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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 Commission File Number
Ended November 30, 1999 0-22972
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CELLSTAR CORPORATION
(Exact name of registrant as specified in its charter)
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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)
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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 22, 2000, the aggregate market value of the voting stock held by
nonaffiliates of the Company was approximately $346,965,660, based on the
closing sale price of $8.813 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 22, 2000, there were 60,112,096 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 2000 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
------
<S> <C>
Part I.
Item 1. Business....................................................... 3
Item 2. Properties..................................................... 12
Item 3. Legal Proceedings.............................................. 12
Item 4. Submission of Matters to a Vote of Security Holders............ 13
Part II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................... 14
Item 6. Selected Consolidated Financial Data........................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 23
Item 8. Consolidated Financial Statements and Supplementary Data....... 25
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 25
Part III.
Item 10. Directors and Executive Officers of the Registrant............ 26
Item 11. Executive Compensation........................................ 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................................ 26
Item 13. Certain Relationships and Related Transactions................ 26
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K................................................................... 27
</TABLE>
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PART I.
Item 1. Business
General
CellStar Corporation (the "Company") is a leading global provider of
distribution and value-added logistics services to the wireless communications
industry, with operations in the Asia-Pacific Region, the Latin American
Region, the European Region and the North American Region. The Company
facilitates the effective and efficient distribution of handsets, related
accessories, and other wireless products from leading manufacturers to network
operators, agents, resellers, dealers and retailers. In many of the Company's
markets, the Company provides activation services that generate new
subscribers for its wireless carrier customers.
The "Asia-Pacific Region" consists of the People's Republic of China
("PRC"), including Hong Kong, Taiwan, Singapore, The Philippines and Malaysia.
The "Latin American Region" consists of Mexico, Brazil, Venezuela, Chile,
Peru, Colombia, Argentina and the Company's Miami, Florida operations. The
"European Region" consists of the United Kingdom, Sweden, The Netherlands and
Poland. The "North American Region" currently consists of the United States.
The Company's distribution services include purchasing, selling,
warehousing, picking, packing, shipping and "just-in-time" delivery of
wireless handsets and accessories. In addition, the Company offers its
customers value-added services, including Internet-based supply chain services
(AOS On-LineSM), Internet-based tracking and reporting, inventory management,
marketing, prepaid wireless, product fulfillment, kitting and customized
packaging, private labeling, light assembly, accounts receivable management
and end-user support services. The Company also provides wireless activation
services and operates retail locations in certain markets from which wireless
communications products and accessories are marketed to the public.
The Company, a Delaware corporation, was formed in 1993 to hold the stock of
National Auto Center, Inc., a company that is now an operating subsidiary.
National Auto Center was originally formed in 1981 to distribute and install
automotive aftermarket products. In 1984, the Company began offering wireless
communications products and services. In 1989, the Company became an
authorized distributor of Motorola, Inc. ("Motorola") wireless handsets in
certain portions 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 European Region in 1996. The Company has also
entered into similar distributor agreements with other manufacturers,
including Nokia Mobile Phones, Inc. ("Nokia"), Ericsson Inc. ("Ericsson"), LG
International Corp. Ltd. ("LG") and QUALCOMM Incorporated ("QUALCOMM").
The Company's revenues grew at a 35.1% compound annual rate for the five
fiscal years ended November 30, 1999, and increased 16.9% for the year ended
November 30, 1999, compared to the prior fiscal year. The Company's continued
growth will depend upon, among other things, its ability to maintain its
operating margins, continue to secure an adequate supply of competitive
products on a timely basis and on commercially reasonable terms, the Company's
ability to secure adequate financial resources, continually turn its
inventories and accounts receivable, successfully manage growth (including
monitoring operations, controlling costs, maintaining adequate information
systems and 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.
Wireless communications technology encompasses wireless communications
devices such as handheld, mobile and transportable handsets, pagers and two-
way radios. Since its inception in 1983, the wireless handset market has grown
rapidly. Continued strong growth in the worldwide subscriber base and the
convergence of existing and emerging technologies into a single multi-function
handset connected to a wireless web should create significant new
opportunities for CellStar. The Company believes that the wireless
communications industry should continue to grow for a number of reasons.
Economic growth, increased service availability and the lower cost of wireless
service compared to conventional landline telephone systems should the Company
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believes, continue to create demand for wireless communications products. The
Company also believes that the change from analog to digital technology and
the introduction of satellite-based communications services should increase
overall market growth and encourage consumers to purchase the next generation
of wireless communications products. In addition, advanced digital
technologies and satellite-based systems have led to increases in the number
of network operators and resellers, which has promoted greater competition for
subscribers and, the Company believes, has resulted in increased demand for
wireless communications products. Finally, the proliferation of new products
is expected to lower prices, increase product selection and expand sales
channels.
The Company generated 83.8% of its revenues in 1999 from operations
conducted outside the United States. The Company's foreign operations are
subject to various political and economic risks including, but not limited to,
the following: political instability; currency controls; currency
devaluations; exchange rate fluctuations; risks related to the Euro
conversion; 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 political or economic instability in any nation where
the Company conducts business, could have a materially adverse effect on the
Company.
The Company's consolidated financial statements and accompanying notes,
which includes certain geographic information, are in Part IV.
Asia-Pacific Region
The Company believes that in the Asia-Pacific Region, primarily in the PRC,
demand for wireless communications services has been and should continue to be
driven by an unsatisfied demand for basic phone service due to the lack of
adequate landline service and limited wireless penetration. The Company
believes that wireless systems in this region offer a more attractive
alternative to landline systems because wireless systems do not require the
substantial amount of time and investment in infrastructure (in the form of
buried or overhead cables) associated with landline systems. Based on these
and other factors, as well as the large population bases and economic growth
in this region, the Company believes that phone users should increasingly use
wireless systems.
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 in this region with the support of at least one major
manufacturer. The Company offers wireless handsets and accessories
manufactured by Original Equipment Manufacturers ("OEMs"), such as Motorola
and Nokia, and aftermarket accessories manufactured by a variety of suppliers.
Throughout the Asia-Pacific Region, CellStar acts as a wholesale distributor
of wireless handsets to large and small volume purchasers.
CellStar (Asia) Corporation Limited ("CellStar Asia"), the oldest of the
Company's business units in the region, derives its revenue principally from
wholesale sales of wireless handsets to Hong Kong-based companies that ship
these products to the remainder of the PRC and Taiwan.
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 permitting market access as authorized by the Shanghai
municipal government. CellStar Shanghai purchases wireless handsets locally
manufactured by Motorola and 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 using CellStar's
trademarks. Under the terms of such arrangements, CellStar Shanghai provides
services, sales support, training and access to promotional materials for use
in their operations. As a result of these cooperative
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arrangements, more than 1,000 retail points of sale in Shanghai display the
CellStar name and trademarks. In exchange, those distributors agree to
purchase most 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 numerous
local distributors, including distributors located in the ten largest
metropolitan areas in the PRC. CellStar Shanghai leases warehouse, showroom
and office space in the Pudong district of Shanghai.
Although the Company's business in the Asia-Pacific Region is predominantly
wholesale, retail operations are also conducted in each country, except the
PRC. The Company has historically acted through wholly-owned subsidiaries in
each of the countries in this region; however, some of the retail operations
may be owned jointly with local partners, depending on the market and
regulatory environment in the host country.
The Company commenced operations in Taiwan in 1995. The Taiwanese market is
becoming increasingly important to the Company's strategy for the Asia-Pacific
Region. In April 1999, the Company entered into a strategic alliance with
Arcoa Communications Co., Ltd. ("Arcoa"), the largest telecommunications
retail store chain in Taiwan. As a result of this alliance, the Company became
the primary supplier of Motorola-licensed handsets and accessories to Arcoa's
more than 400 retail outlets in Taiwan. In January 2000, the Company
strengthened its relationship with Arcoa by acquiring 3.5% of the issued and
outstanding common stock of Arcoa. The Company entered the Singapore,
Philippines and Malaysia markets in 1995 and conducts wholesale and retail
operations in each country. In Malaysia, the Company is a minority partner
(49%) in a joint venture.
The following table outlines the Company's entry into the Asia-Pacific
Region:
<TABLE>
<CAPTION>
Type of Operation
Year (as of November 30,
Country Entered 1999)
------- ------- --------------------
<S> <C> <C>
Hong Kong.................................... 1993 Wholesale
Singapore.................................... 1995 Wholesale and Retail
The Philippines.............................. 1995 Wholesale and Retail
Malaysia..................................... 1995 Wholesale and Retail
Taiwan....................................... 1995 Wholesale and Retail
China........................................ 1997 Wholesale
</TABLE>
At November 30, 1999, the Company sold its products to over 500 wholesale
customers in the Asia-Pacific Region (excluding customers of the Company's
Malaysian joint venture), the ten largest of which accounted for approximately
17% of the Company's consolidated revenues in fiscal 1999. The Company offers
a broad product mix in the Asia-Pacific Region, including products that are
compatible with digital and analog systems. The Company anticipates that its
product offerings will continue to expand with the evolution of new
technologies as they become commercially viable.
The Company markets its products to a variety of wholesale purchasers,
including retailers, exporters and wireless carriers, through its direct sales
force and through trade shows. To penetrate local markets in certain
countries, the Company has made use of subagent and license relationships.
Latin American Region
As in the Asia-Pacific Region, the Company believes that demand for wireless
communications services in the Latin American Region has been and should
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
and other factors, as well as the large population bases and economic growth
in this region, the Company believes that phone users should increasingly use
wireless communications systems.
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The key to the Company's operations in the Latin American Region has been
its relationships with wireless equipment manufacturers and wireless service
carriers. The Company offers wireless communications handsets, related
accessories and other wireless products manufactured by OEMs, such as
Motorola, Nokia, LG and Ericsson, and aftermarket accessories manufactured by
a variety of suppliers to mass merchandisers and other retailers. The Company
distributes products in the Latin American Region for manufacturers such as
Motorola, Nokia and Ericsson. The Company, through its Miami, Florida
operations, acts as a wholesale distributor of wireless communications
products in the Latin American Region to large volume purchasers, such as the
large wireless carriers, as well as to smaller volume purchasers. As a result,
the Company's Miami, Florida, operations are included in the Latin American
Region.
Although the Company's business in the Latin American Region is
predominantly wholesale and value-added fulfillment services, retail
operations are also conducted by the Company in each country, except Brazil
and Colombia. The Company has historically acted through wholly-owned
subsidiaries in each of the countries in this region. Since 1998, the Company
has conducted its operations in Brazil primarily through a majority owned
(51%) joint venture. As of November 30, 1999, the Company operated 45 retail
locations (including kiosks) in the Latin American Region, the majority of
which are located in Mexico, Venezuela and Peru.
The following table outlines the Company's entry into the Latin American
Region:
<TABLE>
<CAPTION>
Type of Operation
Year (as of November 30,
Country Entered 1999)
------- ------- --------------------
<S> <C> <C>
Mexico....................................... 1991 Wholesale and Retail
Venezuela.................................... 1993 Wholesale and Retail
Brazil....................................... 1993 Wholesale
Chile........................................ 1993 Wholesale and Retail
Colombia..................................... 1994 Wholesale
Argentina.................................... 1995 Wholesale and Retail
Peru......................................... 1998 Wholesale and Retail
</TABLE>
At November 30, 1999, the Company sold its products to over 1,200 wholesale
customers in the Latin American Region, the ten largest of which accounted for
approximately 20% of the Company's consolidated revenues in fiscal 1999. The
Company offers a broad product mix in the Latin American Region, including
products that are compatible with digital, analog and satellite systems. The
Company anticipates that its product offerings will continue to expand with
the evolution of new technologies as they become commercially viable.
The Company markets its products through direct sales and advertising. In
those 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
certain countries.
European Region
The Company believes that demand for wireless communications services in the
European Region will continue to expand due to the increasing affordability
and availability of such services and shorter development cycles for new
products and product and service enhancements. The Company's revenues in this
region are impacted significantly by the trading activities carried out in its
U.K. subsidiary. These trading activities are, in turn, impacted significantly
by global economic and market conditions and the demand for and availability
of wireless handsets.
The Company's U.K. subsidiary sells wireless handsets, pagers, mobile radio
and other wireless communications equipment and related accessory products
throughout Europe. The Company's subsidiaries in Sweden and Poland distribute
products in their respective countries and in other European markets for
several manufacturers, including Ericsson, Nokia and Motorola. In August 1999,
the Company acquired Montana Telecommunications Group, B.V. in The Netherlands
to expand the Company's sales and market presence in The
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Netherlands, Belgium and Luxembourg. The Company's Netherlands subsidiary also
distributes products in other European markets for several manufacturers,
including Ericsson and Nokia.
The key to the Company's expansion in the European Region has been its
relationships with wireless equipment manufacturers. The Company distributes
products in the European Region primarily for Ericsson, Nokia and Motorola.
CellStar acts as a wholesale distributor of wireless communications products
in the European Region to large volume purchasers, such as the large wireless
carriers, as well as to smaller volume purchasers. The Company operates a
distribution facility in Manchester, England, and Amsterdam, The Netherlands,
to serve customers in the European Region.
The Company's largest wholesale customers in the region are wireless
carriers. Although the Company's business in the European Region is
predominantly wholesale, it also conducts retail operations in Poland and The
Netherlands. As of November 30, 1999, the Company operated 16 retail locations
(including kiosks) in Poland and one retail location in The Netherlands. The
Company has historically acted through wholly-owned subsidiaries in each of
the countries in this region.
The Company's U.K. subsidiary, the oldest of the Company's business units in
the region, derives most of its revenue from trading activities and the
wholesale sales of wireless handsets and accessories throughout Europe.
Trading in wireless handsets involves the purchase of wireless handsets from
sources other than the manufacturers or network operators (i.e., trading
companies) and the sale of those handsets to other trading companies. Each of
the Company's subsidiaries in the United Kingdom, Sweden and The Netherlands
are building a broader wholesale customer base and strengthening their
relationships with manufacturers and carriers throughout Europe. Based on
market conditions in Poland, the Company decided in the fourth quarter of 1999
to sell its Polish operations.
The following table outlines the Company's entry into the European Region:
<TABLE>
<CAPTION>
Type of Operation
Year (as of November 30,
Country Entered 1999)
------- ------- --------------------
<S> <C> <C>
United Kingdom............................... 1997 Wholesale
Sweden....................................... 1998 Wholesale
Poland....................................... 1998 Wholesale and Retail
The Netherlands.............................. 1999 Wholesale and Retail
</TABLE>
At November 30, 1999, the Company sold its products to over 1,800 wholesale
customers in the European Region, the ten largest of which accounted for
approximately 5% of the Company's consolidated revenues in fiscal 1999. The
Company offers a broad product mix in the European Region, including products
that are compatible with digital, analog and satellite systems. The Company
anticipates that its product offerings will continue to expand with the
evolution of new technologies as they become commercially viable.
The Company markets its products through direct sales and advertising. In
those markets where it conducts retail operations, the Company primarily
utilizes direct mailings and newspapers to promote its retail operations.
North American Region
In the United States, wireless communications services were developed as an
alternative to conventional landline systems and have been among the fastest
growing market segments in the communications industry. The Company believes
that the U.S. market for wireless services should continue to expand due to
the increasing affordability and availability of such services and shorter
development cycles for new products and product and service 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 to respond to competition. Digital
technology offers other advantages, such as improved overall average signal
quality, improved call security, lower incremental costs for additional
subscribers, and the ability to provide data transmission services.
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At November 30, 1999, the Company sold its products to over 900 customers in
the North American Region, the ten largest of which accounted for
approximately 7% of the Company's consolidated revenues in fiscal 1999. The
Company offers wireless handsets and accessories manufactured by OEMs, such as
Motorola, Ericsson, Nokia, QUALCOMM, Sony Electronics Inc. ("Sony") and NEC
Corporation ("NEC") and aftermarket accessories manufactured by a variety of
suppliers. The Company's distribution operations and value-added services
complement these manufacturer distribution channels by allowing these
manufacturers to sell and distribute their products to smaller volume
purchasers and retailers.
The Company offers a broad product mix in the United States, including
products that are compatible with digital, analog and satellite systems. 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, credit and collections and handset
sales. The Company believes that opportunities continue to exist for it to
assist wireless communications carriers and Internet-based wireless handset
and accessory retailers 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,
manufacturers and Internet-based retailers continue to outsource these
activities in order to reduce their costs and focus on their own core
businesses.
In February 1999, the Company sold part of its debt and equity investment in
Topp Telecom, Inc. ("Topp") to a wholly-owned subsidiary of Telefonos de
Mexico, S.A. de C.V. ("TelMex"), and other Topp shareholders for $7.0 million.
In September 1999, the Company sold its remaining debt and equity investment
in Topp to the same subsidiary of TelMex for $26.5 million. The Company will
continue to distribute wireless handsets, pre-paid airtime cards and related
accessories pursuant to a new agreement reached with Topp in November 1999.
In December 1998, the Company sold its retail stores located in the Dallas-
Fort Worth area to SWBW. In April 1999, the Company sold its retail stores in
the Kansas City area to SWBW. As of November 30, 1999, the Company operates
two retail locations in the United States--one in Austin, Texas, and one in
Houston, Texas.
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.
The Company continues to develop and enhance the functionality of its AOS
On-Line and netXtremeSM programs. These programs are proprietary, Internet-
based order entry and supply chain services software and systems designed to
assist the Company's customers in the submission of orders, the tracking of
such orders and the analysis of business activities with the Company. AOS On-
Line and netXtreme greatly enhance a customer's ability to actively manage its
inventories and reduce supply chain delays. In addition, the Company assists
customers in developing e-commerce platforms and solutions designed to enhance
sales and reduce product delivery and activation delays.
Industry Relationships
The Company has established strong relationships with leading wireless
equipment manufacturers and wireless service carriers. These relationships
have been key to the Company's expansion.
Although the Company purchased its products from more than 20 suppliers in
fiscal 1999, the majority of the Company's purchases were from Motorola,
Nokia, Ericsson, LG and QUALCOMM. For the year ended November 30, 1999,
Motorola accounted for approximately 50% of the Company's product purchases.
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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 the Company with "price protection," or the right
to receive the benefit of price decreases on products currently in the
Company's inventory if such products were purchased by the Company within a
specified period of time prior to the effective date of the price decrease.
The Company's expansion has been due to several factors, one of which is its
relationship with Motorola, historically one of the largest manufacturers of
wireless products in the world and the Company's largest supplier. In July
1995, Motorola purchased a split-adjusted 2,089,312 shares of the outstanding
common stock of the Company. The Company believes that its relationship with
Motorola and its other suppliers should enable it to continue to offer a wide
variety of wireless communications products in all markets. 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.
In the second half of 1999, the Company experienced shortages in supply for
certain products that are in high demand. 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.
Asset Management
The Company continues to invest in and focus on technology to improve
financial and information control systems. During 1999, the Company continued
to make significant progress on several information technology initiatives:
(i) implementation and rollout of data mart and decision support applications
to improve sales and inventory analysis, (ii) upgrades to the corporate
headquarter network backbone to improve reliability and performance, (iii)
implementation of a common electronic mail and groupware solution worldwide,
(iv) implementation of remote access and computing for all traveling
workforce, and (v) upgrade of all internet security and electronic commerce
platforms. In addition, the Company, through the rollout of a common
application suite to its international sites, provided improvements in work
flow at various sites and positioned the Company to be Year 2000 compliant.
Key efforts for 2000 include: (i) increasing electronic commerce capabilities
through the rollout of additional features in the Company's Advanced Order
System (AOS); (ii) expansion of internet-based commerce to international
markets; (iii) increasing XML-based catalog and order management capabilities;
and (iv) rollout of data mart and reporting applications to international
customers. These initiatives will continue to position the Company to take
advantage of the market trends with internet-based commerce and further
provide opportunities to integrate the Company's systems with their customers'
systems.
The Company purchases its products from more than 20 suppliers that ship
directly to the Company's warehouse or distribution facilities. Inventory
purchases are based on quality, 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 its
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 (AOS On-Line and netXtreme), to
help manage inventory and sales margins.
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
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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--
International 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. The Company's ability to remain
competitive will therefore depend upon its ability to anticipate and adapt its
business to such technological changes. There can be no assurance that the
Company will be successful in anticipating and adapting to such technological
changes.
In the current U.S. wireless communications products market, the Company's
primary competitors are manufacturers, wireless carriers and other independent
distributors such as Brightpoint, Inc. The Company also competes with
logistics companies.
Competitors of the Company in the Asia-Pacific, Latin American and European
Regions include manufacturers, national carriers that have retail outlets with
direct end-user access, and U.S. and foreign-based exporters and distributors.
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, 1999, the Company had approximately 1,425 employees
worldwide. In Mexico and Argentina, approximately 205 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.
10
<PAGE>
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.......... 56 Chief Executive Officer and Chairman of the
Board
Dale H. Allardyce.......... 50 President and Chief Operating Officer
A.S. Horng................. 42 Chairman and Chief Executive Officer of CellStar
(Asia) Corporation Limited
Austin P. Young............ 59 Senior Vice President, Chief Financial Officer
and Treasurer
Daniel T. Bogar............ 40 Senior Vice President--American Regions
Elaine Flud Rodriguez...... 43 Senior Vice President, General Counsel and
Secretary
Raymond L. Durham.......... 38 Corporate Controller
</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 and from August 1996 until December 1996. Mr. Goldfield serves as an
officer and director of the Company pursuant to his employment agreement.
Dale H. Allardyce has served as the President and Chief Operating Officer of
the Company since November 1999. Previously, Mr. Allardyce served as Executive
Vice President--Operations for ENTEX Information Services, Inc., a personal
computer systems integrator, from February 1995 to December 1998. From January
1993 to February 1995, Mr. Allardyce served as Senior Vice President of THORN
Americas, Inc., a nationwide chain of rent-to-own stores and a subsidiary of
UK based THORN EMI. From March 1982 to December 1992, Mr. Allardyce was
employed by The Southland Corporation, the owner and operator of a nationwide
convenience store chain, where he served as Vice President of distribution,
food processing and procurement from 1987 to 1992. Mr. Allardyce serves as an
officer of the Company pursuant to his employment agreement.
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, 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 wireless phone accessory products. Mr. Horng serves the Company
pursuant to his employment agreement.
Austin P. Young has served as Senior Vice President, Chief Financial Officer
and Treasurer since November 1999. Prior to joining CellStar, Mr. Young served
as a Director and Executive Vice President--Finance and Administration of
Metamor Worldwide, Inc., an information technology and staffing services firm,
from August 1996 until November 1998. He was also Senior Vice President and
Chief Financial Officer of American General Corporation, a diversified
insurance and financial services company, from 1988 to 1996. Before joining
American General, Mr. Young was a partner with KPMG LLP, one of the largest
independent professional accounting firms, where he spent 22 years of his
professional career. Mr. Young serves as an officer of the Company pursuant to
his employment agreement and is a certified public accountant.
Daniel T. Bogar has served as Senior Vice President--American Regions since
May 1999. Previously, Mr. Bogar served as Vice President--Latin American
Region from January 1998 to May 1999. In addition, Mr. Bogar served as a
director of the Company from July 1994 to March 1999. Mr. Bogar has served as
Vice President of South American Operations and has been responsible for the
Company's Latin American operations since 1992.
Elaine Flud Rodriguez has been Senior Vice President, General Counsel and
Secretary since January 2000. Previously, Ms. Rodriguez served as Vice
President, General Counsel and Secretary since joining the Company in 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
11
<PAGE>
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. Ms. Rodriguez serves as an officer of the Company pursuant to her
employment agreement.
Raymond L. Durham has served as Corporate Controller since November 1999 and
acting Corporate Controller from July 1999 until November 1999. From March
1997 until July 1999, Mr. Durham served as Director of Audit Services for the
Company. Prior to joining the Company, he was with KPMG LLP, one of the
largest independent professional accounting firms, from 1986 until 1997 where
he held several positions including Audit Senior Manager from 1990 until 1997.
Mr. Durham is a certified public accountant.
The Company's success is substantially dependent on the efforts of Alan H.
Goldfield, its Chairman and 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. 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.
Item 2. Properties
As of November 30, 1999, the Company had a total of 27 operating facilities
in the Asia-Pacific Region (including kiosks, but not including facilities of
the Company's Malaysian joint venture), 26 of which were leased, a total of 82
operating facilities in the Latin American Region (including kiosks), 81 of
which were leased, and a total of 23 operating facilities in the European
Region (including kiosks), all of which were leased. These facilities serve as
offices, warehouses, distribution centers or retail locations.
The Company's corporate headquarters and principal North American Region
distribution facility is located at 1730 and 1728 Briercroft Court in
Carrollton, Texas. Both facilities are owned by the Company. As of November
30, 1999, the Company had four other operating facilities in the North
American Region, all of which were leased. In December 1998 and April 1999,
the Company sold all but two of its retail store operations in the North
American Region. In October 1999, the Company ceased operations at its 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 1999 through July 1999, seven purported class
action lawsuits were filed in the United States District Court for the
Southern District of Florida, Miami Division, styled as follows: (1) Elfie
Echavarri v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and
Mark Q. Huggins; (2) Mark Krug v. CellStar Corporation, Alan H. Goldfield,
Richard M. Gozia and Mark Q. Huggins; (3) Jewell Wright v. CellStar
Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (4)
Theodore Weiss v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia
and Mark Q. Huggins; (5) Tony LaBella v. CellStar Corporation, Alan H.
Goldfield, Richard M. Gozia and Mark Q. Huggins; (6) Thomas F. Petrone v.
CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins;
and (7) Adele Brody v. CellStar Corporation, Alan H. Goldfield, Richard M.
Gozia and Mark Q. Huggins. Each of the above lawsuits sought certification as
a class action to represent those persons who purchased the publicly traded
securities of the Company during the period from March 19, 1998, to September
21, 1998. Each of these lawsuits alleges that the Company issued a series of
materially false and misleading statements concerning the Company's results of
12
<PAGE>
operations and investment in Topp, resulting in violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
promulgated thereunder.
The court entered an order on September 26, 1999 consolidating the above
lawsuits and appointing lead plaintiffs and lead plaintiffs' counsel. On
November 8, 1999, the lead plaintiffs filed a consolidated complaint. The
Company has filed a Motion to Dismiss the consolidated complaint, but the
court has not yet rendered a decision. The Company believes that it has fully
complied with all applicable securities laws and regulations and that it has
meritorious defenses to the allegations made in the consolidated complaint.
