval of
the purchaser or purchasers by any applicable Governmental Authority.
ARTICLE VII
Miscellaneous
-------------
Section 7.1. Expenses. The Debtors hereby jointly and severally agree to
--------
pay on demand: (a) all reasonable costs and out-of-pocket expenses of the Agent
in connection with the preparation, negotiation, execution, and delivery of this
Agreement and the other Loan
GUARANTOR SECURITY AGREEMENT - Page 14
<PAGE>
Documents and any and all amendments, modifications, renewals, extensions, and
supplements thereof and thereto, including, without limitation, the reasonable
fees and expenses of legal counsel for the Agent, (b) all costs and out-of-
pocket expenses of the Agent and the Banks, or any of them in connection with
any Default and the enforcement of this Agreement or any other Loan Document,
including, without limitation, the reasonable fees and expenses of legal counsel
for the Agent and the Banks, or any of them, (c) all transfer, stamp,
documentary, or other similar taxes, assessments, or charges levied by any
Governmental Authority in respect of this Agreement or any of the other Loan
Documents, (d) all reasonable costs, out-of-pocket expenses, assessments, and
other charges incurred in connection with any filing, registration, recording,
or perfection of any security interest or Lien contemplated by this Agreement or
any other Loan Document, and (e) all other reasonable costs and out-of-pocket
expenses incurred by the Agent in connection with this Agreement or any other
Loan Document, including, without limitation, all fees, costs, out-of-pocket
expenses, and other charges incurred in connection with performing or obtaining
any audit or appraisal in respect of the Collateral.
Section 7.2. INDEMNIFICATION. THE DEBTORS HEREBY JOINTLY AND SEVERALLY
---------------
AGREE TO INDEMNIFY THE AGENT AND EACH BANK AND EACH AFFILIATE THEREOF AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AGENTS, AND PARTICIPANTS
FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES,
CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, INTEREST, EXPENSES
(INCLUDING REASONABLE ATTORNEYS' FEES), AND AMOUNTS PAID IN SETTLEMENT TO WHICH
ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE
TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR
ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS
CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY THE BORROWER OR ANY DEBTOR
OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY
OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL,
REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR
AFFECTING ANY OF THE PROPERTIES OR ASSETS OF THE BORROWER, ANY DEBTOR OR ANY
SUBSIDIARY, (E) THE USE OR PROPOSED USE OF ANY LETTER OF CREDIT, (F) ANY AND ALL
TAXES, LEVIES, DEDUCTIONS, AND CHARGES IMPOSED ON THE AGENT OR ANY BANK OR ANY
OF THEIR RESPECTIVE CORRESPONDENTS IN RESPECT OF ANY LETTER OF CREDIT, OR (G)
ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT
LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER PROCEEDING,
RELATING TO ANY OF THE FOREGOING; PROVIDED, HOWEVER THAT NO PERSON TO BE
-------- -------
INDEMNIFIED HEREUNDER SHALL HAVE THE RIGHT TO BE INDEMNIFIED FOR ITS OWN GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITING ANY PROVISION OF THIS
AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE
PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE
INDEMNIFIED FROM AND HELD HARMLESS
GUARANTOR SECURITY AGREEMENT - Page 15
<PAGE>
AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS,
DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) ARISING OUT OF OR
RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON.
Section 7.3. Limitation of Liability. None of the Agent, any Bank, or any
-----------------------
Affiliate, officer, director, employee, attorney, or agent thereof shall have
any liability with respect to, and each Debtor hereby waives, releases, and
agrees not to sue any of them upon, any claim for any special, indirect,
incidental, or consequential damages suffered or incurred by such Debtor in
connection with, arising out of, or in any way related to, this Agreement or any
of the other Loan Documents, or any of the transactions contemplated by this
Agreement or any of the other Loan Documents. Each Debtor hereby waives,
releases, and agrees not to sue the Agent or any Bank or any of their respective
Affiliates, officers, directors, employees, attorneys, or agents for punitive
damages in respect of any claim in connection with, arising out of, or in any
way related to, this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the other Loan Documents.
Section 7.4. No Fiduciary Relationship. The relationship between each
-------------------------
Debtor and each Bank with respect to the Loan Documents and the transactions
governed thereby is solely that of debtor and creditor, and neither the Agent
nor any Bank has any fiduciary or other special relationship with any Debtor
with respect to the Loan Documents and the transactions governed thereby, and no
term or condition of any of the Loan Documents shall be construed so as to deem
the relationship between the Debtor and any Bank with respect to the Loan
Documents and the transactions governed thereby to be other than that of debtor
and creditor.
Section 7.5. No Waiver; Cumulative Remedies. No failure on the part of
------------------------------
the Agent, any Co-Agent or any Bank to exercise and no delay in exercising, and
no course of dealing with respect to, any right, power, or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power, or privilege under this Agreement preclude any
other or further exercise thereof or the exercise of any other right, power, or
privilege. The rights and remedies provided for in this Agreement are
cumulative and not exclusive of any rights and remedies provided by law.
Section 7.6. Successors and Assigns; Parties Bound. This Agreement shall
-------------------------------------
be binding upon and inure to the benefit of the Debtors and the Agent and their
respective heirs, successors, and assigns, except that the Debtors may not
assign any of their rights or obligations under this Agreement without the prior
written consent of the Agent. The Debtors' obligations and agreements hereunder
are joint and several. The provisions of this Agreement shall apply to each
Debtor, individually and collectively.
Section 7.7. ENTIRE AGREEMENT; AMENDMENT; CONTROLLING AGREEMENT. THIS
--------------------------------------------------
AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE
PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT
GUARANTOR SECURITY AGREEMENT - Page 16
<PAGE>
ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE
PARTIES HERETO. The provisions of this Agreement may be amended or waived only
by an instrument in writing signed by the parties hereto. In the event any term
or provision of this Agreement expressly conflicts with any term or provision of
the Credit Agreement, the terms and provisions of the Credit Agreement shall
govern and control.
Section 7.8. Notices. All notices and other communications provided for
-------
in this Agreement shall be given or made in writing and telecopied, mailed by
certified mail return receipt requested, or delivered to the intended recipient
at the address specified below its name on the signature pages hereof; or, as to
any party at such other address as shall be designated by such party in a notice
to the other party given in accordance with this Section. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telecopy, subject to telephone confirmation of
receipt, or when personally delivered or, in the case of a mailed notice, when
duly deposited in the mails, in each case given or addressed as aforesaid.
Section 7.9. GOVERNING LAW; VENUE. THIS AGREEMENT SHALL BE GOVERNED BY
--------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AND THE
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS AGREEMENT HAS BEEN
ENTERED INTO IN DALLAS COUNTY, TEXAS, AND IT SHALL BE PERFORMABLE FOR ALL
PURPOSES IN DALLAS COUNTY, TEXAS.
Section 7.10. Headings. The headings, captions, and arrangements used in
--------
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 7.11. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties made in this Agreement shall survive the
execution and delivery of this Agreement, and no investigation by the Agent, any
Co-Agent or any Bank shall affect the representations and warranties of any
Debtor herein or the right of the Agent, any Co-Agent or any Bank to rely upon
them.
Section 7.12. Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 7.13. Waiver of Bond. In the event the Agent seeks to take
--------------
possession of any or all of the Collateral by judicial process, each Debtor
hereby irrevocably waives any bonds and any surety or security relating thereto
that may be required by applicable law as an incident to such possession, and
waives any demand for possession prior to the commencement of any such suit or
action.
Section 7.14. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such
GUARANTOR SECURITY AGREEMENT - Page 17
<PAGE>
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
Section 7.15. Termination. If all of the Obligations shall have been paid
-----------
and performed in full and all Commitments shall have expired or terminated, the
Agent shall, upon the written request of the Borrower, execute and deliver to
the Debtors a proper instrument or instruments acknowledging the release and
termination of the security interests created by this Agreement, and shall duly
assign and deliver to the Debtors (without recourse and without any
representation or warranty) such of the Collateral as may be in the possession
of the Agent and has not previously been sold or otherwise applied pursuant to
this Agreement.
Section 7.16. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
--------------------
APPLICABLE LAW, EACH DEBTOR HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY
OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF
THE AGENT, ANY CO-AGENT OR ANY BANK IN THE NEGOTIATION, ADMINISTRATION, OR
ENFORCEMENT THEREOF.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
GUARANTOR SECURITY AGREEMENT - Page 18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first written above.
DEBTORS:
-------
NATIONAL AUTO CENTER, INC.,
a Delaware corporation
By:_______________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
CELLSTAR, LTD.,
a Texas limited partnership
By: National Auto Center, Inc.,
its general partner
By:__________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
GUARANTOR SECURITY AGREEMENT - Page 19
<PAGE>
CELLSTAR FULFILLMENT, LTD.,
a Texas limited partnership
By: CellStar Fulfillment, Inc.,
its general partner
By:__________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
CELLSTAR WEST, INC.,
a Delaware corporation
By:_______________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
ACC-CELLSTAR, INC.,
a Delaware corporation
By:_______________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
GUARANTOR SECURITY AGREEMENT - Page 20
<PAGE>
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
CELLSTAR FINANCO, INC.,
a Delaware corporation
By:_______________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
CELLSTAR FULFILLMENT, INC.,
a Delaware corporation
By:_______________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
NAC HOLDINGS, INC.,
a Nevada corporation
By:_______________________________________
Elaine F. Rodriguez
President
GUARANTOR SECURITY AGREEMENT - Page 21
<PAGE>
Address: 1325 Airmotive Way
Reno, Nevada 89502
Fax No.: (702) 322 8808
Phone No.: (702) 322-3221
Attention: Secretary
CELLSTAR INTERNATIONAL
CORPORATION/ASIA,
a Delaware corporation
By:_______________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
AUDIOMEX EXPORT CORP.,
a Texas corporation
By:_______________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
GUARANTOR SECURITY AGREEMENT - Page 22
<PAGE>
CELLSTAR INTERNATIONAL
CORPORATION/SA,
a Delaware corporation
By:_______________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
CELLSTAR AIR SERVICES, INC.,
a Delaware corporation
By:_______________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
A&S AIR SERVICE, INC.,
a Delaware corporation
By:_______________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
GUARANTOR SECURITY AGREEMENT - Page 23
<PAGE>
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
AGENT:
-----
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, as Agent
By:_______________________________________
Allen K. King
Vice President
Address: 2200 Ross Avenue, 3rd Floor
Dallas, Texas 75201
Fax No.: (214) 965-2997
Phone No.: (214) 965-2705
Attention: Allen K. King
GUARANTOR SECURITY AGREEMENT - Page 24
<PAGE>
Schedule 1
Location of Inventory and Equipment of Guarantors
-------------------------------------------------
Locations of Inventory and Equipment
having an aggregate value of $100,000 or more
---------------------------------------------
DEBTOR LOCATION
- ------ --------
CellStar, Ltd. 1728 Briercroft Court
Carrollton, Texas 75006
CellStar, Ltd. 1730 Briercroft Court
Carrollton, Texas 75006
CellStar, Ltd. 605 West Airport Freeway
Irving, Texas 75062
National Auto Center, Inc. 7899 East Frontage Road
Overland Park, Kansas 66204
National Auto Center, Inc. 7500 N.W. 25th Street, Unit 4
Miami, Florida 33122
National Auto Center, Inc. 1230 Santa Anita Avenue
Units A, C & D
South El Monte, California 917 33
CellStar West, Inc. 31035 Genstar Road
Hayward, California 94544
Locations of Inventory and Equipment
having an aggregate value of less than $100,000
-----------------------------------------------
Debtor Location
- ------ --------
CellStar, Ltd. 512 North Central Expressway
Richardson, Texas 75080
CellStar, Ltd. 4216 LBJ Freeway
Dallas, Texas 75244
Schedule 1 - Location of Inventory and Equipment of Guarantors 1
<PAGE>
Schedule 1
Location of Inventory and Equipment of Guarantors
-------------------------------------------------
DEBTOR LOCATION
- ------ --------
CellStar, Ltd. 1870 Crown Drive, Suite 1510
Farmers Branch, Texas 75234
CellStar, Ltd. 5937 Donnelly
Fort Worth, Texas 76107
CellStar, Ltd. 4146 South Cooper Street
Arlington, Texas 76015
CellStar, Ltd. 8728 Westpark Drive
Houston, Texas 77063
CellStar, Ltd. 6943 FM 1960 West
Houston, Texas 77069
CellStar, Ltd. 19750 Gulf Freeway
Webster, Texas 77598
CellStar, Ltd. 9222 Burnett Road
Austin, Texas 78758
National Auto Center, Inc. 6700 North Oak Street Trafficway
Gladstone, Missouri 64118
National Auto Center, Inc. 13208 East Highway 40, Suite C
Independence, Missouri 64055
National Auto Center, Inc. 504 South Edgemoor
Wichita, Kansas 67208
CellStar West, Inc. 2417 Front Street
Sacramento, California 95691
CellStar West, Inc. 4704 West Jennifer, Suite 105
Fresno, California 95205-2661
Schedule 1 - Location of Inventory and Equipment of Guarantors 2
<PAGE>
Schedule 1
Location of Inventory and Equipment of Guarantors
-------------------------------------------------
DEBTOR LOCATION
- ------ --------
NAC Holdings, Inc. 1325 Airmotive Way
Reno, Nevada 89502
ACC-CellStar, Inc. 7500 N.W. 25th Street, Unit 4
Miami, Florida 33122
CellStar Financo, Inc. 1730 Briercroft Court
Carrollton, Texas 75006
Schedule 1 - Location of Inventory and Equipment of Guarantors 3
<PAGE>
Schedule 2
Jurisdictions for Filing
UCC-1 Financing Statements
--------------------------
<TABLE>
<CAPTION>
Debtor Name Jurisdiction
- ----------- ------------
<S> <C>
National Auto Center, Inc. Secretary of State of Texas
CellStar West, Inc. Secretary of State of Texas
NAC Holdings, Inc. Secretary of State of Texas
CellStar Fulfillment, Inc. Secretary of State of Texas
CellStar International Corporation\SA Secretary of State of Texas
ACC-CellStar, Inc. Secretary of State of Texas
A & S Air Service, Inc. Secretary of State of Texas
Audiomex Export Corp. Secretary of State of Texas
CellStar International Corporation\Asia Secretary of State of Texas
CellStar Air Services, Inc. Secretary of State of Texas
CellStar Financo, Inc. Secretary of State of Texas
CellStar Fulfillment, Ltd. Secretary of State of Texas
CellStar, Ltd. Secretary of State of Texas
National Auto Center, Inc. Secretary of State of California
CellStar West, Inc. Secretary of State of California
National Auto Center, Inc. Secretary of State of Florida
ACC-CellStar, Inc. Secretary of State of Florida
National Auto Center, Inc. Secretary of State of Kansas
National Auto Center, Inc. Johnson County, Kansas
National Auto Center, Inc. Sedgwick County, Kansas
National Auto Center, Inc. Secretary of State of Missouri
National Auto Center, Inc. Clay County, Missouri
National Auto Center, Inc. Jackson County, Missouri
NAC Holdings, Inc. Secretary of State of Nevada
</TABLE>
UCC-1 Financing Statements of Guarantors - Page Solo
- ----------------------------------------
<PAGE>
Schedule 3
Additional Names and Trade Names
--------------------------------
NATIONAL AUTO CENTER, INC.
- --------------------------
National Auto Cellular
PC Cellular
C-Mart
CellStar
CellStar West
CELLSTAR, LTD.
- --------------
National Auto Cellular
PC Cellular
CellStar
Pacific Bell Mobile Services Fulfillment
Schedule 3 - Additional Names and Trade Names Page Solo
<PAGE>
EXHIBIT F
TO
CREDIT AGREEMENT
Form of Pledge Agreement
------------------------
<PAGE>
PLEDGE AGREEMENT
----------------
THIS PLEDGE AGREEMENT (this "Agreement") dated as of October 15, 1997, is
---------
by and between ___________________________________, a __________ corporation
(the "Pledgor"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national
-------
banking association ("TCB"), not in its individual capacity but solely as agent
---
for itself and each of the other banks or lending institutions (each, a "Bank"
----
and collectively, the "Banks") which is or may from time to time become a
-----
signatory to the Credit Agreement (hereinafter defined) or any successor or
permitted assignee thereof (TCB in such capacity, together with its successors
in such capacity, the "Agent").
-----
R E C I T A L S:
---------------
A. CellStar Corporation, a Delaware corporation (the "Borrower"), the
--------
Agent, The First National Bank of Chicago and National City Bank, as co-agents
(collectively, the "Co-Agents"), and the Banks are parties to that certain
---------
Credit Agreement of even date herewith (such Credit Agreement, as the same may
be amended, supplemented or modified from time to time, the "Credit Agreement").
----------------
B. As a condition to the Credit Agreement, the Pledgor is required to
execute and deliver this Agreement.
A G R E E M E N T:
-----------------
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
Security Interest and Pledge
----------------------------
Section 1.1. Terms Defined in Credit Agreement. All capitalized terms
---------------------------------
used and not otherwise defined herein shall have their respective meanings as
specified in the Credit Agreement.
Section 1.2. Security Interest and Pledge. Subject to the terms of this
----------------------------
Agreement, Pledgor hereby pledges and grants to the Agent, for the pro rata
benefit of the Banks, a first priority security interest in the following
property whether now owned or hereafter acquired by Pledgor (such property being
hereinafter sometimes called the "Collateral"):
----------
[(a) All of Pledgor's rights, titles and interests (whether legal,
equitable or beneficial) but not obligations or liabilities (collectively,
the "Partnership Interest") as a
--------------------
PLEDGE AGREEMENT - Page 1
<PAGE>
[limited partner/general partner] of ____________________________, a Texas
limited partnership (the "Partnership"), and all of Pledgor's rights,
-----------
titles and interests in, to and under that certain partnership agreement
forming the Partnership by and between Pledgor and ____________, including,
without limitation, the Pledgor's undivided interest in partnership
properties and assets and any and all rights to receive distributions,
whether in cash or in kind, draws, proceeds, income, or any other payment
of any nature whatsoever, or assignment or conveyance of undivided
interests in assets, whether real or personal, made or required to be made
with respect to the Partnership Interest, whether upon dissolution or
termination of the Partnership or otherwise, including without limitation
all interests of Pledgor in all payments, gross receipts, accounts,
accounts receivable, notes and other rights to the payment of money and all
property and assets of the Partnership, together with any and all evidence
of the Partnership Interest and any and all certificates, options, rights,
or other interests or distributions issued in addition to, in substitution
or exchange for, or on account of, the Partnership Interest, and any and
all exchanges and substitutions for, increases, products and proceeds of
the foregoing, all of the foregoing whether now owned or hereafter acquired
by Pledgor;]
[(b) All present and future issued and outstanding shares of capital
stock or other equity or investment securities issued by ____________, now
owned or hereafter acquired by Pledgor, including without limitation _____
shares of common capital stock of ____________ evidenced by certificate
number _____;]
[(c) (i) 65% of all present and future issued and outstanding shares
of voting capital stock or other voting equity or investment securities
issued by ________________ __________, a ____________ corporation
("____________"), now owned or hereafter acquired by Pledgor, including
without limitation _________ shares of common capital stock of ____________
evidenced by certificate no. _____, and (ii) 100% of all present and future
issued and outstanding shares of non-voting preferred stock or other non-
voting equity or investment securities issued by ____________, now owned or
hereafter acquired by Pledgor;]
[CellStar International: (d) _______ shares of Hong Kong Dollar one
each representing 65% of all present issued share capital of CellStar
(Asia) Corporation Ltd., a Hong Kong corporation ("CellStar Asia");]
-------------
(e) All present and future issued and outstanding shares of capital
stock or other equity or investment securities issued by any Subsidiary of
Pledgor not named above, except Foreign Subsidiaries and holding companies
of Foreign Subsidiaries, now owned or hereafter acquired by Pledgor;
(f) All present and future issued and outstanding shares of non-
voting capital stock or other non-voting equity or investment securities
issued by any Subsidiary of Pledgor not named above which is a holding
company of any Foreign Subsidiary, now owned or hereafter acquired by
Pledgor;
PLEDGE AGREEMENT - Page 2
<PAGE>
(g) 65% of all present and future issued and outstanding shares of
voting capital stock or other voting equity or investment securities issued
by any Subsidiary of Pledgor not named above which is a holding company of
any Foreign Subsidiary, now owned or hereafter acquired by Pledgor;
(h) All present and future increases, profits, combinations,
reclassifications of, and substitutes and replacements for, all or part of
the foregoing, and all present and future accounts, contract rights,
general intangibles, chattel paper, documents, instruments, cash and
noncash proceeds, and other rights arising from or by virtue of, or from
the voluntary or involuntary sale, lease, or other disposition of, or
collections with respect to, all or any part of the foregoing; and
(i) All products, proceeds, revenues, distributions, dividends, stock
dividends, securities, and other property, rights, and interests that
Pledgor receives or is at any time entitled to receive on account of any of
the foregoing.
Section 1.3. Obligations. The security interest granted, ratified and
-----------
confirmed hereby is to secure the payment or performance of the following
obligations, indebtedness, and liabilities of Pledgor, now existing or hereafter
arising (all of such obligations, indebtedness, and liabilities being
hereinafter sometimes called the "Obligations"):
-----------
(a) the indebtedness, liabilities and obligations of Borrower to the
Banks evidenced by those Notes executed by Borrower pursuant to the Credit
Agreement and payable to the order of the Banks in the aggregate principal
amount of $135,000,000;
(b) the indebtedness, liabilities and obligations of Pledgor to the
Agent, the Co-Agents and the Banks under that certain Guaranty of even date
hereof executed by the Pledgor and the other guarantors named therein in
favor of the Agent, the Co-Agents and the Banks;
(c) the indebtedness, liabilities and obligations of the Borrower to
the Agent, the Co-Agents and the Banks pursuant to the Credit Agreement;
(d) all of the "Obligations," as such term is defined in the Credit
Agreement;
(e) all future Advances by the Agent or any Bank to the Borrower;
(f) all costs and expenses, including without limitation all
reasonable attorneys' fees and legal expenses, incurred by the Agent, any
Co-Agent or any Bank to preserve and maintain the Collateral, collect the
obligations herein described and enforce this Agreement;
(g) all other obligations, indebtedness and liabilities of Pledgor to
the Agent, any Co-Agent or any Bank under any of the Loan Documents, now
existing or hereafter
PLEDGE AGREEMENT - Page 3
<PAGE>
arising, regardless of whether such obligations, indebtedness and
liabilities are similar, dissimilar, related, unrelated, direct, indirect,
fixed, contingent, primary, secondary, joint, several, or joint and
several; and
(h) all extensions, renewals and modifications of any of the
foregoing.
Without limiting the foregoing, this Agreement secures the payment of all
amounts that constitute part of the obligations and would be owed by the
Borrower to the Agent, any Co-Agent or any Bank but for the fact that they are
unenforceable or not allowable due to the existence of bankruptcy,
reorganization, or similar proceedings involving the Borrower.
ARTICLE II
Representations and Warranties
------------------------------
Pledgor represents and warrants to the Agent that:
Section 2.1. Title. Pledgor owns, and with respect to Collateral acquired
-----
after the date hereof, Pledgor will own, legally and beneficially, the
Collateral free and clear of any Lien or claim or any right or option on the
part of any Person to purchase or otherwise acquire the Collateral or any part
thereof. The Collateral is not subject to any restriction on transfer or
assignment except for (a) compliance with applicable federal and state
securities laws and regulations promulgated thereunder[, and (b) with regard to
stock of CWI, that certain Shareholders Agreement dated as of January 22, 1996,
among CWI, CPD, Inc., Pledgor and the other Shareholders (as defined therein)]
[CellStar International: , and (c) prior approval of the directors of CellStar
Asia as required by its Articles of Association, which approval has been
completed for the transfer of the Collateral to the Agent]. Pledgor has the
unrestricted right to pledge the Collateral as contemplated hereby. All of the
Collateral has been duly and validly issued and is fully paid and nonassessable.
[Pledgor is the sole general partner of the Partnership.]
Section 2.2. Organization and Authority. Pledgor is a corporation duly
--------------------------
organized, validly existing, and in good standing under the laws of its state of
incorporation. Pledgor has the corporate power and authority to execute,
deliver, and perform this Agreement, and the execution, delivery, and
performance of this Agreement by Pledgor have been duly authorized by all
necessary corporate action on the part of Pledgor and do not and will not
violate or conflict with the certificate/articles of incorporation or bylaws of
Pledgor or any law, rule or regulation or any order, writ, injunction, or decree
of any Governmental Authority or arbitrator and do not and will not conflict
with, result in a breach of, or constitute a default under the provisions of any
agreement or instrument to which Pledgor is a party or by which Pledgor or any
of its property is bound or subject.
Section 2.3. Financing Statements. No financing statement covering any of
--------------------
the Collateral or its proceeds, except financing statements naming the Agent as
secured party, is on
PLEDGE AGREEMENT - Page 4
<PAGE>
file in any public office. So long as any amount remains unpaid on any
Obligations or the Agent has any Commitment, Pledgor will not execute or file,
or consent to or permit the filing of, any such financing statement or
statements in any public office, except the financing statement filed or to be
filed with respect to the security interest hereby granted.
Section 2.4. Principal Place of Business. The principal place of business
---------------------------
and chief executive office of Pledgor, and the office where Pledgor keeps its
books and records, is located at the address of Pledgor shown at the beginning
of this Agreement.
Section 2.5. Percentage of Stock. The shares of capital stock included in
-------------------
the Collateral constitute (a) 100% of the issued and outstanding shares of
capital stock of _________________, (b) 65% of the issued and outstanding shares
of voting capital stock of _____________________, and (c) 100% of the issued and
outstanding shares of non-voting capital stock of _____________________.
Section 2.6. Litigation. Except as disclosed on Schedule 8.5 to the
----------
Credit Agreement, there is no litigation, investigation, or governmental
proceeding pending or threatened against Pledgor or any of its properties which
if adversely determined would have a material adverse effect on the Collateral
or the financial condition, operations, or business of Pledgor.
Section 2.7. First Priority Perfected Security Interest. Upon the filing
------------------------------------------
of UCC financing statements and Agent's taking possession of the certificates
representing the stock included in the Collateral, this Agreement creates in
favor of the Agent a first priority perfected security interest in the
Collateral. There are no conditions precedent to the effectiveness of this
Agreement that have not been fully and permanently satisfied.
[Section 2.8. Benefit to Pledgor. The value of the consideration received
------------------
and to be received by the Pledgor as a result of the Borrower, the Agent, the
Co-Agents and the Banks entering into the Credit Agreement and the Pledgor
executing and delivering this Agreement is reasonably worth at least as much as
the liability and obligation of the Pledgor hereunder. Such liability and
obligation of the Pledgor hereunder. Such liability and obligation and the
Borrower's entering the Credit Agreement have benefited and may reasonably be
expected to benefit the Pledgor directly and indirectly. The ability of
Borrower to borrow and obtain letters of credit from time to time under the
Credit Agreement will benefit Pledgor and the consolidated corporate group of
which the Pledgor is a part and are necessary and convenient to the conduct,
promotion and attainment of the business of the Pledgor. The Pledgor has
adequate capital to conduct its business as a going concern, as presently
conducted and as proposed to be conducted. The Pledgor will be able to meet
its obligations hereunder and in respect of its other existing and future
indebtedness and liabilities as and when the same shall be due and payable. The
Pledgor is not insolvent (as that term is defined in 11 U.S.C. (S) 101 or
applicable law) and will not be rendered insolvent by its obligations hereunder.
The foregoing representations are supported by the Pledgor's internal
projections and forecasts. The Pledgor has determined that the execution and
delivery of this Agreement is to its advantage and benefit, taking into account
all relevant facts and circumstances.]
PLEDGE AGREEMENT - Page 5
<PAGE>
ARTICLE III
Affirmative and Negative Covenants
----------------------------------
Pledgor covenants and agrees with the Agent that until the Obligations are
paid and performed in full and all Commitments have terminated:
Section 3.1. Delivery. Prior to or concurrently with the execution and
--------
delivery of this Agreement, Pledgor shall deliver to the Agent all certificates
identified in subsections (b) and (c) of Section 1.2 hereof, and all other
--------------- --- -----------
certificates evidencing any other Collateral existing on the date hereof,
accompanied by undated stock powers duly executed in blank. [CellStar
International: Prior to or concurrently with the execution and delivery of this
Agreement, the Pledgor shall deliver to the Agent an instrument of transfer duly
executed by the Pledgor in relation to the transfer of _____ shares in the
issued share capital of CellStar Asia to the Agent or its nominee. The Pledgor
will procure CellStar Asia to issue a share certificate in favor of the Agent or
its nominee for the said _____ shares in due course. The Pledgor will also
deliver to the Agent a contract note executed by the Pledgor in blank as further
security for the Obligations. For the avoidance of doubt, the beneficial
ownership of the said shares shall not be transferred to the Agent or its
nominee unless or until an Event of Default shall occur.]
Section 3.2. Encumbrances. Pledgor shall not create, permit, or suffer to
------------
exist, and shall defend the Collateral against, any Lien on the Collateral
except the Permitted Liens, and shall defend Pledgor's rights in the Collateral
and the Agent's security interest in the Collateral against the claims and
demands of all Persons. Pledgor shall do nothing to impair the rights of the
Agent in the Collateral.
Section 3.3. Disposition of Collateral. Pledgor shall not sell, assign
-------------------------
(by operation of law or otherwise), or otherwise dispose of, or grant any option
with respect to the Collateral or any part thereof without the prior written
consent of the Agent.
Section 3.4. Distributions. If Pledgor shall become entitled to receive
-------------
or shall receive any stock certificate (including, without limitation, any
certificate representing a stock dividend or a distribution in connection with
any reclassification, increase, or reduction of capital or issued in connection
with any reorganization), option or rights, whether as an addition to, in
substitution of, or in exchange for any Collateral or otherwise, Pledgor agrees
to accept the same as the Agent's agent and to hold the same in trust for the
Agent, and to deliver the same forthwith to the Agent in the exact form
received, with the appropriate [endorsement of Pledgor when necessary and/or
appropriate undated stock powers duly executed in blank], [CellStar
International: instrument of transfer and contract note duly executed by the
Pledgor in blank] to be held by the Agent as additional Collateral for the
Obligations, subject to the terms hereof. Any sums paid upon or in respect of
the Collateral upon the liquidation, dissolution or winding up of any issuer of
Collateral shall be paid over to the Agent to be held by it as additional
Collateral for the Obligations subject to the terms hereof; and in case any
distribution of capital shall be made on or in respect of the Collateral or any
property shall be distributed upon or with
PLEDGE AGREEMENT - Page 6
<PAGE>
respect to the Collateral pursuant to any recapitalization or reclassification
of the capital of any issuer of Collateral or pursuant to any reorganization of
any issuer of Collateral, the property so distributed shall be delivered to the
Agent to be held by it, as additional Collateral for the Obligations, subject to
the terms hereof. All sums of money and property so paid or distributed in
respect of the Collateral that are received by Pledgor shall, until paid or
delivered to the Agent, be held by Pledgor in trust as additional security for
the Obligations.
Section 3.5. Further Assurances. At any time and from time to time, upon
------------------
the request of the Agent, and at the sole expense of Pledgor, Pledgor shall
promptly execute and deliver all such further instruments and documents and take
such further action as the Agent may deem necessary or desirable to preserve and
perfect its security interest in the Collateral and carry out the provisions and
purposes of this Agreement, including, without limitation, the execution and
filing of such financing statements as the Agent may require. A carbon,
photographic, or other reproduction of this Agreement or of any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement and may be filed as a financing statement. Subject to the
right of Pledgor to receive cash dividends and distributions under Section 4.3
-----------
hereof, in the event any Collateral is ever received by Pledgor, Pledgor shall
promptly transfer and deliver to the Agent such Collateral so received by
Pledgor (together with any necessary endorsements in blank, pledge endorsements,
other appropriate endorsements, or undated stock powers duly executed in blank),
which Collateral shall thereafter be held by the Agent pursuant to the terms of
this Agreement. [delete if CellStar International: The Agent shall at all
times have the right to exchange any certificates representing Collateral for
certificates of smaller or larger denominations for any purpose consistent with
this Agreement.]
Section 3.6. Inspection Rights. Pledgor shall permit the Agent and its
-----------------
representatives to examine, inspect, and copy Pledgor's books and records at any
reasonable time and as often as the Agent may desire during normal business
hours.
Section 3.7. Taxes. The Pledgor agrees to pay or discharge prior to
-----
delinquency all taxes, assessments, levies, and other governmental charges
imposed on it or its property, except Pledgor shall not be required to pay or
discharge any tax, assessment, levy, or other governmental charge if (i) the
amounts or validity thereof is being contested by Pledgor in good faith by
appropriate proceedings diligently pursued, (ii) such proceedings do not involve
any risk of sale, forfeiture, or loss of the Collateral or any interest therein,
and (iii) adequate reserves therefor have been established in conformity with
GAAP.
Section 3.8. Notification. Pledgor shall promptly, and in any event
------------
within five days after Pledgor obtains knowledge or becomes aware of any of the
following, notify the Agent of (a) any Lien or claim that has attached to or
been made or asserted against any of the Collateral, (b) any material damage to
or loss of any of the Collateral, (c) the occurrence of any other event that
could have a material adverse effect on the Collateral or the security interest
created hereunder, and (d) the occurrence or existence of any Default.
PLEDGE AGREEMENT - Page 7
<PAGE>
Section 3.9. Books and Records; Information. Pledgor shall keep accurate
------------------------------
and complete books and records of the Collateral and Pledgor's business and
financial condition in accordance with GAAP. Pledgor shall from time to time at
the request of the Agent deliver to the Agent such information regarding the
Collateral and Pledgor as the Agent may request. Pledgor shall mark its books
and records to reflect the security interest of the Agent under this Agreement.
Section 3.10. Compliance with Laws and Agreements. Pledgor shall comply
-----------------------------------
in all material respects with all applicable laws, rules, regulations, orders
and decrees of any Governmental Authority or arbitrator and all material
agreements, contracts, and instruments binding on it or affecting its properties
or business.
Section 3.11. Additional Securities. Pledgor shall not consent to or
---------------------
approve the issuance of any additional shares of any class of capital stock of
any issuer of Collateral, or any securities convertible into, or exchangeable
for, any such shares or any warrants, options, rights, or other commitments
entitling any Person to purchase or otherwise acquire any such shares.
ARTICLE IV
Rights of Agent and Pledgor
---------------------------
Section 4.1. Power of Attorney. Pledgor hereby irrevocably constitutes
-----------------
and appoints the Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead and in the name of Pledgor or in its
own name, to take any and all action and to execute any and all documents and
instruments which the Agent at any time and from time to time deems necessary or
desirable to accomplish the purposes of this Agreement and, without limiting the
generality of the foregoing, Pledgor hereby gives the Agent the power and right
on behalf of Pledgor and in its own name to do any of the following (subject to
the rights of Pledgor under Sections 4.2 and 4.3 hereof), without notice to or
------------ ---
the consent of Pledgor, and whether or not an Event of Default has occurred or
is continuing (except as otherwise expressly provided below):
(i) after the occurrence and during the continuance of an Event of
Default, to demand, sue for, collect, or receive in the name of Pledgor or
in its own name, any money or property at any time payable or receivable on
account of or in exchange for any of the Collateral and, in connection
therewith, endorse checks, notes, drafts, acceptances, money orders, or any
other instruments for the payment of money under the Collateral;
(ii) to pay or discharge taxes or Liens levied or placed on or
threatened against the Collateral;
(iii) (A) after the occurrence and during the continuance of an Event
of Default, to direct account debtors and any other parties liable for any
payment under any of the Collateral to make payment of any and all monies
due and to become due thereunder directly to the Agent or as the Agent
shall direct; (B) after the occurrence and during the
PLEDGE AGREEMENT - Page 8
<PAGE>
continuance of an Event of Default, to receive payment of and receipt for
any and all monies, claims, and other amounts due and to become due at any
time in respect of or arising out of any Collateral; (C) after the
occurrence and during the continuance of an Event of Default, to sign and
endorse any drafts, assignments, proxies, stock powers, verifications,
notices, and other documents relating to the Collateral; (D) after the
occurrence and during the continuance of an Event of Default, to commence
and prosecute any suit, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect the Collateral or any part
thereof and to enforce any other right in respect of any Collateral; (E)
after the occurrence and during the continuance of an Event of Default, to
defend any suit, action, or proceeding brought against Pledgor with respect
to any Collateral; (F) after the occurrence and during the continuance of
an Event of Default, to settle, compromise, or adjust any suit, action, or
proceeding described above and, in connection therewith, to give such
discharges or releases as the Agent may deem appropriate; (G) to exchange
any of the Collateral for other property upon any merger, consolidation,
reorganization, recapitalization, or other readjustment of any issuer of
Collateral and, in connection therewith, deposit any of the Collateral with
any committee, depositary, transfer agent, registrar, or other designated
agency upon such terms as the Agent may determine; (H) to add or release
any guarantor, indorser, surety, or other party to any of the Collateral or
the Obligations; (I) to renew, extend, or otherwise change the terms and
conditions of any of the Collateral or Obligations; and (J) after the
occurrence and during the continuance of an Event of Default, to sell,
transfer, pledge, make any agreement with respect to or otherwise deal with
any of the Collateral as fully and completely as though the Agent were the
absolute owner thereof for all purposes, and to do, at the Agent's option
and Pledgor's expense, at any time, or from time to time, all acts and
things which the Agent deems necessary to protect, preserve, or realize
upon the Collateral and the Agent's security interest therein.
This power of attorney is a power coupled with an interest and shall be
irrevocable. The Agent shall be under no duty to exercise or withhold the
exercise of any of the rights, powers, privileges, and options expressly or
implicitly granted to the Agent in this Agreement, and shall not be liable for
any failure to do so or any delay in doing so. The Agent shall not be liable
for any act or omission or for any error of judgment or any mistake of fact or
law in its individual capacity or in its capacity as attorney-in-fact except
acts or omissions resulting from its willful misconduct. This power of attorney
is conferred on the Agent solely to protect, preserve, and realize upon its
security interest in the Collateral. The Agent will exercise its best efforts
to notify Pledgor of any action taken by the Agent in its capacity as attorney-
in-fact pursuant to this Section, promptly after such action is taken provided
that any failure by the Agent to so notify Pledgor shall not impose any
liability upon the Agent or affect its rights and remedies hereunder, at law or
in equity. The Agent shall not be responsible for any decline in the value of
the Collateral and shall not be required to take any steps to preserve rights
against prior parties or to protect, preserve, or maintain any security interest
or Lien given to secure the Collateral.
Section 4.2. Voting Rights. Unless and until an Event of Default shall
-------------
have occurred and be continuing, Pledgor shall be entitled to exercise any and
all voting rights pertaining to the
PLEDGE AGREEMENT - Page 9
<PAGE>
Collateral or any part thereof in accordance with the direction of the Pledgor
for any purpose not inconsistent with the terms of this Agreement or the Credit
Agreement.
Section 4.3. Dividends and Distributions. Unless and until an Event of
---------------------------
Default shall have occurred and be continuing, Pledgor shall be entitled to
receive and retain or distribute to Borrower any dividends and distributions on
the Collateral paid in cash to the extent and only to the extent that such
dividends and distributions are permitted by the Credit Agreement, except as
provided in Section 3.4 hereof. [CellStar International: Accordingly, unless
-----------
and until an Event of Default shall have occurred and be continuing, the Agent
shall transmit to Pledgor any and all such cash dividends received by Agent.]
Section 4.4. Setoff; Property Held by Agents and the Banks. If an Event
---------------------------------------------
of Default shall have occurred and be continuing, the Agent, each Co-Agent and
each Bank shall have the right to set off and apply against the Obligations, at
any time and without notice to Pledgor, any and all deposits (general or
special, time or demand, provisional or final) or other sums at any time
credited by or owing from the Agent, any Co-Agent or any Bank to Pledgor whether
or not the Obligations are then due. As additional security for the
Obligations, Pledgor hereby grants the Agent, each Co-Agent and each Bank a
security interest in all money, instruments, and other property of Pledgor now
or hereafter held by the Agent, any Co-Agent or any Bank, including, without
limitation, property held in safekeeping. In addition to the Agent's, any Co-
Agent's or any Bank's right of setoff and as further security for the
Obligations, Pledgor hereby grants the Agent, each Co-Agent and each Bank a
security interest in all deposits (general or special, time or demand,
provisional or final) and other accounts of Pledgor now or hereafter on deposit
with or held by the Agent, any Co-Agent or any Bank and all other sums at any
time credited by or owing from the Agent, any Co-Agent or any Bank to Pledgor.
The rights and remedies of the Agent, each Co-Agent and each Bank hereunder are
in addition to other rights and remedies (including, without limitation, other
rights of setoff) which the Agent, any Co-Agent or any Bank may have.
Section 4.5. Performance by Agent. If Pledgor shall fail to perform any
--------------------
covenant or agreement contained in this Agreement, the Agent may perform or
attempt to perform such covenant or agreement on behalf of Pledgor. In such
event, Pledgor shall, at the request of the Agent, promptly pay any amount
expended by the Agent in connection with such performance or attempted
performance to the Agent, together with interest thereon at the Default Rate
from and including the date of such expenditure to but excluding the date such
expenditure is paid in full. Notwithstanding the foregoing, it is expressly
agreed that the Agent shall not have any liability or responsibility for the
performance of any obligation of Pledgor under this Agreement.
Section 4.6. Agent's Duty of Care. Other than the exercise of reasonable
--------------------
care in the physical custody of the Collateral while held by the Agent
hereunder, the Agent shall have no responsibility for or obligation or duty with
respect to all or any part of the Collateral or any matter or proceeding arising
out of or relating thereto, including, without limitation, any obligation or
duty to collect any sums due in respect thereof or to protect or preserve any
rights against prior parties or any other rights pertaining thereto, it being
understood and agreed that
PLEDGE AGREEMENT - Page 10
<PAGE>
Pledgor shall be responsible for preservation of all rights in the Collateral.
Without limiting the generality of the foregoing, the Agent shall be
conclusively deemed to have exercised reasonable care in the custody of the
Collateral if the Agent takes such action, for purposes of preserving rights in
the Collateral, as Pledgor may reasonably request in writing, but no failure or
omission or delay by the Agent in complying with any such request by Pledgor,
and no refusal by the Agent to comply with any such request by Pledgor, shall be
deemed to be a failure to exercise reasonable care.
ARTICLE V
Default
-------
Section 5.1. Rights and Remedies. If any Event of Default shall occur,
-------------------
the Agent shall have the following rights and remedies:
(i) In addition to all other rights and remedies granted to the
Agent in this Agreement and in any other Loan Document or by applicable
law, the Agent shall have all of the rights and remedies of a secured party
under the UCC. Without limiting the generality of the foregoing, the Agent
may (A) without demand or notice to Pledgor, collect, receive, or take
possession of the Collateral or any part thereof, (B) sell or otherwise
dispose of the Collateral, or any part thereof, in one or more parcels at
public or private sale or sales, at the Agent's offices or elsewhere, for
cash, on credit, or for future delivery, and/or (C) bid and become a
purchaser at any sale free of any right or equity of redemption in Pledgor,
which right or equity is hereby expressly waived and released by Pledgor.
Upon the request of the Agent, Pledgor shall assemble the Collateral and
make it available to the Agent at any place designated by the Agent that is
reasonably convenient to Pledgor and the Agent. Pledgor agrees that the
Agent shall not be obligated to give more than five days written notice of
the time and place of any public sale or of the time after which any
private sale may take place and that such notice shall constitute
reasonable notice of such matters. The Agent shall not be obligated to make
any sale of the Collateral regardless of notice of sale having been given.
The Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. Pledgor shall be liable for all expenses of retaking, holding,
preparing for sale, or the like, and all attorneys' fees and other expenses
incurred by the Agent in connection with the collection of the Obligations
and the enforcement of the Agent's rights under this Agreement, all of
which expenses and fees shall constitute additional Obligations secured by
this Agreement. The Agent may apply the Collateral against the Obligations
in such order and manner as the Agent may elect in its sole discretion.
Pledgor shall remain liable for any deficiency if the proceeds of any sale
or disposition of the Collateral are insufficient to pay the Obligations.
Pledgor waives all rights of marshalling in respect of the Collateral.
PLEDGE AGREEMENT - Page 11
<PAGE>
(ii) The Agent may cause any or all of the Collateral held by it to
be transferred into the name of the Agent (if the Agent is not yet the
registered owner of the Collateral) or the name or names of the Agent's
nominee or nominees.
(iii) The Agent may collect or receive all money or property at any
time payable or receivable on account of or in exchange for any of the
Collateral, but shall be under no obligation to do so.
(iv) The Agent shall have the right, but shall not be obligated to,
exercise or cause to be exercised all voting, consensual, and other powers
of ownership pertaining to the Collateral[, including, without limitation,
all rights, titles and interests of Pledgor as general partner of the
Partnership,] [and Pledgor shall deliver to the Agent, if requested by the
Agent, irrevocable proxies with respect to the Collateral in form
satisfactory to the Agent.] [CellStar International: and shall no longer
be required to vote in accordance with Pledgor's directions; and in the
event that the Agent is not yet the registered owner of the Collateral,
Pledgor shall deliver to Agent, if requested by the Agent, irrevocable
proxies with respect to the Collateral in form satisfactory to the Agent.]
(v) The Agent may notify or require Pledgor to notify parties
obligated under any accounts, instruments, contracts or agreements which
are part of the Collateral, [including without limitation the Partnership
Agreements,] to make payment directly to the Agent, and the Agent may take
possession of all proceeds of any such instruments and contracts in
Pledgor's possession. Any such payments or distributions received by
Pledgor after an Event of Default shall, until paid or delivered to the
Agent, be held by Pledgor in trust as additional security for the
Obligations.
(vi) [Pledgor hereby acknowledges and confirms that the Agent may be
unable to effect a public sale of any or all of the Collateral by reason of
certain prohibitions contained in the Securities Act of 1933, as amended,
and applicable state securities laws and may be compelled to resort to one
or more private sales thereof to a restricted group of purchasers who will
be obligated to agree, among other things, to acquire any shares of the
Collateral for their own respective accounts for investment and not with a
view to distribution or resale thereof. Pledgor further acknowledges and
confirms that any such private sale may result in prices or other terms
less favorable to the seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall
be deemed to have been made in a commercially reasonable manner, and the
Agent shall be under no obligation to take any steps in order to permit the
Collateral to be sold at a public sale. The Agent shall be under no
obligation to delay a sale of any of the Collateral for any period of time
necessary to permit any issuer thereof to register such Collateral for
public sale under the Securities Act of 1933, as amended, or under
applicable state securities laws.] [CellStar International: Pledgor hereby
acknowledges and confirms that under applicable Hong Kong law the Agent
cannot effect a public sale of any or all of the Collateral. Pledgor
further acknowledges and confirms that if a private sale results in prices
or other terms less favorable to the seller than may
PLEDGE AGREEMENT - Page 12
<PAGE>
have resulted if such sale were a public sale, such circumstances shall not
cause such sale to be deemed not to have been made in a commercially
reasonable manner. Nothing in this Agreement shall prohibit a public sale
of the Collateral if any change in circumstances or applicable law
otherwise results in the availability of public sale with respect to the
Collateral.]
(vii) On any sale of the Collateral, the Agent is hereby authorized
to comply with any limitation or restriction with which compliance is
necessary, in the view of the Agent's counsel, in order to avoid any
violation of applicable law or in order to obtain any required approval of
the purchaser or purchasers by any applicable governmental authority.
(viii) The Agent may subrogate to all of Pledgor's interests, rights,
and remedies with respect to any of the Collateral.
ARTICLE VI
Miscellaneous
-------------
Section 6.1. Expenses. The Pledgor hereby agrees to pay on demand: (a)
--------
all reasonable costs and out-of-pocket expenses of the Agent in connection with
the preparation, negotiation, execution, and delivery of this Agreement and the
other Loan Documents and any and all amendments, modifications, renewals,
extensions, and supplements thereof and thereto, including, without limitation,
the reasonable fees and expenses of legal counsel for the Agent, (b) all costs
and out-of-pocket expenses of the Agent, the Co-Agents and the Banks, or any of
them in connection with any Default and the enforcement of this Agreement or any
other Loan Document, including, without limitation, the reasonable fees and
expenses of legal counsel for the Agent, the Co-Agents and the Banks, or any of
them, (c) all transfer, stamp, documentary, or other similar taxes, assessments,
or charges levied by any Governmental Authority in respect of this Agreement or
any of the other Loan Documents, (d) all reasonable costs, out-of-pocket
expenses, assessments, and other charges incurred in connection with any filing,
registration, recording, or perfection of any security interest or Lien
contemplated by this Agreement or any other Loan Document, and (e) all other
reasonable costs and out-of-pocket expenses incurred by the Agent in connection
with this Agreement or any other Loan Document, including, without limitation,
all fees, costs, out-of-pocket expenses, and other charges incurred in
connection with performing or obtaining any audit or appraisal in respect of the
Collateral.
SECTION 6.2. INDEMNIFICATION. THE PLEDGOR HEREBY AGREES TO INDEMNIFY THE
---------------
AGENT AND EACH BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, ATTORNEYS, AGENTS, AND PARTICIPANTS FROM, AND HOLD EACH OF
THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, INTEREST, EXPENSES (INCLUDING
REASONABLE ATTORNEYS' FEES), AND AMOUNTS PAID IN SETTLEMENT TO
PLEDGE AGREEMENT - Page 13
<PAGE>
WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR
RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION,
OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS
CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY [THE BORROWER OR] THE
PLEDGOR OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED
IN ANY OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE,
DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT,
WITHIN, OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF [THE BORROWER,] THE
PLEDGOR OR ANY SUBSIDIARY, (E) THE USE OR PROPOSED USE OF ANY LETTER OF CREDIT,
(F) ANY AND ALL TAXES, LEVIES, DEDUCTIONS, AND CHARGES IMPOSED ON THE AGENT OR
ANY BANK OR ANY OF THEIR RESPECTIVE CORRESPONDENTS IN RESPECT OF ANY LETTER OF
CREDIT, OR (G) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING,
WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER
PROCEEDING, RELATING TO ANY OF THE FOREGOING; PROVIDED, HOWEVER, THAT NO PERSON
-------- -------
TO BE INDEMNIFIED HEREUNDER SHALL HAVE THE RIGHT TO BE INDEMNIFIED FOR ITS OWN
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITING ANY PROVISION OF THIS
AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE
PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE
INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES,
CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES
(INCLUDING ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR
CONTRIBUTORY NEGLIGENCE OF SUCH PERSON.
Section 6.3. No Waiver; Cumulative Remedies. No failure on the part of
------------------------------
the Agent, any Co-Agent or any Bank to exercise and no delay in exercising, and
no course of dealing with respect to, any right, power, or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power, or privilege under this Agreement preclude any
other or further exercise thereof or the exercise of any other right, power, or
privilege. The rights and remedies provided for in this Agreement are
cumulative and not exclusive of any rights and remedies provided by law.
Section 6.4. Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of Pledgor and the Agent and their respective heirs,
successors, and assigns, except that Pledgor may not assign any of its rights or
obligations under this Agreement without the prior written consent of the Agent.
Section 6.5. AMENDMENT; ENTIRE AGREEMENT. THIS AGREEMENT REPRESENTS THE
---------------------------
FINAL AGREEMENT AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR
PLEDGE AGREEMENT - Page 14
<PAGE>
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS
AMONG THE PARTIES HERETO. The provisions of this Agreement may be amended or
waived only by an instrument in writing signed by the parties hereto.
Section 6.6. Notices. All notices and other communications provided for
-------
in this Agreement shall be given or made in writing and telecopied, mailed by
certified mail return receipt requested, or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof; or, as to any party at such other address as shall be designated by such
party in a notice to the other party given in accordance with this Section.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when transmitted by telecopy, subject to
telephone confirmation of receipt, or when personally delivered or, in the case
of a mailed notice, when duly deposited in the mails, in each case given or
addressed as aforesaid.
SECTION 6.7. GOVERNING LAW; VENUE; SERVICE OF PROCESS. THIS AGREEMENT
----------------------------------------
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS AGREEMENT
HAS BEEN ENTERED INTO IN DALLAS COUNTY, TEXAS, AND IT SHALL BE PERFORMABLE FOR
ALL PURPOSES IN DALLAS COUNTY, TEXAS.
Section 6.8. Headings. The headings, captions, and arrangements used in
--------
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 6.9. Survival. All representations and warranties made in this
--------
Agreement shall survive the execution and delivery of this Agreement, and no
investigation by the Agent or any Bank shall affect the representations and
warranties of Pledgor herein or the right of the Agent or any Bank to rely upon
them.
Section 6.10. Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 6.11. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 6.12. Construction. Pledgor and the Agent acknowledge that each
------------
of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement with its legal counsel and that
this Agreement shall be construed as if jointly drafted by Pledgor and the
Agent.
PLEDGE AGREEMENT - Page 15
<PAGE>
Section 6.13. Termination. If all of the Obligations shall have been paid
-----------
and performed in full and all Commitments shall have expired or terminated, the
Agent shall, upon the written request of Pledgor, execute and deliver to Pledgor
a proper instrument or instruments acknowledging the release and termination of
the security interests created by this Agreement, and shall duly assign and
deliver to Pledgor (without recourse and without any representation or warranty)
such of the Collateral as may be in the possession of the Agent and has not
previously been sold or otherwise applied pursuant to this Agreement. The Agent
shall also return to the Pledgor all documents, including certificates,
instruments of transfer and contract notes in relation to the Collateral.
Section 6.14. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
--------------------
APPLICABLE LAW, PLEDGOR HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
CREDIT AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY OR THE ACTIONS OF THE AGENT, ANY CO-AGENT OR ANY
BANK IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
PLEDGE AGREEMENT - Page 16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first written above.
PLEDGOR:
-------
________________________________________
By:_____________________________________
Mark Q. Huggins
Senior Vice President
and Chief Financial Officer
Address for Notices:
[1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Telephone No.: (972) 466-5000
Attention: General Counsel]
AGENT:
-----
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, as Agent
By:____________________________________
Allen K. King
Vice President
Address for Notices:
2200 Ross Avenue, 3rd Floor
Dallas, Texas 75201
Fax No.: (214) 965-2997
Telephone No.: (214) 965-2705
Attention: Allen K. King
PLEDGE AGREEMENT - Page 17
<PAGE>
EXHIBIT G
TO
CREDIT AGREEMENT
Guaranty
--------
<PAGE>
GUARANTY
--------
THIS GUARANTY ("Guaranty"), dated as of October 15, 1997, is executed by
--------
the undersigned guarantors (each a "Guarantor" and, collectively, the
---------
"Guarantors"), for the benefit of each of the banks or lending institutions
- -----------
(each, a "Bank" and, collectively, the "Banks") which is or may from time to
---- -----
time become a signatory to the Credit Agreement (hereinafter defined) or any
successor or permitted assignee thereof, and Texas Commerce Bank National
Association, a national banking association ("TCB"), as agent for itself and
---
each of the other Banks (TCB in such capacity, together with its successors in
such capacity, the "Agent").