The Company intends to vigorously defend the consolidated action if its Motion
to Dismiss is denied.
On August 3, 1998, the Company announced that the Securities and Exchange
Commission is conducting an investigation of the Company relating to its
compliance with federal securities laws. The Company believes that it has
fully complied with all securities laws and regulations and is cooperating
with the Commission staff in its investigation.
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.
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, 1999.
13
<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 closing sale prices for the common stock
as reported by the NASDAQ Stock Market. Sales prices have been adjusted to
give effect to a two-for-one stock split on June 23, 1998.
<TABLE>
<CAPTION>
High Low
------- ------
<S> <C> <C>
Fiscal Year ended November 30, 1999
Quarter Ended:
February 28, 1999........................................ $12.500 6.219
May 31, 1999............................................. 12.688 6.313
August 31, 1999.......................................... 9.063 5.250
November 30, 1999........................................ 10.438 5.500
Fiscal Year ended November 30, 1998
Quarter Ended:
February 28, 1998........................................ $16.156 9.438
May 31, 1998............................................. 18.391 12.938
August 31, 1998.......................................... 17.875 6.625
November 30, 1998........................................ 9.563 3.063
</TABLE>
As of February 22, 2000, there were 271 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
multicurrency 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.
14
<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, 1999, 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,
--------------------------------------------------
1999 1998 1997 1996 1995
---------- --------- --------- ------- -------
(In thousands, except per share data and
operating data)
<S> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues.............. $2,333,805 1,995,850 1,482,814 947,601 811,915
Cost of sales......... 2,140,375 1,823,075 1,325,488 810,000 702,074
---------- --------- --------- ------- -------
Gross profit.......... 193,430 172,775 157,326 137,601 109,841
---------- --------- --------- ------- -------
Operating expenses:
Selling, general and
administrative
expenses............ 111,613 116,747 81,319 135,585 76,553
Impairment of assets
held for sale....... 5,480 -- -- -- --
Lawsuit settlement... -- 7,577 -- -- --
Restructuring
charge.............. 3,639 -- -- -- --
---------- --------- --------- ------- -------
Total operating
expenses............. 120,732 124,324 81,319 135,585 76,553
---------- --------- --------- ------- -------
Operating income...... 72,698 48,451 76,007 2,016 33,288
Other income
(expense):
Interest expense..... (19,027) (14,446) (7,776) (8,350) (6,144)
Equity in income
(loss) of affiliated
companies, net...... 31,933 (28,448) 465 (219) 3,222
Gain on sale of
assets.............. 8,774 -- -- 128 --
Other, net........... (1,876) 1,389 2,260 (441) (28)
---------- --------- --------- ------- -------
Total other income
(expense)............ 19,804 (41,505) (5,051) (8,882) (2,950)
---------- --------- --------- ------- -------
Income (loss) before
income taxes......... 92,502 6,946 70,956 (6,866) 30,338
Provision (benefit)
for income taxes..... 23,415 (7,418) 17,323 (453) 7,442
---------- --------- --------- ------- -------
Net income (loss)..... $ 69,087 14,364 53,633 (6,413) 22,896
========== ========= ========= ======= =======
Net income (loss) per
share:(1)
Basic................ $ 1.16 0.24 0.92 (0.11) 0.41
Diluted.............. $ 1.12 0.24 0.89 (0.11) 0.41
Weighted average
number of shares:(1)
Basic................ 59,757 58,865 58,144 57,821 56,466
Diluted.............. 65,589 60,656 60,851 57,821 56,466
Operating Data:
International
revenues, including
export sales, as a
percentage of
revenues............. 83.8% 76.3% 66.7% 64.0% 63.5%(2)
<CAPTION>
At November 30,
--------------------------------------------------
1999 1998 1997 1996 1995
---------- --------- --------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital....... $ 332,841 259,923 259,954 71,365 74,410
Total assets.......... $ 706,438 775,525 497,111 298,551 314,921
Notes payable to
financial
institutions and
current portion of
long-term debt....... $ 50,609 85,023 -- 56,704 99,187
Long-term debt, less
current portion...... $ 150,000 150,000 150,000 6,285 6,880
Stockholders' equity.. $ 250,524 177,791 160,865 104,263 111,295
</TABLE>
- --------
(1) Common stock amounts have been retroactively adjusted to give effect to a
two-for-one stock split, which was made in the form of a stock dividend
distributed on June 23, 1998 and a three-for-two stock split, which was
made in the form of a stock dividend distributed on June 17, 1997.
(2) Includes export sales of $90.2 million in 1995 to CellStar Asia prior to
June 3, 1995 when it became a wholly-owned subsidiary of the Company.
15
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company is a leading global provider of distribution and value-added
logistics services to the wireless communications industry, with operations in
Asia-Pacific, Latin America, Europe and North America. The Company facilitates
the effective and efficient distribution of handsets, related accessories and
other wireless products from leading manufacturers to network operators,
agents, resellers, dealers and retailers. In many of its markets, the Company
provides activation services that generate new subscribers for its wireless
carrier customers. From 1995 through 1999, the Company's revenues grew from
$811.9 million to $2,333.8 million. Sales of wireless communications products
have increased primarily as a result of greater market penetration due in part
to decreasing unit prices and service costs. The Company's diluted net income
per share in 1999 increased to $1.12 from $0.24 in 1998.
The Company derives substantially all revenues from net product sales, which
includes sales of handsets and other wireless communications products. The
Company also derives revenues from value-added services, activations, residual
income, and prepaid wireless services. Value-added service revenues include
fulfillment service fees, handling fees and assembly revenues. Activation
income includes commissions paid by a wireless carrier when a customer
initially subscribes for wireless service through the Company. Residual income
includes payments received from carriers based on the wireless handset usage
by a customer activated by the Company.
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," "continues," "expects," "projections," "forecasts," "intends,"
"may," "might," "could," "should," 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.
16
<PAGE>
Results of Operations
The following table sets forth certain consolidated statements of operations
data for the Company expressed as a percentage of revenues for the past three
fiscal years:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Revenues................................................... 100.0% 100.0 100.0
Cost of sales.............................................. 91.7 91.3 89.4
----- ----- -----
Gross profit............................................. 8.3 8.7 10.6
Selling, general and administrative expenses............... 4.8 5.8 5.5
Impairment of assets held for sale......................... 0.2 -- --
Lawsuit settlement......................................... -- 0.4 --
Restructuring charge....................................... 0.2 -- --
----- ----- -----
Operating income......................................... 3.1 2.5 5.1
Other income (expense):
Interest expense......................................... (0.8) (0.7) (0.5)
Equity in income (loss) of affiliated companies, net..... 1.4 (1.4) --
Gain on sale of assets................................... 0.4 -- --
Other, net............................................... (0.1) -- 0.2
----- ----- -----
Total other income (expense)........................... 0.9 (2.1) (0.3)
----- ----- -----
Income before income taxes............................... 4.0 0.4 4.8
Provision (benefit) for income taxes....................... 1.0 (0.3) 1.2
----- ----- -----
Net income................................................. 3.0% 0.7 3.6
===== ===== =====
</TABLE>
The amount of revenues and the approximate percentages of revenues
attributable to the Company's operations for the past three fiscal years are
shown below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Asia-Pacific Region........... $ 769,412 33.0% 513,869 25.7 422,751 28.5
Latin American Region......... 717,273 30.7 705,624 35.4 497,336 33.6
European Region............... 469,991 20.1 303,520 15.2 69,142 4.6
North American Region......... 377,129 16.2 472,837 23.7 493,585 33.3
---------- ----- --------- ----- --------- -----
Total....................... $2,333,805 100.0% 1,995,850 100.0 1,482,814 100.0
========== ===== ========= ===== ========= =====
</TABLE>
Revenues from the Company's Miami, Florida, warehouse ("Miami") have been
classified as Latin American Region revenues as these revenues are primarily
exports to South American countries, either by the Company or by exporter
customers.
Fiscal 1999 Compared to Fiscal 1998
Revenues. The Company's revenues increased $337.9 million, or 16.9% from
$1,995.9 million to $2,333.8 million. Revenue growth in the second half of
1999 was impacted by a global shortage of handsets. Worldwide demand in 1999
was greater than both manufacturers and component suppliers anticipated. As a
result, there have been continued component and handset shortages for which
increased production capacity, in many instances, requires long lead times.
The shortages differ by region of the world, by manufacturer, and by handset
model. While improving, the outlook shows shortages continuing throughout the
first and second quarter of 2000.
Revenues in the Asia-Pacific Region increased $255.5 million, or 49.7% from
$513.9 million to $769.4 million. The Company's operations in the PRC,
including Hong Kong, provided $528.6 million in revenue, an increase of $123.7
million, or 30.6% from $404.9 million. This increase continued to be driven by
the strong
17
<PAGE>
demand in the PRC, coupled with a broadened source of product manufactured in-
country and the impact of the PRC's tighter customs controls on imported
products, which began in the third quarter of 1998. The Company's operations
in Taiwan provided the largest percentage growth in the region, providing
$187.4 million in revenue, an increase of $119.0 million, or 174.0%, from
$68.4 million. Demand in Taiwan increased due to the entry of several new
wireless carriers into the market during 1998 as well as the introduction of
new high-end digital handsets. Revenue from the Company's Singapore operations
increased $12.8 million, or 31.5%, from $40.6 million to $53.4 million. This
increase was due to increased demand for wireless products as a result of the
strengthening of the general economic, financial and currency conditions in
the Southern Asia-Pacific area.
The Latin American Region provided $717.3 million of revenues, compared to
$705.6 million, or a 1.7% increase. Revenues in Brazil, Mexico, Venezuela,
Colombia, and Chile increased $93.9 million, or 94.0%, $84.8 million, or
58.8%, $25.5 million, or 49.4%, $11.8 million, or 278.7%, and $9.4 million, or
75.4%, respectively. The increase in Brazil was due to revenue growth in the
Company's majority-owned joint venture, which benefited from the privatization
of the telecommunication industry and the entry of additional carriers into
the wireless market during the latter half of 1998. The increase in Mexico was
largely due to carrier promotions coupled with the introduction of the
calling-party-pays billing process. The increase in Venezuela was a result of
additional handset sales to carriers. The Company was also awarded an
exclusive two-year contract to supply services for prepaid phone kits in
connection with the sale of its prepaid wireless business in Venezuela in
March 1999. The increases in Colombia and Chile are attributable to new
contracts with some of the carriers in those countries and also a carrier
promotion in Chile. Revenues in the remainder of the region decreased $213.7
million, or 54.3%, primarily in Miami. The decrease in Miami was due to
increased product availability from in-country suppliers, thereby reducing
export sales from Miami.
The Company's European Region recorded revenues of $470.0 million, an
increase of $166.5 million, or 54.9%, from $303.5 million. This increase
reflected continued growth from the Company's U.K. operation, arising
primarily from sales in international markets, as well as from increased
revenues from the operation in Sweden, which was acquired in the first quarter
of 1998, and partly from the acquisition of CellStar Netherlands in the third
quarter of 1999.
North American Region revenues were $377.1 million, a decrease of $95.7
million, or 20.2%, compared to $472.8 million. The decrease was primarily a
result of lower product sales to Pacific Bell Mobile Services ("PBMS") in 1999
as compared to 1998 as PBMS is increasingly coordinating its handset
distribution directly with manufacturers. The decrease was also attributable
to a continued decrease in the retail business due to the sale of almost all
of the Company's retail stores in early 1999. The overall decrease in revenues
was partially offset by an increase in the U.S. wholesale business of $30.3
million, or 11.7%.
Gross Profit. Gross profit increased $20.6 million, or 11.9%, from $172.8
million to $193.4 million, while gross profit as a percentage of revenues
decreased from 8.7% to 8.3%. The increase in gross profit was principally due
to increases in the European, North American and Asia-Pacific Regions. The
increase in the European Region was due to the continued growth of the U.K.
operation and the increased revenues from the Company's operation in Sweden
and the Netherlands. The North American Region benefited from improved margins
in its core wholesale business. The overall increase in the Asia-Pacific
Region was primarily due to the increase in Taiwan, which was offset partially
by a decrease in the PRC. The decrease in gross profit as a percentage of
revenues was due primarily to decreases in market prices of certain handsets,
the decision to reduce prices on some slower-moving inventory in the Asia-
Pacific Region to liquidate it during periods of higher demand, and an
increase in revenues from the European Region, which has lower margin
percentages than the Company's other regions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $5.1 million, or 4.4% from $116.7 million to
$111.6 million. This decrease was primarily attributable to: a decrease in the
provision for doubtful accounts receivable of $3.2 million, from $13.6 million
in 1998 to $10.4 million in 1999; the effects of the second quarter
reorganization and consolidation of the North and Latin American Regions
operations and the centralization of management in the Asia-Pacific Region;
and charges in 1998 to de-emphasize
18
<PAGE>
or eliminate certain businesses. These decreases were partially offset by an
increase in costs associated with the Company's revenue growth. Overall
selling, general and administrative expenses as a percentage of revenues
decreased to 4.8% from 5.8%. Bad debt expenses as a percentage of revenues
decreased to 0.4% in 1999 from 0.7% in 1998.
Impairment of Assets Held for Sale. Based on the market conditions in
Poland, the Company decided in the fourth quarter of 1999 to sell its
operations in Poland. The Company recorded an impairment charge of $5.5
million, including $4.5 million of goodwill amortization, to reduce the
carrying value of the assets to their estimated net realizable value.
Restructuring Charge. The Company recognized a restructuring charge of $3.6
million associated with the reorganization and consolidation of the management
for the Company's Latin American and North American Regions as well as the
centralization of management in the Asia-Pacific Region.
Interest Expense. Interest expense increased to $19.0 million from $14.4
million, primarily as a result of an increase in the average debt outstanding
related to the Company's operations in Brazil, as well as an increase in
average borrowings under the Company's Multicurrency Revolving Credit
Facility.
Equity in Income (Loss) of Affiliated Companies. Equity in income (loss) of
affiliated companies increased $60.3 million to income of $31.9 million, as
compared to a loss of $28.4 million in 1998. In February 1999, the Company
sold part of its equity investment in Topp to a wholly-owned subsidiary of
TelMex. At the closing, the Company also sold a portion of its debt investment
to certain other shareholders of Topp. As a result of these transactions, the
Company received cash in the amount of $7.0 million, retained a $22.5 million
note receivable and a 19.5% equity ownership interest in Topp, and recorded a
pre-tax gain of $5.8 million. In September 1999, the Company sold its
remaining debt and equity interest in Topp to the TelMex subsidiary for $26.5
million in cash, resulting in a pre-tax gain of $26.1 million.
Beginning in the third quarter of 1998 the Company became the primary source
of funding for Topp through the supply of handsets and, therefore, recognized
Topp's net loss to the extent of the Company's entire debt and equity
investment in Topp. In 1998, the Company recognized $29.2 million in losses on
its debt and equity investment in Topp.
Gain on Sale of Assets. The Company recorded a gain of $8.8 million in 1999
primarily associated with the sale of its prepaid operations in Venezuela and
its retail stores in the Dallas-Fort Worth and Kansas City areas.
Other, Net. Other, net decreased $3.3 million, from income of $1.4 million
to expense of $1.9 million. This decrease was primarily due to a $2.6 million
foreign currency transaction loss realized from the conversion of U.S. dollar
denominated debt in Brazil into a Brazilian real denominated credit facility.
Provision (Benefit) for Income Taxes. Income tax expense increased $30.8
million primarily as a result of an $85.6 million increase in income before
income taxes and an increase in the Company's effective tax rate to 25.3%. The
higher effective tax rate was attributable to higher income before income
taxes, primarily in the U.S., Latin American and European Regions. In both the
Latin American and the European Regions the statutory tax rates are generally
comparable to the statutory rate in the U.S., and higher than the statutory
rates in the Asia-Pacific Region.
Fiscal 1998 Compared to Fiscal 1997
Revenues. Revenues increased $513.1 million, or 34.6%, from $1,482.8 million
in 1997 to $1,995.9 million in 1998.
Revenues in the Asia-Pacific Region increased $91.1 million, or 21.5%, from
$422.8 million in 1997 to $513.9 million in 1998. The Company's operations in
the PRC provided $404.9 million in revenue, an increase of $85.2 million, or
26.6%, from $319.7 million. This increase was due to continued strong demand
in the PRC,
19
<PAGE>
a broadened source of product manufactured there and the impact of tighter
customs controls beginning in August 1998. The Company's operations in Taiwan
provided $68.4 million of revenue, an increase of $52.3 million, or 324.8%,
from $16.1 million. The increase was due to higher demand resulting from the
entry of several new carriers into the wireless market in the first fiscal
quarter of 1998. Revenue from the Company's Singapore operations decreased
$46.4 million, or 53.3%, from $87.0 million to $40.6 million. This decrease
was due to decreased demand for wireless products as a result of the general
economic, financial and currency conditions in the southern Asia-Pacific area.
The Company's operations in the Latin American Region provided $705.6
million of revenues in 1998, compared to $497.3 million in 1997, or a 41.9%
increase. Revenues in Brazil, Mexico, Venezuela, Peru and Chile increased
$92.4 million, or 1,230.5%, $76.7 million, or 113.5%, $37.3 million, or
260.3%, $13.1 million, and $11.5 million, or 1,195.7%, respectively. The
increase in Brazil was due to revenue growth in the Company's majority-owned
joint venture, which benefited from the privatization of the
telecommunications industry and the entry of additional carriers into the
wireless market during the latter half of 1998. The increase in Mexico was due
to an extension of a promotion by the principal wireless carrier, which began
the promotion in the fourth quarter of 1997. The increase in Venezuela was
fueled by the Company's prepaid wireless businesses. The Company began its
operations in Peru through the Company's acquisition of a prepaid cellular
business in the second quarter of 1998. The increase in Chile was due to
carrier promotions, which started in the second quarter of 1998 and lasted
through the third quarter of 1998. Revenues in the remainder of the region
decreased $22.7 million, primarily in Miami and Argentina. The decrease in
Miami was largely due to an increase in demand for digital handsets and
increased product availability from in-country suppliers, thereby reducing
export sales from Miami. The decrease in revenues in Argentina was caused by
significant subscriber cancellations and excess inventory held by the
carriers.
Revenues from the Company's European Region were $303.5 million in 1998
compared to $69.1 million in 1997, an increase of $234.4 million, or 339.2%.
This increase was due to the continued growth of the Company's U.K. operation,
arising primarily from sales in international markets, and revenues from
operations acquired in Sweden and Poland earlier in the year.
North American Region revenues decreased 4.2% from $493.6 million in 1997 to
$472.8 million in 1998. The decrease was due to a decrease in net product
sales of $10.8 million and continued decreases in both activation and residual
income. The decrease in net product sales was largely due to decreasing unit
sales prices, which was partially offset by increases in revenues from
distribution and fulfillment contracts for the provision of products and
value-added services.
Gross Profit. Gross profit increased $15.5 million, or 9.9%, from $157.3
million in 1997 to $172.8 million in 1998, while gross profit as a percentage
of revenues decreased from 10.6% in 1997 to 8.7% in 1998. The increase in
gross profit was due to the increase in wholesale revenues, which revenues
were comprised primarily of net product sales. The decrease in gross profit as
a percentage of revenues was due primarily to a decrease in U.S. retail
revenues, which have a higher gross profit margin than wholesale revenues, to
the impact of lower margins in the PRC as compared to those historically
recognized in Hong Kong and to an increase in international sales by the U.K.
operations, which have lower margins than the Company's other regions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $35.4 million, or 43.5%, from $81.3 million
in 1997 to $116.7 million in 1998. This increase was principally due to costs
incurred from the continued build-out of infrastructure, costs associated with
business expansion activities and costs to de-emphasize or eliminate certain
businesses. Overall selling, general and administrative expenses as a
percentage of revenues increased to 5.8% in 1998 from 5.5% in 1997. Bad debt
expense as a percentage of revenues increased to 0.7% in 1998 from 0.2% in
1997.
Lawsuit Settlement. The Company recorded a special charge of $7.6 million,
which primarily represented the Company's portion of the settlement of the
class action lawsuit.
20
<PAGE>
Interest Expense. Interest expense increased to $14.4 million in 1998 from
$7.8 million in 1997. The increase was due to the addition of long-term debt
at the end of 1997 and an increase in debt related to the Company's operation
in Brazil.
Equity in (Loss) Income of Affiliated Companies, Net. The significant equity
in loss of affiliated companies in 1998 was primarily a result of the
Company's recognition of $29.2 million of losses on its entire debt and equity
investment in Topp. Beginning in the third quarter of 1998, the Company became
the primary source of funding for Topp through the supply of handsets and,
therefore, recognized all of Topp's net loss to the extent of the Company's
entire debt and equity investment.
Other, Net. Other, net, decreased $0.9 million, from income of $2.3 million
in 1997 to $1.4 million in 1998. This decrease was primarily due to foreign
currency transaction losses of $0.7 million as a result of the European
Region's financing activities conducted with the International Financial
Services Center ("IFSC") in Dublin, Ireland.
Provision (Benefit) for Income Taxes. The Company's effective tax rate and
income tax expense decreased due to higher losses before income taxes in
countries, primarily in the U.S., for which the benefits are recordable, and
increases in income before taxes in foreign countries where tax rates are low
or tax holidays are in effect.
Liquidity and Capital Resources
During the year ended November 30, 1999, the Company relied primarily on
cash available at November 30, 1998, cash generated from operations, cash
received of $41.8 million from sale of assets, principally its debt and equity
investment in Topp, and borrowings under its Multicurrency Revolving Credit
Facility (the "Facility") to fund working capital, capital expenditures and
expansions. On April 8, 1999, the amount of the Facility was reduced from
$135.0 million to $115.0 million due to the release of a syndication member
bank. On August 2, 1999, the Company restructured its Facility to add
flexibility for foreign working capital funding and capitalization. Also under
this restructuring, the Company received expanded borrowing capacity on its
domestic assets. At February 18, 2000, the Company had available $48.7 million
of unused borrowing capacity under the Facility.
Compared to November 30, 1998, accounts receivable, inventories and accounts
payable decreased $43.5 million, $84.6 million and $98.3 million,
respectively. These improvements reflect strong demand worldwide for the
Company's products, a global shortage of certain handset models and the
Company's continued focus on asset management.
As of November 30, 1999 and January 31, 2000, the Company's Brazilian
operations had borrowed $8.9 million and $12.0 million, respectively, using
credit facilities denominated in Brazilian reals with Brazilian banks. In
conjunction therewith, the Company has $9.15 million of letters of credit
outstanding against its Facility to guarantee the repayment of the principal
plus interest and all other contractual obligations of its Brazilian
operations to two Brazilian banks.
At November 30, 1999, the Company's operations in the PRC had a $12.5
million loan from a PRC bank bearing interest at 5.52% which matures in
September 2000 and is fully collateralized by a U.S. dollar cash deposit. The
cash deposit was made via an intercompany loan from the operating entity in
Hong Kong as a mechanism to secure the repayment of these funds. This $12.5
million loan was used to secure an RMB line of credit for the U.S. dollar
equivalent of $12.5 million. At November 30, 1999, $12.0 million had been
borrowed against the line of credit and bears interest at 5.85% with maturity
dates through September 2000.
The Company anticipates that it should have sufficient cash available to
meet its current capital requirements and expansion plans. Capital is expected
to be provided by available cash on hand, cash generated from operations,
amounts available from the Facility and various other funded debt sources. The
Company believes that it should have the ability to expand its borrowing
sources to accommodate expected capital needs in the future.
21
<PAGE>
International Operations
The Company's foreign operations are subject to various political and
economic risks including, but not limited to, the following: political
instability; currency controls; currency devaluations; exchange rate
fluctuations; risks related to the Euro conversion; 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
political or economic instability in any nation where the Company conducts
business, could have a materially adverse effect on the Company.
The Company has not experienced any material foreign currency transaction
gains or losses during the last three fiscal years except for a $2.6 million
foreign currency transaction loss realized in early 1999 from the conversion
of U.S. dollar denominated debt in Brazil into a Brazilian real denominated
credit facility. The Company manages the risk of foreign currency devaluation
by attempting to increase prices of products sold at or above the anticipated
rate of local currency devaluation relative to the U.S. dollar, by indexing
certain of its receivables to exchange rates in effect at the time of their
payment, and by entering into foreign currency forward derivatives as
determined prudent by management.
During the latter half of 1998, the Company's sales from Miami to customers
exporting into South American countries began to decline as a result of a
shift in demand towards digital handsets, which demand the Company could not
meet, and increased in-country product availability in Latin America. The
Company expects to focus its efforts on servicing large, financially sound
carrier partners from the Company's Latin American subsidiaries.
Since 1998 the Company's Brazilian operations have been primarily conducted
through a majority-owned joint venture. A primary supplier of handsets to the
joint venture in 1998 and 1999 was a Brazilian importer who purchased product
from Miami. Sales to the importer are excluded from the Company's consolidated
revenues, and the related gross profit is deferred until the handsets are sold
by the Brazilian joint venture to customers. The Company expects the amount of
purchases by the importer from Miami to decrease in fiscal 2000. The Company
expects the majority of purchases in 2000 to come from in-country suppliers.
In January 1999, the Brazilian government allowed the value of the real to
float freely against other foreign currencies, which resulted in a significant
devaluation of the real against the U.S. dollar. From November 1998 through
March 1999, the Company used Brazilian real non-deliverable forward ("NDF")
contracts to manage currency exposure risk related to credit sales made to the
Brazilian importer. Payment for these sales was remitted by the importer using
the Brazilian real rate of exchange against the U.S. dollar on the day the
Company recorded the sale to the Brazilian importer. Foreign currency rate
fluctuations caused bad debt expense of $26.4 million related to the payments
remitted by the importer. This expense was recorded in selling, general and
administrative expenses for the year ended November 30, 1999, but this expense
was completely offset by gains realized on NDF contract settlements, which
gains also were recorded in selling, general and administrative expenses.
At February 18, 2000, the Company has no Brazilian real NDF contracts
outstanding. Currently, under agreements made since January 1999, the
Brazilian joint venture is paid by major customers at the current value of the
real against the U.S. dollar on the date of payment. The Company may be
exposed to foreign currency losses from the time the Brazilian joint venture
remits payment to the importer in Brazilian reals and the importer pays the
Company in U.S. dollars. The ability of the importer to remit U.S. dollar
payments to the Company may be restricted if the Brazilian government imposes
currency controls. At February 18, 2000, the Company had $ 7.0 million in
accounts receivable due from the importer and the Company's Brazilian joint
venture has accounts payable of $3.0 million to the importer.