-----
WHEREAS, Cellstar Corporation, a Delaware corporation (the "Borrower"), the
--------
Banks, The First National Bank of Chicago and National City Bank (collectively,
the "Co-Agents"), and the Agent are parties to that certain Credit Agreement of
---------
even date herewith (such Credit Agreement, as the same may be amended,
supplemented or modified from time to time, the "Credit Agreement"); and
----------------
WHEREAS, as a condition to the Credit Agreement, each Guarantor is required
to execute and deliver this Guaranty.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Guarantors hereby jointly and severally,
irrevocably and unconditionally guarantee to the Agent, the Co-Agents and the
Banks the full and prompt payment and performance of the Guaranteed Indebtedness
(hereinafter defined), this Guaranty being upon the following terms:
1. The term "Guaranteed Indebtedness", as used herein, means all of the
-----------------------
"Obligations", as defined in the Credit Agreement. The term "Guaranteed
----------
Indebtedness" shall include any and all post-petition interest and expenses
- ------------
(including reasonable attorneys' fees) whether or not allowed under any
bankruptcy, insolvency, or other similar law. All other capitalized terms used
and not otherwise defined herein shall have their respective meanings as set
forth in the Credit Agreement.
2. This instrument shall be an absolute, continuing, irrevocable, and
unconditional guaranty of payment and performance, and not a guaranty of
collection, and each Guarantor shall remain liable on its obligations hereunder
until the payment and performance in full of the Guaranteed Indebtedness. No
set-off, counterclaim, recoupment, reduction, or diminution of any obligation,
or any defense of any kind or nature which Borrower may have against the Agent,
any Co-Agent, any Bank or any other party, or which any Guarantor may have
against Borrower, the Agent, any Co-Agent, any Bank or any other party, shall be
available to, or shall be asserted by, any Guarantor against the Agent, any Co-
Agent, any Bank or any subsequent holder of the Guaranteed Indebtedness or any
part thereof or against payment of the Guaranteed Indebtedness or any part
thereof.
GUARANTY - Page 1
<PAGE>
3. The obligations of each Guarantor hereunder shall be limited to an
aggregate amount equal to the largest amount that would not render its
obligations hereunder subject to avoidance under Section 548 of the United
States Bankruptcy Code or to being set aside, avoided, or annulled under any
applicable state law relating to fraudulent transfers or fraudulent obligations.
4. If any Guarantor becomes liable for any indebtedness owing by Borrower
to the Agent, any Co-Agent or any Bank by endorsement or otherwise, other than
under this Guaranty, such liability shall not be in any manner impaired or
affected hereby, and the rights of the Agent, the Co-Agents and the Banks
hereunder shall be cumulative of any and all other rights that any of them may
ever have against any Guarantor. The exercise by the Agent, any Co-Agent or any
Bank of any right or remedy hereunder or under any other instrument, or at law
or in equity, shall not preclude the concurrent or subsequent exercise of any
other right or remedy.
5. In the event of default by Borrower in payment or performance of the
Guaranteed Indebtedness, or any part thereof, when such Guaranteed Indebtedness
becomes due, whether by its terms, by acceleration, or otherwise, Guarantors
jointly and severally agree to promptly pay the amount due thereon to the Agent,
for the pro rata benefit of the Banks, without notice or demand in lawful
currency of the United States of America and it shall not be necessary for the
Agent, any Co-Agent or any Bank, in order to enforce such payment by any
Guarantor, first to institute suit or exhaust its remedies against Borrower, any
Guarantor or others liable on such Guaranteed Indebtedness, or to enforce any
rights against any collateral which shall ever have been given to secure such
Guaranteed Indebtedness. Notwithstanding anything to the contrary contained in
this Guaranty, each Guarantor hereby irrevocably subordinates to the prior
indefeasible payment in full of the Guaranteed Indebtedness, any and all rights
such Guarantor may now or hereafter have under any agreement or at law or in
equity (including, without limitation, any law subrogating such Guarantor to the
rights of the Agent, the Co-Agents and the Banks) to assert any claim against or
seek contribution, indemnification or any other form of reimbursement from
Borrower or any other party liable for payment of any or all of the Guaranteed
Indebtedness for any payment made by such Guarantor under or in connection with
this Guaranty or otherwise.
6. If acceleration of the time for payment of any amount payable by
Borrower under the Guaranteed Indebtedness is stayed upon the insolvency,
bankruptcy, or reorganization of Borrower, all such amounts otherwise subject to
acceleration under the terms of the Guaranteed Indebtedness shall nonetheless be
jointly and severally payable by the Guarantors hereunder forthwith on demand by
the Agent.
7. Each Guarantor hereby agrees that its obligations under this Guaranty
shall not be released, discharged, diminished, impaired, reduced, or affected
for any reason or by the occurrence of any event, including, without limitation,
one or more of the following events, whether or not with notice to or the
consent of any Guarantor: (a) the taking or accepting of collateral as security
for any or all of the Guaranteed Indebtedness or the release, surrender,
GUARANTY - Page 2
<PAGE>
exchange, or subordination of any collateral now or hereafter securing any or
all of the Guaranteed Indebtedness; (b) any partial release of the liability of
any Guarantor hereunder, or the full or partial release of any other guarantor
from liability for any or all of the Guaranteed Indebtedness; (c) any disability
of Borrower, or the dissolution, insolvency, or bankruptcy of Borrower, any
Guarantor, or any other party at any time liable for the payment of any or all
of the Guaranteed Indebtedness; (d) any renewal, extension, modification,
waiver, amendment, or rearrangement of any or all of the Guaranteed Indebtedness
or any instrument, document, or agreement evidencing, securing, or otherwise
relating to any or all of the Guaranteed Indebtedness; (e) any adjustment,
indulgence, forbearance, waiver, or compromise that may be granted or given by
the Agent, any Co-Agent or any Bank to Borrower, any Guarantor, or any other
party ever liable for any or all of the Guaranteed Indebtedness; (f) any
neglect, delay, omission, failure, or refusal of the Agent, any Co-Agent or any
Bank to take or prosecute any action for the collection of any of the Guaranteed
Indebtedness or to foreclose or take or prosecute any action in connection with
any instrument, document, or agreement evidencing, securing, or otherwise
relating to any or all of the Guaranteed Indebtedness; (g) the unenforceability
or invalidity of any or all of the Guaranteed Indebtedness or of any instrument,
document, or agreement evidencing, securing, or otherwise relating to any or all
of the Guaranteed Indebtedness; (h) any payment by Borrower or any other party
to the Agent, any Co-Agent or any Bank is held to constitute a preference under
applicable bankruptcy or insolvency law or if for any other reason the Agent,
any Co-Agent or any Bank is required to refund any payment or pay the amount
thereof to someone else; (i) the settlement or compromise of any of the
Guaranteed Indebtedness; (j) the non-perfection of any security interest or lien
securing any or all of the Guaranteed Indebtedness; (k) any impairment of any
collateral securing any or all of the Guaranteed Indebtedness; (l) the failure
of the Agent, any Co-Agent or any Bank to sell any collateral securing any or
all of the Guaranteed Indebtedness in a commercially reasonable manner or as
otherwise required by law; (m) any change in the corporate existence, structure,
or ownership of Borrower; or (n) any other circumstance which might otherwise
constitute a defense available to, or discharge of, Borrower or any Guarantor.
8. Each Guarantor represents and warrants to the Agent, the Co-Agents and
the Banks that:
(a) Each and every representation and warranty contained in the
Credit Agreement is true and correct in all respects.
(b) The value of the consideration received and to be received by
such Guarantor as a result of Borrower, the Banks, the Co-Agents and the
Agent entering into the Credit Agreement, the extensions of credit
thereunder and such Guarantor executing and delivering this Guaranty is
reasonably equivalent to or greater than the liability and obligation of
such Guarantor hereunder, and such liability and obligation, the Borrower's
entering into the Credit Agreement and the extensions of credit thereunder
have benefited and may reasonably be expected to benefit such Guarantor
directly or indirectly.
GUARANTY - Page 3
<PAGE>
(c) Such Guarantor has, independently and without reliance upon the
Agent, any Co-Agent or any Bank and based upon such documents and
information as such Guarantor has deemed appropriate, made its own analysis
and decision to enter into this Guaranty.
(d) The ability of Borrower to borrow and obtain letters of credit
from time to time under the Credit Agreement will enable such Guarantor to
obtain credit, will benefit such Guarantor and the consolidated corporate
group of which such Guarantor is a part and are necessary and convenient to
the conduct, promotion and attainment of the business of such Guarantor.
(e) As additional consideration for entering into this Guaranty, such
Guarantor has obtained certain rights under that certain Contribution and
Indemnification Agreement of even date herewith, among the Borrower and the
Guarantors.
(f) Such Guarantor has adequate capital to conduct its business as a
going concern, as presently conducted and as proposed to be conducted; such
Guarantor will be able to meet its obligations hereunder and in respect of
its other existing and future indebtedness and liabilities as and when the
same shall be due and payable; such Guarantor is not insolvent (as that
term is defined in 11 U.S.C. (S) 101 or applicable law) and will not be
rendered insolvent by its obligations hereunder, and the foregoing
representations are supported by such Guarantor's internal projections and
forecasts.
(g) Such Guarantor has determined that the execution and delivery of
this Guaranty is to its advantage and benefit, taking into account all
relevant facts and circumstances.
9. If an Event of Default shall have occurred and be continuing, the
Agent and each Bank shall have the right to set off and apply against this
Guaranty or the Guaranteed Indebtedness or both, at any time and without notice
to any Guarantor, any and all deposits (general or special, time or demand,
provisional or final) or other sums at any time credited by or owing from the
Agent, any Co-Agent or any Bank to any Guarantor whether or not the Guaranteed
Indebtedness is then due and irrespective of whether or not the Agent, any Co-
Agent or any Bank shall have made any demand under this Guaranty. As security
for this Guaranty and the Guaranteed Indebtedness, each Guarantor hereby grants
the Agent, each Co-Agent and each Bank a security interest in all money,
instruments, certificates of deposit, and other property of such Guarantor now
or hereafter held by the Agent, each Co-Agent and each Bank, including without
limitation, property held in safekeeping. In addition to the Agent's, each Co-
Agent's and each Bank's right of setoff and as further security for this
Guaranty and the Guaranteed Indebtedness, each Guarantor hereby grants the
Agent, each Co-Agent and each Bank a security interest in all deposits (general
or special, time or demand, provisional or final) and all other accounts of such
Guarantor now or hereafter on deposit with or held by the Agent, any Co-Agent or
any Bank and all other sums at any time credited by or owing from the Agent, any
Co-Agent
GUARANTY - Page 4
<PAGE>
or any Bank to such Guarantor. The rights and remedies of the Agent, each Co-
Agent and each Bank hereunder are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which the Agent, each
Co-Agent and each Bank may have.
10. (a) Each Guarantor hereby agrees that the Subordinated Indebtedness
(hereinafter defined) shall be subordinate and junior in right of payment to the
prior payment in full of all Guaranteed Indebtedness, and each Guarantor hereby
assigns the Subordinated Indebtedness to the Agent, for the pro rata benefit of
the Banks, as security for the Guaranteed Indebtedness. If any sums shall be
paid to any Guarantor by Borrower or any other Person on account of the
Subordinated Indebtedness, such sums shall be held in trust by such Guarantor
for the benefit of the Agent and shall forthwith be paid to the Agent, for the
pro rata benefit of the Banks, without affecting the liability of any Guarantor
under this Guaranty and may be applied by the Banks against the Guaranteed
Indebtedness in such order and manner as they may determine in their absolute
discretion; provided, however, that so long as no Event of Default shall have
-------- -------
occurred, Borrower shall be permitted to pay to any Guarantor, and each
Guarantor shall be permitted to receive and retain, payments on account of
Subordinated Indebtedness consisting of trade payables owing by Borrower to any
Guarantor. Upon the request of the Agent, each Guarantor shall execute,
deliver, and endorse to the Agent, for the pro rata benefit of the Banks, such
documents and instruments as the Agent may request to perfect, preserve, and
enforce the rights of the Agent and the Banks hereunder. For purposes of this
Guaranty, the term "Subordinated Indebtedness" means all indebtedness,
-------------------------
liabilities, and obligations of Borrower and the Subsidiaries, or any of them,
to any Guarantor, whether such indebtedness, liabilities, and obligations now
exist or are hereafter incurred or arise, or whether the obligations of Borrower
or such Subsidiary thereon are direct, indirect, contingent, primary, secondary,
several, joint, joint and several, or otherwise, and irrespective of whether
such indebtedness, liabilities, or obligations are evidenced by a note,
contract, open account, or otherwise, and irrespective of the Person or Persons
in whose favor such indebtedness, obligations, or liabilities may, at their
inception, have been, or may hereafter be created, or the manner in which they
have been or may hereafter be acquired by any Guarantor.
(b) Each Guarantor agrees that any and all liens, security interests,
judgment liens, charges, or other encumbrances upon the assets of Borrower and
the Subsidiaries, or any of them, securing payment of any Subordinated
Indebtedness shall be and remain inferior and subordinate to any and all liens,
security interests, judgment liens, charges, or other encumbrances upon such
assets securing payment of the Guaranteed Indebtedness or any part thereof,
regardless of whether such encumbrances in favor of any Guarantor or the Agent
presently exist or are hereafter created or attached. No Guarantor shall (i)
file suit against Borrower or any Subsidiary or exercise or enforce any other
creditor's right it may have against Borrower or any Subsidiary, or (ii)
foreclose, repossess, sequester, or otherwise take steps or institute any action
or proceedings (judicial or otherwise, including without limitation the
commencement of, or joinder in, any liquidation, bankruptcy, rearrangement,
debtor's relief or insolvency proceeding) to enforce any liens, security
interests, collateral rights, judgments or other encumbrances held by any
Guarantor on assets of Borrower or any Subsidiary unless and until the
Guaranteed
GUARANTY - Page 5
<PAGE>
Indebtedness shall have been paid in full, no Letters of Credit are outstanding,
and the Commitments have expired or terminated.
(c) In the event of any receivership, bankruptcy, reorganization,
rearrangement, debtor's relief, or other insolvency proceeding involving
Borrower or any Subsidiary as debtor, the Agent shall have the right to prove
and vote any claim under the Subordinated Indebtedness and to receive, for the
benefit of the Banks, directly from the receiver, trustee or other court
custodian all dividends, distributions, and payments made in respect of the
Subordinated Indebtedness. The Agent, the Co-Agents and the Banks may apply any
such dividends, distributions, and payments against the Guaranteed Indebtedness
in such order and manner as they may determine in their absolute discretion.
(d) Each Guarantor agrees that all promissory notes, accounts
receivable, ledgers, records, or any other evidence of Subordinated Indebtedness
shall contain a specific written notice thereon that the indebtedness evidenced
thereby is subordinated under the terms of this Guaranty.
11. No Guarantor shall prepay any Debt, except the Guaranteed
Indebtedness.
12. No amendment or waiver of any provision of this Guaranty or consent to
any departure by any Guarantor therefrom shall in any event be effective unless
the same shall be in writing and signed by the Agent and the Required Banks. No
failure on the part of the Agent, any Co-Agent or any Bank to exercise, and no
delay in exercising, any right, power, or privilege hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power, or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege. The remedies herein provided
are cumulative and not exclusive of any remedies provided by law.
13. Any acknowledgment or new promise, whether by payment of principal or
interest or otherwise and whether by Borrower or others (including any
Guarantor), with respect to any of the Guaranteed Indebtedness shall, if the
statute of limitations in favor of any Guarantor against the Agent, any Co-Agent
or any Bank shall have commenced to run, toll the running of such statute of
limitations and, if the period of such statute of limitations shall have
expired, prevent the operation of such statute of limitations.
14. This Guaranty is for the benefit of the Agent, the Co-Agents and the
Banks and their respective successors and assigns, and in the event of an
assignment of the Guaranteed Indebtedness, or any part thereof, the rights and
benefits hereunder, to the extent applicable to the indebtedness so assigned,
may be transferred with such indebtedness. This Guaranty is binding not only on
each Guarantor, but on each Guarantor's successors and assigns. The Guarantors'
obligations and agreements hereunder are joint and several. The provisions of
this Guaranty shall apply to each Guarantor individually and collectively.
GUARANTY - Page 6
<PAGE>
15. Each Guarantor recognizes that the Agent, the Co-Agents and the Banks
are relying upon this Guaranty and the undertakings of each Guarantor hereunder
in making extensions of credit to Borrower under the Credit Agreement and
further recognizes that the execution and delivery of this Guaranty is a
material inducement to the Agent, the Co-Agents and the Banks in entering into
the Credit Agreement. Each Guarantor hereby acknowledges that there are no
conditions to the full effectiveness of this Guaranty.
16. THIS GUARANTY IS EXECUTED AND DELIVERED AS AN INCIDENT TO A LENDING
TRANSACTION NEGOTIATED, CONSUMMATED, AND PERFORMABLE IN DALLAS COUNTY, TEXAS,
AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS.
17. Guarantors jointly and severally agree to pay on demand all attorneys'
fees and all other costs and expenses incurred by the Agent and each Bank in
connection with the preparation, administration, enforcement, or collection of
this Guaranty.
18. Each Guarantor hereby waives promptness, diligence, notice of any
default under the Guaranteed Indebtedness, demand of payment, notice of
acceptance of this Guaranty, presentment, notice of protest, notice of dishonor,
notice of intent to accelerate, notice of acceleration, notice of the incurring
by Borrower of additional indebtedness, and all other notices and demands with
respect to the Guaranteed Indebtedness and this Guaranty.
19. Each Guarantor agrees that the Agent, each Co-Agent and each Bank may
exercise any and all rights granted to them under the Credit Agreement and the
other Loan Documents without affecting the validity or enforceability of this
Guaranty.
20. Each Guarantor hereby represents and warrants to the Agent, the Co-
Agents and the Banks that such Guarantor has adequate means to obtain from the
Borrower and the Subsidiaries on a continuing basis information concerning the
financial condition and assets of the Borrower and the Subsidiaries and that
such Guarantor is not relying upon the Agent, any Co-Agent or any Bank to
provide (and neither the Agent, any Co-Agent nor any Bank shall have any duty to
provide) any such information to such Guarantor either now or in the future.
21. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES.
22. Each Guarantor acknowledges that it has had the benefit of legal
counsel of its own choice and has been afforded an opportunity to review this
Guaranty with its legal counsel and that this Guaranty shall be construed as if
jointly drafted by the Guarantors and the Agent.
GUARANTY - Page 7
<PAGE>
23. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH GUARANTOR
HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS GUARANTY, THE CREDIT AGREEMENT,
ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY OR THE ACTIONS OF THE AGENT, ANY CO-AGENT OR ANY BANK IN THE
NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
GUARANTY - Page 8
<PAGE>
EXECUTED as of the day and year first written above.
GUARANTORS:
----------
NATIONAL AUTO CENTER, INC.,
a Delaware corporation
By:__________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
CELLSTAR, LTD.,
a Texas limited partnership
By: National Auto Center, Inc.,
its general partner
By:______________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
GUARANTY - Page 9
<PAGE>
CELLSTAR FULFILLMENT, LTD.,
a Texas limited partnership
By: CellStar Fulfillment, Inc.,
its general partner
By:______________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
CELLSTAR WEST, INC.,
a Delaware corporation
By:_________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
ACC-CELLSTAR, INC.,
a Delaware corporation
By:_________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
GUARANTY - Page 10
<PAGE>
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
CELLSTAR FINANCO, INC.,
a Delaware corporation
By:_________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
CELLSTAR FULFILLMENT, INC.,
a Delaware corporation
By:_________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
GUARANTY - Page 11
<PAGE>
NAC HOLDINGS, INC.,
a Nevada corporation
By:_________________________________________
Elaine F. Rodriguez
President
Address: 1325 Airmotive Way
Reno, Nevada 89502
Fax No.: (702) 322 8808
Phone No.: (702) 322-3221
Attention: Secretary
CELLSTAR INTERNATIONAL
CORPORATION/ASIA,
a Delaware corporation
By:_________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
AUDIOMEX EXPORT CORP.,
a Texas corporation
By:_________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
GUARANTY - Page 12
<PAGE>
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
CELLSTAR INTERNATIONAL
CORPORATION/SA,
a Delaware corporation
By:_________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
CELLSTAR AIR SERVICES, INC.,
a Delaware corporation
By:_________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
GUARANTY - Page 13
<PAGE>
A & S AIR SERVICE, INC.,
a Delaware corporation
By:_________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
Address: 1730 Briercroft
Carrollton, Texas 75006
Fax No.: (972) 466-0288
Phone No.: (972) 466-5000
Attention: General Counsel
GUARANTY - Page 14
<PAGE>
EXHIBIT H-1
TO
CREDIT AGREEMENT
L/C Application for Standby Letters of Credit
---------------------------------------------
<PAGE>
<TABLE>
<S> <C>
[LOGO OF
COMMENCE APPLICATION AND AGREEMENT
BANK APPEARS FOR IRREVOCABLE STANDBY LETTER OF CREDIT
HERE] [_] WITHOUT RENEWALS [_] WITH RENEWALS Renewable until ----------------,
FOR BANK USE ONLY initial date
To: TEXAS COMMERCE BANK NATIONAL ASSOCIATION -------------------------------------------------------------
P.O. Box 2528 Date : L/C.:
-------------------------------------------------------------
Houston, Texas 77252-8300 Applicant No.:
-------------------------------------------------------------
Date of this Application ------------------ Beneficiary No.:
-------------------------------------------------------------
Advising Bank No.:
-------------------------------------------------------------
Gentlemen:
The undersigned Applicant(s) hereby request(s) you to establish an irrevocable Standby Letter of Credit as set forth below in such
language as you may deem appropriate, with such variations from such terms as you may in your discretion determine are necessary
and are not materially inconsistent with this Application and Agreement, and forward the same by:
[_] Cable/telex (full details) [_] Airmail [_] Brief Cable/telex [_] Other --------------------------
[_] Through your correspondence for delivery to the beneficiary or advised through -------------------------------------------
[_] Directly to beneficiary
All banking charges other than the issuing Bank's are for [_] Beneficiary [_] Applicant(s)
- ------------------------------------------------------------------------------------------------------------------------------
Liability of on Behalf of (as to appear on Letter of Credit)
- ---------------In favor of (Beneficiary)-------------------------------------------------------------------------------------
Amount
In figures:
In words:
- ----------------------------------------------------------------------------------------------------------------------------
Partial drawings: [_] Allowed [_] Not Allowed Expiring at the close of business on
If drawings are allowed in installments within given periods and
no drawing is made for an installment within the applicable
period, the credit
----------------------------------------------------------
[_] Shall [_] Shall not be available for subsequent At your counters, unless otherwise indicated, for Sight
installments Payment
- ----------------------------------------------------------------------------------------------------------------------------
To be available by drafts at sight drawn on you duly signed and endorsed, or specify any other drawee: ---------------------
And accompanied by documents as specified below:
Beneficiary's manually signed statement on its letterhead reading exactly as follows:
- ----------------------------------------------------------------------------------------------------------------------------
(Complete only when the beneficiary's bank or correspondent is to issue its undertaking based on the issued Standby Letter
of Credit)
[_] Request beneficiary's bank to issue and deliver their (specify type of undertaking, bid or performance bond, or other)
-----------------------------------------------------------
In favor of:
-----------------------------------------------------------
For an amount not exceeding that specified above, effective immediately and expiring at their office on ----------------
(30 days prior to expiry date above)
relative to ----------------------------------------------------
THE OPENING OF THIS CREDIT IS SUBJECT TO THE TERMS AND CONDITIONS AS SET FORTH ON THE FOLLOWING PAGES, TO WHICH TERMS AND
CONDITIONS WE AGREE Please date and sign this Application and Agreement on Page 4 hereof.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1 of 4
<PAGE>
TERMS AND CONDITIONS FOR STANDBY LETTER OF CREDIT
In consideration of the Issuance of the letter of credit and all
renewals, extensions, replacements and amendments thereof (herein called the
"Credit") by Bank in accordance with this Application and Agreement (this
"Agreement"), the undersigned (hereinafter called "Applicants", whether one or
more) jointly and severally agree to the following terms and conditions:
1. Applicants promise to pay to Bank on demand at its office shown on
front, in United States currency as follows:
A. As to drafts, draws, demands, or other evidence of amounts drawn under or
purporting to be drawn under the Credit which are payable in United States
currency, the amount paid thereon, or, if so demanded by Bank, to pay Bank at
its office in advance the amount required to pay such drafts, draws, demands or
other evidence of amounts drawn under or purporting to be drawn under the
Credit;
B. As to drafts, draws, demands, or other evidence of amounts drawn under or
purporting to be drawn under the Credit are payable in currency other than
United States currency, either (i) the amount paid in the currency of the Credit
at the bank of Bank's choice in the country of such currency, or (ii) the
equivalent of the amount paid, in United States currency, at Bank's then current
selling rate for such currency;
C. All taxes, levies, imposts, duties, charges, fees, deductions or
withholdings of any nature whatsoever and by whomsoever and wherever imposed in
connection with this Agreement, the Credit or any transactions hereunder or
thereunder; and
D. Interest on all amounts owing to Bank hereunder at the maximum nonusurious
rate of interest permitted by applicable laws of the United States of America or
the State of Texas, from time to time in effect, whichever shall permit the
highest lawful rate (hereinafter called "the Highest Lawful Rate"). At all
times, if any, that Chapter One of Title 79, Texas Revised Civil Statues, 1925,
as amended, establishes the Highest Lawful Rate, the Highest Lawful Rate shall
be the "indicated" rate ceiling (as defined therein) from time to time in
effect. It is the intention of Applicants and Bank to conform strictly to
applicable usury laws. It is therefore agreed that: (i) if, for any reason, the
interest received for the actual period of the existence of any loan by Bank
hereunder exceeds the Highest Lawful Rate, Bank shall refund to Applicants the
amount of the excess or shall credit the amount of the excess against amounts
owing hereunder and shall not be subject to any of the penalties provided by law
for contracting for, charging, or receiving interest in excess of the Highest
Lawful Rate, (ii) the aggregate of all interest and other charges constituting
interest under applicable law and contracted for, chargeable or receivable
under this Agreement or otherwise in connection with this Agreement or the
Credit, shall not for the actual period of the existence of any loan hereunder
exceed the maximum amount of interest, nor produce a rate in excess of the
Highest Lawful Rate, (iii) if, for any reason, usurious interest is contracted
for, charged or received, then the sole remedy of Applicants shall be to receive
a refund thereof or a credit on the accrued and unpaid interest and unpaid
principal under this Agreement equal to the usurious interest, it being agreed
that usurious interest shall mean the amount by which the total interest
contracted for, charged or received exceeds the amount of interest allowed by
applicable law; and this Agreement shall be automatically deemed reformed so as
to permit only the collection of the Highest Lawful Rate of Interest, and (iv)
determination of the rate of Interest on any loan evidenced hereby shall be made
by amortizing, prorating, allocating, and spreading, in equal parts during the
period of the full stated term of such loan, all interest at any time contracted
for, charged or received from Applicants in connection with such loan.
E. Applicants assume all risks (political, economic or otherwise) of
disruptions or interruptions in currency exchange with respect to any demand
payable in other than United States currency, and if there is no then prevailing
exchange rate, Bank may obtain the non-United States currency from any
commercially reasonable source, in which case Applicants shall pay Bank's cost
therefor, inclusive of all expenses, in United States currency.
F. Demand, for all purposes of this Agreement, shall be considered made
at the time Bank mails, telephones or otherwise sends notification to
Applicants.
G. Applicants agree to pay to Bank, any Member and/or Correspondent (as
hereinafter defined), or its correspondents, annually in advance not later than
forty-five (45) days prior to the then current expiration date of the Credit,
all fees and commissions owing to or which become owing in respect of the
Credit. Such fees and commissions shall be payable at the then current rate
charged by Bank and/or such other entity(ies). Payment of such fees or
commissions in advance shall not affect the Bank's absolute right not to renew
the Credit, however, should Bank decide in its sole and absolute discretion not
to renew the Credit, Bank shall refund such advance payment to Applicants.
2. Applicants agree that if because of any law or regulation, or because
of any change in any existing law or regulation, or in the interpretation
thereof by any official authority whether or not having the force of
law, which comes into effect after the date of this Agreement, (a) Bank or
Applicants should, with respect to this Agreement, the Credit or any
transactions hereunder or thereunder, be subject to any tax, charge, fee,
insurance premium, deduction or withholding of any kind whatsoever, or (b)
reserve requirements, or changes in existing reserve requirements, should be
imposed on Bank with respect to this Agreement or the Credit or any transactions
hereunder or thereunder, and if any of the above-mentioned measures, or any
other similar measure, should result in (i) any increase in the cost to Bank of
issuing and maintaining the Credit pursuant to this Agreement or of any
transaction under or in connection with the Credit of this Agreement, or (ii)
any reduction in the payment or deposit of any amount (principal, interest, fee,
commission or otherwise) receivable by Bank in respect of the Credit or this
Agreement or of any transaction under the Credit of this Agreement, then
Applicants shall pay to Bank upon demand such increased cost or reduction,
including such additional amounts as may be necessary so that every net payment
or deposit, after deduction or withholding for or on account of such payment or
deposit (including any taxes levied on additional amounts paid pursuant to this
paragraph), will not be less than the corresponding amount provided for under
the Credit or this Agreement before giving effect to such increased cost or
reduction; provided that in no event shall any additional amounts constitute
interest exceed what is considered, together with other interest payments, the
Highest Lawful Rate.
3. Availments under the Credit may be effected through Bank or any
advising or confirming bank (the "Payor") at the then current buying rate of the
Payor for banker's sight drafts at the place from which the Payor is to receive
reimbursement under the terms of the Credit, it being understood and further
agreed: (a) that the amounts(s) disbursed to the beneficiary(ies) relative
thereto may be in the currency local to the site of the Payor, and may be
reduced by any taxes and/or other charges whether of the Payor or otherwise, and
(b) that an advice of an availment under the Credit from the Payor shall be
sufficient evidence to Bank of an availment under the Credit, and such evidence
thereof shall be binding upon Applicants for the purposes of this Agreement.
4. If at any time(s) any funds and/or securities are paid to or deposited
with or under the control of Bank, not as payment under paragraph 1 hereof, but
to be held relative hereto, same shall be held as collateral security for the
Obligations (as hereinafter defined) and without Applicants having any right to
dispose of the same while any Obligations (as hereinafter defined) exist under
this Agreement, but with the discretionary right in Bank to release or surrender
all or any part of said funds and/or securities to or upon the order of
Applicants. If any such funds are available to Bank at its office in the
currency of the Credit at any time after any payment may become due hereunder,
Bank may (acting in each instance in its discretion and without being required
to make any prior demand for payment hereunder) apply all or any part thereof at
any time(s) on account of the Obligations (as hereinafter defined), irrespective
of the then current rate of exchange. Should the aggregate market value of any
such funds and/or securities at any time(s) suffer any decline, or should any
such property be unavailable at any time for any reason to Bank at its office or
fail to conform to legal requirements. Applicants will, upon demand, make such
payment(s) on account of the aforesaid Obligations, or as additional collateral
therefor, will deposit and pledge with Bank additional property that is
satisfactory to Bank. If any such funds as aforesaid be other then United States
Dollars and occasion arises for a refund by Bank of all or any portion thereof,
it shall be optional with Bank as to whether refund will be made (a) in United
States Dollars at the buying rate for the foreign currency on the date of
refund, or (b) in the amount and kind of the foreign currency on the date of
refund, or (c) by instructing a branch or correspondent of Bank to hold the
refundable amount of foreign currency for Applicants' account and risk.
5. Applicants hereby pledge, assign and hypothecate to Bank as security
for any and all of the obligations and liabilities of Applicants with respect to
the Credit, the Application portion of this Agreement (the "Application") and
this Agreement, whether hereinbefore or hereinafter referred to, now or
hereafter existing (herein called the "Obligations"), any and all property of
Applicants now or at any time(s) hereafter in Bank's possession or control or in
its possession or control of any third party acting in Bank's behalf, whether
for the express purpose of being used by Bank as collateral security or for
safekeeping for any other or different purpose, including such property as may
be in transit by mail or carrier to or from Bank, a lien and security interest
being hereby given Bank upon and in any and all such property for the aggregate
amount of the Obligations; and Applicants authorize Bank, at Bank's option, at
any time(s), whether or not the property then held by Bank as security hereunder
is deemed by Bank to be adequate, to appropriate and apply to or upon any and
all of the Obligations, whether or not then due, any and all monies now or
hereafter with Bank on deposit or otherwise to the credit of or belonging to
Applicants and in Bank's discretion, to hold any such monies as security for any
such Obligations until the exact amount thereof, if any, shall have been
definitely ascertained by Bank. Bank's rights, liens and security interests
hereunder shall continue unimpaired, and Applicants shall be and remain
obligated in accordance with the terms and provisions hereof, notwithstanding
the release or substitution of any property may be held as collateral hereunder
at any time(s) or of any rights or interests therein, or any delay, extension of
line, renewal, compromise or other indulgence granted by Bank in reference to
any of the Obligations, or any promissory note, draft, bill of exchange or other
instrument given Bank in connection with any of the Obligations, Applicants, and
each of them individually, hereby waiving notice of any such delay, extension,
release, substitution renewal, compromise or other indulgence, and hereby
consenting to be bound thereby as fully and effectually as if Applicants had
expressly agreed thereto in advance.
6. Applicants agree at any time and from time to time, on demand, (i) to
deliver, convey, transfer or assign to Bank, as security for any and all of the
Obligations, and also for any and all other obligations and/or liabilities,
absolute or contingent, due or to become due, which are now, or may at any time
hereafter, be owing by Applicants to Bank, additional security of a value and
character satisfactory to Bank, or (ii) to make such cash payment(s) in partial
or full satisfaction of the Obligations of such other obligations or liabilities
as Bank in its sole discretion may require.
7. Bank is hereby authorized, at its option and without any obligation to
do so, to transfer to and/or register in the name(s) of Bank's nominee(s) all or
any part of the property which may be held by it as security at any time(s)
hereunder, and to do so before or after the maturity of any of the Obligations
and with or without notice to Applicants.
8. The word "Property" as used herein includes goods and merchandise (as
well as any and all documents relative thereto) securities, funds, monies
(whether United States currency or otherwise), choses in action and any and all
other forms of property, whether real, personal or mixed, tangible or
intangible, and any right or interest of Applicants, or any one or more of them,
therein or thereto. Bank is authorized, at its option, to file financing
statement(s) and continuation statement(s) without the signature of Applicants
with respect to any of the property, and Applicants jointly and severally agree
to pay the cost of any such filing and to sign upon request any instruments,
documents or other papers which Bank may require to perfect its security
interest in the property. A carbon, photographic or other reproduction of this
Agreement shall be sufficient as a financing statement.
Page 2 of 4
<PAGE>
9. No proceeds of the Credit will be used for any purpose which would
constitute the Credit a "purpose credit" within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System.
10. Applicants jointly and severally represent and warrant that (a) each
of them which is not a natural person is duly organized in good standing and
validly existing with full power and authority to execute this Agreement; (b)
the execution of this Agreement has been duly authorized by all necessary action
on the part of all Applicants and does not violate or contravene any law,
regulation, order or decree or the articles of incorporation, bylaws,
partnership agreement or any other organizational document of any Applicant; (c)
all requisite licenses, permits and franchises for the operation of Applicant's
business are in full force and effect; (d) any financial statements delivered to
Bank in connection herewith fairly present the financial condition and results
of operations of the subject or subjects thereof as of the dates and for the
periods indicated therein, and no material adverse change has occurred in the
financial condition of the subject or subjects thereof since the dates thereof;
(e) except as disclosed in writing to Bank in connection herewith, no litigation
or administrative proceeding is pending or threatened against any Applicant; and
(f) each Applicant has filed all tax returns required to have been filed and
paid all taxes shown thereon to be due. Applicants further represent and warrant
to Bank that Applicants are not now in violation of any applicable limitations
on the aggregate amount of loans that may be made to a borrower by any lender
and that issuance of the Credit by Bank will not be, or cause the aggregate
credit outstanding to any or all Applicants to exceed such limitations, and
Applicants covenant and agree that Applicants will at all times during the term
of this Agreement fully comply with and fully advise Bank and Member, if any, of
all circumstances relevant to, all applicable lending limits.
11. Upon the non-performance of any of the promises to pay herein set
forth, or upon the non-payment of any of the Obligations or other obligations or
liabilities of Applicants herein, or upon the failure of Applicants to furnish
satisfactory additional collateral or to make payments on account as hereinabove
agreed, or to perform or comply with any of the other terms or provisions of
this Agreement, or in the event of default under any security agreement or
guaranty or other document securing or guaranteeing Applicants' payment and
performance of the Obligations, or should any information supplied on behalf of
Applicants prove to be incorrect, false or misleading, or in the event of the
death, insolvency, business failure, dissolution or termination of existence of
any Applicant, or in case any petition in bankruptcy is filed by or against any
Applicant, or any proceeding is commenced for the relief or readjustment of any
indebtedness of any Applicant, either through reorganization, composition,
extension or otherwise, or if any Applicant should make an assignment for the
benefit of creditors or take advantage of any insolvency law, or if a receiver
for any property of any Applicant should be appointed at any time, and in each
case any of the foregoing is initiated under laws or regulations of any
jurisdiction relating to the relief of debtors, then upon such occurrence, any
or all of the Obligations shall, at Bank's option, become due and payable
immediately, without demand or notice, notice of acceleration and of intention
to accelerate being hereby expressly waived by each Applicant.
12. Upon Applicants' failure to pay any Obligation when due, as aforesaid,
or upon the occurrence of any of the events described in paragraph 11 above,
Bank shall have, in addition to all other rights and remedies allowed by law,
the right immediately, without demand for performance and without notice of
intention to sell or of the time or place of safe sale or of redemption or other
notice or demand whatsoever to any Applicant, all of which are hereby expressly
waived, and without advertisement, to sell at any broker's board, or at public
or private sale, or to grant options to purchase, or otherwise to realize upon
the whole or from time to time any part of the collateral upon which Bank shall
have a security interest or lien as aforesaid, or any interest which Applicants
may have therein, and after deducting from the proceeds of sale or other
disposition of the said collateral all expenses (including but not limited to
reasonable attorneys' fees for legal services of every kind and other expenses
as set forth below) shall apply the residue of such proceeds toward the payment
of any of the Obligations, in such order as Bank shall elect, and whether then
due or not due, Applicants remaining liable for any deficiency remaining unpaid
after such application. If notice of any sale or other disposition is required
by law to be given, each Applicant hereby agrees that a notice sent at least two
(2) days before the time of any intended public sale or of the time after which
any private sale or other disposition of the said collateral is to be made,
shall be reasonable notice of such sale or other disposition. Applicants also
agree to assemble the said collateral at such place or places as Bank designates
by written notice. At any such sale or other disposition, Bank may itself
purchase the whole or any part of the said collateral sold, free from any right
of redemption on the part of Applicants and free of any right to require sale in
inverse order of alienation, which rights are hereby waived and released.
Applicants agree that the said collateral secures, and further agree to pay on
demand, whether or not any default by Applicants has occurred, all expenses
(including but not limited to, reasonable attorneys' fees for legal services of
every kind, the cost of any insurance and the payment of all taxes or other
charges) of, or incidental to, the custody, care, appraisal, sale or collection
of, or realization upon, any of the said collateral or in any way relating to
the enforcement or protection of Bank's rights hereunder. Where applicable, Bank
shall have, to the maximum extent permitted by applicable law, in addition to
and cumulative of the rights hereinabove provided, all of the rights and
remedies provided to a secured party by the Uniform Commercial Code in effect in
the State of Texas on the date of this Agreement.
13. No delay on the part of Bank in exercising any power of sale, lien,
option or other right hereunder, and no notice or demand which may be given or
made upon Applicants by Bank with respect to any power of sale, lien or other
right hereunder, shall constitute a waiver thereof or limit or impair the right
of Bank to take any action or to exercise any power of sale, lien, option or any
other right hereunder, without demand or notice or prejudice to the rights of
Bank as against Applicants in any respect. Any and all rights and liens of Bank
hereunder shall continue unimpaired, and Applicants shall be and remain
obligated in accordance with the terms and provisions hereof, notwithstanding
the release or substitution of any property as referred to herein, or of any
rights or interests therein, or any delay, extension of time, renewal,
compromise or other indulgence granted by Bank in reference to any of the
Obligations, Applicants each hereby waiving notice of any such delay, extension,
release, substitution, renewal, compromise or other indulgence, and each hereby
consenting to be bound thereby as fully and effectually as if Applicants had
expressly and specifically agreed thereto.
14. The users and beneficiaries of the Credit shall be deemed Applicants'
agents, and Applicants assume all risks of the acts or omissions of the users or
beneficiaries of the Credit. Neither Bank nor its correspondents or affiliates
shall assume any liability to anyone for failure to pay or accept if such
failure is due to any restriction in force at the time and place of presentment,
and Applicants agree to indemnify Bank from any consequences that may arise
therefrom. Neither Bank nor Bank's correspondents or affiliates shall be liable
or responsible in any respect for any (a) error, omission, interruption or delay
in transmission, dispatch or delivery of any one or more messages or advices in
connection with the Application or the Credit, whether transmitted by cable,
radio, telegraph, twx, wireless, mail, electronic mail, telex, telefax,
telecopy, SWIFT, or otherwise and despite any cipher or code may be employed, or
(b) errors in translation or for errors in interpretation of technical terms, or
(c) action, inaction or omission may be taken or suffered by it or them in good
faith or through inadvertence in identifying or failing to identify any
beneficiary(ies) or otherwise in connection with the Credit, or (d) validity,
sufficiency or genuineness of document(s) even if such document(s) should in
fact prove to be in any or all respects invalid or insufficient, fraudulent or
forged, or (e) act, error, neglect or default, omission, insolvency or failure
in business of any of Bank's correspondents. The happening of any one or more of
the contingencies described above shall not affect, impair or prevent the
vesting of any of Bank's rights or powers hereunder. In furtherance and
extension and not in limitation of the specific provisions hereinbefore set
forth, it is hereby further agreed that any action, inaction, or omission taken
or suffered by Bank or by any of its correspondents under or in connection with
the Credit or the relative drafts, demands, documents or property, if in good
faith and in conformity with such foreign or domestic laws, customs or
regulations as Bank or any of its correspondents may deem to be applicable
thereto, shall be binding upon Applicants and shall not place Bank or any of its
corespondents under any resulting liability to Applicants. If the Credit or this
Agreement shall be terminated or revoked by operation of law as to any
Applicant, or if any Applicant shall restrain the payment of the Credit by court
order or any other means, or if this Agreement or the Credit are amended,
modified, revoked or cancelled as provided for herein and any dispute, claim,
demand or cause of action arises with respect thereto, Applicants will jointly
and severally indemnify and save Bank harmless from any and all loss, cost,
damage, expense, suit, claim, cause of action, judgment and attorneys' fees
which may be suffered or incurred by Bank, whether caused in whole or in part by
the negligence of Bank or any correspondent or affiliate of Bank.
15. The Credit and this Agreement may be amended, modified, cancelled or
revoked only upon the receipt by Bank from all Applicants of a written request
therefor, and then only upon such terms and conditions as Bank may prescribe and
then only by a writing signed by all Applicants, the beneficiaries and Bank.
Notwithstanding the foregoing, however, Bank may, upon receipt of a written
request therefor, signed by all Applicants, extend the expiration date and/or
increase the amount of the Credit without the written or oral acceptance or
consent of any or all beneficiaries of the Credit. Bank is authorized without
reference to or approval by any Applicant to set forth the terms appearing on
the Application portion hereof in the Credit and to modify or after such terms
in such language as Bank may deem appropriate, with such variations from such
terms as Bank may at its discretion determine (which determination shall be
conclusive and binding upon Applicants) are necessary and are not materially
inconsistent with such terms.
16. Notwithstanding anything herein (except paragraph 17) to the contrary,
it is understood and agreed that, if the Credit is issued in favor of a
sovereign or commercial entity is to issue a commitment of guarantee on
Applicants' behalf in connection herewith, each Applicant shall remain liable on
the Credit until Bank is fully released in writing by such entity. Applicants
jointly and severally agree to pay (a) all costs and expenses incurred by Bank
in collection of amounts advanced under the Credit and any and all other amounts
remaining unpaid hereunder through probate, reorganization, bankruptcy or any
other proceeding and (b) reasonable attorneys' fees when and if collection of
any such amounts is placed in the hands of an attorney for collection after
default.
17. Notwithstanding anything contained herein or in any other separate
security agreement or other document executed heretofore, herewith or hereafter
in connection with or related to this credit obligation, if this is a consumer
credit obligation (as defined or described in 12 C.F.R. 227, Regulation AA,
promulgated by the Federal Reserve Board), the security for this credit
obligation shall not extend to any non-possessory security interest in household
goods (as defined in said Regulation AA) other than a purchase money security
interest, and no waiver of any notice contained herein or therein shall be
construed under any circumstances to extend to any waiver of notice prohibited
by Regulation AA.
18. This Agreement and the Credit are subject to and incorporate fully
herein (except as expressly modified herein or in the Credit) the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500, (hereinafter referred to as "The
Uniform Customs"). This Agreement and the rights of Applicants and Bank
hereunder shall be subject to and governed by the substantive laws of the State
of Texas, without regard to the rules regarding conflicts of laws, except when
the substantive laws of the State of Texas conflict with the Uniform Customs, in
which event the provisions of the Uniform Customs shall govern.
Page 3 of 4
<PAGE>
19. If the Credit is governed by the laws of a foreign jurisdiction, the
Credit may require Bank to pay funds as Bank's primary obligation. In the event
Bank is, or in good faith deems itself to be, obligated to advance funds to the
beneficiary(ies) hereof, Applicants hereby expressly jointly and severally
agree to reimburse Bank on demand for all such advances made, notwithstanding
any expiration or cancellation of the Credit by Bank or under Texas law or the
Uniform Customs and even though Applicants may have an unresolved controversy
with a third party or the beneficiary(ies) related to the transaction for which
the Credit is being sought, including the proper interpretation of the law of
such foreign jurisdiction. In the event Applicants have a dispute with the
beneficiary(ies) or a third party, Applicants are required to reimburse Bank on
demand, and Applicants' remedy is to seek reimbursement from the
beneficiary(ies) or the third party. Bank is expressly authorized to presume
that all demands for payment made by the beneficiary(ies) hereof are made in
accordance with such foreign law.
20. Unless otherwise expressly stated herein or in the Credit, neither the
Credit nor this Agreement may be assigned by the beneficiary(ies) or any
Applicant without the prior written consent of Bank. Bank may assign or transfer
the Credit or this Agreement, or any instrument(s) evidencing all or any of the
Obligations, and may deliver all or any of the property then held as security
therefor, to the transferee(s) of Bank, who shall thereupon become vested with
all of the powers and rights in respect thereof given to Bank herein or in the
instrument(s) transferred, and Bank shall thereafter be forever relieved and
fully discharged from any liabilities or responsibility with respect thereto,
but Bank shall retain all rights and powers hereby given with respect to any and
all instrument(s), rights or property not so transferred.
21. This Agreement, the Application and the Credit constitute the entire
agreement among the parties hereto, except for such agreements executed in
connection herewith which specifically refer to this Agreement, the Application
or the Credit or which grant to Bank a lien or security interest to secure any
debts or obligations of any Applicant, regardless of any reference or lack
thereof to this Agreement, Application or the Credit. Terms used herein in the
plural number shall be construed as singular as the context requires and vice
versa.
22. Although the Credit may refer to a particular agreement or other
obligation to the beneficiary(ies) executed by Applicants, the terms of such
agreement are not in any manner incorporated herein. Bank shall therefore make
payment upon demand under the Credit unless it appears that such demand, on its
face, does not comply with the terms of the Credit. Such payment shall be made
without regard to performance of any obligation by any contracting party under
such agreement.
23. Applicants agree that at all times now and hereafter they will
indemnify and save Bank harmless from and against all suits, judgments,
liabilities, losses or damages to it arising in any manner, including negligence
on the part of Bank in connection with the Credit or this Agreement, unless due
to gross negligence or willful misconduct on the part of Bank, and from and
against all costs, charges and expenses, including in connection with all legal
proceedings, whether groundless or otherwise, attorney's fees, it being the
purpose of this Agreement to protect Bank fully in the premises.
24. Applicants agree that no acceptance or payment of overdrafts or
irregular drafts or of drafts with irregular documents attached shall, if
assented to or approved by any Applicant orally or in writing, or if Bank in
good faith accepts an indemnity limited to the actual damage, if any, caused by
such irregularity or discrepancy, impair any rights which Bank may have under
this Agreement. In case of any variation between the documents called for by the
Credit or this Agreement and the documents accepted by Bank or Bank's
correspondents. Applicants shall each be deemed conclusively to have waived any
right to object to such variation with respect to any action by Bank or Bank's
correspondents relating to such documents and to have ratified and approved
such action as having been taken on Applicants' direction, unless Applicants
immediately upon receipt of such documents (and prior to receipt thereof by any
beneficiary or user of the Credit) file objection with Bank in writing, or
unless Bank has been provided with an indemnity, as aforesaid. Applicants
acknowledge and agree that, the information in the Application portion of this
Agreement may be transmitted to Bank and relied on by Bank, in issuing the
Credit by any means acceptable to Bank, including without limitation, SWIFT,
electronic mail, telex, telephone, twx, telecopy or telefax. Applicants, Member
and Correspondent (both as hereinafter defined) agree to hold Bank harmless from
and against all claims, expenses, costs, liabilities, attorneys' fees, suits,
judgments, and causes of action arising out of any discrepancy between the
information in this Agreement, including without limitation, the Application,
and that transmitted to, or received by, Bank.
25. Issuance by Bank of the Credit applied for herein shall constitute
acceptance by Bank of this Agreement.
26. If this Agreement contains the signature of a bank which is a
subsidiary of Texas Commerce Bancshares, Inc. (hereinafter referred to as the
"Member") or of a correspondent bank of Bank (hereinafter referred to as the
"Correspondent"), then this paragraph shall be applicable. In consideration of
Bank's issuing the Credit at the request of Correspondent or Member, as
applicable, Correspondent or Member as applicable, agrees that it is an
Applicant hereunder with respect to Bank, and it agrees to reimburse Bank on
demand and authorizes Bank, without demand or any notice whatsoever, to charge,
set off against and otherwise exercise any rights Bank may have with respect to,
any monies now or hereafter on deposit with or otherwise to the credit of or
belonging to Correspondent or Member, as applicable, at or with Bank for any and
all Obligations hereunder, whether or not any demand has been made on Applicants
hereunder. As an Applicant hereunder, each Correspondent or Member Bank, as
applicable, makes the same representations, warranties, covenants and agreements
to Bank as the Applicants in paragraph 10 hereof and otherwise provided in this
Agreement; provided, however unless otherwise agreed to in writing, or stated
herein neither Member nor Correspondent agrees to furnish any security for this
Agreement or the Credit other than the aforementioned monies. Upon Member's or
Correspondent's, as applicable, payment to Bank of all Obligations hereunder,
Bank thereupon automatically, and without further action on the part of any
party, assigns and transfers rights hereunder to Correspondent or Member, as
applicable, who shall be fully subrogated thereto, and Applicants agree that any
right, claim or cause of action any of them may hereunder or under the Credit
shall be made only against Correspondent or Member, as applicable, and
Applicants agree to indemnify and hold Bank harmless from and against any
claims, costs, expenses, suits or causes of action by Applicants or any
beneficiary or user of the Credit. Applicants hereby agree that Correspondent or
Member, as applicable, shall also (in addition to Bank) have the same rights,
remedies, security interests and other liens as are stated herein, to the same
effect as if additional paragraphs were fully written herein containing the same
terms but substituting "Correspondent" or "Member" for "Bank" throughout. All
references to secured party, beneficiary or other similar term contained in any
deed of trust, security agreement, financing statement or other document or
instrument executed contemporaneously herewith or previously executed by any of
the Applicants for the benefit of Member or Correspondent shall be deemed to
include Bank as well as Member or Correspondent. All such security agreements,
financing statements, deeds of trust and other documents and instruments are
amended to the extent necessary in order that the Obligations of Applicants
hereunder are secured thereby and by the collateral described therein on a pari
passu basis with, and in addition to, any other obligations secured thereby.
27. [_] If this box is checked this paragraph is applicable. Applicants
have requested Bank to issue a Credit which the Bank may, but is not required,
to renew on an annual basis until the "latest date" indicated on the Application
or such later date as any Applicant may hereafter request in writing. Applicants
agree that Bank has made no commitment to any beneficiary or any Applicant, and
that Bank has no obligation, to renew the Credit at or prior to the original or
any subsequent expiration date. Except as expressly provided in the Credit, Bank
shall have no liability to any beneficiary for the renewal of, or failure to
renew, the Credit for any reason. Except as hereinafter agreed, the Bank shall
not have any liability to Applicants due to the renewal of, or failure to renew,
the Credit for any reason. Except to the extent any notice may be required in
the Credit, Bank is not required to notify any beneficiary or Applicant of the
renewal, or failure to renew, the Credit. Subject to the other conditions and
indemnities in this Agreement, including negligence by Bank, Bank and Applicants
agree that Bank will not renew the Credit if it receives, and an authorized
officer of Bank acknowledges such receipt in writing, written notification from
any Applicant at least 14 days and not more than 30 days prior to the earliest
date on which, pursuant to the terms of the Credit, Bank must either renew or
decline to renew the Credit or notify beneficiary(ies) of its decision to renew
or not to renew the Credit. Such written notification must specify to the
satisfaction of Bank the Credit, the then current expiration date, and such
Applicant's request that the Credit not be renewed.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
APPLICANTS: ____________________________________
Printed Name
__________________________________
Printed Name By:_________________________________
Authorized Signature
__________________________________
Authorized Signature CORRESPONDENT/MEMBER BANK:
__________________________________ ____________________________________
Printed Name Printed Name
By:_______________________________ By:_________________________________
Authorized Signature Authorized Signature
BANK ACCEPTANCE: The Bank's Acceptance evidenced by the undersigned authorized
representative's signature is provided as its acknowledgement that this
agreement represents the final agreement by the parties may not be contradicted
by evidence of prior contemporaneous, or subsequent oral agreements between the
parties.