Based on present market conditions in Poland, the Company decided, in the
fourth quarter of 1999, to sell its operation in Poland. The Company has
engaged a third party to identify potential buyers. The Company
22
<PAGE>
recorded an impairment charge of $5.5 million, including $4.5 million of
goodwill amortization, to reduce the carrying value of the assets to their
estimated net realizable value.
Year 2000
The Company implemented a plan to assess and resolve Year 2000 issues that
could have affected the Company. The Company has not encountered any material
problems in its critical systems subsequent to December 31, 1999 related to
the Year 2000 issue and had also not encountered any material problems with
critical third party vendors. The Company believes that it is unlikely that
future problems will occur related to the Year 2000 issue, but there can be no
such assurance. The Company will continue to monitor any new issues or
concerns relative to Year 2000. The Company's costs of compliance with Year
2000 requirements were immaterial because the Company was in the process of
upgrading or establishing systems to keep pace with its growth.
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, product promotions of competitors and
suppliers, availability of distribution channels, and product supply and
pricing. 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 Pronouncement Not Yet Adopted
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities"
("Statement 133"), which was amended by Statement 137 issued in July 1999.
Statement 137 delayed the effective date of Statement 133. Statement 133 is
now effective for all interim and annual periods of the Company commencing
December 1, 2000. Given the Company's current and anticipated derivative
activities, management does not believe the adoption of Statement 133 should
have a material effect on the Company's consolidated financial position and
results of operations.
Item 7(A). Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Risk
For the year ended November 30, 1999, the Company recorded in other income
(expense), net foreign currency losses of $4.1 million primarily due to the
valuation of foreign currencies in the Company's Latin American operations.
In January 1999, the Brazilian government allowed the value of the real to
float freely against other foreign currencies, which resulted in a significant
devaluation of the real against the U.S. dollar. In February 1999, the
Company's $5.7 million U.S. dollar denominated debt in Brazil was converted
into a Brazilian real denominated credit facility by the Company's majority-
owned Brazilian joint venture. On conversion, the joint venture realized a
foreign currency transaction loss of $2.6 million due to the devaluation of
the Brazilian real against the U.S. dollar. The Company's $12.0 million of
debt at January 31, 2000, in Brazil is denominated in Brazilian reals.
23
<PAGE>
Since 1998 the Company's Brazilian operations have primarily been conducted
through a majority-owned joint venture. A primary supplier of handsets to the
joint venture in 1998 and 1999 was a Brazilian importer who purchased product
from Miami. Currently, under agreements made since January 1999, the Brazilian
joint venture is paid by major customers at the current value of the real
against the U.S. dollar on the date of payment. The Company may be exposed to
foreign currency losses from the time the Brazilian joint venture remits
payment to the importer in Brazilian reals and the importer pays the Company
in U.S. dollars. The ability of the importer to remit U.S. dollar payments to
the Company may be restricted if the Brazilian government imposes currency
controls. At February 18, 2000, the Company had $7.0 million in accounts
receivable due from the importer and the Company's Brazilian joint venture has
accounts payable of $3.0 million to the importer. The Company expects the
amount of purchases by the importer from Miami to decrease in fiscal 2000. The
Company expects the majority of purchases in 2000 to come from in-country
suppliers.
The Company manages foreign currency risk by attempting to increase prices
of products sold at or above the anticipated exchange rate of the local
currency relative to the U.S. dollar, by indexing certain of its accounts
receivable to exchange rates in effect at the time of their payment, and by
entering into foreign currency hedging instruments in certain instances. The
Company consolidates the bulk of its foreign exchange exposure related to
intercompany transactions in its IFSC. These transactional exposures are
managed using various derivative alternatives depending on the length and size
of the exposure.
At November 30, 1999, The Company's operations in the PRC had a $12.5
million loan from a PRC bank bearing interest at 5.52% which matures in
September 2000 and is fully collateralized by a U.S. dollar cash deposit. The
cash deposit was made via an intercompany loan from the operating entity in
Hong Kong as a mechanism to secure the repatriation of these funds. This $12.5
million loan was used to secure an RMB line of credit for the U.S. dollar
equivalent of $12.5 million. At November 30, 1999, $12.0 million had been
borrowed against the line of credit and bears interest at 5.85% with maturity
dates through September 2000. In February 2000, the Hong Kong operating entity
advanced the PRC operation an additional $20.0 million to increase the line of
credit with the PRC bank to a U.S. dollar equivalent of $32.5 million. The
Company has foreign exchange exposure on the funds as they have effectively
been converted into RMB. The Company continues to evaluate exposure and
related protection measures.
Interest Rate Risk
The interest rate of the Company's Facility is an index rate at the time of
borrowing plus an applicable margin on certain borrowings. The interest rate
is based on either the agent bank's prime lending rate or the London Interbank
Offered Rate. Additionally, the applicable margin is subject to increases as
the Company's ratio of consolidated funded debt to consolidated cash flow
increases. During the year ended November 30, 1999, the interest rates of
borrowings under the Facility ranged from 6.44% to 8.75%. A one percent change
in variable interest rates would not have a material impact on the Company.
The Company manages its borrowing under the Facility each business day to
minimize interest expense.
The borrowings of the Company's Brazilian operations are short-term in
nature, typically less than six months. Through November 30, 1998, annual
rates on borrowings by the Brazilian operations ranged from approximately 36%
to 48%. As a result of the devaluation of the Brazilian real against the U.S.
dollar in January 1999, annual interest rates for the Company during parts of
1999 ranged from 32% to 63% in Brazil. At November 30, 1999, annual interest
rates ranged from 20% to 28%. The Brazilian operations borrowings, including
accrued interest, at January 31, 2000 were $12.0 million. The Company
continues to evaluate financing alternatives to reduce interest expense for
its Brazilian operations.
The Company has short-term borrowings in the PRC as discussed in Foreign
Exchange Risk.
The Company's $150.0 million in long-term debt has a fixed coupon interest
rate of 5.0%.
24
<PAGE>
Derivative Financial Instruments
The Company uses various derivative financial instruments as part of an
overall strategy to manage the Company's exposure to market risk associated
with interest rate and foreign currency exchange rate fluctuations. The
Company uses foreign currency forward contracts to manage the foreign currency
exchange rate risks associated with international operations. The Company
evaluates the use of interest rate swaps and cap agreements to manage its
interest risk on debt instruments, including the reset of interest rates on
variable rate debt. The Company does not hold or issue derivative financial
instruments for trading purposes.
The risk of loss to the Company in the event of non-performance by any
counterparty under derivative financial instrument agreements is not
significant. All counterparties are rated A or higher by Moody's and Standard
and Poor's. Although the derivative financial instruments expose the Company
to market risk, fluctuations in the value of the derivatives are mitigated by
expected offsetting fluctuations in the matched instruments.
The Company manages foreign currency risk by attempting to increase prices
of products sold at or above the anticipated exchange rate of the local
currency relative to the U.S. dollar, by indexing certain of its accounts
receivable to exchange rates in effect at the time of their payment, and by
entering into foreign currency hedging instruments in certain instances. The
Company consolidates the bulk of its foreign exchange exposure related to
intercompany transactions in its IFSC. These transactional exposures are
managed using various derivative alternatives depending on the length and size
of the exposure.
The Company uses foreign currency forward contracts to reduce exposure to
exchange rate risks primarily associated with transactions in the regular
course of the Company's international operations. The forward contracts
establish the exchange rates at which the Company should purchase or sell the
contracted amount of local currencies for specified foreign currencies at a
future date. The Company uses forward contracts, which are short-term in
nature (45 days to one year), and receives or pays the difference between the
contracted forward rate and the exchange rate at the settlement date.
The major currency exposures hedged by the Company are the British pound,
Dutch guilder, Euro and Polish zloty. The carrying amount and fair value of
these contracts are not significant. The U.S. dollar equivalent of contractual
amounts of the Company's forward exchange contracts consists of the following
(in thousands):
<TABLE>
<CAPTION>
November 30, January 31,
1999 2000
------------ -----------
<S> <C> <C>
British pound.................................... $ 4,905 4,975
Euro............................................. 2,947 2,842
Polish zloty..................................... 867 884
------- -----
$ 8,719 8,701
======= =====
</TABLE>
The Company had no interest rates swap or cap contracts outstanding at
November 30, 1999, or January 31, 2000.
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.
25
<PAGE>
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 2000 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.
26
<PAGE>
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1. Consolidated Financial Statements
See Index to Consolidated Financial Statements on page F-1 of this Form 10-K.
2. Financial Statement Schedules
See Index to Consolidated Financial Statements on page F-1.
3. Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of CellStar
Corporation (the "Certificate of Incorporation").(1)
3.2 Certificate of Amendment to Certificate of Incorporation.(14)
3.3 Amended and Restated Bylaws of CellStar Corporation.(17)
4.1 The Certificate of Incorporation, Certificate of Amendment to
Certificate of Incorporation and Amended and Restated Bylaws of
CellStar Corporation filed as Exhibits 3.1, 3.2 and 3.3 are
incorporated into this item by reference.(1)(14)(13)
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.(12)
10.1 Employment Agreement, effective as of December 1, 1994, by and between
CellStar Corporation and Alan H. Goldfield.(2)(18)
10.2 Employment Agreement, effective January 22, 1998, by and between
CellStar (Asia) Corporation Limited, CellStar Corporation and Hong An-
Hsien.(13)(18)
10.3 Employment Agreement, effective as of November 12, 1999, by and between
CellStar, Ltd., CellStar Corporation and Dale H. Allardyce.(17)(18)
10.4 Employment Agreement, effective as of November 5, 1999, by and between
CellStar, Ltd., CellStar Corporation and Austin P. Young.(17)(18)
10.5 Employment Agreement, effective as of January 21, 2000, by and between
CellStar, Ltd., CellStar Corporation and Elaine Flud Rodriguez.(17)(18)
10.6 Agreement by and between Motorola Inc., by and through its Pan American
Cellular Subscriber Group, and CellStar, Ltd., effective January 1,
1997 (United States).(6)(19)
10.7 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.(5)(19)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.8 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).(7)
10.9 Registration Rights Agreement by and between the Company and Audiovox
Corporation.(9)
10.10 Form of Warrant for the purchase of shares of common stock to be issued
to Ladenburg, Thalmann & Co., Inc. and Raymond James & Associates,
Inc.(9)
10.11 Stock Purchase Agreement by and between the Company and Motorola Inc.,
dated as of July 20, 1995.(1)
10.12 Registration Rights Agreement by and between the Company and Motorola
Inc., dated as of July 20, 1995.(1)
10.13 CellStar Corporation 1994 Amended and Restated Director Nonqualified
Stock Option Plan.(10)
10.14 Registration Rights Agreement, dated as of June 2, 1995, between Hong
An Hsien and CellStar Corporation.(13)(18)
10.15 Registration Rights Agreement, entered into as of May 30, 1997, between
Leap International PTE LTD and CellStar Corporation.(11)
10.16 Purchase Agreement, dated October 7, 1997, by and among CellStar
Corporation and Bear, Stearns & Co. Inc. and Chase Securities Inc.(12)
10.17 Registration Rights Agreement, dated as of October 14, 1997, by and
among CellStar Corporation and Bear, Stearns & Co. Inc. and Chase
Securities Inc.(12)
10.18 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).(8)
10.19 Separation Agreement and Release Agreement between Richard M. Gozia and
CellStar, Ltd., CellStar Corporation, and all affiliated entities,
dated April 21, 1999.(15)(18)
10.20 Amended and Restated Credit Agreement, dated as of August 2, 1999,
among CellStar Corporation, each of the banks or other lending
institutions signatory thereto, and Chase Securities, Inc. as lead
arranger and book manager.(16)
10.21 Stock Purchase Agreement, dated as of September 3, 1999, among CellStar
Telecom, Inc., Inmobiliaria Azltan, S.A. de C.V., and Topp Telecom,
Inc.(16)
10.22 Letter Agreement between Pacific Bell Mobile Services and CellStar,
Ltd. dated as of May 31, 1999.(16)
10.23 Amendment to Master Agreement for the Purchase of Products and
Inventory Maintenance, Assembly and Fulfillment (IAF) Services between
Pacific Bell Mobile Services and CellStar, Ltd. dated as of May 31,
1999.(16)(19)
10.24 Pledge Agreement, dated as of July 10, 1998, between CellStar Telecom,
Inc. and Chase Bank of Texas, National Association.(16)
10.25 Contribution and Indemnification Agreement, dated as of July 10, 1998,
among CellStar Corporation and the affiliated entities signatory
thereto.(16)
10.26 Guaranty, dated as of July 10, 1998, provided by CellStar Telecom,
Inc., Florida Properties, Inc., CellStar Global Satellite Service, Ltd.
to Chase Bank of Texas, National Association and the other banks and
lending institutions signatory to the Credit Agreement.(16)
10.27 Pledge Agreement, dated as of July 10, 1998, between NAC Holdings, Inc.
and Chase Bank of Texas, National Association.(16)
10.28 Pledge Agreement, dated as of July 10, 1998, between CellStar
Corporation and Chase Bank of Texas, National Association.(16)
10.29 Pledge Agreement, dated as of July 10, 1998, between National Auto
Center, Inc. and Chase Bank of Texas, National Association.(16)
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.30 Guarantor Security Agreement, dated as of July 10, 1998, among CellStar
Telecom, Inc. Florida Properties, Inc., CellStar Global Satellite
Service, Ltd. and Chase Bank of Texas, National Association.(16)
10.31 First Amendment to Amended and Restated Credit Agreement, dated
November 23, 1999, among CellStar Corporation and each of the banks and
lending institutions signatory thereto.(17)
10.32 CellStar Corporation 1993 Amended and Restated Long-Term Incentive
Plan, amended and effective as of January 21, 2000.(17)(18)
21.1 Subsidiaries of the Company.(17)
23.1 Consent of KPMG LLP.(17)
27.1 Financial Data Schedule.(17)
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 Annual Report on Form 10-
K for the fiscal year ended November 30, 1996, and incorporated herein by
reference.
(6) 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.
(7) 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.
(8) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1995, and incorporated herein by
reference.
(9) Previously filed as an exhibit to the Company's Registration Statement
No. 33-70262 on Form S-1 and incorporated herein by reference.
(10) 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.
(11) 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.
(12) 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.
(13) Previously filed as an exhibit to the Company's Annual Report on Form 10-
K for the fiscal year ended November 30, 1997, and incorporated herein by
reference.
(14) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1998, and incorporated herein by
reference.
(15) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1999, and incorporated herein by
reference.
(16) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended August 31, 1998, and incorporated herein by
reference.
(17) Filed herewith.
(18) The exhibit is a management contract or compensatory plan or arrangement.
(19) Certain provisions of this exhibit are subject to a request for
confidential treatment filed with the Securities and Exchange Commission.
4. Reports on Form 8-K
None
29
<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 25, 2000
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>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Alan H. Goldfield Chairman of the Board and February 25, 2000
______________________________________ Chief Executive Officer
Alan H. Goldfield (Principal Executive
Officer)
/s/ Dale H. Allardyce President and Chief February 25, 2000
______________________________________ Operating Officer
Dale H. Allardyce
/s/ Austin P. Young Senior Vice President, February 25, 2000
______________________________________ Chief Financial Officer
Austin P. Young and Treasurer (Principal
Financial Officer)
/s/ Raymond L. Durham Corporate Controller February 25, 2000
______________________________________ (Principal Accounting
Raymond L. Durham Officer)
Director February 25, 2000
______________________________________
J. L. Jackson
/s/ James L. Johnson Director February 25, 2000
______________________________________
James L. Johnson
/s/ Dale V. Kesler Director February 25, 2000
______________________________________
Dale V. Kesler
/s/ Terry S. Parker Director February 25, 2000
______________________________________
Terry S. Parker
/s/ Sheldon I. Stein Director February 25, 2000
______________________________________
Sheldon I. Stein
/s/ Jere W. Thompson Director February 25, 2000
______________________________________
Jere W. Thompson
</TABLE>
30
<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, 1999 and 1998............... F-3
Consolidated Statements of Operations for the years ended November 30,
1999, 1998 and 1997....................................................... F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for the years ended November 30, 1999, 1998 and 1997...................... F-5
Consolidated Statements of Cash Flows for the years ended November 30,
1999, 1998 and 1997....................................................... F-6
Notes to Consolidated Financial Statements................................. F-7
Schedule II--Valuation and Qualifying Accounts for the years ended November
30, 1999, 1998 and 1997................................................... 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, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-
year period ended November 30, 1999, 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.
KPMG LLP
Dallas, Texas
January 14, 2000
F-2
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30, 1999 and 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
ASSETS -------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 95,498 47,983
Accounts receivable (less allowance for doubtful accounts
of $33,152 and $33,361, respectively).................... 306,235 349,760
Inventories............................................... 189,866 274,438
Deferred income tax assets................................ 15,127 18,670
Prepaid expenses.......................................... 32,029 16,806
-------- -------
Total current assets.................................... 638,755 707,657
Property and equipment, net................................. 27,481 27,858
Goodwill (less accumulated amortization of $10,483 and
$4,032 respectively)....................................... 32,584 32,910
Other assets................................................ 7,618 7,100
-------- -------
$706,438 775,525
======== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable.......................................... $212,999 311,326
Notes payable to financial institutions................... 50,609 85,023
Accrued expenses.......................................... 24,864 39,395
Income taxes payable...................................... 8,646 8,601
Deferred income tax liabilities........................... 8,796 3,389
-------- -------
Total current liabilities............................... 305,914 447,734
Long-term debt.............................................. 150,000 150,000
-------- -------
Total liabilities....................................... 455,914 597,734
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued.................................. -- --
Common stock, $.01 par value, 200,000,000 shares
authorized; 60,057,096 and 58,963,218 shares issued and
outstanding, respectively................................ 601 590
Additional paid-in capital................................ 80,929 76,962
Common stock warrant...................................... -- 4
Accumulated other comprehensive loss--foreign currency
translation adjustments.................................. (8,509) (8,181)
Retained earnings......................................... 177,503 108,416
-------- -------
Total stockholders' equity.............................. 250,524 177,791
-------- -------
$706,438 775,525
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended November 30, 1999, 1998, and 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Revenues..................................... $2,333,805 1,995,850 1,482,814
Cost of sales................................ 2,140,375 1,823,075 1,325,488
---------- --------- ---------
Gross profit............................... 193,430 172,775 157,326
Selling, general and administrative
expenses.................................... 111,613 116,747 81,319
Impairment of assets held for sale........... 5,480 -- --
Lawsuit settlement........................... -- 7,577 --
Restructuring charge......................... 3,639 -- --
---------- --------- ---------
Operating income........................... 72,698 48,451 76,007
Other income (expense):
Interest expense........................... (19,027) (14,446) (7,776)
Equity in income (loss) of affiliated
companies, net............................ 31,933 (28,448) 465
Gain on sale of assets..................... 8,774 -- --
Other, net................................. (1,876) 1,389 2,260
---------- --------- ---------
Total other income (expense)............. 19,804 (41,505) (5,051)
---------- --------- ---------
Income before income taxes................. 92,502 6,946 70,956
Provision (benefit) for income taxes......... 23,415 (7,418) 17,323
---------- --------- ---------
Net income................................. $ 69,087 14,364 53,633
========== ========= =========
Net income per share:
Basic...................................... $ 1.16 0.24 0.92
========== ========= =========
Diluted.................................... $ 1.12 0.24 0.89
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Years ended November 30, 1999, 1998, and 1997
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Common other
------------- paid-in stock comprehensive Retained
Shares Amount capital warrant loss earnings Total
------ ------ ---------- ------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30,
1996................... 57,821 $193 68,167 4 (4,520) 40,419 104,263
Comprehensive income:
Net income............ -- -- -- -- -- 53,633 53,633
Foreign currency
translation
adjustment........... -- -- -- -- (1,949) -- (1,949)
-------
Total comprehensive
income............. 51,684
Common stock issued
under stock option
plans................. 334 2 2,167 -- -- -- 2,169
Common stock issued for
acquisition of
minority interest..... 344 1 2,748 -- -- -- 2,749
Three-for-two stock
split................. -- 97 (97) -- -- -- --
------ ---- ------ --- ------ ------- -------
Balance at November 30,
1997................... 58,499 293 72,985 4 (6,469) 94,052 160,865
Comprehensive income:
Net income............ -- -- -- -- -- 14,364 14,364
Foreign currency
translation
adjustment........... -- -- -- -- (1,712) -- (1,712)
-------
Total comprehensive
income............. 12,652
Common stock issued
under stock option
plans................. 464 5 4,269 -- -- -- 4,274
Two-for-one common
stock split........... -- 292 (292) -- -- -- --
------ ---- ------ --- ------ ------- -------
Balance at November 30,
1998................... 58,963 590 76,962 4 (8,181) 108,416 177,791
Comprehensive income:
Net income............ -- -- -- -- -- 69,087 69,087
Foreign currency
translation
adjustment........... -- -- -- -- (328) -- (328)
-------
Total comprehensive
income............. 68,759
Common stock issued
under stock option
plans................. 533 5 3,969 -- -- -- 3,974
Exercise of common
stock warrant......... 561 6 (2) (4) -- -- --
------ ---- ------ --- ------ ------- -------
Balance at November 30,
1999................... 60,057 $601 80,929 -- (8,509) 177,503 250,524
====== ==== ====== === ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended November 30, 1999, 1998, and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 69,087 14,364 53,633
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for doubtful accounts............... 11,643 14,120 4,239
Provision for inventory obsolescence.......... 23,012 12,434 4,830
Depreciation and amortization................. 16,911 11,426 5,063
Gain on sale of assets........................ (8,774) -- --
Equity in loss (income) of affiliated
companies, net............................... (31,933) 28,448 (465)
Deferred income taxes......................... 8,950 (13,073) 1,754
Changes in certain operating assets and
liabilities:
Accounts receivable.......................... 29,751 (208,437) (46,516)
Inventories.................................. 61,232 (90,164) (100,761)
Prepaid expenses............................. (15,201) (8,803) (5,040)
Other assets................................. (2,327) (116) 241
Accounts payable............................. (99,349) 119,360 44,523
Accrued expenses............................. (16,070) 19,760 2,624
Income taxes payable......................... 882 (2,109) 9,192
-------- --------- ---------
Net cash provided by (used in) operating
activities................................. 47,814 (102,790) (26,683)
-------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment............ (8,499) (12,498) (6,212)
Acquisitions of businesses, net of cash
acquired...................................... (2,301) (13,526) --
Proceeds from sale of assets................... 41,778 -- --
Acquisition of minority interests.............. -- (900) (502)
Purchase of equity investments................. -- -- (3,412)
-------- --------- ---------
Net cash provided by (used in) investing
activities................................. 30,978 (26,924) (10,126)
-------- --------- ---------
Cash flows from financing activities:
Net borrowings (payments) on notes payable to
financial institutions........................ (34,414) 82,030 (56,136)
Checks not presented for payment............... -- 17,719 --
Net proceeds from issuance of long-term debt... -- -- 144,979
Principal payments on long-term debt........... -- -- (6,853)
Net proceeds from issuance of common stock..... 3,137 3,302 2,169
-------- --------- ---------
Net cash provided by (used in) financing
activities................................. (31,277) 103,051 84,159
-------- --------- ---------
Net increase (decrease) in cash and cash
equivalents.................................... 47,515 (26,663) 47,350
Cash and cash equivalents at beginning of year.. 47,983 74,646 27,296
-------- --------- ---------
Cash and cash equivalents at end of year........ $ 95,498 47,983 74,646
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Basis for Presentation
CellStar Corporation and subsidiaries (the "Company") is a global provider
of distribution and value-added logistics services to the wireless
communications industry, with operations in Asia-Pacific, Latin America,
Europe and North America. The Company facilitates the effective and efficient
distribution of handsets, related accessories and other wireless products from
leading manufacturers to network operators, agents, resellers, dealers and
retailers. In many of its markets, the Company provides activation services
that generate new subscribers for its wireless carrier customers.
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) 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.
(c) Inventories
Inventories are stated at the lower of cost (primarily on a moving average
basis) or market.
(d) Property and Equipment
Property and equipment are recorded at cost. Depreciation of equipment is
provided over the estimated useful lives of the respective assets, which range
from three to thirty years, on a straight-line basis. Leasehold improvements
are amortized over the shorter of their useful life or the related lease term.
Major renewals are capitalized, while maintenance, repairs and minor renewals
are expensed as incurred.
(e) Goodwill
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired and is amortized using the straight-line method over 20
years. The Company assesses the net realizable value of this intangible asset
by determining the estimated future cash flows related to such assets. In the
event that assets are found to be carried at amounts which are in excess of
estimated future operating cash flows, then the goodwill will be adjusted to a
level commensurate with a discounted cash flow analysis of the underlying
assets.
(f) Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell.
(g) Equity Investments in Affiliated Companies
The Company accounts for its investments in common stock of affiliated
companies using the equity method or the modified equity method, if required.
The investments are included in other assets in the accompanying consolidated
balance sheets.
F-7
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(h) Revenue Recognition
For the Company's wholesale business, revenue is recognized when product is
shipped. In accordance with contractual agreements with wireless service
providers, the Company receives an activation commission for obtaining
subscribers for wireless services in connection with the Company's retail
operations. The agreements contain various provisions for additional
commissions ("residual commissions") based on 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 on the wireless service
providers' acceptance of subscriber contracts and residual commissions when
earned and provides an allowance for estimated wireless service deactivations,
which is reflected as a reduction of accounts receivable and revenues in the
accompanying consolidated financial statements. The Company recognizes fee
revenue when the service is performed.
(i) 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 other comprehensive income or loss in
stockholders' equity, except for subsidiaries located in countries whose
economies are considered highly inflationary. In such cases, translation
adjustments are included primarily in other income (expense) in the
accompanying consolidated statements of operations. Net transaction gains or
(losses) for the years ended November 30, 1999, 1998 and 1997 were ($3.4)
million, $0.3 million and ($1.4) million, respectively. The currency exchange
rates of the Latin American countries in which the Company conducts operations
have historically been volatile. The Company manages the risk of foreign
currency devaluation by attempting to increase prices of products sold at or
above the anticipated rate of local currency devaluation relative to the U.S.
dollar, by indexing certain of its receivables to exchange rates in effect at
the time of their payment and by entering into non-deliverable foreign
currency forward contracts in certain instances.