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By:________________________________
Page 4 of 4
<PAGE>
EXHIBIT H-2
TO
CREDIT AGREEMENT
L/C Application for Commercial Letters of Credit
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<PAGE>
<TABLE>
<S> <C>
[LOGO OF TEXAS
COMMERCE BANK APPEARS APPLICATION AND AGREEMENT FOR COMMERCIAL LETTER OF CREDIT
HERE]
TO: FOR BANK USE ONLY
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TEXAS COMMERCE BANK NATIONAL ASSOCIATION Date: LC NO :.
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P.O. BOX 2558 Applicant No.:
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HOUSTON, TEXAS 77252-8300 Beneficiary No.:
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Date of this Application __________________________ Advising Bank No.:
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Please issue an irrevocable ([_] Transferable) letter of credit as set forth below and forward same by [_] Airmail [_] Brief Telex
[_] Full Telex (No written confirmation to follow)
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Applicant(s) (Name and Address) Advising Bank (if blank, correspondent bank)
Account Number
- --------------------------------------------------
Amount __________________ ______________________
Figures Currency
--------------------------------------------------------------------------------
Amount in Words Beneficiary: (Name and Address)
[_] About (+ or -10%)
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Partial Shipments [_] Allowed [_] Not Allowed
Transhipment [_] Allowed [_] Not Allowed
- --------------------------------------------------
Shipment/Discharge /Taking in Charge --------------------------------------------------------------------------------
Against documents detailed herein and beneficiary's draft(s) drawn at [_] Sight
From/At __________________________________________
Not Later Than ___________________________________ [_] _____ Days B/L Date [_] ______ Days After Sight [_] ______________ on
To _______________________________________________ Texas Commerce Bank National Association or ___________________________________
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Expiry Date Documents must be presented within ______ days after shipping date, but within
At the Counters of the Drawee Bank validity of credit.
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[_] F.O.B. [_] F.A.S. [_] C.F.R. [_] C.I.F [_] C.I.P. [_] F.C.A. [_] Other: _______________________________
Name of City _______________________________________________________________________________________________________________________
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DOCUMENTS REQUIRED:
[_] Commercial invoice manually signed in original and ______ copies stating that it covers: (please mention commodity only,
omitting excessive details)
________________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________________
[_] Certificate of Origin in Original and ___ copies
[_] Certificate of Weight and Measurement in Original and ___ copies [_] Mill Test certificate in Original and ___ copies.
[_] Special Customs invoice in Original and ___ copies [_] Special Steel Summary invoice in Original and ___ copies.
[_] Packing List in Original and ___ copies
[_] Inspection Certificate manually signed and issued by ___________________________________________________________________________
[_] Negotiable Marine/Air Insurance Policy/Certificate in duplicate, for ______% of invoice value
[_] Covering [_] All Risks [_] War Risks [_] Other Risks (please specify) _______________________________________________________
[_] Copy of beneficiary's telex/fax sent to _____________ within ___ days of shipment date advising details of shipment.
[_] Clean Railway Bill [_] Clean Truck Bill of Lading [_] Clean Air Waybill Consigned to: _______________________________________
[_] "Clean On Board" Marine Bills of Lading (full set required if more than one original has been issued) consigned to [_] order
of Texas Commerce Bank National Association [_] to the order of ______________________________________________________________
Notify: ________________________________________________________________________________________________________________________
Marked Freight [_] Collect [_] Prepaid
[_] Beneficiary's statement evidencing that 1 set of non-negotiable documents has been sent by [_] Fax to ____________________
within ________ days of shipment. [_] Courier
Other Documents:_______________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
All documents to be forwarded in one cover by registered airmail, unless otherwise stated under Special Instructions.
Special Instructions: ______________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
All banking charges other than the issuing bank's are for [_] Beneficiary [_] Applicant
[_] Insurance effected by Applicants, who agree to keep insurance coverage in effect until this transaction is completed.
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WE HEREBY CERTIFY THAT TRANSACTIONS IN THE MERCHANDISE COVERED BY THIS APPLICATION ARE NOT PROHIBITED UNDER THE FOREIGN ASSETS
CONTROL REGULATIONS OF THE UNITED STATES TREASURY DEPARTMENT OR THE DEPARTMENT OF COMMERCE EXPORT ADMINISTRATION REGULATIONS AND
THAT ANY IMPORTATION COVERED BY THIS APPLICATION CONFORMS IN EVERY RESPECT WITH ALL EXISTING UNITED STATES GOVERNMENT AND OTHER
APPLICABLE REGULATIONS.
THE OPENING OF THIS CREDIT IS SUBJECT TO THE TERMS AND CONDITIONS AS SET FORTH ON THE FOLLOWING PAGES, TO WHICH TERMS AND CONDITIONS
WE AGREE. Please date and sign this Application and Agreement on page 4 hereof.
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</TABLE>
Page 1 of 4
<PAGE>
TERMS AND CONDITIONS FOR COMMERCIAL LETTER OF CREDIT
In consideration of the issuance of the letter of credit and all
renewals, extensions, replacements and amendments thereof (herein called the
"Credit") by Texas Commerce Bank National Association (the "Bank") in
accordance with this Application and Agreement (this "Agreement"), the
undersigned (hereinafter called "Applicants," whether one or more) jointly and
severally agree to the following terms and conditions:
1. Applicants promise to pay to Bank on demand at 717 Travis Street,
Houston, Harris County, Texas 77002, in United States currency as follows:
A. As to drafts, demands, or acceptances drawn under or purporting to be drawn
under the Credit which are payable in United States currency: (a) in the case of
each sight draft or demand, the amount paid thereon, or, if so demanded by
Bank, to pay Bank in advance, the amount required to pay such drafts or demands;
and (b) in the case of each acceptance or time draft, the amount thereof on
demand, but in any event not later than one business day prior to maturity, or,
in case the acceptance is not payable at Bank's office, then on demand, but in
any event in time to reach the place of payment in the ordinary course of the
mails not later than one business day prior to maturity, it being understood
that Bank will notify Applicants of the amount and date of maturity of each such
acceptance;
B. As to drafts, demands, or acceptances under or purporting to be under the
Credit which are payable in currency other than United States currency; (a) in
the case of each sight draft or demand, either (i) the amount paid in the
currency of the Credit at the bank of Bank's choice in the country of such
currency, or (ii) the equivalent of the amount paid, in United States currency,
at Bank's then current selling rate for such currency; and (b) in the case of
each acceptance or time draft, to pay Bank, on demand, but in any event in time
to reach the place of payment in the ordinary course of the mails not later than
one business day prior to maturity, either (i) the amount paid in the currency
of the Credit at the bank of Bank's choice in the country of such currency, or
(ii) the equivalent of the acceptance in United States currency at Bank's then
current selling rate for the currency in which the acceptance is payable;
C. All taxes, levies, imposts, duties, charges, fees, deductions or
withholdings of any nature whatsoever and by whomsoever and wherever imposed in
connection with this Agreement, the Credit or any transactions hereunder or
thereunder;
D. All commissions of Bank, any Member or Correspondent (as hereinafter
defined) or its correspondents, as applicable, at the rate agreed upon or as
specified by Bank or such other entity, and all charges and expenses incurred by
Bank for or in connection with this Agreement, the Credit or any transaction
hereunder or thereunder; and
E. Interest on all amounts owing to Bank hereunder at the Highest Lawful Rate
(as hereinafter defined) permitted by applicable laws of the United States of
America or the State of Texas, from time to time in effect, whichever shall
permit the highest lawful rate (hereinafter referred to as "the Highest Lawful
Rate"). At all times, if any, that Chapter One of Title 79, Texas Revised Civil
Statues, 1925, as amended, establishes the Highest Lawful Rate, the Highest
Lawful Rate shall be the "indicated" rate ceiling (as defined therein) from time
to time in effect. It is the intention of Applicants and Bank to conform
strictly to applicable usury laws. It is therefore agreed that: (i) if, for any
reason, the interest received for the actual period of the existence of any loan
by Bank hereunder exceeds the Highest Lawful Rate, Bank shall refund to
Applicants the amount of the excess or shall credit the amount of the excess
against amounts owing hereunder and shall not be subject to any of the penalties
provided by law for contracting for, charging, or receiving interest in excess
of the Highest Lawful Rate, (ii) the aggregate of all interest and other charges
constituting interest under applicable law and contracted for, chargeable or
receivable under this Agreement or otherwise in connection with this Agreement
or the Credit, shall not for the actual period of the existence of any loan
hereunder exceed the maximum amount of interest, nor produce a rate in excess of
the Highest Lawful Rate, (iii) if, for any reason, usurious interest is
contracted for, charged or received, then the sole remedy of Applicants shall be
to receive a refund thereof or a credit on the accrued and unpaid interest and
unpaid principal under this Agreement equal to the usurious interest, it being
agreed that usurious interest shall mean the amount by which the total interest
contracted for, charged or received exceeds the amount of interest allowed by
applicable law; and this Agreement shall be automatically deemed reformed so as
to permit only the collection of the Highest Lawful Rate of interest, and (iv)
determination of the rate of interest on any loan evidenced hereby shall be made
by amortizing, prorating, allocating, and spreading, in equal parts during the
period of the full stated term of such loan, all interest at any time contracted
for, charged or received from Applicants in connection with such loan.
F. Applicants assume all risks (political, economic or otherwise) of
disruptions or interruptions in currency exchange with respect to any demand
payable in other than United States currency, and if there is no then prevailing
exchange rate, Bank may obtain the non-United States currency from any
commercially reasonable source, in which case Applicants shall pay Bank's cost
therefor, inclusive of all expenses, in United States currency.
G. Demand, for all purposes of this Agreement, shall be considered made at the
time Bank mails, telephones or otherwise sends notification to Applicants.
2. Applicants agree that if because of any law or regulation, or because
of any change in any existing law or regulation, or in the interpretation
thereof by any official authority, whether or not having the force of law, which
comes into effect after the date of this Agreement, (a) Bank or Applicants
should, with respect to this Agreement, the Credit or any transactions hereunder
or thereunder, be subject to any tax, charge, fee, insurance premium, deduction
or withholding of any kind whatsoever, or (b) reserve requirements, or changes
in existing reserve requirements, should be imposed on Bank with respect to this
Agreement or the Credit or any transactions hereunder or thereunder, and if any
of the above-mentioned measures, or any other similar measure, should result in
(i) any increase in the cost to Bank of issuing and maintaining the Credit
pursuant to this Agreement or of any transaction under or in connection with the
Credit or this Agreement, or (ii) any reduction in the payment or deposit of any
amount (principal, interest, fee, commission or otherwise) receivable by Bank in
respect of the Credit or this Agreement or of any transaction under the Credit
or this Agreement, then Applicants shall pay to Bank upon demand such increased
cost or reduction, including such additional amounts as may be necessary so that
every net payment or deposit, after deduction or withholding for or on account
of such payment or deposit (including any taxes levied on additional amounts
paid pursuant to this paragraph), will not be less than the corresponding amount
provided for under the Credit or this Agreement before giving effect to such
increased cost or reduction; provided that in no event shall any additional
amounts which constitute interest exceed what is considered, together with other
interest payments, the Highest Lawful Rate.
3. Applicants hereby recognize and admit the Bank's ownership of and
unqualified right to the possession and disposal of, and do hereby grant to Bank
a security interest in, all property shipped or warehoused under or pursuant to
or in connection with the Credit and in all things in any way relative thereto
and the drafts, demands and acceptances drawn thereunder, whether or not
released to or by Bank on trust or bailee receipt or other form of security
agreement, and also in and to all shipping documents, warehouse receipts, trust
or bailee receipts, policies or certificates of insurance and any other
documents accompanying or relative to drafts drawn under the Credit, whether or
not released to Applicants on trust or bailee receipt or other form of security
agreement, and in and to the proceeds of each and all the foregoing, until such
time as all the obligations or liabilities of the Applicants pursuant to the
Credit, the Application and this Agreement, now or hereafter existing (the
"Obligations") have been fully paid and discharged; and that all or any of the
foregoing property and documents, and the proceeds of any thereof, coming into
the possession of Bank or any of its correspondents, may be held and disposed of
by Bank as hereinafter provided; and the receipt by Bank, or any of its
correspondents, at any time of other security, of whatsoever nature, including
cash, shall not be deemed a waiver of any of Bank's rights or powers granted or
acknowledged herein.
4. In the event that Bank delivers to Applicants or upon Applicant's
order any documents or any property with respect to the Credit prior to Bank's
having received reimbursement with respect to the relative drafts, acceptances,
demands or receipts as herein provided, Applicants further agree to execute and
deliver to Bank a trust receipt or other security agreement and a financing
statement or like statement all in form acceptable to Bank, and pay all
attorneys', filing and recording fees.
5. Applicants hereby pledge, assign and hypothecate to Bank as security
for any and all of the Obligations, any and all property of Applicants now or at
any time(s) hereafter in Bank's possession or control, or that of any third
party acting in Bank's behalf whether for the express purpose of being used by
Bank as collateral security or for safekeeping or for any other purpose,
including such property as may be in transit by mail or carrier to or from Bank,
a lien and security interest being herby granted Bank upon and in any and all
such property for the aggregate amount of the Obligations; and Applicants
authorize Bank, at Bank's option, at any time(s), whether or not the property
then held by Bank as security hereunder is deemed by Bank to be adequate, to
appropriate and apply upon any and all of the Obligations, whether or not then
due, any and all monies now or hereafter with Bank on deposit or otherwise to
the credit of or belonging to Applicants or in Bank's discretion, to hold any
such monies as security for Obligations until the exact amount of such
Obligations, if any, shall have been definitely ascertained by Bank. Bank's
rights, liens and security interests hereunder shall continue unimpaired, and
Applicants shall be and remain obligated in accordance with the terms and
provisions hereof notwithstanding the release or substitution of any property
which may be held as collateral hereunder at any time(s) or of any rights or
interests therein, or any delay, extension of time, release, substitution,
waiver, renewal, compromise or other indulgence granted by Bank in reference to
any of the Obligations, or any promissory note, draft, bill of exchange or other
instrument given Bank in connection with any of the Obligations, Applicants, and
each of them individually, hereby waiving notice of any such delay, extension,
release, substitution, waiver, renewal, compromise or other indulgence, and
hereby consenting to be bound thereby as fully and effectually as if Applicants
had expressly agreed thereto in advance.
6. Applicants agree at any time and from time to time, on demand, (i) to
deliver, convey, transfer or assign to Bank, as security for any and all of the
Obligations, and also for any and all other obligations and/or liabilities,
whether absolute or contingent, due or to become due, which are now, or may at
any time hereafter, be owing by Applicants to Bank, additional security of a
value and character satisfactory to Bank, or (ii) to make such cash payment(s)
in partial or full satisfaction of the Obligations of such other obligations or
liabilities as Bank in its sole direction may require.
7. Bank is hereby authorized, at its option and without any obligation to
do so, to transfer to or register in the name(s) of Bank's nominee(s) all or any
part of the property which may be held by it as security at any time(s)
hereunder, and to do so before or after the maturity of any of the Obligations
and with or without notice to Applicants.
8. Upon the non-performance of any of the promises to pay herein set
forth, or upon the non-payment of any of the Obligations or other obligations or
liabilities of Applicants herein, or upon the failure of Applicants to furnish
satisfactory additional collateral or to make payments on account as hereinabove
agreed, or to perform or comply with any of the other terms or provisions of
this Agreement, or in the event of default under any security agreement or
guaranty or other document securing or guaranteeing Applicants' payment or
performance of the Obligations, or should any information supplied on behalf of
Applicants prove to be incorrect, false or misleading, or in the event of the
death, insolvency, business failure, dissolution or termination or existence of
any Applicant, or in case any petition in bankruptcy is filed by or against any
Applicant, or any proceeding is commenced for the relief or readjustment of any
indebtedness of any Applicant, either through reorganization, composition
extension or otherwise, or if any Applicant should make an assignment for the
benefit or creditors or take advantage of any insolvency law, or if a receiver
of any property of any Applicant should be appointed at any time, and in each
case any of the foregoing is initiated under laws or regulations of any
jurisdiction relating to the relief of debtors, then upon such occurrence, any
or all of the Obligations shall, at Bank's option, become due and payable
immediately, without demand or notice, notice of acceleration and of intention
to accelerate being hereby expressly waived.
Page 2 of 4
<PAGE>
9. Upon Applicants' failure to pay any Obligation when due, as aforesaid,
or upon the occurrence of any of the events described in paragraph 8 above, Bank
shall have, in addition to all other rights and remedies allowed by law, the
right immediately, without demand for performance and without notice of
intention to sell or of the time or place of sale or of redemption or other
notice or demand whatsoever to any Applicant, all of which are hereby expressly
waived, and without advertisement, to sell at any broker's board, or at public
or private sale, or to grant options to purchase, or otherwise to realize upon
the whole or from time to time any part of the collateral upon which Bank shall
have a security interest or lien as aforesaid, or any interest Applicants may
have therein, and after deducing from the proceeds of sale or other disposition
of the said collateral all expenses (including but not limited to reasonable
attorneys' fees for legal services of every kind and other expenses as set forth
below) shall apply the residue of such proceeds toward the payment of any of the
Obligations, in such order as Bank shall elect, and whether then due or not due.
Applicants remaining liable for any deficiency remaining unpaid after such
application. If notice of any sale or other disposition is required by law to be
given, Applicants hereby agree that a notice sent at least two (2) days before
the time of any intended public sale or of the time after which any private sale
or other disposition of the said collateral is to be made, shall be reasonable
notice of such sale or other disposition. Applicants also agree to assemble the
said collateral at such place or places as Bank designates by written notice. At
any such sale or other disposition, Bank may itself purchase the whole or any
part of the said collateral sold, free from any right of redemption on the part
of Applicants and free of any right to require sale in inverse order of
alienation, which rights are hereby waived and released. Applicants agree that
the said collateral secures, and further agree to pay on demand, whether or not
any default by Applicants has occurred, all expenses (including but not limited
to, reasonable attorneys' fees for legal services of every kind, the cost of any
insurance and the payment of all taxes or other charges) of, or incidental to,
the custody, care, appraisal, sale or collection of, or realization upon, any of
the said collateral or in any way relating to the enforcement or protection of
Bank's rights hereunder. Where applicable, Bank shall have, to the maximum
extent permitted by applicable law, in addition to and cumulative of the rights
hereinabove provided, all of the rights and remedies provided to a secured party
by the Uniform Commercial Code in effect in the State of Texas of the date of
this Agreement.
10. Bank and any of its correspondents may receive and accept as "bills of
lading" under the Credit any documents issued or purporting to be issued by or
on behalf of any carrier acknowledge receipt of property for transportation,
whatever the specific provisions of such documents, and the date of each such
document shall be deemed the date of shipment of the property mentioned therein;
and such documents shall be deemed in order if such date is within the time
limit fixed by the Credit; and Bank may receive and accept as documents of
insurance either insurance policies or insurance certificates.
11. In the event of any change or modification with respect to: (a) the
amount or duration of the Credit; (b) the time or place of shipment of any
property thereunder; (c) the drawing, negotiation, presentation, acceptance, or
maturity of any drafts, acceptances or other documents; or (d) any of the other
terms or provisions of the Credit, such change or modification being done at the
request of any Applicant, this Agreement shall be binding upon Applicants in all
respects with regard to the Credit so changed or modified, inclusive of any
action taken by Bank or any of its correspondents.
12. The users and beneficiaries of the Credit shall be deemed Applicants'
agents, and Applicants assume all risks of the acts or omissions of the users or
beneficiaries of the Credit. Neither Bank nor its correspondents shall assume
any liability to anyone for failure to pay or accept if such failure is due to
any restriction in force at the time and place of presentment, and Applicants
agree to indemnify Bank from any consequences that may arise therefrom. Neither
Bank nor Bank's correspondents shall be responsible: (a) for existence,
character, quality, quantity, condition, packing, value, or delivery of the
property purporting to be represented by documents; (b) for any difference in
character, quality, quantity, condition, packing, or value of the property from
that expressed in documents; (c) for the validity, sufficiency, or genuineness
of documents, even if such documents should in fact prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (d) for the time, place
manner or order in which shipment is made; (e) for partial or incomplete
shipment, or failure or omission to ship any or all of the property referred to
in the Credit; (f) for the character, adequacy, validity or genuineness of any
insurance; (g) for the solvency or responsibility of any insurer, or for any
other risk connected with insurance; (h) for any deviation from instruction,
delay, default or fraud by the shipper or anyone else in connection with the
property or the shipping thereof or the documents; (i) for the solvency,
responsibility or relationship to the property of any party issuing any
documents in connection therewith; (j) for delay in arrival or failure to arrive
of either the property or any of the documents relating thereto; (k) for delay
in giving or failure to give notice of arrival or any other notice; (l) for any
breach of contract between the shippers or vendors and Applicants; (m) for
failure of any draft, demand or acceptance to bear any reference or adequate
reference to the Credit, or failure of documents to accompany and draft, demand
or acceptance at negotiation, or failure to send forward documents apart from
drafts as required by terms of the Credit (each of which provisions, if
contained in the Credit, may be waived by Bank); (n) for errors, omissions,
interruptions or delays in transmission or delivery of any messages by mail,
cable, telegraph, twx, wireless, telecopy, telefax, electronic mail, SWIFT or
otherwise, whether or not they be in or contain code; or, (o) for errors in
translation or for errors in interpretation of technical terms. Bank shall not
be responsible for any act, error, neglect or default, omission, insolvency or
failure in business of any of its correspondents, and the happening of any one
or more of the contingencies referred to in the preceding sentence shall not
affect, impair or prevent the vesting of any of Bank's rights or powers
hereunder. In furtherance and extension and not in limitation of the specific
provisions hereinbefore set forth, it is herby further agreed that any action,
inaction, or omission taken or suffered by Bank or by any of its correspondents
under or in connection with the Credit or the relative drafts, demands,
acceptances, documents, or property, if in good faith and in conformity with
such foreign or domestic laws, customs or regulations as Bank or any of its
correspondents may deem to be applicable thereto, shall be binding upon
Applicants and shall not place Bank or any of its correspondents under any
resulting liability to Applicants. If the Credit or this Agreement shall be
terminated or revoked by operation of any law as to any Applicant, or, if any
Applicant shall restrain the payment of the Credit by court order or any other
means, Applicants will jointly and severally indemnify and save Bank harmless
from any and all loss, cost damage, expense, suit, claim, cause of action,
judgement and attorneys' fees which may be suffered or incurred by Bank, whether
caused in whole or in part by the negligence of Bank or any correspondent or
affiliate of Bank.
13. Applicants agree to procure promptly any required import, export or
other licenses, consents or certifications for the import, export or shipping of
any and all property shipped under or pursuant to or in connection with the
Credit; to comply with any and all foreign and domestic government regulations,
rules and executive orders in regard to the shipment of any and all such
property or the financing thereof; to furnish such certificates in that respect
as Bank may at any time(s) require; to keep the property covered by insurance
satisfactory to Bank, insured by insurers acceptable to Bank; and to assign the
policies or certificates of insurance to Bank, or to make the loss or
adjustment, if any, payable to Bank, at its option, and to furnish Bank, if
demanded, with evidence of acceptance by the insurers of such assignment.
Applicants certify that neither the shipment of the property nor the origin
thereof is such as would render shipment or the issuance of or payment on the
Credit in violation of the laws, regulations, rules or executive orders of the
United States of America or of any other country having jurisdiction thereof.
14. No delay on Bank's part in exercising any power of sale or any other
rights or options hereunder, and no notice or demand which may be given to or
made upon Applicants by Bank with respect to any power of sale or other right or
option hereunder, shall constitute a waiver thereof, or limit or impair Bank's
right to take any action or to exercise any power of sale, or any other rights
or options hereunder, without notice or demand, or prejudice Bank's rights as
against Applicants in any respect. Bank will not be deemed to have waived any of
its rights unless Bank shall have signed such waiver in writing.
15. Applicants represent and warrant that each Applicant has the authority
and has obtained all approvals and consents necessary to enter into and perform
this Agreement, and that the entering into and performance of this Agreement
will not result in a breach of any of the terms and conditions of any agreement,
instrument, order or judgment under which any Applicant is a party or by which
any Applicant or its property may be bound or affected or under any charter
documents of any Applicant, and will not violate any provision of applicable
law. This Agreement is to remain in force and be applicable to all transactions
notwithstanding any change in the composition of any firm or firms, parties to
this Agreement, or users or beneficiaries of the Credit, whether such change
shall arise from the accession of one or more partners or from the death or
secession of any partner or partners or from the incorporation of any
partnership, or otherwise.
16. Applicants agree that at all times now and hereafter they will
indemnify and save Bank harmless from and against all suits, judgments,
liabilities, losses or damages to it arising in any manner, including negligence
on the part of the Bank, in connection with the Credit or this Agreement, unless
due to gross negligence or willful misconduct on the part of Bank, and from and
against all costs, charges and expenses, reasonable attorneys' fees and those
costs, charges and expenses incurred in connection with all legal proceedings,
whether groundless or otherwise, it being the purpose of this Agreement to
protect Bank fully in the premises.
17. Applicants agree that no acceptance or payment of overdrafts or
irregular drafts or of drafts with irregular documents attached shall, if
assented to or approved by any Applicant orally or in writing, or if Bank in
good faith accepts an indemnity limited to the actual damage, if any, caused by
such irregularity or discrepancy, impair any rights which Bank may have under
this Agreement. In case of any variation between the documents called for by the
Credit or this agreement and the documents accepted by Bank or Bank's
correspondents. Applicants each shall be deemed conclusively to have waived any
right to object to such variation with respect to any action by Bank or Bank's
correspondents relating to such documents and to have ratified and approved such
action as having been taken on Applicants' direction, unless Applicants
immediately upon receipt of such documents (and prior to receipt thereof by any
beneficiary or user of the Credit) file objection with Bank in writing, or
unless Bank has been provided with an indemnity, as aforesaid. Applicants
acknowledge and agree that the information in the Application portion of this
Agreement (the "Application") may be transmitted to Bank and relied on by Bank
in issuing the Credit by any means acceptable to Bank, including without
limitation, SWIFT, electronic mail, telex, twx, telephone, telecopy or telefax.
Applicants, Member and Correspondent (both as hereinafter defined) agree to hold
Bank harmless from and against all claims, expenses, costs, liabilities,
attorneys' fees, suits, judgments, and causes of action arising out of any
discrepancy between the information in this Agreement, including without
limitation, the Application, and that transmitted to, or received by, Bank.
18. This Agreement and the Credit are subject to and incorporate fully
herein (except as expressly modified herein or in the Credit) the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500, hereinafter referred to as "the Uniform
Customs". THIS AGREEMENT AND THE RIGHTS OF APPLICANTS AND BANK HEREUNDER SHALL
BE SUBJECT TO AND GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS,
WITHOUT REFERENCE TO THE RULES REGARDING CONFLICTS OF LAWS, EXCEPT WHEN THE
SUBSTANTIVE LAWS OF THE STATE OF TEXAS CONFLICT WITH THE UNIFORM CUSTOMS, IN
WHICH EVENT THE PROVISIONS OF THE UNIFORM CUSTOMS SHALL GOVERN.
19. Issuance by Bank of the Credit applied for herein shall constitute
acceptance by Bank of this Agreement.
Page 3 of 4
<PAGE>
20. If this Agreement contains the signature of a bank which is a
subsidiary of Texas Commerce Bancshares, Inc. (hereinafter referred to as the
"Member") or of a correspondent bank of Bank (hereinafter referred to as the
"Correspondent"), then this Paragraph shall be applicable. In consideration of
Bank's issuing the Credit at the request of Correspondent or Member, as
applicable, Correspondent or Member as applicable, agrees that it is an
Applicant hereunder with respect to Bank, and it agrees to reimburse Bank on
demand and authorizes Bank, without demand or any notice whatsoever, to charge,
setoff against and otherwise exercise any rights Bank may have with respect to,
any monies now or hereafter on deposit with or otherwise to the credit of or
belonging to Correspondent or Member, as applicable, at or with Bank for any and
all Obligations hereunder, whether or not any demand has been made on Applicants
hereunder. However, unless agreed otherwise, or stated herein neither Member nor
Correspondent agrees to furnish any security for this Agreement or the Credit
other than the aforementioned monies. Upon Member's or Correspondent's payment
to Bank of all Obligations hereunder, Bank thereupon automatically, and without
further action on the part of any party, assigns and transfers its rights
hereunder to Correspondent or Member, as applicable, who shall be fully
subrogated thereto, and Applicants agree that any right, claim or cause of
action which any of them may have hereunder or under the Credit shall be made
only against Correspondent or Member, as applicable, and Applicants agree,
regardless of whether Bank was negligent or not, to indemnify and hold Bank
harmless from and against any claims, costs, expenses, suits or causes of action
by Applicants or any beneficiary or user of the Credit. Applicants hereby agree
that Correspondent or Member, as applicable, shall also (in addition to Bank)
have the same rights, remedies, security interests and other liens as are stated
herein, to the same effect as if additional paragraphs were fully written herein
containing the same terms but substituting "Correspondent" or "Member" for
"Bank" throughout. All references to secured party, beneficiary or other similar
term contained in any deed of trust, security agreement, financing statement or
other document or instrument executed contemporaneously herewith or previously
executed by any of the Applicants for the benefit of Member or Correspondent
shall be deemed to include Bank as well as Member or Correspondent. All such
security agreements, financing statements, deeds of trust and other documents
and instruments are amended to the extent necessary in order that the
Obligations of Applicants hereunder are secured thereby and by the collateral
described therein on a pari passu basis with, and in addition to, any other
obligations secured thereby.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
APPLICANTS:
________________________________ ___________________________________
Printed Name Printed Name
By:_____________________________ By:________________________________
Authorized Signature Authorized Signature
________________________________ CORRESPONDENT/MEMBER BANK:
Printed Name
By:_____________________________ ___________________________________
Authorized Signature Printed Name
By:________________________________
Authorized Signature
BANK ACCEPTANCE: The Bank's Acceptance evidenced by the undersigned authorized
representative's signature is provided as its acknowledgement that this
agreement represents the final agreement by the parties which may not be
contradicted by evidence of prior contemporaneous, or subsequent oral agreements
between the parties.
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By:____________________________________________
Page 4 of 4
<PAGE>
EXHIBIT I
TO
CREDIT AGREEMENT
Form of Assignment and Acceptance
---------------------------------
<PAGE>
ASSIGNMENT AND ACCEPTANCE
-------------------------
Dated _____________, 19__
Reference is made to the Credit Agreement dated as of October 15, 1997 (as
the same may be amended and in effect from time to time, the "Credit
------
Agreement"), among CELLSTAR CORPORATION, a Delaware corporation (the
- ---------
"Borrower"), each of the banks or other lending institutions which is or may
--------
from time to time become a signatory thereto or any successor or permitted
assignee thereof named therein (each a "Bank" and, collectively, the "Banks"),
---- -----
THE FIRST NATIONAL BANK OF CHICAGO and NATIONAL CITY BANK, as co-agents
(collectively, the "Co-Agents"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a
---------
national banking association, as agent (in such capacity, the "Agent").
-----
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned to such terms in the Credit Agreement.
__________________________________________________________ (the "Assignor")
and __________________________________________ (the "Assignee") agree as
follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, a _____%
interest in and to all the Assignor's rights and obligations under the
Credit Agreement and the other Loan Documents as of the Effective Date
(as defined below) (including, without limitation, such percentage
interest in the Commitment of the Assignor on the Effective Date, such
percentage interest in the Advances owing to the Assignor outstanding
on the Effective Date, and such percentage interest in Assignor's
participation share of the Letter of Credit Liabilities outstanding on
the Effective Date, together with such percentage interest in all
unpaid interest and fees accrued from the Effective Date). This
Assignment and Acceptance is made by Assignor without recourse.
2. The Assignor (i) represents that as of the date hereof, its Commitment
is $_______________, the outstanding principal balance of its Advances
is $_______________, and the amount of Assignor's participation
interest in the Letter of Credit Liabilities is $_______________ (all
as unreduced by any assignments which have not yet become effective);
(ii) makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in
or in connection with the Credit Agreement or any other Loan Document
or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Credit Agreement or any other Loan
ASSIGNMENT AND ACCEPTANCE - Page 1
<PAGE>
Document, other than that it is the legal and beneficial owner of the
interest being assigned by it hereunder and that such interest is free
and clear of any adverse claim; (iii) makes no representation or
warranty and assumes no responsibility with respect to the financial
condition of the Borrower or any Obligated Party or the performance or
observance by the Borrower or any other Obligated Party of any of
their obligations under the Agreement or any other Loan Document; and
(iv) attaches the Note held by Assignor and requests that the Agent
exchange such Notes for new Notes payable to the order of (A) Assignee
in an amount equal to the Commitment assumed by the Assignee pursuant
hereto and (B) the Assignor in an amount equal to the Commitment
retained by the Assignor under the Credit Agreement, respectively, as
specified above.
3. The Assignee (i) represents and warrants that it is legally authorized
to enter in this Assignment and Acceptance; (ii) confirms that it has
received a copy of the Credit Agreement, together with copies of the
most recent financial statements delivered pursuant to Section 9.1
thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (iii) agrees that it will,
independently and without reliance upon the Agent, the Assignor, or
any other Bank and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Credit Agreement
and the other Loan Documents; (iv) confirms that it is eligible to be
an Assignee; (v) appoints and authorizes the Agent to take such action
as agent on its behalf and to exercise such powers under the Loan
Documents as are delegated to the Agent by the terms thereof, together
with such powers as are reasonably incidental thereto; [and] (vi)
agrees that it will perform in accordance with their terms all the
obligations which by the terms of the Credit Agreement and the other
Loan Documents are required to be performed by it as a Bank; [and
(vii) attaches the forms prescribed by the Internal Revenue Service of
the United States certifying as to the Assignee's exemption from
United States withholding taxes with respect to all payments to be
made to the Assignee under the Loan Documents or such other documents
as are necessary to indicate that all such payments are subject to
such tax at a rate reduced by an applicable tax treaty]./1/
_________________________
/1/ If the Assignee is organized under the laws of a jurisdiction outside the
United States.
ASSIGNMENT AND ACCEPTANCE - Page 2
<PAGE>
4. The effective date for this Assignment and Acceptance shall be
______________, 19___ (the "Effective Date")./2/ Following the
--------------
execution of this Assignment and Acceptance, it will be delivered to
the Agent for acceptance and recording by the Agent.
5. Upon such acceptance and recording, from and after the Effective Date,
(i) the Assignee shall be a party to the Credit Agreement and, to the
extent provided in this Assignment and Acceptance, shall have the
rights and obligations of a Bank thereunder and under the other Loan
Documents and (ii) the Assignor shall, to the extent provided in this
Assignment and Acceptance, relinquish its rights and be released from
its obligations under the Credit Agreement and the other Loan
Documents.
6. Upon such acceptance and recording, from and after the Effective Date,
the Agent shall make all payments in respect of the interest assigned
hereby (including payments of principal, interest, fees, and other
amounts) to the Assignee. The Assignor and Assignee shall make all
appropriate adjustments in payments for periods prior to the Effective
Date by the Agent or with respect to the making of this assignment
directly between themselves.
7. The Assignee has executed and delivered a confidentiality agreement in
substantially the form of the confidentiality agreements between the
Borrower and the other Banks.
8. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND APPLICABLE LAWS OF
THE UNITED STATES OF AMERICA.
[NAME OF ASSIGNOR],
By:__________________________
Name:________________________
Title:_______________________
__________________
/2/ Such date shall be at least ten (10) Business Days after the execution of
this Assignment and Acceptance and delivery thereof to the Agent.
ASSIGNMENT AND ACCEPTANCE - Page 3
<PAGE>
[NAME OF ASSIGNEE],
By:__________________________
Name:________________________
Title:_______________________
ACCEPTED BY:
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent
By:___________________________
Name:_______________________
Title:______________________
Date:_______________________
CONSENTED TO BY:
CELLSTAR CORPORATION/3/
By:___________________________
Name:_______________________
Title:______________________
________________________
/3/ This Assignment and Acceptance shall be required to be signed by Borrower
only if its consent is required under the Credit Agreement. The consent of
Borrower shall not be unreasonably withheld and is not required after the
occurrence and during the continuance of a Default.
ASSIGNMENT AND ACCEPTANCE - Page 4
<PAGE>
EXHIBIT J
TO
CREDIT AGREEMENT
Contribution and Indemnification Agreement
------------------------------------------
<PAGE>
CONTRIBUTION AND INDEMNIFICATION AGREEMENT
------------------------------------------
THIS CONTRIBUTION AND INDEMNIFICATION AGREEMENT (this "Agreement"), dated
---------
as of October 15, 1997, is entered into by and among CellStar Corporation, a
Delaware corporation (the "Borrower"), and the undersigned Guarantors (each a
--------
"Guarantor" and collectively, the "Guarantors," and together with Borrower each
--------- ----------
a "Company" and, collectively, the "Companies").
------- ---------
R E C I T A L S:
- - - - - - - -
A. Borrower, certain banks or lending institutions from time to time
party thereto (each a "Bank" and, collectively, the "Banks"), The First National
---- -----
Bank of Chicago and National City Bank, as co-agents (collectively, the "Co-
---
Agents"), and Texas Commerce Bank National Association, as agent for the Banks
- ------
(the "Agent"), have entered into that certain Credit Agreement of even date
-----
herewith (such Credit Agreement, as the same may be amended, supplemented or
modified from time to time, the "Credit Agreement"), providing for loans and
----------------
extensions of credit to the Borrower.
B. Concurrently herewith, the Guarantors are executing and delivering a
Guaranty (the "Guaranty"), pursuant to which the Guarantors jointly and
--------
severally guarantee the full and prompt payment and performance of the
Guaranteed Indebtedness, as such term is defined in the Guaranty.
C. The Companies wish to enter into this Agreement to effect an equitable
sharing of their risk in respect of the Guaranteed Indebtedness.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Capitalized terms used in this Agreement to the extent not otherwise
defined herein shall have the same meanings as in the Credit Agreement.
2. If any Guarantor makes a payment in respect of the Guaranteed
Indebtedness, it shall have the rights of contribution and reimbursement set
forth below against the other Companies and shall be indemnified as set forth
below; provided that no Guarantor shall enforce its rights to any payment by
--------
exercising its rights of contribution, reimbursement or indemnification unless
and until all the Guaranteed Indebtedness shall have been paid in full.
3. If any Guarantor makes a payment in respect of the Guaranteed
Indebtedness that is greater than its Pro Rata Percentage (hereinafter defined)
of the Guaranteed Indebtedness, calculated as of the date such payment is made,
the Guarantor making such payment shall have
CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 1
<PAGE>
the right to receive from each of the other Guarantors, and the other Guarantors
jointly and severally agree to pay to such Guarantor, when permitted by
paragraph 2 hereof, an amount such that the net payments made by the Guarantors
- -----------
in respect of the Guaranteed Indebtedness shall be shared among the Guarantors
pro rata in proportion to their respective Pro Rata Percentages of the
Guaranteed Indebtedness. The Guarantors hereby jointly and severally indemnify
each of the other Guarantors and jointly and severally agree to hold each of
them harmless from and against any and all amounts which any such Guarantor
shall ever be required to pay in respect of the Guaranteed Indebtedness in
excess of such Guarantor's respective Pro Rata Percentage of the Guaranteed
Indebtedness. Notwithstanding anything to the contrary contained in this
paragraph or in this Agreement, no liability or obligation of any Guarantor that
shall accrue pursuant to this Agreement shall be paid nor shall it be deemed
owed pursuant to this Agreement or any Loan Documents unless and until all of
the Guaranteed Indebtedness shall be paid in full. As used herein, the term
"Pro Rata Percentage" shall mean, for each Guarantor, the percentage derived by
-------------------
dividing (a) the amount by which the fair saleable value of its assets on August
31, 1997 exceeds its liabilities (without giving effect to its Guaranty) (such
excess for each Guarantor, its "Net Worth"), by (b) the Net Worth of all of the
---------
Guarantors.
4. If any Guarantor makes any payment in respect of the Guaranteed
Indebtedness, the Guarantor making such payment shall have the right to receive
from the Borrower, and the Borrower agrees to pay to such Guarantor, when
permitted by paragraph 2 hereof, an amount equal to such payment. The Borrower
-----------
hereby indemnifies each of the Guarantors and agrees to hold each of them
harmless from and against any and all amounts which any such Guarantor shall
ever be required to pay in respect of the Guaranteed Indebtedness.
Notwithstanding anything to the contrary contained in this paragraph or in this
Agreement, no liability or obligation of the Borrower that shall accrue pursuant
to this Agreement shall be paid or shall be deemed owed pursuant to this
Agreement or any Loan Documents unless and until all of the Guaranteed
Indebtedness shall be paid in full.
5. Each Company represents and warrants to each other Company and to
their respective successors and assigns that:
(a) the execution, delivery and performance by each party hereto of
this Agreement are within such Company's corporate or partnership powers,
have been duly authorized by all necessary corporate or partnership action,
as the case may be, require no action by or in respect of, or filing with,
any governmental body, agency or official and do not contravene, or
constitute a default under, any provision of applicable law or regulation
or of the articles or certificate of incorporation or bylaws or other
organizing document of such party or of any agreement, judgment,
injunction, order, decree or other instrument binding upon such party or
result in the creation or imposition of any lien, security interest or
other charge or encumbrance on any asset of such Company;
(b) this Agreement constitutes a legal, valid and binding agreement
of each Company, enforceable against such Company in accordance with its
terms; and
CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 2
<PAGE>
(c) such Company has adequate capital to conduct its business as a
going concern, as presently conducted and as proposed to be conducted, will
be able to meet its obligations hereunder and in respect of its other
existing and future indebtedness and liabilities as and when the same shall
be due and payable, and is not insolvent (as that term is defined in 11
U.S.C. (S) 101 or applicable law) and will not be rendered insolvent by its
obligations hereunder, and the foregoing representation is supported by
such Company's internal projections and forecasts.
6. No failure or delay by any Guarantor in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and non-exclusive of any rights or remedies
provided by law.
7. Any provision of this Agreement may be amended or waived if, but only
if, such amendment or waiver is in writing and is signed by the parties hereto
and consented to by the Agent.
8. The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
9. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF TEXAS.
10. This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement shall become effective
when a counterpart hereof shall have been signed by all the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
BORROWER:
--------
CELLSTAR CORPORATION
By:_________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 3
<PAGE>
GUARANTORS:
----------
NATIONAL AUTO CENTER, INC.
By:_______________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
CELLSTAR, LTD.
By: National Auto Center, Inc.,
its general partner
By:__________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
CELLSTAR FULFILLMENT, LTD.
By: CellStar Fulfillment, Inc.,
its general partner
By:__________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
CELLSTAR WEST, INC.
By:_______________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 4
<PAGE>
CELLSTAR AIR SERVICES, INC.
By:_______________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
A & S AIR SERVICE, INC.
By:_______________________________________________
Mark Q. Huggins, Senior Vice President
Chief Financial Officer
CELLSTAR INTERNATIONAL
CORPORATION/SA
By:_______________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
AUDIOMEX EXPORT CORP.
By:_______________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
CELLSTAR INTERNATIONAL
CORPORATION/ASIA
By:_______________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 5
<PAGE>
CELLSTAR FULFILLMENT, INC.
By:_______________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
NAC HOLDINGS, INC.
By:_______________________________________________
Elaine F. Rodriguez
President
ACC-CELLSTAR, INC.
By:_______________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
CELLSTAR FINANCO, INC.
By:_______________________________________________
Mark Q. Huggins, Senior Vice President
and Chief Financial Officer
CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 6
<PAGE>
EXHIBIT K
TO
CREDIT AGREEMENT
Account Information
-------------------
Name:_____________________________________________________________________
City:_____________________________________________________________________
Country:__________________________________________________________________
Sort Code:________________________________________________________________
For Credit To:____________________________________________________________
Attention:________________________________________________________________
Reference:________________________________________________________________
Account Number:___________________________________________________________
Swift Address:____________________________________________________________
<PAGE>
SCHEDULE 8.5
------------
EXISTING LITIGATION
-------------------
Four purported class action lawsuits were filed in the United States District
Court for the Northern District Court for the Northern District of Texas, Dallas
Division, which have been consolidated in the case styled State of Wisconsin
Investment Board, Diane Lawson, Martin Katz, Mostafa Aboul-Fetouh, Ahmed Aboul-
Fetouh and Enass Aboul-Fetouh on behalf of themselves and others similarly
situated v. Alan H. Goldfield, Terry S. Parker, Kenneth W. Sanders, John S.
Bain, Evelyn M. Henry, Michael S. Hedge, Kenneth E. Kerby, Daniel T. Bogar,
Leonard C. Ratley, James L. Johnson, Ronald J. Kramer, CellStar Corporation and
KPMG Peat Marwick LLP, Civil Action No. 3:96-CV-1353-R. The State of Wisconsin
Investment Board has been appointed lead plaintiff in the consolidated action
and has filed a Consolidated Amended Complaint asserting claims against CellStar
Corporation and certain of its present and former officers and directors for
violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10b-5
promulgated thereunder, Section 27.01 of the Texas Civil Statutes, common law
fraud, negligent misrepresentation, and breach of fiduciary duty to disclose
under Delaware common law. The consolidated Amended Complaint alleges, among
other things, that the defendants misrepresented or failed to disclosed material
facts regarding the business, financial condition, performance and future
prospects of CellStar Corporation and that, as a result of such statements or
omissions, the value of CellStar Corporation's Common Stock was artificially
inflated. In December, 1996, defendants filed motions to dismiss all claims
asserted in the Consolidated Amended Complaint. The motions are pending.
CellStar Corporation is a party to various other claims, legal actions and
complaints arising in the ordinary course of business. Management believes that
the disposition of these other matters will not have a materially adverse effect
on the consolidated financial condition or results of operations of CellStar
Corporation.
Schedule 8.5, Existing Litigation
1
<PAGE>
SCHEDULE 8.9
------------
EXISTING DEBT
-------------
1. $150.0 Million Convertible Subordinated Notes due October 15, 2002, issued
by CellStar Corporation pursuant to Indenture dated October 14, 1997.
2. Guarantee by CellStar Corporation of obligations of CellStar Amtel Sdn Bhd
(the Malaysian affiliate) under its credit facility with DCB Bank Berhad
Malaysia, which guarantee is limited to a maximum of RM 13.2 million, or US
$4.6 million as of August 31, 1997.
SCHEDULE 8.9, EXISTING DEBT.
<PAGE>
SCHEDULE 8.14
-------------
LIST OF SUBSIDIARIES AND FOREIGN AFFILIATES
-------------------------------------------
AND PERCENTAGE OF BORROWER'S OWNERSHIP /1/
--------------------------------------
Name of Subsidiary Incorporation
- ------------------ -------------
National Auto Center, Inc. Texas
CellStar Financo, Inc. Delaware
CellStar Air Services, Inc. Delaware
A&S Air Service, Inc. Delaware
CellStar Fulfillment, Inc. Delaware
NAC Holdings, Inc. Nevada
CellStar West, Inc. /2/ Delaware
CellStar, Ltd. Texas Limited Partnership
CellStar Fulfillment, Ltd. Texas Limited Partnership
CellStar International Corporation/SA Delaware
CellStar, S.A. Argentina
CellStar International Telefonia
Celular Ltda. Brazil
Cellular Industria da Telefonia
da Amazonia Ltda. Brazil
___________________
/1/ 100%, unless otherwise stated.
/2/ 80% owned
1
<PAGE>
SCHEDULE 8.14
-------------
CellStar Celular Chile, S.A. Chile
CellStar de Colombia, S.A. Colombia
CellStar Ecuador, S.A. Ecuador
CellStar (UK) Ltd. United Kingdom
CellStar Europe Ltd. United Kingdom
CellStar Celular, S.A. Venezuela
ACC-CellStar, Inc. /3/ Delaware
Audiomex Export Corp. Texas
Celular Express S.A. de C.V. Mexico
Celular Express Management
S.A. de C.V. Mexico
CellStar International Corporation/Asia Delaware
CellStar Pacific Pte. Ltd. Singapore
CellStar Amtel Sdn Bhd /4/ Malaysia
CellStar Philippines, Inc. Philippines
CellStar Telecommunication
Taiwan Co Ltd. Taiwan
CellStar (Asia) Corporation Limited Hong Kong
Shanghai CellStar International
___________________
/3/ 80% owned.
/4/ 30% directly owned and 19% beneficially owned.
2
<PAGE>
SCHEDULE 8.14
-------------
Trading Co. Ltd. PRC
CellStar Telecommunications
Service (Asia) Limited /5/ Hong Kong
CellStar Singapore Pte Ltd Singapore
HCL-CellStar Ltd. /6/ India
___________________
/5/ 60% owned.
/6/ 50% owned.
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CellStar Corporation
Delaware
CellStar Air Services, Inc. National Auto Center, Inc
Delaware Texas
A & S Air Services, Inc CellStar Fulfillment Inc. NAC Holdings, Inc.
Delaware Delaware Nevada
CellStar Fulfillment Ltd. CellStar Ltd.
TX Ltd Ptnership TX Ltd Ptnership
CellStar International AudioMex Export Corp. CellStar West, Inc. CellStar International
Corporation/SA Delaware Texas Delaware Corporation/Asia Delaware
Cellular, SA CellStar International Telefonia Celular Express S.A. de C.V. CellStar Pacific Pte, Ltd
Argentina Celular Ltda. Mexico Singapore
Brazil
CellStar Industries da Telefonia Celular Express CellStar Amtel Sdn Bhd CellStar Phillipines, Inc
da Amazonia Ltda. Management S.A. de C.V. Malaysia Phillipines
Brazil Mexico
CellStar Celular Chile, S.A. CellStar de Columbia CellStar Telecommunication
Chile S.A. Columbia Taiwan Co. Ltd.
Taiwan
CellStar Ecuador, S.A. CellStar (UK) Ltd. CellStar (Asia) Corporation Limited
Ecuador UK Hong Kong
CellStar Europe Ltd. Shanghai CellStar International CellStar Telecommunications
UK Trading Co. Ltd Service (Asia) Limited
PRC Hong Kong
CellStar Celular, S.A. ACC-CellStar, Inc. CellStar Singapore Pte Ltd.
Venezuela Delaware Singapore
HCL-CellStar Ltd.
India
CellStar Financo, Inc
Delaware
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 8.19
-------------
ENVIRONMENTAL MATTERS
---------------------
NONE.
1
<PAGE>
SCHEDULE 8.20
-------------
PATENTS, TRADEMARKS AND COPYRIGHT
---------------------------------
SEE ATTACHED SCHEDULES.
<PAGE>
10/13/97
CELLSTAR, LTD. U.S. PATENT APPLICATION
--------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SERIAL NO. FILING DATE TITLE INVENTOR(S) ASSIGNMENT RECORDATION
(REEL/FRAME)
====================================================================================================================================
<S> <C> <C> <C> <C>
08/565,159 11/30/95 Unitized Package Rebecca Kimbrell Richardson 7798/0164
Assembly
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
10/13/97
CELLSTAR, LTD. COPYRIGHT REGISTRATION
-------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
REG. NO. TITLE OF WORK DATE OF PUBLICATION
====================================================================================================================================
<S> <C> <C>
VA 725-904 Accessory Performance Pac Box with Handle May 19, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
10/13/97
CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Argentina CELLSTAR (stylized) cellular telephones and accessories for 1,871,769/ 1,510,201/ 03/31/2004
cellular telephones (accessories include 02/26/93 03/31/94
antennas, antenna mounts, antenna passive
repeater, batteries, battery chargers,
battery charger clips, and battery
charter Y-adapters) in class 9
- ------------------------------------------------------------------------------------------------------------------------------------
Argentina CELLSTAR all goods in class 9 1,985,259
06/28/95
- ------------------------------------------------------------------------------------------------------------------------------------
Argentina CELLSTAR all goods in class 38 1,985,260 1,598,164
06/28/95 04/30/96 04/30/2006
- ------------------------------------------------------------------------------------------------------------------------------------
Argentina CELLSTAR all goods in class 42 1,985,261
06/28/95
- ------------------------------------------------------------------------------------------------------------------------------------
Argentina SERVICELL cellular telephones and accessories for 1,899,480/ 1,531,704/ 07/29/2004
cellular telephones, including mounting 11/17/93 07/29/94
brackets, antennas, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, headphones and remote
listening and speaking devices (class 9)
- -----------------------------------------------------------------------------------------------------------------------------------
Australia CELLSTAR cellular telephones and accessories such 74/651,649/ A651,649 01/27/2005
as mounting brackets, antennas, antenna 01/27/95 01/2797
mounts, batteries, battery chargers,
battery eliminators, input and output
jacks, carrying cases, headphones, remote
listening and speaking devices (class 9)
- -----------------------------------------------------------------------------------------------------------------------------------
Australia CELLSTAR cellular telephone communication services 651,650/ A651650 01/27/2005
(class 38) 01/27/95
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
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CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Australia CELLSTAR retail outlets featuring cellular 651,652/ A651,652 01/27/2005
telephones and accessories for cellular 01/27/95 01/27/97
telephones and cellular telephone
subscription contracts; and wholesale
distributing services featuring cellular
telephones and related accessories (class
42)
- ------------------------------------------------------------------------------------------------------------------------------------
Bangledesh CELLSTAR class 9 42,983
02/12/95
- ------------------------------------------------------------------------------------------------------------------------------------
Bangledesh CELLSTAR class 38 [in
preparation]
- ------------------------------------------------------------------------------------------------------------------------------------
Bolivia CELLSTAR class 9 57977-C/ 05/18/2003
02/09/95
- ------------------------------------------------------------------------------------------------------------------------------------
Bolivia CELLSTAR (stylized) class 9 1236/ [published for
05/18/93 opposition]
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil CELLSTAR electrical communications equipment 817,322,698/ 817,322,698/
including cellular telephones and 06/23/93 01/24/95 01/24/2005
accessories for cellular telephones in
class 9.35/80
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil CELLSTAR electrical communications equipment 817,136,878/ 817,136,878/ 06/05/2005
including cellular telephones and 03/02/93 06/06/95
accessories for cellular telephones in
class 37.45 (services)
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil CELLSTAR class 40:15 819,435,686 [published for
08/27/96 opposition
08/12/97]
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil *(Note 1) CELLULAR EXPRESS class 9/35.80 817,663,924 817,663,924 7/8/2006
07/09/96
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil *(Note 1) CELLULAR EXPRESS class 37/44.45 817,663,932
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil *(Note 1) CELLULAR EXPRESS class 9/35.80 817,762,604 817,762,6040 04/15/2006
(stylized) 4/16/96
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil *(Note 1) CELLULAR EXPRESS class 37.44.45 817,762,612 817,762,612 04/15/2006
(stylized) 04/16/96
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: Filed by Brazilian affiliate; information in schedule based on
information received from local associate.