(j) Derivative Financial Instruments
The Company uses financial instruments to manage its exposure to movements
in foreign exchange rates. The use of these financial instruments modifies the
exposure of these risks with the intent to reduce the risk to the corporation.
The Company does not use financial instruments for trading purposes nor is the
Company party to leveraged derivatives.
Foreign exchange instruments that hedge the currency exposure on
intercompany loans and sales transactions are accounted for using hedge
accounting. Under hedge accounting, these contracts are valued at current spot
rates at the market's close, and the change in value offsets the related
transaction losses or gains.
The Company used foreign currency non-deliverable forward ("NDF") contracts
to manage certain foreign exchange risks in conjunction with transactions with
E.A. Electronicos e Componentes Ltda. [see Footnote 2(b)]. These contracts did
not qualify as hedges against financial statement exposure. Gains or losses on
these contracts represent the difference between the forward rate available on
the underlying currency against the U.S. dollar for the remaining maturity of
the contracts as of the balance sheet date and the contracted forward rate and
are included in selling, general and administrative expenses in the
consolidated statements of operations.
(k) Preopening Costs
Labor and certain other costs related to the opening of new retail locations
are expensed as incurred.
(l) 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
F-8
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
(m) Net Income (Loss) Per Share
Basic net income per common share is based on the weighted average number of
common shares outstanding for the relevant period. Diluted net income per
common share is based on the weighted average number of common shares
outstanding plus the dilutive effect of potentially issuable common shares
pursuant to stock options, warrants, and convertible debentures.
A reconciliation of the numerators and denominators of the basic and diluted
net income per share computations for the years ended November 30, 1999, 1998,
and 1997, follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Basic:
Net income.............................................. $69,087 14,364 53,633
======= ====== ======
Weighted average number of shares outstanding........... 59,757 58,865 58,144
======= ====== ======
Net income per share.................................. $ 1.16 0.24 0.92
======= ====== ======
Diluted:
Net income.............................................. $69,087 14,364 53,633
Interest on convertible notes, net of tax effect........ 4,500 -- 567
------- ------ ------
Adjusted net income................................... $73,587 14,364 54,200
======= ====== ======
Weighted average number of shares outstanding........... 59,757 58,865 58,144
Effect of dilutive securities:
Stock options and warrant............................. 411 1,791 2,024
Convertible notes..................................... 5,421 -- 683
------- ------ ------
Weighted average number of shares outstanding including
effect of dilutive securities.......................... 65,589 60,656 60,851
======= ====== ======
Net income per share.................................. $ 1.12 0.24 0.89
======= ====== ======
</TABLE>
Options to purchase 2.3 million, 1.3 million, and 0.1 million shares of
common stock for 1999, 1998 and 1997, respectively, were not included in the
computation of diluted EPS because the options' exercise price was greater
than the average market price of the common shares.
Diluted weighted average shares outstanding at November 30, 1998 do not
include 5.4 million common equivalent shares issuable for the convertible
notes, as their effect would be anti-dilutive.
(n) Comprehensive Income
Comprehensive income consists of net income and foreign currency translation
adjustments and is presented in the consolidated statements of stockholders'
equity and comprehensive income. The Company does not tax effect its foreign
currency translation adjustments since it considers the unremitted earnings of
its foreign subsidiaries to be indefinitely reinvested.
F-9
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(o) Consolidated Statements of Cash Flow Information
For purposes of the consolidated statements of cash flows, the Company
considers all highly-liquid investments with an original maturity of 90 days
or less to be cash equivalents. The Company paid approximately $19.4 million,
$13.0 million and $7.1 million of interest for the years ended November 30,
1999, 1998 and 1997, respectively. The Company paid approximately $13.6
million, $8.7 million and $6.4 million of income taxes for the years ended
November 30, 1999, 1998 and 1997, respectively.
(p) Stock Option Plans
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("Opinion 25"), and related interpretations, in
accounting for its fixed stock option plans. Accordingly, compensation expense
is recorded on the date of grant of options only if the current market price
of the underlying stock exceeds the exercise price.
(2) Related Party Transactions
(a) Transactions with Motorola
Motorola purchased 2.1 million shares of the Company's common stock in July
1995 and is a major supplier of handsets and accessories. Total purchases from
Motorola approximated $1,055.1 million, $1,276.1 million and $1,057.2 million
for the years ended November 30, 1999, 1998 and 1997, respectively. Included
in accounts payable at November 30, 1999 and 1998 was approximately $87.5
million and $200.3 million, respectively, due to Motorola for purchases of
inventory.
(b) Transactions with E.A. Electronicos e Componentes Ltda.
Since 1998, the Company's Brazilian operations have been primarily conducted
through a majority-owned joint venture. The primary supplier of handsets to
the joint venture was a Brazilian importer, E.A. Electronicos e Componentes
Ltda. ("E.A."), who is a customer of the Company. Sales to E.A. are excluded
from the Company's consolidated revenues, and the related gross profit is
deferred until the handsets are sold by the Brazilian joint venture to
customers. At November 30, 1999 and 1998, the Company had accounts receivable
of $7.0 million and $58.5 million, respectively, due from E.A. and accounts
payable of $10.5 million and $50.9 million, respectively, due to E.A.
From November 1998 through March 1999, the Company used Brazilian real NDF
contracts to manage currency exposure risk related to credit sales made to
E.A. Payment for these sales was remitted by E.A. using the Brazilian real
rate exchange against the U.S. dollar on the day the Company recorded the sale
to E.A. Foreign currency rate fluctuations caused bad debt expense of $26.4
million related to the payments remitted by the importer. This expense was
included in selling, general and administrative expenses for the year ended
November 30, 1999, but was completely offset by gains realized on NDF contract
settlements, which gains also were included in selling, general and
administrative expenses.
F-10
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(3) Fair Value of Financial Instruments
The carrying amounts of current assets and liabilities as of November 30,
1999 and 1998 approximate fair value due to the short maturity of these
instruments. The fair value of the Company's long-term debt represents quoted
market prices as of November 30, 1999 and 1998 as set forth in the table below
(in thousands):
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- ------
<S> <C> <C> <C> <C>
Long-term debt........................... $150,000 116,350 $150,000 91,500
======== ======= ======== ======
</TABLE>
(4) Property and Equipment
Property and equipment consisted of the following at November 30, 1999 and
1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land and building..................................... $ 9,382 9,298
Furniture, fixtures and equipment..................... 28,937 23,895
Jet aircraft.......................................... 4,454 4,454
Leasehold improvements................................ 5,137 4,159
-------- --------
47,910 41,806
Less accumulated depreciation and amortization........ (20,429) (13,948)
-------- --------
$ 27,481 27,858
======== ========
</TABLE>
(5) Investments in Affiliated Companies
At November 30, 1999 and 1998, investments in affiliated companies includes
a 49% interest in CellStar Amtel Sdn. Bhd. ("Amtel"), a Malaysian company.
Amtel is a distributor of wireless handsets. The Company's investment in Amtel
approximates its equity in Amtel's net assets.
At November 30, 1998, investments in affiliated companies included an 18%
voting interest in the common stock of Topp Telecom, Inc. ("Topp"). Topp is a
reseller of wireless airtime through the provision of prepaid wireless
services.
In November 1997, the Company made a $3.0 million equity investment in Topp,
which represented an 18% voting interest in its common stock, and began
supplying Topp with handsets.
Topp incurred substantial operating losses associated with the acquisition
costs of expanding its customer base. Beginning in the Company's third fiscal
quarter of 1998, the Company became Topp's primary source of funding through
the Company's supply of handsets. Accordingly, the Company then began to
account for its debt and equity investment in Topp under the modified equity
method. Under this method, in 1998 the Company recognized Topp's net loss to
the extent of the Company's entire debt and equity investment, or $29.2
million. In February 1999, the Company sold part of its equity investment in
Topp to a wholly-owned subsidiary of TelMex. At the closing, the Company also
sold a portion of its debt investment to certain other shareholders of Topp.
As a result of these transactions, the Company received cash in the amount of
$7.0 million, retained a $22.5 million note receivable and a 19.5% equity
ownership interest in Topp, and recorded a pre-tax gain of $5.8 million. In
September 1999, the Company sold its remaining debt and equity interest in
Topp for $26.5 million in cash, resulting in a pre-tax gain of $26.1 million.
F-11
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summary financial information for Topp as of and for the eleven months ended
November 30, 1998 (unaudited, in thousands) follows:
<TABLE>
<S> <C>
As of November 30, 1998:
Current assets................................................. $13,303
Total assets................................................... 16,575
Current liabilities............................................ 34,062
Total liabilities.............................................. 58,852
Stockholders' deficit.......................................... (42,277)
</TABLE>
For the eleven months ended November 30, 1998:
<TABLE>
<S> <C>
Revenues........................................................ $ 34,491
Gross margin.................................................... 8,183
Net loss........................................................ (35,788)
</TABLE>
(6) Debt
Notes payable to financial institutions consisted of the following at
November 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Multicurrency revolving credit facility.................... $17,200 73,500
Brazilian credit facilities................................ 8,872 11,523
PRC credit facilities...................................... 24,537 --
------- ------
$50,609 85,023
======= ======
</TABLE>
On October 15, 1997, the Company entered into a $135.0 million Multicurrency
Revolving Credit Facility (the "Facility") with a syndicate of banks. On April
8, 1999, the amount of the Facility was reduced from $135.0 million to $115.0
million due to the release of a syndication member bank. On August 2, 1999,
the Company restructured its Facility to add additional flexibility for
foreign working capital funding and capitalization. Also under this
restructuring the Company received expanded borrowing capacity on its domestic
assets. The Facility has a term of approximately five years 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. Fundings under the Facility are limited by a
borrowing base test, which is measured monthly. Borrowings under the Facility
are made under London Interbank Offering Rate contracts, generally for 30-90
days, or at the bank's prime lending rate. Total interest charged on those
borrowings includes an applicable margin that is subject to certain increases
if the Company's ratio of consolidated funded debt to consolidated cash flow
is greater than or equal to 3.0 to 1.0, which is determined at the end of each
fiscal quarter. At November 30, 1999, the interest rate on the Facility
borrowing was 8.75%. The Facility is secured by the Company's accounts
receivable, property, plant and equipment and all other real property. 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, 1999, the Company had available $66.5 million of
unused borrowing capacity.
As of November 30, 1999, the Company's Brazilian operations had borrowed
$8.9 million, including accrued interest thereon, under credit facilities with
several Brazilian banks. All $8.9 million was denominated in Brazilian reals.
Interest rates on borrowings in Brazil range from approximately 20% to 28%. In
conjunction with these credit facilities, the Company issued $9.15 million of
letters of credit against its Facility to guarantee the repayment of the
principal plus interest and all other contractual obligations of its Brazilian
operations to one of the Brazilian banks.
F-12
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At November 30, 1999, The Company's operations in the People's Republic of
China ("PRC") had a $12.5 million loan from a PRC bank bearing interest at
5.52% which matures in September 2000 and is fully collateralized by a U.S.
dollar cash deposit. The cash deposit was made via an intercompany loan from
the operating entity in Hong Kong as a mechanism to secure the repatriation of
these funds. This $12.5 million loan was used to secure an RMB line of credit
for the U.S. dollar equivalent of $12.5 million. At November 30, 1999, $12.0
million had been borrowed against the line of credit and bears interest at
5.85% with maturity dates through September 2000.
The weighted average interest rate on short-term borrowings at November 30,
1999 and 1998, was 7.5% and 7.3%, respectively.
At November 30, 1999 and 1998, long-term debt consisted of $150.0 million of
the Company's 5% Convertible Subordinated Notes Due October 15, 2002 (the
"Notes"), which are convertible into 5.4 million shares of common stock at
$27.668 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% 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 of 1933, along with the common stock into which the Notes are
convertible.
(7) Income Taxes
The Company's income (loss) before income taxes was comprised of the
following for the years ended November 30, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
United States..................................... $13,430 (48,413) 22,539
International..................................... 79,072 55,359 48,417
------- ------- ------
Total........................................... $92,502 6,946 70,956
======= ======= ======
</TABLE>
Provision (benefit) for income taxes for the years ended November 30, 1999,
1998 and 1997 consisted of the following (in thousands):
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -------
<S> <C> <C> <C>
Year ended November 30, 1999:
United States:
Federal................................... $ (28) 3,245 3,217
State..................................... 897 407 1,304
International............................... 13,596 5,298 18,894
------- ------- -------
$14,465 8,950 23,415
======= ======= =======
Year ended November 30, 1998:
United States:
Federal................................... $(2,553) (15,283) (17,836)
State..................................... 1,067 (849) 218
International............................... 7,141 3,059 10,200
------- ------- -------
$ 5,655 (13,073) (7,418)
======= ======= =======
Year ended November 30, 1997:
United States:
Federal................................... $ 4,408 1,736 6,144
State..................................... 1,134 89 1,223
International............................... 10,027 (71) 9,956
------- ------- -------
$15,569 1,754 17,323
======= ======= =======
</TABLE>
F-13
<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 income before income taxes
as a result of the following for the years ended November 30, 1999, 1998 and
1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Expected tax expense (benefit).................... $32,376 2,431 24,835
International and U.S. tax effects attributable to
international operations......................... (8,628) (11,207) (7,022)
State income taxes, net of Federal benefits....... 848 142 795
Equity in (loss) income of affiliated companies,
net.............................................. 6 781 (163)
Other, net........................................ (1,187) 435 (1,122)
------- -------- -------
Actual tax (benefit) expense.................... $23,415 (7,418) 17,323
======= ======== =======
</TABLE>
As a result of certain activities undertaken by the Company, income in
certain foreign countries is subject to reduced tax rates, and in some cases
is wholly exempt from taxes, primarily through 1999. The income tax benefits
attributable to the tax status of these subsidiaries are estimated to be $3.0
million, $5.3 million and $1.5 million, respectively, for 1999, 1998 and 1997,
respectively.
The tax effect of temporary differences underlying significant portions of
deferred income tax assets and liabilities at November 30, 1999 and 1998, is
presented below (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Deferred income tax assets:
United States:
Accounts receivable.................................... $ 2,746 12,744
Inventory adjustments for tax purposes................. 4,666 3,425
Class action lawsuit settlement........................ -- 2,498
Net operating loss carryforwards....................... 2,306 --
Foreign tax credit carryforwards....................... 2,308 --
Other, net............................................. 2,279 340
International:
Accounts receivable.................................... -- 189
Net operating loss carryforwards....................... 4,172 1,913
Other, net............................................. 822 135
------- ------
19,299 21,244
Valuation allowance..................................... (4,172) (2,574)
------- ------
$15,127 18,670
======= ======
Deferred income tax liabilities:
International:
Other, net............................................. $ 8,796 3,389
======= ======
</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 on the generation of future taxable income during the
periods in which those temporary differences become deductible. The valuation
allowance for deferred income tax assets as of December 1, 1998 and 1997, was
$2.6 million and $1.4 million, respectively. The net change in the total
valuation allowance for the years ended November 30, 1999 and 1998, was an
increase of $1.6 million and $1.2 million, respectively. Management considers
the scheduled reversal of deferred income tax liabilities, projected future
taxable income,
F-14
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and tax planning strategies in making this assessment. Based on the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred income tax assets are deductible, management
believes it is more likely than not the Company should 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.
The Company does not provide for U.S. 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, should
continue to be reinvested indefinitely. At November 30, 1999, the Company had
not provided U.S. Federal income taxes on earnings of international
subsidiaries of approximately $181.9 million. On 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 on final determination by the respective taxing
authorities. Management believes it has made an adequate tax provision.
(8) Leases
The Company leases certain warehouse and office facilities, equipment and
retail stores under operating leases which range from two to 99 years and
which facility and retail store leases generally contain renewal options.
Rental expense for operating leases was $6.0 million, $5.6 million and $4.3
million for the years ended November 30, 1999, 1998 and 1997, respectively.
Future minimum lease payments under operating leases as of November 30, 1999
are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending November 30, Amount
------------------------ -------
<S> <C>
2000............................................................ $ 6,202
2001............................................................ 3,954
2002............................................................ 2,976
2003............................................................ 2,321
2004............................................................ 935
Thereafter...................................................... 206
-------
$16,594
=======
</TABLE>
(9) Impairment of Assets Held for Sale.
Based on the market conditions in Poland, the Company decided, in the fourth
quarter of 1999, to sell its Polish operations. The Company recorded an
impairment charge of $5.5 million, including $4.5 million of goodwill
amortization, to reduce the carrying value of the assets to their estimated
net realizable value. For 1999, and 1998, revenues for the operations in
Poland were $7.4 million and $9.9 million, respectively.
F-15
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(10) Lawsuit Settlement
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 were consolidated,
and the State of Wisconsin Investment Board was appointed lead plaintiff in
the consolidated action. On November 19, 1998, the Company entered into a
Stipulation of Settlement that resolved all claims pending in the suit. The
settlement was approved by the Court on January 25, 1999, and all remaining
claims were dismissed.
(11) Restructuring Charge
As part of the Company's strategy to streamline its organizational
structure, beginning in the second quarter of 1999 the Company reorganized and
consolidated the management of the Company's Latin American and North American
Regions and centralized the management in the Company's Asia-Pacific Region.
As a result, the consolidated statements of operations for the year ended
November 30, 1999, include a charge of $3.6 million related to the
reorganization. Of the total costs, $0.8 million consisted of non-cash outlays
and the remaining $2.8 million consisted of cash outlays, of which $2.4 had
been paid at November 30, 1999. The components of the restructuring charge
were as follows (in thousands):
<TABLE>
<S> <C>
Employee termination costs........................................ $2,373
Write-down of assets.............................................. 760
Other............................................................. 506
------
$3,639
======
</TABLE>
(12) Gain on Sale of Assets
The Company recorded a gain of $8.8 million for the year ended November 30,
1999 associated with the sale of the following (in thousands):
<TABLE>
<S> <C>
Prepaid operations in Venezuela................................... $5,197
Retail stores in the United States................................ 2,911
Other............................................................. 666
------
$8,774
======
</TABLE>
(13) Concentration of Credit Risk and Major Customer Information
Pacific Bell Mobile Services, a North American Region customer, accounted
for less than 10% of revenues in the year ended November 30, 1999,
approximately 10% or $194.6 million, and approximately 12%, or $178.2 million,
of revenues for the years ended November 30, 1998 and 1997, respectively. No
other customer accounted for 10% or more of consolidated revenues in any of
the years ended November 30, 1999, 1998 or 1997.
(14) Segment and Related Information
The Company operates predominantly within one industry, wholesale and retail
sales of wireless telecommunications products. The Company's management
evaluates operations primarily on income before interest and income taxes in
the following reportable geographic regions: Asia-Pacific, Latin America,
which includes Mexico and the Company's Miami, Florida, operations ("Miami"),
Europe and North America, primarily the United States. Revenues and operations
of Miami are included in Latin America since Miami's
F-16
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
activities are primarily for export to South American countries, either by the
Company or through its exporter customers. The Corporate segment includes
headquarters operations, income and expenses not allocated to reportable
segments, and interest expense on the Company's Facility and Notes. The
accounting policies of the reportable segments are the same as those described
in note (1). Intersegment sales and transfers are not significant.
Segment information for the years ended November 30, 1999, 1998 and 1997
follows (in thousands):
<TABLE>
<CAPTION>
Asia- Latin North
Pacific America Europe America Corporate Total
-------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
November 30, 1999:
Revenues from external
customers............ $769,412 717,273 469,991 377,129 -- 2,333,805
Impairment of assets
held for sale........ -- -- 705 -- 4,775 5,480
Restructuring charge.. 1,277 -- -- 2,302 60 3,639
Operating income
(loss)............... 41,537 31,580 10,281 17,529 (28,229) 72,698
Equity in income
(loss) of affiliated
companies, net....... (18) -- -- 31,951 -- 31,933
Income (loss) before
interest and income
taxes................ 41,102 31,013 10,208 48,555 (23,230) 107,648
Total assets.......... 240,523 261,618 56,536 126,208 21,553 706,438
Depreciation and
amortization......... 1,869 2,564 6,426 3,683 2,369 16,911
November 30, 1998:
Revenues from external
customers............ $513,869 705,624 303,520 472,837 -- 1,995,850
Lawsuit settlement.... -- -- -- -- 7,577 7,577
Operating income
(loss)............... 38,727 28,541 5,226 527 (24,570) 48,451
Equity in income
(loss) of affiliated
companies, net....... 768 -- -- (29,216) -- (28,448)
Income (loss) before
interest and income
taxes................ 37,804 27,959 6,482 (28,437) (25,337) 18,471
Total assets.......... 235,147 319,944 54,659 152,004 13,771 775,525
Depreciation and
amortization......... 2,012 3,742 670 3,197 1,805 11,426
November 30, 1997:
Revenues from external
customers............ $422,751 497,336 69,142 493,585 -- 1,482,814
Operating income
(loss)............... 44,535 41,446 (145) 5,475 (15,304) 76,007
Equity in income
(loss) of affiliated
company.............. 465 -- -- -- -- 465
Income (loss) before
interest and income
taxes................ 45,437 41,216 (215) 7,219 (17,055) 76,602
Total assets.......... 120,728 168,532 15,438 183,687 8,726 497,111
Depreciation and
amortization......... 1,417 715 152 1,691 1,088 5,063
</TABLE>
A reconciliation from the segment information to the income before income
taxes included in the consolidated statements of operations for the years
ended November 30, 1999, 1998, and 1997 follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- ------
<S> <C> <C> <C>
Income (loss) before interest and income taxes per
segment information............................... $107,648 18,471 76,602
Interest expense per the consolidated statements of
operations........................................ (19,027) (14,446) (7,776)
Interest income included in other, net in the
consolidated statements of operations............. 3,881 2,921 2,130
-------- ------- ------
Income before income taxes per the consolidated
statements of operations.......................... $ 92,502 6,946 70,956
======== ======= ======
</TABLE>
F-17
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Geographical information for the years ended November 30, 1999, 1998 and
1997, follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- -------------------- --------------------
Long-lived Long-lived Long-lived
Revenues Assets Revenues Assets Revenues Assets
---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States........... $ 531,328 15,830 834,521 17,336 866,866 14,409
People's Republic of
China, including Hong
Kong................... 528,572 1,869 404,883 1,770 319,703 2,004
United Kingdom.......... 341,090 798 209,439 372 69,142 466
All other countries..... 932,815 8,984 547,007 8,380 227,103 5,998
---------- ------ --------- ------ --------- ------
$2,333,805 27,481 1,995,850 27,858 1,482,814 22,877
========== ====== ========= ====== ========= ======
</TABLE>
(15) Acquisitions
(a) Business Acquired
In August 1999, the Company acquired the business and certain net assets of
Montana Telecommunications Group B.V. in The Netherlands in a transaction
accounted for as a purchase. The purchase price was $2.3 million, which
resulted in $1.0 million of goodwill with an estimated life of 20 years.
Additional payments based on future operating results of the business over the
next four years may be paid in cash.
The Company acquired three companies during 1998: (i) TA Intercall AB
(Sweden), January 1998; (ii) Digicom Spoka zo.o. (Poland), March 1998; and
(iii) ACC del Peru (Peru), May 1998. Each of these transactions was accounted
for as a purchase. The aggregate of the purchase prices was $18.2 million,
which resulted in $18.1 million of goodwill with an estimated life of 20
years. Additional payments based on future operating results of the applicable
businesses over the next two years may be paid either in cash or common stock
at the Company's option.
The consolidated financial statements include the operating results of each
business from the date of acquisition. The impact of these acquisitions was
not material in relation to the Company's consolidated financial position or
results of operations. Contingent payments, if paid for the above
transactions, will be accounted for as goodwill.
(b) Acquisition of Minority Interest in CellStar Pacific
On May 30, 1997, the Company acquired the remaining 20% minority interest of
CellStar Pacific, the Company's Singapore subsidiary, which conducts
operations in Singapore, The Philippines, and Malaysia, for common stock
valued at $2.7 million and $0.5 million in cash.
(16) Stockholders' Equity
(a) Common Stock Warrant and Options
At November 30, 1998, the Company had outstanding a warrant exercisable for
1.3 million restricted shares of its common stock at $4.60 per share. In
December 1998, the warrant holder and the Company amended the warrant
agreement to remove the restriction on the resale of the common stock issuable
on exercise of the warrants and to pay the exercise price in shares of common
stock. The holder subsequently exercised the warrants and was issued 0.6
million shares of common stock.
The Company has a stock option plan (the "Plan") covering 8.0 million shares
of its common stock. Options under the Plan expire ten years from the date of
grant unless earlier terminated due to the death,
F-18
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
disability, retirement or other termination of service of the optionee.
Options have vesting schedules ranging from 100% on the first anniversary of
the date of grant to 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 an incentive stock option plan for certain officers of
the Company covering 150,000 shares of common stock.
The Company also has a stock option plan for non-employee directors
("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 should
automatically be granted an option to purchase 7,500 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 150,000 shares of common stock are authorized
for issuance pursuant to the Directors' Option Plan. Each option granted under
the Directors' Option Plan becomes exercisable six months after its date of
grant and expires 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 market value of stock options granted
during the years ended November 30, 1999, 1998 and 1997, was $4.45, $6.375 and
$7.249, respectively, on the date of grant using the Black-Scholes option-
pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Dividend yield.......................................... 0.0% 0.0% 0.0%
Volatility.............................................. 81.0% 83.0% 77.0%
Risk-free interest rate................................. 5.1% 5.4% 6.0%
Expected term of options (in years)..................... 3.4 3.2 3.7
</TABLE>
The Company applies Opinion 25 in accounting for its plans and, accordingly,
no compensation cost has been recognized for its stock options in the
consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("Statement 123"), the Company's net income would have
been the pro forma amounts below for the years ended November 30, 1999, 1998
and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Net income as reported.............................. $69,087 14,364 53,633
Diluted net income per share as reported............ 1.12 0.24 0.89
Pro forma net income................................ 67,605 10,136 51,380
Pro forma diluted net income per share.............. 1.11 0.17 0.87
</TABLE>
Pro forma net income 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 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.