2
<PAGE>
10/13/97
CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Brazil *(Note 1) FIGURITIVA (and class 35.80 817,762,582 817,762,582 04/15/2006
design) 04/16/96
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil *(Note 1) FIGURITIVA (and class 9/35.80 817,762,590 817,762,590 04/15/2006
design) 04/16/96
- ------------------------------------------------------------------------------------------------------------------------------------
Brunei CELLSTAR cellular telephones and accessories for 24615 20230 02/22/2002
cellular telephones including mounting 02/22/95 12/06/95
brackets, antennas, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, headphones, and remote
listening and speaking devices (class 9)
- ------------------------------------------------------------------------------------------------------------------------------------
Cambodia CELLSTAR cellular telephones and accessories for 4038/ 4036/ 01/01/2004
cellular telephones, including mounting 01/01/94 01/12/94 *01/12/1999 - Use
brackets, antennas, antenna mounts,
batteries, battery chargers, battery *01/12/2000 -
eliminators, input and output jacks, Affidavit of Use
carrying cases, headphones and remote
listening and speaking devices (class 9)
- ------------------------------------------------------------------------------------------------------------------------------------
Cambodia CELLSTAR class 38 [in preparation]
- ------------------------------------------------------------------------------------------------------------------------------------
Cambodia CELLSTAR class 42 [in preparation] 432,754/
- ------------------------------------------------------------------------------------------------------------------------------------
Canada CELLSTAR cellular telephones and accessories for 721,282/
cellular telephones; namely: mounting 01/26/93 09/02/94 09/02/2009
brackets, antennas, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, headphones, and remote
listening and speaking devices for use
with cellular telephones
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: Filed by Brazilian affiliate; information in schedule based on
information received from local associate.
3
<PAGE>
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CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Chile CELLSTAR (stylized) all goods in class 9 241,663/ 415,964/ 11/08/2003
05/26/93 11/08/93
- -----------------------------------------------------------------------------------------------------------------------------------
Chile SERVICELL cellular telephones and accessories for 256,531/
cellular telephones, including mounting 02/02/94
brackets, antennas, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, headphones and remote
listening and speaking devices (class 9)
- -----------------------------------------------------------------------------------------------------------------------------------
China CELLSTAR (plain) cellular telephones and accessories for 93015835/ 694522/ 06/20/2004
cellular telephones such as aerials and 03/11/93 06/21/94
frame for wireless aerials, chargers
batteries, electrical adapters, and the
like in class 9
- -----------------------------------------------------------------------------------------------------------------------------------
China CELLSTAR (stylized) cellular telephones and accessories for 93015836/ 694523/ 06/20/2004
cellular telephones such as aerials and 03/11/93 06/21/94
frame for wireless aerials, chargers
batteries, electrical adapters, and the
like in class 9
- -----------------------------------------------------------------------------------------------------------------------------------
Colombia/ASR CELLSTAR class 9 93/388,651
05/27/93
- -----------------------------------------------------------------------------------------------------------------------------------
Colombia CELLSTAR cellular telephones and accessories for 93/403,362
cellular telephones (accessories include 08/20/93
antennas, antenna mounts, antenna passive
repeater, batteries, battery chargers,
battery charger clips and battery charter
Y-adapters) in class 9
- -----------------------------------------------------------------------------------------------------------------------------------
Colombia CELLSTAR class 38 [in preparation]
- -----------------------------------------------------------------------------------------------------------------------------------
Colombia CELLSTAR class 42 [in preparation]
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
10/13/97
CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Colombia CELLSTAR tradename [in preparation]
- -----------------------------------------------------------------------------------------------------------------------------------
Colombia SERVICELL cellular telephones and accessories for 421,437/ 158,157/ 05/16/2004
cellular telephones, including mounting 12/06/93 05/17/94
brackets, antennas, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, headphones and remote
listening and speaking devices (class 9)
- -----------------------------------------------------------------------------------------------------------------------------------
Colombia CELULAR EXPRESS cellular telephones and accessories for 9,422,250/ 165,447 09/27/2004
cellular telephones, including mounting 05/25/94 09/28/94
brackets, antennas, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, phone cradles, headphones
and remote listening and speaking devices
(class 9)
- -----------------------------------------------------------------------------------------------------------------------------------
Costa Rica CELLSTAR cellular telephones sold to cellular 95202 03/13/2005
telephone service subscribers and 03/14/96
accessories for use with cellular
telephones; namely, mounting brackets,
antennas, antenna mounts, batteries,
battery chargers, battery eliminators,
input and output jacks, carrying cases,
headphones, remote listening and speaking
devices, in class 9.
- -----------------------------------------------------------------------------------------------------------------------------------
Costa Rica CELLSTAR agent services for cellular telephone 96482 08/26/2005
service subscription agreements in 08/26/96
international class 35
- -----------------------------------------------------------------------------------------------------------------------------------
Costa Rica CELLSTAR cellular telephone communication services 96481 08/25/2005
in international class 38 08/26/96
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
10/13/97
CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Costa Rica CELLSTAR retail outlets featuring cellular 95203 03/13/2005
telephones and accessories for cellular 03/14/96
telephones and cellular telephone
subscription contracts, and wholesale
distributing services featuring cellular
telephones and related accessories in
international class 42
- -----------------------------------------------------------------------------------------------------------------------------------
European Union CELLSTAR [classes 9, 38, 42] 47233
04/01/96
- -----------------------------------------------------------------------------------------------------------------------------------
Ecuador CELLSTAR communications apparatus in general and 6436 DNPI-2197- 08/01/2004
especially antennas and receivers for 03/28/95 MICIP
television channels via satellite in 08/01/94
class 9
- -----------------------------------------------------------------------------------------------------------------------------------
France CELLSTAR cellular telephones and accessories, 95/560,740 95,560,740 03/01/2005
namely mounting brackets, antennas, 03/01/95 07/31/95
antenna mounts, batteries, battery
chargers, battery eliminators, input and
output jacks, carrying cases, headphones,
remote listening and speaking devices
(class 9); telephone communication
services and in particular cellular
telephone communication services (class
38)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
France CELLULAR EXPRESS cellular telephones and accessories, 95/569,698/ 95,569,698 04/28/2005
(and design) namely mounting brackets, antennas, 04/28/95 10/06/95
antenna mounts, batteries, battery
chargers, battery eliminators, input and
output jacks, carrying cases, headphones,
remote listening and speaking devices
(class 9); telephone communication
services and inparticular cellular
telephone communication services (class
38)
- -----------------------------------------------------------------------------------------------------------------------------------
Germany CELLSTAR cellular telephones and accessories, 395,078,598 395,078,598 02/28/2005
namely mounting brackets, antennas, 02/21/95 02/16/96
antenna mounts, batteries, battery
chargers, battery eliminators, input and
output jacks, carrying cases, headphones,
remote listening and speaking devices
(class 9); telephone communication
services, and particularly cellular
telephone communication services (class
38)
- -----------------------------------------------------------------------------------------------------------------------------------
Germany CELLULAR EXPRESS cellular telephones and accessories, 39517285.3/ 39,517,285 04/30/2005
(and design) namely mounting brackets, antennas, 04/21/95 04/29/96
antenna mounts, batteries, battery
chargers, battery eliminators, input and
output jacks, carrying cases, headphones,
remote listening and speaking devices
(class 9); telephone communication
services, and particularly cellular
telephone communication services (class
38)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
10/13/97
CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE * OTHER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Great Britain CELLSTAR cellular telephones; mounting brackets, 2,011,720 2,011,720 02/21/2005
antennas, antenna mounts, batteries, 02/21/95 02/23/96
battery chargers, battery eliminators,
input and output jacks, carrying cases,
headphones, remote listening and speaking
devices; all the aforesaid for use with
cellular telephones their parts and
fittings comprised in this class (class
9); cellular telephone communication
services (class 38)
- -----------------------------------------------------------------------------------------------------------------------------------
Great Britain CELLULAR EXPRESS cellular telephones and accessories, 2,018,225/ 2,018,225 04/22/2005
(and design) therefor namely mounting brackets, 04/22/95 03/01/96
antennas, antenna mounts, batteries,
battery chargers, battery eliminators,
input and output jacks, carrying cases,
headphones, remote listening and speaking
devices (class 9); telephone
communication services, particularly
cellular telephone communication services
(class 38)
- -----------------------------------------------------------------------------------------------------------------------------------
Hong Kong CELLSTAR cellular telephones, parts and fittings 93/12897 8357/1995
therefor, mounting brackets, antennas, 11/30/93 no date listed
antenna mounts, batteries, battery
chargers, battery eliminators, input and
output jacks, carrying cases therefor,
headphones and remote listening and
speaking devices; all included in class 9
- -----------------------------------------------------------------------------------------------------------------------------------
Hong Kong CELLSTAR class 38 [in preparation]
- -----------------------------------------------------------------------------------------------------------------------------------
Hong Kong CELLSTAR class 42 [in preparation]
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
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CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE * OTHER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
India CELLSTAR cellular telephones and accessoriies for 613,904 12/14/93
cellular telephones, including mounting
brackets, antenas, antenna mounts,
batteries, battery chargers, battery
eliminators, imput and output jacks,
carrying cases, headphones and remote
listening and speaking devices in class 9
- -----------------------------------------------------------------------------------------------------------------------------------
Indonesia CELLSTAR cellular telephones and accessories for H4.Hc.01. 342,614 02/15/2004
cellular telephones such as mounting 01-14643 08/31/95
brackets, antenna, antenna mounts, 08/15/94
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, headphones, and remote
listening and speaking devices, their
parts and fittings in class 9
- -----------------------------------------------------------------------------------------------------------------------------------
Indonesia CELLSTAR repair and maintenance services for D97 1529 01/22/97
celular telephones and wireless
telecommunication equipment and their
accessories (class 37)
- -----------------------------------------------------------------------------------------------------------------------------------
Indonesia CELLSTAR cellular telephones and wireles D97-1528 01/22/97
telecommunication services (class 38)
- -----------------------------------------------------------------------------------------------------------------------------------
Indonesia CELLSTAR class 42 [in preparation]
- -----------------------------------------------------------------------------------------------------------------------------------
Ireland Ireland cellular telephones and accessories; 6182/95 09/07/95 167,790 09/06/2002
mounting brackets, antennas, antenna 08/08/96
mounts, batteries, battery chargers,
battery eliminators, input and output
jacks, carrying cases, headphones, remote
listening and speaking devices (class 9)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
10/13/97
CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE DATE DATE *OTHER
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Israel CELLSTAR cellular telephones and accessories 96247/ 96247/ 12/25/2001
therefor (class 9) 12/25/94 08/05/96
- -----------------------------------------------------------------------------------------------------------------------------
Israel CELLSTAR cellular telephone communication services 96248/ 96248/ 12/25/2001
(class 38) 12/25/94 08/05/96
- -----------------------------------------------------------------------------------------------------------------------------
Israel CELLSTAR wholesale distributing services featuring 96249/ 96249/ 12/25/2001
cellular telephones and related 12/25/94 08/05/96
accessories; retail outlets featuring
cellular telephones and accessories for
cellular telephones and cellular
telephone subscription contracts (class
42).
- -----------------------------------------------------------------------------------------------------------------------------
Korea CELLULAR EXPRESS cellular telephones; mounting brackets, 13992/95 348,903 10/22/2006
(and design) antennas, antenna mounts; batteries; 04/12/95 10/22/96
battery chargers; battery eliminators;
input and output jacks; carrying cases;
headphones; remote listening and speaking
devices (class 39)
- -----------------------------------------------------------------------------------------------------------------------------
Korea CELLULAR EXPRESS cellular telephone communication services 3359/95 34230 01/15/2006
(and design) (class 106) 04/12/95 01/15/97
- -----------------------------------------------------------------------------------------------------------------------------
Korea CELLULAR EXPRESS retail outlet and wholesale distributing 3359/95 36433 05/29/2007
(and design) agency services featuring cellular 04/12/95 05/29/97
telephones and accessories for cellular
telephones and cellular telephone
subscription contracts; retail and
wholesale distributing chain-store
management services featuring cellular
telephones and related accessories (class
112)
- -----------------------------------------------------------------------------------------------------------------------------
Laos CELLSTAR (and all goods in international class 9 2686/ 2879/ 12/29/2003
design) 12/29/93 12/05/94
- -----------------------------------------------------------------------------------------------------------------------------
Laos CELLSTAR (and all goods in international class 38 [in
design) preparation]
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
10/13/97
CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Laos CELLSTAR (and all goods in international class 42 [in
design) preparation]
- -------------------------------------------------------------------------------------------------------------------------
Malaysia CELLSTAR cellular telephones and cellular 94/06847/
telephones accessories such as mounting 08/03/94
brackets, antenna, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, headphones, and remote
listening and speaking devices, their
parts and fittings (class 9)
- -------------------------------------------------------------------------------------------------------------------------
Mexico CELLSTAR Apparatus for communication known in this 169,936/ 468,271/ 06/09/2003
class, particularly antenna receivers 06/09/93 08/01/94
(class 9)
- -------------------------------------------------------------------------------------------------------------------------
New Zealand CELLSTAR communications products in this class 245184/
including cellular telephones, mounting 01/31/95
brackets, antennas, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, headphones, remote
listening and speaking devices and other
accessories; parts and fittings for all
the aforesaid goods (class 9)
- -------------------------------------------------------------------------------------------------------------------------
New Zealand CELLSTAR telecommunication services including 245185/ 245185 01/31/2002
cellular telephone communication services 01/31/95 01/31/95
(class 38)
- -------------------------------------------------------------------------------------------------------------------------
New Zealand CELLSTAR wholesale and retail services in this 245186/ 245186 01/31/2002
class all relating to electrical and 01/31/95 01/31/95
communication products including cellular
telephones and accessories for cellular
telephones; cellular telephone
subscription contracts (class 42)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
10/13/97
CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ FILING REG. NO./ RENEWAL DATE/
DATE REG. DATE *OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New Zealand CELLULAR EXPRESS communications products in this class 246,076/
(and design) including cellular telephones, mounting 02/22/95
brackets, antennas, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, headphones, remote
listening and speaking devices and other
accessories; parts and fittings in this
class for all the aforesaid goods (class
9)
- ------------------------------------------------------------------------------------------------------------------------------------
New Zealand CELLULAR EXPRESS telecommunication services including 246,077/
(and design) cellular telephone communication services 02/22/95
(class 38)
- ------------------------------------------------------------------------------------------------------------------------------------
New Zealand CELLULAR EXPRESS services in retailing electrical and 246,078/
(and design) communication products including cellular 02/22/95
telephones and accessories for cellular
telephones and cellular telephone
subscription contracts; and wholesale
distributing services featuring
electrical and communication products
(class 42)
- ------------------------------------------------------------------------------------------------------------------------------------
Pakistan CELLSTAR cellular telephones and accessories for 124,187 [approved for
cellular telephones such as mounting 03/01/94 publication]
brackets, antenna, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, headphones, and remote
listening and speaking devices, their
parts and fittings in class 9
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
10/13/97
CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ FILING REG. NO./ RENEWAL DATE/ *OTHER
DATE REG. DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pakistan CELLSTAR repair and maintenance services for [in preparation]
celular telephones and wireless
telecommunication equipment and their
accessories (class 37)
- ------------------------------------------------------------------------------------------------------------------------------------
Pakistan CELLSTAR cellular telephones and wireles [in preparation]
telecommunication services (class 38)
- ------------------------------------------------------------------------------------------------------------------------------------
Paraguay CELLSTAR communications apparatus in general and 9,303,636/ 165,440 11/16/2003
especially antennas and receivers for 11/16/93 7/25/95
television channels via satellite in
class 9
- ------------------------------------------------------------------------------------------------------------------------------------
Peru CELLSTAR scientific, nautical surveying and 221,226 6821 04/22/2004
(with design) electrical apparatus and instruments
(including wireless), photographic,
cinematographic, optical, weighing,
measuring signaling, checking,
(supervision), lifesaving and teaching
apparatus and instruments; coil or
counterfredd (sic) apparatus; talking
machines; cash registers; calculating
machines, fire extinguishing apparatus
including parts and accessories (class 9)
- ------------------------------------------------------------------------------------------------------------------------------------
Philippines CELLSTAR cellular telephones sold to cellular 840930- [approved for
telephone service subscribers and 00095628-PN/ publication]
accessories for use with cellular 09/30/94
telephones; namely, mounting brackets,
antennas, antenna mounts, batteries,
battery chargers, battery eliminators,
input and output jacks, carrying cases,
headphones, remote listening and speaking
devices (class 9)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
10/13/97
CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ REG. RENEWAL DATE/
FILING DATE DATE *OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Philippines CELLULAR EXPRESS (and design) class 9 - cellular telephones and 107,227
accessories for cellular telephones, 04/03/96
namely mounting brackets, antennas,
antenna mounts, batteries, battery
chargers, battery eliminators, input and
output jackets, carrying cases,
headphones, remote listening and speaking
devices
- ------------------------------------------------------------------------------------------------------------------------------------
Singapore CELLSTAR cellular telephones and cellular 6959/94
telephone accessories such as mounting 08/11/94
brackets, antennas, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, headphones, remote
listening and speaking devices and their
parts and fittings (class 9)
- ------------------------------------------------------------------------------------------------------------------------------------
Singapore CELLSTAR Cellular telephones, wireless 5069/97
SHE LE SHI DA (Chinese telecommunication apparatus for cellular 05/02/97
Characters) telephones and wireless telecommunication
apparatus such as mounting brackets,
antennas, antenna mounts, batteries,
battery charges, battery eliminators,
input and output jacks, carrying cases,
headphones, remote listening and
speacking devices; parts and fittings for
the aforesaid goods; all included in
class 9
- ------------------------------------------------------------------------------------------------------------------------------------
Singapore CELLSTAR Cellular telephone and wireless 0570/97
SHE LE SHI DA telecommunication services provided by a 05/02/97
(Chinese Characters) third party; (class 38)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
10/13/97
CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Singapore CELLSTAR Repair and maintenance services for 12899/96
cellular telephones and other wireless 11/29/96
telecommunication equipment (class 37)
- ------------------------------------------------------------------------------------------------------------------------------------
Singapore CELLSTAR Cellular telephone and wireless 12900/96
telecommunication services provided by a 11/29/96
third party; (class 38)
- ------------------------------------------------------------------------------------------------------------------------------------
Singapore CELLSTAR retail outlets featuring cellular 12901/96
telephones, wireless telecommunication 11/29/96
equipment and accessories for cellular
telephones and wireless communication
equipment; and wholesale distribution
services fetureing cellular telephones,
wireless telecommunication equipment and
related accessories (class 42)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
10/13/97
CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
South Africa CELLULAR EXPRESS scientific, nautical, surveying, 9,503,360/
(and design) electric, photographic, cinematographic, 03/17/95
optical, weighing, measuring, signaling,
checking (supervision), life-saving and
teaching apparatus and instruments;
apparatus for recording, transmission or
reproduction of sound or images;
telecommunication devices of all kinds
included in the class including mobile
and cellular telephones and devises and
their accessories; magnetic date
carriers, recording discs; automatic
vending machines and mechanisms for
coin-operated apparatus; cash registers,
calculating machines, data processing
equipment and computers;
fire-extinguishing apparatus (class 9)
- ------------------------------------------------------------------------------------------------------------------------------------
South Africa CELLULAR EXPRESS communication services in relation to 9,503,361/
(and design) mobile and cellular telephones and 03/17/95
devices and their accessories (class 38)
- ------------------------------------------------------------------------------------------------------------------------------------
South Africa CELLULAR EXPRESS wholesale, retail, mail-order, 9,503,362/
(and design) distribution and subscription services 03/17/95
all relating to mobile and cellular
telephones and devices and their
accessories (class 42)
- ------------------------------------------------------------------------------------------------------------------------------------
Spain CELLSTAR cellular telephones and accessories for 1,744,587/ 1,744,587/ 02/15/2003
cellular telephones in class 9 02/15/93 04/20/94 *02/28/98 Second
tax due
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
10/13/97
CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sri Lanka CELLSTAR (and cellular telephones and accessories for 73904/
design) cellular telephones, including mounting 04/06/95
brackets, antennas, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, headphones and remote
listening and speaking devices (class 9)
- ----------------------------------------------------------------------------------------------------------------------------------
Sri-Lanka CELLSTAR (and class 38 [in
design) preparation]
- ----------------------------------------------------------------------------------------------------------------------------------
Sri-Lanka CELLSTAR class 42 [in
(and design) preparation]
- ----------------------------------------------------------------------------------------------------------------------------------
Taiwan CELLSTAR cellular telephones and accessories for (84) 029970/ [published
cellular telephones, namely mounting 06/16/95 05/16/97]
brackets, antennas, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jackets,
carrying cases, headphones, remote
listening and speaking devices in class 9
- ---------------------------------------------------------------------------------------------------------------------------------
Taiwan CELLSTAR (stylized) services as an agent for the (86) 012806/
sale/distribution of cellular telephones 04/16/97
and parts thereof in class 35
- ---------------------------------------------------------------------------------------------------------------------------------
Taiwan CELLSTAR Chinese services as an agent for the (86) 018205/
transliteration sale/distribution of cellular telephones 04/16/97
"Shih-Lo-Shyh-Ta" and parts thereof in class 35
- ---------------------------------------------------------------------------------------------------------------------------------
Taiwan CELLULAR EXPRESS (and cellular telephones and accessories for (84)029969/ [published
design) cellular telephones, namely mounting 06/16/95 06/01/97]
brackets, antennas, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jackets,
carrying cases, headphones, remote
listening and speaking devices in class 9
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
10/13/97
CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Thailand CELLSTAR (stylized) cellular telephones and accessories for 276,536/
cellular telephones in class 9 11/25/94
- ----------------------------------------------------------------------------------------------------------------------------------
Uruguay CELLSTAR all goods in classes 9, 38 and 42 279,888/ 279,888
07/31/95 (approved
04/29/97
registration
certificate not
yet received)
- ----------------------------------------------------------------------------------------------------------------------------------
Venezuela AMIGO DE CELL STAR insurance and financial services in 96014598 [published
*(Note 2) class 36 09/02/96 03/07/97
- ----------------------------------------------------------------------------------------------------------------------------------
Venezuela AMIGO DE CELL STAR communications in class 38 96014597 [published
*(Note 2) 09/02/96 030797]
- ----------------------------------------------------------------------------------------------------------------------------------
Venezuela CELLSTAR (stylized) cellular telephones and accessories 3011/ [published
for cellular telephones (accessories 02/26/93 11/01/94]
include antennas, antenna mounts,
antenna passive repeater, batteries,
battery chargers, battery charger clips
and battery charger Y-adapters) (class 9)
- ----------------------------------------------------------------------------------------------------------------------------------
Venezuela MOVISTAR DE CELL STAR insurance and financial services in 96014595 [published
*(Note 2) class 36 09/02/96 03/07/97]
- ----------------------------------------------------------------------------------------------------------------------------------
Venezuela MOVISTAR DE CELL STAR communications in class 38 96014594 [published
*(Note 2) 09/02/96 03/07/97]
- ----------------------------------------------------------------------------------------------------------------------------------
Venezuela SISTEMA AMIGO CELL STAR insurance and financial services in 96016221 [published
*(Note 2) class 36 09/27/96 03/07/97]
- ----------------------------------------------------------------------------------------------------------------------------------
Venezuela SISTEMA AMIGO CELL STAR communications in class 38 96016218 [published
*(Note 2) 09/27/96 03/07/97]
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 2: Filed by Venezuelan affiliate (Cellstar Celular C.A.); information in
schedule based on information received from local associate
18
<PAGE>
10/13/97
CELLSTAR, LTD. FOREIGN TRADEMARKS
---------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Vietnam CELLSTAR (and design) cellular telephones and accessories for 16,487/ 13868 12/21/2003
cellular telephones, including mounting 12/21/93 10/22/94
brackets, antennas, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, headphones and remote
listening and speaking devices (class 9)
- ----------------------------------------------------------------------------------------------------------------------------------
Vietnam CELLSTAR (and design) class 38 [in
preparation]
- ----------------------------------------------------------------------------------------------------------------------------------
Vietnam CELLSTAR (and design) class 42 [in
preparation]
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
10/13/97
CELLSTAR, LTD. US TRADEMARKS
----------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACCESSORY cellular telephones and accessories for 74/677,425 2,007,790 10/05/2006
PREFORMANCE PAC cellular telephones, namely batteries, 05/17/95 10/15/96 *10/15/2002 - (S)8
battery eliminators leather cases in and 15 Affidavits
class 9, leather cases, in class 18
- -----------------------------------------------------------------------------------------------------------------------------------
BACKED BY THE wholesale distributorships featuring (in
BEST cellular telephones and accessories. preparation)
- -----------------------------------------------------------------------------------------------------------------------------------
CELLSTAR cellular telephones sold to cellular 74/354,588 1,835,240 05/10/2004
telephone service subscribers and 02/01/93 05/10/94 *05/10/2000 - (S)8
accessories for use with cellular and 15 Affidavits
telephones; namely, mounting brackets,
antennas, antenna mounts, batteries,
battery chargers, battery eliminators,
input and output jacks, carrying cases,
headphones, remote listening and speaking
devices, in class 9
- -----------------------------------------------------------------------------------------------------------------------------------
CELLSTAR w/globe wholesale distributing services 74/489,103 1,896,626 5/30/2005
logo featuring cellular telephones and 2/14/94 5/30/95 *5/30/2001 - (S)8
related accessories, in class 42 and 15 Affidavits
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
10/13/97
CELLSTAR, LTD. US TRADEMARKS
----------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CELLSTAR (stylized) cellular telephones sold to cellular 74/651,394 1,976,263 05/28/2006
telephone service subscribers and 03/24/95 05/28/96 *05/28/2001 - (S)8
accessories for use with cellular and 15 Affidavits
telephones, namely mounting brackets,
antennas, antenna mounts, batteries,
battery chargers, battery eliminators,
input and output jacks, carrying cases,
headphones, remote listening and speaking
devices in class 9, cellular telephone
communication services, in class 38,
retail outlets featuring cellular
telephones, and accessories for cellular
telephones and cellular telephone
subscription contracts; and wholesale
distributing services featuring cellular
telephones and related accessories, in
class 42
- ------------------------------------------------------------------------------------------------------------------------------------
CELLULAR PHONE providing subscription contracts for 74/577,186 1,967,868 04/16/2006
CENTER and design cellular telephone communication 09/22/94 04/16/96 *04/16/2002 - (S)8
services, provided by a third party, in and 15 Affidavits
class 38, retail outlets featuring
cellular telephones and cellular
telephone subscription contracts, in
class 42
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
10/13/97
CELLSTAR, LTD. US TRADEMARKS
----------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMUNICATION providing subscription contracts for and 74/582,145 2,016,191 11/12/2006
CENTER (stylized) activation of cellular telephone 10/03/94 11/12/96 *11/12/2002- (S)8
communication services, provided by a and 15 Affidavits
third party, in class 38, retail outlets
featuring cellular telephones,
accessories for cellular telephones and
cellular telephone subscription contracts
in class 42
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMUNICATION CENTER promoting the telecommunications goods 75/028,757 Statement of Use
AFFILIATES (stylized) and services of itself and others by 12/01/95 Due 11/28/97
means of promoting memberships in third
party discount merchandising clubs, in
class 35
- ------------------------------------------------------------------------------------------------------------------------------------
ESSENTIALS CELLULAR cellular telephone accessories, namely 74/686,976 2,086,312 08/05/2007
ACCESSORIES (stylized) antennas, batteries, battery eliminators, 06/12/95 08/05/97 *09/05/2003 (S)8 and
battery chargers, carrying cases and 15 Affidavits
mounting apparatus and hardware therefor
in class 9
- ------------------------------------------------------------------------------------------------------------------------------------
ESSENTIALS CELLULAR whole distributing services featuring 74/686,975 1,985,444 07/09/2006
ACCESSORIES (stylized) accessories related to cellular 06/12/95 07/09/96 *07/09/2002 (S)8 and
telephones in class 42 15 Affidavits
- ------------------------------------------------------------------------------------------------------------------------------------
FULLFILLING A WIRELESS wholesale distributorship services 74/874,551 2,007,764 10/15/2006
WORLD featuring cellular telephones and related 05/18/95 10/15/96 *10/15/2002- (S)8 and
accessories, in class 42 15 Affidavits
- ------------------------------------------------------------------------------------------------------------------------------------
FULFILLING YOUR WIRELESS cellular telephone communication services 74/603,603 2,005,075 10/01/2006
WORLD in class 38, Wholesale distributorships 11/28/94 10/01/96 *10/01/2002- (S)8 and
featuring cellular telephones, 15 Affidavits
accessories for cellular telephones and
cellular telephone subscription contracts
in class 42
</TABLE>
3
<PAGE>
10/13/97
CELLSTAR, LTD. US TRADEMARKS
----------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTELLIGENT FAST CHARGER cellular telephone battery chargers, in 74/559,265 1,968,988 04/16/2006
class 9 08/10/94 04/16/96 *4/16/2002 - (S)8
and 15 Affidavits
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTERACT (stylized) video terminals used in retail outlets 74/663,849 2,084,473 07/29/97
for the selection and configuration of 04/20/95 07/29/2003 07/29/2007 - (S)8
wireless telecommunications equipment, in and 15 Affidavits
class 9, custom design of video terminals
used in retail outlets for the selection
and configuration of wireless
telecommunications equipment, in class 42
- -----------------------------------------------------------------------------------------------------------------------------------
INTERACT INTERACTIVE video terminals used in retail outlets 74/663,850 2,065,618 05/27/2007
ASSISTANT FOR for the selection and configuration of 04/20/95 05/27/97 *05/27/2003- (S)8
COMMUNICATION TECHNOLOGY wireless telecommunications equipment, in and 15 Affidavits
class 9, custom design of video terminals
used in retail outlets for the selection
and configuration of wireless
telecommunications equipment, in class 42
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
10/13/97
CELLSTAR, LTD. US TRADEMARKS
----------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NATIONAL AUTO CELLULAR service activation and subscription 75/015,298 [published for
(and design) contracts for cellular telephone 11/06/95 opposition
communication services in class 38; 09/30/97]
retail outlets featuring cellular
telephones, accessories for cellular
telephones and services activation and
subscription contracts for cellular
telephone communication services in class
35
- ------------------------------------------------------------------------------------------------------------------------------------
NATIONAL COMMUNICATION subscription contracts for cellular 74/582,146 Statement of Use Due
(and design) telephone communication services in class 10/03/94 12/24/97
38; retail outlets featuring cellular
telephones, accessories for cellular
telephones and cellular telephone
subscription contracts in class 42
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TWO NAMES YOU CAN cellular telephone communication services 74/483,718 1,875,583 01/24/2005
CLEARLY COUNT ON in class 38, retail outlets featuring 01/28/94 01/24/95 *01/24/2001 - (S)8
cellular telephones and cellular and 15 Affidavits
telephone subscription contracts, in
class 42
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
10/13/97
CELLSTAR PACIFIC PTE LTD. TRADEMARKS
------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Saudi Arabia CELLSTAR cellular telephones and accessories 30267 383/12 04/01/2005
(accessories can include mounting 07/30/95 09/09/96
brackets, antennas, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, headphones, remote
listening and speaking devices) (class 9)
- -----------------------------------------------------------------------------------------------------------------------------------
Saudi Arabia CELLSTAR services for business management 39268 383/13 04/01/2005
assistance for the sale of goods, sale 07/30/95 09/09/96
promotion services, demonstration of
goods, distribution of samples and shop
window dressing services (class 35)
- -----------------------------------------------------------------------------------------------------------------------------------
Saudi Arabia CELLSTAR cellular telephone service subscription 30269 383/14 04/01/2005
contracts (class 38) 07/30/95 09/09/96
- -----------------------------------------------------------------------------------------------------------------------------------
United Arab CELLSTAR cellular telephones and accessories 10680
Emirates (accessories can include mounting 05/20/95
brackets, antennas, antenna mounts,
batteries, battery chargers, battery
eliminators, input and output jacks,
carrying cases, headphones, remote
listening and speaking devices) (class 9)
- ----------------------------------------------------------------------------------------------------------------------------------
United Arab CELLSTAR cellular telephone communication services 10681
Emirates (class 38) 05/20/95
- ----------------------------------------------------------------------------------------------------------------------------------
United Arab CELLSTAR retail outlets featuring cellular 10682
Emirates telephones and accessories for cellular 05/20/95
telephones and cellular telephone
subscription contract; and wholesale
distributing services featuring cellular
telephones and related accessories (class
42)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
10/13/97
CELLULAR EXPRESS, S.A. de C.V. TRADEMARKS*
-----------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mexico CELLULAR EXPRESS services lent for warehouse buying in 159,172
(and design) bulk and selling retail, and particularly 01/25/93
dedicated to the selling of cellular
telephones and their parts and
accessories in class 42
- -----------------------------------------------------------------------------------------------------------------------------
Mexico CELLULAR EXPRESS (description of goods not available) in 165,316
class 42 04/14/93
- -----------------------------------------------------------------------------------------------------------------------------
Mexico CELLULAR EXPRESS (description of goods not available) in 159,238
(and design) class 9 01/26/93
- -----------------------------------------------------------------------------------------------------------------------------
Mexico CELLULAR EXPRESS services of repair and maintenance for 135,932 419,106 03/24/2002
(and design) cellular telephones, pieces of sound 03/24/92 08/03/92
equipment for automobiles, and pieces of
security for automobiles and the
accessories and repair of the previous
products in class 37
- -----------------------------------------------------------------------------------------------------------------------------
Mexico CELLULAR EXPRESS sale of services of cellular telephones, 135,933
(and design) pieces of sound equipment for 03/24/92
automobiles, pieces of security equipment
for automobiles, accessories and
refreshment for the previous products in
class 42
- -----------------------------------------------------------------------------------------------------------------------------
Mexico CELLULAR EXPRESS communications in class 37 302,740
MUCHO MAS QUE 07/29/97
TELEFONIA CELLULAR
(and design) [CELLULAR
EXPRESS HAS MUCH MORE
THAN JUST CELLULAR
TELEPHONES]
- -----------------------------------------------------------------------------------------------------------------------------
Mexico CELLULAR ONE (description of goods not available) in 143,548
class 9 06/30/92
- -----------------------------------------------------------------------------------------------------------------------------
Mexico CELLULAR ONE (description of goods not available) in 143,546
class 37 06/30/92
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
10/13/97
CELLULAR EXPRESS, S.A. de C.V. TRADEMARKS*
-----------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO/ REG. NO./ RENEWAL DATE/
FILING DATE REG. DATE *OTHER
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mexico CELLULAR ONE (description of goods not available) in 143,545
class 42 06/30/92
- --------------------------------------------------------------------------------------------------------------------------
Mexico CELL STAR (and pieces of equipment or instruments 165,557 474,925 04/16/2003
design) scientific nautical, of surveying, of 04/16/93 09/27/94
weight, of measurement, of signal
(lighted marker) of control (inspection),
of held (aid) and of teaching; pieces
transmittal, reproduction of the sound or
the images; supports of magnetic
registers acoustic discs; automatic
distributors and mechanics for pieces of
equipment of previous pay, cash registers,
calculator machines, equipment of the
treatment of the information (data
process) and the computers' extinguisher,
with exclusive express of the cellular
telephones in class 9
- --------------------------------------------------------------------------------------------------------------------------
Mexico CELL STAR (and construction and repair services in class 167,739 446,979 05/14/2003
design) 37 05/14/93 11/23/93
- --------------------------------------------------------------------------------------------------------------------------
Mexico CELL STAR (and services lent for warehouse buying in 167,738 446,978 05/14/2003
design) bulk and selling retail, and particularly 05/14/93 11/23/93
dedicated to the selling of cellular
telephones and their parts and
accessories in class 42
- --------------------------------------------------------------------------------------------------------------------------
Mexico CELL STAR (and cellular telephones in class 9 160,775 440,077 02/15/2003
design) 02/15/93 08/19/93
- --------------------------------------------------------------------------------------------------------------------------
Mexico CELLULAR EXPRESS trade name 440,077
S.A. de C.V. 06/02/94
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Based on information provided to Sroufe, Payne & Lundeen, L.L.P. by a third
party which may be incomplete or inaccurate; while Sroufe, Payne & Lundeen,
L.L.P. has taken every effort to present the information available as
accurately and completely as possible, Sroufe, Payne & Lundeen, L.L.P.
takes no responsibility for the completeness or accuracy of the information
herein.
2
<PAGE>
SCHEDULE 10.2
-------------
EXISTING LIENS
--------------
<TABLE>
<CAPTION>
DEBTOR JURISDICTION SECURED PARTY FILE NO FILE DATE COLLATERAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
National Auto Center, Inc. S/S Florida Citicorp Dealer 96-211524 10/07/96 1996 Mitsubishi PMWR
Finance #30198
- ------------------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Florida Citicorp Dealer 97-008867 1/13/97 1996 Pettibone #352948
CellStar Finance
- ------------------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Shannon Corp. 93-90829 5/10/93 Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Citicorp Corp. 93-102461 5/24/93 Sch not on file with S/S
- ------------------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas European American 94-30859 2/17/94 Equipment
Bank
- ------------------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Shannon Corp. 94-113649 6/9/94 Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Shannon Corp. 94-148847 7/28/94 Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas IBM Corp. 95-6283 1/10/95 Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas IBM Corp. 95-6284 1/10/95 Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas European American 95-39185 2/27/95 Equipment
Bank
- ------------------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Citicorp Dealer 96-202240 10/10/96 1996 Mitsubishi PMWR
Finance #30198
- ------------------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Shannon Corp. 96-254520 12/27/96 Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Citicorp Dealer 97-20214 02/03/97 1996 Pettibone #352948
Finance
- ------------------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Raymond Leasing 97-104133 5/29/97 Equipment
CellStar, Ltd. Corp.
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar West, Inc. S/S California Lucent Technologies 9430260066 10/6/94 AT&T Inventory
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar West, Inc. S/S California Bay Area Cellular 9610860112 4/16/96 Equipment, Inventory,
consignment
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas GTE Leasing Corp. 95-61910 3/20/95 Telephone equipment
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas Computer Sales Int'l 95-76492 4/18/95 Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas European American 95-77664 4/20/95 Equipment Lease
Bank
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Schedule 10.2 - Existing Liens 1
<PAGE>
SCHEDULE 10.2
-------------
EXISTING LIENS
--------------
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
National Auto Center, Inc. S/S Florida Citicorp Dealer 96-211524 10/07/96 1996 Mitsubishi PMWR
Finance #30198
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar Ltd. S/S Texas Shannon Corp. 95-82654 4/27/95 Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas First Interstate Bank /1/ 95-104339 5/26/95 Real Property, fixtures
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas USL Capital Corp. 95-174786 9/8/95 Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas Computer Sales Int'l 95-211875 11/1/95 Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas American Business 95-233005 12/4/95 Equipment
Credit Corp.
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas American Business 96-134429 7/8/96 Equipment
Credit Corp.
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas AT&T Leasing 96-201879 10/10/96 Equipment
Systems
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas Raymond Leasing 97-104133 5/19/97 Equipment
National Auto Center, Inc. Corp.
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar S/S Florida Citicorp Dealer 97-008867 1/13/97 1996 Pettibone #352948
Finance
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar Corporation Harris Co., Texas Houston Westpark 874662 12/13/93 Furniture, Requipment,
Warehouse Inventory
- ------------------------------------------------------------------------------------------------------------------------------------
CellStar Corporation S/S Texas Houston Westpark 93-226388 11/29/93 Furniture, Equipment,
Warehouse Inventory
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
_________________________
/1/ Indebtedness secured by this loan has been paid in full and releases are
being processed.
Schedule 10.2 - Existing Liens 2
<PAGE>
SCHEDULE 10.2
-------------
EXISTING LIENS
--------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
DEBTOR JURISDICTION SECURED PARTY FILE NO FILE DATE COLLATERAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
National Auto Center, Inc. S/S Florida Citicorp Dealer 96-211524 10/07/96 1996 Mitsubishi PMWR
Finance #30198
- ---------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Florida Citicorp Dealer 97-008867 1/13/97 1996 Pettibone #352948
CellStar Finance
- ---------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Shannon Corp. 93-90829 5/10/93 Equipment
- ---------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Citicorp Corp. 93-102461 5/24/93 Sch not on file with S/S
- ---------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas European American 94-30859 2/17/94 Equipment
Bank
- ---------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Shannon Corp. 94-113649 6/9/94 Equipment
- ---------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Shannon Corp. 94-148847 7/28/94 Equipment
- ---------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas IBM Corp. 95-6283 1/10/95 Equipment
- ---------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas IBM Corp. 95-6284 1/10/95 Equipment
- ---------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas European American 95-39185 2/27/95 Equipment
Bank
- ---------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Citicorp Dealer 96-202240 10/10/96 1996 Mitsubishi PMWR
Finance #30198
- ---------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Shannon Corp. 96-254520 12/27/96 Equipment
- ---------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Citicorp Dealer 97-20214 02/03/97 1996 Pettibone #352948
Finance
- ---------------------------------------------------------------------------------------------------------------------------
National Auto Center, Inc. S/S Texas Raymond Leasing 97-104133 5/29/97 Equipment
CellStar, Ltd. Corp.
- ---------------------------------------------------------------------------------------------------------------------------
CellStar West, Inc. S/S California Lucent Technologies 9430260066 10/6/94 AT&T Inventory
- ---------------------------------------------------------------------------------------------------------------------------
CellStar West, Inc. S/S California Bay Area Cellular 9610860112 4/16/96 Equipment, Inventory,
consignment
- ---------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas GTE Leasing Corp. 95-61910 3/20/95 Telephone equipment
- ---------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas Computer Sales Int'l 95-76492 4/18/95 Equipment
- ---------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas European American 95-77664 4/20/95 Equipment Lease
Bank
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Schedule 10.2- Existing Liens 1
<PAGE>
SCHEDULE 10.2
-------------
EXISTING LIENS
--------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
NATIONAL AUTO CENTER, INC. S/S FLORIDA CITICORP DEALER 96-211524 10/07/96 1996 MITSUBISHI PMWR
FINANCE #30198
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CellStar Ltd. S/S Texas Shannon Corp. 95-82654 4/27/95 Equipment
- ---------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas First Interstate Bank /1/ 95-104339 5/26/95 Real Property, fixtures
- ---------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas USL Capital Corp. 95-174786 9/8/95 Equipment
- ---------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas Computer Sales Int'l 95-211875 11/1/95 Equipment
- ---------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas American Business 95-233005 12/4/95 Equipment
Credit Corp.
- ---------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas American Business 96-134429 7/8/96 Equipment
Credit Corp.
- ---------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas AT&T Leasing 96-201879 10/10/96 Equipment
Systems
- ---------------------------------------------------------------------------------------------------------------------------
CellStar, Ltd. S/S Texas Raymond Leasing 97-104133 5/19/97 Equipment
National Auto Center, Inc. Corp.
- ---------------------------------------------------------------------------------------------------------------------------
CellStar S/S Florida Citicorp Dealer 97-008867 1/13/97 1996 Pettibone #352948
Finance
- ---------------------------------------------------------------------------------------------------------------------------
CellStar Corporation Harris Co., Texas Houston Westpark 874662 12/13/93 Furniture, Requipment,
Warehouse Inventory
- ---------------------------------------------------------------------------------------------------------------------------
CellStar Corporation S/S Texas Houston Westpark 93-226388 11/29/93 Furniture, Equipment,
Warehouse Inventory
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
________________________
/1/ Indebtedness secured by this loan has been paid in full and releases
are being processed.
Schedule 10.2- Existing Liens 2
<PAGE>
EXHIBIT 10.15
CELLSTAR CORPORATION
1993 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN
--------------------------------------------------
(as amended and restated through January 13, 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 January 13,
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
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For purposes of the Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
<PAGE>
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.
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,
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however, that, notwithstanding the foregoing, an acquisition shall not
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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)
2
<PAGE>
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 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
3
<PAGE>
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 2.3
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.
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.
4
<PAGE>
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.
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
5
<PAGE>
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 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 Mandate Restrictions with respect to outstanding
Awards.
6
<PAGE>
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 2,000,000 (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.
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
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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.
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<PAGE>
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 month 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 (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.
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<PAGE>
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.
(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.
9
<PAGE>
(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 from 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 vote the shares, and the right to receive any dividends thereon,
subject to forfeiture of such rights, as provided in subparagraph (f)
below.
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(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 clause (ii) of this sentence and ending on the twelfth day
following such date, unless the exercise by the participant of the SAR
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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 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.
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(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) 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
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<PAGE>
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 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;
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(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 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 be 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
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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.
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.
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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.
16.4 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
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<PAGE>
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.
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 Dallas, Texas.
19
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
as of January 13, 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
20
<PAGE>
EXHIBIT 10.18
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of June
---------
2, 1995, between Hong An Hsien ("Mr. Hong") and CellStar Corporation (the
--------
"Company").
-------
R E C I T A L S
---------------
A. CellStar International Corporation\Asia ("CellStar Asia"), C-Mart USA
-------------
Corporation ("C-Mart"), Jemsem International Corp. ("Jemsem"), and Mr. Hong
------ ------
are parties to an Asset Purchase Agreement dated as of May 31, 1995 (the
"Asset Purchase Agreement"), pursuant to which CellStar Asia has purchased
------------------------
specified assets of C-Mart and Jemsem.
B. In consideration of the transactions described in the Asset Purchase
Agreement, the Company now wishes to grant to Mr. Hong registration rights
in 1,000,000 of the shares of Common Stock, par value $0.01 (the "Stock"),
-----
of the Company held by Mr. Hong, represented by certificate number _____.
A G R E E M E N T
-----------------
Based on the foregoing and the mutual promises contained herein, the
parties agree as follows:
Registration of the Stock
-------------------------
1. Incidental Registration. If the Company proposes to file a
-----------------------
registration statement pursuant to the Securities Act of 1933 (the "1933 Act")
--------
under Form S-1, S-2, S-3, or any similar form, then the Company shall use its
reasonable best efforts to include under such registration statement all shares
of the Stock that Mr. Hong may request, limited to:
(i) One registration statement that becomes effective under the Securities
Act in which Mr. Hong is not subject to reduction in clause (ii)
below; and
(ii) Stock not in an amount in excess of an amount that will, in the
opinion of the managing underwriter of any offering, adversely affect
such offering;
2. Cutback. If Mr. Hong is required, pursuant to clause (ii) above, to
-------
reduce the number of shares of Stock registered, then persons requesting
registration of shares pursuant to registration rights that are not subject to
reduction shall first be permitted to register their shares. Mr. Hong shall be
permitted to register a fraction of all shares then remaining available for
registration, if any, equal to the quotient of
<PAGE>
the number of shares for which Mr. Hong has requested registration, divided by
the total of the number of shares for which Mr. Hong has requested registration
plus all other shares for which other stockholders have requested registration
and that are subject to reduction.
3. Conditions to Registration. (a) As a condition to Mr. Hong's
--------------------------
participation in any underwritten offering, Mr. Hong shall (i) execute the
underwriting agreement agreed on by the Company and the underwriter, (ii) pay
his pro rata share of offering expenses, all underwriting discounts, selling
commissions and transfer taxes applicable to his shares and the fees of his own
counsel, if any, and (iii) cooperate with, and provide information to, the
Company in connection with the preparation of the registration statement and the
sale of stock contemplated thereby.
(b) As a condition to Mr. Hong's participation in any registration that is
not an underwritten offering, Mr. Hong shall (i) pay his pro rata share of
offering expenses and transfer taxes applicable to his shares and the fees of
his own counsel, if any, and (ii) cooperate with, and provide information to,
the Company in connection with the preparation of the registration statement and
the sale of stock contemplated thereby.
4. Governing Law. This Agreement shall be interpreted and the rights of
-------------
the parties determined in accordance with the laws of the United States
applicable thereto and the laws of the State of Texas without reference to
principles of conflict of laws.
5. Successors. The provisions hereof shall inure to the benefit of, and
----------
be binding upon, the successors, heirs, executors and administrators of the
parties hereto. This agreement is not assignable.
6. Entire Agreement; Amendment. This Agreement constitutes the full and
---------------------------
entire understanding and agreement between the parties with regard to the
subject matter hereof. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated,
except by a written instrument signed by the parties hereto.
7. Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be mailed by first-class mail, postage
prepaid, or delivered by hand, messenger or reputable overnight courier, and
shall be deemed given when received at the addresses of the parties set forth
below, or at such other address furnished in writing to the other parties
hereto.
-2-
<PAGE>
If to the Company: CellStar Corporation
1730 Briercroft Court
Carrollton, Texas 75006
Attn: Elaine F. Rodriguez
If to Mr. Hong: 81 Ching Chian Road
Peitou, Taipei Taiwan ROC
8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
9. Choice of Forum. Any lawsuit, controversy, dispute or other
---------------
proceeding in respect of this Agreement shall be adjudicated by any court of
competent jurisdiction sitting in Dallas County in the State of Texas. For such
purposes, the parties to this Agreement hereby submit and consent to the
jurisdiction of such courts.
* * * * *
-3-
<PAGE>
This Agreement has been executed and delivered as of the date first written
above.
/s/ Hong An Hsien
-------------------------------------
Hong An Hsien
CELLSTAR CORPORATION
By: /s/ Alan H. Goldfield
----------------------------------
Name: Alan H. Goldfield
---------------------------
Title: Chief Executive Officer
---------------------------
-4-
<PAGE>
EXHBIT 21.1
LIST OF SUBSIDIARIES AND FOREIGN AFFILIATES
-------------------------------------------
AND PERCENTAGE OF CELLSTAR CORPORATION'S OWNERSHIP/1/
-----------------------------------------------------
[as of February 23, 1998]
Name of Subsidiary Incorporation
- ------------------ -------------
National Auto Center, Inc. Delaware
CellStar Financo, Inc. Delaware
CellStar Air Services, Inc. Delaware
A&S Air Service, Inc. Delaware
CellStar Telecom, Inc. Delaware
Topp Telecom, Inc./2/ Florida
CellStar Ireland Ireland
CellStar Fulfillment, Inc. Delaware
NAC Holdings, Inc. Nevada
CellStar Holding AB Sweden
CellStar - Intercall AB Sweden
CellStar West, Inc./3/ Delaware
Florida Properties, Inc. Texas
CellStar, Ltd. Texas Limited Partnership
CellStar Fulfillment, Ltd. Texas Limited Partnership
- ------------------------
/1/ 100%, unless otherwise stated.
/2/ 18%. Have subscribed for an additional 12% of outstanding
stock.
/3/ 80% owned
<PAGE>
LIST OF SUBSIDIARIES AND FOREIGN AFFILIATES
-------------------------------------------
AND PERCENTAGE OF CELLSTAR CORPORATION'S OWNERSHIP
--------------------------------------------------
[as of February 23, 1998]
Name of Subsidiary Incorporation
- ------------------ -------------
CellStar International Corporation/SA Delaware
CellStar, S.A. Argentina
CellStar International Telefonia
Celular Ltda. Brazil
CellStar Industria da Telefonia
da Amazonia Ltda. Brazil
CellStar do Brasil Ltda./4/ Brazil
CellStar Celular Chile, S.A. Chile
CellStar de Colombia, S.A. Colombia
CellStar Ecuador, S.A. Ecuador
CellStar (UK) Ltd. United Kingdom
CellStar Europe Ltd. United Kingdom
CellStar Celular, S.A. Venezuela
ACC-CellStar, Inc./5/ Delaware
Audiomex Export Corp. Texas
Celular Express S.A. de C.V. Mexico
Celular Express Management
S.A. de C.V. Mexico
- -------------------------
/4/ 51% owned.
/5/ 80% owned.
2
<PAGE>
LIST OF SUBSIDIARIES AND FOREIGN AFFILIATES
-------------------------------------------
AND PERCENTAGE OF CELLSTAR CORPORATION'S OWNERSHIP
--------------------------------------------------
[as of February 23, 1998]
Name of Subsidiary Incorporation
- ------------------ -------------
CellStar International Corporation/Asia Delaware
CellStar Pacific Pte. Ltd. Singapore
CellStar Amtel Sdn Bhd/6/ Malaysia
CellStar Philippines, Inc. Philippines
CellStar Telecommunication
Taiwan Co Ltd. Taiwan
CellStar (Asia) Corporation Limited Hong Kong
Shanghai CellStar International
Trading Co. Ltd. PRC
CellStar Telecommunications
Service (Asia) Limited/7/ Hong Kong
CellStar Singapore Pte Ltd Singapore
HCL-CellStar Ltd./8/ India
- ------------------------
/6/ 30% directly owned and 19% beneficially owned.
/7/ 60% owned.
/8/ 50% owned.
3
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
CellStar Corporation:
We consent to incorporation by reference in the registration statements on Form
S-8 (Nos. 33-87754 and 333-23381) and Form S-3 (No. 333-41753) of CellStar
Corporation of our report dated January 13, 1998, relating to the consolidated
balance sheets of CellStar Corporation and subsidiaries as of November 30, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
November 30, 1997, and the related schedule, which report appears in the
November 30, 1997 annual report on Form 10-K of CellStar Corporation.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
February 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<CASH> 74,646
<SECURITIES> 0
<RECEIVABLES> 199,889
<ALLOWANCES> 23,857
<INVENTORY> 190,404
<CURRENT-ASSETS> 446,200
<PP&E> 34,009
<DEPRECIATION> 11,132
<TOTAL-ASSETS> 497,111
<CURRENT-LIABILITIES> 186,246
<BONDS> 150,000
0
0
<COMMON> 293
<OTHER-SE> 160,572
<TOTAL-LIABILITY-AND-EQUITY> 497,111
<SALES> 1,482,814
<TOTAL-REVENUES> 1,482,814
<CGS> 1,325,488
<TOTAL-COSTS> 77,080
<OTHER-EXPENSES> (2,725)
<LOSS-PROVISION> 4,239
<INTEREST-EXPENSE> 7,776
<INCOME-PRETAX> 70,956
<INCOME-TAX> 17,323
<INCOME-CONTINUING> 53,633
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,633
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 0
</TABLE>