F-19
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock option activity during the years ended November 30, 1999, 1998 and
1997, is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
Weighted- Weighted- Weighted-
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
shares Prices shares Prices shares Prices
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Granted................. 1,487,450 $8.057 2,095,458 $11.491 2,448,500 $12.499
Exercised............... 532,878 5.545 464,378 7.110 334,406 6.484
Forfeited............... 1,369,012 9.444 1,075,062 19.680 162,500 6.988
Outstanding, end of
year................... 4,275,588 8.617 4,690,028 8.704 4,134,010 9.965
Exercisable, end of
year................... 1,929,149 7.829 1,417,757 6.531 1,192,876 6.374
Reserved for future
grants under the Plan.. 2,701,376
Reserved for future
grants under the
Directors' Option
Plan................... 90,000
</TABLE>
For options outstanding and exercisable as of November 30, 1999, the
exercise prices and remaining lives were:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Number Remaining Life Exercise Number Exercise
Range of Exercise Prices Outstanding (in years) Prices Exercisable Prices
- ------------------------ ----------- -------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$2.170-6.170............ 1,104,502 6.1 $5.866 913,377 $5.912
$6.219-8.250............ 1,499,002 8.1 7.454 454,377 6.892
$8.375-12.030........... 1,557,584 8.4 11.103 505,895 11.201
$12.688-19.880.......... 114,500 7.1 16.559 55,500 16.313
--------- ---------
4,275,588 7.7 8.617 1,929,149 7.829
========= =========
</TABLE>
(b) Stockholder Rights Plan
The Company adopted a Stockholder Rights Plan, which provides that the
holders of the Company's common stock receive one-third of a right ("Right")
for each share of the Company's common stock they 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, 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 acquirer of the
Company at a 50% discount. The Rights expire on January 9, 2007, unless
earlier redeemed by the Company.
(17) Commitments and Contingencies
(a) Litigation
During the period from May 1999 through July 1999, seven purported class
action lawsuits were filed in the United States District Court for the
Southern District of Florida, styled as follows: (1) Elfie Echavarri v.
CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins;
(2) Mark Krug v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and
Mark Q. Huggins; (3) Jewell Wright v. CellStar Corporation, Alan H. Goldfield,
Richard M. Gozia and Mark Q. Huggins; (4) Theodore Weiss v. CellStar
F-20
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (5) Tony
LaBella v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark
Q. Huggins; (6) Thomas E. Petrone v. CellStar Corporation, Alan H. Goldfield,
Richard M. Gozia and Mark Q. Huggins; (7) Adele Brody v. CellStar Corporation,
Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins. Each of the above
lawsuits seeks certification as a class action to represent those persons who
purchased the publicly traded securities of the Company during the period from
March 19, 1998 to September 21, 1998. Each of these lawsuits alleges that the
Company issued a series of materially false and misleading statements
concerning the Company's results of operations and the Company's investment in
Topp, resulting in violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as amended, and Rule 10(b)(5) promulgated thereunder.
The court entered an order on September 26, 1999 consolidating the above
lawsuits and appointing lead plaintiffs and lead plaintiffs' counsel. The lead
plaintiffs filed a consolidated complaint. On November 8, 1999, the Company
filed a Motion to Dismiss the consolidated complaint but the Court has not yet
rendered a decision. The Company believes that it has complied with all SEC
laws and regulations and that it has meritorious defenses to these allegations
and intends to vigorously defend the consolidated action if the Motion to
Dismiss is denied.
The Company is also 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 should not have a
materially adverse effect on the consolidated financial condition or results
of operations of the Company.
(b) SEC Investigation
On August 3, 1998, the Company announced that the Securities and Exchange
Commission is conducting an investigation of the Company relating to its
compliance with Federal securities laws. The Company believes that it has
fully complied with all securities laws and regulations and is cooperating
with the Commission in its investigation.
(c) Financial Guarantee
The Company has guaranteed up to MYR 13.0 million (Malaysian ringgits), or
$3.4 million as of November 30, 1999, for bank borrowings of its Malaysian
joint venture.
(d) 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 on completing 90 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. During the years ended November 30, 1999, 1998
and 1997, the Company made contributions of approximately $0.3 million to the
plan.
(e) Foreign Currency Contracts
The Company uses foreign currency forward contracts to reduce exposure to
exchange rate risks primarily associated with transactions in the regular
course of the Company's international operations. The forward contracts
establish the exchange rates at which the Company should purchase or sell the
contracted amount of local currencies for specified foreign currencies at a
future date. The Company uses forward contracts, which are short-term in
nature (45 days to one year), and receives or pays the difference between the
contracted forward rate and the exchange rate at the settlement date.
F-21
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The major currency exposures hedged by the Company are the British pound,
Dutch guilder, Euro and Polish zloty. The carrying amount and fair value of
these contracts are not significant. The U.S. dollar equivalent of contractual
amounts of the Company's forward exchange contracts consist of the following
at November 30, 1999 (in thousands):
<TABLE>
<S> <C>
British pound...................................................... $4,905
Euro............................................................... 2,947
Polish zloty....................................................... 867
------
$8,719
======
</TABLE>
F-22
<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>
1999
Revenues....................... $515,348 570,325 560,222 687,910
Gross profit................... 43,639 49,058 47,706 53,027
Net income..................... 15,591(a) 13,969(b) 14,998 24,529 (c)
Net income per share:
Basic........................ 0.26 0.23 0.25 0.41
Diluted...................... 0.26 0.23 0.25 0.39
1998
Revenues....................... $406,745 445,660 501,750 641,695
Gross profit................... 41,410 44,902 41,025 45,438
Net income (loss).............. 14,248 16,599 2,390(d) (18,873)(e)
Net income (loss) per share:
Basic........................ 0.24 0.28 0.04 (0.32)
Diluted...................... 0.23 0.27 0.04 (0.32)
</TABLE>
- --------
(a) In the first quarter of 1999, the Company's operations were affected by
the gain on the sale of part of its equity and debt investment in Topp, a
gain associated with the sale of all its retail stores in the Dallas-Fort
Worth area, and a loss on the conversion of a U.S. dollar denominated loan
into Brazilian reals.
(b) In the second quarter of 1999, the Company's operations were affected by
the restructuring charge associated with the reorganization and
consolidation of the management for the Company's Latin American and North
American Regions as well as the centralization of the management in the
Asia-Pacific Region and the sale of its prepaid operation in Venezuela and
retail stores in the Kansas City area.
(c) In the fourth quarter of 1999, the Company's operations were affected by
the gain on the sale of the remaining debt and equity interest in Topp and
a charge to reduce the carrying value of CellStar Poland Sp. zo.o.
(d) In the third quarter of 1998, the Company's operations were affected by
the recognition of a portion of Topp's net loss based on its most recent
quarter-end, June 30, 1998, and the Company's adoption of the modified
equity method of accounting.
(e) In the fourth quarter of 1998, the Company's operations were affected by
its recognition of Topp's net loss to the extent of the Company's entire
debt and equity investment in Topp; the settlement of the class action
lawsuit; and the cost of de-emphasizing or eliminating certain businesses.
F-23
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Years ended November 30, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
Balance Charged Balance
at to costs Charged to Deductions, at end
beginning and activation net of of
of period expenses income(a) recoveries period
--------- -------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
November 30, 1999......... $33,361 10,392 1,251 (11,852) 33,152
November 30, 1998......... 23,857 13,639 481 (4,616) 33,361
November 30, 1997......... 29,023 3,131 1,108 (9,405) 23,857
Reserve for inventory
obsolescence:
November 30, 1999......... $12,082 23,012 -- (20,226) 14,868
November 30, 1998......... 2,795 12,434 -- (3,147) 12,082
November 30, 1997......... 8,322 4,830 -- (10,357) 2,795
</TABLE>
- --------
(a) The Company, under agent agreements, earns activation commissions from
wireless service providers on engaging subscribers for wireless handset
services in connection with the Company's retail operations. The agent
agreements also provide for the reduction or elimination of activation
commissions if the subscribers deactivate service within a stipulated
period. The Company reduces activation income for increases in the
allowance for estimated deactivations.
S-1
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS
OF
CELLSTAR CORPORATION
(as effective January 21, 2000)
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
2
<PAGE>
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
3
<PAGE>
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.
4
<PAGE>
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.
5
<PAGE>
SECTION TWO. AUDIT COMMITTEE.
----------- ---------------
(A) There may be an Audit Committee of the Board of Directors consisting of
at least three (3) members designated by resolution passed by a majority of the
entire Board of Directors. The members shall meet the qualifications for
members established by the Audit Committee in its rules or charter from time to
time. 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 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 thereof. Notice of each special
meeting of any committee of the Board shall be sent by mail,
6
<PAGE>
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 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
7
<PAGE>
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 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
8
<PAGE>
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 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.
9
<PAGE>
(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
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
10
<PAGE>
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.
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
11
<PAGE>
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.
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.
12
<PAGE>
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, 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
13
<PAGE>
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 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.
14
<PAGE>
(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 10.3
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT (this "Agreement"), effective as of the 12th day
of November, 1999 (the "Effective Date"), by and between CellStar Ltd. (the
"Employer"), CellStar Corporation, a Delaware corporation and parent company of
Employer ("Parent"), and Dale H. Allardyce (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 four (4) year anniversary of the Effective Date (the
"Original Term"), unless earlier terminated as provided herein (the period from
the Effective Date to the four (4) year anniversary of the Effective Date, or to
the date of such earlier termination, as applicable, is hereinafter referred to
as the "Term"). At the expiration of the Original Term, this Agreement shall
automatically be renewed on a year to year basis unless notice of any decision
not to renew this Agreement is given by the Employer or the Employee at least
365 days prior to the expiration of the Original Term or any such one year term
or unless earlier terminated as provided herein.
<PAGE>
1.3 Position and Duties.
-------------------
(a) Position. During the Term, the Employee shall serve as President
--------
and Chief Operating Officer 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 business 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. Further subject
to the foregoing, the Employee may serve as a director of other
corporations; provided, however, that such service or position is approved
-------- -------
in advance by the Board of Directors of Parent and further that such
service or position does not at any time during the Term interfere or
conflict with the performance of his duties hereunder. Employee shall
comply with 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 $400,000 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 1999, Employee will be eligible to earn
a pro rated 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.
2
<PAGE>
(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 200,000 shares of
Parent's common stock at the reported market closing sales price thereof on
the date of grant. The Option shall become exercisable by the Employee at
the rate of 25% of the shares covered thereby per year, beginning on the
first anniversary of the Effective Date in accordance with the terms of the
Parent's 1993 Amended and Restated Long Term Incentive Plan; provided,
--------
however, that any unvested portion of the Option shall immediately vest if
-------
the Employee's employment is terminated Without Cause (defined below) or
for Company Breach (defined below) or as a result of a Change in Control
(defined below). The Option shall contain such additional terms as are set
forth in Parent's 1993 Amended and Restated Long Term Incentive Plan and as
are established by the Compensation Committee of the Board of Directors of
Parent. Employee shall be entitled to annual consideration for future
grants in amounts (if any) and on terms and conditions to be determined by
the Compensation Committee of the Board of Directors.
(e) 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.
(f) 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, paid time off, life,
medical, dental, disability or other plan or arrangement made generally
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. Employee shall be credited with 10 years of
service with the Employer as of the Effective Date for purposes of
determining eligibility and vesting for paid time off and short-term
disability benefits.
(g) Relocation Expenses. The Employee acknowledges and agrees that he
-------------------
will relocate his primary residence to the Dallas/Fort Worth area in order
to perform his duties and responsibilities under this Agreement. In
connection with such relocation:
(i) The Employer agrees to reimburse the Employee for the
reasonable costs of temporary corporate housing in the Dallas/Fort
Worth area for up to 180 days from the Effective Date.
3
<PAGE>
(ii) The Employer agrees to reimburse Employee for the cost of
Employee's trips home to Connecticut on a bi-weekly basis for up to
180 days from the Effective Date. Reimbursable expenses include round
trip coach air fare and any reasonable out-of-pocket expenses (i.e.,
airport parking).
(iii) The Employer shall reimburse Employee for the cost of two
(2) house hunting trips for members of the Employee's immediate
family. Reimbursable expenses include round trip coach air fare,
automobile rental, reasonable costs for meals, lodging (if needed) and
other reasonable out-of-pocket expenses.
(iv) The Employer shall reimburse Employee for all normal and
customary costs associated with the sale of Employee's current
residence, including broker's fees not to exceed 6%.
(v) The Employer shall reimburse Employee for all normal and
customary costs associated with the purchase of a residence in the
Dallas/Fort Worth area, including but not limited to survey fees, loan
origination fees, title insurance and attorneys fees.
(vi) The Employer shall reimburse Employee for all normal and
customary moving costs for household goods from Connecticut to the
Dallas/Fort Worth area.
(vii) The Employer shall reimburse Employee for all reasonable
and customary out-of-pocket travel expenses incurred by Employee and
his immediate family during the actual relocation from Connecticut to
the Dallas/Fort Worth area.
All amounts reimbursed pursuant to this subsection shall be grossed up
for all applicable taxes.
1.5 Termination.
-----------
(a) Disability. Employer may terminate this Agreement for Disability.
----------
"Disability" shall exist if, because of ill health or physical or mental
disability, the Employee shall have been unable to perform his duties under
this Agreement, with reasonable accommodation by the Employer, 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 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) the willful failure by Employee to perform his duties,
provided that no act, or failure to act, on the Employee's part shall be
considered "willful" unless the Board of Directors, in the
4
<PAGE>
reasonable exercise of its business judgment, determines that such act or
failure to act was committed without good faith and without a reasonable
belief that such act or failure to act was in the best interests of the
Employer, Parent or their affiliated entities, (ii) 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 material 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 substantially follow directions of senior management or the
boards of directors of Employer or Parent that are consistent with his
duties under this Agreement, provided that no act, or failure to act, on
the Employee's part shall be deemed to constitute Cause unless done, or
omitted to be done, by the Employee not in good faith and without
reasonable belief that the Employee's act, or failure to act, was in or not
opposed to the best interest of Employer, (iv) conviction of, or entry of a
pleading of guilty or nolo contendre to, any felony 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) any other material breach of
any provision of this Agreement. Items (i), (ii), (iii) and (v) of this
subsection shall not constitute Cause unless Employer or Parent notified
the Employee thereof in writing, specifying in reasonable detail the basis
therefor and stating that it is grounds for Cause. Furthermore, if the
Employee's actions are curable, items (i), (ii), (iii) and (v) of this
subsection shall not constitute Cause unless the Employee fails to cure
such matter within 30 days after such notice is sent or given under this
Agreement. It is understood that "Cause" shall not include a failure to
perform due to a Disability.
(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; provided, however, that the Employee shall
-------- -------
not be entitled to terminate for 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 30 days after such
notice is sent or given under this Agreement. For purposes of this
Agreement, a material breach by Employer or Parent shall include, without
limitation, (i) the material reduction without his consent of the title,
authority, duties or responsibilities that the Employee has on the
Effective Date, (ii) the reduction in the Employee's annual base salary as
in effect on the Effective Date, (iii) if the Employee's eligibility for a
bonus in any fiscal year (provided that all performance standards
established for him have been achieved) shall be, in terms of a percentage
of base salary, any
5
<PAGE>
amount less than the percentage of base salary established for the Chief
Executive Officer of Parent for such fiscal year, (iv) if the Employee's
eligibility for bonus in any fiscal year shall be based on performance
standards that are materially greater or different than those established
for the Chief Executive Officer of Parent, or (v) the relocation of the
Employer's principal office, or the Employee's own office location as
assigned to him by Employer, to a location more than 50 miles from the
present location of Employer's principal office.
(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 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
6
<PAGE>
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) 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
7
<PAGE>
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 or physical or mental
disability, he shall continue to receive his full salary and benefits
pursuant to Section 1.4 (Compensation) through the Date of Termination,
------------
after giving effect to all disability benefits received by Employee under
the terms of any applicable disability policy.
(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:
(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 an annualized equivalent of the Annual Incentive Payment paid for
any shorter period) divided by 365 and (B) multiplied by the lesser of
(y) 720, or (z) the number of days from the Date of Termination to the
last day of the Original Term or the applicable renewal term, but in
no event less than 365 days.
8
<PAGE>
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.
Employee hereby acknowledges and agrees that the payments by the
Employer under this Section 1.6(c) shall be the sole and exclusive remedy
of the Employee for termination of Employee's employment Without Cause or
by reason of a Company Breach, and Employee hereby waives any and all other
remedies under law or in equity.
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 which, when combined with all payments under Section 1.6(c), equals
$100 less than three (3) 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 accrued but unpaid salary and benefits
pursuant to Section 1.4 (Compensation) through the Date of Termination,
------------
after giving effect to all disability benefits received by Employee under
the terms of any applicable disability policy.
(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
9
<PAGE>
applicable, his wife and children, the employee benefits set forth in
subsections 1.4(f) (Fringe Benefits and Perquisites) 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. Following the Date of Termination, Employee and
his eligible dependents shall be eligible for continued health coverage in
accordance with the terms of applicable law.
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; and (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, and thereafter Employee's
dependents shall have a right to continued health coverage in accordance with
the terms of applicable law.
ARTICLE 2
Non-Competition and Confidentiality
2.1 Training/Confidential Information. For purposes of this Article 2
---------------------------------
(Non-Competition and Confidentiality), the term "the Company" shall be construed
- ------------------------------------
also to include Employer, Parent and any and all Affiliates of Employer and
Parent. The Company agrees that it will provide Employee with specialized
knowledge and training regarding the business in which the Company is involved,
and will provide Employee with initial and ongoing confidential information and
trade secrets of the Company (hereinafter referred to as "Confidential
Information"). For purposes of this Agreement, Confidential Information
includes, but is not limited to:
(a) Customer lists and prospect lists developed by the Company;
(b) Information regarding the Company's customers which Employee
acquired as a result of his employment with the Employer, including but not
limited to, customer contracts, work performed for customers, customer
contacts, customer requirements and needs, data used by the Company to
formulate customer bids, customer financial information and other
information regarding the customer's business;
(c) Information regarding the Company's vendors which Employee
acquired as a result of his employment with the Employer, including but not
limited to, product and service information and other information regarding
the business activities of such vendors;
10
<PAGE>
(d) Information related to the Company's business, including but not
limited to marketing strategies and plans, sales procedures, operating
policies and procedures, pricing and pricing strategies, business plans,
sales, profits, and other business and financial information of the
Company;
(e) Training materials developed by and utilized by the Company;
(f) Any other information which Employee acquired as a result of his
employment with the Employer and which Employee has a reasonable basis to
believe the Company would not want disclosed to a business competitor or to
the general public.
(g) Information which:
(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.
Notwithstanding the foregoing, Confidential Information shall not include any
information that is or has become public knowledge, other than by acts by the
Employee or representatives of the Employee in violation of this Agreement.
2.2 Non-Disclosure. The Employee acknowledges, understands and agrees
--------------
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 (except as otherwise required by law or legal process)
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.
11
<PAGE>
2.3 Return of Company Property and Information. Upon termination of
------------------------------------------
employment, or at any earlier time as directed by Company, Employee shall
immediately deliver to Company any and all Confidential Information in
Employee's possession, any other documents or information which Employee
acquired as a result of his employment with Employer, and any copies of such
documents/information. Employee shall not retain any originals or copies of
such documents or materials related to Company's business which Employee came
into possession of or created as a result of his employment at Company.
Employee acknowledges that such information, documents and materials are the
exclusive property of Company. Upon termination of employment, or at any
earlier time as directed by Company, Employee shall immediately deliver to
Company any property of Company in Employee's possession. Employee agrees that
should he fail to return any Company property, Company shall be entitled to
deduct from any sums otherwise due Employee (including, but not necessarily
limited to wages and expense reimbursements) the cost and/or value of any
property which Employee fails to return, up to the maximum amount allowed by
law. Employee hereby authorizes Company to deduct and/or withhold any such sums
from Employee's wages and/or other sums due Employee.
2.4 Non-Competition.
---------------
(a) Description of Proscribed Actions. During the Term and for a
---------------------------------
period of 18 months thereafter (or 12 months thereafter in the event of
Termination Without Cause or for Company Breach), in consideration for the
obligations of Employer and Parent hereunder, including without limitation
their disclosure (pursuant to subsection 2.1 (Training/Confidential
---------------------
Information) above) of Confidential Information, the 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
-------- -------
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
12
<PAGE>
(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
---------------------
competent jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Section 2.4 (Non-
---
Competition) is overly restrictive and unenforceable, the court may reduce
-----------
or modify such restrictions to those which it deems reasonable and
enforceable under the circumstances, and as so reduced or modified, the
parties hereto agree that the restrictions of this Section 2.4 (Non-
---
Competition) shall remain in full force and effect. The Employee further
-----------
agrees that if a court of competent jurisdiction determines that any
provision of this Section 2.4 (Non-Competition) is invalid or against
---------------
public policy, the remaining provisions of this Section 2.4 (Non-
---
Competition) and the remainder of this Agreement shall not be affected
-----------
thereby, and shall remain in full force and effect.
(c) Nature of Restrictions. The Employee acknowledges that the
----------------------
business of Employer and Parent and their Affiliates is international in
scope and that the Restrictions imposed by this Agreement are legitimate,
reasonable and necessary to protect Employer's, Parent's and their
Affiliates' investment in their businesses and the goodwill thereof. The
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
------------------
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.
13
<PAGE>
2.5 Injunctive Relief. Because of the Employee's experience and
-----------------
reputation in the industries in which Employer, Parent and their Affiliates
operate, and because of the unique nature of the Confidential Information, the
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
-----------------------------------
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
- -------------------------------
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 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
Parent agrees to indemnify, and advance expenses to, the Employee to the
extent provided in the Certificate of Incorporation and Bylaws of Parent as of
the date of this Agreement. 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
Certificate of Incorporation and 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.
ARTICLE 5
Miscellaneous
5.1 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
5.2 Indulgences, Etc. Neither the failure nor any delay on the part of
-----------------
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver
14
<PAGE>
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.
5.3 Employee's Sole Remedy. The Employee's sole remedy shall be against
----------------------
Employer or Parent for any claim, liability or obligation of any nature
whatsoever arising out of or relating to this Agreement or an alleged breach of
this Agreement or for any other claim arising out of the 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 5.3 (other than Employer, Parent and the
Employee) shall be third-party beneficiaries of this Agreement for purposes of
enforcing the terms of this Section 5.3 (Employee's Sole Remedy) against the
-----------------------
Employee.
5.4 Notices. All notices, requests, demands and other communications
-------
required or permitted under this Agreement and the transactions contemplated
herein shall be in writing and shall be deemed to have been duly given, made and
received when sent by telecopy (with a copy sent by mail) or when personally
delivered or one business day after it is sent by overnight service, addressed
as set forth below:
If to the Employee:
Dale H. Allardyce
10 Keeler's Ridge
Wilton, Connecticut 06897
If to Employer or Parent:
CellStar Corporation
1730 Briercroft Court
Carrollton, Texas 75006
Attn: General Counsel
Any party may alter the address to which communications or copies are to be sent
by giving notice of such change of address in conformity with the provisions of
this subsection for the giving of notice, which shall be effective only upon
receipt.
5.5 Provisions Separable. The provisions of this Agreement are
--------------------
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable
15
<PAGE>
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.
5.6 Entire Agreement. This Agreement contains the entire understanding
----------------
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained, which shall be deemed terminated effective immediately. The express
terms hereof control and supersede any course of performance and/or usage of the
trade inconsistent with any of the terms hereof. This Agreement may not be
modified or amended other than by an agreement in writing.
5.7 Headings; Index. The headings of paragraphs herein are included
---------------
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
5.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Texas, without giving effect to
principles of conflict of laws.
5.9 Dispute Resolution. Subject to Employer's and Parent's right to seek
------------------
injunctive relief in court as provided in Section 2.5 (Injunctive Relief) of
-----------------
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 5.9 (Dispute Resolution), to arbitration.
------------------
(a) Arbitrators. The arbitration shall be heard and determined by one
-----------
arbitrator, who shall be impartial and who shall be selected by mutual
agreement of the parties; provided, however, that if the dispute involves
-------- -------
more than $2,000,000, then the arbitration shall be heard and determined by
three (3) arbitrators. If three (3) arbitrators are necessary as provided
above, then (i) each side shall appoint an arbitrator of its choice within
thirty (30) days of the submission of a notice of arbitration and (ii) the
party-appointed arbitrators shall in turn appoint a presiding arbitrator of
the tribunal within thirty (30) days following the appointment of the last
party-appointed arbitrator. If (x) the parties cannot agree on the sole
arbitrator, (y) one party refuses to appoint its party-appointed arbitrator
within said thirty (30) day period or (z) the party-appointed arbitrators
cannot reach agreement on a presiding arbitrator of the tribunal, then the
appointing authority for the implementation of such procedure shall be the
Senior United States District Judge for the Northern District of Texas, who
shall appoint an independent arbitrator who does not have any financial
interest in the dispute, controversy or claim. If the Senior United States
District Judge for the Northern District of Texas refuses or fails to act
as the appointing authority within ninety (90) days after being requested
to do so, then the appointing authority shall be the Chief Executive
Officer of the American Arbitration Association, who shall appoint an
independent arbitrator
16
<PAGE>
who does not have any financial interest in the dispute, controversy or
claim. All decisions and awards by the arbitration tribunal shall be made
by majority vote.
(b) Proceedings. Unless otherwise expressly agreed in writing by the
-----------
parties to the arbitration proceedings:
(i) The arbitration proceedings shall be held in Dallas,
Texas, at a site chosen by mutual agreement of the parties, or if the
parties cannot reach agreement on a location within thirty (30) days
of the appointment of the last arbitrator, then at a site chosen by
the arbitrators;
(ii) The arbitrators shall be and remain at all times wholly
independent and impartial;
(iii) The arbitration proceedings shall be conducted in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, as amended from time to time;
(iv) Any procedural issues not determined under the arbitral
rules selected pursuant to item (iii) above shall be determined by the
law of the place of arbitration, other than those laws which would
refer the matter to another jurisdiction;
(v) The costs of the arbitration proceedings (including
attorneys' fees and costs) shall be borne in the manner determined by
the arbitrators;
(vi) The decision of the arbitrators shall be reduced to
writing; final and binding without the right of appeal; the sole and
exclusive remedy regarding any claims, counterclaims, issues or
accounting presented to the arbitrators; made and promptly paid in
United States dollars free of any deduction or offset; and any costs
or fees incident to enforcing the award shall, to the maximum extent
permitted by law, be charged against the party resisting such
enforcement;
(vii) The award shall include interest from the date of any
breach or violation of this Agreement, as determined by the arbitral
award, and from the date of the award until paid in full, at 6% per
annum; and
(viii) Judgment upon the award may be entered in any court
having jurisdiction over the person or the assets of the party owing
the judgment or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may
be.
5.10 Survival. The covenants and agreements of the parties set forth in
--------
Article 2 (Non-Competition and Confidentiality), and Article 5 (Miscellaneous)
----------------------------------- -------------
are of a continuing nature and
17
<PAGE>
shall survive the expiration, termination or cancellation of this Agreement,
regardless of the reason therefor.
5.11 Subrogation. In the event of payment under this Agreement, Employer
-----------
and Parent shall be subrogated to the extent of such payment to all of the
rights of recovery of the 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.
5.12 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.
5.13 Binding Effect, Etc. This Agreement shall be binding upon and inure
--------------------
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of Employer, Parent, spouses, heirs, and personal and legal
representatives. Employer and Parent shall require and cause any successor
(whether direct or indirect by purchase, merger, consolidation or otherwise) to
all, substantially all, or a substantial part, of their business or assets, by
written agreement in form and substance satisfactory to the 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.
5.14 Contribution. If the indemnity contained in this Agreement is
------------
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 the Employee on the other in the acts, transactions
or matters to which the Claim relates and other equitable considerations.
5.15 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.
18
<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 first set forth above.
CELLSTAR LTD
By: National Auto Center, Inc.
General Partner
By: /s/ Alan H. Goldfield
----------------------------------
Alan H. Goldfield
Chairman and CEO
CELLSTAR CORPORATION
By: /s/ Alan H. Goldfield
----------------------------------
Alan H. Goldfield
Chairman and CEO
/s/ Dale H. Allardyce
--------------------------------------
Dale H. Allardyce
19
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT (this "Agreement"), effective as of the 5th day
of November, 1999 (the "Effective Date"), by and between CellStar Ltd. (the
"Employer"), CellStar Corporation, a Delaware corporation and parent company of
Employer ("Parent"), and Austin P. Young (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 November 30, 2003 (the "Original Term"), unless earlier
terminated as provided herein (the period from the Effective Date to November
30, 2003, or to the date of such earlier termination, as applicable, is
hereinafter referred to as the "Term"). At the expiration of the Original Term,
this Agreement shall automatically be renewed on a year to year basis unless
notice of any decision not to renew this Agreement is given by the Employer or
the Employee at least thirty (30) days prior to the expiration of the Original
Term or any such one year term or unless earlier terminated as provided herein.
<PAGE>
1.3 Position and Duties.
-------------------
(a) Position. During the Term, the Employee shall serve as Senior
--------
Vice President and Chief Financial Officer 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. In such position, Employee shall be responsible for
accounting, internal and external financial reporting, tax, treasury, risk
and working capital management, financial and acquisition analysis,
investments, and all other financial matters. 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 business 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
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 $350,000 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 1999, Employee will be eligible to earn
a pro rated 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.
2
<PAGE>
(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 150,000 shares of
Parent's common stock at the reported market closing sales price thereof on
the date of grant. The Option shall become exercisable by the Employee at
the rate of 25% of the shares covered thereby per year, beginning on the
first anniversary of the Effective Date in accordance with the terms of the
Parent's 1993 Amended and Restated Long Term Incentive Plan. The Option
shall contain such additional terms as are set forth in Parent's 1993
Amended and Restated Long Term Incentive Plan and as are established by the
Compensation Committee of the Board of Directors of Parent. Employee shall
be entitled to annual consideration for future grants in amounts (if any)
and on terms and conditions to be determined by the Compensation Committee
of the Board of Directors.
(e) 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.
(f) 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, paid time off, life,
medical, dental, disability or other plan or arrangement made generally
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. Employee shall be credited with 10 years of service
with the Employer as of the Effective Date for purposes of determining
eligibility and vesting for paid time off and short-term disability
benefits.
(g) Relocation Expenses. The Employee acknowledges and agrees that he
-------------------
will relocate his primary residence to the Dallas/Fort Worth area in order
to perform his duties and responsibilities under this Agreement. In
connection with such relocation:
(i) The Employer agrees to reimburse the Employee for the
reasonable costs of temporary corporate housing in the Dallas/Fort
Worth area for a 120 day period starting on the Effective Date.
(ii) The Employer agrees to reimburse Employee for the cost of
Employee's trips home to Houston on a bi-weekly basis for 120 day
period starting
3
<PAGE>
on the Effective Date. Reimbursable expenses include round trip coach
air fare and any reasonable out-of-pocket expenses (i.e., airport
parking).
(iii) The Employer shall reimburse Employee for the cost of two
(2) house hunting trips for members of the Employee's immediate
family. Reimbursable expenses include round trip coach air fare,
automobile rental, reasonable costs for meals, lodging (if needed) and
other reasonable out-of-pocket expenses.
(iv) The Employer shall reimburse Employee for all normal and
customary costs associated with the sale of Employee's current
residence, including broker's fees not to exceed 6%.
(v) The Employer shall reimburse Employee for all normal and
customary costs associated with the purchase of a residence in the
Dallas/Fort Worth area, including but not limited to survey fees, loan
origination fees, title insurance and attorneys fees.
(vi) The Employer shall reimburse Employee for all normal and
customary moving costs for household goods from Houston, Texas to the
Dallas/Fort Worth area.
(vii) The Employer shall reimburse Employee for all reasonable
and customary out-of-pocket travel expenses incurred by Employee and
his immediate family during the actual relocation from Houston, Texas
to the Dallas/Fort Worth area.
All amounts reimbursed pursuant to this subsection shall be grossed up
for all applicable taxes.
1.5 Termination.
-----------
(a) Disability. Employer may terminate this Agreement for Disability.
----------
"Disability" shall exist if, because of ill health or physical or mental
disability, the Employee shall have been unable to perform his duties under
this Agreement, with reasonable accommodation by the Employer, 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 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) continued unsatisfactory job performance after written
warning has been issued identifying deficiencies, (ii) misconduct that
causes or is likely to cause material economic harm to
4
<PAGE>
Employer, Parent or their affiliated entities or that brings or is likely
to bring material 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 substantially follow directions of
senior management or the boards of directors of Employer or Parent that are
consistent with his duties under this Agreement, provided that no act, or
failure to act, on the Employee's part shall be deemed to constitute Cause
unless done, or omitted to be done, by the Employee not in good faith and
without reasonable belief that the Employee's act, or failure to act, was
in or not opposed to the best interest of Employer, (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) any other material breach of
any provision of this Agreement. Items (i), (ii), (iii) and (v) of this
subsection shall not constitute Cause unless Employer or Parent notified
the Employee thereof in writing, specifying in reasonable detail the basis
therefor and stating that it is grounds for Cause. Furthermore, if the
Employee's actions are curable, items (i), (ii), (iii) and (v) of this
subsection shall not constitute Cause unless the Employee fails to cure
such matter within 30 days after such notice is sent or given under this
Agreement. It is understood that "Cause" shall not include a failure to
perform due to a Disability.
(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; provided, however, that the Employee shall
-------- -------
not be entitled to terminate for 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 30 days after such
notice is sent or given under this Agreement. For purposes of this
Agreement, a material breach by Employer or Parent shall include, without
limitation, (i) the material reduction without his consent of the title,
authority, duties or responsibilities that the Employee has on the
Effective Date, (ii) the reduction in the Employee's annual base salary as
in effect on the Effective Date, (iii) if the Employee's eligibility for a
bonus in any fiscal year (provided that all performance standards
established for him have been achieved) shall be, in terms of a percentage
of base salary, any amount less than the percentage of base salary
established for the Chief Executive Officer of Parent for such fiscal year,
(iv) if the Employee's eligibility for bonus in any fiscal year shall be
based on performance standards that are materially greater or different
than those established for the Chief Executive Officer of Parent, or (v)
the relocation of the Employer's
5
<PAGE>
principal office, or the Employee's own office location as assigned to him
by Employer, to a location more than 50 miles from the present location of
Employer's principal office.
(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 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
6
<PAGE>
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
-------- -------
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) 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).
7
<PAGE>
(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 or physical or mental
disability, he shall continue to receive his full salary and benefits
pursuant to Section 1.4 (Compensation) through the Date of Termination,
------------
after giving effect to all disability benefits received by Employee under
the terms of any applicable disability policy.
(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:
(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 an annualized equivalent of the Annual Incentive Payment paid for
any shorter period) divided by 365 and (B) multiplied by the lesser of
(y) 720, or (z) the number of days from the Date of Termination to the
last day of the Original Term or the applicable renewal term, but in
no event less than 365 days.
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.
Employee hereby acknowledges and agrees that the payments by the
Employer under this Section 1.6(c) shall be the sole and exclusive remedy
of the Employee for termination
8
<PAGE>
of Employee's employment Without Cause or by reason of a Company Breach,
and Employee hereby waives any and all other remedies under law or in
equity.
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 which, when combined with all payments under Section 1.6(c), equals
$100 less than three (3) 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 accrued but unpaid salary and benefits
pursuant to Section 1.4 (Compensation) through the Date of Termination,
------------
after giving effect to all disability benefits received by Employee under
the terms of any applicable disability policy.
(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(f) (Fringe Benefits and Perquisites)
-------------------------------
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. Following the Date of
Termination, Employee and his eligible dependents shall be eligible for
continued health coverage in accordance with the terms of applicable law.
9
<PAGE>
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; and (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, and thereafter Employee's
dependents shall have a right to continued health coverage in accordance with
the terms of applicable law.
ARTICLE 2
Non-Competition and Confidentiality
2.1 Training/Confidential Information. For purposes of this Article 2
---------------------------------
(Non-Competition and Confidentiality), the term "the Company" shall be construed
-----------------------------------
also to include Employer, Parent and any and all Affiliates of Employer and
Parent. The Company agrees that it will provide Employee with specialized
knowledge and training regarding the business in which the Company is involved,
and will provide Employee with initial and ongoing confidential information and
trade secrets of the Company (hereinafter referred to as "Confidential
Information"). For purposes of this Agreement, Confidential Information
includes, but is not limited to:
(a) Customer lists and prospect lists developed by the Company;
(b) Information regarding the Company's customers which Employee
acquired as a result of his employment with the Employer, including but not
limited to, customer contracts, work performed for customers, customer
contacts, customer requirements and needs, data used by the Company to
formulate customer bids, customer financial information and other
information regarding the customer's business;
(c) Information regarding the Company's vendors which Employee
acquired as a result of his employment with the Employer, including but not
limited to, product and service information and other information regarding
the business activities of such vendors;
(d) Information related to the Company's business, including but not
limited to marketing strategies and plans, sales procedures, operating
policies and procedures, pricing and pricing strategies, business plans,
sales, profits, and other business and financial information of the
Company;
(e) Training materials developed by and utilized by the Company;
10
<PAGE>
(f) Any other information which Employee acquired as a result of his
employment with the Employer and which Employee has a reasonable basis to
believe the Company would not want disclosed to a business competitor or to
the general public.
(g) Information which:
(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.
Notwithstanding the foregoing, Confidential Information shall not include any
information that is or has become public knowledge, other than by acts by the
Employee or representatives of the Employee in violation of this Agreement.
2.2 Non-Disclosure. The Employee acknowledges, understands and agrees
--------------
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 (except as otherwise required by law or legal process)
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 Return of Company Property and Information. Upon termination of
------------------------------------------
employment, or at any earlier time as directed by Company, Employee shall
immediately deliver to Company any and all Confidential Information in
Employee's possession, any other documents or information which Employee
acquired as a result of his employment with Employer, and any copies of such
documents/information. Employee shall not retain any originals or copies of such
documents or materials related to Company's business which Employee came into
possession of or created as a result of his employment at Company. Employee
acknowledges that such information, documents and materials are the exclusive
property of Company. Upon termination of employment, or at any
11
<PAGE>
earlier time as directed by Company, Employee shall immediately deliver to
Company any property of Company in Employee's possession. Employee agrees that
should he fail to return any Company property, Company shall be entitled to
deduct from any sums otherwise due Employee (including, but not necessarily
limited to wages and expense reimbursements) the cost and/or value of any
property which Employee fails to return, up to the maximum amount allowed by
law. Employee hereby authorizes Company to deduct and/or withhold any such sums
from Employee's wages and/or other sums due Employee.
2.4 Non-Competition.
---------------
(a) Description of Proscribed Actions. During the Term and for a
---------------------------------
period of 18 months thereafter (or 12 months thereafter in the event of
Termination Without Cause or for Company Breach), in consideration for the
obligations of Employer and Parent hereunder, including without limitation
their disclosure (pursuant to subsection 2.1 (Training/Confidential
---------------------
Information) above) of Confidential Information, the 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
-------- -------
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
12
<PAGE>
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
---------------------
competent jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Section 2.4 (Non-
---
Competition) is overly restrictive and unenforceable, the court may reduce
-----------
or modify such restrictions to those which it deems reasonable and
enforceable under the circumstances, and as so reduced or modified, the
parties hereto agree that the restrictions of this Section 2.4 (Non-
---
Competition) shall remain in full force and effect. The Employee further
-----------
agrees that if a court of competent jurisdiction determines that any
provision of this Section 2.4 (Non-Competition) is invalid or against
---------------
public policy, the remaining provisions of this Section 2.4 (Non-
---
Competition) and the remainder of this Agreement shall not be affected
-----------
thereby, and shall remain in full force and effect.
(c) Nature of Restrictions. The Employee acknowledges that the
----------------------
business of Employer and Parent and their Affiliates is international in
scope and that the Restrictions imposed by this Agreement are legitimate,
reasonable and necessary to protect Employer's, Parent's and their
Affiliates' investment in their businesses and the goodwill thereof. The
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
------------------
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.
2.5 Injunctive Relief. Because of the Employee's experience and
-----------------
reputation in the industries in which Employer, Parent and their Affiliates
operate, and because of the unique nature of the Confidential Information, the
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
-----------------------------------
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
13
<PAGE>
(Non-Competition and Confidentiality), without the necessity of proving
-----------------------------------
inadequacy of 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 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
Parent agrees to indemnify, and advance expenses to, the Employee to the
extent provided in the Certificate of Incorporation and Bylaws of Parent as of
the date of this Agreement. 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
Certificate of Incorporation and 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.
ARTICLE 5
Miscellaneous
5.1 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
5.2 Indulgences, Etc. Neither the failure nor any delay on the part of
-----------------
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any right, remedy, power or privilege, nor shall any
waiver of any right, remedy, power, or privilege with respect to any occurrence
be construed as a waiver of such right, remedy, power or privilege with respect
to any other occurrence.
14
<PAGE>
5.3 Employee's Sole Remedy. The Employee's sole remedy shall be against
----------------------
Employer or Parent for any claim, liability or obligation of any nature
whatsoever arising out of or relating to this Agreement or an alleged breach of
this Agreement or for any other claim arising out of the 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 5.3 (other than Employer, Parent and the
Employee) shall be third-party beneficiaries of this Agreement for purposes of
enforcing the terms of this Section 5.3 (Employee's Sole Remedy) against the
----------------------
Employee.
5.4 Notices. All notices, requests, demands and other communications
-------
required or permitted under this Agreement and the transactions contemplated
herein shall be in writing and shall be deemed to have been duly given, made and
received when sent by telecopy (with a copy sent by mail) or when personally
delivered or one business day after it is sent by overnight service, addressed
as set forth below:
If to the Employee:
Austin P. Young
6200 Arnot
Houston, Texas 77007
If to Employer or Parent:
CellStar Corporation
1730 Briercroft Court
Carrollton, Texas 75006
Attn: General Counsel
Any party may alter the address to which communications or copies are to be sent
by giving notice of such change of address in conformity with the provisions of
this subsection for the giving of notice, which shall be effective only upon
receipt.
5.5 Provisions Separable. The provisions of this Agreement are
--------------------
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
5.6 Entire Agreement. This Agreement contains the entire understanding
----------------
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and
15
<PAGE>
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.
5.7 Headings; Index. The headings of paragraphs herein are included solely
---------------
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
5.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Texas, without giving effect to
principles of conflict of laws.
5.9 Dispute Resolution. Subject to Employer's and Parent's right to seek
------------------
injunctive relief in court as provided in Section 2.5 (Injunctive Relief) of
-----------------
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 5.9 (Dispute Resolution), to arbitration.
------------------
(a) Arbitrators. The arbitration shall be heard and determined by one
-----------
arbitrator, who shall be impartial and who shall be selected by mutual
agreement of the parties; provided, however, that if the dispute involves
-------- -------
more than $2,000,000, then the arbitration shall be heard and determined by
three (3) arbitrators. If three (3) arbitrators are necessary as provided
above, then (i) each side shall appoint an arbitrator of its choice within
thirty (30) days of the submission of a notice of arbitration and (ii) the
party-appointed arbitrators shall in turn appoint a presiding arbitrator of
the tribunal within thirty (30) days following the appointment of the last
party-appointed arbitrator. If (x) the parties cannot agree on the sole
arbitrator, (y) one party refuses to appoint its party-appointed arbitrator
within said thirty (30) day period or (z) the party-appointed arbitrators
cannot reach agreement on a presiding arbitrator of the tribunal, then the
appointing authority for the implementation of such procedure shall be the
Senior United States District Judge for the Northern District of Texas, who
shall appoint an independent arbitrator who does not have any financial
interest in the dispute, controversy or claim. If the Senior United States
District Judge for the Northern District of Texas refuses or fails to act
as the appointing authority within ninety (90) days after being requested
to do so, then the appointing authority shall be the Chief Executive
Officer of the American Arbitration Association, who shall appoint an
independent arbitrator who does not have any financial interest in the
dispute, controversy or claim. All decisions and awards by the arbitration
tribunal shall be made by majority vote.
(b) Proceedings. Unless otherwise expressly agreed in writing by the
-----------
parties to the arbitration proceedings:
16
<PAGE>
(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;
(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.
5.10 Survival. The covenants and agreements of the parties set forth in
--------
Article 2 (Non-Competition and Confidentiality), and Article 5 (Miscellaneous)
----------------------------------- -------------
are of a continuing nature and shall survive the expiration, termination or
cancellation of this Agreement, regardless of the reason therefor.
5.11 Subrogation. In the event of payment under this Agreement, Employer
-----------
and Parent shall be subrogated to the extent of such payment to all of the
rights of recovery of the Employee, who shall execute all papers required and
shall do everything that may be necessary to secure such
17
<PAGE>
rights, including the execution of such documents necessary to enable Employer
or Parent effectively to bring suit to enforce such rights.
5.12 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.
5.13 Binding Effect, Etc. This Agreement shall be binding upon and inure to
--------------------
the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of Employer, Parent, spouses, heirs, and personal and legal
representatives. Employer and Parent shall require and cause any successor
(whether direct or indirect by purchase, merger, consolidation or otherwise) to
all, substantially all, or a substantial part, of their business or assets, by
written agreement in form and substance satisfactory to the 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.
5.14 Contribution. If the indemnity contained in this Agreement is
------------
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 the Employee on the other in the acts, transactions
or matters to which the Claim relates and other equitable considerations.
5.15 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.
*********
[Remainder of page intentionally left blank.]
18
<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 first set forth above.
CELLSTAR LTD
By: National Auto Center, Inc.
General Partner
By: /s/ Elaine Flud Rodriguez
----------------------------------------
Elaine Flud Rodriguez
Vice President and General Counsel
CELLSTAR CORPORATION
By: /s/ Elaine Flud Rodriguez
----------------------------------------
Elaine Flud Rodriguez
Vice President and General Counsel
/s/ Austin P. Young
---------------------------------------------
Austin P. Young
19
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT (this "Agreement"), effective as of the 21st day
of January, 2000 (the "Effective Date"), by and between CellStar Ltd. (the
"Employer"), CellStar Corporation, a Delaware corporation and parent company of
Employer ("Parent"), and Elaine Flud Rodriguez (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 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 four year anniversary of the Effective Date (the "Original
Term"), unless earlier terminated as provided herein (the period from the
Effective Date to the four year anniversary of the Effective Date, or to the
date of such earlier termination, as applicable, is hereinafter referred to as
the "Term"). At the expiration of the Original Term, this Agreement shall
automatically be renewed on a year to year basis unless notice of any decision
not to renew this Agreement is given by the Employer or the Employee at least
thirty (30) days prior to the expiration of the Original Term or any such one
year term or unless earlier terminated as provided herein.
<PAGE>
1.3 Position and Duties.
-------------------
(a) Position. During the Term, the Employee shall serve as Senior
--------
Vice President, Secretary and General Counsel 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 her
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 her business time, energy, skill and best efforts to
the performance of her 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 her duties hereunder. Employee shall
comply with 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 $250,000 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 2000, Employee will be eligible to earn
a pro rated annual incentive payment at the 50% target level (i.e., 50% of
her 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.
(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
2
<PAGE>
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 her to purchase 56,362 shares of
Parent's common stock at the reported market closing sales price thereof on
the date of grant. The Option shall become exercisable by the Employee at
the rate of 25% of the shares covered thereby per year, beginning on the
first anniversary of the Effective Date in accordance with the terms of the
Parent's 1993 Amended and Restated Long Term Incentive Plan. The Option
shall contain such additional terms as are set forth in Parent's 1993
Amended and Restated Long Term Incentive Plan and as are established by the
Compensation Committee of the Board of Directors of Parent. Employee shall
be entitled to annual consideration for future grants in amounts (if any)
and on terms and conditions to be determined by the Compensation Committee
of the Board of Directors.
(e) 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 her 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.
(f) 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, paid time off, life,
medical, dental, disability or other plan or arrangement made generally
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. Employee shall be credited with the greater of 10
years or her actual years of service with the Employer as of the Effective
Date for purposes of determining eligibility and vesting for paid time off
and short-term disability benefits.
1.5 Termination.
-----------
(a) Disability. Employer may terminate this Agreement for Disability.
----------
"Disability" shall exist if, because of ill health or physical or mental
disability, the Employee shall have been unable to perform her duties under
this Agreement, with reasonable accommodation by the Employer, 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 shall have failed to perform
her 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) continued
3
<PAGE>
unsatisfactory job performance after written warning has been issued
identifying deficiencies, (ii) 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 material 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 substantially
follow directions of senior management or the boards of directors of
Employer or Parent that are consistent with her duties under this
Agreement, provided that no act, or failure to act, on the Employee's part
shall be deemed to constitute Cause unless done, or omitted to be done, by
the Employee not in good faith and without reasonable belief that the
Employee's act, or failure to act, was in or not opposed to the best
interest of Employer, (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) any other material breach of any provision of
this Agreement. Items (i), (ii), (iii) and (v) of this subsection shall not
constitute Cause unless Employer or Parent notified the Employee thereof in
writing, specifying in reasonable detail the basis therefor and stating
that it is grounds for Cause. Furthermore, if the Employee's actions are
curable, items (i), (ii), (iii) and (v) of this subsection shall not
constitute Cause unless the Employee fails to cure such matter within 30
days after such notice is sent or given under this Agreement. It is
understood that "Cause" shall not include a failure to perform due to a
Disability.
(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 her 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; provided, however, that the Employee shall
-------- -------
not be entitled to terminate for 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 30 days after such
notice is sent or given under this Agreement. For purposes of this
Agreement, a material breach by Employer or Parent shall include, without
limitation, (i) the reduction in the Employee's annual base salary as in
effect on the Effective Date, or (ii) if the Employee's eligibility for a
bonus in any fiscal year (provided that all performance standards
established for her have been achieved) shall be, in terms of a percentage
of base salary, any amount less than the percentage of base salary
established for the Chief Executive Officer of Parent for such fiscal year.
4
<PAGE>
(e) Change in Control. The Employee may terminate her 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 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
5
<PAGE>
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) 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
-------------------
her 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.
6
<PAGE>
1.6 Compensation Upon Termination.
-----------------------------
(a) During Disability. During any period that the Employee fails to
-----------------
perform her duties hereunder because of ill health or physical or mental
disability, she shall continue to receive her full salary and benefits
pursuant to Section 1.4 (Compensation) through the Date of Termination,
------------
after giving effect to all disability benefits received by Employee under
the terms of any applicable disability policy.
(b) Termination for Cause or Without Good Reason. If Employer shall
--------------------------------------------
terminate the Employee's employment for Cause or if the Employee shall
terminate her 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 her 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 her 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:
(i) her 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 an annualized equivalent of the Annual Incentive Payment paid for
any shorter period) divided by 365 and (B) multiplied by the lesser of
(y) 720, or (z) the number of days from the Date of Termination to the
last day of the Original Term or the applicable renewal term, but in
no event less than 365 days.
In addition, the Employee will be entitled to a prorated portion of
any annual incentive payment earned for the fiscal year in which her
employment is terminated, if earned in accordance with the terms of
its grant.
Employee hereby acknowledges and agrees that the payments by the
Employer under this Section 1.6(c) shall be the sole and exclusive remedy
of the Employee for termination of Employee's employment Without Cause or
by reason of a Company Breach, and Employee hereby waives any and all other
remedies under law or in equity.
7
<PAGE>
If the Employee terminates her 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
------------------------------------
her 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 which, when combined with all payments under Section 1.6(c), equals
$100 less than three (3) 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 accrued but unpaid salary and benefits
pursuant to Section 1.4 (Compensation) through the Date of Termination,
------------
after giving effect to all disability benefits received by Employee under
the terms of any applicable disability policy.
(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, her spouse and children, the
employee benefits set forth in subsections 1.4(f) (Fringe Benefits and
-------------------
Perquisites) through the Date of Termination (subject to the provisions of
-----------
Section 1.6(e)); provided that her continued participation or, if
applicable, the participation of her spouse and children, is possible under
the general terms and conditions of such plans and programs. Following the
Date of Termination, Employee and her eligible dependents shall be eligible
for continued health coverage in accordance with the terms of applicable
law.
8
<PAGE>
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; and (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, and thereafter Employee's
dependents shall have a right to continued health coverage in accordance with
the terms of applicable law.
ARTICLE 2
NON-COMPETITION AND CONFIDENTIALITY
2.1 Training/Confidential Information. For purposes of this Article 2
---------------------------------
(Non-Competition and Confidentiality), the term "the Company" shall be construed
- ------------------------------------
also to include Employer, Parent and any and all Affiliates of Employer and
Parent. The Company agrees that it will provide Employee with specialized
knowledge and training regarding the business in which the Company is involved,
and will provide Employee with initial and ongoing confidential information and
trade secrets of the Company (hereinafter referred to as "Confidential
Information"). For purposes of this Agreement, Confidential Information
includes, but is not limited to:
(a) Customer lists and prospect lists developed by the Company;
(b) Information regarding the Company's customers which Employee
acquired as a result of her employment with the Employer, including but not
limited to, customer contracts, work performed for customers, customer
contacts, customer requirements and needs, data used by the Company to
formulate customer bids, customer financial information and other
information regarding the customer's business;
(c) Information regarding the Company's vendors which Employee
acquired as a result of her employment with the Employer, including but not
limited to, product and service information and other information regarding
the business activities of such vendors;
(d) Information related to the Company's business, including but not
limited to marketing strategies and plans, sales procedures, operating
policies and procedures, pricing and pricing strategies, business plans,
sales, profits, and other business and financial information of the
Company;
(e) Training materials developed by and utilized by the Company;
9
<PAGE>
(f) Any other information which Employee acquired as a result of her
employment with the Employer and which Employee has a reasonable basis to
believe the Company would not want disclosed to a business competitor or to
the general public.
(g) Information which:
(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.
Notwithstanding the foregoing, Confidential Information shall not include any
information that is or has become public knowledge, other than by acts by the
Employee or representatives of the Employee in violation of this Agreement.
2.2 Non-Disclosure. The Employee acknowledges, understands and agrees 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 (except as otherwise required by law or legal process)
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 her duties under this Agreement.
2.3 Return of Company Property and Information. Upon termination of
------------------------------------------
employment, or at any earlier time as directed by Company, Employee shall
immediately deliver to Company any and all Confidential Information in
Employee's possession, any other documents or information which Employee
acquired as a result of her employment with Employer, and any copies of such
documents/information. Employee shall not retain any originals or copies of
such documents or materials related to Company's business which Employee came
into possession of or created as a result of her employment at Company.
Employee acknowledges that such information, documents and materials are the
exclusive property of Company. Upon termination of employment, or at any
10
<PAGE>
earlier time as directed by Company, Employee shall immediately deliver to
Company any property of Company in Employee's possession. Employee agrees that
should she fail to return any Company property, Company shall be entitled to
deduct from any sums otherwise due Employee (including, but not necessarily
limited to wages and expense reimbursements) the cost and/or value of any
property which Employee fails to return, up to the maximum amount allowed by
law. Employee hereby authorizes Company to deduct and/or withhold any such sums
from Employee's wages and/or other sums due Employee.
2.4 Non-Competition.
---------------
(a) Description of Proscribed Actions. During the Term and for a
---------------------------------
period of 18 months thereafter (or 12 months thereafter in the event of
Termination Without Cause or for Company Breach), in consideration for the
obligations of Employer and Parent hereunder, including without limitation
their disclosure (pursuant to subsection 2.1 (Training/Confidential
---------------------
Information) above) of Confidential Information, the 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
-------- -------
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
her 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
her 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
11
<PAGE>
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
---------------------
competent jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Section 2.4 (Non-
---
Competition) is overly restrictive and unenforceable, the court may reduce
-----------
or modify such restrictions to those which it deems reasonable and
enforceable under the circumstances, and as so reduced or modified, the
parties hereto agree that the restrictions of this Section 2.4 (Non-
---
Competition) shall remain in full force and effect. The Employee further
-----------
agrees that if a court of competent jurisdiction determines that any
provision of this Section 2.4 (Non-Competition) is invalid or against
---------------
public policy, the remaining provisions of this Section 2.4 (Non-
---
Competition) and the remainder of this Agreement shall not be affected
-----------
thereby, and shall remain in full force and effect.
(c) Nature of Restrictions. The Employee acknowledges that the
----------------------
business of Employer and Parent and their Affiliates is international in
scope and that the Restrictions imposed by this Agreement are legitimate,
reasonable and necessary to protect Employer's, Parent's and their
Affiliates' investment in their businesses and the goodwill thereof. The
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 she has other means available to her for the pursuit of
her livelihood.
(d) Competing Business. "Competing Business" shall mean any
------------------
individual, business, firm, company, partnership, joint venture,
organization, or other entity engaged in the wholesale distribution or
retail sales of wireless communication equipment in any domestic or
international market area in which Employer, Parent or any of their
Affiliates does business at any time during the Employee's employment with
Employer or any of its Affiliates.
2.5 Injunctive Relief. Because of the Employee's experience and
-----------------
reputation in the industries in which Employer, Parent and their Affiliates
operate, and because of the unique nature of the Confidential Information, the
Employee acknowledges, understands and agrees that Employer and Parent will
suffer immediate and irreparable harm if the Employee fails to comply with any
of her obligations under Article 2 (Non-Competition and Confidentiality) of this
-----------------------------------
Agreement, and that monetary damages will be inadequate to compensate Employer
and Parent for such breach. Accordingly, the 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
12
<PAGE>
(Non-Competition and Confidentiality), without the necessity of proving
----------------------------------
inadequacy of 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, she is not a party to any
agreement, contract or understanding, and that no facts or circumstances exist,
that would in any way restrict or prohibit her from undertaking or performing
any of her obligations under this Agreement. The foregoing representation and
warranty shall remain in effect throughout the Term.
ARTICLE 4
Indemnification
Parent agrees to indemnify, and advance expenses to, the Employee to the
extent provided in the Certificate of Incorporation and Bylaws of Parent as of
the date of this Agreement. 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
Certificate of Incorporation and 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.
ARTICLE 5
Miscellaneous
5.1 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
5.2 Indulgences, Etc. Neither the failure nor any delay on the part of
-----------------
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any right, remedy, power or privilege, nor shall any
waiver of any right, remedy, power, or privilege with respect to any occurrence
be construed as a waiver of such right, remedy, power or privilege with respect
to any other occurrence.
13
<PAGE>
5.3 Employee's Sole Remedy. The Employee's sole remedy shall be against
----------------------
Employer or Parent for any claim, liability or obligation of any nature
whatsoever arising out of or relating to this Agreement or an alleged breach of
this Agreement or for any other claim arising out of the 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 5.3 (other than Employer, Parent and the
Employee) shall be third-party beneficiaries of this Agreement for purposes of
enforcing the terms of this Section 5.3 (Employee's Sole Remedy) against the
-----------------------
Employee.
5.4 Notices. All notices, requests, demands and other communications
-------
required or permitted under this Agreement and the transactions contemplated
herein shall be in writing and shall be deemed to have been duly given, made and
received when sent by telecopy (with a copy sent by mail) or when personally
delivered or one business day after it is sent by overnight service, addressed
as set forth below:
If to the Employee:
Elaine Flud Rodriguez
11469 Cromwell Court
Dallas, Texas 75229
If to Employer or Parent:
CellStar Corporation
1730 Briercroft Court
Carrollton, Texas 75006
Attn: Chief Executive Officer
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.
5.5 Provisions Separable. The provisions of this Agreement are independent
--------------------
of and separable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part.
5.6 Entire Agreement. This Agreement contains the entire understanding
----------------
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and
14
<PAGE>
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.
5.7 Headings; Index. The headings of paragraphs herein are included solely
---------------
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
5.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Texas, without giving effect to
principles of conflict of laws.
5.9 Dispute Resolution. Subject to Employer's and Parent's right to seek
------------------
injunctive relief in court as provided in Section 2.5 (Injunctive Relief) of
-----------------
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 5.9 (Dispute Resolution), to arbitration.
------------------
(a) Arbitrators. The arbitration shall be heard and determined by one
-----------
arbitrator, who shall be impartial and who shall be selected by mutual
agreement of the parties; provided, however, that if the dispute involves
-------- -------
more than $2,000,000, then the arbitration shall be heard and determined by
three (3) arbitrators. If three (3) arbitrators are necessary as provided
above, then (i) each side shall appoint an arbitrator of its choice within
thirty (30) days of the submission of a notice of arbitration and (ii) the
party-appointed arbitrators shall in turn appoint a presiding arbitrator of
the tribunal within thirty (30) days following the appointment of the last
party-appointed arbitrator. If (x) the parties cannot agree on the sole
arbitrator, (y) one party refuses to appoint its party-appointed arbitrator
within said thirty (30) day period or (z) the party-appointed arbitrators
cannot reach agreement on a presiding arbitrator of the tribunal, then the
appointing authority for the implementation of such procedure shall be the
Senior United States District Judge for the Northern District of Texas, who
shall appoint an independent arbitrator who does not have any financial
interest in the dispute, controversy or claim. If the Senior United States
District Judge for the Northern District of Texas refuses or fails to act
as the appointing authority within ninety (90) days after being requested
to do so, then the appointing authority shall be the Chief Executive
Officer of the American Arbitration Association, who shall appoint an
independent arbitrator who does not have any financial interest in the
dispute, controversy or claim. All decisions and awards by the arbitration
tribunal shall be made by majority vote.
(b) Proceedings. Unless otherwise expressly agreed in writing by the
-----------
parties to the arbitration proceedings:
15
<PAGE>
(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;
(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.
5.10 Survival. The covenants and agreements of the parties set forth in
--------
Article 2 (Non-Competition and Confidentiality), and Article 5 (Miscellaneous)
----------------------------------- -------------
are of a continuing nature and shall survive the expiration, termination or
cancellation of this Agreement, regardless of the reason therefor.
5.11 Subrogation. In the event of payment under this Agreement, Employer
-----------
and Parent shall be subrogated to the extent of such payment to all of the
rights of recovery of the Employee, who shall execute all papers required and
shall do everything that may be necessary to secure such
16
<PAGE>
rights, including the execution of such documents necessary to enable Employer
or Parent effectively to bring suit to enforce such rights.
5.12 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.
5.13 Binding Effect, Etc. This Agreement shall be binding upon and inure
--------------------
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of Employer, Parent, spouses, heirs, and personal and legal
representatives. Employer and Parent shall require and cause any successor
(whether direct or indirect by purchase, merger, consolidation or otherwise) to
all, substantially all, or a substantial part, of their business or assets, by
written agreement in form and substance satisfactory to the 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.
5.14 Contribution. If the indemnity contained in this Agreement is
------------
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 the Employee on the other in the acts, transactions
or matters to which the Claim relates and other equitable considerations.
5.15 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.
*********
[Remainder of page intentionally left blank.]
17
<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 first set forth above.
CELLSTAR LTD
By: National Auto Center, Inc.
General Partner
By: /s/ Alan H. Goldfield
-----------------------------------
Alan H. Goldfield
Chairman and CEO
CELLSTAR CORPORATION
By: /s/ Alan H. Goldfield
-----------------------------------
Alan H. Goldfield
Chairman and CEO
/s/ Elaine Flud Rodriguez
----------------------------------------
Elaine Flud Rodriguez
18
<PAGE>
EXHIBIT 10.31
FIRST AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
-----------------------------
This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), dated as of November 23, 1999, 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 to the
Agreement (hereinafter defined) or any successor or permitted assignee thereof
(each a "Bank" and collectively, the "Banks"), THE FIRST NATIONAL BANK OF
---- -----
CHICAGO, as syndication agent (the "Syndication Agent"), NATIONAL CITY BANK, as
-----------------
documentation agent (the "Documentation Agent"), CHASE BANK OF TEXAS, NATIONAL
-------------------
ASSOCIATION (formerly known as Texas Commerce Bank National Association), a
national banking association ("CBT"), as agent for itself and the other Banks,
---
as issuer of Letters of Credit under the Agreement, and as the swing line lender
(in such capacity, together with its successors in such capacity, the
"Administrative Agent"), and THE CHASE MANHATTAN BANK, as alternate currency
- ---------------------
agent (in such capacity, together with its successors in such capacity, the
"Alternate Currency Agent").
- -------------------------
RECITALS:
A. The Borrower, the Banks, the Syndication Agent, the Documentation
Agent, the Administrative Agent and the Alternate Currency Agent have entered
into that certain Amended and Restated Credit Agreement dated as of August 2,
1999 (the "Agreement").
---------
B. The Borrower, the Banks, the Syndication Agent, the Documentation
Agent, the Administrative Agent and the Alternate Currency Agent now desire to
amend the Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
---------
Definitions
-----------
1.1 Definitions. Capitalized terms used in this Amendment, to the extent
-----------
not otherwise defined herein, shall have the same meanings as in the Agreement,
as amended hereby.
<PAGE>
ARTICLE II
----------
Amendments
----------
2.1 Amendment to Section 10.5(i)(F). Effective as of the date hereof, the
-------------------------------
dollar amount "$20,000,000" appearing in Section 10.5(i)(F) of the Agreement is
hereby amended to read "$15,000,000".
2.2 Amendment to Section 10.5(i)(H). Effective as of the date hereof, the
-------------------------------
dollar amount "$80,000,000" appearing in Section 10.5(i)(H) of the Agreement is
hereby amended to read "$100,000,000".
ARTICLE III
-----------
Conditions Precedent
--------------------
3.1 Conditions. The effectiveness of this Amendment is subject to the
----------
satisfaction of the following conditions precedent:
(a) Representations and Warranties. The representations and
------------------------------
warranties contained herein and in all other Loan Documents, as amended
hereby, shall be true and correct as of the date hereof as if made on the
date hereof.
(b) No Default. No Default shall have occurred and be continuing.
----------
(c) Corporate Matters. All corporate proceedings taken in connection
-----------------
with the transactions contemplated by this Amendment and all documents,
instruments, and other legal matters incident thereto shall be satisfactory
to the Administrative Agent and its legal counsel, Winstead Sechrest &
Minick P.C.
(d) Additional Documentation. The Administrative Agent shall have
------------------------
received such additional approvals, opinions, or documents as the
Administrative Agent or its legal counsel, Winstead Sechrest & Minick P.C.,
may reasonably request.
ARTICLE IV
----------
Ratifications, Representations and Warranties
---------------------------------------------
4.1 Ratifications. The terms and provisions set forth in this Amendment
-------------
shall modify and supersede all inconsistent terms and provisions set forth in
the Agreement and except as expressly modified and superseded by this Amendment,
the terms and provisions of the Agreement and the other Loan Documents are
ratified and confirmed and shall continue in full force and effect. Borrower
agrees that the Agreement, as amended hereby, and the other Loan Documents shall
continue to be legal, valid, binding and enforceable in accordance with their
respective terms.
-2-
<PAGE>
4.2 Representations and Warranties. Borrower hereby represents and
------------------------------
warrants to the Administrative Agent and the Banks that (1) the execution,
delivery, and performance by the Borrower and the Guarantors of this Amendment
and compliance with the terms and provisions hereof have been duly authorized by
all requisite 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 material
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, (2) the representations and
warranties contained in the Agreement, as amended hereby, and any other Loan
Document are true and correct on and as of the date hereof as though made on and
as of the date hereof, and (3) no Default has occurred and is continuing.
ARTICLE V
---------
Miscellaneous
-------------
5.1 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made in this Amendment or any other Loan Document shall survive the
execution and delivery of this Amendment, and no investigation by the
Administrative Agent or any Bank or any closing shall affect the representations
and warranties or the right of the Administrative Agent or any Bank to rely upon
them.
5.2 Reference to Agreement. Each of the Loan Documents, including the
----------------------
Agreement and any and all other agreements, documents, or instruments now or
hereafter executed and delivered pursuant to the terms hereof or pursuant to the
terms of the Agreement as amended hereby, are hereby amended so that any
reference in such Loan Documents to the Agreement shall mean a reference to the
Agreement as amended hereby.
5.3 Expenses of the Administrative Agent. Borrower agrees to pay on
------------------------------------
demand all costs and expenses incurred by the Administrative Agent in connection
with the preparation, negotiation, and execution of this Amendment and any and
all amendments, modifications, and supplements thereto, including without
limitation the costs and fees of the Administrative Agent's legal counsel, and
all costs and expenses incurred by the Administrative Agent in connection with
the enforcement or preservation of any rights under the Agreement, as amended
hereby, or any other Loan Document, including without limitation the costs and
fees of the Administrative Agent's legal counsel.
5.4 Severability. Any provision of this Amendment held by a court of
------------
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
5.5 APPLICABLE LAW. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN
--------------
THE OTHER LOAN DOCUMENTS, THIS AMENDMENT AND ALL OTHER
-3-
<PAGE>
LOAN DOCUMENTS SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN
DALLAS, DALLAS COUNTY, TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
5.6 Successors and Assigns. This Amendment is binding upon and shall
----------------------
inure to the benefit of the Borrower, the Banks, the Syndication Agent, the
Documentation Agent, the Administrative Agent and the Alternate Currency Agent
and their respective successors and assigns, except the Borrower shall not
assign or transfer any of its rights or obligations hereunder without the prior
written consent of the Administrative Agent.
5.7 Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
5.8 Headings. The headings, captions, and arrangements used in this
--------
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
5.9 Release of Claims. The Borrower and the Guarantors each hereby
-----------------
acknowledge and agree that none of them has any and there are no claims or
offsets against or defenses or counterclaims to the terms and provisions of or
the obligations of the Borrower, any Guarantor or any Subsidiary created or
evidenced by the Agreement or any of the other Loan Documents, and to the extent
any such claims, offsets, defenses or counterclaims exist, Borrower and the
Guarantors each hereby waives, and hereby release the Administrative Agent, the
Alternate Currency Agent, the Syndication Agent, the Documentation Agent and
each of the Banks from, any and all claims, offsets, defenses and counterclaims,
whether known or unknown, such waiver and release being with full knowledge and
understanding of the circumstances and effects of such waiver and release and
after having consulted legal counsel with respect thereto.
5.10 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER INSTRUMENTS, DOCUMENTS
----------------
AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT EMBODY
THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO REGARDING THIS AMENDMENT
AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT
BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL
AGREEMENTS AMONG THE PARTIES HERETO.
-4-
<PAGE>
Executed as of the date first written above.
BORROWER:
--------
CELLSTAR CORPORATION
By: \s\ Elaine Flud Rodriguez
-------------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
AGENTS AND BANKS:
----------------
CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION (formerly known as
Texas Commerce Bank National Association), as
Administrative Agent and as a Bank
By: \s\ Allen K. King
-------------------------------------
Name: Allen K. King
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as Syndication Agent and as a Bank
By: \s\ Timothy A. Smith
-------------------------------------
Name: Timothy A. Smith
Title: Vice President
NATIONAL CITY BANK,
as Documentation Agent and as a Bank
By: \s\ Tom Gurbach
-------------------------------------
Name: Tom Gurbach
Title: Vice President
-5-
<PAGE>
THE CHASE MANHATTAN BANK,
as Alternate Currency Agent and as a Bank
By: \s\ John F. Gehebe
-------------------------------------
Name: John F. Gehebe
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: \s\ Robert Ivosevich
-------------------------------------
Name: Robert Ivosevich
Title: Senior Vice President
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By: \s\ Craig T. Scheef
-------------------------------------
Name: Craig T. Scheef
Title: Vice President
Each of the undersigned Guarantors hereby (a) consents and agrees to this
Amendment, and (b) agrees that its Guaranty shall continue to be the legal,
valid and binding obligation of such Guarantor enforceable against such
Guarantor in accordance with its terms.
NATIONAL AUTO CENTER, INC.
By: \s\ Elaine Flud Rodriguez
-------------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
-6-
<PAGE>
CELLSTAR, LTD.
By: National Auto Center, Inc.,
General Partner
By: \s\ Elaine Flud Rodriguez
--------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
CELLSTAR FULFILLMENT, LTD.
By: CellStar Fulfillment, Inc.,
General Partner
By: \s\ Elaine Flud Rodriguez
--------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
CELLSTAR WEST, INC.
By: \s\ Elaine Flud Rodriguez
-------------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
ACC-CELLSTAR, INC.
By: \s\ Elaine Flud Rodriguez
-------------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
-7-
<PAGE>
CELLSTAR FINANCO, INC.
By: \s\ Elaine Flud Rodriguez
-------------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
CELLSTAR FULFILLMENT, INC.
By: \s\ Elaine Flud Rodriguez
-------------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
NAC HOLDINGS, INC.
By: \s\ Elaine Flud Rodriguez
-------------------------------------
Name: Elaine Flud Rodriguez
Title: President
CELLSTAR INTERNATIONAL CORPORATION/
ASIA
By:\s\ Elaine Flud Rodriguez
--------------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
AUDIOMEX EXPORT CORP.
By:\s\ Elaine Flud Rodriguez
--------------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
-8-
<PAGE>
CELLSTAR INTERNATIONAL
CORPORATION/SA
By:\s\ Elaine Flud Rodriguez
--------------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
CELLSTAR AIR SERVICES, INC.
By:\s\ Elaine Flud Rodriguez
--------------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
A & S AIR SERVICE, INC.
By:\s\ Elaine Flud Rodriguez
--------------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
CELLSTAR TELECOM, INC.
By:\s\ Elaine Flud Rodriguez
--------------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
-9-
<PAGE>
FLORIDA PROPERTIES, INC.
By:\s\ Elaine Flud Rodriguez
--------------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
CELLSTAR GLOBAL SATELLITE
SERVICE, LTD.
By: National Auto Center, Inc.,
General Partner
By:\s\ Elaine Flud Rodriguez
----------------------------------
Name: Elaine Flud Rodriguez
Title: Vice President
-10-
<PAGE>
EXHIBIT 10.32
CELLSTAR CORPORATION
1993 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN
(as amended and restated through January 21, 2000)
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 21,
2000.
ARTICLE 1
PURPOSE
The purpose of the Plan is to attract and retain key Employees, Nonemployee
Directors and Advisors of the Company and its Subsidiaries and to provide such
persons with a proprietary interest in the Company through the granting of Stock
Options, Stock Appreciation Rights, Restricted Stock, and/or Cash Awards,
whether granted singly, in combination, or in tandem. The Plan is designed to
(a) increase the interest of such persons in the welfare of the Company and
its Subsidiaries;
(b) furnish an incentive to such persons to continue their services for the
Company and/or its Subsidiaries; and
(c) provide a means through which the Company and its Subsidiaries may
attract able persons to enter their employ or serve as Advisors.
Unless otherwise specified by the Compensation Committee at the time of
grant, with respect to Reporting Participants, the Plan and all transactions
under the Plan are intended to comply with all applicable conditions of Rule
16b-3. To the extent any provision of the Plan or action by the Committee fails
to so comply, it shall be deemed null and void ab initio, to the extent
permitted by law and deemed advisable by the Committee.
ARTICLE 2
DEFINITIONS
For purposes of the Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
2.1 "Adverse Consequence" means (i) the loss of qualification of a Stock
Option for special treatment under Rule 16b-3 or the commencement of a new
holding period under such rule; (ii) the
-1-
<PAGE>
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, however, that,
-------- -------
notwithstanding the foregoing, an acquisition shall not constitute a Change of
-2-
<PAGE>
Control hereunder if the acquiror is (v) Alan H. Goldfield ("Goldfield"); (w) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company and acting in such capacity; (x) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of voting securities of the Company; (y) a person
or group meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1)
under the Exchange Act; or (z) any other person whose acquisition of shares of
voting securities is approved in advance by a majority of the Continuing
Directors; and provided further that no Change of Control shall be deemed to
have occurred from a transfer of the Company's voting securities by Goldfield to
(v) a member of Goldfield's immediate family (within the meaning of Rule 16a-
1(e) of the Exchange Act) either during Goldfield's lifetime or by will or the
laws of descent and distribution; (w) any trust as to which Goldfield or a
member (or members) of his immediate family is the beneficiary; (x) any trust as
to which Goldfield is the settlor with sole power to revoke; (y) any entity over
which 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.
-3-
<PAGE>
2.19 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.20 "Fair Market Value" of a share of Common Stock means such value as is
determined by the Committee on the basis of such factors as it deems
appropriate; provided that, if the Common Stock is traded on a national
securities exchange or transactions in the Common Stock are quoted on the NASDAQ
National Market System, such value shall be determined by the Committee on the
basis of the last reported sale price for the Common Stock on the date for which
such determination is relevant, as reported on the national securities exchange
or the NASDAQ National Market System, as the case may be. If the Common Stock
is not listed and traded upon a recognized securities exchange or in the NASDAQ
National Market System, the Committee shall make a determination of Fair Market
Value on the basis of the closing bid and asked quotations for such stock on the
date for which such determination is relevant (as reported by a recognized stock
quotation service) or, in the event that there are no bid or asked quotations
for such stock on the date for which such determination is relevant, then on the
basis of the mean between the closing bid and asked quotations on the date
nearest preceding the date for which such determination is relevant for which
such bid and asked quotations were available. In no event shall "Fair Market
Value" be less than the par value of the Common Stock.
2.21 "Incentive" shall have the meaning given it in Section 2.4 above.
2.22 "Incentive Stock Option" or "ISO" means a Stock Option that by its
terms is intended to be treated as an "incentive stock option" within the
meaning of Section 422 of the Code.
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.
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2.32 "Restricted Stock Agreement" means a written agreement between the
Company and a Participant with respect to an Award of Restricted Stock.
2.33 "Retirement" means Termination of Service at or after the Company's
established retirement age, unless otherwise defined in a particular Award
Agreement. To the extent that a Participant's Employment Agreement differs from
the Plan with respect to the meaning of "Retirement," if such Employment
Agreement has been approved by the Compensation Committee of the Board of
Directors, the definition included in such Employment Agreement shall govern.
2.34 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as
amended from time to time.
2.35 "SAR Price" means the price that must be paid by a Participant upon
exercise of an SAR, which shall be at least the Fair Market Value of each share
of Common Stock covered by the SAR, determined on the Date of Grant of the SAR.
2.36 "Section 162(m)" means Section 162(m) of the Code and the regulations
promulgated thereunder from time to time.
2.37 "Section 162(m) Exception" means the exception under Section 162(m)
for "qualified performance-based compensation."
2.38 "Stock Appreciation Right" or "SAR" means the right to receive a
payment equal to the excess of the Fair Market Value of a specified number of
shares of Common Stock on the date the SAR is exercised over the SAR Price for
such shares.
2.39 "Stock Appreciation Right Agreement" means an agreement between the
Company and a Participant setting forth the terms and conditions of an Award of
Stock Appreciation Rights.
2.40 "Stock Option" means a Non-qualified Stock Option or an Incentive
Stock Option to purchase Common Stock.
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
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Subsidiaries). Whether a person is a Ten Percent Owner shall be determined with
respect to a Stock Option based on the facts existing immediately prior to the
Date of Grant of such Stock Option.
2.44 "Termination of Service" occurs when a Participant who is an
Employee, Nonemployee Director or Advisor shall cease to serve as an Employee,
Nonemployee Director or Advisor for any reason; provided that, with respect to
Incentive Stock Options, Termination of Service occurs when a Participant ceases
to serve as an Employee.
2.45 "Total and Permanent Disability" of a Participant means that the
Participant is qualified for long-term disability benefits under the Company's
disability plan or insurance policy; or, if no such plan or policy is then in
existence, that the Participant, because of ill health, physical or mental
disability or any other reason beyond his or her control, is unable to perform
his or her duties of employment for a period of six (6) continuous months, as
determined in good faith by the Committee; provided that, with respect to any
Incentive Stock Option, Total and Permanent Disability shall have the meaning
given it under the rules governing Incentive Stock Options under the Code. With
respect to any Award other than an Incentive Stock Option, to the extent that a
Participant's Employment Agreement differs from the Plan with respect to the
meaning of "Total and Permanent Disability," if such Employment Agreement has
been approved by the Compensation Committee of the Board of Directors, the
definition included in such Employment Agreement shall govern.
ARTICLE 3
ADMINISTRATION
3.1 In General. 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.
3.2 Grants By The Committee. Subject to the provisions of the Plan and
except as provided in Section 3.3 below, 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
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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).
3.3 Delegation of Authority by Committee. Subject to the provisions of
the Plan, the Committee may from time to time delegate to the Chief Executive
Officer of the Company (the "CEO") the authority, subject to such terms as the
Committee shall determine, to determine and designate from time to time the
eligible persons to whom Awards may be granted and to perform other specified
functions under the Plan; provided, however, that the CEO may not grant any
Award to, or perform any function related to an Award of, any individual (i)
then subject to Section 16 of the Exchange Act or (ii) who is or, in the
determination of the Committee, may become a "covered employee" as that term is
defined in Section 162(m) of the Code, and any such grant or function relating
to such individuals shall be performed solely by the Committee to ensure
compliance with the applicable requirements of the Exchange Act and the Code.
Any such delegation of authority by the Committee shall be set forth in
writing and shall specify the all of the terms and conditions of the delegation.
The written delegation of authority may: (i) authorize the CEO to grant Awards
pursuant to Sections 6.1, 7.1, 8.1, and 9.1 of the Plan and may set forth the
types of Awards that may be granted, (ii) specify the number of shares of Common
Stock that may be awarded to any individual Participant and to all Participants
during a specified period of time, (iii) specify the amount of any Cash Award
and any conditions, limitations, or restrictions to be imposed on Cash Awards,
and (iv) specify the exercise price (or the method for determining the exercise
price) of an Award, the Option Period, vesting schedule, and any other terms,
conditions, or restrictions that may be imposed by the Committee in its sole
discretion. The written delegation of the authority shall require the CEO to
provide the Committee, on at least a quarterly basis, a report that identifies
the Awards granted, the Participants to whom Awards have been granted, the
number of shares of Common Stock subject to each Award, the exercise price, and
any other terms which are in the CEO's discretion as set forth in the written
delegation of authority.
Any Award granted by the CEO pursuant to a written delegation of authority
shall be deemed granted by the Committee, and any action properly taken by the
CEO pursuant to a written delegation of authority shall be deemed the action of
the Committee, and all such grants and actions shall be subject to Section 3.4
of the Plan.
3.4 Interpretation of the Plan. Subject to the provisions of the Plan,
the Committee shall 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 as determined by the Committee in the
Committee's sole discretion, the Committee and the CEO, as applicable, shall
have the authority to grant Awards that are not subject to such Mandated
Restrictions and/or to waive any such Mandated Restrictions with respect to
outstanding Awards.
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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 8,000,000 (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
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
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granted to a Ten Percent Owner, the Option Exercise Price shall be at least 110%
of the Fair Market Value of the Common Stock on the Date of Grant.
6.3 OPTION PERIOD. The Option Period for any Stock Option shall be
determined by the Committee; provided that no portion of any Stock Option may be
exercised after the expiration of ten (10) years from its Date of Grant; and
provided further that, with respect to any Incentive Stock Option that is
granted to a Ten Percent Owner, the term of such Incentive Stock Option (to the
extent required by the Code at the time of grant) shall be no more than five (5)
years from the Date of Grant.
6.4 MAXIMUM ISO GRANTS. The Committee may not grant Incentive Stock
Options under the Plan to any Employee which would permit the aggregate Fair
Market Value (determined on the Date of Grant) of the Common Stock with respect
to which Incentive Stock Options (under this and any other plan of the Company
and its Subsidiaries or parent) are exercisable for the first time by such
Employee during any calendar year to exceed $100,000. To the extent that any
Stock Option is granted under the Plan that is first exercisable in excess of
the foregoing limitations, such Stock Option shall be deemed to be a Non-
qualified Stock Option.
6.5 EXERCISE OF STOCK OPTIONS. Subject to the terms, conditions, and
restrictions of the Plan, each Stock Option may be exercised in accordance with
the terms of the Stock Option Agreement pursuant to which the Stock Option is
granted. If the Committee imposes conditions upon exercise of any Stock Option,
the Committee may, in its sole discretion, accelerate the date on which all or
any portion of the Stock Option may be exercised; provided that, the Committee
shall not, without the Participant's consent, accelerate any Incentive Stock
Option if such acceleration would disqualify such Stock Option as an Incentive
Stock Option. Notwithstanding anything in the Plan to the contrary, to the
extent required by Rule 16b-3, a Reporting Participant may not exercise a Stock
Option or Stock Appreciation Right until at least six months have expired from
the "date of grant" (within the meaning of Rule 16b-3).
Subject to such administrative regulations as the Committee may from time
to time adopt, a Stock Option will be deemed exercised for purposes of the Plan
when (i) written notice of exercise has been received by the Company at its
principal office (which notice shall set forth the number of shares of Common
Stock with respect to which the Stock Option is to be exercised and the date of
exercise thereof, which shall be at least three (3) days after giving such
notice, unless an earlier time shall have been mutually agreed upon) and (ii)
payment of the Option Exercise Price is received by the Company in accordance
with Section 6.6 below; provided that, with respect to a cashless exercise of
any Stock Option (in accordance with clause (c) of Section 6.6 below), such
Stock Option will be deemed exercised for purposes of the Plan on the date of
sale of the shares of Common Stock received upon exercise. No Stock Option may
be exercised for a fractional share of Common Stock.
6.6 PAYMENT OF OPTION EXERCISE PRICE. The Option Exercise Price may be
paid as follows: (a) in cash or by certified check, bank draft, or money order
payable to the order of the Company, (b) with Common Stock (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
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Stock are tendered as consideration for the exercise of a Stock Option, a number
of shares of Common Stock issued upon the exercise of the Stock Option, equal to
the number of shares of Restricted Stock used as consideration therefor, shall
be subject to the same restrictions as the Restricted Stock so submitted.
Upon payment of all amounts due from the Participant, the Company shall
cause certificates for the Common Stock then being purchased to be delivered to
the Participant (or the person exercising the Participant's Stock Option in the
event of his death) at its principal business office or other mutually agreed
upon location within ten (10) business days after the exercise.
If the Participant fails to pay for any of the Common Stock specified in
such notice or fails to accept delivery thereof, the Participant's right to
purchase such Common Stock may be terminated by the Company.
6.7 LIMITATION ON INCENTIVE STOCK OPTION CHARACTERIZATION. To the extent
that any Stock Option fails to qualify as an Incentive Stock Option, such Stock
Option will be considered a Non-qualified Stock Option.
6.8 TERMINATION OF SERVICE. Unless otherwise permitted by the Committee,
in its sole discretion, in the event of Termination of Service of a Participant,
any Stock Options held by such Participant shall be exercisable as follows:
(a) Termination Due to Death or Total and Permanent Disability. In
the event of a Participant's Termination of Service due to death or Total
and Permanent Disability, such Participant's Stock Options may be
exercised, to the extent such Stock Options could have been exercised by
the Participant on the date of the Participant's death or Total and
Permanent Disability (as applicable), for a period of twelve (12) months
after the Participant's death or Total and Permanent Disability (as
applicable) or until the expiration of the original Option Period (if
sooner).
(b) Termination Due to Retirement. In the event of a Participant's
Termination of Service due to Retirement, such Participant's Stock Options
may be exercised, to the extent such Stock Options could have been
exercised by the Participant on the date of the Participant's Retirement,
for a period of three (3) months after the date of the Participant's
Retirement or until the expiration of the original Option Period (if
sooner).
(c) Termination for Reasons Other than Death, Total and Permanent
Disability, or Retirement. In the event of a Participant's Termination of
Service for any reason other than death, Total and Permanent Disability, or
Retirement, such Participant's Stock Options may be exercised, to the
extent such Stock Options could have been exercised by the Participant on
the date of such Termination of Service, for a period of thirty (30) days
after the date of such Termination of Service or until the expiration of
the original Option Period (if sooner).
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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.
(2) Reporting Participants. Except as may be specified by the
Committee in accordance with the following paragraph, a Non-qualified
Stock Option granted to a Reporting Participant may not be transferred
or assigned other than by will or the laws of descent and distribution
or pursuant to the terms of a qualified domestic relations order, as
defined by the Code or Title I of ERISA, or the rules thereunder. The
designation by a Reporting Participant of a beneficiary will not
constitute a transfer of the Stock Option.
The Committee may, in its sole discretion, provide in any Stock
Option Agreement (or in an amendment to any existing Stock Option
Agreement) that Non-qualified Stock Options granted hereunder to a
Reporting Participant may be transferred to members of the Reporting
Participant's immediate family, trusts for the benefit of such
immediate family members and partnerships in which such immediate
family members are the only partners, provided that there cannot be
any consideration for the transfer.
The Committee may waive or modify any limitation contained in
this Section 6.9(b)(2) that is not required for compliance with Rule
16b-3.
ARTICLE 7
RESTRICTED STOCK
7.1 GRANT OF RESTRICTED STOCK. The Committee may, in its sole discretion,
grant Restricted Stock Awards in accordance with the terms and conditions set
forth in the Plan. The grant of an Award of Restricted Stock shall be evidenced
by a Restricted Stock Agreement setting forth (i) the Date of Grant, (ii) the
number of shares of Restricted Stock awarded, (iii) the price, if any, to be
paid by the Participant for such Restricted Stock, (iv) the time or times within
which such Award may be subject to forfeiture, (v) specified performance goals,
or other criteria, if any, that the Committee determines must be met in order to
remove any restrictions (including vesting) on such Award, and (vi) such other
terms and provisions as are consistent
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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.
(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."
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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.
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.
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8.2 SAR PRICE. The SAR Price for any share of Common Stock subject to an
SAR shall be no less than One Hundred Percent (100%) of the Fair Market Value of
the share on the Date of Grant.
8.3 AWARD PERIOD. Subject to Section 8.9 below, the Award Period for any
Stock Appreciation Right shall be determined by the Committee; provided that no
portion of any Stock Appreciation Right may be exercised after the expiration of
ten (10) years from its Date of Grant.
8.4 FORM OF PAYMENT. In the discretion of the Committee, the Company may
satisfy its payment obligation upon a Participant's exercise of an SAR (i) in
cash, (b) in shares of Common Stock valued at their Fair Market Value on the
date of exercise, or (c) in part with cash and in part with shares of Common
Stock.
8.5 EXERCISE OF SARS. Subject to the following paragraph, each Stock
Appreciation Right shall be exercisable in accordance with the terms of the
Stock Appreciation Rights Agreement pursuant to which the Stock Appreciation
Right is granted. Subject to the conditions of this Section 8.5 and such
administrative regulations as the Committee may from time to time adopt, an SAR
may be exercised by the delivery of written notice to the Committee setting
forth the number of shares of Common Stock with respect to which the SAR is to
be exercised and the date of exercise thereof, which shall be at least three (3)
days after giving such notice unless an earlier time shall have been mutually
agreed upon. On the date of exercise, the Participant shall receive from the
Company in exchange therefor payment in an amount equal to the excess (if any)
of the Fair Market Value (as of the date of the exercise of the SAR) of one
share of Common Stock over the SAR Price per share specified in such SAR,
multiplied by the total number of shares of Common Stock of the SAR being
surrendered.
A transaction under the Plan involving the exercise of an SAR and the
receipt of cash in complete or partial settlement of the SAR by a Reporting
Participant shall be subject to the satisfaction of all of the following
conditions:
(a) the Company shall have been subject to and complied with the
reporting requirements of Section 13(a) of the Exchange Act for at least
one year prior to the exercise of the SAR;
(b) the Company regularly releases for publication quarterly and
annual summary statements of sales and earnings;
(c) any election by the Reporting Participant to receive cash in full
or partial settlement of the SAR, as well as the exercise by the insider of
the SAR for cash, shall have been made during the period beginning on the
third business day following the date of release of the financial data
specified in subparagraph (b) above and ending on the twelfth day following
such date, unless the exercise by the participant of the SAR is for cash
and the date of exercise is automatic or fixed in advance under the Plan
and is outside the control of the participant, in which case the condition
in this subparagraph (c) shall not be applicable; and
(d) The SAR must be held for six months from the date of acquisition
to the date of cash settlement.
If the conditions to the exercise of an SAR by a Reporting Participant
contained in Rule 16b-3 are subsequently modified, the foregoing conditions
shall automatically be deemed amended to incorporate such
-14-
<PAGE>
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.
-15-
<PAGE>
(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
-16-
<PAGE>
must be met in order to remove any restrictions (including vesting) on such
Award, and (iv) any other terms, limitations, restrictions, and conditions of
the Incentive that are consistent with this Plan.
The Award Agreement shall also set forth the vesting period for the Cash
Award, if any, which shall commence on the Date of Grant and, unless otherwise
established by the Committee in the Award Agreement, shall expire upon
satisfaction of the conditions set forth in the Award Agreement. Such
conditions may provide for vesting based on (i) length of continuous service,
(ii) achievement of specific business objectives, (iii) increases in specified
indices, (iv) attainment of specified growth rates, or (v) other comparable
measurements of Company performance, as may be determined by the Committee in
its sole discretion.
9.2 TERMINATION OF SERVICE. Subject to the provisions of the particular
Award Agreement, and unless otherwise permitted by the Committee, in its sole
discretion, upon Termination of Service for any reason during a vesting period
(if any), the nonvested portion of a Cash Award shall be forfeited by the
Participant. Upon any forfeiture, all rights of a Participant with respect to
the forfeited Cash Award shall cease and terminate, without any further
obligation on the part of the Company.
9.3 FORM OF PAYMENT. In the sole discretion of the Committee, the Company
may satisfy its obligation under a Cash Award by the distribution of that number
of shares of Common Stock, Stock Options, or Restricted 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
-17-
<PAGE>
and outstanding shares of Common Stock resulting from (1) the declaration or
payment of a stock dividend, (2) any recapitalization resulting in a stock
split-up, combination, or exchange of shares of Common Stock, or (3) other
increase or decrease in such shares effected without receipt of consideration by
the Company, then and in such event:
(a) An appropriate adjustment shall be made in the maximum number of
shares of Common Stock then subject to being awarded under the Plan and in
the maximum number of shares of Common Stock then subject to being awarded
to a Participant, to the end that the same proportion of the Company's
issued and outstanding shares of Common Stock shall continue to be subject
to being so awarded;
(b) Appropriate adjustments shall be made in the number of shares of
Common Stock purchasable under outstanding, unexercised Stock Options and
the Option Exercise Price therefor, to the end that the same proportion of
the Company's issued and outstanding shares of Common Stock in each such
instance shall remain subject to purchase at the same aggregate Option
Exercise Price;
(c) Appropriate adjustments shall be made in the number of shares of
Common Stock subject to outstanding, unexercised SARs and the SAR Price
therefor, to the end that the same proportion of the Company's issued and
outstanding shares of Common Stock in each instance shall remain subject to
exercise at the same aggregate SAR Price; and
(d) Appropriate adjustments shall be made in the number of outstanding
shares of Restricted Stock with respect to which restrictions have not yet
lapsed prior to any such change.
Except as otherwise expressly provided herein, the issuance by the Company
of shares of its capital stock of any class, or securities convertible into
shares of capital stock of any class, either in connection with direct 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
-18-
<PAGE>
all or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
(b) Subject to any required action by the stockholders, if the Company
shall be the surviving or resulting corporation in any merger or consolidation,
any Incentive granted hereunder shall pertain to and apply to the securities or
rights (including cash, property, or assets) to which a holder of the number of
shares of Common Stock subject to the Incentive would have been entitled.
(c) In the event of any merger or consolidation pursuant to which the
Company is not the surviving or resulting corporation, there shall be
substituted for each share of Common Stock subject to the unexercised or
unvested portions of outstanding Incentives, that number of shares of each class
of stock or other securities or that amount of cash, property, or assets of the
surviving or consolidated company that were distributed or distributable to the
stockholders of the Company in respect to each share of Common Stock held by
them, such outstanding Incentives to thereafter pertain to such stock,
securities, cash, or property in accordance with their terms (subject to
subparagraph (d) below). Notwithstanding the foregoing, however, all such
Incentives may be canceled by the Board as of the effective date of any such
reorganization, merger, or consolidation, by giving notice to each holder
thereof or his personal representative of its intention to do so and by
permitting the exercise during the thirty (30) day period next preceding such
effective date of any outstanding Stock Options or SARs, whether or not vested
in accordance with their original terms, and by waiving all restrictions on
outstanding shares of Restricted Stock.
(d) In the event of a Change of Control, then, notwithstanding any other
provision in this Plan to the contrary, all unmatured installments of Incentives
outstanding shall thereupon automatically be accelerated and exercisable in
full, and all restrictions and/or performance goals with respect to any
Incentive shall be deemed satisfied. The determination of the Committee that
any of the foregoing conditions has been met shall be binding and conclusive on
all parties.
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.
-19-
<PAGE>
ARTICLE 15
INCENTIVES IN SUBSTITUTION FOR
INCENTIVES GRANTED BY OTHER CORPORATIONS
Stock Options, SARs and shares of Restricted Stock may be granted under the
Plan from time to time in substitution for options, stock appreciation rights or
shares of restricted stock held by employees of a corporation who become or are
about to become Employees of the Company or any Subsidiary as a result of a
merger or consolidation of the employing corporation with the Company or the
acquisition by the Company of stock of the employing corporation. The terms and
conditions of the substitute Incentives so granted may vary from the terms and
conditions set forth in this Plan to such extent as the Board at the time of
grant may deem appropriate to conform, in whole or in part, to the provisions of
the options, stock appreciation rights or shares of restricted stock in
substitution for which they are granted.
ARTICLE 16
MISCELLANEOUS PROVISIONS
16.1 INVESTMENT INTENT. The Company may require that there be presented to
and filed with it by any Participant under the Plan, such evidence as it may
deem necessary to establish that the Incentives granted or the shares of Common
Stock to be purchased or transferred are being acquired for investment and not
with a view to their distribution.
16.2 NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor any Incentive
granted under the Plan shall confer upon any Participant any right with respect
to continuance of employment by the Company or any Subsidiary.
16.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Board or the
Committee, nor any officer or Employee of the Company acting on behalf of the
Board or the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Board or the Committee and each and any officer or
employee of the Company acting on their behalf shall, to the extent permitted by
law, be fully indemnified and protected by the Company in respect of any such
action, determination, or interpretation.
16.4 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
-20-
<PAGE>
such agreements or undertakings, if any, as the Committee may deem necessary or
advisable to assure compliance with any such law or regulation.
16.6 WITHHOLDING; NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF ISO
HOLDING PERIOD.
(a) Condition Precedent. Whenever shares of Common Stock are to be
issued pursuant an Award, the Company shall have the right to require the
Participant to remit to the Company an amount sufficient to satisfy
federal, state, local or other withholding tax requirements prior to the
delivery of any certificate or certificates for such shares of Common
Stock.
(b) Manner of Satisfying Withholding Obligation. When a Participant
is required to pay to the Company an amount required to be withheld under
applicable tax laws in connection with an Award, such payment may be made
(i) in cash, (ii) by check, (iii) if permitted by the Committee, by
delivery to the Company of shares of Common Stock already owned by the
Participant having a Fair Market Value on the date the amount of tax to be
withheld is to be determined (the "Tax Date") equal to the amount required
to be withheld, (iv) with respect to Stock Options, through the withholding
by the Company ("Company Withholding") of a portion of the shares of Common
Stock acquired upon the exercise of the Stock Options (provided that, with
respect to any Stock Option held by a Reporting Participant, at least six
months has elapsed between the Date of Grant of such Stock Option and the
exercise involving tax withholding) having a Fair Market Value on the Tax
Date equal to the amount required to be withheld, or (v) in any other form
of valid consideration, as permitted by the Committee in its discretion;
provided that a Reporting Participant shall not be permitted to satisfy his
or her withholding obligation through Company Withholding unless required
to do so by the Committee, in its sole discretion. The Committee may waive
or modify any limitation contained in this Section that is not required for
compliance with Rule 16b-3.
(c) Notice of Disposition of Stock Acquired Pursuant to Incentive
Stock Options. If shares of Common Stock acquired upon exercise of an
Incentive Stock Option are disposed of by a Participant prior to the
expiration of either two (2) years from the Date of Grant of such Stock
Option or one (1) year from the transfer of shares of Common Stock to the
Participant pursuant to the exercise of such Stock Option, or in any other
disqualifying disposition within the meaning of Section 422 of the Code,
such Participant shall notify the Company in writing of the date and terms
of such disposition. A disqualifying disposition by a Participant shall
not affect the status of any other Stock Option granted under the Plan as
an Incentive Stock Option within the meaning of Section 422 of the Code.
16.7 USE OF PROCEEDS. Proceeds from the sale of shares of Common Stock
pursuant to Incentives granted under this Plan shall constitute general funds of
the Company.
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):
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<PAGE>
On the face of the certificate:
"Transfer of this stock is restricted in accordance with conditions printed
on the reverse of this certificate."
On the reverse:
"The shares of stock evidenced by this certificate are subject to and
transferrable only in accordance with that certain CellStar Corporation
1993 Amended and Restated Long-Term Incentive Plan, as amended from time to
time, a copy of which is on file at the principal office of the Company in
Carrollton, Texas. No transfer or pledge of the shares evidenced hereby
may be made except in accordance with and subject to the provisions of said
Plan. By acceptance of this certificate, any holder, transferee or pledge
hereof agrees to be bound by all of the provisions of said Plan."
Insert the following legend on the certificate if the shares were not issued in
a transaction registered under the applicable federal and state securities laws:
"Shares of stock represented by this certificate have been acquired by the
holder for investment and not for resale, transfer or distribution, have
been issued pursuant to exemptions from the registration requirements of
applicable state and federal securities laws, and may not be offered for
sale, sold or transferred other than pursuant to effective registration
under such laws, or in transactions otherwise in compliance with such laws,
and upon evidence satisfactory to the Company of compliance with such laws,
as to which the Company may rely upon an opinion of counsel satisfactory to
the Company."
A copy of this Plan shall be kept on file in the principal office of the
Company in Carrollton, Texas.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
as of January 21, 2000, by its President and Secretary pursuant to prior action
taken by the Board.
CELLSTAR CORPORATION
By: /s/ Dale H. Allardyce
---------------------
Dale H. Allardyce
President and COO
Attest:
/s/ Elaine Flud Rodriguez
- -------------------------
Elaine Flud Rodriguez, Secretary
-22-
<PAGE>
Exhibit 21.1
------------
List of Subsidiaries and Foreign Affiliates
-------------------------------------------
and Percentage of CellStar Corporation's Ownership /1/
--------------------------------------------------
(as of February 23, 2000)
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
CellStar Fulfillment, Inc. Delaware
CellStar International Corporation/Asia Delaware
CellStar International Corporation/SA Delaware
NAC Holdings, Inc. Nevada
Florida Properties, Inc. Texas
Audiomex Export Corp. Texas
CellStar, Ltd. Texas Limited Partnership
CellStar Fulfillment, Ltd. Texas Limited Partnership
CellStar Global Satellite Services, Ltd. Texas Limited Partnership
CellStar, S.A. Argentina
CellStar Argentina, S.A. Argentina
CellStar Foreign Sales Corporation Barbados
CellStar International Telefonia Celular Ltda. Brazil
CellStar do Brasil Ltda. /2/ Brazil
Saporito Holdings, Inc. British Virgin Islands
Soverign Eagle Investment Company British Virgin Islands
Gingham Management Limited Bahamas
Sizemore International B.V. Netherlands Antilles
CellStar Celular Chile, S.A. Chile
CellStar de Colombia, S.A. Colombia
- -----------------------------------------
/1/ 100%, unless otherwise stated.
/2/ 51% owned.
<PAGE>
Name of Subsidiary Incorporation
- ------------------ -------------
CellStar Ecuador, S.A. Ecuador
CellStar Telecommunications Service Hong Kong
(Asia) Limited /3/
CellStar (Asia) Corporation Limited Hong Kong
HCL-CellStar Ltd. /4/ India
CellStar Ireland Ireland
CellStar Amtel Sdn Bhd /5/ Malaysia
Sunrise Mobil Sdn Bhd Malaysia
Celular Express S.A. de C.V. Mexico
CellStar Celular C.A. Venezuela
CellStar Mexico S.A. de C.V. Mexico
Celular Express Management S.A. de C.V. Mexico
Shanghai CellStar International Trading Co. Ltd. Peoples Republic of China
Shanghai Fengxing CellStar International Peoples Republic of China
Trading Co. Ltd.
Shenzhen CellStar Honbo Telecommunication Peoples Republic of China
Co. Ltd. /6/
CellStar del Peru, S.A. Peru
CellStar Philippines, Inc. Philippines
CellStar Poland Spolka zo.o. Poland
CellStar Pacific Pte. Ltd. Singapore
CellStar Singapore Pte. Ltd. Singapore
CellStar Holding AB Sweden
CellStar-Intercall AB Sweden
CellStar Telecommunications Taiwan Co. Ltd. Taiwan
CellStar (UK) Ltd. United Kingdom
CellStar Netherlands Holdings, B.V. The Netherlands
CellStar Netherlands, B.V. The Netherlands
CellStar Celular, C.A. Venezuela
- ------------------------------------------------
/3/ 60% owned.
/4/ 50% owned.
/5/ 30% directly owned and 19% beneficially owned.
/6/ 51% owned.
<PAGE>
Exhibit 23.1
Independent Auditors' Consent
The Board of Directors and Stockholders
CellStar Corporation:
We consent to incorporation by reference in the registration statements on Form
S-8 (Nos. 33-87754, 333-23381 and 333-77415) and Form S-3 (No. 333-41753) of
CellStar Corporation of our report dated January 14, 2000, relating to the
consolidated balance sheets of CellStar Corporation and subsidiaries as of
November 30, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity and comprehensive income, and cash flows for
each of the years in the three-year period ended November 30, 1999, and the
related schedule, which report appears in the November 30, 1999 annual report on
Form 10-K of CellStar Corporation.
/S/ KPMG LLP
KPMG LLP
Dallas, Texas
February 25, 2000
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<PERIOD-START> DEC-01-1998
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